<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2002

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

                   FOR THE TRANSITION PERIOD FROM ___ TO ____

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

                        COMMISSION FILE NUMBER 000-26671

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

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

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


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

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

Yes [X]    No [ ]

The number of shares outstanding of the registrant's Common Stock as of June 7,
2002 was 195,977,234.

================================================================================
<PAGE>

                                  ENGAGE, INC.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED APRIL 30, 2002

                                      INDEX


                                                                            PAGE

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

a)      Consolidated Balance Sheets as of July 31, 2001 and
          April 30, 2002 (unaudited)......................................    3

b)      Consolidated Statements of Operations (unaudited) for the three
          and nine months ended April 30, 2001 and 2002...................    4

c)      Consolidated Statements of Cash Flows (unaudited) for the nine
          months ended April 30, 2001 and 2002............................    5

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

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

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

PART II. OTHER INFORMATION

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

Item 4. Submission of Matters to a Vote of Security Holders...............   25

Item 6. Exhibits and Reports on Form 8-K..................................   26

SIGNATURES

EXHIBIT INDEX


                                       2
<PAGE>

                                  ENGAGE, INC.
                           CONSOLIDATED BALANCE SHEETS

                        (IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
                                                                   JULY 31,         APRIL 30,
                                                                     2001             2002
                                                                  -----------      -----------
                                                                                   (UNAUDITED)
<S>                                                               <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents .................................     $    33,261      $    20,421
  Accounts receivable, less allowance for doubtful accounts
    of $1,782 and $1,237 at July 31, 2001 and April 30, 2002,
    respectively ............................................           8,357            5,363
  Prepaid expenses ..........................................           1,221            1,144
  Current assets of discontinued operations .................          13,016              791
                                                                  -----------      -----------
    Total current assets ....................................          55,855           27,719
                                                                  -----------      -----------

Property and equipment, net .................................           7,094            4,476
Intangible assets, net of accumulated amortization
  of $83,180 and $105,153 at July 31, 2001 and
  April 30, 2002, respectively ..............................          61,389           39,415
Other assets ................................................           7,258            1,286
Non-current assets of discontinued operations ...............           1,241              152
                                                                  -----------      -----------
    Total assets ............................................     $   132,837      $    73,048
                                                                  ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of obligation under capital lease .........     $     2,806      $       297
  Current portion of long-term debt .........................           1,693               --
  Debt to CMGI ..............................................              --           43,700
  Convertible debt to CMGI ..................................              --           16,664
  Accounts payable ..........................................           5,903            2,012
  Due to CMGI affiliates ....................................           1,699            1,157
  Accrued expenses ..........................................          38,396           13,765
  Deferred revenue ..........................................           6,365            2,800
                                                                  -----------      -----------
    Total current liabilities ...............................          56,862           79,395
                                                                  -----------      -----------

Due to CMGI .................................................          39,821               --
Deferred revenue ............................................              24               59
Obligation under capital lease, net of current portion ......             759               --
Long-term debt, net of current portion ......................             266               --
Other long-term liabilities .................................             396              482
                                                                  -----------      -----------
    Total liabilities .......................................          98,128           79,936
                                                                  -----------      -----------

Minority interest ...........................................           6,755               --

Commitments and contingencies

Stockholders' equity (deficit):
  Preferred stock, $.01 par value, 5,000 shares authorized,
    0 shares issued and outstanding at July 31, 2001 and
    April 30, 2002, respectively ............................              --               --
  Common stock, $.01 par value, 350,000 shares authorized,
    196,539 and 195,977 shares issued and outstanding at
    July 31, 2001 and April 30, 2002, respectively ..........           1,965            1,960
  Additional paid-in capital ................................       3,774,494        3,686,132
  Deferred compensation .....................................          (4,337)          (1,391)
  Accumulated other comprehensive income ....................             558               41
  Accumulated deficit .......................................      (3,744,726)      (3,693,630)
                                                                  -----------      -----------
    Total stockholders' equity (deficit) ....................          27,954           (6,888)
                                                                  -----------      -----------
    Total liabilities and stockholders' equity ..............     $   132,837      $    73,048
                                                                  ===========      ===========

</TABLE>

      See accompanying notes to interim consolidated financial statements.


                                       3
<PAGE>

                                  ENGAGE, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
          FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2001 AND 2002
                                   (UNAUDITED)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                            APRIL 30,                 APRIL 30,
                                                                     ----------------------    ----------------------
                                                                       2001         2002         2001          2002
                                                                     ---------    ---------    ---------    ---------
<S>                                                                  <C>          <C>          <C>          <C>
Revenue:
     Product revenue .............................................   $   3,539    $   1,759    $  12,622    $   5,085
     Product revenue, related parties ............................         863           --        2,423           26
     Services and support revenue ................................       8,106        3,462       18,909       12,501
     Services and support revenue, related parties ...............          65          125          337          467
                                                                     ---------    ---------    ---------    ---------
       Total revenue .............................................      12,573        5,346       34,291       18,079
                                                                     ---------    ---------    ---------    ---------

Cost of revenue:
     Cost of product revenue .....................................         103          297          196          215
     Cost of services and support revenue ........................       7,096        3,449       18,223       11,779
     Amortization of developed technology ........................       1,459        1,458        3,701        4,375
                                                                     ---------    ---------    ---------    ---------
       Total cost of revenue .....................................       8,658        5,204       22,120       16,369
                                                                     ---------    ---------    ---------    ---------

         Gross profit ............................................       3,915          142       12,171        1,710
                                                                     ---------    ---------    ---------    ---------

Operating expenses:
     In-process research and development .........................          --           --          700           --
     Research and development ....................................       3,302        2,049        8,846        6,351
     Selling and marketing .......................................       7,344        2,859       35,537        9,013
     General and administrative ..................................       5,307        3,967       15,923        8,740
     Amortization and impairment of goodwill and other
       intangibles ...............................................      18,963        5,866       48,367       17,598
     Restructuring costs, net ....................................         613         (152)       2,329          823
     Stock compensation ..........................................         438          280        1,268          936
                                                                     ---------    ---------    ---------    ---------

         Total operating expenses ................................      35,967       14,869      112,970       43,461
                                                                     ---------    ---------    ---------    ---------

           Operating loss ........................................     (32,052)     (14,727)    (100,799)     (41,751)

Other income (expense):
     Interest income .............................................         872          110        4,341          490
     Interest expense ............................................          --       (1,025)         (29)      (2,473)
     Minority interest ...........................................         260           --          914          109
     Other income (expense), net .................................        (290)         251       (1,940)         123
                                                                     ---------    ---------    ---------    ---------

           Loss from continuing operations .......................     (31,210)     (15,391)     (97,513)     (43,502)
                                                                     ---------    ---------    ---------    ---------

Loss from discontinued operations ................................     (45,427)          --     (848,504)          --
                                                                     ---------    ---------    ---------    ---------

Net loss .........................................................   $ (76,637)   $ (15,391)   $(946,017)   $ (43,502)
                                                                     =========    =========    =========    =========

Basic and diluted loss per share data:

Continuing operations ............................................   $   (0.16)   $   (0.08)   $   (0.50)   $   (0.22)
Discontinued operations ..........................................       (0.23)          --        (4.37)          --
                                                                     ---------    ---------    ---------    ---------
Basic and diluted net loss per share .............................   $   (0.39)   $   (0.08)   $   (4.87)   $   (0.22)
                                                                     =========    =========    =========    =========

Weighted average number of basic and diluted shares outstanding ..     196,943      196,458      194,121      196,550
                                                                     =========    =========    =========    =========
</TABLE>



      See accompanying notes to interim consolidated financial statements.


                                       4
<PAGE>

                                  ENGAGE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED APRIL 30, 2001 AND 2002
                                   (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED APRIL 30,
                                                                              ---------------------------
                                                                                2001             2002
                                                                              ---------       ----------
<S>                                                                            <C>             <C>
Cash flows from operating activities:
     Net loss ...........................................................      $(946,017)      $ (43,502)
     Loss from discontinued operations ..................................       (848,504)             --
                                                                               ---------       ---------
     Loss from continuing operations ....................................        (97,513)        (43,502)
     Adjustments to reconcile net loss to net cash used for operating
     activities:
         Depreciation and amortization ..................................         51,959          24,527
         Provision for bad debts ........................................          2,495             (32)
         Stock compensation .............................................          1,268             936
         Amortization of discount on available-for-sale securities ......             (6)             --
         Impairment loss on equity investments ..........................          2,000              --
         Loss on disposal of property and equipment .....................             --             438
         Minority interest ..............................................           (914)           (109)
         In-process research and development ............................            700              --
         Changes in operating assets and liabilities, net of impact of
         acquisitions:
              Accounts receivable .......................................         17,654           3,025
              Prepaid expenses and other assets .........................            340           5,818
              Due to CMGI and affiliates ................................         11,246           8,215
              Accounts payable ..........................................        (27,831)         (5,340)
              Accrued expenses ..........................................          6,158         (20,315)
              Deferred revenue ..........................................         (4,056)         (3,530)
                                                                               ---------       ---------
                  Net cash used for continuing operations ...............        (36,500)        (29,869)
                  Net cash provided by (used for) discontinued
                    operations ..........................................        (41,534)         13,313
                                                                               ---------       ---------
                  Net cash used for operating activities ................        (78,034)        (16,556)
                                                                               ---------       ---------

Cash flows from investing activities:
     Proceeds from redemption of available-for-sale securities ..........         16,400              --
     Net cash acquired on acquisition of subsidiaries ...................          2,706              --
     Proceeds from sale of property and equipment .......................            858              --
     Purchases of property and equipment ................................         (6,986)           (412)
                                                                               ---------       ---------
                  Net cash provided by (used for) investing activities ..         12,978            (412)
                                                                               ---------       ---------

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 ............................................          5,856              88
     Repayment of capital lease obligations .............................         (4,042)         (2,629)
     Repayment of long-term debt ........................................         (1,654)         (1,050)
                                                                               ---------       ---------
                  Net cash provided by financing activities .............            160           4,409
                                                                               ---------       ---------

Effect of exchange rate changes on cash and cash equivalents ............            (13)           (281)
                                                                               ---------       ---------

Net decrease in cash and cash equivalents ...............................        (64,909)        (12,840)

Cash and cash equivalents, beginning of period ..........................        119,809          33,261
                                                                               ---------       ---------

Cash and cash equivalents, end of period ................................      $  54,900       $  20,421
                                                                               =========       =========

Supplemental disclosures of cash flow information:
     Cash paid for interest .............................................      $      27       $      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 financial statements and related notes for
the year ended July 31, 2001 which are contained in our Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC") on October
29, 2001. The results for the three and nine-month periods ended April 30, 2002
are not necessarily indicative of the results to be expected for the full fiscal
year. Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.

B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Revenue Recognition

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

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

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

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

     Revenue recognized on transactions whereby we exchange products and/or
services in return for equity instruments is valued when a contract is signed,
signaling a mutual understanding of the terms of the equity based compensation
and a commitment of performance on our behalf to earn the equity instruments.
Revenue under such arrangements is recognized in accordance with the revenue
recognition policies stated above. Revenue recognized under such arrangements
totaled $122,000 and $250,000 for the three and nine months ended April 30,
2002. No revenue was recognized during the three and nine months ended April 30,
2001 under such arrangements.

     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. The Media segment
has been accounted for as a discontinued operation. Accordingly, the Media
segment's current and non-current assets


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

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. Revenue from
discontinued operations for the three and nine months ended April 30, 2001 was
$12.8 million and $60.2 million, respectively. Loss from discontinued operations
for the three and nine months ended April 30, 2001 was $45.4 million and $848.5
million, respectively.

     The assets identified as part of the disposition of the Media segment are
recorded as current assets of discontinued operations or non-current assets of
discontinued operations; the cash flow of the segment is reported as net cash
used for discontinued operations; and the results of operations of the segment
are reported as loss from discontinued operations. Current assets of
discontinued operations consists of the following:

<TABLE>
<CAPTION>
                                                                 JULY 31,    APRIL 30,
                                                                   2001        2002
                                                                 --------    ---------
                                                                    (IN THOUSANDS)
<S>                                                              <C>          <C>
Accounts receivable, net of allowance for doubtful
  accounts ................................................      $12,008      $   256
Other current assets ......................................        1,008          535
                                                                 -------      -------
     Total current assets of discontinued operations ......      $13,016      $   791
                                                                 =======      =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 JULY 31,    APRIL 30,
                                                                  2001          2002
                                                                 --------    ---------
                                                                    (IN THOUSANDS)
<S>                                                              <C>          <C>
Property and equipment, net of accumulated depreciation
  and amortization ........................................      $   701      $    42
Other assets ..............................................          540          110
                                                                 -------      -------
     Total non-current assets of discontinued operations ..      $ 1,241      $   152
                                                                 =======      =======
</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.

     At April 30, 2002, we had outstanding stock options to purchase 8,524,081
shares of common stock at a weighted average exercise price of $3.76 that could
potentially dilute earnings per share, including 2,324,666 stock options at a
weighted average exercise price of $0.18 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 G.

C.   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 is 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 terminate their employment with us, their
unexercised CMGI options are cancelled and CMGI is 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 are valued based upon the per share value originally used to
record the non-cash dividend to CMGI. Any cash or Engage common shares returned
to us are treated as a reduction to the previously recorded dividend to CMGI. A
reconciliation of the net dividend to CMGI recorded as a component of
accumulated deficit for the nine months ended April 30, 2002 is as follows:


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

<TABLE>
<CAPTION>
                                                                                 (IN THOUSANDS)

<S>                                                                              <C>
Net cumulative dividend to CMGI recorded as of July 31, 2001..................   $  2,005,138
Value of Engage common shares due from CMGI for option cancellations for the
   period August 1, 2001 through April 30, 2002...............................        (94,573)
Cash consideration for exercise price of CMGI stock options exercised from
   August 1, 2001 through April 30, 2002......................................            (25)
                                                                                 ------------
     Cumulative net dividend to CMGI as of April 30, 2002.....................   $  1,910,540
                                                                                 ============
</TABLE>

D.   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         NINE MONTHS ENDED
                                                               APRIL 30,                 APRIL 30,
                                                        ----------------------    ----------------------
                                                          2001         2002         2001         2002
                                                        ---------    ---------    ---------    ---------
                                                                        (IN THOUSANDS)
<S>                                                     <C>          <C>          <C>          <C>
Net loss ............................................   $ (76,637)   $ (15,391)   $(946,017)   $ (43,502)
Foreign currency adjustments ........................          82         (866)        (100)        (467)
Net unrealized holding gain arising during the
  period ............................................          45          (40)          79          (50)
                                                        ---------    ---------    ---------    ---------
     Comprehensive loss .............................   $ (76,510)   $ (16,297)   $(946,038)   $ (44,019)
                                                        =========    =========    =========    =========
</TABLE>

E.   NON-CASH TRANSACTIONS

     During both the nine months ended April 30, 2001 and 2002, as the result of
the termination of employment of certain employees prior to the vesting of their
stock options, unvested stock options for which deferred compensation costs had
been recorded in a prior period were cancelled. As a result of these
cancellations, we have recorded a reduction of $4,595,000 and $668,000 in both
deferred compensation and additional paid-in capital in the nine months ended
April 30, 2001 and 2002, respectively.

     During the nine months ended April 30, 2001, Engage acquired MediaBridge
through the issuance of shares of Engage common stock.

     During the nine months ended April 30, 2001 and 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. As a result, we have
recorded a reduction of additional paid-in capital and dividend to CMGI
(included within accumulated deficit) of approximately $139.5 million and $94.6
million in the nine months ended April 30, 2001 and 2002, respectively.

     During the nine months ended April 30, 2002, approximately $51.4 million in
amounts payable to CMGI were formally converted to secured debt to CMGI (see
Note G).

     During the nine months ended April 30, 2002, we increased our ownership
percentage in Engage Japan, Inc. from 66.6% to 94.0% through the issuance of one
million shares of our common stock to Sumitomo Corporation, a minority
stockholder in Engage Japan, Inc. Additionally, we closed Engage Japan, Inc.
Accordingly, we have converted the minority interest of Engage Japan to
additional paid-in capital due to the subsidiary's net deficit position and the
resulting determination that there are no additional liabilities to minority
shareholders.

F.   STOCK COMPENSATION

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


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

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED         NINE MONTHS ENDED
                                      APRIL 30,                 APRIL 30,
                                 -------------------       -------------------
                                  2001         2002         2001         2002
                                 ------       ------       ------       ------
                                                (IN THOUSANDS)
<S>                              <C>          <C>          <C>          <C>
Cost of revenue .............    $   99       $   99       $  314       $  304
Research and development ....        96           88          265          282
Selling and marketing .......       123           83          362          310
General and administrative ..       120           10          327           40
                                 ------       ------       ------       ------
   Total                         $  438       $  280       $1,268       $  936
                                 ======       ======       ======       ======
</TABLE>

G.   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 will become due and payable on demand any time on or
after August 1, 2002 or earlier upon the occurrence of an event of default as
defined in the note. Interest is currently compounded and payable quarterly in
arrears on October 31, January 31, April 30 and July 31 of each year until the
note is paid in full. Interest payments for the quarters ending October 31,
2001, January 31, 2002, April 30, 2002 and July 31, 2002 are deferred and become
payable on August 1, 2002. The note plus accrued interest is convertible, at
CMGI's election, into our common stock at a conversion price of $0.25 per share.
In addition, the note contains an anti-dilution provision whereby the conversion
price may be adjusted downward if we were to issue any shares of common stock in
the future 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, has approved the issuance of our common stock
that may be issued upon the conversion of this note. The note is collateralized
by substantially all of our assets.

     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%. This note was amended in February 2002. Under the
terms of the note payable, principal will become due and payable on demand any
time on or after August 1, 2002 or earlier upon the occurrence of an event of
default as defined in the note. The note is collateralized by substantially all
of our assets. Interest is currently compounded and payable quarterly in arrears
on October 31, January 31, April 30 and July 31 of each year until the note is
paid in full. Interest payments for the quarters ending October 31, 2001,
January 31, 2002, April 30, 2002 and July 31, 2002 are deferred and become
payable on August 1, 2002.

     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%. Under the terms of
the promissory note, principal will become due and payable on demand any time on
or after August 1, 2002 or earlier upon the occurrence of an event of default as
defined in the note. Interest is currently compounded monthly and payable
quarterly in arrears on October 31, January 31, April 30 and July 31 of each
year until the note is paid in full. Interest payments for the quarters ending
October 31, 2001, January 31, 2002, April 30, 2002 and July 31, 2002 are
deferred and become payable on August 1, 2002. The principal and/or interest of
the intercompany debt incurred each calendar month under the note will be
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. In addition, the note contains an anti-dilution provision
whereby the conversion price may be adjusted downward if we were to issue any
shares of common stock in the future 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 be issued upon the conversion of this note. The note is
collateralized by substantially all of our assets. Debt incurred under this
agreement was approximately $8.7 million as of April 30, 2002.

H.   LEASES

     We have entered into noncancelable operating leases covering certain of our
office facilities and equipment which expire through 2005. We also sublease
office facilities used as our headquarters from CMGI for which we are charged
based upon a fixed rent, as well as an allocation of the total occupancy costs,
which include common maintenance costs and real estate taxes.

     We lease certain property and equipment directly from CMGI. Under the
arrangements, CMGI negotiates the terms and conditions of the leases and obtains
the assets to be leased. CMGI bears all liability for payment, and we are not
financially obligated under the leases. We are charged the actual lease fees
paid by CMGI, plus an additional administrative charge that approximates the
fair value of the services received.


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


     Minimum annual rental commitments, including amounts due to CMGI under
subleasing arrangements, are as follows at April 30, 2002:

<TABLE>
<CAPTION>
                                                 OPERATING
                                                   LEASES
                                               --------------
                                               (IN THOUSANDS)
<S>                                              <C>
2002 (remaining three months)..................  $  1,069
2003...........................................     3,200
2004...........................................     2,910
2005...........................................     2,317
2006...........................................     1,887
Thereafter.....................................     2,133
                                                 --------
                                                 $ 13,516
                                                 ========

</TABLE>

I.   RELATED PARTY TRANSACTIONS

     We outsourced data center operations from companies in which CMGI has a
significant ownership interest. Total cost of revenue, included within both
continuing and discontinued operations, related to outsourcing from related
parties for the three months ended April 30, 2001 and the nine months ended
April 30, 2001 and 2002 was approximately $1.5 million, $7.8 million and
$507,000, respectively. No costs from outsourced data center operations from
related parties were incurred in the three months ended April 30, 2002.

     We sublease our headquarters facility from CMGI. As a result of a decrease
in facility needs arising from the shutdown of our Media segment, as well as
decreased staffing levels resulting from prior restructuring activities, we are
currently obligated under such sublease to pay for facilities that are no longer
occupied by the Company. As a result, we have accrued approximately $2.6 million
related to future estimated net lease and occupancy costs for such facilities
and estimated costs to restore the facilities to original condition. The accrual
is based upon total future lease costs under the facility lease, which expires
in October 2007, less estimated proceeds from possible subleasing arrangements
that the Company may be able to enter into during future periods. Additionally,
we have additional facilities that are no longer occupied by us under the
sublease that are currently being occupied by CMGI. While we are not incurring
an expense for these facilities at the current time, we are obligated under the
sublease to continue lease payments should CMGI choose to vacate the facility.
No accrual of future lease costs has been made at this time for these
facilities. Total minimum monthly rent commitments (excluding occupancy costs)
under this portion of the sublease total $2.7 million through October 2007.

     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 nine months ended
April 30, 2002, and the remaining $1.0 million is included as a reduction in
losses of discontinued operations that were accrued in July 2001.

     During fiscal 2001 we entered into a royalty arrangement with a subsidiary
of CMGI, to whom we sold certain technologies in exchange for royalties on their
future revenues derived from products sold using our technology. In the second
fiscal quarter of 2002 we terminated such agreement in exchange for the payment
of all past owed royalties as well as the present value of expected future
royalties. These amounts, totaling $569,000, have been included as a reduction
of accrued losses for discontinued operations during the nine months ended April
30, 2002.

J.   RESTRUCTURING

     In the first fiscal quarter of fiscal 2001, we implemented a restructuring
plan designed to bring costs more in line with revenue and strengthen our
financial performance. The restructuring plan included a reduction of our
workforce by approximately 170 persons or approximately 12% of our worldwide
headcount. All of these actions were completed prior to October 31, 2000. As a
result of the reduction in headcount, we undertook plans to close two office
locations and consolidate operations. In connection with this restructuring
plan, we incurred severance costs for terminated employees, accrued future lease
costs and wrote off unamortized leasehold improvements for office locations
being closed.


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

     In the second fiscal quarter of fiscal 2001, we implemented a restructuring
plan designed to further increase operational efficiencies and bring costs in
line with revenue. The restructuring, which was approved by our Board of
Directors on December 7, 2000, included a reduction in workforce by
approximately 275 persons or 26% of our worldwide headcount, with the employee
reduction completed prior to April 30, 2001. Employees affected by the
restructuring were notified both through direct personal contact and by written
notification. In addition to headcount reductions, we undertook plans to close
various offices. In connection with the restructuring, we incurred severance
costs for terminated employees, accrued future lease costs and wrote off
unamortized leasehold improvements and furniture and fixtures for office
locations being closed.

     In the third fiscal quarter of fiscal 2001, our management approved
specific restructuring activities designed to further increase operational
efficiencies and bring costs in-line with revenue forecasts. The restructuring
included a reduction in workforce by approximately 90 persons or 14% of our
worldwide workforce, with the employee reduction completed prior to July 31,
2001. Employees affected by the restructuring were notified both through direct
personal contact and by written notification. In addition to headcount
reductions, we closed additional offices. In connection with the restructuring,
we incurred severance costs for terminated employees and accrued future lease
costs, as well as a loss of $2.3 million associated with the sale of certain
assets and liabilities of I/PRO to an unrelated third-party in April 2001.

     In addition, in the third fiscal quarter of fiscal 2001, adjustments to the
costs accrued in our fiscal 2001 first and second quarter restructurings were
recorded totaling $42,000 and $531,000, respectively. These adjustments reflect
additional costs incurred in excess of original estimates related to severance
costs paid to employees as part of the fiscal 2001 first and second quarter
restructurings.

     In the first fiscal 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.

     In the second fiscal quarter of 2002, we implemented a restructuring plan
designed to close our office in Japan. The plan included the elimination of all
staff in Japan, as well as terminating facility and equipment leases. Employees
affected by the restructuring were notified both through direct personal contact
and by written notification. As of January 31, 2002 our estimate of costs to
exit Japan resulted in a neutral restructuring cost and no accrual at that time.
However, in the third fiscal quarter of 2002 we realized better than expected
benefits from terminating certain capital leases, offset by additional severance
payments, lease termination costs and fixed asset write-offs, and have thus
recognized a net benefit of $152,000 related to this restructuring in the third
fiscal quarter of 2002.

     The following table sets forth a summary of these restructuring costs and
related charges (in thousands):

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                    APRIL 30,                    APRIL 30,
                                             ---------------------        ---------------------
                                               2001          2002           2001          2002
                                             -------       -------        -------       -------
                                                               (IN THOUSANDS)
<S>                                          <C>           <C>            <C>           <C>
Severance and applicable payroll taxes       $ 1,178       $    24        $ 5,523       $   999
Write-off of fixed assets ............         2,527            97          9,843            97
Accrual for future lease costs .......         1,879          (273)        11,139          (273)
                                             -------       -------        -------       -------
   Total .............................       $ 5,584       $  (152)       $26,505       $   823
                                             =======       =======        =======       =======
</TABLE>

     Included in the $4,130,000 restructuring charge incurred in the first
fiscal quarter of fiscal 2001 are $3,633,000 of cash costs and $497,000 in
non-cash related costs. Included in the $16,791,000 restructuring charge
incurred in the second fiscal quarter of fiscal 2001 are $9,731,000 of cash
costs and $7,060,000 in non-cash related costs. Included in the $5,584,000
restructuring charge incurred in the third fiscal quarter of 2001 are $2,470,000
of cash costs and $3,114,000 in non-cash related costs. All restructuring
charges incurred in the first fiscal quarter of fiscal 2002 were cash charges.
Included in the $152,000 restructuring benefit realized in the third fiscal
quarter of fiscal 2002 are $88,000 of cash charges and $240,000 of non-cash
benefits.

     Of the $4,130,000 of charges in the first quarter of fiscal 2001, $859,000
was included in continuing operations with the remaining $3,271,000 included in
loss from discontinued operations. Of the $16,791,000 of charges in the second
quarter of fiscal 2001, $857,000 was included in continuing operations with the
remaining $15,934,000 included in loss from discontinued operations.

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

Of the $5,584,000 of charges and adjustments in the third quarter of fiscal
2001, $613,000 was included in continuing operations with the remaining
$4,971,000 included in loss from discontinued operations.

     As of April 30, 2002, approximately $30.1 million of all restructuring
charges recorded during fiscal 2001 and the first three quarters of fiscal 2002
have been paid or otherwise utilized and the remaining $809,000 of unpaid costs
are expected to be paid through June 2004.

K.   INVESTMENT IN SUBSIDIARY

     In November 2001, we increased our ownership percentage in Engage Japan,
Inc. from 66.6% to 94.0% through the issuance of 1 million 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.

L.   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.

     As the litigation is in an initial stage, we are not able at this time to
estimate the possibility of loss or range of loss, if any, that might result.

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

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

                                       12
<PAGE>

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


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

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

     As these claims are in initial stages, we are not able at this time to
estimate the possibility of loss or range of loss, if any, that might result.

M.   SUBSEQUENT EVENT

     On May 16, 2002, we received a letter from Nasdaq stating that our common
stock had failed to meet the $1.00 minimum bid price required for continued
listing by Marketplace Rule 4450(a)(5) and that our common stock was subject to
delisting from the Nasdaq National Market. We have also been informed by Nasdaq
that we are not in compliance with the minimum $10,000,000 stockholders' equity
requirement set forth in Marketplace Rule 4450(a)(3) and that we have until June
14, 2002 to regain compliance with this requirement. We have requested a hearing
before a Nasdaq Listing Qualifications Panel. All delisting proceedings have
been stayed and our common stock will continue to trade on the Nasdaq National
Market pending the outcome of the hearing. A hearing date has been set for July
11, 2002.

     On May 21, 2002, we announced that we had received a proposal from CMGI to
acquire all of the outstanding publicly held shares of Engage not already held
by CMGI. CMGI currently owns approximately 76% of our outstanding common stock.
Each publicly held share of our common stock would be exchanged for .2286 of a
share of CMGI common stock under the proposal. The final terms of acquisition by
CMGI, if any, will be based on negotiations between us and CMGI. Our Board of
Directors has appointed a Special Committee of independent members of the Board
to evaluate and negotiate the proposed offer. The Special Committee has retained
independent legal counsel and is in the process of retaining an independent
financial advisor to assist it in evaluating the proposal.


                                       13
<PAGE>

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

OVERVIEW

     At April 30, 2002, we were an approximately 76% owned subsidiary of CMGI,
Inc. We are a provider of content management software for multichannel
marketing. Our solutions are used by marketers, publishers, printers, direct
mailers, Web sites and agencies to improve the performance and efficiency of
their marketing efforts across multiple forms of media. Our solutions combine
workflow automation and digital asset management functions and enable delivery
of the resulting marketing programs across both traditional and new media
channels. Whether the final product is print advertising, catalogs, direct mail,
circulars, Web site promotions, or online advertising, we believe our solutions
streamline our customers' planning, management, and delivery of multichannel
marketing programs and materials, improving brand consistency and reducing
production costs. Our solutions support collaboration across workgroups
including colleagues, clients, partners and vendors and are designed to
integrate easily into an organization's overall business workflow allowing
marketing to share plans, schedules, costs and historical product and campaign
performance with finance, planning, accounting, and merchandising.

     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 non-current
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 interim consolidated
financial statements for all periods presented.

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 the Consolidated Financial Statements and accompanying
notes. Note 2 to the Consolidated Financial Statements in the Annual Report on
Form 10-K for the fiscal year ended July 31, 2001 describes the significant
accounting policies and methods used in the preparation of the Consolidated
Financial Statements. Estimates are used for, but not limited to, the accounting
for the allowance for doubtful accounts, goodwill impairments, contingencies,
and restructuring costs. 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 the Consolidated Financial
Statements. Additionally, we consider revenue recognition to be a critical
accounting policy.

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

     We will perform goodwill impairment tests as a result of management's
ongoing business review and impairment analysis performed under our existing
policy regarding impairment of long-lived assets. In response to changes in
industry and market conditions, we may strategically realign our resources and
consider restructuring, disposing of, or otherwise exiting businesses, which
could result in an impairment of goodwill.

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

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


                                       14
<PAGE>

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

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

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

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

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

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

COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 2001 AND APRIL 30, 2002

     Revenue, Cost of Revenue and Gross Margin

     Revenue is derived primarily through the sale of software licenses and
related software and consulting services. Service revenue includes fees charged
for AdBureau, our outsourced advertising management service, as well as
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, benefits and allocated overhead of our support and consulting
groups.

     Product revenue decreased from $4.4 million in the three months ended April
30, 2001 to $1.8 million in the three months ended April 30, 2002, a 60%
decrease. The decrease in product revenue was due primarily to a decrease in
license revenue related to our AdManager and ProfileServer products. Service
revenue decreased from $8.2 million in the three months ended April 30, 2001 to
$3.6 million in the three months ended April 30, 2002, a 56% decrease. During
the quarter ended April 30, 2001 we recognized service revenue from two
significant consulting projects. These projects were not fully replaced with
similar projects for the quarter ended April 30, 2002, resulting in the decline
in service revenue quarter over quarter.

     Product gross margin decreased from 65% in the three months ended April 30,
2001 to breakeven in the three months ended April 30, 2002. The decrease in
product gross margin is due both to decreased product revenue, resulting in a
smaller revenue base to absorb relatively fixed product costs, as well as
royalties payable to Sumitomo Corporation for sales made in Japan during the
three months ended April 30, 2002. Product revenue represented $4.4 million or
35% of total revenue in the three months ended April 30, 2001 as compared to
$1.8 million or 33% of total revenue in the three months ended April 30, 2002.

     Services gross margin decreased from 13% in the three months ended April
30, 2001 to 4% in the three months ended April 30, 2002. The decrease in
services gross margin is due to a decrease in services revenue in the three
months ended April 30, 2002 as compared to the three months ended April 30,
2001, partially offset by reduced expenses in the three months ended April 30,
2002 as compared to the three months ended April 30, 2001 due to headcount
reductions.


                                       15
<PAGE>

     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 $3.3
million in the three months ended April 30, 2001 to $2.0 million in the three
months ended April 30, 2002, a 38% decrease. This decrease was primarily due to
savings related to restructuring activities during the last three fiscal
quarters of 2001 and the first fiscal quarter of 2002, and to a lesser extent
decreases in consulting costs related to software development projects and
software licensing fees during the quarter ended April 30, 2002. Our research
and development staff decreased 30% from April 30, 2001 to April 30, 2002.
Research and development expenses were 26% of revenue for the three months ended
April 30, 2001 compared to 38% of revenue for the three months ended April 30,
2002. The increase in research and development expenses as a percentage of
revenue is the result of the decrease in revenue without proportionate savings
in expenses, a reflection of our continued efforts to further develop our
products.

     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 $7.3 million in the three
months ended April 30, 2001 to $2.9 million in the three months ended April 30,
2002, a 61% decrease. This decrease was primarily due to decreased spending on
marketing initiatives, including advertising and direct mail costs, market
research and trade show related expenditures, and to a lesser extent savings
related to restructuring activities during the last three fiscal quarters of
2001 and the first fiscal quarter of 2002. Overall, our sales and marketing
staff decreased 58% from April 30, 2001 to April 30, 2002. Sales and marketing
expenses were 58% of revenue for three months ended April 30, 2001 compared to
53% of revenue for the three months ended April 30, 2002.

     General and Administrative. General and administrative expenses consist
principally of payroll and related costs, consulting and professional fees, bad
debt, facility and related costs and depreciation expense. General and
administrative expenses decreased from $5.3 million in the three months ended
April 30, 2001 to $4.0 million in the three months ended April 30, 2002, a 25%
decrease. The decrease was primarily due to decreases in payroll and related
costs, a significant decrease in franchise/business taxes, a decrease in
temporary staffing costs, as well as a decrease in bad debt expense resulting
from $364,000 of expenses recorded during the quarter ended April 30, 2001
compared to net recoveries of $45,000 recorded during the quarter ended April
30, 2002. These savings were partially offset by an accrual of approximately
$2.6 million related to estimated net future lease and occupancy costs for
certain facilities that are no longer occupied by the company. The accrual is
based upon total future lease costs under the facility lease, less estimated
proceeds from possible subleasing arrangements that the Company may be able to
enter into during future periods. Overall, our general and administrative staff
decreased 60% from April 30, 2001 to April 30, 2002. General and administrative
costs were 42% of revenue for the three months ended April 30, 2001 compared to
74% of revenue for the three months ended April 30, 2002. This increase is
primarily due to the accrual of future lease costs in the three months ended
April 30, 2002. General and administrative expenses, excluding the $2.6 million
charge for facilities, were 25% of revenue for the three months ended April 30,
2002, reflecting cost reductions that exceeded the decline in revenue during the
period.

     Amortization and Impairment of Goodwill and Other Intangibles. Amortization
and impairment of goodwill and other intangibles decreased from $19.0 million in
the three months ended April 30, 2001 to $5.9 million in the three months ended
April 30, 2002, a 69% decrease. The decrease was due to a decrease in the amount
of goodwill and other intangibles to be amortized in the three months ended
April 30, 2002 as compared to the three months ended April 30, 2001. In the
quarter ended July 31, 2001, we recorded a $109.0 million impairment charge
which reduced the goodwill and other intangible asset base that needed to be
amortized in the three months ended April 30, 2002.

     We record impairment charges as a result of management's ongoing business
review and impairment analysis performed under its existing policy regarding
impairment of long-lived assets. Where impairment indicators were identified,
management determined the amount of the impairment charge by comparing the
carrying value of long-lived assets to their estimated fair value. Management
estimates fair value of goodwill and certain other intangible assets based on a
combination of the discounted cash flow methodology, which is based upon
converting expected cash flows to present value, and the market approach, which
includes analysis of market price multiples of companies engaged in lines of
business similar to us. The market price multiples are selected and applied to
us based on the relative performance, future prospects and risk profile of
Engage in comparison to the guideline companies.


                                       16
<PAGE>

     Restructuring Costs, Net. Restructuring expense was $613,000 in the three
months ended April 30, 2001, consisting of severance and related costs as well
as future lease and related costs associated with the closing of one office
location. A benefit from restructuring activities of $152,000 was recorded in
the three months ended April 30, 2002, consisting of severance and related costs
as well as fixed asset impairment charges, more than offset by gains realized in
terminating certain capital leases, all within our Japanese subsidiary.

     Stock Compensation. Stock compensation expense decreased from $438,000 in
the three months ended April 30, 2001 to $280,000 in the three months ended
April 30, 2002, a 36% decrease. The decrease is related to the termination of
employment of certain individuals for whom stock compensation costs were being
recognized.

     Other Income (Expense)

     Interest Income. Interest income decreased from $872,000 in the three
months ended April 30, 2001 to $110,000 in the three months ended April 30,
2002, an 87% decrease. The decrease in interest income was primarily due to
lower cash equivalents and short-term investment balances during fiscal 2002
compared to fiscal 2001 as well as a significant reduction in the rate of return
on those investments.

     Interest Expense. Interest expense was $1.0 million in the three months
ended April 30, 2002, mostly related to our converting all amounts we owed to
CMGI into debt in October 2001 and related interest on that debt for the quarter
ended April 30, 2002.

     Minority Interest. Minority interest was $260,000 for the three months
ended April 30, 2001. Minority interest reflects the minority shareholders'
share of the losses of Engage Japan, Inc. This subsidiary was closed during the
second fiscal quarter of 2002.

     Other Income (Expense), Net. Other income (expense), net changed from an
expense of $290,000 for the three months ended April 30, 2001 to income of
$251,000 for the three months ended April 30, 2002. The $251,000 income during
the three months ended April 30, 2002 was primarily related to net exchange
gains realized during the period, offset somewhat by losses on an equity
investment.

     Discontinued Operations

     Loss From Discontinued Operations. Loss from discontinued operations was
$45.4 million in the three months ended April 30, 2001. Loss from discontinued
operations represents the net operating results for our media operations which
have been classified within discontinued operations as a result of a decision
made in September 2001 to exit the Media segment. The loss from discontinued
operations relates principally to our acquisition of AdKnowledge and Flycast,
and to a lesser extent, the net loss for I/PRO in the three months ended April
30, 2001.

COMPARISON OF THE NINE MONTHS ENDED APRIL 30, 2001 AND APRIL 30, 2002

     Revenue, Cost of Revenue and Gross Margin

     Product revenue decreased from $15.0 million in the nine months ended April
30, 2001 to $5.1 million in the nine months ended April 30, 2002, a 66%
decrease. The decrease in product revenue was due primarily to a decrease in
license revenue related to our AdManager software and to a lesser extent,
decreases in license revenue for our ProfileServer and ContentServer products.
In the nine months ended April 30, 2001, we recorded approximately $4.5 million
of product revenue from an AdManager source code sale. Service revenue decreased
from $19.2 million in the nine months ended April 30, 2001 to $13.0 million in
the nine months ended April 30, 2002, a 33% decrease. During the nine months
ended April 30, 2001 we recognized service revenue from two significant
consulting projects. These projects were not fully replaced with similar
projects for the nine months ended April 30, 2002, resulting in the decline in
service revenue from the nine months ended April 30, 2001 versus the nine months
ended April 30, 2002.

     Product gross margin decreased from 74% in the nine months ended April 30,
2001 to 10% in the nine months ended April 30, 2002. The decrease in product
gross margin is due to both the significant decline in product revenue and the
relatively fixed nature of amortization of developed technology, as well as
royalties payable to Sumitomo Corporation for sales made in Japan during the
nine months ended April 30, 2002, partially offset by a royalty credit recorded
during the nine months ended April 30, 2002. Product revenue represented $15.0
million or 44% of total revenue in the nine months ended April 30, 2001 as
compared to $5.1 million or 28% of total revenue in the nine months ended April
30, 2002.


                                       17
<PAGE>

     Services gross margin increased from 5% in the nine months ended April 30,
2001 to 9% in the nine months ended April 30, 2002. The improvement in services
gross margin is due to better utilization of our service and support staff in
the nine months ended April 30, 2002 as compared to the nine months ended April
30, 2001 and reduced expenses in the nine months ended April 30, 2002 as
compared to the nine months ended April 30, 2001 due to headcount reductions.

     Operating Expenses

     In-Process Research and Development. In-process research and development
expense was $700,000 for the nine months ended April 30, 2001, resulting from
the MediaBridge acquisition in September 2001.

     Research and Development. Our research and development expenses decreased
from $8.8 million in the nine months ended April 30, 2001 to $6.4 million in the
nine months ended April 30, 2002, a 28% decrease. This decrease was primarily
due to savings related to restructuring activities in the latter half of fiscal
2001 and the first quarter of fiscal 2002, offset by the inclusion of the
MediaBridge results in the full nine-month period ended April 30, 2002. Our
research and development staff decreased 38% from April 30, 2001 to April 30,
2002. Research and development expenses were 26% of revenue for the nine months
ended April 30, 2001 compared to 35% of revenue for the nine months ended April
30, 2002. The increase in research and development expenses as a percentage of
revenue is the result of the decrease in revenue without proportionate savings
in expenses, a reflection of our continued efforts to further develop our
products.

     Selling and Marketing. Selling and marketing expenses decreased from $35.5
million in the nine months ended April 30, 2001 to $9.0 million in the nine
months ended April 30, 2002, a 75% decrease. The decrease was primarily due a
decrease in spending on marketing initiatives, reductions in travel and
consulting expenses resulting from cost control measures and a general reduction
in our size during the fiscal second quarter of the nine months ended April 30,
2002, offset by increased costs resulting from our acquisition of MediaBridge in
September 2001. Overall, our sales and marketing staff decreased 64% from April
30, 2001 to April 30, 2002. Sales and marketing expenses were 104% of revenue
for the nine months ended April 30, 2001 compared to 50% of revenue for the nine
months ended April 30, 2002.

     General and Administrative. General and administrative expenses decreased
from $15.9 million in the nine months ended April 30, 2001 to $8.7 million in
the nine months ended April 30, 2002, a 45% decrease. The decrease was primarily
due to decreases in payroll and related costs, as well as a decrease in bad debt
expense resulting from $2.5 million of expenses recorded during the nine months
ended April 30, 2001, compared to a net recovery of $32,000 recorded during the
nine months ended April 30, 2002. These savings were partially offset by an
accrual of approximately $2.6 million related to future estimated net lease and
occupancy costs for certain facilities that are no longer occupied by the
company. The accrual is based upon total future lease costs under the facility
lease, less estimated proceeds from possible subleasing arrangements that the
Company may be able to enter into during future periods. Overall, our general
and administrative staff decreased 55% from April 30, 2001 to April 30, 2002.
General and administrative costs were 46% of revenue for the nine months ended
April 30, 2001 compared to 48% of revenue for the nine months ended April 30,
2002. The increase in general and administrative expenses as a percentage of
revenue was the result of the $2.6 million in accrued facility costs, offset
somewhat by the change in bad debt expense.

     Amortization and Impairment of Goodwill and Other Intangibles. Amortization
and impairment of goodwill and other intangibles decreased from $48.4 million in
the nine months ended April 30, 2001 to $17.6 million in the nine months ended
April 30, 2002, a 64% decrease. The decrease was due to a decrease in the amount
of goodwill and other intangibles to be amortized in the nine months ended April
30, 2002 as compared to the nine months ended April 30, 2001. In the quarter
ended July 31, 2001, we recorded a $109.0 million impairment charge which
reduced the goodwill and other intangible asset base that needed to be amortized
in the nine months ended April 30, 2002.

     Restructuring Costs, Net. Restructuring expense decreased from $2.3 million
in the nine months ended April 30, 2001 to $823,000 in the nine months ended
April 30, 2002, a 65% decrease. During the nine months ended April 30, 2001 and
2002, restructuring expense within continuing operations consisted of severance
and related costs as well as future lease and related costs associated with the
closing of several office locations.

     Stock Compensation. Stock compensation expense decreased from $1.3 million
in the nine months ended April 30, 2001 to $936,000 in the nine months ended
April 30, 2002, a 26% decrease. The decrease is related to the termination of
employment of certain individuals for whom stock compensation costs were being
recognized.


                                       18
<PAGE>

     Other Income (Expense)

     Interest Income. Interest income decreased from $4.3 million in the nine
months ended April 30, 2001 to $490,000 in the nine months ended April 30, 2002,
an 89% decrease. The decrease in interest income was primarily due to lower cash
equivalents and short-term investment balances during fiscal 2002 compared to
fiscal 2001 as well as a significant reduction in the rate of return on those
investments.

     Interest Expense. Interest expense increased from $29,000 in the nine
months ended April 30, 2001 to $2.5 million in the nine months ended April 30,
2002, a 843% increase. The increase in interest expense was the direct result of
converting all amounts we owed to CMGI into debt in October 2001 and related
interest on that debt from October 2001 through April 2002.

     Minority Interest. Minority interest decreased from $914,000 for the nine
months ended April 30, 2001 to $109,000 for the nine months ended April 30,
2002, an 88% decrease. Minority interest reflects the minority shareholders'
share of the losses of Engage Japan, Inc. This subsidiary was closed during the
second fiscal quarter of 2002.

     Other Income (Expense), Net. Other income (expense), net changed from an
expense of $1.9 million for the nine months ended April 30, 2001 to income of
$123,000 for the nine months ended April 30, 2002. The change in other income
(expense), net was related primarily to an impairment write-down of an equity
investment in the nine months ended April 30, 2001. Other income (expense), net
during the nine months ended April 30, 2002 was primarily related to net
exchange gains realized during the period, offset somewhat by losses on an
equity investment.

     Discontinued Operations

     Loss From Discontinued Operations. Loss from discontinued operations was
$848.5 million in the nine months ended April 30, 2001. Loss from discontinued
operations represents the net operating results for our media operations which
have been classified within discontinued operations as a result of a decision
made in September 2001 to exit the Media segment. The loss from discontinued
operations relates principally to our acquisition of AdKnowledge and Flycast,
and to a lesser extent, the net loss for I/PRO in the nine months ended April
30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

     Our cash and cash equivalents decreased from $33.3 million at July 31, 2001
to $20.4 million at April 30, 2002. Net cash used in operating activities was
$16.6 million for the nine months ended April 30, 2002. Cash used in operating
activities resulted primarily from net losses and decreases in accounts payable
and accrued expenses, which was partially offset by decreases in accounts
receivable and prepaid expenses and an increase in amounts due to CMGI and
affiliates. We made significant payments related to accrued liabilities
associated with restructuring and the closing of our Media business. Net cash
used for investing activities was $412,000 for the nine months ended April 30,
2002, all of which was related to investments in property and equipment. Net
cash provided by financing activities was $4.4 million and consisted primarily
of the proceeds of the $8.0 million CMGI borrowing, partially offset by
repayments of capital leases and notes payable.

     We anticipate that operating expenses will increase modestly during the
next two quarters as we develop our sales and marketing channels and invest in
the development of our product offerings.

     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 will become due and payable on demand any time on or
after August 1, 2002 or earlier upon the occurrence of an event of default as
defined in the note. Interest is currently compounded and payable quarterly in
arrears on October 31, January 31, April 30 and July 31 of each year until the
note is paid in full. Interest payments for the quarters ending October 31,
2001, January 31, 2002, April 30, 2002 and July 31, 2002 are deferred and become
payable on August 1, 2002. The note plus accrued interest is convertible, at
CMGI's election, into our common stock at a conversion price of $0.25 per share.
In addition, the note contains an anti-dilution provision whereby the conversion
price may be adjusted downward if we were to issue any shares of common stock in
the future 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 be issued upon the conversion of this note. The note is collateralized by
substantially all of our assets.


                                       19
<PAGE>

     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%. This note was amended in February 2002. Under the
terms of the note payable, principal will become due and payable on demand any
time on or after August 1, 2002 or earlier upon the occurrence of an event of
default as defined in the note. The note is collateralized by substantially all
of our assets. Interest is currently compounded and payable quarterly in arrears
on October 31, January 31, April 30 and July 31 of each year until the note is
paid in full. Interest payments for the quarters ending October 31, 2001,
January 31, 2002, April 30, 2002 and July 31, 2002 are deferred and become
payable on August 1, 2002.

     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%. Under the terms of
the promissory note, principal will become due and payable on demand any time on
or after August 1, 2002 or earlier upon the occurrence of an event of default as
defined in the note. Interest is currently compounded monthly and payable
quarterly in arrears on October 31, January 31, April 30 and July 31 of each
year until the note is paid in full. Interest payments for the quarters ending
October 31, 2001, January 31, 2002, April 30, 2002 and July 31, 2002 are
deferred and become payable on August 1, 2002. The principal and/or interest of
the intercompany debt incurred each calendar month under the note will be
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. In addition, the note contains an anti-dilution provision
whereby the conversion price may be adjusted downward if we were to issue any
shares of common stock in the future 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 be issued upon the conversion of this note. The note is
collateralized by substantially all of our assets. Debt incurred under this
agreement was approximately $8.7 million as of April 30, 2002.

     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 nine months ended
April 30, 2002, and the remaining $1.0 million is included as a reduction in
losses from discontinued operations that were accrued in July 2001. The
settlement requires us to make payments totaling $3.6 million in three
installments during fiscal 2002, of which two were paid prior to April 30, 2002,
with the final payment due in July 2002.

     The following summarizes anticipated cash requirements for operating leases
and amounts due to CMGI and a CMGI subsidiary under the above notes and the
aforementioned settlement during each of the fiscal years ended July 31:

<TABLE>
<CAPTION>
                                                   CMGI DEBT
                                                  REPAYMENT(a)
                                                      AND
                                     OPERATING     SUBSIDIARY
                                      LEASES       SETTLEMENT       TOTAL
                                     ---------    ------------     -------
                                              (IN THOUSANDS)

<S>                                   <C>            <C>           <C>
2002 (remaining three months)...      $ 1,069        $ 1,200       $ 2,269
2003 ...........................        3,200         59,364        62,564
2004 ...........................        2,910             --         2,910
2005 ...........................        2,317             --         2,317
2006 ...........................        1,887             --         1,887
Thereafter .....................        2,133             --         2,133
                                      -------        -------       -------
                                      $13,516        $60,564       $74,080
                                      =======        =======       =======
</TABLE>


     (a) Amounts due to CMGI totaling $59.4 million are due on demand any time
     subsequent to August 1, 2002 or earlier upon the occurrence of an event of
     default.

     We currently anticipate that our available cash resources will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for the remainder of the fiscal year ending July 31, 2002. As of
April 30, 2002, we owe CMGI $59.4 million which will become due and payable on
demand on or after August 1, 2002. As a result, if CMGI demands repayment of
such amount owed, we will need to obtain additional financing prior to August 1,
2002 or renegotiate amounts owed to CMGI so that repayment is extended beyond
August 1, 2002. If additional funds are raised through the issuance of equity or
convertible debt securities, or if CMGI elects to convert our debt into our
common shares, 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, develop or enhance services or products or
otherwise respond to competitive pressures may be significantly limited.


                                       20
<PAGE>

     On May 20, 2002, we received a proposal from CMGI to acquire all of the
outstanding publicly held shares of Engage not already held by CMGI. Pursuant to
this proposal, each publicly held share of our common stock would be exchanged
for .2286 of a share of CMGI common stock. The final terms of acquisition by
CMGI, if any, will be based on negotiations between us and CMGI. Our Board of
Directors has appointed a Special Committee of independent members of the Board
to evaluate and negotiate the proposed offer. The Special Committee has retained
independent legal counsel and is in the process of retaining an independent
financial advisor to assist it in evaluating the proposal.

     On February 14, 2002, we received a notice from the Nasdaq National Market
that our common stock had failed to maintain the required minimum closing bid
price of $1.00 set forth in Marketplace Rule 4450(a)(5) for a period of 30
consecutive trading days. As a result, Nasdaq provided us 90 calendar days, or
until May 15, 2002, to regain compliance with this requirement or face delisting
from trading on Nasdaq. On May 16, 2002, we received a letter from Nasdaq
stating that our common stock had failed to regain compliance with the minimum
bid price requirement and that our common stock would be delisted from the
Nasdaq National Market at the opening of business on May 24, 2002. Additionally,
we were informed by Nasdaq that our stock is not in compliance with the minimum
$10,000,000 stockholders' equity requirement set in Marketplace Rule 4450(a)(3),
and were given until June 14 to regain compliance with this requirement. On May
23, 2002, we requested a hearing before a Nasdaq Listing Qualifications Panel.
This hearing request has stayed all delisting proceedings and our common stock
will continue to trade on the Nasdaq National Market pending the outcome of the
hearing. A hearing date has been set for July 11, 2002.

     If our common stock were to be delisted from the Nasdaq National Market,
trading in our common stock would decrease substantially, or cease altogether,
the market price of the common stock may decline further, potentially to zero,
and our stockholders may lose some or all of their investment. Furthermore,
delisting of our common stock from the Nasdaq National Market would inhibit, if
not preclude, our ability to raise additional working capital on acceptable
terms, if at all.

FOREIGN OPERATIONS

     The results of our international operations are subject to currency
fluctuations. As of April 30, 2002, we had subsidiaries in Europe and Asia. To
date, our financial condition and results of operations have not been materially
affected by exchange rate fluctuations. However, there can be no guarantee that
our financial condition and results of operations will not be adversely affected
by exchange rate fluctuations in the future.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

     -    that we anticipate operating expenses will increase modestly during
          the next two quarters as we develop our sales and marketing channels
          and invest in the development of our product offerings;

     -    that we currently anticipate that our available cash resources will be
          sufficient to meet our anticipated needs for working capital and
          capital expenditures for the remainder of the fiscal year ending July
          31, 2002;

     -    that we will consummate any acquisition transaction with CMGI; and

     -    that we will prevail at the Nasdaq delisting hearing and that our
          common stock will not be delisted from the Nasdaq National Market.

     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:


                                       21
<PAGE>

     -    the uncertainty of our ability to successfully negotiate and close an
          acquisition transaction with CMGI;

     -    the possibility that our common stock will be delisted;

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

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

     -    factors set forth in our Annual Report on Form 10-K filed with the SEC
          on October 29, 2001 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.


                                       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, debt to CMGI and notes
payable, approximate fair value because of the short maturity of these
instruments.

     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 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.


                                       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.

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

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

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

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

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

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


                                       24
<PAGE>

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

     On February 28, 2002, CMGI, as our majority stockholder holding
approximately 76% of our outstanding common stock, delivered to us a written
consent pursuant to Delaware corporate law approving the following matters:

1.   Approving the issuance of shares of our common stock that may be issued
     upon the conversion of two secured convertible promissory notes issued to
     CMGI.

2.   Authorizing our Board of Directors, in its sole discretion, to amend our
     Second Amended and Restated Certificate of Incorporation to effect a
     1-for-5 reverse stock split of the issued and outstanding shares of our
     common stock without further approval or authorization of our stockholders.

3.   Authorizing our Board of Directors, in its sole discretion, to amend our
     Second Amended and Restated Certificate of Incorporation to effect a
     1-for-10 reverse stock split of the issued and outstanding shares of our
     common stock without further approval or authorization of our stockholders.

4.   Authorizing our Board of Directors, in its sole discretion, to amend our
     Second Amended and Restated Certificate of Incorporation to effect a
     1-for-15 reverse stock split of the issued and outstanding shares of our
     common stock without further approval or authorization of our stockholders.

     On March 20, 2002, pursuant to Rule 14c-2 of the Securities Exchange Act of
1934, as amended, we mailed an Information Statement to all holders of our
common stock entitled to vote or give an authorization or consent with respect
to the matters acted upon by written consent. Accordingly, these actions took
effect on or about April 9, 2002.

     In addition, we held our Annual Meeting of Stockholders on March 29, 2002
and the following matters were voted on at that meeting:

1.   The election of Edward A. Bennett, Christopher M. Cuddy, George A.
     McMillan, Peter J. Rice and David S. Wetherell, 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 abstentions and
     broker non-votes:

                              For          Against     Abstain   Broker Non-Vote
                          -----------      -------     -------   ---------------

     Edward Bennett       176,533,642      246,154       N/A           N/A

     Christopher Cuddy    176,528,426      251,370       N/A           N/A

     George McMillan      176,529,512      250,284       N/A           N/A

     Peter Rice           176,535,444      244,352       N/A           N/A

     David Wetherell      176,481,191      298,605       N/A           N/A

2.   The proposal to ratify the selection of KPMG LLP as the Company's
     independent auditors for the fiscal year ended July 31, 2002. The following
     chart shows the number of votes cast for or against the proposal, as well
     as the number of abstentions and broker non-votes:

                             For           Against     Abstain   Broker Non-Vote
                          -----------      -------     -------   ---------------

                          176,679,334       63,567      36,895         N/A



                                       25
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     4.1  Amended and Restated Secured Convertible Demand Promissory Note, dated
          February 15, 2002, issued to CMGI, Inc.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended April 30, 2002.


                                       26
<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 June
14, 2002.

                                     By: /s/ Christopher M. Cuddy
                                        --------------------------------------
                                        Christopher M. Cuddy
                                        Chief Executive Officer, President and
                                        Director
                                        (Principal Executive Officer)


                                     By: /s/ Robert W. Bartlett
                                        --------------------------------------
                                        Robert W. Bartlett
                                        Executive V.P., Chief Financial
                                        Officer and Treasurer
                                        (Principal Accounting and Financial
                                        Officer of the Registrant)

<PAGE>

                                  EXHIBIT INDEX


EXHIBIT NO.                         EXHIBIT

  4.1          Amended and Restated Secured Convertible Demand Promissory Note,
               dated February 15, 2002, issued to CMGI, Inc.