<PAGE>

--------------------------------------------------------------------------------
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                      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 September 30, 2001

                                      OR

             [_] 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 0-30043

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

                                 divine, inc.
            (Exact name of Registrant as specified in its charter)

           Delaware                   36-4301991
(State or other jurisdiction of    (I.R.S. Employer
incorporation or organization)  Identification Number)

1301 N. Elston Avenue, Chicago, Illinois   60622
(Address of Principal Executive Offices) (Zip Code)

      Registrant's telephone number, including area code: (773) 394-6600

   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

   At November 12, 2001, the registrant had outstanding an aggregate of
292,375,875 shares of class A common stock.

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

<PAGE>

                                 divine, inc.

                                   Form 10-Q

                                     INDEX

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                   Number
                                                                                   ------
<C>     <S>                                                                        <C>
Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements                                             3

        Consolidated Balance Sheets...............................................
         September 30, 2001 (unaudited) and December 31, 2000.....................    3

        Consolidated Statements of Operations (unaudited)
         Three and nine months ended September 30, 2001 and 2000..................    4

        Consolidated Statements of Stockholders' Equity
         Nine months ended September 30, 2001 (unaudited) and year ended
          December 31, 2000.......................................................    5

        Consolidated Statements of Cash Flows (unaudited)
         Nine months ended September 30, 2001 and September 30, 2000..............    6

        Notes to Consolidated Financial Statements................................    7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
          Operations..............................................................   17

Item 3. Quantitative and Qualitative Disclosures About Market Risk................   34

Part II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.................................   35

Item 6. Exhibits and Reports on Form 8-K..........................................   36

SIGNATURE.........................................................................   38
</TABLE>


                                      2

<PAGE>

PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                                 divine, inc.

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

<TABLE>
<CAPTION>
                                                                                                  September 30, December 31,
                                                                                                      2001          2000
                                                                                                  ------------- ------------
                                                                                                   (unaudited)
<S>                                                                                               <C>           <C>
                                            Assets
Current assets:
   Cash and cash equivalents.....................................................................   $ 170,026    $ 252,533
   Restricted cash...............................................................................       4,630        2,143
   Accounts receivable, net of allowance for doubtful accounts of $6,410 and $6,863..............      46,072        7,678
   Available-for-sale securities.................................................................       1,112       12,404
   Notes receivable..............................................................................       3,427          179
   Prepaid expenses..............................................................................       3,420        1,959
   Other current assets..........................................................................      15,018        4,903
                                                                                                    ---------    ---------
      Total current assets.......................................................................     243,705      281,799
Property and equipment, net......................................................................      43,728       33,820
Goodwill and other intangible assets, net of accumulated amortization of $33,390 and $21,170.....      43,822        8,621
Ownership interests in associated companies......................................................      11,993       65,939
Prepaid co-location and bandwidth services.......................................................          --       25,000
Restricted cash..................................................................................          --        1,000
Capitalized acquisition costs....................................................................      13,990           --
Other noncurrent assets..........................................................................       5,599        4,002
                                                                                                    ---------    ---------
      Total assets...............................................................................   $ 362,837    $ 420,181
                                                                                                    =========    =========
                             Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable..............................................................................   $  12,660    $  10,193
   Accrued payroll expenses......................................................................       9,602        1,631
   Accrued vacation..............................................................................       3,852        1,096
   Accrued professional fees.....................................................................         669        2,091
   Current portion of facilities impairment......................................................       1,494        2,257
   Current portion of capital leases.............................................................       3,729        2,868
   Other accrued expenses and current liabilities................................................      12,786        5,483
   Notes payable.................................................................................       5,890          521
   Deferred revenue..............................................................................       7,735        1,431
                                                                                                    ---------    ---------
      Total current liabilities..................................................................      58,417       27,571
Long-term debt...................................................................................      58,473          826
Capital leases...................................................................................       4,232        3,801
Other noncurrent liabilities.....................................................................         424          144
Long-term facilities impairment..................................................................       2,455        3,006
Minority interest................................................................................       6,488       16,950
Stockholders' equity:
   Class A common stock, $.001 par value; 2,500,000,000 shares authorized; 166,738,554 and
    128,382,154 shares issued; 161,327,400 and 127,390,478 shares outstanding....................         161          128
   Class C common stock, $.001 par value; 100,000,000 shares authorized; 0 and 6,777,777 shares
    issued and outstanding.......................................................................          --            7
   Additional paid-in capital....................................................................     994,681      956,110
   Notes receivable from exercise of stock options...............................................      (3,130)      (5,636)
   Unearned stock-based compensation.............................................................     (19,154)     (36,641)
   Accumulated other comprehensive loss..........................................................     (20,150)     (20,011)
   Treasury stock, at cost; 4,077,821 and 741,676 shares.........................................      (9,639)      (5,592)
   Accumulated deficit...........................................................................    (710,421)    (520,482)
                                                                                                    ---------    ---------
      Total stockholders' equity.................................................................     232,348      367,883
                                                                                                    ---------    ---------
      Total liabilities and stockholders' equity.................................................   $ 362,837    $ 420,181
                                                                                                    =========    =========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      3

<PAGE>

                                 divine, inc.

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

<TABLE>
<CAPTION>
                                                                         Three Months Ended           Nine Months Ended
                                                                     --------------------------  --------------------------
                                                                     September 30, September 30, September 30, September 30,
                                                                         2001          2000          2001          2000
                                                                     ------------- ------------- ------------- -------------
<S>                                                                  <C>           <C>           <C>           <C>
Revenues:
   Products......................................................... $      3,787  $      2,008  $      8,703   $     4,338
   Services.........................................................       44,292        11,685       110,415        26,662
                                                                     ------------  ------------  ------------   -----------
      Total revenues................................................       48,079        13,693       119,118        31,000
Operating expenses:
   Cost of revenues:
      Products (exclusive of $13, $61, $44 and $93 of
       amortization of stock-based compensation.....................        1,789         1,453         4,784         2,915
      Services (exclusive of $190, $304, $497 and $916 of
       amortization of stock-based compensation)....................       41,462        10,892        92,042        24,157
                                                                     ------------  ------------  ------------   -----------
         Total cost of revenues.....................................       43,251        12,345        96,826        27,072
   Selling, general and administrative (exclusive of $1,841,
    $25,683, $6,857 and $41,699 of amortization of stock-based
    compensation)...................................................       58,060        56,172       147,710       138,373
   Research and development (exclusive of $75, $137, $274 and
    $340 of amortization of stock-based compensation)...............        7,530         4,000        13,520         8,644
   Acquired technology--in-process research and development.........        1,196            --         1,196            --
   Impairment of investment in consolidated associated companies....           --         7,139         3,024         7,139
   Impairment of prepaid co-location and bandwidth services.........       25,000            --        25,000            --
   Amortization of stock-based compensation.........................        2,119        26,185         7,672        43,049
                                                                     ------------  ------------  ------------   -----------
         Total operating expenses...................................      137,156       105,841       294,948       224,277
                                                                     ------------  ------------  ------------   -----------
         Operating loss.............................................      (89,077)      (92,148)     (175,830)     (193,277)
Other income (expense):
   Interest income..................................................        1,725         4,851         7,638        11,077
   Interest expense.................................................         (853)         (653)       (2,189)       (1,975)
   Other income (expense), net......................................       (3,306)         (141)       10,120          (125)
                                                                     ------------  ------------  ------------   -----------
         Total other income (expense)...............................       (2,434)        4,057        15,569         8,977
   Loss before minority interest, gain (loss) on issuance of stock
    by associated companies, equity in losses of associated
    companies, impairment of investment in equity and cost
    method companies and extraordinary gain.........................      (91,511)      (88,091)     (160,261)     (184,300)
Minority interest...................................................          394         6,192         4,269        14,732
Gain (loss) on issuance of stock by associated companies............         (141)        2,061           663         4,824
Equity in losses of associated companies............................       (3,000)      (25,567)      (15,443)      (60,229)
Impairment of investment in equity and cost method associated
 companies..........................................................       (2,763)       (6,128)      (30,381)       (6,128)
                                                                     ------------  ------------  ------------   -----------
         Net loss before extraordinary gain.........................      (97,021)     (111,533)     (201,153)     (231,101)
Extraordinary gain..................................................       11,214            --        11,214            --
                                                                     ------------  ------------  ------------   -----------
         Net loss...................................................      (85,807)     (111,533)     (189,939)     (231,101)
Accretion of redeemable preferred stock dividends...................           --          (519)           --        (8,037)
Accretion of preferred stock dividends..............................           --          (526)           --        (9,070)
Deemed dividends....................................................           --       (14,942)           --       (40,756)
                                                                     ------------  ------------  ------------   -----------
         Net loss applicable to common stockholders................. $    (85,807) $   (127,520) $   (189,939)  $  (288,964)
                                                                     ============  ============  ============   ===========
         Basic and diluted net loss per share before
          extraordinary gain........................................ $      (0.61) $      (1.13) $      (1.38)  $     (6.43)
         Extraordinary gain.........................................         0.07            --          0.08            --
                                                                     ------------  ------------  ------------   -----------
         Basic and diluted net loss per share applicable to
          common stockholders....................................... $      (0.54) $      (1.13) $      (1.30)  $     (6.43)
                                                                     ============  ============  ============   ===========
         Weighted average shares used in computing basic
          and diluted net loss per share............................  157,644,622   112,678,978   146,510,593    44,967,132
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      4

<PAGE>

                                 divine, inc.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (in thousands, except share data)

<TABLE>
<CAPTION>





                                                                                       Preferred stock         Common stock
                                                                                     -------------------    ------------------
                                                                                        Shares      Amount    Shares      Amount
                                                                                     ------------   ------  -----------   ------

<S>                                                                                  <C>            <C>     <C>           <C>
Balance at December 31, 1999........................................................  259,860,725   $ 260     5,833,276   $  6
 Comprehensive loss:
  Net loss..........................................................................           --      --            --      --
  Other comprehensive loss:
   Unrealized holding loss during the year..........................................           --      --            --      --

  Total comprehensive loss..........................................................

Issuance of Series F preferred stock................................................   11,500,000      11            --      --
Conversion from Class B common stock to Class A common stock........................           --      --    (2,041,662)     (2)
Conversion of Class A common stock from Class B common stock........................           --      --     2,041,662       2
Conversion of preferred stock to Class A common stock, net of  1/6 conversion factor (271,360,725)   (271)   45,226,788      45
Conversion of redeemable preferred stock to Class A common stock, net of  1/6
 conversion factor and capital raising costs........................................           --      --    35,880,721      36
Issuance of Class C common stock, net of offering costs.............................           --      --    23,288,511      23
Conversion from Class C common stock to Class A common stock........................           --      --   (16,510,734)    (17)
Conversion to Class A common stock from Class C common stock........................           --      --    16,510,734      17
Issuance of Class A common stock in conjunction with initial public offering, net of
 offering costs.....................................................................           --      --    14,285,000      14
Issuance of Class A common stock exclusive of initial public offering shares, net of
 capital raising costs..............................................................           --      --     8,527,046       9
Deemed dividends related to beneficial conversion feature of Series E & F preferred
 stock..............................................................................           --      --            --      --
Deemed dividends related to discount on issuance of Class C common stock............           --      --            --      --
Accretion of redeemable preferred stock dividends...................................           --      --            --      --
Issuance of Class A common stock through the Employee Stock Purchase Plan...........           --      --       425,712       1
Dilution gain on equity transactions by associated companies........................           --      --            --      --
Exercise of stock options--Class A common stock.....................................           --      --     5,877,670       6
Issuance of notes receivable to exercise stock options..............................           --      --            --      --
Repurchase and retirement of Class A common stock and reduction of related notes
 receivable.........................................................................           --      --    (4,434,509)     (4)
Unearned stock-based compensation...................................................           --      --            --      --
Stock-based compensation............................................................           --      --            --      --
Recovery of unearned stock based compensation.......................................           --      --            --      --
Capital raising costs of subsidiaries...............................................           --      --            --      --
Payout of fractional shares.........................................................           --      --          (284)     --
Indirect ownership of shares of the Company's Class A common stock owned by
 equity method associated companies.................................................           --      --      (741,676)     (1)
                                                                                     ------------   -----   -----------    ----
Balance at December 31, 2000........................................................           --   $  --   134,168,255    $135
                                                                                     ============   =====   ===========    ====
For the nine months ended September 30, 2001 (unaudited)
 Comprehensive income:
   Net loss.........................................................................           --   $  --            --    $ --
  Other comprehensive loss:
    Unrealized holding gain during the period.......................................           --      --            --      --
    Less: reclassification adjustment of net gains included in net income...........           --      --            --      --
    Foreign currency translation....................................................           --      --            --      --

  Total comprehensive loss..........................................................

Issuance of Class A common stock....................................................           --      --    29,910,067      29
Issuance of warrants in purchase accounting.........................................           --      --            --      --
Issuance of options for acquisitions................................................           --      --            --      --
Issuance of Class A common stock through the Employee Stock Purchase Plan...........           --      --       671,074      --
Conversion from Class C common stock to Class A common stock........................           --      --    (6,777,777)     (7)
Conversion to Class A common stock from Class C common stock........................           --      --     6,777,777       7
Dilution loss on equity transactions by associated companies........................           --      --            --      --
Repurchase and retirement of Class A common stock...................................           --      --       (85,851)     --
Non-cash executive compensation.....................................................           --      --            --      --
Repayment of notes receivable from exercise of stock options........................           --      --            --      --
Stock-based compensation............................................................           --      --            --      --
Recovery of unearned stock based compensation.......................................           --      --            --      --
Purchase of treasury stock, at cost and recovery of shares from escrow..............           --      --    (3,336,145)     (3)
                                                                                     ------------   -----   -----------    ----
Balance at September 30, 2001 (unaudited)...........................................           --   $  --   161,327,400    $161
                                                                                     ============   =====   ===========    ====
</TABLE>
<TABLE>
<CAPTION>


                                                                                                  Notes
                                                                                                receivable
                                                                                                   from
                                                                                     Additional  exercise    Unearned
                                                                                      paid-in    of stock  stock-based  Treasury
                                                                                      capital    options   compensation  stock
                                                                                     ---------- ---------- ------------ --------
                                                                                     (in thousands, except share data)
<S>                                                                                  <C>        <C>        <C>          <C>
Balance at December 31, 1999........................................................ $241,036  $     --   $ (26,661) $    --
 Comprehensive loss:
  Net loss..........................................................................        --         --          --        --
  Other comprehensive loss:
   Unrealized holding loss during the year..........................................        --         --          --        --

  Total comprehensive loss..........................................................

Issuance of Series F preferred stock................................................    14,719         --          --        --
Conversion from Class B common stock to Class A common stock........................        --         --          --        --
Conversion of Class A common stock from Class B common stock........................        --         --          --        --
Conversion of preferred stock to Class A common stock, net of  1/6 conversion factor       226         --          --        --
Conversion of redeemable preferred stock to Class A common stock, net of  1/6
 conversion factor and capital raising costs........................................   223,134         --          --        --
Issuance of Class C common stock, net of offering costs.............................   193,440         --          --        --
Conversion from Class C common stock to Class A common stock........................        --         --          --        --
Conversion to Class A common stock from Class C common stock........................        --         --          --        --
Issuance of Class A common stock in conjunction with initial public offering, net of
 offering costs.....................................................................   109,230         --          --        --
Issuance of Class A common stock exclusive of initial public offering shares, net of
 capital raising costs..............................................................    73,887         --          --        --
Deemed dividends related to beneficial conversion feature of Series E & F preferred
 stock..............................................................................    25,814         --          --        --
Deemed dividends related to discount on issuance of Class C common stock............    14,942         --          --        --
Accretion of redeemable preferred stock dividends...................................    (8,037)        --          --        --
Issuance of Class A common stock through the Employee Stock Purchase Plan...........       762         --          --        --
Dilution gain on equity transactions by associated companies........................     1,021         --          --        --
Exercise of stock options--Class A common stock.....................................    34,651         --          --        --
Issuance of notes receivable to exercise stock options..............................        --    (31,154)         --        --
Repurchase and retirement of Class A common stock and reduction of related notes
 receivable.........................................................................   (26,513)    25,518          --        --
Unearned stock-based compensation...................................................   106,274         --    (106,274)       --
Stock-based compensation............................................................     3,209         --      44,860        --
Recovery of unearned stock based compensation.......................................   (51,434)        --      51,434        --
Capital raising costs of subsidiaries...............................................      (250         --          --        --
Payout of fractional shares.........................................................        (1)        --          --        --
Indirect ownership of shares of the Company's Class A common stock owned by
 equity method associated companies.................................................        --         --          --    (5,592)
                                                                                      --------   --------   ---------   -------
Balance at December 31, 2000........................................................  $956,110   $ (5,636)  $ (36,641)  $(5,592
                                                                                      ========   ========   =========   =======
For the nine months ended September 30, 2001 (unaudited)
 Comprehensive income:
   Net loss.........................................................................  $     --   $     --   $      --   $    --
  Other comprehensive loss:
    Unrealized holding gain during the period.......................................        --         --          --        --
    Less: reclassification adjustment of net gains included in net income...........        --         --          --        --
    Foreign currency translation....................................................        --         --          --        --

  Total comprehensive loss..........................................................

Issuance of Class A common stock....................................................    42,983         --          --        --
Issuance of warrants in purchase accounting.........................................     1,740         --          --      (822)
Issuance of options for acquisitions................................................     2,679         --          --        --
Issuance of Class A common stock through the Employee Stock Purchase Plan...........       746         --          --        --
Conversion from Class C common stock to Class A common stock........................        --         --          --        --
Conversion to Class A common stock from Class C common stock........................        --         --          --        --
Dilution loss on equity transactions by associated companies........................       (38)        --          --        --
Repurchase and retirement of Class A common stock...................................        (3)        --          --        --
Non-cash executive compensation.....................................................        --      2,246          --        --
Repayment of notes receivable from exercise of stock options........................        --        260          --        --
Stock-based compensation............................................................       411         --       7,540        --
Recovery of unearned stock based compensation.......................................    (9,947)        --       9,947        --
Purchase of treasury stock, at cost and recovery of shares from escrow..............        --         --          --    (3,225)
                                                                                      --------   --------   ---------   -------
Balance at September 30, 2001 (unaudited)...........................................  $994,681   $ (3,130)  $ (19,154)  $(9,639)
                                                                                      ========   ========   =========   =======
</TABLE>
<TABLE>
<CAPTION>


                                                                                                 Accumu-
                                                                                                  lated
                                                                                                  other
                                                                                      Accumu-    compre-    Total stock-
                                                                                       lated     hensive      holders'
                                                                                      deficit    income        equity
                                                                                     ---------   --------   ------------

<S>                                                                                  <C>         <C>        <C>
Balance at December 31, 1999........................................................ $  (9,407) $     --  $ 205,234...
 Comprehensive loss:
  Net loss..........................................................................  (470,319)        --      (470,319)
  Other comprehensive loss:
   Unrealized holding loss during the year..........................................        --    (20,011)      (20,011)
                                                                                                             ----------
  Total comprehensive loss..........................................................                           (490,330)
                                                                                                             ----------
Issuance of Series F preferred stock................................................        --         --        14,730
Conversion from Class B common stock to Class A common stock........................        --         --            (2)
Conversion of Class A common stock from Class B common stock........................        --         --             2
Conversion of preferred stock to Class A common stock, net of  1/6 conversion factor        --         --            --
Conversion of redeemable preferred stock to Class A common stock, net of  1/6
 conversion factor and capital raising costs........................................        --         --       223,170
Issuance of Class C common stock, net of offering costs.............................        --         --       193,463
Conversion from Class C common stock to Class A common stock........................        --         --           (17)
Conversion to Class A common stock from Class C common stock........................        --         --            17
Issuance of Class A common stock in conjunction with initial public offering, net of
 offering costs.....................................................................        --         --       109,244
Issuance of Class A common stock exclusive of initial public offering shares, net of
 capital raising costs..............................................................        --         --        73,896
Deemed dividends related to beneficial conversion feature of Series E & F preferred
 stock..............................................................................   (25,814         --            --
Deemed dividends related to discount on issuance of Class C common stock............   (14,942)        --            --
Accretion of redeemable preferred stock dividends...................................        --         --        (8,037)
Issuance of Class A common stock through the Employee Stock Purchase Plan...........        --         --           763
Dilution gain on equity transactions by associated companies........................        --         --         1,021
Exercise of stock options--Class A common stock.....................................        --         --        34.657
Issuance of notes receivable to exercise stock options..............................        --         --       (31,154)
Repurchase and retirement of Class A common stock and reduction of related notes
 receivable.........................................................................        --         --          (999)
Unearned stock-based compensation...................................................        --         --            --
Stock-based compensation............................................................        --         --        48,069
Recovery of unearned stock based compensation.......................................        --         --            --
Capital raising costs of subsidiaries...............................................        --         --          (250)
Payout of fractional shares.........................................................        --         --            (1)
Indirect ownership of shares of the Company's Class A common stock owned by
 equity method associated companies.................................................        --         --        (5,593)
                                                                                     ---------   --------    ----------
Balance at December 31, 2000........................................................ $(520,482)  $(20,011)   $  367,883
                                                                                     =========   ========    ==========
For the nine months ended September 30, 2001 (unaudited)
 Comprehensive income:
   Net loss......................................................................... $(189,939)  $     --    $ (189,939)
  Other comprehensive loss:
    Unrealized holding gain during the period.......................................        --      2,236         2,236
    Less: reclassification adjustment of net gains included in net income...........        --     (2,429)       (2,429)
    Foreign currency translation....................................................        --         54            54
                                                                                                             ----------
  Total comprehensive loss..........................................................                           (190,078)
                                                                                                             ----------
Issuance of Class A common stock....................................................        --         --        43,012
Issuance of warrants in purchase accounting.........................................        --         --           918
Issuance of options for acquisitions................................................        --         --         2,679
Issuance of Class A common stock through the Employee Stock Purchase Plan...........        --         --           746
Conversion from Class C common stock to Class A common stock........................        --         --            (7)
Conversion to Class A common stock from Class C common stock........................        --         --             7
Dilution loss on equity transactions by associated companies........................        --         --           (38)
Repurchase and retirement of Class A common stock...................................        --         --            (3)
Non-cash executive compensation.....................................................        --         --         2,246
Repayment of notes receivable from exercise of stock options........................        --         --           260
Stock-based compensation............................................................        --         --         7,951
Recovery of unearned stock based compensation.......................................        --         --            --
Purchase of treasury stock, at cost and recovery of shares from escrow..............        --         --        (3,228)
                                                                                     ---------   --------    ----------
Balance at September 30, 2001 (unaudited)........................................... $(710,421)  $(20,150)   $  232,348
                                                                                     =========   ========    ==========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      5

<PAGE>

                                 divine, inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                                                         Nine months   Nine months
                                                                                                            ended         ended
                                                                                                        September 30, September 30,
                                                                                                            2001          2000
                                                                                                        ------------- -------------
                                                                                                              (in thousands)
<S>                                                                                                     <C>           <C>
Cash flows from operating activities:
   Net loss............................................................................................   $(189,939)    $(231,101)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization....................................................................      21,325        16,923
      Acquired technology--in-process research and development.........................................       1,196            --
      Extraordinary gain...............................................................................     (11,214)           --
      Stock-based compensation.........................................................................       7,672        43,049
      Noncash compensation expense from the forgiveness of notes receivable from the exercise of
       stock options...................................................................................       2,249            --
      Other noncash compensation expense...............................................................         654            --
      Bad debt expense.................................................................................       2,617         3,395
      Equity in losses of associated companies.........................................................      15,443        60,229
      Gain on stock transactions of associated companies...............................................        (663)       (4,824)
      Impairment charges...............................................................................      58,405        13,267
      Minority interest................................................................................      (4,269)      (12,125)
      (Gain) loss on the sale of assets................................................................        (820)           --
      Realized gain on sale or impairment of available-for-sale securities, net........................      (2,431)           --
      Realized gain on sale of associated company......................................................      (7,397)           --
   Changes in assets and liabilities, excluding effects from acquisitions:
      Restricted cash..................................................................................      (2,987)       (1,500)
      Accounts receivable..............................................................................      18,462        (9,752)
      Deferred offering costs..........................................................................          --         1,668
      Prepaid expenses.................................................................................      (1,278)       (4,938)
      Other current assets.............................................................................     (13,276)           --
      Accounts payable.................................................................................        (293)       (3,321)
      Accrued expenses and other liabilities...........................................................         622         8,705
      Deferred revenue.................................................................................       2,066           533
                                                                                                          ---------     ---------
         Net cash used in operating activities.........................................................    (103,856)     (119,792)
                                                                                                           ---------     ---------
Cash flows from investing activities:
      Additions to property and equipment..............................................................      (8,806)      (42,890)
      Acquisition and deconsolidation of ownership interests in associated companies, including cash
       acquired........................................................................................      18,510      (170,696)
      Capitalized acquisition costs....................................................................     (13,990)           --
      Sale of ownership interests in associated companies..............................................      26,247            --
      Purchase of available-for-sale securities........................................................          --        (4,181)
      Proceeds from the sale of property and equipment.................................................       1,206            --
      Change in current notes receivable...............................................................        (248)        3,919
                                                                                                          ---------     ---------
         Net cash provided by (used in) investing activities...........................................      22,919      (213,848)
                                                                                                          ---------     ---------
Cash flows from financing activities:
      Proceeds from the issuance of preferred stock, net of issuance costs.............................          --       229,864
      Proceeds from initial public offering, net of issuance costs.....................................          --       109,545
      Proceeds from private placements concurrent with initial public offering, net of issuance costs..          --       218,597
      Net repayments on notes payable to associated companies..........................................          --      (101,395)
      Issuance of shares under Employee Stock Purchase Plan............................................         747           439
      Change in current notes payable..................................................................        (280)           --
      Proceeds from the issuance of long-term debt.....................................................         522         2,643
      Repayments of long-term debt.....................................................................         (21)         (779)
      Proceeds from the exercise of stock options......................................................          --         4,261
      Repurchase and cancellation of exercised stock options...........................................          (3)         (777)
      Purchase of treasury stock.......................................................................      (2,849)           --
      Capital raising costs of subsidiaries............................................................          --          (250)
      Proceeds from repayments of notes receivable from the exercise of stock options..................         260            --
      Payment of fractional shares.....................................................................          --            (3)
                                                                                                          ---------     ---------
         Net cash provided by (used in) financing activities...........................................      (1,624)      462,145
                                                                                                          ---------     ---------
Effect of exchange rates on cash.......................................................................          54            --
Net increase (decrease) in cash and cash equivalents...................................................     (82,507)      128,505
Cash and cash equivalents at beginning of period.......................................................     252,533       162,841
                                                                                                          ---------     ---------
Cash and cash equivalents at end of period.............................................................   $ 170,026     $ 291,346
                                                                                                          =========     =========
Supplemental disclosures:
   Interest paid.......................................................................................   $     263     $   1,457
   Noncash financing and investing activities:
      Issuance of notes payable, stock, options, or warrants in conjunction with acquisitions..........     106,704        85,316
      Issuance of notes receivable from exercise of stock options......................................          --         6,180
      Issuance of shares in exchange for service credit or stocks......................................          --        40,317
      Retirement of notes receivable from exercise of stock options....................................       2,249            --
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      6

<PAGE>

                                 divine, inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

  (a) Basis of Presentation

   The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation have been included. The results of operations for the
three and nine months ended September 30, 2001 are not necessarily indicative
of results that may be expected for the year ending December 31, 2001 or for
any future periods. These unaudited consolidated financial statements and
related notes should be read in conjunction with the audited consolidated
financial statements and related notes for the year ended December 31, 2000,
which are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (SEC) on April 2, 2001.

  (b) Net Loss Per Share

   Net loss per share is calculated 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
and convertible preferred stock is included in the calculation of diluted
earnings per share only when the effect of their inclusion would be dilutive.
Because the Company reported a net loss for the three- and nine-month periods
ended September 30, 2001 and 2000, potentially dilutive securities have not
been included in the shares used to compute net loss per share.

   Had the Company reported net income for the three- and nine-month periods
ended September 30, 2001, the weighted average number of shares outstanding for
those periods would have potentially been diluted by approximately 29,783,511
and 16,355,277 common equivalent shares, respectively, assuming the exercise of
all outstanding stock options, and by 1,152,174 and 389,706 common equivalent
shares, respectively, assuming the exercise of all outstanding warrants. Had
the Company reported net income for the three- and nine-month periods ended
September 30, 2000, the weighted average number of shares outstanding for those
periods would have potentially been diluted by approximately 4,357,379 and
4,824,436 common equivalent shares, respectively, assuming the exercise of
stock options.

  (c) Reclassifications

   Certain reclassifications of prior period amounts have been made to conform
to current period presentations.

(2) Line of Credit

   On January 29, 2001, the Company entered into a $25,000,000 line of credit
with LaSalle Bank N.A. This line of credit, which carries a variable interest
rate equal to the current LIBOR rate plus 125 basis points, is cash
collateralized and is available for working capital and general corporate
business needs other than permanent financing for the Company's acquisition of
interests in associated companies. This line of credit expires in January 2002.
As of September 30, 2001, the Company had established letters of credit for
$9,027,000 against this line of credit.

                                      7

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(3) Associated Company Transactions

  (a) Acquisitions/Mergers

   In February 2001, the Company, through its wholly-owned subsidiary divine
Global Services, Inc. (dGS), acquired the minority interest of Web Design
Group, an associated company since February 2000, in exchange for 222,841
shares of the Company's class A common stock. In addition, the Company may be
obligated to issue up to a maximum of 222,841 additional common shares should
Web Design Group exceed certain revenue targets in 2001. In February 2001, Buzz
msp inc., a wholly-owned subsidiary of the Company, was merged into dGS.

   In February 2001, the operations of salespring, inc.!!, an associated
company since October 1999, were collapsed into the operations of the Company
and salespring ceased operating as an independent business.

   In March 2001, the Company, through dGS, acquired the minority interest of
Westbound Consulting, Inc. (Westbound Consulting), an associated company since
February 2000, in partial satisfaction of a note payable by Westbound
Consulting to the Company. Westbound Consulting was merged into dGS. Westbound
Consulting Services Pvt. Ltd., which was a subsidiary of Westbound Consulting,
became a subsidiary of dGS and continues to have a 16.2% minority ownership.

   On March 29, 2001, the Company acquired 100% of the capital stock of
SageMaker, Inc. (SageMaker) in exchange for a total of 10,533,333 shares of its
class A common stock. Of those shares, 1,333,333 shares are held in an escrow
account and will be returned to the Company if SageMaker does not achieve
certain cash collection thresholds in 2001. The Company also has granted stock
options to purchase 2,200,000 shares of the Company's class A common stock, and
has agreed to grant stock options to purchase up to a maximum of $2,000,000 of
the Company's class A common stock to the continuing employees of SageMaker to
the extent SageMaker exceeds certain cash collection thresholds in 2001.
SageMaker offers software that integrates content for enterprise information
portals.

   In two separate transactions in April 2001, the Company acquired certain
assets from marchFIRST, Inc. ("marchFIRST"), including, but not limited to, its
former Whittman-Hart operations, its SAP implementation practice, and its
value-added reseller business. Additionally, the Company acquired accounts
receivable with a face value of approximately $102.8 million. The acquired
business is held by the Company's newly-formed subsidiary,
divine/Whittman-Hart, Inc. ("divine/Whittman-Hart"). The Company paid to
marchFIRST approximately $12,500,000 in cash and divine/Whittman-Hart issued
marchFIRST a promissory note. The note is a $57.5 million balloon note, payable
in five years but accelerated to the extent of 50% of free cash flow from
divine/Whittman-Hart's operations and which is secured by the assets of
divine/Whittman-Hart. This note bears interest at the Wall Street Journal prime
rate of interest. In conjunction with the Company's acquisition of marchFIRST
assets, divine/Whittman-Hart also assumed $12.0 million of accrued compensation
and benefit obligations for the employees transferred with the acquired
businesses. marchFIRST also is eligible to receive up to an aggregate of $55.0
million in bonus payments, payable to the extent that 50% of free cash flow
from divine/Whittman-Hart's operations during the next five years exceeds
divine/Whittman-Hart's obligation under the promissory notes. The Company does
not guarantee the promissory notes from divine/Whittman-Hart to marchFIRST, but
the terms of the promissory notes restrict payments from divine/Whittman-Hart
to the Company.

   In April 2001, the Company acquired the minority interest of
OpinionWare.com, Inc. (OpinionWare), an associated company since December 1999,
in exchange for 1,637,948 shares of the Company's class A common stock. In
addition, the Company issued, to OpinionWare's employees, 1,764,266 options to
purchase the Company's class A common stock.

                                      8

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In April 2001, the Company acquired the minority interest of
LiveOnTheNet.com, Inc. (LiveOnTheNet), an associated company since December
1999, in exchange for 817,217 shares of the Company's class A common stock. In
May 2001, the Company sold certain assets, subject to certain liabilities, of
LiveOnTheNet, including the name ''LiveOnTheNet.com,'' to a newly-created
entity, LiveOnTheNet.com, Inc., in exchange for a promissory note in the amount
of $1,750,000. The Company owns a 25.0% interest in LiveOnTheNet.com.

   In May 2001, the Company acquired the minority interest of mindwrap, inc.,
an associated company since November 1999, in exchange for 50,000 shares of the
Company's class A common stock.

   In May 2001, the Company acquired 100% of the stock of DataBites, Inc.
through a merger of the Company's wholly-owned subsidiary, CoolBites, Inc.,
with DataBites in exchange for 1,074,423 shares of the Company's class A common
stock. Additionally, the Company has granted to DataBites' continuing employees
options to purchase 107,500 shares of the Company's class A common stock.
DataBites provides technology that allows users to conveniently capture content
from the Internet for display on any Internet-enabled device.

   In July 2001, the Company acquired the 67.0% of Emicom Group, Inc. that it
did not already own in exchange for 13,800,000 shares of the Company's class A
common stock. Emicom had been an associated company since April 2000.
Additionally, the Company has granted to Emicom's continuing employees options
to purchase 2,123,067 shares of the Company's class A common stock.

   In August 2001, the Company acquired certain assets, subject to certain
liabilities, of Fracta Networks, Inc., a provider of personal content
management solutions. For these assets, the Company issued warrants to purchase
1,000,000 shares of the Company's class A common stock. Additionally, the
Company has granted to Fracta Networks' continuing employees options to
purchase 468,080 shares of the Company's class A common stock.

   In September 2001, through its wholly owned subsidiary, divine Germany, the
Company acquired certain assets and assumed certain liabilities of marchFIRST
GmbH iI, a professional services organization in Germany. For these assets the
company issued a note payable in the amount of 5,369,000 Euros (approximately
$4,757,000). The note is due and payable on or before September 1, 2002. The
Company has the option to pay the note with cash, or by issuing shares of the
Company's class A common stock to the former marchFIRST GmbH stockholders.

   In September 2001, the Company acquired an additional 26.6% equity interest
in Parlano Inc., an associated company since February 2000, in exchange for
3,596,007 shares of the Company's class A common stock.

   In September 2001, the Company entered into a definitive agreement to
acquire Eprise Corporation, a leading provider of content management solutions,
in a stock-for-stock merger transaction. Under the terms of the agreement,
Eprise stockholders would receive 2.4233 shares of the Company's class A common
stock for each share of Eprise common stock. The Company expects to issue
approximately 54,000,000 shares of the Company's class A common stock in this
merger. Consummation of the Eprise merger is subject to a number of conditions,
including approval of the Eprise merger by the shareholders of Eprise and, if
necessary, the stockholders of the Company.

                                      9

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  (b) Sales/Terminations

   In February 2001, iSalvage.com, Inc., an associated company since February
2000, ceased all meaningful business operations. The Company wrote down the
carrying value of its investment in iSalvage to $72,000 in 2000. In March 2001,
the Company received $194,000, representing its share of the first cash
distribution in the liquidation of iSalvage. In July 2001, the Company received
$44,000, representing its share of the final cash distribution.

   In March 2001, FiNetrics, Inc., an associated company since November 1999,
ceased all meaningful business operations.

   In April 2001, Xippix, Inc., an associated company since February 2000,
ceased all meaningful business operations.

   In April 2001, the Company tendered its 2,335,000 shares of Sequoia Software
Corporation, an associated company since November 1999, as part of a previously
announced acquisition of Sequoia by Citrix Systems, Inc. In May 2001, the
Company received $13,174,000 for these shares, which resulted in a realized
gain of $6,611,000 included within other income in the consolidated statements
of operations.

   In June 2001, closerlook, inc., an associated company since February 2000,
ceased all meaningful business operations.

   In June 2001, Farms.com, Ltd. (Farms), an associated company since April
2000, purchased the Company's interest in Farms for $13,000,000, which resulted
in a realized gain of $7,225,000 included within other income in the
consolidated statements of operations.

   In June 2001, Aluminium, inc., an associated company since March 2000,
ceased all meaningful business operations.

   In June 2001, bid4real.com, inc., an associated company since January 2000,
ceased all meaningful business operations.

  (c) Changes in Equity Ownership

   In January 2001, the Company restructured its ownership interest in
i-Street, such that the Company's voting ownership in i-Street was reduced to
25.1%. As a result, beginning in January 2001, i-Street is accounted for under
the equity method of accounting, whereas it had previously been consolidated.

   In February 2001, the Company contributed $4,000,000 to Outtask.com, Inc. As
a result of this contribution, the Company's ownership in Outtask was increased
to 34.2%.

   In February 2001, the Company distributed 126,497 of its shares of Sequoia
Software Corporation to certain employees who participated in the Company's
incentive compensation program. This distribution decreased the Company's
ownership interest in Sequoia to 7.5%.

   In May 2001, United Process Group, Inc. (UPG, formerly eFiltration), an
associated company since February 2000, repurchased the Company's ownership
interest for nominal consideration. In a separate transaction in May 2001, the
Company acquired a 24.7% interest in UPG for $500,000 plus future consulting
services valued at $320,000. One of the conditions of the new stock purchase
agreement is that the Company will

                                      10

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

not be required to make an additional investment of $11 million, as detailed in
the original purchase agreement. In September 2001, the Company acquired the
75.3% of the equity interests of UPG that it did not already own in exchange
for nominal consideration and agreeing to hire certain of UPG's employees. As a
condition of the September 2001 transaction, the unfulfilled portion of the
consulting services owed in conjunction with the May 2001 transaction was
nullified.

   In July 2001, the Company exchanged all of its outstanding preferred
securities in i-Sreet for 36,222 shares of common stock of i-Street. The
Company now holds an ownership interest of 10.0% in i-street.

(4) Ownership Interests in Associated Companies

   The following summarizes the Company's ownership interests in associated
companies accounted for under the equity method or cost method of accounting.
The ownership interests are classified according to applicable accounting
methods at September 30, 2001 and December 31, 2000. Cost basis represents the
Company's original acquisition cost. Associated companies that have ceased
operations or were sold in 2000 are not included at December 31, 2000.
Associated companies that have ceased operations or were sold in 2001 are not
included at September 30, 2001.

<TABLE>
<CAPTION>
                             September 30, 2001 December 31, 2000
                             ------------------ -----------------
                             Carrying   Cost    Carrying  Cost
                              Value     basis    value    Basis
                             --------  -------- -------- --------
                                        (in thousands)
               <S>           <C>       <C>      <C>      <C>
               Equity method $10,414   $160,589 $57,000  $209,144
               Cost method..   1,579     12,628   8,939    10,189
                             -------   -------- -------  --------
                             $11,993   $173,217 $65,939  $219,333
                             =======   ======== =======  ========
</TABLE>

   The Company recorded $5,771,000 in excess investment over its share of the
underlying equity in the net assets of companies accounted for under the equity
method of accounting during the nine months ended September 30, 2001.
Amortization expense of $5,488,000 is included in "equity in losses of
associated companies" in the accompanying consolidated statement of operations
for the nine months ended September 30, 2001. The Company also recorded
$30,381,000 for other than temporary declines in the carrying value of certain
equity and cost method associated companies during the nine months ended
September 30, 2001.

   The Company recorded $126,856,000 in excess investment over its share of the
underlying equity in the net assets of companies acquired during the nine
months ended September 30, 2000, accounted for under the equity method of
accounting. Amortization expense of $28,324,000 is included in "equity in
losses of associated companies" in the accompanying consolidated statement of
operations for the nine months ended September 30, 2000.

   The following summarized financial information for associated companies
accounted for under the equity method of accounting at September 30, 2001 and
December 31, 2000, and for the nine-month periods ended September 30, 2001 and
2000, has been compiled from the financial statements of the respective
associated companies. The results of operations for associated companies that
the Company has fully impaired are included up to the month that the Company's
carrying value in those associated companies was reduced to $0. The balance
sheets for those associated companies written down to $0 as of September 30,
2001 or December 31, 2000 are not included in the summarized balance sheets as
of those dates.

                                      11

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                                Balance Sheets

<TABLE>
<CAPTION>
                                                              September 30, December 31,
                                                                  2001          2000
                                                              ------------- ------------
                                                                    (in thousands)
<S>                                                           <C>           <C>
Current assets...............................................    $72,900      $178,942
Noncurrent assets............................................     12,638        31,637
                                                                 -------      --------
       Total assets..........................................    $85,538      $210,579
                                                                 -------      --------
Current liabilities..........................................    $ 3,530      $ 24,154
Noncurrent liabilities.......................................        443         3,670
Redeemable preferred stock...................................     55,306       198,826
Stockholders' deficit........................................     26,259       (16,071)
                                                                 -------      --------
       Total liabilities, redeemable preferred stock and
         stockholders' deficit...............................    $85,538      $210,579
                                                                 =======      ========
</TABLE>

                             Results of Operations

<TABLE>
<CAPTION>
              Nine Months   Nine Months
                 Ended         Ended
             September 30, September 30,
                 2001          2000
             ------------- -------------
                   (in thousands)
<S>          <C>           <C>
Revenues....   $ 42,415      $ 33,158
Gross profit     10,501        19,568
Net loss....   $(27,868)     $(84,083)
</TABLE>

   During the nine months ended September 30, 2001, the Company acquired 100%
of SageMaker and DataBites, certain assets and liabilities of marchFIRST GmbH
and Fracta Inc., the minority interests of Web Design Group, Westbound
Consulting, OpinionWare, LiveOnTheNet, mindwrap, and Parlano, and the equity
interests of Emicom that it did not previously own. The purchase price, for the
purpose of recording the purchase accounting for these transactions, consisted
of approximately $2,885,000 of cash payments (including acquisition costs),
30,231,568 non-contingent shares of the Company's class A common stock, with a
fair value of approximately $42,990,000, and the forgiveness of a note payable
by Westbound Consulting to the Company in the amount of $525,000. Additionally,
in conjunction with the SageMaker, OpinionWare, DataBites, Fracta, and Emicom
transactions, the Company has granted or agreed to grant stock options and
warrants to purchase 3,329,580 shares of the Company's class A common stock
which are included as part of the purchase price paid by the Company for those
companies. The value of these options and warrants for purchase accounting
purposes was approximately $3,597,000.

   In April 2001, the Company acquired certain assets from marchFIRST, Inc.,
including, but not limited to, its former Whittman-Hart operations, its SAP
software implementation practice, and its value-added reseller business. The
Company paid $12,500,000 in cash and the Company's wholly-owned subsidiary,
divine/Whittman-Hart, issued $57,500,000 in promissory notes in exchange for
these assets.

   In April 2000, the Company acquired an additional interest in
OpinionWare.com, Inc. (accounted for under the equity method of accounting
since it became an associated company in December 1999) which resulted in the
Company owning over 50% of OpinionWare. In August 2000, the Company acquired an
additional interest in iFulfillment, Inc. (accounted for under the equity
method of accounting since it became an associated company in

                                      12

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

January 2000) which resulted in the Company owning over 50% of iFulfillment. In
addition to these companies, nine associated companies in which the Company
acquired an interest during the year ended December 31, 2000 have been
accounted for using the consolidation method. The purchase prices have been
allocated to the identifiable net assets based upon their book values, which
approximated fair values, at the dates of acquisition. The portions of the
purchase prices allocated to identifiable intangible assets and goodwill are
being amortized on a straight-line basis over two to three years. These
companies are included in the Company's consolidated financial statements from
the dates of acquisition, or from the dates of the subsequent investments by
the Company that caused the Company's ownership interest to exceed 50%. The
purchase prices for the nine months ended September 30, 2001 and year ended
December 31, 2000 for these acquisitions were allocated as follows:

<TABLE>
<CAPTION>
                                            Total For the
                                             Nine Months  Total For the
                                                Ended      Year Ended
                                            September 30, December 31,
                                                2001          2000
                                            ------------- -------------
                                                  (in thousands)
<S>                                         <C>           <C>
Identifiable net assets (liabilities)......   $ 81,831      $ 58,371
In-process research and development charges      1,196            --
Developed technology.......................     13,774        16,371
Customer lists.............................      2,139         5,433
Workforce in place.........................      4,386         1,537
Goodwill...................................     31,126        24,213
Extraordinary gain.........................    (11,214)           --
                                              --------      --------
Purchase price.............................   $123,238      $105,925
                                              ========      ========
</TABLE>

(5) Gain on Issuance of Stock by Associated Companies

   During the nine months ended September 30, 2001, Outtask.com, Inc., one of
the Company's associated companies, obtained third-party financing by issuing
731,971 shares of preferred stock for $1,055,000. As a result of this
transaction, the Company recorded a dilution gain of $199,000. The Company
recorded an additional $464,000 net gain resulting from other third-party
financing transactions of its associated companies during the nine months ended
September 30, 2001. The gains represent the increase in the book value of the
Company's net equity in the subsidiary as a result of the subsidiary's stock
issuances.

(6) Impairment Charges

   For the nine months ended September 30, 2001, the Company recorded
impairment charges of approximately $3,024,000 for other than temporary
declines in the carrying value of certain consolidated associated companies.
These charges included the write-off of the Company's investment in
bid4real.com, inc., which ceased all meaningful operations in June 2001. The
Company also recorded impairment charges of approximately $30,381,000 for other
than temporary declines in the carrying value of certain equity and cost method
associated companies. These charges included the write-off of the Company's
investment in Xippix, Inc., which ceased all meaningful operations in April
2001.

   The Company recognized an impairment charge on prepaid co-location and
bandwidth services of $25,000,000 for the three months ended September 30,
2001. This prepaid asset was originally recorded when the Company entered into
an agreement with Level 3 Communications concerning the purchase of a minimum
of $100,000,000 of co-location and bandwidth services over a four-year period.
Of this amount, $25,000,000 would have been credited to us as consideration for
Level 3's purchase of the Company's common shares in a private placement
concurrent with the Company's IPO in July 2000. In August 2001, the Company
agreed to repurchase

                                      13

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the 5,555,555 Company shares owned by Level 3 in exchange for for $5,555,555
and warrants to purchase 2,200,000 shares of the Company's class A common stock
at an exercise price of $1.19 per share. Per the agreement, the Company paid to
Level 3 $2,777,777 and issued to Level 3 a warrant to purchase 1,100,000 shares
of class A common stock in September 2001. The remaining $2,777,778 will be
paid and the remaining warrant to purchase 1,100,000 shares of Class A common
stock will be issued in November 2001. A condition of the repurchase agreement
was that the Company's agreement regarding the purchase of $100,000,000 of
co-location and bandwidth services was terminated and the Company's prepaid
credit of $25,000,000 was eliminated.

(7) Segment Information

   The Company has two operating segments: the software, services and hosting
segment and the divine interVentures segment. The software, services and
hosting segment encompasses the operations surrounding the Company's core
strategy of delivering integrated Web solutions. The divine interVentures
segment encompasses the operations of the Company's remaining portfolio of
associated companies, focusing primarily on e-commerce and vertical markets.
The Company evaluates segment performance based on income from operations. The
Company does not allocate total assets to its segments.

   Segment information is presented in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
standard is based on a management approach, which requires segmentation based
upon the Company's internal organization and disclosure of revenue and
operating loss based upon internal accounting methods. Segment results for the
three and nine months ended September 30, 2001 are as follows:

<TABLE>
<CAPTION>
                                              Three months ended September 30, 2001
                                           -------------------------------------------
                                              Software/         divine     divine, inc.
                                           Services/Hosting interVentures  Consolidated
                                           ---------------- -------------- ------------
                                                            (in thousands)
<S>                                        <C>              <C>            <C>
External revenue..........................    $  47,942        $     21     $  47,963
Intersegment revenue......................          116              --           116
                                              ---------        --------     ---------
                                                 48,058              21        48,079
       Eliminations.......................                                         --
                                                                            ---------
       Total revenues.....................                                  $  48,079
                                                                            ---------
Net income (loss) applicable to common
  stockholders............................    $ (91,941)       $  6,134     $ (85,807)
                                              =========        ========     =========
<CAPTION>

                                               Nine months ended September 30, 2001
                                           -------------------------------------------
                                              Software/         divine     divine, inc.
                                           Services/Hosting interVentures  Consolidated
                                           ---------------- -------------- ------------
                                                          (in thousands)
<S>                                        <C>              <C>            <C>
External revenue..........................    $ 116,508        $  2,145     $ 118,653
Intersegment revenue......................          877              --           877
                                              ---------        --------     ---------
                                                117,385           2,145       119,530
       Eliminations.......................                                       (413)
                                                                            ---------
       Total revenues.....................                                  $ 119,117
                                                                            ---------
Net loss applicable to common stockholders    $(157,891)       $(32,048)    $(189,939)
                                              =========        ========     =========
</TABLE>

   Because of the significant changes in the Company's operating strategy, and
changes in the Company's portfolio of associated companies, segment information
is not included for the three and nine months ended September 30, 2000.


                                      14

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(8) Skyscraper Ventures

   In December 2000, the Company made the decision to no longer manage or fund
Skyscraper Ventures, L.P. Based upon this decision, Skyscraper returned
$1,285,000 of the Company's limited partnership investment, returned $18,000 of
the Company's general partnership investment and cancelled the Company's
remaining commitments. In March 2001, Skyscraper distributed the share
interests in Novarra, Inc., the only investment made by Skyscraper. The Company
directly owned 2.0% of Novarra at September 30, 2001.

(9) Stockholder Rights Plan

   In February 2001, the Company's board of directors adopted a Stockholder
Rights Plan and declared a dividend of one Right on each outstanding share of
class A common stock. The dividend was payable to shareholders of record on
February 23, 2001.

   Initially, no separate certificates were issued for the Rights; rather, the
Rights are evidenced by the certificates for class A common stock and trade
automatically with the class A common stock. The Rights are not exercisable
unless a person or group has acquired, or announces the intent to acquire, 15%
or more of the Company's outstanding common stock (or 20% or more if such a
person or group owned 10% or more of the Company's outstanding common stock at
the time of adoption of the Rights Plan). Thereafter, separate Rights
certificates will be distributed and each Right will entitle its holder to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at $15.00 per Right. The Rights are redeemable by the Company's
board of directors, for $0.001 per Right, at any time prior to the
exercisability of the Rights.

   In the event a person or group acquires 15% (20% in certain circumstances)
or more of the Company's class A common stock, each shareholder, other than the
acquiror, is entitled to purchase, for the exercise price of the Rights, the
number of shares of the Company's common stock having a market value of two
times the exercise price of the Rights. In addition, the Company's board of
directors may then exchange the Rights for class A common stock at a ratio of
one share of class A common stock per Right. Also, if the Rights have become
exercisable and the Company is acquired in a merger or other business
combination, or 50% or more of its assets, cash flow, or earning power are
sold, each Right will entitle the holder to purchase, at the exercise price of
the Right, that number of shares of common stock of the acquiring company that,
at the time of the transaction, will have a market value of two times the
exercise price of the Right.

   The Rights will expire on January 31, 2011 unless extended by the Company's
board of directors.

(10) Subsequent Events

   In October 2001, the Company acquired 100% of the stock of eshare
communications, Inc., a leading provider of customer interaction management
(CIM) solutions, in exchange for 68,435,596 shares of the Company's class A
common stock. In addition, the Company issued options to purchase 3,453,525
shares of the Company's class A common stock to eshare employees upon
conversion of existing options to purchase common shares of eshare.

   In October 2001, the Company acquired 100% of the stock of Open Market, Inc,
a provider of enterprise content management and delivery application software,
in exchange for 44,454,515 shares of the Company's class A common stock. In
addition, the Company issued options to purchase 8,331,665 shares of the
Company's class A common stock, to Open Market employees, and warrants to
purchase 1,454,945 of the Company's class A common stock, in each case upon
conversion of existing options and warrants to purchase Open Market common
stock.

                                      15

<PAGE>

                                 divine, inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In October 2001, the Company acquired certain assets of Intira Corporation,
a high-end provider of outsourced information technology and network
infrastructure services. For these assets, the Company paid Intira $1,000,000
in cash and provided a $6,800,000 debtor-in-possession credit facility. The
Company also assumed certain operating liabilities of Intira. The assets
acquired include certain fixed assets, accounts receivable, infrastructure and
technology, certain of Intira's data centers including locations in Pleasanton,
Calif., and St. Louis, the right to the assignment of customer contracts and
the right to offer employees positions with the Company.

   In October 2001, the Company acquired 100% of the stock of Synchrony
Communications, Inc., a leading customer interaction management suite provider,
in exchange for promissory notes to the former stockholders of Synchrony in the
aggregate principal amount of $6,875,000. The notes are due and payable on or
before December 31, 2001. The Company has the option to pay the notes with
cash, or by issuing a total of approximately 5,500,000 shares of class A common
stock of the Company to the former Synchrony stockholders. Additionally, the
Company agreed to issue warrants to purchase 2,000,000 shares of the Company's
class A common stock to the former Synchrony stockholders.

   In October 2001, the Company acquired, through divine/Whitman-Hart, inc.,
one of its wholly-owned subsidiaries, the assets of marchFIRST, Inc.'s HostOne
application hosting unit. The Company purchased these assets in exchange for
providing operating funds to HostOne from April 12, 2001, the date that
marchFIRST filed for bankruptcy, to October 22, 2001, the date the Company
acquired the HostOne assets. In addition, the Company agreed to issue to
Microsoft Corporation a total of 8,196,722 shares of its common stock in
exchange for the cancellation of debt owed by marchFIRST to Microsoft.

   In November 2001, the Company acquired RoweCom, Inc., a leading global
provider of sophisticated tools and client services for purchasing and managing
the acquisition of magazines, newspapers, journals and e-journals, books and
other knowledge resources, in exchange for 10,158,420 shares of the Company's
class A common stock. In addition, the Company has agreed to grant options to
purchase the Company's class A common stock to RoweCom employees.

   In November 2001, the Company signed an agreement and plan of merger with
Data Return Corporation, a provider of high-availability managed hosting
services to companies whose applications are based on Microsoft technologies.
The Company expects to issue approximately 71,916,000 shares of the Company's
class A common stock in connection with the merger. Consummation of the merger
is subject to a number of conditions, including approval of the merger by the
shareholders of Data Return and, if necessary, the stockholders of the Company.

   In November 2001, the Company acquired the 62.6% of Latin American
Econetworks N.V. (also known as Dolphin Interventures), an associated company
since July 2000, that it did not already own in exchange for 8,000,000 shares
of the Company's class A common stock. Prior to the closing of the acquisition,
$7,400,000 was distributed to the former owners of Dolphin Interventures.

                                      16

<PAGE>

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

General

   We provide a combination of Web-based technology, professional services and
managed applications capabilities designed to allow clients to deploy advanced
enterprise Web solutions that are integrated with their business strategies and
existing software and technical systems. Our enterprise Web solutions offer
businesses the ability to improve collaboration, workflow and business
relationships. We provide technology, software, professional services, and
managed applications through four business units:

    .  divine Enterprise Portal Solutions--uses business portal platform
       technology to provide businesses with real-time, integrated access to
       internal and external information to create industry-specific solutions
       that streamline data searching and retrieval over intranets, extranets,
       company databases and the Internet.

    .  divine Software Applications--deploys products that focus on
       collaboration, workflow and relationship management. Our robust platform
       supports effective customer interaction, improved management of the flow
       of information and powerful enterprise collaboration.

    .  divine Professional Services--applies expertise in technology,
       infrastructure, and marketing across a broad spectrum of leading
       technologies combined with an understanding of how to design and deploy
       solutions that drive business results.

    .  divine Managed Applications--builds, hosts, manages, monitors and
       secures an enterprise's critical applications with an emphasis on
       customers who require assurance of high availability of applications and
       a single point of accountability.

   We focus on Global 5000 and high-growth middle market firms, government
agencies, and educational institutions, and currently serve over 20,000
customers. We expect that our revenues in future periods will be generated
principally through these core operations.

   We began as divine interVentures, inc. on June 30, 1999, engaging in
business-to-business e-commerce through a community of associated companies in
which we invested. From September 30, 1999 to December 30, 1999, we acquired
interests in 40 associated companies, established a total of 13 associated
companies when we identified opportunities consistent with our business
strategy, and also further developed our operational procedures and
capabilities.

   In February 2001, we announced our strategy to primarily focus on enterprise
Web solutions and changed our name to divine, inc. We no longer reflect
separately our interests in our associated companies that provide Web-based
technology, software, professional services and managed applications. Instead,
the operations of these businesses are a part of our core business strategy.
Other of our associated companies offer software and services focused on
e-commerce and vertical markets, which we include in our divine interVentures
segment. Most of these companies are accounted for under the equity method. We
may, but do not expect to, invest additional funds into these companies in
future periods. As of September 30, 2001, there were 23 companies in our divine
interVentures segment.

   Since July 1, 2001, we have completed, or entered into agreements in
connection with, a number of acquisitions to further our business strategy.

    .  In July 2001, we acquired the 67.0% of Emicom Group, Inc. that we did
       not already own in exchange for a total of 13.8 million shares of our
       common stock. Emicom had been one of our associated companies since
       April 2000, when we acquired a 33% interest in Emicom. Emicom is a
       technology

                                      17

<PAGE>

       holding company that provides capital and advisory services to
       early-stage technology companies located in Isreal. Emicom partners with
       privately-held, technology-related companies in the telecommunications,
       cellular, Internet infrastructure, and enterprise software markets.

    .  In August 2001, we acquired certain assets, subject to certain
       liabilities, of Fracta Networks, Inc., a provider of personal content
       management solutions. Among the assets we acquired was Fracta Networks'
       software, FractaNet/TM/, an application that allows users to easily
       capture portions of documents, spreadsheets, or Web sites.

    .  In September 2001, we acquired substantially all of the assets of
       marchFIRST GmbH iI that comprised its former Munich and Hamburg
       operations. We issued a note of approximately 5,639,000 Euros
       (approximately U.S. $4.8 million) for these assets. The note is payable
       on or before September 1, 2002 and may be settled with cash or shares of
       our class A common stock.

    .  In September 2001, we acquired from UBS AG a 26.6% equity interest in
       Parlano, Inc. in exchange for 3,596,007 shares of our common stock.
       Parlano has been one of our associated companies since February 2000,
       when we acquired a 75% equity interest in Parlano. As a result of the
       acquisition, we now own approximately 96% of the capital stock of
       Parlano and intend to purchase the remaining stock in a short-form
       merger in the near future. Parlano, which is located in Chicago,
       Illinois, is a provider of global solutions for real-time business
       communications and collaboration in enterprise environments.

   .   In September 2001, we entered into an agreement and plan of merger with
       Eprise Corporation. Eprise is a provider of enterprise content
       management and delivery application software. Under the terms of the
       Eprise merger agreement, we will issue a total of approximately
       54,000,000 shares of our common stock in exchange for all of the
       outstanding Eprise common stock, and Eprise will become one of our
       wholly owned subsidiaries. Completion of the Eprise merger is subject to
       a number of conditions, including approval of that merger by Eprise's
       stockholders, and if necessary, our stockholders, and expiration or
       termination of any waiting periods under any applicable antitrust laws.

    .  In October 2001, we completed our acquisition of Open Market, Inc.,
       pursuant to an agreement and plan of merger we entered into with Open
       Market in August 2001. Open Market is a provider of enterprise content
       management and delivery application software. Under the terms of the
       Open Market merger agreement, we issued a total of 44,454,515 shares of
       our common stock in exchange for all of the outstanding Open Market
       common shares, and Open Market became one of our wholly-owned
       subsidiaries.

    .  In October 2001, we completed our acquisition of eshare communications,
       Inc. pursuant to an agreement and plan of merger we entered into with
       eshare in July 2001. eshare is a provider of customer interaction
       management, or CIM, software products and services. Under the terms of
       the eshare merger agreement, we issued a total of 68,435,596 shares of
       our common stock in exchange for all of the outstanding eshare common
       shares, and eshare became one of our wholly-owned subsidiaries.

    .  In October 2001, we acquired, through divine/Whitman-Hart, inc., one of
       our wholly-owned subsidiaries, the assets of marchFIRST, Inc.'s HostOne
       application hosting unit. We purchased these assets in exchange for
       providing operating funds to HostOne from April 12, 2001, the date that
       marchFIRST filed for bankruptcy, to October 22, 2001, the date we
       acquired the HostOne assets. In addition, we agreed to issue to
       Microsoft Corporation a total of 8,196,722 shares of our common stock in
       exchange for the cancellation of debt owed by marchFIRST to Microsoft.

    .  In October 2001, we completed our purchase of substantially all of the
       assets of Intira Corporation, subject to certain operating liabilities.
       Intira provides information technology and network infrastructure for
       online business applications and is based in Pleasanton, California. In
       exchange for these assets, we paid $1 million in cash, provided Intira
       with a $6.8 million debtor-in-possession credit facility during its
       bankruptcy.

                                      18

<PAGE>

    .  In October 2001, we acquired Synchrony Communications, Inc., a leading
       customer relationship management suite provider. In exchange for all of
       the outstanding stock of Synchrony, we issued promissory notes to the
       former stockholders of Synchrony in the aggregate principal amount of
       approximately $6.8 million. The notes are due and payable on or before
       December 31, 2001. We have the option to pay the notes with cash, or by
       issuing a total of approximately 5,500,000 shares of our common stock to
       the former Synchrony stockholders.

    .  In November 2001, we completed our acquisition of RoweCom Inc. RoweCom
       is a leading business-to-business provider of high quality service and
       e-commerce solutions for purchasing and managing the acquisition of
       magazines, newspapers, journals and e-journals, books and other printed
       sources of commercial, scientific, and general interest information and
       analysis. Under the terms of the RoweCom merger agreement, we issued a
       total of 10,158,420 shares of our class A common stock in exchange for
       all of the outstanding common stock of RoweCom, and RoweCom became one
       of our wholly-owned subsidiaries.

    .  In November 2001, we signed an agreement and plan of merger with Data
       Return Corporation. Data Return specializes in providing
       high-availability managed hosting services to companies whose
       applications are based on Microsoft technologies. Under the terms of the
       Data Return merger agreement, we expect to issue a total of
       approximately 71,916,000 shares of our common stock in exchange for all
       of the outstanding Data Return common stock, and Data Return will become
       one of our wholly owned subsidiaries. Completion of the Data Return
       merger is subject to a number of conditions, including approval of that
       merger by Data Return's stockholders, and if necessary, our
       stockholders, and expiration or termination of any waiting periods under
       any applicable antitrust laws.

    .  In November 2001, we acquired the 62.6% of Latin American Econetworks
       N.V. (also known as Dolphin Interventures), an associated company since
       July 2000, that we did not already own in exchange for 8,000,000 shares
       of our common stock. Latin American Econetworks focuses on making
       venture capital investments in the technology sector in Latin America.

   We anticipate that the integration of these companies into our products and
services offering will help us to deliver a combination of software,
technology-based solutions, professional services, and hosting/managed
applications that allow businesses to increase efficiency, generate revenue,
advance their brand, and build customer loyalty.

   Our revenues for 2001 consisted primarily of revenues generated by our
software, services and hosting segment.

   Our revenues are generated primarily from professional fees generated from
project-based client engagements which are billed on both a time and materials
and a fixed-bid or fee-capped basis. Revenues from arrangements billed on a
time and materials basis are recognized as services are provided. Revenues from
fixed-bid arrangements are recognized using the percentage of completion
method. Fixed-bid arrangements subject us to the risk of cost overruns. Our
most significant cost is cost of services which consists principally of direct
costs of providing services, including salaries and benefits and rent and
facilities services. With respect to our engagements that are billed on a time
and materials basis, increases in the cost of services may be passed along to
our clients and if so, would not have a significant impact on our financial
results. For engagements where increases in costs are not passed along to our
clients, and for those that are billed on a fixed-bid basis, increases in the
cost of services provided would have a negative impact on our billing margin
and financial results. Billable rates vary by service provided and geographic
region. Actual billing rates are established on a project-by-project basis and
may vary from the standard guidelines.

   We manage our personnel utilization by monitoring project requirements and
timetables. The number of resources assigned to a project will vary according
to the size, complexity, duration and demands of the project. Project
terminations, completions and scheduling delays may result in periods in which
our billable employees are not fully utilized.

   Our overall performance and quarterly operating results may fluctuate and
will be affected by the revenues generated from divine's offerings, and
RoweCom's need for additional capital. We expect RoweCom's, eshare's

                                      19

<PAGE>

and Open Market's revenues to comprise a significant portion of the revenues
generated by our software, services and hosting segment for the near future.

   We expect to spend a portion of our available cash and to issue shares of
our class A common stock in future periods to acquire other companies and to
acquire additional interests in certain of our associated companies that offer
products or services that complement and enhance our Web solutions. Because we
have only recently begun operating under our new business strategy to deliver
integrated enterprise Web solutions, we may experience significant volatility
in our quarterly results. We do not know if we will report net income in any
period, and we may report fluctuating net losses for the foreseeable future.

Effect of Various Accounting Methods on the Consolidated Financial Statements

   The various interests that we acquire in our associated companies are
accounted for under three methods: consolidation, equity method, or cost
method. We determine the method of accounting for our associated company
interests on a case-by-case basis based upon our ownership percentage in each
associated company, as well as our degree of influence over each associated
company.

   Associated companies in which we own, directly or indirectly, more than 50%
of the outstanding voting power are accounted for under the consolidation
method of accounting. Under this method, an associated company's results of
operations are reflected within our consolidated statements of operations.
Earnings or losses attributable to other stockholders of a consolidated
associated company are identified as "minority interest" in our consolidated
statements of operations. Minority interest adjusts our consolidated net
results of operations to reflect only our share of the earnings or losses of a
consolidated associated company.

   Associated companies in which we own 50% or less of the outstanding voting
power, but over which we exercise significant influence, are accounted for
under the equity method of accounting. Whether or not we exercise significant
influence with respect to an associated company depends on an evaluation of
several factors including, among other things, representation on the associated
company's board of directors, ownership percentage, and voting rights
associated with our holdings in the associated company. With respect to our
current associated companies, if we own at least 20%, but not more than 50%, of
the outstanding voting power of an associated company, we account for our
interests under the equity method. Under the equity method of accounting, an
associated company's results of operations are not reflected within our
consolidated operating results. However, our share of the earnings or losses of
that associated company is identified as "equity in losses of associated
companies" in our consolidated statements of operations.

   Associated companies not accounted for under either the consolidation or the
equity method of accounting are accounted for under the cost method of
accounting. Under this method, our share of the earnings and losses of these
companies is not included in our consolidated statements of operations unless
earnings or losses are distributed. We record our ownership interest in equity
securities of our associated companies accounted for under the cost method at
the lesser of cost or fair value. Those cost method associated companies that
have readily determinable fair values based on quoted market prices are
classified as available-for-sale securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."

   Associated companies included in our divine interVentures segment at
September 30, 2001 are listed in the table below. Our equity ownership
percentages have been calculated based on the issued and outstanding common
stock of each associated company, assuming the issuance of common stock upon
the conversion of preferred stock, but excluding the effect of unexercised
options or warrants. The table below excludes the associated companies that
comprise our software, services, and hosting segment. Those companies are an
integral part of our core business strategy, and are not reported as separate
businesses.

                                      20

<PAGE>

<TABLE>
<CAPTION>
                                                       Associated   Our Equity   Method of
                 Associated Company                   Company Since Ownership    Accounting
                 ------------------                   ------------- ----------  ------------
<S>                                                   <C>           <C>         <C>
Emicom Group, Inc....................................     4/3/00      100.0%    Consolidated
i-Fulfillment, Inc...................................    1/28/00       59.1%    Consolidated
Mindwrap, Inc........................................   11/19/99        100%    Consolidated
Panthera Productions, LLC............................    3/30/00       62.9%    Consolidated
United Process Group, Inc. (formerly eFiltration.com,
  Inc.)..............................................    2/11/00      100.0%    Consolidated
ViaChange.com, Inc...................................    1/31/00       70.3%    Consolidated
Bluevector, LLC......................................     4/2/01       47.0%          Equity
Dolphin InterVentures (formerly Latin American
  Econetworks N.V.)..................................    7/26/00       37.4%(1)       Equity
eReliable Commerce, Inc..............................    3/15/00       49.9%          Equity
iGive.com, Inc.......................................    2/11/00       32.1%          Equity
Launchworks inc......................................    2/25/00       40.4%(2)       Equity
LiveOnTheNet.com, Inc................................     5/1/01       25.0%          Equity
Mercantec, Inc.......................................    2/11/00       38.3%(3)       Equity
Outtask.com Inc......................................   12/10/99       28.8%          Equity
Perceptual Robotics, Inc.............................    2/14/00       33.3%          Equity
TV House, Inc........................................     3/8/00       42.0%          Equity
Commerx, Inc.........................................   11/19/99        0.9%            Cost
comScore, Inc........................................   10/29/99        0.6%            Cost
FuelQuest, Inc.......................................   10/06/00        0.8%            Cost
i-Street, Inc........................................   11/23/99       10.0%            Cost
NTE, Inc.............................................   10/29/99        5.3%            Cost
Novarra, Inc.........................................    3/15/01        2.0%            Cost
Neoforma.com, Inc....................................   10/14/99        0.6%        SFAS 115
</TABLE>
--------
(1)In November 2001, we acquired the remaining 62.6% of the outstanding stock
   of Dolphin Interventures.
(2)We also hold warrants to purchase shares of common stock of Launchworks.
   Giving effect to the exercise of these warrants, we would hold 49.4% of both
   the equity and voting power of Launchworks.
(3)We also hold warrants to purchase shares of common stock of Mercantec.
   Giving effect to the exercise of these warrants, we would hold 41.4% of both
   the equity and voting power of Mercantec.

Deconsolidation

   In January 2001, we restructured our ownership interest in i-Street, Inc.
(i-Street), such that our voting ownership in i-Street was reduced from 63.8%
to 25.1%. Beginning in January 2001, we accounted for our interest in i-Street
under the equity method.

Results of Operations

  Three Months Ended September 30, 2001 vs. Three Months Ended September 30,
2000

  General

   Beginning in the first quarter of 2001, we segregated our operations into
two operating segments. Our software, services, and hosting segment encompasses
the operations surrounding our core strategy of delivering integrated Web
solutions. Our divine interVentures segment encompasses the operations of our
remaining portfolio of associated companies, focusing primarily on e-commerce
and vertical markets. Our operations for the three months ended September 30,
2001 were considerably different than our operations for the three months ended
September 30, 2000. This is because, beginning in 2001, we changed our business
strategy from being an Internet holding company actively engaged in
business-to-business e-commerce through our community

                                      21

<PAGE>

of associated companies to becoming a provider of Web-based technology,
professional services, and managed applications. Our operations during this
period were significantly affected by our recent acquisitions, most notably the
acquisition of assets from marchFIRST, Inc., which have provided us with a
larger customer base and an increased revenue stream. During the three months
ended September 30, 2000, our operations resulted primarily from our
consolidated associated companies in the business-to-business e-commerce
sector, many of which were in the early stages of development and generated
significant losses with comparably low revenue. Most of these consolidated
associated companies have discontinued operations, have been sold, or are now
included as part of our core business strategy. Additionally, we held
investment interests in 10 associated companies accounted for under the equity
method of accounting as of September 30, 2001, as compared to 21 associated
companies accounted for under the equity method as of September 30, 2000. This
decrease in equity-method associated companies has led to decreases in our
equity in losses of associated companies.

  Revenues

   We generated revenues totaling $48,079,000 for the three months ended
September 30, 2001, which is an increase of $34,386,000 over revenues of
$13,693,000 for the three months ended September 30, 2000. The total revenues
for the three months ended September 30, 2001 included approximately $3,787,000
from the sale of products, all of which was generated by our software,
services, and hosting segment. Product revenues included $2,639,000 from
software sales contracts and $1,148,000 from sales of computer hardware. The
total revenues also included approximately $44,292,000 from the sale of
services, generated almost exclusively from the operations of
divine/Whittman-Hart.

   Revenues for the three months ended September 30, 2000 included
approximately $2,008,000 from the sale of products, including $665,000 related
to on-line sales of retail goods, $1,243,000 related to software sales
contracts and $100,000 related to sales of computer hardware and software. The
total revenues also included approximately $11,685,000 from the sale of
services, including $2,291,000 from marketing and public relations services,
$2,448,000 from Web design services, $1,007,000 from Web-based advertising,
$1,252,000 from hosting services and $732,000 from inventory management
services.

  Cost of Revenues

   For the three months ended September 30, 2001, our cost of revenues were
approximately $43,251,000, exclusive of $203,000 of amortization of stock-based
compensation. This is an increase of $30,906,000 over the $12,345,000
(exclusive of $365,000 of amortization of stock-based compensation) cost of
revenues we incurred for the three months ended September 30, 2000. Cost of
revenues for the three months ended September 30, 2001 included approximately
$41,462,000 of direct costs of providing services, which consisted principally
of $39,895,000 of salaries and benefits, $383,000 of rent and facilities
services, and $45,000 of depreciation and amortization. Cost of revenues for
2001 also included approximately $1,789,000 of direct costs of providing
products. Cost of revenues for the three months ended September 30, 2000
included approximately $10,892,000 of direct costs of providing services,
consisting primarily of salaries and benefits, professional services, rent and
facilities services, supplies expenses, and marketing expenses. Costs of
revenues also included approximately $1,453,000 of direct costs of providing
products.

  Selling, General, and Administrative Expenses

   For the three months ended September 30, 2001, we incurred selling, general,
and administrative expenses of approximately $58,060,000, exclusive of
$1,841,000 of amortization of stock-based compensation. This represents an
increase of $1,888,000 over the $56,172,000 (exclusive of $25,683,000 of
amortization of stock-based compensation) of selling, general, and
administrative expenses for the three months ended September 30,

                                      22

<PAGE>

2000. These expenses for the three months ended September 30, 2001 consisted
primarily of approximately $27,884,000 of employee benefits and related
compensation, approximately $5,499,000 of facility costs, consisting primarily
of rent expense, approximately $1,819,000 of fees for professional services,
including legal, consulting, and accounting, approximately $4,916,000 of travel
costs, and approximately $2,879,000 of depreciation expense. Selling, general,
and administrative expenses also included amortization of identifiable
intangible assets and goodwill in connection with our acquisitions of
consolidated associated companies, which totaled approximately $3,998,000.

   Selling, general, and administrative expenses for the three months ended
September 30, 2000 included approximately $25,325,000 of employee benefits and
related compensation, approximately $1,189,000 of marketing costs,
approximately $2,788,000 of travel and business development costs,
approximately $3,911,000 of fees for professional services, including legal,
consulting, and accounting, and approximately $5,123,000 of facility costs,
consisting primarily of rent expense. Selling, general, and administrative
expenses also included amortization of identifiable intangible assets and
goodwill in connection with our acquisitions of consolidated associated
companies, which totaled approximately $6,157,000.

  Research and Development Expenses

   For the three months ended September 30, 2001, we incurred research and
development expenses of approximately $7,530,000, exclusive of $75,000 of
amortization of stock-based compensation. This represents an increase of
$3,530,000 over the $4,000,000 (exclusive of $137,000 of amortization of
stock-based compensation) of research and development expenses for the three
months ended September 30, 2000. Research and development expenses for the
three months ended September 30, 2001 consisted primarily of approximately
$6,023,000 of employee benefits and related compensation. Research and
development expenses for the three months ended September 30, 2000 consisted
primarily of approximately $1,686,000 of employee benefits and related
compensation, approximately $232,000 of marketing expenses, and approximately
$1,734,000 of professional fees.

  Acquired Technology--In-process Research and Development

   For the three months ended September 30, 2001, we recorded in-process
research and development charges of approximately $1,196,000 in conjunction
with certain of our acquisitions. No such charges were recorded during the
three months ended September 30, 2000.

  Impairment of Investment in Consolidated Associated Companies

   For the three months ended September 30, 2000, we recorded impairment
charges of approximately $7,139,000 for other than temporary declines in the
carrying value of certain consolidated associated companies. No such charges
were incurred for the three months ended September 30, 2001.

  Impairment of Prepaid Co-Location and Bandwidth Services

   For the three months ended September 30, 2001, we recorded an impairment
charge on prepaid co-location and bandwidth services of $25,000,000. This
prepaid asset was originally recorded when we entered into an agreement with
Level 3 Communications concerning the purchase of a minimum of $100,000,000 of
co-location and bandwidth services over a four-year period. Of this amount,
$25,000,000 would have been credited to us as consideration for Level 3's
purchase of our common shares in a private placement concurrent with our IPO in
July 2000. In August 2001, we agreed to repurchase the 5,555,555 shares of our
common stock owned by Level 3 for $5,555,555 and warrants to purchase 2,200,000
shares of our class A common stock at an exercise price of $1.19 per share. We
also agreed to cancel our agreement relating to the purchase of $100,000,000 of
co-location and bandwidth services and to eliminate our prepaid credit of
$25,000,000. There was no impairment charge recorded for the three months ended
September 30, 2000.

                                      23

<PAGE>

  Amortization of Stock-Based Compensation

   For the three months ended September 30, 2001, we incurred a non-cash
expense of approximately $2,119,000 related to the issuance, prior to our IPO,
of shares of restricted stock and grants of options to employees, directors,
and consultants under our 1999 Stock Incentive Plan with exercise prices lower
than the fair value of the class A common stock on the dates of grant. For the
three months ended September 30, 2001, we did not recover any previously
recognized compensation expense related to non-vested options of terminated
employees.

   As of September 30, 2001, 1,802,091 of our outstanding class A common shares
were issued and outstanding under our 1999 Stock Incentive Plan and we had
outstanding options to purchase 41,243,583 shares of class A common stock under
that plan, with exercise prices ranging from $0.09 to $13.50 per share. The
total unearned stock-based compensation related to the outstanding options and
restricted stock as of September 30, 2001 was approximately $19,154,000.

   For the three months ended September 30, 2000, we incurred a non-cash
expense of approximately $7,647,000 related to the issuance of shares of
restricted stock and grants of options to employees, directors, and consultants
under our 1999 Stock Incentive Plan with exercise prices lower than the fair
value of the class A common stock on the dates of grant. Also for the three
months ended September 30, 2000, we recovered $4,859,000 of previously
recognized compensation expense related to terminated employees.

   Effective August 31, 2000, we reduced the exercise price of options granted,
and restricted stock purchased, under our 1999 Stock Incentive Plan prior to
our IPO to $9.00, being the IPO price of our class A common stock, if the
exercise price of such options or the purchase price of such restricted shares
was greater than the IPO price, and if the holder agreed to the change. We also
repurchased as of August 31, 2000, 2,633,166 shares of restricted class A
common stock, issued upon exercise of options granted under our 1999 Stock
Incentive Plan, at the respective exercise price, which ranged from $4.50 to
$9.00. Any consideration in excess of the exercise price or purchase price, as
adjusted, was refunded to these holders. As a result of the downward repricing
of restricted shares and options, we recorded a one-time stock-based
compensation charge of $3,209,000. Each of the holders of the repurchased
restricted stock received a replacement option grant for the same number of
shares with an exercise price of $9.00 per share. All of these replacement
options are exercisable and vest as to 25% of the options on the first
anniversary of the original option grant, and thereafter in equal monthly
installments over the next three years. For those replacement options repriced
downward, we will recognize stock-based compensation expense during the
remaining vesting period for any amount by which the fair value of our class A
common stock exceeds $9.00 per share.

   For the three months ended September 30, 2000, we incurred an additional
non-cash expense of approximately $1,858,000 related to our issuance to our
employees of shares of common stock of our majority-owned associated companies
that we established. Effective September 22, 2000, we repurchased these
minority interests from our employees. These repurchases were made at the
initial investment cost plus 8% for our executive officers and at two times the
initial investment cost for the other employees that owned those shares. The
aggregate purchase price for all of these shares was $93,000. As a result of
these repurchases, we accelerated our recognition of the remaining $18,330,000
of stock-based compensation related to these shares.

  Interest Income and Expense

   Interest income for the three months ended September 30, 2001 was
approximately $1,725,000 and was earned primarily from the investment of our
available cash balances. This is a decrease of $3,126,000 from the $4,851,000
of interest income earned during the three months ended September 30, 2000,
which was also earned from the investment of our available cash balances.
Interest expense for the three months ended September 30, 2001 was
approximately $853,000 and was incurred primarily from our long-term debt. This
is an increase of $200,000 from the $653,000 of interest expense incurred
during the three months ended September 30, 2000, which was incurred primarily
from notes payable to associated companies.

                                      24

<PAGE>

  Other Expense

   Other expense for the three months ended September 30, 2001 was
approximately $3,306,000. This represents an increase of $3,165,000 over the
$141,000 of other expense earned during the three months ended September 30,
2000. Other expense for the three months ended September 30, 2001 was mainly
attributable to an other than temporary decline in the value of our
available-for-sale investment in 360networks.

  Income Taxes

   We recorded no income tax provision or benefit for the three months ended
September 30, 2001 or the three months ended September 30, 2000. Because we
have no history of taxable income through September 30, 2001, the tax benefit
associated with our net losses has been fully reserved. As of September 30,
2001, we had total net operating loss carryforwards of approximately
$245,367,000, of which approximately $181,381,000 may be utilized by us to
reduce future consolidated taxable income, if any. Approximately $7,000,000 of
the net operating losses is attributable to foreign subsidiaries. Approximately
$56,986,000 of the total net operating loss carryforwards is attributable to
majority-owned subsidiaries not includible in our consolidated tax group.
Although each majority-owned subsidiary excluded from our consolidated tax
group may utilize its net operating loss carryforwards to reduce separate
future income taxes, if any, such carryforwards may not offset our consolidated
taxable income, if any. In addition, our utilization of the net operating loss
carryforwards may be substantially limited under the change in stock ownership
rules imposed by Internal Revenue Code Section 382. The net operating loss
carryforwards will expire through 2021.

   In assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that some or all of the deferred tax assets will not
be realized. Based upon our historical net operating losses and projections for
future tax losses, we believe it is more likely than not that we will not
realize the deferred tax assets. Thus, we have provided a full valuation
allowance against the net deferred tax assets as of September 30, 2001.

  Minority Interest

   Minority interest of approximately $394,000 and $6,192,000 represents the
non-controlling stockholders' share of our consolidated associated companies'
net loss for the three months ended September 30, 2001 and the three months
ended September 30, 2000, respectively.

  Gain (Loss) on Stock Transactions of Associated Companies

   Loss on stock transactions of associated companies of approximately $141,000
for the three months ended September 30, 2001 relates to the net decrease in
the value of our investments in associated companies resulting from the
issuance of stock by these companies to outside investors at prices different
than the value at which we have carried these investments and other stock
transactions of these associated companies. We expect to record future gains
and/or losses as more of our associated companies engage in stock transactions.
Gain on stock transactions of associated companies totaled approximately
$2,061,000 for the three months ended September 30, 2000. The gain was
attributed to issuances of stock by Launchworks inc., which accounted for
approximately $1,916,000; closerlook, inc., which accounted for approximately
$207,000; and Farms.com, which accounted for a dilution loss of approximately
$82,000.

  Equity in Losses of Associated Companies

   Equity in losses of associated companies resulted from our minority
ownership interests we account for, or accounted for, under the equity method.
Equity in losses of associated companies includes our proportionate share of
equity method associated companies' losses, which totaled approximately
$2,203,000 in net losses for the three months ended September 30, 2001 and
$14,280,000 in net losses for the three months ended September 30, 2000. Equity
in losses of associated companies also includes amortization of our net excess
investment over the equity in the net assets of these associated companies,
which totaled approximately $797,000 for the three months ended September 30,
2001 and $11,287,000 for the three months ended September 30, 2000.

                                      25

<PAGE>

  Impairment of Investment in Equity and Cost Method Associated Companies

   For the three months ended September 30, 2001, we recorded impairment
charges of approximately $2,763,000 for other than temporary declines in the
carrying value of certain equity and cost method associated companies.
Impairment charges for the three months ended September 30, 2000 totaled
approximately $6,128,000.

  Extraordinary Gain

   For the three months ended September 30, 2001, we recorded an extraordinary
gain of approximately $11,214,000 related to our acquisition of the 67% of
Emicom Group, Inc. that we did not already own. No extraordinary gain was
recorded for the three months ended September 30, 2000.

  Nine Months Ended September 30, 2001 vs. Nine Months Ended September 30, 2000

  General

   Beginning in the first quarter of 2001, we segregated our operations into
two operating segments. Our software, services, and hosting segment encompasses
the operations surrounding our core strategy of delivering integrated Web
solutions. Our divine interVentures segment encompasses the operations of our
remaining portfolio of associated companies, focusing primarily on e-commerce
and vertical markets. Our operations for the nine months ended September 30,
2001 were considerably different than our operations for the nine months ended
September 30, 2000. This is because, beginning in 2001, we changed our business
strategy from being an Internet holding company actively engaged in
business-to-business e-commerce through our community of associated companies
to becoming a provider of Web-based technology, professional services, and
managed applications. Our operations during this period were significantly
affected by our recent acquisitions, most notably the acquisition of assets
from marchFIRST, Inc., which have provided us with a larger customer base and
an increased revenue stream. During the nine months ended September 30, 2000,
our operations resulted primarily from our consolidated associated companies in
the business-to-business e-commerce sector, many of which were in the early
stages of development and generated significant losses with comparably low
revenue. Most of these consolidated associated companies have discontinued
operations, have been sold, or are now included as part of our core business
strategy. Additionally, we held investment interests in 10 associated companies
accounted for under the equity method of accounting as of September 30, 2001,
as compared to 21 associated companies accounted for under the equity method as
of September 30, 2000. This decrease in equity-method associated companies has
led to decreases in our equity in losses of associated companies.

  Revenues

   We generated revenues totaling $119,118,000 for the nine months ended
September 30, 2001, which is an increase of $88,118,000 over revenues of
$31,000,000 for the nine months ended September 30, 2000. The total revenues
for the nine months ended September 30, 2001 included approximately $8,703,000
from the sale of products, all of which was generated by our software,
services, and hosting segment. Product revenues included $6,264,000 from
software sales contracts and $2,439,000 from sales of computer hardware. The
total revenues also included approximately $110,415,000 from the sale of
services, generated almost exclusively from the operations of
divine/Whittman-Hart.

   Revenues for the nine months ended September 30, 2000 included approximately
$4,338,000 from the sale of products, including $1,938,000 related to on-line
sales of retail goods, $1,922,000 related to software sales contracts and
$374,000 related to sales of computer hardware and software. The total revenues
also included approximately $6,227,000 from Web design services, $5,840,000
from marketing and public relations services, $3,619,000 from Web-based
advertising, and $2,177,000 from hosting services.

                                      26

<PAGE>

  Cost of Revenues

   For the nine months ended September 30, 2001, our cost of revenues were
approximately $96,826,000, exclusive of $541,000 of amortization of stock-based
compensation. This is an increase of $69,754,000 over the $27,072,000
(exclusive of $1,009,000 of amortization of stock-based compensation) cost of
revenues we incurred for the nine months ended September 30, 2000. Cost of
revenues for the nine months ended September 30, 2001 included approximately
$92,042,000 of direct costs of providing services, which consisted principally
of $86,352,000 of salaries and benefits, $2,207,000 of rent and facilities
services, and $681,000 of depreciation and amortization. Cost of revenues for
2001 also included approximately $4,784,000 of direct costs of providing
products. Cost of revenues for the nine months ended September 30, 2000
included approximately $24,157,000 of direct costs of providing services, which
consisted principally of salaries and benefits, professional services, rent and
facilities services, supplies expenses, and marketing expenses. Cost of
revenues also included approximately $2,915,000 of direct costs of providing
products.

  Selling, General, and Administrative Expenses

   For the nine months ended September 30, 2001, we incurred selling, general,
and administrative expenses of approximately $147,710,000, exclusive of
$6,857,000 of amortization of stock-based compensation. This represents an
increase of $9,337,000 over the $138,373,000 (exclusive of $41,699,000 of
amortization of stock-based compensation) of selling, general, and
administrative expenses for the nine months ended September 30, 2000.

   These expenses for the nine months ended September 30, 2001 consisted
primarily of approximately $70,263,000 of employee benefits and related
compensation, approximately $13,634,000 of facility costs, consisting primarily
of rent expense, approximately $7,240,000 of fees for professional services,
including legal, consulting, and accounting, approximately $11,714,000 of
travel costs, and approximately $7,757,000 of depreciation expense. Selling,
general, and administrative expenses also included amortization of identifiable
intangible assets and goodwill in connection with our acquisitions of
consolidated associated companies, which totaled approximately $12,730,000.

   Selling, general, and administrative expenses for the nine months ended
September 30, 2000 included approximately $57,799,000 of employee benefits and
related compensation, approximately $12,797,000 of marketing costs,
approximately $9,613,000 of travel and business development costs,
approximately $7,488,000 of fees for professional services, including legal,
consulting, and accounting, and approximately $8,887,000 of facility costs,
consisting primarily of rent expense. Selling, general, and administrative
expenses also included amortization of identifiable intangible assets and
goodwill in connection with our acquisitions of consolidated associated
companies, which totaled approximately $14,423,000.

  Research and Development Expenses

   For the nine months ended September 30, 2001, we incurred research and
development expenses of approximately $13,520,000, exclusive of $274,000 of
amortization of stock-based compensation. This represents an increase of
$4,876,000 over the $8,644,000 (exclusive of $340,000 of amortization of
stock-based compensation) of research and development expenses for the nine
months ended September 30, 2000. Research and development expenses for the nine
months ended September 30, 2001 consisted primarily of approximately
$11,209,000 of employee benefits and related compensation. Research and
development expenses for the nine months ended September 30, 2000 consisted
primarily of approximately $3,684,000 of employee benefits and related
compensation, approximately $1,751,000 of marketing expenses, and approximately
$2,211,000 of professional fees.

  Acquired Technology--In-process Research and Development

   For the nine months ended September 30, 2001, we recorded in-process
research and development charges of approximately $1,196,000 in conjunction
with certain of our acquisitions. No such charges were recorded during the nine
months ended September 30, 2000.

                                      27

<PAGE>

  Impairment of Prepaid Co-location and Bandwidth Services and Investment in
  Consolidated Associated Companies

   For the nine months ended September 30, 2001, we recorded impairment charges
of approximately $3,024,000 for other than temporary declines in the carrying
values of certain consolidated associated companies. In addition, we recorded
an impairment charge on prepaid co-location and bandwidth services of
$25,000,000 for the three months ended September 30, 2001. This prepaid asset
was originally recorded when we entered into an agreement with Level 3
Communications for the purchase of a minimum of $100,000,000 of co-location and
bandwidth services over a four-year period. Of this amount, $25,000,000 would
have been credited to us as consideration for Level 3's purchase of our common
shares in a private placement concurrent with our IPO in July 2000. In August
2001 we agreed to repurchase the 5,555,555 shares of our Class A common stock
owned by Level 3 in exchange for $5,555,555 and warrants to purchase 2,200,000
shares of our class A common stock at an exercise price of $1.19 per share. We
also agreed to cancel our agreement relating to the purchase of $100,000,000 of
co-location and bandwidth services and to eliminate our prepaid credit of
$25,000,000. For the nine months ended September 30, 2000, we recorded
impairment charges of approximately $7,139,000 for other than temporary
declines in the carrying value of certain consolidated associated companies.

  Amortization of Stock-Based Compensation

   For the nine months ended September 30, 2001, we incurred a non-cash expense
of approximately $8,142,000 related to the issuance, prior to our IPO, of
shares of restricted stock and grants of options to employees, directors, and
consultants under our 1999 Stock Incentive Plan with exercise prices lower than
the fair value of the class A common stock on the dates of grant. We also
incurred a one-time charge of $132,000 related to the issuance of options to
members of our advisory committee. Also for the nine months ended September 30,
2001, we recovered $602,000 of previously recognized compensation expense
related to non-vested options of terminated employees, and we repurchased a
total of 85,851 shares of restricted class A common stock that were previously
exercised by terminated employees.

   As of September 30, 2001, 1,802,091 of our outstanding class A common shares
were issued and outstanding under our 1999 Stock Incentive Plan, and we had
outstanding options to purchase 41,243,583 shares of class A common stock under
that plan, with exercise prices ranging from $0.09 to $13.50 per share. The
total unearned stock-based compensation related to the outstanding options and
restricted stock at September 30, 2001 was approximately $19,154,000.

   For the nine months ended September 30, 2000, we incurred a non-cash expense
of approximately $26,594,000 related to the issuance of shares of restricted
stock and grants of options to employees, directors, and consultants under our
1999 Stock Incentive Plan with exercise prices lower than the fair value of the
class A common stock on the dates of grant. Also for the nine months ended
September 30, 2000, we recovered $6,146,000 of previously recognized
compensation expense related to terminated employees.

   Effective August 31, 2000, we reduced the exercise price of options granted,
and restricted stock purchased, under our 1999 Stock Incentive Plan prior to
our IPO to $9.00, being the IPO price of our class A common stock, if the
exercise price of such options or the purchase price of such restricted shares
was greater than the IPO price, and if the holder agreed to the change. We also
repurchased as of August 31, 2000, 2,633,166 shares of restricted class A
common stock, issued upon exercise of options granted under our 1999 Stock
Incentive Plan, at the respective exercise price, which ranged from $4.50 to
$9.00. Any consideration in excess of the exercise price or purchase price, as
adjusted, was refunded to these holders. As a result of the downward repricing
of restricted shares and options, we recorded a one-time stock-based
compensation charge of $3,209,000. Each of the holders of the repurchased
restricted stock received a replacement option grant for the same number of
shares with an exercise price of $9.00 per share. All of these replacement
options are exercisable and vest as to 25% of the options on the first
anniversary of the original option grant, and thereafter in equal monthly
installments over the next three years. For those replacement options repriced
downward, we will recognize stock-based compensation expense for any amount by
which the fair value of our class A common stock exceeds $9.00 per share during
the remaining vesting period.

                                      28

<PAGE>

   From January 1, 2000 through September 21, 2000, we incurred an additional
non-cash expense of approximately $5,896,000 related to our issuance to our
employees of shares of common stock of our majority-owned associated companies
that we established. Effective September 22, 2000, we repurchased these
minority interests from our employees. These repurchases were made at the
initial investment cost plus 8% for our executive officers and at two times the
initial investment cost for the other employees that owned those shares. The
aggregate purchase price for all of these shares was $93,000. As a result of
these repurchases, we accelerated our recognition of the remaining $18,330,000
of stock-based compensation related to these shares.

  Interest Income and Expense

   Interest income for the nine months ended September 30, 2001 was
approximately $7,638,000 and was earned primarily from the investment of our
available cash balances. This is a decrease of $3,439,000 from the $11,077,000
of interest income earned during the nine months ended September 30, 2000,
which was also earned from the investment of our available cash balances.
Interest expense for the nine months ended September 30, 2001 was approximately
$2,189,000 and was incurred primarily from our long-term debt. This is an
increase of $214,000 from the $1,975,000 of interest expense incurred during
the nine months ended September 30, 2000, which was incurred primarily from
notes payable to equity method associated companies.

  Other Income (Expense), net

   Other income for the nine months ended September 30, 2001 was approximately
$10,120,000. This represents an increase of $10,245,000 over the $125,000 of
other expense earned during the nine months ended September 30, 2000. Other
income for the nine months ended September 30, 2001 was earned primarily from
the sale of our investments in Farms.com, Ltd. and Sequoia Software
Corporation, which resulted in realized gains of approximately $7,225,000 and
$6,611,000, respectively, offset by an other than temporary decline of
approximately $4,181,000 in our available-for-sale investment in 360networks.

  Income Taxes

   We recorded no income tax provision or benefit for the nine months ended
September 30, 2001 or the nine months ended September 30, 2000. Because we have
no history of taxable income through September 30, 2001, the tax benefit
associated with our net losses has been fully reserved. As of September 30,
2001, we had total net operating loss carryforwards of approximately
$245,367,000 of which approximately $181,381,000 may be utilized by us to
reduce future consolidated taxable income, if any. Approximately $7,000,000 of
the net operating losses is attributable to foreign subsidiaries. Approximately
$56,986,000 of the total net operating loss carryforwards are attributable to
majority-owned subsidiaries not includible in our consolidated tax group.
Although each majority-owned subsidiary excluded from our consolidated tax
group may utilize its net operating loss carryforwards to reduce separate
future income taxes, if any, such carryforwards may not offset our consolidated
taxable income, if any. In addition, our utilization of the net operating loss
carryforwards may be substantially limited under the change in stock ownership
rules imposed by Internal Revenue Code Section 382. The net operating loss
carryforwards will expire through 2021.

   In assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that some or all of the deferred tax assets will not
be realized. Based upon our historical net operating losses and projections for
future tax losses, we believe it is more likely than not that we will not
realize the deferred tax assets. Thus, we have provided a full valuation
allowance against the net deferred tax assets as of September 30, 2001.

  Minority Interest

   Minority interest of approximately $4,269,000 and $14,732,000 represents the
non-controlling stockholders' share of our consolidated associated companies'
net loss for the nine months ended September 30, 2001 and the nine months ended
September 30, 2000, respectively.

                                      29

<PAGE>

  Gain (Loss) on Stock Transactions of Associated Companies

   Gain on stock transactions of associated companies of approximately $663,000
for the nine months ended September 30, 2001 relates to the net increase in the
value of our investments in associated companies resulting from the issuance of
stock by these companies to outside investors at prices different than the
value at which we have carried these investments and other stock transactions
of these associated companies. We expect to record future gains and/or losses
as more of our associated companies engage in stock transactions. Gain on stock
transactions of associated companies totaled approximately $4,824,000 for the
nine months ended September 30, 2000. The gain was attributed to issuances of
stock by Launchworks, which accounted for approximately $4,191,000, closerlook,
which accounted for approximately $847,000, and Farms.com which accounted for a
loss of approximately $82,000.

  Equity in Losses of Associated Companies

   Equity in losses of associated companies resulted from our minority
ownership interests we account for, or accounted for, under the equity method.
Equity in losses of associated companies includes our proportionate share of
equity method associated companies' losses, which totaled approximately
$9,955,000 in net losses for the nine months ended September 30, 2001 and
$31,905,000 in net losses for the nine months ended September 30, 2000. Equity
in losses of associated companies also includes amortization of our net excess
investment over the equity in the net assets of these associated companies,
which totaled approximately $5,488,000 for the nine months ended September 30,
2001 and $28,324,000 for the nine months ended September 30, 2000.

  Impairment of Investment in Equity and Cost Method Associated Companies

   For the nine months ended September 30, 2001, we recorded impairment charges
of approximately $30,381,000 for other than temporary declines in the carrying
value of certain equity and cost method associated companies. These charges
included the write-off of our investment in Xippix, which ceased all meaningful
operations in April 2001.

   We recorded impairment charges of approximately $6,128,000 during the nine
months ended September 30, 2000.

  Extraordinary Gain

   For the nine months ended September 30, 2001, we recorded an extraordinary
gain of approximately $11,214,000 related to our acquisition of the 67% of
Emicom Group, Inc. that we did not already own. No extraordinary gain was
recorded for the nine months ended September 30, 2000.

Summary of Currently Expected Fixed Charges

   The following table summarizes the fixed charges as of September 30, 2001
that we currently expect to incur throughout the remainder of 2001 and over the
next three years for amortization of (1) identifiable intangible assets and
goodwill, (2) our net excess investment over our equity in the net assets of
associated companies, and (3) unearned stock-based compensation:

<TABLE>
<CAPTION>
                                                                   Year
                                               --------------------------------------------
               Amortization of:                   2001        2002        2003       2004
               ----------------                ----------- ----------- ----------- --------
<S>                                            <C>         <C>         <C>         <C>
Identifiable Intangible Assets and Goodwill(1) $ 7,551,000 $10,389,000 $ 2,549,000 $     --
Our Net Excess Investment.....................     427,000   2,211,000     805,000   67,000
Unearned Stock-Based Compensation(2)..........   2,114,000   8,454,000   8,186,000  400,000
                                               ----------- ----------- ----------- --------
Total......................................... $10,092,000 $21,054,000 $11,540,000 $467,000
                                               =========== =========== =========== ========
</TABLE>

                                      30

<PAGE>

--------
(1)In accordance with SFAS 142, Goodwill and Other Intangible Assets, no
   amortization of goodwill is included after 2001. Additionally, we have
   recorded approximately $16,698,000 of intangible assets associated with our
   acquisition of marchFIRST assets in April 2001 that have not yet been
   allocated between goodwill and other identifiable intangible assets. These
   assets are considered to be goodwill for purposes of the summary of
   currently expected fixed charges. Fixed charges in the years 2002 through
   2004 will increase to the extent that these assets are allocated to other
   identifiable intangible assets.
(2)These unearned stock-based compensation charges do not reflect potential
   additional charges associated with options granted to employees that are
   accounted for under the variable method of accounting as well as options
   granted to consultants. The future value of these potential charges cannot
   be estimated at this time because the charges will be based on the future
   value of our stock.

Liquidity and Capital Resources

   As of September 30, 2001, we had cash and cash equivalents of approximately
$170,026,000, including cash and cash equivalents of $3,568,000 held by
consolidated associated companies in our divine interVentures portfolio. Our
cash and cash equivalents as of September 30, 2001 represented a decrease of
approximately $82,507,000 from approximately $252,533,000 as of December 31,
2000. The net decrease in cash and cash equivalents was due primarily to net
cash used in operating activities of $103,856,000, cash provided by the sale of
ownership interests in associated companies of $26,247,000, net cash provided
in the acquisition and deconsolidation of ownership interests in associated
companies of $18,510,000, cash used for capitalized acquisition costs of
$13,990,000, and cash used to acquire property and equipment of $8,806,000.

   In January 2001, we entered into a $25,000,000 line of credit with LaSalle
Bank N.A. This line of credit is cash collateralized and is available for
working capital financing and general corporate purposes other than permanent
financing for acquisitions of interests in associated companies. As of
September 30, 2001, we had established letters of credit of $9,027,000 against
this line of credit for the purpose of securing real estate leases. In
addition, our obligations under our office lease in Lisle, Illinois are secured
by a letter of credit for $443,000 issued by Bank of America.

   We continually examine all of the associated companies in our divine
interVentures portfolio to assess their potential for financial success as part
of our organization, whether on a stand-alone basis or otherwise. This
examination includes consideration of each associated company's development of
its business plans and objectives and progress toward achievement of its
performance goals. For the nine months ended September 30, 2001, we have
recognized $33,405,000 of impairment charges related to our associated
companies. In conjunction with our new strategic direction, we will continue to
evaluate the remaining associated companies in our portfolio to determine
whether we will make any future contributions to their capital. We do not
expect to make additional investments in the associated companies in our divine
interVentures portfolio.

   In December 2000, we made the decision to no longer manage or fund
Skyscraper Ventures, L.P. Based upon this decision, Skyscraper returned
$1,285,000 of our limited partnership investment, returned $18,000 of our
general partnership investment and cancelled our remaining commitments. In
March 2001, Skyscraper distributed the share interests in Novarra. Inc., the
only investment made by Skyscraper. We directly owned 2.0% of Novarra at
September 30, 2001.

   In connection with purchases of our shares of class A and class C common
stock by private investors concurrent with our initial public offering in July
2000: (1) we agreed under our Alliance Agreement with Microsoft to purchase
approximately $9,600,000 of software products, $4,700,000 of consulting
services and $1,000,000 of product support services from Microsoft through
January 2004, to expend $4,000,000 over four years to promote Microsoft
solutions, to open an accelerator facility in Seattle, the cost for which will
be determined as the size and scope of the accelerator is finalized, and to
dedicate up to $50,000,000 in capital to projects and acquisitions in the
Seattle area; (2) we entered into an agreement concerning the purchase of a
minimum of $100,000,000 of co-location and bandwidth services from Level 3 over
a four-year period, $25,000,000 of which would have been credited to us as
consideration for Level 3's purchase of shares from us; and (3) we have agreed
to purchase a minimum of $5,000,000 of computer equipment and software, storage
solutions, and professional services from Compaq over four years. In August
2001, we agreed to repurchase the 5,555,555 shares of our common stock owned by
Level 3 for $5,555,555 and warrants to purchase 2,200,000

                                      31

<PAGE>

shares of our common stock. In August 2001, we paid to Level 3 $2,777,777 and
issued to Level 3 warrants to purchase 1,100,000 shares of our common stock. We
have agreed to pay the remaining $2,777,778 and issue the remaining 1,100,000
warrants in November 2001. Additionally, we agreed with Level 3 to cancel our
commitment to purchase $100,000,000 of co-location and bandwidth services and
to eliminate our prepaid credit of $25,000,000. In connection with our
acquisition of HostOne in October 2001, we agreed with Microsoft that we will
amend our Alliance Agreement to eliminate our purchase and other requirements
outlined above and to provide that we will adopt a Microsoft platform for our
services and technology, that we will identify other opportunities to promote
Microsoft products and develop products and services that are coordinated with
Microsoft products, and that Microsoft will promote our products and services
in connection with its ".NET" strategy.

   In May 2001, we received $13,174,000 for our 2,335,000 shares of Sequoia
Software Corporation as part of the acquisition of Sequoia by Citrix Systems,
Inc.

   At September 30, 2001, we had approximately $1,112,000 in available-for-sale
securities. This amount includes shares of Neoforma.com and CMGI.

   In two separate transactions in April 2001, we acquired certain assets from
marchFIRST, Inc., including, but not limited to, its former Whittman-Hart
operations, its SAP software implementation practice, and its value-added
reseller business. Additionally, we acquired accounts receivable with a face
value of approximately $102.8 million. The acquired business is held by our
newly-formed subsidiary, divine/Whittman-Hart, Inc. We paid to marchFIRST
approximately $12,500,000 in cash and divine/Whittman-Hart issued marchFIRST a
promissory note. The note is a $57.5 million balloon note, payable in five
years but accelerated to the extent of 50% of free cash flow from
divine/Whittman-Hart's operations and which is secured by the assets of
divine/Whittman-Hart. This note bears interest at the Wall Street Journal prime
rate of interest. In conjunction with our acquisition of marchFIRST assets, we
also assumed $12.0 million of accrued compensation and benefit obligations for
the employees transferred with the acquired businesses. marchFIRST also is
eligible to receive up to an aggregate of $55.0 million in bonus payments,
payable to the extent that 50% of free cash flow from divine/Whittman-Hart's
operations during the next five years exceeds divine/Whittman-Hart's obligation
under the promissory notes. We do not guarantee the promissory notes from
divine/Whittman-Hart to marchFIRST, but the terms of the promissory notes
restrict payments from divine/Whittman-Hart to us.

Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets. Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria that intangible assets acquired in
a purchase method business combination must meet in order to be recognized and
reported apart from goodwill, noting that any purchase price allocable to
workforce in place may not be accounted for separately. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 will also
require that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. We
have adopted the provisions of Statements 141 and 142 effective July 1, 2001.

   In August 2001, the FASB issued Statement No. 144, Accounting for Impairment
of Long-Lived Assets. The new standard supercedes Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be
Disposed Of. Although retaining many of the fundamental recognition and
measurement provisions of Statement 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale. The
new standard also supercedes the provisions of Accounting Principles Board

                                      32

<PAGE>

Opinion No. 30 (APB 30), "Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", and will require expected
future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred
rather than as of the measurement date as presently required by APB 30. The
provisions of Statement 144 are effective for financial Statements beginning
after December 15, 2001. We are currently evaluating the impact that Statement
144 will have on our results of operations and financial condition.

Special Note on Forward-Looking Statements

   This report includes forward-looking statements that reflect our current
expectations and projections about our future results, performance, prospects,
and opportunities. We have tried to identify these forward-looking statements
by using words such as ''may,'' ''will,'' ''expect,'' ''anticipate,''
''believe,'' ''intend,'' ''plan,'' ''estimate,'' and similar expressions. These
forward-looking statements are based on information currently available to us
and are subject to a number of risks, uncertainties, and other factors that
could cause our actual results, performance, prospects, or opportunities to
differ materially from those expressed in, or implied by, these forward-looking
statements. These risks, uncertainties, and other factors include:

   .   our ability to execute our integrated Web-based technology, professional
       services, and managed applications strategy;

    .  our ability to successfully implement our acquisition strategy,
       including our ability to integrate the operations, personnel, products,
       and technologies of, and address the risks associated with, acquired
       companies;

    .  our ability to develop enterprise Web software and services;

    .  the uncertainty of customer demand for enterprise Web software and
       services;

    .  our ability to expand our customer base and achieve and maintain
       profitability;

    .  our ability to retain key personnel;

    .  our ability to predict revenues from project-based engagements;

    .  our ability to keep pace with technological developments and industry
       requirements;

    .  our ability to efficiently manage our growing operations;

    .  changes in the market for Internet services and the economy in general,
       including as a result of any additional terrorist attacks or responses
       to terrorist attacks;

    .  increasing competition from other providers of software solutions,
       professional services and managed applications;

    .  the extent to which customers want to purchase software applications
       under hosted subscription based models;

    .  our ability to address the risks associated with international
       operations; and

    .  our ability to maintain our Nasdaq listing.

   Other matters, including unanticipated events and conditions, also may cause
our actual future results to differ materially from these forward-looking
statements. We cannot assure you that our expectations will prove to be
correct. In addition, all subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements mentioned above. You
should not place undue reliance on these forward-looking statements. All of
these forward-looking statements are based on our expectations as of the date
of this report. We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.


                                      33

<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

   Equity Price Risk--At September 30, 2001, we had approximately $1,112,000 of
available-for-sale equity securities. These securities represent companies in
the Internet and hi-tech sectors, both of which have experienced significant
volatility, specifically in the past eighteen months. These investments are at
risk in the event of a downturn in the public markets in general or a downturn
in their specific sectors. However, these investments accounted for only 0.3%
of our total assets at September 30, 2001.

   Interest Rate Risk--At September 30, 2001, we had approximately $170,026,000
in cash and cash equivalents. A decrease in market rates of interest would have
no material effect on the value of these assets, as they are short-term
financial instruments with a fair value approximating our cost basis. Cash
equivalents consist mainly of money market accounts, short-term treasury bills,
and commercial paper. The carrying values of other financial instruments, such
as accounts receivable, notes receivable, accounts payable, and notes payable
approximate fair value as well because of their short-term nature. Nearly all
of our long-term debt relates to a balloon note issued in conjunction with our
acquisition of assets from marchFIRST. This note bears interest at the Wall
Street Journal prime rate of interest.

   Foreign Currency Exchange Risk--Our financial market risk includes risks
associated with our ownership interests in three associated companies in our
divine interVentures portfolio who transact business in foreign currencies, as
well as increased foreign activity in our core operations, due mainly to our
acquisition of foreign offices from marchFIRST and SageMaker. Through September
30, 2001, we have recorded a $54,000 foreign currency translation adjustment in
other comprehensive income as a result of fluctuations in foreign currency
exchange rates. We do not currently engage in any activities for the purpose of
hedging foreign currency.

   Impairment Risk--At September 30, 2001, we held ownership interests in 22
associated companies in our divine interVentures segment that were not publicly
traded. We assess the net realizable value of these associated companies on a
regular basis to determine if we have incurred any other than temporary decline
in the value of our capital investment. For the nine months ended September 30,
2001, we incurred approximately $33,405,000 in impairment charges related to
our investment in equity method associated companies and the goodwill and/or
specific assets associated with our investment in consolidated associated
companies. For the nine months ended September 30, 2001, we also recorded
$25,000,000 of impairment expense related to the write-off of prepaid
co-location and bandwidth services. We may incur additional impairment charges
in future periods as we plan to capitalize significant intangible assets
related to future acquisitions.

                                      34

<PAGE>

                           PART II OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

   In July 2001, we issued 13,800,000 shares of our class A common stock to the
stockholders of Emicom Group, Inc. in connection with our acquisition of the
67% of the equity interests of Emicom that we did not already own. Emicom had
been one of our associated companies since April 2000, when we acquired a 33%
interest in Emicom.

   In August 2001, we issued warrants to purchase 1,000,000 shares of our class
A common stock in connection with our acquisition of the assets of Fracta
Networks, Inc.

   In August 2001, we paid $2,777,777 and issued a warrant to purchase
1,100,000 shares of our class A common stock to Level 3 Communications, LLC,
and agreed to pay an additional 2,777,778 to Level 3 and to issue to Level 3 in
November 2001 another warrant to purchase an additional 1,100,000 shares of our
class A common stock, in exchange for 5,555,555 shares of our class A common
stock held by Level 3 and for terminating an agreement relating to the purchase
by us from Level 3 of bandwidth and co-location services.

   In September 2001, we issued 3,596,007 shares of our class A common stock to
UBS AG in connection with our acquisition of a 26.6% interest in Parlano, Inc.
Parlano has been one of our associated companies since February 2000, when we
acquired a 75% equity interest in Parlano. As a result of the acquisition, we
now own approximately 96% of the capital stock of Parlano.
   All of our class A common stock issued in the transactions described above
were issued in transactions exempt from registration pursuant to Section 4(2)
and Rule 506 of the Securities Act of 1933, as amended.


                                      35

<PAGE>

Item 6. Exhibits and Reports on Form 8-K

   (a) Exhibits


Number Description of Exhibit
------ ----------------------

<TABLE>
<C>    <S>

2.1    Agreement and Plan of Merger, dated as of July 8, 2001, among divine, inc., DES Acquisition Company
       and eshare communications, Inc., excluding exhibits and schedules thereto (incorporated by reference to
       Exhibit 2.1 to the Report on Form 8-K of divine dated July 11, 2001 (the "July 2001 8-K").

2.2    Agreement and Plan of Merger and Reorganization, dated as of July 6, 2001, among divine, inc.,
       Knowledge Resources Acquisition Corp. and RoweCom Inc., excluding exhibits and schedules thereto
       (incorporated by reference to Exhibit 2.2 to the July 2001 8-K).

2.3(a) Agreement and Plan of Merger, dated as of August 15, 2001, among divine, inc., DI1 Acquisition
       Company, and Open Market, Inc. (incorporated by reference to Exhibit 2.1 to the Report on Form 8-K of
       divine dated August 17, 2001).

2.3(b) Amendment, dated September 10, 2001, to Agreement and Plan of Merger, dated August 15, 2001,
       among divine, inc., DI1 Acquisition Company, and Open Market, Inc. (incorporated to Exhibit 10.3 to
       the Registration Statement on Form S-4 of divine, File No. 333-66488 (the "divine/eshare/Open Market
       S-4")).

2.4    Agreement and Plan of Merger, dated as of September 17, 2001, among divine, inc., DI2 Acquisition
       Company, and Eprise Corporation (incorporated by reference to Exhibit 2.1 to the Report on Form 8-K
       of divine dated September 20, 2001).

4.1    Rights Agreement, dated as of February 12, 2001, between divine interVentures, inc. and Computershare
       Investor Services, LLC, as Rights Agent, including the form of Certificate of Designation, Preferences,
       and Rights of Series A Junior Participating Preferred Stock setting forth the terms of the Series A Junior
       participating Preferred Stock, par value $.001 per share, as Exhibit A, the form of Rights Certificate as
       Exhibit B, and the Summary of Rights to Purchase Preferred Stock as Exhibit C (incorporated by
       reference to Exhibit 1 to the Registration Statement on Form 8-A of divine filed with the Securities and
       Exchange Commission on February 13, 2001).

 4.2 Amendment No. 1 to Rights Agreement, dated as of July 8, 2001, between divine and Computershare
     Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 2 to the Registration
     Statement on Form 8-A/A of divine filed with the Securities and Exchange Commission on July 23,
     2001).

 4.3 Amendment No. 2 to Rights Agreement, dated as of August 15, 2001, between divine and
     Computershare Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 99.3 to
     the Registration Statement on Form 8-A/A of divine filed with the Securities and Exchange
     Commission on August 20, 2001).

10.1 Stockholder Agreement, dated as of July 8, 2001, among divine, inc., Szlam Partners, L.P. and
     Aleksander Szlam., including exhibits thereto (incorporated by reference to Exhibit 99.3 to the July
     2001 8-K).

10.2 Executive Employment Agreement effective as of April 16, 2001 between divine, inc. and Andrew J.
     Filipowski.

10.3 Executive Employment Agreement effective as of April 16, 2001 between divine, inc. and Michael
     Cullinane.

10.4 Executive Employment Agreement effective as of April 16, 2001 between divine, inc. and Paul
     Humenansky.
</TABLE>

                                      36

<PAGE>

   (b) Reports on Form 8-K

   We filed a Report on Form 8-K dated July 11, 2001, announcing that we (i)
entered into an agreement and plan of merger with eshare communications, Inc.
pursuant to which eshare would become one of our wholly owned subsidiaries in a
stock-for-stock merger transaction; (ii) entered into an agreement and plan of
merger and reorganization with RoweCom, Inc. pursuant to which RoweCom would
become one of our wholly-owned subsidiaries in a stock-for-stock merger
transaction; and (iii) entered into an agreement and plan of merger with Emicom
Group, Inc. providing for the acquisition by divine of the 67% of Emicom that
it did not already own and pursuant to which Emicom would become one of our
wholly-owned subsidiaries.

   We filed a Report on Form 8-K dated August 17, 2001, announcing that we
entered into an agreement and plan of merger with Open Market, Inc. pursuant to
which Open Market will become one of our wholly-owned subsidiaries in a
stock-for-stock merger transaction.

   We filed a Report on Form 8-K dated August 31, 2001, announcing that our
board of directors approved a program to repurchase up to $40 million of our
issued and outstanding shares of class A common stock and our repurchase on
August 22, 2001 of 2,777,777 shares of class A common stock from Level 3
Communications and an agreement to purchase an additional 2,777,778 shares of
class A common stock from Level 3 on November 20, 2001.

   We filed a Report on Form 8-K dated September 20, 2001, announcing that we
entered into an agreement and plan of merger with Eprise Corporation pursuant
to which Eprise will become one of our wholly-owned subsidiaries in a
stock-for-stock merger transaction.

                                      37

<PAGE>

                                   SIGNATURE

   Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 14, 2001.

                                          DIVINE, INC.

                                                  /S/ MICHAEL P. CULLINANE
                                          ------------------------------------
                                                    Michael P. Cullinane
                                                 Executive Vice President,
                                             Chief Financial Officer, and
                                                         Treasurer
                                                  (Principal Financial and
                                                    Accounting Officer)

                                      38