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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       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 000-29405
                            ------------------------

                                 ORGANIC, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                        <C>
                 DELAWARE                                  94-3258989
     (State or other jurisdiction of                     (IRS Employer
      incorporation or organization)                 Identification Number)
</TABLE>

                              601 TOWNSEND STREET
                        SAN FRANCISCO, CALIFORNIA 94103
                    (Address of principal executive offices)

                                 (415) 581-5300
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                        Common Stock, $0.0001 par value
                            ------------------------

     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 [ ]  No [X]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     As of January 31, 2001, there were 88,236,520 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant was $124,078,194. The aggregate market value
was based on the closing price for the Common Stock on the Nasdaq National
Market on January 31, 2001.

     Documents incorporated by reference: None.

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                                 ORGANIC, INC.

                          2000 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

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<CAPTION>
ITEM                                                                 PAGE
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<S>    <C>                                                           <C>
                                 PART I

1.     Business....................................................    3
2.     Properties..................................................   21
3.     Legal Proceedings...........................................   21
4.     Submission of Matters to a Vote of Security Holders.........   21
4A.    Executive Officers of the Registrant........................   22

                                 PART II

5.     Market for Registrant's Common Equity and Related
       Shareholder Matters.........................................   24
6.     Selected Consolidated Financial Data........................   26
7.     Management's Discussion and Analysis of Financial Condition
       and Results of Operations...................................   28
7A.    Quantitative and Qualitative Disclosures About Market
       Risk........................................................   35
8.     Financial Statements and Supplementary Data.................   36
9.     Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure....................................   61

                                PART III

10.    Directors and Executive Officers of the Registrant..........   61
11.    Executive Compensation......................................   63
12.    Security Ownership of Certain Beneficial Owners and
       Management..................................................   67
13.    Certain Relationships and Related Transactions..............   68

                                 PART IV

14.    Exhibits, Financial Statement Schedules and Reports on Form
       8-K.........................................................   70
SIGNATURES.........................................................   72
</TABLE>

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                                     PART I

ITEM 1. BUSINESS

     This report includes statements that qualify as forward-looking statements
under the Private Securities Litigation Reform Act of 1995. The information in
this report contains forward-looking statements that are based on our
management's current expectations. These forward-looking statements include
statements regarding the following topics, among others: our business strategy
and operations, future expansion or restructuring plans, future prospects,
financial position, anticipated revenues or losses and projected costs and
objectives of management. These forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those described in this report. Any statements that are not
statements of historical facts may be deemed to be forward-looking statements.
For example, words such as "may", "will", "should", "believes", "anticipates",
"intends", "estimates", "expects", "projects", "plans", "predicts", "potential",
"continue", "strategy" and similar expressions are intended to identify forward-
looking statements. Factors that might cause or contribute actual results to
differ to such a discrepancy include, but are not limited to, those discussed in
the section entitled "Factors that May Affect Results" and the risks discussed
in our other Securities and Exchange Commission filings, and our Registration
Statement on Form S-1 declared effective on February 9, 2000 by the Securities
and Exchange Commission (File No. 333-91627). All forward-looking statements are
made as of today and reflect our management's current expectations. We disclaim
any duty to update such statements.

OVERVIEW

     Organic is an international Internet professional services firm. We provide
various services to build and operate our clients' online businesses. These
services include iBusiness, marketing solutions and customer service and
fulfillment.

     - iBusiness refers to our consulting, Web site design and software
       engineering services through which we develop online business plans and
       create Web sites.

     - Marketing Solutions refers to our services through which we plan and
       manage online advertising campaigns including electronic mail promotions
       and affiliate program management.

     - Customer Service and Fulfillment refers to our customer service and
       fulfillment consulting and transaction management services through which
       we evaluate, assist and manage our clients' warehouse and customer call
       center facilities.

     We believe that the Internet has shifted the balance of power from
businesses to customers and has created the first truly global marketplace. We
also believe that the ultimate customer, whether a business or consumer, is the
central and most influential participant in a commercial relationship. We
believe that the key to our business is our complete focus on our clients'
customers -- the digital demand chain. We have designed our services in
recognition of the challenges our business clients face due to this shift. To
become the leading Internet professional services firm, our strategy revolves
primarily around leveraging our existing business processes and infrastructure
to facilitate our growth globally, expanding our relationships with our existing
clients, targeting and soliciting new clients, and retaining our key
professionals.

     We have performed work for over 300 clients and have gained significant
experience by working with both major offline and emerging Internet companies,
including DaimlerChrysler, British Telecommunications plc, Playstation.com
(America), Inc., Federated Department Stores, General Electric, Bell Canada,
Washington Mutual and Target.

     We were founded in 1993 as a sole proprietorship and incorporated in
California in January 1995. On January 29, 1997, Organic Online, Inc. was
renamed Organic Holdings, Inc. and we were formed as a subsidiary in Delaware
under the name Organic Online, Inc. We exchanged 18,323,712 shares of Series A
convertible preferred stock and nine shares of common stock for substantially
all of the assets and liabilities of Organic Holdings, Inc. Because this
reorganization did not result in a change in control, there was no change

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in the basis of accounting at the time of the reorganization. We changed our
name from Organic Online, Inc. to Organic, Inc. on January 28, 1999.

     Our principal executive offices are located at 601 Townsend Street, San
Francisco, California.

INDUSTRY BACKGROUND

  CUSTOMER EMPOWERMENT

     The Internet has created an environment for businesses where the
competition is only "one click away". Online customers can reach a large number
of vendors and can compare pricing and product information in order to obtain
higher levels of service and lower prices. These factors have increased the
importance of customer satisfaction and loyalty as well as the quality of the
online experience, forcing many businesses to redefine the way they build and
maintain relationships with their customers.

     As the number of Internet users and the value of transactions over the
Internet grow, businesses are becoming increasingly aware of the importance of
focusing their online strategies on attracting, servicing and retaining
customers. Computer Industry Almanac, October 25, 2000, estimates that the
number of Internet users worldwide will grow from 349 million in 2000 to 766
million by 2005. This growth in the number of users creates significant
opportunities and challenges for businesses on the Internet.

  BUSINESSES FACE SIGNIFICANT OPPORTUNITIES AND CHALLENGES ONLINE

     With the Internet removing traditional geographic boundaries, the resulting
increase in competition for customers forces both traditional and online
businesses to create or redefine themselves in this Internet space. Companies
that have never had direct relationships with their end customers can establish
them, in some cases bypassing traditional intermediaries. In addition, companies
now have the opportunity to form lasting relationships directly with new
customers. Some companies must also integrate their online and offline business
strategies. In addressing these changes, businesses face significant
opportunities and challenges including:

     CREATING STRATEGIES TO ADDRESS ONLINE OPPORTUNITIES. Developing strategies
that can be effectively evaluated and implemented is a critical factor in
improving the time-to-market and return-on-investment for online businesses.
Companies that can identify opportunities, target and service diverse groups of
customers, define and develop sustainable online business models, and evaluate
their online success may improve their performance.

     CREATING A POSITIVE CUSTOMER EXPERIENCE. Companies must create online
businesses that deliver consistent, engaging and responsive customer
experiences. If done effectively, the foundation for a long-term relationship
between the business and the customer is formed.

     CONNECTING WITH POTENTIAL CUSTOMERS ONLINE. Understanding how to
communicate with online customers requires businesses to develop new knowledge
and skill sets. These skill sets include identifying, targeting, attracting and
retaining profitable customers.

     MANAGING INTERNET TECHNOLOGY. Internet technology differs from traditional
information technology. Therefore, many businesses do not possess the technical
skills required to design, build and maintain a functional and reliable online
business. Internet technology requires the expertise to select and build
platforms that can handle high volumes of transactions.

     EFFECTIVELY UTILIZING CUSTOMER DATA. Businesses can collect, store and
analyze significant quantities of customer information. This information, if
properly analyzed, can be used to improve the total customer experience and
increase return-on-investment.

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     MEETING CUSTOMER SERVICE AND FULFILLMENT EXPECTATIONS. Often overlooked,
customer service and fulfillment services can create long-lasting, positive or
negative, impressions with customers. Businesses that can distinguish themselves
by offering quality customer service and fulfillment will maximize the value of
their customer relationships.

     To capitalize on these opportunities and overcome these challenges, online
businesses need to focus on delivering a positive customer experience.
Increasingly, this requires the ability to draw upon significant experience in a
variety of disciplines, manage large multi-disciplinary teams and successfully
deliver an integrated solution worldwide.

  DEMAND FOR INTERNET PROFESSIONAL SERVICES

     Few businesses have the internal capabilities to address the opportunities
and challenges of the Internet. The complexity of conducting business online,
the rapidly changing technological environment, the need to improve
time-to-market and the limited supply of technically proficient internal
personnel creates significant demand for Internet professional services.
According to Forrester Research estimates the worldwide market for Internet
professional services will grow from $9.5 billion in 2000 to $15.9 billion in
2002.

     We believe that companies seek Internet professional services firms that
deliver complete and integrated global services with a focus on establishing,
maintaining and enhancing customer relationships with the appropriate
technology. We believe that such firms must have the capabilities to design and
build online businesses, use technology as a strategic tool, employ effective
marketing strategies and improve customer service and fulfillment to enhance the
customer experience.

THE ORGANIC SOLUTION

     We have developed an integrated solution to address the evolving needs of
the ultimate customer and our clients. The key elements of the Organic solution
are:

  DIGITAL DEMAND CHAIN

     We are exclusively focused on, and have built our reputation in, the large
and growing digital demand chain market. The digital demand chain market
encompasses both the traditional business-to-consumer and business-to-business
markets, but views the ultimate customer as the central and most influential
participant in the commercial relationship.

     We recognize that a complete focus on the customer has become important to
our clients as the Internet allows every customer to demand positive online
experiences. We help our clients transform their businesses by building them
from their customer's perspective, enhancing their ability to create and
maintain a direct relationship with their customers and effectively incorporate
customer feedback into their business. We believe that we provide a unique value
proposition to our clients because we approach our solutions as integrated
components in the delivery of customer satisfaction rather than as isolated
assignments. This approach requires comprehensive knowledge and skills.

  INTEGRATED SERVICE OFFERING

     We deliver value to our clients and their ultimate customers by addressing
all of the points of contact in the customer experience. These contact points
include advertising and communicating with customers as well as selling and
delivering goods or services to them. Since our inception, we have sought to
provide an integrated solution by expanding our service offering to meet our
clients' evolving needs, including:

     - iBusiness, which refers to our consulting, Web site design and software
       engineering services through which we develop online business plans and
       create Web sites;

     - Marketing Solutions, which refers to our services through which we plan
       and manage online advertising campaigns including electronic mail
       promotions and affiliate program management; and

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     - Customer Service and Fulfillment, which refers to our customer service
       and fulfillment consulting and transaction management services through
       which we evaluate, assist and manage our clients' warehouse and customer
       call center facilities.

     We believe that these disciplines are highly inter-dependent and therefore
must be well integrated to create a positive customer experience. Our approach
encourages our clients to use more than one of our service offerings and enables
us to assist our clients with the implementation of their online businesses and
the refinement of their strategies. Furthermore, the opportunity to have an
ongoing role in our clients' online businesses provides us with the potential
for a recurring revenue base.

  GLOBAL PRESENCE

     The Internet has removed geographic barriers. Many of our multi-national
clients demand a consistent brand image and a tailored customer experience,
which often requires localized content and specific knowledge about local
practices and customs. We believe that maintaining a global presence is critical
to our clients' and ultimately to our success. Therefore, we continue to
maintain international offices, in addition to our offices in the United States.
As of December 31, 2000, we had offices in four international locations: Sao
Paulo, London, Singapore and Toronto. As of December 31, 2000, we were serving
19 clients internationally. We believe that our global presence allows us to
establish and deepen relationships with multi-national clients and grow with
them by effectively meeting the needs of their customers on a global basis.

  TECHNOLOGY AS A STRATEGIC TOOL

     Technology is a critical element in our service offerings and influences
our solutions. We combine custom software with third party software and
integrate them into the existing technical infrastructure of our clients. Using
this approach, we create systems that can handle a high volume of transactions
from the Internet as well as the changing demands of customers over time. For
example, we obtain information from clients about their potential business and
customer needs and recommend various hardware and software solutions.

     In addition to managing the implementation of Internet solutions, we also
introduce new technology to our clients. Examples include:

     - We provide rich media online, including Web audio and video;

     - We develop online, transaction-enabled advertising banners, which allow
       an entire electronic commerce transaction to occur through the banner;
       and

     - We develop customer service and fulfillment solutions, which use
       transaction management software to connect our clients' Web sites
       seamlessly to fulfillment centers.

     These innovations use technology as a strategic tool to deliver a unique
and positive customer experience.

  COLLABORATIVE AND BALANCED TEAM APPROACH

     Our client teams work together to design, build and maintain online
businesses. Client teams contain individuals from disciplines required by the
engagement and are managed by a multidisciplinary group of team leaders. The
team leaders, can consist of a client service representative, known as a client
partner, an interactive strategist, a creative leader, a technical leader and a
project manager, working in close coordination to ensure successful execution of
an engagement. Marketing solutions and customer service and fulfillment leaders
round out each team depending on the scope of the engagement. These team leaders
work together as peers to actively manage and monitor each client engagement
through the use of milestones, planning and implementation processes and regular
feedback mechanisms.

     From planning to design to problem-solving, the expertise of every
discipline is involved and team members share knowledge and ideas. This ensures
that the strategy we design can be implemented and the technology we recommend
meets customer needs. Our corporate culture promotes the open discussion of
strategic, design, creative and technical challenges. We believe that this
culture allows us to solve problems efficiently and effectively, helping us to
deliver on the high expectations of our clients and their customers.
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OUR STRATEGY

     Our objective is to be the leading Internet professional services firm
focused on the digital demand chain market. To achieve this objective, the key
elements of our growth strategy include:

  HIRE AND RETAIN THE BEST PEOPLE

     We view our culture and commitment to professional development to be an
asset in attracting and retaining our professionals. We identify and hire
outstanding professionals and maintain a training and development program which
fosters employee satisfaction and have competitive compensation and benefits
programs. We also provide our employees with the opportunity for professional
mobility by focusing on developing our managers from within the organization.

  CONTINUE OUR TRACK RECORD OF INNOVATION

     Our ability to innovate will continue to be an important factor to our
business. We have demonstrated a track record of innovation. We led the
development of the Apache Web server and initiated the development of
network-based tools for measuring Web site performance that led to the
establishment of Accrue Software, Inc. (Nasdaq: ACRU). In addition, we continue
to identify and address the changing needs of our clients and their customers
through the creation of new service offerings as we anticipate new customer
needs.

  EXPAND OUR RELATIONSHIPS WITH OUR EXISTING CLIENT BASE

     We use our service offerings to expand relationships with our existing
clients as their needs change. The Internet has proven to be a highly dynamic
and powerful medium and the extent of its global impact on traditional
businesses and the creation of new commercial opportunities is not fully known.
This gives us the opportunity to sell additional services to our existing
clients as their needs change or the scope of our engagement grows. By expanding
relationships with our existing clients, we can potentially reduce the cost of
acquiring additional revenues, strengthen our partnership with our current
clients and increase recurring revenues.

  EFFECTIVELY TARGET AND SOLICIT NEW CLIENTS

     We believe that by targeting new clients and building a new business
development organization we will improve our long-term prospects. We target new
clients that understand the Internet and that will benefit from using more than
one of our service offerings; however, they may use just one of our services. We
also pursue engagements that enhance our overall franchise in the Internet
professional services industry by allowing us to implement Internet solutions
for new industries, technologies and business models. By effectively targeting
new clients, we believe that we can build mutually beneficial long-term client
relationships and gain valuable experience.

ORGANIC SERVICES

     We provide services focused on driving return-on-investment related to the
total customer experience. We developed our service offerings to meet the
changing needs of our clients and their customers and we anticipate that these
offerings will continue to evolve. Each of our services is implemented through a
team, which consists of interdisciplinary team members. Our current service
offerings include:

  IBUSINESS CONSULTING SERVICES

     The value of our iBusiness consulting offering lies in our ability to
understand our clients' business objectives, collaborate with our creative and
engineering teams and make recommendations that clients can use to create online
businesses. Our ability to deliver prototypes provides our clients with the
opportunity to have a time-to-market advantage.

     SERVICES PROVIDED. Our iBusiness consulting teams provide Internet-focused
business strategy expertise, strategic marketing, branding and research
services, and customer service and technology consulting. Our
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team helps clients identify online market opportunities, define and develop
sustainable online business models, understand competitive differentiation,
identify, analyze and segment online target markets, develop compelling online
brand strategies and evaluate their online efforts. Our research services focus
on five key areas including audience profiling, concept testing, site
development and usability, brand strategy and market positioning and messaging.
Our researchers use surveys, usability testing, one-on-one interviews and focus
groups during the development of online businesses.

     IMPLEMENTATION. Our iBusiness consulting teams work with our clients and
other specialists within Organic. These teams create a plan, test multiple
scenarios and refine that plan based on the rapid prototyping of potential
strategies. In addition, our teams share ideas and best practices through
education and brainstorming sessions, summits and workshops.

  iBUSINESS WEB SITE DESIGN SERVICES

     Our Web site design teams design a user experience that enhances the
interaction and communication between our clients and their customers consistent
with our clients' strategic goals and the needs of their customers.

     SERVICES PROVIDED. Our Web site design services involve the creation or
extension of a client's online brand identity, defining the theme or unifying
concept for the business or media campaign and creating an experience and
message to attract and retain customers. At the simplest level, our services
involve Web site design, but they also include the design and implementation of
the other creative elements of a customer interface, such as online banner
advertisements. Our creative team works closely with our strategy and
engineering teams to ensure that the technical architecture and the user
interface of a client's online business work together to create a consistent,
engaging and responsive customer experience.

     IMPLEMENTATION. We implement our Web site design services through experts
in four key areas, including:

     - visual design, which focuses on the visual appearance of a Web site to
       the customer;

     - editorial, which focuses on making interesting text-based content;

     - information architecture, which focuses on site navigation; and

     - interactive art production, which focuses on transforming visual images
       into an electronic format.

     Our Web site design staff has expertise and training as animators,
cinematographers, editors and sound, multi-media and game designers. Our use of
prototypes to evaluate interface design, content and customer behavior improves
our ability to quickly test multiple scenarios and incorporate feedback into the
design and implementation of a solution. The prototyping process also allows us
to investigate new uses for applications, technologies and platforms including
broadband and interactive television.

  iBUSINESS SOFTWARE ENGINEERING SERVICES

     Our engineering teams combine traditional software engineering and new
technologies to implement technical infrastructure recommendations and software
that can be adapted for the growth of our clients' businesses.

     SERVICES PROVIDED. We combine custom software with third party software and
integrate them into the existing technical infrastructure of our clients. Our
Internet expertise includes all aspects of technical design, development and
integration related to electronic commerce, Web-based applications development,
database systems, content and transaction management tools, and Internet
features including community, personalization and customization. We also
incorporate the ability to measure site performance and track customer behavior
information allowing our clients to calculate their return on investment.

     IMPLEMENTATION. Our software engineering teams analyze a problem and
recommend, design and deploy a solution. Our software engineering teams
implement interface designs developed in conjunction with our creative teams
using interactive technologies including dynamic hypertext markup language, or
DHTML,
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Shockwave and Flash. These technologies allow us to create Web sites that
include interactive content, audio and video versus traditional text-based Web
sites. Throughout all phases of development, a group of quality assurance
specialists work in conjunction with our development teams to ensure that our
solutions meet our client's needs.

  MARKETING SOLUTIONS

     Our marketing solutions services build brands, generate awareness and drive
traffic and transactions for our clients' online businesses. We believe we are a
significant buyer and manager of online media, and that our accumulated
purchasing power and analysis of customer behavior data delivers measurable
results for our clients through lower customer acquisition costs, higher
customer retention rates and increased revenues.

     SERVICES PROVIDED. Our marketing solutions teams use their knowledge of
customer behavior to design online marketing campaigns and also offer services
including direct response, electronic mail promotion, sampling, sponsorships,
brand development and affiliate program management. In collaboration with our
engineering teams, we have created new "beyond the banner" advertising vehicles
using DHTML technology. These advertisements allow entire transactions to be
completed within the banner, facilitating commerce by reducing the time and
effort required in completing a transaction. This innovation also delivers a
consistent branding message and effectively shares information between the Web
site and the advertisement. As appropriate, we also extend our marketing
solutions expertise offline either directly or through arrangements with offline
agencies.

     IMPLEMENTATION. Creating an online advertising program begins with research
and strategic planning from a team that provides overall direction consistent
with our client's strategy. The team generally includes an art director, a
writer, a technical lead, a performance analyst and a media planner and buyer.
The team collaborates to develop advertising designs, promotional or sponsorship
ideas, media recommendations and test scenarios and metrics for each campaign.
After a marketing program launches, our team analyzes the success of the
campaign by reviewing response rates, traffic and transaction volumes and then
uses this feedback to refine the campaign or future campaigns.

  CUSTOMER SERVICE AND FULFILLMENT CONSULTING SERVICES

     Organic provides online and offline customer service and fulfillment
consulting services to its clients. Focused on enhancing the overall customer
experience to improve conversion and retention, customer service and fulfillment
services include customer service and fulfillment strategy definition, tactical
planning and implementation, technology and service provider selection,
operational effectiveness enhancements, organizational planning and training
support, and profit improvement programs.

     SERVICES PROVIDED. Our consulting services include a needs and capabilities
assessment, consulting services, technology assessment services, third party
vendor selection and negotiation, development of performance monitoring
procedures and the integration of customer service and fulfillment functions
into our clients' Web operations.

     IMPLEMENTATION. Our customer service and fulfillment professionals have
expertise in electronic commerce distribution and focus on integrating order
management, transportation management, customer fulfillment, distribution,
payment processing, call center and data management activities.

SALES AND MARKETING

     Our corporate and local business development professionals and client
partners market and sell our services. Opportunities are prioritized by client
engagement type, vertical industry and the opportunity to innovate. Our
marketing efforts are focused on assignments that may use more than one service
offering and/or include large, multi-national clients. Extended engagements,
defined as multi-year and recurring revenue opportunities with the potential to
evolve into relationships that use all of our service offerings are also
prioritized. We also pursue basic engagements, which tend to be smaller in size
or shorter in duration, when capacity needs are unmet or new vertical markets or
innovation opportunities exist.

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     We target vertical industries based on the size of the market opportunity
and the influence of the Internet. Current industry verticals include
automotive, entertainment and content, financial services, healthcare, travel
and retail categories.

     In addition to new clients, a key component of our growth strategy is the
ability to penetrate existing client accounts through the cross selling of
additional services. We currently manage opportunities with existing clients
through our account management process. In this process, a client partner is
responsible for understanding the client's needs and how our other services
could be beneficial. All members of the client team meet on a monthly basis to
review business development plans with respect to each client and evaluate our
progress on earlier initiatives.

     Our newly reorganized business development group is complemented by
marketing programs designed to generate demand and strengthen our brand. We have
built our reputation through client references, industry conferences, trade
publications and our Web site. In addition to more formal marketing efforts, we
have historically established a number of new client relationships based on
referrals from previous engagements.

RESEARCH AND DEVELOPMENT

     Our research and development effort consists of local teams solving
problems. Our research and development effort also includes relationships with
companies that provide knowledge and recommendations on software, hardware and
training that will speed team problem solving.

     We focus on three service lines: engineering, creative and strategy. Our
engineering research and development efforts involve investigating new
technologies, products and standards. We also develop platforms that allow for
rapid solution delivery. Our engineering research and development teams focus on
how to select the best technology solution, and if necessary, provide the
support to implement it.

     Our creative research and development focuses on both extending and
enabling our engineering efforts. Three areas of particular emphasis are
exploratory prototypes, re-use strategies for information design and strategic
creative partnerships. Our creative research and development efforts also focus
on understanding of the patterns and interfaces that allow our solutions to
connect with their intended audience. Behavioral knowledge and communication
expertise is intrinsic to success on any interactive platform; therefore,
creative research, analysis and invention are all methodically gathered and
shared with our teams.

SUBSIDIARIES AND INTERNATIONAL OPERATIONS

     We have three wholly owned subsidiaries, namely Organic Online, Ltd.,
Organic.com Private Ltd, and Organic Online Canada, Inc., which are located in
England, Singapore and Canada, respectively. In addition, we have a 70% owned
subsidiary, Organic Brasil Comunicacao Interativa Limitada, which is located in
Brazil. Subsequent to December 31, 2000, we purchased the remaining 30%
ownership of Organic Brasil Comunicacao Interativa Limitada and this entity
became a wholly owned subsidiary. Our international operations generated
revenues of $17.4 million for the year ended December 31, 2000. On January 1,
2001, we merged our two wholly owned U.S. subsidiaries, Organic Logistics, Inc.
and Organic Media, Inc., with and into Organic, Inc.

SIGNIFICANT CLIENTS

     We derive a significant portion of our revenues from large projects for a
limited number of clients. For the year ended December 31, 2000, our five
largest clients accounted for approximately 54% of our revenues, with
DaimlerChrysler and Federated Department Stores, Inc. accounting for
approximately 25% and 15%, respectively, of our revenues.

COMPETITION

     The market for Internet professional services is relatively new, intensely
competitive, quickly evolving and subject to rapid technological change.
Further, our industry is experiencing rapid consolidation. Competitors vary in
size and in the scope and breadth of the services offered. Currently, our
principal competitors include
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other providers of Internet professional services, such as AGENCY.COM, Lante,
iXL, Proxicom, Razorfish, Scient, MarchFirst, Viant and Avenue A. We also
encounter competition from several large information technology consulting
services providers, such as Accenture (formerly Andersen Consulting), Cambridge
Technology Partners, Cap Gemini, CSC, EDS, IBM and Sapient, and from strategic
consulting firms, such as Bain & Company, Booz Allen & Hamilton and Boston
Consulting Group. In addition, because there are relatively low barriers to
entry in the Internet professional services industry, we anticipate facing
additional competition from other established and emerging companies as this
market continues to develop.

     We believe that the principal competitive factors affecting our market
include the ability to offer a comprehensive suite of services, the ability to
handle large, complex projects, the ability to attract and retain the best
professionals through our culture, the blending of strategy, creative and
engineering expertise, brand recognition and reputation, client service and
price. Many of our competitors have longer operating histories, larger client
bases, longer relationships with clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we have. These competitors, as well as new competitors, could
develop or offer services that are comparable to, or superior to, ours or are
less expensive. The entry of new competitors or changes in the service offerings
of existing competitors would harm our business, financial condition, results of
operations and cash flows.

INTELLECTUAL PROPERTY

     We rely on a combination of nondisclosure and other contractual
arrangements with our employees and third parties, copyright, trademark, service
mark and trade secret laws to protect our intellectual property. We pursue the
protection of our trademarks in the United States and internationally, including
filing for trademark registration on foreign registries and enforcing our rights
against potential infringement. We have obtained trademark registrations in the
United States for the "Organic" and "Organic Online" marks and applied for
registration of the "Organic Media" mark and some of our other trademarks and
service marks. We have pursued expanded international trademark and service mark
protection. In addition, we have pursued patent protection for certain of our
intellectual property, as we deemed appropriate.

     If we fail to adequately protect our intellectual property rights and
proprietary information or if we become involved in litigation relating to
intellectual property rights and proprietary technology, our business could be
harmed. Any actions we take may not be adequate to protect our proprietary
rights and other companies may develop technologies that are similar or superior
to our proprietary technology. In addition, the legal status of intellectual
property on the Internet is currently subject to various uncertainties.

     Although we believe that our products and services do not infringe on the
intellectual property rights of others and that we have all rights needed to use
the intellectual property employed in our business, it is possible that we could
in the future become subject to claims alleging infringement of third party
intellectual property rights. Any claims could subject us to costly litigation,
and may require us to pay damages and develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
the alleged infringement.

EMPLOYEES

     As of December 31, 2000, we had 954 full-time employees. Of these, 761 were
located in the United States and 193 were located outside the United States.
None of our employees is represented by a labor union, nor have we experienced
any work stoppages. We consider our relations with our employees to be good.

FACTORS THAT MAY AFFECT RESULTS

     In addition to other information in this Annual Report on Form 10-K, the
following risk factors should be read carefully when evaluating us and our
business because such factors may have a significant impact on our business,
operating results, financial condition and cash flows. Our actual results could
differ materially from those projected in any forward-looking statements as a
result of the risk factors set forth below and elsewhere in this Annual Report
on Form 10-K and the risks discussed in our Registration Statement on Form S-1
declared effective on February 9, 2000 by the Securities and Exchange Commission
(File No. 333-91627).
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<PAGE>   12

RISKS RELATED TO ORGANIC

  WE MAY BE UNABLE TO RECRUIT AND RETAIN THE TALENTED PERSONNEL WHO ARE
  ESSENTIAL FOR COMPLETING CLIENT PROJECTS, WHICH COULD HARM OUR PERFORMANCE ON
  EXISTING PROJECTS AND REDUCE OUR ABILITY TO OBTAIN NEW PROJECTS.

     Our business is labor intensive, and thus our success depends on
identifying, hiring, training and retaining talented professionals. All of our
current employees and senior managers are employed on an at-will basis. If a
significant number of our current employees, contractors or senior managers
leave, we may be unable to complete or retain existing projects or bid for new
projects of similar scope and revenues.

     Even if we retain the employees and contractors necessary to perform our
services, our management must continually recruit talented professionals for our
business. However, competition for these employees is intense, particularly in
the Internet and high technology industries. In addition, our industry and
business are subject to high turnover rates among employees. As a result, we may
be unable to successfully attract, assimilate or retain qualified personnel. As
of December 31, 2000, we had 954 full time employees. The failure to retain or
attract the necessary personnel would reduce our capacity to handle new client
engagements and therefore our revenue.

  WE MAY BE UNABLE TO MANAGE EFFECTIVELY THE RESTRUCTURING WE ANNOUNCED IN
  DECEMBER, WHICH COULD RESULT IN OUR BEING UNABLE TO CONTROL OUR COSTS AND
  IMPLEMENT OUR BUSINESS STRATEGIES EFFECTIVELY.

     In December 2000, we announced a restructuring of our business, which
included a reduction in force and the closure of two offices, among other steps
we took to reduce expenses. The planning and implementation of our restructuring
has placed, and may continue to place, a significant strain on our managerial,
operational, financial and other resources. Additionally, the restructuring may
negatively affect our employee turnover, recruiting and retention of important
employees.

     If we are unable to implement our restructuring effectively or if we
experience difficulties in effecting the restructuring, our expenses could
increase more quickly than our revenues or our revenues could decline as a
result of our failure to service new client engagements adequately, either of
which would seriously harm our business, financial condition, results of
operations and cash flows. If we find that our restructuring announced in
December is insufficient to balance our expenses with our revenues, we may find
it necessary to implement further streamlining of our expenses, to perform
another reduction in our headcount or to undertake a restructuring of our
service offering.

  WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS AND MAY REQUIRE
  ADDITIONAL FINANCINGS.

     Our future liquidity and capital requirements will depend on numerous
factors, including:

     - timing and amount of funds required for, or generated by, operations;

     - level of our infrastructure spending; and

     - unanticipated challenges or opportunities.

     If our cash flows from operations and existing liquidity resources are
insufficient to fund our operations, we may need to obtain additional equity or
debt financing. In this case, we may seek to raise additional funds through
public or private financings, strategic relationships or other arrangements.
This additional funding may not be available on terms acceptable to us, or at
all. We may have to sell stock at prices lower than those paid by existing
stockholders, which would result in dilution, or we may have to sell stock or
bonds with rights superior to rights of holders of common stock. Also, any debt
financing might involve restrictive covenants that would limit our operating
flexibility. Moreover, strategic arrangements may require us to relinquish our
rights to certain of our intellectual property. Finally, if adequate funds are
not available on acceptable terms, we may find it necessary to limit our service
offering or be unable to develop or enhance our services, take advantage of
future opportunities or respond to the competitive market.

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<PAGE>   13

  OUR REVENUES COULD BE SIGNIFICANTLY REDUCED BY THE LOSS OF A MAJOR CLIENT.

     We derive a significant portion of our revenues from a limited number of
clients. The loss of any of these major clients, if not replaced, could
dramatically reduce our revenues. For example, for the year ended December 31,
2000, our five largest clients accounted for approximately 54% of our total
revenues, with DaimlerChrysler and Federated Department Stores, Inc. accounting
for approximately 25% and 15% of our revenues, respectively.

  WE MAY HAVE MORE DIFFICULTY COLLECTING OUR ACCOUNTS RECEIVABLE FROM EMERGING
  GROWTH AND START-UP CLIENTS THAN OTHER CLIENTS, WHICH MAY AFFECT OUR REVENUES
  AND DAMAGE OUR POTENTIAL PROFITABILITY.

     For the year ended December 31, 2000, approximately 15% of our revenues
were derived from services provided to emerging growth and start-up companies.
We believe that we may face certain risks in doing business with emerging growth
and start-up clients that we may not face with our mature or established "brick
and mortar" clients, including the ability of these clients to make timely
payments from existing funds or to raise additional funds on favorable terms or
at all. Unless we are diligent in invoicing and collecting amounts during the
beginning stages of our engagements, we believe we may experience longer payment
cycles and problems in collecting accounts receivable with respect to emerging
growth and start-up clients. Additionally, our clients or potential clients'
inability to raise additional funds may cause them to terminate or reduce the
scope of the services we provide them, which could affect our business,
financial condition and operating results.

  OUR LACK OF LONG-TERM CONTRACTS WITH OUR CLIENTS REDUCES THE PREDICTABILITY OF
  OUR REVENUES.

     We generally do not have long-term contracts with our clients but instead
are retained on an engagement-by-engagement basis. These engagements vary in
size and scope and thus make our revenues difficult to predict. In addition,
although we utilize standard contracts, the negotiation time and the final terms
of the contract can vary substantially decreasing the predictability of our
revenue. In general, our standard contract provides for termination by either
party after notice and a transition period of up to 60 days. Our clients also
could unilaterally reduce or modify the scope or use of our services. Some of
our operating expenses are relatively fixed and cannot be reduced on short
notice to compensate for such unanticipated variations in the timing, number or
size of engagements in progress. Because we incur costs based on our
expectations of revenues from future engagements, our failure to predict our
revenues accurately may cause the increase in our expenses to outpace revenue
growth, if any, which would seriously harm our financial condition, results of
operations and cash flows.

  IF WE FAIL TO ACCURATELY PREDICT COSTS RELATED TO OUR FIXED-FEE PROJECTS, WE
  MAY LOSE MONEY ON THESE PROJECTS.

     Most of our current projects are on a fixed-fee basis, rather than on a
time and materials basis. Often, we fix the fee and timeframe before we finalize
the design specifications. The risk of miscalculations in pricing is high
because we work with complex technologies in compressed timeframes, and
therefore it can be difficult to judge the time and resources necessary to
complete a project. If we miscalculate the resources or time necessary to
complete our projects, we could have cost overruns and we could lose money on
these projects, which could seriously harm our operating results.

  OUR BILLABLE EMPLOYEES MAY BE UNDERUTILIZED IF CLIENTS DO NOT RETAIN OUR
  SERVICES, WHICH MAY DAMAGE OUR PROFITABILITY.

     Some of our clients who utilize our services in multiple stages or
engagements may choose not to retain our services for additional stages of a
project or may choose to cancel or delay additionally planned projects. Such
cancellations or delays could result from factors entirely unrelated to our
work, but instead related to general business or financial condition of the
client or general economic conditions. If a client defers, modifies or cancels
an engagement or chooses not to retain our services for additional phases of a
project, we may be unable to redeploy our employees to other engagements quickly
enough to minimize underutilization to redeploy them or at all if other projects
are not available. This underutilization could reduce our revenues and

                                        13
<PAGE>   14

gross margins, damage our potential profitability and if other projects are not
available require us to further reduce our headcount.

     For example, if DaimlerChrysler, the primary client of our Detroit,
Michigan office, chose not to retain our services or to reduce the amount of
services, the billable employees in our Detroit office would be underutilized.

  WE MAY HAVE DIFFICULTY IN MANAGING OUR INTERNATIONAL OPERATIONS, WHICH COULD
  HARM OUR BUSINESS AND FINANCIAL CONDITION.

     An important element of our strategy has been to maintain our business in
international markets. In addition to our domestic operations, we have
operations in Sao Paulo, Brazil, which opened in February 1999; London, England,
which opened in April 1999; Singapore City, Singapore, which opened in September
1999; and Toronto, Canada, which opened in January 2000. Our international
offices generally provide the same or similar services as our domestic offices,
sometimes in conjunction with our domestic offices. Our management may have
difficulty in managing our international operations because of distance, as well
as language and cultural differences. Our management cannot assure you that they
will be able to market and deliver our services successfully in foreign markets.

     Other risks related to our international operations include:

     - failure in finding or acquiring suitable strategic partners or
       acquisition candidates;

     - general economic conditions in each office's respective region;

     - difficulties arising from staffing and managing foreign operations;

     - compliance with legal and regulatory requirements of various countries,
       including differing tax or labor laws;

     - difficulties in using equity incentives for employees;

     - international currency issues, including fluctuations in currency
       exchange rates;

     - restrictions on the import and export of sensitive technologies,
       including data security and encryption technologies that we may wish to
       use in solutions we develop for clients; and

     - political or economic instability.

     If any of these risks should materialize, our international and domestic
businesses, financial conditions, results of operations and cash flows could be
harmed. Our revenues derived from international operations were 13.6% of our
total revenues for the year ended December 31, 2000.

  PRIOR TO OUR INITIAL PUBLIC OFFERING, WE HAD GRANTED OPTIONS TO PURCHASE
  COMMON STOCK AT LOW EXERCISE PRICES, WHICH WILL RESULT IN ADDITIONAL
  COMPENSATION EXPENSE IN THE FUTURE AND REDUCE OUR REPORTED EARNINGS.

     Prior to our initial public offering, we granted employees options to
purchase our common stock at exercise prices below the deemed fair market value
on the date of grant. For the year ended December 31, 2000, we granted options
to purchase 8,498,627 shares of common stock to employees with an exercise price
ranging from $2.25 to $30.125 per share. We recognized stock-based compensation
expenses of $42.0 million and $27.4 million for the year ended December 31, 2000
and 1999, respectively, relating to the difference between the exercise price of
the options and the fair market value of our common stock. As of December 31,
2000, we had $33.1 million of deferred stock-based compensation remaining that
will be recognized as the options vest over the next three years which will
dilute any future earnings that we may achieve.

  WE ARE LIKELY TO EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY
  OPERATING RESULTS THAT MAY MAKE THE PRICE OF OUR COMMON STOCK DIFFICULT TO
  PREDICT.

     Our quarterly operating results have varied in the past and we expect that
our revenues and operating results will continue to fluctuate significantly from
quarter to quarter due to a variety of factors, many of which
                                        14
<PAGE>   15

are outside of our control. Some important factors affecting our quarterly
revenues and operating results, listed in order of their relative magnitude are:

     - changes in and management of our operating expenses;

     - timing, execution of and collection from major client engagements;

     - timing of employee hiring and billable employee utilization rates;

     - timing and cost of advertising and related media;

     - our ability to develop, market and introduce new and significant online
       business solutions on a timely basis;

     - our clients' purchasing cycles and financial condition;

     - pricing changes in the industry;

     - competition among Internet professional services companies for Global
       1000 clients;

     - increases in the number of independent contractors we must hire to meet
       client needs, which would result in increased costs versus an equivalent
       number of employees;

     - demand for our Internet professional services;

     - economic conditions in the Internet professional services market; and

     - legal or regulatory developments regarding the Internet.

     Furthermore, we are subject to employer payroll taxes when our employees
exercise their non-qualified stock options. The employer payroll taxes are
assessed on each employee's gain, if any, calculated as the difference between
the price of our common stock on the date of exercise and the exercise price.
These employer payroll taxes will be recorded as operating expenses in the
period those options are exercised based on the aggregate gains realized by
employees. During a particular quarter, our aggregate payroll taxes could be
material. However, because we are unable to predict our future stock price and
the number of optionees who may exercise during any particular quarter, we
cannot predict what, if any, expense will be recorded in any future quarter and
any impact on future operating results.

     Our quarterly revenues and operating results are volatile and difficult to
predict. It is likely that in some future quarter or quarters our operating
results will be below the expectations of public market analysts or investors.
In such event, the market price of our common stock may decline significantly.

  THE HISTORICAL SEASONALITY OF OUR REVENUES COULD CAUSE OUR QUARTERLY OPERATING
  RESULTS TO FALL BELOW THE EXPECTATIONS OF MARKET ANALYSTS AND INVESTORS, WHICH
  COULD HAVE A NEGATIVE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

     Historically, our clients have concentrated their expenditures on our
services in the second and third quarters of the calendar year. This
concentration of expenditures has resulted in quarterly fluctuations in
revenues, and could cause our revenues to decline on a sequential basis in the
future. If these fluctuations or declines are greater than market analysts or
investors expect, our stock price could decline.

  WE HAVE A HISTORY OF LOSSES AND WE MAY EXPERIENCE LOSSES IN THE FUTURE, WHICH
  COULD IMPAIR OUR ABILITY TO FINANCE OUR FUTURE OPERATIONS, WHICH IN TURN COULD
  RESULT IN A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK.

     We have experienced operating losses as well as net losses for the year
ended December 31, 2000 and 1999, respectively. For the years ended December 31,
2000 and 1999, our net losses were $86.3 million and $38.9 million,
respectively. For the years ended December 31, 2000 and 1999, our net losses
were 67.1% and 50.0% of total revenues, respectively. We may not be able to
sustain the revenue growth we have experienced or the levels of revenues
obtained previously. In addition, we have in the past invested heavily in
development of our infrastructure. Although we expect that this amount of
investment will be less in the near term, we may
                                        15
<PAGE>   16

still need to maintain some level of infrastructural investments. As a result,
we will need to generate significant revenues to achieve profitability. We
cannot assure you that we will achieve profitability in the future or, if we
achieve profitability, that we will be able to sustain it. If we do not achieve
and maintain profitability, our ability to finance continuing operations will be
negatively impacted, and as a consequence the market price for our common stock
may decline substantially.

  WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION BECAUSE OF OUR EXPECTED
  STOCK PRICE VOLATILITY.

     In the past, securities class action litigation has been brought against a
company following periods of volatility in the market price of its securities.
Because of the volatility of our stock price, we may be the target of similar
litigation in the future. Securities litigation could result in substantial
costs and divert our management's attention and resources, which could adversely
affect our financial condition and results of operations.

  WE RELY ON THE SERVICES OF OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL,
  WHOSE KNOWLEDGE OF OUR BUSINESS AND TECHNICAL EXPERIENCE WOULD BE DIFFICULT TO
  REPLACE.

     We believe that our success will depend in part in keeping qualified people
as members of our senior management team and in other key positions throughout
the company. Any of our officers or employees can terminate his or her
employment relationship at any time. Currently, our key executives are Mark
Kingdon, our Chief Executive Officer, Jonathan Nelson, our Chairman of the
Board, and Michael Hudes, our President. The loss of any of these key employees
or our inability to attract or retain other qualified employees could harm our
business, financial condition and results of operations. While we currently
maintain a key person life insurance policy for Jonathan Nelson, the amount of
this insurance may be inadequate to compensate us for his loss.

  WE WILL LIKELY CONTINUE TO FACE INTENSE COMPETITION WHICH COULD HARM OUR
  OPERATING RESULTS.

     The market for Internet professional services is relatively new, intensely
competitive, quickly evolving and subject to rapid technological change. In
addition, our industry is experiencing substantial price competition. Moreover,
many of our competitors have longer operating histories, larger client bases,
greater brand recognition, greater financial, marketing, service, support,
technical, intellectual property and other resources than we do. As a result,
our competitors may be able to devote greater resources to marketing campaigns,
adopt more aggressive pricing policies or devote substantially more resources to
client and business development than us. We also anticipate facing additional
competition from new entrants into our markets due to the low barriers of entry.
This increased competition may result in reduced operating margins, loss of
market share and a diminished brand. Our industry is experiencing rapid
consolidation. As a result of these factors, we may from time to time make
pricing, service or marketing decisions, acquisitions, mergers or alliances as a
strategic response to changes in the competitive environment. These actions
could reduce our profits and harm our financial condition, results of operations
and cash flows.

  OUR INVESTMENTS IN CLIENT COMPANIES INVOLVE RISK, INCLUDING LOSING SOME OR ALL
  OF OUR INVESTMENT, WHICH COULD HARM OUR OPERATING RESULTS.

     In exchange for our services we have from time to time made investments in
some of our clients. As of December 31, 2000, we had $1.8 million of such
investments accounted for on our balance sheet, related to investments made in
and prior to fiscal 2000. The businesses of the clients in which we invested
were generally unproven and continue to involve substantial risk. If these
clients' businesses fail, we could lose additional amounts of our investment,
which would harm our operating results and cause our profitability to be lower
than it would have been if we had taken payment for our entire engagement in
cash.

                                        16
<PAGE>   17

  OUR BUSINESS OPPORTUNITIES MAY BE RESTRAINED BY CONFLICTS BETWEEN POTENTIAL
  CLIENTS, WHICH COULD REDUCE OUR POTENTIAL PROFITABILITY.

     Conflicts between potential clients are inherent in our business. We have
in the past, and will likely in the future, be unable to pursue certain
opportunities because they would result in offering similar services to direct
competitors of existing clients. Moreover, we risk alienating existing clients
if we provide services to even indirect competitors. Because these potential
conflicts may jeopardize revenues generated from existing clients and hinder
future prospects, these conflicts could cause our operating results to suffer.
Furthermore, in limited circumstances, we have agreed not to reuse some software
code developed by us for a client for competitors of the client and, for
instance, in the case of DaimlerChrysler, not to perform work for particular
competitors for a period of time. These types of agreements reduce the number of
our prospective clients and the number of potential sources of revenues.
Accordingly, our use of these types of agreements magnifies the importance of
our client selection process because many of our clients compete in markets
where only a limited number of players gain meaningful market share. If we agree
not to perform services for a particular client's competitors and our client
fails to capture a significant portion of its market, our future revenues in
that particular market will be negatively impacted.

  WE FACE POTENTIAL LIABILITY FOR DEFECTS OR ERRORS IN THE SOLUTIONS WE DEVELOP,
  THE OCCURRENCE OF WHICH COULD REDUCE OUR REVENUES.

     Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in the solutions we provide could
result in:

     - delayed or lost client revenues;

     - adverse client reaction to us;

     - negative publicity;

     - additional expenditures to correct the problem; or

     - claims against us for negligence in performing our services or for errors
       in the software code provided by us.

     Our standard contracts limit our damages that result from our negligent
conduct and for other potential liabilities in rendering our services. However,
these contractual provisions may not fully protect us from liability for
damages. In addition, large claims may not be adequately covered by insurance or
may raise our insurance costs.

  IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
  REPUTATION COULD BE DAMAGED AND OUR COMPETITIVE POSITION COULD BE HARMED.

     We believe our trademarks, trade secrets and other proprietary rights in
our intellectual property, including our trademark name, Organic, software code
and Internet business processes we have developed, are important to our
competitive position. In particular, our trademarks help establish our brand
identity and enhance the marketability of our services. Our trade secrets,
including the Internet business processes we have developed, are an important
aspect of the services we provide. If we are unable to protect our trademarks,
trade secrets and other intellectual property against unauthorized use by
others, our reputation among existing and potential clients could be damaged and
our competitive position could be harmed. We generally enter into
confidentiality or license agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary intellectual property. Despite these precautions, our management
cannot ensure that these strategies will be adequate to safeguard against any
misappropriation of our proprietary intellectual property.

     Despite efforts to protect our intellectual property, we also face the
following risks:

     - non-recognition or inadequate protection of our proprietary rights;

     - undetected misappropriation of our proprietary intellectual property or
       materials;
                                        17
<PAGE>   18

     - development of similar technologies by competitors;

     - unenforceability of non-competition agreements entered into between us
       and our employees; and

     - infringement claims, even if not meritorious, against us.

     If any of these risks materialize, we could be required to pay significant
amounts to defend our rights and in some cases to indemnify our clients.

  FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT
  OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW EQUITY OFFERINGS.

     We cannot predict the effect, if any, that future sales of shares of our
common stock or the availability of future sales of shares of our common stock
or options to acquire our common stock will have on the market price of common
stock prevailing from time to time. Sale, or the availability for sale, of
substantial amounts of common stock by existing stockholders under Rule 144,
Rule 701, through the exercise of registration rights or the issuance of shares
of common stock upon the exercise of stock options, or the perception that such
sales or issuances could occur, could adversely affect the prevailing market
price for our common stock and could materially impair our future ability to
raise capital through an offering of equity securities.

  PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION, BYLAWS AND SOME
  OF OUR CONTRACTS COULD DETER POTENTIAL ACQUISITION BIDS THAT A STOCKHOLDER MAY
  BELIEVE ARE DESIRABLE, AND THE MARKET PRICE OF OUR COMMON STOCK MAY BE LOWER
  AS A RESULT.

     Our board of directors has the authority to issue up to 25,000,000 shares
of preferred stock. The board of directors can fix the price, rights,
preferences, privileges and restrictions of the preferred stock without any
further vote or action by stockholders. The issuance of shares of preferred
stock may delay or prevent a change in control transaction. As a result, the
market price of our common stock and the voting and other rights of our
stockholders may be adversely affected. The issuance of preferred stock may
result in the loss of voting control to other stockholders. We have no current
plans to issue any shares of preferred stock.

     Other provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. These provisions include:

     - authorizing our board of directors to issue additional preferred stock;

     - limiting the persons who can call special meetings of stockholders;

     - prohibiting stockholder actions by written consent;

     - creating a classified board of directors under which our directors serve
       staggered three-year terms;

     - establishing advance notice requirements for nominations for election to
       the board of directors or for proposing matters that can be acted on by
       stockholders at stockholder meetings;

     - limiting the ability of stockholders to remove directors without cause;
       and

     - adopting a stockholder rights plan, which would cause substantial
       dilution to any person or group that attempts to acquire our company on
       terms not approved in advance by our board of directors.

     Further, some of our existing contracts may require a notice of assignment.
Since our contracts generally provide for termination by either party after
notice and a transition period of up to 60 days, a client may choose to
terminate our contract if the client does not like the assignment.

     In addition, we are subject to the antitakeover provisions of Section 203
of the Delaware General Corporation Law, which regulates corporate acquisitions,
and these provisions may discourage, delay or inhibit potential acquisition bids
for our company.

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<PAGE>   19

RISKS RELATED TO OUR INDUSTRY

  OUR SUCCESS DEPENDS ON OUR CLIENTS' WILLINGNESS TO ADOPT AN INTERNET BUSINESS
  MODEL AND OUTSOURCE THEIR INTERNET NEEDS TO INTERNET PROFESSIONAL SERVICE
  PROVIDERS.

     The market for our services depends upon the adoption and assimilation of
Internet professional services by companies. Critical issues concerning the use
of the Internet remain unresolved and may affect the use of these technologies
to solve business problems. Critical issues that influence a client to adopt an
Internet business model or expand its business on the Internet include:

     - security of Internet technologies and client information;

     - reliability of the technology and services;

     - cost of development of an electronic business Web site;

     - administration and bandwidth of the Internet itself; and

     - profitability of the website.

     The process of implementing or expanding a business on the Internet can be
difficult. The difficulty expected or experienced by clients in utilizing the
Internet and the expected costs of outsourcing compared to the expected costs of
internal development will affect their decisions on hiring and retaining
Internet professional services providers. Many entities may choose not to
outsource their Internet needs.

     Additionally, some entities would have to make significant changes in their
current business practice to adapt to the Internet. Changing domestic economic
conditions, lengthening buying cycles and a lessening of competition from purely
Internet-based companies may also reduce some potential clients' interest or
perceived urgency in adopting an Internet business model. Thus, even if the
above listed issues were resolved, businesses may simply choose not to adopt an
Internet business model.

  IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES IN THE
  INTERNET AND THE ELECTRONIC COMMERCE INDUSTRY, OUR BUSINESS WILL BE HARMED.

     To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online business solutions. The
Internet and the electronic commerce industry are characterized by rapid
technological change, changes in user and client requirements and preferences,
frequent new product and service introductions embodying new technologies, and
the emergence of new industry standards and practices. The evolving nature of
the Internet could render obsolete both our proprietary technology and the
skills of our employees. Our success will depend, in part, on our ability to:

     - effectively use leading technologies critical to our business;

     - enhance our existing solutions;

     - continue to develop new solutions and technology that address the
       increasingly sophisticated and varied needs of our current and
       prospective clients and their customers; and

     - influence and respond to technological advances, emerging industry and
       regulatory standards and practices and competitive service offerings.

     Our ability to remain technologically competitive may require substantial
expenditures and lead-time. If we are unable to adapt in a timely manner to
changing market conditions or customer requirements, our business, financial
condition, results of operations and cash flows could be seriously harmed.

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<PAGE>   20

  OUR REVENUES COULD BE HARMED IF GROWTH IN THE USE OF THE INTERNET OR GROWTH OF
  ELECTRONIC COMMERCE DOES NOT CONTINUE.

     Our future success is substantially dependent upon continued growth in the
use of the Internet, particularly growth in commerce over the Internet. However,
consumer use of the Internet for commerce may not grow as quickly as projected.
If the number of users on the Internet does not increase or commerce over the
Internet does not become more accepted and widespread, demand for our services
may decrease and, as a result, our revenues would decline. Capacity constraints
caused by growth in Internet usage may, unless resolved, impede further growth
in Internet use. Other factors that may affect Internet usage or electronic
commerce adoption include:

     - actual or perceived lack of security of information;

     - lack of access and ease of use;

     - congestion of Internet traffic;

     - inconsistent quality or availability of Internet or customer service;

     - possible outages due to difficulties or other damage to the Internet;

     - excessive governmental regulation;

     - uncertainty regarding intellectual property ownership;

     - costs associated with the obsolescence of existing infrastructure;

     - level of consumer satisfaction with electronic commerce experiences; and

     - lack of profitability of client internet businesses.

     Further, the adoption of the Internet for commerce and communication,
particularly by those individuals and companies that have historically relied
upon alternative means of commerce and communication, generally require the
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in traditional means of conducting commerce and exchanging information
may be particularly reluctant or slow to adopt a new Internet-based strategy. If
the necessary infrastructure, products, services or facilities are not
developed, or if the Internet does not become a viable commercial medium, our
business, financial condition, results of operations and cash flows could be
harmed.

  THE APPLICATION OR ADOPTION OF GOVERNMENT REGULATIONS AND THE EXISTENCE OF
  LEGAL UNCERTAINTIES MAY HARM OUR BUSINESS.

     We and our clients are subject both to regulations applicable to businesses
generally and to regulations directly applicable to electronic commerce.
However, laws and regulations may at any time be modified or adopted with
respect to the Internet relating to user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. The
modification or adoption of any additional laws or regulations may stall the
expansion of the Internet, which could increase our cost of doing business or
decrease demand for our online business solutions.

     In addition, the applicability of existing laws to the Internet remains
uncertain with regard to many issues including property ownership, export of
encryption technology, sales tax, libel and personal privacy. Any new
legislation or regulation in these areas could potentially harm our business,
financial condition and results of operations.

     Finally, the application of laws and regulations of jurisdictions where we
plan to offer our Internet services could also limit our business. Other states
or foreign countries may:

     - require us to qualify to do business as a foreign corporation in each
       state or foreign country, or otherwise subject us to taxes and penalties;

                                        20
<PAGE>   21

     - attempt to regulate our Internet solutions;

     - prosecute us for unintentional violations of their laws; or

     - modify or enact new laws in the near future, some of which may conflict
       with existing laws or with each other.

ITEM 2. PROPERTIES

     Our headquarters are located in a leased facility in San Francisco,
California consisting of an aggregate of approximately 212,000 square feet of
office space. The lease commenced in September 2000 and expires in September
2010. We also leased office space in Chicago, Detroit, New York, Atlanta,
Boston, London, Sao Paulo, Singapore and Toronto. We are currently exploring
real estate options consistent with our current operating plans, which included
the closing of our Atlanta and Boston offices and reduction of our space
requirements in our other markets as part of a restructuring announced in
December 2000. We do not anticipate acquiring property or buildings in the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     On February 17, 2000, a former employee filed an action against Organic
Holdings, Inc., Organic, Inc., and Jonathan Nelson, our then Chief Executive
Officer and current Chairman of the Board, in the California Superior Court in
San Francisco. (Haig v. Organic Holdings, Inc., et al.) An amended complaint was
filed on March 22, 2000. On June 13, 2000, the Court granted defendants' motion
to dismiss the amended complaint, dismissing some claims without leave to amend
and other claims with leave to amend. A second amended complaint, filed on June
29, 2000, asserts several claims based on allegations that the former employee
was prevented from exercising his stock options in Organic Holdings, and seeks
not less than $20 million in special damages plus exemplary damages. On November
22, 2000, the Court dismissed all claims against Organic, Inc. The Court also
dismissed some claims against Organic Holdings, Inc. and Jonathan Nelson without
leave to amend and denied the motion to dismiss as to other claims against these
defendants. The case is in its earliest stages and no discovery has been taken.
The remaining defendants believe that these claims lack any merit and intend to
contest them vigorously.

     On May 16, 2000, an individual real estate broker and former employee of a
real estate brokerage company which had performed work for the Company filed
suit in United States District Court in New York City seeking recovery from the
Company and others for brokers' commissions he claims due. (Kades v. Organic,
Inc. et al.) The complaint alleges claims for violation of the Racketeering
Influenced Corrupt Organizations (RICO) Act, misrepresentation, interference
with contractual relations and other cause of action and seeks compensatory and
punitive damages against all defendants. On October 18, 2000, the plaintiffs
filed a Second Amended Complaint. On November 21, 2000, the Company and its
codefendants filed a motion to dismiss the Second Amended Complaint. The Court
has not yet ruled on the motion or set a date for oral argument. The Company and
its codefendants believe that these claims lack any merit and intend to contest
them vigorously.

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

     None.

                                        21
<PAGE>   22

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information regarding our executive officers
as of December 31, 2000:

<TABLE>
<CAPTION>
                 NAME                   AGE                          POSITION
--------------------------------------  ---   ------------------------------------------------------
<S>                                     <C>   <C>
Jonathan Nelson.......................  33    Chairman of the Board, Chief Executive Officer
Michael Hudes.........................  39    President and Director
Susan L. Field........................  41    Executive Vice President, Chief Financial Officer
Arthur I. Williams....................  33    Executive Vice President, Global Operations
Daniel J. Lynch.......................  34    Vice President, Chief Officer Global Business
Andy Hayman...........................  36    Vice President, Chief Relationship Officer
Ray Britt.............................  40    Vice President, Chief Strategy Officer
Margaret Maxwell Zagel................  51    Vice President, Chief Legal and Administrative Officer
                                              and Secretary
Matthew Bernardini....................  27    Vice President, Chief Technology Officer
Marita C. Scarfi......................  34    Vice President, Business Planning
Steven Vattuone.......................  32    Vice President, Finance
Janis M. Nakano Spivack...............  37    Vice President, Chief Creative Officer
Lynda Ward Pierce.....................  37    Vice President, Human Resources
Frank Giambalvo.......................  52    Vice President, Real Estate
</TABLE>

     JONATHAN NELSON co-founded our company in 1993 and has served as our Chief
Executive Officer and Chairman of the Board since January 1995 and since January
15, 2001 has served solely as Chairman of the Board. From February 1996 to May
1996, Mr. Nelson served as President and Chief Executive Officer of Accrue
Software, Inc., a developer of network based tools for measuring Web site
performance. Mr. Nelson also served as Chairman of the Board of Accrue Software,
Inc. from February 1996 to November 1999.

     MARK KINGDON, age 37, has served as our Chief Executive Officer since
January 15, 2001. From March 2000 to December 2000, he served as an
entrepreneur-in-residence at ideallab!, a company that creates, launches and
operates Internet businesses. From 1988 to February 2000 Mr. Kingdon was
employed at PricewaterhouseCoopers LLP, an international accounting and
management consulting firm, where he served in a variety of capacities, member
of the Global E-Business consulting leadership team, leader of the retail and
distribution industry practice in the Americas and manager of the integration of
the consulting division of Coopers & Lybrand and Price Waterhouse after their
historic merger.

     MICHAEL HUDES has served as our President and as a member of our Board of
Directors since October 1995 and until August 1999 he also served as our Chief
Operating Officer. From October 1993 to September 1995, Mr. Hudes was the
Director of Marketing for daVinci Time & Space, an interactive media company.

     SUSAN L. FIELD has served as our Executive Vice President and Chief
Financial Officer since June 1999. From June 1997 to April 1999, Ms. Field was
employed at Sears, Roebuck and Co., a multi-line retailer providing merchandise
and services, most recently as the Senior Vice President -- Strategy, Planning
and Corporate Development. From August 1985 to June 1997, Ms. Field served in
various capacities at Merrill Lynch & Co., a global investment bank, most
recently as a Managing Director.

     ARTHUR I. WILLIAMS has served as our Executive Vice President, Global
Operations since December 1999. From June 1998 to December 1999, Mr. Williams
was the Executive Vice President North America Operations of AGENCY.COM, Ltd.,
an online marketing and advertising agency, specializing in the development of
Web sites. From June 1994 to June 1998, Mr. Williams was the Chief Executive
Officer and President of Spiral Media, Inc., a designer of digital media and
developer of original content.

     DANIEL J. LYNCH has served as Vice President, Chief Officer of Global
Business Development Officer since August 2000. He served as our President,
Logistics from May 1999 to August 2000. From February 1993 to March 1999, Mr.
Lynch served as the Senior Vice President, Marketing and Sales of Technicolor
Entertainment, a film processing and distribution company. Mr. Lynch and Mr.
Hudes are brothers-in-law.

                                        22
<PAGE>   23

     ANDY HAYMAN has served as our Chief Relationship Officer since July 2000.
From July 1999 to July 2000 Mr. Hayman was President and COO for Signatures
Network (a CMGI company), a music licensing and merchandising company. From
December 1998 to July 1999, Mr. Hayman served as a Managing Partner at USWeb/CKS
(now MarchFirst Corporation), an Internet professional services company. Prior
to joining USWeb/CKS, he co-founded DNA New Media Group, a media company. In
1998 Mr. Hayman merged DNA New Media Group with Publicis Technology, eventually
joining the company as its Executive Vice President and Chief Creative Officer.

     RAY BRITT has served as our Chief Strategy Officer since October 2000. From
November 1999 to October 2000, Mr. Britt served as Senior Vice President of
Business Operations and Development of Peapod, an on-line grocer. From April
1997 to November 1999, Mr. Britt was an Associate Partner in the Strategy
practice of Andersen Consulting (currently Accenture), an international
management and consulting firm. From December 1992 to April 1997, he served as a
Principal with Mercer Management Consulting.

     MARGARET MAXWELL ZAGEL has served as our Vice President, Chief Legal and
Administrative Officer and Secretary since August 1999. From March 1998 to March
1999, Ms. Zagel served as the Vice President, General Counsel and Secretary of
Tellabs Operations, Inc., a manufacturer of telecommunications equipment
solutions. From September 1984 to January 1998, Ms. Zagel served as General
Counsel of Grant Thornton LLP, an international accounting and management
consulting firm.

     MATTHEW BERNARDINI has served as our Vice President, Chief Technology
Officer since July 1999, and prior to that, from October 1997 to July 1999, he
served as our Director of Engineering. From January 1996 to August 1997, Mr.
Bernardini was Vice President, Technology of Meta4Digital Design, an interactive
marketing company. From May 1995 to January 1996, Mr. Bernardini was an
independent consultant, working as a programmer and developer.

     MARITA C. SCARFI has served as our Vice President, Business Planning since
May 2000 and prior to that from January 1998 to May 2000, as our Vice President,
Finance. She served as our Director of Finance from January 1997 to January 1998
and as our Controller from July 1996 to July 1997. From August 1988 to July
1996, Ms. Scarfi served as a Manager of Business Assurance for
PricewaterhouseCoopers LLP, an accounting and management services firm.

     STEVEN VATTUONE has served as our Vice President, Finance since November
2000. From November 1996 to November 2000, Mr. Vattuone served as the Corporate
Controller and Director in the finance department of Brio Technology, Inc., a
multi-national software company. From September 1991 to November 1996, Mr.
Vattuone served in several positions, most recently as a Manager of Business
Assurance, for PricewaterhouseCoopers LLP, an accounting and management services
firm.

     JANIS M. NAKANO SPIVACK served as our Vice President, Chief Creative
Officer from November 1996 to January 2001. From October 1993 to October 1996,
Ms. Spivack was a partner of leftBrain-rightBrain, a provider of consulting,
technical and design production expertise to both Web site builders and
individual companies. From October 1993 to January 1997, Ms. Spivack was also
the President of GoFISH!, a private interactive, online directory of production
companies.

     TOM WEISZ has served as our Vice President, Chief Creative Officer since
February 12, 2001. Prior to this he served as our Group Creative Director in the
Detroit office since August 2000. From March 1999 to August 2000, Mr. Weisz was
a partner at MarchFirst (previously USWeb/CKS), where he oversaw branding and
integrated marketing solutions. From January 1999 to March 1999, Mr. Weisz was
Co-founder and Executive Vice President of Imergy, a full-service digital media
production company. From January 1991 to March 1998, Mr. Weisz served as Senior
Vice President, Managing Director, Creative, and Board of Directors member at
Clarion Marketing and Communications, a U.S. marketing agency. Mr. Weisz also
founded several advertising and creative agencies, including Weisz/Greco Inc.,
RC Communications Inc. and Weisz + Yang Inc.

     LYNDA WARD PIERCE has served as our Vice President, Human Resources since
July 1999. From August 1998 to July 1999, Ms. Pierce served as the Director of
Human Resources of The Metzler Group, Inc., a provider of consulting services to
the utilities industry. From April 1997 to August 1998, Ms. Pierce served as
                                        23
<PAGE>   24

the Director of Human Resources for LECG, Inc., a provider of expert analysis,
litigation support and management consulting. From October 1996 to March 1997,
Ms. Pierce served as the Director of Human Resources for Party America, Inc., a
party merchandise retailer. From April 1991 to October 1996, Ms. Pierce served
as the Manager of Human Resources of Mervyn's, a department store.

     FRANK GIAMBALVO began as our Director of Real Estate in January 2000 and
was promoted to Vice President in July 2000. From June 1983 to August 1999, Mr.
Giambalvo was employed at Citicorp, North America, a financial services firm,
most recently as the Senior Vice President Real Estate, Western Region. Prior to
1983, Mr. Giambalvo was employed at Bowne & Co., a financial printing firm, and
served in a various technology positions.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

  PRICE RANGE OF COMMON STOCK

     Our common stock is traded on the Nasdaq Stock Market under the symbol
"OGNC." Prior to February 10, 2000, there was no established public trading
market for any of our securities. The following table sets forth for the periods
indicated the high and low sales price per share of our common stock as reported
on the Nasdaq Stock Market.

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    ------
<S>                                                           <C>       <C>
First Quarter (from February 10, 2000 through March 31,
  2000).....................................................  $60.00    $20.50
Second Quarter (from April 1, 2000 through June 30, 2000)...   23.94      7.75
Third Quarter (from July 1, 2000 through September 30,
  2000).....................................................   14.63      3.94
Fourth Quarter (from October 1, 2000 through December 31,
  2000).....................................................    4.75      0.50
First Quarter (from January 1, 2001 through January 31,
  2001).....................................................    1.56      0.50
</TABLE>

     On January 31, 2001, the last reported sales price per share of our common
stock as reported on the Nasdaq National Market was $1.41.

  HOLDERS

     As of January 31, 2001, we estimate that there were 278 stockholders of
record of our common stock. This does not include the number of persons whose
stock is held in a nominee or "street name" accounts through brokers.

  DIVIDEND POLICY

     We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance operations and
the expansion of our business. We do not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay cash dividends will be
at the discretion of our Board of Directors and will be dependent upon our
financial condition, operating results, cash flows, capital requirements and
such other factors as our Board of Directors deem relevant.

  USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING

     On February 18, 2000, we completed the initial public offering of our
common stock. The managing underwriters in the offering were Goldman Sachs &
Company, Donaldson, Lufkin & Jenrette, and Thomas Weisel Partners LLC. Our
shares of the common stock sold in the offering were registered under the
Securities Act of 1933 in a Registration Statement on Form S-1 (File No.
333-91627). The Securities and Exchange Commission declared the Registration
Statement effective on February 9, 2000.

                                        24
<PAGE>   25

     We commenced our offering on February 10, 2000 and consummated our offering
on February 18, 2000 after we had sold all of the 6,325,000 shares of common
stock registered under the Registration Statement (including 825,000 shares sold
in connection with the exercise of the underwriters' over-allotment option). The
initial public offering price was $20.00 per share for an aggregate sales price
of $126.5 million.

     We paid a total of approximately $8.9 million in underwriting discounts and
commissions and approximately $1.8 million in offering expenses. None of the
expenses related to the offering were paid directly or indirectly to any of our
directors, officers, general partners or their associates, or to any persons
owning 10% or more of any class of our equity securities, or to any of our
affiliates.

     We received net proceeds from the offering of approximately $115.8 million
after deducting the underwriting discounts and commissions and the offering
expenses. The net offering proceeds have been used for general working capital
purposes, to expand our corporate infrastructure, for capital expenditures and
for the repayment of our outstanding debt to Omnicom Group, Inc. under our
revolving credit facility.

  SALES OF UNREGISTERED SECURITIES

     From our incorporation in January 1997 to December 31, 2000, we have
granted or issued and sold the following unregistered securities:

     1. We have issued stock options to employees, officers, directors and
        consultants under our 1997 stock option plan to purchase an aggregate of
        35,389,950 shares of our common stock, with exercise prices ranging from
        $0.0011 to $3.0000. Options to purchase an aggregate of 9,542,343 shares
        have been exercised for an aggregate consideration of $12,082,484.

     2. On January 29, 1997, we issued nine shares of our common stock and
        18,323,712 shares of our Series A preferred stock to Organic Holdings,
        Inc. for substantially all of the assets and liabilities of Organic
        Holdings, Inc. Organic Holdings, Inc. retained some of its non-operating
        assets and liabilities. Concurrent with our initial public offering on
        February 10, 2000, each preferred share was converted into three common
        shares.

     3. On January 29, 1997, we issued 3,351,288 shares of our Series A
        preferred stock at $2.9833 per share to Omnicom Group, Inc. for an
        aggregate cash consideration of $10,000,000. Concurrent with our initial
        public offering on February 10, 2000, each preferred share was converted
        into three common shares.

     4. On February 7, 1999, we issued 1,488,000 shares of our Series B
        preferred stock at $7.2067 per share to Omnicom Group, Inc. for cash
        consideration of $7,723,520 plus the settlement of a $3,000,000
        short-term bridge loan.

     5. On September 13, 1999, we issued a warrant for 2,249,076 shares of our
        common stock to Omnicom Group in connection with the revolving credit
        facility that was entered into on August 27, 1999. This warrant has an
        exercise price of $0.0033 and remained outstanding as of December 31,
        1999. Concurrent with our initial public offering, this warrant was
        exercised for cash consideration of $7,497.

     No underwriters were employed in connection with any of the transactions
set forth above.

     The issuances of securities described in item (1) were deemed to be exempt
from registration in reliance on Rule 701 promulgated under the Securities Act
of 1993 as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The issuances of securities described in items (2)
through (5) were deemed to be exempt from registration in reliance on Section
4(2) of the Securities Act of 1933 as transactions by an issuer not involving a
public offering. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to distribute and received or had access to adequate information
about the Registrant.

                                        25
<PAGE>   26

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes to the consolidated financial statements, which are included elsewhere in
this report. The consolidated statement of operations and cash flow data for the
years ended December 31, 2000, 1999 and 1998 and the consolidated balance sheet
data as of December 31, 2000 and 1999 are derived from our audited consolidated
financial statements included elsewhere in this report. The consolidated
statement of operations and cash flow data for the year ended December 31, 1997
and for the period ended December 31, 1996 and the selected balance sheet data
as of December 31, 1998, 1997 and 1996 are derived from our audited consolidated
financial statements that are not included in this report. The historical
results presented below should not be considered indicative of results for any
future period.

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                            -------------------------------------------------------------------
                                               2000          1999          1998          1997          1996
                                            -----------   -----------   -----------   -----------   -----------
                                                         (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                         <C>           <C>           <C>           <C>           <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................  $   128,614   $    77,800   $    27,734   $     6,780   $     4,294
Operating expenses:
  Professional services
    Professional services other...........       72,682        46,254        16,801         4,285         1,889
    Professional services stock-based
      compensation........................       13,122         8,415           183            --            --
                                            -----------   -----------   -----------   -----------   -----------
         Total professional services......       85,804        54,669        16,984         4,285         1,889
  Selling, general and administrative
    Selling, general and administrative
      other...............................       90,167        40,513        12,068         5,473         2,104
    Selling, general and administrative
      stock-based compensation and other
      stock-based charges.................       34,885        20,966           511            87            53
                                            -----------   -----------   -----------   -----------   -----------
         Total selling, general and
           administrative.................      125,052        61,479        12,579         5,560         2,157
  Restructuring expense...................        6,803            --            --            --            --
                                            -----------   -----------   -----------   -----------   -----------
         Total operating expenses.........      217,659       116,148        29,563         9,845         4,046
Operating (loss) income...................      (89,045)      (38,348)       (1,829)       (3,065)          248
Minority interest in operations of
  consolidated subsidiary.................          118           (68)           --            --          (106)
Investment loss...........................         (839)           --            --            --            --
Interest expense..........................         (298)         (592)         (147)          (44)           (1)
Interest income...........................        4,378           314           220           327             5
                                            -----------   -----------   -----------   -----------   -----------
    Net (loss) income before taxes........      (85,686)      (38,694)       (1,756)       (2,782)          146
Income tax expense (benefit)..............          607           181         1,010          (997)          (91)
                                            -----------   -----------   -----------   -----------   -----------
    Net (loss) income.....................  $   (86,293)  $   (38,875)  $    (2,766)  $    (1,785)  $       237
                                            ===========   ===========   ===========   ===========   ===========
Net (loss) income per share:(1)(2)
  Basic...................................  $     (1.14)  $    (28.03)  $    (10.81)  $      (668)  $    26,286
                                            ===========   ===========   ===========   ===========   ===========
  Diluted.................................  $     (1.14)  $    (28.03)  $    (10.81)  $      (668)  $      0.00
                                            ===========   ===========   ===========   ===========   ===========
Weighted average common shares
  outstanding:(1)(2)
  Basic...................................   75,505,381     1,386,745       255,888         2,671             9
                                            ===========   ===========   ===========   ===========   ===========
  Diluted.................................   75,505,381     1,386,745       255,888         2,671    65,025,009
                                            ===========   ===========   ===========   ===========   ===========
</TABLE>

---------------
(1) Amounts have been restated to give retroactive effect to the 3-for-1 common
    stock split on February 8, 2000.

(2) See Note 1 of Notes to Consolidated Financial Statements for explanation of
    the determination of the number of weighted average shares used in computing
    per share data.

                                        26
<PAGE>   27

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                             -----------------------------------------------
                                                               2000      1999      1998      1997      1996
                                                             --------   -------   -------   -------   ------
                                                                         (AMOUNTS IN THOUSANDS)
<S>                                                          <C>        <C>       <C>       <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..........  $ 58,454   $ 8,385   $ 2,067   $ 6,135   $  243
Restricted cash............................................    11,653        --        --        --       --
Working capital (deficit)..................................    55,171    (4,680)      339     8,290      307
Total assets...............................................   139,508    64,264    17,605    11,426    1,677
Long-term obligations, less current portion................        89       478       661       604       --
Total stockholders' equity.................................   100,829    24,778     7,190     9,225      923
</TABLE>

                                        27
<PAGE>   28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     You should read the following discussion and analysis of our consolidated
financial position and the results of our operations in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the related notes appearing elsewhere in this report. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors including,
but not limited to, those set forth under Part I, Item 1, "Business -- Factors
That May Affect Results" and elsewhere in this report.

OVERVIEW

     Since our founding in 1993 as a sole proprietorship and our incorporation
in January 1995, we believe that we have been an innovator and leader in the
Internet professional services industry. We focus on providing an integrated
suite of services to our clients including strategic consulting and research,
Web site design, software engineering and technical program management, online
marketing solutions including media buying and management, and customer service
and fulfillment consulting and transaction management. As the Internet continues
to evolve, these services provide our clients with the necessary tools to
effectively manage and grow their customer and business relationships. We have
performed work for over 300 major offline and online companies to establish or
enhance brands and have introduced several new service lines to address
particular client needs.

     We plan to scale our operations to accommodate the demand from potential
clients for Internet professional service offerings and to better serve our
existing clients in both their various domestic and international locations. We
expect that our revenues will be driven primarily by the number, size and scope
of our client engagements and, to a lesser extent, by our professional services
headcount. The number, size, and scope of our engagements are also affected by
general economic conditions and the willingness of clients to spend money on
Internet projects. For the year ended December 31, 2000, five clients accounted
for 54% of our revenues, with DaimlerChrysler and Federated Department Stores
accounting for 25% and 15%, respectively. Revenues from any given client will
vary from period to period; however, we expect that significant concentration
will continue for the foreseeable future as we execute on our strategy of
developing deeper multi-service line relationships with our clients. To the
extent that any significant client reduces its use of our services or terminates
its relationship with us, our revenues could decline. As a result, the loss of
any significant client could negatively impact our business and results of
operations.

     A significant amount of our revenues are derived from providing
professional services on a fixed-fee, retainer or time and materials basis. We
generally enter into a service agreement with a client that establishes the
legal and general business terms of our relationship. A typical client
relationship consists of a series of engagements. Our engagements vary depending
on what type of services we provide and they range in duration from a few months
to more than a year. Revenues from fixed-fee contracts are generally recognized
as services are rendered using the percentage-of-completion method of accounting
in accordance with Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts", based on the
percentage of costs incurred to date to total estimated project costs. We
periodically evaluate the actual status of each project to ensure that the
estimated cost to complete each contract remains accurate and we accrue for
estimated losses, if necessary, in the period in which such losses are
determined. To date, such losses have not been significant. Revenues pursuant to
retainer contracts are generally recognized over the life of the contract on a
straight-line basis. Revenues pursuant to time and materials contracts are
generally recognized as services are provided. Revenues exclude reimbursable
expenses charged to clients. Provision for sales credits are offset against
revenue recognized when the need for such sales credits are determined.

     During the year ended December 31, 2000, we opened offices in Toronto,
Atlanta and Boston. In December 2000, we announced a restructuring which
included closing our Atlanta and Boston offices. Our international operations
collectively accounted for 13.6% of our total revenues for the year ended
December 31, 2000.

                                        28
<PAGE>   29

     Our professional services expenses include the direct costs associated with
our billable employees and contractors. These expenses include salaries,
bonuses, benefits, stock-based compensation, vacation, travel and entertainment
expenses. Professional services margins reflect revenues less professional
services expenses which are incurred regardless of whether or not a billable
employee's time is billed to a client. Historically, our professional services
expenses have increased in absolute dollars and may continue to increase in the
foreseeable future due to wage increases or inflation. However, any expected
increase in professional services expenses may be offset by savings realized by
voluntary or involuntary reductions in personnel. Our professional services
margins are affected by many factors, including utilization rate, the efficiency
with which we utilize our employees, and the continuation of our clients in
retaining our services. Any significant decline in fees billed to clients or the
loss of a significant client would adversely affect our professional services
margins. If a client defers, modifies or cancels an engagement or chooses not to
retain our services for additional phases of a project as expected, we must
rapidly re-deploy professional services personnel to other engagements in order
to minimize under-utilization which, in turn, would adversely affect
professional services margins.

     Our selling, general and administrative expenses primarily consist of our
investment in our corporate support services, our employee recruitment, training
and retention programs, knowledge management initiatives, stock-based
compensation and other stock-based charges. Our selling, general and
administrative expenses also include the direct costs associated with employees
and contractors in non-billable departments, real estate costs and other
investments in our corporate support services. Any increases in selling,
general, and administrative expenses may be offset by savings realized by
voluntary or involuntary reductions in personnel.

     Although historically revenues have increased from year to year, we have
incurred significant investment costs in an attempt to create a leadership
position in the highly competitive market in which we operate. As a result, we
have incurred significant losses since inception, and, as of December 31, 2000,
had an accumulated deficit of $129.9 million. We believe our success depends on
increasing our client base, hiring and retaining professionals, and maintaining
our global presence. We expect associated headcount and infrastructure costs to
continue to increase. Including the effects of non-cash stock compensation and
other stock-based charges, we expect to continue to incur substantial operating
losses for the foreseeable future.

     Our clients tend to spend proportionally more on our services during the
second and third quarters and we expect this seasonality trend may continue in
the near future. This has caused our past operating results to fluctuate
significantly from quarter to quarter. Our past growth and restructuring has and
will continue to place significant demands on our management and operational
resources. If we are unable to manage our restructuring effectively then our
expenses could continue to increase more quickly than our revenues. To the
extent that future revenues do not increase significantly in the same periods in
which operating expenses increase, our operating results would be adversely
affected. In addition, although we have previously experienced significant
percentage growth in annual revenues to date, we do not believe that prior
growth rates are sustainable or indicative of future operating results. Please
refer to the section in Part I, Item 1 entitled "Business -- Factors That May
Affect Results" for additional information.

     On January 29, 1997, Organic Online, Inc., an S corporation that contained
our operating assets and liabilities at the time, was renamed Organic Holdings,
Inc. and we were formed as a subsidiary under the name Organic Online, Inc., a C
corporation. We performed this reorganization in connection with an investment
by Omnicom Group in our business which, if made directly in Organic Holdings,
Inc., would have resulted in the termination of its S corporation status because
S corporations may not have owners that are corporate entities. The stockholders
of Organic Holdings, Inc. consist of a group of individuals including Jonathan
Nelson, the majority owner. We exchanged 18,323,712 shares of Series A preferred
stock and nine shares of common stock for substantially all of the assets and
liabilities of Organic Holdings, Inc., having a book value of approximately $0.7
million. Certain non-operating assets and liabilities (approximately $0.3
million, net) were retained by Organic Holdings, Inc. and have been excluded
from the consolidated financial statements. We also issued a total of 3,351,288
shares of Series A convertible preferred stock to Omnicom Group for an aggregate
purchase price of approximately $10.0 million. Because this reorganization did
not result in a change in control, there was no change in the basis of
accounting at the time of the reorganization. We changed our name from Organic
Online, Inc. to Organic, Inc. on January 28, 1999.
                                        29
<PAGE>   30

RESULTS OF OPERATIONS

     The following table presents our consolidated statement of operations as a
percentage of revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                              2000      1999      1998
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Revenues....................................................  100.0%    100.0%    100.0%
Operating expenses:
  Professional services
     Professional services other............................   56.5%     59.5%     60.6%
     Professional services stock-based compensation.........   10.2%     10.8%      0.7%
                                                              -----     -----     -----
          Total professional services.......................   66.7%     70.3%     61.3%
  Selling, general administrative
     Selling, general and administrative other..............   70.1%     52.1%     43.5%
     Selling, general and administrative stock-based
      compensation and other stock-based charges............   27.1%     26.9%      1.8%
                                                              -----     -----     -----
          Total selling, general and administrative.........   97.2%     79.0%     45.3%
  Restructure expense.......................................    5.3%      0.0%      0.0%
                                                              -----     -----     -----
          Total operating expenses..........................  169.2%    149.3%    106.6%
Operating loss..............................................  (69.2)%   (49.3)%    (6.6)%
Minority interest in operations of consolidated
  subsidiary................................................    0.1%     (0.1)%     0.0%
Investment loss.............................................   (0.7)%     0.0%      0.0%
Interest expense............................................   (0.2)%    (0.8)%    (0.5)%
Interest income.............................................    3.4%      0.4%      0.8%
                                                              -----     -----     -----
          Net loss before taxes.............................  (66.6)%   (49.8)%    (6.3)%
Income tax expense..........................................    0.5%      0.2%      3.7%
                                                              -----     -----     -----
          Net loss..........................................  (67.1)%   (50.0)%   (10.0)%
                                                              =====     =====     =====
</TABLE>

COMPARISON OF YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

  REVENUES

     Our revenues were $128.6 million for the year ended December 31, 2000, an
increase of 65.3% over our revenues of $77.8 million for the year ended December
31, 1999. This increase was primarily due to increases in the number of clients
and size and scope of our engagements, enhanced by our increased sales and
marketing efforts, and in part to our development of deeper multi-service line
relationships with our clients and an increase in bill-rates effected in the
first quarter of 2000. For the year ended December 31, 2000, $59.2 million
related to revenue generated from new clients. Our efforts also resulted in the
expansion of our relationship with many existing clients since December 31,
1999, most notably DaimlerChrysler and Federated Department Stores, Inc. which
accounted for 25% and 15%, respectively, of our total revenues for the year
ended December 31, 2000. During the year ended December 31, 2000, we continued
our expansion by opening offices in Toronto, Atlanta, and Boston. However, in
December 2000, we approved a restructuring which included closing our Atlanta
and Boston offices. Revenues from our international locations increased to 13.6%
of our total revenues for the year ended December 31, 2000 from 5.9% for the
year ended December 31, 1999. Our revenues were $77.8 million for the year ended
December 31, 1999, an increase of 180.5% over $27.7 million for the year ended
December 31, 1998. This increase was primarily due to increases in the number of
clients and size and scope of our engagements.

  PROFESSIONAL SERVICES OTHER

     Our professional services other expenses were $72.7 million for the year
ended December 31, 2000, an increase of 57.1% over $46.3 million for the year
ended December 31, 1999. These increases in professional

                                        30
<PAGE>   31

services other were primarily due to increases in our headcount and salary costs
associated with the increase in professional services personnel. However, in the
near term, we expect these salary costs to remain flat or decline as we moderate
hiring, take advantage of voluntary attrition and consider voluntary and
involuntary reduction in personnel where employees appear to be underutilized.
Our increase in professional services headcount resulted from opening new
offices since December 31, 1999 in Toronto, Atlanta and Boston as well as
continued growth in our other offices in order to accommodate the increase in
the size and number of our projects. As a percentage of revenues, professional
services other expenses decreased to 56.5% from 59.4% for the year ended
December 31, 2000 and 1999, respectively, due to the conversion of contractors
to employees and a general reduction in the use of contractors. Our professional
services other expenses were $46.3 million for the year ended December 31, 1999,
an increase of 175.3% over $16.8 million for the year ended December 31, 1998.
This increase was primarily due to an increase in professional services
headcount and associated salary and benefit costs. The increase in professional
services headcount resulted from opening new offices in Detroit, Sao Paulo,
Brazil, and London, England and continued growth in our San Francisco, New York,
and Chicago offices in order to accommodate the increase in the size and number
of our projects. As a percentage of revenues, professional services other
expenses were 56.5%, 59.4% and 60.6% for the years ended December 31, 2000, 1999
and 1998, respectively.

  PROFESSIONAL SERVICES STOCK-BASED COMPENSATION

     For accounting purposes, we recognize stock-based compensation in
connection with the issuance of shares of our common stock and the granting of
options to purchase our common stock to employees with purchase or exercise
prices that are less than the deemed fair market value at the grant date.
Stock-based compensation related to the issuance of options to purchase common
stock is being amortized over the vesting period of the stock options, generally
4 years. Professional services stock-based compensation expense increased to
$13.1 million, or 10.2% of revenues, for the year ended December 31, 2000 from
$8.4 million, or 10.8% of revenues, for the year ended December 31, 1999 and
from $183,000, or 0.7% of revenues, for the year ended December 31, 1998. These
increases were primarily due to larger number of options being amortization in
2000 versus 1999 and in 1999 versus 1998. For the years ended December 31, 2000
and 1999, we recorded aggregate deferred professional services stock-based
compensation of $25.1 million and $35.8 million, respectively. This decrease was
primarily due to a decrease in the number of options granted since December 31,
1999 below fair market value. For the years ended December 31, 2000 and 1999, we
recorded aggregate reductions in deferred professional services stock-based
compensation, relating to terminated employees of $13.6 million and $1.5
million, respectively. As of December 31, 2000, we had an aggregate of $13.0
million of related professional services deferred compensation remaining to be
amortized. The amortization of professional services stock-based compensation
will result in additional charges to operations through fiscal 2003. We expect
the annual amortization of professional services deferred stock-based
compensation for fiscal years ended 2001, 2002 and 2003 to be $8.1 million, $3.9
million and $1.1 million, respectively, based on current vesting periods. These
amounts may be reduced as employees leave and the remaining vesting periods are
adjusted.

  SELLING, GENERAL AND ADMINISTRATIVE OTHER

     Our selling, general and administrative other expenses were $90.2 million
for the year ended December 31, 2000, an increase of 122.6% over $40.5 million
for the year ended December 31, 1999. These increases resulted from the hiring
of key corporate officers and building their respective organizations, increased
facilities, rent and depreciation costs associated with our new offices since
December 31, 1999 and new building leases in San Francisco, Toronto, Atlanta,
Boston and New York, and increased recruiting costs associated with the increase
in personnel. As a percentage of revenues, selling, general and administrative
other expenses increased to 70.1% from 52.1% for the year ended December 31,
2000 and 1999, respectively. These increases were the result of our aggressive
investment in infrastructure relative to our revenue growth, partly attributable
to costs associated with hiring executive management and personnel to fill open
positions within the corporate services departments. Our selling, general and
administrative other expenses were $40.5 million for the year ended December 31,
1999, an increase of 235.7% over $12.1 million for the year ended December 31,
1998. This increase was primarily due to an increase in non-billable personnel
to support
                                        31
<PAGE>   32

our growth, increased costs associated with the addition of our new offices and
improvements in our office infrastructure and increased consulting fees
associated with several internal software implementations. As a percentage of
revenues, selling, general and administrative other expenses were 70.1%, 52.1%
and 43.5% for the years ended December 31, 2000, 1999 and 1998, respectively. We
believe that our current commitment to building our global platform and scalable
infrastructure will, in turn, result in greater efficiencies in the future.

  SELLING, GENERAL AND ADMINISTRATIVE STOCK-BASED COMPENSATION AND OTHER
STOCK-BASED CHARGES

     For accounting purposes, we recognize stock-based compensation in
connection with the issuance of shares of our common stock and the granting of
options or warrants to purchase our common stock to employees and consultants
with purchase or exercise prices that are less than the deemed fair market value
at the grant date. Stock-based compensation related to the issuance of options
to purchase common stock is being amortized over the vesting period of the stock
options, generally 4 years. Selling, general and administrative stock-based
compensation expense increased to $28.7 million, or 22.3% of revenues, for the
year ended December 31, 2000 from $19.0 million, or 24.4% of revenues, for the
year ended December 31, 1999. For the years ended December 31, 2000 and 1999, we
recorded aggregate deferred selling, general and administrative stock-based
compensation of $9.6 million and $78.1 million, respectively. This decrease was
primarily due to a decrease in the number of options granted since December 31,
1999 below fair market value. For the years ended December 31, 2000 and 1999, we
recorded aggregate reductions in deferred selling, general and administrative
stock-based compensation, relating to terminated employees of $12.3 million and
$3.2 million, respectively. As of December 31, 2000, we had an aggregate of
$20.1 million of related selling, general, administrative deferred compensation
remaining to be amortized. The amortization of selling, general, administrative
stock-based compensation will result in additional charges to operations through
fiscal 2003. We expect the annual amortization of selling, general,
administrative deferred stock-based compensation for fiscal years ended 2001,
2002 and 2003 to be $12.7 million, $5.9 million and $1.5 million, respectively,
based on current vesting periods. These amounts may be reduced as employees
leave and the remaining vesting periods are adjusted.

     In connection with the $30.0 million revolving credit facility obtained on
August 27, 1999, we issued a warrant on September 13, 1999 that entitled Omnicom
Group to purchase 2,249,076 shares of common stock and recorded a deferred bank
facility charge of approximately $18.2 million. This amount is being amortized
on a straight-line basis over the longer of 36 months, the term of the credit
facility, or until the credit facility is terminated. For the years ended
December 31, 2000 and 1999, we recognized bank facility expense of $6.1 million,
or 4.8% of revenue, and 2.0 million, or 2.5% of revenue, respectively.

  RESTRUCTURING EXPENSE

     For the year ended December 31, 2000, we recorded restructuring charges of
$6.8 million, including $1.2 million for headcount reductions, $5.5 million for
consolidation of facilities and related fixed assets, and $0.1 million for of
other restructuring related charges. These restructuring charges were taken to
align our cost structure with the changing market conditions and decreased
demand for our services to create a more flexible and efficient organization.
The plan, announced on December 14, 2000, eliminated approximately 270
positions, which was comprised of 70% professional service staff and 30% core
service staff. Many of the positions that were eliminated related to the closing
of our Atlanta and Boston offices as well as streamlining our other 8 locations.

     The total cash outlay for the restructuring and other related activities is
expected to be approximately $5.2 million. The remaining $1.6 million of
restructuring and other related activities consists of non-cash charges
primarily for asset write-offs. As of December 31, 2000, $1.5 million in cash
was used for restructuring and other related activities and all $1.6 million of
non-cash charges were taken. The remaining cash outlay of $3.7 million is
expected to occur over the next year.

                                        32
<PAGE>   33

  INVESTMENT LOSS

     In fiscal year 2000, we made an investment of $500,000 in Retail Options
LLC, a joint venture that includes Federated Department Stores, Sears Roebuck &
Co., Groupe Carrefour and St. Paul Fire & Marine Insurance Company. The alliance
was created to identify, invest in, develop and distribute brands and
technologies that present opportunities in both brick-and-mortar and e-commerce
retailing. For the year ended December 31, 2000, we recorded an investment loss
which primarily consisted of $130,000, related to Retail Options, a write-off of
$312,000 for our investment in NextPlanetOver, which was purchased by eHobbies
with no residual value to the existing shareholders, a write-off of $356,000 for
our investment in Stan Lee Media and a loss of $41,000 on a house for which the
Company assumed responsibility upon the hiring of a key executive.

  INTEREST EXPENSE

     Interest expense represents interest expense incurred on our financing
obligations. We recognized interest expense of $298,000, $592,000 and $147,000
for the year ended December 31, 2000, 1999 and 1998, respectively. The decrease
for the year ended December 31, 2000 was due to the fact that the outstanding
borrowings under the revolving credit facility were less throughout the year
ended December 31, 2000 compared with the year ended December 31, 1999, as the
IPO proceeds were used to repay loans. The increase for the year ended December
31, 1999 was due to the fact that the outstanding borrowings under the revolving
credit facility were greater throughout the whole year ended December 31, 1999
compared with the year ended December 31, 1998.

  INTEREST INCOME

     Interest income represents interest income generated from our cash and cash
equivalents and short-term investments. We recognized interest income of $4.4
million, $314,000 and $220,000 for the years ended December 31, 2000, 1999 and
1998, respectively. The increase for the year ended December 31, 2000 was due to
additional funds generated from our initial public offering and the
restructuring of our cash accounts resulting in higher yield. For the year ended
December 31, 2000 we invested our cash balances in treasury securities, money
market funds and high grade, short-term commercial paper.

  INCOME TAX EXPENSE

     The income tax expense increased to $607,000 for the year ended December
31, 2000 from $181,000 for the year ended December 31, 1999. This increase is
due to higher state and foreign taxes payable. Income tax expense in the year
ended December 31, 1998 reflects the establishment of a valuation allowance
against our net deferred tax asset recorded in the year ended December 31, 1997
due to projections that we would incur a net operating loss for 1998 and the
foreseeable future. As of December 31, 2000 and 1999, we had net operating loss
carry-forwards of approximately $35.7 million and $8.0 million for federal and
state income tax purposes to offset future taxable income. Our federal net
operating loss carry-forwards expire beginning in the year 2012 and our state
net operating loss carry-forwards expire in the years 2002 through 2004. Under
the provisions of the Internal Revenue Code, certain substantial changes in our
ownership may limit the amount of net operating loss carry-forwards that could
be utilized annually in the future to offset taxable income.

LIQUIDITY AND CAPITAL RESOURCES

     On February 18, 2000, we completed an initial public offering of 6,325,000
shares of our common stock (including the exercise of the underwriters'
over-allotment option) at $20.00 per share and realized net proceeds of
approximately $115.8 million. The primary purposes of this offering were to
obtain additional equity capital to assist with our present growth strategies,
create a public securities market for our common stock, and facilitate future
access to public markets. We have used, and expect to continue to use, the
proceeds for general corporate purposes, including working capital and capital
expenditures. A portion of the proceeds may also be used for the acquisition of
businesses that are complementary to ours. Pending such uses, we have invested
the net proceeds of this offering in treasury securities, money market funds,
and high quality, short-

                                        33
<PAGE>   34

term commercial paper. Prior to our initial public offering, we primarily
financed our operations through the issuance of convertible preferred stock,
borrowings under equipment lines of credit and borrowings under a revolving
credit facility. As of December 31, 2000, we had $70.1 million in cash and cash
equivalents, including $11.7 million which is restricted as to use. Our
principal commitments consisted of obligations outstanding under capital leases
and software financing agreements.

     Net cash used in operating activities was $9.5 million, $5.7 million and
$159,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Net
cash flows used in operating activities in each year reflect increasing net
losses and increases in accounts receivable, offset by increases in depreciation
and amortization of fixed assets, amortization of stock-based compensation and
other non cash activities.

     Net cash used in investing activities was $35.9 million, $8.9 million and
$4.0 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Net cash flows used in investing activities in each year primarily reflect
purchases of property and equipment and short-term investments, partly offset by
the proceeds from sales of short-term investments.

     Net cash provided by financing activities was $107.6 million, $21.3 million
and $1.6 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Net cash provided by financing activities for the year ended
December 31, 2000 was primarily due to our public offering and, to a lesser
extent, the exercises of common stock options, partially offset by the repayment
of our borrowings under the revolving credit facility as described below. Net
cash provided by financing activities for the year ended December 31, 1999 was
due to the issuance of Series B convertible preferred stock and borrowings under
the revolving credit facility as described below. Net cash provided by financing
activities for the year ended December 31, 1998 primarily reflects borrowings
from a credit agreement for the purchase of equipment.

     Capital expenditures, excluding capital leases, were $35.4 million, $9.1
million, and $5.6 million for the years ended December 31, 2000, 1999 and 1998.
Our capital expenditures consisted of purchases of operating resources to manage
our operations, including computer equipment, computer software, other internal
software implementations and leasehold improvements. Since inception, we have
generally funded capital expenditures through the use of capital leases,
equipment lines of credit, software financing agreements. However, since our
initial public offering we have funded expenditures with the related proceeds.
We expect that our capital expenditures will decline in the future as we take
advantage of capital expenditures made in prior years and moderate hiring.

     In February 1999, we issued 1,488,000 shares of Series B convertible
preferred stock to Omnicom Group for net cash proceeds of $7.7 million plus the
settlement of a $3.0 million short-term bridge loan that was obtained in January
1999.

     On August 27, 1999, we entered into a revolving credit facility with
Omnicom Group that allowed us to borrow up to $30.0 million at the lender's
commercial paper rate plus 3.0% until the closing of our initial public
offering. The revolving credit facility was primarily used for working capital
purposes. This credit facility contains some restrictions and any borrowings
under the credit facility require us to comply with financial covenants and are
secured by some of our investments. These financial covenants include minimum
revenue targets and limitations on capital equipment purchases. Upon the
completion of our initial public offering in February 2000, the borrowing limit
available under the revolving credit facility was reduced to $15.0 million at
the lender's commercial paper rate plus 1.25% through September 30, 2002 and the
amount outstanding including interest was repaid in full. As of December 31,
2000 there were no borrowings outstanding under this credit facility.

     We have several capital leases with various vendors for equipment used in
our operations with lease terms ranging from four to six years. In the
aggregate, the leases carry an implicit interest rate of 8.25% and the monthly
payments range from $1,000 to $5,000 under the terms of these leases. As of
December 31, 2000, the remaining aggregate obligation under these capital leases
was approximately $103,000.

     We believe that our current level of cash and cash equivalents and
restricted cash will be sufficient to meet our anticipated liquidity needs for
working capital and capital expenditures for at least twelve months from
December 31, 2000.
                                        34
<PAGE>   35

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which establishes new standards
of accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS 133, as amended, is effective for fiscal years beginning after June 15,
2000. There was no significant impact from the adoption of this pronouncement.

     In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance on disclosure related to revenue recognition policies. The
Company believes that it currently complies with SAB 101.

     In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December 15,
1998 or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation have been applied prospectively. The
adoption of the provisions of this Interpretation did not have a material impact
on the financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  INTEREST RATE RISK

     To date, we have not utilized derivative financial instruments or
derivative commodity instruments. We invest our cash in money market funds and
high quality, short-term commercial paper, which are subject to minimal credit
and market risk. We believe the market risks associated with these financial
instruments are immaterial.

  FOREIGN CURRENCY RISK

     We face foreign currency risks primarily as a result of the revenues we
receive from services delivered through our foreign subsidiaries. These
subsidiaries incur most of their expenses in the local currency. Accordingly,
our foreign subsidiaries use the local currency as their functional currency.

     We are also exposed to foreign exchange rate fluctuations, primarily with
respect to the British Pound and the Euro, as the financial results of foreign
subsidiaries are translated into U.S. dollars for consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
adversely impact net income (loss) and overall profitability. The effect of
foreign exchange rate fluctuation for the year ended December 31, 2000 was not
material.

                                        35
<PAGE>   36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements, and the related notes
thereto, of Organic, Inc. and the Report of Independent Accountants are filed as
a part of this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................    37
Consolidated Balance Sheets at December 31, 2000 and 1999...    38
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................    39
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................    40
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 2000, 1999 and 1998..............    41
Notes to Consolidated Financial Statements..................    42
Report of Independent Accountants on Financial Statement
  Schedule..................................................    59
Financial Statement Schedule II -- Valuation and Qualifying
  Accounts for the years ended December 31, 2000, 1999 and
  1998......................................................    60
</TABLE>

                                        36
<PAGE>   37

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Organic, Inc.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Organic, Inc. and its subsidiaries, at December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These consolidated financial
statements are the responsibility of Organic, Inc.'s management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

/s/  PricewaterhouseCoopers LLP

San Francisco, California
March 6, 2001

                                        37
<PAGE>   38

                         ORGANIC, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2000         1999
                                                              ---------    --------
<S>                                                           <C>          <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $  58,454    $  8,385
  Restricted Cash...........................................     11,653          --
  Accounts receivable, net of allowance of $2,584 and $1,078
    at December 31, 2000 and 1999, respectively.............     18,649      18,769
  Costs in excess of billings...............................      1,413       5,248
  Deposits, prepaid expenses and other assets...............      3,377       1,592
                                                              ---------    --------
        Total current assets................................     93,546      33,994
  Property and equipment, net...............................     33,769      10,759
  Long-term investments.....................................      1,767       1,990
  Deferred bank facility charge, net of accumulated
    amortization of $8,067 and $2,017 at December 31, 2000
    and 1999, respectively..................................     10,084      16,134
  Other assets..............................................        342       1,387
                                                              ---------    --------
        Total assets........................................  $ 139,508    $ 64,264
                                                              =========    ========
         LIABILITIES AND OTHER STOCKHOLDERS' EQUITY
Current liabilities:
  Deferred revenue..........................................  $  12,393    $ 12,152
  Accrued employee costs....................................     10,225       4,206
  Accrued expenses..........................................      6,463       5,245
  Restructuring charge......................................      3,757          --
  Accounts payable..........................................      3,413       3,232
  Deferred rent.............................................      1,759         345
  Current portion of long-term debt.........................        329      13,450
  Current portion of obligations under capital leases.......         36          44
                                                              ---------    --------
        Total current liabilities...........................     38,375      38,674
  Long-term debt, net of current portion....................         22         381
  Obligations under capital leases, net of current
    portion.................................................         67          97
                                                              ---------    --------
        Total liabilities...................................     38,464      39,152
                                                              ---------    --------
Commitments and contingencies (Note 10)

Minority interest in consolidated subsidiary................        215         334
                                                              ---------    --------

Stockholders' equity:
  Series A convertible preferred stock, $.0001 par value,
    21,675,000 shares authorized, issued and outstanding at
    December 31, 1999.......................................         --           2
  Series B convertible preferred stock, $.0001 par value,
    1,488,000 shares authorized, issued and outstanding at
    December 31, 1999.......................................         --          --
  Common stock, $.0001 par value, 200,000,000 shares
    authorized, 88,543,540 and 2,844,642 shares issued and
    outstanding at December 31, 2000 and 1999,
    respectively............................................          9          --
  Additional paid-in capital................................    268,868     151,743
  Notes receivable from stockholders........................     (4,682)         --
  Deferred stock-based compensation.........................    (33,090)    (83,370)
  Accumulated deficit.......................................   (129,900)    (43,607)
  Accumulated other comprehensive income....................       (376)         10
                                                              ---------    --------
        Total stockholders' equity..........................    100,829      24,778
                                                              ---------    --------
        Total liabilities, and other stockholders' equity...  $ 139,508    $ 64,264
                                                              =========    ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                        38
<PAGE>   39

                         ORGANIC, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                              -------------------------------------
                                                                 2000           1999         1998
                                                              -----------    ----------    --------
<S>                                                           <C>            <C>           <C>
Revenues....................................................  $   128,614    $   77,800    $ 27,734
Operating expenses:
  Professional services
    Professional services other.............................       72,682        46,254      16,801
    Professional services stock-based compensation..........       13,122         8,415         183
                                                              -----------    ----------    --------
        Total professional services.........................       85,804        54,669      16,984
  Selling, general and administrative
    Selling, general and administrative other...............       90,167        40,513      12,068
    Selling, general and administrative stock-based
      compensation and other stock-based charges............       34,885        20,966         511
                                                              -----------    ----------    --------
        Total selling, general and administrative...........      125,052        61,479      12,579
  Restructure expense.......................................        6,803            --          --
                                                              -----------    ----------    --------
        Total operating expenses............................      217,659       116,148      29,563
                                                              -----------    ----------    --------
Operating loss..............................................      (89,045)      (38,348)     (1,829)
Minority interest in operations of consolidated
  subsidiary................................................          118           (68)         --
Investment loss.............................................         (839)           --          --
Interest expense............................................         (298)         (592)       (147)
Interest income.............................................        4,378           314         220
                                                              -----------    ----------    --------
        Net loss before taxes...............................      (85,686)      (38,694)     (1,756)
Income tax expense..........................................          607           181       1,010
                                                              -----------    ----------    --------
        Net loss............................................  $   (86,293)   $  (38,875)   $ (2,766)
                                                              ===========    ==========    ========
Basic and diluted net loss per share........................  $     (1.14)   $   (28.03)   $ (10.81)
                                                              ===========    ==========    ========
Weighted average common shares outstanding -- basic and
  diluted...................................................   75,505,381     1,386,745     255,888
                                                              ===========    ==========    ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                        39
<PAGE>   40

                         ORGANIC, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2000        1999       1998
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(86,293)   $(38,875)   $(2,766)
  Adjustments to reconcile net income to net cash used in
    operating activities:
    Depreciation and amortization...........................     9,321       3,975      1,248
    Stock-based compensation and other stock-based
     charges................................................    48,007      29,381        694
    Provision for doubtful accounts.........................     4,841       1,120        280
    Non cash portion of restructuring charge................     3,757          --         --
    Loss on disposal of fixed assets........................     3,125       1,247         12
    Minority interest in operations of consolidated
     subsidiary.............................................      (119)        334         --
    Provision (benefit) for deferred income taxes...........        --          --      1,000
    Revenue recognized in exchange for investments..........        --      (1,187)      (577)
    Loss on investments.....................................       839          --         --
    Interest capitalized....................................      (343)         --         --
    Changes in assets and liabilities:
      Increase in accounts receivable.......................    (4,821)    (13,170)    (4,622)
      Increase in costs in excess of billings...............     3,835      (4,674)      (571)
      Increase in deposits and prepaid expenses.............      (274)     (1,044)      (127)
      Increase in other assets..............................      (461)       (984)      (480)
      Increase in accounts payable and accrued expenses.....     7,419       7,923      3,878
      Increase in deferred revenue..........................       241      10,067      1,734
      Increase in deferred rent.............................     1,414         207        138
                                                              --------    --------    -------
        Net cash used in operating activities...............    (9,512)     (5,680)      (159)
                                                              --------    --------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment........................   (35,362)     (9,137)    (5,579)
  (Purchase), sale and maturity of long-term investments,
    net.....................................................      (500)       (200)        75
  Purchase of short-term investments........................      (194)     (2,005)    (1,865)
  Proceeds from the sale and maturity of short-term
    investments.............................................       153       2,405      3,336
                                                              --------    --------    -------
        Net cash used in investing activities...............   (35,903)     (8,937)    (4,033)
                                                              --------    --------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of Series B convertible preferred
    stock, net..............................................        --       7,718         --
  Proceeds from issuance of common stock, net...............   115,811          --         --
  Proceeds from issuance of common stock from ESPP, net.....     1,932          --         --
  Proceeds from exercise of common stock options and
    warrants................................................     3,494         233         37
  Proceeds from long-term debt..............................     3,505      26,230      1,938
  Proceeds from repayment of employee loan..................        47          --
  Payments for repurchase of common stock options...........      (169)        (13)        --
  Payments on capital leases................................       (38)        (39)       (25)
  Payments on long-term debt................................   (16,983)    (12,804)      (355)
                                                              --------    --------    -------
        Net cash provided by financing activities...........   107,599      21,325      1,595
        Effect of exchange rate changes on cash and cash
        equivalents.........................................      (462)         10         --
                                                              --------    --------    -------
        Net increase (decrease) in cash and cash
        equivalents.........................................    61,722       6,718     (2,597)
Cash and cash equivalents at beginning of period............     8,385       1,667      4,264
                                                              --------    --------    -------
Cash and cash equivalents at end of period..................  $ 70,107    $  8,385    $ 1,667
                                                              ========    ========    =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
  Cash paid for interest....................................  $    275    $    571    $   138
                                                              ========    ========    =======
  Cash paid for income taxes................................  $    383    $    110    $    90
                                                              ========    ========    =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
  Unrealized gains on available for sale securities.........  $     76    $     --    $    --
                                                              ========    ========    =======
  Conversion of debt into preferred stock...................  $     --    $  3,000    $    --
                                                              ========    ========    =======
  Reduction in amortization of deferred compensation for
    options cancelled.......................................  $ 25,823    $     --    $    --
                                                              ========    ========    =======
  Deferred stock-based compensation.........................  $ 34,752    $113,937    $ 2,348
                                                              ========    ========    =======
  Issuance of common stock warrants.........................  $     --    $ 18,151    $    --
                                                              ========    ========    =======
  Property and equipment acquired under financing
    obligation..............................................  $      8    $    153    $   906
                                                              ========    ========    =======
  Exercise of stock options with stockholder note
    receivable..............................................     4,528          --         --
                                                              ========    ========    =======
  Conversion of Series A and B convertible preferred stock
    into common stock in conjunction with the initial public
    offering................................................     6,949          --         --
                                                              ========    ========    =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                        40
<PAGE>   41

                         ORGANIC, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                     PREFERRED STOCK         COMMON STOCK       ADDITIONAL   NOTES RECEIVABLE
                                   --------------------   -------------------    PAID-IN       STOCK-BASED        DEFERRED
                                     SHARES      AMOUNT     SHARES     AMOUNT    CAPITAL       COMPENSATION     COMPENSATION
                                   -----------   ------   ----------   ------   ----------   ----------------   ------------
<S>                                <C>           <C>      <C>          <C>      <C>          <C>                <C>
BALANCE AT DECEMBER 31, 1997.....   21,675,000    $ 2          7,002    $--      $ 11,250        $    --         $     (61)
Common stock options exercised...           --     --        895,815     --            37             --                --
Deferred stock-based
 compensation....................           --     --             --     --         2,348             --            (2,348)
Amortization of deferred
 stock-based compensation........           --     --             --     --            --             --               694
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............           --     --             --     --           (51)            --                51
Net loss.........................           --     --             --     --            --             --                --
                                   -----------    ---     ----------    ---      --------        -------         ---------
BALANCE AT DECEMBER 31, 1998.....   21,675,000      2        902,817     --        13,584             --            (1,664)
Issuance of Series B convertible
 preferred stock, net of issuance
 costs of $6.....................    1,488,000     --             --     --        10,718             --                --
Common stock options exercised...           --     --      1,964,325     --           233             --                --
Common stock options
 repurchased.....................           --     --        (22,500)    --           (13)            --                --
Deferred stock-based
 compensation....................           --     --             --     --       113,937             --          (113,937)
Amortization of deferred
 stock-based compensation........           --     --             --     --            --             --            27,364
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............           --     --             --     --        (4,867)            --             4,867
Issuance of common stock
 warrants........................           --     --             --     --        18,151             --                --
 Net loss........................           --     --             --     --            --             --                --
 Foreign currency translation
   adjustment....................           --     --             --     --            --             --                --
Comprehensive loss...............
                                   -----------    ---     ----------    ---      --------        -------         ---------
BALANCE AT DECEMBER 31, 1999.....   23,163,000    $ 2      2,844,642    $--      $151,743        $    --         $ (83,370)
                                   ===========    ===     ==========    ===      ========        =======         =========
Conversion of preferred stock
 into common stock...............  (23,163,000)    (2)    69,489,000      7            (5)            --                --
Common stock options exercised...           --     --      7,457,692      1         8,014         (4,528)               --
Common stock warrant exercised...           --             2,249,076     --             7             --                --
Common stock repurchased.........           --     --       (337,744)    --          (311)           142                --
Initial public offering of common
 stock, net of issuance..........
 costs of $1,834.................           --     --      6,325,000      1       115,811             --                --
Issuance of common stock from
 ESPP............................           --     --        515,874      1         1,931             --                --
Deferred stock-based
 compensation....................           --     --             --     --        34,752             --           (34,752)
Amortization of deferred
 stock-based compensation........           --     --             --     --                           --            41,958
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............           --     --             --     --       (43,074)            --            43,074
Repayment on notes receivable
 from stockholders...............           --     --             --     --            --             47                --
Interest on notes receivable from
 stockholders....................           --     --             --     --            --           (343)               --
Net loss.........................           --     --             --     --            --             --                --
 Unrealized gains on available
   for sale securities...........           --     --             --     --            --             --                --
 Foreign currency translation
   adjustment....................           --     --             --     --            --             --                --
Comprehensive loss...............
                                   -----------    ---     ----------    ---      --------        -------         ---------
BALANCE AT DECEMBER 31, 2000.....           --    $--     88,543,540    $ 9      $268,868        $(4,682)        $ (33,090)
                                   ===========    ===     ==========    ===      ========        =======         =========

<CAPTION>
                                                     OTHER           TOTAL
                                   ACCUMULATED   COMPREHENSIVE   STOCKHOLDERS'
                                     DEFICIT        INCOME          EQUITY
                                   -----------   -------------   -------------
<S>                                <C>           <C>             <C>
BALANCE AT DECEMBER 31, 1997.....   $  (1,966)       $  --         $  9,225
Common stock options exercised...          --           --               37
Deferred stock-based
 compensation....................          --           --               --
Amortization of deferred
 stock-based compensation........          --           --              694
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............          --           --               --
Net loss.........................      (2,766)          --           (2,766)
                                    ---------        -----         --------
BALANCE AT DECEMBER 31, 1998.....      (4,732)          --            7,190
Issuance of Series B convertible
 preferred stock, net of issuance
 costs of $6.....................          --           --           10,718
Common stock options exercised...          --           --              233
Common stock options
 repurchased.....................          --           --              (13)
Deferred stock-based
 compensation....................          --           --               --
Amortization of deferred
 stock-based compensation........          --           --           27,364
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............          --           --               --
Issuance of common stock
 warrants........................          --           --           18,151
 Net loss........................     (38,875)          --          (38,875)
 Foreign currency translation
   adjustment....................          --           10               10
                                                                   --------
Comprehensive loss...............                                   (38,865)
                                    ---------        -----         --------
BALANCE AT DECEMBER 31, 1999.....   $ (43,607)       $  10         $ 24,778
                                    =========        =====         ========
Conversion of preferred stock
 into common stock...............          --           --               (0)
Common stock options exercised...          --           --            3,487
Common stock warrant exercised...          --           --                7
Common stock repurchased.........          --           --             (169)
Initial public offering of common
 stock, net of issuance..........                                        --
 costs of $1,834.................          --           --          115,812
Issuance of common stock from
 ESPP............................          --           --            1,932
Deferred stock-based
 compensation....................          --           --               --
Amortization of deferred
 stock-based compensation........          --           --           41,958
Reduction in deferred stock-based
 compensation related to stock
 options cancelled...............          --           --               --
Repayment on notes receivable
 from stockholders...............          --           --               47
Interest on notes receivable from
 stockholders....................          --           --             (343)
Net loss.........................     (86,293)          --          (86,293)
 Unrealized gains on available
   for sale securities...........          --           76               76
 Foreign currency translation
   adjustment....................          --         (462)            (462)
Comprehensive loss...............                                   (86,679)
                                    ---------        -----         --------
BALANCE AT DECEMBER 31, 2000.....   $(129,900)       $(376)        $100,829
                                    =========        =====         ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                        41
<PAGE>   42

                         ORGANIC, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  THE COMPANY

     Organic Inc. ("Organic" or "the Company") is an international Internet
professional services firm focused on the digital demand chain. The Company
provides services to its clients including management consulting; creative
design and engineering implementation services; marketing solutions; and
customer service and fulfillment consulting and transaction management services.

     The accompanying financial statements present the results of operations of
the Company. On January 29, 1997, Organic Online Inc. was renamed Organic
Holdings, Inc. and the Company was formed as a subsidiary under the name Organic
Online, Inc. The Company exchanged 18,323,712 shares of Series A convertible
preferred stock and nine shares of common stock for substantially all of the
assets and liabilities of Organic Holdings, Inc. Certain non-operating assets
and liabilities (approximately $0.3 million, net) were retained by Organic
Holdings, Inc. and have been excluded from the accompanying financial
statements. Because this reorganization did not result in a change in control of
the Company, there was no change in the basis of accounting at the time of the
reorganization. The Company changed its name from Organic Online, Inc. to
Organic, Inc. on January 28, 1999.

  INITIAL PUBLIC OFFERING

     In February 2000, the Company completed its initial public offering ("IPO")
of 6,325,000 shares of its common stock (including the exercise of the
underwriters' over-allotment option) at $20.00 per share. The Company sold all
of the shares of common stock and realized proceeds, after deducting
underwriting discounts, commissions and offering expenses, of approximately
$115.8 million. Upon the closing date of the IPO, all of the convertible
preferred stock outstanding prior to the IPO was converted into 69,489,000
shares of common stock. In addition, a warrant issued to Omnicom Group was
exercised for 2,249,076 shares of common stock.

  CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION

     The accompanying financial statements include the accounts of the Company's
wholly owned subsidiaries, Organic Media, Inc., Organic Online, Ltd., and
Organic.com Private Ltd, and its share of a 70% owned subsidiary, Organic Brasil
Comunicacao Interativa Limitada. All intercompany transactions have been
eliminated in consolidation.

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

  CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist primarily of cash and investments in a
money market fund. The Company considers all highly liquid investments with a
maturity of three months or less from the date of purchase to be cash
equivalents. The Company maintains its cash in bank deposit accounts that, at
times, may exceed federally insured limits.

                                        42
<PAGE>   43
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  SHORT-TERM INVESTMENTS

     The Company classifies its investments in certain debt and equity
securities as available for sale securities. Accordingly, these investments are
carried at fair value with the unrealized gains and losses, net of tax, reported
as a component of other comprehensive income. The Company recognizes gains and
losses when securities are sold or deemed permanently impaired using the
specific identification method.

  CONCENTRATION OF CREDIT RISK

     The Company extends credit to customers based on an evaluation of their
financial condition and collateral is not required. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for doubtful
accounts. At December 31, 2000 and 1999, two customers and one customer
accounted for 26% and 11% of total accounts receivable, respectively. For the
years ended December 31, 2000 and 1999, two customers accounted for 40% and 27%
of the Company's revenues, respectively. For the year ended December 31, 1998,
one customer accounted for 12% of the company's revenues.

  PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years. Leasehold improvements and equipment under
capital leases are amortized over the lease term or estimated useful lives,
whichever is shorter. Repairs and maintenance costs are charged to expense when
incurred. When assets are sold or retired, the cost and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in operations.

     Costs for software developed or modified for the Company's internal
business use include external direct costs of material and services, payroll and
payroll related costs for employees directly associated with the project, and
direct installation cost for the software application. These costs are
capitalized only once management commits funding for a project that has a
probable future economic benefit to the company for at least one year after
completion.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of the Company's cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, accrued expenses and accrued
employee costs approximate fair value because of the short-term maturity of
these instruments. Fair values are based on quoted market prices and assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk. Based upon
borrowing rates currently available to the Company with similar terms, the
carrying value of long-term debt and capital lease obligations approximate fair
value.

  DEFERRED OFFERING COSTS

     At December 31, 1999, specific incremental costs directly attributable to
the planned IPO process were deferred. These deferred costs, totaling
approximately $939,000, are included in other assets on the consolidated balance
sheet for the year ended December 31, 1999. These costs were charged against
additional paid-in capital in connection with the consummation of the IPO in
February 2000.

                                        43
<PAGE>   44
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  FOREIGN CURRENCY TRANSLATION

     The financial position and results of operations of foreign subsidiaries
are measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated into the reporting currency
(U.S. dollars) at the foreign exchange rate in effect at the balance sheet date,
while revenues and expenses for the year are translated at the average exchange
rate in effect during the year. Translation gains and losses are not included in
determining net income or loss but are accumulated and reported in stockholders'
equity, as a component of other comprehensive income, on a net of tax basis. The
Company has not entered into hedging contracts during any of the periods
presented.

  REVENUE RECOGNITION

     A significant amount of the Company's revenues are derived from providing
professional services on a fixed-fee, retainer or time and materials basis. The
Company generally enter into a service agreement with a client that establishes
the legal and general business terms of the relationship. A typical client
relationship consists of a series of engagements. The Company's engagements vary
depending on the type of services provided and range in duration from a few
months to more than a year. Generally, the Company's client relationships span
several years. Revenues from fixed-fee contracts are generally recognized as
services are rendered using the percentage-of-completion method of accounting in
accordance with Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts," based on the
percentage of costs incurred to date to total estimated project costs. The
Company periodically evaluates the actual status of each project to ensure that
the estimated cost to complete each contract remains accurate and accrue for
estimated losses, if necessary, in the period in which such losses are
determined. To date, such losses have not been significant. Revenues pursuant to
retainer contracts are generally recognized over the life of the contract on a
straight-line basis. Revenues pursuant to time and materials contracts are
generally recognized as services are provided. Revenues exclude reimbursable
expenses charged to clients. Provision for sales credits are offset against
revenue recognized when the need for such sales credits are determined.

  ADVERTISING EXPENSES

     The Company expenses the cost of advertising and promoting its services as
incurred. These costs are included in selling, general and administrative on the
statement of operations. Advertising expense was approximately $1.0 million,
$568,000 and $52,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.

  INCOME TAXES

     Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred taxes, which arise principally from temporary
differences between the period in which certain income and expense items are
recognized for financial reporting purposes and the period in which they affect
taxable income, are included in the amounts provided for income taxes. Under
this method, the computation of deferred tax assets and liabilities give
recognition to enacted tax rates in effect in the year the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts that the Company expects to
realize.

                                        44
<PAGE>   45
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  IMPAIRMENT OF LONG-LIVED ASSETS

     The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be disposed
of requires recognition of impairment of long-lived assets upon the occurrence
of certain events and in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets.

  NET LOSS PER SHARE

     The Company computes basic net loss per share by dividing net loss
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed by dividing net loss available to common stockholders for the period by
the weighted average number of common and, when dilutive, common equivalent
shares outstanding during the period. Common equivalent shares consist of common
stock subject to repurchase rights, the incremental common shares issuable upon
the exercise of the stock options and warrant (using the treasury stock method),
and the incremental common shares issuable upon the conversion of the
convertible preferred stock (using the if-converted method).

  COMPREHENSIVE INCOME

     The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires that an enterprise report and display, by
major components and as a single total, the change in its net assets during the
period from non-owner sources.

  STOCK-BASED COMPENSATION

     The Company accounts for stock-based employee compensation arrangements
under the intrinsic value method and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". Under the intrinsic
value method, compensation cost is recognized based on the difference, if any,
on the date of grant between the fair value of the Company's common stock and
the amount an employee must pay to purchase the stock.

     The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") No. 96-18, "Accounting for Equity Instruments that are Issued to
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

     The Company amortizes deferred stock-based compensation recorded in
connection with certain stock option grants over the vesting periods of the
related options, generally four years, consistent with the method described in
Financial Accounting Standards Board Interpretation ("FIN") No. 28.

  SEGMENT REPORTING

     Although the Company offers various services such as ibusiness, marketing
solutions, and customer service and fulfillment consulting and transaction
management services to its customers, management does not manage its operations
by these service lines, but instead views the Company as one operating segment
when making business decisions. The Company does manage its operations on a
geographical basis and, to date has provided services primarily in the United
States. Through December 31, 2000, foreign operations have not

                                        45
<PAGE>   46
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

been significant in either revenue or investment in long-lived assets. Revenues
from major customers are disclosed above in "Concentration of Credit Risk".

  RESTRUCTURING

     For the year ended December 31, 2000, the Company recorded restructuring
charges of $6.8 million, including $1.2 million for headcount reductions, $5.5
million for consolidation of facilities and related fixed assets, and $0.1
million for other restructuring related charges. The plan, announced on December
14, 2000, eliminated approximately 270 positions, which was made up of 70%
professional service staff and 30% core service staff. Many of the positions
that were eliminated related to the office closures of the Company's Atlanta and
Boston facilities as well as streamlining its other 8 locations.

     The planned closure of the Atlanta and Boston facilities and disposal of
other related assets required an evaluation of asset impairment in accordance
with SFAS No. 121 "Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of" to write down these assets to their fair
value.

     The total cash outlay for the restructuring and other related activities is
expected to be approximately $5.2 million. The remaining $1.6 million of
restructuring and other related activities consists of non-cash charges
primarily for asset write-offs. As of December 31, 2000, $1.5 million in cash
was used for restructuring and other related activities and all $1.6 million of
non-cash charges were taken. The remaining cash outlay of $3.7 million is
expected to occur over the next year.

     Restructuring and other related activities as of December 31, 2000 were as
follow (in millions):

<TABLE>
<CAPTION>
                                                 SEVERANCE
                                                AND BENEFITS    FACILITIES    OTHER    TOTAL
                                                ------------    ----------    -----    -----
<S>                                             <C>             <C>           <C>      <C>
Provision for fiscal 2000.....................     $ 1.2          $ 5.5       $ 0.1    $ 6.8
Amount utilized...............................      (0.9)          (2.1)       (0.1)    (3.1)
                                                   -----          -----       -----    -----
Balance at December 31, 2000..................       0.3            3.4         0.0      3.7
                                                   =====          =====       =====    =====
</TABLE>

  NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which establishes new standards
of accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS 133, as amended, is effective for fiscal years beginning after June 15,
2000. There was no significant impact from the adoption of this pronouncement.

     In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance on disclosure related to revenue recognition policies. The
Company believes that it currently complies with SAB 101.

     In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a

                                        46
<PAGE>   47
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

stock plan qualifies as a non-compensatory plan, (c) the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in a
business combination. This Interpretation became effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998 or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15, 1998
or January 12, 2000, but before the effective date of July 1, 2000, the effects
of applying this Interpretation have been applied prospectively. The adoption of
the provisions of this Interpretation did not have a material impact on the
financial statements.

  RECLASSIFICATIONS

     Certain reclassifications have been made to previously reported amounts in
order to conform to current period classification.

NOTE 2 -- BALANCE SHEET COMPONENTS

  PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost, less accumulated depreciation
and amortization. At December 31, 2000 and 1999, the amounts were as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                -------------------
                       (IN THOUSANDS)                             2000       1999
------------------------------------------------------------    --------    -------
<S>                                                             <C>         <C>
Computer hardware...........................................    $ 18,020    $ 9,137
Computer software...........................................       8,144      2,718
Construction in progress....................................       2,226         --
Equipment...................................................       2,364        959
Furniture...................................................         310        263
Leasehold improvements......................................      13,996      2,866
                                                                --------    -------
                                                                $ 45,060    $15,943
Less: accumulated depreciation and amortization.............     (11,291)    (5,184)
                                                                --------    -------
                                                                $ 33,769    $10,759
                                                                ========    =======
</TABLE>

     Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was approximately $9.2 million, $3.9 million, and $1.2 million, respectively.

     Included in the above is equipment acquired under capital leases of
approximately $182,000 and $204,000 at December 31, 2000 and 1999, respectively.
Accumulated amortization on equipment acquired under capital leases was
approximately $102,000 and $78,000 at December 31, 2000 and 1999, respectively.

  ACCRUED EMPLOYEE COSTS

     Accrued employee costs as of December 31, 2000 and 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                       (IN THOUSANDS)                          2000       1999
------------------------------------------------------------  -------    ------
<S>                                                           <C>        <C>
Accrued bonuses.............................................  $ 6,882    $3,244
Other accrued employee costs................................    3,343       962
                                                              -------    ------
                                                              $10,225    $4,206
                                                              =======    ======
</TABLE>

                                        47
<PAGE>   48
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 3 -- INVESTMENTS

     The Company's investments are primarily composed of common stock received
from its customers in exchange for services rendered. Initially, the Company
records the common stock on the consolidated balance sheet based on the
estimated fair value of the services provided to the customers or, if
publicly-traded, the market value of the stock as of the measurement date. The
Company classified these investments as available-for-sale. In accordance with
the provisions of SFAS No. 115, available-for-sale securities are carried at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity net of applicable income taxes. For the year ended December
31, 2000, the Company recorded unrealized gains of $76,000 for HomeGrocer, which
was acquired by Webvan Group in September 2000, based on the fair market values
of their publicly traded common stock.

     Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
income. The cost basis for realized gains and losses on available-for-sale
securities is determined on a specific identification basis. In the second
quarter of 2000, the Company made an investment of $500,000 in Retail Options
LLC, a joint venture that includes Federated Department Stores, Sears Roebuck &
Co., Groupe Carrefour and St. Paul Fire & Marine Insurance Company. The alliance
was created to identify, invest in, develop and distribute brands and
technologies that present opportunities in both brick-and-mortar and e-commerce
retailing. For year ended December 31, 2000, the Company recorded an investment
loss of $839,000, consisting of $130,000, for Retail Options, $312,000 for its
investment in NextPlanetOver, which was purchased by eHobbies with no residual
value to the existing shareholders, $356,000 for our investment in Stan Lee
Media and a loss of $41,000 on a house for which the Company assumed
responsibility upon the hiring of a key executive. These amounts have been
recorded as an investment loss on the condensed consolidated statements of
operations.

NOTE 4 -- DEBT

     The Company had the following debt outstanding at December 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                       (IN THOUSANDS)                         2000       1999
------------------------------------------------------------  -----    --------
<S>                                                           <C>      <C>
Revolving credit facility...................................  $  --    $ 13,200
Amounts borrowed under software financing agreements........    351         601
Client deposits.............................................     --          30
                                                              -----    --------
                                                                351      13,831
Less: current portion.......................................   (329)    (13,450)
                                                              -----    --------
Total long-term debt........................................  $  22    $    381
                                                              =====    ========
</TABLE>

     The revolving credit facility was established in August 1999 with Omnicom
Group and allowed the Company to borrow up to $30.0 million at the lender's
commercial paper rate plus 3.0% until the closing of the Company's IPO.
Thereafter, the Company may borrow up to $15.0 million at the lender's
commercial paper rate plus 1.25% through September 30, 2002. Interest is payable
quarterly.

     Borrowings under the revolving credit facility are secured by certain
long-term investments of the Company and are subject to certain financial
covenants, including minimum revenue targets and limitations on capital
equipment purchases. At December 31, 2000 and 1999, the Company was in
compliance with these covenants. Shortly after the completion of the IPO in
February 2000, the amounts borrowed including interest were fully repaid.

     In connection with this agreement, the Company issued a warrant to purchase
2,249,076 shares of its common stock at $0.0033 per share (Note 5) which was
exercised on the closing of the company's IPO.
                                        48
<PAGE>   49
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 4 -- DEBT (CONTINUED)

     The amounts borrowed under the two software financing agreements bear
interest rates of 6.89% and require principal payments of approximately $329,000
and $22,000 during the years ended December 31, 2001 and 2002, respectively.

NOTE 5 -- COMMON AND CONVERTIBLE PREFERRED STOCK

  COMMON AND CONVERTIBLE PREFERRED STOCK

     At December 31, 2000, the Company had authorized 25,000,000 shares of
preferred stock. At December 31, 2000, the Company had no outstanding shares of
Series A or Series B convertible preferred stock because all such shares
outstanding converted automatically to common stock upon the Company's IPO. Upon
the closing of the IPO, 3,000,000 shares of the Company's preferred stock were
designated as Series C convertible preferred stock.

     At December 31, 2000, the Company had authorized 200,000,000 shares of
common stock.

  VOTING RIGHTS

     Convertible preferred stockholders receive one vote for each share of
common stock into which the preferred shares are convertible.

  WARRANTS

     In connection with the revolving credit facility (Note 3), the Company
issued a warrant that entitled Omnicom Group to purchase 2,249,076 shares of the
Company's common stock at an exercise price of $0.0033 per share. The fair value
of the warrant was estimated at $8.07 per share using the Black-Scholes pricing
model with the following assumptions: a risk-free interest rate of 6.77%, life
of six months, expected dividend rate of 0%, and volatility of 110%. The Company
recorded approximately $18,151,000 as a deferred bank facility charge that is
being amortized on a straight-line basis over the longer of three years, the
life of the revolving credit facility, or until the credit facility is
terminated. For the years ended December 31, 2000 and 1999, the Company
recognized bank facility expense of $6.1 million and 2.0 million, respectively,
these charges are included in stock-based compensation.

     Upon the closing of the Company's IPO, the Company received approximately
$7,000 in cash from Omnicom Group for its exercise of the warrant to purchase
2,249,076 shares of common stock.

NOTE 6 -- COMPREHENSIVE LOSS

     The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which requires that an
enterprise report and display, by major components and as a single total, the
change in its net assets during the period from non-owner sources. The
components of comprehensive loss were as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED
                                                                    DECEMBER 31,
                                                                --------------------
                       (IN THOUSANDS)                             2000        1999
------------------------------------------------------------    --------    --------
<S>                                                             <C>         <C>
Net loss....................................................    $(86,293)   $(38,875)
Unrealized gains (losses) on available for sale
  securities................................................          76          --
Foreign currency translation adjustment.....................        (462)         10
                                                                --------    --------
Comprehensive loss..........................................    $(86,679)   $(38,865)
                                                                ========    ========
</TABLE>

                                        49
<PAGE>   50
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 6 -- COMPREHENSIVE LOSS (CONTINUED)

     The tax effects of comprehensive loss were not considered material. The
following is a summary of the components of accumulated other comprehensive
income:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,    DECEMBER 31,
                       (IN THOUSANDS)                               2000            1999
------------------------------------------------------------    ------------    ------------
<S>                                                             <C>             <C>
Unrealized gains on available for sale securities...........          76             --
Foreign currency translation adjustment.....................        (452)            10
                                                                    ----             --
Balance.....................................................        (376)            10
                                                                    ====             ==
</TABLE>

NOTE 7 -- STOCK OPTIONS

  1997 STOCK PLAN

     In April 1997, the Company adopted the 1997 Stock Option Plan ("the 1997
Plan") which authorizes the Board of Directors to grant incentive stock options
and nonstatutory stock options. Incentive stock options ("ISO") may be granted
only to Company employees (including officers and directors who are also
employees). Nonstatutory stock options ("NSO") may be granted to employees,
outside directors and consultants. The maximum number of options, as amended,
cannot exceed 22,725,000 shares of the Company's common stock.

     The stock options vest at a rate of 25% of the options granted after one
year from date of grant, with the remaining options vesting on a pro rata
monthly basis over the next 36 months. The 1997 Plan also allows for the
exercise of unvested options. Shares of common stock issued to employees upon
exercise of unvested options are subject to repurchase by the Company at the
original exercise price. As of December 31, 2000, 2,602,214 shares of common
stock issued upon the exercise of unvested options were subject to repurchase
under the 1997 Plan. The Company's ability to repurchase these shares expires at
a rate consistent with the vesting schedule of each option or lapses entirely
after 90 days from an employee's termination date. Options generally expire ten
years from the date of grant; however, in the case of a stock option granted to
a person owning more than 10% of the combined voting power of all classes of the
Company's stock, the term of the option will be five years from the date of the
grant. All cancelled or expired options become available for future grants.

     In accordance with the 1997 Plan, the stated exercise price shall not be
less than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of any ISO or NSO granted to a 10% shareholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant.

  1999 LONG-TERM STOCK INCENTIVE PLAN

     In November 1999, the Company's Board of Directors approved the 1999
Long-Term Stock Incentive Plan ("the 1999 Plan") under which 10,500,000 shares
of common stock have been reserved for issuance. The number of shares reserved
under the 1999 Plan automatically increase annually by the lesser of 3,000,000
shares or 4% of the total amount of common shares outstanding as of the last day
of the immediately preceding year. Under the 1999 Plan, the Board of Directors
is authorized to issue to eligible employees stock options, stock appreciation
rights ("SAR"), restricted shares and stock units. Options generally expire ten
years from the date of grant; however, in the case of a stock option granted to
a person owning more than 10% of the combined voting power of all classes of the
Company's stock, the term of the option will be five years from the date of
grant. In accordance with the 1999 Plan, the stated exercise price for ISOs may
not be less than 100% of the fair value of common stock at the option grant
date. The exercise price for NSOs and SARs
                                        50
<PAGE>   51
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 7 -- STOCK OPTIONS (CONTINUED)

may not be less than 85% of the fair value of common stock at the option grant
date. The exercise price of any stock option or SAR granted to a 10% stockholder
shall not be less than 110% of the estimated fair value of the shares on the
date of grant.

     The following table summarizes the transactions under the 1997 and 1999
Plans.

<TABLE>
<CAPTION>
                                                             SHARES                                        AGGREGATE
                                                            AVAILABLE     NUMBER OF    WEIGHTED-AVERAGE     EXERCISE
                                                            FOR GRANT       SHARES      EXERCISE PRICE       PRICE
                                                          -------------   ----------   ----------------   ------------
<S>                                                       <C>             <C>          <C>                <C>
Balance at December 31, 1997............................    14,488,002     8,230,005        $0.09         $    741,000
Additional shares reserved
  Granted...............................................    (7,543,575)    7,543,575         0.14            1,089,000
  Exercised.............................................                    (895,815)        0.04              (37,000)
  Canceled..............................................     4,227,807    (4,227,807)        0.10             (427,000)
                                                           -----------    ----------
Balance at December 31, 1998............................    11,172,234    10,649,958         0.13            1,366,000
Additional shares reserved..............................        22,500
  Granted...............................................   (15,309,525)   15,309,525         1.71           26,179,000
  Exercised.............................................                  (1,986,825)        0.12             (233,000)
  Repurchased...........................................                      22,500         0.58               13,000
  Canceled..............................................     5,076,834    (5,076,834)        0.37           (1,878,000)
                                                           -----------    ----------
Balance at December 31, 1999............................       962,043    18,918,324         1.35           25,447,000
Additional shares reserved..............................    10,771,541
  Granted
    Price equals market value...........................    (9,159,377)    9,159,377         7.32           67,035,000
    Price less than market value........................      (359,250)      359,250         3.57            1,283,000
  Exercised.............................................                  (7,795,436)        1.03           (8,014,000)
  Repurchased...........................................                     337,744         0.92              311,000
  Canceled..............................................     7,619,076    (7,618,996)        4.16          (31,705,000)
                                                           -----------    ----------                      ------------
Balance at December 31, 2000............................     9,834,083    13,360,263         4.04         $ 54,357,000
                                                           ===========    ==========                      ============
</TABLE>

     The following table summarizes information about stock options outstanding
under the 1997 and 1999 Plans:

<TABLE>
<CAPTION>
                                                                       OPTIONS EXERCISABLE AT
                   OPTIONS OUTSTANDING AT DECEMBER 31, 2000              DECEMBER 31, 2000
               -------------------------------------------------   ------------------------------
  RANGE OF                   WEIGHTED-AVERAGE
  EXERCISE       NUMBER         REMAINING       WEIGHTED-AVERAGE     NUMBER      WEIGHTED-AVERAGE
   PRICES      OUTSTANDING   CONTRACTUAL LIFE    EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
-------------  -----------   ----------------   ----------------   -----------   ----------------
<S>            <C>           <C>                <C>                <C>           <C>
$0.10 -  0.56   1,454,825          7.51 year         $ 0.23         1,395,950         $ 0.21
 0.67 -  0.67     507,596          8.40                0.67           477,127           0.67
 0.83 -  0.83   1,755,000          8.48                0.83         1,755,000           0.83
 1.33 -  1.67   1,428,526          8.57                1.45         1,392,299           1.45
 2.00 -  2.33     670,761          9.42                2.22           670,761           2.22
 2.67 -  2.67   2,203,259          8.89                2.67         1,828,676           2.67
 3.00 -  3.06   1,349,686          9.22                3.02           656,686           3.00
 3.06 -  3.06     200,000          9.80                3.06                --             --
 4.53 -  4.53   1,956,488          9.69                4.53                --             --
 4.78 - 30.13   1,834,125          9.35               15.77           986,153          15.85
               ----------          ----              ------         ---------         ------
               13,360,263          8.89              $ 4.04         9,162,652         $ 3.06
               ==========          ====              ======         =========         ======
</TABLE>

     The Company recognized deferred compensation in connection with certain
stock grants that is being amortized over the vesting period of those options.

                                        51
<PAGE>   52
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 7 -- STOCK OPTIONS (CONTINUED)

     Had the Company accounted for compensation expense on stock options granted
to employees according to SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated in the following table.

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
          (IN THOUSANDS, EXCEPT PER SHARE DATA)                2000         1999       1998
---------------------------------------------------------    ---------    --------    -------
<S>                                                          <C>          <C>         <C>
Net loss:
  As reported............................................    $ (86,293)   $(38,875)   $(2,766)
  SFAS No. 123 adjusted..................................     (102,900)    (41,058)    (2,883)
Basic and diluted net loss per share:
  As reported............................................    $   (1.14)   $ (28.03)   $(10.81)
  SFAS No. 123 adjusted..................................        (1.36)     (29.61)    (11.27)
</TABLE>

     The weighted-average fair value of the options granted was $8.28, $7.77 and
$0.34 for the years ended December 31, 2000, 1999, and 1998, respectively. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                -------------------------
                                                                 2000      1999     1998
                                                                -------    -----    -----
<S>                                                             <C>        <C>      <C>
Risk-free interest rates....................................      6.16%    5.52%    5.12%
Expected lives (years)......................................         4        4        4
Expected dividend yields....................................         0%       0%       0%
Expected volatility.........................................    158.29%       0%       0%
</TABLE>

     Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described above and because additional grants
are made each year, the results above may not be representative of future
periods.

NOTE 8 -- 401(k) SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

  401(k) SAVINGS PLAN

     In January 1997, the Company established a defined contribution plan
authorized under Section 401(k) of the Internal Revenue Code. All
benefits-eligible employees with at least one month of service are eligible to
participate in the plan. Employees may contribute up to 20 percent of their
pre-tax covered compensation through salary deductions. In 1999, the Company
began contributing 25 percent of every pre-tax dollar an employee contributes up
to the first 5 percent of the employee's pre-tax covered compensation. Employees
are 50 percent vested in the employer's contributions after one year of service
and fully vested after two years. All employer contributions are tax deductible
by the Company. The Company's matching contribution expense was approximately
$390,000 and $139,000 for the years ended December 31, 2000 and 1999,
respectively. In addition, the Company may make a discretionary profit-sharing
contribution to all eligible employees, regardless of whether an employee is
participating in the 401(k) plan. However, no such contributions have been made
through December 31, 2000.

  EMPLOYEE STOCK PURCHASE PLAN

     In January 2000, the Company's Board of Directors adopted the 2000 Employee
Stock Purchase Plan ("ESPP") effective as of the date of the Company's IPO.
10,000,000 shares of common stock have been reserved for issuance under the
ESPP. All employees whose customary employment is for more than five months in
any calendar year and more than 20 hours per week are eligible to participate.
The ESPP was

                                        52
<PAGE>   53
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 8 -- 401(k) SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

implemented with overlapping offering periods of 24 months and six months, with
the initial purchase period commencing upon the effectiveness of the IPO and
ending June 30, 2000. Subsequent offering periods then began on the first
trading day on or after January 1 and July 1 of each year. Because ESPP purchase
dates consistently overlapped with the company's quarterly employee stock
trading blackouts, the Board of Directors approved a change in ESPP purchase
dates. Instead of using the previous June 30 purchase period end date, the
January 1, 2001 purchase period will now end on February 28, 2001. All funds
contributed to ESPP during this time will be applied to the purchase of the
company's stock in the usual manner. Subsequent purchase periods will resume on
a six month duration. Specifically, the new ESPP new purchase dates will be
March 1 through August 30 and September 1 through February 28, thereby moving
away from earnings related blackouts. Eligible employees may contribute up to
15% of their cash compensation through salary deductions during each six-month
purchase period. At the end of the purchase period, the amount contributed will
be used to purchase the Company's common stock. The purchase price per share
will be the lesser of 85% of the fair market value on the first day of an
offering period and 85% of the fair market value on the last day of a purchase
period, except that the purchase price for the first purchase period will be
equal to the lesser of 85% of the IPO price of the common stock offered and 85%
of the fair market value on June 30, 2000. In no event may an employee purchase
more than $25,000 worth of stock in a 12 month period or more than 1,250 shares
in any six month purchase period. For the year ended December 31, 2000 the
weighted average exercise price of shares of the 516,000 shares exercised from
ESPP was $3.74.

NOTE 9 -- INCOME TAXES

     The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets as of December 31, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                -------------------
                       (IN THOUSANDS)                             2000       1999
------------------------------------------------------------    --------    -------
<S>                                                             <C>         <C>
Depreciation and amortization...............................    $     81    $    73
Stock-based compensation costs..............................      11,421      4,070
Organizational costs........................................          26         10
Tax credits.................................................                    179
Accruals and reserves.......................................       5,610        957
Net operating loss carryforward.............................      14,985      3,721
                                                                --------    -------
  Gross deferred tax asset..................................      32,123      9,010
Valuation allowance.........................................     (32,123)    (9,010)
                                                                --------    -------
  Net deferred tax asset....................................    $     --    $    --
                                                                ========    =======
</TABLE>

     The valuation allowance increased by approximately $23.1 million in 2000.

     Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its deferred tax assets. At such time as it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.

                                        53
<PAGE>   54
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 9 -- INCOME TAXES (CONTINUED)

     The difference between the income tax expense (benefit) at the federal
statutory rate of 34% and the Company's effective tax rate is due primarily to
compensation expenses relating to stock options and the valuation allowance. The
significant differences between the Company's federal statutory rate and its
effective rate are summarized below:

<TABLE>
<CAPTION>
                                                              2000     1999     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Federal tax rate............................................  (34.0)%  (34.0)%  (34.0)%
State income taxes..........................................   (5.0)    (5.0)
Permanent differences
  Stock based compensation..................................    8.0     18.0      5.0
  Other.....................................................    6.0               8.0
Increase in valuation.......................................   26.0     21.0    107.0
                                                              -----    -----    -----
  Effective tax rate........................................    1.0      0.0     86.0
                                                              =====    =====    =====
</TABLE>

     At December 31, 2000, the Company had net operating loss carryforwards of
approximately $35.7 million for federal and state income tax purposes which
begin to expire in 2012 and 2002, respectively. Deferred tax assets and the
related valuation allowance include approximately $349,000 related to certain
U.S. operating loss carryforwards resulting from the exercise of stock options,
the tax benefit, of which when recognized, will be accounted for as a credit to
additional paid-in capital rather than as a reduction of its income tax
provision.

     The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income may be subject to restrictions attributable to
equity transactions that result in changes in ownership as defined in the Tax
Reform Act of 1986. These restrictions may limit, on an annual basis, the
Company's future use of its net operating loss carryforwards. The amount of such
limitation, if any, has not been determined.

     The components of income tax expense (benefit) were as follows:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                -------------------------
                       (IN THOUSANDS)                           2000     1999      1998
------------------------------------------------------------    -----    -----    -------
<S>                                                             <C>      <C>      <C>
Current
  State.....................................................    $272     $ 12     $   10
  Foreign...................................................     335      169         --
                                                                ----     ----     ------
          Total currently payable...........................     607      181         10
                                                                ----     ----     ------
Deferred
  Federal...................................................      --       --        753
  State.....................................................      --       --        247
                                                                ----     ----     ------
          Total deferred....................................      --       --      1,000
                                                                ----     ----     ------
          Total income tax expense (benefit)................    $607     $181     $1,010
                                                                ====     ====     ======
</TABLE>

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

LEASES

     The Company leases various office space and office equipment under
non-cancelable operating and capital leases with initial or remaining terms of
one year or more. Total rent expense under operating leases was approximately
$8.4 million, $2.7 million and $876,000 for the years ended December 31, 2000,
1999 and

                                        54
<PAGE>   55
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

1998, respectively. At December 31, 2000, the future minimum lease payments
under all lease arrangements were as follows:

<TABLE>
<CAPTION>
                                                                OPERATING    CAPITAL
                       (IN THOUSANDS)                            LEASES      LEASES
------------------------------------------------------------    ---------    -------
<S>                                                             <C>          <C>
Years ending December 31,
     2001...................................................    $ 16,324      $ 50
     2002...................................................      16,620        48
     2003...................................................      16,653        28
     2004...................................................      16,503         3
     2005...................................................      16,891        --
  Thereafter................................................     115,532        --
                                                                --------      ----
          Total minimum lease payments......................    $198,523      $129
                                                                ========
  Less: amount representing interest........................                   (26)
                                                                              ----
  Present value of net minimum payments.....................                  $103
  Less: current portion of obligations under capital
     leases.................................................                   (36)
                                                                              ----
  Obligations under capital leases..........................                  $ 67
                                                                              ====
</TABLE>

     Several of the leases contain an escalation clause and there are no
restrictions on paying dividends, incurring additional debt or negotiating
additional leases under the terms of the present lease agreements.

LEGAL

     From time to time, the Company may be involved in litigation incidental to
the conduct of its business.

     On February 17, 2000, a former employee filed an action against Organic
Holdings, Inc., Organic, Inc., and Jonathan Nelson, then our Chief Executive
Officer and Chairman of the Board, in the California Superior Court in San
Francisco. (Haig v. Organic Holdings, Inc., et al.) An amended complaint was
filed on March 22, 2000. On June 13, 2000, the Court granted defendants' motion
to dismiss the amended complaint, dismissing some claims without leave to amend
and other claims with leave to amend. A second amended complaint, filed on June
29, 2000, asserts several claims based on allegations that the former employee
was prevented from exercising his stock options in Organic Holdings, and seeks
not less than $20 million in special damages plus exemplary damages. On November
22, 2000, the Court dismissed all claims against Organic, Inc. The Court also
dismissed some claims against Organic Holdings, Inc. and Jonathan Nelson without
leave to amend and denied the motion to dismiss as to other claims against these
defendants. The case is in its earliest stages and no discovery has been taken.
The remaining defendants believe that these claims lack any merit and intend to
contest them vigorously.

     On May 16, 2000, an individual real estate broker and former employee of a
real estate brokerage company which had performed work for the Company filed
suit in United States District Court in New York City seeking recovery from the
Company and others for brokers' commissions he claims due. (Kades v. Organic,
Inc. et al.) The complaint alleges claims for violation of the Racketeering
Influenced Corrupt Organizations (RICO) Act, misrepresentation, interference
with contractual relations and other cause of action and seeks compensatory and
punitive damages against all defendants. On October 18, 2000, the plaintiffs
filed a Second Amended Complaint. On November 21, 2000, the Company and its
codefendants filed a motion to dismiss the Second Amended Complaint. The Court
has not yet ruled on the motion or set a date for oral argument. The Company and
its codefendants believe that these claims lack any merit and intend to contest
them vigorously.

                                        55
<PAGE>   56
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYEES

     We have employment agreements and commitments with certain executive
officers if such officers are terminated without cause.

NOTE 11 -- NET LOSS PER SHARE

     The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                         -------------------------------------
   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)          2000           1999         1998
-----------------------------------------------------    -----------    ----------    --------
<S>                                                      <C>            <C>           <C>
Numerator:
Net loss attributable to common stockholders.........    $   (86,293)   $  (38,875)   $ (2,766)
                                                         ===========    ==========    ========
Denominator:
Weighted average common shares outstanding...........     78,790,820     1,459,888     255,888
Less: weighted average unvested common shares subject
  to repurchase......................................     (3,285,439)      (73,143)         --
                                                         -----------    ----------    --------
Weighted average common shares used in computing
  basic and diluted net loss per share...............     75,505,381     1,386,745     255,888
                                                         ===========    ==========    ========
Basic and diluted net loss per share.................    $     (1.14)   $   (28.03)   $ (10.81)
                                                         ===========    ==========    ========
</TABLE>

     The following table sets forth common stock equivalents that were not
included in the calculation of diluted net loss per share because to do so would
be anti-dilutive for those periods presented.

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                          -------------------------------------
                                                            2000          1999          1998
                                                          ---------    ----------    ----------
<S>                                                       <C>          <C>           <C>
Weighted average effect of common stock equivalents:
  Series A convertible preferred stock................    7,106,557    65,025,000    65,025,000
  Series B convertible preferred stock................      487,869     4,121,556            --
  Unvested common shares subject to repurchase........    3,285,439        73,143            --
  Common stock options................................    8,598,176     8,243,198     2,057,823
  Common stock warrants...............................      245,801       677,804            --
</TABLE>

NOTE 12 -- RELATED PARTY TRANSACTIONS

     During 2000 and 1999, the Company entered into promissory notes of $3.0
million and $200,000, respectively, with an executive and director of the
Company. The notes including interest, were repaid in full.

     On July 20, 2000, the Company entered into a promissory note agreement for
$1.0 million bearing an annual interest rate of 7.6% with an Executive of the
Company. The principal of the note including interest was repaid in full on
August 3, 2000.

     The Company has had, and expects to have in the future, transactions in the
ordinary course of business with Omnicom Group. Concurrent with the
reorganization in January 1997, the Company issued 3,351,288 shares of Series A
convertible preferred stock to Omnicom Group for cash proceeds of $10.0 million.
In February 1999, the Company issued 1,488,000 shares of Series B convertible
preferred stock to Omnicom Group for net cash proceeds of approximately $7.7
million plus the settlement of a $3.0 million short-term bridge loan that was
obtained from Omnicom Group in January 1999. See Note 3 and 4 for detailed

                                        56
<PAGE>   57
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 12 -- RELATED PARTY TRANSACTIONS (CONTINUED)

information on the Company's revolving credit facility agreement with Omnicom
Group and issuance of related warrants.

     In November 1999, the Company entered into two new leases for office space
in New York and San Francisco. The lease in San Francisco was secured with a
$10.0 million letter of credit issued by the Bank of America that was guaranteed
by Omnicom Group and the lease in New York was guaranteed for up to $4.5 million
by Omnicom Group.

     The Company is subleasing the space constituting its London office from
Omnicom Europe Limited, a subsidiary of Omnicom Group. The subleased property is
approximately 11,200 square feet and the annual lease payments total
approximately 11,200 square feet and the annual lease payments total
approximately $292,650. The sublease is terminable by the Company upon three
months' notice after the first eighteen months of the sublease.

NOTE 13 -- SUBSEQUENT EVENTS

     In January 2001, the Company purchased the remaining 30% ownership of
Organic Brasil Comunicacao Interativa for $600,000, $90,000 in cash and the
remainder in Organic stock. Upon purchase, this entity became a wholly owned
subsidiary.

     On January 1, 2001 the Company merged its two U.S. wholly owned
subsidiaries, Organic Logistics, Inc. and Organic Media, Inc., with and into
Organic, Inc.

     On January 11, 2001 the Company entered into a non-interest bearing
promissory note agreement for $150,000 with its Chief Executive Officer. The
note is due on January 2, 2002, and one-fourth of the principal will be forgiven
ratably at the end of each fiscal quarter that he remains employed with the
Company, starting with the quarter ending March 31, 2001. The employment
agreement also commits the Company to enter into another promissory note next
year on the same terms as the one it entered into in 2001 provided that he
remains in the Company's employ.

                                        57
<PAGE>   58
                         ORGANIC, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 14 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table sets forth a summary of our unaudited quarterly
financial information for the periods indicated. This information was derived
from our unaudited interim financial statements and, in management's opinion,
include all adjustments, consisting of normal recurring adjustments, necessary
to fairly present the results of operations for the periods shown. The results
of operations at any interim period are not necessarily indicative of the
results of operations for the full year.
<TABLE>
<CAPTION>
                                                                              QUARTER ENDED
                                                 -----------------------------------------------------------------------
                                                 DECEMBER 31,   SEPTEMBER 30,    JUNE 30,      MARCH 31,    DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)      2000           2000           2000          2000           1999
-----------------------------------------------  ------------   -------------   -----------   -----------   ------------
<S>                                              <C>            <C>             <C>           <C>           <C>
Revenues.................................        $    24,888     $    37,351    $    37,161   $    29,214    $   26,019
Operating expenses:
  Professional services..................
    Professional services other..........             17,710          20,480         18,156        16,336        16,325
    Professional services stock-based
      compensation.......................             (4,404)          3,576          4,106         9,844         5,060
                                                 -----------     -----------    -----------   -----------    ----------
        Total professional services......             13,306          24,056         22,262        26,180        21,385
  Selling general and administrative.....
    Selling, general and administrative
      other..............................             25,313          22,712         22,232        19,910        14,495
    Selling, general and administrative
      stock-based compensation and other
      stock-based charges................              5,572           8,291          6,471        14,551        12,864
                                                 -----------     -----------    -----------   -----------    ----------
        Total selling, general and
          administrative.................             30,885          31,003         28,703        34,461        27,359
  Restructure expense....................              6,803              --             --            --            --
                                                 -----------     -----------    -----------   -----------    ----------
        Total operating expenses.........             50,994          55,059         50,965        60,641        48,744
Operating (loss) income..................            (26,106)        (17,708)       (13,804)      (31,427)      (22,725)
Minority interest in operations of consolidated
  subsidiary.............................                (10)             52             21            55           (29)
Investment loss..........................               (396)            (90)          (353)
Interest expense.........................                (19)            (14)           (14)         (250)         (345)
Interest income..........................              1,340           1,139          1,302           596            78
                                                 -----------     -----------    -----------   -----------    ----------
        Net (loss) income before taxes...            (25,191)        (16,621)       (12,848)      (31,026)      (23,021)
Income tax expense.......................                342            (147)           213           199           117
                                                 -----------     -----------    -----------   -----------    ----------
        Net (loss) income................        $   (25,533)    $   (16,474)   $   (13,061)  $   (31,225)   $  (23,138)
                                                 ===========     ===========    ===========   ===========    ==========
Net (loss) income per share -- basic and
  diluted................................        $     (0.30)    $     (0.19)   $     (0.16)  $     (0.65)   $   (10.97)
                                                 ===========     ===========    ===========   ===========    ==========
Weighted average common shares
  outstanding -- basic and diluted.......         84,589,999      85,102,416     83,945,906    48,178,445     2,108,762
                                                 ===========     ===========    ===========   ===========    ==========

<CAPTION>
                                                             QUARTER ENDED
                                                 --------------------------------------
                                                 SEPTEMBER 30,    JUNE 30,    MARCH 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)      1999           1999        1999
-----------------------------------------------  -------------   ----------   ---------
<S>                                              <C>             <C>          <C>
Revenues.................................         $   24,427     $   17,267   $ 10,087
Operating expenses:
  Professional services..................
    Professional services other..........             16,098          8,263      5,568
    Professional services stock-based
      compensation.......................              2,254            800        301
                                                  ----------     ----------   --------
        Total professional services......             18,352          9,063      5,869
  Selling general and administrative.....
    Selling, general and administrative
      other..............................             13,044          8,325      4,649
    Selling, general and administrative
      stock-based compensation and other
      stock-based charges................              6,304          1,376        422
                                                  ----------     ----------   --------
        Total selling, general and
          administrative.................             19,348          9,701      5,071
  Restructure expense....................                 --             --         --
                                                  ----------     ----------   --------
        Total operating expenses.........             37,700         18,764     10,940
Operating (loss) income..................            (13,273)        (1,497)      (853)
Minority interest in operations of consolidated
  subsidiary.............................                (66)             4         23
Investment loss..........................
Interest expense.........................                (72)          (151)       (24)
Interest income..........................                 46            187          3
                                                  ----------     ----------   --------
        Net (loss) income before taxes...            (13,365)        (1,457)      (851)
Income tax expense.......................                 26             23         15
                                                  ----------     ----------   --------
        Net (loss) income................         $  (13,391)    $   (1,480)  $   (866)
                                                  ==========     ==========   ========
Net (loss) income per share -- basic and
  diluted................................         $    (9.36)    $    (1.35)  $  (0.96)
                                                  ==========     ==========   ========
Weighted average common shares
  outstanding -- basic and diluted.......          1,429,928      1,093,883    900,656
                                                  ==========     ==========   ========
</TABLE>

                                        58
<PAGE>   59

       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of Organic, Inc.

     Our report on the financial statements of Organic, Inc. and its
subsidiaries is included on page   of this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also audited
the financial statement schedule listed on page   of this Annual Report on Form
10-K.

     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

/s/ PricewaterhouseCoopers LLP

San Francisco, California
March 6, 2001

                                        59
<PAGE>   60

                         ORGANIC, INC. AND SUBSIDIARIES

      FINANCIAL STATEMENT SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                 BALANCE AT      CHARGES TO                  BALANCE AT
                                                THE BEGINNING    COSTS AND                     THE END
               CLASSIFICATION                    OF THE YEAR      EXPENSES     WRITE-OFFS    OF THE YEAR
--------------------------------------------    -------------    ----------    ----------    -----------
<S>                                             <C>              <C>           <C>           <C>
2000:
Allowance deducted from accounts receivable
  Allowance for doubtful accounts...........       $  828          $2,776       $(1,814)       $1,790
  Allowance for sales credits...............          250           2,065        (1,521)          794
                                                   ------          ------       -------        ------
                                                   $1,078          $4,841       $(3,335)       $2,584
                                                   ======          ======       =======        ======
1999:
Allowance deducted from accounts receivable
  Allowance for doubtful accounts...........       $  283          $  870       $  (325)       $  828
  Allowance for sales credits...............           --             250            --           250
                                                   ------          ------       -------        ------
                                                   $  283          $1,120       $  (325)       $1,078
                                                   ======          ======       =======        ======
1998:
Allowance deducted from accounts receivable
  Allowance for doubtful accounts...........       $   96          $  280       $   (93)       $  283
                                                   ======          ======       =======        ======
</TABLE>

                                        60
<PAGE>   61

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain required information about our executive officers is contained in
Part I, Item 4A of this Annual Report on Form 10-K under the heading "Executive
Officers of the Registrant."

  BOARD OF DIRECTORS

     Our Board of Directors currently comprises four directors. Our Board of
Directors is divided into three classes: Class I, whose term will expire at the
2001 annual meeting of stockholders; Class II, whose term will expire at the
2002 annual meeting of stockholders; and Class III, whose term will expire at
the 2003 annual meeting of stockholders. At our 2000 annual meeting,
stockholders elected Jonathan Nelson as a Class I director; Michael Hudes and
Gerald Bruce Redditt as Class II directors; and Gary F. Hromadko as a Class III
director. Peter Rip, who served as a Class III director, resigned from the Board
of Directors effective February 9, 2001.

     At each annual meeting of stockholders after the initial classification,
the successors to the directors whose terms have expired will be elected to
serve from the time of election and qualification until the third annual meeting
following their election, or until their successors have been duly elected and
qualified, or until their earlier resignation or removal, if any. Our bylaws
authorize the number of directors to be not fewer than five or more than nine.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of an equal number of directors. The
classification of our Board of Directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of us.

     Each executive officer is elected by, and serves at the discretion of, our
Board of Directors until his or her successor has been duly elected and
qualified. Each of our executive officers and directors, other than non-
employee directors, devotes his or her full time to our affairs. Our
non-employee directors devote the amount of time necessary to discharge their
duties to us. Mr. Hudes, our President, is the brother-in-law of Daniel J.
Lynch, our Vice President, Chief Officer of Global Business Development. There
are otherwise no family relationships among any of our directors, officers or
key employees.

  INFORMATION REGARDING DIRECTORS

     Set forth below is certain information regarding each of our directors who
served during our fiscal year 2000.

     JONATHAN NELSON, age 33, co-founded our company in 1993, served as our
Chief Executive Officer and Chairman of the Board since January 1995 and since
January 15, 2001, has served solely as our Chairman of the Board. From February
1996 to May 1996, Mr. Nelson served as President and Chief Executive Officer of
Accrue Software, a developer of network based tools for measuring Web site
performance. Mr. Nelson also served as Chairman of the Board of Accrue Software,
Inc. from February 1996 to November 1999.

     MICHAEL HUDES, age 39, has served as our President and as a member of our
Board of Directors since October 1995 and until August 1999 he also served as
our Chief Operating Officer. From October 1993 to September 1995, Mr. Hudes was
the Director of Marketing for daVinci Time & Space, an interactive media
company.

     GARY F. HROMADKO, age 48, has served as a member of our Board of Directors
since January 1997 and has served as a director of Organic Online, Ltd., one of
our wholly owned subsidiaries, since February 1999. Since 1993, Mr. Hromadko has
been a private venture investor in early stage technology companies.

                                        61
<PAGE>   62

     GERALD BRUCE REDDITT, age 49, has served as a member of our Board of
Directors since October 1998. Since May 1998, Mr. Redditt has served as an
Executive Vice President of Omnicom Group, Inc., a strategic and financial
holding company. From July 1995 to May 1998, Mr. Redditt served as an Executive
Vice President of Sony Pictures Entertainment, a creator and distributor of
entertainment products, services and technology. From March 1991 to July 1995,
Mr. Redditt served as a Corporate Vice President of GTE Corporation, a
telecommunications company. Since January 1999, Mr. Redditt has served as a
director of AGENCY.COM, Ltd.

     PETER RIP, age 47, served as a member of our Board of Directors from June
2000 to February 2001. Since February 2000, Mr. Rip has served as managing
director of Leapfrog Ventures LLC, a private venture capital firm. From February
1992 until February 2000, he acted as a private venture investor in several
early stage technology companies. From March 1996 until September 1997, he was
general manager of Infoseek Corporation, an Internet Search Company. From
September 1997 to February 1999, Mr. Rip was managing director of Knight Ridder
Ventures, an affiliate of Knight Ridder, Inc.

  BOARD COMMITTEES

     Our Board of Directors has established an audit committee and a
compensation committee. The audit committee meets with and considers suggestions
from members of management and our internal accounting personnel, as well as our
independent accountants, concerning our financial operations. The audit
committee also has the responsibility to review our audited financial statements
and consider and recommend the employment of, and approve the fee arrangements
with, our independent accountants for both audit functions and advisory and
other consulting services. The audit committee currently comprises Messrs.
Hromadko and Redditt, both of whom were elected to the committee in November
1999. Mr. Rip served on the audit committee from June 2000 until February 2001.
To comply with Nasdaq Marketplace rules, we will need to appoint at least one
additional independent director to the audit committee by June 14, 2001. The
compensation committee reviews and approves the compensation and benefits
payable to our key executive officers, administers our equity incentive plans
and makes recommendations to our Board of Directors regarding such matters. The
compensation committee currently comprises Messrs. Hromadko and Redditt, both of
whom were elected to the committee in February 2000.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and holders of more than 10% of a registered
class of our equity securities to file reports of ownership on a Form 3 and
changes in ownership on a Form 4 or a Form 5 with the Securities and Exchange
Commission and the Nasdaq National Market. They are also required by SEC
regulations to furnish us with copies of all Section 16(a) forms that they file.
Based solely on a review of forms submitted to us during our fiscal year 2000,
we believe that all required reports under Section 16(a) were filed on time with
the SEC, except that Janis Nakano Spivack inadvertently filed a Form 4 late to
report stock option exercises.

                                        62
<PAGE>   63

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our four most
highly compensated executive officers whose total salary, bonus and other
compensation exceeded $100,000 during the fiscal years ended December 31, 1998,
1999 and 2000. In accordance with the rules of the SEC, the compensation
described below does not include perquisites and other personal benefits
received by the executive officers named in the table below which do not exceed
the lesser of $50,000 or 10% of the total salary and bonus reported for these
officers.

<TABLE>
<CAPTION>
                                                                                          LONG-TERM
                                                                                         COMPENSATION
                                                                                            AWARDS
                                                                                         ------------
                                                                  ANNUAL COMPENSATION     SECURITIES
                                                                  --------------------    UNDERLYING       ALL OTHER
              NAME AND PRINCIPAL POSITION                  YEAR   SALARY(1)    BONUS       OPTIONS      COMPENSATION(2)
-------------------------------------------------------    ----   --------    --------    ---------         ------
<S>                                                        <C>    <C>         <C>        <C>            <C>
Jonathan Nelson........................................    2000   $196,461          --(3)         --        $2,520
  Chief Executive Officer and Chairman of the Board        1999    183,072      54,922           --          2,520
                                                           1998     94,947          --           --          2,520
Susan Field(4).........................................    2000    263,893          --(3)         --            --
  Executive Vice President and Chief Financial Officer     1999    130,773     150,000    1,755,000             --
                                                           1998         --          --           --             --
Michael Hudes..........................................    2000    275,591          --(3)         --            --
  President and Director                                   1999    225,352      75,000           --             --
                                                           1998    165,792      65,000    1,476,000             --
Matthew Bernardini.....................................    2000    227,590      55,000        7,500             --
  Vice President, Chief Technology Officer                 1999    166,967      40,000      382,500             --
                                                           1998    110,417      15,000           --             --
Janis Nakano Spivak....................................    2000    208,950          --       12,000             --
  Vice President, Chief Creative Officer                   1999    171,250      47,500       67,500             --
                                                           1998    132,500      11,000           --             --
</TABLE>

---------------
(1) Salary includes amounts deferred under our 401(k) Plan.

(2) Represents term life insurance premiums paid by us on Mr. Nelson's behalf.

(3) Bonuses covering our 2000 fiscal year for this officer had not yet been
    determined by the compensation committee of our Board of Directors as of the
    date of the filing of this report.

(4) Ms. Field commenced employment with us in June 1999.

OPTION GRANTS DURING FISCAL YEAR 2000

     The following table sets forth certain information concerning grants of
stock options to each of the executive officers named in the table above during
the fiscal year ended December 31, 2000.

<TABLE>
<CAPTION>
                                                         INDIVIDUAL GRANTS                       POTENTIAL REALIZABLE
                                     ---------------------------------------------------------     VALUE AT ASSUMED
                                     NUMBER OF        PERCENT OF                                 ANNUAL RATES OF STOCK
                                     SECURITIES      TOTAL OPTIONS                                PRICE APPRECIATION
                                     UNDERLYING       GRANTED TO        EXERCISE                  FOR OPTION TERM(1)
                                      OPTIONS        EMPLOYEES IN       PRICE PER   EXPIRATION   ---------------------
               NAME                   GRANTED     FISCAL YEAR 2000(2)   SHARE(3)       DATE         5%          10%
----------------------------------     ------             ---            -------     --------    -------      -------
<S>                                  <C>          <C>                   <C>         <C>          <C>          <C>
Jonathan Nelson...................         --              --                 --           --         --           --
Michael Hudes.....................         --              --                 --           --         --           --
Janis Nakano Spivack..............     12,000             0.1%           $4.5313       9/8/10    $34,187      $86,636
Susan Field.......................         --              --                 --           --         --           --
Matthew Bernardini................      7,500             0.1%           $4.5313       9/8/10    $21,367      $54,147
</TABLE>

---------------
(1) Potential realizable values are net of exercise price, but before taxes
    associated with exercise. Amounts represent hypothetical gains that could be
    achieved for the options if exercised at the end of the option term. These
    gains are based on assumed rates of stock price appreciation of 5% and 10%
    compounded annually from the date the respective options were granted to
    their expiration date. These numbers are calculated based on SEC
    requirements and do not reflect our estimate or projection of the future
    common stock price.

(2) The percentage of total options is based on an aggregate of 8,498,627
    options granted to employees during fiscal 2000.

(3) All options were granted at a fair market value as determined by our Board
    of Directors based on the closing price of our common stock on the Nasdaq
    Stock Market on the date of grant.

                                        63
<PAGE>   64

AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2000 AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth for each of the executive officers named in
the table above the shares acquired and the value realized on each exercise of
stock options during the year ended December 31, 2000 and the year-end number
and value of exercisable and unexercisable options.

<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES
                                                                    UNDERLYING               VALUE OF UNEXERCISED
                                                              UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS
                                   SHARES                      DECEMBER 31, 2000(1)         AT DECEMBER 31, 2000(2)
                                 ACQUIRED ON     VALUE      ---------------------------   ---------------------------
            NAME                  EXERCISE      REALIZED    EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
-----------------------------     ---------    ----------     -------       ---------         ---         --------
<S>                              <C>           <C>          <C>           <C>             <C>           <C>
Jonathan Nelson..............            --            --          --              --          --               --
Michael Hudes................     1,014,750    $2,606,791          --         461,250         $--         $329,666
Janis Nakano Spivack.........        99,603     1,683,510      30,241         148,874         $--         $     --
Susan Field..................            --            --     714,374       1,040,626
Matthew Bernardini...........       126,864       254,271      86,303         294,844
</TABLE>

---------------
(1) Although options are immediately exercisable for all the option shares, any
    shares purchased under such an option are subject to repurchase by us, at
    the exercise price paid per share, in the event the optionee ceases to
    provide services to us prior to vesting in those shares. Accordingly, the
    table reflects such option shares as to which the repurchase right has
    lapsed under the "exercisable" column and such option shares subject to the
    repurchase right under the "unexercisable" column.

(2) Value of exercised in-the-money options represents the positive spread
    between the option exercise price and the deemed fair market value of our
    common stock at December 31, 2000, which was $.8125 per share based on the
    closing price of our common stock on the Nasdaq Stock Market on such date.

EMPLOYMENT AGREEMENTS

  JONATHAN NELSON

     On January 29, 1997, Mr. Nelson entered into an employment agreement with
us to serve as our Chief Executive Officer. As of January 15, 2001, Mr. Nelson
no longer serves as our Chief Executive Officer, and continues solely in his
position as Chairman of our Board of Directors. As amended on February 24, 1997,
the employment agreement provided Mr. Nelson with an annual base salary of
$90,000, with annual increases as determined by the Board of Directors. In
addition, Mr. Nelson was eligible to receive discretionary bonus compensation in
an amount determined by the Board of Directors. Under the terms of his
agreement, Mr. Nelson's employment was to continue until either party gave the
other party 90 days advance written notice of the expiration of the employment
agreement. Had we terminated Mr. Nelson's employment for cause, we would have
been required to pay Mr. Nelson all compensation due on the date of termination.
If we had terminated Mr. Nelson's employment without cause and without 90 days
advance written notice, Mr. Nelson would have been entitled to receive from us,
so long as Mr. Nelson was not in breach of the non-competition and protection of
confidential information provisions of his employment agreement, the following:

     - his applicable salary compensation less any income earned from subsequent
       employment, limited to 90 days once written notice was given; and

     - any unpaid reimbursable expenses outstanding, and any unused accrued
       vacation, as of the date of termination.

  MARK KINGDON

     On December 12, 2000, Mr. Kingdon entered into an employment agreement with
us to serve as our Chief Executive Officer, beginning January 15, 2001. The
employment agreement provides Mr. Kingdon with an annual base salary of
$350,000, with annual increases as determined by the Board of Directors.

     Mr. Kingdon's employment agreement also provides him with an option to
purchase 2,250,000 shares of our common stock pursuant to our 1999 Plan, subject
to the terms and conditions of the plan. These options contain a four year
vesting period, with shares vesting in equal monthly portions through the fourth
year.

     Also, Mr. Kingdon signed a non-interest bearing promissory note agreement
for $150,000. The note is due January 2, 2002, and one-fourth of the principal
will be forgiven at the end of each fiscal quarter that

                                        64
<PAGE>   65

Mr. Kingdon remains employed with Organic, Inc., beginning with the quarter
ending March 31, 2001. Mr. Kingdon's employment agreement also commits us to
enter into another promissory note next year on the same terms as the one we
entered into in 2001 provided that Mr. Kingdon remains in our employ.

     Mr. Kingdon's employment agreement also provides him with housing benefits
and reimbursement of moving expenses. The Company agrees to pay rent of up to
$7,500 per month, for a period not to exceed 24 months from the commencement of
employment. We have also agreed to pay for moving expenses in connection with
Mr. Kingdon's relocation to the San Francisco Bay Area.

     Under the terms of his agreement, Mr. Kingdon's employment may be
terminated by either party at any time with or without cause and with or without
notice. Should we terminate Mr. Kingdon's employment for cause or should he
voluntarily resign, he will not be entitled to severance pay, pay in lieu of
notice, or any other compensation or benefits, other than payment of accrued
salary and vacation. In the event Mr. Kingdon's employment is terminated without
cause, we will provide him with the following:

     - a payment equal to six months of his salary, less standard withholdings
       and deductions; and

     - a six month acceleration of vesting of the common stock subject to
       purchase pursuant to the options granted to him as of the date of the
       employment agreement.

  MICHAEL HUDES

     On January 29, 1997, Mr. Hudes entered into an employment agreement with us
to serve as our President. Mr. Hudes currently serves as our President and a
member of our Board of Directors. As amended on February 24, 1997, the
employment agreement provides Mr. Hudes with an annual base salary of $140,000,
with annual increases as determined by the Board of Directors. In addition, Mr.
Hudes is eligible to receive discretionary bonus compensation in an amount
determined by the Board of Directors. Under the terms of his agreement, Mr.
Hudes' employment shall continue until either party gives the other party 90
days advance written notice of the expiration of the employment agreement.
Should we terminate Mr. Hudes' employment for cause, we must pay Mr. Hudes all
compensation due on the date of termination. If we terminate Mr. Hudes'
employment without cause and without 90 days advance written notice, Mr. Hudes
is entitled to receive from us, so long as Mr. Hudes is not in breach of the
non-competition and protection of confidential information provisions of his
employment agreement, the following:

     - his applicable salary compensation less any income earned from subsequent
       employment, limited to 90 days once written notice is given; and

     - any unpaid reimbursable expenses outstanding, and any unused accrued
       vacation, as of the date of termination.

  SUSAN L. FIELD

     On June 22, 1999, Ms. Field entered into an employment agreement with us to
serve as our Executive Vice President and Chief Financial Officer. The
employment agreement provides Ms. Field with an annual base salary of $250,000,
with annual increases as determined by the Board of Directors and a bonus of up
to 40% of her base salary upon achievement of specific goals and objectives.
Additionally, Ms. Field was paid a signing bonus of $50,000 in connection with
her entering the employment agreement.

     Ms. Field's employment agreement also provides her with an incentive stock
option for the purchase of 480,000 shares of our common stock pursuant to our
1997 stock option plan at an exercise price of $0.8333 per share, and a
nonstatutory stock option for the purchase of 1,125,000 shares of our common
stock pursuant to our 1997 stock option plan, at an exercise price of $0.8333
per share. These options contain a four year vesting period, with 25% vesting
after the first continuous year of employment and the remaining option shares
vesting in equal monthly portions through the fourth year. Also, Ms. Field is
entitled to an additional nonstatutory stock option grant of 150,000 shares of
common stock pursuant to our 1997 stock option plan, at an exercise price of
$0.8333 per share. Of these shares, 75,000 vested upon the closing of the
initial public offering on

                                        65
<PAGE>   66

February 18, 2000 and 75,000 will vest upon our hiring employees to fill at
least two key management positions and our retaining these employees for nine
continuous months of employment.

     Under the terms of her agreement, Ms. Field's employment may be terminated
by either party at any time with or without cause and with or without notice.
Should we terminate Ms. Field's employment for cause or should she voluntarily
resign, she will not be entitled to severance pay, pay in lieu of notice, or any
other compensation or benefits, other than payment of accrued salary and
vacation. In the event Ms. Field's employment is terminated without cause, we
will provide her with the following:

     - a payment equal to three months of her salary, less standard withholdings
       and deductions; and

     - a one-year acceleration of vesting of the common stock subject to
       purchase pursuant to the options granted to her as of the date of the
       employment agreement.

DIRECTOR COMPENSATION

     Our directors currently are not compensated for their services. However, in
the future we intend to compensate our non-employee directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The compensation committee makes all compensation decisions. Gary F.
Hromadko and Gerald Bruce Redditt have served as the only members of the
compensation committee since we formed the committee in February 2000. No member
of our compensation committee has served as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or compensation committee. No
member of our compensation committee is or was one of our officers or employees.

                                        66
<PAGE>   67

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the beneficial ownership of our common stock
as of January 31, 2001 by each person or entity known by us to own beneficially
more than five percent of our common stock; by each of our executive officers
named in the Summary Compensation Table; by each of our directors; and by our
executive officers and directors as a group.

     Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power, or shares voting and investment power with
his or her spouse, with respect to all shares of capital stock listed as owned
by such person. Shares subject to options which are exercisable within sixty
days of January 31, 2001 are deemed to be outstanding and to be beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person, but are not deemed to be outstanding and to
be beneficially owned for the purpose of computing the percentage ownership of
any other person.

     The address of each of the executive officers and directors is c/o Organic,
Inc., 601 Townsend Street, San Francisco, California 94103.

<TABLE>
<CAPTION>
                                                     NUMBER OF SHARES     PERCENTAGE OF SHARES
                NAME AND ADDRESS                    BENEFICIALLY OWNED    BENEFICIALLY OWNED(1)
------------------------------------------------    ------------------    ---------------------
<S>                                                 <C>                   <C>
Organic Holdings, Inc. .........................        51,954,975                58.9%
  c/o Organic, Inc.
  510 Third Street
  San Francisco, CA 94107
Omnicom Group, Inc.(2)..........................        15,283,101                17.3%
  437 Madison Avenue
  New York, NY 10022
Jonathan Nelson(3)..............................        51,954,975                58.9%
Michael Hudes(4)................................         1,014,750                 1.2%
Janis Nakano Spivack............................           282,526                   *
Susan Field.....................................           777,188                   *
Matthew Bernardini..............................           265,306                   *
Bruce Redditt...................................            15,000                   *
All executive officers and directors as a group
  (17 persons)(5)...............................        56,604,088                64.2%
</TABLE>

---------------
 * Represents beneficial ownership of less than one percent of the common stock.
(1) Computed on the basis of 88,226,880 shares outstanding as of January 31,
    2001 and, with respect to each officer and director, shares subject to
    options exercisable within 60 days of January 31, 2001.
(2) Based solely on a review of a report on Schedule 13G/A filed with the SEC on
    February 14, 2001.
(3) Shares beneficially owned by Mr. Nelson consist of 51,954,975 shares owned
    by Organic Holdings, Inc., of which Mr. Nelson is the majority stockholder.
(4) Includes 61,500 shares held by Mr. Hudes were subject to a right of
    repurchase by us which lapses over time.
(5) Includes 261,498 options which are currently exercisable or become
    exercisable between January 31, 2001 and April 1, 2001. Also includes
    683,284 shares which were early exercised and are subject to a repurchase
    right in favor of Organic, Inc. which lapses over a four year period.

                                        67
<PAGE>   68

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Since January 1, 2000, the beginning of our fiscal year, we have not been
party to, and do not anticipate being a party to, any transaction or series of
similar transactions in which the amount included exceeded or will exceed
$60,000 and in which any director, executive officer or holder of more than five
percent of our common stock had or will have an interest, other than as
described under "Executive Compensation" and the transactions described below.

OMNICOM GROUP

     On August 27, 1999, we entered into a revolving credit facility with
Omnicom Group, which allows us to borrow up to $30.0 million at the lender's
commercial paper rate plus 3.0% until the closing of our initial public
offering. Thereafter, we may borrow up to $15.0 million from Omnicom Group at
the lender's commercial paper rate plus 1.25% through September 30, 2002.
Additionally, in connection with the revolving credit facility, we issued a
warrant to purchase 2,249,076 shares of our common stock to Omnicom Group at an
exercise price of $0.0033 per share. Omnicom Group beneficially owns more than
five percent of our common stock.

     We sublease our London office space from Omnicom Europe Limited, a
subsidiary of Omnicom Group. The subleased property is approximately 11,200
square feet and our annual lease payments total approximately $292,650. We can
terminate the sublease on three months' notice after the first eighteen months
of the sublease.

     One of our directors, Gerald Bruce Redditt, has served as Executive Vice
President of Omnicom Group since 1998.

OFFICER LOANS

     On March 31, 1999, we entered into a promissory note agreement for $200,000
with Michael Hudes, President and Director. This loan was secured by a pledge of
Mr. Hudes' shares of common stock. This note bears an annual interest rate of 7%
with principal and interest payments due every other year beginning on March 31,
2001. The principal of the note was repaid on April 11, 2000.

     On April 27, 2000, we entered into a promissory note agreement for $3.0
million bearing an annual interest rate of 9% with Michael Hudes. The principal
of the note including interest was repaid in full on May 5, 2000.

     On July 20, 2000, we entered into a promissory note agreement for $1.0
million bearing an annual interest rate of 7.6% with Arthur Williams, Executive
Vice President, Global Operations. The principal of the note including interest
was repaid in full on August 3, 2000.

     On January 11, 2001 the Company entered into a non-interest bearing
promissory note agreement for $150,000 with Mark Kingdon, Chief Executive
Officer. The note is due January 2, 2002, and one-fourth of the principal will
be forgiven at the end of each fiscal quarter that Mr. Kingdon remains employed
with Organic, Inc., beginning with the quarter ended March 31, 2001.

REGISTRATION RIGHTS

     We have entered into an investor's rights agreement with Organic Holdings,
Inc., which beneficially owns more than five percent of our common stock, and
Omnicom Group. This agreement provides that, subject to specified limitations,
if we propose to register any of our common stock under the Securities Act,
Organic Holdings, Inc., Omnicom Group and their permitted transferees have the
right to include their shares of common stock in the registration. Furthermore,
subject to specified limitations, Organic Holdings, Inc., Omnicom Group and
their permitted transferees may require us to register all or part of the common
stock they hold. These demand rights apply during the period commencing on
August 10, 2000 and ending on August 10, 2005. The number of shares included in
any underwritten offering can be limited by the underwriters of that offering.

                                        68
<PAGE>   69

     We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.

                                        69
<PAGE>   70

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

     See Part II, Item 8 of this Annual Report on Form 10-K.

     2. FINANCIAL STATEMENT SCHEDULES

     See Part II, Item 8 of this Annual Report on Form 10-K.

     3. EXHIBITS

     The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits that were previously filed
are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is the same as those set forth
below.

<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------   ------------------------------------------------------------
<C>       <S>
  3.1     Amended and Restated Certificate of Incorporation of
          Registrant(1)
  3.2     Amended and Restated Bylaws of Registrant(1)
  4.1     Reference is made to Exhibits 3.1 and 3.2
  4.2     Specimen Certificate of the Registrant's common stock(1)
  4.3     Form of Rights Agreement between Registrant and EquiServe
          Trust Company, N.A., as Rights Agent(4)
  4.4     Investors' Rights Agreement by and among Registrant, Organic
          Holdings, Inc. and Omnicom Group, Inc., dated February 8,
          2000(1)
 10.1     Form of Indemnification Agreement between Registrant and
          each of its executive officers and Directors(1)
 10.2     Registrant's 1997 Stock Option Plan, as amended and
          restated, including forms of agreements thereunder(1)(3)
 10.3     Registrant's 1999 Long-Term Stock Incentive Plan, including
          forms of agreements thereunder(1)(3)
 10.4     Employment Agreement between Registrant and Jonathan Nelson,
          dated January 29, 1997 and amended February 24, 1997(1)(3)
 10.5     Employment Agreement between Registrant and Michael Hudes,
          dated January 29, 1997 and amended February 24, 1997(1)(3)
 10.6     Employment Agreement between Registrant and Susan L. Field,
          dated June 22, 1999(1)(3)
 10.7     Loan Agreement between Registrant and Omnicom Group, Inc.,
          dated August 27, 1999(1)
 10.8     Guaranty and Security Agreement by and among Registrant,
          Organic Media, Inc. and Omnicom Group, Inc., dated August
          27, 1999(1)
 10.9     Revolving Note of Registrant payable to Omnicom Group, Inc.,
          dated August 27, 1999(1)
 10.10    Lease between 500 Third Street Associates and Registrant,
          dated July 22, 1996(1)
 10.11    Lease between 500 Third Street Associates and Registrant,
          dated July 22, 1996(1)
 10.12    Lease between 500 Third Street Associates and Registrant,
          dated December 5, 1996(1)
 10.13    Lease between Trustees of the Masonic Hall and Asylum Fund
          and Registrant, dated June 1998(1)
 10.14    Lease between Trustees of the Masonic Hall and Asylum Fund
          and Registrant, dated September 15, 1999(1)
</TABLE>

                                        70
<PAGE>   71

<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------   ------------------------------------------------------------
<C>       <S>
 10.15    Lease between Baker Hamilton Properties, LLC and Registrant,
          dated November 8, 1999(1)
 10.16    Lease between 233 Broadway Owners LLC and Registrant, dated
          November 4, 1999(1)
 10.17    Registrant's 2000 Employee Stock Purchase Plan(1)
 10.18    Sublease between Looksmart, Ltd. and Registrant, dated
          January 14, 2000(1)
 10.19    Omnibus Service Agreement between Registrant and
          Blockbuster, Inc., dated February 1, 1999(1)
 10.20    DaimlerChrysler Corporation Agreement with Registrant, dated
          March 15, 1999(1)
 10.21    Employment Agreement between Registrant and Mark Kingdon,
          dated January 11, 2001(2)(3)
 10.22    First Amendment to Lease between 223 Broadway Owner LLC and
          Registrant dated November 4, 1999(2)
 10.23    Second Amendment to Lease between 223 Broadway Owner LLC and
          Registrant dated November 4, 1999(2)
 10.24    Second Amended and Restated 1999 Long-Term Stock Incentive
          Plan(2)
 10.25    Amended and Restated 2000 Employee Stock Purchase Plan(2)
 21.1     Subsidiaries of the Registrant(1)
 23.1     Consent of PricewaterhouseCoopers LLP(2)
 24.1     Power of Attorney (contained in the signature page to this
          Report)
</TABLE>

---------------
(1) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1 (File No. 333-91627).

(2) Filed herewith.

(3) Management contract or compensatory plan, contract or arrangement.

(4) Incorporated by reference from an exhibit filed with the Company's Annual
    Report on Form 10-K filed (File Number 333-91627) with the Securities and
    Exchange Commission on May 8, 2000.

(b) REPORTS ON FORM 8-K

     None.

                                        71
<PAGE>   72

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Organic, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          ORGANIC, INC. (Registrant)

                                          By:       /s/ MARK KINGDON
                                            ------------------------------------
                                                        Mark Kingdon
                                                  Chief Executive Officer

Date: March 5, 2001

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jonathan Nelson, Mark Kingdon, Michael
Hudes, Susan L. Field and Margaret M. Zagel, and each of them, his or her true
and lawful attorneys-in-fact, each with the power of substitution, for him or
her in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with Exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or substitute
or substitutes, may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Organic, Inc.
and in the capacities and on the date indicated below.

<TABLE>
<CAPTION>
                   SIGNATURE                                             TITLE
                   ---------                                             -----
<S>                                               <C>

              /s/ JONATHAN NELSON                                Chairman of the Board
 ---------------------------------------------
                Jonathan Nelson

                /s/ MARK KINGDON                                Chief Executive Officer
 ---------------------------------------------               (Principal Executive Officer)
                  Mark Kingdon

               /s/ MICHAEL HUDES                                President and Director
 ---------------------------------------------
                 Michael Hudes

               /s/ SUSAN L. FIELD                  Executive Vice President, Chief Financial Officer
 ---------------------------------------------               and Chief Accounting Officer
                 Susan L. Field                              (Principal Financial Officer)

              /s/ STEVEN VATTUONE                               Vice President, Finance
 ---------------------------------------------              (Principal Accounting Officer)
                Steven Vattuone

              /s/ GARY F. HROMADKO                                     Director
 ---------------------------------------------
                Gary F. Hromadko

            /s/ GERALD BRUCE REDDITT                                   Director
 ---------------------------------------------
              Gerald Bruce Redditt
</TABLE>

Dated: March 5, 2001

                                        72
<PAGE>   73

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------   ------------------------------------------------------------
<C>       <S>
  3.1     Amended and Restated Certificate of Incorporation of
          Registrant(1)
  3.2     Amended and Restated Bylaws of Registrant(1)
  4.1     Reference is made to Exhibits 3.1 and 3.2
  4.2     Specimen Certificate of the Registrant's common stock(1)
  4.3     Form of Rights Agreement between Registrant and EquiServe
          Trust Company, N.A., as Rights Agent(4)
  4.4     Investors' Rights Agreement by and among Registrant, Organic
          Holdings, Inc. and Omnicom Group, Inc., dated February 8,
          2000(1)
 10.1     Form of Indemnification Agreement between Registrant and
          each of its executive officers and Directors(1)
 10.2     Registrant's 1997 Stock Option Plan, as amended and
          restated, including forms of agreements thereunder(1)(3)
 10.3     Registrant's 1999 Long-Term Stock Incentive Plan, including
          forms of agreements thereunder(1)(3)
 10.4     Employment Agreement between Registrant and Jonathan Nelson,
          dated January 29, 1997 and amended February 24, 1997(1)(3)
 10.5     Employment Agreement between Registrant and Michael Hudes,
          dated January 29, 1997 and amended February 24, 1997(1)(3)
 10.6     Employment Agreement between Registrant and Susan L. Field,
          dated June 22, 1999(1)(3)
 10.7     Loan Agreement between Registrant and Omnicom Group, Inc.,
          dated August 27, 1999(1)
 10.8     Guaranty and Security Agreement by and among Registrant,
          Organic Media, Inc. and Omnicom Group, Inc., dated August
          27, 1999(1)
 10.9     Revolving Note of Registrant payable to Omnicom Group, Inc.,
          dated August 27, 1999(1)
 10.10    Lease between 500 Third Street Associates and Registrant,
          dated July 22, 1996(1)
 10.11    Lease between 500 Third Street Associates and Registrant,
          dated July 22, 1996(1)
 10.12    Lease between 500 Third Street Associates and Registrant,
          dated December 5, 1996(1)
 10.13    Lease between Trustees of the Masonic Hall and Asylum Fund
          and Registrant, dated June 1998(1)
 10.14    Lease between Trustees of the Masonic Hall and Asylum Fund
          and Registrant, dated September 15, 1999(1)
 10.15    Lease between Baker Hamilton Properties, LLC and Registrant,
          dated November 8, 1999(1)
 10.16    Lease between 233 Broadway Owners LLC and Registrant, dated
          November 4, 1999(1)
 10.17    Registrant's 2000 Employee Stock Purchase Plan(1)
 10.18    Sublease between Looksmart, Ltd. and Registrant, dated
          January 14, 2000(1)
 10.19    Omnibus Service Agreement between Registrant and
          Blockbuster, Inc., dated February 1, 1999(1)
 10.20    DaimlerChrysler Corporation Agreement with Registrant, dated
          March 15, 1999(1)
 10.21    Employment Agreement between Registrant and Mark Kingdon,
          dated January 11, 2001(2)(3)
 10.22    First Amendment to Lease between 223 Broadway Owner LLC and
          Registrant dated November 4, 1999(2)
</TABLE>
<PAGE>   74

<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------   ------------------------------------------------------------
<C>       <S>
 10.23    Second Amendment to Lease between 223 Broadway Owner LLC and
          Registrant dated November 4, 1999(2)
 10.24    Second Amended and Restated 1999 Long-Term Stock Incentive
          Plan(2)
 10.25    Amended and Restated 2000 Employee Stock Purchase Plan(2)
 21.1     Subsidiaries of the Registrant(1)
 23.1     Consent of PricewaterhouseCoopers LLP(2)
 24.1     Power of Attorney (contained in the signature page to this
          Report)
</TABLE>

---------------
(1) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1 (File No. 333-91627).

(2) Filed herewith.

(3) Management contract or compensatory plan, contract or arrangement.

(4) Incorporated by reference from an exhibit filed with the Company's Annual
    Report on Form 10-K filed (File Number 333-91627) with the Securities and
    Exchange Commission on May 8, 2000.