SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                       [X] ANNUAL REPORT UNDER SECTION 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JUNE 30, 1997

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

                          Commission File No. 000-21775
                        ---------------------------------

                              THINK NEW IDEAS, INC.
                 (Name of small business issuer in its charter)
          DELAWARE                                              95-4578104
   (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                         Identification Number)

    45 WEST 36TH STREET, 12TH FLOOR, NEW YORK, NEW YORK 10018 (212) 629-6800
          (Address and telephone number of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Exchange Act:  None.

Securities  registered  pursuant to Section  12(g) of the Exchange  Act:  Common
Stock, $0.0001 par value.

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange Act during the past twelve (12) months (or for such
period that the Registrant was required to file such reports);  and (2) has been
subject to such filing  requirements  for the past  ninety  (90) days.
Yes /x/ No /_/

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. /_/

The  Registrant's  revenues  for the fiscal  year ended  June 30,  1997  totaled
$17,436,847.

As of September 26, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant  (assuming for this purpose that only directors
and officers of the Registrant are affiliates of the  Registrant),  based on the
average of the  closing  bid and asked  prices on that date,  was  approximately
$24,607,482.

As  of  September  26,  1997,  there  were  6,611,667  shares  of  Common  Stock
outstanding.

Documents   incorporated  by  reference:   Certain  exhibits  hereto  have  been
specifically incorporated by reference herein in Item 13 under Part III hereof.

Transitional Small Business Disclosure Format:     Yes  /_/      No  /x/


<PAGE>





                              INDEX TO FORM 10-KSB
                                       OF
                              THINK NEW IDEAS, INC.
                                                                         PAGE
                                     PART I

ITEM 1.        DESCRIPTION OF BUSINESS.........................................2

ITEM 2.        DESCRIPTION OF PROPERTY........................................12

ITEM 3.        LEGAL PROCEEDINGS..............................................13

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............13

                                           PART II

ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......13

ITEM 6.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS......................................14

ITEM 7.        CONSOLIDATED FINANCIAL STATEMENTS.............................F-1

ITEM 8.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
               ACCOUNTING AND FINANCIAL DISCLOSURES...........................24

                                           PART III

ITEM 9.        DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
               PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....24

ITEM 10.       EXECUTIVE COMPENSATION.........................................28

ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT.....................................................35

ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................37

ITEM 13.       EXHIBITS AND REPORTS ON FORM 8-K...............................39



<PAGE>




        The  Business  section and other parts  hereof  contain  forward-looking
statements that involve risks and  uncertainties.  The Company's  actual results
may differ  significantly  from the  results  discussed  in the  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed in the sections entitled "Business-Factors Affecting
Operating  Results and Market Price of Stock" and  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS


CORPORATE OVERVIEW

        THINK New Ideas,  Inc.,  a Delaware  corporation  (the  "Company"),  was
incorporated  pursuant to the laws of the State of Delaware in January  1996 for
the purpose of creating a corporate  structure to  facilitate  the  combination,
operation,  and integration of specialized  businesses operating in the areas of
advertising,  marketing,  Internet and intranet services and data management. On
June 30, 1996, the Company  completed the  acquisition of all of the outstanding
shares of common stock of the following entities: Internet One, Inc., a Colorado
corporation  ("Internet One"),  Creative Resources,  Inc., a Georgia corporation
("Creative  Resources");  Scott A.  Mednick &  Associates,  Inc.,  a  California
corporation  ("The  Mednick  Group");  The  Goodman  Group,  Inc.,  a  New  York
corporation  ("Goodman  Group");  On Ramp,  Inc.,  a New York  corporation  ("On
Ramp"); NetCube Corporation,  a Delaware corporation and NetCube Corporation,  a
New Jersey corporation (collectively,  "NetCube"),  (collectively referred to as
the  "Subsidiaries")  in  exchange  for an  aggregate  of 723,167  shares of the
Company's common stock (the "Common Stock").  See  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

        In August 1996, the Company entered into a strategic  relationship  with
Omnicom  Group Inc., a publicly held company  ("Omnicom").  Omnicom is the third
largest  marketing  and  advertising  company  in  the  world.  Pursuant  to the
Company's agreement with Omnicom (the "Omnicom Agreement"), the Company received
net  proceeds of  $4,948,000  through the  issuance of 938,667  shares of Common
Stock to Omnicom.  In November 1996, four principal  stockholders of the Company
transferred  an  aggregate  of 124,667  shares of Common Stock to Omnicom for no
cash consideration (the "Omnicom Transaction"). Since June 1996, the Company and
Omnicom have engaged in joint  marketing  of their  services to several  Omnicom
clients and the Company  believes that the relationship is providing access to a
substantial additional client base.



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        In November 1996, the Company completed its initial public offering (the
"Initial Public Offering") pursuant to which the Company issued 2,150,000 shares
of  Common  Stock.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results of  Operations  Liquidity  and  Capital  Resources."  In
connection with the Initial Public  Offering,  the Company  effected two reverse
stock splits; accordingly,  all share and per share data reflects the effects of
such splits. See "Note 7 to the Company's Consolidated Financial Statements."

        Pursuant to the terms of a certain  Asset  Acquisition  and  Forbearance
Agreement  dated as of May 31,  1997  (the  "Ketchum  Agreement"),  the  Company
acquired certain assets and operations of Fathom Advertising ("Fathom"),  a full
service advertising agency, from Ketchum  Communications,  Inc.  ("Ketchum"),  a
wholly-owned  subsidiary of Omnicom in exchange for the issuance of an aggregate
of 120,000 shares of Common Stock.  The Company's  acquisition of certain assets
and  operations  of  Fathom  was  accounted  for using  the  purchase  method of
accounting.  Accordingly, the results of operations of Fathom have been included
in the Company's  Consolidated Financial Statements since June 1, 1997. Fathom's
single largest client is Oracle Corporation,  a Delaware corporation ("Oracle"),
which  accounts for virtually all of its revenue.  Larry Kopald,  the individual
who was responsible  for the Oracle account while at Fathom,  joined the Company
in connection with its acquisition of Fathom.  See  "Management"  and "Executive
Compensation."

        In  June  1997,  the  Company  made  the  decision  to  restructure  its
operations in Boulder,  Colorado and Edgewater, New Jersey. These operations had
been conducted through Internet One and NetCube, respectively.  Internet One had
become a production facility for high level technology client services, but with
limited sales and marketing efforts. The Company determined it could effectively
consolidate the client relationships of its Boulder office into its New York and
Los Angeles  facilities  with minimal  impact,  and therefore,  the facility was
closed and all of the  employees  of Internet One were  terminated.  NetCube had
developed  proprietary data mining and analysis software for large data base and
data  warehousing  applications.  The Company  determined  that the marketing of
"shrink-wrapped" software was not its core competency and would both confuse the
Company's focus and involve too great an investment for the anticipated  return.
The  Company  has hired  several key  developers  from  NetCube for its New York
interactive group, ceasing the ongoing marketing and helpdesk development at its
New Jersey  facility.  This has  resulted in the  termination  of the  remaining
employees  of  NetCube.  The  Company is  currently  discussing  the sale of the
remaining assets of NetCube, primarily the software code, with several different
companies.  Total  estimated  costs  associated  with the above in the amount of
approximately  $1,732,000  have  been  included  in the  Company's  Consolidated
Financial  Statements  for  the  fiscal  year  ended  June  30,  1997.  See  the
Consolidated  Financial  Statements of the Company and "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."

BUSINESS

        The  Company's  operations  are  conducted  through  several  sectors of
business:  Traditional,  or  "off-line"  marketing  and  communications,  Online


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marketing and communications,  Marketing and Technology Consulting, and Internet
and Intranet systems development and integration.  The Company generates revenue
from both  traditional  marketing and Internet and  interactive  media  services
including Website  development and hosting,  corporate  internal  communications
solutions,  database  marketing,  corporate  identity  and product  branding and
packaging,  advertising and media placement  services,  and interface  solutions
that  provide  high-speed  access  via  the  Internet  to  off-line   databases.
Historically, revenues from these services by the Subsidiaries have been derived
on a  project-by-project  basis,  which tends to cause  fluctuations in revenues
between  reporting  periods.  A substantial  portion of those revenues have been
fixed fees for services to be delivered.  While the Company has recently entered
into a number of contracts  for ongoing  maintenance,  content  updates,  server
hosting,  software  licensing  and  subscription  services,  which  will  create
recurring revenue streams for the life of their respective  contracts (typically
twelve (12) months),  it is anticipated that project revenue will continue to be
a significant  component of total revenues and therefore revenue may continue to
fluctuate significantly from quarter to quarter.

        The  Company  generally  provides  Website  design and  development  and
traditional marketing services under contracts that vary in duration from two to
four weeks in the case of smaller  projects and up to five months in the case of
larger projects. In connection with Website design and development,  the Company
typically  enters into  twelve-month  arrangements  providing  for  maintenance,
content  updates of  Websites  and  software  licensing  and hosting of a client
Website  on  the  Company's  servers.  Revenues  from  contracted  services  are
generally  recognized  using the percentage of completion  method based upon the
ratio of costs incurred to total estimated  costs of the project.  Revenues from
hosting, maintenance and updates are recognized as the services are provided.

        Part of the  Company's  overall  business  strategy  is to  continue  to
increase  the  percentage  of revenue  which is  recurring  and to  continue  to
increase the number of services provided to a particular  client. The Company is
implementing   this   strategy  by   increasing   its  over-all   marketing  and
cross-marketing efforts.

        Another part of the Company's  business  strategy is to grow through the
acquisition  and  integration  of  synergistically  compatible  businesses.  The
Company  believes  that there  will be a  consolidation  among  technology-based
marketing solution providers and that this consolidation will continue to create
opportunities for the Company to expand through acquisitions and joint ventures.
In addition to its  acquisition of certain assets and operations of Fathom,  the
Company has undertaken  discussions with several companies engaged in businesses
that are  complimentary or supplementary to those of the Company.  The Company's
acquisition  strategies include acquiring companies that will be integrated into
the Company's existing infrastructure, enabling the Company to acquire access to
additional  product  or  service  offerings,  experienced  management  that  can
contribute  to building the business in a profitable  manner,  and  potentially,
provide international expansion (through the acquisition of companies outside of
the United States).



                                       4
<PAGE>




SERVICES AND PRODUCTS

        The Company combines technological expertise in Internet and interactive
communications  with  extensive  traditional  marketing  experience  to  provide
integrated  solutions to leading  corporate  accounts.  The Company's  solutions
incorporate brand and corporate strategy and positioning,  Website  development,
maintenance,  updating and hosting, corporate intranet solutions,  sophisticated
content  development  capabilities,  data  access  and  profile-driven  response
technologies,  and  advertising and media  placement  services.  The Company has
developed several  proprietary  software  applications  (including  WebMechanic,
E-Corp, ASAP, Comparabase) that it utilizes in delivering marketing solutions to
its  clients.  The Company  focuses on  assisting  its clients in the  following
areas:

        POSITION  AND BRAND  PRODUCTS  AND  SERVICES.  The Company  utilizes its
experience  in  traditional   advertising   and   marketing,   as  well  as  its
understanding  of the  capabilities of different and emerging media, to position
clients and market  their  products.  The Company  provides a range of services,
including brand positioning, developing corporate identity and print, television
and packaging design.

        MARKET CLIENT  PRODUCTS,  SERVICES AND ENHANCE  CORPORATE  COMMUNICATION
USING INTERNET  TECHNOLOGY.  The Company  combines  traditional  and interactive
media  approaches to advertising  and marketing in order to position its clients
and market  their  products  and  services on the  Internet.  This  includes the
development of Websites that incorporate the latest in Internet technology.  For
example, at the NEC Website a visitor can request a database-driven catalogue to
compare a number of NEC products and generate  customized  Webpages displaying a
comparative  presentation  of those NEC  products  in which that  visitor has an
interest  (http://www.nec.com).  The Company's "smart Website" methodology helps
to track visitors as they are referred by online advertising and journey through
a Website,  making  suggestions via  "dynamically  generated  content"  targeted
toward an  individual's  browsing habits  (http://www.avon.com),  or category of
interest  (www.as400.ibm.com).  The Company's  WebMechanic  sitebuilding  system
enables  centralized  corporations to empower their  distributors,  wholesalers,
retailers,  etc. to created custom,  personalized  "satellite" Websites and edit
them  at  will  with  virtually  no  online   experience   (www.bigleaguers.com;
www.chrysler.com).  The  skillful  application  of these  technologies  enable a
business  to  enhance   targeted   communications   directly  with  and  between
wholesalers, retailers, manufacturers and customers.

        IDENTIFY AND DEVELOP NEW LINES OF  DISTRIBUTION.  The Company is working
with its clients to develop new channels of distribution utilizing the Internet.
For example,  Avon sought to utilize a marketing channel not currently addressed
by its  traditional  distribution  system.  The  Company  is  assisting  Avon in
establishing a Website from which it will market  directly to customers over the
Internet  and allow Avon  representatives  to receive  product  information  and
communicate internally. The Website  (http://www.avon.com) was introduced during
the fiscal year ended June 30, 1997. The Company has also created a Website that
enables Bloomingdale's to sell a variety of its merchandise online,  allowing it


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to extend its distribution  beyond its current retail store and catalog presence
(http://www.bloomingdales.com).

        COMMUNICATE  AND OPERATE  MORE  EFFECTIVELY  INTERNALLY.  The  Company's
user-friendly interfaces and Internet tools, combined with training software and
methodology,  enable it to develop and deploy  sophisticated  intranet solutions
for its  clients.  For  example,  the  Company  developed  a  password-protected
intranet to allow Anheuser Busch to deliver proprietary marketing information to
its  distributors.  This intranet allows Anheuser Busch,  among other things, to
distribute information and engage in communication with its distributors quickly
and  provides  a means for  distributors  to order  marketing  materials  easily
through a secure medium.

        ACCESS DATA MORE  EFFICIENTLY.  The Company's  proprietary  technologies
allow users of both the World Wide Web and corporate intranets to easily access,
analyze and utilize  data via an online  environment.  The  Company's  solutions
include such software components as WebMechanic,  E-Corp, ASAP, and Comparabase.
The Company has integrated the learning derived from the NetCube technology into
a  variety  of  software  solutions,  enhancing  data  retrieval  and  analysis.
WebMechanic and E-Corp enable the Company's  clients to automate data publishing
and email on the  Internet,  via an  "automated  Website  building"  engine  and
"automated email engine" that can be simply  controlled by non-technical  users.
ASAP, the Advanced  Statistical Analysis Program, is a software application that
provides proprietary  statistical analysis to the sponsor of a Website regarding
the number and nature of the visits to that Website. Comparabase is a searchable
comparative  on-line  database that enables  consumers to select products from a
sizeable  on-line  catalogue  and compare  them to similar  products by feature.
These  proprietary  tools  allow the  Company  to: (i) craft  on-line  marketing
solutions  that are  responsive to user needs,  allowing the user to more easily
access,  compile and analyze data; and (ii) provide necessary tools to allow the
Website sponsor to assess the effectiveness of its marketing solutions.

CUSTOMERS

        The  following is a list of  customers  of the Company that  represented
$50,000 or more of the combined  revenues of the Company  during the fiscal year
ended June 30, 1997.


CONSUMER GOODS              SPORTS & ENTERTAINMENT     TECHNOLOGY
Anheuser Busch              Disney Art Classics        Adlink
Avon Products, Inc.         Home Box Office.           Amgen, Inc.
Bandai                      Major League Baseball      I-LINK
Bloomingdale's              Players Association        Inquiry.com
Busch Entertainment         NFL Properties             IBM
Coca-Cola Company           Request Television         Internet Shopping Network
Colorado Utility            Turner Corp                Logitech


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Crystal Geyser Water                                   McAfee
Curtis Mathes Holding       BUSINESS TO BUSINESS       Mita
Nioxin                      Bankers Trust              MSNBC
Pioneer Electronics         Eagle River Interactive    NEC USA
Reebok                      ING Barings                NETCOM
Reebok International, Inc.  Janus Funds                Netscape
Rockport                    Security First Network     Oracle
Rockport Foundation         Security First Technology  Securware, Inc.
Segasoft                    Sony Electronics
Tambrands                   Sprint                     TRAVEL & TRANSPORTATION
Toshiba                     VisionNet                  Continental Airlines
VF Corporation              Wentworth Research         Chrysler Motors
                            Western Digital Corp

        During  the  fiscal  year  ended  June 30,  1997,  Chrysler  Corporation
accounted for  approximately  10% of the Company's  combined revenue and Pioneer
Electronics  accounted for approximately 13% of the Company's  combined revenue.
No other  customers  accounted  for  more  than  10% of the  Company's  combined
revenue.

COMPETITION

        The market  for the  Company's  services  is highly  competitive  and is
characterized  by pressures to incorporate new  capabilities  and accelerate job
completion  schedules.  The Company faces  competition from a number of sources.
These sources include  national and regional new media  marketing  companies and
national and local advertising  agencies,  many of which have started to develop
or acquire  interactive  media  capabilities.  New boutiques that either provide
integrated or  specialized  services  (e.g.,  corporate  identity and packaging,
advertising services or Website design) and are technologically proficient, have
emerged and are competing with the Company. Many of the Company's competitors or
potential   competitors   have  longer   operating   histories,   longer  client
relationships  and  significantly  greater  financial,  management,  technology,
development,  sales,  marketing  and  other  resources  than  the  Company.  The
Company's  ability to maintain  its  existing  clients and  generate new clients
depends  to a  significant  degree  on the  quality  of  its  services  and  its
reputation among its clients and potential clients, as compared with the quality
of services provided by and the reputations of the Company's competitors. In the
event that the Company loses clients to competitors  because of  dissatisfaction
with the services performed or provided by the Company, or the reputation of the
Company is otherwise adversely impacted,  the business,  financial condition and
operating results of the Company could be materially adversely affected.

        There are relatively low barriers to entry into the Company's  business.
The Company expects that it will face additional  competition  from new entrants
into the market in the future. There can be no assurance that existing or future
competitors  will not  develop or offer  marketing  communication  services  and
products that provide significant performance, price, creative, technological or


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other advantages over those offered by the Company,  which could have a material
adverse effect on the business, financial condition and operating results of the
Company.

        The  Company  believes  that the  principal  competitive  factors in the
market  for new media  marketing  services  are  creative  content,  quality  of
service,   breadth   of   services   offered,   technological   and  new   media
sophistication, perceived value, responsiveness to clients' needs and timeliness
in  delivering  solutions.  The  Company  believes  that it  generally  competes
favorably with respect to each of these factors.

EMPLOYEES

        As of September 26, 1997, the Company employed 149 full-time  employees,
including 5 officers,  13 management personnel,  126 in operations,  and 5 sales
and service  representatives.  The Company  considers its relationship  with its
employees  satisfactory  and  is  not  a  party  to  any  collective  bargaining
agreement.

GOVERNMENT REGULATION

        The Company  has no  knowledge  of any  governmental  regulations  which
materially adversely affect its business operations.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

        The Company operates in a rapidly  changing  environment that involves a
number of  uncertainties,  some of which are beyond the  Company's  control.  In
addition  to  the  uncertainties  described  elsewhere  in  this  report,  these
uncertainties include:

        DEPENDENCE ON KEY ACCOUNTS. The Company's four largest clients accounted
for  thirty-eight  percent (38%) of the  Company's  revenues for the fiscal year
ended June 30, 1997,  with  fluctuations  in the amount of revenue  contribution
from each such client from quarter to quarter.  Pioneer Electronics and Chrysler
Corporation, the Company's two largest clients during the fiscal year ended June
30, 1997,  accounted for  approximately  thirteen  percent (13%) and ten percent
(10%) of the  Company's  revenues,  respectively,  during the period.  Since the
Company's  clients generally retain the Company on a project by project basis, a
client from whom the Company generates substantial revenue in one period may not
be a substantial  source of revenue in a subsequent  period.  To the extent that
the Company's major clients do not remain a significant source of revenues,  and
the  Company is unable to replace  these  clients,  there  could be a direct and
immediate material adverse effect on the Company's business, financial condition
and  operating  results.  The Company's  typical  project lasts from two to four
weeks in the  case of  smaller  projects  and up to five  months  in the case of
larger  projects.  Once a project is completed  there can be no assurance that a
client will engage the Company for further services. In addition,  the Company's
clients may unilaterally reduce their use of the Company's services or terminate
existing  projects  without penalty.  The termination of the Company's  business
relationship with any of its significant  clients or a material reduction in the


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use of the  Company's  services by a  significant  client  would have a material
adverse  effect on the  Company's  business,  financial  condition and operating
results.

        FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND MARGINS;  SEASONALITY OF
BUSINESS.  The Company's  operating  results have fluctuated in the past and may
fluctuate in the future as a result of a variety of factors, including timing of
the completion, material reduction or cancellation of major projects or the loss
of a major client,  timing of the receipt of new business,  timing of the hiring
or loss of  personnel,  timing of the  opening  or  closing  of an  office,  the
relative  mix of high margin  creative  projects  as  compared  to lower  margin
production projects, changes in the pricing strategies and business model of the
Company or its competitors, capital expenditures and other costs relating to the
expansion of  operations,  and other  factors that are outside of the  Company's
control.  Operating  results  could also be  materially  adversely  affected  by
increased  competition in the Company's markets. The Company's operating margins
may  fluctuate  from  quarter to quarter  depending on the relative mix of lower
cost full time employees versus higher cost independent contractors. The Company
experiences  some  seasonality  in its  business  which  results  from timing of
product  introductions  and  business  cycles  of  the  Company's  clients.  The
Company's  revenues  may be  somewhat  higher  during  certain  quarters  of the
Company's fiscal year reflecting the trends of its clients  preparing  marketing
campaigns  for  products  launched in  anticipation  of fall trade shows and the
holiday season.  The Company's  revenues for the first fiscal quarter tend to be
somewhat  lower  because  many  clients have  expended  most of their  marketing
budgets  prior to the end of the calendar year and do not release funds from the
next calendar  year's  marketing  budget until mid to late January.  The Company
expects this seasonality to continue in the future. As a result of the foregoing
and other factors,  the Company  anticipates that it may experience material and
adverse fluctuations in future operating results on a quarterly or annual basis.
Therefore,  the  Company  believes  that  period  to period  comparisons  of its
revenues and  operating  results are not  necessarily  meaningful  and that such
comparisons cannot be relied upon as indicators of future performance.

        MANAGEMENT OF GROWTH;  RISKS  ASSOCIATED WITH  EXPANSION.  The Company's
business  has grown  rapidly  in recent  periods.  The  growth of the  Company's
business and expansion of its customer base have placed a significant  strain on
the  Company's  management  and  operations.  In the last year,  the Company has
opened an office in Seattle,  Washington;  integrated several companies into one
corporate  organization;  and has increased the size of each of its divisions in
Los Angeles and New York. The Company's expansion has resulted,  and is expected
in the future to result,  in  substantial  growth in the number of its employees
and in increased  responsibility for both existing and new management  personnel
and strain on the  Company's  existing  operational,  financial  and  management
information  systems.  The Company's success depends to a significant  extent on
the ability of its executive  officers and other members of senior management to
operate effectively, both independently and as a group.

        In addition,  the Company  plans to expand its  offerings of  integrated
marketing  communication  services and products.  There can be no assurance that


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the Company will be successful in identifying new services or products that will
be  attractive  to clients or that such  services  or products  will  ultimately
generate  revenues  in  excess  of  costs to  implement  them.  Difficulties  in
recruiting and assimilating new personnel, enhancing the Company's financial and
operational  controls and expanding the Company's marketing and customer support
capabilities may impede the Company's ability to pursue its growth strategy.  In
general,  there can be no assurance  that the Company will be able to manage its
recent or any future  expansions  effectively,  and any inability to do so would
have a material adverse effect on the Company's  business,  financial  condition
and operating  results.  There also can be no assurance that the Company will be
able to sustain the rates of growth  that it has  experienced  in the past.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

        DEVELOPING  MARKET FOR NEW MEDIA; NEW ENTRANTS;  UNPROVEN  ACCEPTANCE OF
THE COMPANY'S NEW MEDIA SOLUTIONS. The Company's future growth is dependent to a
significant extent upon its ability to increase the amount of revenue it derives
from providing marketing and advertising  solutions to its customers through new
media,  which the Company defines as media that delivers content to end users in
digital form,  including the World Wide Web, the  Internet,  proprietary  online
services,  CD-ROMs and laptop PC  presentations.  The market for  marketing  and
advertising  through new media has only  recently  begun to develop,  is rapidly
evolving and is  characterized  by an increasing  number of market  entrants who
have  introduced  or  developed  products and  services  for  communication  and
commerce through new media. Demand and market acceptance for recently introduced
products and services are subject to a high level of  uncertainty.  There can be
no assurance that commerce and communication  through new media will continue to
grow. The use of new media in marketing and  advertising,  particularly by those
individuals and enterprises that have historically relied upon traditional means
of marketing and advertising,  generally requires the acceptance of a new way of
conducting business and exchanging information. In particular,  enterprises that
have  already  invested  substantial  resources  in other  means  of  conducting
commerce and exchanging  information  may be  particularly  reluctant or slow to
adopt a new strategy that may make their existing  resources and  infrastructure
less useful.

        In  connection  with the Company's  new media  services,  the Company is
exploring  new methods to derive  revenue,  so that a larger  percentage  of its
revenues is  recurring.  These  methods  include  long-term  service  contracts,
ongoing content development  contracts and technology consulting and maintenance
services.  There is no assurance that the Company will be able to negotiate such
arrangements with clients.

        RISKS ASSOCIATED WITH  ACQUISITIONS.  As part of its business  strategy,
the Company expects to make  acquisitions of companies that are in complementary
and/or  supplementary  to the  Company.  Any such future  acquisitions  would be
accompanied by the risks commonly  encountered  in  acquisitions  of businesses.
Such risks  include,  among other things,  the  difficulty of  assimilating  the
operations and personnel of the acquired businesses, the potential disruption of
the  Company's  ongoing  business,  the  inability of management to maximize the
financial  and  strategic   position  of  the  Company  through  the  successful


                                       10
<PAGE>




incorporation  of acquired  personnel and clients,  the  maintenance  of uniform
standards, controls, procedures and policies and the impairment of relationships
with  employees  and clients as a result of any  integration  of new  management
personnel.  In June 1997, the Company acquired certain assets for  consideration
consisting of 120,000  shares of Common Stock.  The Company is also  negotiating
with other  potential  acquisition  targets.  The  Company  expects  that future
acquisitions,  if any, could provide for consideration to be paid in cash, stock
or a combination of cash and stock. There can be no assurance that any potential
acquisition  will be consummated.  The Company has also closed the operations of
two (2) of the  Subsidiaries.  Therefore,  there  can be no  assurance  that the
Company's prior acquisitions or any other potential acquisitions will not have a
material  adverse  effect on the  Company's  business,  financial  condition and
operating  results.  See  "Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations -- Overview."

        UNCERTAIN   ADOPTION  OF   INTERNET   AS  A  MEDIUM  OF   COMMERCE   AND
COMMUNICATIONS;  DEPENDENCE  ON THE INTERNET.  The  Company's  ability to derive
revenues from new media solutions will depend in part upon a robust industry and
the  infrastructure for providing Internet access and carrying Internet traffic.
The  Internet  may not prove to be a viable  commercial  marketplace  because of
inadequate  development  of the  necessary  infrastructure,  such as a  reliable
network backbone or timely development of complementary  products,  such as high
speed modems.  Because global commerce and online exchange of information on the
Internet and other similar open wide area  networks are new and evolving,  it is
difficult to predict with any  assurance  whether the Internet  will prove to be
and remain a viable commercial marketplace. Moreover, critical issues concerning
the commercial use of the Internet (including security,  reliability, cost, ease
of use and access,  and quality of service) remain unresolved and may impact the
growth of Internet use.  There can be no assurance that the Internet will become
a  viable   commercial   marketplace.   If  the  necessary   infrastructure   or
complementary  products are not developed,  or if the Internet does not become a
viable commercial  marketplace,  the Company's  business,  operating results and
financial condition could be materially adversely affected.

        PROJECT PROFIT EXPOSURES. The Company generates the substantial majority
of its  revenues  through  project  fees on a fixed fee for service  basis.  The
Company  assumes  greater  financial risk on fixed-price  type contracts than on
either time-and-material or cost-reimbursable  contracts.  Failure to anticipate
technical   problems,   estimate  costs   accurately  or  control  costs  during
performance of a fixed-price contract may reduce the Company's profit or cause a
loss. Although the majority of the Company's projects typically last four to six
weeks and therefore each  individual  short-term  project  creates less exposure
than a  long-term  fixed-price  contract,  in the  event  the  Company  does not
accurately anticipate the progress of a number of significant revenue-generating
projects  it could have a material  adverse  effect on the  Company's  business,
operating results and financial condition.

        CONFLICTS  OF  INTEREST.  Conflicts  of interest are inherent in certain
segments of the marketing communications industry,  particularly in advertising.
The Company has in the past and will in the future be unable to pursue potential
advertising and other opportunities  because such opportunities will require the
Company to provide  services to direct  competitors  of existing  clients of the


                                       11
<PAGE>




Company.  In addition,  the Company risks alienating or straining  relationships
with existing  clients each time the Company agrees to provide  services to even
indirect  competitors  of existing  Company  clients.  Conflicts of interest may
jeopardize  the  stability  of  revenues  generated  from  existing  clients and
preclude access to business prospects, either of which developments could have a
material  adverse  effect on the  Company's  business,  financial  condition and
operating results.

        MARKET ACCEPTANCE OF THE COMPANY'S APPROACH; SERVICE DEVELOPMENT;  RAPID
TECHNOLOGICAL  CHANGE.  The Company provides an integrated  approach to meet the
marketing  communications  needs of its clients. To compete successfully against
specialized  service  providers,  the Company  believes  that its  products  and
services in each marketing communication  discipline will need to be competitive
with the services offered by the firms that specialize in each discipline. There
can be no assurance that the Company will be successful in providing competitive
solutions to clients in each of its integrated marketing  communication services
and products. Failure to do so could result in the loss of existing customers or
the inability to attract and retain new customers,  either of which developments
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and operating results.

        SUSCEPTIBILITY TO GENERAL ECONOMIC  CONDITIONS.  The Company's  revenues
and results of operations will be subject to fluctuations based upon the general
economic  conditions.  If there  were to be a  general  economic  downturn  or a
recession  in  the  United  States,  then  the  Company  expects  that  business
enterprises, including its clients and potential clients, will substantially and
immediately reduce their advertising and marketing budgets. In the event of such
an economic  downturn,  there can be no assurance  that the Company's  business,
operating results and financial  condition would not be materially and adversely
affected.

ITEM 2. DESCRIPTION OF PROPERTY

        The Companies  executive and  administrative  offices are located in New
York, New York. The Company also maintains  offices in Los Angeles,  California;
Atlanta, Georgia; Edgewater, New Jersey; and Seattle, Washington.

        The New York facilities  consist of approximately  20,000 square feet on
two floors in midtown Manhattan (the "Manhattan Space").  The Manhattan Space is
currently leased on a  month-to-month  basis for $145,000 per annum from October
1, 1996 to  September  2001 and then for $155,000 per annum from October 1, 2001
to September 30, 2006.

        The California facility consists of approximately  14,000 square feet of
space located in Los Angeles.  Such space is currently leased by the Company for
a term of ten (10)  years.  The  initial  rent for the first  three years of the
lease is approximately $27,524 per month. The rent for the following three years
is approximately  $30,276 per month and approximately  $34,405 per month for the
remaining term of the lease.

        The  Company  operates  a facility  in New  Jersey,  which is  currently
utilized to support  the  Company's  accounting  operations.  Additionally,  the


                                       12
<PAGE>




Company operates facilities in Boulder, Colorado; Atlanta, Georgia; and Seattle,
Washington that are engaged in the Company  Business  sectors.  These facilities
range in space  from  2,500  square  feet to 9,000  square  feet.  Each of these
facilities is leased, with monthly rents ranging from $750 to $10,000.

        The Company  believes that its existing  facilities are adequate to meet
its current operating needs and that suitable additional space will be available
to the Company on favorable terms should the Company require additional space to
accommodate future operations or expansion.  Further,  in the event that any one
of the foregoing  leases was not renewed,  the Company believes that it would be
able to obtain suitable alternative space on terms comparable to those currently
afforded to the Company.

        The  Company  owns no real  estate and does not intend to invest in real
estate or interests in real estate,  real estate mortgages,  or securities of or
interests  in  persons  primarily  engaged  in real  estate  activities  for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

        The  Company  is not a party to any  legal  proceedings  required  to be
disclosed pursuant hereto.

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

        There were no matters  submitted to the  stockholders of the Company for
consideration during the fourth quarter of the fiscal year ended June 30, 1997.


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

        In November 1996, in connection  with the Initial Public  Offering,  the
Company applied for and was granted inclusion of its securities for quotation on
the  Nasdaq  National  Marketsm  ("Nasdaq").   Consequently,  the  Common  Stock
commenced on quotation on Nasdaq on November 26, 1996 under the symbol "THNK."

        The following table sets forth, for the periods indicated,  the reported
high and low bid and asked price  quotations for the Common Stock for the period
from November 26, 1996 (when the  Company's  securities  commenced  quotation on
Nasdaq)  through  June 30, 1997 (the end of the  Company's  most  recent  fiscal
year).  Such quotations  reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and may not represent actual transactions.



                                       13
<PAGE>






                                             COMMON STOCK
                               ----------------------------------------
                                    BID ($)               ASKED ($)
     PERIOD OF QUOTATION        HIGH        LOW         HIGH        LOW
     -------------------        ----        ---         ----        ---

Fiscal 1997:
-------------
                                
  Second Quarter
  (commencing November 26,
  1996)                         7.00       5.88         7.38       6.13

  Third Quarter                 6.00       3.75         6.25       4.13

  Fourth Quarter                4.50       2.50         5.88       2.88


        As of  September  26,  1997,  there  were 47 holders of record of Common
Stock based upon information  furnished by Continental  Stock Transfer and Trust
Company,  New York, New York,  the transfer agent for the Company's  securities.
The Company believes,  based upon security  positions  listings,  that there are
more than 300 beneficial  owners of the Common Stock.  The closing bid and asked
prices of the  Company's  securities as reported on Nasdaq on September 26, 1997
were: $10.63 and $10.75 per share of Common Stock, respectively. As of September
26, 1997, there were 6,611,667 shares of Common Stock outstanding.

        The  Company  has never  paid and does not  anticipate  paying  any cash
dividends on its Common Stock in the foreseeable  future. The Company intends to
retain all  earnings for use in the  Company's  business  operations  and in the
expansion of its business.

        Pursuant  to the terms the  Ketchum  Agreement,  the  Company  issued an
aggregate  of  120,000  shares  of  Common  Stock  to  Ketchum,  a  wholly-owned
subsidiary of Omnicom  pursuant to Section 4(2) of the  Securities  Act of 1933.
Further  description of the transaction is provided under the sections  entitled
"Business" and "Certain Relationships and Related Transactions."

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS

        The  following  discussion  and analysis of the  Company's  consolidated
financial condition and results of operations should be read in conjunction with
the  Company's  Consolidated  Financial  Statements  and Notes thereto in Item 7
hereof.   The  Business   section  and  other  parts  of  this  Report   contain
forward-looking  statements that involve risks and uncertainties.  The Company's
actual  results  may differ  significantly  from the  results  discussed  in the
forward looking statements.  Factors that might cause such a difference include,
but  are  not   limited   to,   those   discussed   in  the   section   entitled
"Business--Factors  Affecting  Operating  Results  and  Market  Price of  Stock"
commencing on page 2.

OVERVIEW

        The Company was  incorporated  in the State of Delaware in January  1996
for the purpose of creating a corporate  structure to facilitate the combination


                                       14
<PAGE>




and integration of specialized businesses operating in the areas of advertising,
marketing, Internet and intranet services and data management.

        On June 30, 1996,  the Company  completed the  acquisition of all of the
outstanding  shares of  common  stock of the  Subsidiaries  in  exchange  for an
aggregate of 723,167  shares of Common Stock.  The Company's  acquisition  of On
Ramp was  accounted  for using the purchase  method of  accounting.  Each of the
Company's  other  acquisitions  was accounted for using the pooling of interests
method.  Accordingly,  the results of  operations  for each of the  Subsidiaries
(other than On Ramp) have been  included in the Company's  Financial  Statements
since the earlier of July 1, 1993 or each of such  Subsidiary's  inception.  The
results of operations  of On Ramp have been included in the Company's  Financial
Statements since July 1, 1996.

        Pursuant to the terms of the Ketchum Agreement,  effective as of May 31,
1997,  the Company  acquired  certain  assets and  operations of Fathom,  a full
service advertising agency, from Ketchum (a wholly-owned  subsidiary of Omnicom)
for an aggregate of 120,000 shares of Common Stock. The Company's acquisition of
the assets and operations of Fathom was accounted for using the purchase  method
of  accounting.  Accordingly,  the  results of  operations  of Fathom  have been
included in the Company's  Consolidated Financial Statements since June 1, 1997.
Fathom's  single largest  client is Oracle,  which accounts for virtually all of
its revenue.  Larry Kopald,  the individual who was  responsible  for the Oracle
account while at Fathom,  joined the Company in connection  with its acquisition
of Fathom. See "Management" and "Executive Compensation."

        In  June  1997,  the  Company  made  the  decision  to  restructure  its
operations in Boulder,  Colorado and Edgewater, New Jersey. These operations had
been conducted through Internet One and NetCube, respectively.  Internet One had
become a production facility for high level technology client services, but with
limited sales and marketing efforts. The Company determined it could effectively
consolidate the client relationships of its Boulder office into its New York and
Los Angeles  facilities  with minimal  impact,  and therefore,  the facility was
closed and all of the  employees  of Internet One were  terminated.  NetCube had
developed  proprietary data mining and analysis software for large data base and
data  warehousing  applications.  The Company  determined  that the marketing of
"shrink-wrapped" software was not its core competency and would both confuse the
Company's focus and involve too great an investment for the anticipated  return.
The  Company  has hired  several key  developers  from  NetCube for its New York
interactive group, ceasing the ongoing marketing and helpdesk development at its
New Jersey  facility.  This has  resulted in the  termination  of the  remaining
employees  of  NetCube.  The  Company is  currently  discussing  the sale of the
remaining assets of NetCube, primarily the software code, with several different
companies.  Total  estimated  costs  associated  with the above in the amount of
approximately  $1,732,000  have  been  included  in the  Company's  Consolidated
Financial  Statements  for  the  fiscal  year  ended  June  30,  1997.  See  the
Consolidated Financial Statements of the Company.




                                       15
<PAGE>




        The  Company  generates  revenue  from both  traditional  marketing  and
Internet and  interactive  media  services  including  Website  development  and
hosting,  corporate  internal  communications  solutions,   database  marketing,
corporate  identity and product  branding and packaging,  advertising  and media
placement  services,  and interface solutions that provide high-speed access via
the Internet to off-line databases.  Historically,  revenues from these services
by the Company have been derived on a  project-by-project  basis, which tends to
cause fluctuations in revenues between reporting periods.  Substantial  portions
of those  revenues have been fixed fees for services to be delivered.  While the
Company has recently entered into a number of contracts for ongoing maintenance,
content  updates,   server  hosting  and  software  licensing  and  subscription
services,  which will  create  recurring  revenue  streams for the life of their
respective  contracts  (typically  twelve (12) months),  it is anticipated  that
project  revenue will continue to be a significant  component of total  revenues
and therefore  revenue may continue to fluctuate  significantly  from quarter to
quarter.

        The  Company  generally  provides  Website  design and  development  and
traditional marketing services under contracts that vary in duration from two to
four weeks in the case of smaller  projects and up to five months in the case of
larger projects. In connection with Website design and development,  the Company
typically  enters into  twelve-month  arrangements  providing  for  maintenance,
content  updates of  Websites  and  software  licensing  and hosting of a client
Website  on  the  Company's  servers.  Revenues  from  contracted  services  are
generally  recognized  using the percentage of completion  method based upon the
ratio of costs incurred to total estimated  costs of the project.  Revenues from
hosting, maintenance and updates are recognized as the services are provided.

        Part of the  Company's  overall  business  strategy  is to  continue  to
increase the percentage of revenue that is recurring and to continue to increase
the  number  of  services  provided  to a  particular  client.  The  Company  is
implementing   this   strategy  by   increasing   its  over-all   marketing  and
cross-marketing efforts.

        Another part of the Company's  business  strategy is to grow through the
acquisition  and  integration  of  synergistically  compatible  businesses.  The
Company  believes  that there  will be a  consolidation  among  technology-based
marketing solution providers and that this consolidation will continue to create
opportunities for the Company to expand through acquisitions and joint ventures.
In addition  to its  acquisition  of the assets and  operations  of Fathom,  the
Company has undertaken  discussions with several companies engaged in businesses
that are  complementary or supplementary to those of the Company.  The Company's
acquisition  strategies include acquiring companies that will be integrated into
Company's  existing  infrastructure,  enabling the Company to acquire  access to
additional  product  or  service  offerings,  experienced  management  that  can
contribute  to building the business in a profitable  manner,  and  potentially,
provide international expansion (through the acquisition of companies outside of
the United States).


                                       16
<PAGE>





YEARS ENDED JUNE 30, 1997 AND 1996

        REVENUES.  The  following  table  presents  the  Company's  consolidated
revenues, by reference to line of business,  for the fiscal years ended June 30,
1997  and  1996.  The  individual  and  combined   historical  revenues  of  the
Subsidiaries  are not necessarily  indicative of the future revenues that may be
expected.

                                          YEAR ENDED JUNE 30,
                         ------------------------------------------------------
                                           ($ IN THOUSANDS)
                                    1997                          1996
                         -------------------------     ------------------------
                               $            %                $           %
Traditional Marketing      $ 7,685         44%
Marketing                                                  $7,084        72%
Interactive                                56%
Marketing                    9,752                          2,739        28%
                             ------                        ------        ---
Total                      $17,437        100%             $9,823       100%
                           ========       ====            =======       ====


        Revenues for the Traditional Marketing business, consisting primarily of
advertising,  strategic marketing and corporate and brand positioning, increased
to $7,685,000 in fiscal 1997 from  $7,084,000 in fiscal 1996 (9%).  The increase
in revenues in fiscal 1997 primarily resulted from the Company's  acquisition of
the assets and operations of Fathom.

        Revenues for the Interactive Marketing business, consisting primarily of
Internet and intranet site  development,  systems and services,  on-line  system
licensing  and site hosting and  maintenance,  increased to $9,752,000 in fiscal
1997 from  $2,739,000 in fiscal 1996 (256%).  The increase in revenues in fiscal
1997 is primarily due to the  acquisition of On Ramp on June 30, 1996 (which had
revenues of  $8,673,000  in fiscal 1997) and the result of increased  demand for
Internet  access and  infrastructure.  This increase was  partially  offset by a
decrease in revenues at NetCube and Internet One, as previously discussed.

        DIRECT  SALARIES  AND  RELATED  EXPENSES.  Direct  salaries  and related
expenses consist of wages, payroll taxes and employee benefits.  Direct salaries
and related expenses  increased to $10,029,000 in fiscal 1997 from $3,629,000 in
fiscal  1996  (176%).  The  increase  in  fiscal  1997 is  primarily  due to the
acquisition of On Ramp (which caused an increase of  $3,862,000)  and the hiring
of additional  personnel necessary to build the infrastructure for future growth
of the Company.

        OTHER DIRECT EXPENSES.  Other direct expenses consist of contract labor,
materials and facility expenses  associated with providing  services to clients.
Other direct expenses  increased to $4,692,000 in fiscal 1997 from $3,870,000 in
fiscal 1996 (21%).  The increase in fiscal 1997 is primarily due to  incremental
costs incurred by the Subsidiaries as a result of higher levels of operations.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses consist of marketing expenses and technology costs such


                                       17
<PAGE>




as hardware and software  purchases and leasing,  as well as  telecommunications
costs for Internet access. Additionally, this category includes occupancy costs,
insurance,  consulting and  professional  fees,  general office expenses and bad
debt  expense.   Selling,  general  and  administrative  expenses  increased  to
$6,842,000 in fiscal 1997 from $2,377,000 in fiscal 1996 (188%). The increase in
fiscal 1997 is  primarily  due to the  acquisition  of On Ramp (which  caused an
increase of $2,918,000).  The remainder is due to increased  occupancy  expenses
and administrative salaries, particularly at the corporate level, as the Company
continued to build its  infrastructure to accommodate the Company's  operational
growth,  as well as non-cash  consulting  fees in the amount of $369,000 for the
value of Common Stock issued to a consultant and options issued to  non-employee
directors.  See "Executive  Compensation" and "Certain Relationships and Related
Transactions."

        DEPRECIATION AND AMORTIZATION.  Depreciation and amortization  increased
to  $1,619,000  in fiscal 1997 from  $209,000 in fiscal  1996.  The  increase in
fiscal 1997 is primarily due to amortization of intangibles,  primarily goodwill
acquired in connection with the acquisition of On Ramp (which caused an increase
of  $1,325,000).  The  remaining  increase  in fiscal 1997 is  primarily  due to
increased   depreciation  and   amortization   associated  with  higher  capital
expenditures.  It was anticipated that  depreciation  and amortization  expenses
would  increase  significantly  in  fiscal  1997  and  1998 as a  result  of the
amortization  of  goodwill  and  other   intangible   assets  arising  from  the
acquisition of On Ramp.

        RESTRUCTURING COSTS. The Company incurred restructuring costs in 1997 of
$1,732,000  due to its  decision  in June 1997 to cease  operations  in Boulder,
Colorado and Edgewater,  New Jersey and to close the offices of its Internet One
and NetCube respectively located there, as previously discussed.

        MERGER  EXPENSES.  Merger  expenses  consist of the  nonrecurring  costs
incurred by the Company in completing the  acquisitions  of the  Subsidiaries on
June 30, 1996, including a finder's fee paid to an affiliate of the Company. See
"Certain Relationships and Related Transactions."

        NET INTEREST INCOME.  Interest income was $286,000 in fiscal 1997 due to
income earned on investment  of the proceeds of the Initial  Public  Offering on
November 26, 1996.  Interest  expense  decreased to $134,000 in fiscal 1997 from
$373,000 in fiscal 1996 (64%).  The decrease in fiscal 1997 was primarily due to
savings  resulting  from the  elimination  of debt  through  the  repayment  and
conversion of amounts  outstanding under certain  convertible  promissory notes.
See "Certain Relationships and Related Transactions."

        TAXES ON INCOME.  The  Company  had income tax  expense of  $246,000  in
fiscal 1997 and  $141,000 in fiscal  1996.  Income tax expense in fiscal 1997 is
the result of the Company  establishing  a valuation  allowance  on deferred tax
assets  due to the  uncertainty  of  their  future  realization  and  state  tax
liabilities.  In fiscal 1996,  certain of the  Subsidiaries  were not subject to
taxation  in  fiscal  1996  (as  such  subsidiaries  had  elected  Subchapter  S
corporation  status under applicable  provisions of the Internal Revenue Code of
1986,  as amended,  and certain state  statutes) and the remaining  Subsidiaries
were  subject  to  state  income  taxes  based  on  their  respective   discreet


                                       18
<PAGE>




operations.  Therefore, an effective tax rate on a consolidated historical basis
is not meaningful.  The Company intends to file consolidated Federal tax returns
beginning with the June 30, 1997 tax year.

        FOURTH  QUARTER  ADJUSTMENTS.  In  addition to the  provisions  made for
restructuring charges of $1,732,000,  the Company made adjustments in the fourth
quarter of fiscal 1997  relating to excess  costs on completed  projects,  which
increased the net loss by approximately $1,700,000.

        NET  LOSS.  As a result  of the  above  factors,  the net loss per share
increased  to  $(1.63)  in  fiscal  1997  from a pro forma net loss per share of
$(.32) in fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

        Since their respective formations,  the Subsidiaries have financed their
operations  primarily  through cash generated from operations,  bank borrowings,
shareholder contributions and private financings.

        During 1996, the Company  entered into a series of transactions in order
to fund the operations of the Subsidiaries and to prepare itself for the Initial
Public Offering. The Company raised $270,000 in a private offering,  pursuant to
which the  Company  issued  three  convertible  10%  promissory  notes (the "10%
Notes").  Proceeds of the private  placement were used to cover costs related to
the Company's  acquisitions of the Subsidiaries and the Initial Public Offering.
The  Company  raised an  additional  $1,800,000  in  another  private  offering,
pursuant to which the Company issued several 12%  convertible  promissory  notes
(the "12% Notes").  Proceeds received by the Company,  after deducting placement
fees and other  expenses,  totaled  $1,582,500.  Of the funds received from this
private  placement,  $1,000,000  was  loaned to On Ramp in order to  complete  a
transaction  in which On Ramp redeemed  outstanding  shares of its common stock.
The remaining  funds  received from this private  placement were used to provide
working capital for On Ramp and Internet One.

        In August 1996, the Company received net proceeds of $4,948,000  through
the issuance of 938,667 shares of Common Stock to Omnicom.  Proceeds raised from
the Omnicom  Transaction  were used by the Company to retire the  nonconvertible
portion of the  outstanding  principal and accrued  interest under the 10% Notes
and 12%  Notes  (aggregating  $1,880,505),  to  repay  certain  other  debt  and
outstanding obligations, to fund the operations of the Subsidiaries and to cover
expenses  and  costs  incurred  in  connection  with  the  acquisitions  of  the
Subsidiaries and the Initial Public Offering.

        In November  1996, the Company  completed its Initial  Public  Offering,
which  has  provided   significant  working  capital  to  the  Company  and  its
Subsidiaries.  The Company issued  2,150,000 shares of Common Stock and received
net proceeds from the Initial Public Offering of $11,973,000.



                                       19
<PAGE>




        At June  30,  1997,  the  Company  had  cash  and  cash  equivalents  of
approximately  $3,451,000  and  working  capital  of  approximately  $8,079,000,
primarily as a result of effecting  the following  transactions  during the year
ended June 30, 1997: (i) the Omnicom Transaction and the receipt of net proceeds
therefrom of  $4,948,000;  (ii) the  conversion  of $27,000 in principal  amount
under  the 10% Notes and  $162,000  in  principal  amount  under the 12%  Notes,
respectively,  into  216,667  and  216,660  shares  of Common  Stock;  (iii) the
repayment of the non-convertible portion of principal and interest under the 10%
Notes and the 12% Notes, aggregating $1,880,550 from the proceeds of the Omnicom
Transaction;  (iv)  the  payment  of a  finder's  fee in  consideration  for the
termination  of a certain  finder's  agreement  using  proceeds from the Omnicom
transaction;  (v) the  renegotiation of the terms of a note payable to a related
party,  providing for  liquidation  of $288,000 of such debt using proceeds from
the Omnicom  Transaction and extending the maturity of the remaining  balance of
$516,000 until March 1998; and (vi) the Initial Public Offering.

        Net cash used in  operating  activities  for fiscal  1997 of  $7,849,000
resulted  primarily  from a net loss of $7,571,000  combined with an increase in
accounts and unbilled  receivables of $4,336,000 and  $2,200,000,  respectively,
offset in part by non-cash  charges for: (i)  depreciation  and  amortization of
$1,619,000  (including  amortization  of  intangibles of  $1,297,000),  and (ii)
restructuring costs of $1,732,000, combined with an increase in accounts payable
and accrued  expenses of  $1,843,000.  The increase in unbilled  receivables  is
principally due to two Website  development  projects  undertaken by On Ramp for
which  significant  work has been performed in advance of the dates billings are
permitted under the contracts.  Accounts  receivable  increased primarily due to
the increased  volume of work  performed by On Ramp and an increase in the aging
of accounts  receivable.  Accounts  receivable  greater than sixty (60) days old
increased  from $494,000 at June 30, 1996 to  $1,582,000  at June 30, 1997.  The
increase in such  receivables  is primarily due to certain  receivables  arising
from ongoing strategic marketing and branding assignments undertaken for certain
significant  long-standing  customers  which the  Company  believes  are credit-
worthy.  Such amounts were either  collected  subsequent to June 30, 1997 or the
Company believes them to be collectible. The Company believes that the provision
for bad debts of approximately  $614,000  recognized  during the year ended June
30, 1997 is sufficient to adjust the carrying  amount of its receivables at June
30, 1997 to an amount which approximates net realizable value.  Accounts payable
and accrued  expenses  increased  principally due to the inclusion of On Ramp in
fiscal 1997.

        Net cash used in  investing  activities  for fiscal  1997 of  $2,898,000
resulted  primarily  from capital  expenditures  of  $1,487,000  and purchase of
marketable securities of $1,322,000.

        Net cash provided by financing activities for fiscal 1997 of $14,198,000
resulted  primarily from net cash proceeds from the Initial Public  Offering and
the Omnicom Transaction of $11,973,000 and $4,948,000,  respectively,  partially
offset  by  repayments  on  promissory  notes  and  related  party  payables  of
$1,881,000 and $500,000 respectively.



                                       20
<PAGE>




        The Company has entered into employment  agreements ranging in term from
one year to three years  (exclusive of extensions) with several of its executive
officers  pursuant to which the Company is obligated to pay such  individuals up
to an aggregate of $1,095,000 per year. See "Executive Compensation."

        The  Company  anticipates  significant  changes  in its  operating  cost
structure once the remaining subsidiaries have been completely  integrated,  and
administration  and  control  of  the  Company's  future  operations  have  been
centralized.  The Company  believes that its existing cash balances and the cash
generated from continuing  operations will be sufficient to fund its operations,
the   anticipated   expenditures   required   for   product   development,   its
organizational  infrastructure  (including  additional  personnel  and  upgraded
telecommunications  and computer  systems) and general  corporate  needs for the
next twelve (12) months.

        There can be no assurance  that the Company will not be required to seek
additional  sources of financing within the foreseeable  future.  The failure to
raise the funds  necessary  to finance the  Company's  future cash  requirements
would  adversely  affect  the  Company's   ability  to  pursue  its  operational
strategies.

        In connection  with the  acquisition  of On Ramp,  the Company  recorded
goodwill and other  intangible  assets in the  aggregate  amount of  $2,410,000,
substantially  all of which is being  amortized using the  straight-line  method
over a period of two years.  As a result,  the Company  incurred during the year
ended June 30, 1997, and will incur over the next fiscal year, a non-cash charge
to operations of approximately $1,205,000 each year.

        In  connection  with the  acquisition  of the assets and  operations  of
Fathom, the Company recorded goodwill in the amount of $442,500,  which is being
amortized  using the  straight-line  method over a period of two (2) years. As a
result,  the Company  incurred  during the year ended June 30,  1997, a non-cash
charge to operations of  approximately  $18,000 and will incur over the next two
(2) fiscal years, a non-cash charge to operations of  approximately  $18,000 per
month.

        In connection with the Initial Public Offering,  certain stockholders of
the  Company  agreed to place  their  shares of Common  Stock in an escrow to be
released upon the Company's attainment of certain performance goals (the "Escrow
Shares").  In the event of the release of the Escrow  Shares,  the Company  will
recognize  during the period in which the  earnings  thresholds  are probable of
being  met or such  stock  levels  achieved,  a  substantial  noncash  charge to
earnings  equal to the fair  market  value of such  shares  on the date of their
release,  which would have the effect of significantly  increasing the Company's
loss or reducing or eliminating  earnings, if any, at such time. The recognition
of such compensation expense may have a depressive effect on the market price of
the Company's securities. Notwithstanding the foregoing discussion, there can be
no  assurance  that the Company  will attain the targets  which would enable the
Escrow  Shares to be released  from  escrow.  Similar  accounting  treatment  is
expected to be applied with respect to the issuance in subsequent periods of the


                                       21
<PAGE>




securities issuable under a certain consulting agreement between the Company and
Jason H. Pollak. See "Certain Relationships and Related Transactions."

INFLATION

        While  inflation  has  not  had  a  material  effect  on  the  Company's
operations in the past,  there can be no assurance that the Company will be able
to continue to offset the effects of  inflation  on the costs of its products or
services  through  price  increases  to its  customers  without  experiencing  a
reduction in the demand for its  products;  or that  inflation  will not have an
overall  effect on the  advertising,  marketing,  Internet and intranet and data
management market that would have a material affect on the Company.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

        EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128,  "Earnings Per Share" ("SFAS No. 128").  SFAS No. 128
specifies the computation, presentation and disclosure requirements for earnings
per share. SFAS No. 128 is effective for periods ending after December 15, 1997.
The adoption of this statement is not expected to have a material  effect on the
consolidated financial statements.

        REPORTING  COMPREHENSIVE  INCOME. In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"),  which  established  standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity  except those  resulting  from  investments  by
owners  and  distributions  to owners.  Among  other  disclosures,  SFAS No. 130
requires  that all  items  that are  required  to be  recognized  under  current
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial statements.

        SFAS No. 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires  comparative  information for earlier years
to be restated. Because of the recent issuance of this standard,  management has
been unable to fully  evaluate  the impact,  if any,  the  standard  may have on
future  financial  statement  disclosures.  Results of operations  and financial
position, however, will be unaffected by implementation of this standard.

        REPORTING  SEGMENTS  OF AN  ENTERPRISE.  In  June  1997,  the  Financial
Accounting  Standards Board issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information"  ("SFAS No. 131"), which supersedes SFAS
No. 14, "Financial  Reporting for Segments of a Business  Enterprise".  SFAS No.
131 establishes  standards for the way that public companies report  information
about operating  segments in annual financial  statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public.  It also establishes  standards for disclosures  regarding
products  and  services,  geographic  areas and major  customers.  SFAS No.  131
defines  operating  segments as  components  of a company  about which  separate


                                       22
<PAGE>




financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker in deciding how to allocate resources and in assessing
performance.

        SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires  comparative  information for earlier years
to be restated. Because of the recent issuance of this standard,  management has
been  unable  to fully  evaluate  the  impact,  if any,  it may  have on  future
financial statement  disclosures.  Results of operations and financial position,
however, will be unaffected by implementation of this standard.





















                                       23
<PAGE>





ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS


                            THINK NEW IDEAS, INC. AND SUBSIDIARIES
                          INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           PAGE

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................      F-2

CONSOLIDATED FINANCIAL STATEMENTS:

   Balance Sheet......................................................      F-3

   Statements of Operations...........................................      F-4

   Statements of Shareholders' Equity ................................      F-5

   Statements of Cash Flows...........................................      F-6

   Notes to Consolidated Financial Statements.........................      F-7







                                      F-1
<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Shareholders of THINK New Ideas, Inc.
New York, New York

We have audited the accompanying  consolidated balance sheet of THINK New Ideas,
Inc.  and  subsidiaries  as of  June  30,  1997  and  the  related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
two years in the  period  ended  June 30,  1997.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
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 our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of THINK New Ideas,
Inc. and  subsidiaries  as of June 30, 1997 and the results of their  operations
and their  cash  flows for each of the two years in the  period  ended  June 30,
1997, in conformity with generally accepted accounting principles.




                                                  BDO Seidman, LLP


New York, New York
September 19, 1997



                                      F-2
<PAGE>



<TABLE>
<CAPTION>

                     THINK NEW IDEAS, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEET

                                                                                      June 30, 1997
                                                                                    -------------------
                                     ASSETS
<S>                                                                                         <C>       
Current assets:
   Cash and cash equivalents                                                                $3,451,347
   Marketable securities                                                                     1,321,722
   Accounts receivable, net of allowance for doubtful accounts of $614,137                   9,314,851
   Unbilled receivables                                                                      2,497,389
   Prepaid expenses and other current assets                                                   535,307
                                                                                    -------------------
         Total current assets                                                               17,120,616

Property and equipment, net (Note 3)                                                         2,285,620
Software development costs                                                                     131,253
Goodwill, net of accumulated amortization of $1,098,938 (Note 2)                             1,502,562
Other assets                                                                                   362,119
                                                                                    -------------------
         Total assets                                                                      $21,402,170
                                                                                    ===================

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                                    $4,848,932
   Accrued restructuring costs (Note 10)                                                     1,135,000
   Deferred revenue                                                                            953,556
   Income taxes payable (Note 5)                                                                40,571
   Due to related party (Note 2)                                                             1,906,512
   Current portion of obligations under capital leases (Note 6)                                156,867
                                                                                    -------------------
         Total current liabilities                                                           9,041,438
Obligations under capital leases (Note 6)                                                      264,372
Note payable to related party (Note 9)                                                         515,760
Other long-term liability (Note 6)                                                             206,250
                                                                                    -------------------
         Total liabilities                                                                  10,027,820
                                                                                    -------------------
Commitments and contingencies (Note 6) Shareholders' equity (Note 7):
   Preferred stock, $.0001 par value; 5,000,000 shares authorized; none
     issued and outstanding                                                                          -
   Common stock, $.0001 par value; 50,000,000 shares authorized;
     6,536,667 shares issued                                                                       654
   Additional paid-in capital                                                               19,050,174
   Accumulated deficit                                                                     (7,676,478)
                                                                                    -------------------
         Total shareholders' equity                                                         11,374,350
                                                                                    ===================
         Total liabilities and shareholders' equity                                        $21,402,170
                                                                                    ===================
          See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-3
<PAGE>




<TABLE>
<CAPTION>

                     THINK NEW IDEAS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                      Year ended June 30,
                                                          --------------------------------------------
                                                                 1997                    1996
                                                          --------------------   ---------------------
<S>                                                               <C>                      <C>       
Revenues                                                          $17,436,847              $9,822,983
Operating expenses:
   Direct salaries and related expenses                            10,029,004               3,628,643
   Other direct expenses                                            4,691,563               3,869,634
   Selling, general and administrative expenses                     6,842,308               2,377,053
   Depreciation and amortization                                    1,619,104                 208,813
   Restructuring costs (Note 10)                                    1,732,000                       -
   Merger expenses (Note 2)                                                 -                 676,198
                                                          --------------------   ---------------------
Operating loss                                                    (7,477,132)               (937,358)
Interest expense                                                    (134,489)               (372,736)
Interest income                                                       286,358                       -
Other, net                                                                  -                  36,232
                                                          --------------------   ---------------------
Loss before taxes on income                                       (7,325,263)             (1,273,862)
Taxes on income (Note 5)                                              245,900                 140,870
                                                          --------------------   ---------------------
Net loss                                                         $(7,571,163)            $(1,414,732)
                                                          ====================   =====================
Net loss per share                                                    $(1.63)
                                                          ====================
Pro forma amounts (unaudited):
   Historical loss before taxes on income                                                $(1,273,862)
   Compensation adjustment                                                                  (227,000)
   Merger expense adjustment                                                                  676,198
                                                                                 ---------------------
   Net loss                                                                                $(824,664)
                                                                                 =====================
   Net loss per share                                                                          $(.32)
                                                                                 =====================
Weighted average common and common equivalent shares
   outstanding                                                      4,638,337               2,506,681
                                                          ====================   =====================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>



<TABLE>
<CAPTION>

                     THINK NEW IDEAS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                    Retained
                                          COMMON STOCK           Additional         earnings
                                                                   paid-in        (accumulated
                                    Shares                         capital          deficit)
                                    Amount
                                    -------------  ----------   --------------  -----------------

<S>                                      <C>             <C>          <C>               <C>     
Balance at June 30, 1995                 491,595         $48          $83,837           $199,101
   Issuance of common stock for        2,171,506         217              439                  -
cash
   Acquisition of On Ramp (Note 2)       231,572          24        1,088,363                  -
   Conversion of shareholders'
     loans and interest                        -           -        1,450,142                  -
   Distributions to shareholders               -           -         (24,325)          (153,510)
   Capitalization of accumulated
     deficit of subsidiaries upon
     termination of S corporation              -           -      (1,263,826)          1,263,826
     elections
   Net loss for the year                       -           -                -        (1,414,732)
                                    -------------  ----------   --------------  -----------------

Balance at June 30, 1996               2,894,673         289        1,334,630          (105,315)
   Issuance of common stock in
     connection with private
     placement (Note 7(b))               938,667          94        4,947,968                  -
   Conversion of convertible debt
     (Note 7(c))                         433,327          44          189,452                  -
   Issuance of common stock
     pursuant to initial public
     offering (Note 7(d))              2,150,000         215       11,972,636                  -
   Issuance of common stock in
     connection with acquisition
     (Note 2)                            120,000          12          442,488                  -
   Issuance of stock options to
     non-employee directors
     (Note 8(b))                               -           -          163,000                  -
   Net loss for the year                       -           -                -        (7,571,163)
                                    -------------  ----------   --------------  -----------------

Balance at June 30, 1997               6,536,667        $654      $19,050,174       $(7,676,478)
                                    =============  ==========   ==============  =================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                     THINK NEW IDEAS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


                                                                           Year ended June 30,
                                                                 ----------------- ---- -----------------
                                                                       1997                   1996
                                                                 -----------------      -----------------
<S>                                                                  <C>                    <C>         
Cash flows from operating activities:
   Net loss                                                          $(7,571,163)           $(1,414,732)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization                                        322,085                208,813
     Amortization of intangibles and deferred financing                 1,297,019                163,000
       costs
     Deferred income taxes                                                140,000              (364,000)
     Bad debt expense                                                     428,137                113,655
     Restructuring charges                                              1,732,000                      -
     Consulting fees                                                      369,250                      -
     Changes in assets and liabilities, excluding effects of acquisitions:
       Accounts receivable                                            (4,335,664)              (595,516)
       Unbilled receivables                                           (2,200,486)                494,912
       Due from shareholders                                                    -                 89,400
       Accounts payable and accrued expenses                            1,842,772                702,400
       Deferred revenue                                                   500,597              (272,882)
       Other assets and liabilities                                     (373,492)                146,328
                                                                 -----------------      -----------------

          Net cash used in operating activities                       (7,848,945)              (728,622)
                                                                 -----------------      -----------------

Cash flows from investing activities:
   Additions to software development costs                              (518,315)              (167,436)
   Purchases of property and equipment                                (1,487,435)              (171,900)
   Purchases of marketable securities                                 (1,321,722)                      -
   Advances to and acquisition of On Ramp, net of cash                          -            (1,691,739)
     acquired (Note 2)
                                                                 -----------------      -----------------

          Net cash used in investing activities                       (3,327,472)            (2,031,075)
                                                                 -----------------      -----------------

Cash flows from financing activities:
   Proceeds from issuance (repayment) of promissory notes             (1,880,505)              2,070,000
   Deferred financing costs                                                     -              (217,500)
   Increase in notes payable to related parties                                 -                827,326
   Deferred offering costs                                              (272,240)              (217,528)
   Borrowings (repayment) on operating lines of credit                   (70,000)                 70,000
   Proceeds from private placement                                      4,948,062                      -
   Issuance of common stock                                                     -                    656
   Proceeds from initial public offering                               11,972,851                      -
   Proceeds from (payments on) amounts due to related party             (500,000)                500,000
   Distributions to shareholders                                                -              (177,835)
                                                                 -----------------      -----------------

          Net cash provided by financing activities                    14,198,168              2,855,119
                                                                 -----------------      -----------------

Net increase in cash and cash equivalents                               3,021,751                 95,422

Cash and cash equivalents, beginning of year                              429,596                334,174
                                                                 -----------------      -----------------

Cash and cash equivalents, end of year                                 $3,451,347              $ 429,596
                                                                 =================      =================

Supplemental cash flow information: Cash paid during the year for:
     Income taxes                                                        $153,010               $139,967
     Interest                                                             180,949                  8,091

   Noncash investing and financing activities:
     Loans and accrued interest payable to shareholders
       converted to additional paid-in capital                                  -              1,450,142
     Issuance of common stock for acquisitions (Note 2)                   442,500              1,088,387
     Conversion of convertible promissory notes into
       common stock (Notes 4 and 7(c))                                    189,496                      -
     Purchases of equipment by capital leases (Notes 3                    421,439                      -
       and 6(a))

          See accompanying notes to consolidated financial statements.

</TABLE>
                                      F-6
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION

      The consolidated  financial  statements  include the accounts of THINK New
Ideas,  Inc.  ("THINK" or the "Company") and its  subsidiaries.  All significant
intercompany accounts and transactions have been eliminated in consolidation.

      The  Company was  incorporated  in January  1996.  On June 30,  1996,  the
Company  acquired the  companies  discussed in Note 2 in business  combinations.
Certain of the business  combinations  were  accounted  for using the pooling of
interests method. The consolidated  financial statements give retroactive effect
to those  acquisitions.  One business  combination  was  accounted for using the
purchase  method,  and the accounts of this business have been  reflected in the
consolidated financial statements from the date of acquisition.

      The Company  provides  marketing  and  communications  services to clients
seeking to market their products and services and convey  messages and images to
the public.  The Company  provides  traditional  services,  such as advertising,
graphic design and artwork, and "new media" services. New media services include
developing Internet web sites and related analytical tools.

CASH AND CASH EQUIVALENTS

      For  purposes  of  the   consolidated   balance  sheets  and  consolidated
statements of cash flows,  the Company  considers all highly liquid  investments
having original maturities of three months or less to be cash equivalents.

MARKETABLE SECURITIES

      Marketable  securities are stated at fair market value which  approximates
cost and  classified  as  available  for sale in  accordance  with  Statement of
Financial  Accounting  Standard No. 115,  "Accounting for Certain Investments in
Debt and Equity Securities",  and consist of investments in corporate commercial
paper maturing through December 1997.




                                      F-7
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost.  Depreciation is provided using
the straight-line  method and includes the amortization of capital lease assets.
The estimated useful lives of property and equipment are as follows:

                                               Years
                                           ---------------

        Equipment                                  3 to 5
        Furniture and fixtures                     5 to 7

      Leasehold  improvements  are  amortized  over the term of the lease or the
useful life, if shorter.

SOFTWARE DEVELOPMENT COSTS

      In accordance  with the  provisions  of Statement of Financial  Accounting
Standards  ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," software development costs incurred by the
Company  subsequent to establishing  technological  feasibility of the resulting
product or enhancement  and, until the product is available for general  release
to customers,  are capitalized  and carried at the lower of unamortized  cost or
net realizable  value.  Net realizable value is determined based on estimates of
future revenues to be derived from sale of the software product reduced by costs
of  completing  and  disposing  of  that  product.  Amortization  of  the  costs
capitalized  began  in 1997  and is  based on  current  and  anticipated  future
revenues  for each  product  or  enhancement  with an  annual  minimum  equal to
straight-line  amortization  over the remaining  estimated  economic life of the
product or enhancement.

LONG-LIVED ASSETS

      Long-lived  assets,  such as goodwill  and  property  and  equipment,  are
evaluated for impairment when events or changes in  circumstances  indicate that
the carrying  amount of the assets may not be recoverable  through the estimated
undiscounted  future  cash  flows  from the use of these  assets.  When any such
impairment  exists,  the related  assets will be written down to fair value.  No
impairment losses have been necessary through June 30, 1997.



                                      F-8
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

GOODWILL

      Goodwill  represents  the  excess of the cost  over the fair  value of the
identifiable  assets  acquired in a business  combination and is being amortized
using the  straight-line  method over a period of two years unless future events
or changes  in  circumstances  indicate  that an  impairment  has  occurred.  No
impairment losses have been necessary through June 30, 1997.

REVENUE RECOGNITION

      Revenues  from the  design  and  development  of  Internet  web  sites and
traditional marketing services are recognized using the percentage-of-completion
method based on the ratio of costs incurred to total estimated  costs.  Unbilled
receivables  represent costs incurred and anticipated profits earned on projects
in progress in excess of amounts  billed,  and are recorded as assets.  Deferred
revenue  includes  amounts  billed  in excess of costs  incurred  and  estimated
profits earned,  and are recorded as  liabilities.  To the extent costs incurred
and  anticipated  costs to  complete  projects in  progress  exceed  anticipated
billings, a loss is recognized for the excess.

      Payments  received for  subsequent  maintenance  of Internet web sites are
deferred  and  recognized  over the  period  during  which  the  maintenance  is
supplied.

TAXES ON INCOME

      Certain of the Company's  subsidiaries  had elected S  corporation  status
under  applicable  provisions  of the Internal  Revenue  Code and certain  state
statutes and,  accordingly,  were not subject to income taxes. The S corporation
status of these  subsidiaries  terminated  on June 30, 1996 as a result of their
acquisition by the Company.

      The Company accounts for income taxes in accordance with the provisions of
SFAS No.  109,  "Accounting  for  Income  Taxes."  SFAS  No.  109  requires  the
recognition  of deferred  tax assets and  liabilities  for the  expected  future
income tax  consequences  of events  that have been  recognized  in a  company's
financial  statements or tax return.  Deferred  income taxes reflect the net tax
effects of  temporary  differences  between the  carrying  amounts of assets and
liabilities  for  financial  reporting  purposes  and the amounts for income tax
purposes  using  enacted tax rates in effect in the years in which the temporary
differences are expected to reverse.




                                      F-9
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

PRO FORMA DATA (UNAUDITED)

      Concurrent  with the business  combinations  consummated on June 30, 1996,
the Company entered into employment  agreements with certain of its officers (as
discussed  further in Note 6(c)). Pro forma  adjustments for the year ended June
30, 1996 have been  presented  to exclude the costs of  effecting  the  business
combination transactions accounted for using the pooling-of-interests method and
reflect these  employment  agreements  as if they had been in effect  throughout
1996.

      The pro forma  data for 1996 do not  reflect a benefit  for  income  taxes
because none would have been recognized if the business  combinations  accounted
for using the pooling of  interests  method had occurred and the Company and all
of its subsidiaries had been taxed as C corporations since July 1, 1993.

LOSS PER SHARE

      Loss per share is computed based on historical net loss for the year ended
June 30,  1997 and pro forma net loss for the year ended June 30, 1996 using the
weighted  average number of shares of common stock and common stock  equivalents
outstanding  (which  excludes  825,000  shares held in escrow (see Note 7(d)) as
adjusted for the effects of applying  Securities and Exchange  Commission  Staff
Accounting Bulletin ("SAB") No. 83, using the treasury stock method. Pursuant to
SAB No. 83,  common  stock issued by the Company at prices less than the initial
public offering price during the twelve months preceding the initial filing of a
registration  statement,  together  with the  number of  shares of common  stock
subject to options  and  convertible  debt  issued  during  such  period  having
exercise or conversion  prices below the initial public offering price have been
treated as outstanding  for all periods  presented.  As a result,  4,638,337 and
2,506,681 shares were used in the calculations for the years ended June 30, 1997
and 1996, respectively. Similarly, historical and pro forma net loss used in the
calculations  were adjusted by  approximately  $10,000 and $19,000 for the years
ended June 30, 1997 and 1996,  respectively,  to exclude  the related  amount of
interest expense on convertible debt issued (see Note 4).



                                      F-10
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

LOSS PER SHARE (CONTINUED)

      Supplemental pro forma loss per share was $(1.58) and $(.22) for the years
ended  June 30,  1997 and  1996,  respectively,  and was  computed  by  dividing
supplemental historical and pro forma net loss (each as adjusted as described in
the preceding paragraph,  further adjusted by approximately $95,000 and $224,000
for the years ended June 30, 1997 and 1996, respectively, the amount of interest
expense on debt repaid with the  proceeds of the August 1996  private  placement
(see Note 7(b)),  by the weighted  average number of shares that would have been
treated as  outstanding  (4,713,660  and  2,617,878 for the years ended June 30,
1997 and 1996,  respectively)  had the portion of the  proceeds  from the shares
sold in August 1996 to fund debt repayments been used to repay debt on the dates
it was issued, rather than for the assumed purchase of treasury stock.

      Historical  loss per share data for the year  ended  June 30,  1996 is not
considered meaningful and, therefore, is not presented.

FAIR VALUES OF FINANCIAL INSTRUMENTS

      The carrying amounts  reported in the consolidated  balance sheet for cash
equivalents,  accounts and unbilled receivables,  and accounts and notes payable
approximate fair value because of the immediate or short-term  maturity of these
financial  instruments.  The carrying  amounts  reported for the  nonconvertible
portions of the convertible  promissory  notes  approximate fair value. The fair
values of the  convertible  portions of the  convertible  promissory  notes were
estimated  based on the estimated  fair value of the common stock into which the
notes  were  convertible.  Based on the price per share for which the  Company's
common  stock was sold in a private  placement  in August 1996 (see Note 4), the
estimated  aggregate fair value of the  convertible  portions of the convertible
promissory notes approximated $2,037,000 at June 30, 1996.

USE OF ESTIMATES

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  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 date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.




                                      F-11
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

      Financial   instruments  which  potentially   subject  the  Company  to  a
concentration  of credit risk consist of cash and cash  equivalents,  marketable
securities and accounts and unbilled receivables.  Cash and cash equivalents and
marketable  securities  consist of deposits  and money  market funds placed with
various high credit quality financial institutions.

      The Company generates revenue  principally from customers located in North
America, many of which are large multi-national organizations.  During 1997, two
customers  accounted for 10% and 13%,  respectively,  of total revenues.  One of
these customers  accounted for 18% of total revenues in 1996.  Concentrations of
credit risk with respect to  receivables  are limited due to the  geographically
diverse  customer  base.  The Company  maintains an allowance for  uncollectible
receivables based upon expected  collectibility of accounts receivable.  At June
30, 1997, one customer  accounted for approximately 10% of accounts and unbilled
receivables, collectively.

STOCK-BASED COMPENSATION

      The Company accounts for its stock option awards under the intrinsic value
based method of accounting,  prescribed by Accounting  Principles  Board Opinion
No. 25,  "Accounting  for Stock Issued to Employees."  Under the intrinsic value
based  method,  compensation  cost is the excess,  if any, of the quoted  market
price of the stock at grant  date or other  measurement  date over the amount an
employee must pay to acquire the stock. The Company makes pro forma  disclosures
of net  income  and  earnings  per share as if the fair  value  based  method of
accounting  had been  applied  as  required  by SFAS No.  123,  "Accounting  for
Stock-Based Compensation."

RECLASSIFICATIONS

      Certain amounts as previously  reported have been  reclassified to conform
to current year classifications.

NEW ACCOUNTING PRONOUNCEMENTS

(A)   EARNINGS PER SHARE

      In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 specifies the computation,  presentation
and disclosure



                                      F-12
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

requirements  for  earnings  per share.  SFAS No. 128 is  effective  for periods
ending after  December 15, 1997.  The adoption of this statement is not expected
to have a material effect on the consolidated financial statements.

(B)   REPORTING COMPREHENSIVE INCOME

      In June 1997,  the Financial  Accounting  Standards  Board issued SFAS No.
130,  "Reporting  Comprehensive  Income"  ("SFAS No.  130"),  which  establishes
standards for reporting and display of comprehensive  income, its components and
accumulated balances.  Comprehensive income is defined to include all changes in
equity except those resulting from  investments by owners and  distributions  to
owners.  Among other disclosures,  SFAS No. 130 requires that all items that are
required to be recognized  under current  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

      SFAS No. 130 is effective for financial  statements for periods  beginning
after December 15, 1997 and requires  comparative  information for earlier years
to be restated. Because of the recent issuance of this standard,  management has
been unable to fully  evaluate  the impact,  if any,  the  standard  may have on
future  financial  statement  disclosures.  Results of operations  and financial
position, however, will be unaffected by implementation of this standard.

(C)   REPORTING SEGMENTS OF AN ENTERPRISE

      In June 1997,  the Financial  Accounting  Standards  Board issued SFAS No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("SFAS No.  131"),  which  supersedes  SFAS No.  14,  "Financial  Reporting  for
Segments of a Business  Enterprise".  SFAS No. 131 establishes standards for the
way that public companies report  information about operating segments in annual
financial  statements  and  requires  reporting  of selected  information  about
operating segments in interim financial statements issued to the public. It also
establishes   standards  for  disclosures   regarding   products  and  services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial  information is available
that is evaluated  regularly by the chief  operating  decision maker in deciding
how to allocate resources and in assessing performance.




                                      F-13
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

      SFAS No. 131 is effective for financial  statements for periods  beginning
after December 15, 1997 and requires  comparative  information for earlier years
to be restated. Because of the recent issuance of this standard,  management has
been  unable  to fully  evaluate  the  impact,  if any,  it may  have on  future
financial statement  disclosures.  Results of operations and financial position,
however, will be unaffected by implementation of this standard.

NOTE 2 - BUSINESS ACQUISITIONS

      On May 31, 1997,  the Company  acquired  certain  assets and operations of
Fathom  Advertising  Agency,  Inc.  ("Fathom"),  a provider of traditional  full
service advertising services, from Ketchum Communications,  Inc. ("Ketchum"),  a
wholly-owned subsidiary of Omnicom Group Inc. ("Omnicom"),  a shareholder of the
Company,  in exchange for 120,000 shares of the Company's  common stock.  Fathom
had revenues of  approximately  $1,800,000 for the year ended December 31, 1996,
which  were  derived  primarily  from one  customer.  The  acquisition  has been
accounted for using the purchase  method of  accounting  and,  accordingly,  the
results  of  operations  of  Fathom  have  been  reflected  in the  consolidated
financial  statements  from  the date of  acquisition.  In  connection  with the
acquisition,  the Company is to return the excess of media  accounts  receivable
purchased  ($3,012,592) over accounts payable assumed ($1,106,080) to the seller
in the amount of $1,906,512, as collected. The purchase price of $442,500, which
equals the excess over the carrying values of the net assets acquired,  is being
amortized over two years.

      On June 30, 1996, the Company  acquired all of the issued and  outstanding
shares of common stock of the following  entities in exchange for 491,595 shares
of the Company's common stock:

<TABLE>
<CAPTION>

                                                                            Number of shares
Entity/Date Operations Commenced                                            issued to effect
                                                                              acquisition
------------------------------------------------------------------------   -------------------
<S>                                                                                   <C>    
The Mednick Group ("Mednick")/October 1982                                            208,084
Creative Resources Agency, Inc. ("Creative Resources")/November 1994                    3,970
The S.D. Goodman Group ("Goodman")/July 1993                                           49,623
Internet One, Inc. ("Internet One")/November 1993                                      34,736
NetCube, Inc. ("NetCube")/February 1978                                               195,182

</TABLE>


                                      F-14
<PAGE>





                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 2 - BUSINESS ACQUISITIONS (CONTINUED)

      Mednick,  Creative  Resources  and  Goodman  provide  a  wide  variety  of
marketing-related  services.  NetCube and Internet One are principally providers
of new media  services.  The  acquisition  of each of these  companies  has been
accounted  for  using  the  pooling  of  interests  method  of  accounting,  and
accordingly, the accompanying consolidated financial statements give retroactive
effect to these  acquisitions,  as if the  companies  had always  operated  as a
single entity. In connection with these acquisitions,  approximately $676,000 of
transaction  costs and expenses  were  incurred and have been charged to expense
during 1996.

      Separate  results of operations  for the  combining  entities for the year
ended June 30, 1996 are as follows:

              Revenues:
                 Mednick                                      $6,150,950
                 Creative Resources                              371,298
                 Goodman                                         561,203
                 Internet One                                  1,338,246
                 NetCube                                       1,401,286
                 THINK                                                 -
                                                       ------------------

                 Combined                                     $9,822,983
                                                       ==================

              Net income (loss):
                 Mednick                                        $263,428
                 Creative Resources                               74,000
                 Goodman                                         133,010
                 Internet One                                      2,974
                 NetCube                                     (1,032,583)
                 THINK                                         (855,561)
                                                       ------------------

                 Combined                                   $(1,414,732)
                                                       ==================

      On June 30, 1996, the Company also acquired all of the outstanding  shares
of common stock of On Ramp, Inc. ("On Ramp"),  a provider of new media services,
in exchange for 231,572 shares of the Company's  common stock.  The  acquisition
has been accounted for using the purchase method of accounting, and accordingly,
the  accounts  of On Ramp  have been  reflected  in the  consolidated  financial
statements from the date of acquisition. The purchase price of $1,338,000 (which
includes transaction costs of approximately  $250,000) has been allocated to the
assets purchased and the liabilities assumed based upon their estimated fair


                                      F-15
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 2 - BUSINESS ACQUISITIONS (CONTINUED)



values at the date of  acquisition.  The excess of the  purchase  price over the
carrying values of the net assets acquired was approximately  $2,310,000 and has
been allocated as follows:


        Goodwill                                                   $2,159,000
        Purchased software and other intangible assets                251,000
        Deferred income taxes                                       (100,000)
                                                          --------------------
                                                                   $2,310,000
                                                          ====================

      Prior to the acquisition, the Company had loaned $1,494,000 to On Ramp.

      The following table presents summarized  consolidated  unaudited pro forma
results of operations  for 1997 and 1996 as if the above  purchase  acquisitions
had  occurred  at the  beginning  of each  year.  The table  presents  first the
Company's  historical  1997 and 1996  operating  results,  as  adjusted  for the
effects of the Fathom  acquisition  in 1997 and both Fathom and On Ramp in 1996.
Below those amounts are the pro forma 1996  operating  results  reflected in the
consolidated statements of operations, as further adjusted to give effect to the
On Ramp  acquisition.  These pro forma  results  are  provided  for  comparative
purposes  only and do not purport to be  indicative  of the results  which would
have been  obtained if the  acquisition  had been  effected on those dates or of
future results of operations of the consolidated entities.

                                                       June 30,
                                      ------------------------------------------
                                            1997                     1996
                                      ------------------      ------------------
       Revenues                             $19,342,847              $13,293,348
       Historical net loss                  (8,707,633)              (3,588,682)
       Loss per share                            (1.84)               --
       Pro forma net loss                                            (3,139,484)
       Pro forma net loss per share                                       (1.09)

      Transaction  costs  and  expenses  relating  to  the On  Ramp  acquisition
referred to above include  $500,000 in finder's  fees to Benchmark  Equity Group
("Benchmark"), a shareholder of the Company.



                                      F-16
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 3 - PROPERTY AND EQUIPMENT

      Property and equipment consists of the following:

       Equipment                                                    $3,065,576
       Furniture and fixtures                                          660,137
       Leasehold improvements                                        1,127,519
                                                          ---------------------
                                                                     4,853,232
       Less:  Accumulated depreciation and amortization              2,567,612
                                                          ---------------------
       Property and equipment, net                                  $2,285,620
                                                          =====================


      Included  in  equipment  is  $465,855  of   equipment   with   accumulated
amortization of $16,796 under capital leases.

NOTE 4 - CONVERTIBLE PROMISSORY NOTES

      In March 1996,  the  Company  borrowed  $270,000  pursuant to the terms of
three separate  convertible  promissory notes. Two of the notes, having original
principal balances of $225,000 and $20,000, were payable to an entity controlled
by a shareholder of the Company and to a shareholder,  respectively. Each of the
notes bore  interest at 10% and were due upon the earlier of September  30, 1996
or the Company raising  $2,000,000  through a debt or equity  financing.  At the
option of the note  holders,  up to an  aggregate  of $27,000 in  principal  was
convertible into 216,667 shares of the Company's common stock.

      In April 1996,  the Company  raised  $1,582,500,  net of placement fees of
$217,500,  through a private placement of 12% convertible  promissory notes. The
principal balance,  together with accrued interest,  was due upon the earlier of
April  30,  1997 or the  Company  raising  $3,000,000  through  a debt or equity
financing. The notes were secured by the pledge of all of the outstanding shares
of  common  stock of On  Ramp.  At the  option  of the  note  holders,  up to an
aggregate of $162,495 in principal was  convertible  into 216,660  shares of the
Company's common stock.

      As discussed more fully in Note 7(c),  the  convertible  promissory  notes
were converted into common stock or repaid with proceeds  obtained from the sale
of the Company's common stock.


                                      F-17
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 5 - INCOME TAXES

      Taxes on income consist of the following:

                                         1997                  1996
                                    ---------------       ---------------
       Current:
          Federal                         $      -              $382,735
          State                            105,900               122,135
                                    ---------------       ---------------
                                           105,900               504,870
                                    ---------------       ---------------

       Deferred:
          Federal                          120,000             (311,000)
          State                             20,000              (53,000)
                                    ---------------       ---------------
                                           140,000             (364,000)
                                    ===============       ===============
       Taxes on income                    $245,900              $140,870
                                    ===============       ===============


      The  difference  between the Federal  statutory tax rate and the effective
tax rate resulted from the following:

                                                1997               1996
                                           ---------------    ---------------

Federal statutory tax rate                        (34.0)%            (34.0)%
Subsidiaries not subject to income taxes                -                5.7
Merger expenses and other permanent
   differences                                          -               28.3
State income taxes, net of Federal tax                1.4                6.3
benefit
Change in valuation allowance                        39.4                7.1
Other items, net                                    (3.4)              (2.3)
                                           ===============    ===============
Effective tax rate                                   3.4%              11.1%
                                           ===============    ===============




                                      F-18
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 5 - INCOME TAXES (CONTINUED)

      Temporary   differences  which  gave  rise  to  the  deferred  tax  assets
(liabilities) consisted of the following at June 30, 1997:

       Current:
          Accounts receivable                                   $(95,250)
          Allowance for doubtful accounts                         253,655
          Accounts payable                                        176,250
          Other                                                    21,600
                                                     ---------------------

       Total current                                              356,255
                                                     ---------------------

       Noncurrent:
          Property and equipment                                   98,830
          Software development costs and other                   (17,000)
       intangibles
          Net operating loss carryforwards                      3,223,600
                                                     ---------------------

       Total noncurrent                                         3,305,430
                                                     ---------------------

       Deferred tax asset valuation allowance                 (3,366,685)
                                                     ---------------------

       Net deferred tax asset                                $          -
                                                     =====================


      Management  believes  that,  based on a number of factors,  the  available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation  allowance has been recorded.
These factors include the lack of significant history of profits,  the fact that
the  market  in  which  the  Company  competes  is  intensely   competitive  and
characterized by rapidly changing technology, and the lack of carryback capacity
to realize these assets.

      At June 30, 1997, the Company had Federal net operating loss carryforwards
of approximately $7,500,000. The net operating loss carryforwards will expire at
various dates beginning 2011, if not utilized.  Utilization of the net operating
losses may be subject to a substantial  annual  limitation  due to the ownership
change  limitations  provided by the  Internal  Revenue Code of 1986 and similar
state  provisions.  The annual  limitation  may result in the  expiration of net
operating losses before utilization.




                                      F-19
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 6 - COMMITMENTS AND CONTINGENCIES

(A)   LEASES

      Future minimum payments, by year and in the aggregate, under operating and
capital leases with initial or remaining  terms of one year or more consisted of
the following at June 30, 1997:

<TABLE>
<CAPTION>

                                            Operating          Capital           Total
                                              leases           leases
                                          ---------------    ------------    ---------------
       <S>                                      <C>             <C>                <C>     
       1998                                     $635,100        $208,424           $843,524
       1999                                      631,080         208,424            839,504
       2000                                      625,282          16,800            642,082
       2001                                      658,704          16,800            675,504
       2002                                      673,716           8,392            682,108
       Thereafter                              3,306,960               -          3,306,960
                                          ===============    ------------    ===============
       Total minimum lease payments           $6,530,842         458,840         $6,989,682
                                          ===============                    ===============
       Amount representing interest                               37,601
                                                             ------------
       Present value of net minimum
          lease payments                                         421,239
       Less:  Current portion                                    156,867
                                                             ============
                                                                $264,372
                                                             ============
</TABLE>



      Total rent  expense  under  operating  leases  amounted  to  $654,268  and
$572,248 for the years ended June 30, 1997 and 1996, respectively.

      At June 30, 1997,  the Company has a commitment  to a landlord of $400,000
for a standby letter of credit in connection  with one of its operating  leases.
Such  commitment  expires on November  30,  1997,  but is renewable on an annual
basis at the landlord's option.

(B)   CONSULTING AGREEMENTS

      On June 30, 1997, the Company entered into a one year consulting agreement
with an individual  whereby the Company will issue up to an aggregate of 200,000
shares of common  stock and  options to  acquire up to 150,000  shares of common
stock.  The  agreement,  which can be  terminated  with or without  cause by the
Company  upon thirty days notice,  provides  for the  issuance of 50,000  shares
within 15 days of signing for services  rendered  prior to such issuance and the
issuance of 12,500 shares of common stock and options to purchase  12,500 shares
of common  stock at the end of each  month.  The fair  value of the  shares  and
options  will be  charged  to  operations  on the date of  issuance  and  grant,
respectively. At June 30, 1997, the Company has



                                      F-20
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

(B)   CONSULTING AGREEMENTS (CONTINUED)

charged approximately  $206,000 to operations and,  accordingly,  classified the
liability for the issuance of 50,000 shares as noncurrent.

      In March 1996, the Company  entered into a two year  consulting  agreement
with  Benchmark.  Under the agreement,  the Company is required to pay Benchmark
$35,000 at signing and a monthly fee of $7,000.  The  Company  paid  $84,000 and
$56,000 for the years ended June 30, 1997 and 1996,  respectively,  to Benchmark
in connection with the agreement.

(C)   EMPLOYMENT AGREEMENTS

      The Company has entered  into  employment  agreements  with certain of its
officers.  The agreements have terms from three to five years and include, among
other things, noncompete agreements and salary and benefits continuation. On May
31, 1997,  the Company  entered  into an  employment  agreement  with the former
president  of  Fathom  (see  Note 2).  The  agreement,  which is for two  years,
provides  for,   among  other   things,   salaries  of  $300,000  and  $350,000,
respectively,  options,  which vest  evenly  over four years and are  subject to
accelerated  vesting  during the first two years based on certain  profitability
milestones,  to purchase  250,000  shares of the Company's  common stock,  at an
exercise  price of $3.69 per share (the market price on the date of grant),  and
bonuses based on certain  profitability  and other  milestones.  Future  minimum
salaries under the agreements as of June 30, 1997 are as follows:

       Year ended June 30,
       --------------------

              1998                                               $1,095,000
              1999                                                1,020,000
              2000                                                  475,000
              2001                                                  475,000





                                      F-21
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 7 - SHAREHOLDERS' EQUITY

(A)   STOCK SPLITS

      In June  1996,  the  Company  effected a  6.855-for-one  stock  split.  In
September  1996,  the Company  effected a .496-for-one  reverse stock split.  In
November 1996, the Company  effected a  two-for-three  reverse stock split.  All
applicable share and per share data have been retroactively  restated to reflect
the stock splits.

(B)   PRIVATE PLACEMENT

      In August 1996, the Company sold equity securities in a private placement.
In November 1996, the agreement  pursuant to which the securities  were sold was
amended.  As a result,  the Company issued an aggregate of 938,667 shares of its
common  stock  in  exchange  for  net  proceeds  (after   transaction  costs  of
approximately  $50,000) of  $4,948,000.  Additionally,  certain of the Company's
shareholders  gave the purchaser an additional  124,667  shares of the Company's
common stock held by them for no consideration.

(C)   DEBT CONVERSIONS AND EXTINGUISHMENTS

      In August 1996, the holders of the convertible  promissory notes discussed
in Note 4 converted  such notes,  aggregating  $189,496,  into 433,327 shares of
common stock.  In addition,  a portion of the proceeds of the private  placement
discussed above was used to extinguish the remaining $1,880,505 of such notes.

(D)   INITIAL PUBLIC OFFERING

      On November 26, 1996, the Company completed its initial public offering of
2,150,000  shares  of its  common  stock  at a price  of $7.00  per  share  (the
"Offering") which resulted in the Company receiving net proceeds of $11,972,851.

      In connection  with the Offering,  the Company issued the  underwriters of
the Offering  warrants to purchase up to 215,000  shares of common  stock.  Such
warrants are exercisable  during the four-year period  commencing one year after
the Offering at an exercise  price of $9.80 per share,  subject to adjustment in
certain  events to protect  against  dilution,  and are not  transferable  for a
period of one year after the date of the  Offering.  In  addition,  the  warrant
agreement contains "cashless exercise" provisions, as defined.



                                      F-22
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 7 - SHAREHOLDERS' EQUITY (CONTINUED)

(D)   INITIAL PUBLIC OFFERING (CONTINUED)

      Also in connection with the Offering, the Company's founding shareholders,
together  with the  shareholders  who  acquired  shares in  connection  with the
business  acquisitions  discussed in Note 2,  contributed,  on a pro rata basis,
825,000  shares  of the  Company's  common  stock  held by them  into an  escrow
account.  The  shares are to be  released  to the  shareholders  from the escrow
account upon the Company achieving certain net income targets, as defined in the
escrow agreement, or the closing price of the Company's common stock averages in
excess of  $20.00  per share for forty  consecutive  business  days  during  the
three-year period subsequent to the Offering.  The value of the shares released,
as determined by the market price of the shares on the date of the release, will
be recognized as compensation expense in future periods.


NOTE 8 - EMPLOYEE RETIREMENT PLANS

(A)   401(K) PLANS

      Certain of THINK's subsidiaries  sponsor defined  contribution  retirement
plans  (the  "Plans")  which  cover  all  employees   meeting   minimum  service
requirements.  The Plans qualify as deferred salary  arrangements  under Section
401(k) of the Internal  Revenue Code.  The  subsidiaries'  contributions  to the
plans  are  based  on  percentages  of the  employees'  contributions.  Employer
contributions  to the Plans  during the years  ended June 30, 1997 and 1996 were
approximately $52,000 and $35,000, respectively.

(B)   STOCK COMPENSATION PLAN

      In  July  1996,   the  Board  of  Directors   adopted  and  the  Company's
shareholders  approved  the 1996 Stock Option Plan (the "1996 Plan") , which was
subsequently  amended and restated in November  1996. The 1996 Plan provided for
the grant of  options  which  qualify as  incentive  stock  options  ("Incentive
Options")  under  Section 422 of the Internal  Revenue Code of 1986,  as amended
(the "Code"),  to officers and employees of the Company and options which do not
so qualify  ("Non-Qualified  Options") to  officers,  directors,  employees  and
consultants of the



                                      F-23
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 8 - EMPLOYEE RETIREMENT PLANS (CONTINUED)

(B)   STOCK COMPENSATION PLAN (CONTINUED)

Company.  A total of 966,667  shares of common  stock was  reserved for issuance
under  the 1996  Plan  (subject  to  adjustment  in the  event of the  Company's
declaration  of  stock  dividends,  stock  splits,   reclassifications  and  the
occurrence  of other  similar  events).  Options to purchase  966,667  shares of
common stock at an exercise  price per share of $7.50 (the  estimated fair value
of the  shares  on the date of grant)  were  granted  to  certain  employees  in
November 1996.  The options  granted were to vest in increments of one-fourth at
the end of each year over a four year  period  from the date of grant and expire
after ten years.

      Pursuant to a resolution of the Board of Directors, the Company terminated
the 1996 Plan and established  the THINK New Ideas,  Inc. 1997 Stock Option Plan
(the "1997 Plan") which  provides for the granting of options,  which qualify as
Incentive  Options  under  Section 422 of the Code, to officers and employees of
the Company and  Non-Qualified  Options to officers,  directors,  employees  and
consultants  of the Company.  The Board of Directors  deemed it advisable and in
the best interest of the Company and its shareholders to terminate the 1996 Plan
and to establish the 1997 Plan.  All of the persons  entitled to  participate in
the 1996 Plan were given the  opportunity  to  participate  in the 1997 Plan and
received  options to purchase the same number of shares,  with the same terms as
the 1996 Plan options,  of the common stock they were entitled to purchase under
the 1996 Plan at a price per share equal to $4.05 (the market  price on the date
of grant).  Under the 1997 Plan, the Company may grant options to purchase up to
2,000,000  shares of common stock. As of June 30, 1997,  there were  outstanding
options exercisable to purchase up to 1,137,796 shares of common stock.

      During the fiscal year ended June 30, 1997, the Board of Directors granted
options to purchase  20,000  shares at an exercise  price  ranging from $3.69 to
$4.46  (based on the closing bid price of the Common  Stock) of common  stock to
each  of  seven  directors,  of  which  four  are  non-employee  directors  and,
accordingly,  the Company has recognized  $163,000 of expense,  which equals the
fair value of the options granted based on a Black-Scholes  model, upon granting
the options. Such options become exercisable over a period of four years.

      The  Company  applies   Accounting   Principles   Board  Opinion  No.  25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations  in accounting  for its employee  stock  options.  Under APB 25,
because the exercise  price of the Company's  employee  stock options equals the
market  price of the  underlying  stock on the date of  grant,  no  compensation
expense is recognized.



                                      F-24
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 8 - EMPLOYEE RETIREMENT PLANS (CONTINUED)

(B)   STOCK COMPENSATION PLAN (CONTINUED)

      Pro forma  information  regarding  net  income and  earnings  per share is
required  by SFAS  No.  123,  and has  been  determined  as if the  Company  had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions  for 1997;  risk-free  interest rates of 5.53% to 6.51%;  volatility
factor of the expected market price of the Company's  common stock of 35%; and a
weighted average expected life of the option of 10 years.

      Under the  accounting  provisions  of SFAS No. 123, the Company's net loss
and loss per share would have been increased to the pro forma amounts  indicated
below:

                                                 Year ended
                                               June 30, 1997
                                            ---------------------
       Net loss:
          As reported                               $(7,571,163)
          Pro forma                                  (8,129,163)

       Net loss per common share:
          As reported                                    $(1.63)
          Pro forma                                       (1.75)


      A summary of the status of the  Company's  fixed stock  option plans as of
and for the year ended June 30, 1997 is presented below:

                                                      June 30, 1997
                                        ----------------------------------------
                                                              Weighted average
                                              Shares           exercise price
                                        -------------------- -------------------
   Outstanding at beginning of year                       -                $   -
   Granted                                        2,104,463                 5.59
   Exercised                                              -                    -
   Forfeited/cancelled                            (966,667)                 7.50
                                        --------------------
   Outstanding at end of year                     1,137,796                 3.97
                                        ====================
   Options exercisable at year-end                        -
                                        ====================
   Weighted average fair value of                                           1.69
      options granted during the year



                                      F-25
<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 8 - EMPLOYEE RETIREMENT PLANS (CONTINUED)

(B)   STOCK COMPENSATION PLAN (CONTINUED)

      The following table summarizes information about stock options outstanding
at June 30, 1997.

<TABLE>
<CAPTION>

                                 Options outstanding                 Options exercisable
                      ------------------------------------------   -------------------------
                                      Weighted
                      Number          average        Weighted                    Weighted
Exercise price        outstanding    remaining       average       Number        average
                                    contractual      exercise      exercisable   exercise
                                        life           price                       price
-------------------   -----------   -------------    -----------   ----------    -----------
             <S>         <C>         <C>                  <C>                         <C>  
             $3.69       250,000     9.9 years            $3.69            -          $3.69
              4.05       887,796        9.6                4.05            -           4.05
                      -----------                                  ----------
                       1,137,796        9.7                3.96            -           3.96
                      ===========                                  ==========
</TABLE>



NOTE 9 - RELATED PARTY TRANSACTIONS

      At June 30, 1997,  the Company  owed  $515,760 to the father of the former
shareholder  of NetCube.  Upon  completion of the Offering (see Note 7(d)),  the
Company repaid  approximately  $288,000 of an outstanding  unsecured  promissory
note bearing  interest at 10%. On October 1, 1996, the Company amended the terms
of the promissory  note whereby the note is  convertible,  at the payee's option
through March 31, 1998,  into shares of the Company's  common stock at $7.00 per
share (the initial public  offering  price),  is unsecured and bears interest at
8%.  Interest  expense  incurred by the Company  related to the promissory  note
totaled  approximately $58,000 and $58,000 for the years ended June 30, 1997 and
1996, respectively.


NOTE 10 - RESTRUCTURING COSTS

      In June 1997, the Company  implemented a plan for NetCube and Internet One
which was designed to close the operations of these  subsidiaries and dispose of
related assets due to continued decline in the entities'  performance.  The cost
of this plan was  accounted  for in  accordance  with the  guidance set forth in
Emerging  Issues  Task  Force  Issue 94-3  "Liability  Recognition  for  Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain Costs Incurred in a Restructuring)" ("EITF 94-3").




                                      F-26
<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE 10 - RESTRUCTURING COSTS (CONTINUED)

      The pretax costs of approximately $1,732,000 which were incurred as a part
of this plan represent employee  termination and severance costs, the write-down
of  capitalized  software  costs and other related costs that were incurred as a
direct  result of the plan.  As of June 30, 1997 no amounts were paid under this
arrangement. The components of the restructuring costs are as follows:

      Write-down of capitalized software costs                        $597,000
      Severance benefits and employee termination                      681,000
         costs
      Disposal of fixed assets and other assets                        369,000
      Other                                                             85,000
                                                         ======================
                                                                    $1,732,000
                                                         ======================


      Aggregate  revenues and operating  losses for NetCube and Internet One for
1997 and 1996 were as follows:

                                               1997                   1996
                                      --------------------   -------------------
       Revenues                                $1,253,000             $2,740,000
       Operating loss                         (1,746,000)            (1,073,000)


NOTE 11 - FOURTH QUARTER ADJUSTMENTS (UNAUDITED)

      In  addition  to the  provisions  made for the  restructuring  charges  of
$1,732,000,  the Company made  adjustments  in the fourth quarter of Fiscal 1997
relating to excess  costs on completed  jobs,  which  increased  the net loss by
approximately $1,700,000.




                                      F-27
<PAGE>






ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES


               There  were no  changes in or  disagreements  with the  Company's
independent  accountants  with respect to accounting  and financial  disclosures
during the fiscal year ended June 30, 1997.


                                           PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT


        The  names  and ages of all  directors  and  executive  officers  of the
Company are as follows:

        NAME          AGE                   POSITION WITH THE COMPANY
        ----          ---                   -------------------------

Scott Mednick          41        Chief Executive Officer and Chairman of the
                                 Board
Ronald Bloom           45        President, Chief Operating Officer and
                                 Director
Melvin Epstein         50        Chief Financial Officer and Secretary
Adam Curry             33        Chief Technology Officer and Director
Larry Kopald           43        Chief Creative Officer and Director
James Grannan          34        Executive Vice President
Susan Goodman          42        Executive Vice President
James Carlisle         50        Executive Vice President
Richard Char           38        Director
Marc Canter            40        Director
Barry Wagner           57        Director



MANAGEMENT BIOGRAPHIES

SCOTT MEDNICK has been  Chairman of the Board of Directors  and Chief  Executive
Officer of the Company since its inception in January 1996. Mr. Mednick  founded
The Mednick Group a Subsidiary  primarily  engaged in the provision of strategic
marketing  and  corporate  and brand  positioning,  in 1985.  Mr.  Mednick is an
officer and director of The Mednick  Group.  Mr.  Mednick holds a B.F.A.  Degree
from the Rhode Island School of Design and a M.A.  from the  University of Santa
Monica.

RONALD BLOOM has been a Director and the President and Chief  Operating  Officer
of the Company since June 1996. From 1995 to 1996, Mr. Bloom was Chief Operating
Officer and General  Manager of On Ramp, a Subsidiary  primarily  engaged in the
provision of Internet and intranet  systems and services and presently serves as
its Vice  President and  Secretary.  Prior to joining On Ramp, Mr. Bloom founded


                                       24
<PAGE>




and served as the President of Ron Bloom  Productions,  a production company and
consulting firm founded by Mr. Bloom from 1989 to 1994.

MELVIN  EPSTEIN  has been the  Chief  Financial  Officer  of the  Company  since
November 1996. From 1994 to August 1996, Mr. Epstein was Managing Director of TN
Services, a unit of True North  Communications,  an advertising agency. Prior to
joining TN  Services,  Mr.  Epstein  was the Chief  Financial  Officer of Backer
Spielvogel Bates, a subsidiary of Saatchi & Saatchi,  P.L.C., from 1987 to 1994.
Mr. Epstein holds a B.S. in Accounting from Queens College.

ADAM CURRY has been a Director  and the Chief  Technical  Officer of the Company
since  June  1996.  Mr.  Curry  founded  and has been  Chairman  of the Board of
Directors of On Ramp since 1994 and its President since March 1996. From 1987 to
1992, Mr. Curry served as an On-Air Personality for MTV Networks in New York.

JAMES GRANNAN has been  Executive Vice President of the Company since June 1996.
Mr. Grannan founded Creative  Resources,  a Subsidiary  primarily engaged in the
provision of strategic  marketing and corporate and brand positioning  services,
in 1994. Mr. Grannan was Creative Manager for the Coca-Cola Company from 1992 to
1994 and  Promotional  Packaging  and Design  Manager for the Coca- Cola Company
from 1988 to 1992.  Mr. Grannan holds a B.A.  Degree in Advertising  Design from
the Atlanta College of Art.

SUSAN GOODMAN has been  Executive Vice President of the Company since June 1996.
Ms. Goodman  founded the Goodman Group,  a Subsidiary  primarily  engaged in the
provision of strategic  marketing and corporate and brand positioning  services,
in 1993.  Previously  she was  Director  of Client  Services at Chiat Day Direct
Marketing  from  February  1992 through  July 1992.  Ms.  Goodman  serves on the
Operating Committee of the Direct Marketing  Association's  Business to Business
Council.  Ms.  Goodman has a B.A. in history from Tufts  University and received
her M.B.A.  in  Marketing,  Finance and  Strategic  Planning  from  Northwestern
University's Kellogg School of Management.

JAMES CARLISLE has been Executive Vice President of the Company since June 1996.
Dr. Carlisle founded NetCube Corporation,  a Subsidiary primarily engaged in the
provision of database and information  management and utilization  services,  in
1978. Dr. Carlisle received his Ph.D. and M.Phil.  from Yale University's School
of  Organization  and  Management  and a B.S.  in  Engineering  with Honors from
Princeton University.

BARRY WAGNER has been a Director of the Company since September 1996. Mr. Wagner
has been an employee of Omnicom since 1974,  and  currently  serves as Secretary
and General  Counsel of Omnicom.  Mr.  Wagner also serves as Secretary and Chief
Legal  Officer of BBDO  Worldwide  Inc. and is Senior Vice  President  and Chief
Legal  Officer  of BBDO New York,  both of which are part of  Omnicom.  Prior to
joining  Omnicom,  Mr.  Wagner was an attorney  with the  National  Broadcasting
Company and the Federal  Reserve Bank of New York.  Mr.  Wagner is a graduate of
Hamilton College and Harvard Law School.



                                       25
<PAGE>




RICHARD CHAR has been a director of the Company  since  August 1997.  Mr Char is
the  managing  director  and head of  Technology  Investment  Banking at Cowen &
Company.  Prior to joining Cowen & Company,  Mr. Char was an attorney for Wilson
Sonsini Goodrich & Rosati for thirteen years. Mr. Char holds a B.A. from harvard
university and an M.B.A. from Stanford University.

MARC CANTER has been a director of the Company since August 1997. Mr. Canter has
been the Chairman of Canter Technology since founding the company in 1992. Prior
to forming  Canter  Technology,  Mr.  Canter was the  founder  and  chairman  of
MacroMind,  which merged into  MacroMedia,  until he retired in 1991. Mr. Canter
holds a B.F.A. from Oberlin Conservatory of Music.

LARRY KOPALD,  a director has been the Chief Creative Officer of the Company and
the President of the Company's Los Angeles  office since May 1997 and a Director
of the Company since  September 1997.  Prior to joining the Company,  Mr. Kopald
was  the  Executive   Creative   Officer  of  Fathom,   a  division  of  Ketchum
Communications,  Inc. from 1995 to 1997. Prior to joining Fathom, Mr. Kopald was
the  Executive  Creative  Director/Executive  Vice  President of Foote,  Coyne &
Belding from 1987 to 1994.  In 1994,  Mr.  Kopald  founded The Kopald  Group,  a
consulting firm specializing in strategic and creative issues.  Mr. Kopald holds
a  B.S.  in  Pre-Med.  from  Drake  and a  Masters  degree  in  Journalism  form
Northwestern University.

ANGEL MARTINEZ,  formerly a director of the Company,  resigned from his position
on the Board of Directors in February 1997.

MICHAEL RIBERO,  formerly a director of the Company,  resigned from his position
on the Board of Directors in August 1997.

FRANK DELAPE, formerly a director of the Company,  resigned from his position on
the Board of Directors in September 1997.

        All  officers of the  Company  are  elected to serve in such  capacities
until the next annual meeting of the Board of Directors of the Company and until
their successors are duly elected and qualified.

        The Board of Directors met in excess of five (5) times during the fiscal
year ended June 30, 1997. Two former directors  attended fewer than seventy-five
percent (75%) of the total number of meetings held by the Board of Directors.

        There are no  material  proceedings  to which any  director,  officer or
affiliate of the Company,  any owner of record or beneficially of more than five
percent (5%) of any class of voting securities of the Company,  or any associate
of any such director,  officer, affiliate of the Company or security holder is a
party adverse to the Company.



                                       26
<PAGE>





COMMITTEES OF THE BOARD OF DIRECTORS

        The Board of Directors has established an Audit Committee,  an Executive
Committee and a Compensation Committee, as more fully described below.

        AUDIT COMMITTEE.  The Company's audit committee (the "Audit  Committee")
is responsible for making  recommendations to the Board of Directors  concerning
the selection  and  engagement of the  Company's  independent  certified  public
accountants  and for reviewing the scope of the annual  audit,  audit fees,  and
results of the audit.  The Audit  Committee  also  reviews  and  discusses  with
management  and the Board of Directors  such matters as accounting  policies and
internal  accounting  controls,  and  procedures  for  preparation  of financial
statements.  Prior to his resignation, Mr. Ribero served on the Audit Committee.
Currently,  Messrs. Char and Wagner serve as members of the Audit Committee. The
Audit Committee held no meetings during the fiscal year ended June 30, 1997.

        EXECUTIVE  COMMITTEE.  The Company's executive committee (the "Executive
Committee") has the rights, privileges,  duties and responsibilities to exercise
the full power and authority of the Board of Directors in the  management of the
business of the Company,  to the extent not assigned to other  committees of the
Board of Directors and to the extent  permitted by Delaware law, the Articles of
Incorporation and the Bylaws of the Company.  Currently,  Messrs. Mednick, Bloom
and Wagner serve as members of the Executive Committee.  The Executive Committee
was formed in June 1997 and held one  meeting  during the fiscal year ended June
30, 1997. The Company has no nominating  committee,  but the Executive Committee
currently  serves the function that a nominating  committee  would be created to
serve.

        COMPENSATION  COMMITTEE.   The  Company's  compensation  committee  (the
"Compensation  Committee")  approves the compensation for executive employees of
the Company.  The Compensation  Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company,  reviews
general policy matters relating to compensation and benefits of employees of the
Company and  administers  the Company's  1997 Stock Option Plan.  Prior to their
resignations,  Messrs. Ribero and Martinez served on the Compensation Committee.
Currently,  Messrs.  Char  and  Canter  serve  as  members  of the  Compensation
Committee.  The  Compensation  Committee held one meeting during the fiscal year
ended June 30, 1997.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF 1934

        Section  16(a) of the  Securities  Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
own  more  than ten  percent  of a  registered  class  of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership of equity
securities,  to file  reports of  ownership  and changes in  ownership of equity
securities of the Company with the  Commission and NASDAQ.  Officers,  directors
and greater than ten percent  stockholders are required by regulation to furnish
the Company with copies of all Section 16(a) forms that they file.



                                       27
<PAGE>




        Based  solely upon a review of Forms 3, Forms 4 and Forms 5 furnished to
the Company  pursuant to Rule 16a-3 under the Exchange  Act, it is the Company's
belief that,  other than as set forth below, any such forms required to be filed
pursuant to Section 16(a) of the Exchange Act were filed,  as necessary,  by the
officers,  directors and securityholders required to file the same but some were
filed late as set forth below.

        Based  on  the  Company's  knowledge,  Messrs.  Mednick,  Bloom,  Curry,
Epstein, Wagner, DeLape, Ribero and Martinez were required to file Forms 5. Each
of Messrs.  Mednick,  Bloom, Curry, Epstein,  DeLape and Wagner were required to
file a Form 5 for the fiscal year ended June 30, 1997, and filed such form late.
Messrs.  Ribero and  Martinez  did not file Forms 5. Each such  person  received
during the fiscal year ended June 30, 1997,  an option to acquire  20,000 shares
of Common Stock, which transaction would have been the subject of such Form 5.

ITEM 10.       EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

        The following table sets forth the aggregate cash  compensation  awarded
to, earned by or paid for services  rendered to the Company  during the last two
fiscal years by each person serving as the Company's Chief Executive Officer and
the five most  highly  compensated  executive  offices  serving at June 30, 1997
whose compensation was in excess of $100,000 (the "Named Executive Officers").



                                       28
<PAGE>



<TABLE>
<CAPTION>

                          ANNUAL COMPENSATION                     AWARDS          PAYOUTS
                  ------------------------------------      -------------------   -------
                                                                     SECURITIES
                                                           RESTRICTED UNDERLYING
    NAME AND                                OTHER ANNUAL    STOCK     OPTIONS/     LTIP       ALL OTHER
    PRINCIPAL     YEAR  SALARY($) BONUS($)  COMPENSATION($) AWARDS($)  SARS(#)   PAYOUTS($) COMPENSATION($)
    POSITION      ----  --------- --------  --------------- --------- ---------- ---------- ---------------

<S>               <C>   <C>        <C>         <C>           <C>      <C>         <C>        <C>    
Scott A. Mednick1 1997  225,000    28,782        --           --      20,0002      --        9,60010
Chairman and CEO  1996  225,000    11,376      20,000         --        --         --        9,60010

Ronald E. Bloom3  1997  125,000   69,6964        --           --      20,0002      --        9,60010
President         1996  106,250    58,234        --           --        --         --        9,60010

Adam C. Curry5    1997  125,000   81,4804        --           --      20,0002      --        9,60010
Chief Technology  1996  125,000    2,684         --           --        --         --        9,60010
Officer

Melvin Epstein6   1997  156,923      --          --           --     133,3332      --          --
Chief Financial   1996     --        --          --           --        --         --          --
Officer

Susan Goodman7    1997  195,000    46,825        --           --      36,6672      --          --
Executive Vice    1996  138,000      --          --           --        --         --       130,0008
President

Larry Kopald9     1997  300,000      --          --           --     250,0002      --        9,60010
President, The    1996     --        --          --           --        --         --          --
Mednick Group

</TABLE>

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

1       Mr. Mednick  commenced his employment with the Company in March 1996 and
        was appointed Chairman and Chief Executive Officer in March 1996.


                                       29
<PAGE>




2       Represents  shares of Common  Stock  issuable  upon  exercise of options
        granted to the noted  officer  pursuant to the 1997 Stock Option Plan at
        an exercise price of $4.05 per share (representing the fair market value
        of the Common  Stock at the time of grant as  determined  in  accordance
        with the provisions of such plan).
3       Mr. Bloom commenced his employment with the Company in June 1996 and was
        appointed President in July 1996.
4       Represents a bonus as  determined by the  Compensation  Committee of the
        Board of Directors.

5       Mr. Curry commenced his employment with the Company in June 1996 and was
        appointed Chief Technology Officer in June 1996.

6       Mr. Epstein commenced his employment with the Company in August 1996.

7       Ms. Goodman commenced her employment with the Company in June 1996.

8       Represents  distributions  to the noted  executive  as the  former  sole
        stockholder of the S.D. Goodman Group, lnc., a Subsidiary and previously
        a Subchapter S corporation.

9       Mr. Kopald commenced his employment with the Company effective as of May
        31,  1997;  consequently,  prior to the end of fiscal 1997,  Mr.  Kopald
        received approximately $25,000 of the salary noted above.

10      Represents car allowances provided to the noted individuals.

STOCK OPTION PLANS

        In  July  1996,  the  Board  of  Directors  adopted  and  the  Company's
stockholders  approved the 1996 Stock Option Plan (the "1996  Plan"),  which was
subsequently  amended and restated in November  1996. The 1996 Plan provided for
the grant of  options  which  qualify as  incentive  stock  options  ("Incentive
Options") under Section 422 of the Internal  Revenue Code of 1986, as amend (the
"Code"),  to officer and  employees  of the Company and options  which do not so
qualify  ("Non-Qualified  Options")  to  officers,   directors,   employees  and
consultants of the Company (including  Subsidiaries).  A total of 966,667 shares
of Common  Stock was  reserved  for  issuance  under the 1996 Plan  (subject  to
adjustment in the event of the Company's  declaration of stock dividends,  stock
splits,  reclassifications and the occurrence of other similar events).  Options
to purchase  966,667  shares of Common  Stock at an exercise  price per share of
$7.50 were granted by the Company in November 1996. The Options  granted were to
vest in increments of one-fourth at the end of each year over a four year period
from the date of grant.

        Pursuant  to a  resolution  of  the  Board  of  Directors,  the  Company
terminated the 1996 Plan and  established  the THINK New Ideas,  Inc. 1997 Stock
Option Plan (the "1997  Plan")  which  provides  for the grant of options  which
quality as  Incentive  Options  under  Section 422 of the Code,  to officers and
employees of the Company (and the  Subsidiaries)  and  Non-Qualified  Options to
officers,  directors,   employees  and  consultants  of  the  Company  (and  the
Subsidiaries).  The  Board of  Directors  deemed  it  advisable  and in the best
interests of the Company and its  shareholders to terminate the 1996 Plan and to
establish  the 1997 Plan and has, by  resolution,  directed that adoption of the
1997 Plan be  presented  to the  shareholders  of the Company for  approval  and
ratification  at the  Annual  Meeting  (currently  scheduled  to take  place  on
December 11, 1997).  All of the persons entitled to participate in the 1996 Plan
were given the opportunity to participate in the 1997 Plan and received  options
to  purchase  the same  number of shares of Common  Stock they were  entitled to
purchase  under the 1996 Plan at an price per share  equal to $4.05,  the market
price as established  pursuant to the 1997 Plan on the date of grant.  Under the
1997 Plan,  the Company may grant options to purchase up to 1,250,000  shares of
Common Stock. In July 1997, the Executive  Committee  authorized an amendment to
the 1997 Plan to  increase  the  number of shares  reserved  for  issuance  from


                                       30
<PAGE>




1,250,000 shares of common stock to 2,000,000 shares of common stock. As of June
30,  1997,  there were  options to  purchase  1,137,796  shares of Common  Stock
outstanding under the 1997 Plan.

        An aggregate of 68 persons are eligible to participate in the 1997 Plan.
Such  persons  include  4  executive  officers  and/or  directors  who are  also
employees of the Company and 64 other  employees of the Company who are eligible
to receive  Incentive  Options  under the 1997 Plan,  all of which  persons  (in
addition to 4  non-employee  directors)  are  eligible to receive  Non-Qualified
Options under the 1997 Plan.

        In  addition  to the  foregoing,  during the fiscal  year ended June 30,
1997, the Board of Directors granted options to purchase 20,000 shares of Common
Stock to each of Scott A. Mednick, Ronald Bloom, Adam Curry, Frank DeLape, Barry
Wagner,  Michael Ribero and Angel Martinez.  Consultants  engaged by the Company
from time to time are also  expected  to be  eligible  to receive  Non-Qualified
Options under the 1997 Plan.

<TABLE>
<CAPTION>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

                   NUMBER OF SECURITIES       PERCENT OF TOTAL      1EXERCISE
                        UNDERLYING         OPTIONS/SARS GRANTED TO   OR BASE
    NAME         OPTIONS/SARS GRANTED (#) EMPLOYEES IN FISCAL YEAR PRICE ($/SH)    EXPIRATION DATE
---------------  ------------------------ ------------------------ ------------    ---------------
<S>                      <C>                         <C>               <C>              <C> 
Scott Mednick            20,000                      1.76              4.05             2002
Ronald Bloom             20,000                      1.76              4.46             2002
Adam Curry               20,000                      1.76              4.05             2002
Melvin Epstein          133,333                     11.72              4.05             2002
Susan Goodman            36,667                      3.22              4.05             2002
Larry Kopald            250,000                     21.97              3.69             2002

</TABLE>

--------------------------
1 Based upon the  closing  bid price of the  Company's  Common  Stock on the day
prior to the grant date as quoted by the Nasdaq National Market Systemsm.




                                       31
<PAGE>





AGGREGATE   OPTION/SAR  EXERCISES  IN  LAST  FISCAL  YEAR  AND  FISCAL  YEAR-END
OPTION/SAR VALUES

        There  were  no  options  exercised  during  fiscal  1997  by the  Named
Executive  Officers.  The following  table sets forth certain  information  with
respect to unexercised options held by such persons at the end of fiscal 1997.

<TABLE>
<CAPTION>

                                                 NUMBER OF SECURITIES
                      SHARES                    UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED IN THE
                     ACQUIRED       VALUE       OPTIONS/SARS AT FY-END    MONEY OPTIONS/SARS AT FY-END
                        ON                               (#)                          ($)1
NAME               EXERCISE(#)  REALIZED($)  EXERCISABLE UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
----               -----------  -----------  ----------- --------------  -----------    -------------
<S>                    <C>          <C>          <C>         <C>              <C>          <C>
Scott Mednick          None         None         None         20,000          None           $1,600
Ronald Bloom           None         None         None         20,000          None           $1,600
Adam Curry             None         None         None         20,000          None           $1,600
Melvin Epstein         None         None         None        133,333          None          $10,667
Susan Goodman          None         None         None         36,667          None           $2,933
Larry Kopald           None         None         None        250,000          None          $20,000

</TABLE>

                                       32
<PAGE>




--------------------------
1       The  calculations  of the value of unexercised  options are based on the
        difference  between the closing bid price quoted by the Nasdaq  National
        Market  System of the Common  Stock on June 30,  1997,  and the exercise
        price of each option,  multiplied by the number of shares covered by the
        option.

EMPLOYMENT AGREEMENTS

        In June 1996, the Company entered into an employment agreement with each
of Scott Mednick,  Ronald Bloom,  Adam Curry and James  Carlisle,  each of which
provides for an initial term of three years,  subject to automatic extension for
a period of two years in the absence of notice to the  contrary at the option of
the Company.  Mr. Mednick's employment agreement provides that he is entitled to
receive an annual salary of $225,000.  Pursuant to the terms of their respective
employment  agreements,  as amended,  each of Messrs.  Bloom, Curry and Carlisle
receives an annual salary of $125,000. Each of Messrs. Mednick, Bloom, Curry and
Carlisle  are  entitled  to  receive  bonuses  as  determined  by the  Board  of
Directors.  The  Compensation  Committee has granted  bonuses to each of Messrs.
Mednick,  Bloom and Curry in the aggregate  amounts,  respectively,  of $28,782;
$69,696 and $81,480.

        The Company also entered into an employment agreement with James Grannan
which  provided  for a term of one year,  subject to renewal for a period of one
year  at the  discretion  of the  Company.  On  July  31,  1997,  Mr.  Grannan's
employment agreement was renewed for a period of one year. Pursuant to the terms
of such agreement, Mr. Grannan receives an annual salary of $125,000 and bonuses
as determined by the Board of Directors.  In connection with the recent renewal,
Mr. Grannan was granted a $15,000 bonus.

        The  Company  is also a party  to an  employment  agreement  with  Susan
Goodman,  entered into in June 1996, which provides for an initial term of three
years.  Pursuant  to the  terms of the  employment  agreement,  Ms.  Goodman  is
entitled to receive an annual  salary of  $195,000  and  bonuses  thereafter  as
determined  by the Board of  Directors.  In addition,  Ms.  Goodman has received
bonuses pursuant to the terms of her employment agreement with the Company.

        The Company  also entered  into an  employment  letter with Mel Epstein,
which  provides  for a term of one year,  subject to renewal  for periods of one
year at the discretion of the Company.  Pursuant to the terms of such agreement,
Mr. Epstein receives an annual salary of $180,000.

        In April  1997,  the  Company  and  David  Hieb,  formerly  the owner of
Internet One, entered into an agreement  pursuant to which Mr. Hieb's employment
with the  Company  was  terminated  in  exchange  for the payment to Mr. Hieb of
$40,000 and  acceleration  of the vesting of options  previously  granted to him
under the 1997 Plan to acquire 10,470 shares of Common Stock.

        In May 1997, in connection  with the  Company's  acquisition  of certain
assets of Ketchum, the Company reached an agreement with Larry Kopald,  pursuant


                                       33
<PAGE>




to which Mr.  Kopald is  entitled to receive an annual  salary of  $300,000  the
first year of his employment and $350,000 the second year of his employment.  In
addition,  Mr.  Kopald is entitled  to receive  bonuses of up to $150,000 in the
first  year of his  employment  and up to  $100,000  in the  second  year of his
employment based upon Oracle entering into advertising services agreements.  Mr.
Kopald is also entitled to receive bonuses of up to ten percent (10%) of profits
on billings on the Oracle account in excess of $16 million  dollars in the first
year of his  employment  agreement  and up to ten  percent  (10%) of  profits on
billings on the Oracle  account in excess of $20  million  dollars in the second
year of his employment, and options exercisable to purchase up to 250,000 shares
of Common Stock in equal  increments  over a period of four years at an exercise
price of $3.69 per share,  the market  price of the Common  Stock at the date of
grant.

        The  Company's  employment  agreements  provide for  termination  by the
Company upon death or disability of the individual and may be terminated with or
without cause (as defined  therein).  Such agreements also provide for severance
payments  upon  termination  without  cause based upon a multiple of the monthly
salaries  provided for therein (for up to twelve months  following the number of
months  otherwise  remaining  under such  agreements).  In addition,  all of the
foregoing  employment  agreements contain  non-competition  and  confidentiality
provisions  that  extend  beyond the  respective  terms of such  agreements  for
periods of up to one year.

CONSULTING AND OTHER ARRANGEMENTS

        In March 1996,  the Company  entered  into  consulting  agreements  with
Benchmark Equity Group,  Inc.  ("Benchmark")  pursuant to which the Company paid
Benchmark $500,000 in finders fees and pays $7,000 per month in consulting fees.
As of the date  hereof,  only  one of such  agreements  (the  $7,000  per  month
agreement)  remains in effect and is  scheduled  to expire in March 1998.  Frank
DeLape,  a stockholder  and former  director of the Company,  is a principal and
director of Benchmark.

        In June 1997, the Company entered into a consulting agreement with Jason
H. Pollak,  pursuant to which Mr.  Pollak  agreed to render to the Company for a
period of one year certain consulting services,  including,  among other things,
providing merger and acquisition and investor and public relations services.  In
exchange  therefor,  the Company issued,  in July 1997,  50,000 shares of Common
Stock and agreed to issue an  aggregate  of 150,000  shares of Common  Stock and
options  to  acquire  up to  150,000  additional  shares  of Common  Stock.  The
securities  subject to the  consulting  agreement  are issuable in equal monthly
installments and the option exercise prices are based upon the closing bid price
of the Common Stock in each month that the corresponding options are issued.

REMUNERATION OF DIRECTORS

        Employee  directors of the Company receive no compensation for acting as
directors  or  attending  meetings  of  the  Board  of  Directors.  Non-employee


                                       34
<PAGE>




directors  receive  $1,000  per year for each year such  director  serves on the
Board of Directors and $2,500 per meeting attended.  In addition,  all directors
are eligible to receive  options under the 1997 Plan. All directors are entitled
to  reimbursement of reasonable  expenses  related to attending  meetings of the
directors.  In  addition,  each  director  received  an  option to  purchase  an
aggregate  of  20,000  shares  of  Common  Stock.   See  the  charts  set  forth
hereinabove.

ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The  following  table  sets  forth  as  of  the  date  hereof,   certain
information  with respect to stock  ownership  of: (i) all persons  known by the
Company to be beneficial  owners of five percent or more of  outstanding  Common
Stock; (ii) each of the Company's  directors and executive  officers;  and (iii)
all directors and executive  officers as a group (7 persons).  Unless  otherwise
indicated,  the beneficial owners have sole voting and investment power over the
shares of Common Stock listed below.

<TABLE>
<CAPTION>

                                           NUMBER OF SHARES              % OF OUTSTANDING
NAME AND ADDRESS                            OF COMMON STOCK              SHARES OF COMMON
OF BENEFICIAL OWNER1                      BENEFICIALLY OWNED         STOCK BENEFICIALLY OWNED
--------------------                      ------------------         ------------------------
<S>                                              <C>                          <C>
Frank M. DeLape                                  898,898(2)                   13.6%
16406 Brook Forest Drive
Houston, Texas 77059

Benchmark Equity Group, Inc.                     682,231(3)                   10.3%
700 Gemini
Houston, Texas 77058

Ronald Bloom                                     895,933(4)                   13.6%
45 West 36th Street
New York, New York 10018

Scott A. Mednick                                 650,467(4)                    9.8%
8000 Sunset Boulevard, Penthouse
East
Los Angeles, California 90046

Adam Curry                                       198,225(4)                    3.0%
30 Glen Road
Verona, New Jersey 07044

Melvin Epstein                                   133,333(4)                    2.0%
45 West 36th Street
New York. New York 10018

James Carlisle                                   261,849(4)                    4.0%
45 Allison Road
Alpine, New Jersey 07620



                                       35
<PAGE>




Susan Goodman                                     86,290(4)                    1.3%
45 West 36th Street
New York. New York 10018

Omnicom Group Inc.                             1,183,333(5)                   17.9%
437 Madison Avenue
New York, New York 10022

Barry Wagner                                       20,000                         *
437 Madison Avenue, 9th Floor
New York, New York 10022

All Directors and Executive                    2,246,097(4)                   34.0%
Officers as a Group (7 persons)
</TABLE>

-------------------
*       Denotes less than one percent.
1       Unless  otherwise noted, all of such shares of Common Stock listed above
        are owned of record by each  individual  named as  beneficial  owner and
        each such individual has solo voting and dispositive  power with respect
        to the shares of Common  Stock  owned.  The  percentage  of ownership is
        determined by assuming that any options or convertible  securities  held
        by the noted  securityholder  which are exercisable  within 60 days from
        the date hereof have been exercised or converted, as the case may be.
2       Includes 682,231 shares and 180,000 shares of Common Stock  beneficially
        owned  by  Benchmark   Equity  Group,   Inc.  and  Trident  II,  L.L.C.,
        respectively.  Also includes  options to acquire 20,000 shares of Common
        Stock  granted to Frank DeLape as a director of the Company prior to his
        resignation.   Mr.   DeLape  is  an  officer,   director  and  principal
        stockholder of Benchmark Equity Group, Inc., a principal  stockholder of
        the  Company,  and is an officer,  director  and  principal  of Oak Tree
        Capital,  Inc.,  which is the manager and a member of Trident II, L.L.C.
        Mr.  DeLape  may be deemed to be  beneficial  owner of all such  shares.
        Excludes  97,461  shares  held by  Christopher  Efird,  a  principal  of
        Benchmark Equity Group, Inc., and a former director of the Company.
3       Excludes  180,000  shares of Common  Stock owned by Trident II,  L.L.C.,
        16,667 shares of Common Stock owned by Frank DeLape and 20,000 shares of
        Common Stock issuable upon exercise of options granted to Mr. DeLape.
4       Includes  shares of Common  Stock  issuable  upon  exercise  of  options
        granted to the noted securityholder.
5       Includes  120,000  shares  issued  to  Omnicom  in  connection  with the
        Company's  acquisition  of the  assets  and  operations  of Fathom  from
        Ketchum, the wholly-owned subsidiary of Omnicom.

        There are no agreements or other arrangements or understandings known to
the Company  concerning  the voting of the Common Stock or otherwise  concerning
control of the Company which are not disclosed herein.  There are no pre-emptive
rights applicable to the Company's securities.


                                       36
<PAGE>







ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


        In January 1996, Scott Mednick,  Ronald Bloom, Benchmark and Christopher
Efird,  as the founding  stockholders  of the Company,  acquired an aggregate of
2,171,506 shares of Common Stock in exchange for payment of an aggregate of $656
therefor.

        In  connection  with the Company's  acquisition  of The Mednick Group in
June 1996, the Company issued to Scott Mednick,  as the sole  stockholder of The
Mednick Group, an aggregate of 208,084 shares of Common Stock.  Mr. Mednick is a
founding stockholder, an officer and a director of the Company.

        In March 1996,  the Company  obtained a loan in the aggregate  principal
amount of $270,000 from three separate lenders, including Trident II, L.L.C. and
Frank M. DeLape.  In exchange  for  extension  of the loan,  the Company  issued
the10% Notes,  including one in the principal  amount of $225,000 to Trident II,
L.L.C. and one in the principal  amount of $20,000 to Mr. DeLape.  Mr. DeLape, a
founder of the  Company  and a former  director,  is an  officer,  director  and
principal of Benchmark and of Oak Tree Capital, Inc., which is the manager and a
member of  Trident  II,  L.L.C.  In August  1996,  an  aggregate  of  $27,000 in
principal amount of the foregoing 10% Notes was converted by the holders thereof
into an aggregate of 216,667 shares of Common Stock.  In July 1996,  Trident II,
L.L.C.  loaned  the  Company  an  additional  $75,000  evidenced  by a  separate
non-convertible  promissory note.  Principal and interest  outstanding under the
10% Notes and the $75,000 non-convertible promissory note were repaid out of the
proceeds of the Omnicom  Transaction  in August  1996,  as more fully  described
elsewhere herein.

        Also in March 1996, the Company entered into consulting  agreements with
Benchmark  pursuant to which the Company paid Benchmark $500,000 in finders fees
and pays $7,000 per month in consulting fees. As of the date hereof, only one of
such  agreements  (the  $7,000  per month  agreement)  remains  in effect and is
scheduled  to expire in March  1998.  Frank  DeLape,  a  stockholder  and former
director of the Company, is a principal and director of Benchmark.

        In  April  1996,  upon  release  of an  escrow  account  established  to
facilitate  the following loan  transaction,  the Company loaned an aggregate of
$1,000,000 to On Ramp in connection with the redemption by On Ramp of 100 shares
of its common stock (which shares of common stock  represented 66% of the issued
and outstanding  capital stock of On Ramp). Such redemption was the result of an
agreement  previously  reached among the former  stockholders of On Ramp arising
out of fundamental  differences among such individuals relating to the operation
and  business  strategy  of On Ramp.  In  addition,  pursuant  to the terms of a
certain loan  agreement  between the Company and On Ramp,  the Company agreed to
make  available to On Ramp an additional  $600,000,  of which  $494,000 has been
borrowed  by On  Ramp  as of the  date  hereof.  Such  loans  are  evidenced  by
promissory  notes  executed  on behalf of On Ramp in favor of the Company in the
principal  amounts  of  $1,000,000  and  $600,000,  respectively  (the  "On Ramp


                                       37
<PAGE>




Notes"). Amounts outstanding under the On Ramp Notes accrue interest at the rate
of 12% per annum. Payment of principal and interest on the On Ramp Notes was due
on August 16, 1996,  subject to a six-month  cure  period.  Repayment of amounts
outstanding  under the On Ramp Notes were  secured by the pledge in favor of the
Company of 26 shares of common stock of On Ramp by Adam Curry (who,  as a result
of  the  foregoing  redemption,   became  the  sole  stockholder  of  On  Ramp).
Subsequently,  in connection  with the  Company's  acquisition  of On Ramp,  the
Company  acquired all of the issued and  outstanding  capital  stock of On Ramp,
including the shares of common stock subject to the On Ramp Pledge Agreement.

        In May 1996,  pursuant to the terms of a certain loan agreement  between
the Company and Internet One, the Company  agreed to make  available to Internet
One up to $70,000,  of which $50,000 has been borrowed by Internet One as of the
date hereof.  Such loan is evidenced by a promissory  note  executed by Internet
One in favor of the Company in the  principal  amount of $70,000 (the  "Internet
One Note").  Amounts  outstanding under the Internet One Note accrue interest at
the rate of 12% per annum. Payment of principal and interest on the Internet One
Note is due on September 30, 1996.  Repayment of amounts  outstanding  under the
Internet  One Note was  secured  by the  pledge  in  favor of the  Company  (the
"Internet One Pledge  Agreement")  of 132,000 shares of common stock of Internet
One (which shares of common stock  represent  33% of the issued and  outstanding
capital  stock of Internet  One) by David R. Hieb.  Subsequently,  in connection
with the Company's  acquisition of Internet One, the Company acquired all of the
outstanding  shares of capital  stock of Internet  One,  including the shares of
common stock subject to the Internet One Pledge Agreement.

        Historically, Dr. Carlisle and his father, Dan Carlisle, extended credit
to NetCube.  In  connection  with the Company's  acquisition  of NetCube in June
1996, Dr. Carlisle agreed to forgive an aggregate of approximately $1,220,000 in
debt owed to him by NetCube.  In  addition,  the  Company  agreed to issue three
promissory notes providing for repayment of amounts owed to each of Dr. Carlisle
and Dan Carlisle.  Each of such promissory notes accrued interest at the rate of
8% per annum and was convertible into shares of Common Stock prior to expiration
thereof at the rate of $7.50 per share.  The principal  amount of the promissory
note issued to Dr.  Carlisle was $132,000 and the  principal  amounts of the two
promissory   notes  issued  to  Dan  Carlisle   were   $288,000  and   $515,760,
respectively.  The  $132,000  promissory  note  issued to Dr.  Carlisle  and the
$288,000 promissory note issued to Dan Carlisle were repaid prior to the Initial
Public Offering. The $515,760 convertible promissory note issued to Dan Carlisle
is  payable  on March  31,  1998 (or  earlier,  upon the  Company's  receipt  of
$3,000,000 from a private offering of securities,  the sale of 50% of the assets
of the Company or another public offering).

        Pursuant to the terms of the Omnicom  Agreement:  (a) Omnicom  purchased
938,667  shares of Common Stock from the Company in exchange for net proceeds of
$4,948,000;  (b) the Company  appointed Barry Wagner to represent Omnicom on the
Board of Directors; (c) Omnicom agreed not to increase its ownership interest in
the  Company  absent the  approval  of the Board of  Directors;  and (d) Omnicom


                                       38
<PAGE>




granted  the Company a right of first  refusal to purchase  the shares of Common
Stock owned by Omnicom.

        In November 1996, four principal stockholders of the Company transferred
an  aggregate  of  124,667  shares  of  Common  Stock  to  Omnicom  for no  cash
consideration.  In connection  therewith,  Omnicom consented to a stock split by
the Company  and related  amendments  to the Omnicom  Agreement  and the Company
agreed to decrease the number of shares available under the 1996 Plan.

        The  Company  entered  into  the  Omnicom  Transaction  to  establish  a
strategic  relationship  which  management of the Company believes could provide
access  to a  substantial  additional  client  base,  although  there  can be no
assurance that such result will occur.  Since June 1996, Omnicom and the Company
have  engaged  in the joint  marketing  of their  services  to  several  Omnicom
clients.  There can be no assurance that such joint marketing will continue, nor
can there be any assurance  with respect to the effect of such  marketing on the
Company's operations.

        In May 1997, the Company entered into the Ketchum Agreement, pursuant to
which the Company acquired certain assets and operations of Fathom from Ketchum,
a  wholly-owned  subsidiary of Omnicom,  in exchange for the issuance of 120,000
shares of Common Stock.


ITEM 13.       EXHIBITS AND REPORTS ON FORM 8-K


(A)     EXHIBITS.

        EXHIBIT
        NUMBER TITLE OF EXHIBIT

        2.1*          Asset Purchase and  Forbearance  Agreement,  dated May 31,
                      1997,  by and between  THINK New Ideas,  Inc.  and Ketchum
                      Communications, Inc.

        3.1           Articles  of  Incorporation  of  THINK  NEW  IDEAS,  Inc.,
                      (Delaware)  (Registrant)  filed  with the  Securities  and
                      Exchange Commission on September 26, 1996 as an exhibit to
                      the  Company's  Registration  Statement on Form SB-2 (File
                      No. 333-12795) and incorporated herein by reference.

        3.2           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc.,  On  Ramp,  Inc.  and  Adam  Curry  filed  with  the
                      Securities  and Exchange  Commission on September 26, 1996
                      as an exhibit to the Company's  Registration  Statement on
                      Form SB-2 (File No. 333-12795) and incorporated  herein by
                      reference.



                                       39
<PAGE>




        3.3           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc., NetCube Corporation and James Carlisle,  Ph.D. filed
                      with the Securities  and Exchange  Commission on September
                      26,  1996  as an  exhibit  to the  Company's  Registration
                      Statement   on  Form  SB-2   (File  No.   333-12795)   and
                      incorporated herein by reference.

        3.4           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc.,  Creative  Resources,  Inc. and James  Grannan filed
                      with the Securities  and Exchange  Commission on September
                      26,  1996  as an  exhibit  to the  Company's  Registration
                      Statement on Form SB-2 (File No. 333-12795) and
                      incorporated herein by reference.

        3.5           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc., The S.D. Goodman Group, Inc. and Susan Goodman filed
                      with the Securities  and Exchange  Commission on September
                      26,  1996  as an  exhibit  to the  Company's  Registration
                      Statement   on  Form  SB-2   (File  No.   333-12795)   and
                      incorporated herein by reference.

        3.6           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc.,  Internet  One,  Inc.  and David and Dana Hieb filed
                      with the Securities  and Exchange  Commission on September
                      26,  1996  as an  exhibit  to the  Company's  Registration
                      Statement on Form SB-2 (File No. 333-12795) and
                      incorporated herein by reference.

        3.7           Agreement and Plan of Merger by and among THINK NEW IDEAS,
                      Inc.,  Scott Mednick & Associates,  Inc. and Scott Mednick
                      filed  with the  Securities  and  Exchange  Commission  on
                      September   26,  1996  as  an  exhibit  to  the  Company's
                      Registration  Statement on Form SB-2 (File No.  333-12795)
                      and
                      incorporated herein by reference.

        3.8           Bylaws of THINK New Ideas,  Inc. filed with the Securities
                      and  Exchange  Commission  on  September  26,  1996  as an
                      exhibit to the  Company's  Registration  Statement on Form
                      SB-2  (File  No.  333-12795)  and  incorporated  herein by
                      reference.

        4.1           Specimen   Common   Stock   Certificate   filed  with  the
                      Securities  and Exchange  Commission on September 26, 1996
                      as an exhibit to the Company's  Registration  Statement on
                      Form SB-2 (File No. 333-12795) and incorporated  herein by
                      reference.

        4.2           Form of Warrant Agreement among the Company,  Commonwealth
                      Associates  and  Continental   Stock  Transfer  and  Trust


                                       40
<PAGE>




                      Company filed with the Securities and Exchange  Commission
                      on  September  26,  1996 as an  exhibit  to the  Company's
                      Registration  Statement on Form SB-2 (File No.  333-12795)
                      and incorporated herein by reference.

        4.3           THINK New Ideas,  Inc. 1996 Stock Option Plan,  filed with
                      the  Securities  and Exchange  Commission on September 26,
                      1996 as an exhibit to the Company's Registration Statement
                      on Form SB-2 (File No. 333-12795) and incorporated  herein
                      by reference.

        4.4*          THINK New Ideas, Inc. 1997 Stock Option Plan.

        10.1          Employment  Agreement  between  THINK New Ideas,  Inc. and
                      Scott  Mednick,  filed with the  Securities  and  Exchange
                      Commission  as an  exhibit to the  Company's  Registration
                      Statement on Form SB-2, dated September 26, 1996 (File No.
                      333-12795), and incorporated herein by reference.

        10.2          Employment Agreement between THINK New Ideas, Inc. and Ron
                      Bloom,  filed with the Securities and Exchange  Commission
                      as an exhibit to the Company's  Registration  Statement on
                      Form SB-2, dated September 26, 1996 (File No.  333-12795),
                      and incorporated herein by reference.

        10.3          Employment  Agreement  between  THINK New Ideas,  Inc. and
                      Adam  Curry,   filed  with  the  Securities  and  Exchange
                      Commission  as an  exhibit to the  Company's  Registration
                      Statement on Form SB-2, dated September 26, 1996 (File No.
                      333-12795), and incorporated herein by reference.

        10.4          Employment  Agreement  between  THINK New Ideas,  Inc. and
                      Susan  Goodman,  filed with the  Securities  and  Exchange
                      Commission  as an  exhibit to the  Company's  Registration
                      Statement on Form SB-2, dated September 26, 1996 (File No.
                      333-12795), and incorporated herein by reference.

        10.5          Employment  Agreement  between  THINK New Ideas,  Inc. and
                      James  Carlisle,  filed with the  Securities  and Exchange
                      Commission  as an  exhibit to the  Company's  Registration
                      Statement on Form SB-2, dated September 26, 1996 (File No.
                      333-12795), and incorporated herein by reference.

        10.6          Employment  Agreement  between  THINK New Ideas,  Inc. and
                      James  Grannan,  filed with the  Securities  and  Exchange
                      Commission  as an  exhibit to the  Company's  Registration
                      Statement on Form SB-2, dated September 26, 1996 (File No.
                      333-12795), and incorporated herein by reference.



                                       41
<PAGE>




        10.7          Employment Agreement between THINK New Ideas, Inc. and Mel
                      Epstein.

        10.8*         Employment  Letter between THINK New Ideas, Inc. and Larry
                      Kopald.

        10.9          Consulting  Agreement,  dated June 30, 1997, between THINK
                      New  Ideas,  Inc.  and  Jason H.  Pollak,  filed  with the
                      Securities  and Exchange  Commission  as an exhibit to the
                      Company's  Registration  Statement  on Form S-8 filed with
                      the  Commission on July 17, 1997 (File  No.333-31511)  and
                      incorporated herein by reference.

        10.10*        Letter Amendment to Employment Agreement of James Grannan.

        10.11*        Termination  Agreement  between THINK New Ideas,  Inc. and
                      David Hieb.

        11*           Statement regarding earnings per share.

        12.1          Quarterly Report on Form 10-QSB for quarter ended December
                      31, 1997 filed with the Securities and Exchange Commission
                      on February 15, 1997 and incorporated herein by reference.

        12.2          Quarterly  Report on Form 10-QSB for  quarter  ended March
                      31, 1997 filed with the Securities and Exchange Commission
                      on April 15, 1997 and incorporated herein by reference.

        23.1*         Consent of BDO Seidman, LLP

        27*           Financial Data Schedule.

* Denotes documents filed herewith.  Other documents are incorporated  herein by
reference as noted above.


(B)     REPORTS ON FORM 8-K.

        There were no Current  Reports on Form 8-K filed by the  Company  during
the last quarter of the fiscal year ended June 30, 1997.



                                       42
<PAGE>





                                   SIGNATURES

        Pursuant to the requirements of the Securities  Exchange Act of 1934, as
amended,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.

                              THINK NEW IDEAS, INC.


Dated:  October 1, 1997      By:  /S/ SCOTT A. MEDNICK
                                  ---------------------------------------------
                                  Scott A. Mednick, Chairman and 
                                        Chief Executive Officer


        In  accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.


/s/ Scott A. Mednick       Chief Executive Officer, Chairman    October 1, 1997
------------------------   of the Board and Director
Scott A. Mednick


/s/ Ronald Bloom           President and Director               October 1, 1997
------------------------
Ronald Bloom

                           Chief Technology Officer and         October __, 1997
------------------------
Adam Curry                 Director

/s/ Melvin Epstein         Chief Financial Officer              October 1, 1997
------------------------
Melvin Epstein

/s/ Barry Wagner           Director                             October 1, 1997
------------------------
Barry Wagner

                           Director                             October __, 1997
------------------------
Richard Char

/s/ Marc Canter            Director                             October 1, 1997
------------------------
Marc Canter

/s/ Larry Kopald           Director                             October 1, 1997
------------------------
Larry Kopald