##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended September 30, 2003



Commission File No. 0-21935



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Modem Media, Inc.

(Exact name of registrant as specified in its charter)



|DELAWARE                                                       |  | 06-1464807                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



230 East Avenue

Norwalk, CT 06855

(203) 299-7000

(Address of principal executive offices and zip code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No ̈



There were 26,302,852 shares of the Registrants Common Stock, $0.001 par value, issued and outstanding as of November
3, 2003.



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##### Table of Contents

TABLE OF CONTENTS



|                                                            |  | Page                                                                                                 
|----------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------
|SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS |  | 2                                                                                                    
|                                                            | 
|PART I. FINANCIAL INFORMATION                               |  |                                                                                                      
|                                                            |  |                                                                                                      
|Item 1.                                                     |  | Financial Statements (unaudited)                                                                     
|                                                            |  | Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                           
|                                                            |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002
|                                                            |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002          
|                                                            |  | Notes to Consolidated Financial Statements                                                           
|                                                            |  |                                                                                                      
|Item 2.                                                     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                
|                                                            |  |                                                                                                      
|Item 3.                                                     |  | Quantitative and Qualitative Disclosures About Market Risk                                           
|                                                            |  |                                                                                                      
|Item 4.                                                     |  | Controls and Procedures                                                                              
|                                                            | 
|PART II. OTHER INFORMATION                                  |  |                                                                                                      
|                                                            |  |                                                                                                      
|Item 1.                                                     |  | Legal Proceedings                                                                                    
|Item 4.                                                     |  | Submission of Matters to a Vote of Security Holders                                                  
|Item 5.                                                     |  | Other Information                                                                                    
|Item 6.                                                     |  | Exhibits and Reports on Form 8-K                                                                     
|                                                            |  | Signatures                                                                                           



1



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##### Table of Contents

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS



This document includes forward-looking statements within the meaning of Section 21E(i)(1) of the Securities and Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results to be materially different from any future results expressed or implied by these statements. Such factors include, among other things, the following:



| |  | our history of operating losses,
| | - | --------------------------------



| |  | our ability to generate new demand for our services from new and existing clients,
| | - | ----------------------------------------------------------------------------------



| |  | the scope and timing of new assignments and client initiatives,
| | - | ---------------------------------------------------------------



| |  | the allocation of resources to new business development,
| | - | --------------------------------------------------------



| |  | spending levels and budget constraints of our clients,
| | - | ------------------------------------------------------



| |  | our dependence on a limited number of clients,
| | - | ----------------------------------------------



| |  | the variability of our operating results,
| | - | -----------------------------------------



| |  | our ability to accurately estimate costs in fixed-fee engagements,
| | - | ------------------------------------------------------------------



| |  | our ability to attract and retain qualified professionals,
| | - | ----------------------------------------------------------



| |  | the ability of CentrPort to meet their obligations under its real estate lease, of which we are guarantor,
| | - | ----------------------------------------------------------------------------------------------------------



| |  | our ability to sub-lease our unoccupied office space,
| | - | -----------------------------------------------------



| |  | the ability of our sub-tenants to continue to meet their obligations under our sub-lease agreements for parts of our San Francisco office space,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our need and ability to manage the level of our staff and capacity in the future,
| | - | ---------------------------------------------------------------------------------



| |  | our ability to manage third party vendors for the benefit of our clients,
| | - | -------------------------------------------------------------------------



| |  | the use of a significant portion of our cash on hand if we implement any additional cost reduction programs,
| | - | ------------------------------------------------------------------------------------------------------------



| |  | the potential decrease in our cash balance if we experience a material decrease in demand for our media purchasing services,
| | - | ----------------------------------------------------------------------------------------------------------------------------



| |  | the potential future impairment of our goodwill,
| | - | ------------------------------------------------



| |  | our dependence on key management staff,
| | - | ---------------------------------------



| |  | exclusivity arrangements with clients that may limit our ability to provide services to others,
| | - | -----------------------------------------------------------------------------------------------



| |  | pricing pressure for our services,
| | - | ----------------------------------



| |  | our ability to integrate acquired companies, if any,
| | - | ----------------------------------------------------



| |  | utilization and recoverability of our deferred tax assets,
| | - | ----------------------------------------------------------



| |  | the timing of collections from our clients,
| | - | -------------------------------------------



| |  | our ability to manage future growth,
| | - | ------------------------------------



| |  | our ability to respond to rapid technological change,
| | - | -----------------------------------------------------



| |  | our dependence on the future growth of the internet and the market for our services,
| | - | ------------------------------------------------------------------------------------



| |  | our change of our financial and operational information system,
| | - | ---------------------------------------------------------------



| |  | the long-term effects of the global recession,
| | - | ----------------------------------------------



| |  | changes in government regulation, including regulation of privacy and spam issues,
| | - | ----------------------------------------------------------------------------------



| |  | the volatility of the price of our stock,
| | - | -----------------------------------------



| |  | the concentrated ownership of our stock, and
| | - | --------------------------------------------



| |  | the effect of terrorist activities and military actions.
| | - | --------------------------------------------------------



In light of these and other uncertainties, the forward-looking statements included in this document should not be regarded as a representation by us that
our plans and objectives would be achieved.



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MODEM MEDIA, INC.



CONSOLIDATED
BALANCE SHEETS



(In thousands, except share and per
share amounts)

(unaudited)



|                                                                                                            |  | September 30,2003 |         |   | December 31,2002 |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|ASSETS                                                                                                      |  |                   |         |   |                  |  
|Current assets:                                                                                             |  |                   |         |   |                  |  
|Cash and cash equivalents                                                                                   |  | $                 | 53,275  |   |                  | $
|Accounts receivable, net of bad debt reserve of $224 and $281, respectively                                 |  |                   | 8,156   |   |                  |  
|Unbilled revenues                                                                                           |  |                   | 1,517   |   |                  |  
|Deferred income taxes                                                                                       |  |                   | 4,309   |   |                  |  
|Prepaid expenses and other current assets                                                                   |  |                   | 1,588   |   |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total current assets                                                                                        |  |                   | 68,845  |   |                  |  
|Noncurrent assets:                                                                                          |  |                   |         |   |                  |  
|Property and equipment, net                                                                                 |  |                   | 7,516   |   |                  |  
|Goodwill                                                                                                    |  |                   | 43,156  |   |                  |  
|Deferred income taxes                                                                                       |  |                   | 13,533  |   |                  |  
|Other assets                                                                                                |  |                   | 3,297   |   |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total noncurrent assets                                                                                     |  |                   | 67,502  |   |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total assets                                                                                                |  | $                 | 136,347 |   |                  | $
|                                                                                                            |  |                   |         |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                        |  |                   |         |   |                  |  
|Current liabilities:                                                                                        |  |                   |         |   |                  |  
|Accounts payable                                                                                            |  | $                 | 891     |   |                  | $
|Pre-billed media                                                                                            |  |                   | 10,466  |   |                  |  
|Deferred revenues                                                                                           |  |                   | 2,338   |   |                  |  
|Accrued restructuring                                                                                       |  |                   | 3,130   |   |                  |  
|Accrued expenses and other current liabilities                                                              |  |                   | 6,860   |   |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total current liabilities                                                                                   |  |                   | 23,685  |   |                  |  
|Noncurrent liabilities:                                                                                     |  |                   |         |   |                  |  
|Accrued restructuring                                                                                       |  |                   | 13,091  |   |                  |  
|Other liabilities                                                                                           |  |                   | 1,013   |   |                  |  
|Stockholders equity:                                                                                       |  |                   |         |   |                  |  
|Common stock, $.001 par value145,000,000 shares authorized, 26,424,569 and 26,188,475 issued, respectively |  |                   | 26      |   |                  |  
|Preferred stock, $.001 par value5,000,000 shares authorized, none issued and outstanding                   |  |                   |        |   |                  |  
|Paid-in capital                                                                                             |  |                   | 192,888 |   |                  |  
|Deferred compensation                                                                                       |  |                   | (268    | ) |                  |  
|Accumulated deficit                                                                                         |  |                   | (92,480 | ) |                  |  
|Treasury stock, 264,522 and 219,422 shares of common stock, respectively, at cost                           |  |                   | (1,351  | ) |                  |  
|Accumulated other comprehensive loss                                                                        |  |                   | (257    | ) |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total stockholders equity                                                                                  |  |                   | 98,558  |   |                  |  
|                                                                                                            |  |                   |         |   |                  |  
|Total liabilities and stockholders equity                                                                  |  | $                 | 136,347 |   |                  | $
|                                                                                                            |  |                   |         |   |                  |  



The accompanying notes
are an integral part of these consolidated financial statements.



3



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##### Table of Contents

MODEM MEDIA, INC.



CONSOLIDATED
STATEMENTS OF OPERATIONS



(In thousands, except per
share amounts)

(unaudited)



|                                                      |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|----------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                      |  | 2003                            |        |   | 2002                           |  
|                                                      |  |                                 |        |   |                                |  
|Revenues                                              |  | $                               | 14,630 |   |                                | $
|Cost of revenues                                      |  |                                 | 7,221  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Gross profit                                          |  |                                 | 7,409  |   |                                |  
|Operating expenses:                                   |  |                                 |        |   |                                |  
|Selling, general and administrative                   |  |                                 | 4,338  |   |                                |  
|Restructuring and other charges (credits), net        |  |                                 | (1,111 | ) |                                |  
|Depreciation and amortization                         |  |                                 | 612    |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Total operating expenses                              |  |                                 | 3,839  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Operating income (loss)                               |  |                                 | 3,570  |   |                                |  
|Gain on sale of CentrPort stock                       |  |                                 |       |   |                                |  
|Interest income                                       |  |                                 | 129    |   |                                |  
|Other income (expense), net                           |  |                                 | (171   | ) |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income from continuing operations before income taxes |  |                                 | 3,528  |   |                                |  
|Provision for income taxes                            |  |                                 | 1,466  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income from continuing operations                     |  |                                 | 2,062  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Discontinued operations:                              |  |                                 |        |   |                                |  
|Operating loss                                        |  |                                 |       |   |                                |  
|Provision (benefit) for income taxes                  |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income (loss) from discontinued operations            |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income before cumulative effect of accounting change  |  |                                 | 2,062  |   |                                |  
|Cumulative effect of accounting change                |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Net income (loss)                                     |  | $                               | 2,062  |   |                                | $
|                                                      |  |                                 |        |   |                                |  
|Basic per share data:                                 |  |                                 |        |   |                                |  
|Income from continuing operations                     |  | $                               | 0.08   |   |                                | $
|Income (loss) from discontinued operations            |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income before cumulative effect of accounting change  |  |                                 | 0.08   |   |                                |  
|Cumulative effect of accounting change                |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Net income (loss)                                     |  | $                               | 0.08   |   |                                | $
|                                                      |  |                                 |        |   |                                |  
|Diluted per share data:                               |  |                                 |        |   |                                |  
|Income from continuing operations                     |  | $                               | 0.08   |   |                                | $
|Income (loss) from discontinued operations            |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income before cumulative effect of accounting change  |  |                                 | 0.08   |   |                                |  
|Cumulative effect of accounting change                |  |                                 |       |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Net income (loss)                                     |  | $                               | 0.08   |   |                                | $
|                                                      |  |                                 |        |   |                                |  
|Weighted-average number of common shares outstanding: |  |                                 |        |   |                                |  
|Basic                                                 |  |                                 | 26,044 |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Diluted                                               |  |                                 | 26,667 |   |                                |  
|                                                      |  |                                 |        |   |                                |  



The accompanying notes
are an integral part of these consolidated financial statements.



4



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##### Table of Contents

MODEM MEDIA, INC.



CONSOLIDATED
STATEMENTS OF CASH FLOWS



(In thousands)

(unaudited)



|                                                                                         |  | Nine Months EndedSeptember 30, |       
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------
|                                                                                         |  | 2003                           |       
|                                                                                         |  |                                |       
|Cash flows from operating activities:                                                    |  |                                |       
|Net income (loss)                                                                        |  | $                              | 4,332 
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                |       
|Depreciation and amortization                                                            |  |                                | 2,413 
|Non-cash restructuring and other charges                                                 |  |                                |      
|Gain from the sale of CentrPort stock                                                    |  |                                |      
|Cumulative effect of accounting change  goodwill impairment                             |  |                                |      
|Non-cash income taxes                                                                    |  |                                | 2,473 
|Provision for doubtful accounts                                                          |  |                                |      
|Amortization of deferred compensation                                                    |  |                                | 159   
|Changes in assets and liabilities:                                                       |  |                                |       
|Accounts receivable                                                                      |  |                                | 3,791 
|Unbilled revenues                                                                        |  |                                | (608  
|Prepaid expenses and other assets                                                        |  |                                | (38   
|Accounts payable, accrued expenses and other liabilities                                 |  |                                | (3,158
|Pre-billed media                                                                         |  |                                | (1,834
|Deferred revenues                                                                        |  |                                | (6    
|Accrued restructuring                                                                    |  |                                | (3,307
|                                                                                         |  |                                |       
|Net cash provided by operating activities                                                |  |                                | 4,217 
|                                                                                         |  |                                |       
|Cash flows from investing activities:                                                    |  |                                |       
|Purchases of property and equipment                                                      |  |                                | (1,241
|Collection of notes receivable                                                           |  |                                | 624   
|                                                                                         |  |                                |       
|Net cash used in investing activities                                                    |  |                                | (617  
|                                                                                         |  |                                |       
|Cash flows from financing activities:                                                    |  |                                |       
|Purchases of treasury stock                                                              |  |                                | (100  
|Payments of notes payable and capital lease obligations                                  |  |                                | (294  
|Exercises of stock options and purchases under employee stock purchase plan              |  |                                | 742   
|                                                                                         |  |                                |       
|Net cash provided by (used in) financing activities                                      |  |                                | 348   
|                                                                                         |  |                                |       
|Effect of exchange rates on cash and cash equivalents                                    |  |                                | 15    
|                                                                                         |  |                                |       
|Net increase in cash and cash equivalents                                                |  |                                | 3,963 
|Cash and cash equivalents, beginning of the period                                       |  |                                | 49,312
|                                                                                         |  |                                |       
|Cash and cash equivalents, end of the period                                             |  | $                              | 53,275
|                                                                                         |  |                                |       



The accompanying notes
are an integral part of these consolidated financial statements.



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##### Table of Contents

MODEM MEDIA, INC.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. Basis of Presentation and
Summary of Significant Accounting Policies



Nature of
OperationsModem Media, Inc. (the Company) is an interactive marketing strategy and services firm. The Company is a marketing partner to some of the worlds leading companies and uses digital marketing and technologies to
help its clients realize greater value from their most vital assettheir customers. The Company leverages its experience in marketing and business strategy, marketing programs, creative design and technology development to address the unique
business objectives, challenges and opportunities of each of its client companies. Headquartered in Norwalk, Connecticut, the Company maintains offices in San Francisco, London and São Paulo.



Basis of PresentationThe accompanying unaudited consolidated
financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial
statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Companys financial position and results of operations. The operating results
for the three and nine months ended September 30, 2003 and 2002 are not necessarily indicative of the results to be expected for any other interim period or any future year. These consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



Discontinued OperationsIn the third quarter of 2002, the operations of the Companys offices in Toronto, Munich and Hong Kong ceased. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as adopted by the Company on January 1, 2002, the results of these operations have been
reclassified and are separately presented for all reporting periods as discontinued operations. A restructuring charge related to these activities was recorded in second quarter of 2002 and is included within operating loss from discontinued
operations.



Principles of ConsolidationThe
accompanying consolidated financial statements include all of the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.



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



ReclassificationsCertain reclassifications have been made in the prior period consolidated financial statements
to conform to the current period presentation.



Revenue
RecognitionThe Company recognizes revenues as services are rendered in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements(SAB No. 101). A majority of its revenues are
derived from fixed-bid and retainer-based assignments. Unbilled revenues represent labor costs incurred and estimated earnings in excess of billings and production and other client-reimbursable out-of-pocket costs incurred in excess of billings.
Amounts billed to clients in excess of revenues recognized to date are classified as deferred revenues. The Companys clients hire it on a fixed-bid, retainer or time-and-materials basis. The Company reassesses its estimated costs on fixed-bid
engagements periodically and, as needed, for specific engagements. Losses are accrued to the extent that costs incurred and anticipated costs to complete engagements exceed total anticipated billings. Provisions for losses on uncompleted fixed-bid
contracts, if any, are recognized in the period in which such losses are determined. The cost of online media and email campaigns purchased by the Company for its clients is not included in revenue because the Company acts as an agent on behalf of
its clients.



In accordance with Emerging Issue Task Force
(EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out-Of-Pocket Expenses Incurred (EITF 01-14), the Company reports reimbursable pass-through expenses as a component of revenues
and cost of revenues. This component of revenue was less than 3% of total revenues for all periods presented.



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##### Table of Contents

MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Business Concentrations and Credit RiskThe Companys services have been provided
primarily to a limited number of clients located worldwide in a variety of industries. The Company had revenues from three clients representing 26%, 14% and 13% of revenues for the three months ended September 30, 2003, and revenues from three
clients representing 24%, 18% and 11% of revenues for the nine months ended September 30, 2003. The Company had revenues from four clients representing 21%, 20%, 12% and 11% of revenues for the three months ended September 30, 2002. The Company had
revenues from three clients representing 18%, 15% and 11% of revenues for the nine months ended September 30, 2002. The Company generally does not require its clients to provide collateral. Additionally, the Company is subject to a concentration of
credit risk with respect to its accounts receivable. The Company had four clients accounting for 18%, 17%, 13% and 11% of total gross accounts receivable as of September 30, 2003. The Company had three clients accounting for 38%, 18% and 14% of
total gross accounts receivable as of December 31, 2002.



Income TaxesThe Company accounts for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. In accordance with such standard, the provision for income taxes includes
deferred income taxes resulting from items reported in different periods for income tax and financial statement purposes. Deferred income tax assets and liabilities represent the expected future tax consequences of the differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effects of changes in tax rates on deferred income tax assets and liabilities are recognized in the period that includes the enactment date.



Stock-Based CompensationThe Company follows the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not require, companies to record compensation expense for stock-based employee compensation plans at fair value. The
Company has elected to continue to account for stock-based compensation to employees using the intrinsic value method presented in Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and
related interpretations. Accordingly, the compensation cost of stock options is measured as the excess, if any, of the quoted market price of the Companys stock at the date of grant over the exercise price and is charged to operations either
when earned or over the vesting period. Income tax benefits attributable to stock options exercised are credited to paid-in capital.



If compensation expense for stock options awarded under the Companys plans were to have been determined in accordance with SFAS No. 123, the
Companys pro forma net income (loss) and pro forma net income (loss) per share would have been as follows:



|                                                                       |  | Three Months EndedSeptember 30,      |  |         | Nine Months EndedSeptember 30,       | 
|---------------------------------------------------------------------- |  | ------------------------------------ |  | ------- | ------------------------------------ | 
|                                                                       |  | 2003                                 |  | 2002    |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|                                                                       |  | (in thousands, exceptper share data) |  |         | (in thousands, exceptper share data) | 
|Net income (loss) as reported                                          |  | $2,062                               |  | $1,746  |                                      | 
|Stockbased compensation recorded, net of tax                          |  | 32                                   |  |        |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Sub total                                                              |  | 2,094                                |  | 1,746   |                                      | 
|Stock-based compensation expense determined under SFAS 123, net of tax |  | 651                                  |  | 1,061   |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Pro forma net income (loss)                                            |  | $1,443                               |  | $   685 |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Net income (loss) per share:                                           |  |                                      |  |         |                                      | 
|Basic income (loss) per share, as reported                             |  | $  0.08                              |  | $  0.07 |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Basic income (loss) per share, pro forma                               |  | $  0.06                              |  | $  0.03 |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Diluted income (loss) per share, as reported                           |  | $  0.08                              |  | $  0.07 |                                      | 
|                                                                       |  |                                      |  |         |                                      | 
|Diluted income (loss) per share, pro forma                             |  | $  0.05                              |  | $  0.03 |                                      | 
|                                                                       |  |                                      |  |         |                                      | 



The effects of
applying SFAS No. 123 in the pro forma net income (loss) disclosures above are not likely to be representative of the effects on pro forma disclosures of future years.



During the first quarter of 2003, as a partial payment under the Companys management incentive plan, the Company
issued approximately 244,000 options to purchase its common stock to certain management employees at an exercise price of $0.58 per share. The Company recorded deferred compensation expense of approximately $0.4 million relating to these options,
which represents the difference between the exercise price and the fair market value of the Companys common stock on the date of grant. This balance will be amortized on a straight-line basis over the vesting period, which ends on December 31,
2004. The Company has amortized approximately $0.05 million and $0.16 million of deferred compensation during the three and nine months ended September 30, 2003, respectively.



7



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##### Table of Contents

MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Cash and Cash EquivalentsThe Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents. Although cash balances are maintained in high quality financial institutions, the balances at times exceed insurable amounts.



Property and EquipmentProperty and equipment are stated at cost
and are depreciated principally using the straight-line method over their estimated useful lives of three to five years for computers and software, and five to seven years for furniture and other. Purchased software and third-party costs incurred to
develop software for internal use are capitalized and amortized principally over three years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining lease term.



GoodwillGoodwill represents acquisition costs in excess of the
fair value of net assets acquired. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for using the purchase method of accounting. Under SFAS No. 142, goodwill is no longer amortized but is reviewed for impairment annually, as well as when a triggering event indicates impairment may have occurred. This statement
eliminated goodwill amortization upon adoption and required an initial assessment for goodwill impairment within six months of adoption and at least annually thereafter. The Company adopted this pronouncement on January 1, 2002. The goodwill test
for impairment consists of a two-step process that begins with an estimation of the fair value of the reporting unit. The first step of the process is a screen for potential impairment and the second step measures the amount of impairment, if any.
SFAS No. 142 required an entity to complete the first step of the transitional goodwill impairment test within six months of adopting the statement. The Company performed the required transitional fair value impairment test on its goodwill as of
January 1, 2002. As a result of completing this test, the Company determined that the goodwill associated with its Munich operation was fully impaired as of January 1, 2002. Accordingly, the Company recorded a goodwill impairment charge of $3.4
million as a cumulative effect of an accounting change retroactive to January 1, 2002. There was no income tax benefit associated with this charge because the Company believed it was not likely that future taxable income in Germany would be
sufficient to realize the related income tax benefit.



Net
Income Per ShareIn accordance with SFAS No. 128, Earnings Per Share, basic net income per share is computed using the weighted-average number of common shares outstanding during each period. Diluted net income per share gives effect
to all potentially dilutive securities that were outstanding during each period. For the three months ended September 30, 2003 and 2002, outstanding options to purchase shares of common stock of approximately 1.9 million and 6.0 million,
respectively, were not included in the computation of diluted net income per share because to do so would have an antidilutive effect for the periods presented. For the nine months ended September 30, 2003 and 2002, outstanding options of
approximately 4.6 million and 5.2 million, respectively, were likewise excluded. The following table details the computation of basic and diluted earnings per share for continuing operations:



|                                                                 |  | Three Months EndedSeptember 30,         |  | Nine Months EndedSeptember 30,         
|---------------------------------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|                                                                 |  | 2003                                    |  | 2002                                   
|                                                                 |  | (in thousands, exceptper share amounts) |  | (in thousands, exceptper share amounts)
|Income from continuing operations                                |  | $  2,062                                |  | $  2,110                               
|                                                                 |  |                                         |  |                                        
|Weighted average common shares outstandingbasic                 |  | 26,044                                  |  | 25,964                                 
|Assumed conversion of dilutive securities                        |  | 623                                     |  | 141                                    
|                                                                 |  |                                         |  |                                        
|Weighted average common shares outstandingdiluted               |  | 26,667                                  |  | 26,105                                 
|                                                                 |  |                                         |  |                                        
|Basic earnings per share for income from continuing operations   |  | $    0.08                               |  | $    0.08                              
|                                                                 |  |                                         |  |                                        
|Diluted earnings per share for income from continuing operations |  | $    0.08                               |  | $    0.08                              
|                                                                 |  |                                         |  |                                        



Fair Value of
Financial InstrumentsThe carrying values of the Companys assets and liabilities approximate fair value because of the short maturities of these financial instruments.



Foreign Currency TranslationThe Companys financial statements were prepared in accordance with the
requirements of SFAS No. 52, Foreign Currency Translation. Under this method, net foreign currency transaction gains and losses are included in the accompanying consolidated statements of operations.



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MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Comprehensive IncomeThe Company reflects its comprehensive income such as unrealized
gains and losses on the Companys foreign currency translation adjustments and available-for-sale securities as a separate component of stockholders equity as required by SFAS No. 130, Reporting Comprehensive Income. The Company
has not recorded the tax effects related to the currency translation adjustments because such adjustments relate to indefinite investments in international subsidiaries. Comprehensive income (loss) consists of net income (loss) and foreign currency
translation adjustments. Comprehensive income was $2.1 million and $2.0 million for the three months ended September 30, 2003 and 2002, respectively. Comprehensive income (loss) was $4.3 million and $(1.4) million for the nine months ended September
30, 2003 and 2002, respectively.



Recently Issued Accounting
Pronouncements



In March 2003, the EITF published Issue
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, (EITF 00-21). This issue addresses certain aspects of the accounting by a vendor for arrangements under which it performs multiple revenue-generating
activities and how to determine whether such an arrangement involving multiple deliverables contains more than one unit of accounting for purposes of revenue recognition. The guidance is effective for revenue arrangements that the Company entered
into in fiscal periods beginning after June 15, 2003. Accordingly, the Company adopted EITF 00-21 on July 1, 2003 and the Company has determined that the adoption of this statement did not have a material effect on its consolidated financial
statements or disclosures.



In April 2003, the FASB issued
Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities, (Statement No. 149). Statement No. 149 amends and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
Statement No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003 and is to be applied prospectively. The Company does not use derivative instruments, and
therefore, the adoption of Statement No. 149 did not have a material impact on its consolidated financial statements.



NOTE 2. Discontinued Operations and Restatement of Prior Period Financial Results



In the third quarter of 2002, the operations of the Companys offices in Toronto, Munich and Hong Kong ceased. In
accordance with SFAS No. 144, the results of these operations have been reclassified and are separately presented for all reporting periods as discontinued operations. Revenue for discontinued operations for the three and nine months ended September
30, 2002 was $0.3 million and $2.4 million, respectively.



In
connection with the reclassification of the results of these operations, the Company also noted certain errors within accrued liabilities associated with its continuing operations that were generated in prior periods. Therefore, the Company has
restated its historical results to adjust for these items. The impact of these adjustments served to decrease selling, general and administrative expenses and the loss from continuing operations before income taxes by approximately $0.1 million in
the first quarter of 2002. The correction for these items had no impact on the timing or amount of the Companys revenue or cash flow. The impact of the restatement on the net loss for the nine months ended September 30, 2002 is as follows:



|                                     |  | Nine Months EndedSeptember 30, 2002      |       
|------------------------------------ |  | ---------------------------------------- | ------
|                                     |  | (in thousands, except per share amounts) |       
|                                     |  |                                         
|                                     |  | As PreviouslyReported                    |       
|Net loss                             |  | $                                        | (2,329
|Basic and diluted net loss per share |  | $                                        | (0.09 



NOTE 3. Restructuring and Other
Charges (Credits), Net



Continuing Operations



The Company initiated a series of restructuring
actions in 2002 to align capacity with both revenue and the demand from its clients. These actions were completed in the third and fourth quarters of 2002 and included staff reductions and a reduction in office space in the Companys U.S. and
London offices. In October 2003 the Company entered into a sub-lease arrangement with a third party for part of the Companys San Francisco office space. Accordingly, $1.1 million of the previously established restructuring accrual was reversed
in the third quarter of 2003.



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MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Discontinued Operations



Due to the decline in client demand, the Company decided in the second quarter of 2002 to close its offices in Toronto,
Munich and Hong Kong, ceasing operations in the third quarter of 2002.



The accruals established by the Company in respect to both continuing and discontinued operations, and activities related thereto, are summarized as follows:



|                      |  | Balances atDecember 31,2002 |        | Charges(Credits) |   |        | Cash Uses |  |   | Other  |   |  | Balances atSeptember 30,2003
|--------------------- |  | --------------------------- | ------ | ---------------- | - | ------ | --------- |  | - | ------ | - |  | ----------------------------
|                      |  | (In thousands)             
|Facilities            |  | $                           | 19,192 |                  | $ | (1,111 | )         |  | $ | (2,569 | ) |  | $                           
|Severance             |  |                             | 114    |                  |   |       |           |  |   | (66    | ) |  |                             
|Other exit costs      |  |                             | 222    |                  |   |       |           |  |   | (46    | ) |  |                             
|                      |  |                             |        |                  |   |        |           |  |   |        |   |  |                             
|Total                 |  | $                           | 19,528 |                  | $ | (1,111 | )         |  | $ | (2,681 | ) |  | $                           
|                      |  |                             |        |                  |   |        |           |  |   |        |   |  |                             
|Less: current portion |  |                             |        |                  |   |        |           |  |   |        |   |  |                             
|                      |  |                             |        |                  |   |        |           |  |   |        |   |  |                             
|Long-term portion     |  |                             |        |                  |   |        |           |  |   |        |   |  |                             
|                      |  |                             |        |                  |   |        |           |  |   |        |   |  |                             



Included in
other within the facilities category is $0.4 million in interest expense and $0.1 million of the impact of foreign currency translation adjustments and is partially offset by a reclass of $0.2 million from facilities to
other exit costs to better reflect the remaining restructure accrual.



NOTE 4. CentrPort Transactions



In conjunction
with the CentrPort Transactions, described in detail in Note 3 to the Companys 2002 Consolidated Financial Statements, the Company designated CentrPort as a preferred vendor and committed to resell at least $5.0 million of CentrPorts
products and services during 2001 pursuant to a value added reseller agreement (CentrPort Commitment). Based primarily on the uncertain nature of the Companys ability to meet this CentrPort Commitment, the Company deferred its gain
of $4.1 million on the CentrPort Preferred Stock Sale. The original agreement provided that, if the CentrPort Commitment was not met, the Company was to remit the value of the shortfall to CentrPort in either CentrPort common stock from the
Companys holdings pursuant to a contractual per share fixed value, or in cash, at the Companys election. As of December 31, 2001, the Company had sold $2.7 million in CentrPort products and services applicable to the CentrPort
Commitment. As a result, the Company recognized $1.7 million in the fourth quarter of 2001 of the $4.1 million deferred gain that was recorded as of December 31, 2000. The remaining balance of the deferred gain on the Companys balance sheet
was equal to $2.3 million as of December 31, 2001. In February 2002, the Company, CentrPort and the CentrPort Investors were party to agreements which amended various conditions and commitments including the extinguishment of the Companys
CentrPort Commitment to sell further CentrPort products and services, the extinguishment of the Companys obligation to pay the value of the shortfall in either cash or CentrPort common stock and the extension of the Companys $2.5 million
note receivable due from the CentrPort Investors to it until December 31, 2002, which was subsequently satisfied. Accordingly, the Company recognized the remaining deferred gain of $2.3 million in the first quarter of 2002.



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MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company is guarantor for CentrPorts obligations under its lease for office space at 450
Post Road East, Westport, Connecticut for 16,900 square feet, which expires on June 30, 2010, subject to renewal. As of September 30, 2003, the aggregate remaining base rent and estimated operating expenses due under this lease was $5.8 million,
subject to adjustment in accordance with the terms of the lease. This balance will be reduced by approximately $0.8 million per year through June 30, 2010. The lease provides that once 50% of the original lease term has expired, which will occur in
July 2005, this guaranty may be replaced with an irrevocable letter of credit in favor of the landlord in an amount not to exceed the remaining base rent. Upon expiration of 50% of the lease term, CentrPort is required to obtain such a letter of
credit. Additionally, CentrPort has agreed to cooperate with the Company to secure the Companys release from its guaranty prior to that time, if possible. In the event that CentrPort were to default on its lease obligation, the Company would
be liable for the aggregate remaining base rent and operating expenses at the time of default by CentrPort. In the event of a default, the Company would take all appropriate action to be reimbursed for this liability. Based on the Companys
understanding of CentrPorts overall business conditions and financial viability, no provision has been recorded for this potential liability.



NOTE 5. Legal Proceedings



Beginning in August 2001, a number of substantially identical class action complaints alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York naming as defendants Modem Media, Inc., certain of its officers (G.M. OConnell, Chairman, Steven Roberts, former Chief Financial Officer, and, in certain actions, Robert C.
Allen II, Board member, a Managing Director and former President), and certain named underwriters of its initial public offering (FleetBoston Robertson Stephens, Inc., BankBoston Robertson Stephens, Inc., Bear Stearns & Co., Inc., Nationsbanc
Montgomery Securities and Banc of America Securities LLC) (the Underwriters). The complaints have since been consolidated into a single action, and a consolidated amended complaint was filed on April 24, 2002. The amended complaint
alleges, among other things, that the underwriters of the Companys initial public offering violated the securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock stabilization
practices) in the offerings registration statement and by engaging in manipulative practices to artificially inflate the price of Modem Media stock in the after-market subsequent to the IPO. The Modem Media defendants are named in the amended
complaint pursuant to Section 11 of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 on the basis of an alleged failure to disclose the Underwriters alleged compensation arrangements and
manipulative practices. The complaint seeks unspecified damages. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998 and all such actions have been included in a single coordinated
proceeding.



On June 30, 2003, a committee of our Board of
Directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Modem Media, Inc. and of the individual defendants for the conduct alleged in the
action to be wrongful in the amended complaint. The Company would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims it may have against its
Underwriters. Any direct financial impact of the proposed settlement is expected to be borne by the Companys insurers. The committee agreed to approve the settlement subject to a number of conditions, including the participation of a
substantial number of other issuer defendants in the proposed settlement, the consent of the Companys insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a
hearing on fairness and approval by the court overseeing the IPO Litigation. The settlement is partial because the Underwriters are not party to the settlement. We understand that a majority of the other issuer defendants in the consolidated actions
have also conditionally approved the proposed settlement.



If
the settlement is not finalized, the Company will continue to defend these actions vigorously. However, due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the litigation if the litigation
is not settled. Any unfavorable outcome of this litigation could have an adverse impact on the Companys business, financial condition and results of operations.



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MODEM MEDIA, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In August 2001, the Companys subsidiary, Modem Media Canada, Inc. (Modem Media
Canada), brought suit against City Core Properties, Ltd. (Landlord) in Ontario Supreme Court for breach of an office lease on the basis that the Landlord did not complete the building into which Modem Media Canada was to move (the
Space). Modem Media Canada is claiming approximately $1.2 million in damages. The Landlord has counter-sued the Company, Modem Media Canada and certain of its officers and directors for breach of lease and is seeking damages in the
amount of approximately $16.0 million. The Space was repossessed by a mortgage holder and has been sold to an unrelated third party. The Company is currently in discovery for this litigation. The Company believes that there is no basis for the
counterclaims, it has meritorious defenses to the counterclaims and the Company intends to defend this action vigorously. Based on this belief, the Company believes that the resolution of these matters will not have a material adverse effect on its
business, financial condition and results of operations.



From
time to time, the Company becomes involved in various routine legal proceedings in the ordinary course of its business. Other than as noted above, the Company believes that the outcome of pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its business, financial condition and results of operations.



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



Overview



Founded in 1987, Modem Media is an interactive marketing strategy and services firm. We are a marketing partner to some of the worlds leading
companies, including Delta Air Lines, General Motors, Michelin, IBM, Hewlett Packard, Sprint and Kraft. We define interactive marketing as the use of any interactive channel to reach and serve any target customer with the intention of generating
measurable value, both to that customer and to the marketer. These channels include web sites and other internet applications, wireless applications, electronic mail, online marketing, advertising, promotions and other emerging
communication channels. We use interactive marketing to help our clients realize greater value from their most vital assettheir customers. We approach this goal through the following business basics:



| |  | We add profitable new customers for our clients, through brand awareness, demand generation, lead generation and customer acquisition initiatives,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We increase our clients sales from current customers, through loyalty, retention, cross-sell and up-sell initiatives and through digital services and experiences that
expand the breadth, depth and lifetime value of customer relationships, and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We improve our clients marketing productivity, by migrating high cost sales, service and communication activities online and optimizing the cost and impact of
activities that already are executed online.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
provide marketing and business strategy, marketing programs, creative design and technology development to address the unique business objectives, challenges and opportunities of each of our client companies. We tailor solutions across integrated
service offerings that include the following:



Marketing Insights,
Strategy and Planning



We help our clients discover
and mine untapped opportunities to create revenue, reduce costs and capture the full value potential of their customers. This work begins and ends with our clients customers by understanding their needs and preferences, assessing their value
to the clients business, prioritizing customer segments and defining pragmatic strategies to realize value potential. Our planning teams guide clients on topics as wide-ranging as digital branding, technology architecture and planning and
media partnership strategy.



Marketing Platform Design and Development



We design and build marketing platforms that enable
our clients to create, manage and grow profitable relationships with their customers. These platforms include web sites and wireless applications, intranets and extranets that support our clients needs in communications, commerce and customer
care. Our marketing platform teams bring expertise in both the creative and technical aspects of digital platform design including user interface and experience design, information architecture, application development, content management,
personalization systems and marketing automation tools.



Marketing
Program Design and Execution



We conceive, create and
distribute the marketing programs that turn our clients prospects into customers. We test, track and optimize digital experiences to achieve each clients marketing goals most effectively and efficiently. This work entails the development
of innovative marketing ideas and data analysis. Our marketing program teams bring expertise in creative design and execution, marketing plan development, media services, as well as database marketing, management and analysis.



Headquartered in Norwalk, Connecticut, we also maintain offices in San
Francisco, London and São Paulo.



Application of Critical Accounting
Policies and Estimates



The preparation of financial
statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during a reporting period. Actual results can differ from those estimates and it is possible that the differences could be material.



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We believe the following accounting policies are critical to the understanding of the more significant
judgments and estimates used in the preparation of our consolidated financial statements:



| |  | revenue recognition,
| | - | --------------------



| |  | allowance for doubtful accounts,
| | - | --------------------------------



| |  | accounting for restructuring liabilities,
| | - | -----------------------------------------



| |  | accounting for income taxes,
| | - | ----------------------------



| |  | valuation of long-lived assets, investments and goodwill, and
| | - | -------------------------------------------------------------



| |  | lease guarantees.
| | - | -----------------



Revenue Recognition



We recognize revenues as services are rendered in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements(SAB No. 101). A majority of our revenues are derived from fixed-bid and retainer-based assignments. Unbilled revenues represent labor costs incurred and estimated earnings in excess of billings and production and other
client-reimbursable out-of-pocket costs incurred in excess of billings. Amounts billed to clients in excess of revenues recognized to date are classified as deferred revenues. Our clients hire us on a fixed-bid, retainer or time-and-materials basis.
We reassess our estimated costs on fixed-bid engagements periodically and, as needed for specific engagements, losses are accrued to the extent that costs incurred and anticipated costs to complete engagements exceed total anticipated billings.
Provisions for losses on uncompleted fixed-bid contracts, if any, are recognized in the period in which such losses are determined. Out-of-pocket and other pass-through expenses are recognized as revenue in the period incurred. The cost of online
media and email campaigns purchased by us for our clients is not included in revenue because we act as an agent on behalf of our clients.



Allowance for Doubtful Accounts



We assess the required amount of allowance for doubtful accounts based on past experience and the review of the aging and analysis of specific accounts.



Accounting for Restructuring Liabilities



Restructuring charges include the costs associated
with our restructuring actions taken in the periods presented. Charges were recorded at the time the decision was made and plans were approved to restructure operations. The charges consisted of actual and estimated costs that were incremental to
our ongoing operations and were incurred to close offices, reduce excess office facilities and equipment, and terminate employees. The liability for the excess office facilities is equal to the present value of the future minimum lease payments
under contractual obligations offset by estimated future sublease payments. In determining the estimates for the excess office facilities, we evaluated our potential to sublease our excess office space and our ability to renegotiate various leases
at more favorable terms and in some instances obtain relief through relocation of office space. These sublease estimates, which were made in connection with our real estate advisers, are based on current and projected conditions in the real estate
and economic markets in which we have excess office space. If our assumptions about future events are more or less favorable than those we have projected, we may be required to adjust existing accrued restructuring liabilities associated with this
excess office space.



We continue to pursue potential sublease opportunities in
all of these markets. We have recently experienced some interest in our London office space and we will be pursuing this interest in the fourth quarter of 2003. Should we be able to sublease this office space, or any of our other office space, we
would reverse the appropriate portion of the existing restructuring accrual related to this facility at such time.



Accounting for Income Taxes



We follow the provisions of SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements,
we are required to estimate an income tax provision for each of the jurisdictions in which we operate. This process involves estimating the actual current tax provision or benefit together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that deferred tax assets will be
recovered from future taxable income and, to the extent it is determined that recovery is not likely, a valuation allowance is established. Significant management judgment is required in determining the provision or benefit for income taxes and the
amount of valuation allowance that would be required. Historically, we have not taken benefits for losses generated by most of our foreign entities and accordingly have recorded a valuation allowance against their deferred tax assets. In the event
that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance that could materially impact our financial condition and results of operations.



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At September 30, 2003 deferred tax assets were $17.8 million, net of a $1.3 million valuation allowance.
The net deferred tax assets of $17.8 million represents net operating loss carry forwards and deductible temporary differences, which are more likely than not to be utilized in the future. We considered all of the available evidence in evaluating
the recoverability of our deferred tax assets; however, a change in circumstances, including expectations as to our projected future taxable income, may have a material impact on the recoverability of deferred tax assets and on future operating
results.



Valuation of Long-lived Assets, Investments and
Goodwill



We have a significant amount of long-lived
assets, including fixed assets, goodwill and investments. We periodically evaluate the realizability of all of our long-lived assets. Future events could cause us to conclude that impairment exists and that the asset values associated with a given
operation have become impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.



We performed our annual goodwill impairment test during the fourth quarter of 2002 and determined that the goodwill was not impaired. We will continue to
perform a goodwill impairment test annually, as well as when a triggering event indicates impairment may have occurred. We will perform our next annual goodwill impairment test during the fourth quarter of 2003. If our projections of future cash
flows are lower than the current estimates, we may be required to recognize an impairment charge up to the carrying value of the goodwill of $43.2 million.



Lease Guarantee



We are the guarantor for CentrPorts obligations under its lease for office space at 450 Post Road East, Westport, Connecticut, for 16,900 square
feet, which expires on June 30, 2010, subject to renewal. As of September 30, 2003, the aggregate remaining base rent and estimated operating expenses due under this lease was $5.8 million, subject to adjustment in accordance with the terms of the
lease. This balance will be reduced by approximately $0.8 million per year through June 30, 2010. The lease provides that once 50% of the original lease term has expired, which will occur in July 2005, this guaranty may be replaced with an
irrevocable letter of credit in favor of the landlord in an amount not to exceed the remaining base rent. Upon expiration of 50% of the lease term, CentrPort is required to obtain such a letter of credit. Additionally, CentrPort has agreed to
cooperate with us to secure our release from our guaranty prior to that time, if possible. In the event that CentrPort were to default on its lease obligation, we would be liable for the aggregate remaining base rent and operating expenses at the
time of default by CentrPort. In the event of a default, we would take all appropriate action to be reimbursed for this liability. Based on our understanding of CentrPorts overall business conditions and financial viability, no provision has
been recorded for this potential liability.



Historical Results of
Operations



Clients hire us on a fixed-fee, retainer or
time-and-materials basis. A majority of our revenues are derived from fixed-fee engagements. We recognize revenues as services are rendered in accordance with SAB No. 101. We reassess our estimated costs on fixed-fee engagements periodically and, as
needed for specific engagements, losses are accrued to the extent that costs incurred and anticipated costs to complete engagements exceed anticipated billings. Provisions for losses on uncompleted fixed-fee contracts, if any, are recognized in the
period in which such losses are determined. The cost of online media and email campaigns purchased by us for our clients is not included in revenue because we act as an agent on behalf of our clients.



Our results of operations and our business depend on our relationships with a
limited number of large clients with which we generally do not have long-term contracts. Our clients generally have the right to terminate their relationships with us without penalty and with relatively short or no notice. Once an engagement is
completed, we cannot be assured that a client will engage us for further services. As a result, a client that generates substantial revenue for us in one period may not be a substantial source of revenue in a subsequent period. The termination of
our business relationships with any of our significant clients, or a material reduction in the use of our services by any of our significant clients, could adversely affect our future financial performance.



Our ten largest clients accounted for 91% and 90% of consolidated revenues
for the three months ended September 30, 2003 and 2002, respectively, and 88% and 87% of consolidated revenues for the nine months ended September 30, 2003 and 2002, respectively. Three clients individually accounted for 26%, 14% and 13% of our
revenues in the three months ended September 30, 2003. Three clients accounted for 24%, 18% and 11% of our revenues in the nine months ended September 30, 2003. Four clients individually accounted for 21%, 20%, 12% and 11% of our revenues in the
three months ended September 30, 2002. Three clients accounted for 18%, 15% and 11% of our revenues in the nine months ended September 30, 2002. We expect a relatively high level of client concentration to continue which may not necessarily involve
the same clients from period to period.



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Cost of revenues consists of salaries, employee benefits and incentive compensation for our professional
services staff, costs for temporary staff that we use to provide professional services and certain other direct costs. Selling, general and administrative expenses consist of salaries, employee benefits and incentive compensation of sales and
marketing, new business development, administrative and other non-billed employees, certain other marketing costs, office rent, utilities, professional and consulting fees, travel, telephone and other related expenses.



Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002



Revenues. Revenues decreased $3.2 million, or 18%,
to $14.6 million for the three months ended September 30, 2003 from $17.8 million for the three months ended September 30, 2002. This decline in revenues was primarily attributable to a decrease in total billed hours, partially offset by an increase
in average revenue per billed hour. This decline in total billed hours was attributable to a decrease in demand for our services due to the continued overall reduction in marketing spending from most of our significant clients.



Cost of Revenues. Cost of revenues decreased $1.9 million, or 20%, to
$7.2 million for the three months ended September 30, 2003 from $9.1 million for the three months ended September 30, 2002. This decrease in cost of revenues was primarily due to a reduction in employee compensation and related expenses principally
caused by a reduction in staff and to the use of consultants. This decrease was mainly in line with the reduced demand for our services.



Gross Profit. Gross profit margin increased to 51% of revenues for the three months ended September 30, 2003 from 49% for the three months ended
September 30, 2002. This increase was primarily due to an increase in the average revenue per billed hour, as a result of a favorable improvement in the billed rates for several significant engagements and from the completion of certain lower margin
projects during 2002. This increase in gross profit margin was partially offset by lower utilization (billed hours divided by total capacity hours of billed employees) of 70% for the three months ended September 30, 2003 versus 83% for the same
period in 2002.



Selling, General and Administrative.
Selling, general and administrative expenses decreased $0.5 million, or 9%, to $4.3 million for the three months ended September 30, 2003 from $4.8 million for the three months ended September 30, 2002. The decrease in selling, general and
administrative expenses were primarily due to a reduction in employee compensation and related expenses mainly caused by a reduction in staff. In addition, facilities-related expenses decreased due to the restructuring actions taken in 2002. The
decrease was partially offset by the absence of a benefit of $0.5 million from the favorable settlement during the third quarter of 2002 of previously accrued liabilities.



Restructuring and Other Charges (Credits), Net.Restructuring and other charges (credits), net, of $(1.1) million for
the three months ended September 30, 2003 represent the reversal of previously recorded restructuring charges as a result of sub-letting office space within our San Francisco office. There were no restructuring and other charges (credits), net, for
the three months ended September 30, 2002. Restructuring and other charges (credits), net, consists of facilities charges, severance costs and other office related costs.



Depreciation and Amortization.Depreciation and amortization decreased $0.5 million to $0.6 million for the three
months ended September 30, 2003 from $1.1 million for the three months ended September 30, 2002. The decrease in depreciation and amortization was attributable to the write-off of certain property and equipment in 2002 and to certain assets becoming
fully depreciated during the last quarter of 2002 and the first half of 2003.



Interest Income.Interest income decreased by $0.1 million to $0.1 million for the three months ended September 30, 2003 from $0.2 million for the three months ended September 30, 2002. This decrease was
primarily attributable to the decrease in average interest rates for the three months ended September 30, 2003 compared to the same period in 2002.



Other Income (Expense), Net.Other expense, net, increased $0.4 million to $0.2 million for the three months ended September 30, 2003 from income
of $0.2 million for the three months ended September 30, 2002. Other expense increased primarily as a result of the absence of a benefit of $0.4 million from the favorable settlement during the third quarter of 2002 of previously accrued
liabilities, partially offset by a decrease in interest expense of $0.1 million.



Provision for Income Taxes.The provision for income taxes for the three months ended September 30, 2003 was $1.5 million compared to $1.1 million for the three months ended September 30, 2002. The effective
income tax provision rate was 42% for the three months ended September 30, 2003 compared to 35% for the three months ended September 30, 2002. We provide for income taxes in the jurisdictions in which we pay income taxes at the statutory rates in
effect in each jurisdiction, adjusted for differences in providing for income taxes between financial reporting and income tax purposes. The effective tax rates differ from the federal statutory rates due to the impact of state taxes, non-deductible
items and changes in the valuation allowances recorded against losses generated by certain foreign entities.



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Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002



Revenues.Revenues decreased $10.6 million, or 19%, to $44.6 million
for the nine months ended September 30, 2003 from $55.2 million for the nine months ended September 30, 2002. This decline in revenues was primarily attributable to a decrease in total billed hours, partially offset by an increase in average revenue
per billed hour. This decline in total billed hours was attributable to a decrease in demand for our services due to the continued overall reduction in marketing spending from most of our significant clients.



Cost of Revenues. Cost of revenues decreased $6.3 million, or 23%, to
$21.9 million for the nine months ended September 30, 2003 from $28.2 million for the nine months ended September 30, 2002. This decrease in cost of revenues was primarily due to a reduction in employee compensation and related expenses mainly
caused by a reduction in staff.



Gross Profit. Gross
profit margin increased to 51% of revenues for the nine months ended September 30, 2003 from 49% for the nine months ended September 30, 2002. This increase was primarily due to an increase in the average revenue per billed hour, as a result of a
favorable improvement in the billed rates for several significant engagements and from the completion of certain lower margin projects during 2002. This increase in gross profit margin was partially offset by lower utilization (billed hours divided
by total capacity hours of billed employees) of 72% for the nine months ended September 30, 2003 versus 78% for the same period in 2002.



Selling, General and Administrative.Selling, general and administrative expenses decreased $3.0 million, or 18%, to $14.1 million for the nine
months ended September 30, 2003 from $17.1 million for the nine months ended September 30, 2002. The decrease in selling, general and administrative expenses were mainly due to a reduction in employee compensation and related expenses principally
caused by a reduction in staff. In addition, facilities-related expenses decreased due to the restructuring actions taken in 2002. The decrease was partially offset by the absence of a benefit of $0.5 million from the favorable settlement during the
third quarter of 2002 of previously accrued liabilities.



Restructuring and Other Charges (Credits), Net.Restructuring and other charges (credits), net, of $(1.1) million for the nine months ended September 30, 2003 represent the reversal of previously recorded restructuring charges as a
result of sub-letting of certain office space within our San Francisco office. Restructuring and other charges (credits), net, of $7.9 million for the nine months ended September 30, 2002 include costs related to office leases for our excess
facilities, fixed asset dispositions and severance costs related to the reduction of staff across multiple offices.



Depreciation and Amortization.Depreciation and amortization decreased $1.2 million, or 33%, to $2.4 million for the nine months ended September
30, 2003 from $3.6 million for the nine months ended September 30, 2002. The decrease in depreciation and amortization was attributable to the restructuring actions taken in 2002, which included the write-off of certain property and equipment, and
to certain assets becoming fully depreciated during 2002 and 2003.



Interest Income.Interest income decreased by $0.2 million to $0.4 million for the nine months ended September 30, 2003 from $0.6 million for the nine months ended September 30, 2002. This decrease was primarily attributable to the
decrease in average interest rates for the nine months ended September 30, 2003 compared to the same period in 2002.



Other Expense, Net.Other expense, net increased $0.4 million to $0.5 million for the nine months ended September 30, 2003 from $0.1 million for
the nine months ended September 30, 2002. Other expense increased primarily due to the absence of a $0.4 million benefit from the favorable settlement during the third quarter of 2002 of previously accrued liabilities.



Provision for Income Taxes.The provision for income taxes for the
nine months ended September 30, 2003 was $2.9 million compared to $0.6 million for the nine months ended September 30, 2002. The effective income tax provision rate was 40% for the nine months ended September 30, 2003 compared to 54% for the nine
months ended September 30, 2002. We provide for income taxes in the jurisdictions in which we pay income taxes at the statutory rates in effect in each jurisdiction, adjusted for differences in providing for income taxes between financial reporting
and income tax purposes. The effective tax rate differs from the federal statutory rate due to the impact of state taxes, non-deductible items and changes in the valuation allowances recorded against losses generated by certain foreign entities.



Cumulative Effect of Accounting Change.In accordance
with SFAS No. 142, we performed the required transitional impairment test on our goodwill as of January 1, 2002. As a result of completing this test, we determined that the goodwill associated with our Munich operation was fully impaired as of
January 1, 2002. Accordingly, we recorded a goodwill impairment charge of $3.4 million as a cumulative effect of an accounting change retroactive to January 1, 2002. There was no income tax benefit associated with this charge since we believed it
was more likely than not that future taxable income in Munich, Germany would not be sufficient to realize the related income tax benefit.



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Liquidity and Capital Resources



We historically have financed our operations primarily from funds generated from operations. Net cash provided by operating
activities was $4.2 million and $3.6 million for the nine months ended September 30, 2003 and 2002, respectively.



Net cash used in investing activities was $0.6 million for the nine months ended September 30, 2003 compared to $0.1 million for the nine months ended
September 30, 2002. During the first nine months of 2003, we invested $1.2 million in capital expenditures. In addition, during the first nine months of 2003 we collected $0.6 million of notes receivable.



Net cash provided by (used in) financing activities was $0.3 million for the
nine months ended September 30, 2003 compared to $(0.3) million for the nine months ended September 30, 2002. Our primary use of cash from financing activities during the nine months ended September 30, 2003 and 2002 were repayments of debt and
capital lease obligations of $0.3 million and $0.8 million, respectively, and the purchase of treasury stock for $0.1 million and $0.02 million, respectively. Offsetting these items for the nine months ended September 30, 2003 and 2002 were proceeds
from the exercise of employee stock options and purchases under the employee stock purchase plan of $0.7 million and $0.5 million, respectively.



We are the guarantor for CentrPorts obligations under its lease for office space at 450 Post Road East, Westport, Connecticut, for 16,900 square
feet, which expires on June 30, 2010, subject to renewal. As of September 30, 2003, the aggregate remaining base rent and estimated operating expenses due under this lease was $5.8 million, subject to adjustment in accordance with the terms of the
lease. This balance will be reduced by approximately $0.8 million per year through June 30, 2010. The lease provides that once 50% of the original lease term has expired, which will occur in July 2005, this guaranty may be replaced with an
irrevocable letter of credit in favor of the landlord in an amount not to exceed the remaining base rent. Upon expiration of 50% of the lease term, CentrPort is required to obtain such a letter of credit. Additionally, CentrPort has agreed to
cooperate with us to secure our release from our guaranty prior to that time, if possible. In the event that CentrPort were to default on its lease obligation, we would be liable for the aggregate remaining base rent and operating expenses at the
time of default by CentrPort. In the event of a default, we would take all appropriate action to be reimbursed for this liability. Based on our understanding of CentrPorts overall business conditions and financial viability, no provision has
been recorded for this potential liability.



In October 2002,
we established a program to repurchase over an eighteen month period up to $5.0 million of our common stock. The timing and amount of purchases will be dependent upon a number of factors, including the price and availability of our common stock,
general market conditions and other uses of funds. The program may be discontinued at any time. During the first nine months of 2003, we repurchased 45,100 shares of common stock at an average price of $2.19 per share for a total cost of $0.1
million under this program. In aggregate we have purchased 57,790 shares of common stock at an average price of $2.25 per share for a total cost of $0.1 million as of September 30, 2003.



Recently Issued Accounting Pronouncements



In March 2003, the EITF published Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, (EITF
00-21). This issue addresses certain aspects of the accounting by a vendor for arrangements under which it performs multiple revenue-generating activities and how to determine whether such an arrangement involving multiple deliverables
contains more than one unit of accounting for purposes of revenue recognition. The guidance is effective for revenue arrangements that we entered into in fiscal periods beginning after June 15, 2003. Accordingly, we adopted EITF 00-21 on July 1,
2003 and we have determined that the adoption of this statement did not have a material effect on our consolidated financial statements and disclosures.



In April 2003, the FASB issued Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities,
(Statement No. 149). Statement No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and
for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003 and is to be applied prospectively. We do not use derivative instruments, and therefore, the adoption of Statement No. 149 did not have a material impact on our consolidated financial statements.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our consolidated financial statements are denominated in U.S. dollars. For the three months ended September 30, 2003 and 2002, we derived 12% and 18%,
respectively, of our revenues from operations outside of the U.S. For the nine months ended September 30, 2003 and 2002, we derived 13% and 20%, respectively, of our revenues from operations outside of the U.S. We face foreign currency risks
primarily as a result of the revenues that we receive from services delivered through our foreign subsidiaries. These subsidiaries incur most of their expenses in the local currency. Accordingly, our foreign subsidiaries use the local currency as
their functional currency. We are also exposed to foreign exchange rate fluctuations with respect to the British Pound and Brazilian Real as the financial results of foreign subsidiaries are translated into U.S. dollars for consolidation. As
exchange rates vary, these results when translated may vary from expectations and adversely impact net income (loss) and operating performance. The effect of foreign exchange rate fluctuation for the three months and nine months ended September 30,
2003 and 2002 was not material. Currently, we do not hedge foreign currency transactions into U.S. dollars because we believe that, over time, the cost of a hedging program will outweigh any benefit of greater predictability in our U.S.
dollar-denominated results. However, we would from time to time reconsider the issue of whether a foreign currency-hedging program would be beneficial to our operations.



We are exposed to interest rate risk primarily through our investments in cash equivalents and short-term investments. Our
investment policy calls for investment in short-term, low risk instruments. We have limited our exposure to interest rate risk by investing in securities with maturities of one year or less.



ITEM 4. CONTROLS AND PROCEDURES



We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in ensuring that material information required to be disclosed by us in the reports that we file and submit under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



During the quarter ended September 30, 2003, there has not occurred any change in our internal controls over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



Beginning in August 2001, a number of substantially identical class action complaints alleging violations of the federal securities laws were filed in the United States District Court for the Southern District of New York naming as
defendants Modem Media, Inc., certain of our officers (G.M. OConnell, Chairman, Steven Roberts, former Chief Financial Officer, and, in certain actions, Robert C. Allen II, Board member, a Managing Director and former President), and certain
named underwriters of our initial public offering (FleetBoston Robertson Stephens, Inc., BankBoston Robertson Stephens, Inc., Bear Stearns & Co., Inc., Nationsbanc Montgomery Securities and Banc of America Securities LLC) (the
Underwriters). The complaints have since been consolidated into a single action, and a consolidated amended complaint was filed on April 24, 2002. The amended complaint alleges, among other things, that the underwriters of our initial
public offering violated the securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock stabilization practices) in the offerings registration statement and by engaging in
manipulative practices to artificially inflate the price of Modem Media stock in the after-market subsequent to the IPO. The Modem Media defendants are named in the amended complaint pursuant to Section 11 of the Securities Act of 1933, and Section
10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 on the basis of an alleged failure to disclose the Underwriters alleged compensation arrangements and manipulative practices. The complaint seeks unspecified damages. Similar
complaints have been filed against over 300 other issuers that have had initial public offerings since 1998 and all such actions have been included in a single coordinated proceeding.



On June 30, 2003, a committee of our Board of Directors conditionally approved a proposed partial settlement with the
plaintiffs in this matter. The settlement would provide, among other things, a release of Modem Media, Inc. and of the individual defendants for the conduct alleged in the action to be wrongful in the amended complaint. We would agree to undertake
other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims we may have against our underwriters. Any direct financial impact of the proposed settlement is expected to be
borne by our insurers. The committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of our insurers to the
settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the IPO Litigations. The settlement is partial because the Underwriters
are not party to the settlement. We understand that a majority of the other issuer defendants in the consolidated actions have also conditionally approved the proposed settlement.



If the settlement is not finalized, we will continue to defend these actions vigorously. However, due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation if the litigation is not settled. Any unfavorable outcome of this litigation could have an adverse impact on our business, financial condition and
results of operations.



In August 2001, our subsidiary, Modem
Media Canada, Inc. (Modem Media Canada), brought suit against City Core Properties, Ltd. (Landlord) in Ontario Supreme Court for breach of an office lease on the basis that the Landlord did not complete the building into
which Modem Media Canada was to move (the Space). Modem Media Canada is claiming approximately $1.2 million in damages. The Landlord has counter-sued us, Modem Media Canada and certain of our officers and directors for breach of lease
and is seeking damages in the amount of approximately $16.0 million. The Space was repossessed by a mortgage holder and has been sold to an unrelated third party. We are currently in discovery for this litigation. We believe that there is no basis
for the counterclaims, we have meritorious defenses to the counterclaims and we intend to defend this action vigorously. Based on this belief, we believe that the resolution of these matters will not have a material adverse effect on our business,
financial condition and results of operations.



From time to
time, we become involved in various routine legal proceedings in the ordinary course of our business. Other than as noted above, we believe that the outcome of pending legal proceedings and unasserted claims in the aggregate will not have a material
adverse effect on our business, financial condition and results of operations.



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



None.



ITEM 5. OTHER INFORMATION



In accordance with
Section 10A(i)(2) of the Securities Exchange Act of 1934, since the end of the second quarter of 2003, our Audit Committee has approved additional engagements of PricewaterhouseCoopers LLP, our independent auditors, to perform the following:



(a) non-audit services: evaluate our design of our internal controls that are
required by section 404 of the Sarbanes-Oxley Act; and



(b) audit related
services: audit our 401(K) employee benefit plan for the years ended December 31, 2002 and December 31, 2003.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) | Exhibits
|--- | --------



|Exhibit No. |  | Description                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|31.1        |  | Certification of Marc C. Particelli, President and Chief Executive Officer of Modem Media, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                                                    
|            | 
|31.2        |  | Certification of Frank J. Connolly, Jr., Chief Financial Officer of Modem Media, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                                              
|            | 
|32          |  | Certification of Marc C. Particelli, President and Chief Executive Officer and Frank J. Connolly, Jr., Chief Financial Officer of Modem Media, Inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b) | Reports on Form 8-K
|--- | -------------------



We filed a Form 8-K, dated August 5, 2003, reporting in Item 7, Item 9 and Item 12 that we issued a press release reporting our results of operations for
the second quarter ended June 30, 2003 and guidance as to future results of operations.



We filed a Form 8-K, dated November 5, 2003, reporting in Item 7, Item 9 and Item 12 that we issued a press release reporting our results of operations for the third quarter ended September 30, 2003 and guidance as to
future results of operations.



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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 thereunto duly authorized.



|Date: November 12, 2003 |  | MODEM MEDIA, INC.
|----------------------- |  | -----------------
|                        |  |                  
|                        |  | By               
|                        |  |                  
|                        |  |                  
|                        |  | By               
|                        |  |                  



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