<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the quarter ended June 30, 2001

                          Commission File No. 0-21935

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

                               Modem Media, Inc.
            (Exact name of registrant as specified in its charter)

               DELAWARE                              06-1464807
    (State or other jurisdiction of     (I.R.S. Employer Identification No.)
    incorporation or organization)
                                230 East Avenue
                               Norwalk, CT 06855
                                (203) 299-7000
             (Address of principal executive offices and zip code)

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

  There were 25,759,864 shares of the Registrant's Common Stock, $.001 par
value, outstanding as of July 31, 2001.

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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
  Condensed Consolidated Balance Sheets as of June 30, 2001 and December
   31, 2000...............................................................   3
  Condensed Consolidated Statements of Operations for the three and six
   months ended June 30, 2001 and 2000....................................   4
  Condensed Consolidated Statements of Cash Flows for the six months ended
   June 30, 2001 and 2000.................................................   5
  Notes to Condensed Consolidated Financial Statements....................   6
Item 2. Management's Discussion and Analysis of Financial Condition and
 Results of Operations....................................................  11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........  16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................  18
Item 6. Exhibits and Reports on Form 8-K..................................  18
    Signatures............................................................  19
</TABLE>

                                       1
<PAGE>

          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;

  .  the scope and timing of new assignments and client initiatives;

  .  spending levels and budget constraints of our clients;

  .  our dependence on a limited number of clients;

  .  variability of our operating results;

  .  our ability to accurately estimate costs in fixed-fee engagements;

  .  our ability to attract and retain qualified professionals;

  .  our ability to successfully sell and implement the data distribution and
     marketing platform of our preferred vendor, CentrPort, Inc.
     ("CentrPort");

  .  the ability of CentrPort to execute its strategy and business plan and
     to meet its obligations under its real estate lease, for which we are
     guarantor;

  .  the cost and our ability to expeditiously reduce our workforce and
     infrastructure, including real estate commitments, in light of future
     changes in client demand for our services;

  .  our need and ability to manage the level of personnel and capacity in
     the future;

  .  our dependence on key management personnel;

  .  exclusivity arrangements with clients that may limit our ability to
     provide services to others;

  .  our ability to integrate acquired companies, if any;

  .  the timing and amount of our capital expenditures;

  .  the timing of collections from our clients;

  .  our ability to manage future growth, if any;

  .  our ability to respond to rapid technological change;

  .  our dependence on the continued growth of the Internet;

  .  changes in government regulation, including regulation of privacy
     issues; and

  .  the cost and timing of the closing of our Japan office.

  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 will be achieved.

                                       2
<PAGE>

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      June 30,    December 31,
                                                        2001          2000
                                                    ------------  ------------
                                                    (unaudited)
<S>                                                 <C>           <C>
                      ASSETS
Current assets:
  Cash and cash equivalents........................ $ 36,350,000  $ 35,564,000
  Short-term investments...........................      100,000       201,000
  Accounts receivable, net of bad debt reserve of
   $1,389,000......................................   16,991,000    25,289,000
  Unbilled revenues................................    3,079,000     3,031,000
  Unbilled charges.................................      216,000       991,000
  Deferred income taxes............................    4,003,000     9,558,000
  Prepaid expenses and other current assets........    4,663,000     7,103,000
                                                    ------------  ------------
    Total current assets...........................   65,402,000    81,737,000
Noncurrent assets:
  Property and equipment, net of accumulated
   depreciation of $12,465,000 and $9,644,000,
   respectively....................................   19,699,000    22,066,000
  Goodwill, net of accumulated amortization of
   $11,372,000 and $9,744,000, respectively........   48,380,000    50,496,000
  Deferred income taxes............................    8,137,000           --
  Other assets.....................................    6,532,000     7,206,000
                                                    ------------  ------------
    Total noncurrent assets........................   82,748,000    79,768,000
                                                    ------------  ------------
    Total assets................................... $148,150,000  $161,505,000
                                                    ============  ============
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable................................. $  6,215,000  $  5,745,000
  Pre-billed media.................................    7,052,000    12,043,000
  Advance billings.................................    1,637,000     2,368,000
  Deferred revenues................................    2,531,000     4,392,000
  Deferred gain on sale of CentrPort preferred
   stock...........................................    3,252,000     4,052,000
  Accrued expenses and other current liabilities...   18,733,000    21,692,000
                                                    ------------  ------------
    Total current liabilities......................   39,420,000    50,292,000
Noncurrent liabilities:
  Capital lease obligations, less current portion..      651,000       618,000
  Deferred income taxes............................          --      2,093,000
  Other liabilities................................    8,305,000     4,231,000
Stockholders' equity:
  Common stock, $.001 par value--145,000,000 shares
   authorized, 25,951,430 and 25,459,157 issued,
   respectively....................................       26,000        25,000
  Preferred stock, $.001 par value--5,000,000
   shares authorized, none
   issued and outstanding..........................          --            --
  Paid-in capital..................................  190,488,000   189,127,000
  Accumulated deficit..............................  (88,255,000)  (82,853,000)
  Treasury stock, 198,513 and 197,849 shares of
   common stock, respectively, at cost.............   (1,194,000)   (1,191,000)
  Accumulated other comprehensive income...........   (1,291,000)     (837,000)
                                                    ------------  ------------
    Total stockholders' equity.....................   99,774,000   104,271,000
                                                    ------------  ------------
    Total liabilities and stockholders' equity..... $148,150,000  $161,505,000
                                                    ============  ============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                              Three Months Ended          Six Months Ended
                                   June 30,                   June 30,
                            ------------------------  -------------------------
                               2001         2000          2001         2000
                            -----------  -----------  ------------  -----------
                                  (unaudited)                (unaudited)
<S>                         <C>          <C>          <C>           <C>
Revenues..................  $26,073,000  $32,825,000  $ 59,501,000  $61,362,000
Cost of revenues..........   14,460,000   17,835,000    33,195,000   32,151,000
                            -----------  -----------  ------------  -----------
Gross profit..............   11,613,000   14,990,000    26,306,000   29,211,000
Operating expenses:
  Sales and marketing.....      914,000    1,944,000     2,171,000    3,182,000
  General and
   administrative.........    8,474,000   12,581,000    18,925,000   24,175,000
  Restructuring and other
   charges................    7,761,000      722,000    10,609,000      722,000
  Depreciation and
   amortization...........    1,679,000    1,402,000     3,414,000    2,626,000
  Amortization of
   goodwill...............      850,000    4,109,000     1,707,000    7,138,000
                            -----------  -----------  ------------  -----------
    Total operating
     expenses.............   19,678,000   20,758,000    36,826,000   37,843,000
                            -----------  -----------  ------------  -----------
Operating loss............   (8,065,000)  (5,768,000)  (10,520,000)  (8,632,000)
Interest income, net......      290,000      437,000       745,000      981,000
                            -----------  -----------  ------------  -----------
Loss before income taxes..   (7,775,000)  (5,331,000)   (9,775,000)  (7,651,000)
(Benefit) provision for
 income taxes.............   (2,245,000)     424,000    (4,373,000)   1,071,000
                            -----------  -----------  ------------  -----------
Net loss..................  $(5,530,000) $(5,755,000) $ (5,402,000) $(8,722,000)
                            ===========  ===========  ============  ===========
Basic and diluted net loss
 per share................  $     (0.21) $     (0.24) $      (0.21) $     (0.36)
                            ===========  ===========  ============  ===========
Basic and diluted
 weighted-average number
 of common shares
 outstanding..............   25,724,000   24,356,000    25,590,000   23,972,000
                            ===========  ===========  ============  ===========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                             June 30,
                                                      ------------------------
                                                         2001         2000
                                                      -----------  -----------
                                                            (unaudited)
<S>                                                   <C>          <C>
Cash flows from operating activities:
 Net loss............................................ $(5,402,000) $(8,722,000)
 Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Non-cash restructuring costs.......................   7,153,000          --
  Depreciation and amortization......................   3,414,000    2,626,000
  Amortization of goodwill...........................   1,707,000    7,138,000
  Non-cash income taxes..............................  (4,258,000)     927,000
  Bad debt expense...................................      85,000      639,000
  Other..............................................   1,698,000      201,000
  Changes in assets and liabilities:
    Accounts receivable..............................   7,943,000   (7,882,000)
    Unbilled revenues................................     (62,000)    (394,000)
    Unbilled charges.................................     768,000     (237,000)
    Prepaid expenses and other current assets........   2,186,000     (495,000)
    Accounts payable, accrued expenses and other
     current liabilities.............................  (3,540,000)    (368,000)
    Pre-billed media.................................  (4,987,000)  (1,576,000)
    Advance billings.................................    (721,000)   2,069,000
    Deferred revenues................................  (1,822,000)   3,909,000
    Other, net.......................................  (1,091,000)    (347,000)
                                                      -----------  -----------
      Net cash provided by (used in) operating
       activities....................................   3,071,000   (2,512,000)
Cash flows from investing activities:
  Purchases of short-term investments................    (333,000)    (209,000)
  Maturities of short-term investments...............     297,000   16,859,000
  Purchases of property and equipment................  (2,467,000)  (5,580,000)
  Acquisitions, net of cash acquired.................         --   (11,374,000)
                                                      -----------  -----------
      Net cash used in investing activities..........  (2,503,000)    (304,000)
Cash flows from financing activities:
  Purchases of treasury stock........................      (3,000)     (57,000)
  Principal payments made under capital lease
   obligations.......................................    (218,000)    (172,000)
  Exercises of stock options and issuances of stock
   under the employee stock purchase plan............   1,044,000    3,180,000
  Repayment of debt..................................    (644,000)         --
  Other, net.........................................         --       (14,000)
                                                      -----------  -----------
      Net cash provided by financing activities......     179,000    2,937,000
                                                      -----------  -----------
Effect of exchange rates on cash and cash
 equivalents.........................................      39,000      179,000
                                                      -----------  -----------
Net increase in cash and cash equivalents............     786,000      300,000
Cash and cash equivalents, beginning of the period...  35,564,000   30,265,000
                                                      -----------  -----------
Cash and cash equivalents, end of the period......... $36,350,000  $30,565,000
                                                      ===========  ===========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       5
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies

  Nature of Operations--Modem Media, Inc. (the "Company") is a leading
Internet professional services firm focused on solving marketing and customer
management problems facing global companies most impacted by digital change.
By combining technology-driven solutions with a deep understanding of customer
needs, the Company creates more rewarding solutions for clients and their
customers. Headquartered in Norwalk, CT, the Company has offices in New York
City, San Francisco, Toronto, London, Paris, Munich, Hong Kong and Sao Paulo.

  Basis of Presentation--The condensed consolidated balance sheet as of June
30, 2001, the condensed consolidated statements of operations for the three
and six months ended June 30, 2001 and 2000, and the condensed consolidated
statements of cash flows for the six months ended June 30, 2001 and 2000, are
unaudited. The unaudited condensed 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 six months ended June 30, 2001 and 2000 are not necessarily
indicative of the results to be expected for any other interim period or any
future fiscal year.

  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities 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 condensed consolidated financial statements to conform to the current
period presentation.

  Cash, Cash Equivalents and Short-Term Investments--The Company considers all
highly liquid investments with a maturity of three months or less at the time
of purchase to be cash equivalents. All investments with maturities greater
than three months at the time of purchase are accounted for under Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. During management's review of the
Company's available-for-sale securities, certain marketable equity securities,
whose decline in fair market value was deemed to be other than temporary, were
identified. In accordance with SFAS No. 115, the Company recognized a non-
cash, pre-tax impairment charge of $400,000 during March 2001, which is
included in "restructuring and other costs" in the accompanying condensed
consolidated statement of operations for the six months ended June 30, 2001.
The remaining short-term investments have been classified as available-for-
sale securities and are carried at fair market value.

  Business Concentrations--The Company had revenues from one client
representing 20.4% of consolidated revenues for the three months ended June
30, 2001, 32.8% of which was generated in North America, which consists of the
Company's operations in the United States and Canada, and 67.2% of which was
generated by the Company's International operations. Revenues from the same
client represented 23.2% of consolidated revenues for the six months ended
June 30, 2001, 49.1% of which was generated in North America and 50.9% of
which was generated by the Company's International operations. Additionally,
the Company had three clients accounting for 16.3%, 11.9%, and 11.1% of total
gross accounts receivable as of June 30, 2001.

  Net Loss Per Share--In accordance with SFAS No. 128, Earnings Per Share,
basic net loss per share is computed using the weighted-average number of
common shares outstanding during each period. Diluted net loss per share gives
effect to all potentially dilutive securities that were outstanding during
each period. None of the options or warrants outstanding during the periods
presented were included in the computation of diluted net loss per share since
they were antidilutive.

                                       6
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Recently Issued Accounting Pronouncements--In July 2001, the Financial
Accounting Standards Board 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 and other
intangible assets with indefinite lives are no longer amortized, but are
reviewed for impairment on an annual basis, unless impairment indicators arise
sooner. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their estimated useful lives, but
with no maximum life. The amortization provisions of SFAS No. 142 apply
immediately to goodwill and other intangible assets acquired after June 30,
2001. Goodwill and other intangible assets acquired on or prior to such date
will be accounted for under SFAS No. 142 by the Company beginning on January
1, 2002. The Company is currently evaluating the effect that the adoption of
the provisions of SFAS No. 142 will have on its results of operations and
financial position.

2. Restructuring and Other Charges

  Excess Facility Charge--In June 2001, due to the significant and rapid
deterioration in the San Francisco commercial real estate market, the Company
increased its accrual for excess office space by $5,691,000. Such increase
represents an adjustment to management's original estimate of the present
value of future rent payments in excess of anticipated sublease income,
expected subtenant allowances and estimated brokers' fees. As of June 30,
2001, the remaining accrual for excess office space in San Francisco is
approximately $8,814,000.

  Asset Impairment--In July 2001, the Company cancelled its plans to move its
Toronto operations to new office space due to the landlord's breach of the
lease agreement. As a result, the Company recorded a charge of $1,101,000 to
write-off certain leasehold improvements and other assets that no longer have
future value to the Company.

  Severance--In June 2001, the Company announced the completion of a series of
organizational changes and expense reduction actions. These actions included
staff reductions of 79 employees, or approximately 10% of the Company's total
employees, of which 72 were billable. As a result, the Company recorded a pre-
tax charge of $969,000 during the three months ended June 30, 2001.

  Other--The above actions were in addition to a series of headcount
reductions that occurred across the entire organization during the first
quarter of 2001 and resulted in a decrease of approximately 10% of the
Company's total employees. These actions included (a) a reduction in corporate
staff (b) the decision to close the Company's office in Tokyo, Japan, which
ceased operations during the second quarter of 2001, and (c) the realignment
of capacity across multiple offices. As a result of these actions, the Company
recorded a pre-tax charge of $2,448,000 during the three months ended March
31, 2001. In addition, the Company recorded a non-cash, pre-tax impairment
charge of $400,000 during March 2001 related to a decline in the value of
certain marketable securities that management considered to be other than
temporary (see Note 1).

3. CentrPort, Inc.

  CentrPort Commitment--In conjunction with the financing of, and sale of a
portion of the Company's ownership in, CentrPort, Inc. ("CentrPort"), formerly
a majority-owned subsidiary, the Company designated CentrPort as a preferred
vendor and committed to resell at least $5,000,000 of CentrPort's products and
services during 2001. If this commitment is not met, the Company must remit
the value of the shortfall to CentrPort in either CentrPort common stock from
the Company's holdings or cash, at its election. Through June 30, 2001, the
Company had sales orders for $1,902,000 in CentrPort products and services
applicable to this commitment. The Company has deferred a gain of $3,252,000
from the sale of CentrPort stock until its obligations under this commitment
and other agreements are met.

                                       7
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Investment in CentrPort--CentrPort did not secure the requisite revenue
commitment from an unaffiliated third party by April 1, 2001 that would have
entitled it to receive $5,500,000 in additional funding from an investor
group. Accordingly, the Company reduced its investment in, and deferred gain
on the financing of, CentrPort by $800,000 during the first quarter of 2001.

  CentrPort Lease Guarantees--The Company is guarantor for CentrPort's
obligations under its lease for office space, which expires on June 30, 2010,
subject to renewal. As of June 30, 2001, the aggregate remaining base rent and
operating expenses due under this lease is approximately $6,848,000, subject
to adjustment in accordance with the terms of the lease. The lease provides
that once 50% of the original lease term has expired, 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. CentrPort has contractually
committed to the Company that upon expiration of 50% of the lease term,
CentrPort will 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.

  The Company was previously a guarantor for CentrPort's lease of certain
network storage server equipment from a third party vendor. In June 2001, the
lessor discharged the Company's guaranty under this lease.

4. Change in Control of True North Communications Inc.

  In June 2001, Interpublic Group of Companies, Inc. ("Interpublic") completed
its acquisition of True North Communications Inc. ("True North"), the
Company's former parent and holder of approximately 43% of the Company's
outstanding common stock. Management is currently assessing whether the
Company has undergone an ownership change as a result of this transaction, as
defined in Section 382 of the Internal Revenue Code, and if so, the extent to
which the Company's net operating loss carryforwards generated prior to the
ownership change will be subject to an annual limitation that could reduce or
defer the utilization of these losses.

5. Equity

  Stockholder Rights Plan--In June 2001, the Company announced the adoption of
a Stockholder Rights Plan (the "Plan"). Under the Plan, each stockholder of
record at the close of business on June 28, 2001 received a dividend of one
right for each share of common stock held. The rights trade with the Company's
common stock until they become exercisable. The rights will become exercisable
and will detach from the common stock only if any person becomes the
beneficial owner of 15% or more of the Company's common stock (subject to
certain exceptions) (an "Acquiring Person") or commences a tender or exchange
offer for 15% or more of the Company's common stock. Each right entitles the
holder to purchase from the Company one one-hundredth of a share of a new
series of participating preferred stock at an initial purchase price of $30
per share. The Company has reserved 1,000,000 shares of Series A Participating
Cumulative Preferred Stock for issuance on the exercise of the rights. If any
person becomes an Acquiring Person, each right will entitle the holder, other
than the Acquiring Person, to purchase, for the initial purchase price, the
Company's common stock having a value of twice the initial purchase price. If
the Company is later acquired in a merger or similar transaction, or sells or
transfers more than 50% of its assets or earning power, each right will
entitle the holder to purchase, for the initial purchase price, common stock
of the other party to such transaction having a value of twice the initial
purchase price. The Board of Directors may redeem the rights at a price of
$0.001 per right at any time prior to a specified period of time after a
person has become an Acquiring Person. The rights will expire in June 2011,
unless earlier exchanged or redeemed.

  The existing reported shareholdings of Interpublic and its affiliates and
associates will not trigger any rights under the Plan so long as Interpublic
and its affiliates and associates do not acquire any additional shares of the
Company's common stock.

                                       8
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Generally, the holders of Series A Participating Cumulative Preferred Stock,
in preference to the holders of common stock, are entitled to receive, when,
as and if declared by the Board of Directors, quarterly dividends payable in
cash in an amount per share equal to 100 times the aggregate per share amount
of all cash dividends, non-cash dividends or other distributions (other than a
dividend payable in shares of common stock) payable on any common stock. Each
share of Series A Participating Cumulative Preferred Stock will entitle its
holder to 100 votes.

  Stock Option Exchange Offer--In May 2001, the Company completed a voluntary
stock option exchange offer for its eligible employees and directors.
Participating employees and directors had the opportunity to cancel previously
granted options with an exercise price greater than $6.00 per share in
exchange for an equal number of new options to be granted on a specified
future date, which will be at least six months and one day following the date
on which Company canceled the old options. The exercise price of these new
options will be set at the fair market value of the Company's common stock as
of the new grant date, which is currently expected to occur later this year.
As a result of this program 2,475,001 options were cancelled.

6. Comprehensive Income

  The Company reflects its comprehensive income, such as unrealized gains and
losses on its 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 investments in international subsidiaries whose earnings
are not expected to be distributed for the foreseeable future. Total
comprehensive loss for the three and six months ended June 30, 2001 and 2000
is as follows:

<TABLE>
<CAPTION>
                              Three Months Ended         Six Months Ended
                                   June 30,                  June 30,
                            ------------------------  ------------------------
                               2001         2000         2001         2000
                            -----------  -----------  -----------  -----------
<S>                         <C>          <C>          <C>          <C>
Net loss..................  $(5,530,000) $(5,755,000) $(5,402,000) $(8,722,000)
Foreign currency
 translation adjustments..      (11,000)    (255,000)    (618,000)    (539,000)
Available-for-sale
 securities...............          --           --       164,000          --
                            -----------  -----------  -----------  -----------
  Total comprehensive
   loss...................  $(5,541,000) $(6,010,000) $(5,856,000) $(9,261,000)
                            ===========  ===========  ===========  ===========
</TABLE>

                                       9
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Geographic Information

  Information about the Company's operations in different geographic regions,
the presentation of which reflects changes in information that is now being
made available to the Company's chief operating decision maker, is as follows:

<TABLE>
<CAPTION>
                            North
                           America    International  Corporate       Total
                         -----------  ------------- ------------  -----------
<S>                      <C>          <C>           <C>           <C>
Three months ended June
 30, 2001
Revenues................ $17,855,000   $ 8,218,000  $        --   $26,073,000
(Loss) earnings before
 interest, taxes,
 depreciation and
 amortization...........  (2,882,000)      474,000    (3,128,000)  (5,536,000)
Loss before income
 taxes..................  (4,270,000)      (39,000)   (3,466,000)  (7,775,000)
Net loss................  (3,578,000)      (40,000)   (1,912,000)  (5,530,000)
Three months ended June
 30, 2000
Revenues................ $28,101,000   $ 4,724,000  $        --   $32,825,000
Earnings (loss) before
 interest, taxes,
 depreciation and
 amortization...........   7,255,000    (1,845,000)   (5,667,000)    (257,000)
Income (loss) before
 income taxes...........   2,956,000    (2,400,000)   (5,887,000)  (5,331,000)
Net income (loss).......     186,000    (2,400,000)   (3,541,000)  (5,755,000)
Six months ended June
 30, 2001
Revenues................ $43,460,000   $16,041,000  $        --   $59,501,000
Earnings (loss) before
 interest, taxes,
 depreciation and
 amortization...........   5,167,000    (3,527,000)   (7,039,000)  (5,399,000)
Income (loss) before
 income taxes...........   2,404,000    (4,619,000)   (7,560,000)  (9,775,000)
Net income (loss).......     229,000    (4,625,000)   (1,006,000)  (5,402,000)
Six months ended June
 30, 2000
Revenues................ $51,604,000   $ 9,758,000  $        --   $61,362,000
Earnings (loss) before
 interest, taxes,
 depreciation and
 amortization...........  13,659,000    (2,360,000)  (10,167,000)   1,132,000
Income (loss) before
 income taxes...........   6,222,000    (3,367,000)  (10,506,000)  (7,651,000)
Net income (loss).......   1,127,000    (3,367,000)   (6,482,000)  (8,722,000)
</TABLE>

                                      10
<PAGE>

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

Overview

  We are a leading Internet professional services firm focused on solving
marketing and customer management problems facing global companies most
impacted by digital change. By combining technology-driven solutions with a
deep understanding of customer needs, we create more rewarding solutions for
our clients and their customers. We leverage our experience in marketing and
business strategy, creative design, and technology to deliver an integrated
service offering that includes the following:

  .  Customer Insight: Driven by the fundamental belief that customers
     control the e-business relationship, we continuously seek to increase
     our clients' knowledge of their customers. By defining better services
     for each individual customer and identifying and understanding the
     customer's preferred delivery channel, we help our clients create a
     framework to measure and improve return on investment.

  .  Strategic Planning: By mapping customer-driven needs to economically
     viable and superior business models, we help our clients forge
     competitively advantageous strategies that result in more effective and
     efficient marketing of their products and services.

  .  Site and Application Development: From information distribution to e-
     commerce to e-care, we build web sites that enhance the relevance,
     utility and value of information for our clients' customers. At the same
     time, we recognize our clients' overall business objective--to realize a
     true return on customer relationships.

  .  Marketing Services: More than simply helping companies understand their
     customers, our approach is instrumental in helping our clients respond
     to those customers with the right information at the right time through
     the right channel. By providing such personalized cross-channel customer
     care and management, our clients can leverage every customer touchpoint,
     whether it's a web site, portal, wireless device, e-mail, etc., to
     develop and foster satisfaction and loyalty.

We believe this comprehensive approach, which focuses on positioning the
customers' needs first, is a winning approach to e-business. The benefit that
we deliver to our clients is the ability to drive higher customer value
through increased sales, greater efficiencies, and improved loyalty.

  Clients hire us on a fixed-fee, retainer or time-and-material basis. A
majority of our revenues are derived from fixed-fee engagements. We recognize
revenues as services are rendered. We reassess our estimated costs on fixed-
fee engagements periodically and losses are accrued, on a project-by-project
basis, to the extent that costs incurred and anticipated costs to complete
projects exceed anticipated billings. Provisions for losses on uncompleted
fixed-fee contracts are recognized in the period in which such losses are
determined.

  Our results of operations and our business depend on relationships with a
limited number of large clients with which we generally do not have long-term
contracts. Our clients typically hire us one project at a time and generally
have the right to terminate their relationships with us without penalty and
with relatively short or no notice. Once a project is completed we cannot
assure you that a client will engage us for further services. As a result, a
client that generates substantial revenues for us in one period may not be a
substantial source of revenues 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 financial performance. We had revenues from one client
that represented 20.4% and 23.2% of our consolidated revenues during the three
months and six months ended June 30, 2001, respectively. Our top five and ten
clients accounted for approximately 52.5% and 74.1% of our consolidated
revenues during the three months ended June 30, 2001, respectively, and 54.4%
and 75.4% of our consolidated revenues during the six months ended June 30,
2001, respectively.

  Cost of revenues consists of salaries, employee benefits and incentive
compensation for our professional services staff and costs for temporary
employees that we use to provide professional services, as well as certain

                                      11
<PAGE>

other direct costs. Sales and marketing consists of salaries, employee
benefits and incentive compensation of new business and other sales and
marketing personnel, as well as certain other marketing costs. General and
administrative includes salaries, employee benefits and incentive compensation
of administrative and other non-billable employees, as well as office rent,
utilities, depreciation, amortization of software, professional and consulting
fees, travel, telephone and other related expenses.

  We have experienced operating or net losses in eleven of the fourteen
quarters from January 1, 1998 through June 30, 2001. At times, we have
experienced significant revenue growth both in North America, which consists
of our operations in the U.S. and Canada, and our International locations. As
a result of the economic downturn in the U.S., and decreases in most client
expenditures for our services, we expect continued weakness in North American
revenues and expect full year revenues in North America to be lower in 2001
than in 2000. The growth of our International operations is expected to slow
due to softening in the international budgets of our clients. During the first
half of 2001, 73.0% of our revenues were generated in North America and 27.0%
were generated by our International operations. International margins will
continue to be lower than North American margins due to lower billing and
utilization rates and higher benefit, occupancy and infrastructure costs.

  As a result of a variety of factors, we recorded a number of one-time
charges during the three and six months ended June 30, 2001. Due to the
significant and rapid deterioration in the San Francisco commercial real
estate market, we increased our accrual for excess facilities by $5.7 million
during the second quarter of 2001. Such increase represents an adjustment to
our original estimate of the present value of future rent payments in excess
of anticipated sublease income, expected subtenant allowances and estimated
brokers' fees. In addition, we cancelled our plans to move our Toronto
operations to new office space due to the landlord's breach of the lease
agreement. As a result, we recorded a charge of $1.1 million to write-off
certain leasehold improvements and other assets that no longer have future
value to us. Furthermore, in June 2001, we announced the completion of a
series of organizational changes and expense reduction actions. These actions
included staff reductions of 79 employees, or approximately 10% of our total
employees, of which 72 were billable. As a result, we recorded a pre-tax
charge of $1.0 million during the three months ended June 30, 2001. Such
reductions were in addition to a series of headcount reductions that occurred
across the entire organization during the first quarter of 2001 and resulted
in a decrease of approximately 10% of our total workforce. These actions
included (a) a reduction in corporate staff (b) the decision to close our
office in Tokyo, Japan, which ceased operations during the second quarter of
2001, and (c) the realignment of capacity across multiple offices. As a result
of these actions, we recorded an aggregate pre-tax charge of $2.4 million
during the three months ended March 31, 2001. Also, in March 2001, we recorded
a non-cash, pre-tax impairment charge of $0.4 million related to an other than
temporary decline in the value of certain marketable securities. We will
continue to examine all aspects of our resource base, including our geographic
coverage, in light of our reduced revenues. If business conditions do not
improve, we may need to recognize additional charges for excess space and
other restructuring actions.

  In conjunction with the financing of, and sale of a portion of our ownership
in, CentrPort, Inc. ("CentrPort"), formerly our majority-owned subsidiary, we
designated CentrPort as a preferred vendor and committed to resell at least
$5.0 million of CentrPort's products and services during 2001. If this
commitment is not met, we must remit the value of the shortfall to CentrPort
in either CentrPort common stock from our holdings or cash, at our election.
Through June 30, 2001, we had sales orders for approximately $1.9 million in
CentrPort products and services applicable to this commitment. We have
deferred a gain of $3.3 million from the sale of CentrPort stock until its
obligations under this commitment and other agreements are met.

Results of Operations--Three Months Ended June 30, 2001 Compared to Three
Months Ended June 30, 2000

  Revenues. Revenues decreased by $6.8 million, or 20.6%, to $26.1 million for
the three months ended June 30, 2001 from $32.8 million for the three months
ended June 30, 2000. Revenues decreased primarily as a result of a decrease in
billed hours, which was offset in part by higher average revenue per hour, for
both our North America and International operations.

                                      12
<PAGE>

  Cost of Revenues and Gross Profit. Cost of revenues decreased by $3.4
million, or 18.9%, to $14.5 million for the three months ended June 30, 2001
from $17.8 million for the three months ended June 30, 2000. Gross margin
declined to 44.5% of consolidated revenues for the first quarter of 2001 from
45.7% for the first quarter of 2000. This decline was primarily due to lower
North American margins, driven by a decrease in utilization, offset in part by
improved International margins. The improvement in International margins was
primarily the result of timing of fees related to a global client, offset in
part by lower utilization.

  Sales and Marketing. Sales and marketing decreased by $1.0 million, or
53.0%, to $0.9 million for the three months ended June 30, 2001 from $1.9 for
the three months ended June 30, 2000. Sales and marketing represented 3.5% and
5.9% of consolidated revenues during the three months ended June 30, 2001 and
2000, respectively. The dollar and percentage decreases in sales and marketing
were the result of expense reduction actions taken by management during the
first six months of 2001 and the fourth quarter of 2000.

  General and Administrative. General and administrative decreased by $4.1
million, or 32.6%, to $8.5 million for the three months ended June 30, 2001
from $12.6 million for the three months ended June 30, 2000. General and
administrative represented 32.5% and 38.3% of consolidated revenues during the
three months ended June 30, 2001 and 2000, respectively. The dollar and
percentage decreases in general and administrative were primarily the result
of expense reduction actions taken during the first six months of 2001 and the
fourth quarter of 2000.

  Restructuring and Other Charges. Restructuring and other charges of $7.8
million during the three months ended June 30, 2001 represent costs incurred
in connection with (a) a significant and rapid deterioration in the commercial
real estate market in San Francisco resulting in an increase in our accrual
for excess space of $5.7 million, (b) the cancellation of our move to new
office space in Toronto resulting in the write-off of $1.1 million in space-
related assets, and (c) the realignment of capacity across multiple offices,
which resulted in a charge of $1.0 million. The prior year amount represents
the write-off of offering-related costs from our cancelled secondary offering
of our common stock.

  Depreciation and Amortization. Depreciation and amortization increased by
$0.3 million, or 19.8%, to $1.7 million for the three months ended June 30,
2001 from $1.4 million for the three months ended June 30, 2000. Depreciation
and amortization represented 6.4% and 4.3% of consolidated revenues for three
months ended June 30, 2001 and 2000, respectively. The dollar and percentage
increases in depreciation and amortization were primarily the result of the
effects of office expansion and increased capital expenditures in 2000, and,
to a lesser extent, capital expenditures in 2001.

  Amortization of Goodwill. Amortization of goodwill decreased by $3.3
million, or 79.3%, to $0.9 million for the three months ended June 30, 2001
from $4.1 million for the three months ended June 30, 2000. This decrease is a
result of write-offs for the impairment of goodwill related to our
acquisitions of Vivid Holdings, Inc., Vivid Publishing, Inc. and our office in
Tokyo, Japan, which were recognized during the fourth quarter of 2000. At
various times during the three months ended June 30, 2001, our market
capitalization fell below our net book value. Based on the current facts and
circumstances, as well as our estimates of future profitability and
undiscounted future cash flows, we believe that our goodwill is not currently
impaired. Should such estimates change, our goodwill could be deemed to be
impaired. Furthermore, in July 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and other
intangible assets with indefinite lives are no longer amortized, but are
reviewed for impairment on an annual basis, unless impairment indicators arise
sooner. The amortization provisions of SFAS No. 142 apply immediately to
goodwill and other intangible assets acquired after June 30, 2001. Goodwill
and other intangible assets acquired on or prior to June 30, 2001 will be
accounted for under SFAS No. 142 beginning on January 1, 2002.

  Interest Income, Net. Interest income, net decreased by $0.1 million, or
33.6%, during the three months ended June 30, 2001 compared to the three
months ended June 30, 2000 due to lower interest rates on cash, cash
equivalents and short-term investment balances, as well as increased interest
expense during 2001. Interest

                                      13
<PAGE>

expense increased primarily due to the recognition of non-cash interest
associated with our accrual for excess office space (see Note 2 of Notes to
Condensed Consolidated Financial Statements) and a note payable related to our
purchase of CentrPort common stock from a minority interest holder during
2000.

  Income Taxes. We had a benefit for income taxes of $2.2 million on a pre-tax
loss of $7.8 million for the three months ended June 30, 2001, compared to a
provision for income taxes of $0.4 million on a pre-tax loss of $5.3 million
for the three months ended June 30, 2000. The effective income tax benefit
rate for the three months ended June 30, 2001 was 28.9% compared to an
effective income tax rate of 8.0% for the three months ended June 30, 2000.
The effective tax rates differ from the federal statutory rate primarily due
to the effect of non-deductible goodwill amortization and losses of certain
foreign subsidiaries on which we did not recognize tax benefits.

Results of Operations--Six Months Ended June 30, 2001 Compared to Six Months
Ended June 30, 2000

  Revenues. Revenues decreased by $1.9 million, or 3.0%, to $59.5 million for
the six months ended June 30, 2001 from $61.4 million for the six months ended
June 30, 2000. Revenues decreased primarily as a result of a decrease in
billed hours, which was offset in part by higher average revenue per hour, for
both our North America and International operations.

  Cost of Revenues and Gross Profit. Cost of revenues increased by $1.0
million, or 3.2%, to $33.2 million for the six months ended June 30, 2001 from
$32.2 million for the six months ended June 30, 2000. Gross margin declined to
44.2% of consolidated revenues for the first six months of 2001 from 47.6% for
the first six months of 2000. This decline was primarily due to a decrease in
billed hours and utilization for both our North America and International
operations, as well as the engagement of temporary contracted resources with
specialized skills and an increase in other direct controllable costs, offset
in part by higher average revenue per hour.

  Sales and Marketing. Sales and marketing decreased by $1.0 million, or
31.8%, to $2.2 million for the six months ended June 30, 2001 from $3.2
million for the six months ended June 30, 2000. Sales and marketing
represented 3.6% and 5.2% of consolidated revenues during the six months ended
June 30, 2001 and 2000, respectively. The dollar and percentage decreases in
sales and marketing were the result of expense reduction actions taken by
management during the first six months of 2001 and the fourth quarter of 2000.

  General and Administrative. General and administrative decreased by $5.3
million, or 21.7%, to $18.9 million for the six months ended June 30, 2001
from $24.2 million for the six months ended June 30, 2000. General and
administrative represented 31.8% and 39.4% of consolidated revenues for the
first half of 2001 and 2000, respectively. The dollar and percentage decreases
in general and administrative were primarily the result of expense reduction
actions taken during the first six months of 2001 and the fourth quarter of
2000.

  Restructuring and Other Charges. Restructuring and other charges of $10.6
million during the six months ended June 30, 2001 represent costs incurred in
connection with (a) a significant and rapid deterioration in the commercial
real estate market in San Francisco resulting in an increase in our accrual
for excess space of $5.7 million, (b) the decision to close our office in
Tokyo, Japan, which ceased operations during the second quarter of 2001 and
for which an accrual of approximately $1.9 million was established, (c) the
cancellation of our move to new office space in Toronto resulting in the
write-off of $1.1 million in space-related assets, (c) the reduction of
corporate headcount and realignment of capacity across multiple offices, which
resulted in a charge of $1.5 million, and (d) the other than temporary decline
in the value of certain marketable securities, which resulted in a write-off
of $0.4 million. The prior year amount represents the write-off of offering-
related costs from our cancelled secondary offering of our common stock.

  Depreciation and Amortization. Depreciation and amortization increased by
$0.8 million, or 30.0%, to $3.4 million for the six months ended June 30, 2001
from $2.6 million for the six months ended June 30, 2000. Depreciation and
amortization represented 5.7% and 4.3% of consolidated revenues for the first
half of 2001 and 2000, respectively. The dollar and percentage increases in
depreciation and amortization were primarily the result of the effects of
office expansion and increased capital expenditures in 2000, and, to a lesser
extent, capital expenditures in 2001.

                                      14
<PAGE>

  Amortization of Goodwill. Amortization of goodwill decreased by $5.4
million, or 76.1%, to $1.7 million for the six months ended June 30, 2001 from
$7.1 million for the six months ended June 30, 2000. This decrease is a result
of write-offs for the impairment of goodwill related to our acquisitions of
Vivid Holdings, Inc., Vivid Publishing, Inc. and our office in Tokyo, Japan,
which were recognized during the fourth quarter of 2000. At various times
during the six months ended June 30, 2001, our market capitalization fell
below our net book value. Based on the current facts and circumstances, as
well as our estimates of future profitability and undiscounted future cash
flows, we believe that our goodwill is not currently impaired. Should such
estimates change, our goodwill could be deemed to be impaired. Furthermore, in
July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets.
Under SFAS No. 142, goodwill and other intangible assets with indefinite lives
are no longer amortized, but are reviewed for impairment on an annual basis,
unless impairment indicators arise sooner. The amortization provisions of SFAS
No. 142 apply immediately to goodwill and other intangible assets acquired
after June 30, 2001. Goodwill and other intangible assets acquired on or prior
to June 30, 2001 will be accounted for under SFAS No. 142 beginning on January
1, 2002.

  Interest Income, Net. Interest income, net decreased by $0.2 million, or
24.1%, during the six months ended June 30, 2001 compared to the six months
ended June 30, 2000 due to lower interest rates on cash, cash equivalents and
short-term investment balances, as well as increased interest expense during
2001. Interest expense increased primarily due to the recognition of non-cash
interest associated with our accrual for excess office space (see Note 2 of
Notes to Condensed Consolidated Financial Statements) and a note payable
related to our purchase of CentrPort common stock from a minority interest
holder during 2000.

  Income Taxes. We had a benefit for income taxes of $4.4 million on a pre-tax
loss of $9.8 million for the six months ended June 30, 2001, compared to a
provision for income taxes of $1.1 million on a pre-tax loss of $7.7 million
for the six months ended June 30, 2000. The effective income tax benefit rate
was 44.7% for the six months ended June 30, 2001 compared to an effective
income tax rate of 14.0% for the six months ended June 30, 2000. The effective
tax rates differ from the federal statutory rate primarily due to the effect
of a $3.7 million domestic tax benefit generated by the write-off of our
investment in Tokyo in 2001, as well as the effect of non-deductible goodwill
amortization and losses of certain foreign subsidiaries on which we did not
recognize tax benefits in both periods.

Liquidity and Capital Resources

  Historically, we have financed our operations from funds generated from
operations and proceeds from our initial public offering.

  Net cash provided by (used in) operating activities was $3.1 million and
$(2.5) million for the six months ended June 30, 2001 and 2000, respectively.

  Net cash used in investing activities was $2.5 million and $0.3 million for
the six months ended June 30, 2001 and 2000, respectively. Investing
activities reflect our purchases of property and equipment, as well as
purchases and maturities of short-term investments, in 2001 and 2000.
Investing activities also include our acquisitions in 2000.

  Net cash provided by financing activities was $0.2 million and $2.9 million
for the six months ended June 30, 2001 and 2000, respectively. The sources of
cash flows from financing activities in 2001 and 2000 are proceeds from the
exercise of employee stock options and purchases under the employee stock
purchase plan, offset in part by payments in connection with our financing
obligations and purchases of treasury stock.

  Our short-term commitments include net media payments of $4.1 million,
payments under notes payable of $1.2 million, operating lease payments over
the next twelve months aggregating approximately $7.6 million and the funding
of certain international operations that are not expected to be self-
sufficient in the near-term. Our long-term capital needs depend on numerous
factors, including the rate at which we are able to obtain new business from
clients and expand our personnel and infrastructure to accommodate future
growth, if any, as well as the rate at which we choose to invest in new
technologies. Although we have ongoing needs for capital,

                                      15
<PAGE>

including working capital for operations, project development costs and
capital expenditures to maintain our operations, we expect that such needs
will be substantially reduced during fiscal 2001 as compared to 2000, and can
be funded from operations and cash on hand.

  We are the guarantor for CentrPort's obligations under its lease for office
space, which expires on June 30, 2010, subject to renewal. As of June 30,
2001, the aggregate remaining base rent and operating expenses due under this
lease is approximately $6.8 million, subject to adjustment in accordance with
the terms of the lease. The lease provides that once 50% of the original lease
term has expired, 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. CentrPort has contractually committed to us that upon expiration of 50%
of the lease term, CentrPort will 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.

  We were previously a guarantor for CentrPort's lease of certain network
storage server equipment from a third party vendor. In June 2001, the lessor
discharged our guaranty under this lease.

  We believe that our cash on hand and short-term investments, together with
funds available from operations, will be sufficient to meet our capital needs
for at least the next twelve months.

  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 and other
intangible assets with indefinite lives are no longer amortized, but are
reviewed for impairment on an annual basis, unless impairment indicators arise
sooner. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their estimated useful lives, but
with no maximum life. The amortization provisions of SFAS No. 142 apply
immediately to goodwill and intangible assets acquired after June 30, 2001.
Goodwill and intangible assets acquired on or prior to such date will be
accounted for under SFAS No. 142 beginning on January 1, 2002. We are
currently evaluating the effect that the adoption of the provisions of
SFAS No. 142 will have on our results of operations and financial position.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Our consolidated financial statements are denominated in U.S. dollars. We
derived approximately 33.7% and 30.2% of our revenues from operations outside
of the United States during the three and six months ended June 30, 2001,
respectively. 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, primarily with respect to the British Pound, 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 our operating performance. The
effect of foreign exchange rate fluctuations for the three and six months
ended June 30, 2001 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 will, 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. A rise in interest rates would
have an adverse impact on the fair value of fixed rate securities and,
conversely, if interest rates fall, floating rate securities may generate less
income. We limit our exposure to interest rate risk by investing primarily in
securities with maturities of one year or less.

                                      16
<PAGE>

  Effective January 1, 1999, eleven of the fifteen members of the European
Union established fixed conversion rates between their existing sovereign
currencies and one common currency, the "Euro". The participating countries
adopted the Euro as their common currency on January 1, 1999. On January 1,
2002, Euro-denominated currency will be issued, and on June 30, 2002, all
national currencies of the participating countries will cease to be legal
tender.

  Our European operations are most significantly concentrated in the United
Kingdom, which, despite being a member of the European Union, is not
participating in the single currency at this time. While we are in the process
of making certain adjustments to our business and operations to accommodate
the Euro conversion, we do not believe, based on information available at this
time, that the Euro conversion will have a material adverse impact on our
financial position or results of operations.

                                      17
<PAGE>

                          PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

  On August 2, 2001, a class action complaint (01 Civ. 7201) was filed in the
U.S. District Court for the Southern District of New York against us,
FleetBoston Robertson Stephens Inc. ("Robertson Stephens"), Bear Stearns & Co.
Inc. ("Bear Stearns"), G.M. O'Connell, our Chairman, and Steven C. Roberts,
our former Chief Financial Officer. As of August 13, 2001, the plaintiffs have
not yet served the complaint upon us. The complaint alleges that we and
Messrs. O'Connell and Roberts violated the federal securities laws in our
February 1999 initial public offering by failing to disclose that some of the
underwriters in the offering, including Robertson Stephens and Bear Stearns,
had allegedly solicited and received excessive and undisclosed commissions
from investors and had tied allocations of stock in the offering to agreements
to purchase an additional number of our common shares in the aftermarket at
pre-determined prices. We believe the claims against us and Messrs. O'Connell
and Roberts to be without merit and we intend to defend ourself vigorously.
Defending this lawsuit may be expensive and, at this early stage of the
proceedings, we cannot be certain that the suit will be resolved in our favor.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit
   No.                                Description
 -------                              -----------
 <C>     <S>
 10.2(n) Employment Agreement dated February 14, 1996 between the Company and
         David P. Lynch
 10.2(o) Letter Agreement dated January 31, 2000 between the Company and David
         P. Lynch
 10.2(p) Letter Agreement dated June 1, 2000 between the Company and Peter
         Moritz
 10.2(q) Letter Agreement dated May 14, 2001 between the Company and Peter
         Moritz
</TABLE>

  (b) Reports on Form 8-K

  On May 31, 2001, we filed a Form 8-K reporting in Item 5 the leave of
absence of Robert C. Allen, II, our President and Chief Operating Officer,
effective June 8, 2001.

  On June 8, 2001, we filed a Form 8-K reporting in Item 5 the completion of a
series of organizational changes and expense reduction actions, which involved
a reduction in the number of our global employees by approximately 10%.

  On June 18, 2001, we filed a Form 8-K reporting in Item 5 the adoption of a
Stockholder Rights Plan, under which each common stockholder of record at the
close of business on June 28, 2001 received a dividend of one right for each
share of common stock held. Each right entitles the holder to purchase from
us, one one-hundredth of a share of a new series of participating preferred
stock at an initial purchase price of $30 per share.

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<PAGE>

                                  SIGNATURES

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

                                          Modem Media, Inc.

                                                 /s/ Marc C. Particelli
                                          By __________________________________
                                                   Marc C. Particelli
                                          Chief Executive Officer and Director
                                              (Principal Executive Officer)

                                               /s/ Frank J. Connolly, Jr.
                                          By __________________________________
                                                 Frank J. Connolly, Jr.
                                                 Chief Financial Officer
                                           (Principal Financial and Accounting
                                                        Officer)

Date: August 13, 2001

                                      19