UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-QSB
                                   (Mark one)
    (X) Quarterly Report under Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934.

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
                     ---------------------------------------
   ( ) Transition Report under Section 13 or 15(d) of the Exchange Act of 1934

         For the transition period from ______________ to ______________
                     --------------------------------------

                        COMMISSION FILE NUMBER: 000-21775
                     --------------------------------------
                              THINK NEW IDEAS, INC.
        (Exact name of small business issuer as specified in its charter)
                     --------------------------------------

               DELAWARE                                       95-4578104
   (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                      Identification Number)
                     --------------------------------------

            45 WEST 36TH STREET, 12TH FLOOR, NEW YORK, NEW YORK 10018
                    (Address of principal executive offices)

                                 (212) 629-6800
                           (Issuer's telephone number)
                     --------------------------------------

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 __

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Class                                            Outstanding at February 8, 1999
-----                                            -------------------------------
Common Stock, par value $.0001 per share                  8,591,650 shares

Transitional Small Business Disclosure Format (check one)   Yes        No  X
                                                                          ---

<PAGE>



                              THINK NEW IDEAS, INC.

                                   FORM 10-QSB

                                      INDEX

                                                                            Page

PART I - FINANCIAL INFORMATION
     Item 1. Consolidated Financial Statements
          Condensed  Consolidated  Balance  Sheets as of December  31,
             1998 (Unaudited) and June 30, 1998............................    3
          Condensed  Consolidated  Statements  of  Operations  for the
             three and six months  ended  December  31,  1998 and 1997
             (Unaudited)...................................................    4
          Condensed Consolidated  Statement of Shareholders' Equity as
             of December 31, 1998 (Unaudited)..............................    5
          Condensed Consolidated  Statements of Cash Flows for the six
             months ended December 31, 1998 and 1997  (Unaudited)..........    6
          Notes  to  Condensed   Consolidated   Financial   Statements
             (Unaudited)...................................................    7
     Item  2.  Management's   Discussion  and  Analysis  of  Financial
       Condition and Results of Operations.................................    9

PART II - OTHER INFORMATION
     Item 1. Legal Proceedings.............................................   15
     Item 2. Changes in Securities.........................................   16
     Item 3. Defaults Upon Senior Securities...............................   16
     Item 4. Submission of Matters to a Vote of Security Holders...........   16
     Item 5. Other Information and Subsequent Events.......................   16
     Item 6. Exhibits and Reports on Form 8-K..............................   16


                                  2

<PAGE>



                    PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                THINK NEW IDEAS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                   ---------------------------- -- --------------------------
                                                                          DECEMBER 31,                      JUNE 30,
                                                                              1998                            1998
                                                                   ----------------------------    --------------------------
                                                                           (UNAUDITED)
<S>                                                                  <C>                             <C>
ASSETS
Current assets:
     Cash and cash equivalents                                       $          6,964,709            $          7,653,576
     Accounts receivable,  net of allowance for doubtful accounts
       of $1,202,717 and $1,019,475                                            19,929,307                      14,431,288
     Unbilled receivables                                                       1,933,338                       3,455,181
     Prepaid expenses and other assets                                          1,331,060                         715,574
                                                                     --------------------            --------------------
          Total current assets                                                30,158,414                       26,255,619

Property, plant and equipment, net                                              5,326,215                       5,682,059
Software development costs, net                                                 1,698,558                       1,858,370
Goodwill,  net of  accumulated  amortization  of  $3,229,390  and
$2,534,207                                                                     17,054,504                      17,344,798
Other assets                                                                    1,696,218                       1,112,225
                                                                     --------------------            --------------------

         Total assets                                                $         55,933,909            $         52,253,071
                                                                     ====================            ====================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                $          8,688,186            $          9,912,683
     Accrued expenses                                                           1,596,656                       3,414,977
     Accrued restructuring costs                                                   93,781                         307,482
     Media payable                                                             12,092,466                      3,407,266
     Income taxes payable                                                         169,997                         566,578
     Bank payable                                                               1,776,868                         491,915
     Due to related party                                                         612,866                         591,946
     Current portion of obligations under capital leases                          491,386                         693,619
                                                                     --------------------            --------------------
          Total current liabilities                                            25,522,206                      19,386,466

     Obligations under capital leases                                               7,560                         260,645
     Other long-term liability                                                     28,578                         102,548
                                                                     --------------------            --------------------
         Total liabilities                                                     25,558,344                      19,749,659
                                                                     --------------------            --------------------

Commitments and contingencies
Shareholders' equity:
     Preferred stock, $.0001 par value; 5,000,000 shares
      authorized; none issued and outstanding                                      -                                     -
     Common stock, $.0001 par value; 50,000,000 shares
      authorized; 8,572,984 and 8,433,656 shares issued
      and outstanding                                                                 857                             843
     Additional paid-in capital                                                68,728,555                      67,731,946
     Accumulated deficit                                                      (38,349,819)                    (35,229,377)

     Accumulated other comprehensive income                                        (4,028)                              -

          Total shareholders' equity                                           30,375,565                      32,503,412
                                                                     --------------------            --------------------

         Total liabilities and shareholders' equity                  $         55,933,909              $       52,253,071
                                                                     ====================              ==================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                        3

<PAGE>




                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED                SIX MONTHS ENDED
                                                          DECEMBER 31,                      DECEMBER 31,
                                                  -----------------------------   -----------------------------
                                                      1998              1997          1998            1997
                                                  -------------    ------------   ------------    -------------
<S>                                                <C>             <C>            <C>             <C>
Revenues                                           $ 12,371,317    $ 10,067,406   $ 23,741,059    $ 17,023,886

Operating expenses:
    Salaries and related expenses                     6,758,871       4,006,771     13,209,222       7,151,047
    Selling, general and administrative expenses      6,260,851       5,054,116     11,610,091       8,372,113
    Depreciation and amortization                     1,029,513         527,835      2,036,498         955,430
                                                   ------------    ------------   ------------    ------------

Operating profit/(loss)                              (1,677,918)        478,684     (3,114,752)        545,296

Interest income/(expense) and other, net                  1,692         102,478         23,010         101,280

                                                   ------------    ------------   ------------    ------------
Income/(loss) before provision for taxes             (1,676,226)        581,162     (3,091,742)        646,576

Provision for income taxes                                8,700         108,406         28,700         112,985

                                                   ============    ============   ============    ============
Net (loss) income                                  $ (1,684,926)   $    472,756   $ (3,120,442)   $    533,591
                                                   ============    ============   ============    ============

Net income (loss) per share - basic                $      (0.20)   $       0.07   $      (0.38)   $       0.08
Weighted average shares outstanding                   8,229,612       6,819,819      8,217,380       6,703,608
Net income per share -  diluted                    $         --    $       0.06   $         --    $       0.07
Weighted average shares outstanding                          --       7,469,069             --       7,245,809
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       4

<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                               COMMON STOCK           ADDITIONAL                     ACCUMULATED OTHER
                                        ---------------------------    PAID-IN        ACCUMULATED      COMPREHENSIVE
                                           SHARES        AMOUNT        CAPITAL          DEFICIT           INCOME           TOTAL
                                        --------------------------------------------------------------------------------------------
<S>                                        <C>            <C>        <C>            <C>              <C>
Balance at June 30, 1998                   8,433,656      $843       $67,731,946    $(35,229,377)    $          -      $ 32,503,412
                                                                                                                       -------------

Comprehensive income
   Net loss                                        -         -                 -      (3,120,442)               -        (3,120,442)
   Foreign currency translation
    adjustments                                                                                            (4,028)           (4,028)
                                                                                                                       -------------
Comprehensive income                               -         -                 -               -                -        (3,124,470)
   Issuance of common stock on exercise
    of stock options                         139,328        14           996,609               -                -           996,623
                                        ============================================================================================
Balance at December 31, 1998               8,572,984      $857       $68,728,555    $(38,349,819)    $         (4,028) $ 30,375,565
                                        ============================================================================================
</TABLE>



     See accompanying notes to condensed consolidated financial statements.


                                       5

<PAGE>



                     THINK NEW IDEAS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED
                                                                                    DECEMBER 31,
                                                                          ------------------------------------
                                                                               1998                  1997
                                                                           ------------          ------------
<S>                                                                        <C>                   <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income                                                          $(3,120,442)          $   533,591
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
    Depreciation  and amortization                                             956,316               287,049
    Amortization of intangibles and deferred financing costs                 1,080,181               668,381
    Consulting fees                                                                 --                38,000
    Changes in assets and liabilities:
        Accounts receivable, net                                            (6,092,220)           (6,223,750)
        Unbilled receivables                                                 1,521,843               (21,783)
        Accounts payable and accrued expenses                               (3,042,818)            2,903,098
            Accrued restructuring                                             (213,701)                   --
        Media payable                                                        8,685,200             6,981,612
        Other assets and liabilities                                        (1,157,173)             (994,889)
                                                                           -----------           -----------
Net cash (used in) provided by operating activities                         (1,382,814)            4,171,309
                                                                           -----------           -----------

CASH FLOW FROM INVESTING ACTIVITIES:
Payment for acquisition, net of cash acquired                                       --              (743,888)
Purchases of marketable securities                                                  --            (1,123,902)
Sales of marketable securities                                                      --             1,586,784
Purchases of property and equipment                                           (600,472)           (1,039,856)
Other                                                                         (552,759)                   --
                                                                           ===========           ===========
Net cash used in investing activities                                       (1,153,231)           (1,320,862)
                                                                           -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of promissory notes                                                       --              (548,404)
Issuance of common stock                                                       996,623               122,052
Net borrowings on short term debt                                            1,284,953                    --
Proceeds from related party                                                     20,920                    --
Principal payments on capital leases                                          (455,318)              (84,533)
                                                                           -----------           -----------
Net cash provided by (used in) financing activities                          1,847,178              (510,885)
                                                                           -----------           -----------

Net (decrease) increase in cash and cash equivalents                          (688,867)            2,339,562
Cash and cash equivalents, beginning of period                               7,653,576             3,451,347
                                                                           ===========           ===========
Cash and cash equivalents, end of period                                   $ 6,964,709           $ 5,790,909
                                                                           ===========           ===========

Supplemental cash flow information:
  Cash paid during the period
    Income taxes                                                           $    66,413           $     9,880
    Interest                                                                    67,172                40,022

Non-cash investing and financing activities:
   Issuance of common stock to settle long-term liability                                             206,250
   Issuance of common stock to consultant                                                             359,268
   Issuance of common stock related to acquisition                                                  3,602,091
   Additions to capital lease obligations                                                             465,000
  Receipt of unregistered shares for payment of accounts receivable            594,201
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       6

<PAGE>




BASIS OF PRESENTATION

     The accompanying  unaudited  condensed  consolidated  financial  statements
should  be  read  in  conjunction  with  the  Notes  to  Consolidated  Financial
Statements contained in the Company's Form 10-KSB for the fiscal year ended June
30, 1998, as filed with the  Securities and Exchange  Commission  (the "SEC") in
September  1998.  Certain  items  included  in  these  statements  are  based on
management's estimates. In the opinion of management,  all material adjustments,
which are of a normal recurring nature necessary for a fair  presentation of the
results  for the interim  period,  have been  included.  The results for the six
months ended  December 31, 1998, are not  necessarily  indicative of the results
expected for the year.

PRO FORMA FINANCIAL DATA

     The  following  unaudited  pro forma  information  for the six months ended
December 31, 1997 is presented as if the Company had completed the  acquisitions
of  BBG  New  Media,  Inc.  ("BBG"),  Herring/Newman,  Inc.  ("Herring/Newman"),
Interweb, Inc. ("Interweb"), UbiCube Group, Inc. ("UbiCube") as of July 1, 1997.
These acquisitions were completed in the Company's fiscal year 1998.

                Revenue                            $ 23,868,000
                Net Loss                           $   (184,000)
                Net Loss per share - basic         $      (0.03)
                Weighted average shares
                Outstanding - basic                   6,703,608

     The pro forma  information  for the six months  ended  December  31,  1997,
above,  is not  necessarily  indicative of the results of operations  that would
have occurred had the transactions actually been made as of July 1, 1997.

EARNINGS PER SHARE

     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share"  requires  the  presentation  of basic  earnings  per share  and  diluted
earnings per share. Basic earnings per share is computed as net earnings divided
by the  weighted-average  number of common  shares  outstanding  for the period.
Diluted earnings per share reflects the potential dilution that could occur from
common shares issuable through stock options and other  convertible  securities.
Shares of common stock held in escrow related to the Company's  acquisitions are
not included in the calculation of  weighted-average  shares outstanding for the
periods presented, as the conditions required to release escrow shares for these
acquisitions were not fulfilled at the end of the applicable periods presented.

     A  reconciliation  of   weighted-average   common  shares   outstanding  to
weighted-average common shares outstanding assuming dilution follows:


                                       7

<PAGE>



<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                            --------------------------------------
                                                                 1998                  1997
                                                            ----------------     -----------------
<S>                                                            <C>                     <C>
Weighted-average common shares
  outstanding                                                  8,217,380               6,703,608
Incremental common shares issuable                                    --                 542,201
Weighted-average common shares
  assuming dilution                                            8,217,380               7,245,809
</TABLE>

     Incremental  common  shares were not  included in the  computation  for the
three and six months ended  December  31, 1998 since their  inclusion in periods
when the Company reported a net loss would be anti-dilutive.

COMPREHENSIVE INCOME

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
No. 130, "Reporting  Comprehensive Income," in the first fiscal quarter of 1998.
SFAS No. 130  establishes  standards for reporting and displaying  comprehensive
income and its components in the financial statements. Comprehensive income is a
more inclusive financial  reporting  methodology that includes the disclosure of
certain financial information that has not been recognized in the calculation of
net income or loss, such as foreign currency  translations and changes which are
recorded directly to shareholders' equity.  Accumulated other comprehensive loss
was comprised of foreign currency translation  adjustments of $4,028 at December
31, 1998 as a result of the Company's  operations in the United  Kingdom,  which
were acquired in the fourth quarter 1998 acquisition of UbiCube.

RECLASSIFICATIONS

     Certain  prior year  amounts  have been  reclassified  to conform  with the
presentation adopted in the current period.

LEGAL PROCEEDINGS

     On September 25, 1998, a shareholder  of the Company filed a putative class
action suit  against the Company and current and former  officers of the Company
in the United  States  District  Court for the  Southern  District  of New York.
During  October  1998,  six  additional  complaints  were filed against the same
parties making  substantially the same allegations.  These seven suits have been
consolidated  by the Court and the plaintiffs  filed a Consolidated  and Amended
Class Action Complaint on February 10, 1999. This consolidated complaint alleges
that the Company and certain of its current and former  officers  and  directors
disseminated  materially  false and misleading  information  about the Company's
financial  position and results of operations  through certain public statements
and in certain  documents  filed by the Company with the SEC.  The  consolidated
complaint alleges that these statements and documents caused the market price of
the Company's common stock to be artificially  inflated.  The plaintiffs further
allege that they  purchased  their shares of common  stock at such  artificially
inflated  prices  and  suffered  damages as a result.  The relief  sought by the
consolidated  complaint is  unspecified,  but includes  claims for  compensatory
damages with interest, punitive damages where appropriate,



                                       8
<PAGE>



and reasonable  costs  (including  attorneys' and experts'  fees).  See Part II:
"Item 1. Legal Proceedings."

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

RESULTS OF OPERATIONS

REVENUES

     Consolidated  revenues  for  the  three  months  ended  December  31,  1998
increased  twenty-three  percent (23%) or $2,304,000 to  $12,371,000 as compared
with  $10,067,000  for the three  months ended  December  31,  1997.  This total
increase was comprised of the  following  components:  (a) Services  provided by
BBG,  Herring/Newman,  Interweb and UbiCube (the "1998  Acquisitions")  caused a
$4,111,000  increase in  revenues.  That  amount  excluded  the  pre-acquisition
revenues  for the 1998  Acquisitions  for the  comparable  fiscal  1997  period,
reflecting  growth  at those  operations  achieved  by  cross-selling  and other
synergies between the 1998 Acquisitions and the Company's other operations.  (b)
Revenues from the Company's existing  interactive  services increased $1,280,000
for the quarter ended  December 31, 1998 compared with the  corresponding  prior
year period.  (c) Offsetting that increase was a decrease of $2,580,000  derived
from the  portion of client  services  relating  to  traditional  marketing  and
communications,   which  was  the  result  of  reduced  business  with  clients.
Additionally,  revenues  decreased by $507,000  reflecting  the loss of revenues
resulting  from the Company's  fourth quarter fiscal 1998 closure of its Atlanta
graphic design department.

     Consolidated  revenues  for the six month  period  ended  December 31, 1998
increased  thirty-nine  percent (39%) or $6,717,000 to  $23,741,000  as compared
with  $17,024,000  for the six months  ended  December  31,  1997.  The services
provided  by the  1998  Acquisitions  generated  a  $8,441,000  increase,  again
representing a level of revenues higher than that generated by the operations in
the comparable  1997 period before their  acquisition  by the Company.  Revenues
from the Company's existing  interactive  services increased  $1,581,000 for the
six months ended December 31, 1998 as compared with the corresponding prior year
period.  Offsetting  this increase was a decrease of $2,243,000 in revenues from
the  portion  of  clients  services   relating  to  traditional   marketing  and
communications,  and a decrease of  $1,062,000  reflecting  the loss of revenues
resulting  from the Company's  fourth quarter fiscal 1998 closure of its Atlanta
graphic design department.

OPERATING RESULTS

     The  operating  loss  for the  three  months  ended  December  31,  1998 of
$1,678,000  reflects a $2,157,000 change from an operating profit of $479,000 in
the corresponding  prior year period.  The decrease in operating results for the
three  months  ended  December  31,  1998 is due to the  $2,304,000  increase in
revenue  being more than offset by increases  in salaries and related  expenses,
selling,  general and administrative  expenses and depreciation and amortization
totaling  $4,461,000 for the three months ended December 31, 1998. The operating
loss for the six  months  ended  December  31,  1998 of  $3,115,000  reflects  a
$3,660,000  change from an  operating  profit of  $545,000 in the  corresponding
prior year period.  The  decrease in operating  results for the six months ended
December



                                       9
<PAGE>



31, 1998 is primarily due to the $6,717,000  increase in revenue being more than
offset by increases  in salaries and related  expenses,  selling,  general,  and
administrative  expenses and depreciation and amortization  totaling $10,377,000
for the six month  period ended  December  31, 1998.  For both the three and six
month periods  ended  December 31, 1998,  the growth in the Company's  operating
expenses  reflects  the  effect of higher  revenues  and  expenses  incurred  in
anticipation of and preparation for future growth in revenues.

     Salaries and related  expenses  consist  primarily of wages and  associated
payroll   costs  and  benefits  for  all   employees,   including   finance  and
administrative wages, as well as associated payroll costs and benefits. Salaries
and related  expenses  increased  sixty-nine  percent (69%) or $2,752,000 in the
three  months ended  December 31, 1998 to  $6,759,000  from  $4,007,000  for the
corresponding   prior  year  period.   The  1998   Acquisitions   accounted  for
approximately  $2,352,000 of the overall increase in salaries and related costs.
The remaining  $400,000 increase includes the effect of savings of $157,000 from
the fourth quarter fiscal 1998 closure of the Atlanta graphic design department.
The  increase,  excluding  this  saving,  of $557,000 was due to the addition of
personnel in marketing,  production,  and client  service areas to undertake new
business development.

     Salaries and related  expenses  for the six months ended  December 31, 1998
increased eighty-five percent (85%) or $6,058,000 to $13,209,000 from $7,151,000
for the six months ended December 31, 1997. The 1998 Acquisitions  accounted for
approximately  $5,234,000 of the overall  increase.  The  remaining  increase of
$824,000  includes $157,000 of savings resulting from the closure of the Atlanta
graphic design department. The increase in salaries and related expenses for the
six  months  ended  December  31,  1998  reflects  the  addition  of  marketing,
production and client service  personnel  discussed  above, and additions during
the first  quarter  of fiscal  1999 to  executive  management  and  finance  and
administrative  personnel required to support the Company's expanded  operations
which occurred as the result of its acquisitions.

     Selling, general and administrative expenses consist of marketing expenses,
technology   costs   (hardware   and   software   purchases   and  leasing)  and
telecommunications   costs   for   Internet   access.   Selling,   general   and
administrative  expenses  also include  corporate  expenses  such as  insurance,
accounting and legal fees, and management  information systems. Also included in
selling,  general  and  administrative  expenses  are  direct  expenses  such as
contract  labor,  travel  and  production  expenses  associated  with  providing
services to clients.  Selling,  general and  administrative  expenses  increased
twenty-four percent (24%) or $1,207,000 to $6,260,851 for the three months ended
December 31, 1998  compared with  $5,054,000  for the  corresponding  prior year
period ended December 31, 1997. Of the increase  $1,562,000 is the result of the
1998 Acquisitions.

     Selling,  general and administrative expenses increased thirty-nine percent
(39%) or $3,238,000 to $11,610,000 for the six months ended December 31, 1998 as
compared with $8,372,000 for the corresponding  prior year period ended December
31,  1997.  The increase  for the six months  ended  December 31, 1998  includes
$2,177,000  for  the  1998   Acquisitions.   The  remaining   increase  reflects
expenditures necessary to support the Company's higher revenues.

     Depreciation  and  amortization for the three and six months ended December
31, 1998  increased  $502,000  and  $1,081,000  to  $1,030,000  and  $2,036,000,
respectively,  as compared with the three and six month  periods ended  December
31, 1997.  These  increases  primarily  relate to the  amortization  of goodwill
related to the 1998 Acquisitions.


                                       10
<PAGE>



INCOME TAXES

     The effective tax rate for 1998 on income before income taxes is lower than
the United  States  federal  statutory  rate of  thirty-four  percent (34%) as a
result of the Company's net operating  loss  carryforwards.  The Company did not
record an income tax benefit in the six months  ended  December 31, 1998 because
the realization of available net operating loss  carryforwards  was not assured.
The Company  recorded  $28,700 of income tax  expense  for the six months  ended
December 31, 1998 relating to state and local taxes.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in  operating  activities  of  $1,003,000  for the six months
ended December 31, 1998 principally reflects the net loss of $3,120,000, reduced
by $2,036,000 of non-cash depreciation and amortization. The significant changes
in working capital, assets and liabilities, which absorbed cash were an increase
in accounts  receivable  of  $5,712,000  and a decrease in accounts  payable and
accrued expenses of $3,043,000. The cash absorbed by those changes was offset by
cash  provided  from an  increase in media  payables  and a decrease in unbilled
receivables of $8,685,000 and $1,522,000, respectively. The increase in accounts
receivable  is due to an increase in the billings to pass through to clients the
costs of media placements, particularly from the Company's traditional marketing
services  group,  which  vary  with  the  timing  and  volume  of  client  media
advertising expenditures.  Comparable to the change in accounts receivable,  the
increase in media payables  reflects  increased media placements which vary with
the  volume  and  timing  of client  media  advertising  expenditures.  Unbilled
receivables  decreased  as a  result  of the  timing  and  execution  of  client
projects.  Accrued  restructuring costs represent the charges recorded in fiscal
1998 related to the Company's  disposition  of its  traditional  graphic  design
departments.  The  reduction of the accrued  restructuring  charge  reflects the
payment  of certain  severance  and other  costs  included  in the  fiscal  1998
accrual.  The Company  financed  the  negative  operating  cash flow for the six
months ended  December 31, 1998 through the use of cash on hand at June 30, 1998
and amounts  drawn  under the line of credit with Bank of New York.  The Company
borrowed  $1,464,000  under its line of credit and had $3,536,000  available for
borrowing at December 31, 1998.

     Net cash provided by operating activities for the six months ended December
31, 1997 of  $4,171,000  reflects  net income of  $534,000  adjusted by non-cash
charges of  $955,000  for  depreciation  and  amortization,  combined  with cash
provided  from  increases in media  payables  and  accounts  payable and accrued
expenses of $6,982,000 and  $2,903,000,  respectively,  offset by an increase in
accounts receivable of $6,224,000. The increase in accounts receivable and media
payables reflects  increases in the level of media placement costs being paid by
the Company on behalf of, and then rebilled to clients,  which increase resulted
from the May 1997  acquisition  of  Fathom  Advertising.  Accounts  payable  and
accrued expenses increased primarily due to the timing of vendor payments.

     Net cash used in investing activities totaled $1,553,000 for the six months
ended  December 31, 1998 as compared  with  $1,321,000  for the six months ended
December 31,  1997.  Net cash used in  investing  activities  for the six months
ended  December 31, 1998 is comprised



                                       11
<PAGE>



of additions to property and equipment of $600,000  combined  with  additions to
other investing  activities,  including software development costs, of $148,000.
Net cash used in investing activities for the six months ended December 31, 1997
includes  capital  expenditures of $1,040,000,  net cash paid in connection with
the merger  with BBG of $744,000  offset,  in part,  by net sales of  marketable
equity securities of $463,000.

     Net cash provided by financing activities was $1,847,000 for the six months
ended  December 31, 1998 as compared  with cash used in financing  activities of
$511,000 for the six months ended December 31, 1997.  Cash provided by financing
activities for the six months ended December 31, 1998 includes a net increase of
$1,285,000 in  borrowings  on short term debt which was used to finance  capital
expenditures  and the  negative  operating  cash flow,  as well as  proceeds  of
$997,000  from the  exercise  of stock  options  during  the  period,  offset by
payments on capital  leases of $455,000.  Net cash used in financing  activities
for the six months ended  December 31, 1997  resulted  from loan  repayments  of
$548,000 in connection  with the  acquisition  of BBG and principal  payments on
long-term  capital  leases of  $85,000,  offset by  proceeds  of  $122,000  from
exercised stock options during the six months ended December 31, 1997.

     Cash on hand at December 31, 1998 was $6,965,000.  In addition, the Company
has  available a $5,000,000  line of credit with the Bank of New York,  of which
$3,536,000  is available.  The Company  believes  that cash  generated  from its
operations in fiscal 1999 or available through its existing borrowing facilities
will be sufficient to fund its  operations,  pay required debt and capital lease
obligations,  and continue the Company's growth strategy  through  acquisitions.
However,  there can be no assurance that operations and the funding required for
any acquisitions  that cannot be structured solely with common stock or deferred
payments can be fully financed by these sources.  The Company may be required to
seek  additional  sources of capital to  facilitate  transactions  that  require
significant  cash  payments.  There can be no  assurance  that  such  additional
capital  will be  available  when  needed,  and the  inability  to  obtain  such
financing could adversely  affect the Company's  ability to achieve its business
objectives.

IMPACT OF YEAR 2000

     The Year 2000  ("Y2K")  issue is the  result  of  computer  programs  being
written  using two digits,  rather  than four,  to define the  applicable  year.
Accordingly,  any of the Company's  computer  programs that have date  sensitive
software may cause system failures or  miscalculations  if data entry of "00" is
recognized as the year 1900 rather than 2000.  The Company has instituted a plan
to assess its state of readiness  for Y2K, to remediate  those  systems that are
non-compliant and to assure that material third parties will be Y2K compliant.

STATE OF READINESS

     The Company has assessed all mainframe,  operating and application  systems
for Y2K  readiness,  giving  highest  priority to those  information  technology
applications  ("IT")  systems  that  are  considered  critical  to its  business
operations.  At present,  approximately  80 percent of the IT systems  have been
remediated.  The  Company's  primary  focus  is the  state of  readiness  of the
Internet  infrastructure and is working with the Internet Engineering Task Force
(of which the



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<PAGE>



Company is a member),  Cisco  Systems and Worldcom to ensure  mitigation of risk
with redundant and Y2K compliant infrastructure. The Company's assessment of its
systems  will  be  completed  during  fiscal  1999.  Extensive  testing  of  the
remediated systems will be performed  throughout 1999 for implementation  during
the year.

     The Company is presently  compiling  an  inventory  of its non-IT  systems,
which include those systems containing  embedded chip technology  commonly found
in buildings and equipment connected with a buildings' infrastructure.  Once the
inventory  is  complete,  the  systems  will be  prioritized  and  assessed  for
compliance.  Preliminary  investigations  of the embedded chip systems  indicate
that Y2K will not effect systems such as heating,  ventilation, and security. On
going  testing and  implementation  of any  remediation  required for the non-IT
systems will be performed throughout 1999.

MATERIAL THIRD PARTIES

     Key vendors and service providers have been identified,  and management has
provided  its  vendors  with the tools  needed to perform  their Y2K  compliance
initiatives.  Due to the Company  having state of the art computer  systems,  no
hardware  upgrade  will be  required.  However,  the Company is working with and
seeking Y2K compliance  statements from its software vendors, such as Microsoft,
Sun Microsystems and Apple.

Y2K COSTS

     The Company is utilizing  both  internal and external  resources to address
the Y2K issue.  Internal  resources  reflect the reallocation of IT personnel to
the Y2K  project  from other IT  projects.  In the  opinion of  management,  the
deferral of such other  projects will not have a significant  adverse  affect on
continuing  operations.  The  Company  estimates  the  total  direct  amount  to
remediate the Y2K issue to be immaterial to the Company's  results of operations
or  financial  condition.  All costs will be  expensed as  incurred,  unless new
software is purchased which will be capitalized.

CONTINGENCY PLAN/RISKS

     The Company is in the  process of  developing  contingency  plans for those
areas that might be affected by Y2K. Although the full consequences are unknown,
the failure of either the  Company's  critical  systems or those of its material
third  parties  to be Y2K  compliant  would  result in the  interruption  of its
business,  which  could  have  a  material  adverse  affect  on the  results  of
operations or financial condition of the Company.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking  statements within the meaning of the federal
securities laws. All statements of historical facts,  which address  activities,
events or developments that the Company expects or anticipates will or may occur
in the future,  including such things as expansion,  strategic plans,  growth of
the  Company's  business and  operations,  Y2K related  actions,  and other such
matters are forward-looking statements. The forward-looking statements are based
on many



                                       13
<PAGE>



assumptions and factors including  effects of consumer  preferences and economic
conditions  worldwide which affect the timing and amount of projects  undertaken
by the Company's  clients,  which can affect  client  project  expenditures.  In
addition,  the cost and availability of capital for the Company,  and the effect
of foreign currency  exchange rates and the ability of the Company to implement,
in a timely  manner,  the  programs  and actions  related to the Y2K issue.  Any
changes in such  assumptions  or factors could produce  significantly  different
results.






                                       14
<PAGE>



                            PART II-OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On September 25, 1998,  Michael R. Farrell,  a shareholder  of the Company,
filed a putative  class action suit,  styled  Farrell v. Think New Ideas,  Inc.,
Scott Mednick,  Melvin Epstein and Ronald Bloom,  No. 98 Civ. 6809,  against the
Company,  Ronald  Bloom and Melvin  Epstein  (both  officers of the Company) and
Scott Mednick (a former officer of the Company) (the "Farrell  Complaint").  The
suit was filed in the United States District Court for the Southern  District of
New York on behalf of all persons who purchased or otherwise  acquired shares of
the  Company's  common  stock,  (the  "Common  Stock") in the class  period from
November 14, 1997 through September 21, 1998.

     On various  dates in October 1998,  six  additional  putative  class action
suits were filed in the same court  against  the same  parties by six  different
individuals, each purporting to represent a class of purchasers of Common Stock.
These subsequent suits claimed  substantially similar class periods (one alleged
a class period starting on November 5, 1997,  rather than November 14, 1997) and
made similar  allegations as those made in the Farrell  Complaint.  All seven of
these  lawsuits  were  ultimately  transferred  to Judge  Sidney H. Stein of the
United  States  District  Court  for  the  Southern  District  of New  York  and
consolidated  by order of the Court,  dated  December 15, 1998,  into one action
styled In Re: Think New Ideas, Inc., Consolidated Securities Litigation,  No. 98
Civ. 6809 (SHS).

     Pursuant to an order of the Court,  the plaintiffs filed a Consolidated and
Amended  Class  Action  Complaint  on  February  10,  1999  (the   "Consolidated
Complaint"). The Consolidated Complaint supersedes all prior complaints filed in
all of these cases and will serve as the operative complaint in the consolidated
class action. The Consolidated  Complaint names fourteen  individual  plaintiffs
and  purports  to be filed on behalf  of a class of  individuals  who  purchased
Common Stock from November 5, 1997 through  September 21, 1998. The Consolidated
Complaint makes substantially similar allegations as the Farrell Complaint. Like
the Farrell Complaint,  the Consolidated  Complaint alleges that the Company and
certain of its current and former officers and directors disseminated materially
false and  misleading  information  about the Company's  financial  position and
results of operations through certain public statements and in certain documents
filed by the company with the SEC. The Consolidated Complaint alleges that these
statements  and  documents  caused  the market  price of the Common  Stock to be
artificially  inflated. The plaintiffs further allege that they purchased shares
of Common Stock at such  artificially  inflated prices and suffered damages as a
result.  The relief sought in the  Consolidated  Complaint is  unspecified,  but
includes a plea for  compensatory  damages and interest,  punitive damages where
appropriate, reasonable costs and expenses associated with the action (including
attorneys' fees and experts' fees) and such other relief as the Court deems just
and proper.

     Management  believes  that the  Company  has  meritorious  defenses  to the
Consolidated Complaint and intends to contest it vigorously.  Although there can
be no assurance as to the outcome of these matters, unfavorable resolution could
have a material  adverse  effect on the results of operations  and/or  financial
condition of the Company in the future.


                                       15
<PAGE>



ITEM 2.  CHANGES IN SECURITIES

     There have been no changes in the securities of the Company  required to be
disclosed pursuant to this item.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     There have been no material  defaults with respect to any  indebtedness  of
the Company required to be disclosed pursuant to this item.

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

     There have been no matters  submitted to a vote of security  holders during
the period ended December 31, 1998.

ITEM 5.  OTHER INFORMATION AND SUBSEQUENT EVENTS

     There is no other  information  or subsequent  events to report at December
31, 1998.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS.

Exhibit 27, Financial Data Schedule.

(b)  Reports on Form 8-K. The Company did not file a current  report on Form 8-K
     during the quarter ended December 31, 1998.


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<PAGE>



                                   SIGNATURES

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

February 12, 1999                        THINK New Ideas, Inc.

                                         By:  /s/  Melvin Epstein
                                            ------------------------------------
                                         Melvin Epstein, Chief Financial Officer





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