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<TYPE>10-Q
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<FILING-DATE>20010814
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<CONFORMED-NAME>AGENCY COM LTD
<CIK>0001086403
<ASSIGNED-SIC>7389
<IRS-NUMBER>133808969
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
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<FILE-NUMBER>000-28293
<FILM-NUMBER>1712971
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<BUSINESS-ADDRESS>
<STREET1>20 EXCHANGE PL
<CITY>NEW YORK
<STATE>NY
<ZIP>10005
<PHONE>2123588220
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<CITY>NEW YORK
<STATE>NY
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<FILENAME>file001.txt
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
<PAGE>

================================================================================

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                         COMMISSION FILE NUMBER 0-28293

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

                                 AGENCY.COM LTD.
             (Exact Name Of Registrant As Specified In Its Charter)


                DELAWARE                               13-3808969
      (State or Other Jurisdiction of    (I.R.S. Employer Identification Number)
       Incorporation or Organization)

       20 EXCHANGE PLACE, 15TH FLOOR                      10005
            NEW YORK, NEW YORK                          (ZIP Code)
           (Address of Principal
             Executive Offices)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 358-2600

           SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE

              SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:



           Title of Class                 Name on Exchange on which Registered
------------------------------------    ----------------------------------------
   COMMON STOCK, $0.001 PAR VALUE               NASDAQ NATIONAL MARKET


     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 38,882,339 shares of Common Stock outstanding as of August 10,
2001.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE
================================================================================

<PAGE>


TABLE OF CONTENTS


                                                                           PAGE

PART I.     FINANCIAL INFORMATION                                            1

ITEM 1.     Unaudited Consolidated Financial Statements                      1

            Consolidated Balance Sheets as of December 31, 2000
            (audited) and June 30, 2001                                      1

            Consolidated Statements of Operations for the Three
            Months and Six Months Ended June 30, 2000 and 2001               2

            Consolidated Statements of Cash Flows for the Six
            Months Ended June 30, 2000 and 2001                              3

            Notes to Consolidated Financial Statements                       4

ITEM 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              8

ITEM 2A.    Risk Factors                                                    13

ITEM 3.     Quantitative and Qualitative Disclosures about Market Risk      20

PART II.    OTHER INFORMATION                                               21

ITEM 1.     Legal Proceedings                                               21

ITEM 2.     Change in Securities                                            21

ITEM 4.     Submission of Matters to a Vote of Security Holders             22

ITEM 6.     Exhibits and reports on Form 8-K                                22

Signatures                                                                  23

<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                        AGENCY.COM LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                                                DECEMBER 31, 2000    JUNE 30, 2001
                                                                                                  --------------    --------------
                                                                                                     (AUDITED)        (UNAUDITED)
<S>                                                                                               <C>               <C>
ASSETS
Current Assets:
Cash and cash equivalents .....................................................................   $       70,659    $       53,135
Certificates of deposit .......................................................................            4,883             5,014
Accounts receivable, net of allowances of $5,144 and $5,347, respectively .....................           32,669            18,262
Unbilled charges ..............................................................................            7,173             6,988
Prepaid expenses and other current assets .....................................................            1,842             3,334
Other receivables .............................................................................            5,157               835
Due from related parties ......................................................................            3,029             4,278
                                                                                                  --------------    --------------
     Total current assets .....................................................................          125,412            91,846
Property and equipment, net of accumulated depreciation and amortization
     of $14,726 and $17,358, respectively .....................................................           28,300            29,565
Intangibles, net of accumulated amortization of $26,179 and $34,973, respectively .............           88,161            80,626
Deferred tax assets ...........................................................................            8,705            12,687
Investments and other assets ..................................................................            4,222             5,746
                                                                                                  --------------    --------------
     Total assets .............................................................................   $      254,800    $      220,470
                                                                                                  ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .........................................................   $       28,262    $       27,740
Accrued restructuring costs ...................................................................           11,086            25,703
Income taxes payable ..........................................................................            1,472             2,444
Deferred revenue ..............................................................................           10,757            13,509
Current portion of capital lease obligations ..................................................            2,117             3,095
                                                                                                  --------------    --------------
     Total current liabilities ................................................................           53,694            72,491
                                                                                                  --------------    --------------
Long-Term Liabilities:
Deferred tax liabilities ......................................................................            3,389             2,959
Capital lease obligations .....................................................................            2,750             3,880
Deferred rent .................................................................................            2,993             4,180
Other long-term liabilities ...................................................................              460               660
                                                                                                  --------------    --------------
     Total long-term liabilities ..............................................................            9,592            11,679
                                                                                                  --------------    --------------
     Total liabilities ........................................................................           63,286            84,170
                                                                                                  --------------    --------------

Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $0.001 par value 10,000,000 shares authorized; none issued or outstanding
     as of December 31, 2000 and June 30, 2001, respectively ..................................             --                --
Common stock, $0.001 par value, 200,000,000 shares authorized; 38,260,067 and 38,870,777
     shares issued and outstanding at December 31, 2000 and June 30, 2001, respectively........               38                39
Treasury stock, 150,000 shares at cost ........................................................             (882)             (882)
Additional paid-in capital ....................................................................          220,724           223,002
Accumulated deficit ...........................................................................          (28,410)          (85,734)
Accumulative other comprehensive income (loss) ................................................               44              (125)
                                                                                                  --------------    --------------
     Total stockholders' equity ...............................................................          191,514           136,300
                                                                                                  --------------    --------------
     Total liabilities and stockholders' equity ...............................................   $      254,800    $      220,470
                                                                                                  ==============    ==============
</TABLE>

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                       1
<PAGE>

                        AGENCY.COM LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                                                   ---------------------------      -------------------------
                                                                      2000            2001            2000            2001
                                                                      ----            ----            ----            ----
                                                                         (UNAUDITED)                          (UNAUDITED)
<S>                                                               <C>             <C>             <C>             <C>
Revenues ......................................................   $     50,227    $     25,787    $     88,732    $     66,847
Direct salaries and costs .....................................         24,648          20,136          44,490          44,040
                                                                  ------------    ------------    ------------    ------------
     Gross profit .............................................         25,579           5,651          44,242          22,807
General and administrative ....................................         17,918          43,091          32,431          62,633
Sales and marketing ...........................................          2,949           2,947           5,525           7,301
Depreciation and amortization .................................          1,724           2,050           3,272           4,046
Amortization of intangibles ...................................          4.310           4,400           8,408           8,793
Non-cash compensation .........................................            773             412           1,546             831
                                                                  ------------    ------------    ------------    ------------
     Loss from operations .....................................         (2,095)        (47,249)         (6,940)        (60,797)
Interest income, net ..........................................            758             359           1,772             819
                                                                  ------------    ------------    ------------    ------------
     Loss before income taxes .................................         (1,337)        (46,890)         (5,168)        (59,978)
Provision for (benefit from) income taxes .....................             29              92             350          (2,654)
                                                                  ------------    ------------    ------------    ------------

     Net loss .................................................   $     (1,366)   $    (46,982)   $     (5,518)   $    (57,324)
                                                                  ============    ============    ============    ============
Per share information:
     Net loss per common share
         Basic and diluted ....................................   $      (0.04)   $      (1.21)   $      (0.16)   $      (1.48)
                                                                  ============    ============    ============    ============
     Weighted average common shares used in computing per share
     amounts:
         Basic and diluted ....................................     35,296,740      38,718,155      35,161,147      38,666,868
                                                                  ============    ============    ============    ============
</TABLE>

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

                                        2
<PAGE>

                        AGENCY.COM LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED JUNE 30,
                                                                                             -------------------------
                                                                                                 2000        2001
                                                                                                 ----        ----
                                                                                                     (UNAUDITED)
<S>                                                                                            <C>         <C>
Cash Flows from Operating Activities:
Net loss ...................................................................................   $ (5,518)   $(57,324)
Adjustments to reconcile loss to net cash used in operating activities-
     Allowance for doubtful accounts .......................................................      2,687         203
     Depreciation and amortization .........................................................     11,680      12,839
     Deferred income taxes .................................................................         13      (4,412)
     Deferred rent .........................................................................      1,439       1,187
     Non-cash compensation expense .........................................................      1,546         832
Changes in operating assets and liabilities:
     Accounts receivable ...................................................................    (16,429)     14,204
     Unbilled charges ......................................................................     (3,867)        185
     Prepaid expenses and other current assets .............................................         92      (1,492)
     Other receivables .....................................................................       --         4,322
     Due to/from related parties ...........................................................      1,334      (1,249)
     Other assets ..........................................................................       --           292
     Accounts payable and accrued expenses .................................................      1,601        (522)
     Accrued restructuring costs............................................................       --        18,145
     Income taxes payable ..................................................................        250         972
     Deferred revenue ......................................................................        466       2,752
     Other long-term liabilities ...........................................................        413         200
                                                                                               --------    --------
Net cash used in operating activities ......................................................     (4,293)     (8,866)
                                                                                               --------    --------
Cash Flows from Investing Activities:
     Capital expenditures ..................................................................     (4,819)     (5,100)
     Acquisitions, net of cash acquired ....................................................    (10,811)        (98)
     Purchase of certificates of deposit ...................................................       --          (131)
     Investment in affiliate ...............................................................        777      (1,817)
                                                                                               --------    --------
Net cash used in investing activities ......................................................    (14,853)     (7,146)
                                                                                               --------    --------
Cash Flows from Financing Activities:
     Registration costs ....................................................................       (314)       --
     Payments under capital lease obligations ..............................................       (951)     (1,629)
     Proceeds from employee stock purchase plan ............................................      2,567         224
     Proceeds from exercise of stock options ...............................................        607          62
                                                                                               --------    --------
Net cash provided by (used in) financing activities ........................................      1,909      (1,343)
                                                                                               --------    --------
Effect of Exchange Rate on Cash and Cash Equivalents .......................................        226        (169)
                                                                                               --------    --------
Net decrease in Cash and Cash Equivalents ..................................................    (17,011)    (17,524)
Cash and Cash Equivalents, beginning of period .............................................     85,035      70,659
                                                                                               --------    --------
Cash and Cash Equivalents, end of period ...................................................   $ 68,024    $ 53,135
                                                                                               ========    ========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid ..........................................................................   $    337    $    667
                                                                                               ========    ========
Interest paid ..............................................................................   $     81    $    263
                                                                                               ========    ========
Supplemental Disclosure of Non-cash Investing Activities:
Equipment acquired under capital leases ....................................................   $    796    $  3,738
                                                                                               ========    ========
Retirement of fixed assets .................................................................   $    869    $  3,401
                                                                                               ========    ========
Supplemental Disclosure of Non-cash Financing Activities:
Common stock issued for acquisitions .......................................................   $  7,282    $  1,161
                                                                                               ========    ========
</TABLE>


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


                                       3
<PAGE>

AGENCY.COM LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS

     AGENCY.COM Ltd. and its subsidiaries (collectively the "Company" or
"AGENCY.COM") is an international Internet, interactive television, and mobile
business professional services firm. The Company provides clients with an
integrated set of strategy, creative, and technology services that takes them
from concept to launch and operation of their interactive businesses. The
Company's services include: advising, consulting, and planning on the strategic
implications of interactive technologies for a company's business; designing
creative, content, interface, and information architecture elements of
Internet-related resources such as Web sites; programming, technical
architecture development and systems integration to implement complex
information technology systems such as electronic commerce platforms; and
planning and executing online marketing strategies that build audiences and
develop brand awareness. In order to serve its global clients, AGENCY.COM
currently has offices in New York; Atlanta; Chicago; Dallas; Portland, Oregon;
San Francisco; Boston, Massachusetts; Woodbridge, New Jersey; London; Paris;
Amsterdam and Copenhagen. AGENCY.COM also has minority investments in companies
in Singapore, Korea, Australia, and Miami, Florida.

     PRINCIPLES OF CONSOLIDATION

     The accompanying unaudited Consolidated Financial Statements of the Company
have been prepared pursuant to the rules of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K, (File No. 0-28293). In the opinion of
management, the accompanying unaudited consolidated financial statements reflect
all adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results for the periods presented.

     The results of operations presented for the three months and six months
ended June 30, 2000 and 2001, are not necessarily indicative of the results to
be expected for any other interim period or any future fiscal year.

     RECLASSIFICATIONS

     Certain reclassifications have been made to the prior year's Consolidated
Financial Statements to conform to current year presentation.

2.  NET LOSS PER COMMON SHARE

     The Company computes net income (loss) per common share in accordance with
the Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings Per Share". Under the provisions
of SFAS No. 128, basic net income (loss) per common share ("Basic EPS") is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding. Diluted net income (loss) per common share ("Diluted EPS")
is computed by dividing net income (loss) by the weighted average number of
common shares and dilutive common share equivalents then outstanding. SFAS No.
128 requires the presentation of both Basic EPS and Diluted EPS on the face of
the consolidated statements of operations.

     Basic and Diluted EPS are the same for the three months and six months
ended June 30, 2000 and 2001, as Diluted EPS does not include the impact of
stock options and warrants then outstanding, as the effect of their inclusion
would be antidilutive.

3.  COMPREHENSIVE LOSS

     The Company adheres to the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income (loss) and its components in a financial statement that is
displayed with the same prominence as other financial statements.

                                       4
<PAGE>

3.  COMPREHENSIVE LOSS (CONTINUED)

     The components of comprehensive loss are as follows:


<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED JUNE 30,          SIX MONTHS ENDED JUNE 30,
                                          ---------------------------          -------------------------
                                            2000              2001              2000              2001
                                            ----              ----              ----              ----
<S>                                       <C>               <C>               <C>               <C>
Net Loss                                  $ (1,366)         $(46,982)         $ (5,518)         $(57,324)
Foreign currency translation adjustment        110               123               225              (169)
                                          --------          --------          --------          --------
                                          $ (1,256)         $(46,859)         $ (5,293)         $(57,493)
                                          ========          ========          ========          ========
</TABLE>

4.  RECENT ACCOUNTING PRONOUNCEMENTS

     In July 1999, the FASB approved SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective date of FASB
Statement No. 133". SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. The adoption of SFAS No. 133 in 2001 did not
have a material effect on the Company's Consolidated Financial Statements.

     In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective
January 1, 2002. The Company is currently evaluating the effect that adoption of
the provisions of SFAS No. 142 that are effective January 1, 2002 will have on
its results of operations and financial position.

5.  RESTRUCTURING AND OTHER COSTS

     In December 2000, the Company reorganized its operations through a
restructuring plan in order to more properly align its capacity with the
changing demand environment for interactive services. The restructuring plan
included the closure of the Vail, Colorado office and other select company-wide
staff reductions. Overall, the Company reduced its workforce by approximately
190 employees, approximately 130 of which were billable consultants. In
connection with the reorganization, the Company took a charge in the fourth
quarter of 2000 of approximately $12.9 million, all of which was included in
general and administrative expenses. Unpaid amounts of $2.4 million are included
in accrued restructuring costs as of June 30, 2001.

     The December 2000 restructuring charges consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                       Expense for year ended     Payments and Writeoffs        Accrual at
                                          December 31, 2000              to date              June 30, 2001
                                      ------------------------    ----------------------    -----------------
<S>                                              <C>                     <C>                     <C>
Severance                                        $ 3,768                 $ 3,768                 $  --
Office closure                                     3,665                   1,326                   2,339
Abandonment of fixed assets                        3,620                   3,620                    --
Other restructuring costs                            516                     480                      36
                                                 -------                 -------                 -------
Total restructuring costs                         11,569                   9,194                   2,375
Other costs                                        1,376                   1,368                       8
                                                 -------                 -------                 -------
Total restructuring and other costs              $12,945                 $10,562                 $ 2,383
                                                 =======                 =======                 =======
</TABLE>

     In May 2001, the Company announced that it was further restructuring its
operations to more properly align its capacity with the demand for interactive
services. The Company's restructuring plan included the reduction of its global
workforce by approximately 25%, or 320 employees, including approximately 240
billable consultants. In connection with the reorganization, the Company
recorded a charge of approximately $28.3 million, all of which was included in
general and administrative expenses. Unpaid amounts of $23.3 million are
included in accrued restructuring costs in the liability section of the balance
sheet.





                                       5
<PAGE>

5.  RESTRUCTURING AND OTHER COSTS (CONTINUED)

     The May 2001 restructuring charges consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                        Expense for six months ended    Payments and Writeoffs to            Accrual At
                                               June 30, 2001                       date                    June 30, 2001
                                      ------------------------------   ---------------------------    -----------------------
<S>                                              <C>                            <C>                         <C>
Severance                                        $ 4,175                        $ 3,130                     $ 1,045
Real estate related charges                       21,431                            726                      20,705
Other restructuring costs                            400                            313                          87
                                                 -------                        -------                     -------
Total restructuring costs                         26,006                          4,169                      21,837
Other costs                                        2,255                            772                       1,483
                                                 -------                        -------                     -------
Total restructuring and other costs              $28,261                        $ 4,941                     $23,320
                                                 =======                        =======                     =======
</TABLE>

6.  MERGER

     On May 14, 2001, subject to a number of conditions and government
approvals, the Company's founders reached an agreement with Seneca Investments,
LLC ("Seneca"), an e-services holding company formed by Omnicom Group, Inc.
("Omnicom") and Pegasus Partners II, L.P., an investment company based in
Greenwich, CT., to sell their shares in the Company to Seneca for cash. Upon
closing of the agreement, Seneca has indicated its stake in the Company would
increase from approximately 45% (calculated by diluting for warrants but not
options), which stake was recently transferred to it from Omnicom, to
approximately 66% (calculated by diluting for warrants but not options) by
acquiring the shares of the founders. The purchase price of the founders' shares
would be paid in cash, with an initial payment upon the closing of the
transaction being equal to approximately $0.94 per share, a potential second
payment of up to $0.47 per share, and additional cash payments over time for the
founders' shares in the form of an earn-out, based upon AGENCY.COM's
profitability over a number of years ending December 31, 2006. It is expected
that the founders would continue in their current management roles with the
Company.

     On June 26, 2001, the Company entered into a merger agreement with Seneca
and its wholly-owned subsidiary. Under this merger agreement, Seneca agreed to
acquire the remaining publicly-held shares of the Company by means of a merger
such that the Company would become a wholly-owned subsidiary of Seneca, and
Seneca would become the sole stockholder of the Company. As a result of the
merger, each outstanding share of the Company's common stock--other than those
shares held by Seneca or any of its subsidiaries or affiliates, or those shares
that certain directors and officers have agreed to sell to Seneca's subsidiary
in the separately-negotiated transaction--will be converted into the right to
receive $3.35 in cash, without interest and less any applicable withholding
taxes. Adoption of the merger agreement and approval of the merger will require
the affirmative vote of the holders of 66-2/3% in voting power of all
outstanding shares of the Company's common stock that are not held by Seneca and
its affiliates.

7.  COMMITMENTS AND CONTINGENCIES

     The Company is currently aware that five stockholder class actions alleging
violations of the federal securities laws and seeking monetary damages have been
filed in federal court in the Southern District of New York in June, July and
August, 2001 against the Company, Messrs. Suh, Shannon, Dickson and Trush, and
our principal underwriters in the Company's initial public offering, Goldman
Sachs & Co., Hambrecht & Quist LLC and Salomon Smith Barney. These lawsuits
allege that the underwriter defendants agreed to allocate stock in the Company's
initial public offering to certain investors in exchange for excessive and
undisclosed commissions and agreements by those investors to make additional
purchases of stock in the aftermarket at pre-determined prices. They further
allege that the prospectus and registration statement for the Company's initial
public offering was false and misleading in violation of the securities laws
because it did not disclose these arrangements. The Company and its current
officers and directors intend to vigorously defend the actions.

     In addition, in May 2001, two stockholder class actions, with allegations
principally regarding Seneca's initial proposal to acquire our outstanding
shares for a price of $3.00 per share, were filed in Delaware state court
against Seneca Investments, LLC, our largest stockholder ("Seneca"), AGENCY.COM
and our directors. The actions allege breach of fiduciary duty with respect to
Seneca's proposal on May 14, 2001 to acquire the remaining public shares of our
common stock for a price of $3.00 per share.



                                       6
<PAGE>

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

     On June 26, 2001, counsel for the parties to this consolidated action
entered into a memorandum of understanding setting forth an agreement in
principle to settle the actions based on an increase by Seneca in the price
proposed to be paid in connection with the proposed merger between the Company
and Seneca. The proposed settlement class will consist of all stockholders
(other than affiliates of defendants) who were security holders during the
period from May 14, 2001, to and including the effective date of the merger, and
successors-in-interest. In the memorandum of understanding, defendants
acknowledged that the pendency and prosecution of the actions were a material
factor in Seneca's determination to increase the consideration to be paid in the
merger.

     Pursuant to the memorandum of understanding, in exchange for the increase
in merger consideration, among other things, plaintiffs have agreed to seek a
court order approving the settlement, dismissing the actions with prejudice and
releasing all claims of the members of the plaintiff class against the
defendants relating to the initial proposal by Seneca to acquire the Company's
shares, Seneca's conduct, the conduct of the Company's board or the special
committee and the separately-negotiated agreement by some or the Company's
directors and officers to sell their shares to Seneca's subsidiary. All parties
agreed in the memorandum of understanding that neither the memorandum of
understanding nor the stipulation of settlement that it contemplates constitute
an admission of the validity or infirmity of any claim against the defendants or
of the liability of any defendant.

     The proposed settlement contemplated in the memorandum of understanding is
subject to a number of conditions, including adoption of the merger agreement
between the Company and Seneca by the requisite stockholder vote at the special
meeting of the Company, which has yet to be scheduled, consummation of the
merger, and final approval by the Delaware Court of Chancery. If the Court
approves the proposed settlement, plaintiffs' counsel intends to apply to the
Court for an award of fees and expenses.

     The Company, from time to time, becomes involved in various routine legal
proceedings in the ordinary course of its business. The Company believes that
the outcome of these pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its consolidated results of
operations, consolidated financial position, or liquidity.







                                       7
<PAGE>

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

     This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, and actual results
could be significantly different than those discussed in this Quarterly Report
on Form 10-Q. All forward-looking statements included in this document are made
as of the date hereof, based on information available to the Company on the date
thereof, and the Company assumes no obligation to update any forward-looking
statements.

OVERVIEW

     The Company is an international Internet, interactive television, and
mobile business professional services firm. We provide our clients with an
integrated set of strategy, creative, and technology services that take them
from concept to launch and operation of their interactive business. We deliver
our services through our multidisciplinary teams of strategy, creative,
technology, and project management specialists. These services help our clients
create and enhance relationships with their customers, staff, business partners,
and suppliers. Our geographic reach extends to 12 cities in the United States
and Europe and we have made minority investments in companies based in
Singapore, Korea, Australia, and Miami, Florida.

     We derive our revenues from services performed under one of three pricing
arrangements: retainer, time-and-materials, and fixed-fee. The services
performed under any of these arrangements are substantially identical.

     We bill and recognize revenues from retainer agreements on a monthly basis
while the agreement is in effect. We believe that retainer agreements are
indicative of our strong, long-term relationships with clients, which yield
significant benefits both to our clients and to the Company. We believe that we
will achieve greater predictability of revenues and higher revenue growth with
clients who engage us in retainer-based relationships. Retainer agreements are
generally one year in length and include a renewal clause. Typically, retainer
relationships with clients result in additional fixed-fee and time-and-materials
projects since retainer arrangements may not cover the full cost of specific
projects. Retainer fees represented approximately 15.4% and 19.1% of our
revenues for the three months ended June 30, 2001 and 2000 respectively. For the
six months ended June 30, 2001 and 2000, retainer fees represented approximately
13.2% and 15.1%, respectively. Revenue from clients with whom we have retainer
relationships represented approximately 36.2% and 37.1% of our revenues for the
three months ended June 30, 2001 and 2000, respectively. For the six months
ended June 30, 2001 and 2000, revenue from clients with whom we had retainer
relationships represented approximately 37.2% and 32.5%, respectively.
Consistent with our focus on long-term relationships, our goal is to increase
the number of retainer-based arrangements. To the extent we acquire companies in
the future that differ in their allocation of contract types, the percentage of
revenue we derive from each type of contract may differ from current
percentages.

     We bill and recognize revenues from time-and-materials projects as services
are provided on the basis of costs incurred in the period. We estimate these
costs according to an internally developed process. This process takes into
account the type and overall complexity of the project, the anticipated number
of personnel with various skill sets needed and their associated billing rates,
and the estimated duration of and risks associated with the project. Management
personnel familiar with the production process evaluate and price all project
proposals.

     We recognize revenues from fixed-fee projects as services are provided upon
the achievement of specified milestones. Revenue is recognized on partially
completed milestones in proportion to the costs incurred for that milestone and
only to the extent that an irrevocable right to the revenue exists. Fees are
billed to the client over the course of the project. Revenue is only recognized
when persuasive evidence of an arrangement exists, services have been rendered,
fees are fixed or determinable, and collectibility is reasonably assured. We
estimate the price for fixed-fee projects using the same methodology as
time-and-materials projects. All fixed-fee proposals must be approved by a
member of our senior management team.

     Provisions for estimated losses on all three types of contracts are made
during the period in which such losses become probable and can be reasonably
estimated. To date, such losses have not been significant. We report revenue net
of reimbursable expenses.

     For the three months and six months ended June 30, 2001 and 2000, no client
accounted for more than 10% of revenues.

     In December 2000, the Company reorganized its operations through a
restructuring plan in order to more properly align its capacity with the
changing demand environment for interactive services. The restructuring plan
included the closure


                                       8
<PAGE>

of the Vail, Colorado office and other select company-wide staff reductions.
Overall, the Company reduced its workforce by approximately 190 employees,
approximately 130 of which were billable consultants. In connection with the
reorganization, the Company took a charge in the fourth quarter of 2000 of
approximately $12.9 million, all of which was included in general and
administrative expenses. Unpaid amounts of $2.4 million are included in accrued
restructuring costs as of June 30, 2001.

     The December 2000 restructuring charges consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                  Expense for year ended      Payments and Writeoffs          Accrual at
                                    December 31, 2000                 to date                June 30, 2001
                                 ------------------------    ------------------------    -----------------------
<S>                                      <C>                         <C>                         <C>
Severance                                $ 3,768                     $ 3,768                     $   --
Office closure                             3,665                       1,326                      2,339
Abandonment of fixed assets                3,620                       3,620                         --
Other restructuring costs                    516                         480                         36
                                         -------                     -------                     -------
Total restructuring costs                 11,569                       9,194                      2,375
Other costs                                1,376                       1,368                          8
                                         -------                     -------                     -------
Total restructuring and other costs      $12,945                     $10,562                     $ 2,383
                                         =======                     =======                     =======
</TABLE>

     In May 2001, the Company announced that it was further restructuring its
operations to more properly align its capacity with the demand for interactive
services. The Company's restructuring plan included the reduction of its global
workforce by approximately 25%, or 320 employees, including approximately 240
billable consultants. In connection with the reorganization, the Company
recorded a charge of approximately $28.3 million, all of which was included in
general and administrative expenses. Unpaid amounts of $23.3 million are
included in accrued restructuring costs in the liability section of the
balance sheet.

     The May 2001 restructuring charges consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                         Expense for six months ended    Payments and Writeoffs       Accrual at
                                               June 30, 2001                    to date              June 30, 2001
                                         ----------------------------    ----------------------    -----------------
<S>                                              <C>                           <C>                       <C>
Severance                                        $ 4,175                       $ 3,130                   $ 1,045
Real estate related charges                       21,431                           726                    20,705
Other restructuring costs                            400                           313                        87
                                                 -------                       -------                   -------
Total restructuring costs                         26,006                         4,169                    21,837
Other costs                                        2,255                           772                     1,483
                                                 -------                       -------                   -------
Total restructuring and other costs              $28,261                       $ 4,941                   $23,320
                                                 =======                       =======                   =======
</TABLE>

     For the three months ended June 30, 2001, we incurred a net loss of $47.0
million. As a result of this and prior losses, our accumulated deficit was $85.7
million at June 30, 2001. The net loss resulted primarily from restructuring
charges and other one time costs of $28.3 million, as well as a decrease in
gross profit due to our decline in revenue and our direct costs not decreasing
as a percentage of revenue as quickly as our decline in revenue. The net loss
also resulted to a lesser degree, from amortization of intangibles of $4.4
million, non-cash compensation expense of $0.4 million, and depreciation and
amortization expense of $2.1 million due to increased capital expenditures.
These decreases were partially offset by interest income. For the six months
ended June 30, 2001, we incurred a net loss of $57.3 million. The net loss
resulted primarily from restructuring charges and other one time costs of $28.3
million, as well as a decrease in gross profit due to our decline in revenue.
The net loss also resulted to a lesser degree, from amortization of intangibles
of $8.8 million, non-cash compensation expense of $0.8 million, and depreciation
and amortization expense of $4.0 million due to increased capital expenditures.
These decreases were partially offset by interest income and benefit from income
taxes.

     Included in the net loss for the three months and six months ended June 30,
2001 is non-cash compensation expense of $0.4 million and $0.8 million,
respectively, which is the result of the Company having granted approximately
1,783,000 stock options to employees prior to our initial public offering at
exercise prices ranging from $4.065 to $19.55 per share, which at the time of
grant, were below the fair market value of our common stock. As a result of
these grants, we have estimated cumulative compensation expense of $6.5 million,
which will be charged over the vesting period of such options. This will result
in future non-cash compensation expense of an additional $0.8 million for the
remainder of 2001, $1.2 million for the year ended December 31, 2002, and $27
thousand for the year ended December 31, 2003. The Company did not grant any
stock options prior to 1999 with exercise prices that were below the fair market
value of our common stock.

                                       9
<PAGE>

     Our revenues and earnings are affected by a number of factors, including:

     o   the amount of business developed from existing relationships;

     o   our ability to meet the changing needs of the marketplace;

     o   employee retention;

     o   billing rates;

     o   our ability to deliver complex projects on time; and

     o   efficient utilization of our employees.

     Many of our business initiatives, including our past acquisition strategy,
are aimed at enhancing these factors. Further, we believe that our focus on
retainer-based arrangements will continue to improve the predictability of our
quarter-to-quarter results.

     Our expenses include direct salaries and costs, sales and marketing,
general and administrative, depreciation and amortization of tangible assets,
and amortization of intangible assets. Direct salaries and costs include
salaries, benefits, and incentive compensation of billable employees. Billable
employees are full-time employees. Billable employees and subcontractors whose
time spent working on client projects is charged to that client at agreed upon
rates are our primary source of revenue. Direct salaries and costs also include
other direct costs associated with revenue generation. Sales and marketing
expenses include promotion and new business generation expenses as well as
salaries and benefit costs of personnel in these functions. General and
administrative expenses include the salaries and benefits costs of management
and other non-billable employees, rent, accounting, legal, and human resources
costs. Depreciation and amortization expenses primarily include depreciation of
technology equipment, furniture and fixtures, and leasehold improvements.
Amortization of intangible assets include charges for the excess of purchase
price over net tangible book value of acquired companies and the goodwill is
amortized over a period of seven years. Personnel compensation and facilities
costs represent a high percentage of our operating expenses and are relatively
fixed in advance of each quarter.

     Revenue from our international operations was $10.2 and $21.2 million for
the three months and six months ended June 30, 2000, and decreased to $7.6 and
$17.5 million for the three months and six months ended June 30, 2001, a
decrease of 25.5% and 17.5%, respectively. Net loss from international
operations was approximately $2.3 million and $1.2 million for the three months
and six months ended June 30, 2000, versus a net loss of $8.4 million and $11.0
million for the three months and six months ended June 30, 2001. This represents
an increased loss of 265% and 817%, respectively. The decrease in our
international revenue of $2.6 million for the three months ended June 30, 2001,
was primarily due to a reduction in revenue in our London and Copenhagen offices
of $1.4 million and $0.8 million, respectively. The decrease in our
international revenue of $3.7 million for the six months ended June 30, 2001,
was primarily due to a reduction in revenue in our London and Copenhagen offices
of $1.7 million and $1.9 million, respectively.

RESULTS OF OPERATIONS

     The following discussion relates to our results of operations for the
periods noted and are not necessarily indicative of the results expected for any
other interim period or any future fiscal year.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000

     REVENUES. The Company's revenues decreased by $24.4 million, or 48.6%, to
$25.8 million for the three months ended June 30, 2001 from $50.2 million for
the comparable period in 2000. The $24.4 million decrease was attributable to
existing operations and primarily reflected decreases in the average rate per
billable hour and average revenues per client. Our revenue decline for the three
months ended June 30, 2001 was not materially impacted by foreign currency
fluctuations.

     DIRECT SALARIES AND COSTS. The Company's direct salaries and costs
decreased by $4.5 million, or 18.3%, to $20.1 million for the three months ended
June 30, 2001 from $24.6 million for the comparable period in 2000. The $4.5
million decrease in direct salaries and costs was primarily due to a reduction
in headcount to approximately 800 from 1,080 employees, primarily related to the
Company restructurings in December 2000 and May 2001. As a percentage of
revenues, direct salaries

                                       10
<PAGE>

and costs increased to 77.9% of revenues for the three months ended June 30,
2001 from 49.0% of revenues for the comparable period in 2000. The increase in
direct salaries and costs as a percentage of revenues was primarily due to the
slowdown in demand for our services, which caused utilization to decrease from
72.1% to 49.7%.

     GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses increased $25.2 million, or 140.8%, to $43.1 million for
the three months ended June 30, 2001 from $17.9 million for the comparable
period in 2000. As a percentage of revenues, general and administrative expenses
increased to 167.1% for the three months ended June 30, 2001 from 35.7% for the
comparable period in 2000. The $25.2 million increase in general and
administrative expenses resulted primarily from restructuring charges and other
one time costs of $28.3 million in connection with the May 2001 reorganization,
increase in facility costs of $0.7 million to support our growth during 2000,
partially offset by decreases in labor and recruiting costs of $2.6 million, and
other net decreases of $1.2 million.

     SALES AND MARKETING EXPENSES. The Company's sales and marketing expenses
were $2.9 million for the three months ended June 30, 2001 and 2000. As a
percentage of revenues, sales and marketing expenses increased to 11.2% for the
three months ended June 30, 2001 from 5.8% for the comparable period in 2000.
The increase in sales and marketing expenses as a percentage of revenue was
directly related to our decrease in revenue.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased by $0.4 million, or 23.5%, to $2.1 million for the three months ended
June 30, 2001 compared to $1.7 million for the comparable period in 2000. As a
percentage of revenues, depreciation and amortization represented 8.1% and 3.4%
of revenues for the three months ended June 30, 2001 and the comparable period
in 2000, respectively. The $0.4 million increase in depreciation and
amortization expenses was a result of depreciation of growth-related
infrastructure investments, including technology equipment, furniture and
fixtures, and leasehold improvements made during the 2000 fiscal year.

     AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.1
million, or 2.3%, to $4.4 million for the three months ended June 30, 2001
compared to $4.3 million for the comparable period in 2000. Intangible assets,
which primarily include goodwill, customer base, and workforce, are amortized
over periods of seven, five, and three years, respectively. As a percentage of
revenues, amortization of intangibles represented 17.1% of revenues for the
three months ended June 30, 2001 and 8.6% for the comparable period in 2000.

     NON-CASH COMPENSATION. Non-cash compensation expense was $0.4 million for
the three months ended June 30, 2001, and $0.8 million for the comparable period
in 2000.

     NET LOSS. Net loss for the three months ended June 30, 2001 was $47.0
million compared to a net loss of $1.4 million for the comparable period in
2000. The $45.6 million increase in net loss was primarily attributable to
restructuring charges and other one time costs of $28.3 million, a decrease in
revenues, increased depreciation and amortization, and amortization of
intangibles, partially offset by a decrease in direct salaries and costs, a
decrease in non-cash compensation expenses, and a decrease in general and
administrative expenses (excluding restructuring charges and other one time
costs), all of which are discussed above.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000

     REVENUES. The Company's revenues decreased by $21.9 million, or 24.7%, to
$66.8 million for the six months ended June 30, 2001 from $88.7 million for the
comparable period in 2000. The $21.9 million decrease was attributable to
existing operations and primarily reflected decreases in the average rate per
billable hour and average revenues per client. Our revenue decline for the six
months ended June 30, 2001 was not materially impacted by foreign currency
fluctuations.

     DIRECT SALARIES AND COSTS. The Company's direct salaries and costs
decreased by $0.5 million, or 1.1%, to $44.0 million for the six months ended
June 30, 2001 from $44.5 million for the comparable period in 2000. The $0.5
million decrease in direct salaries and costs was primarily due to the Company
restructurings in December 2000 and May 2001. As of June 30, 2001 and 2000,
there were approximately 800 and 1,080 employees, respectively, included in
direct salaries and costs. As a percentage of revenues, direct salaries and
costs increased to 65.9% of revenues for the six months ended June 30, 2001 from
50.2% of revenues for the comparable period in 2000.

     GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses increased $30.2 million, or 93.2%, to $62.6 million for
the six months ended June 30, 2001 from $32.4 million for the comparable period
in 2000. As a percentage of revenues, general and administrative expenses
increased to 93.7% for the six months ended June 30, 2001 from 36.5% for the
comparable period in 2000. The $30.2 million increase in general and
administrative expenses resulted primarily

                                       11
<PAGE>

from restructuring charges and other one time costs of $28.3 million in
connection with the May 2001 reorganization, increases in facility costs of $3.0
million, and other net decreases of $1.1 million.

     SALES AND MARKETING EXPENSES. The Company's sales and marketing expenses
increased $1.8 million, or 32.7%, to $7.3 million for the six months ended June
30, 2001 from $5.5 million for the comparable period in 2000. As a percentage of
revenues, sales and marketing expenses increased to 10.9% for the six months
ended June 30, 2001 from 6.2% for the comparable period in 2000. The $1.8
million increase in sales and marketing expenses was primarily a result of the
increase in the number of sales personnel which contributed $0.7 million, an
increase in our marketing and branding efforts which contributed $0.6 million,
an increase in commission expense of $0.4 million, and other net increases of
$0.1 million.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased by $0.7 million, or 21.2%, to $4.0 million for the six months ended
June 30, 2001 compared to $3.3 million for the comparable period in 2000. As a
percentage of revenues, depreciation and amortization represented 6.0% and 3.7%
of revenues for the six months ended June 30, 2001 and the comparable period in
2000, respectively. The $0.7 million increase in depreciation and amortization
expenses was a result of depreciation of growth-related infrastructure
investments, including technology equipment, furniture and fixtures, and
leasehold improvements, made during fiscal year 2000 and prior.

     AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.4
million, or 4.8%, to $8.8 million for the six months ended June 30, 2001
compared to $8.4 million for the comparable period in 2000. Intangible assets,
which primarily include goodwill, customer base, and workforce, are amortized
over periods of seven, five, and six years, respectively. As a percentage of
revenues, depreciation and amortization represented 13.2% and 9.5% of revenues
for the six months ended June 30, 2001 and the comparable period in 2000,
respectively. The $0.4 million increase was due to the issuance of contingent
consideration to former shareholders of Twinspark Interactive People B.V.
("Twinspark"), Interactive Traffice, Inc. ("I-traffic"), and Pictoris
Interactive SA ("Pictoris").

     NON-CASH COMPENSATION. Non-cash compensation expense was $0.8 million for
the six months ended June 30, 2001, and $1.5 million for the comparable period
in 2000.

     NET LOSS. Net loss for the six months ended June 30, 2001 was $57.3 million
compared to a net loss of $5.5 million for the comparable period in 2000. The
$51.8 million increase in net loss was primarily attributable to restructuring
charges and other one time costs of $28.3 million, a decrease in revenues,
increased general and administrative expenses, sales and marketing expenses,
depreciation and amortization, and amortization of intangibles, partially offset
by a decrease in direct salaries and costs, and a decrease in non-cash
compensation expenses, all of which are discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have funded our operations and investments in property
and equipment primarily through cash from operations, sales of equity
securities, borrowings from Omnicom Group, Inc. ("Omnicom"), and capital leases.

     At June 30, 2001 and December 31, 2000, our cash and cash equivalents were
approximately $53.1 million and $70.7 million, respectively. At June 30, 2001
and December 31, 2000, certificates of deposit were approximately $5.0 million
and $4.9 million, respectively.

     The Company believes that its market risk exposures are immaterial as the
Company does not have instruments for trading purposes and reasonable possible
near-term changes in market rates or prices will not result in material
near-term losses in earnings, material changes in fair values, or cash flows for
all other instruments.

     Cash used in operating activities was $8.9 million for the six months ended
June 30, 2001 compared to cash used in operating activities of $4.3 million for
the six months ended June 30, 2000. Cash used in operating activities for the
six months ended June 30, 2001 was primarily a result of net loss after
adjustments to reconcile net loss to net cash of $46.7 million, an increase in
prepaid expenses and other current assets of $1.5 million, and due to/from
related parties of $1.2 million, partially offset by a decrease in accounts
receivable of $14.2 million, and other receivables of $4.3 million, and an
increase in accrued restructuring of $18.1 million, income taxes payable of $1.0
million, and deferred revenue of $2.8 million. Cash used in operating activities
for the six months ended June 30, 2000 was primarily due to net income after
adjustments to reconcile net loss to net cash of $11.8 million and an increase
in accounts receivable of $16.4 million, and unbilled charges of $3.9 million,
partially offset by an increase in accounts payable and accrued expenses of $1.6
million, and due from related parties of $1.3 million.

                                       12
<PAGE>

     Cash used in investing activities was $7.1 million for the six months ended
June 30, 2001 compared to $14.9 million for the comparable period in 2000. Cash
used in investing activities for the six months ended June 30, 2001 was
primarily the result of capital expenditures of $5.1 million and investments in
affiliates of $1.8 million. Cash used in investing activities for the six months
ended June 30, 2000 was primarily the result of capital expenditures of $4.8
million and acquisitions and investments in affiliates of $10.1 million.

     Cash used in financing activities was $1.3 million for the six months ended
June 30, 2001, and was attributable to payments under capital lease obligations
of $1.6 million, partially offset by proceeds from the employee stock purchase
plan and exercises of stock options of $0.3 million. Cash provided by financing
activities was $1.9 million for the six months ended June 30, 2000, and was
attributable to proceeds from the employee stock purchase plan and exercises of
stock options of $3.2 million, partially offset by payments under capital lease
obligations of $0.9 million.

     To date, our main sources of liquidity have been cash from operations,
borrowings from Omnicom, and proceeds from our initial public offering. We
believe that our current cash, cash equivalents, short-term investments,
available borrowings under an Omnicom credit facility and the net proceeds from
our public offering will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. On a long term basis,
our liquidity will be funded, if necessary, from additional equity or debt
financing.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 1999, the FASB approved SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective date of FASB
Statement No. 133". SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. The adoption of SFAS No. 133 in 2001 did not
have material effect on the Company's Consolidated Financial Statements.

     In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective
January 1, 2002. The Company is currently evaluating the effect that adoption of
the provisions of SFAS No. 142 that are effective January 1, 2002 will have on
its results of operations and financial position.

ITEM 2A.  RISK FACTORS

     You should carefully consider the following risks in your evaluation of the
Company. The risks and uncertainties described below are not the only ones the
Company face. Additional risks and uncertainties may also adversely impact and
impair our business. If any of the following risks actually occur, our business,
results of operations, or financial condition would likely suffer. In such a
case, the trading price of our common stock could decline, and you may lose all
or part of your investment in our common stock.

          RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

OUR REVENUES COULD BE AFFECTED BY THE LOSS OF A MAJOR CLIENT

     A substantial portion of our revenue is generated from a limited number of
major clients. In particular, our ten largest clients accounted for
approximately 42.7% of our revenues for the six months ended June 30, 2001. If
one of our major clients discontinues or reduces the use of our services, our
business, results of operations, and financial condition could materially
suffer. We cannot assure you that our clients will continue to use our services
in the future. In addition, because a substantial portion of our revenue is
generated from a limited number of clients, the non-payment or late payment of
amounts due from a major client could have a material adverse effect on our
business, results of operations, and financial condition.


                                       13
<PAGE>

IF CLIENTS PREMATURELY TERMINATE OR REDUCE THE SCOPE OF EXISTING CONTRACTS, OUR
REVENUES MAY DECLINE

     Our services are often sold pursuant to short-term arrangements and most
clients can reduce or cancel contracts for our services without penalty and with
little or no notice. These arrangements are in writing, are binding contracts,
and typically range in term from three months to one year. If a major client or
a number of small clients were to terminate, significantly reduce or modify
their business relationships with us, then our business, results of operations,
and financial condition could be materially adversely affected. Consequently,
you should not predict or anticipate our future revenue based upon the number of
clients we currently have or the number and size of our existing projects.

OUR REVENUES ARE DIFFICULT TO PREDICT, WHICH COULD LEAD TO POOR OPERATING
RESULTS

     We derive our revenues in part from fees for services generated on a
project-by-project basis. These projects vary in length and complexity, as well
as in the fee charged for our services. Revenues are recognized for
time-and-materials projects as services are provided. Revenues from fixed-fee
contracts are recognized as services are provided upon the achievement of
specified milestones. Revenue is recognized on partially completed milestones in
proportion to the costs incurred for that milestone and only to the extent that
an irrevocable right to the revenue exists. Costs incurred under fixed-fee
contracts are recognized as incurred which generally is in the same period that
revenue is recorded. Our methods of recognizing revenue also vary depending on
whether we enter into a retainer, time-and-materials, or fixed-fee arrangement
with the client. As a result, there may be significant fluctuation in the amount
of revenue generated by a particular client in different periods. Aggregate
quarterly results may fluctuate as well. We may be unable to adjust our cost
structure quickly enough to offset unexpected revenue shortfalls due to the fact
that many of our costs are fixed or are associated with commitments which cannot
be immediately terminated, which could cause our operating results to suffer.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US AND
MAY LIMIT OUR GROWTH

     Our future liquidity and capital requirements are difficult to predict as
they depend upon numerous factors, including the success of our existing and new
service offerings and competing technological and market developments. Although
we believe that we have sufficient funds for working capital, we may need to
raise additional funds in order to meet additional working capital requirements,
support additional capital expenditures, or take advantage of acquisition
opportunities. Our ability to obtain additional financing will be subject to a
number of factors, including market conditions, our operating performance, and
investor sentiment. These factors may make the timing, amount, terms, and
conditions of additional financing unattractive for us. If we are unable to
raise additional funds when needed or the terms are not favorable, our growth
could be impeded.

IF WE FAIL TO ACCURATELY ESTIMATE COSTS OF FIXED-FEE PROJECTS, OUR OPERATING
RESULTS MAY SUFFER

     We derive our revenues from services performed under one of three pricing
arrangements: retainer, time-and-materials, and fixed-fee. The majority of our
revenues are derived from time-and-materials contracts. For the second quarter
ended June 30, 2001, approximately 15% of our revenue was derived from retainer
contracts, 74% of our revenue was derived from time-and-materials contracts, and
11% was derived from fixed-fee contracts. We assume greater financial risks on a
fixed-fee project than on a time-and-materials project because we may
miscalculate the resources or time needed for these projects, which may cause
the costs of completing these projects to exceed the fixed-fee we receive and
result in our performing contracts that are not profitable, or which result in a
lower gross margin. The extent to which our operating results may be adversely
affected depends on the extent to which we miscalculate our expenses for
completing the contract. We recognize revenues from fixed-fee projects as
services are provided upon the achievement of specified milestones. Revenue is
recognized on partially completed milestones in proportion to the costs incurred
for that milestone and only to the extent that an irrevocable right to the
revenue exists. Costs incurred under fixed-fee contracts are recognized as
incurred which generally is during the same period that revenue is recorded. To
the extent our estimates of the costs associated with each fixed-fee project are
inaccurate, the revenues and operating profits, if any, that we report for
periods during which we are working on that project may not accurately reflect
the final results of the project. In this case, we may be required to record an
expense during the period in which additional anticipated costs are identified.

                    RISKS RELATED TO OUR STRATEGY AND MARKET

FAILURE TO PROPERLY MANAGE OUR OPERATIONS MAY ADVERSELY IMPACT OUR BUSINESS

     Our rapid growth from 1997 through 2000 has placed a significant strain on
our managerial and operational resources. From January 1, 1997 to June 30, 2001,
our staff increased from approximately 60 to approximately 1,090 employees. In
order

                                       14
<PAGE>

to manage this growth, we must continue to improve our financial and management
controls, reporting systems and procedures, and expand and train our work force.
We cannot be assured that our controls, systems, or procedures will be able to
support our operations or that we will be able to manage our past internal and
acquisition-based growth effectively.

OUR BUSINESS IS SENSITIVE TO NATIONAL AND REGIONAL ECONOMIC CONDITIONS. ECONOMIC
DOWNTURNS COULD HAVE AN ADVERSE IMPACT ON THE DEMAND FOR OUR SERVICES

     The market for Internet, interactive television, and mobile business
professional services is challenging. Our revenues have declined and our costs
cannot be reduced as quickly as revenues have decreased. This has adversely
affected our operational results. Continuing lack of demand for our services
could further adversely effect our results of operations. Our operating results
and financial condition may also be adversely affected by difficulties we may
encounter in collecting our accounts receivable and maintaining our profit
margins during an economic downturn.

THE MARKET FOR OUR SERVICES AND OUR REVENUE GROWTH DEPENDS ON OUR CURRENT AND
POTENTIAL CLIENTS ACCEPTING AND EMPLOYING INTERACTIVE TECHNOLOGIES

     Since we expect to derive most of our revenues from providing Internet,
interactive television, and mobile business professional services, our future
success is dependent on the increased use of interactive technologies. If
interactive technologies fail to develop into a viable marketplace, or develop
more slowly than expected, our business, results of operations, and financial
condition could materially suffer. Most of our current or potential clients have
limited experience with interactive technologies and may determine that it is
not an effective method for expanding their businesses. We cannot assure you
that the market for interactive technologies will continue to grow or become
sustainable.

     Interactive technologies may not develop into a viable commercial
marketplace because of many factors, including:

     o   the inadequate development of the necessary infrastructure;

     o   a lack of development of complementary products (such as high-speed
         modems and high-speed communication lines); and

     o   delays in the development or adoption of new standards and protocols
         required to handle increased levels of activity.

     The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and volume of traffic. We cannot
assure you that the Internet infrastructure will be able to support the demands
placed on it by this continued growth. In addition to the Internet's uncertain
ability to expand to accommodate increasing traffic, critical issues concerning
the use of the Internet (including security, reliability, cost, ease of
deployment and administration, and quality of service) remain unresolved. For
example, a number of states have recently permitted telephone companies to
charge increased rates for consumers connecting to the Internet. Concerns
regarding these issues may affect the growth of the use of interactive
technologies to solve business problems.

OUR PAST AND FUTURE ACQUISITIONS, IF ANY, SUBJECT US TO SIGNIFICANT RISKS, ANY
OF WHICH COULD HARM OUR BUSINESS

     Acquisitions involve a number of risks and present financial, managerial,
and operational challenges, including:

     o   adverse effects on our reported operating results due to the
         amortization of goodwill associated with acquisitions;

     o   diversion of management attention from running our existing business;

     o   increased expenses, including compensation expenses resulting from
         newly-hired employees; and

     o   potential disputes with the sellers of acquired businesses,
         technologies, services, or products.

     We may not be successful in integrating the technology, operations, and
personnel of any acquired business. Client satisfaction or performance problems
with an acquired business, technology, service, or product could also have a
material adverse impact on our reputation as a whole. In addition, any acquired
business, technology, service, or product could

                                       15
<PAGE>

significantly underperform relative to our expectations. For all these reasons,
our past and future acquisitions, if any, could have a material adverse effect
on our business, results of operations, and financial condition.

WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS, WHICH
LIMITS OUR BUSINESS OPPORTUNITIES

     We have agreed with some of our clients to limit, to some extent, our right
to enter into business relationships with competitors of that client for a
specific time period. These provisions typically prohibit us from performing a
broad range of our Internet, interactive television, and mobile business
professional services, which we might otherwise be willing to perform for
potential clients. These provisions are generally limited to six months and are
sometimes further limited by office location or apply only to specific
employees. These provisions may limit our ability to enter into engagements with
new clients for specified periods of time. This may adversely affect our
business opportunities and our revenues.

WE FACE INTENSE COMPETITION, WHICH COULD HARM OUR BUSINESS

     Our market is new, intensely competitive, highly fragmented, and subject to
rapid technological change. We expect competition to intensify and increase over
time because:

     o   there are no substantial barriers to entering the interactive
         professional services market;

     o   our industry is consolidating; and

     o   many of our competitors are forming cooperative relationships.

     We compete against other interactive professional services firms as well as
a number of different types of companies that are not exclusively in the
interactive professional services business. These competitors, which generally
offer some of the interactive professional services we offer, include:

     o   traditional strategic consulting firms;

     o   interactive advertising agencies;

     o   professional services groups of computer equipment companies;

     o   traditional systems integrators; and

     o   internal groups of current or potential clients.

     Many of our competitors have longer operating histories, greater name
recognition, larger established client bases, longer client relationships, and
significantly greater financial, technical, personnel, and marketing resources
than we do. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies, and make more attractive
offers to potential clients, employees, and strategic partners. Further, our
competitors may perform interactive services that are equal or superior to our
services or that achieve greater market acceptance than our services. We have no
patented technology that would preclude or inhibit competitors from duplicating
our services. We must rely on the skills of our personnel and the quality of our
client service.

     Increased competition may result in price reductions, reduced gross
margins, and loss of market share, any of which would have a material adverse
effect on our business, results of operations, and financial condition. We
cannot assure you that we will be able to compete successfully against existing
or future competitors.

IF WE ARE UNABLE TO IDENTIFY, HIRE, TRAIN, AND RETAIN HIGHLY QUALIFIED
PROFESSIONALS AND CURRENT KEY PERSONNEL, OUR BUSINESS WILL SUFFER

     Our success depends on our ability to identify, hire, train, and retain
highly qualified professionals. These individuals are in high demand and we may
not be able to attract and retain the number of highly qualified professionals
that we need. Historically, we have experienced significant employee turnover.
If we cannot retain, attract, and hire the necessary professionals, our ability
to complete existing projects and bid for new projects would be adversely
affected and our business, results of operations, and financial condition would
suffer.

                                       16
<PAGE>

     In addition, our future success depends, in part, upon the continued
service and performance of Chan Suh, Chairman, Chief Executive Officer and
President, Kyle Shannon, President-Applied Concepts Lab, Kevin Rowe,
President-North America, and Michael Mathews, President-Europe. Particularly in
light of our relatively early stage of development, the fact that many of our
key personnel have worked together for only a short period of time and due to
the competitive nature of our industry, we cannot assure you that we will be
able to retain the services of our senior management and other key personnel.
Losing the services of any of these individuals at our current stage would
impair our ability to effectively deliver our services and manage our company.
These problems would negatively affect our business, results of operations, and
financial condition, as well as our ability to grow.

OUR EFFORTS TO RAISE ANY AWARENESS OF THE AGENCY.COM BRAND MAY NOT BE
SUCCESSFUL, WHICH MAY LIMIT OUR ABILITY TO EXPAND OUR CLIENT BASE AND ATTRACT
ACQUISITION CANDIDATES AND EMPLOYEES

     We believe that building the AGENCY.COM brand is critical for attracting
and expanding our targeted client base and employees. If we do not continue to
build the AGENCY.COM brand on a global basis, we may not be able to effect our
strategy. We also believe that reputation and name recognition will grow in
importance as the number of companies competing in the market for Internet,
interactive television, and mobile business professional services increases.
Promotion and enhancement of our name will depend largely on our success in
continuing to provide high quality, reliable, and cost-effective services. If
clients do not perceive our services as meeting their needs, or if we fail to
market our services effectively, we will be unsuccessful in maintaining and
strengthening our brand. If we fail to promote and maintain our brand, or incur
excessive expenses to do so, our business, results of operations, and financial
condition will materially suffer.

OUR INTERNATIONAL EXPANSION STRATEGY COULD SUBJECT US TO SIGNIFICANT RISKS, MANY
OF WHICH COULD HARM OUR BUSINESS

     We have expanded our international operations and our international sales
and marketing efforts. We commenced operations in the United Kingdom in October
1997, France in April 1999, the Netherlands in August 1999, and Denmark in
November 1999, and made minority investments in companies in Singapore in
December 1998, Korea in October 2000, and Australia in April 2001. Our
international offices offer Internet, interactive television, and mobile
business professional services similar to our domestic offices. We have had
limited experience in marketing, selling, and distributing our services
internationally, and we cannot assure you that we will be able to maintain and
expand our international operations or successfully market our services
internationally. Failure to do so may negatively affect our business, results of
operations, and financial condition.

OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE DIFFERENCES
ASSOCIATED WITH OPERATING INTERNATIONALLY

     Our international operations began in October 1997, and we are focusing our
international operations in Europe and Asia. We have no current plans to expand
to any specific location internationally. Operating internationally may require
us to modify the way we conduct our business and deliver our services in these
markets. If we do not appropriately anticipate changes and adapt our practices,
our business, results of operations, and financial condition could materially
suffer. We face the following challenges internationally:

     o   the burden and expense of complying with a wide variety of foreign laws
         and regulatory requirements;

     o   potentially adverse tax consequences;

     o   longer payment cycles and problems in collecting accounts receivable;

     o   technology export and import restrictions or prohibitions;

     o   tariffs and other trade barriers;

     o   difficulties in staffing and managing foreign operations;

     o   political and economic instability;

     o   cultural and language differences;

                                       17
<PAGE>

     o   fluctuations in currency exchange rates; and

     o   seasonal reductions in business activity, especially during the summer
         months in Europe and certain other parts of the world.

IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGES, OUR SERVICES MAY BECOME LESS
COMPETITIVE AND OUR BUSINESS COULD SUFFER

     Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, and evolving industry standards. If we cannot
keep pace with these changes, our services could become less competitive and our
business could suffer. To achieve our goals, we need to provide strategic
business and interactive services that keep pace with continuing changes in
industry standards, information technology, and client preferences. We may be
unable, for technological or other reasons, to develop and introduce new
services or enhancements to existing services in a timely manner or in response
to changing market conditions or client requirements. This would materially
adversely affect our business, results of operations, and financial condition.

                       RISKS RELATED TO LEGAL UNCERTAINTY

GOVERNMENTAL REGULATIONS REGARDING INTERACTIVE SERVICES MAY BE ENACTED WHICH
COULD IMPEDE OUR BUSINESS

     The legal and regulatory environment that pertains to e-commerce and
interactive services may change. New laws and regulations, or new
interpretations of existing laws and regulations, could impact us directly by
regulating our operations or imposing additional taxes on the services we
provide, which could adversely impact our results and operations. These
regulations could restrict our ability to provide our services or increase our
costs of doing business.

     In addition, new laws could impact us indirectly by preventing our clients
from delivering products and services over the Internet or by slowing the growth
of the Internet. In particular, new laws relating to sales and other taxes, user
privacy, pricing controls, consumer protection, and international commerce may
dampen the growth of the Internet as a communications and commercial medium. For
example, a number of proposals have been made at the federal, state, and local
levels, and by foreign governments that could impose taxes on the online sales
of goods and services and other Internet activities. In addition, unfavorable
judicial interpretation of existing laws, here and abroad, and the adoption of
new laws, here and abroad, regarding liability for libel and defamation and
copyright, trademark, and patent infringement may extend liability to Web site
owners. If these new laws decrease the acceptance of e-commerce and other
aspects of the Internet, our clients may be harmed and, as a consequence, our
revenue growth and growth in demand for our services would be limited and our
business, results of operations, and financial condition would be adversely
affected.

WE MAY BECOME SUBJECT TO CLAIMS REGARDING FOREIGN LAWS AND REGULATIONS, WHICH
COULD SUBJECT US TO INCREASED EXPENSES

     Because we have employees, property, and business operations in the United
States, Denmark, France, the Netherlands, and the United Kingdom, we are subject
to the laws and the court systems of multiple jurisdictions. We may become
subject to claims in foreign jurisdictions for violations of their laws. In
addition, these laws may change or new laws may be enacted in the future.
International litigation is often expensive, time-consuming, and distracting,
and could have a material adverse effect on our business, financial condition,
and results of operations.

UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR
BRAND

     Unauthorized use of our intellectual property by third parties may damage
our brand and our reputation. We currently have three patent applications
pending in the United States and in the United Kingdom, but do not have any
registered patents and existing trade secret, trademark, and copyright laws
afford us only limited protection. It may be possible for third parties to
obtain and use our intellectual property without our authorization. Furthermore,
the validity, enforceability, and scope of protection of intellectual property
in Internet-related industries is uncertain and still evolving. The laws of some
foreign jurisdictions may not protect our intellectual property rights to the
same extent as do the laws of the United States.


                                       18
<PAGE>

DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE
AND DISRUPTIVE TO OUR BUSINESS

     We cannot be certain that our services, the finished products that we
deliver, or materials provided to us by our clients for use in our finished
products do not or will not infringe valid patents, copyrights, or other
intellectual property rights held by third parties. We may be subject to legal
proceedings and claims from time to time relating to the intellectual property
of others in the ordinary course of our business. Intellectual property
litigation is expensive and time consuming and successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.

IF WE FAIL TO DELIVER QUALITY SERVICES OR FULFILL CLIENT NEEDS, OR IF OUR
SERVICES HARM OUR CLIENTS' BUSINESSES, WE MAY FACE ADDITIONAL EXPENSES, LOSSES,
OR NEGATIVE PUBLICITY

     Many of our engagements involve projects that are critical to the
operations of our clients' businesses. If we cannot complete engagements to our
clients' expectations, we could materially harm our clients' operations. This
could damage our reputation, subject us to increased risk of litigation, or
force us to redesign the project. Any of these events could have a material
adverse effect on our business, results of operations, and financial condition.
While our agreements with clients often limit our liability for damages arising
from our rendering of services, we cannot assure you that these provisions will
be enforceable in all instances or would otherwise protect us from liability.
Although we carry general liability insurance coverage, our insurance may not
cover all potential claims to which we are exposed or may not be adequate to
indemnify us for all liability that may be imposed. The successful assertion of
one or more significant claims against us could have a material adverse effect
on our business, results of operations, and financial condition.

WE MAY BE SUBJECT TO CLAIMS FOR PAST ACTS OF THE COMPANIES THAT WE ACQUIRE,
WHICH MAY SUBJECT US TO INCREASED EXPENSES

     We could experience financial or other setbacks if any of the businesses
that we acquire had problems in the past of which we are not aware. We are not
aware of any material legal liabilities of the companies we have acquired to
date. However, to the extent any client or other third party asserts any legal
claim against any of the companies we have acquired, our business, results of
operations, and financial condition could be materially adversely affected.

                           RISKS RELATED TO OUR SHARES

AS AN INTERACTIVE PROFESSIONAL SERVICES COMPANY, OUR STOCK PRICE IS LIKELY TO BE
HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY

     The price at which our common stock trades is highly volatile and
fluctuates substantially. In addition, in the event that our proposed merger
with Seneca Investments, LLC ("Seneca") is not completed, our share price may
decline. For example, during 2000, the price of our common stock dropped
significantly. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects. In addition, the stock market has, from time to time,
experienced significant price and volume fluctuations that have affected the
market prices for the securities of technology companies, particularly
interactive professional services companies. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation was often brought against that company. Many
technology-related companies have been subject to this type of litigation. We
are currently involved in this type of litigation (as discussed in "Legal
Proceedings" below), and may also become involved in this type of litigation in
the future. Litigation is inherently uncertain, often expensive and diverts
management's attention and resources, which could have a material adverse effect
upon our business, financial condition, and results of operations.

SENECA INVESTMENTS, LLC OWNS ENOUGH OF OUR SHARES TO CONTROL AGENCY.COM WHICH
WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS

     Primarily as a result of the contribution by Omnicom Group, Inc.
("Omnicom") of the capital stock of one of its subsidiaries and other assets to
Seneca, Seneca owns approximately 45% of our common stock. Upon the closing of
an agreement between Seneca and our two founders and one senior member of our
management to sell their Company common stock to Seneca, Seneca will
beneficially own approximately 66% of our common stock. Consequently, Seneca
will be able to significantly influence the outcome of matters submitted to a
vote of AGENCY.COM stockholders. Accordingly, except for the proposed merger
between the Company and Seneca, which requires the approval of two-thirds of the
Company's non-Seneca stockholders, Seneca could control the outcome of any
corporate transaction or other matter and the sale of all or substantially all
of our assets, and also could prevent or cause a change in control. In the
proposed merger, Seneca has agreed to acquire all the remaining publicly-held
shares of our common stock. As a result of the foregoing, third parties may be
discouraged from making a tender offer or bid to acquire us because of this
concentration of



                                       19
<PAGE>

ownership and because of our proposed merger with Seneca. The interest of Seneca
and its affiliates may differ from the interest of the other stockholders.
Omnicom owns a significant non-voting equity interest in Seneca, but together
with its direct and indirect subsidiaries, no longer beneficially owns more than
5% of our common stock.

OUR STOCKHOLDERS COULD BE ADVERSELY AFFECTED AS A RESULT OF OMNICOM'S AND ITS
DESIGNATED DIRECTOR'S POTENTIAL CONFLICTS OF INTEREST

     Omnicom has significant ownership positions in some of our direct
competitors. These ownership positions may create conflicts of interest for
Omnicom and its director nominee as a result of his access to information and
business opportunities possibly useful to us and to these competitors.

OMNICOM HAS PROVIDED US WITH FINANCING AND IT HAS NO OBLIGATION TO RENEW OUR
CREDIT FACILITY BEYOND ITS TERMINATION DATE

     We have received significant benefits from our relationship with Omnicom,
which, prior to May 2001, was our largest shareholder. In 1999, we invested
substantially all of the net proceeds (after repayments of our outstanding debt
due to Omnicom) from our initial public offering with Omnicom Finance Inc.
("Omnicom Finance"). To date, our working capital and many of our acquisitions
have been financed on favorable terms by lines of credit advanced by Omnicom. We
currently have no outstanding indebtedness under our credit facility provided by
Omnicom. This credit facility provides for a $54.0 million revolving credit line
and a real property lease credit support facility providing letter of credit
and/or guarantees up to $6.0 million in the aggregate. The credit facility bears
interest at Omnicom's commercial paper rate, which was 5.06% on June 30, 2001
plus 1.25%. The credit facility places restrictions on the conduct of our
business that stockholders may not consider favorable, including our ability to
pay dividends and incur additional debt. Omnicom is not obligated to extend this
credit facility beyond September 30, 2001. We cannot assure you that, upon
termination of this facility, we will be able to obtain any additional
financing. As a result, our financial condition might suffer.

SHARES ELIGIBLE FOR PUBLIC SALE COULD ADVERSELY AFFECT OUR STOCK PRICE

     Based on shares outstanding on June 30, 2001 in addition to the 6.8 million
shares sold in our initial public offering, from time to time, a total of
approximately 32.1 million additional shares of common stock may be sold in the
public market by existing stockholders. The market price of our common stock
could decline as a result of sales by these existing stockholders of their
shares of common stock in the market, or the perception that these sales could
occur. These sales also might make it difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate.

OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE

     Provisions in our charter and bylaws, including those that provide for a
classified board of directors, authorized but unissued shares of common and
preferred stock and notice requirements for stockholder meetings, and Delaware
law regarding the ability to conduct specific types of mergers within specified
time periods, may have the effect of delaying or preventing a change of control
or changes in our management that stockholders may consider favorable or
beneficial or that would provide stockholders with a premium to the market price
of their common stock. A classified board of directors may discourage
acquisitions in general, and a tender offer not endorsed by our board in
particular, since only one-third of our directors are re-elected annually,
thereby requiring two annual meetings before a majority of the directors could
be replaced. The authorization of undesignated preferred stock gives our board
the ability to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of the company.
If a change of control or change in management is delayed or prevented, this
premium may not be realized or the market price of our common stock could
decline.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     INTEREST RATE RISK. To date, we have not utilized derivative financial
instruments or derivative commodity instruments. We have invested approximately
$3.0 million of our cash with Omnicom Finance, a related party that is 100%
owned by Omnicom and in a certificate of deposit and money market funds, which
are subject to minimal credit and market risk. We believe the market risks
associated with these financial instruments are immaterial.

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

                                       20

<PAGE>

     We are also exposed to foreign exchange rate fluctuations, primarily with
respect to the British Pound and the Euro, as the financial results of foreign
subsidiaries are translated into United States dollars for consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact net income (loss) and overall profitability. The effect of
foreign exchange rate fluctuation for the quarter ended June 30, 2001 was not
material.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Company is currently aware that five stockholder class actions alleging
violations of the federal securities laws and seeking monetary damages have been
filed in federal court in the Southern District of New York in June, July and
August, 2001 against the Company, Messrs. Suh, Shannon, Dickson and Trush, and
our principal underwriters in the Company's initial public offering, Goldman
Sachs & Co., Hambrecht & Quist LLC and Salomon Smith Barney. These lawsuits
allege that the underwriter defendants agreed to allocate stock in the Company's
initial public offering to certain investors in exchange for excessive and
undisclosed commissions and agreements by those investors to make additional
purchases of stock in the aftermarket at pre-determined prices. They further
allege that the prospectus and registration statement for the Company's initial
public offering was false and misleading in violation of the securities laws
because it did not disclose these arrangements. The Company and its current
officers and directors intend to vigorously defend the actions.

     In addition, in May 2001, two stockholder class actions, with allegations
principally regarding Seneca's initial proposal to acquire our outstanding
shares for a price of $3.00 per share, were filed in Delaware state court
against Seneca Investments, LLC, our largest stockholder ("Seneca"), AGENCY.COM
and our directors. The actions allege breach of fiduciary duty with respect to
Seneca's proposal on May 14, 2001 to acquire the remaining public shares of our
common stock for a price of $3.00 per share.

     On June 26, 2001, counsel for the parties to this consolidated action
entered into a memorandum of understanding setting forth an agreement in
principle to settle the actions based on an increase by Seneca in the price
proposed to be paid in connection with the proposed merger between the Company
and Seneca. The proposed settlement class will consist of all stockholders
(other than affiliates of defendants) who were security holders during the
period from May 14, 2001, to and including the effective date of the merger, and
successors-in-interest. In the memorandum of understanding, defendants
acknowledged that the pendency and prosecution of the actions were a material
factor in Seneca's determination to increase the consideration to be paid in the
merger.

     Pursuant to the memorandum of understanding, in exchange for the increase
in merger consideration, among other things, plaintiffs have agreed to seek a
court order approving the settlement, dismissing the actions with prejudice and
releasing all claims of the members of the plaintiff class against the
defendants relating to the initial proposal by Seneca to acquire the Company's
shares, Seneca's conduct, the conduct of the Company's board or the special
committee and the separately-negotiated agreement by some or the Company's
directors and officers to sell their shares to Seneca's subsidiary. All parties
agreed in the memorandum of understanding that neither the memorandum of
understanding nor the stipulation of settlement that it contemplates constitute
an admission of the validity or infirmity of any claim against the defendants or
of the liability of any defendant.

     The proposed settlement contemplated in the memorandum of understanding is
subject to a number of conditions, including adoption of the merger agreement
between the Company and Seneca by the requisite stockholder vote at the special
meeting of the Company, which has yet to be scheduled, consummation of the
merger, and final approval by the Delaware Court of Chancery. If the Court
approves the proposed settlement, plaintiffs' counsel intends to apply to the
Court for an award of fees and expenses.

     The Company, from time to time, becomes involved in various routine legal
proceedings in the ordinary course of its business. The Company believes that
the outcome of these pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its consolidated results of
operations, consolidated financial position, or liquidity.

ITEM 2.  CHANGE IN SECURITIES

     In January 2001, the Company issued 85,000 additional shares to the former
shareholders of Twinspark in final settlement of the earn-out payment
obligation. The total value of the 85,000 shares of approximately $0.3 million
was recorded as additional purchase price and was reflected as goodwill.

                                       21

<PAGE>

     In February 2001, approximately 192,000 shares were distributed to the
former shareholders of I-traffic, which the Company acquired in October 1999.
These shares represented 62.5% of the approximately 307,000 shares, which were
issued as a result of I-traffic's satisfaction of the earn-out provision set
forth in the agreement governing the acquisition. In May 2001, the remaining
37.5% of the shares, or approximately 115,000 shares were released from escrow
and were distributed to the former shareholders of I-traffic. The total value of
the approximately 307,000 shares is approximately $0.8 million and was recorded
as additional purchase price and was reflected as goodwill.

     The foregoing transactions did not involve a public offering, and the
Company believes that such transactions were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof. These
sales were made without general solicitation or advertising. The recipients in
such transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions.

     No underwriters were involved in connection with the sales of securities
referred to in this item.

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

     The annual meeting of the stockholders of the Company was held on June 8,
2001. At such meeting the following actions were voted upon:

<TABLE>
<CAPTION>

Action                                  Affirmative Votes    Votes Withheld      Non-broker Votes
------                                  -----------------    --------------      ----------------
<S>                                     <C>                  <C>                 <C>
a. Election of directors:

     Kyle Shannon                          34,457,582           94,994                - 0 -

     Kenneth Trush                         34,460,388           96,188                - 0 -

<CAPTION>

Action                                  Affirmative Votes    Negative Votes       Abstentions         Non-broker Votes
------                                  -----------------    --------------       -----------         ----------------
<S>                                     <C>                  <C>                  <C>                 <C>
b. Ratification of Arthur Andersen          34,504,936           42,407               9,233                 - 0 -
   as the Company's independent
   accountants for the fiscal year
   ending December 31, 2001
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

         2.1   Agreement and Plan of Merger, dated as of June 26, 2001, by and
               among AGENCY.COM Ltd., Seneca Investments LLC and E-Services
               Investments Agency Sub LLC (incorporated by reference to the
               exhibit filed with the Company's Report on Form 8-K, filed July
               3, 2001)

         99.1  Share Purchase Agreement, dated as of May 14, 2001, by and among
               Seneca Investments LLC, E-Services Investments Agency Sub and the
               stockholders listed therein (incorporated by reference to the
               exhibit filed with the Company's Report on Form 8-K, filed June
               4, 2001)

     (b) Reports on Form 8-K

         (1)   Report on Form 8-K, filed June 4, 2001 (other events)

         (2)   Report on Form 8-K, filed July 3, 2001 (other events)

                                       22
<PAGE>

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on this 14th day of August 2001.

                           AGENCY.COM LTD.


                              --------------------------------------------------
                              Name:  Charles Dickson

                              Title: Executive Vice President, Treasurer and
                                     Chief Financial Officer (Signing both in
                                     his capacity as Executive Vice President on
                                     behalf of the registrant and Chief
                                     Financial Officer on behalf of the
                                     registrant)


                              --------------------------------------------------
                              Name:  Michael Jackson

                              Title: Corporate Controller (Signing both in his
                                     capacity as Vice President on behalf of the
                                     registrant and Chief Accounting Officer on
                                     behalf of the registrant)


                                       23


</TEXT>
</DOCUMENT>
</SUBMISSION>
