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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

|ý | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2003.

|o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File No. 0-29768

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24/7 REAL MEDIA, INC.(Exact name of registrant as specified in its charter)

|Delaware                                                       |  | 13-3995672                      
|-------------------------------------------------------------- |  | --------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification)
|1250 Broadway
New York, New York                               |  | 10001                           
|(Address of Principal Executive Offices)                       |  | (Zip Code)                      

(212) 231-7100(Registrant's Telephone Number, Including Area Code)

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

Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01 Per Share(Title of Class)

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). YES o    NO ý

As
of June 30, 2003, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $48,080,114. Shares
of common equity held by each of the registrant's directors and officers on that date and by each person who beneficially owned 10% or more of the outstanding common stock on that date have been
excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The aggregate market value has
been computed based on a price per share of $4.05, which is the price at which the common equity was last sold on June 30, 2003.

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24/7 REAL MEDIA, INC.  2003 ANNUAL REPORT ON FORM 10-K  TABLE OF CONTENTS

|ITEM NO. |  |                                                                                       |  | PAGE
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  
|1.       |  | Business                                                                              |  | 1   
|2.       |  | Properties                                                                            |  | 18  
|3.       |  | Legal Proceedings                                                                     |  | 19  
|4.       |  | Submission of Matters to a Vote of Security Holders                                   |  | 20  
|PART II 
|5.       |  | Market for Registrant's Common Equity and Related Stockholder's Matters               |  | 21  
|6.       |  | Selected Consolidated Financial Data                                                  |  | 22  
|7.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 24  
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 57  
|8.       |  | Consolidated Financial Statements and Supplementary Data                              |  | 58  
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 58  
|9A.      |  | Controls and Procedures                                                               |  | 58  
|PART III
|10.      |  | Directors and Executive Officers                                                      |  | 59  
|11.      |  | Executive Compensation                                                                |  | 63  
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 66  
|13.      |  | Certain Relationships and Related Transactions                                        |  | 72  
|14.      |  | Principal Accounting Fees and Services                                                |  | 72  
|PART IV 
|15.      |  | Exhibits, Consolidated Financial Statements, and Reports on Form 8-K                  |  | 75  

Open
AdStream®, Open AdSystem, Open Advertiser, Insight XE, Insight ACT and Insight SE
are trademarks of 24/7 Real Media, Inc. All other brand names or trademarks appearing herein are the property of their respective holders.

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PART I

Reverse Split.On February 27, 2004, we completed a one-for-five reverse split of our common stock. As a result of the
reverse split, every five shares of 24/7 Real Media common stock were combined into one share of common stock. The number of shares of preferred stock and warrants outstanding is not affected by the
reverse split, however, the conversion ratio will be adjusted. All figures relating to common stock, preferred stock, stock options, warrants and other equity-linked instruments have been adjusted in
this Form 10-K to reflect the reverse split.

This
Annual Report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking
statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact, including statements regarding industry
prospects and future results of operations or financial position, made in this Annual Report are forward looking. We use words such as "anticipates," "believes," "expects," "future" and "intends" and
similar expressions to identify forward-looking statements. Forward-looking statements reflect management's current expectations, plans or projections and are inherently uncertain. Our actual results
may differ significantly from management's expectations, plans or projections. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof. Certain risks and uncertainties that could cause our actual results to differ significantly from management's expectations are described in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of OperationsAdditional Factors That May Affect Our Business, Future Operating Results and Financial Condition" and elsewhere in this Annual
Report. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are urged, however, to review the risk factors set forth in reports that we file from time to time with the Securities and Exchange Commission. Unless the
context requires otherwise in this Annual Report the terms "24/7 Real Media," the "Company," "we," "us" and "our" refer to 24/7 Real Media, Inc. and its subsidiaries, and references to "24/7
Search" refer to 24/7 Search, Inc., formerly 24/7 Website Results, Inc., a wholly owned subsidiary of 24/7 Real Media, Inc.

ITEM 1. BUSINESS.

24/7 REAL MEDIA

24/7 Real Media offers a comprehensive suite of media and technology products for the online advertising needs of Web publishers and advertisers, including Web
representation, advertisement serving, analytics and search paid inclusion. We work closely with Web publishers and advertisers to implement integrated solutions to sell and deliver advertising on Web
sites and manage other critical operations including campaign planning, execution, measurement and analysis. Our 24/7 Web Alliance of over 800 affiliated Web sites aggregates advertising inventory and
targets audience segments to attract advertisers worldwide. We believe our Open AdSystem technology platform enables Web publishers and advertisers to target, convert and retain their best online
customers, maintain customer relationships and safeguard the privacy of Web users. Through 24/7 Search, we connect advertisers with consumers who use search engines to search for information about
products and services.

Our
Integrated Media Solutions consist of the 24/7 Web Alliance, a global alliance of Web sites represented by us through which advertisers can run campaign orders directly with us, and
24/7 Search, an Internet search marketing service designed to connect advertisers with consumers using search engines to find product information. Our 24/7 Search solution uses proprietary technology
to help advertisers determine the keywords most relevant to their products and services in order to lead users

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from
search engines to the advertisers' Web sites. Through our relationships with major search engines, we also help advertisers receive enhanced placement in search results.

Our
Technology Solutions are primarily based on our patent-protected Open AdSystem technology platform for Internet advertisement delivery, management and analytics, and consist of:



We
designed our Insight software solutions to fully integrate with our Open AdStream technology, to offer Web publishers active campaign reporting and marketing intelligence and help
advertisers measure, analyze, manage and monetize audiences.

We
are one of the few established global providers of Internet media representation services and online advertising technology. We sell our products and services worldwide from fourteen
sales locations in nine countries throughout North America, Europe and Asia. In January 2004, we acquired Real Media Korea Co. Ltd., a leading provider of Internet advertising and
marketing solutions in the Republic of South Korea. Our patent-protected technology is the foundation of our award-winning advertising delivery, management and analytics platform, which was recently
named the 2003 Ad Tech "Best Interactive Marketing Technology."

See
Note 16 to the Consolidated Financial Statements for revenues and gross profit attributable to each of our lines of business and revenues and long-lived asset
information by geographic area.

INDUSTRY OVERVIEW

The Internet has become one of the fastest growing global communications media for advertising, attracting advertisers because of its interactive nature, rapidly
growing audience, global reach and increasing use for commerce. The Internet offers advertisers better opportunities than other media to target advertisements to small groups with specific
characteristics as well as reach broad audiences. The interactive nature of the Internet allows advertisers to reach individuals effectively and collect information about the behavior and demographic
characteristics of individual users that cannot easily be collected through other media. To the extent advertisers can collect and analyze this data, they can better understand how consumers respond
to advertisements and how to change their marketing messages quickly and effectively to reach target audiences.

PricewaterhouseCoopers
forecasts global online advertising spending to grow to over $12.6 billion in 2007, representing a 9.1% compounded annual growth rate from global spending
of $8.9 billion in 2003.

The
primary drivers of Internet advertising growth include the following:



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Objectives of Web Publishers, Advertisers and Consumers

There are three distinct groups of participants in the Internet advertising industry, each of which has unique objectives and needs and, as a result, presents
both opportunities and challenges to Internet advertising companies. The Web publisher aims to profit from content, commerce and advertising on its Web site, as well as to identify and analyze user
preferences to improve the Web site and strengthen the relationship with its online audience. The advertiser aims to profit from selling products and building its brands online, by utilizing Internet
technologies, whether in standard formats, such as banner, pop-up and pop-under advertisements and e-mail, or newer forms of advertisements, such as online search
and rich media advertisements containing moving graphics, sound and video, to reach a broad group of consumers, as well as more defined targeted audiences. The consumer, or Web site user, seeks an
enjoyable, productive online experience with content and commerce matching her interests as well as relevant and informative advertising.

Challenges Facing Web Publishers

Specific challenges of many Web publishers include:



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Challenges Facing Advertisers

Large online advertising campaigns can be time-consuming, expensive and difficult to manage. Specific challenges of many advertisers engaged in
Internet advertising include:



Limitations of Competing Internet Advertising Solutions

A variety of other companies offer partial solutions to serve the large and growing market for Internet advertising. Although such solutions address certain needs
for the Web publisher or advertiser, they are limited in their scope or effectiveness.



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24/7 REAL MEDIA'S SOLUTION

24/7 Real Media offers a comprehensive suite of media and technology products for the online advertising needs of Web publishers and advertisers, including Web
representation, advertisement serving, analytics and search paid inclusion. We work closely with Web publishers and advertisers to implement integrated solutions to sell and deliver advertising on Web
sites and manage other critical operations including campaign planning, execution, measurement and analysis. Our 24/7 Web Alliance of over 800 affiliated Web sites aggregates advertising inventory and
targets audience segments to attract advertisers worldwide. We believe our Open AdSystem technology platform enables Web publishers and advertisers to target, convert and retain their best online
customers, maintain customer relationships and safeguard the privacy of Web users. Through 24/7 Search, we connect advertisers with consumers who use search engines to search for information about
products and services. We sell our integrated media and technology solutions through fourteen sales locations in nine countries throughout North America, Europe and Asia.

Benefits to Web Publishers and Advertisers

Our media and technology solutions help Web publishers build and target audiences on their Web sites, better manage the delivery of higher volumes of
advertisements and collect and safeguard valuable information about their Web users and audiences. Our 24/7 Web Alliance also enables Web publishers to leverage their advertising inventory as part of
a network of Web sites that offer advertisers broader reach and improved targeting through deeper content. This functionality helps Web publishers attract advertisers and generate additional revenue
from their existing advertisement inventory. Our solutions also provide advertisers a one-stop shop for reaching and targeting the audiences of hundreds of Web sites as well as an
efficient system for measuring, analyzing and actively managing advertising campaigns across numerous Web sites. This functionality helps advertisers more cost-effectively purchase
advertisement campaigns from numerous Web publishers.

Comprehensive and Integrated Solution

We offer a broad range of solutions to Web publishers and advertisers and leverage our Open AdSystem technology to integrate with all of our products. For Web
publishers in our 24/7 Web Alliance, we utilize our Open AdSystem technology to help them identify and target relevant audience segments. We also combine our Open AdSystem technology with our Insight
analytics products to offer Web publishers sophisticated tools to measure and understand online audience behavior. For

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advertisers,
we designed our Open Advertiser service using the same data analysis and programming architecture as our Open AdStream platform to deliver the same level of campaign management and
targeting that we provide to Web publishers. We believe that our integrated solutions reduce the need for Web publishers and advertisers to work with multiple vendors, making it less costly for our
customers to capitalize on advertising inventory, regardless of the format or the nature of the advertising campaign.

Our
24/7 Web Alliance, a global alliance of over 800 affiliated Web sites that we represent, provides an extensive online marketing channel offering branded and niche Web sites,
high-quality content and mass reach. The 24/7 Web Alliance is aimed at advertisers who wish to develop online strategies to build brands, target audiences and monitor campaigns for greater
return on investment, as well as at Web publishers looking to increase revenues and maximize the value of their advertising inventory. Our 24/7 Network aggregates Web sites of all sizes that we
believe are attractive to advertisers, generate a high number of advertisement impressions and contribute a variety of online content. We leverage our Open AdSystem technology platform to deliver all
advertisements in our 24/7 Network and perform advanced targeting functions for our client advertisers. Through the 24/7 Network, we can provide advertisers with cost-effective, custom
media solutions both to build brand value and generate quality leads. Independent from our 24/7 Network, we also provide advertising sales and media representation services to a select portfolio of
affiliated Web sites. We
believe our portfolio of media solutions provides a customizable online strategy utilizing premier brands, content targeting and mass reach.

Our
24/7 Search service helps advertisers appear prominently in search results served in response to a consumer's inquiry for particular keyphrases. Through our understanding of search
engine algorithms and monitoring of search engine behavior, we enable advertisers to pick relevant keywords, better target search engine users and convert consumers. More relevant keywords and better
placement in search results help advertisers target potential consumers who are looking for information to purchase a product or service.

Customer Service

We provide superior customer service, and we believe that continual communication with our customer base is essential to our long-term success. Our
customer service centers are organized to support our global operations, and they are staffed with knowledgeable technical and client service teams. Our local presence enables us to better understand
and service the needs of our clients. In addition, we employ a Web site relationship department that surveys our Web sites and monitors qualitative indicators of service levels in order to
continuously improve our customer service.

Global Presence

We sell our products and services worldwide from fourteen sales locations in nine countries throughout North America, Europe and Asia. Through our global sales
and marketing organization of approximately 140 people, we can deliver solutions to Web publishers and advertisers worldwide in the languages and according to the laws and customs of each local
market. Specifically, for Web publishers we utilize our global technology development and support team of approximately 70 employees to support the sale, installation and customization of technology
solutions in almost any major local market. For international advertisers we can run advertising campaigns to reach globally dispersed audiences and target particular online segments at the same time.
We apply market intelligence learned in local markets throughout our global organization to deliver the most relevant solutions in an effort to ensure that our customers benefit from proven
advertising techniques learned by us worldwide.

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24/7 REAL MEDIA'S GROWTH STRATEGY

Our objective is to extend our position as a leading provider of integrated media and technology solutions to the Internet advertising industry. Key components of
our growth strategy include the following:



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OUR PRINCIPAL LINES OF BUSINESS

Integrated Media Solutions

The 24/7 Web Alliance

Through our 24/7 Web Alliance, we represent Web sites with brand names, quality content and global reach. We promote our media representation services, and the
opportunity to join our 24/7 Web Alliance, to Web publishers seeking to increase advertising revenues from their Web sites and maximize revenues from their existing advertising inventory. We also
promote our 24/7 Web Alliance to advertisers seeking online strategies to target audiences, build their brands and generate greater customer response and greater return from their advertising
spending.

Our
24/7 Web Alliance consists of three distinct offerings:





18-34 Age Group

Automotive

Business to BusinessGaming

Health

LocalMen's Interest

Music

NewsPersonal Finance

Search

SportsTechnology

Teens

TravelWomen's Interest






We
leverage our Open AdSystem technology platform and our experienced traffic and account management staff to help our client advertisers target advertisements to the right segments of
our 24/7 Web Alliance audience. In addition to our 24/7 Verticals we have the expertise and technology to target audiences in a variety of ways, including: keyword (serving advertisements related to
specific words entered into a search box by an online consumer), geography (delivering advertisements based on specific geographical locations), day parting (specifying a particular time of day or
week the

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advertisement
is viewed) and frequency capping (limiting the number of times a particular advertisement is delivered to the same user within specific time periods).

We
consider the following to be some of the key features of our 24/7 Web Alliance:









Publishers In The 24/7 Web Alliance

Our 24/7 Web Alliance currently includes approximately 800 Web sites represented by 24/7 Real Media worldwide. These Web sites trust us to sell their premium
advertising inventory and their under-utilized advertising inventory to the top international advertisers. Using our advanced technology platform, we believe we have developed one of the most
cost-effective solutions for Web sites to generate revenue from their advertising inventory. Our experienced global sales force ensures that our affiliated Web sites are
well-represented to advertisers worldwide and promoted as the leading solution for advertisers to reach the audiences of these Web sites.

We
believe that inclusion in our 24/7 Web Alliance benefits our affiliated Web sites in significant ways. First, inclusion in our 24/7 Network offers our affiliated Web sites the
technology for managing and delivering Internet advertising. The affiliated Web sites can avoid the hardware, software and personnel costs associated with building and maintaining their own
advertisement serving technology and, in some cases, their own advertising sales force. Second, by selling their advertising inventory that often would remain under-sold or unsold, we
offer affiliated Web sites a stream of recurring revenue. We believe that many prominently branded Web sites that attract advertisers who want impression-based solutions rarely sell their entire
advertising inventory. By using our 24/7 Portfolio solution, these Web sites gain the opportunity to generate revenue from their unsold inventory, while protecting the

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value
of the Web site's brand name and the rate the Web site can charge for its advertising inventory generally. Third, all of our affiliated Web sites benefit from our experienced management team,
our sales and marketing organization and our worldwide access to advertisers.

The
effectiveness of our media solutions depends, in part, on the quality of the Web sites in our 24/7 Web Alliance. We enforce our quality standards by reviewing and periodically
auditing Web site content and we reject membership requests from Web sites that do not meet our quality standards. Our quality standards generally are intended to screen out Web sites with
inappropriate content, insufficient traffic, illegal activity and fraudulent clicking activity. We also may eliminate Web sites that encourage users to click on banner advertisements for reasons other
than an interest in our client advertisers' messages.

Advertisers On The 24/7 Web Alliance

We focus our sales and marketing efforts on the leading international advertisers and advertising agencies, many of which have utilized our solutions. Advertisers
and advertising agencies typically implement advertising campaigns with written agreements, or insertion orders, governing the nature and duration of the campaign and the Web sites that will run the
campaign. Based on the extensive reach of our 24/7 Web Alliance and the breadth of its online content, we can package customized advertising solutions for advertisers and advertising agencies. Our
sales force works closely with advertisers to customize advertising delivery to enhance the effectiveness of advertising campaigns.

24/7 Search

24/7 Search provides performance-based, search marketing services for the Internet. Through 24/7 Search, we connect advertisers with consumers using search
engines to search for information about products and services. Our 24/7 Search solution uses proprietary technology to help advertisers determine the keywords most relevant to their products and
services that will lead users from search engines to the advertisers' Web sites. Through our relationships with major search engines, we also help
advertisers receive enhanced placement in search results. Advertisers pay us a "per-click" fee for each user delivered to their Web sites from our search engine partners.

24/7
Search provides two primary services:





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Our
search distribution network for paid inclusion and pay-per-click bid management services includes numerous branded search engines, including Alta Vista, Ask
Jeeves, Engine 54, FAST, FindWhat, Google, InfoSpace, Inktomi and Overture. In turn these sites maintain relationships with other search destinations including About.com, AOL, Excite, MSN and Yahoo!,
among others.

Technology Solutions

The Open AdSystem Platform

Our award-winning, patent-protected Open AdSystem platform is the foundation of 24/7 Real Media's proprietary technology offering. Our Open AdSystem platform is a
format-agnostic advertisement delivery engine capable of delivering virtually all types of advertisement formats across the Internet and other interactive platforms. Our Open AdSystem platform was
designed with a view towards enhancing the ability of Web sites and advertisers to protect the information generated by users interacting on Web sitesthe "media asset" of the Web.

24/7
Real Media has a comprehensive suite of products based on the Open AdSystem platform. Key benefits to our customers of our Open AdSystem technology include the following:









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Our
Technology Solutions are primarily based on our patent-protected Open AdSystem technology platform for Internet advertisement delivery, management and analytics, and consist of:



We
have designed our Insight software solutions to fully integrate with our Open AdStream technology, to offer Web publishers active campaign reporting and marketing intelligence and
help advertisers measure, analyze, manage and monetize audiences.

The Open AdStream Solution

We offer Web publishers a licensed version of our Open AdStream (OAS) advertisement delivery and management software, or OAS Local, that is designed to run on
local servers operated by our customer. We believe this application of the software offers our customers compelling advantages over other advertisement serving solutions, including:



We
also offer Web publishers our OAS Central service, an application distributed to our customers from software hosted centrally on our servers. We host the software for our customers
using multi-location, fully redundant data centers. Our OAS Central service provides seamless advertising delivery and management services for Web publishers and allows them to offer their advertisers
sophisticated targeting and reporting capabilities. Our OAS Central service provides all the features and functionality of our OAS Local product within a secure, managed environment.

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Open
AdStream Central continuously monitors advertising delivery for optimum accuracy and performance, using a fully distributed system architecture with geographic load balancing. The
system employs a fully redundant infrastructure with multiple data centers, Internet connections, mirrored disk backup and battery and generator backups that provide robust, reliable service with
rapid scalability and performance. We partner with Akamai Technologies' global caching network for efficient content delivery.

Open
AdStream Central service is priced at a fee per thousand advertisements delivered and is purchased by Web publishers who do not want to devote the resources, time, or personnel
required to host their own advertisement serving system. Our centrally hosted solution enables our customers to execute advertising programs without the expense of building and maintaining their own
in-house technical infrastructure and resources.

The Open Advertiser Solution

Our Open Advertiser (OAD) solution, similar to our OAS Central solution, is an application distributed from our servers that enables advertisers and their
agencies to increase their return on investment and to streamline the advertising management process through analytical reporting and
active work-flow management. In particular, our OAD service is designed to enable agencies to analyze their advertisers' online campaigns in great detail and provide value-added
recommendations for follow-up marketing programs through detailed analytical reporting options. OAD features a dedicated cookie assigned to each advertiser and agency that allows marketers
to retarget their audience based on previously performed post-click actions, such as buying a product or requesting information. OAD can also track the branding effectiveness of each
advertisement by reporting the number of users who did not click on the advertisement but eventually visited the advertiser's Web site.

As
an agency's online advertising business grows, the customer data generated by advertising campaigns becomes the most important link between the agency and its advertising clients.
Ownership and control of the commercial use of that data is vital to any advertising campaign and the place where an advertiser's brand is built and protected. Accordingly, OAD features a Confidential
Cookie file, which guarantees that the user, and the data associated with the user/advertiser relationship, remains exclusively within the hands of the advertiser.

We
currently sell our OAD product primarily in Europe, and we launched a U.S. beta version of this product in 2003. We expect to launch this product to customers in the U.S. in 2004.

The Insight Platform of Audience Management and Web Analytics Tools

Insight XEis a Web analytics application that helps Web publishers measure, analyze and understand the behavior
of visitors to their Web site in natural language. Insight XE employs JavaScript code embedded in a Web site's pages, allowing the site owner to assign contextually relevant values to the pages.

Insight
XE's features include:



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Insight ACT, an application that will be fully integrated with OAS, will enable a Web publisher to enhance the value of its advertising
inventory by identifying and targeting segments of its audience who may be receptive to a specific advertiser's message. We expect to launch this product commercially in the first half of 2004.

Insight
ACT will offer behavioral segmentation and targeting in a three-step process:



Through
unique identifiers, Insight ACT, in combination with OAS, will offer a 4-dimensional audience view across:



Insight SEis an application that will allow an advertiser to create targeted campaigns using keywords and phrases, and generate
performance metrics that link traffic from specific search engines throughout
the entire sales cycle, from prospecting by new customers to the final sale. We expect to launch this product commercially in the first half of 2004.

Insight
SE's active reporting is designed to enable advertisers to answer the following business-critical questions:



SALES AND MARKETING ORGANIZATION

We sell our products and services worldwide through a sales and marketing organization that includes fourteen sales locations in nine countries throughout North
America, Europe and Asia. Our sales and marketing team consists of a total of approximately 140 employees, including approximately 65 in the United States and 75 internationally. In the United States,
our sales force is located at our headquarters in New York and our sales locations in Chicago, Fort Washington, PA, Los Angeles and San Francisco. We also have sales offices in Canada, France,
Germany, Spain, Sweden, Switzerland, the United Kingdom and South Korea.

We
leverage the substantial media expertise of our sales and marketing team to increase the value of advertising campaigns for both our advertisers and our partner Web sites. We also
employ a Web site relationship department that surveys our partner Web sites and monitors qualitative indicators of service levels in order to continuously improve our customer service.

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PRIVACY PROTECTION

The growth of our business and of the Internet depends on user trust in the integrity of the Internet and in the businesses that use it. We believe that fostering
user confidence in online privacy is an integral component of our commitment to delivering the right message to the right user at the right time. We actively monitor privacy laws and regulations, and
we take seriously the principles that consumers must have notice and choice and the confidence that their information is secure. We also designed our Open AdSystem technology to help protect the
privacy of online consumers and safeguard private information.

We
may act on behalf of our customers to collect non-personally identifiable information in the delivery of Internet advertising. When we perform such services, we provide
notice to users about our use of such information and insist that our customers provide users the choice not to participate. Unlike some of our competitors, we do not collect or maintain a database of
personally identifiable information about online consumers or associate online and offline information collected about users. We insist that our customers provide notice to users about the marketing
uses of personally identifiable information collected online, including whether they associate online and offline information about users, and that they provide users with the choice not to
participate. We will not associate any personally identifiable information about a user with such user's Internet browser or anonymous "cookie" on behalf of our customers unless that user has first
been provided with notice about the collection and use of personally identifiable information about that user and has affirmatively consented to participate.

INTELLECTUAL PROPERTY

We own U.S. Patent No. 6,026,368 entitled "On-Line Interactive System And Method For Providing Content And Advertising Information To A
Targeted Set of Viewers." Licensees of our '368 patent include DoubleClick, Advertising.com, ValueClick and several smaller technology providers. The '368 patent, which expires in 2015, embodies
pioneering technology in the field of targeted delivery of content. The '368 patent relates to an online system for managing the delivery of targeted advertisements or other content that adjusts the
priorities associated with such advertisements or content in order to satisfy exposure goals or other predetermined criteria. In January of 2003, the U.S. Patent and Trademark Office granted us a
notice of allowance for an additional patent relating to the sequencing of advertising, which we believe further extends our competitive advantage.

In
January 2003, we acquired our Web analytics technology, Insight, for which a patent application currently is pending. The acquired Web analytics technology uses a proprietary
taxonomy engine to speak the same language that a business uses when talking about its customers. It is designed to provide revenue-generating marketing intelligence to Web publishers and help
companies measure, analyze and monetize their interactive audience. Among other functions, the acquired technology is designed to enable marketers to perform behavioral segmentation and clickstream
analysis and allow Web publishers and advertisers to use behavioral information with e-commerce and other applications.

In
2002, we acquired U.S. Patent Number 5,446,919, entitled "Communication System and Method with Demographically or Psychographically Defined Audiences," which broadly covers
communications systems, including the Internet, interactive and cable television and wireless phone systems, in which advertisements and other media messages are determined by demographic or
psychographic information associated with the user. This patent expires in 2012.

Open
AdStream is our U.S. registered trademark, and we have pending trademark applications in the United States for Open AdSystem, Open Advertiser, Insight XE, Insight ACT and Insight
SE. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with parties with whom we conduct business in order to
limit access to and disclosure of our proprietary information.

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COMPETITION

We believe we are a leader in the highly competitive market of Internet advertising and marketing services. We believe our ability to compete depends on many
factors including the following:



We
believe we compete favorably in all of the foregoing areas.

Integrated Media Solutions

Our media solutions compete for advertising spending against Web publishers, including some of our customers who have their own sales forces. We also compete with
a variety of Internet advertising networks and companies that facilitate Internet advertising. Specifically, our 24/7 Web Alliance competes for advertisers with a variety of other Internet advertising
networks, including Advertising.com, ValueClick and Interep Interactive. In addition to these Web site networks we also compete with large portal sites such as AOL, MSN and Yahoo!. We also compete
with the traditional advertising media of television, radio, cable and print for a share of advertisers' total advertising budgets.

We
compete against a variety of new and innovative companies in the fast-growing market for performance-based Internet search marketing solutions. 24/7 Search competes with
several other companies that provide service optimization as well as start-up companies with untested search marketing solutions. In addition, Overture, Google and FindWhat also provide
paid inclusion services for advertisers looking to drive traffic to their Web sites using performance-based, keyword search services.

Technology Solutions

We compete against other established providers of advertisement serving solutions and several other companies that provide third-party advertisement serving
services as well as start-up companies with untested products and services. Our competitors for advertisement serving solutions include DoubleClick, ValueClick, aQuantive, Advertising.com
and Blue Streak.

EMPLOYEES

As of February 1, 2004, we employed approximately 255 persons worldwide, including approximately 140 in sales and marketing, 70 in technology and product
development and 45 in accounting, human resources and administration. We consider our employee relations to be good. Our subsidiaries in France, Spain and Scandinavia are parties to collective
bargaining agreements pursuant to and in accordance with applicable law.

16

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RECENT DEVELOPMENTS

Acquisition of Outstanding Shares of Real Media Korea Co., Ltd

On January 6, 2004, we completed the acquisition of Real Media Korea Co., Ltd., a company formed under the laws of the Republic of South Korea
("RMK"), by acquiring the approximately 90.4% of the outstanding shares of RMK that we did not already own pursuant to the terms and conditions of the Share Acquisition Agreement (the "Acquisition
Agreement"), dated as of December 16, 2003, by and among the Company, RMK and the other shareholders of RMK (the "Selling Shareholders").

We
paid total consideration of $20.1 million in exchange for the RMK shares of the Selling Shareholders, which consisted of $5.0 million in cash, approximately
2.1 million shares valued at $14.6 million and approximately $0.5 million in transaction costs. Approximately 0.9% of the outstanding shares of RMK are held in an employee stock
union established under Korean law. The employee shareholders agreed to transfer their RMK shares to us upon vesting in accordance with the terms and conditions of the stock union and Korean law. The
cash portion of the purchase price was paid out of
our working capital and the common stock portion of the purchase price consisted of newly issued shares. For accounting purposes the effective date of the acquisition is January 1, 2004.

The
parties entered into a registration rights agreement that required us to file within 20 days of closing a registration statement (the "Registration Statement") covering the
resale of the shares of common stock issued to the Selling Shareholders in connection with this transaction. The Registration Statement was declared effective on January 28, 2004. Pursuant to
the Acquisition Agreement, the Selling Shareholders agreed to a lock-up provision restricting the resale of the shares of common stock received by them in the transaction. The
lock-up restrictions generally lapse in four equal installments, one on each of the effective date of the Registration Statement, July 6, 2004, January 6, 2005 and
July 6, 2005, respectively. The parties also entered into an escrow agreement, pursuant to which approximately 0.4 million shares of the common stock payable to the Selling Shareholders
will be held in escrow to secure the indemnification obligations of the Selling Shareholders.

We
also entered into an employment agreement with Mr. Jae Woo Chung, pursuant to which Mr. Chung will continue as Chief Executive Officer of RMK.

Lycos, Inc. Services Agreements

On February 11, 2004, we entered into a five-year arrangement with Lycos, Inc. ("Lycos") to provide media sales, advertisement serving
and analytics technology services to Lycos' U.S. Web properties and to transition personnel and other services from Lycos to us. Lycos operates a network of branded Web properties.

Pursuant
to an advertising services agreement, our sales force will represent the U.S. Web properties of Lycos for all advertising. The properties that we will represent include:
Angelfire.com, Gamesville.com, HotWired.com, Tripod.com, Quote.com, Webmonkey.com, WhoWhere.com and Wired News (Wired.com), which collectively attracted more than 50 million U.S. monthly unique
users in 2003 according to industry estimates. The agreement requires us to pay Lycos the greater of 65% of all net advertising sales revenue generated by us in respect of the Lycos properties, or
specified minimum required annual payments. For 2004, our minimum required annual payment is $10 million and we also will pay Lycos an initial payment of $4.5 million for transition
related services over the course of 2004. Our revenue share with Lycos and our annual minimum payment requirements under this agreement may be adjusted during the term of the agreement if the Lycos
properties generate significantly different levels of advertisement impressions. To the extent that we fail to generate revenue in excess of the minimum annual payments, our obligations under this
agreement may materially and adversely

17

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affect
our business, results of operations and financial condition. In addition, we currently expect that the Lycos relationship will generate between 15% and 20% of our revenue. If we or Lycos is
acquired, Lycos may have the right to terminate the agreement.

Pursuant
to a technology services agreement, Lycos will utilize Open AdStream, our advertisement management technology, to serve advertisements for all Lycos U.S. Web properties.
Additionally, all Lycos U.S. properties will deploy Insight XE, our Web analytics technology. The agreement requires Lycos to pay us a technology services fee based on the number of advertisement
impressions in the case of Open AdStream technology, or page views, in the case of Insight XE technology, delivered in respect of the Lycos properties and provides for a total minimum monthly fee of
$100,000 for the next five years. If the advertising services agreement is terminated, either we or Lycos may terminate the technology services agreement.

Proposed Offering of Common Stock

On February 11, 2004, we filed a registration statement with the Securities and Exchange Commission relating to a proposed public offering of shares of our
common stock by us and some of our stockholders. We intend to use the net proceeds of this offering for working capital and general corporate purposes and for potential future acquisitions of
complementary businesses and technologies. As of the date of this report, the registration statement relating to the securities has not been declared effective. We will not sell securities nor accept
offers to buy securities prior to the time that the registration statement is declared effective. We will not receive any proceeds from the sale of common stock by the selling stockholders.

Reverse Split of Common Stock

On February 27, 2004, we completed a one-for-five reverse split of our common stock. As a result of the reverse split, every five
shares of our common stock were combined into one share of common stock. The number of shares of preferred stock and warrants outstanding are not affected by the reverse split, however, the conversion
ratios will be adjusted. All figures relating to common stock, preferred stock, stock options, warrants and other equity-linked instruments have been adjusted in this Form 10-K to
reflect the reverse split.

ITEM 2.    PROPERTIES.

Our principal executive offices are located at 1250 Broadway, New York, New York. We are using approximately 14,000 square feet under a lease that expires in 2008
and provides for total annual rent of approximately $0.4 million, subject to increase annually to reflect increases in operating expenses.

In
addition, we currently lease office space in the following domestic locations:



18

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Furthermore,
we currently lease office space in the following countries for our international operations:



We
periodically evaluate our facilities requirements. Some of our facilities are sublet in whole or in part.

ITEM 3.    LEGAL PROCEEDINGS.

aQuantive, Inc. (formerly Avenue A, Inc.)

On April 19, 2002, aQuantive, Inc. (formerly Avenue A, Inc.) filed a complaint against us seeking a declaratory judgment that U.S. Patent
No. 6,206,368 is invalid and not infringed by aQuantive. The complaint also seeks injunctive relief and recovery of attorney's fees. On May 10, 2002, we filed our answer to the
complaint, in which we denied the material allegations of the complaint and asserted a counterclaim for infringement of the '368 patent. On January 2, 2003, aQuantive filed a motion for summary
judgment of non-infringement, to which we filed papers in opposition on April 28, 2003. On July 3, 2003, the U.S. Federal Court for the Western District of Washington granted
partial summary judgment to aQuantive, Inc. and held that, based on the court's construction of the patent's claims, aQuantive's Atlas DMT advertisement serving system does not infringe the
'368 patent. We have appealed the court's ruling to the Court of Appeals for the Federal Circuit and agreed with aQuantive to dismiss the remaining claims in the case to expedite the appeal.

Brian Anderson

On July 5, 2001, Brian Anderson, former Chief Executive of our AwardTrack, Inc. subsidiary, served us with notice of a lawsuit filed in Superior
Court for the State of California in and for the County of Santa Cruz, alleging breach of contract, fraud, intentional infliction of emotional distress and breach of fiduciary duty, in connection with
the acquisition of AwardTrack and subsequent events. We removed the lawsuit to federal court in California and moved to dismiss the complaint in its entirety. This motion was granted in part, with
leave to amend, and denied in part. The plaintiff has subsequently refiled the complaint and we have filed a counterclaim. Discovery is concluded, and we intend to move for summary judgment to dismiss
the complaint in its entirety.

chinadotcom Corp.

On February 19, 2003, we filed a complaint in federal court against chinadotcom Corporation for breach of contract, unjust enrichment, breach of duty of
good faith and fair dealing, and promissory estoppel arising out of a certain equity exchange agreement dated August 16, 2000 between chinadotcom and us, seeking to enforce our right to
exchange our stake in 24/7 Media-Asia Ltd. for 1.8 million shares of chinadotcom. chinadotcom filed a motion seeking to compel arbitration of the matter, which the court
granted on May 12, 2003.

19

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On
April 29, 2003, chinadotcom filed an action in court in Hong Kong against David Moore, our Chief Executive Officer, alleging, among other things, breach of fiduciary duty by
Mr. Moore in connection with his service as a director of chinadotcom and its subsidiary, 24/7 Media-Asia Ltd. On
November 24, 2003, the Hong Kong Court dismissed chinadotcom's complaint against Mr. Moore in its entirety, and Mr. Moore has requested chinadotcom to reimburse him for all of his
legal expenses. chinadotcom has appealed the dismissal of its claim and that appeal is pending. We have assumed Mr. Moore's defense and will indemnify him in the event of any liability. We
believe that the claims against Mr. Moore are without merit and that the action was brought solely in retaliation against us for asserting our rights in the matter discussed above.

On
July 22, 2003, chinadotcom filed an arbitration claim with the International Court of Commerce asserting certain alleged breaches of contract in connection with the Media Asia
Agreement entered into between the parties as of June 30, 2000. The claim seeks damages totaling $24.0 million. We believe that chinadotcom's claims are without merit. We have filed an
Answer and Counterclaim in the matter and we intend to defend ourselves vigorously against these claims.

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

None.

20

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

From our initial public offering on August 13, 1998 until June 2002, our common stock traded on the Nasdaq National Market under the symbol "TFSM."
In June 2002, we transferred our common stock to the Nasdaq SmallCap Market. Accordingly, the following table sets forth the high and low sales prices of the common stock, for the periods
indicated, as reported by the Nasdaq National Market and the Nasdaq SmallCap Market.

High

LowYear Ended December 31, 2002First Quarter

1.50

0.80Second Quarter

1.65

0.95Third Quarter

3.25

1.00Fourth Quarter

2.25

0.70Year Ended December 31, 2003First Quarter

1.80

0.95Second Quarter

6.90

1.00Third Quarter

12.45

3.80Fourth Quarter

8.80

6.20


On
February 27, 2004, the last reported sale price for our common stock on the Nasdaq SmallCap Market was $9.38.

HOLDERS OF RECORD

Our authorized capital stock consists of 350,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01
per share. As of December 31, 2003, there were 23,367,421 shares of our common stock, and 828,250 shares of our preferred stock outstanding. As of December 31, 2003, there were
approximately 595 holders of record of our common stock.

DIVIDENDS

We have not declared or paid any dividends on our capital stock since our inception and do not anticipate paying dividends in the foreseeable future. Our current
policy is to retain earnings, if any, to finance the expansion of our business. The future payment of dividends will depend on the results of operations, financial condition, capital expenditure plans
and other factors that we deem relevant and will be at the sole discretion of our Board of Directors.

RECENT SALES OF UNREGISTERED SECURITIES

Acquisition of Outstanding Shares of Real Media Korea Co., Ltd

On January 6, 2004, we completed the acquisition of approximately 90.4% of the outstanding shares of Real Media Korea Co., Ltd., a company formed
under the laws of the Republic of South Korea ("RMK"), we did not already own pursuant to the terms and conditions of the Share Acquisition Agreement (the "Acquisition Agreement"), dated as of
December 16, 2003, by and among the Company, RMK and the other shareholders of RMK (the "Selling Shareholders"). We paid total consideration of $20.1 million in exchange for the RMK
shares of the Selling Shareholders, which consisted of $5.0 million in cash, approximately 2.1 million shares valued at $14.6 million and approximately $0.5 million in
transaction costs. The cash portion of the purchase price was paid out of

21

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our
working capital and the common stock portion of the purchase price consisted of newly issued shares. Pursuant to the Acquisition Agreement, the parties also entered into a registration rights
agreement that required us to file a registration statement (the "Registration Statement") covering the resale of the shares of common stock issued to the Selling Shareholders in connection
with this transaction. The Registration Statement was declared effective on January 28, 2004. The sale of shares of our common stock to RMK shareholders was exempt from registration under the
U.S. Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and Regulation S promulgated thereunder. We will not receive any proceeds from the sale by the Selling
Shareholders of the common stock that they received in connection with the acquisition of RMK.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA.

The selected consolidated financial data as of December 31, 2003 and 2002, and for each of the years in the three-year period ended
December 31, 2003 have been derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of December 31, 2001, 2000 and
1999 and for each of the years in the two-year period ended December 31, 2000 are derived from our audited financial statements, which are not included herein. We believe that due
to the many acquisitions and dispositions that we made in recent years, the period to period comparisons for 1999 through 2003 are not meaningful and should not be relied upon as indicative of future
performance.

You
should read the selected consolidated financial data stated below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the related Notes thereto included elsewhere herein.

22

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|                                                                             |                                                                                                                                           | Years ended December 31, |           
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------
|
|
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                  |                                                                                                                                           |                          |           
|Revenues:                                                                    |                                                                                                                                           |                          |           
|                                                                             | Integrated media solutions                                                                                                                |                          | $         
|                                                                             | Technology solutions                                                                                                                      |                          |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Total revenues           |           
|                                                                             |                                                                                                                                           |                          |           
|Cost of revenues:                                                            |                                                                                                                                           |                          |           
|                                                                             | Integrated media solutions                                                                                                                |                          |           
|                                                                             | Technology solutions (exclusive of $31 and $7, respectively reported below as stock-based compensation)                                   |                          |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Total cost of revenues   |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Gross profit             |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Gross profit percentage  |           
|Operating expenses:                                                          |                                                                                                                                           |                          |           
|                                                                             | Sales and marketing (exclusive of $339, $68, $512 and $1,965, respectively, reported below as stock-based compensation)                   |                          |           
|                                                                             | General and administrative (exclusive of $803, $2,665, $1,206, $2,306 and $313, respectively, reported below as stock-based compensation) |                          |           
|                                                                             | Product development (exclusive of $143, $50, $(60), and $215, respectively, reported below as stock-based compensation)                   |                          |           
|                                                                             | Amortization of goodwill, intangible assets and deferred financing costs                                                                  |                          |           
|                                                                             | Stock-based compensation                                                                                                                  |                          |           
|                                                                             | Restructuring costs                                                                                                                       |                          |           
|                                                                             | Impairment of intangible assets                                                                                                           |                          |           
|                                                                             | Loss (gain) on sale of non-core assets, net                                                                                               |                          |           
|                                                                             | Write-off of acquired in process technology and merger related costs                                                                      |                          |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Total operating expenses |           
|                                                                             |                                                                                                                                           |                          |           
|                                                                             |                                                                                                                                           | Loss from operations     |           
|Interest (expense) income, net                                               |                                                                                                                                           |                          | (343      
|Gain on sale of investments                                                  |                                                                                                                                           |                          |          
|Gain on exchange of patent rights, net                                       |                                                                                                                                           |                          |          
|Impairment of investments                                                    |                                                                                                                                           |                          |          
|Other (expense) income, net                                                  |                                                                                                                                           |                          | (1,638    
|                                                                             |                                                                                                                                           |                          |           
|Loss from continuing operations                                              |                                                                                                                                           |                          | (12,016   
|Loss from discontinued operations                                            |                                                                                                                                           |                          |          
|                                                                             |                                                                                                                                           |                          |           
|                                                                             | Net loss                                                                                                                                  |                          |           
|Dividends on preferred stock                                                 |                                                                                                                                           |                          | (617      
|Preferred stock conversion discount                                          |                                                                                                                                           |                          | (1,780    
|                                                                             |                                                                                                                                           |                          |           
|Net loss attributable to common stockholders                                 |                                                                                                                                           | $                        | (14,413   
|                                                                             |                                                                                                                                           |                          |           
|Loss per common sharebasic and diluted                                      |                                                                                                                                           |                          |           
|Loss from continuing operations before preferred stock dividend and discount |                                                                                                                                           | $                        | (0.71     
|Preferred stock dividends and conversion discount                            |                                                                                                                                           |                          | (0.15     
|                                                                             |                                                                                                                                           |                          |           
|Loss from continuing operations                                              |                                                                                                                                           |                          | (0.86     
|                                                                             |                                                                                                                                           |                          |           
|Loss from discontinued operations                                            |                                                                                                                                           |                          |          
|                                                                             |                                                                                                                                           |                          |           
|Net loss attributable to common stockholders                                 |                                                                                                                                           | $                        | (0.86     
|                                                                             |                                                                                                                                           |                          |           
|Weighted average shares outstanding                                          |                                                                                                                                           |                          | 16,817,502
|                                                                             |                                                                                                                                           |                          |           
|CONSOLIDATED BALANCE SHEET DATA:                                             |                                                                                                                                           |                          |           
|Cash and cash equivalents                                                    |                                                                                                                                           | $                        | 21,645    
|Working capital (deficit)                                                    |                                                                                                                                           |                          | 16,021    
|Goodwill                                                                     |                                                                                                                                           |                          | 2,621     
|Intangible assets, net                                                       |                                                                                                                                           |                          | 3,352     
|Total assets                                                                 |                                                                                                                                           |                          | 46,180    
|Long-term obligations                                                        |                                                                                                                                           |                          | 17,247    
|Total stockholders' equity                                                   |                                                                                                                                           |                          | 10,037    

23

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

Business conditions in the industry for Internet advertising services continue to be characterized by stronger global demand, particularly in Asia. Continuing
improvement in the overall economy has led many advertisers to increase their advertising spending generally and to increase their spending on Internet advertising. In general, advertisers appear to
recognize that increased global Internet connectivity and broadband usage and a trend toward Internet use and away from other media consumption indicate growing online audiences of consumers. As
online audiences grow, Web publishers and advertisers also appear to be focusing more on the benefits of using technology solutions to help them reach, target and manage audiences on Web sites.
Accordingly, in light of these trends, we continue to expect improvement in business conditions in the Internet advertising services sector for the upcoming fiscal year and we are approaching fiscal
2004 with optimism.

We
offer a comprehensive suite of media and technology products for the online advertising needs of Web publishers and advertisers, including Web representation, advertisement serving,
analytics and search paid inclusion. Our 24/7 Web Alliance of over 800 affiliated Web sites aggregates advertising inventory online and targets audience segments to attract advertisers worldwide. Our
Open AdSystem technology helps Web publishers and advertisers target, convert and retain online customers, maintain customer relationships and safeguard the privacy of Web users. Through 24/7 Search,
we connect advertisers with consumers who use search engines to find information about products and services.

We
were formed through the combination of 24/7 Media, Inc. and Real Media, Inc. in 2001. 24/7 Media, our legal and accounting predecessor, has been publicly-traded since
August 1998. Real Media was a privately-held company that developed the first generation of our Open AdStream software and operated small advertising networks in the United States
and Europe. Following the downturn in the global economy and, in particular, the correction in the Internet market, we executed a strategic plan to restructure our operations, focusing on our core
businesses, including integrated media solutions and Internet advertising delivery and management technology, and exiting non-core businesses including online promotions and
e-mail marketing. As a result, we divested non-core assets, including iPromotions, an online promotions business, Exactis, an e-mail business, IMAKE, a broadband
convergence technology
business, AwardTrack, an online promotions and purchase rewards business, and Sabela, an advertisment serving technology business. We also acquired strategic assets including Insight First, a Web
analytics provider, and, recently, Real Media Korea Co. Ltd., a provider of media and technology solutions. The foregoing acquisitions and dispositions may affect the comparability of our
results from period to period.

We
generate revenue in two business segments: Integrated Media Solutions and Technology Solutions.

Integrated Media Solutions

Our Integrated Media Solutions consist of the 24/7 Web Alliance, a global alliance of Web sites represented by us through which advertisers can run campaign
orders directly with us, 24/7 Search, an Internet search marketing service designed to connect advertisers with consumers using search engines to find product information and Other Media Services. Our
24/7 Search solution uses proprietary technology to help advertisers determine the keywords most relevant to their products and services in order to lead users from search engines to the advertisers'
Web sites.

We
generate revenue through the 24/7 Web Alliance from fees paid by client advertisers. We typically offer advertisers a pricing model based on
cost-per-thousand-impressions ("CPM") enabling a client advertiser to pay a fee based on the number of times its advertisement is viewed.

24

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We
share the revenue generated through the 24/7 Web Alliance with Web publishers included in the 24/7 Web Alliance. With respect to our 24/7 Network, a network of hundreds of Web sites
offering a variety of content, we generally retain between 40% and 50% of revenues from advertisers depending on, among other things, a Web publisher's audience size, the number of unique visitors,
impressions and page views, and the prominence of the Web publisher's brand name. With respect to our 24/7 Portfolio, a select portfolio of brand name Web sites, and our 24/7 Verticals, a network of
Web sites categorized by content demographic and psychographic characteristics, we generally retain between 35% and 45% depending on similar factors.

The
following table shows by quarter the number of paid impressions and the average CPM since January 1, 2002. Metrics prior to 2002 are not comparable due to the acquisition of
Real Media.

Number of Paid
Impressions
(in billions)

Average CPMQ4 2003

6.6

0.90Q3 2003

5.9

0.95Q2 2003

6.2

0.88Q1 2003

6.1

0.79Q4 2002

4.8

0.99Q3 2002

3.0

1.23Q2 2002

3.3

1.19Q1 2002

4.2

1.01


24/7
Search provides a paid inclusion service for advertisers, which consists of producing an editorially reviewed search listing that appears prominently in search results displayed by
our partner search engine distribution partners in response to a user's inquiry for particular keywords and phrases. We assist our client advertisers in selecting keywords and phrases most relevant to
their products or services and the most relevant Web site landing pages to which visitors will be directed in order to increase the percentage of visitors that are converted into buyers. We submit the
search listing to our search engine distribution partners through frequently refreshed data feeds. Our client advertisers pay only for valid visitors to their landing pages.

We
generate revenue through 24/7 Search from performance-based pricing models that generally feature cost-per-click ("CPC") pricing, whereby an advertiser pays us
a fee for each user or "valid visitor" delivered to their Web sites from our search engine distribution partners. We share the revenue generated by our 24/7 Search services with our search engine
distribution partners that have provided their paid search listings to us based upon either a percentage of revenue or fees paid per bid. We generally retain between 35% and 45% depending on, among
other things, the size of our distribution partner, the number of valid visitors, the number of searches conducted and the prominence of our distribution partner's brand name. For
bid-based arrangements, we place bids for various key words and phrases with our search engine distribution partners in order to acquire valid visitors which are then routed to our client
advertisers' Web sites.

25

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24/7
Search had approximately 1,559 active client advertisers accounts at December 31, 2003. The following table shows by quarter the number of valid visitors and the average CPC
for 24/7 Search since January 1, 2002.

Number of
Valid Visitors
(in millions)

Average CPCQ4 2003

12.6

0.21Q3 2003

9.0

0.24Q2 2003

11.0

0.21Q1 2003

16.5

0.19Q4 2002

12.5

0.18Q3 2002

9.6

0.21Q2 2002

10.7

0.22Q1 2002

8.4

0.21


Our
Other Media Services primarily relate to e-mail list rental. We derive revenue from this service by delivering advertisements to e-mail lists for advertisers,
who pay based on a CPM basis. Our revenue share with list providers generally ranges between 25% and 35%.

Technology Solutions

Our Technology Solutions are primarily based on our patent-protected Open AdSystem technology platform for Internet advertisement delivery, management and
analytics, and consist of:



We
designed our Insight software solutions to fully integrate with our Open AdSystem technology to offer Web publishers active campaign reporting and marketing intelligence and help
advertisers measure, analyze and manage online audiences. In addition to our Insight XE solution, which is currently available, we expect to commercially launch two more analytics products in the
first half of 2004 that will integrate with OAS. We have designed our Insight ACT solution to enable a Web publisher to enhance the value of its advertising inventory by identifying and targeting
segments of its audience who may be receptive to a specific advertiser's message. We have designed our Insight SE solution to allow an advertiser to create targeted campaigns using keywords and
phrases, and generate performance metrics that track visitors from specific search engines throughout the entire sales cycle, from prospecting by new customers to the final sale. We may provide these
solutions, including Insight
XE, to our customers from software hosted on our servers or from software hosted on a customer's server that is administrated by us.

We
generate revenue from licensing our Open AdStream Local software to Web publishers. Our license agreements typically provide for an upfront license fee and a software maintenance and
service fee. We negotiate license fees based on, among other things, the forecasted number of impressions a Web publisher will deliver using our software and several other factors.

We
generate revenue from our Open AdStream Central and Open Advertiser services from fees paid by Web publishers and advertisers and agencies, respectively. We typically offer Web
publishers or advertisers a CPM-based pricing model allowing the Web publisher or advertiser to pay us based on

26

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advertising
impressions. For these customers, an "impression" includes the delivery by us at their request of any advertising material. Our service revenue is determined by multiplying the CPM rate by
the number of impressions delivered and is typically billed on a monthly basis. We have been generating revenue from Open Advertiser in Europe since mid-2001. We launched our Open
Advertiser service in the United States in June 2003 but we have not generated significant revenue in the U.S. from this service from our initial beta or commercial customers.

We
generate revenue from our Insight XE solution from fees paid by Web publishers. We typically offer Web publishers page-view pricing enabling them to pay us based on how
many page views are measured. Our revenue is calculated by multiplying the CPM rate by the number of page views delivered.

The
following table shows by quarter certain metrics for our Technology Solutions since 2002. We believe that metrics for periods prior to 2002 are not comparable because our Technology
Solutions then included a different product mix.

|        |  |     |  | OAS Central, OAD and Insight XE |  |     
|------- |  | --- |  | ------------------------------- |  | ----
|
|Q4 2003 |  | 199 |  | 150                             |  | 14.9
|Q3 2003 |  | 219 |  | 162                             |  | 13.3
|Q2 2003 |  | 221 |  | 156                             |  | 11.9
|Q1 2003 |  | 235 |  | 164                             |  | 10.6
|Q4 2002 |  | 258 |  | 162                             |  | 7.5 
|Q3 2002 |  | 273 |  | 159                             |  | 6.4 
|Q2 2002 |  | 271 |  | 153                             |  | 5.1 
|Q1 2002 |  | 274 |  | 152                             |  | 4.9 

---

To
a lesser extent, we generate revenue by providing professional services charged at an hourly rate and from fees paid by Web publishers for trafficking their advertisements.
Trafficking advertisements refers to entering advertisement creative material and campaign specifications into our Open AdStream software engine.

Patent Licensing Program

We have taken steps to develop a patent licensing program involving all of our patented intellectual property. Our patent program includes identifying, notifying
and pursuing commercial discussions with companies that we believe practice one or more of our patents. With any of these companies we may discuss transactions involving licensing our patents, buying
our patents or jointly developing technology using our patents. In addition, in appropriate circumstances, we will commence enforcement actions against companies that infringe our patents. Our patent
license arrangements are designed to include an upfront license fee and a running royalty payable by the licensee for the remaining term of the licensed patents. In addition to Doubleclick,
ValueClick, and Advertising.com, our initial licensees who each made one-time payments to license our '368 patent in connection with litigation settlements, we have licensed one or more of
our patents to other companies, outside of the litigation context, who made upfront payments and are obligated to pay recurring royalties. However, if we become engaged in patent litigation, any
ruling against us, and, in particular, an adverse ruling in our current litigation with aQuantive, could make it very difficult to license our patents or generate any

27

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license
revenue. See "BusinessLegal Proceedings" and "Risk FactorsWe Depend On Proprietary Rights, And We Face The Risk Of Infringement."

CRITICAL ACCOUNTING POLICIES

Use of Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are
required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. We have identified the following critical accounting policies that require the use of significant judgment and estimates relating
to matters that are inherently uncertain and may result in materially different actual results.

Revenue Recognition

Integrated Media Solutions

24/7 Web Alliance revenues are generated by delivering advertising impressions for a fixed fee to third-party Web sites. 24/7 Search revenues are derived from
driving valid visitors to a client's Web site. E-mail related revenues are derived from delivering advertisements to e-mail lists for advertisers and Web sites. Our agreements
are primarily short-term and we recognize revenues as services are delivered provided that no significant obligations of ours remain outstanding and collection of the resulting receivable
is probable.

Technology Solutions

Technology Solutions revenues are derived from licensing our software, hosted advertisement serving, and software maintenance and technical support contracts.
Revenue from software licensing agreements is recognized in accordance with Statements of Position ("SOP") 97-2, "Software Revenue Recognition," and Staff Accounting Bulletin
No. 104, "Revenue Recognition" upon delivery of the software, which is generally when the software is made available for download, there is persuasive evidence of an arrangement, collection is
reasonably assured, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fees to all elements of the arrangement.

At
the beginning of 2003, we refined our OAS Local strategy to offer customers the flexibility to adapt to rapidly changing enterprise requirements while reducing the risks and costs
associated with traditional software licensing model. We also adjusted our software arrangements and now bundle a software license with maintenance and technical support services. As a result, we
changed the revenue
recognition method for OAS Local sales, resulting in the deferral of a portion of the OAS Local revenue to future periods. Using this method, the total value of the software arrangement is recognized
ratably over the term of the software license. This change modestly reduced our license fee revenue in 2003 and deferred a portion of revenue to future periods. We will recapture the reduction in
upfront license fee revenue in subsequent years as we recognize deferred revenue on these software arrangements. Under the prior arrangements, we typically recognized software license revenue
immediately upon delivery of the software.

Revenue
from advertisement serving is recognized upon delivery. The contracts are usually for a one-year period and are billed on a monthly basis.

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Revenue
from maintenance and technical support contracts is recognized ratably over the life of the maintenance agreements, which typically do not exceed one year. Maintenance and
technical support revenue invoiced in advance of the related services is recorded as deferred revenue.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as
determined by a review of their current credit information. We regularly monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot
guarantee that we will continue to experience the same credit loss rates that have been experienced in the past.

Valuation of goodwill and intangible assets

Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 142 eliminates the amortization of goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with
finite lives and addresses impairment testing and recognition for goodwill and intangible assets. SFAS No. 144 establishes a single model for the impairment of long-lived assets.

We
assess goodwill for impairment annually unless events occur that require more frequent reviews. Long-lived assets, including amortizable intangibles, are tested for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Discounted cash flow analyses are used to assess nonamortizable intangible
impairment while undiscounted cash flow analyses are used to assess long-lived asset impairment. If an assessment indicates impairment, the impaired asset is written down to its fair
market value based on the best information available. Estimated fair market value is generally measured with discounted estimated future cash flows. Considerable management judgment is necessary to
estimate undiscounted and discounted future cash flows. Assumptions used for these cash flows are consistent with internal forecasts.

On
an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets, including goodwill and other intangible
assets. During this review, we re-evaluate the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary from
transaction to transaction, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been an impairment of the
value of long-lived assets based upon events or circumstances that have occurred since acquisition. The impairment policy is consistently applied in evaluating impairment for each of our
wholly owned subsidiaries and investments.

Investments

We record an impairment charge when we believe an investment asset has experienced a decline in value that is other than temporary. Future adverse changes in
market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an
investment's current carrying value, thereby possibly requiring an impairment charge in the future.

Contingencies and Litigation

We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS No. 5, "Accounting for Contingencies" and record
accruals when the outcome of these matters is

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deemed
probable and the liability is reasonably estimable. We make these assessments based on the facts and circumstances and in some instances based in part on the advice of outside legal counsel.

Restructuring Activities

Restructuring activities in 2003 and 2002 are accounted for in accordance with SFAS No. 146. Prior to 2002, restructuring activities are accounted for in
accordance with the guidance provided in the consensus opinion of the Emerging Issues Task Force ("EITF") in connection with EITF Issue 94-3 ("EITF 94-3"). SFAS No. 146
and EITF 94-3 generally require, with respect to the recognition of severance expenses, management approval of the restructuring plan, the determination of the employees to be terminated,
and communication of benefit arrangement to employees and, with respect to costs associated with lease terminations, an estimation of sublease payments.

RESULTS OF OPERATIONS2003 COMPARED TO 2002

FACTORS AFFECTING COMPARABILITY OF 2003 to 2002

In May 2002, we completed the sale of certain assets related to our U.S. e-mail management product which had approximately $1.6 million
in revenue for the year ended December 31, 2002.

In
September 2002, we acquired certain assets of Vflash d/b/a Now Marketing; however, this did not contribute significantly to revenue.

In
January 2003, we sold a majority stake in iPromotions, Inc. iPromotions revenue was approximately $0.2 million and $1.2 million for the year ended
December 31, 2003 and 2002, respectively.

In
January 2003, we acquired certain assets of Insight First, Inc., a Web analytics company. Revenue for 2003 was approximately $0.7 million.

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The following table compares the 2003 results of operations to 2002 results of operations:

|                                            |                                                                | Years ended December 31, |         |        |         |         |       
|------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ------- | ------ | ------- | ------- | ------
|
|
|
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA: |                                                                |                          |         |        |         |         |       
|Revenues:                                   |                                                                |                          |         |        |         |         |       
|                                            | Integrated media solutions                                     |                          | $       | 33,904 |         | $       | 28,800
|                                            | Technology solutions                                           |                          |         | 15,277 |         |         | 13,758
|                                            |                                                                |                          |         |        |         |         |       
|                                            |                                                                | Total revenues           |         |        | 49,181  |         |       
|Cost of revenues:                           |                                                                |                          |         |        |         |         |       
|                                            | Integrated media solutions                                     |                          |         | 21,623 |         |         | 19,321
|                                            | Technology solutions                                           |                          |         | 4,032  |         |         | 3,448 
|                                            |                                                                |                          |         |        |         |         |       
|                                            |                                                                | Total cost of revenues   |         |        | 25,655  |         |       
|                                            |                                                                | Gross profit             |         |        | 23,526  |         |       
|                                            |                                                                |                          |         |        |         |         |       
|                                            |                                                                | Gross profit percentage  |         |        | 47.8    | %       |       
|Operating expenses:                         |                                                                |                          |         |        |         |         |       
|                                            | Sales and marketing                                            |                          |         | 12,584 |         |         | 12,675
|                                            | General and administrative                                     |                          |         | 10,865 |         |         | 14,212
|                                            | Product development                                            |                          |         | 3,100  |         |         | 3,924 
|                                            | Amortization of intangible assets and deferred financing costs |                          |         | 2,724  |         |         | 2,057 
|                                            | Stock-based compensation                                       |                          |         | 1,316  |         |         | 2,790 
|                                            | Restructuring costs                                            |                          |         | 1,651  |         |         | 2,048 
|                                            | Impairment of intangible assets                                |                          |         | 1,321  |         |         |      
|                                            | Loss on sale of non-core assets, net                           |                          |         |       |         |         | 327   
|                                            |                                                                |                          |         |        |         |         |       
|                                            |                                                                | Total operating expenses |         |        | 33,561  |         |       
|                                            |                                                                |                          |         |        |         |         |       
|                                            |                                                                | Loss from operations     |         |        | (10,035 | )       |       
|Interest expense, net                       |                                                                |                          | (343    | )      |         | (268    | )     
|Other (expense) income                      |                                                                |                          | (1,638  | )      |         | 1,013   |       
|                                            |                                                                |                          |         |        |         |         |       
|Net loss                                    |                                                                | $                        | (12,016 | )      | $       | (17,499 | )     
|                                            |                                                                |                          |         |        |         |         |       

REVENUES

INTEGRATED MEDIA SOLUTIONS.Revenue was derived from three sources: 24/7 Web Alliance, 24/7 Search and Other Media Services.
24/7 Web Alliance generated $21.4 million in revenue in 2003 compared to $16.6 million in 2002, an increase of 29%. The increase is due to increasing the amount of paid impressions by
61% from 15.4 billion in 2002 to 24.8 billion in 2003. The cost per thousand impressions declined slightly year over year primarily due to increasing the average order size, as large
orders receive a lower price due to volume.

24/7
Search revenue increased to $10.3 million in 2003 from $8.3 million in 2002, an increase of 25%. This was due to an increase in the number of valid visitors delivered
to our clients from 41.2 million in 2002 to 49.1 million in 2003, an increase of 21% and an increase in the costs-per-click that we were able to charge.
Historically, we generated a significant portion of our 24/7 Search revenue from relationships with a small number of search engine distribution partners, particularly Inktomi. Due to changes at our
largest search engine distribution partner, Inktomi, since its acquisition by Yahoo!,

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the
revenue we generated from Inktomi began to decline in the second quarter of 2003, and our contract with Inktomi expired at the end of May 2003. Despite the loss of our largest distribution
partner we were able to increase valid visitors by expanding our strategic relationships with other distribution partners and increasing the number of distribution partners. CPCs have fluctuated due
to the change in distribution partners.

Other
Media Services revenue was generated primarily from e-mail and iPromotions. E-mail revenue decreased from $2.7 million in 2002 to $1.9 million
in 2003 due to the sale of our U.S. e-mail management product, known as 24/7 Mail, to Naviant on May 3, 2002. We maintain the ability to sell e-mail domestically as a
broker through 24/7 Mail and internationally without restriction. In January 2003, we sold our iPromotions unit, which accounted for $0.2 million in 2003 and $1.2 million in 2002.

TECHNOLOGY SOLUTIONS.Our Technology Solutions revenue was $15.3 million in 2003 and $13.8 million in 2002, an
increase of 11%. Revenue from our products that we host, including OAS Central, OAD and Insight XE, continued to grow during 2003 as impressions delivered climbed from 23.9 billion in 2002 to
50.7 billion in 2003. OAS Central continues to be an attractive solution as it requires minimal up-front cost and does not require the customer to dedicate its assets to hosting the
software. In 2003, we changed to a subscription based contract model for new customers for our OAS Local software. Total contract value is recognized ratably over the term of the contract whereas in
2002 the revenue related to the software license was recognized upon delivery. Had we changed contracts in 2002, approximately $1.4 million in 2002 revenue would have been deferred until future
periods and reported revenue for 2002 would have been approximately $12.3 million. On this comparable basis, Technology Solutions revenue increased 24% versus the prior year.

COST OF REVENUES AND GROSS PROFIT

INTEGRATED MEDIA SOLUTIONS COST OF REVENUES AND GROSS PROFIT.Cost of revenues consists primarily of fees paid to affiliates
consisting of Web sites (for 24/7 Web Alliance), search
engine distribution partners (for 24/7 Search), or list providers (for e-mail), which are usually calculated as a percentage of revenues. 24/7 Web Alliance cost of revenues also includes
advertisement serving costs, which is an intercompany charge from the Technology Solutions segment based on a fixed CPM. 24/7 Search cost of revenues also includes depreciation, hosting and bandwidth
costs. Gross margin increased from 32.9% in 2002 to 36.2% in 2003 as we expanded the margin on all of our products. The 24/7 Web Alliance focused revenue growth on the 24/7 Network, which has a higher
margin than the 24/7 Portfolio and 24/7 Verticals, and also benefited from the lower advertisement serving costs. The cost of acquiring valid visitors for 24/7 Search increased; however, this was more
than offset by price increases, declining depreciation and lower hosting and bandwidth costs.

TECHNOLOGY SOLUTIONS COST OF REVENUES AND GROSS PROFIT.The cost of technology solutions revenues consists of the cost of
operating equipment and broadband capacity for our third party advertisement serving solutions and payroll costs to deliver and support software, offset by the portion allocated to the Integrated
Media Solutions segment for advertisement serving. Advertisement serving costs have been declining due to a reduction in the cost of space, power and bandwidth at data centers as a result of
overcapacity in that industry. Adjusted for the change to a subscription-based contract model for our OAS Local software, gross margin increased from 72.0% in 2002 to 73.6% in 2003 primarily due to
decreased cost of advertisement serving.

SALES AND MARKETING EXPENSES.Sales and marketing expenses consisted primarily of sales force salaries and commissions,
advertising expenditures and costs of trade shows, conventions and marketing materials. Sales and marketing expenses decreased as a percentage of revenue from 30% for 2002 to 26% for 2003 as we were
able to gain operating leverage off the existing cost structure. Headcount decreased from 140 sales and marketing employees at December 31, 2002 to 104 at December 31, 2003. The decrease
in headcount was offset by an increase in commissions.

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GENERAL AND ADMINISTRATIVE EXPENSES.General and administrative expenses consist primarily of compensation, facilities
expenses and other overhead expenses incurred to support the business. General and administrative expenses decreased as a percentage of revenue from 33% in 2002 to 22% in 2003. The significant
decrease was due to our reductions of headcount, office space, professional fees and related expenses. Efforts to streamline operations successfully reduced headcount from 60 general and
administrative employees at December 31, 2002 to 42 at December 31, 2003.

PRODUCT DEVELOPMENT EXPENSES.Product development expenses consist primarily of compensation and related operating expenses
incurred to further enhance and maintain our advertisement serving and other technology capabilities. We capitalized approximately $0.8 million and $0.4 million in costs related to
developing our Open Advertiser product in 2002 and 2003, respectively. Our Open Advertiser product was commercially launched in June 2003. We reduced our product development headcount from 35
at December 31, 2002 to 30 at December 31, 2003 as development efforts became more focused.

AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED FINANCING.Amortization expense relates to intangible assets acquired with
24/7 Search in August 2000, and certain assets of Now Marketing acquired in September 2002, certain assets of Insight First acquired in January 2003 and deferred financing costs
associated with the subordinated convertible debenture offering in September 2003. The increase from $2.1 million in 2002 to $2.7 million in 2003 was due to additional
transactions in 2003 offset by a full year of amortization for transactions that occurred during 2002 and prior.

STOCK-BASED COMPENSATION.Stock-based compensation of $1.3 million for 2003 consists of $0.6 million in
contractual bonuses that will be paid in stock in lieu of cash to executives for meeting certain earnings targets, $0.3 million in deferred compensation for restricted shares issued to certain
employees, $0.2 million in discretionary bonuses paid in stock and $0.2 million in salary for certain employees who elected to received stock instead of cash.

Stock-based
compensation of $2.8 million for 2002 consists of $1.5 million in stock and options grants to executives for restructuring their employment agreements,
$0.4 million in contractual bonuses that were paid in stock in lieu of cash to executives for meeting certain earnings targets, $0.3 million in amortization of deferred compensation for
restricted shares issued to certain employees, $0.3 million in compensation to Board members and bonuses to employees paid in stock, $0.2 million in salary for employees who elected to
receive stock instead of cash, and $0.1 million in amortization of deferred compensation from acquisitions.

RESTRUCTURING COSTS.During 2003 and 2002, we recorded restructuring charges of approximately $1.7 million and
$2.0 million, respectively. Our restructuring initiatives were to reduce employee headcount, consolidate operations and reduce office space in order to better align our sales, development and
administrative organization and to position us for profitable growth consistent with our long-term objectives. The 2003 restructuring involved the involuntary termination of approximately
26 employees and a revision of the estimate of the cost to dispose of office space at the corporate headquarters in New York. The $1.7 million charge consists of $1.2 million in office
closing costs and $0.5 million in employee costs.

The
2002 restructuring involved the involuntary termination of approximately 60 employees, the exiting of four offices, and a reduction of space at two offices in the fourth quarter of
2002. The $2.0 million charge consists of severance of $1.2 million, office closing costs of $0.5 million, disposal of fixed assets of $0.2 million, and other exit costs of
$0.1 million.

IMPAIRMENT OF INTANGIBLES ASSETS.We perform on-going business reviews and, based on quantitative and qualitative
measures, assess the need to record impairment losses on long-lived assets used in operations when impairment indicators are present. Where impairment indicators were identified,
management determined the amount of the impairment charge by comparing the carrying

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values
of goodwill and other long-lived assets to their fair values. In the fourth quarter of 2003 we made the strategic decision to no longer support the 24/7 Messenger product that was
acquired with Now Marketing. The related acquired technology was amortized until December 31, 2003 and then the remaining balance of $1.3 million was considered impaired.

LOSS ON SALE OF NON-CORE ASSETS, NET.The $0.3 million loss in 2002 includes a $1.4 million loss on
the sale of certain assets related to our U.S. e-mail management product offset by a $1.1 million gain related to the sale of Exactis in May 2001.

INTEREST EXPENSE, NET.Interest expense relates to our notes payable and capital lease obligations and interest income
relates to our cash and cash equivalents. Interest expense in 2003 relates to the PubliGroupe debt that was settled in the second quarter of 2003 and the Subordinated Convertible Debentures that were
issued in the third quarter of 2003. Interest expense in 2002 primarily related to the PubliGroupe loans. Interest expense in 2003 and 2002 was offset by interest income from cash in overnight deposit
and money market accounts.

OTHER EXPENSE (INCOME), NET.In 2003, the expense includes $1.4 million of legal fees related to patent litigation and
$0.6 million in legal fees related to litigation with chinadotcom, offset by the reversal of $0.4 million in liabilities related to disposed businesses that are no longer considered
necessary. The income in 2002 was the result of patent litigation, net of legal expenses.

DIVIDENDS ON PREFERRED STOCK.The Series A and Series B preferred stock issued during the third quarter of
2002, and the Series C preferred stock issued in the second quarter of 2003, accrue and cumulate dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by our
Board of Directors.

PREFERRED STOCK CONVERSION DISCOUNT.The preferred stock conversion discounts are the result of the change in the market
value of the common stock on the date of issuance and the date the conversion price was established. When we agreed to the initial terms of the transactions with the third parties, the conversion
price of the preferred stock approximated the fair value of our underlying common stock. From the time the agreements were substantially complete until the transactions closed and all contingencies
were resolved (e.g. stockholder approval), our common stock price increased substantially and as a result, the preferred stock was issued at a substantial discount to fair market value. In accordance
with GAAP, the beneficial conversion feature, calculated as the difference between
market value on the date of issuance and the conversion price, is required to be expensed immediately; however, the discount was limited to the amount of cash allocable to each of the preferred stock
transactions.

As
a result of the difference between the conversion price and the fair value of the common stock into which the preferred stock were convertible as of the date of issuance, we recorded
a non-cash charge of approximately $1.8 million related to the Series C Preferred Stock and $6.6 million related to the Series A and B Preferred Stock in 2003
and 2002, respectively.

RESULTS OF OPERATIONS2002 COMPARED TO 2001

FACTORS AFFECTING COMPARABILITY OF 2002 to 2001

On October 30, 2001, we acquired Real Media. This accounted for $3.4 million of revenue in the fourth quarter of 2001, which was equally derived
from the Integrated Media Solutions and Technology Solutions segments. The merger created cost synergies for our combined company, one of which was to focus on Real Media's proprietary Open AdStream
technology and to abandon our existing advertisement serving technology, 24/7 Connect. The transition of the 24/7 Web Alliance business onto the Open AdStream platform began in December 2001
and was completed in February 2002 resulting in the elimination of redundant personnel and operating costs associated with having two advertisement

34

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serving
platforms. Throughout 2001 and into 2002, in accordance with our business plan, we acquired, divested or discontinued many of our non-core assets, including:



The
revenue attributed to the disposition of these non-core assets for the years ended December 31, 2002 and December 31, 2001 was approximately
$1.6 million and $15.4 million, respectively, not including approximately $16.7 million in 2001 that is included as part of discontinued operations. Our Technology Solutions
segment was not comparable between periods as the revenue in 2002 was derived solely from operations that were acquired with Real Media on October 30, 2001, while the revenue in 2001 primarily
related to operations that have been sold or shut down, including Exactis and Sabela.

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The
following table compares the 2002 results of operations to 2001 results of operations:

|                                            |                                                          | Years ended December 31, |         |         |         |          |         
|------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------- | ------- | -------- | --------
|
|
|
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA: |                                                          |                          |         |         |         |          |         
|Revenues:                                   |                                                          |                          |         |         |         |          |         
|                                            | Integrated media solutions                               |                          | $       | 28,800  |         | $        | 36,470  
|                                            | Technology solutions                                     |                          |         | 13,758  |         |          | 9,760   
|                                            |                                                          |                          |         |         |         |          |         
|                                            |                                                          | Total revenues           |         |         | 42,558  |          |         
|Cost of revenues:                           |                                                          |                          |         |         |         |          |         
|                                            | Integrated media solutions                               |                          |         | 19,321  |         |          | 32,213  
|                                            | Technology solutions                                     |                          |         | 3,448   |         |          | 2,855   
|                                            |                                                          |                          |         |         |         |          |         
|                                            |                                                          | Total cost of revenues   |         |         | 22,769  |          |         
|                                            |                                                          | Gross profit             |         |         | 19,789  |          |         
|                                            |                                                          |                          |         |         |         |          |         
|                                            |                                                          | Gross profit percentage  |         |         | 46.5    | %        |         
|Operating expenses:                         |                                                          |                          |         |         |         |          |         
|                                            | Sales and marketing                                      |                          |         | 12,675  |         |          | 19,825  
|                                            | General and administrative                               |                          |         | 14,212  |         |          | 33,262  
|                                            | Product development                                      |                          |         | 3,924   |         |          | 11,592  
|                                            | Amortization of goodwill, intangible assets and advances |                          |         | 2,057   |         |          | 14,087  
|                                            | Stock-based compensation                                 |                          |         | 2,790   |         |          | 1,658   
|                                            | Restructuring costs                                      |                          |         | 2,048   |         |          | 18,142  
|                                            | Loss (gain) on sale of non-core assets, net              |                          |         | 327     |         |          | (2,000  
|                                            | Impairment of intangible assets                          |                          |         |        |         |          | 56,707  
|                                            |                                                          |                          |         |         |         |          |         
|                                            |                                                          | Total operating expenses |         |         | 38,033  |          |         
|                                            |                                                          |                          |         |         |         |          |         
|                                            |                                                          | Loss from operations     |         |         | (18,244 | )        |         
|Interest income (expense), net              |                                                          |                          | (268    | )       |         | 790      |         
|Gain on sale of investments                 |                                                          |                          |        |         |         | 4,985    |         
|Impairment of investments                   |                                                          |                          |        |         |         | (3,089   | )       
|Other income, net                           |                                                          |                          | 1,013   |         |         |         |         
|                                            |                                                          |                          |         |         |         |          |         
|Loss from continuing operations             |                                                          |                          | (17,499 | )       |         | (139,425 | )       
|Loss from discontinued operations           |                                                          |                          |        |         |         | (60,170  | )       
|                                            |                                                          |                          |         |         |         |          |         
|                                            | Net loss                                                 |                          | $       | (17,499 | )       | $        | (199,595
|                                            |                                                          |                          |         |         |         |          |         

REVENUES

INTEGRATED MEDIA SOLUTIONS.Revenue was derived from three sources: 24/7 Web Alliance, 24/7 Search and Other Media Services.
24/7 Web Alliance generated $16.6 million in revenue in 2002 compared to $22.2 million in 2001, a decrease of 25.2%. The decrease was due to the difficult environment for advertising,
especially digital marketing, as well as a planned temporary reduction in capacity as we transitioned from the more costly 24/7 Connect to Open AdStream technology in the first quarter of 2002. In
October 2001, we acquired Real Media, which represented approximately $1.7 million in 24/7 Web Alliance revenue in 2001. In the beginning of 2002, the 24/7 Web Alliance operations of
Real Media in the U.S. were combined with the operations of 24/7 Media, so that a meaningful year-over-year comparison cannot be made, although the media operations of Real
Media in the United States were not significant. The international operations of Real Media for the two

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months
that Real Media was included in 2001 represented approximately $1.4 million of 24/7 Web Alliance revenue, compared to the full year total of $4.9 million in 2002.

24/7
Search revenue increased to $8.3 million in 2002 from $6.2 million in 2001, an increase of 33.9%. This was due to an increase in the number of valid visitors delivered
to our client Web sites as a result of expanding our strategic relationship with search engine distribution partners and increasing the number of search engine distribution partners. The average CPC
per customer remained consistent year over year despite a slight trend down in the industry; however, the weighted average CPC has decreased as larger advertisers, who generally received a lower price
due to volume, were providing more of the revenue.

Other
Media Services revenue was generated primarily from e-mail and iPromotions. E-mail revenue decreased 62.5% from $7.2 million in 2001 to
$2.7 million in 2002 due to our strategic decision to exit the e-mail business in the U.S. We sold the U.S. e-mail management product, known as 24/7 Mail, to Naviant on
May 3, 2002. We maintain the ability to sell e-mail domestically as a broker through 24/7 Mail and internationally without restriction. In January 2003, we sold our
iPromotions unit, which accounted for $1.2 million revenue in 2002 and $0.9 million in 2001.

TECHNOLOGY SOLUTIONS.Technology revenue of $13.8 million in 2002 solely related to operations that were acquired with
Real Media and were generated from our Open AdStream platform. Revenue from our products that we host, including OAS Central and OAD, continued to grow during 2002 as impressions delivered climbed
from 4.9 billion in the first quarter to 7.5 billion in the fourth quarter. The $9.8 million in revenue in 2001 consisted of $6.3 million from Exactis, which was sold in
May 2001; $1.8 million from Sabela, which was sold in May 2001; and $1.7 million from Real Media, which was acquired in October 2001 and whose results were included
for two months.

COST OF REVENUES AND GROSS PROFIT

INTEGRATED MEDIA SOLUTIONS COST OF REVENUES AND GROSS PROFIT.The cost of revenues consisted primarily of fees paid to
affiliates, whether it is a Web site (for 24/7 Web Alliance), a list provider (for e-mail) or search engine distribution partners (for 24/7 Search), which are usually calculated as a
percentage of revenues. Cost of revenues also included depreciation of our 24/7 Connect advertisement serving system (in 2001) and bandwidth costs. In 2002, the actual costs associated with
advertisement serving were accounted for in the cost of revenues for the Technology Solutions segment which then charged the Integrated Media Solutions segment a CPM, making these costs variable
instead of fixed as they were previously accounted for when we used 24/7 Connect. Gross margin increased from 11.7% for the year ended December 31, 2001 to 32.9% for the year ended
December 31, 2002. The increase in margin was due to lower advertisement serving costs in 2002 as fixed costs of 24/7 Connect were a substantial percentage of our 2001 revenue, which had
adversely affected our gross margin; additionally, the royalty percentages paid to 24/7 Web Alliance affiliates were trending lower. Excluding the U.S. e-mail product, the margins were
32.5% and 10.3% for the years ended December 31, 2002 and December 31, 2001, respectively.

TECHNOLOGY SOLUTIONS COST OF REVENUES AND GROSS PROFIT.The cost of technology revenues consisted of the cost of operating
equipment and broadband capacity for our third party advertisement serving solutions and payroll costs to deliver and support software, offset by the portion allocated to the Integrated Media
Solutions segment for advertisement serving. Gross margin increased from 70.7% for the year ended December 31, 2001 to 74.9% for the year ended December 31, 2002. As noted above, the
periods were not comparable, as the segment was comprised of almost entirely different operations.

OPERATING EXPENSES.Each of sales and marketing, general and administrative, product development and amortization expense
decreased significantly in the year ended December 31, 2002 compared to the year ended December 31, 2001 as a result of our restructuring activities, the decision

37

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to
exit Latin America and the sales of Sabela, Exactis and certain assets related to the U.S. e-mail management product. The decreases were partially offset by the acquisition of Real
Media.

SALES AND MARKETING EXPENSES.Sales and marketing expenses consisted primarily of sales force salaries and commissions,
advertising expenditures and costs of trade shows, conventions and marketing materials. Sales and marketing expenses decreased as a percentage of revenue from 42.9% for the year ended
December 31, 2001 to 29.8% for the year ended December 31, 2002 as a result of our
rationalization efforts. Rationalization efforts decreased headcount by approximately 30 and approximately 10 employees were transferred to Naviant, leaving approximately 140 sales and marketing
employees at December 31, 2002.

GENERAL AND ADMINISTRATIVE EXPENSES.General and administrative expenses consisted primarily of compensation, facilities
expenses and other overhead expenses incurred to support the business. General and administrative expenses decreased as a percentage of revenue from 71.9% for the year ended December 31, 2001
to 33.4% for the year ended December 31, 2002. The significant decrease was due to our reductions of headcount, office space, professional fees and related expenses. As the economy deteriorated
in 2001, we accrued significant bad debt reserves; however, positive collection efforts in 2002 have reduced the required reserves; therefore, we enjoyed a net benefit from bad debt expense reversals
for the year of approximately $0.2 million. Rationalization efforts reduced headcount by approximately 25 employees during 2002, leaving approximately 60 general and administrative employees at
December 31, 2002.

PRODUCT DEVELOPMENT EXPENSES.Product development expenses consisted primarily of compensation and related costs incurred to
further enhance our advertisement serving and other technology capabilities. Product development expenses decreased as a percentage of revenue from 25.1% for the year ended December 31, 2001 to
9.2% for the year ended December 31, 2002. The decrease was due to the sale of Exactis on whose technology we spent significant amounts and our focus on OAS which requires less enhancements
than 24/7 Connect. Also, the expense decreased in 2002 as costs related to developing our Open Advertiser product were capitalized. We capitalized approximately $0.8 million during 2002.
Product development headcount was reduced by approximately 50 employees during 2002, leaving approximately 35 at December 31, 2002.

AMORTIZATION OF GOODWILL, INTANGIBLES AND ADVANCES.Amortization expense is broken down as follows:

Acquisition

2002

2001

Reason for ChangeReal Media

$
1,000

$
167

Acquired October 30, 2001Website Results (24/7 Search)


941


5,453

SFAS 142, ImpairmentNow Marketing assets


116




Acquired September 19, 2002ConsumerNet (Mail)





5,653

SFAS 142, Sold May 3, 2002Canada





1,981

SFAS 142Exactis





833

Impairment, Sold May 15, 2001$
2,057

$
14,087


SFAS
No. 142 states that goodwill is no longer amortized as of January 1, 2002, the adoption of which reduced amortization expense by approximately $7.7 million. The
remaining decrease was due to the disposition of assets and the impairment of intangible assets related to 24/7 Search. Our net loss attributable to common stockholders for 2001, excluding goodwill
amortization would have been $(191.8) million or $(21.58) per share.

STOCK-BASED COMPENSATION.Stock-based compensation of $2.8 million for the year ended December 31, 2002
consisted of $1.5 million in stock and options grants to executives for restructuring their employment agreements, $0.4 million in contractual bonuses that were paid in stock in lieu of

38

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cash
to executives for meeting certain earnings targets, $0.3 million in amortization of deferred compensation for restricted shares issued to certain employees, $0.3 million in
compensation to Board members and bonuses to employees paid in stock, $0.2 million in salary for employees who elected to receive stock instead of cash, and $0.1 million in amortization
of deferred compensation from acquisitions. The $1.7 million for the year ended December 31, 2001 consisted of $1.1 million in amortization of deferred compensation for restricted
shares issued to certain employees and $0.6 million in amortization of deferred compensation from acquisitions.

RESTRUCTURING COSTS.During the years ended December 31, 2002 and 2001, restructuring charges of approximately
$2.0 million and $18.1 million, respectively, were recorded in accordance with the provisions of SFAS No. 146 (in 2002) and EITF 94-3, and Staff Accounting Bulletin
("SAB") No. 100 (in 2001). Our restructuring initiatives were to reduce employee headcount, consolidate operations and reduce office space in order to better align our sales, development and
administrative organization and to position us for profitable growth consistent with our long-term objectives. The 2002 restructuring involved the involuntary termination of approximately
60 employees, the exiting of four offices, and a reduction of space at two offices in the fourth quarter of 2002. The $2.0 million charge consisted of severance of $1.2 million, office
closing costs of $0.5 million, disposal of fixed assets of $0.2 million, and other exit costs of $0.1 million. The 2001 restructuring involved the involuntary termination of
approximately 150 employees, the exiting of two offices, a reduction of space at two additional offices, and the abandonment of our 24/7 Connect advertisement serving solution. The
$18.1 million charge consisted of severance of $2.1 million, acceleration of restricted stock grants of $0.1 million, office closing costs of $0.2 million, disposal of
fixed assets related to offices of $1.2 million, disposal of fixed assets related to 24/7 Connect of $13.9 million, and other exit costs of $1.2 million primarily related to
contracts for 24/7 Connect offset by a reversal of $0.6 million of unutilized reserve resulting from the sale of Exactis. The restructuring includes non-cash charges of
approximately $15.1 million.

LOSS (GAIN) ON SALE OF ASSETS.The $0.3 million loss for the year ended December 31, 2002 included a
$1.4 million loss on the sale of certain assets related to our U.S. e-mail management product offset by a $1.1 million gain related to the sale of Exactis in May 2001.
As part of the sale of Exactis, there were approximately $1.5 million in deferred gains related to an escrow balance and $1.75 million in deferred gains related to prepaid service
amounts. During the first quarter of 2002, we paid Experian, the acquirer of Exactis, $0.75 million of the escrow balance, with the remainder paid to the Company immediately. Therefore,
$0.75 million of the deferred gain was recognized and $0.75 million was reversed against the escrow balance. The remaining loss related to Exactis consists of $0.2 million for
unused of prepaid services and $0.1 million from the reversal of unnecessary accruals related to Exactis. The $2.0 million gain for the year ended December 31, 2001 consisted of a
$6.1 million gain for the sale of intellectual property related to Sabela and a $0.3 million for the sale of the intellectual property related to AwardTrack, offset by a loss of
$4.4 million for the sale of Exactis.

IMPAIRMENT OF INTANGIBLES ASSETS.As a result of our on-going business reviews, we determined that the fair value
of goodwill and other intangible assets attributable to several of our operating units were less than their carrying values. Accordingly, we recognized $56.7 million in impairment charges to
adjust the carrying values in 2001$26.9 million related to Website Results, $25.3 million related to 24/7 Mail and $4.5 million related to Exactis. There were no
impairment charges recorded in 2002.

Effective
January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 142 eliminates the amortization of goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with finite lives and
addresses impairment testing and recognition for goodwill and intangible assets. SFAS 144 establishes a single model for the impairment of long-lived assets and broadens the
presentation of discontinued operations to include more disposal transactions. As required, we had an external valuation of Goodwill during 2002 for the goodwill that existed at December 31,
2001. We updated this analysis internally for the goodwill that existed at December 31, 2002. Neither analysis indicated an impairment of goodwill.

39

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INTEREST INCOME, NET.Interest income related to our cash and cash equivalents and interest expense relates to our notes
payable and capital lease obligations. Interest income decreased due to the decrease in our cash and cash equivalents. Interest expense of $0.4 million in 2002 increased due to an increase in
the amount and time outstanding of notes payable.

GAIN ON SALES OF INVESTMENTS.The gain on sales of investments in 2001 related to the sale of our remaining
available-for-sale securities and cost based investment in Idealab!.

IMPAIRMENT OF INVESTMENTS.During 2001, we wrote down certain of our investments and recognized impairment charges of
approximately $3.1 million for other-than-temporary declines in value of certain investments. We made an assessment of the carrying value of our cost-based
investments and determined that they were in excess of their carrying values due to the significance and duration of the decline in valuations of comparable companies operating in the Internet and
technology sectors. The write down of cost based investments was $0.6 million related to Media-Asia. We also recognized that the decline in value of our
available-for-sale investments in Network Commerce and i3Mobile were other-than-temporary and recorded an impairment of $2.3 million and
$0.2 million, respectively.

OTHER INCOME.Other income consisted of amounts received for licensing our patents, net of legal expenses.

LOSS FROM DISCONTINUED OPERATIONS.On August 6, 2001, we determined that we would cease funding to our European
subsidiaries and communicated that to 24/7 Europe NV's Board of Directors. Management of 24/7 Europe shut down all operations. Approximately $30.5 million of the loss from discontinued
operations in 2001 related to 24/7 Europe. All revenue, cost and expenses related to the discontinued business are included in this line for the applicable period and prior periods have been
reclassified to reflect this presentation in accordance with Accounting Principles Board ("APB") No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."

On
January 22, 2002, we completed the sale of our wholly owned subsidiary, IMAKE. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," we accounted for the operations of this component as a discontinued operation. Approximately $29.7 million of the loss from discontinued operations in 2001
related to IMAKE. Our consolidated
financial statements have been revised to reflect the sale of the IMAKE subsidiary as a discontinued operation in accordance with SFAS No. 144.

DIVIDENDS ON PREFERRED STOCK.The Series A and Series B preferred stock issued during 2002 accrue and cumulate
dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by our Board of Directors.

PREFERRED STOCK CONVERSION DISCOUNT.During the third quarter of 2002, we issued Series A and Series B
preferred stock, which are convertible into common stock at prices of $1.02675 and $1.033 per share, respectively. At the time we agreed to the initial terms of the transactions with the third
parties, the conversion price of the preferred stock approximated the fair value of our underlying common stock. From the time the agreements were substantially complete until the transactions closed
and all contingencies were resolved (e.g. stockholder approval), the stock price increased to approximately $2.30 per share for the Series A and $2.20 for the Series B. As a result of
the increase in stock price, the preferred stock was issued at a substantial discount to fair market value. In accordance with GAAP, the beneficial conversion feature, calculated as the difference
between market value on the date of issuance and the conversion price, is required to be expensed immediately, however, the discount was limited to the amount of cash allocable to each of the
preferred stock

40

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transactions.
Accordingly, we recorded a non-cash charge of $5.4 million for the Series A preferred stock and $1.25 million for the Series B preferred stock for
a total charge of $6.6 million.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2003, we had $21.6 million of cash and cash equivalents. Since inception, we have financed our operations primarily through
private placements of equity securities, public offerings of our common stock and debt financing.

Operating
activities used $4.8 million, $13.6 million and $34.8 million in 2003, 2002 and 2001, respectively, resulting primarily from our net loss, adjusted for
non-cash items and other working capital changes. Cash flow from operating activities may be impacted in future periods based on the timing and amount of restructuring payments.

Investing
activities used $1.5 million in 2003, related to purchases of computer equipment for general operational purposes, cash used in the acquisition of Insight First and
investing in iPromotions. Investing activities provided $3.7 million and $32.4 million in 2002 and 2001, respectively, primarily related to proceeds received from the sale of
non-core assets, net of expenses, proceeds from the sale of our investments, primarily chinadotcom Corporation, and cash acquired in acquisitions.

Financing
activities provided $20.2 million in 2003 primarily related to proceeds from the issuance of preferred stock, the issuance of subordinated convertible debentures and the
exercise of stock options offset by the settlement of notes to PubliGroupe for $1.5 million in cash and approximately 1.0 million shares of common stock. Financing activities provided
$10.2 million in 2002 primarily related to proceeds from the issuance of preferred stock, issuance of notes payable and the exercise of stock options. Financing activities used
$0.4 million in 2001 primarily related to payment in settlement for treasury stock, payment of capital lease obligations and the repurchase of a minority interest in 24/7 Canada.

We
have various employment agreements with executives in North America, the majority of which are for one year with automatic renewal. The obligation under these contracts is
approximately $2.6 million for 2004, including salary and target bonuses. These contracts call for severance-related payments upon involuntary termination, which range in amount from three
months to one year's salary. All European employees have employment contracts as required by local law. The majority of these contracts allow for resignation or termination by either party at any
time, according to the notice period provisions contained in the employment contracts, or according to the minimum notice period as mandated by local law. The contracts, or if no expressed provision
is included in the contract, local law, also require severance for involuntary terminations ranging from one to six months. As of February 29, 2004, there were approximately 65 employees in
Europe whose annualized base salaries were approximately $4.5 million.

As
of December 31, 2003, we had approximately $1.7 million remaining of cash outlays relating to restructuring and exit costs consisting of severance and rent. We expect to
pay approximately $1.0 million in 2004, $0.2 million in each of the years from 2005 to 2007 and $0.1 million in 2008.

No
provision for federal or state income taxes has been recorded because we incurred net operating losses for all periods presented. At December 31, 2003, we had approximately
$167.4 million of U.S. net operating loss carryforwards. Our net operating loss carryforwards expire in various years through 2023. As a result of various equity transactions during 2000, 1999,
and 1998, we believe that we have undergone an "ownership change" as defined by Section 382 of the Internal Revenue Code. Accordingly, utilization of a substantial part of the net operating
loss carryforward is limited. Due to our history of operating losses and the Section 382 limitation, there is substantial uncertainty surrounding whether we will ultimately realize our deferred
tax assets. Accordingly, these assets have been fully reserved. During 2003 and 2002, the valuation allowance decreased by $19.4 million and

41

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$12.5 million,
respectively. Of the total valuation allowance of $71.2 million, tax benefits recognized in the future of approximately of $3.8 million will be applied directly to
additional paid in capital. This amount relates to the tax effect of employee stock option deductions included in our net operating loss carryforward.

Our
capital requirements depend on numerous factors, including market demand for our services, the capital required to maintain our technology, and the resources we devote to marketing
and selling our services. We may sell additional equity or debt securities that would result in further dilution to our stockholders. Stockholders may experience extreme dilution due both to our
current stock price and the significant amount of financing we may raise. These securities may have rights senior to those of holders of our common stock. Any indebtedness could contain covenants,
which restrict our operations. Our subordinated convertible debentures limit our ability to incur additional debt.

We
believe that our existing cash and cash equivalents and cash flow from operating activities will be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months.

CONTRACTUAL OBLIGATIONS

As of December 31, 2003, our principal commitments consisted of $15.0 million principal amount of our subordinated convertible debentures and our
obligations under operating and capital leases.

Our
contractual obligations are as follows:

Payments Due by PeriodTotal

Less than 1 year

1-3 years

3-5 years

More than
5 years(in thousands)Long term debt obligations

$
15,000




$
15,000





Capital lease obligations


65


51


14





Operating lease obligations (1)


8,193


2,676


3,839


1,678


Purchase obligations














Warrant liability


3,595


3,595








Other long term liabilities


318


21


193


104


Total obligations

$
27,171

$
6,343

$
19,046

$
1,782

$



---

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Variable Interest Entities.In January 2003, the Financial Accounting Standards Board issued interpretation
No. 46 ("FIN 46"), which addresses consolidation of variable interest entities. FIN 46 expanded the criteria for consolidation in determining whether a variable interest entity should be
consolidated by a business entity, and requires existing unconsolidated variable interest entities (which include, but are not limited to, Special Purpose Entities, or SPEs) to be consolidated by
their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. The interpretation applies immediately to variable interest entities created after
January 31, 2003 and applied in the fiscal year or interim period beginning after December 31, 2003, to variable interest entities in which an enterprise holds a variable interest that
is acquired before February 1, 2003. The adoption of FIN 46 does not have a material impact on our financial position or results of operations.

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Derivative Instruments and Hedging Activities.SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, was issued in April 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for hedging activities under SFAS No 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149 provides greater clarification of the characteristics of a derivative instrument so that contracts with similar characteristics will be
accounted for consistently. In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The adoption of SFAS No. 149 does not have any impact on our consolidated financial statements.

Financial Instruments with Characteristics of Both Liabilities and Equity.In May 2003, SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, was issued. SFAS No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments
were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 does not have any impact on our consolidated financial statements.

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RISK FACTORS

RISKS RELATED TO 24/7 REAL MEDIA, INC.

WE
MAY NEVER BE PROFITABLE.

We
have not achieved profitability in accordance with generally accepted accounting principles, or GAAP, in any period and we may not be able to achieve or sustain profitability in the
future. We incurred net losses of $12.0 million and $17.5 million for the twelve months ended December 31, 2003 and 2002, respectively. Each of our predecessors had net losses in
every year of their operation. We may incur operating losses for the foreseeable future. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual
basis in the future.

WE
HAVE A LIMITED OPERATING HISTORY ON WHICH AN INVESTOR CAN EVALUATE OUR BUSINESS.

We
have a limited operating history. You must consider the risks, expenses and difficulties typically encountered by companies with limited operating histories, particularly companies in
new and rapidly expanding markets such as Internet advertising. These risks include our ability to:



Our
limited operating history makes it difficult to predict future revenues and operating expenses.

OUR
BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS MODEL.

A
significant part of our business model is to generate revenue by providing interactive marketing solutions to advertisers, advertising agencies and Web publishers. The profit potential
for this business model is unproven. To be successful, both Internet advertising and our solutions will need to achieve broad market acceptance by advertisers, advertising agencies and Web publishers.
Our ability to generate significant revenue from advertisers will depend, in part, on our ability to contract with Web publishers that have Web sites with adequate available advertisement space
inventory. Further, these Web sites must generate sufficient user traffic with demographic characteristics attractive to our advertisers. The intense competition among Internet advertising sellers has
led to the creation of a number of pricing alternatives for Internet advertising. These alternatives make it difficult for us to project future levels of advertising revenue and applicable gross
margin that can be sustained by us or the Internet advertising industry in general.

Intensive
marketing and sales efforts may be necessary to educate prospective advertisers regarding the uses and benefits of, and to generate demand for, our products and services,
including our newer products and services such as 24/7 Search, Open Advertiser and Insight. Enterprises may be reluctant or slow to adopt a new approach that may replace, limit or compete with their
existing direct marketing systems. In addition, since online direct marketing is emerging as a new and distinct business apart from online advertising, potential adopters of online direct marketing
services will increasingly demand functionality tailored to their specific requirements. We may be unable to meet the demands of these clients. Acceptance of our new solutions will depend on the
continued emergence of Internet

44

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commerce,
communication and advertising. Demand for our new solutions may not emerge or become sustainable.

OUR
FUTURE REVENUES AND RESULTS OF OPERATIONS MAY BE DIFFICULT TO FORECAST AND RESULTS IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE RESULTS.

At
times in the past and in certain segments, our revenues have grown significantly and also have decreased during certain periods and in certain segments. Accurate predictions of future
revenues are difficult because of the rapid changes in our markets and our possible need to sell assets to fund operations. We have also acquired or disposed of various subsidiaries and product lines
over the last several years. Accordingly, investors should not rely on past revenue growth rates as an indicator of future revenue growth.

Our
results of operations have fluctuated and may continue to fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These
factors include:



Our
future revenues and results of operations may be difficult to forecast due to the above factors. In addition, our expense levels are based in large part on our investment plans and
estimates of future revenues. Any increased expenses may precede or may not be followed by increased revenues, as we may be unable to, or may elect not to, adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, we believe that period-to-period comparisons of our results of operations may not be meaningful.

You
should not rely on past periods as indicators of future performance. In future periods, our results of operations may fall below the expectations of securities analysts and
investors, which could adversely affect the trading price of our common stock.

OUR
REVENUES ARE SUBJECT TO FLUCTUATIONS BY SEASON AND DUE TO GENERAL ECONOMIC CONDITIONS.

We
believe that our revenues are subject to seasonal fluctuations because advertisers generally place fewer advertisements during the first and third calendar quarters of each year.
Furthermore, Internet user traffic typically drops during the summer months, which reduces the number of advertisements to sell and deliver. Expenditures by advertisers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns. Our revenue could be materially reduced by a decline in the economic prospects of advertisers or the economy in general,
which could alter current or prospective advertisers' spending priorities or budget cycles or extend our sales cycle. Due to such risks, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indicator of our future results.

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OUR REVENUE COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE OUR EXISTING ADVERTISING INVENTORY AND OUR GROWTH COULD BE IMPEDED IF WE FAIL TO ACQUIRE ACCESS TO NEW ADVERTISING INVENTORY.

Our
success depends in part on our ability to effectively manage our existing advertising inventory. The Web publishers that list their unsold advertising inventory with us are not bound
by long-term contracts. In addition, Web publishers can change the amount of inventory they make available to us at any time. If a Web publisher decides not to make advertising space from
its Web sites available to us, we may not be able to replace this advertising space with advertising space from other Web sites that have comparable traffic patterns and user demographics quickly
enough to fulfill our advertisers' requests. This would result in lost revenue. We expect that our customers' requirements will become more sophisticated as the Web matures as an advertising medium.
If we fail to manage our existing advertising space effectively to meet our customers' changing requirements, our revenue could decline. Our growth also depends on our ability to expand our
advertising inventory. To attract new advertisers, we must maintain a consistent supply of attractive advertising space. We intend to expand our advertising inventory by selectively adding to our
network new Web publishers that offer attractive demographics, innovative and quality content and large audiences. Our ability to attract new Web publishers to our network and to retain Web publishers
currently in our network will depend on various factors, some of which are beyond our control. These factors include our ability to introduce new and innovative product lines and services, our ability
to efficiently manage our existing advertising inventory, our pricing policies and the cost-efficiency to Web publishers of outsourcing all or part of their advertising sales. In addition,
the number of competing intermediaries that purchase advertising inventory from Web publishers continues to increase. The size of our inventory may not increase or even remain constant in the future.

WE
COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY IF WE FAIL TO MEASURE IMPRESSIONS, CLICKS AND ACTIONS ON ADVERTISEMENTS IN A MANNER THAT IS ACCEPTABLE TO OUR ADVERTISERS AND WEB PUBLISHERS.

We
earn advertising revenue and make payments to Web publishers based on the number of impressions, clicks and actions from advertisements delivered on our network. Advertisers' and Web
publishers' willingness to use our services and join our network will depend on the extent to which they perceive our measurements of clicks to be accurate and reliable. Advertisers and Web publishers
often maintain their own technologies and methodologies for counting clicks, and from time to time we have had to resolve differences between our measurements and theirs. Any significant dispute over
the proper measurement of clicks or other user responses to advertisements could cause us to lose customers or advertising inventory.

OUR
TECHNOLOGY SOLUTIONS MAY NOT BE SUCCESSFUL AND MAY CAUSE BUSINESS DISRUPTION.

Open
AdSystem is our proprietary advertisement serving technology that is intended to serve as our sole advertisement serving solution. We have developed a variety of products to work on
or with this platform. Some of these products, such as our Open Advertiser, Insight ACT and Insight SE products, are not yet available or are only available in beta version to some or all of our
customers. We must, among other things, ensure that the technology will function efficiently at high volumes, interact properly with our database, offer the functionality demanded by our customers and
assimilate our sales and reporting functions. We must further complete development of our beta products. This development effort could fail technologically or could take more time than expected.
Customers may become dissatisfied by any system failure that interrupts our ability to provide our services to them, including failures affecting our ability to deliver advertisements without
significant delay to the viewer. Sustained or repeated system failures would reduce the attractiveness of our solutions to advertisers,

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advertising
agencies and Web publishers and result in contract terminations, fee rebates and make-goods, thereby reducing our revenue. Slower response time or system failures may also
result from straining the capacity of our deployed software or hardware due to an increase in the volume of advertising delivered through our servers. To the extent that we do not effectively address
any capacity constraints or system failures, our business, results of operations and financial condition could be materially and adversely affected.

WE
HAVE SUBSTANTIAL DEBT, AND WE MAY NOT GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS.

In
September 2003, we issued to a single holder a 2% subordinated convertible debenture in the principal amount of $15.0 million that matures in September 2006. The
amount of our debt could have important consequences, including:



If
we cannot generate sufficient additional cash flow, we may not be able to meet our debt service obligations, repay our debt when due, or comply with other covenants in the
subordinated convertible debentures. If we breach the debentures, the investor could require repayment of all amounts owed, and we may not have sufficient cash reserves to repay such amounts.

WE
MAY BE UNABLE TO RAISE THE FUNDS NECESSARY TO REPAY OR REFINANCE OUR INDEBTEDNESS. THE ISSUANCE OF STOCK UPON REDEMPTION OF OUR SUBORDINATED CONVERTIBLE DEBENTURES MAY SUBSTANTIALLY DILUTE THE
INTERESTS OF OTHER SECURITY HOLDERS.

Stockholders
could experience substantial dilution resulting from our election to pay the semi-annual accrued interest due in common stock or repay the principal amount in
common stock. We are obligated to make semi-annual interest payments on January 1 and July 1 of each year and the entire principal face amount of the debentures is due and
payable on September 26, 2006. We may elect to pay interest in cash, in shares of our common stock or in additional debentures. In addition, if, after September 26, 2005, the price of
our common stock does not exceed the conversion price of the debentures for a period of five consecutive trading days we may be required to repurchase $7.5 million in principal amount of the
debentures on September 26, 2005. We may elect to repay the principal amount of the debentures in cash or in shares of our common stock. If we so elect, payment in shares shall be based upon
ninety percent of the average of the volume weighted average price of our common stock on the principal market as reported by Bloomberg Financial L.P. during the five trading days immediately prior to
the interest payment date, in the case of an interest payment, or during the

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15
trading days immediately prior to the maturity date, in the case of the repayment of the principal amount of the debentures.

If
we decide to repay the principal in cash we will need additional capital to fund this obligation. Our ability to arrange financing and the cost of this financing will depend upon many
factors, including: general economic and capital market conditions generally, and in particular the non-investment grade debt market; credit availability from banks or other lenders;
investor confidence in our industry generally and our company specifically; and provisions of tax and securities law that are conducive to raising capital.

If
we need additional funds and are unable to raise them, our inability to raise them will have an adverse effect on our operations. If we decide to raise additional funds by incurring
debt, we may become subject to additional or more restrictive financial covenants and ratios. If we fail to make the mandatory redemptions in cash and if our stock price significantly declines, we
could potentially be obligated to issue a larger number of shares of our common stock in redemption of the debentures.

WE
MAY NEED TO RAISE ADDITIONAL FUNDS TO CONTINUE OPERATIONS.

An
unforeseen reduction in our revenues, an impairment of our receivables, or an increase in expenses or capital expenditures may require us to raise additional funds to continue
operations. To the extent we encounter additional opportunities to raise cash, we may sell additional equity or debt securities, which would result in further dilution of our stockholders.
Stockholders may experience extreme dilution due to our current stock price and the amount of financing we may need to raise and these securities may have rights senior to those of holders of our
common stock. Our subordinated convertible debentures limit our ability to incur additional debt, and any future indebtedness that we may incur could contain covenants that restrict our operating
flexibility.

We
have limited access to the capital markets to raise capital. The capital markets have been unpredictable in the past, especially for unprofitable companies such as ours. In addition,
it is difficult to raise capital in the current market conditions. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control, such as
the share price of our stock and its trading volume. As a result, efforts to secure financing on terms attractive to us may not be successful, and we may not be able to secure additional financing on
any terms.

Due
to our operating losses, it may be difficult to obtain debt financing. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our
future needs. If adequate funds are not available on acceptable terms, or at all, our business, results of operation, financial condition and continued viability will be materially and adversely
affected.

WE
DISCLOSE PRO FORMA INFORMATION, WHICH MAY EXCLUDE ITEMS THAT ARE IMPORTANT TO AN INVESTOR'S UNDERSTANDING OF OUR RESULTS OF OPERATIONS.

We
prepare and release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and discuss certain pro forma and other non-GAAP
information in the related earnings release and investor conference call. This pro forma financial information excludes or may exclude certain special charges and other costs. We believe the
disclosure of the pro forma financial information helps investors more meaningfully evaluate the results of our ongoing operations. However, we urge investors to carefully review the GAAP financial
information included as part of our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K, and our quarterly earnings releases, and to compare the GAAP
financial information with the pro forma financial results disclosed in our quarterly earnings releases and investor calls.

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OUR
ACQUISITIONS, WHICH ARE IMPORTANT TO OUR GROWTH, MAY NOT BE SUCCESSFUL.

We
were formed in February 1998 to consolidate three Internet advertising companies and have since acquired other companies. We may continue pursuing selective acquisitions of
businesses, technologies and product lines as a key component of our growth strategy. If we acquire additional companies, we will continue to face risks of integrating and improving our financial and
management controls, advertisement serving technology, reporting systems and procedures, and expanding, training and managing our work force. This process of integration may take a significant period
of time and will require the dedication of management and other resources, which may distract management's attention from our other operations. Any future acquisition or investment may result in the
use of significant
amounts of cash, potentially dilutive issuances of equity securities, incurrence of debt and amortization expenses related to intangible assets. In addition, acquisitions involve numerous risks,
including:



Our
inability to successfully integrate any acquired company, or failure to achieve any expected synergies, could adversely affect our business.

WE
MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE REAL MEDIA KOREA CO., LTD. INTO OUR COMPANY.

In
January 2004, we completed our acquisition of Real Media Korea Co., Ltd. We may not realize the anticipated financial and strategic goals of this acquisition, and this
acquisition may not be successful. The success of this acquisition will depend in part on our ability to expand the business of Real Media Korea into new geographical markets in the region. We may
have difficulty integrating the business and operations of Real Media Korea or retaining their key personnel as well as implementing and maintaining standards, controls, procedures and policies that
are consistent with ours. Additionally, our ongoing business and management's attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically
and culturally diverse locations. These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows.

OUR
NET OPERATING LOSS CARRYFORWARDS MAY BE LIMITED.

Due
to the "change in ownership" provisions of the Internal Revenue Code, the availability of our net operating loss and credit carryforwards may be subject to an annual limitation
against taxable income in future periods, which could substantially limit the eventual utilization of these carryforwards.

WE
COULD BE ADVERSELY AFFECTED BY AN IMPAIRMENT OF A SIGNIFICANT AMOUNT OF GOODWILL AND/OR INTANGIBLE ASSETS ON OUR BALANCE SHEET.

In
the course of our operating history, we have acquired and disposed of numerous assets and businesses. Some of our acquisitions have resulted in the recording of a significant amount
of goodwill and/or intangible assets on our financial statements. The goodwill and/or intangible assets were recorded because the fair value of the net assets acquired was less than the purchase
price. We may not realize the full value of the goodwill and/or intangible assets. As such, we evaluate on at least an

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annual
basis whether events and circumstances indicate that all or some of the carrying value of goodwill and/or intangible assets are no longer recoverable, in which case we would write off the
unrecoverable portion as a charge to our earnings.

To
improve our operating performance, we may determine to acquire other assets or businesses complementary to our business and, as a result, we may record additional goodwill and/or
intangible assets in the future. The possible write-off of the goodwill and/or intangible assets could negatively impact our future earnings. We will also be required to allocate a portion
of the purchase price of any acquisition to the value of any intangible assets that meet the criteria specified in the Statement of Financial Accounting Standards No. 141, "Business
Combinations," such as marketing, customer or contract-based intangibles. The amount allocated to these intangible assets could be amortized over a fairly short period. As a result, our earnings and
the market price of our common stock could be negatively affected.

THE
SUCCESS OF OUR 24/7 SEARCH OPERATIONS DEPENDS ON A SMALL NUMBER OF SEARCH ENGINE CLIENTS, AND THE LOSS OF A SINGLE SEARCH ENGINE CLIENT COULD RESULT IN A SUBSTANTIAL DECREASE IN OUR 24/7 SEARCH
REVENUE.

We
have generated a significant portion of our 24/7 Search revenue from relationships with a small number of search engines, including Alta Vista, Ask Jeeves, Google, MyGeek and
Overture. We expect that a small number of search engine clients will continue to generate a majority or more of our 24/7 Search revenue for the foreseeable future. The interruption or loss of any of
our primary search engine relationships could cause a significant decrease in 24/7 Search revenue. As a result of consolidation among search engines, and other search marketing companies, we could
lose one of more of our clients or face increased competition from clients that internally develop or acquire capabilities similar to our service. In addition, as our search engine clients' operations
continue to evolve, we may be required to
adjust our business strategy to maintain relationships with our clients, which could have a material adverse effect on our 24/7 Search revenue.

OUR
CUSTOMERS AND PARTNERS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS.

As
a result of unfavorable conditions in the capital markets, some of our customers may have difficulty raising sufficient capital to support their long-term operations. As a
result, these customers have reduced their spending on Internet advertising, which has materially and adversely affected our business, financial condition and results of operations. In addition, we
have entered into a strategic business relationship with Lycos, and may enter into similar relationships with other companies. These companies may experience similar adverse business conditions that
may render them unable to meet our expectations for the strategic business relationship or to fulfill their contractual obligations to us. Such an event could have a material adverse impact on our
business, financial condition and results of operations.

WE
HAVE SIGNIFICANT OBLIGATIONS UNDER OUR AGREEMENT WITH LYCOS.

We
recently entered into an agreement with Lycos, Inc. to provide media sales, advertisement serving and analytics technology services to Lycos' U.S. Web properties. This
agreement requires us to make a minimum annual payment of $10 million in 2004, along with an initial payment of $4.5 million to be paid to Lycos over the course of 2004. We are also
required to make minimum annual payments in each subsequent year during the term of the agreement. Our minimum annual payments under this agreement could increase during the term of the agreement. To
the extent that we fail to sell adequate advertising space on Lycos' Web properties, or if prices for advertising space fall below our expectations, our obligations under this agreement may materially
and adversely affect our business, results of operations and financial condition. In addition, we expect that Lycos will generate a

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significant
portion of our revenues. If we or Lycos is acquired, Lycos may have the right to terminate the agreement.

IF
WE LOSE OUR CEO OR OTHER SENIOR MANAGERS, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

Our
success depends, to a significant extent, upon our senior management and key sales and technical personnel, particularly David J. Moore, our Chief Executive Officer, David Hills, our
President, Media Solutions, and Tony Schmitz, our Chief Technology Officer and President, Technology Solutions. The loss of the services of one or more of these persons could materially and adversely
affect our ability to
develop our business. Our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel. We
may be unable to retain our key personnel or attract, integrate or retain other highly qualified personnel in the future. We have experienced in the past, and may continue to experience in the future,
difficulty in hiring and retaining candidates with appropriate qualifications, especially in sales and marketing positions.

WE
MIGHT EXPERIENCE SIGNIFICANT DEFECTS IN OUR PRODUCTS.

Software
products frequently contain errors or failures, especially when first introduced or when new versions are released. We might experience significant errors or failures in our
products, or they might not work with other hardware or software as expected, which could delay the enhancement of our products, or which could adversely affect market acceptance of our products. Any
significant product errors or design flaws would slow the adoption of our products and cause damage to our reputation, which would seriously harm our business. If customers were dissatisfied with
product functionality or performance, we could lose revenue or be subject to liability for service or warranty costs and claims, and our business, operating results and financial condition could be
adversely affected.

SOME
OF OUR SOFTWARE IS LICENSED FROM THIRD PARTIES.

Some
of our products, including one or more modules for our Open AdSystem platform, contain software licensed from third parties. Some of these licenses may not be available to us in the
future or on terms that are acceptable or allow our products to remain competitive. Our inability to use any of this third party software could result in shipment delays, delays in the development of
future products or enhancements of existing products, or other disruptions in our business, which could materially and adversely affect our business, financial condition and operating results.

OUR
OPERATIONS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER EVENTS, INCLUDING TERRORIST ATTACKS, BECAUSE WE HAVE LIMITED BACKUP SYSTEMS.

We
have limited backup systems and have experienced system failures and electrical outages from time to time in the past, which have disrupted our operations. We have a limited disaster
recovery plan in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins and similar events. Our operations are dependent on our
ability to protect our computer systems against these unexpected adverse events.

If
any of the foregoing occurs, we may experience a complete system shutdown. Any business interruption insurance that we carry is unlikely to be sufficient to compensate us for loss of
business in the event of a significant catastrophe.

In
addition, interruptions in our services could result from the failure of our telecommunications providers to provide the necessary data communications capacity in the time frame we
require. Our Open AdSystem technology resides on computer systems located in our data centers housed by Cable & Wireless in the United States and Level3 Communications in Europe. These systems'

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continuing
and uninterrupted performance is critical to our success. Despite precautions that we have taken, unanticipated problems affecting our systems have from time to time in the past caused, and
in the future could cause, interruptions in the delivery of our solutions. Our business, results of operations and financial condition could be materially and adversely affected by any damage or
failure that interrupts or delays our operations. To improve the performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or one
or more copies of our Web sites to mirror our online resources. Although we believe we carry property insurance with adequate coverage limits, our coverage may not be adequate to compensate us for all
losses, particularly with respect to loss of business and reputation, that may occur.

In
addition, terrorist acts or acts of war may cause damage to our employees, facilities, clients, our clients' customers and vendors, which could significantly impact our revenues,
costs and expenses and financial position. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and
other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot be presently predicted. We
are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

OUR
INTERNATIONAL OPERATIONS FACE LEGAL AND CULTURAL CHALLENGES.

We
have operations in a number of international markets, including Asia, Canada and Europe. To date, we have limited experience in marketing, selling and distributing our solutions
internationally. International operations are subject to other risks, including:



WE
MAY BE UNABLE TO PROMOTE AND MAINTAIN OUR BRANDS.

We
believe that establishing and maintaining the brand identities of our products and services is a critical aspect of attracting and expanding a large client base. Promotion and
enhancement of our brands will depend largely on our success in continuing to provide high quality service. If businesses do not perceive our existing services to be of high quality, or if we
introduce new services or enter into new business ventures that are not favorably received by businesses, we will risk diluting our brand identities and decreasing their attractiveness to existing and
potential customers.

In
order to attract and retain customers and to promote and maintain brands in response to competitive pressures, we may also have to increase substantially our financial commitment to
creating and maintaining a distinct brand loyalty among our customers. If we incur significant expenses in an attempt to improve our services or to promote and maintain our brands, our business,
prospects, financial condition and results of operations could be materially adversely affected. Moreover, any

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brand
identities we establish may be diluted as a result of any inability to protect our trademarks and service marks or domain names, which could have a material adverse effect on our business,
prospects, financial condition and results of operations.

RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK.

WE
HAVE A VERY SUBSTANTIAL OVERHANG OF COMMON STOCK AND FUTURE SALES OF OUR COMMON STOCK WILL CAUSE SUBSTANTIAL DILUTION AND MAY NEGATIVELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

As
of January 31, 2004, there were approximately 25.6 million shares of our common stock outstanding. As of that date, we also had an aggregate of approximately
14.8 million shares of common stock that may be sold into the market in the future, including approximately 4.5 million shares of our common stock issuable upon exercise of options,
8.1 million shares of our common stock issuable upon conversion of our outstanding preferred stock and related warrants and 2.2 million shares of our common stock issuable upon
conversion of the debentures and exercise of the related warrants. In addition, if we undertake an additional financing involving securities convertible into shares of our common stock, the aggregate
number of shares into which those securities are convertible will further increase our overhang.

We
cannot predict the effect, if any, that future sales of shares of our common stock into the market, or the availability of shares of common stock for future sale, will have on the
market price of our common stock. Sales of substantial amounts of common stock (including shares issued upon the exercise of stock options or conversion of shares of preferred stock), or the
perception that such sales could occur, may materially and adversely affect prevailing market prices for our common stock.

OUR
SHARE PRICE MAY BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.

The
market price of our common stock has fluctuated in the past and may continue to be volatile. In addition, the stock market has experienced extreme price and volume fluctuations. The
market prices of the securities of Internet-related companies have been especially volatile. Investors may be unable to resell their shares of our common stock at or above the purchase price. In the
past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. Many companies in our
industry have been subject to this type of litigation in the past. We may also become involved in this type of litigation. Litigation is often expensive and diverts management's attention and
resources, which could materially and adversely affect our business, financial condition and results of operations.

THE
POWER OF OUR BOARD OF DIRECTORS TO DESIGNATE AND ISSUE SHARES OF STOCK COULD HAVE AN ADVERSE EFFECT ON HOLDERS OF OUR COMMON STOCK.

We
are authorized to issue up to 350,000,000 shares of common stock, which may be issued by our board of directors for such consideration as they may consider sufficient without seeking
stockholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current stockholders. Our Certificate of Incorporation
also authorizes us to issue up to 10,000,000 shares of preferred stock, the rights and preferences of which may be designated by our board of directors. These designations may be made without
stockholder approval. The designation and issuance of preferred stock in the future could create additional securities that would have dividend and liquidation preferences prior in right to the
outstanding shares of common stock. These provisions could also impede a change in control.

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THE VALUE OF OUR SHARES COULD DECLINE AS A RESULT OF A REVERSE STOCK SPLIT OF OUR COMMON STOCK.

In
connection with the implementation of a one-for-five reverse stock split of our common stock, which took effect on February 27, 2004, the number of issued and outstanding
shares of common stock was reduced to one-fifth of the number of shares of our common stock then outstanding. The par value of the common stock remained unchanged at $0.01 per share and
the number of authorized shares of common stock also remained unchanged. We cannot predict the effect of the reverse stock split upon the market price of our common stock and the history of reverse
stock splits for companies in similar circumstances is varied. The trading price of our common stock may not rise in exact proportion to the reduction in the number of shares of our common stock
outstanding as a result of the reverse stock split and there may not be a sustained increase in the trading price of our common stock after giving effect to the reverse stock split. Moreover, the
trading price may not remain above the thresholds required by the Nasdaq Stock Market and we may not be able to continue to meet the other continued listing requirements of the Nasdaq Stock Market.

SUNRA
CAPITAL HOLDINGS LTD. AND PUBLIGROUPE USA HOLDING, INC. COLLECTIVELY CONTROL A SUBSTANTIAL PORTION OF OUR TOTAL OUTSTANDING VOTING POWER AND WILL LIKELY BE ABLE TO INFLUENCE CERTAIN
APPROVAL MATTERS AND PREVENT A CHANGE OF CONTROL.

Sunra
Capital Holdings Ltd. is currently the beneficial owner of 8.4 million shares of our common stock. PubliGroupe USA Holding, Inc. is the beneficial owner of
2.5 million shares of our common stock and has entered into an agreement to vote on all matters in accordance with the recommendations of our Board of Directors. Additionally, the terms of the
Series A Preferred Stock, owned solely by Sunra, contain certain protective provisions that provide such holders an effective veto right over certain corporate matters.

Based
on their voting power, Sunra and PubliGroupe may effectively be able to determine the outcome of all matters requiring stockholder approval, including the election of directors,
amendment of our charter and approval of significant corporate transactions, and may be in a position to prevent a change in control of 24/7 Real Media even if a majority of our other stockholders
were in favor of the transaction. In addition, Sunra has the right to designate for election one member of our board of directors.

OUR
PREFERRED STOCK HAS LIQUIDATION PREFERENCE AND PARTICIPATION RIGHTS THAT COULD REDUCE OR ELIMINATE ANY PROCEEDS AVAILABLE TO OUR COMMON STOCKHOLDERS UPON A SALE OF OUR COMPANY.

Under
certain circumstances, upon our sale, liquidation or dissolution, our Series A and Series C preferred stockholders may be entitled to receive an aggregate liquidation
preference of $8.3 million plus accrued dividends, before our common stockholders receive any payment. After receipt of this payment, the preferred stockholders may also have the right to
participate in receiving proceeds payable to the common stockholders on an as-converted basis. As a result, in the event of our sale, liquidation or dissolution, including one in which the
total proceeds represent a premium to the then prevailing price per share of our common stock, our common stockholders may experience substantial dilution in the amount payable to them, and if total
proceeds are less than or equal to the liquidation preference, then our common stockholders will not receive any proceeds.

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EFFECTS
OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY.

Some
of the provisions of our Certificate of Incorporation, our Bylaws and Delaware law could, together or separately:



WE
DO NOT INTEND TO PAY FUTURE CASH DIVIDENDS.

We
currently do not anticipate paying cash dividends on our common stock at any time in the near future. We may never pay cash dividends or distributions on our common stock. In
addition, our subordinated convertible debentures restrict our ability to pay cash dividends on our common stock. Whether we pay cash dividends in the future will be at the discretion of our Board of
Directors and will be dependent upon our financial condition, results of operations, capital requirements, contractual restrictions and any other factors that the Board of Directors decides is
relevant.

RISKS RELATED TO OUR INDUSTRY.

OUR
BUSINESS MAY NOT GROW IF THE INTERNET ADVERTISING MARKET DOES NOT CONTINUE TO DEVELOP.

The
Internet as a marketing medium has not been in existence for a sufficient period of time to demonstrate its effectiveness. Our business would be adversely affected if the Internet
advertising market fails to develop in the near future. There are currently no widely accepted standards to measure the effectiveness of Internet advertising other than clickthrough rates, which
generally have been declining. Such standards may not develop to sufficiently support the Internet as a significant advertising medium. Actual or perceived ineffectiveness of online advertising in
general, or inaccurate measurements or database information in particular, could limit the long-term growth of online advertising and cause our revenue levels to decline.

OUR
FAILURE TO COMPETE SUCCESSFULLY MAY HINDER OUR GROWTH.

The
markets for Internet advertising and related products and services are intensely competitive and such competition is expected to increase. Our failure to compete successfully may
hinder our growth. We believe that our ability to compete depends upon many factors both within and beyond our control, including:



Some
of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than ours.
In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services
to address the needs of our prospective clients. We may be unable to compete successfully against current or future competitors. In addition, the Internet must compete for a share of advertisers'
total budgets with traditional advertising media, such as television, radio, cable and print, as well as content aggregation

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companies
and other companies that facilitate Internet advertising. To the extent that the Internet is perceived to be a limited or ineffective advertising medium, advertisers may be reluctant to
devote a significant portion of their advertising budgets to Internet advertising, which could limit the growth of Internet advertising.

CHANGES
IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUES AND INCREASE OUR COSTS.

Laws
and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent, and new laws and regulations are under consideration by the
United States Congress and state legislatures. Any legislation enacted or restrictions arising from current or future government investigations or policy could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications, commercial and advertising medium. State governments or governments of foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The laws governing the Internet, however, remain largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising. In addition, the
growth and development of Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies
conducting business over the
Internet. Our business, results of operations and financial condition could be materially and adversely affected by the adoption or modification of laws or regulations relating to the Internet.

CHANGES
IN LAWS AND STANDARDS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS.

The
U.S. federal and various state governments have recently proposed limitations on the collection and use of information regarding Internet users. In October 1998, the European
Union adopted a directive that may limit our collection and use of information regarding Internet users in Europe. The effectiveness of our Open AdSystem technology could be limited by any regulation
limiting the collection or use of information regarding Internet users. Since many of the proposed laws or regulations are just being developed, we cannot yet determine the impact these regulations
may have on its business. In addition, growing public concern about privacy and the collection, distribution and use of personal information has led to self-regulation of these practices
by the Internet advertising and direct marketing industry and to increased federal and state regulation. The Network Advertising Initiative, or NAI, of which we are an associate member along with
other Internet advertising companies, has developed self-regulatory principles for online preference marketing. We are also subject to various federal and state regulations concerning the
collection, distribution and use of personal information. These laws include the Children's Online Privacy Protection Act, and state laws that limit or preclude the use of voter registration and
drivers license information, as well as other laws that govern the collection and use of consumer credit information.

Although
our compliance with the NAI's guidelines and applicable federal and state laws and regulations has not had a material adverse effect on us, additional, more burdensome federal
or state laws or regulations, including antitrust and consumer privacy laws, could be enacted or applied to us or our clients, which could materially and adversely affect our business, financial
condition and results of operations.

PRIVACY
CONCERNS MAY PREVENT US FROM COLLECTING USER DATA.

Growing
concerns about the use of cookies and data collection may limit our ability to develop user profiles. Web sites typically place small files of information, commonly known as
"cookies", on a user's hard drive, generally without the user's knowledge or consent. Cookie information is passed to the Web site through the Internet user's browser software. Our Open AdSystem
technology targets advertising to users through the use of cookies and other non-personally-identifying information. Open

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AdSystem
enables the use of cookies to deliver targeted advertising and to limit the frequency with which an advertisement is shown to a user. Most currently available Internet browsers allow users to
modify their browser settings to prevent cookies from being stored on their hard drive, and a small minority of users are currently choosing to do so. Users can also delete cookies from their hard
drive or modify them at any time. Some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies. Any reduction or limitation in the use of cookies could
limit the effectiveness of our sales and marketing efforts and impair our targeting capabilities. Microsoft Corporation has changed the design and instrumentation of its Web browser in such a way as
to give users the option to accept or reject third party cookies. Giving users the option to decline such cookies could result in a reduction of the number of Internet users that we can profile
anonymously. Such changes also could adversely affect our ability to determine the reach of advertising campaigns sold and delivered by us and the frequency with which users of sites in the 24/7
Network see the same advertisement.

If
the use or effectiveness of cookies is limited, we would likely have to switch to other technology that would allow us to gather demographic and behavioral information. While such
technology currently exists, it is substantially less effective than cookies. Replacement of cookies could require significant engineering time and resources, might not be completed in time to avoid
negative consequences to our business, financial condition or results of operations, and might not be commercially feasible.

WE
DEPEND ON PROPRIETARY RIGHTS, AND WE FACE THE RISK OF INFRINGEMENT.

Our
success and ability to compete are substantially dependent on our internally developed technologies and trademarks, which we protect through a combination of patent, copyright, trade
secret and trademark law. We have received two patents in the United States, and have filed and intend to file additional patent applications in the United States. In addition, we apply to register
our trademarks in the United States and internationally. Our patent applications or trademark applications may not be approved. Even if they are approved, such patents or trademarks may be
successfully challenged by others or invalidated. If our trademark registrations are not approved because third parties own such trademarks, our use of such trademarks will be restricted unless we
enter into arrangements with such third parties that may be unavailable on commercially reasonable terms.

We
generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our
technologies, documentation and other proprietary information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use our solutions or technologies. The steps we have taken may not prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

We
have licensed, and we may license in the future, elements of our trademarks, trade dress and similar proprietary rights to third parties. While we attempt to ensure that the quality
of our brand is maintained by these business partners, such partners may take actions that could materially and adversely affect the value of our proprietary rights or our reputation. The value of our
proprietary rights could decline in the future since the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries is uncertain and still evolving.

We
may be subject to claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us or the Web publishers with Web sites in the 24/7
Network. Such claims and any resultant litigation could subject us to significant liability for damages and could result in the invalidation of our proprietary rights. In addition, even if we prevail,
such litigation could be time-consuming and expensive to defend, and could result in the diversion of our time and attention, any of which could materially and adversely affect our
business, results of operations and financial condition. Any claims or litigation from third parties may also result in limitations on our ability to use the trademarks and other intellectual property
subject to such claims or litigation unless we enter into

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arrangements
with the third parties responsible for such claims or litigation, which may be unavailable on commercially reasonable terms.

From
time to time, we may selectively pursue claims of infringement of our patents and other intellectual property rights by third parties. Such claims and any resultant litigation, such
as our ongoing litigation with aQuantive, Inc., present the risk that a court could determine, either preliminarily or finally, that some of our patents or other intellectual property rights
are not valid, which may make it difficult to sell our technology solutions and may lead to a loss of and an inability to generate licensing revenue from our patents. In addition, even if we prevail,
such litigation could be time-consuming and expensive to pursue, and could result in the diversion of our time and attention, any of which could materially and adversely affect our
business, results of operations and financial condition. See "BusinessLegal Proceedings."

WE
MAY BE SUBJECT TO INTELLECTUAL PROPERTY LIABILITY.

We
may be liable for content available or posted on the Web sites of our publishers. We may be liable to third parties for content in the advertising we serve if the music, artwork, text
or other content involved violates the copyright, trademark or other intellectual property rights of such third parties or if
the content is defamatory. Any claims or counterclaims could be time consuming, result in costly litigation or divert management's attention.

WE
FACE RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE.

The
Internet and Internet advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing
customer demands. Our future success will depend on our ability to adapt to rapidly changing technologies and to enhance existing solutions and develop and introduce a variety of new solutions to
address our customers' changing demands. We may experience difficulties that could delay or prevent the successful design, development, introduction or marketing of our solutions. In addition, our new
solutions or enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance. Material delays in introducing new solutions and
enhancements may cause customers to forego purchases of our solutions and purchase those of our competitors.

OUR
NETWORK OPERATIONS MAY BE VULNERABLE TO HACKING, VIRUSES AND OTHER DISRUPTIONS, WHICH MAY MAKE OUR PRODUCTS AND SERVICES LESS ATTRACTIVE AND RELIABLE.

Internet
usage could decline if any well-publicized compromise of security occurs. "Hacking" involves efforts to gain unauthorized access to information or systems or to
cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate proprietary information or cause disruptions
in our service. We may be required to expend capital and other resources to protect our Web site against hackers. Any measures we may take may not be effective. In addition, the inadvertent
transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability, as well as materially damage our reputation and decrease our user traffic.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST
RATE RISK

The
primary objective of our investment activities is to preserve capital. Cash and cash equivalents are investments with original maturities of three months or less. Therefore, changes
in the market's interest rates do not affect the value of the investments as recorded by 24/7 Real Media. The following

58

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table
presents the amounts of our financial instruments that are subject to interest rate risk by expected maturity and average interest rates as of December 31, 2003 (in thousands):

2003

2004

2005

2006

Thereafter

TotalAssets:Cash and cash equivalents

$
21,645

$


$


$


$


$
21,645Average interest rate


0.94
%













0.94
%Liabilities:2% Subordinated convertible debentures

$


$


$


$
15,000

$


$
15,000Average interest rate











2.00
%




2.00
%


The 2% subordinated convertible debentures due 2006 contains a provision that gives the holder the ability to call a portion of the note upon the satisfaction of a trading price condition. This
condition constitutes an embedded derivative. The value of this embedded derivative at December 31, 2003 is immaterial to the financial position. We will review the value of the derivative on a
quarterly basis in
the future, in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." As of December 31, 2003, we did not
hold any other derivative financial instruments.

FOREIGN
CURRENCY RISK

We
transact business in a variety of foreign countries and are thus subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to
revenue and operating expenses denominated in European currencies. The effect of foreign exchange rate fluctuations for 2003, 2002 and 2001 were not material. We do not use derivative financial
instruments to limit our foreign currency risk exposure. As of December 31, 2003, we had $2.9 million in cash and cash equivalents denominated in foreign currencies.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See
Part IV, Item 15 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As
of December 31, 2003, the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including
our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable-assurance level.

There
has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

The
following table provides information concerning our current named executive officers and directors:

|Name                  |  | Age |  | Position and Offices Held                                   
|--------------------- |  | --- |  | ------------------------------------------------------------
|David J. Moore        |  | 51  |  | Chairman of the Board and Chief Executive Officer           
|David B. Hills        |  | 48  |  | President, Media Solutions                                  
|Jonathan K. Hsu       |  | 31  |  | Executive Vice President and Chief Financial Officer        
|Mark E. Moran         |  | 42  |  | Executive Vice President, General Counsel and Secretary     
|Tony Schmitz          |  | 44  |  | Chief Technology Officer and President, Technology Solutions
|Christopher J. Wagner |  | 47  |  | Chief Executive Officer, Real Media Europe                  
|Douglas C. Wagner     |  | 37  |  | President, 24/7 Search, Inc.                                
|Robert J. Perkins     |  | 55  |  | Director                                                    
|Arnie Semsky          |  | 57  |  | Director                                                    
|Joseph W. Waechter    |  | 49  |  | Director                                                    
|Moritz F. Wuttke      |  | 37  |  | Director                                                    
|Valentine J. Zammit   |  | 55  |  | Director                                                    

David
J. Moore has been our Chief Executive Officer and a director since February 1998. Mr. Moore was President of Petry Interactive, an Internet advertising network and a
predecessor to our company, from December 1995 to February 1998. From 1993 to 1994, Mr. Moore was President of Geomedica, an online service for physicians, which he sold to
Reuters. From 1982 to 1992, Mr. Moore was a Group Vice President at Hearst/ABC-Viacom Entertainment Services, a media company, where he participated in the launch of Cable Health
Network, Lifetime Television, Lifetime Medical Television, a service targeted to physicians, and HealthLink Television, a physician waiting room television service. From 1980 to 1982, Mr. Moore
had a television advertising sales position with Turner Broadcasting. Mr. Moore received a B.A. degree in Communications from Northern Illinois University.

David
B. Hills has served as our President, Media Solutions since August 2003. From July 2001 to August 2003, Mr. Hills served as Chief Operating Officer and
President of Sales for About Inc., an Internet search engine company. From 1987 to 2001, Mr. Hills held various executive positions for subsidiaries of Cox Communications, including Vice
President of Sales for Cox Interactive Media, which owns and operates several Web sites focused on local content, from July 1999 to July 2001; Vice President and director of Cox
Interactive Sales, which operated an Internet advertising network, from May 1994 to July 1999; and Vice President for Telerep, a television and radio advertising sales representation
firm, from 1987 to 1994. Mr. Hills received a B.A. in Communications from Bethany College (W. Va) and an M.S. in Communications from Boston University.

Jonathan
K. Hsu has served as our Executive Vice PresidentChief Financial Officer since January 2004, as our Senior Vice PresidentCorporate Development
from
March 2002 to January 2004, and as our Vice PresidentCorporate Development from November 2001 to March 2002. Prior to that, he had served as Vice
PresidentCorporate Development of Real Media, Inc. since March 2000. From June 1998 to March 2000, Mr. Hsu was a senior associate in the Global Mergers
and Acquisitions Group of JP Morgan Chase Securities. From September 1995 to June 1998, Mr. Hsu was a partner in American Lead Ventures. Mr. Hsu received an M.B.A. in
Finance and Strategic Management from the Wharton School of Business and a B.A. in Economics from Harvard University.

Mark
E. Moran has served as our Executive Vice President since March 2002, and as our Senior Vice President from April 1998 to March 2002. He has also served as our
General Counsel and

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Secretary
since April 1998. From June 1993 to April 1998, Mr. Moran was an associate attorney at the law firm of Proskauer Rose LLP. From April 1986 to
May 1993, Mr. Moran was a financial analyst in the Securities Processing Division of The Bank of New York. Mr. Moran received a J.D. degree from Fordham Law School, an M.B.A.
degree in Finance from Fordham Graduate School of Business and a B.A. degree in Economics from The University of Virginia.

Tony
Schmitz has served as our Chief Technology Officer since January 2003 and as our President, Technology Solutions since December 2003. From February 2001 to
January 2003, Mr. Schmitz was the Chief Executive Officer of Insight First, Inc. From May 2000 to February 2001, Mr. Schmitz was the Chief Strategy Officer of
Insight First. Mr. Schmitz was managing partner at marchFIRST (formerly USWeb/CKS), an Internet services firm, from June 1998 to May 2000. Mr. Schmitz also served as Chief
Technology Officer at Gray Peak Technologies, a network integration company, from June 1997 to June 1998 and as a principal at Reach Networks, an online services development company,
from 1988 to 1997. Mr. Schmitz received a B.S. in Business from the State University of New York at Albany.

Christopher
J. Wagner has served as Chief Executive Officer of our subsidiary, Real Media Europe, since November 2001, and also served as our Director of Technology from January
to November 2001 and Director of Business Development from May 2000 to January 2001. Prior to joining Real Media Europe, Mr. C. Wagner served as operations analyst of
PSINet Europe, an Internet services company, from 1998 to 2000. Mr. C. Wagner received a J.D. degree from Stanford Law School, an M.P.A. with concentration in financial markets and analysis
from Harvard University and a B.Mus. in music from Northwestern University, and is a member of the bars of New York and South Dakota.

Douglas
C. Wagner has served as President of our subsidiary, 24/7 Search, Inc., formerly 24/7 Website Results, since we acquired it in August 2000. He also served as
President of Website Results, Inc. from July 1999 to August 2000. From February 1998 to June of 1999, Mr. D. Wagner was President of Phoenix Financial, LLC, a
financial services firm in Baltimore. From November 1996 to January 1998, Mr. D. Wagner was a partner in an online Web site development and marketing business which later became
Website Results, LLC. Mr. D. Wagner received a B.S. in Management and an M.B.A. in Marketing and Finance from The Pennsylvania State University.

Robert
J. Perkins has been a director since October 2001. Mr. Perkins has served as a self-employed marketing consultant since 2001. He was a partner at the
Peppers and Rogers Group, a leading global customer relationship management consulting firm, from 1999 to 2001. In 1998, he founded and became Chief Executive Officer of Chamber Communications, a
for-profit branch of the U.S. Chamber of Commerce. He was Chief Marketing Officer at Playboy Enterprises from 1996 to 1998 and at Calvin Klein Inc. from 1994 to 1996. Prior to that,
Mr. Perkins was Senior Vice President of Marketing at Pizza Hut from 1991 to 1994. Before beginning his business career, Mr. Perkins was a USAF Instructor Pilot in T-38A
supersonic, fighter-type aircraft. Mr. Perkins received an M.A. degree from Texas Tech University and a B.B.A. degree from the University of Iowa.

Arnie
Semsky has been a director since June 1998. Mr. Semsky has been self-employed as a media advisor since January 1999. He previously served as the
Executive Vice President, Worldwide Media Director and Board member of the BBDO Worldwide unit of Omnicom Group, the parent company of a group of advertising agencies, for 20 years. Prior to
that time, he was Vice President, National TV for Grey Advertising. Mr. Semsky is a senior advisor for ESPN and the ESPN/ABC Sports Customer Marketing and Sales unit. Mr. Semsky
currently serves on the Board of Directors of Interep, SportsVision and the John A. Reisenbach Foundation. He is on the Board of Advisors of several Internet companies, including BrandEra.com, On2.com
and CoolHunter.com. Mr. Semsky received a B.A. degree in English from Pace University.

Joseph
W. Waechter has been a director since July 2002. Mr. Waechter has served as a director and the President of Sunra Capital Holdings, Ltd., an investment firm,
since May 2002. From 1998 to September 2002, he was a director of Merchants Group International, an investment firm, and since

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September 2002
has been a director of California Pacific Capital, an investment firm. From 1989 to December 1997, Mr. Waechter served as Chairman and Chief Executive Officer of
United Micronesia Development Association, Inc., a holding company with investments in the tourism, telecommunications and airline industries, and from 1989 through 1997, he served as a
director of Continental Micronesia, Inc., a commercial airline. From 1994 to 1997, Mr. Waechter served as Chairman, Chief Executive Officer and a director of Danao International
Holdings, a developer of golf, hotel and resort projects in Vietnam. From 1972 to 1987, Mr. Waechter served in a number of positions with DHL Worldwide Express, an international air express
delivery company, including President and Chief Executive Officer from September 1983 through 1987. Mr. Waechter received a B.A. degree from San Francisco State University.

Moritz
F. Wuttke has been a director since October 2001. Mr. Wuttke has been the Head of Business Development at PubliGroupe SA since October 2001 and was the Head
of e-Business Development at PubliOnline, the new media division of PubliGroupe, from October 1999 to October 2001. From January 1997 to July 1999,
Mr. Wuttke was a Managing Director and partner of Artemedia Online SA, a Swiss interactive media agency. From April 1995 to December 1996, Mr. Wuttke was a Vice President
for Multimedia Development SA, which provided multimedia and Web publishing services. From April 1994 to March 1995, Mr. Wuttke was a founder and managing director of
OnlinePark GmbH, the first Internet access and consumer portal in Germany. Mr. Wuttke received masters degrees in Science and Business Administration from the Technical University of Berlin.

Valentine
J. Zammit has been a director since October 2001. Mr. Zammit is currently a self-employed consultant on financial and accounting matters to a number
of companies, and previously served as President and Chief Executive Officer of True North Diversified Companies, an advertising company, from 1998 to 2001. From 1988 to 1998, Mr. Zammit was
Chief Financial Officer and Vice Chairman of Bozell, Jacobs, Kenyon & Eckhardt, an advertising agency. He also previously held positions at Young & Rubicam, a marketing and
communications company, and the accounting firm Price Waterhouse. Mr. Zammit received a B.A. degree in Accounting from Manhattan College.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT
COMMITTEE

We
have a standing Audit Committee that was established by the Board of Directors.

The
members of our Audit Committee are Mr. Zammit (Chair), Mr. Perkins and Mr. Waechter. The Audit Committee selects and engages our independent auditors, reviews
and evaluates our audit and control functions, reviews the results and scope of the audit and other services provided by our independent auditors, and performs such other duties as may from time to
time be determined by the Board of Directors. The Board of Directors has determined that Mr. Zammit and Mr. Waechter are each an "audit committee financial expert" as defined in Item
401(h) of Regulation S-K. Each of Mr. Zammit, Mr. Gerbert and Mr. Waechter is an "independent director" as defined in Rule 4200 of the Marketplace Rules
of the National Association of Securities Dealers, Inc.

COMPENSATION
COMMITTEE

The
Compensation Committee, composed of Mr. Semsky and Mr. Wuttke, directors who qualify as outside directors under Section 162(m) of the Code and as
non-employee directors under Rule 16b-3(c) of the Exchange Act, approves the salaries and other benefits of our executive officers and administers any of our
non-stock based bonus or incentive compensation plans, excluding any cash awards intended to qualify for the exception for performance-based compensation under Section 162(m) of the
Code. It also administers any of our stock-based incentive plans, including the 1998 and 2002 Stock Incentive Plans and is responsible for granting any cash awards intended to qualify for the
exception for

62

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performance-based
compensation under Section 162(m) of the Code. Furthermore, the compensation committee consults with our management regarding pension and other benefit plans, and compensation
policies and our practices.

COMPENSATION
OF DIRECTORS

Effective
with the Annual Meeting of Stockholders in 2003, each non-employee director will be paid a cash fee of $1,000 for each regularly scheduled meeting of the Board of Directors
attended. All members of the Board of Directors who are not employees or consultants are reimbursed for their expenses for each meeting attended and are eligible to receive stock options pursuant to
the 1998 Stock Incentive Plan and the 2002 Stock Incentive Plan. In October 2001, each continuing director received a non-qualified option to purchase 10,000 shares of common stock
at the fair market value on the date of grant, such option to vest in three equal annual installments; an identical grant has been made to each new director appointed since October 2001 and is
expected to be made to each new director appointed in the future. On the date of each Annual Meeting of Stockholders, each director will also receive a non-qualified option to purchase
3,333 shares of common stock at the fair market value on the date of grant, prorated for directors who have served for less than one year since their initial grant. Additionally, in
September 2002, each continuing and newly appointed director was issued a one-time grant of shares of common stock with a value of $12,000.

EXECUTIVE
COMPENSATION AND EMPLOYMENT AGREEMENTS

We
have entered into employment agreements providing for annual compensation in excess of $100,000 with certain of our executive officers. The material terms of the employment agreements
generally are as follows:



Our
employment agreement with David J. Moore provides for an annual base salary of $270,450 and a target bonus of $325,000 for 2004. If we terminate Mr. Moore without cause, he is
entitled to receive severance pay in an amount equal to his annual base salary, plus one-half of the maximum bonus for which he is eligible during the fiscal year of termination.

Our
employment agreement with Jonathan Hsu provides for an annual base salary of $200,000 and a target bonus of $100,000 for 2004. If we terminate Mr. Hsu without cause, he is
entitled to receive severance pay in an amount equal to six month's of his base salary, plus one-half of the maximum bonus for which he is eligible during the fiscal year of termination.

63

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Our
employment agreement with Mark E. Moran provides for an annual base salary of $185,658 and a target bonus of $100,000 for 2004. If we terminate Mr. Moran without cause, he is
entitled to receive severance pay in an amount equal to 4.5 months of his base salary, plus three-eighths of the maximum bonus for which he is eligible during the fiscal year of termination.

Our
employment agreement with Tony Schmitz provides for an annual base salary of $150,000 and a target bonus of $50,000 for 2004. If we terminate Mr. Schmitz without cause, he is
entitled to receive severance pay in an amount equal to six months' base salary.

Our
employment agreement with Christopher J. Wagner provides for an annual base salary of CHF 261,885 and a target bonus of CHF 125,000 for 2004. If we terminate Mr. C. Wagner
without cause, he is entitled to receive severance pay in an amount equal to six months' base salary, plus one-half of the maximum bonus for which he is eligible during the fiscal year of
termination.

Our
employment agreement with Douglas C. Wagner provides for an annual base salary of $162,225 and a target bonus of $125,000 for 2004. If we terminate Mr. D. Wagner without
cause, he is entitled to receive severance pay in an amount equal to six months' base salary, plus one-half of the maximum bonus for which he is eligible during the fiscal year of
termination.

Our
employment agreement with David Hills provides for an annual base salary of $225,000 and a target bonus of $250,000 for 2004. If we terminate Mr. Hills without cause, he is
entitled to receive severance pay in an amount equal to six month's base salary.

ITEM 11. Executive Compensation.

Executive
Compensation

The
following table provides information about the compensation paid or payable by us for each of the last three fiscal years for services rendered in all capacities to our Chief
Executive Officer and our executive officers who earn more than $100,000 per year.

|                                  |  |      |  | Annual Compensation |         | Long Term Compensation |  
|--------------------------------- |  | ---- |  | ------------------- | ------- | ---------------------- | -
|
|David J. Moore                    |  | 2003 |  | $                   | 262,573 |                        | $
|Chief Executive Officer(1)        |  | 2002 |  | $                   | 255,000 |                        | $
|                                  |  | 2001 |  | $                   | 225,000 |                        | $
|Norman M. Blashka                 |  | 2003 |  | $                   | 210,000 |                        | $
|Chief Financial Officer(2)        |  | 2002 |  | $                   | 200,000 |                        | $
|                                  |  | 2001 |  | $                   | 33,333  |                        | $
|Jonathan K. Hsu                   |  | 2003 |  | $                   | 176,750 |                        | $
|Senior Vice President(3)          |  | 2002 |  | $                   | 159,668 |                        | $
|                                  |  | 2001 |  | $                   | 25,333  |                        | $
|Mark E. Moran                     |  | 2003 |  | $                   | 180,250 |                        | $
|General Counsel(4)                |  | 2002 |  | $                   | 163,332 |                        | $
|                                  |  | 2001 |  | $                   | 157,500 |                        | $
|Christopher J. Wagner             |  | 2003 |  | $                   | 195,027 |                        | $
|Chief Executive OfficerEurope(5) |  | 2002 |  | $                   | 158,990 |                        | $
|                                  |  | 2001 |  | $                   | 24,686  |                        | $

---

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STOCK OPTIONS

The
following table contains information concerning the grant of options to each of our executive officers during the year ended December 31, 2003. We did not grant any stock
appreciation rights in 2003.

OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 2003

|                      |       | Individual Grants |         |     |     |  
|--------------------- | ----- | ----------------- | ------- | --- | --- | -
|
|
|David J. Moore        |       | 44,130            |         | 2.0 |     | $
|                      |       | 120,000           |         | 5.3 |     | $
|                      |       |                   |         |     |     |  
|                      | Total |                   | 164,130 |     | 7.3 | %
|Norman M. Blashka     |       | 17,647            |         | 0.8 |     | $
|                      |       | 80,000            |         | 3.5 |     | $
|                      |       |                   |         |     |     |  
|                      | Total |                   | 97,647  |     | 4.3 | %
|Jonathan K. Hsu       |       | 29,412            |         | 1.3 |     | $
|                      |       | 70,000            |         | 3.1 |     | $
|                      |       |                   |         |     |     |  
|                      | Total |                   | 99,412  |     | 4.4 | %
|Mark E. Moran         |       | 15,147            |         | 0.7 |     | $
|                      |       | 80,000            |         | 3.5 |     | $
|                      |       |                   |         |     |     |  
|                      | Total |                   | 95,147  |     | 4.2 | %
|Christopher J. Wagner |       | 22,336            |         | 1.0 |     | $
|                      |       | 80,000            |         | 3.5 |     | $
|                      |       |                   |         |     |     |  
|                      | Total |                   | 102,336 |     | 4.5 | %

---

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The following table provides information for each of our executive officers with respect to the value of options exercised during the year ended
December 31, 2003 and the value of outstanding and unexercised options held as of December 31, 2003. There were no stock appreciation rights exercised during 2003 and none were
outstanding as of December 31, 2003.

AGGREGATED OPTION EXERCISES DURING YEAR ENDED DECEMBER 31, 2003 AND FISCAL  YEAR-END OPTION VALUES

|                      |  |         |  |   |         | Number ofSecurities
UnderlyingUnexercised Options At
December 31, 2003 |         | Value of Unexercised
In-the-Money Options
At December 31, 2003(1)
|--------------------- |  | ------- |  | - | ------- | ---------------------------------------------------------------------- | ------- | -----------------------------------------------------------------
|
|
|David J. Moore        |  |        |  |   |        |                                                                        | 506,250 |                                                                  
|Norman M. Blashka     |  | 150,000 |  | $ | 151,500 |                                                                        | 199,416 |                                                                  
|Jonathan K. Hsu       |  |        |  |   |        |                                                                        | 111,875 |                                                                  
|Mark E. Moran         |  |        |  |   |        |                                                                        | 239,412 |                                                                  
|Christopher J. Wagner |  |        |  |   |        |                                                                        | 90,399  |                                                                  

---

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

Under
the securities laws of the United States, our directors, executive officers and any persons holding more than 10 percent of our common stock are required to report their
ownership of common stock and any changes in that ownership, on a timely basis, to the Securities and Exchange Commission. In mid-2003, the Securities and Exchange Commission amended its
rules to require that substantially all Section 16 reports be filed within two days of a reportable event, and that all filings be effected through the Commission's EDGAR filing system. Based
on materials provided to us, all such required reports were filed on a timely basis in 2003 except that a Form 4 was filed late for each of David J. Moore, Christopher J. Wagner,
Douglas Wagner, Tony Schmitz, Joseph W. Waechter and Valentine Zammit in connection with their purchases of our Series C Preferred Stock. Such filings were delayed in large part due to
inability to obtain EDGAR identification codes for the filers on a timely basis.

In
mid-2003, the Securities and Exchange Commission amended its rules to require that substantially all Section 16 reports be filed within two days of a reportable
event, and that all filings be effected through the Commission's EDGAR filing system.

CODE
OF ETHICS

We
intend to seek authorization from our board of directors, at its next regularly scheduled meeting, of a statement of business conduct and code of ethics that applies to all of our
directors, officers, and employees, including our principal executive officer, principal financial officer, and principal accounting officer and controller. This statement and code will be posted on
our website http://www.247realmedia.com.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The
following table sets forth information regarding beneficial ownership of our common stock as of January 31, 2004, by: (i) each person who we know to own beneficially
more than 5% of the common stock; (ii) each of our current directors and executive officers; and (iii) our current directors and executive officers as a group.

Beneficial Owner

Amount and Nature of
Beneficial Ownership

Percentage(1)Executive Officers and DirectorsDavid J. Moore(2)

1,423,458

5.4
%Robert J. Perkins(3)

12,995

*Arnie Semsky(4)

17,526

*Joseph W. Waechter(5)

8,443,489

25.6
%Moritz F. Wuttke(6)

12,995

*Valentine J. Zammit(7)

104,835

*David B. Hills(8)

43,667

*Jonathan K. Hsu(9)

170,069

*Mark E. Moran(10)

379,925

1.5
%Tony Schmitz(11)

53,917

*Christopher J. Wagner(12)

190,406

*Douglas C. Wagner(13)

77,427

*All current directors and officers as a group (12 persons)(14)

10,930,709

31.7
%Beneficial Holders of 5% or moreSunra Capital Holdings Limited(15)

7,954,243

24.2
%PubliGroupe USA Holding, Inc.(16)

2,509,101

9.8
%Riverview Group LLC(17)

2,074,859

7.5
%RS Investment Management Co. LLC(18)

1,714,726

6.7
%


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1998 STOCK INCENTIVE PLAN,
2001 STOCK INCENTIVE PLAN FOR NON-OFFICERS AND
2002 STOCK INCENTIVE PLAN

Background;
Purpose; Eligibility.

The
following provisions are applicable to our 1998 and 2002 Stock Incentive Plans and 2001 Stock Incentive Plan for Non-Officers (the "Incentive Plans"), except as noted,
and are intended only as a summary. The incentive plans are intended to: (i) offer employees and consultants of our company and its affiliates stock based incentives and other equity interests
in our company, thereby creating a means to raise the level of stock ownership by employees and consultants in order to attract, retain and reward such employees and consultants and strengthen the
mutuality of interests between such employees and consultants and our stockholders, and; (ii) to offer equity based awards to non-employee directors, thereby attracting, retaining
and rewarding such
non-employee directors and strengthening the mutuality of interests between non-employee directors and stockholders.

All
of our employees and consultants are eligible to be granted nonqualified stock options, stock appreciation rights and restricted stock. In addition, our employees and employees of
our affiliates that qualify as subsidiaries (within the meaning of Section 424 of the Internal Revenue Code) are eligible to be granted incentive stock options under the 2002 Stock Incentive
Plan. Our non-employee directors are eligible to receive non-discretionary grants of nonqualified stock options and to receive grants of common stock for each meeting of the
Board of Directors or a committee of the Board attended.

Administration.

The
incentive plans are administered by the compensation committee of our Board of Directors, except that with respect to awards to non-employee directors, the Incentive
Plans will be administered by the Board of Directors. Additionally, if no compensation committee exists which has the authority to administer the Incentive Plans, the functions of the compensation
committee will be performed by the Board of Directors. The compensation committee has full authority and discretion, subject to the terms of the incentive plans, to determine who is eligible to
receive awards and the amount and type of awards. Terms and conditions of awards are set forth in written grant agreements. No option may have an exercise price less than the fair market value of the
common stock at the time of original grant (or, in the case of an incentive stock option granted to a ten percent stockholder, 110% of fair market value). Awards under the incentive plans may not be
made on or after the tenth anniversary of the date of its adoption, but awards granted prior to such date may extend beyond that date. All options granted under the incentive plans expire no more than
ten years from the date of grant.

Available
Shares And Other Units.

A
maximum of 2.3 million and 4.6 million shares of common stock may be issued pursuant to the 1998 Stock Incentive Plan and the 2002 Stock Incentive Plan, respectively. The
maximum number of incentives that may be granted to any individual for each fiscal year during the term of the Incentive Plans is 120,000. In general, upon the cancellation or expiration of an award,
the unissued shares of common stock subject to such awards will again be available for awards under the Incentive Plans. The number of shares of common stock available for the grant of awards and the
exercise price of an award may be adjusted to reflect any change in our capital structure or business by reason of certain corporate transactions or events. Each of the 1998 and the 2002 Stock
Incentive Plans allows for an automatic increase in the shares available for issuance thereunder on the first trading day of each calendar year, beginning with 2002 by an amount equal to 3% of the
total number of shares of common stock outstanding on the last trading day of the immediately preceding calendar year, not to exceed 150,000 shares and 600,000 shares, respectively in any given year.

70

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Amendment
And Termination.

Notwithstanding
any other provision of the Incentive Plans, the Board of Directors may at any time amend any or all of the provisions of the Incentive Plans, or suspend or terminate them
entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided in the Incentive Plans, the rights of a participant with respect to awards
granted prior to such amendment, suspension or termination may not be impaired without the consent of such participant approval of our stockholders in accordance with the laws of the State of
Delaware, to the extent required under Section 162(m) of the Internal Revenue Code, or to the extent applicable to incentive stock options, Section 422 of the Internal Revenue Code, no
amendment may be made which would: (i) increase the aggregate number of shares of common stock that may be issued; (ii) increase the maximum individual participant share limitations for
a fiscal year; (iii) change the classification of employees or consultants eligible to receive awards; (iv) decrease the minimum exercise price of any stock option or SAR;
(v) extend the maximum option term; (vi) change rights under the Incentive Plans with regard to non-employee directors; or (vii) require stockholder approval in order
for the Incentive Plans to continue to comply with the applicable provisions of Section 162(m) of the Internal Revenue Code or, to the extent applicable to incentive stock options,
Section 422 of the Internal Revenue Code.

Awards
under the Incentive Plans.

The
following types of awards are available under the Incentive Plans:

Stock Options.

Under the Incentive Plans, the compensation committee may grant options to purchase shares of common stock. Options may be incentive stock options or
non-qualified stock options. The compensation committee will determine the number of shares subject to the option, the term of the option, the exercise price per share, the vesting
schedule, and the other material terms of the option.

Stock Appreciation Rights.

The 1998 and 2002 Stock Incentive Plans authorize the compensation committee to grant stock appreciation rights ("SARs") either with a stock option which may be
exercised only at such times and to the extent the related option is exercisable ("Tandem SAR"), or independent of a stock option ("Non-Tandem SARs"). A SAR is a right to receive a payment
either in cash or common stock, as the compensation committee may determine, equal in value to the excess of the fair market value of one share of common stock on the date of exercise over the
exercise price per share established in connection with the grant of the SAR. The exercise price per share covered by a SAR will be the exercise price per share of the related option in the case of a
Tandem SAR and will be the fair market value of the common stock on the date of grant in the case of a Non-Tandem SAR.

Restricted Stock.

The 1998 and 2002 Stock Incentive Plans authorize the compensation committee to award shares of restricted stock. Upon the award of restricted stock, the
recipient has all rights of a stockholder, unless otherwise specified by the compensation committee at the time of grant, subject to the conditions and restrictions generally applicable to restricted
stock.

Change
Of Control.

Unless
otherwise determined by the compensation committee of the Board of Directors at the time of grant, in the event that we merge with another company, upon the sale of substantially
all of our assets or securities representing 40% or more of the total combined voting power of our then outstanding securities, or upon changes in membership of the Board of Directors during any
two-year

71

---

period,
then: each option will be fully vested and immediately exercisable, or each option may be repurchased by us for an amount of cash equal to the excess of the change of control price (as defined
in the incentive plans) over the exercise price; and the restrictions on shares of restricted stock shall lapse as if the applicable restriction period had ended.

Non-Employee
Director Stock Option Grants.

The
2002 Stock Incentive Plan authorizes the automatic grant of nonqualified stock options to each non-employee director, without further action by the Board of Directors or
the stockholders, as follows: (i) options to purchase 50,000 shares of common stock will be granted to each non-employee director as of the date he or she begins service as a
non-employee director on the Board of Directors; and (ii) options to purchase 16,667 shares of common stock (or a pro rata portion for less than a full year of service) will be
granted to each non-employee director upon the date of each annual meeting of stockholders. The exercise price per share of options will be the fair market value of the common stock at the
time of grant or the par value of the common stock, whichever is greater. The term of each such option will be 10 years. Options granted to non-employee directors pursuant to an
initial grant will vest and become exercisable at the rate of 33.3% of the options granted, as of each anniversary of the date of grant. Options granted pursuant to an annual grant will become vested
in full on the date of the third anniversary of the date of the grant, provided that the non-employer director is a director on the Board of Directors on that date. All options granted to
non-employee directors and not previously exercisable will become fully exercisable immediately upon a change in control.

THE 2001 AND 2002 EQUITY COMPENSATION PLANS

The 2001 and 2002 Equity Compensation Plans were adopted in order to enhance the profitability and value of our company for the benefit of its stockholders by
enabling us (i) to offer employees and consultants of our company and its affiliates stock based incentives and other equity interests in our company, thereby creating a means to raise the
level of stock ownership by employees and consultants in order to attract, retain and reward such employees and consultants and strengthen the mutuality of interests between such employees and
consultants and our stockholders and (ii) to offer equity based awards to non-employee directors, thereby attracting, retaining and rewarding such non-employee directors
and strengthening the mutuality of interests between non-employee directors and stockholders. We may from time to time issue, to employees, former employees, advisors and consultants to us
or our affiliates, shares of our common
stock in payment or exchange for or in settlement or compromise of amounts due by us to such persons for goods sold and delivered or to be delivered or services rendered or to be rendered.

The
aggregate number of shares of common stock that may be issued pursuant to the 2001 Equity Compensation Plan and the 2002 Equity Compensation Plan shall not exceed 250,000 shares and
600,000 shares, respectively. Shares of our common stock issued pursuant to the 2001 Equity Compensation Plan will be issued at a price per share of not less than ninety-five (95%) of the
fair market value per share on the date of issuance, while shares of common stock issued pursuant to the 2002 Equity Compensation Plan will be issued at a price per share of not less than
eighty-five percent (85%) of the fair market value per share on the date of issuance. Our Chief Executive Officer is

72

---

authorized
to issue shares pursuant to and in accordance with the terms of both the 2001 and 2002 Equity Compensation Plans. The Plans are subject to amendment.

|Equity Compensation Plan Information                      
|----------------------------------------------------------
|
|Equity Compensation Plans Approved by Security Holders    
|Equity Compensation Plans Not Approved by Security Holders

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

With the acquisition of Real Media, Inc. in October 2001, we assumed a note payable of $4.5 million payable to PubliGroupe USA
Holding, Inc., who as a result of the merger is a significant shareholder. Mr. Wuttke, a member of our board of directors, is an officer of PubliGroupe SA, the parent company of
PubliGroupe USA Holding, Inc. Principal and interest at 4.5% were due on October 30, 2006. In addition, in accordance with the Real Media purchase agreement, in January 2002, we
received cash of $1.5 million and signed a promissory note in favor of PubliGroupe bearing interest at 6%, with interest and principal due in January 2005, and on May 13, 2002, we
received another $1.5 million in exchange for a 6% three-year promissory note in favor of PubliGroupe with interest and principal due in May 2005. The three promissory notes
were settled in the second quarter of 2003.

In
2003, the Company paid a total of $109,942 to the law firm of Moran & d'Arcambal for legal services, and is continuing to utilize Moran & d'Arcambal for legal services
in 2004. Two immediate family members of Mark E. Moran, our Executive Vice President and General Counsel, have a material interest in the law firm of Moran & d'Arcambal.

During
2003 and 2002, there were no other transactions or series of transactions that we were or are a party to in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect
material interest.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

SUMMARY
OF FEES

The
following is a summary of the fees billed to us by Goldstein Golub Kessler LLP for professional services rendered for the fiscal years ended December 31, 2003 and 2002 and by
KPMG LLP for professional services rendered for the fiscal year ended December 31, 2002:

Fee Category

Fiscal 2003 Fees

Fiscal 2002 FeesAudit Fees

$
382,227

$
489,000Audit Related Fees


198,293


40,500Tax Fees





All Other Fees


2,338


52,700Total Fees

$
582,858

$
582,200


73

---



POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS.

The
Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit
services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular
service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent
of services provided by the independent auditors in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve
particular services on a case-by-case basis.

No
audit-related fees, tax fees, and all other fees were approved by our Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.

74

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PART IV

ITEM 15.    EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K





75

---



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                       |  | Page
|---------------------------------------------------------------------- |  | ----
|Independent Auditors' Report                                           |  | F-2 
|Consolidated Balance Sheets                                            |  | F-4 
|Consolidated Statement of Operations                                   |  | F-5 
|Consolidated Statements of Stockholders' Equity and Comprehensive Loss |  | F-6 
|Consolidated Statement of Cash Flows                                   |  | F-8 
|Notes to Consolidated Financial Statements                             |  | F-9 

F-1

---

INDEPENDENT AUDITORS' REPORT

The
Board of Directors and Stockholders
24/7 Real Media, Inc.:

We
have audited the accompanying consolidated balance sheets of 24/7 Real Media, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of
operations, stockholders' equity and comprehensive loss and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 24/7 Real Media, Inc. and Subsidiaries as of
December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of
America.

GOLDSTEIN GOLUB KESSLER LLPNew York, New York

February 20,
2004

F-2

---



INDEPENDENT AUDITORS' REPORT

The
Board of Directors and Stockholders
24/7 Real Media, Inc.:

We
have audited the accompanying consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows of 24/7 Real Media, Inc. for the year ended
December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, 24/7 Real Media, Inc. and subsidiaries' results of operations and
cash flows for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements in the Current Report on Form 8-K/A of 24/7 Real Media Inc. dated December 19, 2002, the Company has suffered recurring losses from operations since
inception and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in
Note 1 to the consolidated financial statements in the Current
Report on Form 8-K/A of 24/7 Real Media Inc. dated December 19, 2002. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As
discussed in footnotes 3 and 4(b) to the consolidated financial statements in the Current Report on Form 8-K/A of 24/7 Real Media Inc. dated December 19,
2002, the Company revised the consolidated financial statements and footnotes to reflect the sale of its IMAKE subsidiary as a discontinued operation in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.



New
York, New York
March 29, 2002
except for footnotes 3 and 4(b) to the consolidated financial statements in the Current Report on Form 8-K/A of 24/7 Real Media Inc. dated December 19, 2002, which are as
of October 15, 2002

F-3

---



24/7 REAL MEDIA, INC.        CONSOLIDATED BALANCE SHEETS        (in thousands, except per share data)

|                                                                 |                                                                                                                                                                          | December 31,
2003                          |        | December 31,
2002 |       
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ----------------- | ------
|ASSETS                                                           |                                                                                                                                                                          |                                            |        |                   |       
|Current assets:                                                  |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 | Cash and cash equivalents                                                                                                                                                |                                            | $      | 21,645            |       
|                                                                 | Accounts receivable, less allowances of $971 and $1,369, respectively                                                                                                    |                                            |        | 11,603            |       
|                                                                 | Notes and amounts receivable from disposition                                                                                                                            |                                            |        | 653               |       
|                                                                 | Prepaid expenses and other current assets                                                                                                                                |                                            |        | 1,016             |       
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 |                                                                                                                                                                          | Total current assets                       |        |                   | 34,917
|Property and equipment, net                                      |                                                                                                                                                                          |                                            | 2,862  |                   |       
|Goodwill                                                         |                                                                                                                                                                          |                                            | 2,621  |                   |       
|Intangible assets, net                                           |                                                                                                                                                                          |                                            | 3,352  |                   |       
|Notes and amounts receivable from disposition                    |                                                                                                                                                                          |                                            | 500    |                   |       
|Other assets                                                     |                                                                                                                                                                          |                                            | 1,928  |                   |       
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 |                                                                                                                                                                          | Total assets                               |        | $                 | 46,180
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                             |                                                                                                                                                                          |                                            |        |                   |       
|Current liabilities:                                             |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 | Accounts payable                                                                                                                                                         |                                            | $      | 6,266             |       
|                                                                 | Accrued liabilities                                                                                                                                                      |                                            |        | 10,035            |       
|                                                                 | Current installments of obligations under capital leases                                                                                                                 |                                            |        | 51                |       
|                                                                 | Deferred revenue                                                                                                                                                         |                                            |        | 2,544             |       
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 |                                                                                                                                                                          | Total current liabilities                  |        |                   | 18,896
|Obligations under capital leases, excluding current installments |                                                                                                                                                                          |                                            | 14     |                   |       
|Subordinated convertible debentures, 2%, due 2006                |                                                                                                                                                                          |                                            | 13,320 |                   |       
|Warrant liability                                                |                                                                                                                                                                          |                                            | 3,595  |                   |       
|Loan payablerelated party                                       |                                                                                                                                                                          |                                            |       |                   |       
|Other long term liabilities                                      |                                                                                                                                                                          |                                            | 318    |                   |       
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 | Total liabilities                                                                                                                                                        |                                            |        | 36,143            |       
|Commitments and contingencies                                    |                                                                                                                                                                          |                                            |        |                   |       
|Stockholders' equity:                                            |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 | Preferred stock; $.01 par value; 10,000,000 shares authorized, 828,250 and 925,000 shares issued and outstanding, respectively (liquidation preference of $10 per share) |                                            |        | 8                 |       
|                                                                 | Common stock; $.01 par value; 350,000,000 shares authorized; 23,367,421 and 11,843,969 shares issued and outstanding, respectively                                       |                                            |        | 234               |       
|                                                                 | Additional paid-in capital                                                                                                                                               |                                            |        | 1,106,984         |       
|                                                                 | Deferred stock compensation                                                                                                                                              |                                            |        | (257              | )     
|                                                                 | Accumulated other comprehensive income                                                                                                                                   |                                            |        | 305               |       
|                                                                 | Accumulated deficit                                                                                                                                                      |                                            |        | (1,097,237        | )     
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 |                                                                                                                                                                          | Total stockholders' equity                 |        |                   | 10,037
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       
|                                                                 |                                                                                                                                                                          | Total liabilities and stockholders' equity |        | $                 | 46,180
|                                                                 |                                                                                                                                                                          |                                            |        |                   |       

See accompanying notes to consolidated financial statements.

F-4

---



24/7 REAL MEDIA, INC.        CONSOLIDATED STATEMENT OF OPERATIONS        (in thousands, except share and per share data)

|                                                                                         |                                                                                                                              | Years ended December 31, |           
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------
|
|Revenues:                                                                                |                                                                                                                              |                          |           
|                                                                                         | Integrated media solutions                                                                                                   |                          | $         
|                                                                                         | Technology solutions                                                                                                         |                          |           
|                                                                                         |                                                                                                                              |                          |           
|                                                                                         |                                                                                                                              | Total revenues           |           
|                                                                                         |                                                                                                                              |                          |           
|Cost of revenues:                                                                        |                                                                                                                              |                          |           
|                                                                                         | Integrated media solutions                                                                                                   |                          |           
|                                                                                         | Technology solutions (exclusive of $31, $7, and $0 reported below as stock-based compensation)                               |                          |           
|                                                                                         |                                                                                                                              |                          |           
|                                                                                         |                                                                                                                              | Total cost of revenues   |           
|                                                                                         |                                                                                                                              |                          |           
|                                                                                         |                                                                                                                              | Gross profit             |           
|                                                                                         |                                                                                                                              |                          |           
|Operating expenses:                                                                      |                                                                                                                              |                          |           
|                                                                                         | Sales and marketing (exclusive of $339, $68, and $512, respectively, reported below as stock-based compensation)             |                          |           
|                                                                                         | General and administrative (exclusive of $803, $2,665, and $1,206, respectively, reported below as stock-based compensation) |                          |           
|                                                                                         | Product development (exclusive of $143, $50, and $(60), respectively, reported below as stock-based compensation)            |                          |           
|                                                                                         | Amortization of goodwill, intangible assets and deferred financing costs                                                     |                          |           
|                                                                                         | Stock-based compensation                                                                                                     |                          |           
|                                                                                         | Restructuring costs                                                                                                          |                          |           
|                                                                                         | Impairment of intangible assets                                                                                              |                          |           
|                                                                                         | Loss (gain) on sale of non-core assets, net                                                                                  |                          |           
|                                                                                         |                                                                                                                              |                          |           
|                                                                                         |                                                                                                                              | Total operating expenses |           
|                                                                                         |                                                                                                                              |                          |           
|                                                                                         |                                                                                                                              | Loss from operations     |           
|Interest (expense) income, net                                                           |                                                                                                                              |                          | (343      
|Gain on sale of investments                                                              |                                                                                                                              |                          |          
|Impairment of investments                                                                |                                                                                                                              |                          |          
|Other (expense) income, net                                                              |                                                                                                                              |                          | (1,638    
|                                                                                         |                                                                                                                              |                          |           
|Loss from continuing operations                                                          |                                                                                                                              |                          | (12,016   
|Loss from discontinued operations                                                        |                                                                                                                              |                          |          
|                                                                                         |                                                                                                                              |                          |           
|Net loss                                                                                 |                                                                                                                              |                          | (12,016   
|Dividends on preferred stock                                                             |                                                                                                                              |                          | (617      
|Preferred stock conversion discount                                                      |                                                                                                                              |                          | (1,780    
|                                                                                         |                                                                                                                              |                          |           
|Net loss attributable to common stockholders                                             |                                                                                                                              | $                        | (14,413   
|                                                                                         |                                                                                                                              |                          |           
|Loss per common sharebasic and diluted                                                  |                                                                                                                              |                          |           
|Loss from continuing operations before preferred stock dividends and conversion discount |                                                                                                                              | $                        | (0.71     
|Preferred stock dividends and conversion discount                                        |                                                                                                                              |                          | (0.15     
|                                                                                         |                                                                                                                              |                          |           
|Loss from continuing operations                                                          |                                                                                                                              |                          | (0.86     
|Loss from discontinued operations                                                        |                                                                                                                              |                          |          
|                                                                                         |                                                                                                                              |                          |           
|Net loss attributable to common stockholders                                             |                                                                                                                              | $                        | (0.86     
|                                                                                         |                                                                                                                              |                          |           
|Weighted average shares outstanding                                                      |                                                                                                                              |                          | 16,817,502
|                                                                                         |                                                                                                                              |                          |           

See accompanying notes to consolidated financial statements.

F-5

---



24/7 REAL MEDIA, INC.  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY  AND COMPREHENSIVE LOSS  (in thousands, except share data)

|                                                          |                    | Convertible
Preferred Stock |   | Common Stock
Voting |    |   |           
|--------------------------------------------------------- | ------------------ | --------------------------- | - | ------------------- | -- | - | ----------
|
|
|Balance as of December 31, 2000                           |                    |                            |   |                     |   |   | 8,495,161 
|Net loss                                                  |                    |                            |   |                     |   |   |          
|Net change in marketable securities                       |                    |                            |   |                     |   |   |          
|Cumulative foreign currency translation                   |                    |                            |   |                     |   |   |          
|                                                          | Comprehensive loss |                             |   |                     |    |   |           
|Exercise of stock options                                 |                    |                            |   |                     |   |   | 3,752     
|Issuance of common stock for acquired businesses          |                    |                            |   |                     |   |   | 1,988,223 
|Issuance of common stock to employees                     |                    |                            |   |                     |   |   | 37,205    
|Vesting of restricted common stock                        |                    |                            |   |                     |   |   | 35,485    
|Issuance of warrants                                      |                    |                            |   |                     |   |   |          
|Repurchase and retirement of WSR shares                   |                    |                            |   |                     |   |   | (653,401  
|Forfeiture of unvested options                            |                    |                            |   |                     |   |   |          
|Amortization of deferred stock compensation               |                    |                            |   |                     |   |   |          
|                                                          |                    |                             |   |                     |    |   |           
|Balance as of December 31, 2001                           |                    |                            |   |                     |   |   | 9,906,425 
|Net loss                                                  |                    |                            |   |                     |   |   |          
|Cumulative foreign currency translation                   |                    |                            |   |                     |   |   |          
|                                                          | Comprehensive loss |                             |   |                     |    |   |           
|Exercise of stock options                                 |                    |                            |   |                     |   |   | 76,140    
|Issuance of preferred stock, Series A and warrants        |                    | 800,000                     |   |                     | 8  |   |          
|Issuance of stock for acquired business                   |                    | 125,000                     |   |                     | 1  |   | 820,000   
|Issuance of common stock and options to employees         |                    |                            |   |                     |   |   | 1,035,754 
|Preferred stock conversion discount                       |                    |                            |   |                     |   |   |          
|Vesting of restricted common stock                        |                    |                            |   |                     |   |   | 5,650     
|Forfeiture of unvested options                            |                    |                            |   |                     |   |   |          
|Amortization of deferred stock compensation               |                    |                            |   |                     |   |   |          
|                                                          |                    |                             |   |                     |    |   |           
|Balance as of December 31, 2002                           |                    | 925,000                     |   | $                   | 9  |   | 11,843,969
|Net loss                                                  |                    |                            |   |                     |   |   |          
|Cumulative foreign currency translation                   |                    |                            |   |                     |   |   |          
|                                                          | Comprehensive loss |                             |   |                     |    |   |           
|Exercise of stock options                                 |                    |                            |   |                     |   |   | 695,760   
|Conversion of warrants into common stock                  |                    |                            |   |                     |   |   | 1,538,697 
|Issuance (cost) of preferred stock, Series C and warrants |                    | 718,250                     |   |                     | 7  |   |          
|Issuance of stock for acquired business                   |                    |                            |   |                     |   |   | 705,219   
|Conversion of preferred stock                             |                    | (815,000                    | ) |                     | (8 | ) | 6,995,490 
|Issuance of restricted stock                              |                    |                            |   |                     |   |   |          
|Issuance of common stock to employees                     |                    |                            |   |                     |   |   | 598,861   
|Preferred stock conversion discount                       |                    |                            |   |                     |   |   |          
|Vesting of restricted common stock                        |                    |                            |   |                     |   |   | 29,425    
|Retirement of debt                                        |                    |                            |   |                     |   |   | 960,000   
|Amortization of deferred stock compensation               |                    |                            |   |                     |   |   |          
|                                                          |                    |                             |   |                     |    |   |           
|Balance as of December 31, 2003                           |                    | 828,250                     |   | $                   | 8  |   | 23,367,421
|                                                          |                    |                             |   |                     |    |   |           

See accompanying notes to consolidated financial statements.

F-6

---



24/7 REAL MEDIA, INC.  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY  AND COMPREHENSIVE LOSS (Continued)  (in thousands, except share data)

|                                                          |                    | Deferred
Stock
Compensation |        | Other
Comprehensive
Income (loss) |   | Accumulated
Deficit |   | Total
Stockholders'
Equity |           
|--------------------------------------------------------- | ------------------ | --------------------------- | ------ | --------------------------------- | - | ------------------- | - | -------------------------- | ----------
|Balance as of December 31, 2000                           |                    | $                           | (4,007 | )                                 | $ | 3,425               |   | $                          | (859,719  
|Net loss                                                  |                    |                             |       |                                   |   |                    |   |                            | (199,595  
|Net change in marketable securities                       |                    |                             |       |                                   |   | (3,805              | ) |                            |          
|Cumulative foreign currency translation                   |                    |                             |       |                                   |   | 318                 |   |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|                                                          | Comprehensive loss |                             |        |                                   |   |                     |   |                            |           
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Exercise of stock options                                 |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of common stock for acquired businesses          |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of common stock to employees                     |                    |                             |       |                                   |   |                    |   |                            |          
|Vesting of restricted common stock                        |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of warrants                                      |                    |                             |       |                                   |   |                    |   |                            |          
|Repurchase and retirement of WSR shares                   |                    |                             |       |                                   |   |                    |   |                            |          
|Forfeiture of unvested options                            |                    |                             | 1,801  |                                   |   |                    |   |                            |          
|Amortization of deferred stock compensation               |                    |                             | 1,536  |                                   |   |                    |   |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Balance as of December 31, 2001                           |                    | $                           | (670   | )                                 | $ | (62                 | ) | $                          | (1,059,314
|Net loss                                                  |                    |                             |       |                                   |   |                    |   |                            | (17,499   
|Cumulative foreign currency translation                   |                    |                             |       |                                   |   | 420                 |   |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|                                                          | Comprehensive loss |                             |        |                                   |   |                     |   |                            |           
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Exercise of stock options                                 |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of preferred stock, Series A and warrants        |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of stock for acquired business                   |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of common stock and options to employees         |                    |                             |       |                                   |   |                    |   |                            |          
|Preferred stock conversion discount                       |                    |                             |       |                                   |   |                    |   |                            | (6,628    
|Vesting of restricted common stock                        |                    |                             |       |                                   |   |                    |   |                            |          
|Forfeiture of unvested options                            |                    |                             | 22     |                                   |   |                    |   |                            |          
|Amortization of deferred stock compensation               |                    |                             | 439    |                                   |   |                    |   |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Balance as of December 31, 2002                           |                    | $                           | (209   | )                                 | $ | 358                 |   | $                          | (1,083,441
|Net loss                                                  |                    |                             |       |                                   |   |                    |   |                            | (12,016   
|Cumulative foreign currency translation                   |                    |                             |       |                                   |   | (53                 | ) |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|                                                          | Comprehensive loss |                             |        |                                   |   |                     |   |                            |           
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Exercise of stock options                                 |                    |                             |       |                                   |   |                    |   |                            |          
|Conversion of warrants into common stock                  |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance (cost) of preferred stock, Series C and warrants |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of stock for acquired business                   |                    |                             |       |                                   |   |                    |   |                            |          
|Conversion of preferred stock                             |                    |                             |       |                                   |   |                    |   |                            |          
|Issuance of restricted stock                              |                    |                             | (310   | )                                 |   |                    |   |                            |          
|Issuance of common stock to employees                     |                    |                             |       |                                   |   |                    |   |                            |          
|Preferred stock conversion discount                       |                    |                             |       |                                   |   |                    |   |                            | (1,780    
|Vesting of restricted common stock                        |                    |                             |       |                                   |   |                    |   |                            |          
|Retirement of debt                                        |                    |                             |       |                                   |   |                    |   |                            |          
|Amortization of deferred stock compensation               |                    |                             | 262    |                                   |   |                    |   |                            |          
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           
|Balance as of December 31, 2003                           |                    | $                           | (257   | )                                 | $ | 305                 |   | $                          | (1,097,237
|                                                          |                    |                             |        |                                   |   |                     |   |                            |           

See accompanying notes to consolidated financial statements.

F-7

---



24/7 REAL MEDIA, INC.        CONSOLIDATED STATEMENT OF CASH FLOWS        (in thousands)

|                                                                                             |                                               | Years Ended December 31,                            |        
|-------------------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------------------------------- | -------
|
|Cash flows from operating activities:                                                        |                                               |                                                     |        
|Net loss                                                                                     |                                               | $                                                   | (12,016
|Adjustments to reconcile net loss to net cash used in operating activities:                  |                                               |                                                     |        
|Loss from discontinued operations                                                            |                                               |                                                     |       
|Depreciation and amortization                                                                |                                               |                                                     | 2,352  
|Provision for doubtful accounts and sales reserves                                           |                                               |                                                     | 169    
|Loss on disposal of fixed assets                                                             |                                               |                                                     | 70     
|Amortization of goodwill, intangible assets and deferred financing costs                     |                                               |                                                     | 2,724  
|Amortization of warrants                                                                     |                                               |                                                     | 153    
|Non-cash compensation                                                                        |                                               |                                                     | 1,316  
|Impairment of intangible assets                                                              |                                               |                                                     | 1,321  
|Accrued interest on notes payable                                                            |                                               |                                                     | 246    
|Gain on sale of investments                                                                  |                                               |                                                     |       
|Loss (gain) on sale of assets, net                                                           |                                               |                                                     |       
|Warrants issued for services                                                                 |                                               |                                                     |       
|Impairment of investments                                                                    |                                               |                                                     |       
|Non-cash restructuring and exit costs                                                        |                                               |                                                     |       
|Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |                                               |                                                     |        
|                                                                                             | Accounts receivable                           |                                                     |        
|                                                                                             | Prepaid assets and other current assets       |                                                     |        
|                                                                                             | Notes and amounts receivable from disposition |                                                     |        
|                                                                                             | Other assets                                  |                                                     |        
|                                                                                             | Accounts payable and accrued liabilities      |                                                     |        
|                                                                                             | Deferred revenue                              |                                                     |        
|                                                                                             |                                               |                                                     |        
|                                                                                             |                                               | Net cash used in operating activities               |        
|                                                                                             |                                               |                                                     |        
|Cash flows from investing activities:                                                        |                                               |                                                     |        
|Proceeds from sale of non-core assets, net of expenses                                       |                                               |                                                     |       
|Cash (paid for) acquired in acquisitions, net                                                |                                               |                                                     | (150   
|Capital expenditures, including capitalized software                                         |                                               |                                                     | (1,252 
|Proceeds from sale of investments                                                            |                                               |                                                     |       
|Cash paid for investment                                                                     |                                               |                                                     | (50    
|                                                                                             |                                               |                                                     |        
|                                                                                             |                                               | Net cash (used in) provided by investing activities |        
|                                                                                             |                                               |                                                     |        
|Cash flows from financing activities:                                                        |                                               |                                                     |        
|Proceeds from issuance of preferred stock                                                    |                                               |                                                     | 7,183  
|Payment of preferred stock issuance costs                                                    |                                               |                                                     | (434   
|Proceeds from issuance of subordinated convertible debentures                                |                                               |                                                     | 15,000 
|Payment of debenture issuance costs                                                          |                                               |                                                     | (1,155 
|Retirement of notes payable                                                                  |                                               |                                                     | (1,510 
|Issuance of notes payable                                                                    |                                               |                                                     |       
|Proceeds from exercise of stock options and conversion of warrants                           |                                               |                                                     | 1,196  
|Payment of capital lease obligations                                                         |                                               |                                                     | (48    
|Repurchase of minority interest                                                              |                                               |                                                     |       
|Cash paid in settlement for treasury stock                                                   |                                               |                                                     |       
|                                                                                             |                                               |                                                     |        
|                                                                                             |                                               | Net cash provided by (used in) financing activities |        
|                                                                                             |                                               |                                                     |        
|                                                                                             |                                               | Net change in cash and cash equivalents             |        
|Effect of foreign currency on cash                                                           |                                               |                                                     | (53    
|Cash used by discontinued operations                                                         |                                               |                                                     |       
|Cash and cash equivalents at beginning of year                                               |                                               |                                                     | 7,674  
|                                                                                             |                                               |                                                     |        
|Cash and cash equivalents at end of year                                                     |                                               | $                                                   | 21,645 
|                                                                                             |                                               |                                                     |        

See accompanying notes to consolidated financial statements.

F-8

---



24/7 REAL MEDIA, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2003

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Summary of Operations

24/7
Real Media, Inc. (the "Company") together with its subsidiaries offers a suite of media and technology products for the online advertising needs of Web publishers and
advertisers, including Web representation, advertisement serving, analytics and search paid inclusion.

The
Company has organized its business in two principal segments: Integrated Media Solutions and Technology Solutions.

Integrated
Media Solutions consist of the 24/7 Web Alliance, a global alliance of Web sites represented by the Company through which advertisers can place campaign orders directly with
the Company, and 24/7 Search, an Internet search marketing service designed to connect advertisers with consumers using search engines to find product information.

Technology
Solutions are primarily based on the Company's patent-protected Open AdSystem technology platform for Internet advertisement delivery, management and analytics, and consist
of: Open AdStream Local, which the Company licenses to Web publishers to run on their proprietary, local servers; Open AdStream Central, which the Company provides to Web publishers from software
hosted centrally on the Company's servers; Open Advertiser, which the Company provides to advertisers and advertising agencies from software hosted centrally on the Company's servers; and the
Company's Insight software solutions, which integrate with Open AdStream to offer Web publishers active campaign reporting and marketing intelligence and help advertisers measure, analyze, manage and
monetize audiences.

Principles of Consolidation

The
Company's consolidated financial statements as of December 31, 2003 and 2002 and for each of the years in the three year period ended December 31, 2003 include the
accounts of the Company and its majority-owned and controlled subsidiaries from their respective dates of acquisition (see note 2). The interest of shareholders other than those of the Company
is recorded as minority interest in the accompanying consolidated statements of operations and consolidated balance sheets. When losses applicable to minority interest holders in a subsidiary exceed
the minority interest in the equity capital of the subsidiary, these losses are included in the Company's results, as the minority interest holder has no obligation to provide further financing to the
subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The
preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. These estimates and assumptions relate to estimates of collectibility of accounts receivable, the realization of goodwill and other
intangible assets, accruals and other factors. Actual results could differ from those estimates.

F-9

---

Cash and Cash Equivalents

The
Company considers all highly liquid securities, with original maturities of three months or less, to be cash equivalents. Cash and cash equivalents consist principally of money
market accounts. As of December 31, 2003 and 2002, the Company maintained $0.3 million in letters of credit, primarily related to leases, which are secured by cash classified as other
assets on the consolidated balance sheet.

Concentration of Credit Risk

The
Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses on these accounts.

Accounts Receivable

Accounts
receivable are reported at their outstanding unpaid principal balances reduced by a sales allowance and allowance for doubtful accounts. The Company estimates allowances based
on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is
determined to be uncollectible.

Property and Equipment

Property
and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally three to
five years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the term of the leases, whichever is shorter. Leased
property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on the
straight-line method over the term of the leases or the estimated useful lives of the assets, whichever is shorter.

Capitalized Software

In
accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise Marketed ("SFAS
No. 86"), the Company requires certain product development costs to be capitalized commencing when a product's technological feasibility has been established by completion of a working model of
the product and ending when a product is available for general release to customers. The Company capitalized approximately $1.2 million in connection with the development of its Open Advertiser
advertisement serving software product in the twelve months prior to its release, which is included in property and equipment, net on the consolidated balance sheet. The product was released in
June 2003 and is being amortized using the straight-line method over the estimated useful life of the software, or four years. Amortization for the year ended December 31,
2003 is $0.1 million and accumulated amortization as of December 31, 2003 is $0.1 million.

F-10

---

Goodwill and Intangible Assets

Goodwill
and intangible assets relate to the Company's acquisitions accounted for under the purchase method of accounting. Under the purchase method of accounting, the excess of the
purchase price over the identifiable net tangible assets of the acquired entity is recorded as identified intangible assets and goodwill. Intangible assets are estimated by management to be primarily
associated with the acquired workforce, contracts, technological know how and goodwill. As a result of the rapid technological changes occurring in the Internet industry and the intense competition
for qualified Internet professionals and customers, recorded intangible assets are amortized on the straight-line basis over the estimated period of benefit, which is two to four years
(see notes 2 and 3).

Investments

The
Company accounts for investments in marketable securities in accordance with Statements of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Available-for-sale securities are carried at fair value, with the unrealized gains or losses, net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and the cost of available-for-sale securities sold are computed on the basis of the specific identification method. Realized
gains and losses and declines in value judged to be other-than-temporary, are included in impairment of investments.

Investments
in non-marketable equity securities of companies in which the Company owns less than 20% of a company's stock and does not have the ability to exercise
significant influence are accounted for on the cost basis. On an ongoing basis, the Company assesses the need to record impairment losses on investments and records such losses when the impairment is
determined to be other-than-temporary (see note 6).

Income Taxes

The
Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs.

Foreign Currency Translation

Assets
and liabilities denominated in foreign functional currencies are translated at the exchange rate as of the balance sheet date. Translation adjustments are recorded as a separate
component of stockholders' equity. Revenues, costs and expenses denominated in foreign functional currencies are translated at the weighted average exchange rate for the period. The Company's
translation adjustment was ($53,000), $420,000, and $318,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

F-11

---

Revenue and Expense Recognition

Integrated Media Solutions

24/7 Web Alliance revenues are generated by delivering advertising impressions for a fixed fee to third-party Web sites. 24/7 Search revenues are derived from
driving valid visitors to client Web sites. E-mail related revenues are derived from delivering advertisements to e-mail lists for advertisers and Web sites. Agreements are
primarily short term and revenues are recognized as services are delivered provided that no significant Company obligations remain outstanding and collection of the resulting receivable is probable.

Third
party Web sites that register Web pages with the 24/7 Web Alliance and display advertising on those pages are commonly referred to as "Affiliated Web sites." These third party Web
sites are not "related party" relationships or transactions as defined in Statement of Financial Accounting Standards No. 57, "Related Party Disclosures." The Company pays Affiliated Web sites
a fee for providing advertising space to the 24/7 Web Alliance. The Company also has agreements with various list owners in which the Company services its advertisers and other customers through the
use of these lists. The Company becomes obligated to make payments to Affiliated Web sites, which have contracted to be part of the 24/7 Web Alliance, and list owners in the period the advertising
impressions or e-mails are delivered. Such expenses are classified as cost of revenues in the consolidated statements of operations.

Technology Solutions

Technology Solutions revenues are derived primarily from licensing the Company's software, advertisement serving and software maintenance and technical support
contracts. Revenue from software licensing agreements is recognized in accordance with Statements of Position ("SOP") 97-2, "Software Revenue Recognition," and Staff Accounting Bulletin
No. 104, "Revenue Recognition." Generally, the Company begins to recognize revenue from software license arrangements upon delivery of the software, and there is pervasive evidence of an
arrangement, collection is reasonably assured, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fees to all elements of the arrangement.

The
Company refined its OAS Local strategy to offer customers the flexibility to adapt to rapidly changing enterprise requirements while reducing the risks and costs associated with
traditional software licensing models. The Company has also adjusted its software arrangements, which bundle a software license with maintenance and technical support services. As a result, effective
January 1, 2003, the Company changed the revenue recognition method for OAS Local sales, resulting in the deferral of a portion of OAS local revenue to future periods. Using this method, the
Company recognizes as revenue the total value of its software arrangements ratably over the term of the software license. This change will have the effect of modestly reducing license fee revenue in
2003 and deferring a portion of revenue to future periods. The Company will recapture the reduction in upfront license fee revenue in subsequent years as it recognizes deferred revenue on its software
arrangements. Under the prior arrangements, the Company typically recognized software license revenue immediately upon delivery of the software and recognized revenue related to software maintenance
and technical support services ratably as earned.

F-12

---

Revenue
from advertisement serving is recognized upon delivery. The contracts are usually for a one-year period and are billed on a monthly basis.

Expenses
from the Company's licensing, maintenance and technical support revenues are primarily payroll costs incurred to deliver and support the software. These expenses are classified
as cost of revenues in the accompanying consolidated statements of operations.

During
2001, revenue from Exactis, an e-mail service bureau and Sabela, an advertisement serving solution, was recognized upon delivery.

Unbilled Accounts Receivable

At
December 31, 2003 and 2002, accounts receivable included approximately $4.4 million and $5.1 million, respectively, of unbilled receivables, which are a normal
part of the Company's business, as receivables are usually invoiced in the month following the completion of the earnings process. All unbilled receivables as of December 31, 2003 have been
subsequently billed.

Barter

The
Company has no transactions that fit the definition of barter as defined in EITF Issue No. 99-17, "Accounting for Advertising Barter Transactions."

Product Development Costs

Product
development costs and enhancements to existing products are charged to operations as incurred.

Stock-Based Compensation

The
Company accounts for stock-based employee compensation arrangements in accordance with provisions of APB No. 25, "Accounting for Stock Issued to Employees," and FASB
interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensationan interpretation of APB Opinion No. 25," and complies with the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the Company's common stock and the amount an employee must pay to acquire the common
stock. SFAS No. 148 requires more prominent and more frequent disclosures in both interim and annual financial statements about the method of accounting for stock-based compensation and the
effect of the method used on reported results. We adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002 and continue to apply the measurement provisions of APB
No. 25.

F-13

---

Had
the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have been increased
to the pro forma amounts indicated below:

2003

2002

2001(in thousands, except per share amounts)Net loss:As reported

$
(12,016
)
$
(17,499
)
$
(199,595
)Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax effect


4,243


15,169


29,306Pro forma

$
(16,259
)
$
(32,668
)
$
(228,901
)Net loss per share attributable to common stockholders:As reported

$
(0.86
)
$
(2.29
)
$
(22.46
)Pro forma

$
(1.10
)
$
(3.72
)
$
(25.75
)


The
per share weighted-average fair value of stock options granted during 2003, 2002, and 2001 is $1.15, $0.95, and $2.15, respectively, on the date of grant using the Black-Scholes
method with the following weighted average assumptions:

2003

2002

2001Expected dividend yield

0
%
0
%
0
%Risk-free interest rate

1.46
%
1.48
%
4.59
%Expected life (in years)

2.4

4.0

4.0Volatility

133
%
97
%
150
%


The
Company accounts for non-employee stock-based awards in which goods or services are the consideration received for the equity instruments issued based on the fair value
of the equity instruments issued in accordance with the guidance provided in the consensus opinion of the Emerging Issues Task Force ("EITF") in connection with EITF Issue 96-18 ("EITF
96-18"), Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, or in Conjunction With Selling Goods or Services.

Impairment of Long-Lived Assets

The
Company assesses the need to record impairment losses on long-lived assets, including fixed assets, goodwill and other intangible assets, to be held and used in
operations whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, the Company estimates the undiscounted future cash flows to result from the use of the asset and its ultimate disposition. If the sum of the undiscounted cash flows is
less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. Assets to be disposed of are carried at
the lower of the carrying value or fair value less costs to sell.

F-14

---

On
an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets, including goodwill and other intangible
assets. During this review, the Company reevaluates the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary from
transaction to transaction, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been an impairment of the
value of long-lived assets based upon events or circumstances, which have occurred since acquisition. The impairment policy is consistently applied in evaluating impairment for each of the
Company's wholly owned subsidiaries and investments. In accordance with SFAS No. 142, the Company had an external valuation of Goodwill during 2002 for the goodwill that existed at
December 31, 2001. The Company updated this analysis internally for the goodwill that existed at December 31, 2002 and 2003. It is reasonably possible that the impairment factors
evaluated by management will change in subsequent periods, given that the Company operates in a volatile business environment. This could result in significant additional impairment charges in the
future.

In
the fourth quarter of 2003, the Company made the strategic decision to abandon the 24/7 Messenger product that was acquired with Now Marketing. The related acquired technology was
amortized until December 31, 2003 and then the remaining balance of $1.3 million was considered impaired.

In
2001, the Company wrote off $56.7 million, respectively, in goodwill and intangible assets (see note 3).

Restructuring Activities

Restructuring
activities in 2003 and 2002 are accounted for in accordance with SFAS No. 146. Prior to 2002, restructuring activities are accounted for in accordance with EITF
Issue 94-3 ("EITF 94-3"). SFAS No. 146 and EITF 94-3 generally require, with respect to the recognition of severance expenses, management approval of the
restructuring plan, the determination of the employees to be terminated, and communication of benefit arrangement to employees (see note 7).

Advertising Expense

The
Company expenses the cost of advertising and promoting its services as incurred. Such costs are included in sales and marketing on the statement of operations and totaled
$0.9 million, $1.0 million and $1.4 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Warrant liability

In
September 2000, the EITF issued EITF 00-19, "Accounting for Derviative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" which requires freestanding
contracts that are settled in a Company's own stock, including common stock warrants, to be designedated as an equity instrument, asset or liability. Under the provisions of EITF 00-19, a contract
designated as an asset or liability must be carried at fair value until exercised or expired, with any changes in fair value recorded in the results of operations. A contract designated as an equity
instrument must be included

F-15

---

within
equity, and no fair value adjustments are required. The classification of a contract should be reviewed at each balance sheet date.

In
accordance with EITF issus No. 00-19, the Company has determined that outstanding warrants related to the Series A Preferred Stock, Series C Preferred Stock and subordinated
convertible debentures should be designated as liabilities. The Company reflected the change as of December 31, 2003 and revised the balance sheet as of December 31, 2002. The changes in
value for the year ended December 31, 2002 and 2003 were not material.

Preferred Stock

Ouststanding at
December 31,Series

Shares
Authorized

Price Per
Share

Conversion
Rate2003

2002A

800,000

$
10.00

$
1.02675

750,000

800,000B

125,000


10.00


1.03300



125,000C

718,250


10.00


1.20790

78,250

828,250

925,000


During
2003, 50,000 shares of Series A, 125,000 shares of Series B and 640,000 shares of Series C Preferred Stock were converted into 486,972, 1,210,068 and
5,298,450 shares of common stock, respectively.

In
June 2003, the Company sold 718,250 shares of Series C Preferred Stock to several investment funds and individual accredited investors, including members of management
and the Board of Directors.

The
Preferred Stock accrues and cumulates dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by the Company's Board of Directors. All accrued
dividends must be paid before any dividends may be declared or paid on the Common Stock, and shall be paid as an increase in the liquidation preference payable upon the sale, merger, liquidation,
dissolution or winding up of the Company. As of December 31, 2003, there are approximately $0.6 million of accrued but unpaid dividends.

In
the event of a liquidation, dissolution or winding up of the Company, if the holders of Common Stock would receive consideration per share equal to less than three times the initial
conversion price per share of the Preferred Stock (assuming for this purpose the prior conversion in full of all Preferred Stock), then the holders of the Preferred Stock are entitled to a liquidation
preference payment per share equal to the purchase price, plus any dividends accrued but unpaid as of such date. After payment of the foregoing preference, the holders of each share of Preferred Stock
would then also participate with the holders of the Common Stock in the distribution of the proceeds from such a liquidation event to the holders of the Common Stock. A merger, consolidation or sale
of the Company will be treated as a liquidation event unless such transaction has been approved by the holders of a majority of the outstanding Preferred Stock.

F-16

---

Comprehensive Loss

Comprehensive
loss is presented in the consolidated statement of stockholders' equity. Total comprehensive loss for the years ended December 31, 2003, 2002, and 2001 was
$12.1 million, $17.1 million, and $203.1 million, respectively. Comprehensive loss resulted primarily from net losses of $12.0 million, $17.5 million, and
$199.6 million, respectively, as well as a change in unrealized losses, net of tax, of marketable securities of $0, $0, and $3.8 million, respectively, and foreign currency translation
adjustments of $(0.1) million, $0.4 million, and $0.3 million, respectively. The net change in unrealized losses for the year ended December 31, 2001 of $3.8 million is
comprised of net unrealized holding losses arising during the period of $6.3 million related to chinadotcom, a reclassification adjustment of $5.0 million for net gains related to the
sale of all of the Company's available-for-sale securities and some cost based investments and a reclassification adjustment of $2.5 million for
other-than-temporary losses
related to available-for-sale securities of Network Commerce and i3Mobile.

Financial Instruments and Concentration of Risk

Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents, accounts receivable and debentures. At
December 31, 2003 and 2002, the fair value of cash and cash equivalents and accounts receivable instruments approximated their financial statement carrying amount because of the short term
maturity of these instruments. The fair value of the debentures approximates their financial statement carrying amount based on interest rates for similar borrowings. Substantially all of the
Company's cash equivalents were invested in money market accounts and other highly-liquid instruments. For the years ended December 31, 2003, 2002, and 2001, the Company derived
$19.7 million, $13.5 million and $16.9 million, respectively, in revenue denominated in foreign currencies, which prior to 2002 are related principally to its discontinued
operations. The Company has not experienced any material adverse impact due to fluctuations in foreign currency rates.

No
single customer accounted for greater than 10% of total revenues for the years ended December 31, 2003, 2002, and 2001. No single customer accounted for greater than 10% of the
accounts receivable balance at December 31, 2003 or 2002. To date, accounts receivable have been derived primarily from advertising fees billed to advertisers. The Company generally requires no
collateral. The Company maintains reserves for potential credit losses; historically, management believes that such losses have been adequately reserved for.

Loss Per Share

Loss
per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share ("EPS"). Basic EPS excludes dilution for
potentially dilutive securities and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.
Diluted net loss per share is equal to basic net loss per share since all potentially dilutive securities are anti-dilutive for each of the periods presented. Diluted net loss per common
share for the year ended December 31, 2003, 2002, and 2001 does not include the effects of options to purchase 3.4 million, 2.5 million and

F-17

---

0.9 million
shares of common stock, respectively; 0.6 million, 1.7 million, and 0.8 million common stock warrants, respectively; 40,000 shares and 6,400 shares of unvested
restricted stock in 2003 and 2002, respectively; 8.0 million and 9.0 million shares of preferred stock in 2003 and 2002, respectively; and 1.7 million shares of common stock in
2003 related to the subordinated convertible debentures, on an "as if" converted basis, as the effect of their inclusion is anti-dilutive during each period.

Reclassifications

Certain
reclassifications have been made to prior year consolidated financial statements to conform to current year's presentation.

Recent Accounting Pronouncements

Variable Interest Entities.In January 2003, the Financial Accounting Standards Board issued interpretation
No. 46 ("FIN 46"), which addresses consolidation of variable interest entities. FIN 46 expanded the criteria for consolidation in determining whether a variable interest entity should be
consolidated by a business entity, and requires existing unconsolidated variable interest entities (which include, but are not limited to, Special Purpose Entities, or SPEs) to be consolidated by
their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. The interpretation applies immediately to variable interest entities created after
January 31, 2003 and applied in the fiscal year or interim period beginning after December 31, 2003, to variable interest entities in which an enterprise
holds a variable interest that is acquired before February 1, 2003. The adoption of FIN 46 does not have a material impact on the Company's financial position or results of operations.

Derivative Instruments and Hedging Activities.Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities, was issued in April 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for hedging activities
under SFAS No 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 provides greater clarification of the characteristics of a derivative instrument so that contracts
with similar characteristics will be accounted for consistently. In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 does not have any impact on the Company's consolidated financial statements.

Financial Instruments with Characteristics of Both Liabilities and Equity.In May 2003, SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, was issued. SFAS No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments
were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 does not have any impact on the Company's consolidated financial statements.

F-18

---



(2) BUSINESS COMBINATIONS

Acquisition of Real Media

On
October 30, 2001, the Company entered into a merger agreement with Real Media, Inc. ("Real Media"), a privately-held Delaware Corporation. Pursuant to the
Agreement and Plan of Merger, the Company acquired all the outstanding common and preferred shares of Real Media in a merger transaction whereby an indirect subsidiary of the Company was merged with
and into Real Media, in exchange for approximately 1.6 million shares valued at $2.2 million of the Company's common stock, equal to 19.9 percent of the Company common stock prior
to the merger. The total purchase price of $6.9 million also included acquisition and transaction costs of $0.8 million and assumption of $3.9 million in net liabilities
(subsequently adjusted to $2.1 million). The merger created significant cost synergies for the combined Company one of which was to focus on Real Media's proprietary Open AdStream technology
("OAS") and abandon the Company's existing technology, 24/7 Connect. Other synergies were achieved through the elimination of redundant personnel, affiliate contracts with low split rates on the Real
Media network, renegotiation of supplier contracts at better rates due to increased volume and the consolidation of numerous offices. The Company also adopted a new name "24/7 Real Media, Inc."
to capitalize on Real Media's and 24/7's brand names. The purchase price in excess of the value of identified assets acquired of $6.9 million has been allocated $3.5 million to acquired
technology, $0.5 million to tradename and $2.9 million to goodwill. The acquired technology and tradename are being amortized over the expected period of benefit of four years. The
acquisition was accounted for as a purchase business combination in accordance with Statement of Financial Accounting Standards Board 141, "Business Combinations" and Statement of Financial Accounting
Standards Board 142, "Goodwill and Other Intangible Assets". Accordingly, goodwill was not amortized. In 2002, the Company adjusted the goodwill by $1.9 million as some acquired liabilities
were no longer necessary.

The
net liabilities acquired consist of the following:

Asset/liability

AmountCash

$
6,343Accounts Receivable


6,420Fixed Assets


2,248Other assets


2,011Accounts payable and accrued liabilities


(12,397
)Deferred revenue


(2,249
)Note payable


(4,500
)$
(2,124
)


The
Company also assumed a Promissory Note for $4.5 million issued by PubliGroupe USA Holding, Inc. ("PubliGroupe"), former principal shareholder of Real Media, as of the
acquisition date, which is to be used primarily to finance Real Media's restructuring plan. The $4.5 million note is due in 2006 and has an interest rate of 4.5%. The restructuring plan
provided for office closings of $0.2 million, workforce reductions of $3.1 million and other related obligations of $1.2 million (see note 7). PubliGroupe also promised to
provide additional funding in the form of three-year notes of $1.5 million which was received in January 2002 and $1.5 million contingent upon the achievement of
target operating results for the three months ended March 31, 2002, as defined in the agreement, which

F-19

---

was
received in May 2002. These promissory notes were settled in the second quarter of 2003 (see note 9).

In
addition, certain key executives had clauses in their Real Media employment agreements that called for transactional bonuses to be paid in the case of a change in control. These
bonuses of $0.5 million were assumed as part of the acquisition and were paid in November 2001.

Acquisition of certain asserts of Vflash d/b/a Now Marketing

On
September 19, 2002, the Company acquired certain assets of Vflash d/b/a Now Marketing ("Now Marketing"), a New York-based marketing services firm. The acquisition
agreement required Now Marketing's ultimate parent, Elron Electronic Industries Ltd. and Gilbridge, Inc., (together "Now Marketing's Parent"), to make a $1.25 million investment
in the Company in exchange for 125,000 shares of Series B Preferred Stock. Accordingly, the total purchase consideration of $4.3 million consists of 0.8 million shares of Common
Stock valued at $1.7 million, 125,000 shares of Series B Preferred Stock valued at $2.5 million and $60,000 of transaction costs. The Series B Preferred Stock is
convertible into Common Stock of the Company at any time at the option of the holder thereof at a conversion price of $1.03 per share of Common Stock, or approximately 1.2 million shares of
Common Stock on an as-if converted basis. As of December 31, 2003, all Series B Preferred Stock was converted into Common Stock.

Substantially
all of the initial terms of the agreement were reached when the price of the Company's Common Stock approximated the conversion price of $1.03 per share of Common Stock. By
the time the transaction closed on September 19, 2002, the price of the Company's Common Stock rose to $2.20 per share. Accordingly, the 125,000 shares of Series B Preferred Stock issued
in connection with Now Marketing's Parent's $1.25 million investment contained an embedded beneficial conversion feature which was required to be valued separately as of the date of the
business combination. The intrinsic value of the beneficial conversion feature was calculated as the difference between the conversion price of $1.03 per share of Common Stock and the fair value of
the Common Stock into which the Series B Preferred Stock was convertible into on the closing date of $2.20 per share, or an intrinsic value of approximately $1.17 per share, however, the amount
of the discount was limited to the amount of cash acquired that was allocable to the Series B Preferred Stock. Therefore, the Company recorded a non-cash charge of
$1.25 million in the third quarter of 2002, representing the number of common shares into which the Series B Preferred Stock is convertible (approximately 1.2 million shares of
Common Stock) multiplied by the conversion price of $1.03 per share of Common Stock. The non-cash charge of $1.25 million is included in the "Preferred stock conversion discount" on
the consolidated statement of operations similar to a Preferred Stock dividend.

The
excess purchase price (excluding the $1.25 million Series B Preferred Stock discount) over the fair market value of net tangible assets of approximately
$1.8 million has been allocated to acquired technology which is being amortized over 4 years. The acquisition was accounted for as a purchase business combination in accordance with SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".

F-20

---

The
net assets acquired consist of the following:

Asset/liability

AmountCash

$
1,250Accrued liabilities


(18
)$
1,232


In
the fourth quarter of 2003, the Company made the strategic decision to abandon the 24/7 Messenger product that was acquired with Now Marketing. The related acquired technology was
amortized until December 31, 2003 and then the remaining balance of $1.3 million was written off (see note 3).

Acquisition of certain assets of Insight First, Inc.

On
January 21, 2003, the Company acquired certain assets of Insight First, Inc. ("Seller"), including specific contracts, intangibles and employee relationships, related to
the Seller's Web analytics solution, including the intellectual property relating to specific products in exchange for approximately 0.7 million shares of the Company's common stock valued at
approximately $1.1 million, plus $150,000 in cash. In addition, the Company has a contingent obligation to pay additional earn-out consideration of up to $1.0 million, in
either cash or common stock, at the Company's discretion, subject to achievement of earn-out targets relating to revenue generated by the acquired business in fiscal year 2004. The
earn-out target for 2003 was not achieved and therefore the Company was not liable for the 2003 earn-out of $1.2 million.

The
purchase price in excess of fair value of net tangible assets and liabilities acquired of $1.3 million has been allocated to acquired technology. The acquired technology is
being amortized over the expected benefit period of four years. The acquisition was accounted for as a purchase business combination in accordance with SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets."

The
net tangible assets acquired consist of the following:

Asset/liability

AmountFixed assets

$
44Accrued liabilities


(41
)$
3


Summary

Each
of the Company's acquisitions have been accounted for using the purchase method of accounting, and accordingly, each purchase price has been allocated to the tangible and
identifiable

F-21

---

intangible
assets acquired and liabilities assumed on the basis of their fair values on the respective acquisition dates. The following summarizes the purchase price allocation for each of the
acquisitions:

Acquired Entity

Acquisition
Costs

Net Tangible
Assets
(Liabilities)

Beneficial
Conversion

Intangibles/
GoodwillYear Ended December 31, 2001:Real Media

$
3,060

$
(2,124
)
$


$
5,184Year Ended December 31, 2002:Now Marketing

$
4,323

$
1,232

$
1,250

$
1,841Year Ended December 31, 2003:Insight First

$
1,261

$
3

$


$
1,258


The
following unaudited pro forma consolidated amounts give effect to the Company's 2003 and 2002 acquisitions accounted for by the purchase method of accounting as if they had occurred
at the beginning of the respective period by consolidating the results of operations of the acquired entities for the year ended December 31, 2003 and 2002.

The
unaudited pro forma consolidated statements of operations are not necessarily indicative of the operating results that would have been achieved had the transactions been in effect as
of the beginning of the periods presented and should not be construed as being representative of future operating results.

Year Ended
December 31,
2003

Year Ended
December 31,
2002(in thousands except per share data)(unaudited)

(unaudited)Total revenue

$
49,202

$
43,508Net loss


(12,059
)

(31,140
)Net loss per common share

$
(0.72
)
$
(2.62
)Weighted average common shares used in net loss per share calculation(1)


16,858,076


11,902,388


---



F-22

---





(3) BALANCE SHEET COMPONENTS

Property and Equipment, Net

December 31,2003

2002(in thousands)Computer equipment and software

$
11,545

$
10,549Furniture and fixtures


1,185


1,177Leasehold improvements


720


65213,450


12,378Less accumulated depreciation and amortization


(10,588
)

(8,390
)$
2,862

$
3,988


At
December 31, 2003 and 2002, computer equipment includes equipment with a cost of $0.4 million and $0.4 million, respectively, acquired under capital leases. The
net book value of the related equipment at December 31, 2003 and 2002 was $48,000 and $0.1 million, respectively.

Intangible
Assets, Net

The
Company's management performs on-going business reviews and, based on quantitative and qualitative measures, assesses the need to record impairment losses on
long-lived assets used in operations when impairment indicators are present. Where impairment indicators were identified, management determined the amount of the impairment charge by
comparing the carrying values of goodwill and other long-lived assets to their fair values.

The
Company completed numerous acquisitions that were financed principally with shares of the Company's common stock, and were valued based on the price of the Company's common stock at
that time (see note 2). The Company has revalued the carrying value of its businesses on a quarterly basis since the decline in the Internet advertising and marketing sectors in 2000. In
addition, some of these entities have experienced declines in operating and financial metrics over several quarters, primarily due to the weak overall demand of on-line advertising and
marketing services at the time, in comparison to the metrics forecasted at the time of their respective acquisitions. These factors significantly impacted current projected revenue generated from
these businesses. The Company's evaluation of impairment was also based on achievement of the unit's business plan objectives and milestones, the fair value of each business unit relative to its
carrying value, the financial condition and prospects of each business unit and other relevant factors. The business plan objectives and milestones that were considered included, among others, those
related to financial performance, such as achievement of planned financial results, and other non-financial milestones such as successful deployment of technology or launching of new
products and the loss of key employees. The impairment analysis also considered when these properties were acquired and that the intangible assets recorded at the time of acquisition were being
amortized over useful lives of 2 - 4 years. The amount of the impairment charge was determined by comparing the carrying value of goodwill and other
long-lived assets to fair value at each respective period end.

Where
impairment was indicated, the Company determined the fair value of its business units based on a market approach, which included an analysis of market price multiples of companies

F-23

---

engaged
in similar businesses. To the extent that market comparables were not available, the Company used discounted cash flows in determining the value. The market price multiples are selected and
applied to the business based on the relative performance, future prospects and risk profile of the business in comparison to the guideline companies. The methodology used to test for and measure the
amount of the impairment charge was based on the same methodology used during the Company's initial acquisition valuations. As a result, during management's review of the value and periods of
amortization of both goodwill and certain other intangibles it was determined that the carrying value of goodwill and certain other intangible assets were not recoverable. The other intangible assets
that were determined to be impaired related to the decline in fair market value of acquired technology, a significant reduction in the acquired customer bases and turnover of workforce, which was in
place at the time of the acquisition of these companies.

At
certain period ends, the Company's management determined that the fair value of goodwill and other intangible assets attributable to several of its operating units were less than
their recorded carrying values. As a result of these actions, the Company has taken impairment charges for Now Marketing in 2003 and for Exactis, ConsumerNet (which operated as 24/7 Mail prior to its
sale in May 2002) and WSR (now operating as 24/7 Search) in 2001. No impairments were necessary in 2002.

The
amounts of the impairments taken are as follows:

2003

2002

2001Exactis

$


$


$
4.5ConsumerNet








25.3WSR








26.9Now Marketing


1.3





Total

$
1.3

$


$
56.7


The
impairment factors evaluated by management may change in subsequent periods, given that the Company's business operates in a highly volatile business environment. This could result
in significant additional impairment charges in the future.

The
$2.6 million in goodwill as of December 31, 2003 and 2002 relates $1.1 million to Canada (formerly ClickThrough), $1.1 million to Real Media and
$0.4 million to Search (formerly WSR).

The
$3.4 million in Intangible assets, net at December 31, 2003 relates $1.8 to Real Media, $0.6 million to Search and $1.0 to Insight First. The $6.0 million
in Intangible assets, net at

F-24

---

December 31,
2002 relates $2.8 million to Real Media, $1.8 million to Now Marketing and $1.4 million to Search.

December 312003

2002(in thousands)Goodwill

$
2,621

$
2,621Technology (1)


7,263


7,869Less accumulated amortization


(4,142
)

(2,216
)Net Technology


3,121


5,653Other intangible assets


500


500Less accumulated amortization


(269
)

(146
)Net Other intangible assets


231


354Gross Intangible assets


7,763


8,369Less accumulated amortization


(4,411
)

(2,362
)Net intangible assets

$
3,352

$
6,007


---

The
amortization expense for 2003 and the five succeeding fiscal years is as follows:

Useful Life

2003

2004

2005

2006

2007

2008Technology

4 years

2,469

1,748

1,042

314

17

Other

4 years

123

125

106





2,592

1,873

1,148

314

17




The
amortization expense and net loss from operations for the year ended December 2001 had SFAS No. 142 been applied for the period is as follows:

For the Year ended December 31,2003

2002

2001(in thousands)Net loss attributable to common stockholders

$
(14,413
)
$
(24,316
)
$
(199,595
)Add back: goodwill amortization








7,826Adjusted net loss attributable to common stockholders

$
(14,413
)
$
(24,316
)
$
(191,769
)Basic and diluted net loss per share:Net loss per share attributable to common shareholders

$
(0.86
)
$
(2.29
)
$
(22.46
)Add back: goodwill amortization








0.88Adjusted net loss per share attributable to common shareholders

$
(0.86
)
$
(2.29
)
$
(21.58
)


F-25

---

Although
SFAS No. 142 requires disclosure of these amounts to reflect the impact of adoption on 2001 results, there can be no assurance that this would not have resulted in
additional impairment charges in each of the respective years.

Accrued
Liabilities

December 312003

2002(in thousands)Affiliate fees

$
3,733

$
4,742Incentives, commissions and expenses (1)


2,408


2,129Restructuring and exit costs


1,663


1,932Professional fees


746


1,022Accrued other


1,485


2,190$
10,035

$
12,015


---

(4) DISCONTINUED OPERATIONS



On
August 6, 2001, the Company determined that it would cease funding its European subsidiaries and communicated that to 24/7 Europe NV's management team and Board of directors.
Management of 24/7 Europe advised the Company that 24/7 Europe NV was insolvent and shut down all operations in the third quarter of 2001. During the second quarter of 2001, the Company had reduced
the carrying value of the net assets of the European operations to zero. This includes $12.3 million in impairment charges related to goodwill and other intangible assets, which is included in
the statement of operations within discontinued operations. The consolidated financial statements of the Company reflect the disposition of the international segment as a discontinued operation in
accordance with APB Opinion No. 30. Accordingly, revenues, costs and expenses; assets, liabilities, and cash flows of Europe have been excluded from the respective captions in the consolidated
financial statements for the prior periods and have been reclassified to reflect this presentation.

F-26

---

Summarized
financial information for the discontinued operation is as follows (in thousands):

Statement of Operations Data

December 31,
2001Revenues

$
10,555Net loss


(30,540
)Gain or loss on disposal







In
accordance with SFAS No. 144, operations meeting the definition of a component of an entity are treated as discontinued operations when sold. On January 22, 2002, the
Company completed the sale of its wholly owned subsidiary, IMAKE Software & Services, Inc., to Schaszberger Corporation, the previous owner, and an officer of IMAKE. Under the terms of
the sale, the purchase price payable by the buyer was approximately $6.5 million for the stock of IMAKE of which $2.0 million was in the form of a 6% four year secured note,
approximately $0.5 million in cash consideration, a potential earn-out of up to $4.0 million over the next three years based on gross revenue as defined in the agreement and
Series A preferred stock of Schaszberger Corporation, which as of the closing date represented 19.9% of the buyer. The Note is secured by certain assets of IMAKE and is guaranteed by
Schaszberger Corporation. In the event that the earn-out is not met within the three year period, the Company is entitled to receive a $1.00 Warrant for common stock equal to the
difference between $3.0 million and the amount of the actual earn out paid to date. The shares to be received are based on a third-party outside valuation of the buyer at December 31,
2005 and a ratio set forth in the agreement. The consideration paid to the Company was determined as a result of arms length negotiations between the buyer and the Company. The Company has discounted
the note receivable and recorded the net present value of the earn-out based on its estimates of projected revenues and reflected $0.5 million and $1.5 million, respectively.
In 2002, the Company received the upfront cash consideration of approximately $0.5 million and the monthly earn-out payments of approximately $0.3 million. In 2003, the
Company received earn-out payments of approximately $0.6 million. As of December 31, 2003, there are approximately $0.7 million in short term and $0.5 million
in long term notes and amounts receivable from the disposition related to IMAKE on the consolidated balance sheet.

During
the fourth quarter of 2001, the Company wrote down the carrying value of the net assets of IMAKE. The write down included $5.9 million in impairment charges related to
goodwill and intangible assets, which is included in discontinued operations in the 2001 statement of operations.

F-27

---



The
consolidated financial statements and related footnotes of the Company have been revised to reflect the sale of the IMAKE subsidiary as a discontinued operation in accordance with
SFAS No. 144. Accordingly, revenues, costs and expenses, and cash flows of IMAKE have been excluded from the footnotes and the respective captions in the Consolidated Statement of Operations
and Consolidated Statement of Cash Flows, and have been reported through the date of disposition as "Loss from discontinued operations" and "Net cash used by discontinued operations," for all periods
presented.

Summarized
financial information for the discontinued operations is as follows (in thousands):

CONDENSED STATEMENT OF OPERATIONS

|                                          |  | YEAR ENDED DECEMBER 31, 2001 |         
|----------------------------------------- |  | ---------------------------- | --------
|
|Revenue                                   |  | $                            | 52,376  
|Cost of Revenue                           |  |                              | (37,713 
|Operating Expenses                        |  |                              | (186,404
|Other Income                              |  |                              | 2,686   
|                                          |  |                              |         
|Net loss from continuing operations       |  |                              | (169,055
|Discontinued Operations                   |  |                              | (30,540 
|                                          |  |                              |         
|Net loss                                  |  | $                            | (199,595
|                                          |  |                              |         
|Loss per common share  basic and diluted |  |                              |         
|Loss from continuing operations           |  | $                            | (19.02  
|Net loss from discontinued operations     |  |                              | (3.44   
|                                          |  |                              |         
|Net loss                                  |  | $                            | (22.46  
|                                          |  |                              |         

(5) DISPOSAL OF NON-CORE ASSETS

Exactis

On
May 23, 2001, the Company completed the sale of Exactis to Direct Marketing Technologies, Inc., a subsidiary of Experian. The purchase price was $15.25 million of
which $1.5 million was deposited into escrow until August 2002 as security for the Company's indemnification obligations under the Stock Purchase Agreement and $1.75 million was
retained as a prepayment for future services that are to be purchased by the Company from Experian pursuant to a services agreement that expires on December 31, 2002. The $1.5 million in
escrow and $1.75 million prepayment were initially reflected as deferred gain on sale of subsidiary on the consolidated balance sheet. In 2002 and 2001, the Company has been billed
approximately $0.2 million and $1.0 million, respectively, in services. Accordingly, the Company reduced the prepayment and deferred gain for such services, which have been reflected as
cost of revenues and gain on sale of subsidiary in the statement of operations. As part of the sale of the U.S. e-mail management product, $0.5 million of the prepaid services were
transferred to 24/7 Mail, Inc. and at December 31, 2002, approximately $0.05 million of the prepaid services were unutilized and expired; thus during 2002 approximately
$0.55 million was reversed against the deferred gain on sale of subsidiary.

F-28

---

In
September 2001, the Company received a letter from Experian alleging that the Company made certain misrepresentations and omissions in connection with the Stock Purchase
Agreement relating to the sale of Exactis. On March 27, 2002, the Company and Experian reached a settlement agreement whereby the Company authorized the escrow agent to release $750,000 to
Experian, and Experian authorized the escrow agent to release $780,000 to the Company. On March 28, 2002, the funds were released to the Company. Upon the release of the escrow balance, the
Company recognized $750,000 of the deferred gain related to the sale as gain on sale of non-core assets in the 2002 statement of operation and $30,000 as interest income. Overall, the sale
has resulted in a loss of $1.1 million.

Sabela and AwardTrack

Also
during May 2001, the Company sold certain technology assets and intellectual property of Sabela and AwardTrack. The Company has retained the remaining assets of these
subsidiaries. AwardTrack operations were closed in 2000 and the Company completed the shut down of the remaining operations of Sabela on September 30, 2001. Proceeds associated with these sales
amounted to approximately $5.8 million before shut down and disposal costs. These sales resulted in approximately a $6.4 million gain.

U.S. E-mail Management Product

On
May 3, 2002, the Company completed the sale of certain assets related to its US e-mail management product, including customer contracts, certain intangibles and
employee relationships, to 24/7 Mail, Inc., a wholly owned subsidiary of Naviant, Inc. Under the terms of the sale, the purchase price payable is up to $4.5 million. The purchase
price is comprised of (i) $1.0 million that was paid at closing; (ii) $1.0 million in the form of a non-interest bearing installment note with $350,000 due in
ninety days, $350,000 due in one hundred and eighty days and $300,000 due in two hundred seventy days from closing; (iii) an earn-out payable quarterly over the next
45 months, based on 5% of Net Revenue (as defined in the Asset Purchase Agreement), with minimum quarterly payments of $50,000 and a maximum of $2.0 million, through 2005. Lastly,
pursuant to a $500,000 non-interest bearing installment note, half of which is payable on each of April 30, 2004 and April 30, 2005, Naviant has the option either to
(i) issue to the Company a number of shares currently comprising 19.9% of 24/7 Mail, Inc., or (ii) pay the Company cash in lieu of the shares. The consideration paid to the
Company was determined as a result of arms-length negotiations between the buyer and the Company. The Company initially recorded a loss of $0.8 million on the sale in the second
quarter of 2002.

On
July 30, 2002, the Company received a letter from Naviant alleging that certain of the Company's warranties regarding the assets had not been realized. Naviant claimed damages
of approximately $2.3 million, which it intended to offset against the amounts due to the Company. On October 3, 2002, the parties agreed to resolve the dispute through immediate payment
of $1.25 million by Naviant to the Company. Naviant agreed to waive further claims with regard to the specific warranty in dispute, however, certain representations made by the Company under
the Purchase Agreement dated as of April 30, 2002 among the Company, 24/7 Mail Inc and Naviant, Inc. continue in effect and Naviant may have the right to bring claims with respect to
such representations until June 30, 2003. No claims have been brought. As a result of the settlement, the Company wrote off the $0.9 million remaining amount due from Naviant in the
third quarter of 2002. The Company received the

F-29

---

$1.25 million
settlement on October 4, 2002. The Company also reversed $0.3 million in liabilities related to the U.S. e-mail management product during 2002, which
resulted in a total loss on the sale of approximately $1.4 million.

iPromotions

On
January 31, 2003, the Company entered into an Asset Purchase Agreement with iPromotions, Inc., a corporation formed by private investors, including some of the Company's
former employees. Pursuant to the terms of the Asset Purchase Agreement, the Company sold to the investors, specific contracts, equipment, intangibles, and employee relationships related to the
Company's iPromotions business, including specific property relating to specific products. The Company also invested $50,000 in cash in exchange for shares of preferred stock representing a 19.9%
interest in iPromotions, Inc. on a converted
basis. Accordingly, the Company effectively sold a majority stake in its iPromotions business. Prior to the sale, the carrying value of iPromotions was $0. Therefore, there was no gain or loss on the
transaction. The cash payment was recorded as an investment.

Summary

For
the year ended December 31, 2002, the $0.3 million loss on the sale of non-core assets includes $1.4 million loss on the sale of certain assets
related to the Company's US e-mail management product offset by $1.1 million recognition of a deferred gain related to the sales of Exactis in May 2001. As part of the sale
of Exactis, there were approximately $1.5 million in deferred gain related to an escrow balance and $1.75 million in deferred gains related to prepaid service amounts. The gains were
recognized as the escrow balance was released and the prepaid services were utilized. During the first quarter of 2002, the Company agreed to pay Experian, the acquirer of Exactis,
$0.75 million of the escrow balance, with the remainder released to the Company immediately. Therefore, $0.75 million of the deferred gain was recognized and $0.75 million was
reversed against the escrow balance. During 2002, the Company used approximately $0.2 million of Exactis services and recorded the related gain. The $0.1 million remaining amount relates
to the reversal of unnecessary accruals related to Exactis.

The
$2.0 million gain for the year ended December 31, 2001 consisted of $6.1 million for Sabela and $0.3 million for AwardTrack offset by a loss of
$4.4 million for Exactis.

(6) INVESTMENTS

Network Commerce

On April 5, 1999, the Company entered into a securities purchase agreement with Network Commerce (formerly ShopNow.com). Pursuant to this agreement, 24/7
Real Media acquired approximately 18% of Network Commerce in exchange for consideration of $5.1 million in cash, 95,282 shares of 24/7 Real Media's common stock with a value equal to
$23.6 million and 24/7 Real Media's investment in CardSecure. In September 1999, Network Commerce completed its initial public offering. Accordingly, the Company's investment in Network
Commerce was reclassified as an available-for-sale security and has been reflected at its fair value from that date. This investment was sold in 2001.

F-30

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chinadotcom

On December 30, 1998, the Company acquired a 10% equity interest in chinadotcom by issuing 40,770 shares of the Company's common stock, valued at
approximately $6.6 million, plus $3 million in cash. In July 1999, the Company purchased an additional 450,000 shares for $9.0 million. In July 1999, chinadotcom
completed its initial public offering. Accordingly, the Company's investment in chinadotcom was reclassified as an available-for-sale security and has been reflected at its
fair market value from that date.

On
August 24, 2000, the Company acquired a 19.9% interest in 24/7 Media-Asia, a subsidiary of chinadotcom, in exchange for 0.5 million shares of the Company's
common stock valued at $39.4 million. Pursuant to the exchange agreement, chinadotcom was entitled to one Class I member on the Company's board, with a term expiring in 2002. The Company
could not sell its interest in Media-Asia nor could chinadotcom sell any of the 0.5 million shares received for a period of twelve months. Each of the parties received the right of
first refusal to purchase the others shares, except in the case of an IPO. The Company agreed to provide funding of up to approximately $2.0 million in additional capital in proportion to its
equity interest, provided 24/7 Media-Asia's 80.1% stockholder, chinadotcom, provides up to approximately $8.0 million in additional capital. In addition, 24/7 Real Media received an option to
put back the Company's shares in Media-Asia for approximately 1.8 million shares of chinadotcom (i) upon change of control of chinadotcom or (ii) upon the third
anniversary of the agreement if an IPO of Media-Asia doesn't occur within conditions as specified in the agreement. The Company has recorded its investment in Media-Asia at
cost.

In
August 2000, the Company acquired a 19.9% interest in AT-Asia, a subsidiary of chinadotcom, through the Company's subsidiary AwardTrack ("AT"). The Company and
chinadotcom have committed to make a minimum investment of $4.0 million. Based on the Company's pro-rata share the Company is required to make an initial investment of approximately
$0.2 million. In addition, the Company has the option to purchase within the first twelve months additional shares to increase the Company's ownership percentage to 45% in exchange for
$1 million.

The
Company has entered into licensing and service agreements with Media-Asia relating to use of the 24/7 Media name, use of the 24/7 Mail brand and related technology and
rights to sell associated suite of products, and service agreements to provide 24/7 Connect. The Company also entered into a license and service agreement with AT-Asia to use the AT
technology and the AT products and rights to sublicense the AT technology and products to third party Web sites in the Territory, as defined in the agreement. The respective agreements call for
exclusive licensing rights which would terminate if minimum revenue amounts aren't met or if meaningful operations are not established within a twelve month period. Many of these agreements call for
upfront initial licensing fees. Due to the exclusive nature of these license arrangements, the Company is required to recognize any upfront licensing fees over the applicable licensing periods or the
expected term of the agreement which ranges from three to five years. Upfront licensing fees under the respective agreements amounted to $0.8 million of which $0.5 million related to
AwardTrack is currently in dispute. Some of the agreements also call for minimum royalty amounts.

The
Company and Media-Asia also agreed upon amounts still owed to the Company relating to Network royalties under the former agreement for all of 1999 and through
December 31, 2000 of which $1.0 million has been received and is reflected in the consolidated statement of operations for the year

F-31

---

ended
December 31, 2000. Since then no amounts have been received or reflected in our operating results. Minimum royalty amounts relating to the aforementioned agreements for the years ended
December 31, 2001 and 2002 are $1.6 million and $2.4 million respectively.

On
December 15, 2000, in accordance with the Company's formal plan of restructuring, the Company abandoned operations of its subsidiary, Awardtrack. As a result, the Company is
currently in breach of its licensing agreement and is in negotiations with chinadotcom to dissolve AT-Asia and eliminate any further funding requirements (see note 15).

Impairment of investments

During 2001, the Company wrote down certain of its investments and recognized impairment charges of approximately $3.1 million for
other-than-temporary declines in value. Management made an assessment of the carrying value of its cost-based investments and determined that they were in excess of
their carrying values due to the significance and duration of the decline in valuations of comparable companies operating in the Internet and technology sectors. The write down of
cost-based investments was $0.6 million related to Media-Asia. Management also recognized that the decline in value of its available-for-sale
investments in Network Commerce and i3Mobile were other-than-temporary and recorded an impairment of $2.3 million and $0.2 million, respectively.

Gain on sale of investments

As of December 31, 2001, no investments remain. During the year ended December 31, 2001, the Company sold all of its remaining shares of chinadotcom
stock at prices ranging from $2.00 to $7.69 per share. The shares had a cost basis of $1.7 million, which resulted in a gain of approximately $4.6 million. The Company also sold its
interest in Idealab! for $2.5 million resulting in a gain of approximately $0.9 million. In addition, the Company sold all of its investments in Network Commerce and i3Mobile, which
resulted in proceeds of $0.6 million and a loss of approximately $0.5 million.

(7) RESTRUCTURING COSTS

During the years ended December 31, 2003, 2002 and 2001, restructuring costs of approximately $1.7 million, $2.0 million and
$18.1 million, respectively, were recorded by the Company in accordance with the provisions of SFAS No. 146 in 2003 and 2002 and EITF Issue No. 94-3, and Staff
Accounting Bulletin No. 100 prior to 2002. The 2003 restructuring involved the involuntary termination of 26 employees, exiting of one office and a revision of the estimate of the cost to
dispose of office space at the corporate headquarters in New York. The $1.7 million charge consists of severance of $0.5 million and office closing costs of $1.2 million.

The
2002 restructuring involved the involuntary termination of approximately 60 employees, the exiting of four offices, a reduction of space at two offices, and related costs. The
$2.0 million charge consists of severance of $1.2 million, office closing costs of $0.5 million, disposal of fixed assets of $0.2 million, and other exit costs of
$0.1 million.

F-32

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The 2001 restructurings involved the involuntary termination of approximately 150 employees, the exiting of two offices, a reduction of space at two additional
offices, and the abandonment of the Connect advertisement serving solution. The $18.1 million charge consists of severance of $2.1 million, acceleration of restricted stock grants of
$0.1 million, office closing costs of $0.2 million, disposal of fixed assets related to offices of $1.2 million, disposal of fixed assets related to Connect of
$13.9 million, and other exit costs of $1.2 million primarily related to contracts for 24/7 Connect. In addition, the Company acquired a restructuring reserve of $4.5 million
related to Real Media operations, however, $0.6 million was reversed against goodwill as it was not utilized.

The
following sets forth the activities in the Company's restructuring reserve which is included in accrued expenses in the 2003 and 2002 consolidated balance sheets:

|                              |  | Beginning
Balance |       | Acquired |   | Current
Year
Reversal |  | Current
Year
Provision |      | Current
Year
Utilization |   | Ending
Balance
|----------------------------- |  | ----------------- | ----- | -------- | - | --------------------- |  | ---------------------- | ---- | ------------------------ | - | --------------
|2003                          |  |                   |       |          |   |                       |  |                        |      |                          |   |               
|Employee termination benefits |  | $                 | 1,139 |          | $ |                      |  | $                      |     |                          | $ | 455           
|Office closing costs          |  |                   | 709   |          |   |                      |  |                        |     |                          |   | 1,175         
|Disposal of assets            |  |                   | 72    |          |   |                      |  |                        |     |                          |   |              
|Other exit costs              |  |                   | 12    |          |   |                      |  |                        |     |                          |   | 21            
|                              |  |                   |       |          |   |                       |  |                        |      |                          |   |               
|                              |  | $                 | 1,932 |          | $ |                      |  | $                      |     |                          | $ | 1,651         
|                              |  |                   |       |          |   |                       |  |                        |      |                          |   |               
|2002                          |  |                   |       |          |   |                       |  |                        |      |                          |   |               
|Employee termination benefits |  | $                 | 2,489 |          | $ |                      |  | $                      | (531 | )                        | $ | 1,178         
|Office closing costs          |  |                   | 266   |          |   |                      |  |                        |     |                          |   | 511           
|Disposal of assets            |  |                   |      |          |   |                      |  |                        |     |                          |   | 199           
|Other exit costs              |  |                   | 1,512 |          |   |                      |  |                        |     |                          |   | 160           
|                              |  |                   |       |          |   |                       |  |                        |      |                          |   |               
|                              |  | $                 | 4,267 |          | $ |                      |  | $                      | (531 | )                        | $ | 2,048         
|                              |  |                   |       |          |   |                       |  |                        |      |                          |   |               

(8) INCOME TAXES

The following is a breakdown of the Company's source of loss for income tax purposes:

Years Ended December 31,2003

2002

2001(in thousands)U.S. loss

$
(12,051
)
$
(14,434
)
$
(168,671
)Foreign income (loss)


35


(3,065
)

(30,924
)$
(12,016
)
$
(17,499
)
$
(199,595
)


At
December 31, 2003, the Company had approximately $167.4 million of US net operating loss carryforwards. Such carryforwards expire in various years through 2023. As a
result of various equity transactions during 2001, 2000, 1999 and 1998, management believes the Company has undergone an "ownership change" as defined by section 382 of the Internal Revenue
Code. Accordingly, the utilization of a substantial part of the net operating loss carryforwards are limited.

F-33

---

The
tax effects of temporary differences and tax loss carryforwards that give rise to significant portions of federal and state deferred tax assets and deferred tax liabilities at
December 31, 2003 and 2002 are presented below.

2003

2002(in thousands)Deferred tax assets:Net operating loss carryforward

$
66,949

$
83,376Deferred revenue


693


830Reserve for sales allowance


27


203Accounts receivable principally due to allowance for doubtful accounts


185


176Amortization of goodwill and other intangibles


1,677


1,175Accrued compensation


440


483Accrued restructuring


540


614Stock option expenses





2,809Plant and equipment, principally due to differences in depreciation


665


879Other





Gross deferred tax assets


71,176


90,545Less: valuation allowance


(71,176
)

(90,545
)Net deferred tax assets

$


$
Deferred tax liabilities:Deferred revenue

$


$
Other





Gross deferred tax liabilities





Net deferred tax asset (liability)

$


$



In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning in making these assessments.

Due
to the Company's history of operating losses and Section 382 limitations, there is substantial uncertainty surrounding whether the Company will ultimately realize its deferred
tax assets. Accordingly, these assets have been fully reserved. During 2003 and 2002, the valuation allowance decreased by $19.4 million and $12.5 million, respectively. Of the total
valuation allowance of $71.2 million, tax benefits, recognized in the future of approximately of $3.8 million will be applied directly to additional paid-in capital. This
amount relates to the tax effect of employee stock option deductions included in the Company's net operating loss carryforward.

F-34

---

(9) RELATED PARTY INSTRUMENTS

Loan Payable

The Company had issued three Promissory Notes to PubliGroupe, a significant shareholder, totaling $7.5 million. Mr. Wuttke, a member of the
Company's board of directors, is an officer of PubliGroupe SA, the parent company of PubliGroupe. One note for $4.5 million had an interest rate of 4.5% with principal and interest due on
October 30, 2006. Two notes for $1.5 million each had an interest rate of 6% with principal and interest due in January 2005 and May 2005. On May 23, 2003,
PubliGroupe surrendered for cancellation the three Promissory Notes plus accrued interest of approximately $0.5 million in exchange for a cash payment of $1.5 million and approximately
1.0 million shares of the Company's common stock, valued at $1.8 million. The common stock issuance and $4.7 million gain on cancellation of debt was recorded as a capital
transaction, resulting in a $6.5 million increase of additional paid in capital.

Receivable from PubliGroupe

As of December 31, 2001, the Company had a $0.6 million receivable from a wholly owned subsidiary of PubliGroupe, a principal stockholder, which was
collected during 2002.

(10) 2% SUBORDINATED CONVERTIBLE DEBENTURES

On September 26, 2003, the Company completed the placement to an institutional accredited investor of $15.0 million of subordinated convertible
debentures due September 2006 ("Debentures"). The Debentures are convertible into shares of the Company's common stock at $8.75 per share. Interest on the Debentures at the rate of 2% is due
semi-annually starting in January 2004. The investor also acquired a five-year warrant (the "Warrants") to purchase 360,564 shares of the Company's common stock at
$9.5685 per share.

The
maturity date of the Debentures is subject to extension, and the conversion price is subject to adjustment, on the terms and conditions set forth in the Debenture. In addition, the
Company may elect to pay the principal of and interest on the Debentures in shares of its common stock rather than cash. If the Company elects to pay the principal amount due under the Debentures at
maturity in shares of its common stock, rather than in cash, the maturity date conversion price will be equal to 90% of the average of the daily volume-weighted average prices of the Company's common
stock on the Nasdaq SmallCap Market for the fifteen consecutive trading days immediately preceding the maturity date. If the Company elects to make interest payments due under the Debentures in shares
of its common stock, rather than in cash, the interest conversion price will be equal to 90% of the average of the daily volume-weighted average prices of the Company's common stock on the Nasdaq
SmallCap Market for the five consecutive trading days immediately preceding the interest payment date.

Additionally,
if the specific conditions set forth in the Debentures are satisfied, the Company may require the holder to convert the Debenture into shares of the Company's common stock,
at the conversion rate then in effect, or the Company may prepay the Debenture prior to the maturity date, for an amount in cash equal to 150% of the amount prepaid. In addition, if the at any time on
or after the second anniversary of the initial issuance date, the Weighted Average Price of the Common Stock is less than $8.75 on any five Trading Days after such second anniversary, the holder shall
have the right, in its sole discretion, to require that the Company redeem up to $7,500,000 principal amount of this Debenture. The redemption right constitutes an embedded derivative. The value of
this embedded derivative at December 31, 2003 is immaterial to the financial position of the Company. The Company will review the value of the derivative on a quarterly basis in the future, in
accordance with SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities."

F-35

---

The
Company valued the Warrants at $1.8 million using a Black-Scholes pricing model with the following factors: risk free interest rate of 1.48%, volatility of 143%, dividend
yield of 0% and a life of 2.5 years. The aggregate unamortized fair market value of the Warrants are reflected as a reduction of the face amount of the Debentures on the consolidated balance
sheet, which will be amortized over three years, the initial term of the Debentures, using the effective interest method. Accordingly, the carrying value of the Debentures will be increased. Pursuant
to ETIF Issue No. 00-19, since the effective
registration of the securities underlying the warrants was an event outside of the control of the Company, the Company recorded the fair value of the warrants as long-term liabilities.

As
a result of the fees paid to the placement agent, legal fees and other expenses in connection with the sale of the Debentures and the Warrants, the Company incurred approximately
$1.2 million of debt issuance costs to be paid in cash. The Company also recorded the value of the warrants issued to the placement agent, $0.4 million, using the same factors as above.
Collectively, these costs will be amortized over three years, the initial term of the Debentures. The costs are included in other assets on the consolidated balance sheet.

(11) EQUITY INSTRUMENTS

PREFERRED
STOCK

As
of June 6, 2003, the Company completed a private placement (the "Financing") of approximately $7.18 million of Series C-1 Nonvoting Convertible
Redeemable Preferred Stock (the "Series C-1 Preferred Stock"), together with related Common Stock Warrants, to several investment funds and accredited individual investors,
including members of the Company's management and Board of Directors (the "Investors"). All outstanding shares converted (collectively, the "Conversion") into shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") upon the approval of the Company's stockholders on July 29, 2003.

In
connection with the Financing, the Company also issued two warrants to each Investor to purchase shares of Common Stock at an exercise price equal to the conversion price of $1.2079
(the "Conversion Price"), of which (i) one warrant entitles the Investor to purchase up to an additional 10% of the aggregate number of shares of Common Stock issuable upon the conversion of
the Series C Preferred Stock and only becomes exercisable upon the effective date of Conversion; and (ii) a second warrant entitles the Investors to purchase up to 4.8% of the aggregate
number of shares of Common Stock that would have been issuable upon conversion of the Series C Preferred Stock and only becomes exercisable in the event the Investors become entitled to redeem
shares of Series C-1 Preferred Stock. Each warrant will remain exercisable in the event the Investor becomes entitled to redeem shares of Series C-1 Preferred
Stock. Each warrant will remain exercisable until the fifth anniversary of the date on which the warrant first became exercisable. All warrants issued pursuant to this transaction may be exercised
through a cashless exercise. The second warrants were cancelled upon Conversion on July 29, 2003.

Each
share of Series C Preferred Stock is convertible into Common Stock at any time at the option of the holder thereof at the conversion price of $1.2079 per share of Common
Stock. There will be no change to the conversion ratio of the Series C Preferred Stock based upon the future trading price of the Common Stock. The conversion price of the Series C
Preferred Stock is subject to adjustment in the event future issuances of the Company's equity is at a purchase price lower than the Conversion Price according to a weighted average formula.

At
any time after May 31, 2005, the Company may automatically convert each share of the then outstanding Series C Preferred Stock into the applicable number of shares of
Common Stock if, among

F-36

---

other
things, the Common Stock is then traded, the average per share closing price of the Common Stock is greater than three (3) times the Conversion Price over a sixty day (60) trading
period, the average daily trading volume of the Common Stock over such a period is at least 40,000 shares and there is an effective registration statement covering the resale of all shares of Common
Stock issuable upon conversion of any other outstanding shares of Series C Preferred Stock.

In
connection with the Financing, the Company also agreed to file a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the
Series C Preferred Stock and upon exercise of all warrants issued to the Investors. The Company also granted "piggyback" registration rights to the Investors, on apari
passubasis with existing registration rights holders, which entitles each of the Investors to participate in registered offerings of the Company's securities by the Company.

The
Company agreed to terms of the Series C Preferred Stock when the $1.2079 conversion price approximated fair value of the underlying common stock. However, the Series C
Preferred Stock and associated warrants were subject to stockholder approval which occurred on July 29, 2003, at which time the price of the Company's common stock was $9.35 per share.
Accordingly, the Series C transaction contained an embedded beneficial conversion feature, which was required to be valued separately. The Company allocated the proceeds received to the
Series C Preferred Stock and detachable warrants based on a relative fair value basis. The $5.4 million value ascribed to the five-year detachable warrants was determined
using a Black Scholes pricing model (143% volatility, $9.35 fair value at July 29, 2003, $1.2079 exercise price, 1.48% discount rate, average life of 2.5 years and dividend yield of 0%).
Pursuant to ETIF Issue No. 00-19, since the effective registration of the securities underlying the warrants was an event outside of the control of the Company, the Company recorded the fair
value of the warrants as long-term liabilities. The intrinsic value of the beneficial conversion feature was calculated as the difference between the conversion price of $1.2079 and the fair value of
the common stock into which the Series C Preferred Stock was convertible into on the stockholder approval date of $9.35 per share, or an intrinsic value of $8.15 per share, which is greater
than the proceeds allocated. Accordingly, the amount of the discount was limited to the amount of cash allocable to the transaction. Therefore, the Company recorded a non-cash charge of
approximately $1.8 million in the third quarter of 2003 which is included in "Preferred stock conversion discount" on the consolidated statement of operations.

On
July 2, 2002, Sunra Capital Holdings Limited ("Sunra"), a newly formed investment fund advised by Merchant's Group International, purchased $1.6 million of the Company's
newly created Series A Preferred Stock, $3.4 million of its newly created Series A-1 Non Voting Convertible Preferred Stock, and on August 13, 2002 agreed to
purchase an additional $3.0 million of the Series A Preferred Stock, for a total investment of $8.0 million. Upon receipt of shareholder approval on September 10, 2002, the
outstanding shares of Series A-1 Preferred Stock converted into shares of Series A Preferred Stock and Sunra purchased an additional $3.0 million of the
Series A Preferred Stock (the "September 10, 2002 Series A Preferred Stock transactions").

Each
share of Series A Preferred Stock is convertible into Common Stock of the Company at any time at the option of the holder thereof at a conversion price of $1.02675 per share
of common stock, or 7,791,575 shares of Common Stock on an as-if converted basis. The Company also issued warrants to Sunra to purchase 779,158 shares of Common Stock at an exercise price
of $1.02675. All of the warrants issued may be exercised through a cashless exercise and have a five year term. The Company also issued warrants to Merchant's Group International to purchase 80,000
shares of Common Stock,

F-37

---

valued
at $0.1 million as partial payment of a placement fee and incurred a total of approximately $0.8 million in other related fees.

The
Company definitively agreed to the initial terms of the September 10, 2002 Series A Preferred Stock transactions when the price of the Company's Common Stock was
approximately $1.05 per share. However, Sunra's conversion of the outstanding shares of Series A-1 Preferred Stock into shares of Series A Preferred Stock and purchase of an
additional $3.0 million of the Series A Preferred Stock, and associated warrants were subject to shareholder approval which was approved on September 10, 2002, at which time the
price of the Company's Common Stock was $2.30 per share. Accordingly, the July 2, 2002 and September 10, 2002 Series A Preferred Stock transactions contained an embedded
beneficial conversion feature which was required to be valued separately.

The
Company allocated the proceeds received in each of the transactions to the Series A Preferred Stock and detachable warrants based on a relative fair value basis. The value
ascribed to the five-year detachable warrants, amounting to $1.3 million, was determined using a Black-Scholes pricing model (100% volatility factor, $2.30 fair value at
September 10, 2002, $1.05 fair value at July 2, 2002, and $1.02675 exercise price, expected life of 5 years and dividend yield of 0%). Pursuant to ETIF Issue No. 00-19,
since the effective registration of the securities underlying the warrants was an event outside of the control of the Company, the Company recorded the fair value of the warrants as long-term
liabilities. The intrinsic value of the beneficial conversion feature associated with the July 2, 2002 Series A Preferred Stock transactions was approximately $0.2 million. The
intrinsic value of the beneficial conversion feature associated with the September 10, 2002 Series A Preferred Stock transactions was calculated as the difference between the conversion
price of $1.02675 per share of Common Stock and the fair value of the Common Stock into which the Series A Preferred Stock was convertible into on the shareholder approval date of $2.30 per
share, or an intrinsic value of approximately $1.27325 per share, which is greater than the proceeds allocated to the September 10,
2002 Series A Preferred Stock transactions. Accordingly, the amount of the discount was limited to the amount of cash allocable to the September 10, 2002 Series A Preferred Stock
transactions. Therefore, the Company recorded a non-cash charge of $5.2 million in the third quarter of 2002. The total non-cash charge of $5.4 million is
included in the "Preferred stock conversion discount" on the consolidated statement of operations similar to a Preferred Stock dividend.

In
conjunction with the acquisition of Now Marketing in September 2002, the Company issued 125,000 shares of Series B Preferred Stock (see note 2), which are
convertible into approximately 1.2 million shares of common stock.

The
Series B Preferred Stock contained a $1.25 embedded beneficial conversion feature which is included in "Preferred stock conversion discount" on the consolidated statement of
operations (see Note 2). The total non-cash charge of $6.7 million in "Preferred stock conversion discount" consists of the Series A Preferred Stock and
Series B Preferred Stock transaction.

The
preferred stock accrue and cumulate dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by the Company's Board of Directors. Accordingly, the
cumulative dividends are reflected as a "Preferred stock dividends" on the consolidated statement of operations. All accrued dividends must be paid before any dividends may be declared or paid on the
Common Stock, and shall be paid as an increase in the liquidation preference of the preferred stock payable upon a Liquidation event.

F-38

---

COMMON STOCK

Reverse Split of Common Stock

On February 27, 2004, the Company completed a one-for-five reverse split of its common stock. As a result of the reverse split, every five shares of the
Company's common stock were combined into one share of common stock. The number of shares of preferred stock and warrants outstanding are not affected by the reverse split, however, the conversion
ratio will be adjusted. All figures relating to common stock, preferred stock, stock options, warrants and other equity-linked instruments have been adjusted in this Form 10-K to
reflect the reverse split.

Increase in Authorized Shares

On
July 29, 2003, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase its authorized shares to 350 million shares.

Restructuring of Executive Compensation Agreements

In conjunction with the Sunra investment on July 2, 2002, four executive officers each agreed to modify their respective employment agreements with the
Company to reduce the amount of severance payable to such executive officers by 50% payable in one lump sum, and to reduce the notice period for termination or non-renewal from
180 days to 30 days. In exchange, such executives would receive, in the aggregate, approximately 0.4 million shares of Common Stock of which the initial conversion value was based
on the approximate fair market value of the Company's Common Stock as of the date of the July 2, 2002, Sunra investment, or $1.00 per share in consideration of approximately
$0.4 million, out of a total of approximately $0.8 million future severance benefits forfeited. In addition, such executives would also receive fully-vested stock options to acquire
approximately 0.4 million shares of the Company's Common Stock with an exercise price of $1.00 per share. The issuance of the shares and options were subject to stockholder approval of the 2002
Stock Incentive Plan and the Sunra Series A Preferred Stock transactions. For accounting purposes, the shares and options are being valued at $2.30 per share, based on their fair market value
using the closing price of the Company's Common Stock as of the stockholder approval date on September 10, 2002. In accordance with FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock-Based Compensation", this approval resulted in a non-cash stock-based compensation charge of approximately $1.5 million in the aggregate. The
compensation charge related to the options is based on their intrinsic value of $1.30 per option, that is, the fair market value of the Company's Common Stock on the stockholder approval date of $2.30
per share less the exercise price of $1.00 per share which resulted in $0.6 million of the $1.5 million charge.

In
addition, the four executive officers also agreed to receive the Earnings Before Interest, Taxes and Amortization ("EBITA") portion of their 2002 target bonus, if earned, in shares of
the Company's Common Stock. The number of shares to be issued in connection with the award is based upon EBITA portion of their 2002 target bonus award divided by $1.00 per share. Accordingly, this
modification to the executives' bonus award resulted in a variable based compensation award which is required to be measured based upon the fair market value of the Company's Common Stock at each
reporting period, namely at the end of the third and fourth quarter of 2002. At December 31, 2002, management determined that it was probable that the EBITA target would be met and determined,
at $1.00 per share, that the bonus equates to approximately 0.4 million common shares. Accordingly, the four executives' bonus awards resulted in a non-cash stock-based compensation
charge of approximately

F-39

---

$0.4 million
based upon the fair market value of the Company's Common Stock of $1.15 per share as of the end of the reporting period.

Other Issuances

On May 23, 2003, the Company issued approximately 1.0 million shares, valued at approximately $1.8 million, plus $1.5 million in cash,
to PubliGroupe, in exchange for forgiveness of three promissory notes and the related accrued interest (see note 9).

Approximately
30 employees including members of senior management volunteered to receive between 5 and 20% of their compensation in the form of the Company's common stock and options in
lieu of cash from April to December 2003. As a result, approximately 0.2 million shares, valued at $0.2 million, were issued.

On
March 17, 2003, the Company issued approximately 0.3 million shares, valued at approximately $0.3 million, to employees in lieu of cash for achieving contractual
performance-based 2002 target bonuses. The bonuses were accrued as of December 31, 2002.

From
January to July 2002, approximately 58 employees including members of senior management agreed to receive between 5 and 20% of their compensation in the form of the Company's
common stock in lieu of cash. As a result, approximately 0.2 million shares, valued at $0.2 million, were issued.

In
April 2002, the Company issued approximately 0.1 million shares, valued at $0.1 million, principally to the CEO, for 2001 bonuses as reported in the Company's
10-K and accrued as of December 31, 2001.

On
May 19, 2001, the Company issued 0.2 million shares of common stock on behalf of 24/7 Europe NV as settlement for terminating the Kendro acquisition agreement. A
non-cash charge of approximately $0.5 million is reflected in loss from discontinued operations in the 2001 consolidated statement of operations.

On
September 25, 2001, the Company entered into a Settlement and Mutual release agreement with the former principal shareholders of Website Results, Inc., which resulted in
the return to the Company of approximately 0.7 million shares of common stock previously reflected as issued or outstanding.

On
March 23, 2001, the Company issued approximately 0.1 million shares of common stock to employees of the Company for meeting the earn-out provisions in the
WSR merger agreement, as amended. The related compensation expense of approximately $0.2 million is reflected as stock-based compensation expense in the consolidated statements of operations.
Substantially all of these shares were returned as part of the settlement with the former principals stockholders on Septembers 25, 2001.

Additional Paid-in Capital

During the year ended December 31, 2003, the Company's additional paid-in capital increased by $18.3 million primarily due to
($0.5) million from the net cost from the issuance of Series C Preferred Stock, $6.5 million in connection with the retirement of PubliGroupe promissory notes, $1.1 million
of common stock issued in connection with the Insight First acquisition, $8.5 million from exercise of options and warrants, $1.0 million in other stock-based compensation issued to
employees, the $1.8 million preferred stock conversion discount offset by ($0.1) million related to the conversion of preferred stock.

F-40

---



24/7 REAL MEDIA, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2003

Shares
reserved for future issuance as of December 31, 2003 are as follows:

Reserved
SharesReserved for issued and outstanding unclassified warrants

620,743Reserved for stock incentives under the 1998 Stock Incentive Plan

1,500,934Reserved for stock incentives under the 2001 Stock Incentive Plan

441,565Reserved for stock incentives under the 2002 Stock Incentive Plan

4,457,839


WARRANTS

In
March 2001, the Company issued warrants to purchase up to 40,000 shares of common stock at $3.50 per share to Pacific Crest Securities, Inc. and Maya Cove
Holdings, Inc. as part of the Common Stock Purchase Agreement. The fair value of the warrants relating to the term of the common stock purchase agreement for the purchase of the 40,000 shares
were valued at approximately $0.1 million based on a Black-Scholes pricing model. The warrants were immediately charged to operations and included in general and administrative expense in the
2001 consolidated statement of operations. The Black-Scholes pricing model was used with the following assumptions at the date of issuance: risk free interest rate of 4.59%, dividend yield of 0%,
expected life of 3 years and volatility of 150%.

In
September 2001, the Company issued warrants to purchase up to 200,000 shares of common stock at $0.75 cent per share to Lazard Freres & Co. LLC as a settlement for
services associated with the sale of Exactis. The fair value of the warrants relating to the term of the common stock purchase agreement for the purchase of the 200,000 shares were valued at
approximately $0.1 million based on a Black-Scholes pricing model. The warrants were immediately charged to operations and included in the gain on sale of assets in the 2001 consolidated
statement of operations. The Black-Scholes pricing model was used with the following assumptions at the date of issuance: risk free interest rate of 3.74%, dividend yield of 0%, expected life of
3.25 years and volatility of 150%.

Warrant
activity during the periods indicated is as follows:

Warrants

Weighted
Average Exercise
PriceOutstanding at December 31, 2000

2,837,229

$
57.85Granted

1,200,000


1.20Exercised




Canceled

(16,817
)

49.80Outstanding at December 31, 2001

4,020,412

$
34.75Granted

4,295,788


1.05Exercised




Canceled




Outstanding at December 31, 2002

8,316,200

$
2.05Granted

6,280,655


4.20Exercised

(8,687,268
)

1.10Canceled

(2,805,870
)

36.30Outstanding at December 31, 2003

3,103,717

$
7.45


F-41

---

Warrants
generally expire five years from the date of grant.

COMMON
STOCK PURCHASE AGREEMENT

On
March 21, 2001, the Company entered into a Common Stock Purchase Agreement and a Registration Rights Agreement with Maya Cove Holdings Inc. ("Maya"). Pursuant to the
terms of these agreements, beginning on the date that a registration statement covering a number of shares estimated to be issued under the Common Stock Purchase Agreement is declared effective by the
SEC, and continuing for 18 months thereafter, the Company has the right, but not the obligation, subject to the satisfaction or waiver of certain conditions as set forth in the Common Stock
Purchase Agreement, to sell up to $50 million of its common stock to Maya pursuant to such periodic draw downs as the Company may elect to make (the "Equity Line"). Maya will purchase such
shares at a discount of between 3.0% and 3.5%, depending on the market capitalization of the Company's outstanding common stock at the time of issuance. The minimum amount that may be drawn down at
any one time is $250,000. To date no amounts have been drawn under this facility.

In
conjunction with this agreement the Company issued to Maya and Pacific Crest Securities, Inc., who acted as the Company's financial advisors, warrants to purchase up to 20,000
shares each of the Company's Stock. The fair value of the warrants relating to the term of the common stock purchase agreement for the purchase of the 40,000 shares were valued at approximately
$0.1 million based on a
Black-Scholes pricing model. The warrants were immediately charged to operations and included in general and administrative expense in the 2001 consolidated statement of operations. The Black-Scholes
pricing used with the following assumptions at the date of issuance: risk free interest rate of 4.59%, dividend yield of 0%, expected life of 3 years and volatility of 150%.

(12) STOCK INCENTIVE PLANS

1998 Stock Incentive Plan

During 1998, the board of directors and stockholders of the Company approved the 1998 Stock Incentive Plan as amended (the "Plan"). The following is a summary of
the material features of the Plan. This Plan replaced the 1995 Stock Option PlanAmended, which had been established in 1995 and amended in 1996.

All
employees of and consultants to the Company are eligible under the Plan. Eligibility under the Plan shall be determined by the Stock Incentive Committee. The Plan provides for the
grant of any or all of the following types of awards: (i) stock options, including incentive stock options and non-qualified stock options; (ii) stock appreciation rights, in
tandem with stock options or free standing; and (iii) restricted stock. In addition, the Plan provides for the non-discretionary award of stock options to non-employee
directors of the Company.

The
Plan allows for an automatic increase in the shares available for issuance under the Plan on the first trading day of each calendar year, beginning with 2001 by an amount equal to 3%
of the total number of shares of common stock outstanding on the last trading day of the immediately preceding calendar year, not to exceed 350,000 shares in any given year.

During
2001, the total number of shares that may be issued or used for reference purposes pursuant to the Plan was increased to 1,772,171. The amount was increased by 21,866 for the
pooling

F-42

---

with
Sift and 15,427, 59,400, 8,460, 17,740, 15,350, 69,850 for the acquisitions of ConsumerNet, IMAKE, Sabela, AwardTrack, iPromotions, and WSR, respectively, for a total of 1,980,263.

On
January 1, 2002, in accordance in the terms of the Plan, shares available under the Plan were increased by 297,046, for a total of 2,277,309. The maximum number of shares of
common stock subject to each of stock options or stock appreciation rights that may be granted to any individual under the Plan is 50,000 for each fiscal year during the term of the Plan. If a stock
appreciation right is granted in tandem with a stock option, it shall be applied against the individual limits for both stock options and stock appreciation rights, but only once against the maximum
number of shares available under the Plan.

As
a result of the adoption of the 2002 Stock Incentive Plan, the Board of directors approved an amendment to the 1998 Stock Incentive Plan to eliminate the automatic increase of 3% and
eliminate any further grants to non-employee directors.

2001 Equity Compensation Plan

On February 26, 2001, the Board of Directors and stockholders of the Company approved the 24/7 Real Media, Inc. 2001 Equity Compensation Plan
("2001 Equity Plan"), to offer and issue to certain employees, former employees, advisors and consultants of the Company and its affiliates common stock of the Company in payment of amounts owed by
the Company to such third parties. The aggregate number of shares of common stock that may be issued shall not exceed 0.25 million shares.

2001 Stock Incentive Plan for Non-Officers

On January 2, 2001, the Board of Directors of the Company approved the 24/7 Real Media, Inc. 2001 Stock Incentive Plan for
Non-Officers ("2001 Plan"). All employees of and consultants to the Company and its affiliates are eligible to be granted non-qualified stock options under this plan, provided
that such persons are not officers. Eligibility under the 2001 Plan and award amounts shall be determined by the Stock Incentive Committee. A maximum of 0.5 million shares of common stock may
be issued or used for reference purposes pursuant to the 2001 Plan. The maximum number of shares of common stock subject to each stock option grant to any individual under the 2001 Plan is 50,000 for
each fiscal year during the term of the plan.

2002 Equity Compensation Plan

On April 22, 2002, the Board approved the 24/7 Real Media, Inc. 2002 Equity Compensation Plan to enable the Company to offer and issue to
certain employees, former employees, advisors and consultants of the Company and its affiliates its common stock in payment of amounts owed to such third parties. The aggregate number of shares of
common stock that may be issued pursuant to the 2002 Equity Compensation Plan shall not exceed 600,000 shares. The Company may from time to time issue to employees, former employees, advisors and
consultants to the Company or its affiliates shares of its common stock in payment or exchange for or in settlement or compromise of amounts due by the Company to such persons for goods sold and
delivered or to be delivered or services rendered or to be rendered. Shares of the Company's common stock issued pursuant to the 2002 Equity Compensation

F-43

---

Plan
will be issued at a price per share of not less than eighty-five percent (85%) of the fair market value per share on the date of issuance and on such other terms and conditions as
determined by the Company. The Chief Executive Officer of the Company is authorized to issue shares pursuant to and in accordance with the terms of the 2002 Equity Compensation Plan, provided that all
issuances shall be co-authorized by at least one of the President, any Executive Vice President, the Chief Financial Officer or the General Counsel. The plan may be amended at any time by
the Company.

2002 Stock Incentive Plan

On September 10, 2002, the shareholders approved the 2002 Stock Incentive Plan to enable the Company to offer and issue to certain employees, consultants
and non-employee directors of the Company and its affiliates its common stock in order to strengthen the mutuality of interests between such parties and the Company's stockholders. The
aggregate number of shares of common stock that may be issued pursuant to the 2002 Stock Incentive Plan shall not exceed 2,000,000 shares. On July 29, 2003, the shareholders approved an
amendment to the 2002 Stock Incentive Plan to increase the number of shares that may be subject to awards thereunder by 2,000,000. The number of shares available under the 2002 Stock Incentive Plan
will automatically increase on the first trading day of each calendar year, beginning with 2003 by an amount equal to 3% of the sum of the common stock outstanding and the preferred stock on an as if
converted basis, up to 600,000.

Other Stock Incentive Plans

As a result of the acquisition of Exactis, the Company acquired Exactis' 1996, 1997 and 1999 stock option plans (the "Exactis Plans"). No further options will be
granted under these plans. As a result of the sale of Exactis these plans were terminated and no options are currently outstanding under these plans.

Stock
option activity during the periods indicated is as follows:

Options

Weighted Average
Exercise PriceOutstanding at December 31, 2000

1,384,219


101.45Granted

1,256,680


1.40Exercised

(3,753
)

2.65Canceled

(1,783,865
)

47.25Outstanding at December 31, 2001

853,281


101.45Granted

2,257,622


1.25Exercised

(76,140
)

1.15Canceled

(583,431
)

27.35Outstanding at December 31, 2002

2,451,332

$
9.85Granted

1,858,176


1.60Exercised

(695,760
)

1.35Canceled

(228,109
)

17.75Outstanding at December 31, 2003

3,385,639

$
5.85Vested at December 31, 2001

537,502

$
47.70Vested at December 31, 2002

1,614,818

$
12.35Vested at December 31, 2003

2,182,247

$
7.81Options available for grant at December 31, 2003

2,588,918


F-44

---

The
following table summarizes information about stock options outstanding at December 31, 2003:

Range of
Exercise Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise Price
of Shares
Outstanding

Number
Exercisable

Weighted
Average
Exercise Price
of Shares
Exercisable$0.001.15

2,679,327

8.3
years
$
1.11

1,782,203

$
1.111.162.10

234,172

8.3


1.57

61,526


1.522.115.00

138,518

4.3


2.75

129,660


2.755.0110.00

202,016

7.9


8.02

84,686


8.0910.0125.00

12,228

4.3


20.14

12,124


20.1125.0150.00

4,032

4.8


30.17

3,928


30.2550.01100.00

45,759

6.6


65.30

38,779


65.53100.01320.00

69,587

5.2


161.07

69,341


160.843,385,639

8.0

$
5.85

2,182,247

$
7.81


(13) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental Cash Flow Information

During 2003, 2002, and 2001, the amount of cash paid for interest was $8,000, $13,000, and $18,000, respectively.

Non-Cash Investing and Financing Activities

Warrants to purchase approximately 1.5 million shares of the Company's common stock at an average of $1.10 per share were exercised during 2003 in exchange
for approximately 1.3 million shares of the Company's common stock in cashless exercises of warrants.

In
the second quarter of 2003, approximately 1.0 million shares of common stock, valued at $1.8 million, was issued in connection with the retirement of the PubliGroupe
promissory notes.

During
2003 and 2002, we issued approximately 0.7 million shares of common stock, valued at $1.1 million, and 0.8 million shares of common stock, valued at
$1.7 million, for acquired businesses, respectively.

(14) 401(k) PLAN

The Company established a 401(k) Plan on January 1, 1999, that is available to all employees after six months of employment. Employees may contribute up to
20% percent of their salary and the Company does not currently match employee contributions. The only expense the Company incurs related to the 401(k) Plan is for administrative services, which is not
material.

F-45

---

(15) COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The
Company leases various facilities and certain equipment under operating lease agreements. These lease agreements include the space for the Company's corporate headquarters, the
Company's sales offices and various types of equipment for varying periods of time, with the last lease expiring in
March 2010. Rent expense from all operating leases amounted to $2.0 million, $2.6 million, and $4.4 million for the years ended 2003, 2002, and 2001, respectively.

Future
minimum payments under noncancelable operating leases and capital leases at December 31, 2003 are as follows:

Capital Leases

Operating Leases

Subleases(in thousands)Year Ending December 31,2004

$
55

$
2,676

$
(493
)2005


13


2,287


(504
)2006





1,552


(329
)2007





1,018


(336
)Thereafter





660


(233
)Total minimum lease payments


68

$
8,193

$
(1,895
)Less amount representing interest


3Present value of minimum lease payments


65Less current portion


51Long-term portion

$
14


The
Company's advertisement serving and traffic delivery systems are housed at Cable & Wireless, Verio and Leve13. The agreements provide for Internet connectivity
services and the lease of secure space to store and operate the Company's equipment. Obligations under these contracts for 2004 are approximately $0.8 million.

The
Company has various employment agreements with employees, the majority of which are for one year with automatic renewal. The obligation under these contracts is approximately
$2.6 million for 2004. All European employees have employment contracts as required by local law. The majority of these contracts allow for resignation or termination by either party at any
time, according to the notice period provisions contained in the employment contracts, or according to the minimum notice period as mandated by local law. The contracts, or if no expressed provision
is included in the contract, local law, also require severance for involuntary terminations ranging from one to six months. As of February 29, 2004, there were approximately 65 employees in
Europe whose annualized base salaries were approximately $4.5 million.

LITIGATION

aQuantive, Inc.
(formerly Avenue A, Inc.)

On
April 19, 2002, aQuantive, Inc. (formerly Avenue A, Inc.) filed a complaint against the Company seeking a declaratory judgment that U.S. Patent
No. 6,206,368 is invalid and not infringed by aQuantive. The complaint also seeks injunctive relief and recovery of attorney's fees. On May 10, 2002,

F-46

---

the
Company filed its answer to the complaint, in which the Company denied the material allegations of the complaint and asserted a counterclaim for infringement of the '368 patent. On
January 2, 2003, aQuantive filed a motion for summary judgment of non-infringement, to which the Company filed papers in opposition on April 28, 2003. On July 3, 2003,
the U.S. Federal Court for the Western District of Washington granted partial summary judgment to aQuantive, Inc. and held that, based on the court's construction of the patent's claims,
aQuantive's Atlas DMT advertisement serving system does not infringe the '368 patent. The Company has appealed the court's ruling to the Court of Appeals for the Federal Circuit and agreed with
aQuantive to dismiss the remaining claims in the case to expedite the appeal.

Brian
Anderson

On
July 5, 2001, Brian Anderson, former Chief Executive Officer of our AwardTrack, Inc. subsidiary, served the Company with notice of a lawsuit filed in Superior Court for
the State of California in and for the County of Santa Cruz, alleging breach of contract, fraud, intentional infliction of emotional distress and breach of fiduciary duty, in connection with the
acquisition of AwardTrack and subsequent events. The Company removed the lawsuit to federal court in California and moved to dismiss the complaint in its entirety. This motion was granted in part,
with leave to amend, and denied in part. The plaintiff has subsequently refiled the complaint and the Company have filed a counterclaim. Discovery is concluded, and the Company intends to move for
summary judgment to dismiss the complaint in its entirety.

chinadotcom
Corp.

On
February 19, 2003, the Company filed a complaint in federal court against chinadotcom Corporation for breach of contract, unjust enrichment, breach of duty of good faith and
fair dealing, and promissory estoppel arising out of a certain equity exchange agreement dated August 16, 2000 between chinadotcom and the Company, seeking to enforce their right to exchange
their stake in 24/7 Media-Asia Ltd. for 1.8 million shares of chinadotcom. chinadotcom filed a motion seeking to compel arbitration of the matter, which the court
granted on May 12, 2003.

On
April 29, 2003, chinadotcom filed an action in court in Hong Kong against David Moore, the Company's Chief Executive Officer, alleging, among other things, breach of fiduciary
duty by Mr. Moore in connection with his service as a director of chinadotcom and its subsidiary, 24/7 Media-Asia Ltd. On November 24, 2003, the Hong Kong Court
dismissed chinadotcom's complaint against Mr. Moore in its entirety, and Mr. Moore has requested chinadotcom to reimburse him for all of his legal expenses. chinadotcom has appealed the
dismissal of its claim and that appeal is pending. The Company has assumed Mr. Moore's defense and will indemnify him in the event of any liability. The Company believes that the claims against
Mr. Moore are without merit and that the action was brought solely in retaliation against them for asserting their rights in the matter discussed above. The Company has filed a motion to
dismiss this case.

On
July 22, 2003, chinadotcom filed an arbitration claim with the International Court of Commerce asserting certain alleged breaches of contract in connection with the Media Asia
Agreement entered into between the parties as of June 30, 2000. The claim seeks damages totaling $24.0 million. The Company believes that chinadotcom's claims are without merit. The
Company has filed an Answer and Counterclaim in the matter and intends to defend themselves vigorously against these claims.

F-47

---

The
Company recorded expenses of $1.4 million for the year ended December 31, 2003 and $1.0 million in income for the year ended December 31, 2002 related to
patent litigation. The Company also recorded $0.6 million in expenses related to chinadotcom arbitration for the year ended December 31, 2003. These expenses are included in Other
(expense) income, net on the consolidated statement of operations.

The
Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not
have a material effect on the Company's financial position, results of operation or liquidity.

(16) SEGMENTS

The Company's business is comprised of two reportable segments: Integrated Media Solutions and Technology Solutions. The Integrated Media Solutions segment
generates the majority of its revenues by delivering advertisements and promotions to affiliated Web sites, search engine traffic delivery and marketing services to target online users compiled by
list management. The Technology Solutions segment generates revenue by providing third party advertisement serving, e-mail delivery service bureau, and technology services. The Company's
management reviews corporate assets and overhead expenses for each segment. The summarized segment information as of and for the three years ended December 31, 2003, are as follows:

F-48

---



|                                                               |                   | Integrated
Media
Solutions |          | Technology
Solutions |   | Corporate |        | Total |        
|-------------------------------------------------------------- | ----------------- | -------------------------- | -------- | -------------------- | - | --------- | ------ | ----- | -------
|
|2003                                                           |                   |                            |          |                      |   |           |        |       |        
|Revenues                                                       |                   | $                          | 33,904   |                      | $ | 15,277    |        | $     |       
|Depreciation                                                   |                   |                            | 1,395    |                      |   | 862       |        |       | 95     
|Amortization of intangible assets and deferred financing costs |                   |                            | 1,426    |                      |   | 1,298     |        |       |       
|Stock-based compensation                                       |                   |                            | 459      |                      |   | 87        |        |       | 770    
|Restructuring                                                  |                   |                            |         |                      |   |          |        |       | 1,651  
|Impairment of intangible assets                                |                   |                            | 1,321    |                      |   |          |        |       |       
|Segment (loss) income from operations                          |                   |                            | (2,695   | )                    |   | 749       |        |       | (8,089 
|Interest expense, net                                          |                   |                            |         |                      |   |          |        |       | (343   
|Other expenses, net                                            |                   |                            |         |                      |   |          |        |       | (1,638 
|Segment (loss) income                                          |                   |                            | (2,695   | )                    |   | 749       |        |       | (10,070
|2002                                                           |                   |                            |          |                      |   |           |        |       |        
|Revenues                                                       |                   | $                          | 28,800   |                      | $ | 13,758    |        | $     |       
|Depreciation                                                   |                   |                            | 2,559    |                      |   | 740       |        |       | 212    
|Amortization of intangible assets                              |                   |                            | 1,057    |                      |   | 1,000     |        |       |       
|Stock-based compensation                                       |                   |                            | 640      |                      |   |          |        |       | 2,150  
|Restructuring                                                  |                   |                            |         |                      |   |          |        |       | 2,048  
|Loss on sale of non-core assets                                |                   |                            | 327      |                      |   |          |        |       |       
|Segment (loss) income from operations                          |                   |                            | (2,810   | )                    |   | (1,346    | )      |       | (14,088
|Interest expense, net                                          |                   |                            |         |                      |   |          |        |       | (268   
|Other income, net                                              |                   |                            |         |                      |   |          |        |       | 1,013  
|Segment loss                                                   |                   |                            | (2,810   | )                    |   | (1,346    | )      |       | (13,343
|2001                                                           |                   |                            |          |                      |   |           |        |       |        
|Revenues                                                       |                   | $                          | 36,470   |                      | $ | 9,760     |        | $     |       
|Depreciation                                                   |                   |                            | 9,704    |                      |   | 2,811     |        |       | 272    
|Amortization of goodwill and intangible assets                 |                   |                            | 13,088   |                      |   | 999       |        |       |       
|Stock-based compensation                                       |                   |                            | 793      |                      |   |          |        |       | 865    
|Restructuring                                                  |                   |                            |         |                      |   |          |        |       | 18,142 
|Impairment of intangible assets                                |                   |                            | 52,206   |                      |   | 4,501     |        |       |       
|(Loss) gain on sale of non-core assets                         |                   |                            | 4,400    |                      |   | (6,400    | )      |       |       
|Segment loss from operations                                   |                   |                            | (105,526 | )                    |   | (6,995    | )      |       | (29,590
|Interest income, net                                           |                   |                            |         |                      |   |          |        |       | 790    
|Gain on sale of investments                                    |                   |                            |         |                      |   |          |        |       | 4,985  
|Impairment of investments                                      |                   |                            |         |                      |   |          |        |       | (3,089 
|Segment loss                                                   |                   |                            | (105,526 | )                    |   | (6,995    | )      |       | (26,904
|Total assets:                                                  |                   |                            |          |                      |   |           |        |       |        
|                                                               | December 31, 2003 |                            |          | 10,381               |   |           | 11,173 |       |        
|                                                               | December 31, 2002 |                            |          | 13,471               |   |           | 9,947  |       |        
|                                                               | December 31, 2001 |                            |          | 21,565               |   |           | 11,294 |       |        

F-49

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US

International

Total(in thousands)2003Revenues

$
29,499

$
19,682

$
49,181Long-lived assets


9,548


1,715


11,2632002Revenues

$
29,169

$
13,389

$
42,558Long-lived assets


12,249


1,960


14,2092001Revenues

$
40,619

$
5,611

$
46,230Long-lived assets


14,313


9,701


24,014


(17) SELECTED QUARTERLY FINANCIAL DATAUNAUDITED

The following is a summary of selected quarterly financial data for the years ended December 31, 2003 and 2002:

|                                                                                         |  | 2003 Quarter Ended |       
|---------------------------------------------------------------------------------------- |  | ------------------ | ------
|
|
|Revenues                                                                                 |  | $                  | 11,824
|Gross profit                                                                             |  |                    | 5,149 
|Amortization                                                                             |  |                    | 647   
|Stock-based compensation                                                                 |  |                    | 47    
|Restructuring costs                                                                      |  |                    |      
|Impairment of intangible assets                                                          |  |                    |      
|Loss from operations                                                                     |  |                    | (2,199
|Net loss                                                                                 |  |                    | (2,297
|Net loss attributable to common stockholders                                             |  |                    | (2,426
|Loss per common sharebasic and diluted                                                  |  |                    |       
|Loss from continuing operations before preferred stock dividends and conversion discount |  | $                  | (0.18 
|Preferred stock dividends and conversion discount                                        |  |                    | (0.01 
|                                                                                         |  |                    |       
|Net loss attributable to common stockholders                                             |  | $                  | (0.19 
|                                                                                         |  |                    |       

F-50

---

|                                                                                         |  | 2002 Quarter Ended |       
|---------------------------------------------------------------------------------------- |  | ------------------ | ------
|
|
|Revenues                                                                                 |  | $                  | 10,751
|Gross profit                                                                             |  |                    | 4,663 
|Amortization                                                                             |  |                    | 542   
|Stock-based compensation                                                                 |  |                    | 270   
|Restructuring costs                                                                      |  |                    |      
|Loss (gain) on sale of non-core assets, net                                              |  |                    | (874  
|Loss from operations                                                                     |  |                    | (3,627
|Net loss                                                                                 |  |                    | (3,665
|Net loss attributable to common stockholders                                             |  |                    | (3,665
|Loss per common sharebasic and diluted                                                  |  |                    |       
|Loss from continuing operations before preferred stock dividends and conversion discount |  | $                  | (0.36 
|Preferred stock dividends and conversion discount                                        |  |                    |      
|                                                                                         |  |                    |       
|Net loss attributable to common stockholders                                             |  | $                  | (0.36 
|                                                                                         |  |                    |       

(18) VALUATION AND QUALIFYING ACCOUNTS

|                                |       | Balance at
Beginning
of Period |       | Additions Charged
to/Reversals
Credited To
Expense |   | Deductions |       | Disposals |        | Balance at
End of
Period
|------------------------------- | ----- | ------------------------------ | ----- | -------------------------------------------------- | - | ---------- | ----- | --------- | ------ | ------------------------
|2003                            |       |                                |       |                                                    |   |            |       |           |        |                         
|Allowance for doubtful accounts |       | $                              | 860   |                                                    | $ | 409        |       | $         | (367   | )                       
|Reserve for sales allowance     |       |                                | 509   |                                                    |   | (240       | )     |           | (200   | )                       
|                                |       |                                |       |                                                    |   |            |       |           |        |                         
|                                | Total |                                | $     | 1,369                                              |   | $          | 169   |           | $      | (567                    
|2002                            |       |                                |       |                                                    |   |            |       |           |        |                         
|Allowance for doubtful accounts |       | $                              | 1,798 |                                                    | $ | (186       | )     | $         | (752   | )                       
|Reserve for sales allowance     |       |                                | 695   |                                                    |   | 109        |       |           | (295   | )                       
|                                |       |                                |       |                                                    |   |            |       |           |        |                         
|                                | Total |                                | $     | 2,493                                              |   | $          | (77   | )         | $      | (1,047                  
|2001                            |       |                                |       |                                                    |   |            |       |           |        |                         
|Allowance for doubtful accounts |       | $                              | 4,631 |                                                    | $ | 5,321      |       | $         | (8,060 | )                       
|Reserve for sales allowance     |       |                                | 1,117 |                                                    |   | 1,296      |       |           | (866   | )                       
|                                |       |                                |       |                                                    |   |            |       |           |        |                         
|                                | Total |                                | $     | 5,748                                              |   | $          | 6,617 |           | $      | (8,926                  

(19) SUBSEQUENT EVENTSUNAUDITED

Acquisition
of Real Media Korea Co., Ltd

On
January 6, 2004, the Company completed the acquisition of Real Media Korea Co., Ltd., a company formed under the laws of the Republic of South Korea ("RMK"), by
acquiring approximately 90.4% of the outstanding shares of RMK that they did not already own pursuant to the terms and conditions of the Share Acquisition Agreement (the "Acquisition Agreement"),
dated as of

F-51

---

December 16,
2003, by and among the Company, RMK and the other shareholders of RMK (the "Selling Shareholders").

The
Company paid total consideration of $20.1 million in exchange for the RMK shares of the Selling Shareholders, which consisted of $5.0 million in cash, approximately
2.1 million shares valued at $14.6 million and approximately $0.5 million in transaction costs. Approximately 0.9% of the outstanding shares of RMK are held in an employee stock
union established under Korean law. The employee shareholders agreed to transfer his RMK shares to the Company upon vesting in accordance with the terms and conditions of the stock union and Korean
law. The cash portion of the purchase price was paid out of the working capital of the Company and the common stock portion of the purchase price consisted of newly issued shares. For accounting
purposes the effective date of the acquisition is January 1, 2004.

The
parties also entered into a registration rights agreement that required the Company to file within 20 days of closing a registration statement (the "Registration Statement")
covering the resale of the shares of common stock issued to the Selling Shareholders in connection with this transaction. The Registration Statement was declared effective on January 28, 2004.
Pursuant to the Acquisition Agreement, the Selling Shareholders agreed to a lock-up provision restricting the resale of the shares of common stock received by them in the transaction. The
lock-up restrictions generally lapse in four equal installments, one on each of the effective date of the Registration Statement, July 6, 2004, January 6, 2005 and
July 6, 2005, respectively. The parties entered into an escrow agreement, pursuant to which approximately 0.4 million shares of the common stock payable to the Selling Shareholders will
be held in escrow to secure the indemnification obligations of the Selling Shareholders.

The
Company also entered into an employment agreement with Mr. Jae Woo Chung, pursuant to which Mr. Chung will continue as Chief Executive Officer of RMK.

Option
Grants

In
January 2004, the Company granted approximately 1.6 million options to employees at exercise prices based on their fair value of the Company's common stock at the
respective date of grant.

Lycos, Inc.
Services Agreements

On
February 11, 2004, the Company entered into a five-year arrangement with Lycos, Inc. ("Lycos") to provide media sales, advertisement serving and analytics
technology services to Lycos' U.S. Web properties and to transition personnel and other services from Lycos to the Company. Lycos operates a network of branded Web properties.

Pursuant
to an advertising services agreement, the Company's sales force will represent the U.S. Web properties of Lycos for all advertising. The properties that the Company will
represent include: Angelfire.com, Gamesville.com, HotWired.com, Tripod.com, Quote.com, Webmonkey.com, WhoWhere.com and Wired News (Wired.com), which collectively attracted more than 50 million
U.S. monthly unique users in 2003 according to industry estimates. The agreement requires the Company to pay Lycos the greater of 65% of all net advertising sales revenue generated by the Company in
respect of the Lycos properties, or specified minimum required annual payments. For 2004, the minimum required annual payment is $10 million and the Company also will pay Lycos an initial
payment of $4.5 million for transition related services over the course of 2004. The revenue share with Lycos and

F-52

---

the
annual minimum payment requirements under this agreement may be adjusted during the term of the agreement if the Lycos properties generate significantly different levels of advertisement
impressions. To the extent that the Company fails to generate revenue in excess of the minimum annual payments, the obligations under this agreement may materially and adversely affect the Company's
business, results of operations and financial condition. In addition, the Company currently expects the Lycos relationship to generate between 15% and 20% of their revenue. If the Company or Lycos is
acquired, Lycos may have the right to terminate the agreement.

Pursuant
to a technology services agreement, Lycos will utilize Open AdStream, the Company's advertisement management technology, to serve advertisements for all Lycos U.S. Web
properties. Additionally, all Lycos U.S. properties will deploy Insight XE, the Company's Web analytics technology. The agreement requires Lycos to pay the Company a technology services fee based on
the number of advertisement impressions in the case of Open AdStream technology, or page views, in the case of Insight XE technology, delivered in respect of the Lycos properties and provides for a
total minimum monthly fee of $100,000 for the next five years. If the advertising services agreement is terminated, either the Company or Lycos may terminate the technology services agreement.

Proposed
Offering of Common Stock

On
February 11, 2004, the Company filed a registration statement with the Securities and Exchange Commission relating to a proposed public offering of shares of the Company's
common stock by the Company's and some of their stockholders. The Company intends to use the net proceeds of this offering for working capital and general corporate purposes and for potential future
acquisitions of complementary businesses and technologies. As of the date of this report, the number of shares to be offered and the price range for the offering have not been determined and the
registration statement relating to the securities has not been declared effective. The Company will not sell securities nor accept offers to buy securities prior to the time that the registration
statement is declared effective. The Company will not receive any proceeds from the sale of common stock by the selling stockholders.

F-53

---

SIGNATURES AND POWER OF ATTORNEY

KNOW
ALL MEN BY THESE PRESENT, that each person or entity whose signature appears below constitutes and appoints David J. Moore and Mark E. Moran, and each of them, its true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for it and in its name, place and stead, in any and all capacities, to sign any and all
amendments to this report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as it might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or
his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

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 March 1, 2004.

| |  | 24/7 REAL MEDIA, INC. |  |                                                        |  | 
| |  | --------------------- |  | ------------------------------------------------------ |  | 
| |  | *By:                  |  | /s/DAVID J. MOOREDavid J. MooreChief Executive Officer |  | 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below on March 1, 2004 by the following persons in the
capacities indicated:

|Signature                                 |  | Title                                                                                                            
|----------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|                                          |  |                                                                                                                  
|/s/DAVID J. MOOREDavid J. Moore           |  | Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)                                  
|/s/ROBERT J. PERKINSRobert J. Perkins     |  | Director                                                                                                         
|/s/ARNIE SEMSKYArnie Semsky               |  | Director                                                                                                         
|/s/JOSEPH W. WAECHTERJoseph W. Waechter   |  | Director                                                                                                         
|/s/MORITZ F. WUTTKEMoritz F. Wuttke       |  | Director                                                                                                         
|/s/VALENTINE J. ZAMMITValentine J. Zammit |  | Director                                                                                                         
|/s/JONATHAN K. HSUJonathan K. Hsu         |  | Executive Vice President and Chief Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)
|/s/MARK E. MORANMark E. Moran             |  | Executive Vice President, General Counsel and Secretary                                                          

---



Exhibits
and Financial Statement Schedule/Index

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.6            |  | Agreement and Plan of Merger, dated October 30, 2001, between 24/7 Media, Inc., Continuum Holding Corp., PubliGroupe USA Holding, Inc. and Real Media, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's
filing on Form 8-K filed November 1, 2001)                                              
|2.7            |  | Asset Purchase Agreement by and among Naviant, Inc., 24/7 Mail., and 24/7 Real Media, Inc. dated as of April 30, 2002. (Incorporated by reference to Exhibit 1.1 to the Registrant's filing on Form 8-K filed May 3,
2002)                                                                                        
|2.8            |  | Asset Purchase Agreement dated as of September 19, 2002 among 24/7 Real Media, Inc., Elbit Vflash Inc. and Elbit Vflash Ltd. (Incorporated by reference to Exhibit 2.1 to the Registrant's filing on Form 8-K filed October 4,
 2002)                                                                             
|2.9            |  | Asset Purchase Agreement, dated as of January 21, 2003, by and among 24/7 Real Media, Inc., Insight First, Inc., and certain stockholder's name therein. (Incorporated by reference to Exhibit 2.1 to the Registrant's filing
on Form 8-K filed January 24, 2003)                                                 
|2.10           |  | Stock Purchase Agreement dated May 17, 2001 by and among Exactis.com, Inc., Direct Marketing Technologies and 24/7 Media (Incorporated by reference to Exhibit 1.1 to the Registrant's filing on Form 8-K filed June 7,
2001)                                                                                     
|2.11           |  | Stock Purchase Agreement dated January 22, 2002 by and among 24/7 Real Media, Inc., Imake Software & Services, Inc. and Schaszberger Corporation (Incorporated by reference by Exhibit 1.1 to the Registrant's filing on
Form 8-K filed February 6, 2002)                                                         
|2.12           |  | Share Acquisition Agreement, dated as of December 16, 2003, by and among 24/7 Real Media, Inc., Real Media Korea Co. Ltd. ("RMK") and the other selling shareholders of RMK (the "Selling Shareholders"). (Incorporated
by reference to Exhibit 2.1 to the Registrant's filing on Form 8-K filed January 12, 2004)
|2.13           |  | Escrow Agreement, dated as of January 6, 2004, by and among 24/7 Real Media, Inc., the Selling Shareholders and The Bank of New York, as escrow agent. (Incorporated by reference to Exhibit 2.2 to the
Registrant's filing on Form 8-K filed January 12, 2004)                                                   
|2.14           |  | Registration Rights Agreement, dated as of January 6, 2004, by and among 24/7 Real Media, Inc. and the Selling Shareholders. (Incorporated by reference to Exhibit 2.3 to the Registrant's filing on Form 8-K
filed January 12, 2004)                                                                             
|3.1            |  | Amended and Restated Certificate of Incorporation of the Company.(1)                                                                                                                                                                                                                                              
|3.2            |  | By-laws of the Company.(1)                                                                                                                                                                                                                                                                                        
|4.1            |  | Specimen Common Stock Certificate (Incorporated by reference to Exhibits to the Registrant's Registration Statement on Form S-1 filed June 4, 1998                                                                                                                                                                
|4.2            |  | Note dated October 30, 2001 issued by Real Media, Inc. in favor of PubliGroupe USA, Inc. (Incorporated by reference to Exhibit 2.2 to the Registrant's filing on Form 8-K filed November 1, 2001)                                                                                                                 
|4.3            |  | Form of Note by 24/7 Media, Inc. in favor of PubliGroupe USA Holding, Inc. (Incorporated by reference to Exhibit 2.3 to the Registrant's filing on Form 8-K filed November 1, 2001)                                                                                                                               
|4.4            |  | Guarantee dated October 30, 2001 by 24/7 Media, Inc. in favor of PubliGroupe USA Holding, Inc. (Incorporated by reference to Exhibit 2.4 to the Registrant's filing on Form 8-K filed November 1, 2001)                                                                                                           
|4.5            |  | Certificate of Designation of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant's filing on Form 8-K filed July 4, 2002)                                                                                                                                          
|4.6            |  | Series A and Series A-1 Preferred Stock and Common Stock Warrant Purchase Agreement dated as of July 2, 2002 between the Company and Sunra Capital Holdings Limited (Incorporated by reference to Exhibit 10.1 to the
Registrant's filing on Form 8-K filed July 12, 2002)                                        
|4.7            |  | Form of Warrant to purchase Common Stock. (Incorporated by reference to Exhibit 10.2 to the Registrant's filing on Form 8-K filed July 3, 2002)                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                   

---

|4.8   |  | Investor Rights Agreement dated as of July 2, 2002 among the Company, Sunra and Merchant Partners LLC. (Incorporated by reference to Exhibit 10.3 to the Registrant's filing on Form 8-K filed July 3, 2002)                                                                                                 
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9   |  | Amendment No. 1 to Series A and A-1 Preferred Stock and Common Stock Warrant Purchase Agreement, dated as of August 7, 2002, by and between 24/7 Real Media, Inc. and Sunra Capital Holdings Limited. (Incorporated by
reference to Exhibit 5.1 to the Registrant's filing on Form 8-K filed August 13, 2002)
|4.10  |  | Voting Agreement, dated as of August 8, 2002, by and between 24/7 Real Media, Inc. and Sunra Capital Holdings Limited. (Incorporated by reference to Exhibit 5.2 to the Registrant's filing on Form 8-K filed August 13,
2002)                                                                               
|4.11  |  | Certificate of Designation of Series B Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant's filing on Form 8-K filed October 4, 2002)                                                                                                                                  
|4.12  |  | Series B Preferred Stock Purchase Agreement dated September 19, 2002 among 24/7 Real Media, Inc., Elbit Ltd. and Gilbridge, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's filing on Form 8-K filed
October 4, 2002)                                                                    
|4.13  |  | Investor's Rights Agreement dated as of September 19, 2002 by and among 24/7 Real Media, Inc., Elbit Ltd., Gilbridge, Inc and Elbit Vflash, Inc. (Incorporated by reference to Exhibit 10.2 to the Registrant's filing on
Form 8-K filed October 4, 2002)                                                    
|4.14  |  | Securities Purchase Agreement, dated September 26, 2003, by and between the Company and The Riverview Group LLC ("Riverview"). (Incorporated by reference to Exhibit 4.1 to the Registrant's filing on
Form 8-K filed on September 29, 2003)                                                                 
|4.15  |  | Form of Debenture issued to Riverview. (Incorporated by reference to Exhibit 4.2 to the Registrant's filing on Form 8-K filed on September 29, 2003)                                                                                                                                                         
|4.16  |  | Form of Warrant to purchase Common Stock issued to Riverview. (Incorporated by reference to Exhibit 4.3 to the Registrant's filing on Form 8-K filed on September 29, 2003)                                                                                                                                  
|4.17  |  | Registration Rights Agreement dated as of September 26, 2003 by and between the Company and Riverview. (Incorporated by reference to Exhibit 4.4 to the Registrant's filing on Form 8-K filed on
September 29, 2003)                                                                                         
|4.18  |  | Escrow Agreement dated as of September 26, 2003 by and between the Company and Riverview. (Incorporated by reference to Exhibit 4.5 to the Registrant's filing on Form 8-K filed on September 29,
2003)                                                                                                      
|4.19  |  | Certificate of Designation of Series C Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant's filing on Form 8-K filed on June 12, 2003)                                                                                                                                 
|4.20  |  | Form of Warrant to purchase Common Stock. (Incorporated by reference to Exhibit 10.3 to the Registrant's filing on Form 8-K filed on June 12, 2003)                                                                                                                                                          
|10.1  |  | 1998 Stock Incentive Plan.(1)                                                                                                                                                                                                                                                                                
|10.2  |  | 2001 Stock Incentive Plan for Non-Officers.(2)                                                                                                                                                                                                                                                               
|10.3  |  | 2001 Equity Compensation Plan.(2)                                                                                                                                                                                                                                                                            
|10.4  |  | Form of Stock Option Agreement.(1)                                                                                                                                                                                                                                                                           
|10.6  |  | 2002 Equity Compensation Plan. (Incorporated by reference to Exhibit 10.6 to the Registrant's filing on Form 10-K filed on March 31, 2003)                                                                                                                                                                   
|10.8  |  | Employment Agreement, by and between 24/7 Real Media, Inc. and Norman M. Blashka. (Incorporated by reference to Exhibit 10.8 to the Registrant's filing on Form 10-K filed on March 31, 2003)                                                                                                                
|10.12 |  | GlobalCenter Master Service Agreement, dated May 1, 1998.(1)                                                                                                                                                                                                                                                 
|10.22 |  | Agreement and Plan of Merger dated as of January 9, 2000 among the Company, Killer-App Holding Corp., Sabela Media, Inc., Freshwater Consulting Ltd., James Green and Galmos Holdings Ltd.(3)                                                                                                                
|10.23 |  | Agreement and Plan of Merger dated as of December 31, 1999 among the Company, Mercury Holding Company, IMAKE Software & Services, Inc., IMAKE Consulting, Inc., Mark L. Schaszberger and Trami Tran.(3)                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                              

---

|10.24 |  | Agreement and Plan of Merger dated as of February 2, 2000 among the Company, 24/7 Awards Holding Corp., AwardTrack, Inc., MemberWorks Incorporated, Brian Anderson, National Discount Brokers Group, Inc., Jeffrey Newhouse,
John Watson, Gregory Hassett, Randy Moore and Jack Daley.(3)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | Agreement and Plan of Merger dated as of February 29, 2000 by and among 24/7 Media, Inc., Evergreen Acquisition Sub Corp. and Exactis.com, Inc.(4)                                                                                                                                       
|10.26 |  | Agreement and Plan of Merger, dated August 24, 2000, between 24/7 Media, Inc., WSR Acquisition Sub, Inc., Website Results, Inc. and the stockholders of Website Results.(5)                                                                                                              
|10.27 |  | 2002 Stock Incentive Plan. (Incorporated by reference to the Registrant's Proxy Statement filed on August 9, 2002)                                                                                                                                                                       
|10.28 |  | Services Agreement between Lycos, Inc. and 24/7 Real Media, Inc. dated February 11, 2004. (Incorporated by reference to Exhibit 99.2 to the Registrant's filing on Form 8-K filed February 11,
2004)                                                                                     
|10.29 |  | Letter Agreement, dated May 23, 2003, by and among 24/7 Real Media Inc., Real Media, Inc. and Publigroupe USA Holding, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's filing on Form 8-K
filed June 12, 2003)                                                       
|10.30 |  | Form of Series C-1 Preferred Stock and Common Stock Warrant Purchase Agreement. (Incorporated by reference to Exhibit 10.2 to the Registrant's filing on Form 8-K filed June 12, 2003)                                                                                                   
|10.31 |  | Form of Investor Rights Agreement. (Incorporated by reference to Exhibit 10.4 to the Registrant's filing on Form 8-K filed June 12, 2003)                                                                                                                                                
|10.32 |  | Form of Voting Rights Agreement. (Incorporated by reference to Exhibit 10.5 to the Registrant's filing on Form 8-K filed June 12, 2003)                                                                                                                                                  
|21.1  |  | List of Subsidiaries of the Company(6)                                                                                                                                                                                                                                                   
|23.1  |  | Consent of Goldstein Golub Kessler LLP.(6)                                                                                                                                                                                                                                               
|23.2  |  | Consent of KPMG LLP.(6)                                                                                                                                                                                                                                                                  
|31.1  |  | Certification of Principal Executive Officer.(6)                                                                                                                                                                                                                                         
|31.2  |  | Certification of Principal Financial Officer.(6)                                                                                                                                                                                                                                         
|32.1  |  | Written Statement of Chief Executive Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).(6)                                                                                                                                                     
|32.2  |  | Written Statement of Chief Financial Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).(6)                                                                                                                                                     

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