SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

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, 2004.             
|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

---

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

|Delaware(State or other jurisdiction of
incorporation or organization)          |  | 13-3995672(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------- |  | ----------------------------------------------
|132 West 31st Street
New York, New York(Address of principal executive offices) |  | 10001(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)

---

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 ý    NO o

As of June 30, 2004, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting
common equity held by non-affiliates of the registrant was $185,865,050. 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 $5.61, which is the price at which the common equity was last sold
on June 30, 2004. The registrant does not have any non-voting common equity outstanding.

The
number of outstanding shares of the registrant's common stock as of February 28, 2005 was 44,830,431.



---



24/7 REAL MEDIA, INC.
2004 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, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 21  
|6.       |  | Selected Financial Data                                                                                      |  | 22  
|7.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operation                         |  | 23  
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 58  
|8.       |  | Financial Statements and Supplementary Data                                                                  |  | 58  
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 58  
|9A.      |  | Controls and Procedures                                                                                      |  | 59  
|9B.      |  | Other                                                                                                        |  | 60  
|PART III |  |                                                                                                              |  |     
|10.      |  | Directors and Executive Officers of the Registrant                                                           |  | 61  
|11.      |  | Executive Compensation                                                                                       |  | 66  
|12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 71  
|13.      |  | Certain Relationships and Related Transactions                                                               |  | 75  
|14.      |  | Principal Accounting Fees and Services                                                                       |  | 76  
|PART IV  |  |                                                                                                              |  |     
|15.      |  | Exhibits and Financial Statement Schedules                                                                   |  | 78  

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

---





PART I

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 Operation" 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., and Decide Holdings Pty Limited, each a wholly owned subsidiary of 24/7 Real Media, Inc.

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 reverse split does not affect the number of shares of preferred stock and warrants outstanding, however, the conversion ratio was adjusted
accordingly. 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 1.BUSINESS.

24/7 REAL MEDIA

24/7 Real Media offers a suite of media services and software products and services for the online advertising needs of Web publishers and advertisers, including
Web representation, search engine marketing services, online advertisement serving and analytics. 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. Through 24/7 Search, we connect advertisers with consumers who use search engines to find information,
products and services. 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.

Our
Media Solutions is comprised principally of the 24/7 Web Alliance, through which we represent Web sites with brand names, quality content and global reach. We promote our media
representation services 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

1

---



Alliance
to advertisers seeking online strategies to target audiences, build their brands and generate greater customer response and greater return from their advertising spending.

Through
our Search Solutions, we provide 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. We use proprietary Decide DNA 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 and to help advertisers optimize their search budgets. Through our relationships with major search engines, we also help advertisers optimize
their Web pages and receive better placement in search results.

Technology
Solutions includes online advertising and analytics software licensed to customers and hosted locally on the customers' servers or services provided to customers from software
hosted centrally on our servers.

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 18 sales
locations in 11 countries throughout North America, Europe, Asia and Australia. In January 2004, we acquired Real Media Korea Co. Ltd. ("RMK"), a leading provider of Internet advertising
and marketing solutions in the Republic of South Korea. In August 2004, we acquired Decide Holdings Pty Limited ("Decide"), a
leading provider of search engine marketing services. Our patent-protected technology is the foundation of our award-winning advertising delivery, management and analytics platform.

See
Note 18 to the Consolidated Financial Statements for revenue and income (loss) from operations 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 efficiently 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 reach target audiences.

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 their interests as well as relevant and informative advertising.

2

---



Challenges Facing Web Publishers

Specific challenges of many Web publishers include:



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:



3

---





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.

Lack of comprehensive solution set.Web publishers face increasing competition as they strive to build better relationships
with users, maximize revenues and minimize costs. They also need to ensure that their advertising inventory is used profitably. As a result, publishers need a single provider of media and technology
solutions that offers cost-efficient, comprehensive solutions and simplified execution.

Technology limitations.Given the increased number of Web sites and the associated audience fragmentation, Web publishers and
advertisers need flexible advertising delivery and management technology that can collect and protect the information generated by users interacting on Web sites. The technology must be capable of
delivering all types of advertisement formats used by Web sites and other emerging interactive media, including standard banners and rich media advertisements containing moving graphics, sound and
video. Finally, the technology must scale to deliver high volumes of advertisements without significant incremental costs or risk of system failure.

Need for superior customer service.Web publishers must serve an increased number of advertisements, carefully monitor and
analyze customer traffic and behavior and provide timely billing. These activities require that technology vendors provide consistently high levels of customer service. To support the
increasingly sophisticated needs of Web publishers, customer service must include the ability to analyze and interpret a customer's key data.

Need for global presence.Given the increased number of Web sites and advertising approaches and the resulting audience
fragmentation, Web publishers and advertisers seek a solution that enables them to have superior targeted marketing that reaches global audiences and consumers in established as well as emerging,
high-growth online advertising markets. As a result, Web publishers and advertisers need service providers with global presence to expand beyond a single country or other geographic
region.

24/7 REAL MEDIA'S SOLUTION

24/7 Real Media offers a suite of media services and software products and services for the online advertising needs of Web publishers and advertisers, including
Web representation, search engine marketing services, online advertisement serving and analytics. 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. Through 24/7 Search, we connect advertisers with consumers who use search engines to find information,
products and services. 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. We sell our products and services worldwide from 18 sales locations in 11 countries throughout North America, Europe, Asia and Australia.

Benefits to Web Publishers and Advertisers

Our media, search 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

4

---



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 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 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 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.

Through
24/7 Search, we connect advertisers with consumers who use search engines to search for information about products and services. Our 24/7 Search services help 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.

5

---



Global Presence

We sell our products and services worldwide from 18 sales locations in 11 countries throughout North America, Europe, Asia and Australia. Through our global sales
and marketing organization, we 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 to support the sale, installation and customization of technology solutions in almost any major local market. For international
advertisers, we 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.

24/7 REAL MEDIA'S GROWTH STRATEGY

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



6

---





OUR PRINCIPAL LINES OF BUSINESS

Media Solutions ("Media")

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 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






7

---







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 based on the following characteristics:
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 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

8

---



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 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.

Search Solutions ("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 search engines, whom we refer to as distribution partners, we also help advertisers
optimize their Web pages to receive better placement in search results.

24/7
Search provides the following services:



9

---





10

---







Decide DNA Technology

Our proprietary Decide DNA technology drives all of our search solutions and was designed exclusively as an application to support search marketing services.
Using Decide DNA, 24/7 Search implements, measures and optimizes all forms of search engine traffic, with extensive capabilities in pay-for-placement, paid inclusion and
organic search engine listings. We intend to seek to license Decide DNA technology on a standalone basis to clients later in 2005.

Feed Management.We believe Decide DNA technology provides a flexible automated approach to receiving source content or data
from customer Web sites then loading, structuring and optimizing data in the Decide DNA database. The technology powers the process of creating paid inclusion data feeds by using data elements within
the Decide DNA database and keyword terms within templates based on the requirements of each of our search engine distribution partners. Our client data feeds are automatically generated and submitted
to our distribution partners.

Bid Management.We use Decide DNA technology to move the emphasis of keyword bid strategies from out bidding the competition,
a common strategy of many bid management tools, to optimizing based on our client's return-on-investment ("ROI") value and most efficiently using our clients' campaign budgets.
Decide DNA technology provides automated management and optimization of pay-for-placement campaigns on all major search engines. Decide DNA technology optimizes based on
evaluating several campaign variables in the following ways:



Content to Keyword.We believe analyzing data from successful paid inclusion campaigns is one of the best methods of
pay-for-placement keyword research. Decide DNA technology automates the process of collecting large numbers of keyword terms where user search queries are matched to individual
Web page listings included in paid inclusion feeds. The system then automatically creates corresponding pay-for-placement listings with titles and descriptions driven by Web
page listings submitted by us. We believe this can significantly augment the performance of concurrent search marketing campaigns.

11

---



The
following chart illustrates the features and functionality of our Decide DNA technology:

Decide DNA Technology Features and Functionality

|General Features           |  |  |  | Support for multiple search products                                                                                                                                              
|-------------------------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  |  |  | Multiple data inputs including structured files, URL crawl, keywords                                                                                                              
|                           |  |  |  | Intelligent content optimization and active keyword repository                                                                                                                    
|                           |  |  |  | Automated production of SE feeds & listings                                                                                                                                       
|                           |  |  |  | In-depth traffic and financial reporting and analysis                                                                                                                             
|                           |  |  |  | ROI tracking                                                                                                                                                                      
|PayFor-Placement Features |  |  |  | Bid management of keywords                                                                                                                                                        
|                           |  |  |  | Expenditure tracking and estimation                                                                                                                                               
|                           |  |  |  | ROI assessment of creative                                                                                                                                                        
|                           |  |  |  | Customizable rules-based keyword optimization                                                                                                                                     
|                           |  |  |  | Search engine spend reconciliation                                                                                                                                                
|                           |  |  |  | Traffic and budget pacing control                                                                                                                                                 
|Paid Inclusion Features    |  |  |  | Content feed managementautomate input data from multiple sources                                                                                                                 
|                           |  |  |  | ROI assessment of creativeperformance of all title and description combinations                                                                                                  
|                           |  |  |  | Adding context to contentintelligent content grouping and filtering rules                                                                                                        
|                           |  |  |  | Customizable rules-based document/product optimization                                                                                                                            
|                           |  |  |  | Automated XML and SE editorial compliance                                                                                                                                         
|General Methodology        |  |  |  | Sophisticated keyword research and document management methods determine comprehensive, scalable and highly relevant search targeting.                                            
|                           |  |  |  | Utilize a client's Web site and database content to create and manage feeds for both paid inclusion and pay-for-placement distribution.                                           
|                           |  |  |  | Apply intelligent definition, structure, mark-up and automated optimization to the keyword and data content.                                                                      
|                           |  |  |  | Measure all aspects of traffic generation performance, e.g. traffic by search engine, search portal, time of day, keyword term, document URL, template version, content type, etc.
|                           |  |  |  | Measure Web site conversion events and customer ROI to a similar degree of detail                                                                                                 
|                           |  |  |  | Automate the process of utilizing data harvested from Paid Inclusion activity to develop comprehensive lists of relevant keyword terms to add to P4P search campaigns             
|                           |  |  |  | Use the concept of "define, test and measure" with multiple variations of optimization variables to find the best performing content, keywords and optimization methods           
|                           |  |  |  | Recognize that all the search marketing variables are subject to constant change and that search engine marketing is an ongoing, continuous optimization process                  

12

---



Technology Solutions ("Technology")

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:



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



13

---





Our
Insight software solutions offer Web publishers active campaign reporting and marketing intelligence and help advertisers measure, analyze 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, which is designed to run on
local servers operated by our customers. We believe this software application 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.

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 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.
Open AdStream Central is priced based on a cost-per-thousand-impression ("CPM").

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

14

---



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.

We
currently sell our OAD product primarily in Europe.

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:



Insight ACT, an application that is fully integrated with OAS, enables 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.

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



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

Content:
What type of content attracts the desired audience cluster?

Demographic:
What are the known or inferred characteristics of the cluster?

Commerce:
What type of products is the cluster likely to buy?

Advertising:
What is the relevant message to elicit a response from the cluster?

SALES AND MARKETING ORGANIZATION

We sell our products and services worldwide through a sales and marketing organization that includes 18 sales locations in 11 countries throughout North America,
Europe, Asia and Australia. In the United States, our sales force is located at our headquarters in New York and our sales locations in

15

---



Austin,
TX, Chicago, IL, Fort Washington, PA, Los Angeles, CA, San Francisco, CA, and Sunnyvale, CA. We also have sales offices in Australia, Canada, France, Germany, Spain, Sweden, Switzerland, the
United Kingdom, Japan 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.

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. 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.

INTELLECTUAL PROPERTY

We own U.S. Patent No. 6,026,368 (the "Patent") entitled "On-Line Interactive System And Method For Providing Content And Advertising
Information To A Targeted Set of Viewers." Licensees of the Patent include DoubleClick, Advertising.com, Accipiter, ValueClick and several smaller technology providers. The Patent, which expires in
2015, embodies pioneering technology in the field of targeted delivery of content. The 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. We also own U.S. Patent No. 6,601,041 entitled "Method
of Providing Targeted Advertisement to a Computer Mediated Communications Network," which covers methods 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.

16

---



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 Decide
DNA. 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.

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:



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 as well as some smaller niche online advertising networks. 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.

Search Solutions

24/7 Search competes with several other companies that provide service optimization, including DoubleClick/Performics, aQuantive/GoToast, Did-It,
iProspect and Advertising.com. as well as start-up companies with untested search marketing solutions. In addition, Overture, Google and FindWhat also provide search engine marketing
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, Accipiter, Falk, and ValueClick.

EMPLOYEES

As of February 1, 2005, we employed approximately 325 persons worldwide, including approximately 182 in sales and marketing, 50 in technology and product
development and 57 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.

17

---





COMPANY INFORMATION

Our Internet website address iswww.247realmedia.com. Through our Internet website, we will make available, free
of charge, the following reports as soon as reasonably practicable after electronically filing them with, or furnishing them to, the Securities and Exchange Commission: our annual report on
Form 10-K; our quarterly reports on Form 10-Q; our current reports on Form 8-K; and amendments to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934, as amended. Our Proxy Statements for our Annual Stockholder Meetings are also available through our Internet website. Our Internet website
and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

You
may also obtain copies of our reports without charge by writing to:



RECENT DEVELOPMENTS

In February 2005, we expanded our operations into Japan to leverage the growth in online advertising in Japan and strengthen our leading position in the
search engine marketing space. The Tokyo office significantly expands our existing Asia Pacific presence and is a key milestone in our global growth strategy.

ITEM 2.PROPERTIES.

Our principal executive offices are located at 132 West 31st Street, New York, New York. They consist of approximately 25,300 square feet under a
lease that expires in 2011 and provides for total annual rent of approximately $650,000, subject to increase annually to reflect increases in operating expenses.

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



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.

18

---



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 sought 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 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. In March 2004, the Federal Circuit Court of Appeals affirmed,
without opinion, the July 2003 decision of the U.S. Federal Court for the Western District of Washington. We filed a request for rehearing but that was denied on May 7, 2004.

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 subsequently refiled the complaint and we filed a counterclaim. Discovery has concluded and a trial was scheduled for October 2004. However,
Mr. Anderson's counsel resigned as counsel on the eve of the trial. The proceedings have been halted until Mr. Anderson obtains new counsel.

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.

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 requested chinadotcom to reimburse him for all of his legal expenses. chinadotcom appealed the dismissal of its
claim. We filed a motion to dismiss.

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 sought damages totaling $24.0 million. We believed chinadotcom's claims were without merit. We filed an Answer
and Counterclaim in the matter.

On
June 1, 2004, a settlement was reached where all claims were released and all litigation matters were terminated.

19

---



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

We held our Annual Meeting of Stockholders on October 26, 2004.

The
stockholders elected Arnie Semsky and Tony Schmitz as Class III directors, for three-year terms expiring at the 2007 Annual Meeting of Stockholders or until the
election and qualification of their respective successors.

The
stockholders approved an amendment to the our 2002 Stock Incentive Plan to increase the number of shares that may be subject to awards thereunder by 4,000,000 and to increase the
number of incentives that may be granted in any one year to an individual.

The
stockholders ratified the appointment of Goldstein Golub Kessler LLP as our independent certified public accountants for the year ending December 31, 2004.

Shares
of common stock were voted as follows:

|Director Nominee or Proposal           |  | For        |  | Against/
Withheld |  | Abstentions |  | Broker
Non-Votes
|-------------------------------------- |  | ---------- |  | ----------------- |  | ----------- |  | ----------------
|Arnie Semsky                           |  | 41,636,566 |  | 547,793           |  |            |  |                
|Tony Schmitz                           |  | 38,285,502 |  | 3,898,857         |  |            |  |                
|Amendment to 2002 Stock Incentive Plan |  | 16,266,730 |  | 11,664,881        |  |            |  | 14,262,748      
|Ratification of Accountants            |  | 40,854,326 |  | 208,472           |  | 1,121,561   |  |                

20

---



PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

From our initial public offering on August 13, 1998 until June 2002, our common stock was traded on the NASDAQ National Market under the symbol
"TFSM." In June 2002, we transferred our common stock to the NASDAQ SmallCap Market. The following table sets forth the range of high and low bid information (in dollars per share) prices of
the common stock, for the periods indicated, as reported by the NASDAQ SmallCap Market.

High

LowYEAR ENDED DECEMBER 31, 2003First Quarter

1.80

0.95Second Quarter

6.90

1.00Third Quarter

12.45

3.80Fourth Quarter

8.80

6.20YEAR ENDED DECEMBER 31, 2004First Quarter

11.90

5.78Second Quarter

8.20

3.22Third Quarter

5.61

2.21Fourth Quarter

4.67

2.80


On
February 28, 2005, the last reported sale price for our common stock on the NASDAQ SmallCap Market was $3.69.

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 February 28, 2005, there were 44,830,431 shares of our common stock, and 78,000 shares of our preferred stock outstanding. As of February 28, 2005, there were
approximately 494 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

The Company has previously reported in its Quarterly Report on Form 10-Q for the period ending September 30, 2004 sales of unregistered
securities in connection with its acquisition of Decide Holdings Pty Limited.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The information required by this Item 5 with respect to the securities authorized for issuance under equity compensation plans is incorporated by reference
from the section captioned "Securities

21

---



Authorized
for Issuance Under Equity Compensation Plans" in Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

ITEM 6.SELECTED FINANCIAL DATA.

The selected consolidated financial data as of December 31, 2004 and 2003, and for each of the years in the three-year period ended
December 31, 2004 have been derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of December 31, 2002, 2001 and
2000 and for each of the years in the two-year period ended December 31, 2001 are derived from our audited financial statements, which are not included herein. We believe that due
to the numerous acquisitions and dispositions that we made in recent years, the period to period comparisons for 2000 through 2004 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 Operation" and the
Consolidated Financial Statements and the related Notes thereto included elsewhere herein.

Year ended December 31,2004

2003

2002

2001

2000(in thousands, except per share amounts)CONSOLIDATED STATEMENTS OF OPERATIONS DATA:Revenues:Media

$
49,879

$
23,562

$
20,518

$
36,470

$
121,867Search


16,439


10,342


8,282





Technology


18,937


15,277


13,758


9,760


16,503Total revenues


85,255


49,181


42,558


46,230


138,370Cost of revenues:Media


35,197


14,676


13,692


32,213


95,020Search


10,571


6,947


5,629





Technology (exclusive of $0, $31, and $7, respectively reported below as stock-based compensation)


3,462


4,032


3,448


2,855


5,216Total cost of revenues


49,230


25,655


22,769


35,068


100,236Gross profit


36,025


23,526


19,789


11,162


38,134Gross profit percentage


42.3
%

47.8
%

46.5
%

24.1
%

27.6
%Operating expenses:Sales and marketing (exclusive of $250, $339, $68, $512, and $1,965, respectively, reported below as stock-based compensation)


16,647


12,584


12,675


19,825


41,353General and administrative (exclusive of $284, $803, $2,665, $1,206, and $2,306, respectively, reported below as stock-based compensation)


14,226


10,865


14,212


33,262


47,388Product development (exclusive of $4, $143, $50, $(60), and $215, respectively, reported below as stock-based compensation)


4,540


3,100


3,924


11,592


16,383Amortization of goodwill, intangible assets and deferred financing costs


4,331


2,724


2,057


14,087


110,975Stock-based compensation


538


1,316


2,790


1,658


4,486Restructuring costs


841


1,651


2,048


18,142


11,731Impairment of intangible assets


896


1,321





56,707


494,858Impairment of property & equipment


787











Loss (gain) on sale of non-core assets, net








327


(2,000
)

Write-off of acquired in process technology and merger related costs














636Total operating expenses


42,806


33,561


38,033


153,273


727,810Loss from operations


(6,781
)

(10,035
)

(18,244
)

(142,111
)

(689,676
)Interest (expense) income, net


(463
)

(343
)

(268
)

790


1,359Change in fair value of warrant liability


2,040














22

---



Gain on legal settlement


2,896











Impairment of investments


(1,052
)







(3,089
)

(101,387
)Other income (expense), net


228


(1,601
)

1,013


Gain on sale of investments











4,985


52,059Gain on exchange of patent rights, net














4,053Loss before provision for income taxes and discontinued operations


(3,132
)

(11,979
)

(17,499
)

(139,425
)

(733,592
)Provision for income taxes


(23
)

(37
)







Loss before discontinued operations


(3,155
)

(12,016
)

(17,499
)

(139,425
)

(733,592
)Loss from discontinued operations











(60,170
)

(46,330
)Net loss from continuing operations

$
(3,155
)
$
(12,016
)
$
(17,499
)
$
(199,595
)
$
(779,922
)Dividends on preferred stock


(306
)

(617
)

(189
)




Preferred stock conversion discount





(1,780
)

(6,628
)




Net loss from continuing operations attributable to common stockholders

$
(3,461
)
$
(14,413
)
$
(24,316
)
$
(199,595
)
$
(779,922
)Loss per common sharebasic and dilutedLoss attributable to common stockholders before discontinued operations

$
(0.10
)
$
(0.86
)
$
(2.29
)
$
(15.69
)
$
(109.94
)Loss from discontinued operations











(6.77
)

(6.94
)Net loss from continuing operations attributable to common stockholders

$
(0.10
)
$
(0.86
)
$
(2.29
)
$
(22.46
)
$
(116.88
)Weighted average shares outstanding used in basic and diluted loss per common share


35,373,973


16,817,502


10,600,191


8,887,705


6,672,723CONSOLIDATED BALANCE SHEET DATA:Cash and cash equivalents

$
27,690

$
21,645

$
7,674

$
6,974

$
24,852Working capital (deficit)


23,545


16,021


909


(8,529
)

21,072Goodwill


34,573


2,621


2,621


7,901


37,916Intangible assets, net


12,676


3,352


6,007


6,617


42,115Total assets


121,398


46,180


33,967


45,588


251,843Long-term obligations


7,175


17,247


9,603


4,633


258Total stockholders' equity


75,268


10,037


5,515


10,852


209,569


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

OVERVIEW

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 web representation, advertisement serving, analytics and search marketing services, and exited non-core businesses. In May 2001, we
divested Exactis, an e-mail business,
Sabela, an advertisement serving technology business, and AwardTrack, an online promotions and purchase rewards business. In January 2002, we divested IMAKE, a broadband convergence technology
business and in May 2002, we exited e-mail marketing in the U.S. by selling certain assets related to our U.S. e-mail management product. In January 2003, we sold
iPromotions, an online promotions business and acquired Insight First, Inc., a provider of Web analytics technology. During 2004, we acquired Real Media Korea Co. Ltd. ("RMK"), a
provider of media and technology solutions in South Korea, and Decide Holdings Pty Limited ("Decide"), a provider of search marketing services in Europe and Australia. The foregoing acquisitions and
dispositions may affect the comparability of our results from period to period.

23

---



We offer a comprehensive suite of media services and software products and services for the online advertising needs of Web publishers and advertisers, including Web representation,
search engine marketing, online advertisement serving and analytics. 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 affiliated Web sites aggregates Internet advertising inventory and
targets audience segments to attract advertisers worldwide. Through 24/7 Search, we connect advertisers with consumers who use search engines to find information, products and services. 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.

We
operate in three business segments: Media Solutions, Search Solutions and Technology Solutions.

Media Solutions ("Media")

We generate revenue from our Media segment from fees paid by client advertisers for advertising impressions. 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. We typically count an advertising
impression each time a request is made to our computer servers to transmit an advertisement to the Web browser of a user. We may charge higher CPMs to advertisers that use advanced targeting
solutions, such as our behavioral targeting solution, in comparison to those that use our content channel or run of network advertising solutions.

We
pay Web publishers included in the 24/7 Web Alliance a royalty for the advertising inventory they make available to us. The royalty generally does not exceed 65% of the gross
advertising revenue we generate from the Web publisher's advertising inventory, but may be more for Web publishers with larger numbers of historical and forecasted unique visitors, impressions and
page views; and widely recognized brand names, among other factors.

On
a very limited basis, we have generated revenue from e-mail advertisements and marketing.

Search Solutions ("Search")

We generate revenue from our Search segment primarily from cost-per-click ("CPC") fees paid by client advertisers when search engine users
click-through to their Web sites as a result of our submission of their Web site listings into search engine databases. To a lesser extent, we also generate revenue from fees paid by search engines
that employ us to optimize the submission of Web site listings and report on advertising campaigns for their advertisers. We develop relationships with pay-for-placement and
algorithmic search engines in order to provide search services to our client advertisers. We refer to search engines we work with as search engine distribution partners.

Our
search services include:



24

---





Our
growth rate depends substantially on our ability to increase the number of clicks on Web listings optimized and submitted by us for our client advertisers. In addition, we must
maintain the relationships we have with search engines. If we do not renew our agreements with search engine distribution partners or build new relationships when distribution agreements are
terminated, or if our distribution partners' search businesses do not grow or are adversely affected, our revenue and results of operations may be materially and adversely affected. Our growth rate
also depends in part on our ability to increase the number and volume of transactions with client advertisers. We believe this depends in part on managing accounts and search campaigns that result in
purchases or conversions for our client advertisers.

25

---



Technology Solutions ("Technology")

Our Open AdSystem technology includes software licensed to customers and hosted locally on the customers' servers. We also provide an array of services to our
customers. We generate revenue from our Technology segment in the following ways:



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.

Through
our acquisition of Decide, we provide paid search engine marketing services and technology using the Decide DNA technology. Using our Decide DNA service, an advertiser can manage
bidding on keywords and phrases simultaneously across several search engines, setting cost-per-acquisition targets to achieve a desired return for their advertising spending.
As a result of our acquisition of Decide, we have replaced our former Insight SE technology with Decide DNA. We expect to begin third-party licensing of Decide DNA in 2005.

CRITICAL ACCOUNTING POLICIES

General

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

26

---



estimates,
judgments and assumptions that management believes are reasonable based upon the information available. These estimates, judgments 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.

The
significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:

Revenue Recognition; Cost of Revenues

Media

Our Media revenues are generated from fees paid by client advertisers for advertising impressions. E-mail related revenue is derived from delivering
advertisements to e-mail lists. We typically offer advertisers a pricing model based on CPM, which enables client advertisers to pay a fee based on the number of times its advertisement is
viewed. Agreements are primarily short-term and revenues are recognized as services are delivered provided that no significant obligations remain outstanding and collection of the
resulting receivable is probable. We become obligated to make royalty payments to Web sites and e-mail lists that have contracted with us, 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.

Search

We generate revenue from our Search segment primarily from fees paid by client advertisers when users click-through to their Web sites as a result of our
submission of their Web site listings into search engines databases. To a lesser extent, we also generate revenue from fees paid by search engines that employ us to optimize the submission of Web site
listings and report on advertising campaigns for their advertisers. Agreements are primarily short-term and revenues are recognized as services are delivered provided that no significant
obligations remain outstanding and collection of the resulting receivable is probable. We become obligated to make payments to search engine distribution partners, which have contracted us, in the
period the clicks are delivered. Such expenses are classified as cost of revenues in the consolidated statements of operations. In specific circumstances, when we provide search marketing services as
an agent for a fixed commission or otherwise in transactions in which we do not have principal risk and reward, we recognize revenue on a net basis.

Technology

Our Technology revenues are derived primarily from licensing our software, hosted advertisement serving, and software maintenance and technical support services.
Revenue from software licensing agreements is recognized in accordance with Statements of Position ("SOP") No. 97-2,Software Revenue
Recognition, and Staff Accounting Bulletin ("SAB") 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. Contracts that bundle the software license with software maintenance and technical support are recognized
ratably over the contract term. Revenue from advertisement serving is recognized upon delivery. Revenue from software maintenance and technical support contracts is recognized ratably over the life of
the agreement, which typically does not exceed one year.

Expenses
related to our Technology revenues are primarily payroll costs incurred to deliver and support the software, hosting, bandwidth and license fees paid to third-party software
vendors. These expenses are classified as cost of revenues in the consolidated statements of operations.

27

---



Deferred Revenue

Revenues that are billed or collected in advance of services being completed are deferred until the conclusion of the period of the service for which the advance
billing or collection relates. Deferred revenues are included on the consolidated balance sheets as a current liability until the service is performed and then recognized in the period in which the
service is completed. Our deferred revenues primarily consist of billings in advance for software license subscriptions and software maintenance and technical support services.

Allowance for Doubtful Accounts; Sales Allowance

We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables and a sales allowance to reserve for potential credits issued
to customers. The allowances are estimates calculated based on an analysis of current business and economic risks, customer credit-worthiness, specific identifiable risks such as bankruptcies,
terminations or discontinued customers, or other factors that may indicate a potential loss.

Valuation of Goodwill, Intangible Assets and Long-Lived Assets

Effective January 1, 2002, we adopted Statement of Financial Standards ("SFAS") No. 142,Goodwill and Other Intangible
Assetsand 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.

Goodwill
and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Conditions that
would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair
value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell.

Business Combinations

Our acquisitions are accounted for as purchase business combinations in accordance with SFAS No. 141,Business
Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. We allocate the purchase price of tangible and
intangible assets, and record as goodwill, the excess of purchase price over the fair value of the identifiable net assets acquired. Intangible assets include trademarks, customer relationships,
acquired technology and covenants not to compete. Such intangible assets are amortized on a straight-line basis over their estimated useful lives, which are generally four to seven years.

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 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.

28

---



Restructuring Activities

Restructuring activities are accounted for in accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal
Activities. Restructuring-related liabilities include estimates for, among other things, involuntary terminations of employees and disposition of lease obligations. Key
variables in determining such estimates include timing of sublease rentals, estimates of sublease rental payment amounts and tenant improvement costs, and estimates for brokerage and other related
costs. The Company periodically evaluates and, if necessary, adjusts the estimates based on currently available information.

Short-Term Investments

SFAS 115,Accounting for Certain Investments in Debt and Equity Securities, and Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") 59,Accounting for Non-current
Marketable Equity Securities, provide guidance on determining when an investment is other-than-temporarily impaired. Investments are reviewed quarterly
for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, we evaluate, among other factors, the duration and
extent to which the fair value of an investment is less than its cost; the financial health of the investee; and our intent and ability to hold the investment. Investments with an indicator are
further evaluated to determine the likelihood of a significant adverse effect on the fair value and amount of the impairment as necessary. If market, industry and/or investee conditions deteriorate,
we may incur future impairments.

RESULTS OF OPERATIONS2004 COMPARED TO 2003

In August 2004, we acquired Decide Holdings Pty Limited ("Decide"), a provider of search marketing services in Europe and Australia. We retained
approximately 54 employees from Decide. It is not possible to attribute revenue to Decide subsequent to our acquisition as all of our existing Search relationships were transitioned to be serviced by
Decide's DNA technology.

In
January 2004, we acquired Real Media Korea Co., Ltd. ("RMK"), a leader in interactive marketing in Seoul, South Korea. Revenue contributed by RMK for the year ended
December 31, 2004 was approximately $12.6 million. We retained approximately 45 employees from RMK.

In
January 2003, we acquired Insight First, Inc. ("Insight First"), a provider of Web analytics technology.

29

---



The
following table compares the results of operations for the 2004 results of operations to 2003 results of operations:

Years ended December 31,Dollar
Variance2004

2003(in thousands)CONSOLIDATED STATEMENTS OF OPERATIONS DATA:Revenues:Media

$
49,879

$
23,562

$
26,317Search


16,439


10,342


6,097Technology


18,937


15,277


3,660Total revenues


85,255


49,181


36,074Cost of revenues:Media


35,197


14,676


20,521Search


10,571


6,947


3,624Technology


3,462


4,032


(570
)Total cost of revenues


49,230


25,655


23,575Gross profit


36,025


23,526


12,499Gross profit percentage


42.3
%

47.8
%

5.6
%Operating expenses:Sales and marketing


16,647


12,584


4,063General and administrative


14,226


10,865


3,361Product development


4,540


3,100


1,440Amortization of intangible assets and deferred financing costs


4,331


2,724


1,607Stock-based compensation


538


1,316


(778
)Restructuring costs


841


1,651


(810
)Impairment of intangible assets


896


1,321


(425
)Impairment of property & equipment


787





787Total operating expenses


42,806


33,561


9,245Loss from operations


(6,781
)

(10,035
)

3,254Interest expense, net


(463
)

(343
)

(120
)Change in fair value of warrant liability


2,040





2,040Gain on legal settlement


2,896





2,896Impairment of investments


(1,052
)




(1,052
)Other income (expense), net


228


(1,601
)

1,829Loss before provision for income taxes


(3,132
)

(11,979
)

8,847Provision for income taxes


(23
)

(37
)

14Net loss

$
(3,155
)
$
(12,016
)
$
8,861


Media.

Revenue.Media revenue is primarily derived from the 24/7 Web Alliance. 24/7 Web Alliance revenue was
$48.6 million for the year ended December 31, 2004 as compared to $21.4 million, an increase of 126.5%. The increase is primarily related to sales of additional advertising
inventory provided by Lycos, Inc. Web sites ("Lycos") and arrangements for inventory acquired with RMK. The number of impressions delivered through the 24/7 Web Alliance increased from
24.8 billion in 2003 to 59.3 billion in 2004. RMK contributed Media revenue of $11.8 million for the year ended December 31, 2004. Our e-mail services
contributed revenue of $1.3 million in 2004 and $2.0 million in 2003. We expect e-mail services revenue to continue to decline as we focus on our core businesses.

30

---



Cost Of Revenues.Media cost of revenues consists primarily of fees paid to Web publishers in the
24/7 Web Alliance. Cost of
revenues also includes advertisement serving costs, which is an intercompany charge from the Technology segment based on a fixed CPM.

Gross Profit.Gross profit margins for Media were 29.4% in 2004 and 37.7% in 2003. The decrease primarily reflects Web
publisher accounts with higher royalty rates acquired with RMK which accounts for approximately 5.1 percentage points of the decrease. The decrease also reflects higher royalty rates paid to
larger Web sites for their advertising inventory, primarily Lycos. Advertisement serving costs were $1.5 million for 2004 and $1.1 million for 2003, representing 4.2% and 7.2% of total
Media cost of revenues, respectively.

Search.

Revenue.Search revenue was $16.4 million for the year ended December 31, 2004 as compared to $10.3 for the
year ended December 31, 2003, an increase of 59.0%. The increase was due primarily to the addition of new advertiser accounts from the acquisition of Decide and from an increased number of
clicks delivered to our client advertisers as a result of growth in the businesses of our search engine distribution partners. We also believe the foregoing factors, combined with our sales efforts
and improved operational controls, have contributed to an increase in the average revenue per advertiser account. In May 2003, Inktomi, a search engine that generated $2.1 million of
2003 Search revenue, terminated its distribution agreement with us.

Cost Of Revenues.Search cost of revenues consists primarily of fees paid to our search engine distribution partners, which
are calculated as a percentage of revenues for algorithmic search engines and a fixed CPC for pay-for-placement search engines. Search cost of revenues also includes hosting
and bandwidth charges associated with the infrastructure.

Gross Profit.Gross profit margins for Search were 35.7% in 2004 and 32.9% in 2003. The increase is due to a change in
product mix primarily as a result of the addition of high margin Optimization services for both advertisers and search engine distribution partners acquired with Decide. In Managed Account Services,
the higher growth rate of pay-for-placement campaigns relative to the higher margin paid inclusion campaigns also decreased the overall gross margin
percentage. The gross margin percentage on paid inclusion campaigns has remained consistent; however, the gross margin percentage on pay-for-placement campaigns has been
adversely effected by increased bid prices and competition.

Technology.

Revenue.Technology revenue was $19.0 million for the year ended December 31, 2004, as compared to
$15.3 million for the year ended December 31, 2003, an increase of 24.0%. The increase primarily reflects expanded usage by customers of Open AdStream Central, usage by new customer,
and, to a lesser extent, additional customers acquired with RMK. In particular, Open AdStream Central delivered 93.6 billion paid impressions in 2004, up from 40.1 billion in 2003. RMK
contributed Technology revenue of $0.7 million for the year ended December 31, 2004.

Cost of Revenues.Technology cost of revenues consists of costs for hosting, bandwidth, third-party license and support fees,
support and maintenance of the infrastructure, including salaries and benefits of related technical personnel. The cost of revenues is offset by fees charged to our Media segment for advertisement
serving.

Gross Profit.Gross profit margins for Technology were 81.7% in 2004 and 73.6% in 2003. The increase in gross profit margins
is due to leveraging the existing cost base over higher revenues and declining costs for hosting and bandwidth.

31

---



Sales And Marketing Expenses.

Sales and marketing expenses consist primarily of compensation and personnel related expenses for sales, account management, business development, affiliate
relations and marketing; and marketing costs such as advertising, trade shows and public and investor relations firms.

Sales
and marketing expenses were $16.6 million for the year ended December 31, 2004 and $12.6 million for the year ended December 31, 2003. The increase was
primarily due to additional personnel-related
costs and an increase in marketing activities. Sales and marketing expenses decreased as a percentage of revenue from 25.6% in 2003 to 19.5% in 2004, as we were able to gain operating leverage. The
number of employees included in sales and marketing increased from 104 at December 31, 2003 to 183 at December 31, 2004, primarily due to the addition of 34 employees from RMK and 35
from Decide.

General And Administrative Expenses.

General and administrative expenses consist primarily of compensation and related expenses for executive and administrative personnel; costs related to leasing,
maintaining and operating our facilities and systems; insurance; bad debts; fees for professional services; fees associated with the reporting and other obligations of a public company; depreciation
and other general and administrative services. Fees for professional services include payments to external lawyers, accountants, and other professionals in connection with operating our business,
compliance and evaluating and pursuing new opportunities.

General
and administrative expenses were $14.2 million for the year ended December 31, 2004 and $10.9 million for the year ended December 31, 2003. The
increase was due primarily to an increase in employee headcount from 42 at December 31, 2003 to 58 and December 31, 2004, 12 of which are related to acquisitions. General and
administrative expenses for 2004 also include approximately $1.0 million in Sarbanes-Oxley related compliance costs. As a percentage of revenue, the expenses decreased from 22.1% to 16.7% for
2003 and 2004, respectively, showing increased leverage of these expenses over a larger revenue base.

Product Development Expenses.

Product development expenses consist primarily of compensation and related expenses for personnel responsible for the development and maintenance of features,
enhancements and functionality and quality assurance for our software and services and development of new products.

Product
development expenses were $4.5 million for the year ended December 31, 2004 and $3.1 million for the year ended December 31, 2003. We capitalized
approximately $0.3 million and $0.4 million for the years ended December 31, 2004 and 2003, respectively. The capitalization in 2004 relates to DNA which was acquired with Decide.
The capitalization in 2003 relates to Open Advertiser. We ceased capitalization related to Open Advertiser when it was commercially released in June 2003. The remaining increase was related to
the development of our Insight SE and Insight ACT products and further enhancements to our Insight XE and Open AdStream products. The number of employees included in product development increased from
30 at December 31, 2003 to 48 at December 31, 2004.

We
expect that product development expenses will increase in absolute dollars to the extent that we increase the number of personnel and consultants to enhance our products and services.

Amortization Of Intangible Assets And Deferred Financing Costs.

Amortization expense relates to intangible assets acquired with 24/7 Search in August 2000, Real Media in October 2001, Now Marketing in
September 2002, Insight First in January 2003, RMK in January 2004 and Decide in August 2004; deferred financing costs associated with the subordinated

32

---



convertible
debenture offering in September 2003; and the transition payment to Lycos in February 2004.

Amortization
expense was $4.3 million for the year ended December 31, 2004 and $2.7 million for the year ended December 31, 2003. For 2004, amortization
expense related $2.3 million to acquired technology, $0.7 million to other intangible assets, $0.6 million to deferred financing costs and $0.7 million to the transition
payment to Lycos. In December 2004, we impaired the analytics technology that was acquired with Insight due to significant rewrite of the underlying software code during 2004. The remaining
balance of $0.9 million, inclusive of an earn-out amount of $250,000 due to Insight, was considered impaired at December 31, 2004. Amortization expense for 2003 related
$2.5 million to acquired technology, $0.1 million to other intangible assets and $0.1 million to deferred financing costs. In the fourth quarter of 2003, the Company 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 the remaining
balance of $1.3 million was considered impaired.

Stock-Based Compensation.

Stock-based compensation was $0.5 million for the year ended December 31, 2004 and $1.3 million for the year ended December 31, 2003.
The expense for 2004 consists of $0.3 million accrued for potential performance incentives and $0.2 million in amortization of deferred compensation for restricted shares issued to
certain employees. The expense for 2003 consisted of $0.6 million in contractual incentives that were 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 incentives paid in stock and $0.2 million in salary for
certain employees who elected to receive stock instead of cash.

Restructuring Costs.

During 2004, we took steps to align our sales, development and administrative organization and reduce corporate overhead, partially related to redundancies due to
the acquisition of Decide. Our efforts involved the involuntary termination of approximately 17 employees, as well as charges for excess real estate space, primarily at our office in Germany. We
recorded a restructuring charge of approximately $0.8 million during 2004. 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.

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 values of goodwill and other long-lived assets to their fair values.

In
December 2004, we determined the analytics technology that was acquired with Insight was impaired due to significant rewrite of the underlying software code during 2004. The
remaining balance of $0.9 million, inclusive of an earn-out amount of $250,000 due to Insight, was written off as an impairment loss at December 31, 2004. 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. The remaining balance of $1.3 million was written off as an impairment loss.

33

---



Impairment Of Property And Equipment.

In the fourth quarter of 2004, we made the strategic decision to integrate OAD functionalities into our Open AdStream software and as a result we will reduce our
support for OAD. In addition, we did not achieve significant sales of OAD since its commercial release in June 2003. OAD was determined to be impaired at December 31, 2004 and the net
balance of $0.8 million was written off as an impairment loss.

Interest Expense, Net.

Interest expense, net relates to our long-term debt and capital lease obligations offset by interest income related to our cash and cash equivalents.
Interest expense, net was $0.5 million for the year ended December 31, 2004 and $0.3 million for the year ended December 31, 2003. Interest expense in 2004 primarily
relates to subordinated convertible debentures issued on September 26, 2003 of which a portion of the interest incurred relates to a cash payment due and a portion related to the amortization
of warrants issued with the debentures. 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 both periods was offset by interest income from cash in overnight deposits and money market accounts.

Change In Fair Value Of Warrant Liability.

Our liability relates to warrants outstanding from our preferred stock and subordinated convertible debenture offerings and is adjusted to fair value at the end
of each reporting period. The $2.0 million gain for the year ended December 31, 2004 is due to a decrease in the fair value of the warrants outstanding which reduced the corresponding
liability and a reduction in the warrant liability due to an amendment in the registration rights agreement related to the debenture warrants. The decrease in the fair value is primarily due to the
lower fair market value of our stock compared to when the warrants were issued.

Gain On Legal Settlement.

The $2.9 million gain on legal settlement for 2004 related to our legal settlement with chinadotcom Corporation ("chinadotcom"). We received
0.4 million shares of chinadotcom common stock valued at the market price on the date of settlement.

Impairment Of Investments.

During 2004, we wrote down our available-for-sale investment in chinadotcom and recognized an impairment charge of approximately
$1.1 million for other-than-temporary declines in the value of the investment.

Other Income (Expense), Net.

Other income of $0.2 million for the year ended December 31, 2004 includes $0.3 million in amounts recovered from a former subsidiary and
settlement of professional service fees offset by $0.1 million of legal fees and other expenses relates to previous patent litigation. 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 were no longer considered necessary.

34

---



Dividends On Preferred Stock.

Our preferred stock accrue and accumulate dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by our 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 of the preferred stock payable upon a
sale, merger, liquidation, dissolution or winding up of the Company. Accrued but unpaid dividends are cancelled upon conversion of the preferred stock. After giving effect to conversions in 2004,
78,000 shares of preferred stock were outstanding at December 31, 2004.

RESULTS OF OPERATIONS2003 COMPARED TO 2002

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

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

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.

35

---



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

Years ended December 31,Dollar
Variance2003

2002(in thousands)CONSOLIDATED STATEMENTS OF OPERATIONS DATA:Revenues:Media

$
23,562

$
20,518

$
3,044Search


10,342


8,282


2,060Technology


15,277


13,758


1,519Total revenues


49,181


42,558


6,623Cost of revenues:Media


14,676


13,692


984Search


6,947


5,629


1,318Technology


4,032


3,448


584Total cost of revenues


25,655


22,769


2,886Gross profit


23,526


19,789


3,737Gross profit percentage


47.8
%

46.5
%

-1.3
%Operating expenses:Sales and marketing


12,584


12,675


(91
)General and administrative


10,865


14,212


(3,347
)Product development


3,100


3,924


(824
)Amortization of intangible assets and deferred financing costs


2,724


2,057


667Stock-based compensation


1,316


2,790


(1,474
)Restructuring costs


1,651


2,048


(397
)Impairment of intangible assets


1,321





1,321Loss on sale of assets, net





327


(327
)Total operating expenses


33,561


38,033


(4,472
)Loss from operations


(10,035
)

(18,244
)

8,209Interest expense, net


(343
)

(268
)

(75
)Other (expense) income


(1,601
)

1,013


(2,614
)Loss before provision for income taxes


(11,979
)

(17,499
)

5,520Provision for income taxes


(37
)




(37
)Net loss

$
(12,016
)
$
(17,499
)
$
5,483


Media.

Revenue.Our Media revenue was derived from 24/7 Web Alliance 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 29.4%. The increase was due to increasing the amount of paid impressions by 61.0% from
15.4 billion in 2002 to 24.8 billion in 2003. The CPM declined slightly year over year primarily due to increasing the average advertising campaign order size, as large campaign orders
receive a lower price due to volume.

Other
Media Services revenue was generated primarily from e-mail and iPromotions. E-mail revenue decreased from $2.7 million in 2002 to $2.0 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.

36

---



Cost Of Revenues.Media cost of revenues consisted primarily of fees paid to Web sites included in
the 24/7 Web Alliance, and
to a lesser extent, e-mail list providers. 24/7 Web Alliance cost of revenues also included advertisement serving costs, which is an intercompany charge from the Technology segment based
on a fixed CPM.

Gross Profit.Gross margin increased from 33.3% in 2002 to 37.7% in 2003. The increase was due to lower advertisement serving
costs and an increase in revenue on the 24/7 Web Alliance which has a higher margin.

Search.

Revenue.Search revenue increased to $10.3 million in 2003 from $8.3 million in 2002, an increase of 24.8%.
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 19.2% 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!, 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.

Cost Of Revenues.Search cost of revenues included fees paid to search engine distribution partners, depreciation, hosting
and bandwidth costs.

Gross Profit.Gross margin increased from 32.0% in 2002 to 32.8% in 2003. Fees paid to search engine distribution partners
increased during the year, but were more than offset by price increases, declining depreciation and lower hosting and bandwidth costs.

Technology.

Revenue.Our Technology revenue was $15.3 million in 2003 and $13.8 million in 2002, an increase of 11.0%.
Revenue from our centrally hosted services, including Open AdStream Central, Open Advertiser and Insight XE, continued to grow during 2003 as impressions delivered climbed from 23.9 billion in
2002 to 50.7 billion in 2003. Open AdStream Central continued to be an attractive solution because 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 Open AdStream Local software. Accordingly, total contract value was recognized
ratably over the term of the license and service agreement rather than upon delivery as was the case in software licenses signed in 2002. If we had 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.

Cost of Revenues.The cost of Technology Solutions 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 Media segment for advertisement serving.

Gross Profit.Gross margin decreased from 74.9% in 2002 to 73.6% in 2003 as a result of an increase in broadband usage.
Adjusted for the change to a subscription-based contract model for our Open AdStream Local software, gross margin increased from 72.0% in 2002 to 73.6% in 2003 primarily due to decreased cost of
advertisement serving.

37

---



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 29.8% for 2002 to 25.6% 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.

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 33.4% in 2002 to 22.1% 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 consisted 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 related 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 incentives that were 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 incentives paid in
stock and $0.2 million in salary for certain employees who elected to receive stock instead of cash.

Stock-based
compensation of $2.8 million for 2002 consisted of $1.5 million in stock and options grants to executives for restructuring their employment agreements,
$0.4 million in contractual incentives 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 incentives 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.

38

---



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 excess office space at the corporate headquarters in New York. The $1.7 million charge consisted 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 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.

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 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. 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 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.

Interest Expense, Net.

Interest expense related to our notes payable and capital lease obligations and interest income related to our cash and cash equivalents. Interest expense in 2003
related 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 included $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.

39

---



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.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows for the years ended December 31, 2004, 2003 and 2002 were as follows (in thousands):

December 31,2004

2003

2002Net cash used in operating activities

$
(10,706
)
$
(4,756
)
$
(13,584
)Net cash (used in) provided by investing activities

$
(22,408
)
$
(1,452
)
$
3,662Net cash provided by financing activities

$
38,001

$
20,232

$
10,202


Since
inception, we have financed our operations through equity financings and long-term debt. We used approximately $10.7 million, $4.8 million, and
$13.6 million in 2004, 2003 and 2002, respectively, generally as a result of our net operating loss, adjusted for non-cash items included in our net operating results as well as
changes in various components of working capital, particularly the growth in accounts receivable. We generally pay our search engine distribution partners and some of our Web sites in advance of
receiving payments from our customers. In addition, the average number of days to collect from our customer have increased due to a greater portion of business with advertising agencies and expansion
into geographical regions which historically have a slower payment rate. These factors, combined with our growth rate and acquisitions, have led to an increase in accounts receivable and cash usage in
operating activities.

Net
cash used in investing activities was approximately $22.4 million in 2004. Those activities related $2.0 million to the acquisition of RMK, $15.7 million to the
acquisition of Decide, $2.0 million to short-term investments, and $2.7 million to capital expenditures. 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 in 2002
primarily related to proceeds received from the sale of non-core assets, net of expenses, and cash acquired in acquisitions offset by capital expenditures.

Net
cash provided by financing activities of $38.0 million in 2004 related to $37.2 million of net proceeds from our secondary offering of common stock and
$0.8 million of proceeds from the exercise of stock options and common stock warrants. 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

40

---



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.

No
provision for federal or state income taxes has been recorded because we incurred net operating losses for all periods presented. At December 31, 2004, we had approximately
$162.8 million of U.S. net operating loss carryforwards. Our net operating loss carryforwards expire in various years through 2024. As a result of various equity transactions during 2001, 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 2004 and 2003, the valuation allowance decreased by $1.6 million and $19.4 million, respectively. Of the total valuation allowance of
$69.6 million, tax benefits recognized in the future of approximately of $2.1 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.

We
continue to increase capital expenditures and operating lease commitments, which is consistent with our increased staffing and operational expansion, and we anticipate this will
continue in the future as business conditions merit. Additionally, we will continue to evaluate possible acquisitions of, or investments in businesses, products, and technologies that are
complementary to our business, which may require the use of cash. Management believes existing cash and investments will be sufficient to meet operating requirements for at least the next twelve
months; however, we may sell additional equity or debt securities or obtain credit facilities to further enhance our liquidity position. The sale of additional securities could result in further
dilution to our stockholders.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS AND CONTINGENCIES

Our contractual obligations at December 31, 2004 are as follows (in thousands):

Payments Due by PeriodTotal

Less than
1 year

13 years

35 years

More than
5 yearsLong-term debt obligations

$
15,000

$
7,500

$
7,500

$


$
Operating lease obligations, net of sublease income


9,642


2,874


3,402


1,845


1,521Capital lease obligations


90


48


42





Dividends on preferred stock


74


74








Warrant liability


516


516








Other long-term liabilities


228


21


207





$
25,550

$
11,033

$
11,151

$
1,845

$
1,521


Long-Term Debt.The $15.0 million subordinated convertible debentures, issued on
September 26, 2003, mature in September 2006, unless extended or adjusted upon the occurrence of certain events. If at any time on or after September 26, 2005, the second
anniversary of the issuance date, the weighted average price of the common stock is less than $8.75 on any five consecutive trading days, the holder has the right, in its sole discretion, to require
that we redeem up to $7.5 million principal amount of the debenture. Semi-annual interest payments at 2% began in January 2004. Both the principal and interest may be paid in
common stock.

41

---



Capital and Operating Leases.Capital leases relate to various office equipment. The operating lease
agreements relate primarily to our offices throughout the United States and internationally with original lease periods expiring between 2004 and 2011. We have entered into various sublease
arrangements associated with our excess facilities. Such subleases have terms extending through 2008. As of December 31, 2004, we have recorded restructuring reserves totaling approximately
$0.5 million relating to excess space at some of the facilities, net of amounts estimated to be received from our sublease arrangements. Net lease commitments as of December 31, 2004 can
be summarized as follows (in millions):

Capital Leases

Operating Leases

Subleases(in thousands)Year Ending December 31,2005

$
49

$
3,270

$
(396
)2006


32


2,340


(387
)2007


20


1,828


(379
)2008





1,365


(252
)2009





732


Thereafter





1,521


Total minimum lease payments


101

$
11,056

$
(1,414
)Less amount representing interest


11Present value of minimum lease payments


90Less current portion


48Long-term portion

$
42


Dividends on Preferred Stock.Our preferred stock accrue and cumulate dividends at a rate of 6% per
year, compounded monthly, payable when, as and if declared by our 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 of the preferred stock payable upon a sale, merger, liquidation, dissolution or winding up of the Company. Accrued but unpaid dividends are cancelled
upon conversion of the preferred stock. As of December 31, 2004, there are approximately $74,000 of accrued but unpaid dividends. After giving effect to conversions in 2004, 78,000 shares of
preferred stock were outstanding at December 31, 2004.

Employment Arrangements.We have various employment agreements with employees, the majority of which
are for one year with an automatic renewal. The potential obligation under these contracts is approximately $3.0 million for 2005 including salary and performance-based target bonuses. We pay
bonuses to executive employees based on the achievement of revenue goals and other financial measures including earnings before interest, taxes, amortization and stock-based compensation. These
contracts also require severance payments in the event of involuntary termination which generally range in amount from three months to one year's salary. All non-U.S. 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 January 1, 2005, there were approximately 82 employees in Europe whose annualized base salaries are approximately
$6.2 million.

Restructuring Expenses.As of December 31, 2004, we had approximately $0.9 million
remaining of cash outlay obligations relating to restructuring and exit costs consisting of severance and rent.

42

---



Insurance Coverage.We maintain director and officer insurance, which may cover certain liabilities
arising from our obligation to indemnify our directors, and officers and former directors, officers and employees of acquired companies, in certain circumstances. The indemnification provided by us to
our officers and directors does not have a stipulated maximum, therefore we are not able to develop a reasonable estimate of the maximum liabilities. To date, we have not incurred material costs as a
result of such obligations and have not accrued any liabilities related to such indemnification obligations in our financial statements.

Indemnifications.In connection with our commercial agreements, we provide indemnifications of
varying scope and terms to customers, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements and out of
intellectual property infringement claims made by third parties.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board ("FASB") issued the revised SFAS No. 123,Share-Based
Payment("SFAS 123R"), which addresses the accounting for share-based payment transactions in which a Company obtains employee services in exchange for (a) equity
instruments of the Company or (b) liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments.
SFAS 123R eliminates the ability to account for employee share-based payment transactions using Accounting Principles Board Opinion ("APB") No. 25 and requires instead that such
transactions be accounted for using the grant-date fair value based method. SFAS 123R will be effective as of the beginning of the first interim or annual reporting period that
begins after June 15, 2005 (July 1, 2005 for the Company) and applies to all awards granted or modified after the effective date. In addition, compensation cost for the unvested portion
of previously granted awards that remain outstanding on the effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards'
grant-date fair value as previously calculated for the pro-forma disclosure under SFAS 123.

We
expect that upon the adoption of SFAS 123R we will apply the modified prospective application transition method, as permitted by the statement. Under such transition method,
upon the adoption of SFAS 123R, our financial statements for periods prior to the effective date of the statement will not be restated. The impact of this statement on our financial statements
or our results of operations in 2005 and beyond will depend upon various factors, among them, our future compensation strategy. We expect the effect of applying SFAS 123R on our results of
operation in 2005 as it relates to existing option plans would not be materially different from the SFAS 123 pro forma effect previously reported.

Impairment of Debt and Equity Instruments

In March 2004, the FASB issued Emerging Issues Task Force ("EITF") Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,"which provides new guidance for assessing impairment losses on debt and
equity investments. Additionally, EITF Issue No. 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the
FASB delayed the accounting provisions of EITF Issue No. 03-1; however, the disclosure requirements remain effective and have been adopted by the Company in these financial
statements (see Note 2 to the Consolidated Financial Statements). We will evaluate the effect, if any, of EITF Issue No. 03-1 when final guidance is released.

43

---





RISK FACTORS

RISKS RELATED TO 24/7 REAL MEDIA, INC.

WE HAVE A HISTORY OF LOSSES AND MAY NEVER ACHIEVE PROFITABILITY.

We have not achieved profitability in accordance with generally accepted accounting principles, or GAAP, in any reporting period, except as result of
non-recurring gains, during our history, and we may not be able to achieve or sustain profitability in the future. We incurred net losses of $3.2 million and $12.0 million
for the twelve months ended December 31, 2004 and 2003, respectively. We may incur net losses for the foreseeable future. Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or an annual basis in the future.

EVALUATING OUR BUSINESS MAY BE DIFFICULT DUE TO OUR ACQUITISIONS AND DISPOSITIONS.

We
have acquired and disposed of a substantial number of businesses during our operating history and thus our business model has continuously evolved and changed. When evaluating our
current business model, you must consider the risks, expenses and difficulties typically encountered by companies with such history, particularly companies in new and rapidly expanding markets such as
Internet advertising. These risks include our ability to:



Our
numerous acquisitions and dispositions, and operating history generally, makes it difficult to predict future revenues and operating expenses.

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



44

---





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, at any time after
September 26, 2005, the price of our common stock does not exceed the conversion price ($8.75 per share of our common stock) of the debentures for a period of five consecutive trading days we
may be required to immediately repurchase $7.5 million in principal amount of the debentures. 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 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 unexpected impairment of our receivables, or an unbudgeted 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.

45

---



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 under 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.

OUR ACQUISITIONS, WHICH HAVE BEEN CRITICAL TO OUR GROWTH, MAY NOT BE SUCCESSFUL.

We were formed in February 1998 to consolidate three Internet advertising companies and have since acquired many 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. AND DECIDE HOLDING PTY LIMITED INTO OUR COMPANY.

In January 2004, we completed our acquisition of RMK. In August 2004, we completed the acquisition of Decide. We may not realize the anticipated
financial and strategic goals of the acquisitions, and the acquisitions may not be successful. The success of the acquisitions will depend in part on our ability to expand the business of RMK and
Decide into new geographical markets and our ability to retain key senior managers, employees and customers of these companies. We may have difficulty integrating the business and operations or
retaining their key personnel as well as implementing and maintaining standards, controls, procedures and policies that are consistent with ours. 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.

46

---



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

Our business model is to generate revenue by providing interactive marketing solutions to advertisers, advertising agencies and Web publishers. The profit
potential for key components of 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

47

---



products
and services such as Insight ACT, Decide DNA software and 24/7 OnTarget behavioral targeting. 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 commerce, communication and advertising. Demand for our new solutions may not emerge or become sustainable.

OUR TECHNOLOGY SOLUTIONS MAY NOT FUNCTION AS DESIGNED AND MAY CAUSE BUSINESS DISRUPTION.

Open AdSystem is our proprietary advertisement serving technology that serves 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 Insight ACT are not yet widely 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 or report on advertisement delivery
without significant delay. Sustained or repeated system failures would reduce the attractiveness of our solutions to advertisers, advertising agencies and Web publishers and result in contract
terminations, fee rebates and make-goods, thereby reducing our revenue. Our Media Solutions business utilizes our Open AdSystem technology, and thus any performance issues with Open
AdSystem will also impact Media Solutions. 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.

OUR REVENUE COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE ADVERTISING INVENTORY MADE AVAILABLE TO US 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 advertising inventory made available to us. 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

48

---



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.

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.

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 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

49

---



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 DISTRIBUTION PARTNERS, AND THE LOSS OF ONE OF THEM COULD RESULT IN A SUBSTANTIAL DECREASE
IN OUR 24/7 SEARCH REVENUE.

We have generated the majority of our global search revenue from clicks originating on Google and Overture, which is a subsidiary of Yahoo!, through relationships
in many countries in which we operate. We expect that these search engines will continue to generate a majority or more of our 24/7 Search revenue for the foreseeable future. The interruption or loss
of our relationship with Google or Overture would cause a significant decrease in 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 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.

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.

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 our Chief Executive Officer. 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,

50

---



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.

SOME OF OUR SOFTWARE IS LICENSED FROM THIRD PARTIES WHICH COULD BECOME UNAVAILABLE TO US.

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 Savvis in the United States and Level 3 Communications in Europe. These systems' continuing and
uninterrupted performance is critical to our success, as a substantial portion of the revenue depend on the continuing availability of these systems. 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.

51

---



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 and 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 many foreign countries in which we operate, where laws or law
enforcement practices may not protect our proprietary rights as fully as in the United States.

We
have from time to time 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
have, from time to time, been, and may in the future 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, or by customers who employ our Technology solutions, whom we may be required, or may elect, to indemnify against such claims. 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 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
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.

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

52

---



the
content is defamatory. Any claims or counterclaims could be time consuming, result in costly litigation or divert management's attention.

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 SUCCESSFULLLY PROMOTE AND MAINTAIN THE QUALITY OF 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 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 February 28, 2005, there were approximately million 44.8 shares of our common stock outstanding. As of that date, we also had an aggregate of
approximately 13.0 million shares of common stock that may be sold into the market in the future, including approximately 8.3 million shares of our common stock issuable upon exercise of
options, 0.8 million shares of our common stock issuable upon conversion of our outstanding preferred stock and exercise of the related warrants, 1.7 million shares of our common stock
upon vesting of restricted shares issued, and 2.2 million shares of our common stock

53

---



issuable
upon conversion of the debentures and exercise of the related warrants. In addition, if we undertake an additional acquisitions or 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.

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

Sunra Capital Holdings Ltd. and affiliated parties are currently the beneficial owners of approximately 8% of our common stock. PubliGroupe USA Holdings
owns approximately 5% of our common stock, and has agreed to vote on all corporate matters in accordance with the recommendations of our Board of Directors. Based on their voting power, combined with
that of management and others affiliated or associated with the Company, Sunra and PubliGroupe may be able to influence the outcome of all matters requiring stockholder approval, including the
election of directors, amendment of our charter and approval of significant corporate transactions.

We
also believe that one or more unaffiliated groups have purchased significant quantities of our common stock.

54

---



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
click-through 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:



55

---





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 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 2004 and
2005, the U.S. Congress proposed several new pieces of legislation that would limit the use of technologies, including cookies, Web beacons and javascript, required by our products and services. The
effectiveness of our Open AdSystem products and services could be significantly limited by federal and state regulations limiting the collection or use of information regarding Internet users. Since
many of the proposed federal and state laws or regulations are 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, of which we are a member, 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. While we monitor
legislative initiatives, in the event that more onerous federal or state laws or regulations are enacted or applied to us or our clients, our business, financial condition and results of operations
could be materially and adversely affected.

56

---



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 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 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.

In
addition, the development of commercial software and technology that blocks, eliminates or otherwise screens out Internet advertising may reduce the value of advertising inventory on
our 24/7 Web Alliance and the benefits of our technology solutions to our customers. We cannot guarantee that a new commercial software or technology, for end-users or enterprises, will
not be capable of eliminating a portion or all of the advertisement formats, including banners, pop-ups, pop-unders and other formats, that we utilize through our 24/7 Web
Alliance or that we currently deliver through our technology solutions. To the extent that our customers refuse to pay for advertisements that are blocked, or if the use of blocking software exceeds
our expectations, our business, results of operations and financial condition may be materially and adversely affected.

57

---



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 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, 2004 (in thousands):

2004

2005

2006

Thereafter

TotalCash and cash equivalents

$
27,690

$


$


$


$
27,690Average interest rate


0.80
%










0.80
%Loan payable

$


$
7,500

$
7,500

$


$
15,000Average interest rate





2.00
%

2.00
%

0.00
%

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 the derivative is reviewed on a quarterly basis in accordance with Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The value of the embedded derivative at December 31, 2004 is
immaterial to our financial position and 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. The effect of foreign exchange rate fluctuations for 2004, 2003 and 2002 were not material. We do not use derivative financial instruments to
limit our foreign currency risk exposure. As of December 31, 2004, we had $4.7 million in cash and cash equivalents denominated in foreign currencies.

ITEM 8.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.

58

---



ITEM 9A.CONTROLS AND PROCEDURES.

Management's Responsibility for Financial Statements

Our management is responsible for the integrity and objectivity of all information presented in this Annual Report. The consolidated financial statements were
prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. Management believes the
consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company's financial position and results of operations.

The
Audit Committee of the Board of Directors meets regularly with the independent registered public accounting firm, Goldstein Golub Kessler LLP, and representatives of
management to review accounting, financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of
the independent registered public accounting firm. The independent registered public accounting firm have free access to the Audit Committee.

Management's Report on Internal Control Over Financial Reporting

The Sarbanes-Oxley Act of 2002 and the SEC's related rules and regulations impose on the Company requirements regarding corporate governance and financial
reporting. One requirement arising under Section 404 of the Sarbanes-Oxley Act is for management to report on the Company's internal control over financial reporting and for Goldstein Golub
Kessler LLP, the Company's independent registered
public accounting firm, to attest to management's report. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal ControlIntegrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal ControlIntegrated Framework," our management concluded that our internal
control over financial reporting was effective as of December 31, 2004.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

In
late November 2004, the SEC issued an exemptive order providing a 45-day extension, and therefore, this Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 does not include the report and attestation of our independent registered public accounting firm. The Company intends to include this report and attestation in an
amendment to this Annual Report on Form 10-K in accordance with the SEC's exemptive order.

Changes in Internal Control Over Financial Reporting

Late in the fourth quarter of 2004, the Company migrated the search technology system from a legacy system to a new system. The new system was acquired as a
result of our acquisition of Decide Holdings Pty Limited ("Decide") in August 2004. The migration involved changes in systems that included internal controls. In accordance with the SEC's
"Management's Report on Internal Control Over Financial Reporting and Disclosure in Exchange Act Periodic Reports: Frequently Asked Questions," Question 3, and with our independent registered public
accounting firm's consent, we have excluded Decide from the assessment included herein, and will report on it during our next annual filing with the SEC. The exclusion of Decide from the scope of the
assessment included herein includes all related technology and processes specific to it and its international subsidiaries. Decide revenue

59

---



accounted
for approximately $4.9 million or 5.7% of our consolidated revenues during 2004. Other than our due diligence related to the acquisition, we have not reviewed the new system and the
controls affected by the implementation of the new system. The legacy search technology system was included in the scope of the assessment included herein, and therefore the controls of and those
surrounding the legacy system, up until the point of migration, are included in this assessment.

There
were no other changes in our internal control over financial reporting for the year ended December 31, 2004, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors.

The
Company formed a Disclosure Committee to ensure that information required to be disclosed by the Company in reports filed or submitted by it under the Securities Exchange Act is
recorded, processed, summarized and reported with the time periods in the SEC rules and forms.

Based
on their evaluation as of December 31, 2004, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed
by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms.

ITEM 9B.OTHER.

None.

60

---





PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

|Name                  |  | Age |  | Position and Offices Held                              
|--------------------- |  | --- |  | -------------------------------------------------------
|David J. Moore        |  | 52  |  | Chairman of the Board and Chief Executive Officer      
|Jonathan K. Hsu       |  | 32  |  | Executive Vice President and Chief Financial Officer   
|Mark E. Moran         |  | 43  |  | Executive Vice President, General Counsel and Secretary
|Christopher J. Wagner |  | 48  |  | Chief Executive Officer24/7 Real Media Europe         
|Jeffrey N. Marcus     |  | 45  |  | Chief Technology Officer                               
|Keith Lambert         |  | 39  |  | PresidentGlobal Search Solutions                      
|Jae Woo Chung         |  | 39  |  | President24/7 Real Media Asia                         
|Robert J. Perkins     |  | 56  |  | Director                                               
|Tony Schmitz          |  | 45  |  | Director                                               
|Arnie Semsky          |  | 58  |  | Director                                               
|Moritz F. Wuttke      |  | 38  |  | Director                                               
|Valentine J. Zammit   |  | 56  |  | Director                                               

David J. Moorehas 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.

Jonathan K. Hsuhas served as our Executive Vice President and 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. Moranhas 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 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.

61

---



Christopher J. Wagnerhas served as Chief Executive Officer of our subsidiary, 24/7 Real Media Europe, formerly 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 24/7 Real Media Europe, Mr. Wagner was an operations analyst at PSINet Europe, an Internet services company, from 1998 to 2000. Mr. Wagner received a J.D. degree from Stanford
Law School, an M.P.A. with a 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.

Jeffrey N. Marcushas served as our Chief Technology Officer since September 2004. From December 2000 to August 2004,
Mr. Marcus served as Mirror Image Internet's Vice President, Operations and Streaming Media. Mr. Marcus served as Vice President, Global Networks of DoubleClick, Inc. from
April 2000 to December 2000. From April 1995 to April 2000, Mr. Marcus held positions at KPMG, serving as Head of US National Networking and Telecommunications from
1995 to 1996 and as Senior Manager, Head of International Networking from 1996 to 2000. He also previously held positions at Global Enterprise Services, Inc., the United Parcel Service and
International Business Machines. Mr. Marcus received a B.S. degree in Electrical Engineering from Stevens Institute of Technology.

Keith Lamberthas served as our PresidentGlobal Search Solutions since we acquired Decide Holdings Pty Limited in
August 2004. Mr. Lambert served as CEO and co-founder of Decide since its inception in 1999 in Australia, establishing the business as the leading technology provider to the
search marketing industry worldwide. From 1998 to 1999, Mr. Lambert worked in consulting positions for Internet-based companies including Top Jobs on the Net, Finance Asia and Australian
Business Online. From 1996 to 1998, Mr. Lambert was General Manager of Market Realization for Yellow Pages.

Jae Woo Chunghas served as President24/7 Real Media (Asia), focusing on rolling out our business throughout Asia, since
January 2005 and served as PresidentReal Media Korea from April 1998 to December 2004. From April 1997 to February 1998, he worked as a senior
consultant for LG EDS. Mr. Chung received a degree in Industrial Engineering from Hanyang University in South Korea and he a M.B.A. from Keio University in South Korea. He also studied at the
Kellogg Graduate School of Business at Northwestern University as an exchange student.

Robert J. Perkinshas 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.

Tony Schmitzhas been a director since August 2004. Mr. Schmitz has served as President of Pine Street Capital Partners, a
venture capital fund, since September 2004. Mr. Schmitz also served as a consultant to our Company from November 2004 to December 2004 and served as Chief Technology
Officer of our Company from January 2003 through October 2004. 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) from June 1998 to May 2000. Mr. Schmitz also served as Chief Technology Officer at Gray Peak Technologies from June 1997 to June 1998 and as a principal
at Reach Networks from 1988 to 1997. Mr. Schmitz obtained a B.S. in Business from the State University of New York at Albany.

62

---



Arnie Semskyhas 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 and marketing and media service companies, 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 and the John A. Reisenbach Foundation. He is on the Board of
Advisors of several Internet companies, including Brandport.com. He received a B.A. degree in English from Pace University.

Moritz F. Wuttkehas 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. Zammithas 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.

Joseph Waechterresigned from our Board of Directors in December 2004.

COMMITTEES OF THE BOARD OF DIRECTORS

We maintain the following committees established by the board of directors: the Compensation Committee and the Audit Committee. Both committees are comprised
entirely of directors who may be classified as "independent" within the meaning of Rule 4200 of the NASD Marketplace Rules. The Audit Committee acts pursuant to a separate written charter,
which was adopted and approved by the Board of Directors on February 24, 2004.

AUDIT COMMITTEE

The members of our Audit Committee are Mr. Zammit (Chair), Mr. Perkins and Mr. Wuttke. 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 is an "audit committee financial expert" as defined in Item 401(h)
of Regulation S-K. Each of Mr. Zammit, Mr. Perkins and Mr. Wuttke is an "independent director" as defined in Rule 4200 of the Marketplace Rules of the
National Association of Securities Dealers, Inc. The Audit Committee held four meetings during the year ended December 31, 2004.

63

---



COMPENSATION COMMITTEE

The Compensation Committee, composed of Mr. Perkins, Mr. Semsky and Mr. Wuttke (Chair), 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, annually approves the salaries and other benefits of our
executive officers, including the Chief Executive Officer, 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 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. The Compensation Committee held three meetings during the year ended
December 31, 2004.

Compensation Committee Interlocks And Insider Participation

Each of Messrs. Perkins, Semsky, and Wuttke, the current members of the Compensation Committee, is an independent, outside director. None of our executive
officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation
Committee.

Report Of The Compensation Committee Of The Board Of Directors

The Compensation Committee determines our executive compensation policies. The Compensation Committee determines the compensation of our executive officers and
approves and oversees the administration of our incentive compensation programs for all employees, including executive officers. The Compensation Committee has reviewed and is in accord with the
compensation paid to our executive officers in 2004.

Compensation Policies And Programs

Our compensation program is part of a company-wide program covering all employees. The program's goals are to attract, retain and motivate employees,
and we utilize incentives such that employees and stockholders share the same risks. The compensation program is designed to link each employee's compensation to our performance. A portion of each
employee's compensation relates to
the grant of stock options, and such grants are based on the successful attainment of strategic corporate, business unit and individual goals. Grants of stock options are of great importance to
executives as well as all employees. Any long-term value to be derived from such grants will be consistent with stockholder gains.

Executive
and employee compensation includes salary, employment-related benefits and long-term incentive compensation:

Salary.Salaries are set competitively relative to comparable positions within and outside the Internet advertising industry.
An individual's experience and performance are considered when setting salaries within the range for each position. Annual reviews are held and adjustments are made based on attainment of individual
and company goals.

Benefits.All employees are eligible for similar benefits, such as health and life insurance.

Long-Term Incentive Compensation.An incentive compensation program is established annually. The purpose of this
program is to provide financial incentives to executives and employees to achieve annual corporate, business unit, and individual goals. The incentive program also aligns executive and

64

---



employee
interests with those of stockholders by using grants of stock options. Such grants vest over time thereby encouraging continued employment with us.

Chief Executive Officer.Mr. Moore's base salary for 2004 was set in accordance with his employment agreement and the
amount of his annual incentive award for 2004 was based on the philosophy and programs described above. The fiscal 2004 annual incentive award principally reflected the achievement of a number of our
company's 2004 business objectives and also included the Compensation Committee's subjective evaluation of Mr. Moore's performance during 2004.

Policy With Respect To Compensation Deductibility.Our policy with respect to the deductibility limit of
Section 162(m) of the Code generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in the best interest of us and our stockholders.
However, we reserve the right to authorize the payment of non-deductible compensation if we deem that it is appropriate.

Compensation Of Directors

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 2002 Stock Incentive Plan. With regard to the compensation for Mr. Schmitz, we continue to vest and make available to Mr. Schmitz his existing stock options
granted during his employment with the Company, which will fully vest at the end of 2006. Mr. Schmitz will not receive the stock options granted to the Board of Directors until his employee
grants are fully vested. Through the 2004 Annual Meeting, each director was paid a cash fee of $6,000 for attending the meetings of the Board of Directors and was given a non-qualified
option to purchase 3,333 shares of common stock at the fair market rate on the date of the grant. On January 1, 2005 each director was given a one-time grant of 15,000 options to
purchase shares of common stock at the fair market rate on the date of the grant. Directors were also given an additional one-time grant of 5,000 options for each Committee membership and
an additional one-time grant of 2,500 options for each Committee chairmanship, to purchase shares of common stock at the fair market rate on the date of the grant. These
one-time grants vested immediately. On a going forward basis there will be no more cash fees and each director will be awarded 20,000 options, an additional 5,000 options for each
Committee membership and an additional 2,500 options for each Committee chairmanship, on the date of each Annual Meeting of Stockholders to purchase 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. These grants shall vest in three equal annual installments.

SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE

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 2004, except that a Form 4 was filed seven days after the transaction for each of
David J. Moore, Mark E. Moran, David B. Hills, Jonathan K. Hsu, Douglas C. Wagner and Christopher J. Wagner in connection with their sale of shares of our common stock in our March 2004
Secondary Offering, which had previously been reported on a Form S-3, and approximately thirty days after the transaction for each of Arnie Semsky, Joseph W. Waechter and Moritz F.
Wuttke in connection with their sale of shares of our common stock in our March 2004 Secondary Offering. A Form 4 was also filed approximately thirty days after the transaction for David
J. Moore in connection with a gift of our common stock. Many of these filings were delayed in large part due to delays in obtaining EDGAR identification codes for the filers on a timely basis.

65

---





CODE OF ETHICS

Our statement of business conduct and code of ethics, which have been authorized by our Board of Directors, can be found on our website http://www.247realmedia.com/about/247RMCode-of-Conduct.pdfand a copy will be
provided to any person without charge, upon request. The statement and code is applicable to all our directors, officers and employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or any person performing similar functions. If we make any amendments to the code of ethics for our principal executive officer, principal
financial officer, principal accounting officer or controller, or any person performing similar functions (other than technical, administrative, or other non-substantive amendments), or
grant any waivers, including implicit waivers, from a provision of this code to such persons, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our
website or in a report on Form 8-K filed with the Securities and Exchange Commission.

ITEM 11.EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER 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 each of our four most highly compensated executive officers who earned more than $100,000 in 2004 and who served as executive officers at the end of 2004.

|                                                        |  |                |  | Annual Compensation |                         | Long Term Compensation
|------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- | ----------------------
|
|David J. Moore
Chief Executive Officer(1)               |  | 2004
2003
2002 |  | $$$                 | 270,450
262,573
254,925 |                       
|Jonathan K. Hsu
Chief Financial Officer(2)              |  | 2004
2003
2002 |  | $$$                 | 200,000
176,750
159,668 |                       
|Mark E. Moran
General Counsel(3)                        |  | 2004
2003
2002 |  | $$$                 | 185,658
180,250
163,332 |                       
|Christopher J. Wagner
Chief Executive OfficerEurope(4) |  | 2004
2003
2002 |  | $$$                 | 195,638
195,027
158,990 |                       
|David B. Hills
PresidentMedia Solutions(5)             |  | 2004
2003      |  | $$                  | 184,183
83,651          |                       

---

66

---



Grant of Options

The following table contains information concerning the grant of options to each of our executive officers during the year ended December 31, 2004. We did
not grant any stock appreciation rights in 2004.

|                      |  | Individual Grants |  |     |   |  
|--------------------- |  | ----------------- |  | --- | - | -
|
|
|
|
|David J. Moore        |  | 120,000           |  | 5.9 | % | $
|Jonathan K. Hsu       |  | 80,000            |  | 3.9 | % | $
|Mark E. Moran         |  | 80,000            |  | 3.9 | % | $
|Christopher J. Wagner |  | 80,000            |  | 3.9 | % | $
|David B. Hills        |  | 30,000            |  | 1.5 | % | $

---

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, 2004 and the value of
outstanding and unexercised options held as of December 31, 2004. There were no stock appreciation rights exercised during 2004 and none were outstanding as of December 31, 2004.

67

---



Aggregated Option Exercises During Year Ended December 31, 2004  And Fiscal Year-End Option Values

|                      |  |        |  |   |         | Number of Securities
Underlying Unexercised
Options at
December 31, 2004 |         |  |        | 
|--------------------- |  | ------ |  | - | ------- | ------------------------------------------------------------------------ | ------- |  | ------ | 
|
|
|
|David J. Moore        |  |       |  | $ |        |                                                                          | 706,885 |  | 6,000  | 
|Jonathan K. Hsu       |  | 40,000 |  | $ | 179,600 |                                                                          | 199,413 |  |       | 
|Mark E. Moran         |  |       |  | $ |        |                                                                          | 354,182 |  | 10,001 | 
|Christopher J. Wagner |  |       |  | $ |        |                                                                          | 234,185 |  | 26,667 | 
|David B. Hills(2)     |  |       |  | $ |        |                                                                          |        |  |       | 

---

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 2005. 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. If
termination is result of the result of Mr. Moore's death or disability, we will pay his estate an amount equal to two years' base salary at his then current rate of pay, plus the maximum bonus
for which he is eligible during the fiscal year or termination.

Our
employment agreement with Jonathan K. Hsu provides for an annual base salary of $200,000 and a target bonus of $100,000 for 2005. 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.

Our
employment agreement with Mark E. Moran provides for an annual base salary of $185,658 and a target bonus of $100,000 for 2005. 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

68

---



maximum
bonus for which he is eligible during the fiscal year of termination. If termination is the result of Mr. Moran's death or disability, we will pay to his estate an amount equal to nine
months' base salary at his then current rate of pay, plus three-quarters of the maximum bonus for which he is eligible during the fiscal year of termination.

Our
employment agreement with Jeffrey N. Marcus provides for an annual base salary of $175,000 and a target bonus of $50,000 for 2005. If we terminate Mr. Marcus without cause, he
is entitled to receive severance pay in an amount equal to three months' of his base salary.

Our
employment agreement with Keith Lambert provides for an annual base salary of AU$ 220,000. We may terminate Mr. Lambert's employment upon 30 days' written notice of
termination or upon making a payment of base salary in lieu of such notice.

Our
employment agreement with Jae Woo Chung provides for an annual base salary of $131,250 and a target bonus of $50,000 for 2005. If we terminate Mr. Chung without cause, he is
entitled to receive severance pay in an amount equal to three months' of his 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 2005. We may terminate Mr. Wagner's
employment upon six months' notice of termination or upon making a payment of base salary in lieu of such notice.

STOCK INCENTIVE PLANS

1998 Stock Incentive Plan, 2002 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 2002 Stock Incentive Plan for Non-Officers, except as noted, and are intended only as a
summary. The incentive plans are intended (i) to offer our employees and consultants and those of our subsidiaries (within the meaning of Section 424 of the Internal Revenue Code)
stock-based incentives and other equity-based awards, 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 subsidiaries 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 2002 Stock Incentive Plan is administered by the Board of Directors. Additionally, if no compensation committee exists which has the authority to administer the 2002 Stock Incentive
Plan, 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

69

---



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 2,277,309 and 8,774,219 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 500,000. 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 Plan 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 600,000 shares in any given year.

Amendment And Termination.

Notwithstanding any other provision of the 2002 Stock Incentive Plan, the Board of Directors may at any time amend any or all of the provisions of the 2002 Stock
Incentive Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided in the 2002 Stock Incentive Plan,
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 and 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 2002 Stock Incentive Plan with regard to non-employee directors; or (vii) require
stockholder approval in order for the 2002 Stock Incentive Plan 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 2002 Stock Incentive Plan.

The following types of awards are available under the 2002 Stock Incentive Plan:



70

---





Change of Control

The Stock Incentive Plan provides that, unless otherwise provided at the time of grant, all stock incentives granted under the Plan shall fully vest upon the
occurrence of certain events constituting a change of control of the Company. It has generally been the practice of the Company since 2000 to provide that stock incentives shall not vest upon a change
of control, unless the grantee's employment is terminated, or constructively terminated, involuntarily, including as a result of death or disability, in the two years following the change in control.

Accelerated Vesting of Options

In October 2004, the Board of Directors accelerated the vesting of all unvested stock options previously awarded to employees and officers with an exercise
price per share of $5.00 or higher. As a result,
options to purchase approximately 1.7 million shares of common stock became exercisable immediately. Based on the closing price of the stock, at the time of acceleration none of the options had
economic value. Under the recently revised Financial Accounting Standards Board Statement No. 123,Share-Based Payment, the Company will apply
the expense recognition provisions relating to stock options beginning in the third quarter of 2005. As a result of the acceleration, the company expects to reduce the stock option expense it
otherwise would be required to record by approximately $5.3 million on a pre-tax basis.

71

---



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

The
following table sets forth information regarding beneficial ownership of our common stock as of February 28, 2005, by: (i) each person who we know to own beneficially
more than 5% of the common stock; (ii) each of our directors and named 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 Directors                              |  |                                           |  |               |  
|David J. Moore(2)                                             |  | 1,644,707                                 |  | 3.6           | %
|Robert J. Perkins(3)                                          |  | 28,056                                    |  | *             |  
|Tony Schmitz(4)                                               |  | 107,250                                   |  | *             |  
|Arnie Semsky(5)                                               |  | 30,245                                    |  | *             |  
|Moritz F. Wuttke(6)                                           |  | 29,306                                    |  | *             |  
|Valentine J. Zammit(7)                                        |  | 121,641                                   |  | *             |  
|Jonathan K. Hsu(8)                                            |  | 427,814                                   |  | *             |  
|Mark E. Moran(9)                                              |  | 516,260                                   |  | 1.1           | %
|Christopher J. Wagner(10)                                     |  | 368,162                                   |  | *             |  
|All current directors and officers as a group (9 persons)(11) |  | 3,273,441                                 |  | 6.9           | %
|Beneficial Holders of 5% or more                              |  |                                           |  |               |  
|Joseph Waecther and Sunra Capital Holdings Limited(12)        |  | 4,450,703                                 |  | 9.9           | %
|Hunter Global Investors Fund L.P.(13)                         |  | 2,701,888                                 |  | 6.1           | %
|PubliGroupe USA Holding, Inc.(14)                             |  | 2,509,104                                 |  | 5.6           | %
|Riverview Group LLC(15)                                       |  | 2,450,773                                 |  | 5.5           | %
|RS Investment Management Co. LLC(16)                          |  | 2,409,272                                 |  | 5.4           | %
|Barclays Global Investors, NA(17)                             |  | 2,382,372                                 |  | 5.3           | %

---

72

---



73

---





74

---





EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information as of December 31, 2004 with respect to shares of the Company's common stock that may be issued under the
Company's existing equity compensation plans.

|Plan Category                                              |       | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |           | Weighted-average exercise price of outstanding potions, warrants and rights |      | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in (a))
|---------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------------
|Equity Compensation Plans approved by security holders     |       | 4,491,929                                                                                       |           | $                                                                           | 6.62 |                                                                                                                           
|Equity Compensation Plans not approved by security holders |       |                                                                                                |           |                                                                             |     |                                                                                                                           
|                                                           |       |                                                                                                 |           |                                                                             |      |                                                                                                                           
|                                                           | Total |                                                                                                 | 4,491,929 |                                                                             | $    | 6.62                                                                                                                      
|                                                           |       |                                                                                                 |           |                                                                             |      |                                                                                                                           

COMPARISON OF CUMULATIVE TOTAL RETURNS*  AMONG 24/7 REAL MEDIA, INC., THE NASDAQ STOCK MARKET  INDEX AND A PEER GROUP

The graph below shows the cumulative total return on an investment of $100 assumed to have been made on August 13, 1998, our initial public offering date,
in the Company's Common Stock. The graph compares such return with that of comparable investments assumed to have been made on the same date in (a) the NASDAQ Stock Market Index, and
(b) in our peers with which the Company is sometimes compared.

Total
return for the assumed investment assumes the reinvestment of all dividends on December 31 of the year in which such dividends were paid. No cash dividends were paid on the
Company's Common Stock during the periods presented.

LOGO

The
foregoing graph is based on historical data and is not necessarily indicative of future performance. This graph shall not be deemed to be "soliciting material" or to be "filed" with
the

75

---



Securities
and Exchange Commission or subject to Regulations 14A and 14C under the Exchange Act or to the liabilities of Section 18 under the Exchange Act.

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.

Tony
Schmitz, a member of our Board of Directors, was an employee of the Company through October 2004. Mr. Schmitz served as a consultant for us from November 2004
through December 2004 for a fee of $10,000 per month. The Company continues to vest and make available to Mr. Schmitz his existing stock options granted while he was an employee, which
will fully vest at the end of 2006. Mr. Schmitz will not receive the stock options granted to the Board of Directors until his employee grants are fully vested.

In
2004, the Company paid a total of $200,000 to the law firm of Moran & d'Arcambal for legal services, and is continuing to utilize Moran & d'Arcambal for legal services
in 2005. 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
2004 and 2003, 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.

The following is a summary of the fees billed to us by Goldstein Golub Kessler LLP, our principal accountant, for professional services rendered for the fiscal
years ended December 31, 2004 and 2003:

Fee Category

Fiscal 2004
Fees

Fiscal 2003
FeesAudit Fees(1)

$
440,000

$
195,340Audit-Related Fees(2)


190,507


30,058Tax Fees(3)





All Other Fees(4)


28,083


2,338$
658,590

$
227,736


---

76

---





Our
previous principal accountant, KPMG LLP, billed us $100,000 and $80,000 for consents for the fiscal years ended December 31, 2004 and 2003, respectively.

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
non-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.

The
audit reports issued by Goldstein Golub Kessler LLP, dated March 1, 2005, on the consolidated financial statements of the Registrant as of December 31, 2004 and
December 31, 2003 and for the three years in the period ended December 31, 2004, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified, as to
uncertainty, audit scope or accounting principles.

During
the two most recent fiscal years there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

The
Audit Committee has determined that the provision of services rendered above for "All Other Fees" is compatible with maintaining Golstein Golub Kessler LLP's independence.

Goldstein
Golub Kessler LLP has a continuing relationship with American Express Tax and Business Services Inc. (TBS) from which it leases auditing staff who are
full-time, permanent employees of TBS and through which its partners provide non-audit services. As a result of this arrangement, Goldstein Golub Kessler LLP has no
full-time employees and therefore, none of the audit services performed were provided by permanent full-time employees of Goldstein Golub Kessler LLP. Goldstein Golub Kessler
LLP manages and supervises the audit and audit staff, and is exclusively responsible for the opinion rendered in connection with its examination.

77

---



PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

78

---





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PageIndependent Auditors' Report

F-2Consolidated Balance Sheets

F-3Consolidated Statements of Operations

F-4Consolidated Statements of Stockholders' Equity and Comprehensive Loss

F-5Consolidated Statements of Cash Flows

F-7Notes to Consolidated Financial Statements

F-8


F-1

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2003 and the related consolidated
statements of operations, stockholders' equity and comprehensive loss and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with United
States generally accepted accounting principles.

GOLDSTEIN GOLUB KESSLER LLPNew York, New York
March 1, 2005

F-2

---





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

|                                                  |                                                                                                                                                                         | December 31,
2004                          |        | December 31,
2003 |        
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | -------
|ASSETS                                            |                                                                                                                                                                         |                                            |        |                   |        
|Current assets:                                   |                                                                                                                                                                         |                                            |        |                   |        
|                                                  | Cash and cash equivalents                                                                                                                                               |                                            | $      | 27,690            |        
|                                                  | Short-term investments                                                                                                                                                  |                                            |        | 3,876             |        
|                                                  | Accounts receivable, less allowances of $1,727 and $971, respectively                                                                                                   |                                            |        | 28,224            |        
|                                                  | Prepaid expenses and other current assets                                                                                                                               |                                            |        | 2,710             |        
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total current assets                       |        |                   | 62,500 
|Property and equipment, net                       |                                                                                                                                                                         |                                            | 4,783  |                   |        
|Goodwill                                          |                                                                                                                                                                         |                                            | 34,573 |                   |        
|Intangible assets, net                            |                                                                                                                                                                         |                                            | 12,676 |                   |        
|Other assets                                      |                                                                                                                                                                         |                                            | 6,866  |                   |        
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total assets                               |        | . $               | 121,398
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY              |                                                                                                                                                                         |                                            |        |                   |        
|Current liabilities:                              |                                                                                                                                                                         |                                            |        |                   |        
|                                                  | Accounts payable                                                                                                                                                        |                                            | $      | 16,425            |        
|                                                  | Accrued liabilities                                                                                                                                                     |                                            |        | 11,808            |        
|                                                  | Deferred revenue                                                                                                                                                        |                                            |        | 3,222             |        
|                                                  | Subordinated convertible debentures, 2%, due 2006                                                                                                                       |                                            |        | 7,500             |        
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total current liabilities                  |        |                   | 38,955 
|Subordinated convertible debentures, 2%, due 2006 |                                                                                                                                                                         |                                            | 6,431  |                   |        
|Warrant liability                                 |                                                                                                                                                                         |                                            | 516    |                   |        
|Other long-term liabilities                       |                                                                                                                                                                         |                                            | 228    |                   |        
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total liabilities                          |        |                   | 46,130 
|Commitments and contingencies                     |                                                                                                                                                                         |                                            |        |                   |        
|Stockholders' equity:                             |                                                                                                                                                                         |                                            |        |                   |        
|                                                  | Preferred stock; $.01 par value; 10,000,000 shares authorized, 78,000 and 828,500 shares issued and outstanding, respectively (liquidation preference of $10 per share) |                                            |        | 1                 |        
|                                                  | Common stock; $.01 par value; 350,000,000 shares authorized; 44,797,067 and 23,367,421 shares issued and outstanding, respectively                                      |                                            |        | 448               |        
|                                                  | Additional paid-in capital                                                                                                                                              |                                            |        | 1,173,765         |        
|                                                  | Deferred stock compensation                                                                                                                                             |                                            |        | (17               | )      
|                                                  | Accumulated other comprehensive income                                                                                                                                  |                                            |        | 1,463             |        
|                                                  | Accumulated deficit                                                                                                                                                     |                                            |        | (1,100,392        | )      
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total stockholders' equity                 |        |                   | 75,268 
|                                                  |                                                                                                                                                                         |                                            |        |                   |        
|                                                  |                                                                                                                                                                         | Total liabilities and stockholders' equity |        | $                 | 121,398
|                                                  |                                                                                                                                                                         |                                            |        |                   |        

See
accompanying notes to consolidated financial statements.

F-3

---





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

|                                                                              |                                                                                                                            | Years ended December 31, |           
|----------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------
|
|Revenues:                                                                     |                                                                                                                            |                          |           
|                                                                              | Media                                                                                                                      |                          | $         
|                                                                              | Search                                                                                                                     |                          |           
|                                                                              | Technology                                                                                                                 |                          |           
|                                                                              |                                                                                                                            |                          |           
|                                                                              |                                                                                                                            | Total revenues           |           
|                                                                              |                                                                                                                            |                          |           
|Cost of revenues:                                                             |                                                                                                                            |                          |           
|                                                                              | Media                                                                                                                      |                          |           
|                                                                              | Search                                                                                                                     |                          |           
|                                                                              | Technology (exclusive of $0, $31, and $7 reported below as stock-based compensation)                                       |                          |           
|                                                                              |                                                                                                                            |                          |           
|                                                                              |                                                                                                                            | Total cost of revenues   |           
|                                                                              |                                                                                                                            |                          |           
|                                                                              |                                                                                                                            | Gross profit             |           
|                                                                              |                                                                                                                            |                          |           
|Operating expenses:                                                           |                                                                                                                            |                          |           
|                                                                              | Sales and marketing (exclusive of $250, $339, and $68, respectively, reported below as stock-based compensation)           |                          |           
|                                                                              | General and administrative (exclusive of $284, $803, and $2,665, respectively, reported below as stock-based compensation) |                          |           
|                                                                              | Product development (exclusive of $4, $143, and $50, respectively, reported below as stock-based compensation)             |                          |           
|                                                                              | Amortization of intangible assets and deferred financing costs                                                             |                          |           
|                                                                              | Stock-based compensation                                                                                                   |                          |           
|                                                                              | Restructuring costs                                                                                                        |                          |           
|                                                                              | Impairment of intangible assets                                                                                            |                          |           
|                                                                              | Impairment of property and equipment                                                                                       |                          |           
|                                                                              | Loss on sale of non-core assets, net                                                                                       |                          |           
|                                                                              |                                                                                                                            |                          |           
|                                                                              |                                                                                                                            | Total operating expenses |           
|                                                                              |                                                                                                                            |                          |           
|                                                                              |                                                                                                                            | Loss from operations     |           
|Interest expense, net                                                         |                                                                                                                            |                          | (463      
|Change in fair value of warrant liability                                     |                                                                                                                            |                          | 2,040     
|Gain on legal settlement                                                      |                                                                                                                            |                          | 2,896     
|Impairment of investments                                                     |                                                                                                                            |                          | (1,052    
|Other income (expense), net                                                   |                                                                                                                            |                          | 228       
|                                                                              |                                                                                                                            |                          |           
|Loss before provision for income taxes                                        |                                                                                                                            |                          | (3,132    
|Provision for income taxes                                                    |                                                                                                                            |                          | (23       
|                                                                              |                                                                                                                            |                          |           
|Net loss                                                                      |                                                                                                                            | $                        | (3,155    
|                                                                              |                                                                                                                            |                          |           
|Dividends on preferred stock                                                  |                                                                                                                            |                          | (306      
|Preferred stock conversion discount                                           |                                                                                                                            |                          |          
|                                                                              |                                                                                                                            |                          |           
|Net loss attributable to common stockholders                                  |                                                                                                                            | $                        | (3,461    
|                                                                              |                                                                                                                            |                          |           
|Basic and diluted net loss per share attributable to common stockholders      |                                                                                                                            | $                        | (0.10     
|                                                                              |                                                                                                                            |                          |           
|Weighted average shares outstanding used basic and diluted net loss per share |                                                                                                                            |                          | 35,373,973
|                                                                              |                                                                                                                            |                          |           

See accompanying notes to consolidated financial statements.

F-4

---





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

|                                                          |                    | Convertible
Preferred Stock |   | Common Stock
Voting |    |   |           
|--------------------------------------------------------- | ------------------ | --------------------------- | - | ------------------- | -- | - | ----------
|
|
|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 common 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 common 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
|Net loss                                                  |                    |                            |   |                     |   |   |          
|Cumulative foreign currency translation                   |                    |                            |   |                     |   |   |          
|                                                          | Comprehensive loss |                             |   |                     |    |   |           
|Exercise of stock options                                 |                    |                            |   |                     |   |   | 657,141   
|Conversion of warrants into common stock                  |                    |                            |   |                     |   |   | 7,260     
|Renegotiation of warrant liability                        |                    |                            |   |                     |   |   |          
|Issuance of common stock                                  |                    |                            |   |                     |   |   | 6,760,000 
|Issuance of common stock for acquired businesses          |                    |                            |   |                     |   |   | 6,590,707 
|Conversion of preferred stock                             |                    | (750,250                    | ) |                     | (7 | ) | 7,306,668 
|Issuance of common stock to employees                     |                    |                            |   |                     |   |   | 82,538    
|Vesting of restricted common stock                        |                    |                            |   |                     |   |   | 25,332    
|Amortization of deferred stock compensation               |                    |                            |   |                     |   |   |          
|                                                          |                    |                             |   |                     |    |   |           
|Balance as of December 31, 2004                           |                    | 78,000                      |   | $                   | 1  |   | 44,797,067
|                                                          |                    |                             |   |                     |    |   |           

See accompanying notes to consoldiated financial statements.

F-5

---



24/7 REAL MEDIA, INC.        CONSOLIDATED STATEMENTS 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, 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 common 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 common 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
|Net loss                                                  |                    |                             |     |                                   |   |                    |   |                            | (3,155    
|Cumulative foreign currency translation                   |                    |                             |     |                                   |   | 1,158               |   |                            |          
|                                                          |                    |                             |      |                                   |   |                     |   |                            |           
|                                                          | Comprehensive loss |                             |      |                                   |   |                     |   |                            |           
|                                                          |                    |                             |      |                                   |   |                     |   |                            |           
|Exercise of stock options                                 |                    |                             |     |                                   |   |                    |   |                            |          
|Conversion of warrants into common stock                  |                    |                             |     |                                   |   |                    |   |                            |          
|Renegotiation of warrant liability                        |                    |                             |     |                                   |   |                    |   |                            |          
|Issuance of common stock                                  |                    |                             |     |                                   |   |                    |   |                            |          
|Issuance of common stock for acquired businesses          |                    |                             |     |                                   |   |                    |   |                            |          
|Conversion of preferred stock                             |                    |                             |     |                                   |   |                    |   |                            |          
|Issuance of common stock to employees                     |                    |                             |     |                                   |   |                    |   |                            |          
|Vesting of restricted common stock                        |                    |                             |     |                                   |   |                    |   |                            |          
|Amortization of deferred stock compensation               |                    |                             | 240  |                                   |   |                    |   |                            |          
|                                                          |                    |                             |      |                                   |   |                     |   |                            |           
|Balance as of December 31, 2004                           |                    | $                           | (17  | )                                 | $ | 1,463               |   | $                          | (1,100,392
|                                                          |                    |                             |      |                                   |   |                     |   |                            |           

See accompanying notes to consoldiated financial statements.

F-6

---





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

|                                                                                             |                                               | Years Ended December 31,                  |        
|-------------------------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------- | -------
|
|Cash flows from operating activities:                                                        |                                               |                                           |        
|Net loss                                                                                     |                                               | $                                         | (3,155 
|Adjustments to reconcile net loss to net cash used in operating activities:                  |                                               |                                           |        
|Depreciation and amortization                                                                |                                               |                                           | 1,829  
|Provision for doubtful accounts and sales reserves                                           |                                               |                                           | 1,063  
|Loss on disposal of fixed assets                                                             |                                               |                                           |       
|Impairment of property and equipment                                                         |                                               |                                           | 787    
|Amortization of intangible assets and deferred financing costs                               |                                               |                                           | 4,331  
|Amortization of warrants                                                                     |                                               |                                           | 611    
|Non-cash compensation                                                                        |                                               |                                           | 538    
|Impairment of intangible assets                                                              |                                               |                                           | 896    
|Accrued interest on notes payable                                                            |                                               |                                           | 151    
|Change in fair value of warrant liability                                                    |                                               |                                           | (2,040 
|Gain from legal settlement                                                                   |                                               |                                           | (2,896 
|Impairment of investments                                                                    |                                               |                                           | 1,052  
|Loss on sale of assets, net                                                                  |                                               |                                           |       
|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:                                                        |                                               |                                           |        
|Cash (paid for) acquired in acquisitions, net                                                |                                               |                                           | (17,663
|Capital expenditures, including capitalized software                                         |                                               |                                           | (2,713 
|Cash paid for investment                                                                     |                                               |                                           | (2,032 
|Proceeds from sale of non-core assets, net of expenses                                       |                                               |                                           |       
|                                                                                             |                                               |                                           |        
|Net cash (used in) provided by investing activities                                          |                                               |                                           | (22,408
|                                                                                             |                                               |                                           |        
|Cash flows from financing activities:                                                        |                                               |                                           |        
|Proceeds from issuance of common stock, net                                                  |                                               |                                           | 37,247 
|Proceeds from exercise of stock options and conversion of warrants                           |                                               |                                           | 840    
|Payment of capital lease obligations                                                         |                                               |                                           | (86    
|Proceeds from issuance of preferred stock, net                                               |                                               |                                           |       
|Proceeds from issuance of subordinated convertible debentures, net                           |                                               |                                           |       
|Retirement of notes payable                                                                  |                                               |                                           |       
|Issuance of notes payable                                                                    |                                               |                                           |       
|                                                                                             |                                               |                                           |        
|                                                                                             |                                               | Net cash provided by financing activities |        
|                                                                                             |                                               |                                           |        
|                                                                                             |                                               | Net change in cash and cash equivalents   |        
|Effect of foreign currency on cash                                                           |                                               |                                           | 1,158  
|Cash and cash equivalents at beginning of year                                               |                                               |                                           | 21,645 
|                                                                                             |                                               |                                           |        
|Cash and cash equivalents at end of year                                                     |                                               | $                                         | 27,690 
|                                                                                             |                                               |                                           |        

See accompanying notes to consolidated financial statements.

F-7

---





24/7 REAL MEDIA, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2004

NOTE 1ORGANIZATION AND OPERATIONS OF THE COMPANY

24/7 Real Media, Inc. (the "Company") together with its subsidiaries offers a suite of media services and software products and services for the online
advertising needs of Web publishers and advertisers. The Company's products and services include Web representation, search marketing services, advertisement serving and targeting, analytics and
audience management. As of December 31, 2004, the Company principally operated in North America, Europe, South Korea and Australia and provided the following products and services:



NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The
accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries from their respective dates of acquisition. 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. The Company does not have significant minority interest holders. All significant intercompany transactions and
balances have been eliminated in consolidation.

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. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to
revenue recognition, accruals, allowance for doubtful accounts, fair value of acquired intangible assets and goodwill, useful

F-8

---



lives
of intangible assets and property and equipment, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the
results of which form the basis for making judgments about the carrying values of assets and liabilities.

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

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. At December 31, 2004 and 2003, the Company maintained $0.6 million and $0.3 million, respectively, in letters of credit, primarily related to office leases, which
are secured by cash. Letters of credit expiring within one year is classified are other current assets and maturities greater than one year are classified as other assets on the consolidated balance
sheet.

Investments
consist of securities with stated maturities of three months or more and marketable securities consisting of registered corporate equity securities. The Company classifies
the marketable
securities as available-for-sale in accordance with Statement of Financial Accounting Standards ("SFAS") 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.

Accounts
receivable are recorded at the invoiced amount net of allowance for doubtful accounts and sales allowance. The Company does not require collateral. The Company maintains an
allowance for doubtful accounts to reserve for potentially uncollectible receivables and a sales allowance to reserve for potential credits issued to customers. The allowances are estimates calculated
based on an analysis of current business and economic risks, customer credit-worthiness, specific identifiable risks such as bankruptcies, terminations or discontinued customers, or other factors that
may indicate a potential loss.

As
a normal part of the business, the Company has receivables that are invoiced in the month following the completion of the earnings process. All unbilled receivables are billed within
30 days after each month-end. Unbilled receivables are included in accounts receivable on the consolidated balance

F-9

---



sheets
and amounted to approximately $5.8 million and $4.4 million for the years ended December 31, 2004 and 2003, respectively.

Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, accounts receivable and debentures. The fair value of
cash equivalents and accounts receivable instruments approximate their financial statement amount because of the short-term maturity of these instruments. The fair value of the debentures
approximates their financial statement carrying value based on interest rates for similar borrowing. Accounts receivable are typically unsecured and are derived from revenues earned from customers
primarily located in North America, Europe, South Korea and Australia. To appropriately manage credit risk, the Company performs ongoing evaluations of customer credit and limits the amount of credit
extended, but generally no collateral is required. The Company maintains reserves for estimated credit losses and these losses have generally been within management's expectations.

At
times, cash may exceed the federally insured limits. In addition, the majority of the Company's cash is managed by one financial institution.

No
single customer accounted for greater than 10% of net revenues for the year ended December 31, 2004, 2003 and 2002.

Primarily
all of the Media revenue is generated from advertising inventory provided by partner Web sites. Primarily all of the Search revenue is generated from search engine distribution
partners. The Company may not be successful in renewing any of these agreements, or if they are renewed, they may not be on terms as favorable as current agreements. The Company may not be successful
in entering into agreements with new distribution partners on commercially acceptable terms. In 2004, approximately 13.5% of revenue was derived from advertising inventory provided by Daum
Communications Corp, which also owns Lycos, Inc. and is included in the Media segment. The majority of Search revenue is generated from relationships with two major search engine distribution
partners. On a geographic basis, we may also experience signification concentration among our customers or partners.

Property
and equipment are recorded at cost and are usually depreciated using the straight-line method over the shorter of the estimated useful lives of the related assets,
generally three to five years, or the lease term.

Cost
of software developed or obtained for internal use is accounted for in accordance with Statement of Position ("SOP") No. 98-1,Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use. Costs incurred during the preliminary project stage are expensed as incurred. Costs incurred to
develop or obtain software for internal use are capitalized during the application development stage. Costs incurred during the post-implementation or operation stage are expensed as
incurred. The capitalized cost of internal use software is charged over the estimated useful life of two to three years.

F-10

---



As
required by SFAS No. 86,Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise Marketed, the Company
requires certain product development costs to be capitalized 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. Capitalized software is depreciated using the greater of the amount computed using (a) the ratio that current gross revenues for a product bears
to the total of current and anticipated future gross revenue for that product or (b) the straight-line method over the remaining estimated economic life of the software, generally
four years.

The
Company's acquisitions are accounted for as purchase business combinations in accordance with SFAS No. 141,Business
Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. The Company allocates the purchase price to
tangible and intangible assets and records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Intangible assets include trademarks, customer
relationships, acquired technology and a covenant not to compete. Such intangible assets are amortized on a straight-line basis over their estimated useful lives, which are generally four
to seven years.

Long-lived
assets, including property and equipment, goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.
The Company assesses
impairment in accordance with the requirements of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. The
Company assesses the impairment of goodwill and intangible assets in accordance with the provisions of SFAS No. 142,Goodwill and Other Intangible
Assets. The Company determines the recoverability of the assets by comparing the carrying amount of the assets to net future cash flows that the asset is expected to generate.
The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the asset.

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.

F-11

---



Assets
and liabilities denominated in foreign functional currencies are translated at the exchange rate as of the balance sheet date. Revenues, costs and expenses denominated in foreign
functional currencies are translated at the weighted average exchange rate for the period. Translation adjustments are recorded as a separate component of stockholders' equity. Gains or losses from
foreign currency transactions included in the consolidated statements of operations amounted to approximately $94,000, $8,000 and $5,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.

Media

Media revenues are generated by delivering advertising impressions for a fixed fee to third-party Web sites. E-mail related revenues are derived from
delivering advertisements to e-mail lists for advertisers. 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. The Company becomes obligated to make payments to third-party Web sites and
e-mail lists which have contracted with the Company, in the period the advertising impressions or e-mails are delivered. Such expenses are classified as cost of revenues in the
accompanying consolidated statements of operations.

Search

Search revenues are derived from attracting clicks on client advertisers Web listings in search results. 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. The Company becomes
obligated to make payments to search engine distribution partners, which have contracted with the Company, in the period the clicks occur. Such expenses are classified as cost of revenues in the
accompanying consolidated statements of operations.

In
specific circumstances, when the Company provides search marketing services as an agent for a fixed commission, or otherwise in transactions in which it does not have principal risk
and reward, the Company recognizes revenue on a net basis.

Technology

Technology revenues are derived primarily from licensing of our software, hosted advertisement serving, and software maintenance and technical support services.
Revenue from software licensing agreements is recognized in accordance with SOP No. 97-2,Software Revenue Recognition, and Staff
Accounting Bulletin ("SAB") 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. Contracts that bundle the software license with maintenance and technical support are recognized ratably over the contract term. Revenue from advertisement
serving is recognized upon delivery. Revenue from software

F-12

---



maintenance
and technical support contracts is recognized ratably over the term of the agreement, which typically does not exceed one year.

Expenses
from the Company's Technology revenues are primarily payroll costs incurred to deliver and support the software, hosting, bandwidth and license fees paid to third-party software
vendors. These expenses are classified as cost of revenues in the accompanying consolidated statements of operations.

Deferred Revenue

Revenues that are billed or collected in advance of services being completed are deferred until the conclusion of the period of the service for which the advance
billing or collection relates. Deferred revenues are included on the consolidated balance sheets as a current liability until the service is performed and then recognized in the period in which the
service is completed. The Company's deferred revenues primarily consist of billings in advance for software license subscriptions and software maintenance and technical support services.

The
Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and Financial Accounting Standards Board ("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.

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 adjusted to
the pro forma amounts indicated below:

2004

2003

2002(in thousands,
except per share amounts)Net loss:As reported

$
(3,155
)
$
(12,016
)
$
(17,499
)Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax effect


8,813


4,243


15,169Pro forma


(11,968
)

(16,259
)

(32,668
)Net loss per share:As reported

$
(0.10
)
$
(0.86
)
$
(2.29
)Pro forma


(0.34
)

(1.10
)

(3.72
)


F-13

---





24/7 REAL MEDIA, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2004

In
October 2004, the Board of Directors accelerated the vesting of all unvested stock options previously awarded to employees and officers with an exercise price per share of
$5.00 or higher. As a result, options to purchase approximately 1.7 million shares of common stock became exercisable immediately. Based on the closing price of the stock at the time of
acceleration, none of the options had economic value. Under the recently revised SFAS 123,Share-Based Payment("SFAS 123R"), the Company
will apply the expense recognition provisions relating to stock options beginning in the third quarter of 2005. As a result of the acceleration, the Company expects to reduce the stock option expense
it otherwise would be required to record by approximately $5.3 million on a pre-tax basis.

The
per share weighted-average fair value of stock options granted during 2004, 2003, and 2002 is $4.58, $1.15, and $0.95, respectively, on the date of grant using the Black-Scholes
method with the following weighted average assumptions:

2004

2003

2002Expected dividend yield

0
%
0
%
0
%Risk-free interest rate

2.41
%
1.46
%
1.48
%Expected life (in years)

2.7

2.4

4.0Volatility

131
%
133
%
97
%


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.

(o)   Restructuring
Estimates

Restructuring
activities are accounted for in accordance with SFAS No. 146,Accounting For Costs Associated with Exit or Disposal
Activities. Restructuring-related liabilities include estimates for, among other things, involuntary terminations of employees and disposition of lease obligations. Key
variables in determining such estimates include timing of sublease rentals, estimates of sublease rental payment amounts and tenant improvement costs, and estimates for brokerage and other related
costs. The Company periodically evaluates and, if necessary, adjusts the estimates based on currently available information.

(p)   Warrant
Liability

Warrant
liability is presented in accordance with EITF 00-19,Accounting for Derivative Financial Instruments Indexed To, And Potentially Settled In,
a Company's Own Stock. EITF 00-19 requires freestanding contracts that are settled in a Company's own stock, including common stock warrants, to be designated as an
equity instrument, asset or liability. Under the provisions of EITF 00-19, a contract designated as an asset or a 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 within equity, and no fair value adjustments are required. The
classification of a contract should be reviewed at each balance sheet date.

F-14

---



(q)   Advertising
Costs

Cost
of advertising and promoting the Company's products and services are expensed as incurred. Such costs are included in sales and marketing on the statement of operations and total
approximately $1.1 million, $0.9 million and $1.0 million for the years ended December 31, 2004, 2003 and 2002, respectively.

(r)   Basic
and Diluted Net Loss Per Share

Net
loss per share is presented in accordance with the provisions of SFAS 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. Potential common shares consist of incremental common shares issuable upon the exercise of stock options and warrants and the vesting of restricted stock (using the treasury stock method) and
the conversion of subordinated convertible debentures and preferred stock (using the if-converted method).

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 years ended December 31, 2004, 2003, and 2002 does not include the effects of options to purchase 4.5 million, 3.4 million, and 2.5 million
shares of common stock, respectively; 0.6 million, 0.6 million, and 1.7 million common stock warrants, respectively; 10,000, 40,000 shares and 6,400 shares of unvested restricted
stock, respectively; 0.6 million, 8.0 million and 9.0 million shares of preferred stock, respectively; and 1.7 million shares of common stock in 2004 and 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.

(s)   Recent
Accounting Pronouncements

Share-Based Compensation

In December 2004, the FASB issued the revised SFAS No. 123,Share-Based Payment("SFAS 123R"), which addresses the accounting for share-based payment transactions in which the Company obtains employee services in exchange for (a) equity instruments of the Company or
(b) liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R eliminates the ability
to account for employee share-based payment transactions using APB No. 25 and requires instead that such transactions be accounted for using the grant-date fair value based method.
SFAS 123R will be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (July 1, 2005 for the Company) and applies to all
awards granted or modified after the effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the effective date shall be
recognized on or after the effective date, as the related services are rendered, based on the awards' grant-date fair value as previously calculated for the pro-forma
disclosure under SFAS 123.

F-15

---



The
Company expects that upon the adoption of SFAS 123R it will apply the modified prospective application transition method, as permitted by the statement. Under such transition
method, upon the adoption of SFAS 123R, the Company's financial statements for periods prior to the effective date of the statement will not be restated. The impact of this statement on its
financial statements or its results of operations in 2005 and beyond will depend upon various factors, among them, its future compensation strategy. The Company expects that the effect of applying
this statement on its results of operations in 2005 as it relates to existing option plans would not be materially different from the SFAS 123 pro forma effect previously reported.

Impairment of Debt and Equity Instruments

In March 2004, the FASB issued EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments," which provides new guidance for assessing impairment losses on debt and equity
investments. Additionally, EITF Issue No. 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB
delayed the accounting provisions of EITF Issue No. 03-1; however, the disclosure requirements remain effective and have been adopted by the Company in the financial statements. The
Company will evaluate the effect, if any, of EITF Issue No. 03-1 when final guidance is released.

NOTE 3ACQUISITIONS AND UNAUDITED PRO FORMA SUMMARY

(a)   Acquisition
of Decide Holdings Pty Limited ("Decide")

On
August 19, 2004, the Company completed its acquisition of Decide, a leading provider of search engine marketing in Australia and Europe. The acquisition combined our global
audience and Decide's search technology to allow the Company to create a more relevant, comprehensive and higher quality search offering. Pursuant to the acquisition agreements, the Company acquired
all of the outstanding shares of Decide for $15.0 million in cash, approximately 4.5 million shares of its common stock, valued at $12.6 million, and approximately
$1.1 million in transaction fees. Additionally, the Company is required to pay up to an additional $2.5 million in cash and issue $5.0 million in shares of common stock (up to a
maximum of 2.3 million shares) to the selling shareholders of Decide if Decide achieves certain performance targets.

The
purchase price in excess of fair value of net tangible liabilities assumed of $28.8 million has been allocated as follows: $20.0 million to goodwill and
$8.8 million to intangible assets.

Of
the $8.8 million of intangible assets, $1.1 million was assigned to trademarks that are not subject to amortization. The remaining $7.7 million of intangible
assets have a weighted-average useful life of approximately five years. The intangible assets that make up that amount include acquired technology of $6.6 million (five year weighted-average
useful life), customer relationships of $1.0 million (five year weighted-average useful life) and non-compete agreements of $0.1 million (two year weighted-average useful
life).

The
$20.0 million of goodwill was assigned to the Search segment and of that amount, none is deductible for tax purposes.

F-16

---



The
net tangible liabilities assumed consist of the following:

Asset/Liability

AmountCash and cash equivalents

$
305Other current assets


1,692Fixed assets


616Other assets


180Accrued liabilities


(2,838
)Long-term liabilities


(21
)$
(66
)


(b)   Acquisition
of Real Media Korea ("RMK")

On
January 6, 2004, the Company completed its acquisition of RMK, a leader in interactive marketing in the Republic of South Korea, by acquiring the approximately 90.4% of the
outstanding shares of RMK that the Company did not already own. The Company believes that the combined assets will further its position as a global leader in interactive marketing. The Company paid
total consideration of $20.1 million in exchange for the RMK shares, which consisted of $5.0 million in cash, approximately 2.1 million shares of the Company's common stock 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 the Company upon vesting in accordance with the terms and conditions of the stock union and Korean law. For accounting purposes,
the effective date of the acquisition is January 1, 2004. There was no material activity between the effective date and the acquisition date.

The
purchase price in excess of fair value of net tangible assets acquired of $16.1 million has been allocated as follows: $11.9 million to goodwill and $4.2 million
to intangible assets.

Of
the $4.2 million of intangible assets, $0.7 million was assigned to trademarks that are not subject to amortization. The remaining $3.5 million of intangible
assets have a weighted-average useful life of approximately six years. The intangible assets that make up that amount include acquired technology of $0.5 million (six year weighted-average
useful life), customer relationships of $2.4 million (seven year weighted-average useful life) and a non-compete agreement of $0.6 million (five year weighted-average useful
life).

The
$11.9 million of goodwill was assigned to the Media and Technology segments in the amounts of $11.2 million and $0.7 million, respectively. Of that total amount,
none is deductible for tax purposes.

F-17

---





The net tangible assets acquired consist of the following:

Asset/Liability

AmountCash and cash equivalents

$
3,469Other current assets


5,151Fixed assets


170Non-current assets


384Accrued liabilities


(5,159
)$
4,015


(c)    Acquisition of Insight First, Inc. ("Insight")

On
January 21, 2003, the Company acquired certain assets of Insight First, Inc., including specific contracts, intangibles and employee relationships, related to Insight'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, and $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 and 2003. The
earn-out target for 2003 was not achieved, however, the target for 2004 was achieved. The earn-out payment of $250,000 has been accrued and was
included as an addition to acquired technology as of December 31, 2004. The purchase price in excess of fair value of net tangible assets and liabilities acquired of $1.3 million was
allocated to acquired technology. The net tangible assets acquired consist of the following:

Asset/Liability

AmountFixed assets

$
44Accrued liabilities


(41
)$
3


The
acquired technology was amortized over an expected benefit period of four years. In December 2004, the Company impaired the analytics technology that was acquired with Insight
due to significant rewrite of the underlying software code. The unamortized balance of $0.9 million, inclusive of the $250,000 earn-out due to Insight, was impaired at
December 31, 2004.

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 was
convertible into common stock of the Company at any time at the option of the holder thereof at a

F-18

---



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.

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 was 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 was allocated to acquired technology.

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. The unamortized balance of $1.3 million at December 31, 2003 was considered impaired.

F-19

---



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, 2002:Now Marketing

$
4,323

$
1,232

$
1,250

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

$
1,261

$
3

$


$
1,258Year Ended December 31, 2004:Real Media Korea

$
20,180

$
4,015

$


$
16,165Decide Holdings Pty Limited


28,707


(66
)




28,773$
48,887

$
3,949

$


$
44,938


The
results of operations of Decide, RMK and Insight have been included in the Company's consolidated statements of operations since the completion of the acquisitions. The following
unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisitions of Decide, RMK, and Insight at the beginning of each period presented:

Year Ended
December 31, 2004

Year Ended
December 31, 2003(in thousands except per share data)Total revenue

$
91,949

$
66,083Net loss attributable to common stockholders


(3,956
)

(16,070
)Basic and diluted net loss attributable to common stockholders per share

$
(0.10
)
$
(0.69
)Weighted average common shares used in net loss per share calculation(1)


38,250,851


23,448,783


---

The
pro forma summary is not necessary 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 results.

F-20

---



NOTE 4BALANCE SHEET COMPONENTS

Short-term
investments consist of approximately $2.0 million in certificate of deposits with original maturities greater than three months from the balance sheet date
and $1.8 million in available-for-sale securities.

The
Company's available-for-sale securities consist of 400,000 shares of chinadotcom common stock received as result of a legal settlement (see Note 17),
originally valued at $2.9 million based on the market price on the date of settlement. The total realized loss, based on an other-than-temporary decline in the market
value of the stock, was $1.1 million for the year ended December 31, 2004.

December 31,2004

2003(in thousands)Computer equipment and software(1)

$
9,131

$
11,545Furniture and fixtures


829


1,185Leasehold improvements


1,165


72011,125


13,450Less accumulated depreciation and amortization


(6,342
)

(10,588
)$
4,783

$
2,862


---



F-21

---



The
$34.6 million in goodwill as of December 31, 2004 relate $20.0 million to Decide, $12.0 million to RMK, $1.1 million to 24/7 Canada (formerly
ClickThrough), $1.1 million to Real Media and $0.4 million to 24/7 Search (formerly Website Results). The $2.6 million in goodwill as of December 31, 2003 relate
$1.1 million to 24/7 Canada, $1.1 million to Real Media and $0.4 million to 24/7 Search.

The
$12.7 million in intangible assets, net at December 31, 2004 relates $8.2 million to Decide, $3.7 million to RMK, and $0.8 million to Real Media.
The $3.4 million in Intangible assets, net at December 31, 2003 relates $1.8 to Real Media, $0.6 million to 24/7 Search and $1.0 to Insight First.

December 312004

2003(in thousands)Goodwill(1)

$
34,573

$
2,621Technology(2)


13,195


7,263Less accumulated amortization


(5,868
)

(4,142
)Net Technology


7,327


3,121Other intangible assets(3)


6,296


500Less accumulated amortization


(947
)

(269
)Net Other intangible assets


5,349


231Gross Intangible assets


19,491


7,763Less accumulated amortization


(6,815
)

(4,411
)Net Intangible assets

$
12,676

$
3,352


---

The amortization expense for 2004 and the five succeeding fiscal years is as follows (in thousands):

Useful Life

2004

2005

2006

2007

2008

2009Technology

4 years

2,340

2,149

1,420

1,420

1,420

872Other

47 years

676

812

685

648

648

4483,016

2,961

2,105

2,068

2,068

1,320


F-22

---



December 31,2004

2003(in thousands)Lycos transition cost (see Note 18)

$
3,713

$
Deferred financing costs (see Note 11)


928


1,458Note receivable (see Note 5)


500


500Advance royalties


500


Other


1,225


470$
6,866

$
2,428


December 31,2004

2003(in thousands)Royalties

$
3,797

$
3,733Incentives, commissions and expenses(1)


2,815


2,408Accrued taxes


1,670


935Professional fees


1,073


747Restructuring and exit costs


898


1,663Accrued other


1,555


600$
11,808

$
10,086


---

In
connection with the placement of the Company's preferred stock and subordinated convertible debentures, the Company issued warrants to investors to purchase shares of the Company's
common stock. The Company agreed to register the shares issuable upon exercise of the warrants and to pay penalties for a delayed filing or a failure to file a registration statement prior to
the agreed deadline. The Company also agreed to pay penalties if the registration statement becomes temporarily or permanently unavailable for use by the warrant holders. Pursuant to EITF Issue
No. 00-19 ("EITF 00-19"),Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock, the Company reflected the value of the warrants as a warrant liability on the consolidated balance sheet and the liability will be reclassified to equity upon exercise
or conversion. The fair value of the outstanding warrants is evaluated at each reporting period with any resulting change in the fair value being reflected in the consolidated statement of operations.
The fair value has decreased approximately $2.0 million during 2004.

F-23

---





In June 2004, the Company amended the registration rights agreement related to the subordinated convertible debentures. The amendment provided that the
Company is no longer obligated to pay any filing or maintenance penalties pursuant to the registration rights agreement with respect to the warrants issued to the holders of the debentures.
Accordingly, the Company reclassified the warrant liability related to the debentures of $1.0 million to additional paid in capital.

NOTE 5DISCONTINUED OPERATIONS

IMAKE

On
January 22, 2002, the Company completed the sale of its wholly owned subsidiary, IMAKE, to Schaszberger Corporation for approximately $6.5 million. Of the
$6.5 million sale price, $2.0 million was in the form of a 6% four-year secured note, approximately $0.5 million was cash consideration and a potential
earn-out of up to $4.0 million over the next three years based on gross revenue as defined in the sale agreements. The note is secured by certain assets of IMAKE and is guaranteed
by the buyer. 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 will be 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 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. At December 31, 2004, the remaining earn-out receivable of
$0.1 million is included in current assets and the note receivable of $0.5 million is included in other assets on the consolidated balance sheet.

NOTE 6DISPOSAL OF NON-CORE ASSETS

In 2002, the Company sold certain assets related to its US email management product for a loss of $1.4 million. Also during 2002, the Company recognized a
deferred gain of $1.1 million from the sale of Exactis, an email service bureau, which was sold in 2001.

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. In January 2004, iPromotions was acquired by a
third-party. As part of the transaction, the Company agreed to give up its minority stake. According, the Company wrote-off its interest in iPromotions.

F-24

---



NOTE 7RESTRUCTURING COSTS

During the years ended December 31, 2004, 2003 and 2002, restructuring costs of approximately $0.8 million, $1.7 million, and
$2.0 million, respectively, were recorded by the Company in accordance with the provisions of SFAS No. 146,Accounting For Costs Associated with Exit or Disposal
Activities.

The
2004 restructuring involved the involuntary termination of 17 employees and exiting of the Germany office. The $0.8 million charge consists of severance of $0.6 million
and office closing costs of $0.2 million.

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.

The
following sets forth the activities in the Company's restructuring reserve which is included in accrued expenses in the 2004 and 2003 consolidated balance sheets:

Beginning
Balance

Current
Year
Provision

Current
Year
Utilization

Ending
Balance2004Employee termination benefits

$
470

$
675

$
776

$
369Office closing costs


1,165


166


802


529Other exit costs


28





28


$
1,663

$
841

$
1,606

$
8982003Employee termination benefits

$
1,139

$
455

$
1,124

$
470Office closing costs


709


1,175


719


1,165Disposal of assets


72





72


Other exit costs


12


21


5


28$
1,932

$
1,651

$
1,920

$
1,663


NOTE 8IMPAIRMENT OF INVESTMENTS

The Company received 400,000 shares of chinadotcom Corporation as part of a legal settlement in June 2004 (see Note 17), which the Company
classified as available-for-sale. Since the shares were received, the value has declined significantly. The Company determined the decline was
other-than-temporary and wrote down the value of the shares to the market price, as determined by the quoted market price, as of December 31, 2004. Accordingly, the
Company recorded a $1.1 million impairment charge in 2004.

F-25

---



NOTE 9INCOME TAXES

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

Years Ended December 31,2004

2003

2002(in thousands)U.S. net loss

$
(2,958
)
$
(12,051
)
$
(14,434
)Foreign net income (loss)


(197
)

35


(3,065
)$
(3,155
)
$
(12,016
)
$
(17,499
)


At
December 31, 2004, the Company had approximately $162.8 million of U.S. net operating loss carryforwards. Such carryforwards expire in various years through 2024. 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.

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, 2004 and 2003 are presented below.

|                          |                                 | 2004                                                                   |         | 2003   |      
|------------------------- | ------------------------------- | ---------------------------------------------------------------------- | ------- | ------ | -----
|
|Deferred tax assets:      |                                 |                                                                        |         |        |      
|                          | Net operating loss carryforward |                                                                        |         | 65,138 |      
|                          |                                 | Deferred revenue                                                       |         |        | 649  
|                          |                                 | Reserve for sales allowance                                            |         |        | 207  
|                          |                                 | Accounts receivable principally due to allowance for doubtful accounts |         |        | 178  
|                          |                                 | Amortization of goodwill and other intangibles                         |         |        | 2,635
|                          |                                 | Accrued compensation                                                   |         |        | 351  
|                          |                                 | Accrued restructuring                                                  |         |        | 375  
|                          |                                 | Stock option expenses                                                  |         |        |     
|                          |                                 | Property and equipment, principally due to differences in depreciation |         |        |     
|                          |                                 | Impairment charge                                                      |         |        | 421  
|                          |                                 | Other                                                                  |         |        |     
|                          |                                 |                                                                        |         |        |      
|Gross deferred tax assets |                                 |                                                                        | 69,954  |        |      
|Less: valuation allowance |                                 |                                                                        | (69,569 | )      |      
|                          |                                 |                                                                        |         |        |      
|                          |                                 | Net deferred tax assets                                                |         |        | 385  
|Deferred tax liabilities: |                                 |                                                                        |         |        |      
|                          |                                 | Property and equipment, principally due to differences in depreciation |         |        | (385 
|                          |                                 | Other                                                                  |         |        |     
|                          |                                 | Gross deferred tax liabilities                                         |         |        | (385 
|                          |                                 |                                                                        |         |        |      
|                          |                                 | Net deferred tax asset (liability)                                     |         | $      |     
|                          |                                 |                                                                        |         |        |      

F-26

---



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 2004 and 2003, the valuation allowance decreased by $1.6 million and $19.4 million, respectively. Of the total
valuation allowance of $69.6 million, tax benefits, recognized in the future of approximately of $2.1 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.

NOTE 10RELATED PARTY INSTRUMENTS

Loan Payable

In
connection with the Company's acquisition of Real Media in October 2001, the Company had issued three Promissory Notes to PubliGroupe, the principal shareholder of Real Media,
totaling $7.5 million. Mr. Wuttke, who became a member of the Company's board of directors after the acquisition, 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.

NOTE 11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.

F-27

---



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 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 immediately redeem up to $7.5 million principal amount of this Debenture, which is being classified as short-term
debt on the consolidated balance sheet. The redemption right constitutes an embedded derivative. The value of this embedded derivative at December 31, 2004 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."

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 fair market value of the Warrants was reflected as a reduction of the face amount of the Debentures on the consolidated balance sheet, which
is being 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 over the initial term.
Pursuant to EITF 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. In connection with the amendment to the registration rights agreement entered into during 2004, the Company reclassified the value
of the warrants (approximately $1.0 million) on the amendment date to additional paid in capital.

In
connection with the issuance of the Debentures and Warrants, the Company incurred placement agent fees, legal fees and other expenses of approximately $1.2 million to be paid
in cash. In addition to the placement fees, the Company issued warrants to the placement agent. The warrants to purchase 86,000 shares of common stock at an exercise price of $10.068 are in the same
form and on the same terms and conditions as the Warrants issued to the investor. The Company included the value of the warrants, $0.4 million, determined using the factors above, and the cash
placement fees of $1.2 million in other assets on the consolidated balance sheet. Collectively, the debt issuance costs of $1.6 million

F-28

---



are
being amortized over three years, the initial term of the Debentures. Approximately $0.6 million and $0.1 million of deferred costs are included in amortization expense for the years
ended December 31, 2004 and 2003, respectively, and at December 31, 2004 and 2003, the unamortized debt issuance costs of $0.9 million and $1.5 million, respectively, are
included in other assets on the consolidated balance sheet.

Interest
expense on the debentures amounted to approximately $0.3 million, $0.1 million and $0 for the years ended December 31, 2004, 2003 and 2002, respectively.

Interest
expense attributable to the amortization of the warrants amounted to approximately $0.6 million $0.2 million and $0 for the years ended December 31, 2004,
2003 and 2002, respectively.

NOTE 12EQUITY INSTRUMENTS

The
Company's 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 accrued 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 sale, merger, liquidation, dissolution or winding up of the Company.
Accrued but unpaid dividends are cancelled upon conversion of the preferred stock. As of December 31, 2004, there are approximately $0.1 million of accrued but unpaid dividends.

Series A

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 was convertible into common stock of the Company at any time at the option of the holder at a conversion price of $1.02675 per share of
common stock, or 7.8 million shares of common stock on an as-if converted basis. The Company also issued warrants
to Sunra to purchase 0.8 million 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 0.1 million shares of common stock, 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.

F-29

---



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.

As
of December 31, 2004, all shares of Series A Preferred Stock have been converted into shares of common stock.

Series B

In conjunction with the acquisition of Now Marketing in September 2002, the Company issued 0.1 million shares of Series B Preferred Stock,
which were convertible into approximately 1.2 million shares of common stock. The Series B Preferred Stock contained a $1.2 million embedded beneficial conversion feature which is
included in "Preferred stock conversion discount" on the consolidated statement of operations (see Note 3).

All
shares of Series B Preferred Stock were converted into shares of common stock in 2003.

Series C

As of June 6, 2003, the Company completed a private placement (the "Financing") of approximately $7.2 million of Series C-1
Non-Voting 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

F-30

---



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 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

F-31

---



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.

As
of December 31, 2004, there are 78,000 shares of the Series C Preferred Stock outstanding.

Secondary Stock Offering

On March 30, 2004, the Company completed a secondary stock offering in which a total of 8.0 million shares of common stock were sold at $6.00 per
share. Of the shares sold, the Company sold 6.0 million shares and selling stockholders sold 2.0 million shares. The Company and the selling stockholders received proceeds net of
underwriting discounts and commission, and before other offering expenses, of $33.8 million and $11.3 million, respectively. In connection with the offering, the Company and selling
stockholders granted to the underwriters an option to purchase up to an additional 1.2 million shares of common stock at $6.00 per share less underwriter discounts and commissions for the
purpose of covering over-allotments. Of the additional shares offered, approximately 0.8 million shares and 0.4 million shares were offered by the Company and by the selling
stockholders, respectively. The underwriters exercised the over-allotment option in April 2004. The Company and selling stockholders received additional proceeds of
$4.3 million and $2.3 million, respectively, net of underwriting discounts and commissions and before other offering expenses.

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 reverse split does not affect the number of shares of preferred stock and warrants outstanding,
however, the conversion ratio was adjusted accordingly. 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.

F-32

---



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 $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 August 19, 2004, the Company issued approximately 4.5 million shares of common stock, valued at $12.6 million, in connection with the
acquisition of Decide.

On
January 6, 2004, the Company issued approximately 2.1 million shares of common stock, valued at $14.6 million, in connection with the acquisition of RMK.

F-33

---



On
May 23, 2003, the Company issued approximately 1.0 million shares of common stock, 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 10).

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 of common stock, 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 of common stock, 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 disclosed in the Company's
Form 10-K and accrued as of December 31, 2001.

Additional Paid-in Capital

During the year ended December 31, 2004, the Company's additional paid-in capital increased by $66.8 million primarily due to
$37.2 million in connection with the Company's secondary offering of common stock, $14.6 million in connection with the acquisition of RMK, $12.6 million in connection with the
acquisition of Decide, $1.0 million in connection with the amendment of the registration rights agreement related to the subordinated convertible debentures, $0.6 million in other
stock-based compensation issued to employees and $0.9 million from exercise of stock options and warrants offset by $0.1 million related to the conversion of preferred stock.

Reserves Shares

Shares reserved for future issuance as of December 31, 2004 are as follows:

Reserved
SharesReserved for issued and outstanding warrants

589,349Reserved for stock incentives under the 1998 Stock Incentive Plan

1,236,109Reserved for stock incentives under the 2001 Stock Incentive Plan

389,612Reserved for stock incentives under the 2002 Stock Incentive Plan

8,291,694


F-34

---





Warrant
activity during the periods indicated is as follows:

Warrants

Weighted
Average
Exercise PriceOutstanding 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

$
7.45Granted




Exercised

(42,428
)

1.21Canceled

(114,542
)

6.12Outstanding at December 31, 2004

2,946,747

$
7.61


Warrants
outstanding at December 31, 2004 consist of warrants issued in connection with the Company's Series C (see Note 12 (a)) and Debenture (see Note 11)
financing. Warrants generally expire five years from the date of grant.

NOTE 13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. The Stock Incentive Committee shall determine eligibility under the Plan. 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.

F-35

---



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 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 Website Results, 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 250,000 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 500,000 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 of Directors 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

F-36

---



services
rendered or to be rendered. Shares of the Company's 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 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 Company may amend the plan at any time.

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. On October 26, 2004, the Shareholders approved an amendment to
the 2002 Stock Incentive Plan to increase the number of shares that may be subject to awards under the Plan by 4,000,000 shares. 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.

F-37

---



Stock
option activity during the periods indicated is as follows:

Options

Weighted Average
Exercise PriceOutstanding 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

$
5.85Granted

2,043,654


6.41Exercised

(657,141
)

1.29Canceled

(280,223
)

10.79Outstanding at December 31, 2004

4,491,929

$
6.62Vested at December 31, 2002

1,614,818

$
12.35Vested at December 31, 2003

2,182,247

$
7.81Vested at December 31, 2004

4,081,854

$
7.06Options available for grant at December 31, 2004

5,425,487


The
following table summarizes information about stock options outstanding at December 31, 2004:

Range of
Exercise Prices

Number
Outstanding

Weighted Average
Remaining
Contractual Life
(in years)

Weighted Average
Exercise Price of
Shares
Outstanding

Weighted Average
Exercise Price of
Shares Exercisable

Number
Exercisable$
0.001.15

2,080,120

7.2

$
1.11

$
1.11

1,921,9961.164.99

467,796

8.0


2.66


2.28

215,8455.0010.00

1,730,513

8.5


6.77


6.77

1,730,51310.01320.00

213,500

5.8


67.78


67.78

213,5004,491,929

7.7

$
6.62

$
7.06

4,081,854


In
October 2004, the Board of Directors accelerated the vesting of all unvested stock options previously awarded to employees and officers with an exercise price per share of
$5.00 or higher. As a result, options to purchase approximately 1.7 million shares of common stock became exercisable immediately (see Note 2(n)).

F-38

---





NOTE 14SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental Cash Flow Information

We capitalized approximately $1.1 million of computer equipment that was received but unpaid at year-end.

During
2004, 2003, and 2002, the amount of cash paid for interest was approximately $240,000, $8,000, and $13,000, respectively.

Non-Cash Investing and Financing Activities

Warrants to purchase approximately 8,486 shares of the Company's common stock at an average of $1.21 per share were exercised during 2004 in exchange for
approximately 7,260 shares of the Company's common stock in cashless exercises of warrants.

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
2004, 2003 and 2002, the Company issued approximately 6.6 million shares of common stock, valued at $27.2 million, 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.

NOTE 15COMPREHENSIVE LOSS

Comprehensive loss is presented in the consolidated financial statement of stockholders' equity. Total comprehensive loss for the years ended December 31,
2004, 2003 and 2002 was $2.0 million, $12.1 million and $17.1 million, respectively. Comprehensive loss resulted primarily from net losses of $3.2 million,
$12.0 million and $17.5 million, respectively, and foreign currency translation adjustments of $1.2 million, ($0.1) million, and $0.4 million, respectively.

NOTE 16BENEFIT PLANS

The Company established a 401(k) Plan on January 1, 1999, that is available to all full-time U.S. employees after six months of employment.
Employees may contribute up to 70% percent of their salary, not to exceed the maximum dollar limitation under the Internal Revenue Code Section 402(g). The Company does not currently match
employee contributions. As required by local laws, the Company maintains defined contribution plan for its European employees. The only expense the Company incurs related to these plans is for
administrative services, which is not material.

F-39

---



NOTE 17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, sales
offices and various types of equipment for varying periods of time, with the last lease expiring in December 2011. Rent expense from all operating leases amounted to $2.3 million,
$2.0 million and $2.6 million for the years ended 2004, 2003, and 2002, respectively.

Future
minimum payments under non-cancelable operating leases and capital leases at December 31, 2004 are as follows:

Capital Leases

Operating Leases

Subleases(in thousands)Year Ending December 31,2005

$
49

$
3,270

$
(396
)2006


32


2,340


(387
)2007


20


1,828


(379
)2008





1,365


(252
)2009





732


Thereafter





1,521


Total minimum lease payments


101

$
11,056

$
(1,414
)Less amount representing interest


11Present value of minimum lease payments


90Less current portion


48Long-term portion

$
42


On
February 11, 2004, the Company entered into a five-year arrangement with Lycos, Inc. ("Lycos"), including an advertising services agreement to provide media
sales, a technology services agreement to provide advertisement serving and analytics technology services to Lycos' U.S. Web properties, and a transition services agreement to transition personnel and
other services to the Company. The Company and Lycos amended the advertising services agreement and the technology services agreement on December 7, 2004 and, as amended, Lycos effectively may
terminate the media services agreement on January 1, 2007.

The
amended media services agreement provides that the exclusive right to sell advertising on Wired.com and Quote.com will be transferred to Lycos' internal sales force on July 1,
2005 and January 1, 2006, respectively. In connection with the transition, Lycos agreed to pay the Company a six-month trailing commission for the Company's largest 25 advertising
accounts that purchased advertising on Wired.com and Quote.com. The trailing commission is 35% for the first three months following transition, and 17.5% for the next three months, but will not exceed
35% of the average

F-40

---



monthly
net advertising sales revenue related to such accounts for the six month period prior to the respective dates of transition.

The
amended media services agreement reconciled past royalty payments and requires that the Company pay quarterly royalties for advertising inventory made available by Lycos as follows:



Pursuant
to the media services agreement minimum CPM revenue is determined on a quarterly basis by multiplying Lycos' projected advertisement impression level for that quarter by
specific CPM prices for advertising inventory in specific category and unit types.

The
Company pre-paid $2.0 million of royalties to Lycos, $1.0 million in December 2004 and $1.0 million in February 2005, and will retain
an additional 25% of quarterly royalties due to Lycos until the date on which the full amount of pre-paid royalties has been recouped or otherwise paid in cash by Lycos. Accordingly, at
December 31, 2004, the Company had a net $0.5 million in prepaid and other current assets related to Lycos after the offset of the minimum royalty accrued as per above.

In
addition to the royalties, the Company paid Lycos a $4.5 million transition fee which the Company recorded as an other asset and is amortizing the fee over the term of the
agreement of five years. In accordance with SFAS 144, the Company will periodically evaluate the recoverability of this asset.

The
Company has contingent obligations related to our acquisitions of Decide and Insight First, Inc. Decide stockholders may receive up to an additional $7.5 million, in a
combination of cash and common stock, subject to achievement of earn-out targets relating to Decide's operating performance in 2005. The earn-out target for Insight was
achieved for 2004, hence the Company accrued, in the consolidated balance sheet, the earn-out payment of $250,000.

The
Company has various employment agreements with employees, the majority of which are for one year with an automatic renewal. The potential obligation under these contracts includes
salary and performance based target bonuses. The Company pays bonuses to executive employees based on the achievement of revenue goals and other financial measures including earnings before interest,
taxes, amortization and stock-based compensation. These contracts also require severance payments in the event of involuntary termination which generally range in amount from three months to one
year's salary. All non-U.S. employees have employment contracts as required by local law. The majority of

F-41

---



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.

In
connection with our commercial agreements, we provide indemnifications of varying scope and terms to customers, business partners and other parties with respect to certain matters,
including, but not limited to, losses arising out of our breach of such agreements and out of intellectual property infringement claims made by third parties.

LITIGATION

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.

Litigation with 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 sought injunctive relief and recovery of attorney's fees. On May 10, 2002, 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 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 patent. The Company 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. In March 2004, the Federal Circuit Court of Appeals affirmed, without opinion, the July 2003 decision of the U.S. Federal Court for the Western District of Washington. The
Company filed a request for rehearing but that was denied on May 7, 2004.

Litigation with 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. The motion
was granted in part, with leave to amend, and denied in part. The plaintiff subsequently refiled the complaint and the Company filed a counterclaim. The case was scheduled for trial in
October 2004 but Mr. Anderson's counsel resigned as counsel on the eve of the trial. The proceedings have been halted until Mr. Anderson obtains new counsel.

F-42

---



Litigation with chinadotcom Corp.

On February 19, 2003, the Company filed a complaint in federal court against chinadotcom Corporation ("chinadotcom") 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 J. 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 requested chinadotcom to reimburse him for all of his legal expenses. chinadotcom appealed the
dismissal of its claim. The Company filed a motion to dismiss.

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 sought damages totaling $24.0 million. The Company believed chinadotcom's claims were without merit. The Company
filed an Answer and Counterclaim in the matter.

On
June 1, 2004, the Company and Mr. Moore reached a settlement with chinadotcom involving the release of all claims and termination of all litigation matters involving the
two companies and their affiliates. As part of the settlement, chinadotcom issued to the Company 0.4 million shares of its Class A Common Stock. The shares valued at $2.9 million
based on the market price on the date of settlement is included on the consolidated statement of operations for the year ended December 31, 2004 as a gain on legal settlement.

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.

NOTE 18SEGMENTS

The Company's business is comprised of three reportable segments: Media, Search and Technology. As the result of the acquisition of Decide, the Company is
reporting Search as a separate segment from Media. The Company measures segments based on segment income (loss) from operations. The Company has adjusted prior period segment disclosure to conform to
the current

F-43

---



presentation.
The summarized segment information as of and for the three years ended December 31, 2004, are as follows:

|                                                               |  | Media |        | Search |   | Technology |   | Corporate |        | Total |  
|-------------------------------------------------------------- |  | ----- | ------ | ------ | - | ---------- | - | --------- | ------ | ----- | -
|
|2004                                                           |  |       |        |        |   |            |   |           |        |       |  
|Revenues                                                       |  | $     | 49,879 |        | $ | 16,439     |   | $         | 18,937 |       | $
|Depreciation                                                   |  |       | 574    |        |   | 231        |   |           | 982    |       |  
|Amortization of intangible assets and deferred financing costs |  |       | 1,335  |        |   | 1,151      |   |           | 1,315  |       |  
|Stock-based compensation                                       |  |       | 79     |        |   | 148        |   |           | 15     |       |  
|Restructuring                                                  |  |       | (12    | )      |   | 352        |   |           |       |       |  
|Impairment of intangible assets                                |  |       |       |        |   |           |   |           | 896    |       |  
|Impairment of property and equipment                           |  |       |       |        |   | 25         |   |           | 762    |       |  
|Segment income (loss) from operations                          |  |       | 787    |        |   | (1,271     | ) |           | 1,745  |       |  
|2003                                                           |  |       |        |        |   |            |   |           |        |       |  
|Revenues                                                       |  | $     | 23,562 |        | $ | 10,342     |   | $         | 15,277 |       | $
|Depreciation                                                   |  |       | 1,054  |        |   | 341        |   |           | 862    |       |  
|Amortization of intangible assets and deferred financing costs |  |       | 561    |        |   | 865        |   |           | 1,298  |       |  
|Stock-based compensation                                       |  |       | 34     |        |   | 425        |   |           | 87     |       |  
|Restructuring                                                  |  |       |       |        |   |           |   |           |       |       |  
|Impairment of intangible assets                                |  |       | 1,321  |        |   |           |   |           |       |       |  
|Segment income (loss) from operations                          |  |       | (1,023 | )      |   | (1,672     | ) |           | 749    |       |  
|2002                                                           |  |       |        |        |   |            |   |           |        |       |  
|Revenues                                                       |  | $     | 20,518 |        | $ | 8,282      |   | $         | 13,758 |       | $
|Depreciation                                                   |  |       | 2,166  |        |   | 393        |   |           | 740    |       |  
|Amortization of intangible assets and deferred financing costs |  |       | 116    |        |   | 941        |   |           | 1,000  |       |  
|Stock-based compensation                                       |  |       | 517    |        |   | 123        |   |           |       |       |  
|Restructuring                                                  |  |       |       |        |   |           |   |           |       |       |  
|Loss on sale on non-core asset                                 |  |       | 327    |        |   |           |   |           |       |       |  
|Segment income (loss) from operations                          |  |       | (1,108 | )      |   | (1,702     | ) |           | (1,346 | )     |  
|Total assets:                                                  |  |       |        |        |   |            |   |           |        |       |  
|December 31, 2004                                              |  | $     | 45,570 |        | $ | 36,849     |   | $         | 11,639 |       | $
|December 31, 2003                                              |  | $     | 10,082 |        | $ | 3,769      |   | $         | 10,848 |       | $
|December 31, 2002                                              |  | $     | 10,210 |        | $ | 3,261      |   | $         | 9,947  |       | $

F-44

---



|                  |  | United
States |        | United
Kingdom |   | South
Korea |  | Other-
International |        | Total
|----------------- |  | ------------- | ------ | -------------- | - | ----------- |  | -------------------- | ------ | -----
|
|2004              |  |               |        |                |   |             |  |                      |        |      
|Revenues          |  | $             | 42,739 |                | $ | 14,796      |  | $                    | 12,568 |      
|Long-lived assets |  |               | 11,603 |                |   | 351         |  |                      | 16,512 |      
|2003              |  |               |        |                |   |             |  |                      |        |      
|Revenues          |  | $             | 29,499 |                | $ | 9,412       |  | $                    |       |      
|Long-lived assets |  |               | 9,548  |                |   | 146         |  |                      |       |      
|2002              |  |               |        |                |   |             |  |                      |        |      
|Revenues          |  | $             | 29,169 |                | $ | 5,062       |  | $                    |       |      
|Long-lived assets |  |               | 12,249 |                |   | 92          |  |                      |       |      

NOTE 19SELECTED QUARTERLY FINANCIAL DATAUNAUDITED

The following is a summary of selected quarterly financial data for the years ended December 31, 2004 and 2003:

|                                                      |  | 2004 Quarter Ended |       
|----------------------------------------------------- |  | ------------------ | ------
|
|
|Revenues                                              |  | $                  | 17,381
|Gross profit                                          |  |                    | 7,118 
|Amortization                                          |  |                    | 788   
|Stock-based compensation                              |  |                    | 199   
|Restructuring costs                                   |  |                    |      
|Impairment of intangible assets                       |  |                    |      
|Impairment of property and equipment                  |  |                    |      
|Loss from operations                                  |  |                    | (1,218
|Net income (loss)                                     |  |                    | (392  
|Change in fair value of warrant liability             |  |                    | 928   
|Gain on legal settlement                              |  |                    |      
|Impairment of investments                             |  |                    |      
|Net income (loss) attributable to common stockholders |  |                    | (510  
|Net income (loss) per common sharebasic and diluted  |  |                    |       
|Net income (loss) attributable to common stockholders |  | $                  | (0.02 

F-45

---



|                                              |  | 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
|Net loss per common share  basic and diluted |  |                    |       
|Net loss attributable to common stockholders  |  | $                  | (0.19 

NOTE 20VALUATION AND QUALIFYING ACCOUNTS

|                                |       | Balance at
Beginning of
Period |       | Additions
Charged to
Expense |   | Deductions |       | Balance at End
of Period
|------------------------------- | ----- | ------------------------------ | ----- | ---------------------------- | - | ---------- | ----- | ------------------------
|2004                            |       |                                |       |                              |   |            |       |                         
|Allowance for doubtful accounts |       | $                              | 902   |                              | $ | 519        |       | $                       
|Reserve for sales allowance     |       |                                | 69    |                              |   | 544        |       |                         
|                                |       |                                |       |                              |   |            |       |                         
|                                | Total |                                | $     | 971                          |   | $          | 1,063 |                         
|                                |       |                                |       |                              |   |            |       |                         
|2003                            |       |                                |       |                              |   |            |       |                         
|Allowance for doubtful accounts |       | $                              | 860   |                              | $ | 409        |       | $                       
|Reserve for sales allowance     |       |                                | 509   |                              |   | (240       | )     |                         
|                                |       |                                |       |                              |   |            |       |                         
|                                | Total |                                | $     | 1,369                        |   | $          | 169   |                         
|                                |       |                                |       |                              |   |            |       |                         
|2002                            |       |                                |       |                              |   |            |       |                         
|Allowance for doubtful accounts |       | $                              | 1,798 |                              | $ | (186       | )     | $                       
|Reserve for sales allowance     |       |                                | 695   |                              |   | 109        |       |                         
|                                |       |                                |       |                              |   |            |       |                         
|                                | Total |                                | $     | 2,493                        |   | $          | (77   | )                       
|                                |       |                                |       |                              |   |            |       |                         

F-46

---



NOTE 21SUBSEQUENT EVENTSUNAUDITED

On
January 8, 2005, the Company relocated its office facilities in New York to a new location in the city. Future minimum payments related to the new facilities are as follows:
$0.4 million in 2005, $0.5 million in 2006, $0.7 million for each of 2007 through 2009, and $0.8 million for each of 2010 through 2011. The previous office has been
subleased through its remaining term, which ends in August 2008. The Company plans to take a restructuring charge of approximately $0.6 million in the first quarter of 2005 for the
difference between the lease obligation and the sublease payments.

In
January 2005, the Company granted approximately 3.7 million options to executives and employees at exercise prices based on their fair value of the Company's common
stock at the respective date of grant.

In
January 2005, the Company granted approximately 1.7 million shares of restricted stock to executives and employees. The restricted stock vests in equal installments
annually over three years for 60% of the grants with the remaining 40% of the grants vesting when the stock price reaches $10. The stock-based compensation expense related to the shares issued is
approximately $3.4 million based on the grant price of $3.35.

In
January 2005, the Company received $2.1 million as a return of investment in Bidland. The return of investment was a result of the settlement of pending litigation
between Bidland and Telefonica S.A and the subsequent liquidation of Bidland. A portion of the settlement proceeds have been retained by Bidland until all tax issues are resolved at which time any
remaining proceeds will be distributed. The Company does not expect that future distributions, if any, will be material. In 2000, the Company determined that the cost-based investment was
impaired as Bidland ceased operations and, accordingly, the Company wrote the investment down to zero.

In
February 2005, the Company expanded its operations into Japan.

F-47

---



SIGNATURES

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.

| |  | 24/7 REAL MEDIA, INC.
| |  | ---------------------
| |  | By:                  

Date:
March 16, 2005

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
indicated:

|Signature                                 |  | Title                                                                                                               |  | Date          
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                                                     |  |               
|/s/DAVID J. MOOREDavid J. Moore           |  | Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)                                     |  | March 16, 2005
|/s/JONATHAN K. HSUJonathan K. Hsu         |  | Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |  | March 16, 2005
|/s/ROBERT J. PERKINSRobert J. Perkins     |  | Director                                                                                                            |  | March 16, 2005
|/s/ARNIE SEMSKYArnie Semsky               |  | Director                                                                                                            |  | March 16, 2005
|/s/TONY SCHMITZTony Schmitz               |  | Director                                                                                                            |  | March 16, 2005
|/s/MORITZ F. WUTTKEMoritz F. Wuttke       |  | Director                                                                                                            |  | March 16, 2005
|/s/VALENTINE J. ZAMMITValentine J. Zammit |  | Director                                                                                                            |  | March 16, 2005

---



(c)    Exhibit Index.

Exhibits
and Financial Statement Schedule/Index

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.6            |  | Agreement and Plan of Merger, dated October 30, 2001, between 24/7 Real 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 12, 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 23,
 2003)                                                 
|2.11           |  | Stock Purchase Agreement, dated January 22, 2002, by and among 24/7 Real Media, inc., IMAKE Software & Services, Inc. and Schaszberger Corp. (Incorporated by reference to 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., and Real Media Korea Co. Ltd. ("RMK") and other selling shareholder's 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. and 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 Stockholders. (Incorporated by reference to Exhibit 2.3 to the Registrant's filing on Form 8-K filed on January 12, 2004)                                                                           
|2.15           |  | Escrow Agreement, dated as of August 19, 2004, by and among 24/7 Real Media, Inc, the Decide 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 on August 20,
 2004)                                                 
|2.16           |  | Registration Rights Agreement, dated as of August 19, 2004, by and among 24/7 Real Media, Inc. and the Decide Selling Shareholders. (Incorporated by reference to Exhibit 2.3 to the Registrant's filing on Form 8-K on August 20, 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 14, 1998)                                                                                                                                                              
|4.2            |  | Series A and Series A-1 Preferred Stock and Common Stock Purchase Agreement dated as of July 2, 2002 between the Company and Sunra Capital Holdings Limited ("Sunra"). (Incorporated by reference to Exhibit 10.1 to the Registrant's filing on Form 8-K
filed July 12, 2002)                                      
|4.3            |  | 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)                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                                    

---



|4.4   |  | 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 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. (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. (Incorporated by reference to Exhibit 5.2 to the Registrant's filing on Form 8-K filed August 13, 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 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 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)                                                                   
|4.19  |  | 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)                                                                                            
|10.33 |  | Amendment No. 1 to Services Agreement, dated as of December 7, 2004, by and between 24/7 Real Media, Inc. and Lycos, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's filing on Form 8-K on December 14, 2004)  
|10.34 |  | Consulting Agreement, dated as of November 1, 2004, by and between 24/7 Real Media, Inc., and Pine Street Capital Partners. (Incorporated by reference to Exhibit 10.1 to the Registrant's filing on Form 10-Q on November 9, 2004)
|10.35 |  | Employment Agreement, dated as of January 1, 2004, by and between 24/7 Real Media, Inc. and Jonathan K. Hsu. (Incorporated by reference to Exhibit 10.5 to the Registrant's filing on Form 10-Q on May 15, 2004)                   
|21.1  |  | List of Subsidiaries of the Company.(6)                                                                                                                                                                                            
|23.1  |  | Consent of Goldstein Golub Kessler LLP.(6)                                                                                                                                                                                         
|31.1  |  | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(6)                                
|31.2  |  | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(6)                                
|32.1  |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(6)                                                                              
|      |  |                                                                                                                                                                                                                                    

---



|32.2 |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(6)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

---

---



QuickLinks