24/7 MEDIA INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31,
2001.

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
.

COMMISSION FILE NO. 0-29768

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24/7 REAL MEDIA, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 13-3995672
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION)
INCORPORATION OR ORGANIZATION)

1250 BROADWAY
NEW YORK, NEW YORK 10001

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 231-7100

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

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

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. / /

Aggregate market value of voting stock held by non-affiliates of registrant
as of March 26, 2002: $8,419,000.

Number of shares of Common Stock outstanding as of March 26, 2002:
approximately 49,433,309.

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24/7 REAL MEDIA, INC.
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

This report contains Forward-Looking Statements based on our current
expectations, assumptions, estimates and projections about 24/7 Real Media and
our industry. These Forward-Looking Statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in such
Forward-Looking Statements as a result of certain factors, as more fully
described in this Annual Report. 24/7 Real Media undertakes no obligation to
update publicly any Forward-Looking Statements for any reason, even if new
information becomes available or other events occur in the future.

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PART I

ITEM 1. BUSINESS OF THE REGISTRANT

OVERVIEW

24/7 Real Media provides marketing solutions to the digital advertising
industry. Through its comprehensive suite of online marketing and technologies
services, 24/7 Real Media connects media buyers and media sellers across
multiple digital platforms and works closely with individual clients to develop
a comprehensive, customized, value-enhancing solution. Our business is organized
into two principal lines of business:

- Technology Solutions: Open Adstream, our proprietary advertising delivery
and management suite, was developed by Real Media, which was subsequently
acquired by 24/7 Media on October 30, 2001. 24/7 Real Media also partners
with other companies to offer complementary plug-ins and modules. Through
a global sales force and account management team, both local and
centrally-served solutions are offered to Web sites, ad networks, ad
agencies, and advertisers; and

- Integrated Media Solutions: 24/7 Real Media connects advertisers to
high-quality audiences through four products: (i) the 24/7 Network of
marquee branded Web sites and prestigious niche Web sites; (ii) one of the
largest permission based email databases; (iii) a comprehensive promotions
suite; and (iv) a leading search engine results listings service.

See factors affecting the comparability of 2001 and 2000 in Management's
Discussion and Analysis of Operations 2001 compared to 2000.

COMPANY HISTORY

24/7 Real Media was formed through the merger of 24/7 Media and Real Media
on October 30, 2001.

- 24/7 Media has been publicly-traded since August 1998. It was formed in
February 1998 to consolidate three Internet advertising companies, and
subsequently acquired several more companies. 24/7 Media's solutions
included advertising and direct marketing sales, ad serving, promotions,
email list management, email list brokerage, email delivery, email service
bureau, data analysis, search engine result optimization, and
broadband/convergence solutions. In the wake of a broad downturn in the
global economy and the Internet sector in particular, in November 2000,
24/7 Media initiated a strategic operating plan pursuant to which it
divested non-core assets to focus on its core business. Between
November 2000 and January 2002, 24/7 Media sold its Exactis.com, our email
service bureau; Sabela, a third party adserver, AwardTrack, an sponsor of
online customer retention programs, and IMAKE, a provider of broadband and
professional services, subsidiaries and ceased funding 24/7 Europe, which
subsequently ceased operations. This enabled the Company to focus on its
core products--advertising network, email list brokerage, email list
management, promotions and search engine results.

- Real Media, formerly a privately-held company, commenced sales of its
Internet advertising solutions in 1996, including its proprietary ad
management software, Open AdStream, which was used by Web sites worldwide
to manage the planning, delivery, measurement and reporting of ad
campaigns on their sites. Real Media also operated an Internet advertising
network in the United States and Europe.

24/7 Real Media emerged from its merger as one of the only remaining
companies providing both integrated technology and media solutions to third
party web publishers and advertisers. For clients and partners of 24/7 Real
Media, the combination of Real Media's proprietary Open AdStream-TM- technology
and 24/7 Media's comprehensive suite of media offerings generates revenues for
Web sites, helps advertisers reach specific audiences, and enables the Company
to serve more as a partner rather

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than a mere intermediary. The merger also created cost synergies for the Company
through the rationalization of technology platforms, elimination of redundant
personnel, and consolidation of facilities. 24/7 Real Media now seeks to drive
revenue growth through cross-pollenization of personnel and product lines.

INDUSTRY BACKGROUND

We operate in the Internet advertising, direct marketing and technology
industries. The Internet has rapidly emerged as an important global medium for
facilitating communication, disseminating information and conducting commerce.
Growth in the number of Internet users is expected to continue as new
technologies are developed and adopted, as Web access and bandwidth increase,
and as Internet content becomes more dynamic. As the number of Internet users
worldwide grows, advertisers are expected to increase spending on online
advertising. Our customized solutions allow advertisers and direct marketers to
tailor their ad campaigns to reach desired audiences, while reducing costs,
easing time pressures and alleviating the need to purchase a series of ad
campaigns from numerous Web sites. After several years of robust growth, the
market for Internet advertising entered a downturn in mid-2000 which has
continued through the first quarter of 2002.

The interactive nature of the Internet offers advertisers several distinct
advantages over traditional media. Internet users interact with Web sites in
multiple ways, such as registering for the sites, requesting information, and
purchasing goods or services. Internet technologies enable sites to capture the
data generated by this interaction, which may include user demographics and
preferences as well as transactional data. Analyzing this data permits Web sites
to better understand the characteristics of their user base and communicate this
detailed information to advertisers, providing several advantages:

- ABILITY TO TARGET SPECIFIC/INDIVIDUAL AUDIENCES: Internet technologies
enable the separate delivery of content and advertisements to each
individual Web browser, allowing different users to view the same Web page
at the same time while receiving different ads. As a result, sites that
can identify individuals and gather information through user interaction
which the site can offer advertisers the ability to target or personalize
their messages to specific audiences or individuals.

- ABILITY TO TRACK AND MEASURE ADVERTISING EFFECTIVENESS: Increasingly
sophisticated ad management technology enables sites to track and measure
the effectiveness of ad campaigns as they are running. In traditional
media, advertisers receive general reports at the conclusion of a
campaign. The ability to receive continuous campaign feedback enables
advertisers and direct marketers to refine campaigns in "real time"
according to actual customer behavior or product availability.

- GREATER COST-EFFECTIVENESS: Internet advertising campaigns tend to be more
cost-effective than similar types of traditional media campaigns because
advertisers can better target their messages to individuals, modify
campaigns as they are delivered and pay less, in general, to reach a
similar audience size. Additionally, the Internet allows advertisers to
more efficiently deliver campaigns in local markets worldwide by allowing
ads to be delivered simultaneously to multiple local sites without having
to purchase inventory from each site separately.

Within the advertising sector, several fundamental trends are emerging as
the industry adjusts to the introduction of new delivery mediums (i.e.,
Internet, Wireless, iTV, Cable, etc.). Specifically, the growth of new mediums
is coming at the direct expense of traditional mediums. A study completed in
November 2001 by the UCLA Center for Communication Policy found that
72.3 percent of Americans now have online access, up from 66.9 percent in 2000,
and that average hours per week spent online increased from 9.4 hours in 2000 to
9.8 hours in 2001, while time spent watching television decreased. Internet
users spend 4.5 fewer hours a week watching television than non-users.

In December 2001, Universal McCann projected total U.S. ad spending would
rise 2.4% to $239 billion in 2002. In March 2002, eMarketer, a leading trade
publication, projects that the online ad

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spending will grow 11% in 2002. In a report published in December 2001, Gartner
said it expects the online ad market to grow 137% by 2005. This compares to zero
expected growth across all broadcast and print media during the same period.
Thus, in 2000, Myers Group projected that the Internet's share of total
advertising spending will grow from 1.6% in 1999 to 11% in 2005.

BENEFITS TO ADVERTISERS AND DIRECT MARKETERS

We reduce costs and ease time pressures for advertisers and direct marketers
by alleviating the need to purchase a series of ad campaigns from numerous Web
publishers or direct marketers. Our network and email lists provide advertisers
and direct marketers with access to a wide variety of online content and a broad
reach of users. Advertisers and direct marketers customize their ad delivery on
our network or email lists by purchasing ad space either on selected Web sites
within our network, within a particular content channel or across the entire
network, as well as on our email lists. In addition, we provide advertisers and
direct marketers with comprehensive reporting services to monitor the
effectiveness of ad delivery. Our 24/7 Website Results service enables
advertisers to attract highly-qualified traffic through prominent placement in
the results listings of major Internet search engines. Our 24/7 Mail technology
provides companies a suite of permission-based email marketing and
communications products and services that allow marketers to precisely,
efficiently and personally interact with customers, and retain and grow these
valuable relationships.

BENEFITS TO WEB PUBLISHERS

Affiliation with our online advertising network enables Web publishers to
generate advertising revenues by gaining access to advertisers and direct
marketers without the costs and challenges associated with building and
maintaining their own ad sales force and ad serving technology. Web sites in our
network benefit from our experienced management team, our extensive sales and
marketing organization and our direct access to advertisers and agencies. The
organization of our network into content channels enhances the value of
inventory on small to medium-sized Web sites. We also provide sophisticated
tracking and reporting functions for our Web sites. The targeting capabilities
of our Open AdStream ad serving technology enable us to increase the value of
Web publishers' inventory.

THE 24/7 REAL MEDIA STRATEGY

Our objective is to provide comprehensive marketing and technology solutions
for Web publishers, online advertisers and direct marketers to enable them to
attract and retain customers. We intend to further this objective by continuing
to implement the following interconnected strategies:

- We intend to maintain and extend our prominent role in online advertising
technology by continuously developing and enhancing our technology
systems. One of our principal focuses will be the integration of all our
technologies across Web sites, email, wireless services, set-top boxes and
other Internet appliances.

- We continually seek to identify additional value-added services for our
clients, in order to help them attain their customer acquisition and
revenue goals. We believe that we offer among the broadest range of
solutions to advertisers and Web publishers. Our solutions include
advertising and direct marketing sales, ad serving, promotions, email list
management, email list brokerage, and search engine results optimization,
all delivered from our proprietary technology platforms.

- We plan to continue to recruit high-profile Web sites for our 24/7
Network, to extend our reach and to provide a broad base of desirable page
views and online content to advertisers. Such a collection of Web sites of
diverse sizes and content allows advertisers to target Internet users by
interest and enhances the value of each of our Web sites' inventory. An
increased number of Web sites in our network and an expanded breadth of
available targeted content on such Web sites will further enable
advertisers to consolidate their ad purchases and will improve our brand
awareness and visibility with media buyers.

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- We intend to maintain and extend our prominent role in email direct
marketing by aggressively expanding our network of email lists worldwide.
We intend to develop capabilities for adding email addresses to our
database from non-English language consumers.

- We seek to continually enhance the quality of our sales force and sales
management through the hiring of experienced media sales personnel who are
well equipped to work in a difficult media environment, as well as through
a continuing program of sales education and training. We intend to provide
the highest level of customer service in our industry.

- We seek to increase the rate at which users click on advertisements by
employing the targeting capabilities of OpenAdstream to deliver
advertisements to a more highly targeted audience, resulting in more
effective advertising campaigns. Furthermore, we believe that as we
increase the breadth and depth of our content channels, the sale of ads
targeted to specific channels will increase. We intend to further increase
the value of our Web sites' ad inventory by selling sponsorships on our
Web sites and by further refining our management of ad space inventory.

Over the past year we have reduced the size and scope of our Integrated
Media Solutions business due to the difficult market conditions. Our core media
organization, centered around the 24/7 Network, and enhanced by 24/7 Mail,
iPromotions, and 24/7 Website Results, is sized for the current market
opportunity, but can be quickly expanded if and when online advertising spending
stabilizes and begins to accelerate. 24/7 Real Media has expanded its core
OpenAdstream technology platform, which was acquired with Real Media, during
challenging market conditions. Its robust, flexible, open architecture allows
for integration among products and enables cost-efficient, high-impact product
development. Any enhancement to the OpenAdstream platform benefits most of our
technology and media products, resulting in operating leverage and cost
efficiencies. The Company expects to develop additional technology and media
products based upon OpenAdstream.

OUR PRINCIPAL LINES OF BUSINESS

TECHNOLOGY SOLUTIONS

OPENADSTREAM

Open AdStream, developed in 1996, is the cornerstone of 24/7 Real Media's
technology offering and is an effective and efficient means of delivering
Internet advertising. Its multi-platform, ad-format agnostic delivery engine is
efficient and highly scalable. It is capable of delivering multiple types of ad
formats across emerging electronic platforms, such as Wireless Applications
Protocol and iTV.

OpenAdstream was created with an eye towards enhancing the ability of Web
sites and advertisers to protect their user data--the "media asset" of the Web.
This competitive advantage on privacy is a feature that clearly sets
OpenAdstream apart from the competition.

24/7 Real Media has a complete suite of distinct Open AdStream products
created to suit the individual needs of Internet advertisers and publishers.
Basing each product on the standard OpenAdstream software code provides 24/7
Real Media with ways to leverage OpenAdstream cost effectively. For example, it
only takes one group of personnel to maintain and support several different
OpenAdstream products. Customers also benefit by being able to migrate between
OpenAdstream products with minimal cost, labor, and downtime.

OPENADSTREAM LOCAL (OASL)

The locally installed version of Open AdStream, which is hosted on a
website's own servers, offers Internet publishers compelling advantages over
other ad serving solutions, including:

- Cost advantage based on return-on-investment;

- Speed, efficiency, and scalability;

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- Exclusive ownership of user data; and

- Control over ad delivery

A compelling cost advantage is created when publishers use Open Adstream.
Since the software is purchased and installed by the publisher and they are not
charged per ad delivered, they are able to leverage an essentially fixed-cost
base, with minimal variable cost, for ad delivery. Revenue generated from this
product represents software license and maintenance fees.

Open Adstream's local ad delivery architecture is more efficient than
third-party delivery because the ad comes directly from the publisher's Web
servers. We believe that Open Adstream also offers greater scalability than
other products.

Publishers who use Open Adstream retain control over their user data, just
as offline media companies do. Since 24/7 Real Media does not have access to a
client's user data, it does not co-mingle this data with those of other clients
to exploit it for its own purposes.

Finally, since the publisher operates, controls, and physically owns the
equipment that is serving the ads, a local ad delivery installation maintains
the maximum amount of control over ad serving.

Other key benefits to the customer include:

- REAL TIME MANAGEMENT--campaigns are monitored and managed in real time, so
performance is easily optimized;

- CAMPAIGN SCHEDULING--multiple delivery options ensure optimum planning and
reporting;

- SPECIFIC TARGETING--Open Adstream is capable of targeting by domain,
country, operating system, browser name or version. Additional modules
enable users to tailor the targeting capabilities to their needs. Among
these are: Cookie Targeting, Keyword Targeting, Geo-Targeting and Privacy
Proxy Module;

- FLEXIBLE REPORTING--Reports can be defined by site, advertiser, section,
viewer, click-throughs, etc.; and

- INVENTORY MANAGEMENT--Users maximize revenue by forecasting the amount of
advertising space available on their site. Open Adstream automatically
analyzes historical data to project inventory capacity, and instantly
determines what is available and what already has been sold.

SELECTED OPEN ADSTREAM CLIENTS

Technology clients in North America include: Weather.com, USA Today,
Playboy.com, New York Times Digital, MP3.com, Blomberg.com, Internet.com,
Fortune City, Discovery.com and Forbes.com. Technology clients in Europe
include: NTL, Fox Kids, TF1, Le Monde, Axel Springer Verlag, Der Spiegel,
Recoletos, Grupo Prisa, Aftonbladet and II Sole 24 Ore.

OPENADSTREAM CENTRAL (OASC)

OASc is the centrally-hosted version of Open Adstream. 24/7 Real Media hosts
the software for the client via multi-location, fully redundant data centers.
Open AdStream Central provides all the features and functionality of the locally
installed Open Adstream product within a secure, managed environment.

OASc is priced per ad delivered and is for publishers who do not wish to
host a local ad serving solution. Frequently, these are Web sites who do not
have the resources, time, or personnel required to host their own ad serving
system. Revenue generated from this product is based on specified pricing
dependent upon usage levels.

Like all 24/7 Real Media products and services, Open AdStream Central
protects the user data that is a Web publisher's most important asset.

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OPENADSTREAM NETWORK (OASN)

OASn is the OASc product customized and optimized to run on a network of Web
sites. OASn is currently only being used internally by us to serve ads across
24/7 Real Media's network of Web sites. It serves approximately two billion
impressions per month--a testament to the robust scalability of the Open
Adstream product line. Plans are being made to launch OASn as a separate
product, which is scheduled for 2002.

OPENADVERTISER (OAD)

OpenAdvertiser is the newest product to be based on our Open Adstream
software. It is an ad management solution designed for advertisers, media
buyers, and advertising agencies who want to control their online
campaigns--from purchase to delivery and beyond. It enables agencies to
precisely analyze their advertisers' campaigns and provide value-added
recommendations for follow-up marketing programs through completely new and
detailed reporting options.

As with all Open Adstream products, OAD provides full control of all the
data associated with each campaign, including the vital unique user data--the
aggregate of Web users who comprise advertisers' targets. OAD actually enables
agencies to build new business models on this ownership. Agencies can monetize
all the user data associated with their online campaigns, leveraging this data
for their clients and enabling them to build residual and ancillary revenue
streams from it.

OAD has been sold in Europe since May-2001 and is expected to be available
in North America in August 2002. Revenue generated from this product is based on
specified pricing dependent upon usage levels.

INTEGRATED MEDIA SOLUTIONS

INTERNET ADVERTISING NETWORK

The 24/7 Network is a global advertising network where advertisers can place
a global ad campaign, or geographically select regions of the world to target
advertising. The network aggregates Web sites that are attractive to
advertisers, generate a high number of ad impressions and contribute a variety
of online content to the network. Web publishers seeking to join our network
must meet specified standards, such as quality content and brand name
recognition, specified levels of existing and projected page views, attractive
user demographics, and sponsorship opportunities. For Web sites on the 24/7
Network, we sell Web site-specific advertising campaigns as well as bundle
advertisements for sale in one of the channels listed above or across the entire
network. Through our international sales effort, we can sell advertisers in any
location on the globe on regional, pan regional or international network buys.

The Network provides a customized online strategy utilizing premier brands,
content targeting and mass reach. It is a Web advertising solution that delivers
tailor-made, targeted campaigns for marketers who demand the highest response,
content alignment, quality brand affiliation, and best value in online
advertising.

Our premier Websites include the following:

- - Investors.com - AT&T Business
- - Anandtech - National Review
- - Tom's Hardware - EarthLink
- - AmTrak - American Interactive Media (AIM)

In Canada, we provide advertising sales and delivery services and related
functions to English and French language Web sites including the AOL Canada
properties, Expedia.ca, Netscape.ca, Canada Newswire, MLS Online and
Bellzinc.ca.

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In Europe, we provide advertising sales and delivery services and related
functions to Web sites. The network currently covers France, Germany and the
U.K.

CHANNELS ON THE 24/7 NETWORK

The Network consists of quality branded Web sites in key content areas via
content channels including:

- - Automotive - Business to Business
- - Lifestyle - Entertainment
- - Health - News/Opinion Leaders
- - Personal Finance - ISP/Search
- - Shopping - Sports
- - Technology - Travel

ADVERTISERS ON THE 24/7 NETWORK

We focus our sales and marketing efforts on the leading Internet and
traditional advertisers and advertising agencies, many of which have utilized
our solutions. Advertisers and advertising agencies employ us in various ways.
Advertisers and advertising agencies typically buy advertising using written
purchase order agreements that run for a limited time. Based on our breadth of
online content and our extensive reach, we have the ability to package
personalized advertising solutions for advertisers and advertising agencies. Our
sales force works closely with advertisers to customize ad delivery to enhance
the effectiveness of advertising campaigns.

Our advertisers in the past year have included:

- - American Express - Ameritrade
- - AT&T - British Airways
- - Citibank - Entrepreneur.com
- - Ford Motor - General Mills
- - Hallmark - Hertz
- - Hotjobs.com - IBM
- - Intuit - Johnson & Johnson
- - Motley Fool - MSN
- - Sprint - State Farm
- - The History Channel - Toyota
- - Verizon - VISA
- - Wells Fargo

24/7 MAIL

24/7 Mail provides email direct marketing services. We believe our
permission-based email marketing database of more than 38 million email
addresses is one of the largest such databases in the world and enables direct
marketers to target promotional campaigns to consumers who choose to receive
commercial messages. The users can opt out, or stop receiving these messages, at
any time. Our opt-in email direct marketing business offers direct marketers
three key advantages over traditional postal direct marketing and banner
advertising:

- Opt-in email campaigns can be sent out immediately to millions of
potential customers. Email campaigns generate results in a shorter period
of time than traditional postal direct marketing, typically producing
leads and sales within 24 to 48 hours, compared to six to eight weeks
through offline direct marketing channels.

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- Opt-in email campaigns typically generate higher response rates than
postal mail or banner ad campaigns. We believe that such response rates
for email campaigns often exceed 2%, which we believe exceeds typical
postal direct mail response rates.

- Opt-in email campaigns cost less than traditional postal direct marketing
campaigns. Forrester Research estimates that the typical delivery costs
for email campaigns range from 5 to 10 cents per email message delivered,
with such costs covering the expenses of list rental and online delivery.
This cost compares to an average cost of between 50 cents and $1.00 per
delivery for a traditional direct marketing campaign, including the list
rental, printing, postage and processing fees.

Our 24/7 Mail customers include Web sites that collect email addresses,
direct marketers, advertisers and email list brokers. Our 24/7 Mail service
allows a demographic selection of email addresses based on selected fields of
self-reported user demographics and psychographics. The 24/7 Mail staff helps
marketers maximize their return on investment through custom email marketing
programs that reach targeted customers. 24/7 Mail provides reporting, campaign
analysis and modeling. Our email address database offers direct marketers and
email address list brokers more than 38 million permission-based email addresses
gathered from a wide network of third-party Web publishers. We provide marketers
and e-commerce retailers a selection of targeted email address lists designed to
achieve maximum response to their offers.

24/7 MAIL PRODUCTS

- LIST MANAGEMENT. We manage email lists from a diverse range of branded
third-party Web sites. When a user consents to receive email or other
marketing information through one of these Web site clients, the user's
email address is added to a separate permission-based database which is
housed and managed by us. However, the Web site from which the email
address was derived continues to be the owner of these addresses.

- ALLIANCE DATABASE. We believe the 24/7 Alliance database is one of the
industry's largest, if not the largest, aggregated database of
permission-based email addresses and related information. The database
includes up to 35 fields of selectable self-reported preference data.
Direct marketers can use the database to deliver e-marketing messages
selected by preference, demographic and lifestyle elements.

- LIST BROKERAGE. As a list broker, we rent third-party email lists in order
to supplement our list management business on behalf of marketers who use
email to reach prospects and customers. If a specific list is not under
management by 24/7 Mail, we may rent specific lists from other list
managers or directly from list owners on behalf of marketers. We believe
that our list brokers deliver the industry's most sophisticated
multi-source email campaign planning, implementation and reporting
services.

24/7 WEBSITE RESULTS

24/7 Website Results provides a cost-effective means of delivering a high
volume of targeted visitors from Internet search engines to an advertiser's
Website. With over five years experience, 24/7 Website Results is the premier
provider of search engine quality traffic for online advertisers. Through
strategic partnerships with the major search engines, we provide our extensive
client base with high volumes of keyword-targeted search engine traffic that
maximizes their return on investment. Our proprietary technology strategically
addresses the search engine algorithm to ensure that our advertiser has proper
coverage in the major search engines for relevant keywords and keyword phrases.
Our advanced filtering technology ensures that advertisers receive the highest
quality search engine traffic available.

24/7 Website Results generates a significant volume of targeted search
clicks per month to a site via their search engine traffic delivery system with
some advertisers receiving in excess of 1 million

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clicks per month. Our performance based product offers a turn-key solution with
no changes required to a site and seamless delivery of visitors, on a
Cost-Per-Click model with no setup fees or other associated costs. Our clients
only pay for the targeted search traffic our technology generates. 24/7 Website
Results is currently working for some of the largest advertisers online.

Additionally, 24/7 Website Results is one of the largest providers of a wide
variety of highly relevant content to the search engines and portals that
improves relevancy and maximizes the revenue generated from their search
results. Partners with whom we share revenue from traffic include Inktomi,
AltaVista, AskJeeves, Looksmart.com, and Yellowpages.com. Revenue is generated
from this product on a cost-per-click basis.

24/7 IPROMOTIONS

24/7 Real Media Promotions group ("24/7 iPromotions") is a prominent online
promotions agency, providing promotional solutions that integrate with offline
marketing programs. Using online sweepstakes and viral marketing provides
marketers with instantly quantifiable results and savings. Our position in the
online promotions industry helps marketers achieve branding and sales goals
across all advertising media. In addition, 24/7 iPromotions has an in house
design team that creates banners for advertising campaigns, enhances e-mail
broadcasts with HTML or other rich media. Revenue generated from this product
represent promotions and is typically on a project basis.

PRODUCT OFFERINGS INCLUDE:

- Customized Sweepstakes. A customized sweepstakes designed, and hosted by
24/7 iPromotions will deliver qualified customer leads and increase sales
conversions.

- Viral Marketing. Our Tell-A-Friend program leverages word of mouth
advertising to boost brand awareness or traffic.

- Free Gift Programs. Lift response by rewarding visitors for completing a
survey or joining an opt-in mailing list.

BENEFITS THAT IPROMOTIONS BRINGS TO ITS CLIENTS INCLUDE:

The reasons why marketers would want to run a promotion online vary widely
and can be as simple, or as complex, as marketing plans require. Some of the top
objectives include:

DRIVING WEB SITE TRAFFIC--Online promotions give target audiences an
incentive to visit the site.

EXPAND EMAIL REACH--An email incorporating a promotion or incentive can
increase response rates by 15-50%.

ACQUIRING DATA--With the right incentive, people will give a company 80%
more information about themselves.

INCREASE SALES--What Web visitors perceive as extra value (e.g. a discount
on their next purchase) can help push 25% more customers through the shopping
process.

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ENHANCING BRANDING EFFORTS--Unique promotions grab attention and increase
brand recall by a significant margin.

- EXPERTISE--We monitor trends in online promotions to ensure our clients
are benefiting from best performing advertising tools and techniques. Our
expertise also enables us to administer the legalities that go along with
running large exposure promotions.

SALES ORGANIZATION

We believe we maintain one of the top internet advertising sales
organizations. We sell services worldwide from over a dozen offices in eight
countries through a sales and marketing organization that included over 70 sales
professionals as of February 28, 2002. In the United States, these employees are
located at our headquarters in New York and our offices in Pennsylvania,
Chicago, Austin, Los Angeles, San Francisco and Seattle. Globally, we also have
offices in Canada, France, Germany, Spain, Switzerland, Sweden and the United
Kingdom. Advertisers typically purchase advertising under written purchase order
agreements that run for a limited time. Advertisers can purchase regionally, pan
regionally or internationally from any office in our system. We believe that the
terms of our purchase order agreements are consistent with industry practice.
These agreements provide for our indemnification by the advertiser for breach of
representations and warranties by the advertiser and limit the right of the
advertiser to cancel or modify a campaign once commenced. We sell sponsorship
advertising whereby an advertiser enters into a long-term agreement with a
single Web site, typically with exclusivity and renewal privileges and
restrictions on the advertisers' ability to cancel the agreement. Sponsorship
advertising involves a greater degree of integration among our company, the
advertiser and our Web sites. We believe that advertiser awareness of our
company and our services is critical to our success. As a result, we seek to
continually communicate with advertisers and advertising agencies through our
Web site, trade publication advertisements, public relations, direct mail,
ongoing customer communications programs, promotional activities, trade shows
and online advertisements over our networks and on third party Web sites.

PRIVACY PROTECTION

The growth of our business and of the Internet depends on user trust in the
integrity of the Internet. We believe that fostering user confidence in online
privacy is an integral component of our mission We intend to continue to be, a
leader in respecting users' privacy in all of our marketing initiatives. We
believe strongly that consumers must have both notice and choice as well as the
confidence that their information is secure. We currently do not collect
non-personally identifiable information in the delivery of internet advertising.
We built our Open Adstream technology with user privacy concerns in mind. 24/7
Real Media offers Privacy-Proxy, an add-on software module for Open AdStream. It
is designed to act as a third-party ad intermediary that safeguards a visitor's
private information. We also actively monitor privacy laws and regulations, and
endeavor to comply with all applicable privacy requirements. Management believes
that the Company's privacy position is a significant competitive advantage,
especially given recent, intense public scrutiny of the issue.

INTERNATIONAL OPERATIONS

Our organization is a global one. Headquartered in New York, 24/7 Real Media
currently has offices/respresentatives in 18 cities, spanning North America and
Europe. Through affiliates in Korea and Brazil, the Company provides coverage in
Asia and Latin America.

INTELLECTUAL PROPERTY

Intellectual property is critical to our success, and we rely upon patent,
trademark, copyright and trade secret laws in the United States and other
jurisdictions to protect our proprietary rights and

10

intellectual property. We have received two patents, and we have filed and
intend to file additional applications with the United States Patent and
Trademark Office to protect aspects of our Open Adstream and other technologies.
We have also applied to register our trademarks both domestically and
internationally. These trademark registrations and patent applications may not
be approved or granted and may be challenged by others or invalidated through
administrative process or litigation. Patent, trademark, copyright and trade
secret protection may not be available in every country in which our services
are distributed or made available.

24/7 Real Media owns U.S. Patent No. 6,026,368 entitled "On-Line Interactive
System And Method For Providing Content And Advertising Information To A
Targeted Set of Viewers." The '368 patent embodies pioneering technology in the
field of targeted delivery of content. The '368 patent relates to an online
system for managing the delivery of targeted ads or other content that adjusts
the priorities associated with such ads or content in order to satisfy exposure
goals or other predetermined criteria. Continuing applications are pending.

In addition, we protect our proprietary rights through the use of
confidentiality agreements with employees, consultants and affiliates. We will
collect demographic profiles of Internet and email users and the ad serving
technology we employ collects and uses anonymous data derived from user activity
on our networks and our Web sites. This data is intended to be used for
advertisement targeting and for predicting advertisement performance. Although
we believe that we have the right to use such data, trade secret, copyright or
other protection may not be available for such information or others may claim
rights to such information. Further, under our contracts with Web publishers
using our services, we are obligated to keep information regarding the Web
publisher confidential.

COMPETITION

The market for interactive marketing solutions is competitive. Competition
may increase as a result of industry consolidation. We compete for Internet
advertising revenues with large Web publishers and Web portals, such as AOL,
Lycos, MSN and Yahoo. We also compete with the traditional advertising media
including television, radio, cable and print for a share of advertisers' total
advertising budgets.

The 24/7 Network competes for Web site clients with a variety of Internet
advertising networks, including DoubleClick, L90 and Interep. Our 24/7 Mail
business competes for list management clients with NetCreations, Walter Karl and
YesMail. In the third party adserving business, we compete with DoubleClick,
Engage and several start-up companies. We also have additional regional
competitors in each of our business lines. We encounter competition from a
number of other sources, including content aggregators, companies engaged in
advertising sales networks, advertising agencies, and other entities that
facilitate Internet advertising. Many of our existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do.

EMPLOYEES

As of February 28, 2002, we employed approximately 308 persons worldwide,
including approximately 146 in sales, marketing and customer support, 93 in
technology and product development, and 69 in accounting, human resources and
administration. Since November 2000, we have reduced our workforce by
approximately 1,000 employees in connection with certain restructuring
initiatives, sale of non-core divisions and cost reductions. Our subsidiaries in
France, Spain and Scandinavia are parties to collective bargaining agreements
pursuant to and in accordance with applicable law. We believe that we enjoy a
good relationship with our employees.

11

ITEM 2. PROPERTIES.

Our principal executive offices are located at 1250 Broadway, New York, New
York. They consist of approximately 28,000 square feet under a lease that
expires in 2008 and provides for total annual rent of approximately $850,000,
subject to increase annually to reflect increases in operating expenses.

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

- - Chicago, IL - Los Angeles, CA - San Francisco, CA
- - Seattle, WA - Fort Washington, PA - Dallas, PA
- - Austin, TX

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

- - Canada - United Kingdom - France
- - Germany - Spain - Switzerland
- - Sweden

We are continually evaluating our facilities requirements.

Our technology software and hardware are housed at Exodus
Communications, Inc. in Sterling, Virginia, Santa Clara, California, and El
Segundo, California. Our agreements with these organizations provide for
Internet connectivity services, tape rotation, off-site storage services,
facilities management, and the lease of secure space to store and operate this
equipment. Hardware and Software located in these facilities is owned or leased
by 24/7 Real Media. Our agreements with these organizations include a "99%
Uptime Guarantee." Downtime results in certain returns of payment to us and
gives rise to a right of termination by us. In the future, we may expand our
utilization of third party organizations to ensure the continued support of our
present and future customers and maintain our levels of redundancy.

ITEM 3. LEGAL PROCEEDINGS.

On December 26, 2000, Christina A. Wells, Garen Razoian, and Stephen J.
Simkovich filed a lawsuit in the Superior Court of California, Los Angeles
County, against the Company, Website Results, The Pinnacle Group, Michael
Osborn, Ronald Penna, and Kevin Smith. Plaintiffs alleged in substance that the
defendants failed to pay commissions promised to plaintiffs. The case has been
settled on the basis of mutual releases and dismissal of the entire action and
an order entering final dismissal was entered on February 14, 2002.

On or around May 7, 2001, the Company terminated several employees of its
wholly-owned subsidiary, Website Results, Inc. ("WSR"), including certain
management level employees who had been shareholders of the Company. On
September 25, 2001, the company and the former principal stockholders entered
into a settlement and mutual general release (the "Settlement"). The Settlement
rescinded all prior agreements and amendments of the purchase agreement and
called for the former principal stockholders (i) to return approximately
3.3 million shares of outstanding stock held by them, (ii) forfeit their rights
to the potential earn out of another 1.9 million shares and, $1.5 million in
cash payments and (iii) transfer certain strategic assets and agreements in
exchange for $275,000 in cash and forgiveness of any remaining indebtedness of
these individuals to the Company.

On February 6, 2002, the Company filed a summons and complaint in U.S
District Court for the Southern District of New York against ValueClick, Inc.
and its subsidiary, Mediaplex, Inc., alleging that they infringe U.S. Patent
No. 6,026,368 entitled "On-line System and Method for Providing Content and
Advertising Information to a Targeted Set of Viewers." The complaint seeks
monetary damages, injunctive relief, and recovery of attorneys' fees and costs.

12

On February 21, 2002, ValueClick, Inc. and Mediaplex, Inc. filed a complaint
in U.S District Court for the Northern District of California against the
Company seeking a declaratory judgment that U.S. Patent No. 6,026,368 entitled
"On-line System and Method for Providing Content and Advertising Information to
a Targeted Set of Viewers" is invalid, unenforceable and not infringed by
ValueClick and Mediaplex. The complaint also seeks injunctive relief and
recovery of attorneys' fees.

On February 13, 2002, the Company filed a summons and complaint in U.S.
District Court for the Southern District of New York against
Advertising.com, Inc. alleging that Advertising.com, Inc. infringes U.S. Patent
No. 6,026,368 entitled "On-line System and Method for Providing Content and
Advertising Information to a Targeted Set of Viewers." The complaint seeks
monetary damages, injunctive relief, and recovery of attorneys' fees and costs.
The Company has provided a copy of the summons and complaint to Advertising.com,
but has not yet formally served them. In response to the receipt of the summons
and complaint, Advertising.com has requested certain information from the
Company with respect to the Company's infringement assertion in order to assess
the possibility of settlement.

Six former employees of the Company's Sabela subsidiary in France have
commenced proceedings alleging that they were terminated without good reason and
asserting damages. DoubleClick, Inc. is named as a co-defendant in these cases
and the Company is obligated to indemnify DoubleClick against any damages that
may arise from them. The Company is in settlement discussions and does not
expect the settlement amount to have a material adverse impact on the Company.

In September 2001, the Company received a letter from Experian Marketing
Solutions, Inc. ("Experian") alleging that the Company made certain
misrepresentations and omissions in connection with the Stock Purchase Agreement
relating to the sale of the Company's Exactis.com subsidiary to Experian in
May 2001. Experian alleged that the Company knew that certain customers of
Exactis had terminated or materially altered their relationship with Exactis
prior to the closing and failed to disclose this information to Experian. The
Company and Experian reached a settlement agreement whereby the Company
authorized the escrow agent to release $750,000 to Experian, and Experian
authorized the escrow agent to release the remaining balance of approximately
$780,000 to the Company. As of March 28, 2002, the funds have been released.

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

We held our Annual Meeting of Stockholders on December 14, 2001. Following
are descriptions of the matters voted on and the results of such meeting:

A. Election Of Class III Directors:

David J. Moore and Richard Burns are the Class I directors, whose
terms expire at the 2002 annual meeting. Robert Perkins and Moritz Wuttke
are the Class II directors, whose terms expire at the 2003 annual
meeting. Directors' terms are subject to the election and qualification
of their successors or to their earlier death, resignation or removal.

B. Ratification Of KPMG LLP As Auditors For Fiscal Year Ending December 31,
2001:

13

PART II

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

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.

Since our initial public offering on August 13, 1998, our common stock has
traded on the Nasdaq National Market under the symbol "TFSM." The following
table sets forth the high and low sales prices of the common stock, for the
periods indicated, as reported by the Nasdaq National Market.

On March 28, 2002, the last reported sale price for our common stock on the
NASDAQ National Market was $0.21. As of March 28, 2002, there were approximately
500 holders of record of our common stock.

The shares of our common stock are currently listed on the NASDAQ national
market. On February 14, 2002, we received a letter from NASDAQ stating that they
have determined that we have failed to meet NASDAQ's minimum listing
requirements and as a result our common stock could be delisted. Our failure to
meet NASDAQ's maintenance criteria may result in the discontinuance of our
securities in NASDAQ. In such event, trading, if any, in the securities may then
continue to be conducted in the non-NASDAQ, over-the-counter market in what are
commonly referred to as the electronic bulletin board and the "pink sheets". As
a result, an investor may find it more difficult to dispose of or obtain
accurate quotations as to the market value of the securities. In addition, we
would be subject to a Rule promulgated by the Securities and Exchange Commission
that, if we fail to meet criteria set forth in such Rule, imposes various
practice requirements on broker-dealers who sell securities governed by the Rule
to persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. Consequently, the Rule may have a
materially adverse effect on the ability of the broker-dealers to sell the
securities, which may materially affect the ability of the shareholders to sell
the securities in the secondary market.

Delisting of our shares could make trading our shares more difficult for
investors, potentially leading to further declines in share price. It would also
make it more difficult for us to raise additional capital. We would also incur
additional costs under blue-sky laws to sell equity if we are delisted.

14

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The selected consolidated financial data as of December 31, 2001 and 2000,
and for each of the years in the three-year period ended December 31, 2001 have
been derived from our audited consolidated financial statements, which are
included elsewhere herein. The consolidated financial statements included herein
are prepared assuming the Company will continue as a going concern. The
Company's independent public accountants have included a "going concern"
explanatory paragraph in their audit report accompanying the 2001 consolidated
financial statements indicating that, as discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses from operations
since inception and has a working capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The selected financial data as of December 31, 1998 and 1997
and for each of the years in the two-year period ended December 31, 1998 are
derived from our audited financial statements, which are not included herein. We
believe that due to the many acquisitions that we made in recent years and
dispositions during 2001, the period to period comparisons for 1997 through 2001
are not meaningful and should not be relied upon as indicative of future
performance.

15

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

16

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

24/7 Real Media provides marketing solutions to the digital advertising
industry. Through its comprehensive suite of online marketing and technologies
services, 24/7 Real Media connects media buyers and media sellers across
multiple digital platforms and works closely with individual clients to develop
a comprehensive, customized, value-enhancing solution. Our business is organized
into two principal lines of business:

- Integrated Media Solutions: 24/7 Real Media connects advertisers to
high-quality audiences through four products: (i) the 24/7 Network of
marquee branded Web sites and prestigious niche Web sites; (ii) one of the
largest permission based email databases; (iii) a comprehensive promotions
suite; and (iv) a leading search engine results listings service.

- Technology Solutions: OpenAdstream, our proprietary advertising delivery
and management technology suite was developed by Real Media, which was
subsequently acquired by 24/7 Media on October 30, 2001. 24/7 Real Media
also partners with other companies to offer complementary plug-ins and
modules. Through a global sales force and account management team, both
local and centrally-served solutions are offered to Web sites, ad
networks, ad agencies, and advertisers.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission (SEC), requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the Notes to the Consolidated Financial
Statements includes a summary of the significant accounting policies and methods
used by the Company.

In addition, Financial Reporting Release No. 61 was recently released by the
SEC to require all companies to include a discussion to address, among other
things, liquidity, off balance sheet arrangements, contractual obligations and
commercial commitments.

GENERAL

The consolidated financial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States of
America. As such, the Company is required to make certain estimates, judgments
and assumptions that management believes are reasonable based upon the
information available. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.

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

REVENUE RECOGNITION

INTEGRATED MEDIA SOLUTIONS

Our network revenues are derived principally from short-term advertising
agreements in which we deliver advertising impressions for a fixed fee to
third-party Web sites comprising our Network. Our email related revenues are
derived principally from short-term delivery based agreements in which we
deliver advertisements to email lists for advertisers and Web sites. Revenues
are recognized as services are delivered provided that no significant
obligations remain outstanding and collection of the resulting

17

receivable is probable. Service revenue is derived from driving traffic to a
client website or the delivery of email messages for clients both of which are
recognized upon delivery.

Third party Web sites that register Web pages with our network and display
advertising banners on those pages are commonly referred to as "Affiliated Web
sites." These third party Web sites are not "related party" relationships or
transactions as defined in Statement of Financial Accounting Standards No. 57,
"Related Party Disclosures." We pay Affiliated Web sites a fee for providing
advertising space to our network. We also have agreements with various list
owners in which we service its advertisers and other customers through the use
of these lists. We become obligated to make payments to Affiliated Web sites,
which have contracted to be part of our network, and list owners in the period
the advertising impressions or emails are delivered. Such expenses are
classified as cost of revenues in the consolidated statements of operations.

TECHNOLOGY SOLUTIONS

Our technology revenues are derived from licensing of our ad serving
software and related maintenance and support contracts. In addition, we derived
revenue from our broadband and professional services subsidiary, IMAKE, which
was sold in January, 2002; and our email service bureau subsidiary, Exactis, and
our third party ad serving subsidiary, Sabela, both of which were sold in May of
2001.

Revenue from software licensing agreements is recognized in accordance with
Statements of Position ("SOP") 97-2, "Software Revenue Recognition," and Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" upon
delivery of the software, which is generally when customers begin utilizing the
software, there is pervasive evidence of an arrangement, collection is
reasonably assured, the fee is fixed or determinable, and vendor-specific
objective evidence exists to allocate the total fees to all elements of the
arrangement. Revenue related to the central ad serving product is recognized
based on monthly usage fees.

Revenue from software maintenance and support services is recognized ratably
over the life of the maintenance agreements, which typically do not exceed one
year. Maintenance revenue invoiced in advance of the related services is
recorded as deferred revenue. Expense from our licensing, maintenance and
support revenues are primarily payroll costs incurred to deliver, modify and
support the software. These expenses are classified as cost of revenues in the
accompanying consolidated statements of operations.

Consulting revenues derived from our broadband professional services
subsidiary, IMAKE, are under fixed price contracts that are recognized on a
percentage of completion basis based on labor hours incurred to total estimated
contract hours. Revenues under time and materials contracts are recognized as
the hours are incurred. Fixed monthly maintenance contracts are recognized in
the corresponding months. Commencing January 1, 2002, the Company will no longer
generate revenue from these consulting contracts due to the sale of IMAKE in
January 2002.

ACCOUNTS RECEIVABLE

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

18

IMPAIRMENT OF LONG-LIVED ASSETS

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

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

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

RESULTS OF OPERATIONS--2001 COMPARED TO 2000

FACTORS AFFECTING COMPARABILITY OF 2001 TO 2000

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

During the latter part of 2000 and throughout 2001, in accordance with our
business plan, we divested or discontinued many of our non-core assets,
including:

- In December 2000, the operations of AwardTrack were abandoned and in
May 2001 we were able to sell the intellectual property.

- In May 2001, we completed the sale of certain technology assets and
intellectual property of Sabela and completed the shut down of Sabela
operations on June 30, 2001.

- In May 2001, we completed the sale of Exactis, our email service bureau.

- In August 2001, the operations of 24/7 Europe were shut down, which have
been restated in our consolidated financial statements to reflect the
disposition of this international segment.

The decline in 2001 revenue attributed to the disposition of these non-core
assets was approximately $9.3 million as the operations collectively accounted
for $8.2 million in revenue in 2001 versus $17.5 million in revenue in 2000, not
including $10.6 million and $39.1 million for 2001 and 2000, respectively,
related to Europe which is shown as part of discontinued operations in the
consolidated statement of operations.

19

In addition, in January 2002, we completed the sale of IMAKE, which has been
reflected as assets held for sale in our December 31, 2001 balance sheet.
IMAKE's revenue for 2001 and 2000 was $6.1 million and $7.7 million,
respectively.

As a result of our cost-cutting and divestiture efforts, which began in
November 2000, we reduced our headcount by approximately 1,000 and closed
several offices, both domestic and foreign.

The core elements of our business that remain are:

- Open Adstream ad serving technology, with one of the largest installed
base of any ad serving solution in the world;

- The 24/7 Network, one of the largest branded ad networks online;

- 24/7 Mail, one of the largest and broadest permission email databases;

- 24/7 iPromotions, one of the most innovative online promotions and
sweepstakes services; and

- 24/7 Website Results, a leading traffic driving and keyword monetizing
solution.

REVENUES

INTEGRATED MEDIA SOLUTIONS. Our Integrated Media Solutions revenues
decreased $85.4 million, or 70.1% to $36.5 million for the year ended
December 31, 2001 from $121.9 million for the year ended December 31, 2000. The
decrease in revenue was due to a dramatic decrease in advertising dollars spent
as the economy continued to deteriorate through-out 2001 as a result of the
economic recession and the events of September 11, 2001. Online advertising was
especially hard hit due to the collapse of the dot-com companies, which were a
significant customer base and as the advertising dollars available went toward
traditional media. Revenue was only slightly impacted by our decision to exit
the AwardTrack product line and the Latin American market, which accounted for
approximately $2.3 million or 2.7% of our overall decrease. The declines in
revenue were partially offset by our merger with Real Media on October 30, 2001
which added $1.7 million or 2.0% and the inclusion of 24/7 Website Results for a
full year in 2001 as compared to only four months in 2000, which added
$0.7 million. 24/7 Website Results also moved to a revenue share model with
several strategic partners in order to provide higher quality, more targeted
traffic to their clients.

TECHNOLOGY SOLUTIONS. Our Technology Solutions revenue decreased
$8.3 million, or 34.3% to $15.9 million for year ended December 31, 2001 from
$24.2 million for the year ended December 31, 2000. The decline in revenue
associated with Exactis.com, our email service bureau, and Sabela Media, our
third party ad server, both of which were sold in May of 2001, was
$7.1 million, accounting for 85% of our overall decrease. This was only
partially offset by our merger with Real Media, which was only included since
its merger on October 30, 2001 and increased revenues $1.7 million or 20.5%. The
remaining change is due to the overall economic slowdown.

COST OF REVENUE AND GROSS PROFIT

INTEGRATED MEDIA SOLUTIONS COST OF REVENUES AND GROSS PROFIT. The cost of
revenues consists primarily of fees paid to affiliated Web sites, which are
calculated as a percentage of revenues resulting from ads delivered on our
Network; list providers and traffic providers; depreciation of our 24/7 Connect
ad serving system and internet access costs. Gross margin declined from 22.0%
for the year ended December 31, 2000 to 11.7% for the year ended December 31,
2001. The decline in margin is due to the decrease in volume, which was unable
to support the fixed costs associated with 24/7 Connect and a shift in the
business model of the 24/7 Website Results to a lower margin product. In the
future, cost associated with ad serving will be accounted for in our Technology
Solutions segment cost of revenues and an allocation based on usage will be
reflected in the Integrated Media Solutions cost of revenues, making these costs
variable versus fixed as they were under 24/7 Connect.

20

TECHNOLOGY SOLUTIONS COST OF REVENUES AND GROSS PROFIT. The cost of
technology revenues consists of time and materials for consulting contracts, the
cost of equipment and broadband for our third party adserving solutions and
payroll costs to deliver, modify and support software. Gross margin declined
from 67.2% for the year ended December 31, 2000 to 65.4% for the year ended
December 31, 2001. The slight decline in margin is due to fixed costs being a
higher percentage of revenue in 2001 than in 2000 due to decreased volumes. Also
impacting the margin going forward will be the sale of Exactis (acquired
June 2000 and sold May 2001) whose product had a high gross margin which will be
offset by the addition of our Open Adstream product (acquired with Real Media)
included for only two months of 2001.

OPERATING EXPENSES. Each of sales and marketing, general and
administrative, product development expenses decreased significantly in the year
ended December 31, 2001 compared to the year ended December 31, 2000 as a result
of our restructuring activities, the decisions to discontinue the AwardTrack
product and exit Latin America and the sale of Sabela and Exactis. The disposal
of these divisions resulted in a decrease of the above expenses by
$26.9 million from prior year. In addition, amortization expense decreased
significantly from 2000 principally due to the significant impairment charge
related to goodwill and other intangible assets taken in the fourth quarter of
2000 and throughout 2001. While operating expenses decreased in dollar terms,
they increased as a percentage of revenue. This is due to the timing difference
between the significant decrease in revenue and the completion of our efforts to
resturcure and rationalize the Company as a result of the decreased revenue. The
majority of our rationalization efforts have been completed as of December 31,
2001 and the resulting cost structure is appropriately proportioned to current
revenues, yet poised to take advantage of any upturn in the market.

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of sales force salaries and commissions, advertising expenditures and
costs of trade shows, conventions and marketing materials. Sales and marketing
expenses increased as a percentage of revenue from 29.2% for the year ended
December 31, 2000 to 41.0% for the year ended December 31, 2001. Due to our
successful rationalization efforts, we expect sales and marketing expense to be
less than 30% of revenue in the future.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation, facilities expenses and other overhead
expenses incurred to support the business. General and administrative expenses
increased as a percentage of revenue from 34.1% for the year ended December 31,
2000 to 67.4% for the year ended December 31, 2001. We expect general and
administrative expenses to be less than 50% of revenue in the future.

PRODUCT TECHNOLOGY EXPENSES. Product technology expenses consist primarily
of compensation and related costs incurred to further enhance our ad serving and
other technology capabilities. Product technology expenses increased as a
percentage of revenue from 12.5% for the year ended December 31, 2000 to 29.3%
for the year ended December 31, 2001. We expect product technology expenses to
decrease to approximately 15% of revenue as we scale our research and
development budget in line with the current market conditions.

AMORTIZATION OF GOODWILL, INTANGIBLES AND ADVANCES. Amortization of
goodwill, intangibles and advances was $20.5 million for the year ended
December 31, 2001 and $118.9 million for the year ended December 31, 2000. The
decrease is due to impairment charges taken at the end of 2000 and during the
first half of 2001 for IMAKE, Exactis, Sabela, AwardTrack, iPromotions,
ConsumerNet and Website Results (see note 3 to the consolidated financial
statements). The sale of Exactis in May 2001 also contributed to the decline.

21

STOCK-BASED COMPENSATION. Stock based compensation of $3.2 million for the
year ended December 31, 2001 consists of $1.1 million in amortization of
deferred compensation for restricted shares issued to certain employees and
$2.1 million in amortization of deferred compensation from acquisitions. The
$8.2 million for the year ended December 31, 2000 consists of a $1.4 million
charge for unregistered shares issued to employees, $4.5 million in amortization
of deferred compensation from acquisitions, $2.1 million in amortization of
deferred compensation for restricted shares issued to certain employees and
$0.2 million in stock to be given as bonuses to certain employees.

WRITE OFF OF ACQUIRED IN PROCESS TECHNOLOGY AND MERGER RELATED COSTS. Write
off of acquired technology and merger related costs of $5.3 million for the year
ended December 31, 2000 consists primarily of acquired in-process technology of
$4.7 million from the acquisition of IMAKE that was immediately charged to
operations in the first quarter of 2000. As of the date of the acquisition, the
e.merge technology acquired had not been fully developed and had no alternative
future uses. As a result, the Company was required to incur additional costs to
successfully develop and integrate the technology. The value of the acquired
in-process technology was determined using an independent valuation. The
remaining expense consisted primarily of consultant costs related to the
integration of our numerous acquisitions.

RESTRUCTURING AND EXIT COSTS. During the years ended December 31, 2001 and
2000, restructuring charges of approximately $18.2 million and $11.7 million,
respectively, were recorded by us in accordance with the provisions of EITF
94-3, and Staff Accounting Bulletin No. 100. Our restructuring initiatives in
2001 were to reduce employee headcount, consolidate operations and reduce office
space in order to better align its sales, development and administrative
organization and to position the Company for profitable growth consistent with
our long-term objectives. The 2001 restructurings involved the involuntary
termination of approximately 150 employees, the exiting of two offices, a
reduction of space at two additional offices, and the abandonment of our Connect
adserving solution. The $18.2 million charge consists of severance of
$2.2 million, acceleration of restricted stock grants of $0.1 million, office
closing costs of $0.2 million, disposal of fixed assets related to offices of
$1.2 million, disposal of fixed assets related to Connect of $13.9 million, and
other exit costs of $1.2 million primarily related to contracts for Connect
offset by a reversal of $0.6 million of unutilized reserve resulting from the
sale of Exactis. The restructuring charge includes non-cash charges of
approximately $15.1 million.

The 2000 restructuring involved the involuntary termination of approximately
200 employees, the exiting of six sales office locations, a significant
reduction of space at two additional offices, and the abandonment of the our
AwardTrack subsidiary. As of December 31, 2000, we entered into negotiations to
sell Sabela and recorded its assets at their estimated realizable value. We
recorded a $11.7 million charge to operations consisting of severance of
approximately $3.2 million, lease exit costs of approximately $1.7 million,
acceleration of restricted stock grants of approximately $0.9 million and the
write down of assets to net realizable value primarily related to AwardTrack and
Sabela and certain leasehold improvements of $5.5 million, and other exit costs
of approximately $0.4 million. This amount includes non-cash charges of
approximately $6.4 million.

GAIN ON SALE OF ASSETS, NET. The $2.0 million gain for the year ended
December 31, 2001 consists of gains of $6.1 million on the sale of Sabela and
$0.3 million on the sale of the intellectual property of AwardTrack offset by a
loss of $4.4 million on the sale of Exactis. As of December 31, 2001, there is
approximately $0.8 million of deferred gain related to the sale of Exactis,
which will be recognized as a gain on sale of assets when the corresponding
prepaid service amounts are utilized and another $0.8 million when the escrow
balance is released (see note 5 to the consolidated financial statements).

IMPAIRMENT OF INTANGIBLES ASSETS. We perform on-going business reviews and,
based on quantitative and qualitative measures, assesses the need to record
impairment losses on long-lived

22

assets used in operations when impairment indicators are present. Where
impairment indicators were identified, we determined the amount of the
impairment charge by comparing the carrying values of goodwill and other
long-lived assets to their fair values.

Through August 2000, we completed numerous acquisitions that were financed
principally with shares of our common stock and were valued based on the price
of the common stock at that time. Starting with the fourth quarter of 2000, we
reevaluated the carrying value of our businesses on a quarterly basis. The
revaluation was triggered by the continued decline in the Internet advertising
and marketing sectors throughout 2000 and 2001. In addition, each of these
entities have experienced declines in operating and financial metrics over
several quarters, primarily due to the continued weak overall demand of on-line
advertising and marketing services, in comparison to the metrics forecasted at
the time of their respective acquisitions. These factors significantly impacted
current projected revenue generated from these businesses. Our evaluation of
impairment was also based on achievement of the unit's business plan objectives
and milestones, the fair value of each business unit relative to its carrying
value, the financial condition and prospects of each business unit and other
relevant factors. The business plan objectives and milestones that were
considered included, among others, those related to financial performance, such
as achievement of planned financial results, and other non-financial milestones
such as successful deployment of technology or launching of new products and the
loss of key employees. The impairment analysis also considered when these
properties were acquired and that the intangible assets recorded at the time of
acquisition were being amortized over useful lives of 2-4 years. The amount of
the impairment charge was determined by comparing the carrying value of goodwill
and other long-lived assets to fair value at each respective period end.

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

As a result, we determined that the fair value of goodwill and other
intangible assets attributable to several of our operating units were less than
their recorded carrying values. In addition, during 2000, we abandoned
operations of our AwardTrack subsidiary and entered into negotiations for the
sale of our Sabela subsidiary. In January 2002, we sold our IMAKE division. We
recorded Sabela's and IMAKE's assets at their estimated realizable value at
December 31, 2000 and 2001, respectively. As a result of these actions, we wrote
off all remaining goodwill and intangible assets related to AwardTrack,

23

Sabela and IMAKE. Accordingly, we recognized $74.4 million and $500.2 million in
impairment charges to adjust the carrying values in 2001 and 2000 respectively.
Impairments taken were as follows:

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

INTEREST INCOME, NET. Interest and other income, net primarily includes
interest income from our cash and cash equivalents and short-term investments
and interest expense related to our capital lease obligations. Interest income,
net was $0.8 million for the year ended December 31, 2001 and $1.4 million for
the year ended December 31, 2000. The decrease in interest income, net for the
year ended December 31, 2001 compared to December 31, 2000 was primarily
attributable to a decrease in interest income earned as a result of lower cash
and cash equivalent balances.

GAIN ON SALE OF INVESTMENTS. The gain on sale of investments was
$5.0 million for the year ended December 31, 2001 and $52.1 million for the year
ended December 31, 2000. In 2001, these gain relate to the sale of the Company's
remaining available-for-sale securities and cost based investment in Idealab!.
As of December 31, 2001, the Company has sold all of its available-for-sale
securities. In the year ended December 31, 2000, we sold approximately
5.2 million shares of chinadotcom stock at prices ranging from $6.63 to $40.48
per share. The shares had a cost basis of $13.8 million, which resulted in a
gain of approximately $52.1 million throughout the year.

IMPAIRMENT OF INVESTMENTS. During 2001, the Company wrote down certain of
its investments and recognized impairment charges of approximately $3.1 million
for other-than-temporary declines in value. Management made an assessment of the
carrying value of our cost-based investments and determined that they were in
excess of their carrying values due to the significance and duration of the
decline in valuations of comparable companies operating in the Internet and
technology sectors. The write down of cost based investments was $0.6 million
related to Media-Asia. Management also recognized that the decline in value of
our available-for-sale investments in Network Commerce and i3Moble were
other-than-temporary and recorded an impairment of $2.3 million and
$0.2 million, respectively.

LOSS FROM DISCONTINUED OPERATION. On August 6, 2001, the Company determined
that it would cease funding to its European subsidiaries and communicated that
to 24/7 Europe NV's Board of directors. Management of 24/7 Europe has shut down
all operations. All revenue, cost and expenses related to the discontinued
business are included in this line for the current period and prior periods have
been reclassified to reflect this presentation.

RESULTS OF OPERATIONS--2000 COMPARED TO 1999

REVENUES

INTEGRATED MEDIA SOLUTIONS. Our Integrated Media Solutions revenues
increased $37.5 million, or 44.5% to $121.9 million for the year ended
December 31, 2000 from $84.4 million for

24

the year ended December 31, 1999. The increase in revenue was due to an increase
in online spending, an increase in volume across our network, significant
expansion in the types of email services that we offer, dramatic increase in the
number of opt-in email addresses under management and the addition of delivering
targeted search engine traffic. A significant portion of our growth and the
expansion into new service offerings was due to our acquisitions of Canada in
the second quarter of 1999, ConsumerNet in the third quarter of 1999, Latin
America in the fourth quarter of 1999 and Website Results in the third quarter
of 2000.

TECHNOLOGY SOLUTIONS. Our Technology Solutions segment was formed with our
acquisitions of Sabela Media, Inc. and IMAKE Software and Service, Inc. in
January 2000 and increased with our acquisitions of Exactis.com, Inc. in
June 2000. Technology revenues were $24.2 million for the year ended
December 31, 2000.

COST OF REVENUE AND GROSS PROFIT

INTEGRATED MEDIA SOLUTIONS COST OF REVENUES AND GROSS PROFIT. The cost of
revenues consists primarily of fees paid to affiliated Web sites, which are
calculated as a percentage of revenues resulting from ads delivered on our
Network, third party ad serving costs, depreciation of our 24/7 Connect ad
serving system, list provider royalties and Internet access. We completed the
transition of our 24/7 Network in the United States to 24/7 Connect in the third
quarter of 2000.

Gross profit dollars increased due to the increase in revenue; however, the
gross margin decreased from 27.1% for the year ended December 31, 1999 to 22.0%
for the year ended December 31, 2000. The decline in margin is due to increased
competition in the marketplace, the cost to exit our least profitable
advertising contracts and increases in the amounts of unsold inventory, which
diluted the effective price of delivered advertising impressions. The margin
also decreased due to the shift in the mix of our mail business from service
bureau in 1999 to primarily list management and list brokerage in 2000, each of
which has a lower gross margin.

TECHNOLOGY COST OF REVENUES AND GROSS PROFIT. The cost of technology
revenues consists of time and materials for consulting contracts, and the cost
of equipment and broadband for our third party adserving solutions. Gross margin
for the year ended December 31, 2000 was 67.2%.

OPERATING EXPENSES. Each of sales and marketing, general and
administrative, product development and amortization expenses increased in the
year ended December 31, 2000 compared to the year ended December 31, 1999 as a
result of numerous acquisitions from July 1999 through August 2000 and expenses
incurred in connection with the internal growth of our business.

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of sales force salaries and commissions, advertising expenditures and
costs of trade shows, conventions and marketing materials. Sales and marketing
expenses increased as a result of the growth of our business and the resulting
additions to sales staff as well as increased marketing expenses for expanding
into new markets and new product lines, broadening our visibility and our global
advertising campaign.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation, facilities expenses and other overhead
expenses incurred to support the growth of our business. General and
administrative expenses increased as a result of the growth of our business,
numerous acquisitions, the addition of new personnel and increased operating
expenses. General and administrative further increased due to bad debt as a
result of the difficulties facing the internet industry. We incurred
approximately $9.9 million in bad debt expense for the year ended December 31,
2000, which was $9.0 million higher than for the year ended December 31, 1999
due to the significant downturn in the Internet advertising and marketing
sectors.

25

PRODUCT DEVELOPMENT EXPENSES. Product development expenses consist
primarily of compensation and related costs incurred to further develop our ad
serving and other technology capabilities. 24/7 Connect, our ad serving
solution, reached the application development stage in March 1999 and we began
capitalizing costs related to the project. We capitalized certain costs through
June 2000 when 24/7 Connect became fully operational. During the second half of
2000, all enhancements to Connect were expensed as incurred. In addition,
product development expenses increased due to the acquisition of Exactis on
June 30, 2000 which has significant new products under development.

AMORTIZATION OF GOODWILL, INTANGIBLES AND ADVANCES. Amortization of
goodwill, intangibles and advances was $118.9 million for the year ended
December 31, 2000 and $15.6 million for the year ended December 31, 1999. The
increase is due to the goodwill and intangibles acquired with ConsumerNet,
Clickthrough, IMAKE, Sabela, AwardTrack, iPromotions, Exactis and Website
Results. During the fourth quarter of 2000 due to triggering events, we wrote
off a substantial portion of the remaining goodwill and intangible assets. See
discussion of impairment of intangibles below.

STOCK-BASED COMPENSATION. Stock based compensation of $8.2 million for the
year ended December 31, 2000 consists of a $1.4 million charge for unregistered
shares issued to employees, $4.5 million in amortization of deferred
compensation from acquisitions, $2.1 million in amortization of deferred
compensation for restricted shares issued to certain employees and $0.2 million
in stock to be given as bonuses to certain employees. The expense in 1999
relates to issuance of options to a former employee for $0.2 million and
amortization of deferred compensation for restricted shares issued to certain
employees for $0.1 million.

WRITE OFF OF ACQUIRED TECHNOLOGY AND MERGER RELATED COSTS. Write off of
acquired technology and merger related costs of $5.3 million for the year ended
December 31, 2000 consists primarily of acquired in-process technology of
$4.7 million from the acquisition of IMAKE that was immediately charged to
operations in the first quarter of 2000. As of the date of the acquisition, the
e.merge technology acquired had not been fully developed and had no alternative
future uses. As a result, the Company was required to incur additional costs to
successfully develop and integrate the technology. The value of the acquired
in-process technology was determined using an independent valuation. The
remaining expense consisted primarily of consultant costs related to the
integration of our numerous acquisitions.

RESTRUCTURING AND EXIT COSTS. During the fourth quarter of 2000, we
recorded a restructuring charge of approximately $11.7 million. 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. This restructuring involved the
involuntary termination of approximately 200 employees, the exiting of six sales
office locations, a significant reduction of space at two additional offices,
and the abandonment of our AwardTrack subsidiary. In addition, we had entered
into negotiations to sell our Sabela subsidiary and recorded its assets at their
estimated realizable value.

In connection with the restructuring plan, we had recorded a $11.7 million
charge to operations during the fourth quarter of 2000 consisting of severance
of approximately $3.3 million, lease exit costs of approximately $1.7 million,
acceleration of restricted stock grants of approximately $0.9 million and the
write down of assets to net realizable value primarily related to AwardTrack and
Sabela and certain leasehold improvements of $5.5 million, and other exit costs
of approximately $0.3 million. This amount included non-cash charges of
approximately $6.4 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

26

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.

Through August 2000, we completed numerous acquisitions that were financed
principally with shares of our common stock, and were valued based on the price
of our common stock at that time (see Note 2 of our consolidated financial
statements contained herein). During the fourth quarter of 2000, we reevaluated
the carrying value of our businesses. Our revaluation was triggered by the
continued decline in the Internet advertising and marketing sectors throughout
2000, which significantly impacted current projected advertising revenue
generated from these entities. In addition, each of these entities had
experienced declines in operating and financial metrics over the past several
quarters, primarily due to the continued weak overall demand of on-line
advertising and marketing services, in comparison to the metrics forecasted at
the time of their respective acquisitions. These factors significantly impacted
current projected revenue generated from these businesses. Our evaluation of
impairment was also based on achievement of the unit's business plan objectives
and milestones, the fair value of each business unit relative to its carrying
value, the financial condition and prospects of each business unit and other
relevant factors. The business plan objectives and milestones that were
considered included, among others, those related to financial performance, such
as achievement of planned financial results, and other non-financial milestones
such as successful deployment of technology or launching of new products and the
loss of key employees. The impairment analysis also considered when these
properties were acquired and that the intangible assets recorded at the time of
acquisition were being amortized over useful lives of 2-4 years. The amount of
the impairment charge was determined by comparing the carrying value of goodwill
and other long-lived assets to fair value at December 31, 2000.

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

As a result, we determined that the fair value of goodwill and other
intangible assets attributable to IMAKE, iPromotions, Exactis and WSR were less
than their recorded carrying values. In addition, we had abandoned operations of
our AwardTrack subsidiary and had entered into negotiations for the sale of our
Sabela subsidiary. As such we recorded Sabela's assets at their estimated
realizable value. As a result of these actions, we wrote off all remaining
goodwill and intangible assets related to AwardTrack and Sabela. Accordingly, we
recognized $500.2 million in impairment charges to adjust the carrying values of
these entities in the fourth quarter of 2000. Of this amount, $367.2 million
related to Exactis, $55.5 million to AwardTrack, $47.9 million to Sabela,
$21.3 million to WSR, $5.4 million to IMAKE and $2.9 million to iPromotions.

INTEREST INCOME, NET. Interest and other income, net primarily includes
interest income from our cash and cash equivalents and short-term investments
and interest expense related to our capital lease obligations. Interest income,
net was $1.4 million for the year ended December 31, 2000 and $3.0 million for
the year ended December 31, 1999. The decrease in interest income, net for the
year ended December 31, 2000 compared to December 31, 1999 was primarily
attributable to a decrease in interest income earned as a result of lower cash
and cash equivalent balances.

27

GAIN ON SALE OF INVESTMENTS. This gain relates to the sale of a portion of
our chinadotcom stock. In the year ended December 31, 2000, we sold
approximately 5.2 million shares of chinadotcom stock at prices ranging from
$6.63 to $40.48 per share. The shares had a cost basis of $13.8 million, which
resulted in a gain of approximately $52.1 million throughout 2000.

GAIN ON EXCHANGE OF PATENT RIGHTS, NET. On November 6, 2000, we and
DoubleClick, Inc. settled the DoubleClick, Inc. v. Sabela Media, Inc. and 24/7
Media, Inc. v. DoubleClick, Inc. patent litigation. Both lawsuits have been
dismissed with prejudice. As part of the settlement, 24/7 Media and DoubleClick
have granted each other certain rights in certain of their respective patents.
Under the settlement agreement, no other terms of the settlement were to be
disclosed. During the fourth quarter of 2000, proceeds from the exchange of
patent rights were recorded net of related legal expenses, resulting in a gain
of $4.1 million.

IMPAIRMENT OF INVESTMENTS. During the fourth quarter of 2000, we wrote down
certain of our investments and recorded impairment charges of approximately
$101.4 million for other-than-temporary decline in value of certain investments.
We made an assessment of the carrying value of our cost-based investments and
determined that they were in excess of their carrying values due to the
significance and duration of the decline in valuation of comparable companies
operating in the internet and technology sectors. The write down to cost based
investments were $73.9 million, of which $38.8 million related to 24/7
Media-Asia, a subsidiary of chinadotcom, $23.5 million related to Idealab!,
$5.6 million to Naviant, $3.0 million to Bidland.com and $3.0 million in other
investments. We also recognized that the decline in value of our
available-for-sale investments in Network Commerce and i3Mobile were
other-than-temporary and recorded an impairment charge of $26.4 million and
$1.1 million, respectively.

LOSS FROM DISCONTINUED OPERATION. On August 6, 2001, the Company determined
that it would cease funding to its European subsidiaries and communicated that
to 24/7 Europe NV's Board of directors. Management of 24/7 Europe has shut down
all operations. All revenue, cost and expenses related to the discontinued
business are included in this line for the current period and prior periods have
been reclassified to reflect this presentation.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, we had cash and cash equivalents of $7.0 million
versus $25.1 million at December 31, 2000. Cash and cash equivalents are
comprised of highly liquid short term investments with maturities of three
months or less. The value of our investments totaled $0 and $11.3 million at
December 31, 2001 and 2000, respectively. These investments at December 31,
2000, generally related to equity ownership positions. Such investments
included, chinadotcom, Network Commerce, i3Mobile, Naviant, Inc. and idealab!.
We used approximately $6.1 million in cash to fund these investments in 2000. In
addition, we acquired majority and full ownership positions in several companies
through the transfer of common stock and cash. These acquisitions included Real
Media in 2001 and Imake, Sabela, AwardTrack, iPromotions, Exactis, Website
Results during 2000. We acquired net cash of $6.3 million and $24.0 million in
2001 and 2000, respectively, related to our acquisitions.

We have generated much of our liquidity through monetization of our
investments primarily in chinadotcom common stock; which generated approximately
$9.4 million and $65.9 million in proceeds throughout 2001 and 2000,
respectively; net cash received in our acquisitions of approximately
$6.3 million and $24.0 million, respectively, and $16.8 million in proceeds from
the sale of our non-core assets, which included Exactis, Sabela and Awardtrack
during 2001. During 2001, these proceeds were used to finance restructurings and
sustain operations during a period of declining revenues. In 2000, the proceeds
were used to finance growth in operations, acquisitions of subsidiaries and
investments discussed above, and the purchase of property and equipment needed
during this growth period. We used approximately $37.3 million and
$80.0 million of cash in operating activities during 2001 and 2000,
respectively, generally as a result of our net operating losses, adjusted for
certain non-cash items such

28

as amortization of goodwill and other intangible assets, gains on sales of
investments and non-core assets and sale of patent, net of expenses, impairment
of investments and intangibles and non-cash related equity transactions and
restructuring and exit costs, and also significant decreases in accounts
receivable and prepaid and other current assets which were partially offset by
decreases in accounts payable and accrued expenses and deferred revenue.

Net cash provided by investing activities was approximately $30.2 million in
2001 versus $70.7 million in 2000. The majority of the cash provided by
investing activities during 2001 related to proceeds received from the sale of
our non-core assets, net of expenses, proceeds from the sale of our investments,
primarily chinadotcom and cash acquired in our acquisitions, net which amounted
to $16.7 million, $9.4 million and $6.3 million respectively. During 2000, cash
provided by investing activities related to proceeds received from our sale of a
portion of our investment in chinadotcom and marketable securities, acquisitions
and exchange of our patent rights, net of related expenses which amounted to
$75.5 million, $24.0 million and $4.1 million respectively. In addition to our
acquisitions and our investments discussed above, during 2000 we had continued
to invest heavily in technology and efforts to develop our infrastructure
through capital expenditures, including capitalized software. During 2001, as a
result of divestitures of non-core assets and numerous restructurings, we had
significantly scaled back our capital expenditures. Cash used for such
expenditures totaled approximately $2.2 million and $27.1 million for 2001 and
2000, respectively. To the extent we continue to acquire additional ad serving
hardware, invest in enhancing or expanding our current product lines, make cash
investments in other businesses or acquire other businesses, net cash used in
investing activities could continue to be significant. Currently, we have
various capital and operating leases relating to the use of computer hardware,
software and office space.

The annual lease for our corporate headquarters is approximately
$0.9 million per year. Total rent expense for 2001 relating to all leases was
$4.4 million. As of December 31, 2001, we had obligations amounting to
$0.2 million in connection with equipment purchased under capital leases. These
obligations are payable at various intervals between 2001 and 2003. We expect to
meet our current capital lease obligations with our cash and cash equivalents.
The following table is a summary of our contractual obligations as of
December 31, 2001:

As a result of the merger with Real Media and the decision to consolidate
onto the Open Adstream technology platform, we have excess equipment and did not
budget for a significant amount of capital expenditures in 2002.

The Company has various employment agreements with employees, the majority
of which are for one year with automatic renewal. The obligation under these
contracts is approximately $2.8 million for 2002 including salary and
performance based target bonuses. These contracts call for severance in the
event of involuntary termination which range in amount from two months to two
years' salary. All European employees have employment contracts as required by
local law. The majority of these contracts allow for resignation or termination
by either party at any time, according to the notice period provisions contained
in the employment contracts, or according to the minimum notice period as
mandated by local law. The contracts, or if no expressed provision is included
in the contract, local law, also require severance for involuntary terminations
ranging from one to six months. As of January 31, 2002, there were approximately
80 employees in Europe whose annualized base salaries were approximately
$3.1 million.

29

As of December 31, 2001, we had approximately $4.3 million remaining of cash
outlay obligations relating to restructuring and exit costs. These amounts
consist primarily of severance and rent exit costs which are being paid ratably.
We paid the majority of these costs in the first quarter of 2002 and expect all
remaining amounts will be paid by the end of the second quarter of 2002.

No provision for federal or state income taxes has been recorded because we
incurred net operating losses for all periods presented. At December 31, 2001,
we had approximately $174.7 million of US and $1.1 million of foreign net
operating loss carryforwards, and a net capital loss carryforward of at least
$56.8 million. Foreign net operating loss carryforwards have been reduced to
reflect the disposition of the international operations of 24/7 Europe NV. Our
net operating loss carryforwards expire in various years through 2021, and the
net capital loss carryforwards expire in 2006. As a result of various equity
transactions during 2000, 1999 and 1998, we believe 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 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 2001 and 2000, the valuation allowance increased by
$50.1 million and by $41.1 million respectively. Of the total valuation
allowance of $103.1 million, tax benefits recognized in the future of
approximately of $4.6 million will be applied directly to additional paid-in
capital. This amount relates to the tax effect of employee stock option
deductions included in our net operating loss carryforward.

Our capital requirements depend on numerous factors, including market demand
of our services, the capital required to maintain our technology, and the
resources we devote to marketing and selling our services. We have received a
report from our independent accountants containing an explanatory paragraph
stating that our recurring losses from operations since inception and working
capital deficiency raise substantial doubt about our ability to continue as a
going concern. Management believes that the support of our vendors, customers,
stockholders, and employees, among other, continue to be key factors affecting
our future success. Moreover, management's plans to continue as a going concern
rely heavily on achieving revenue targets, raising additional financing and
controlling our operating expenses. Management believes that signficant progress
has been made in reducing operating expenses since the Real Media merger. In
addition, management is currently exploring a number of strategic alternatives
and is also continuing to identify and implement internal actions to improve our
liquidity. These alternatives may include selling assets which could result in
changes in our business plan. To the extent we encounter additional
opportunities to raise cash, we may sell additional equity securities, which
would result in further dilution of our stockholders. Stockholders may
experience extreme dilution due to both our current stock price and the
significant amount of financing we may be required to raise. These securities
may have rights senior to those of holders of our common stock. We do not have
any contractual restrictions on our ability to incur debt. Any indebtedness
could contain covenants, which would restrict our operations.

With the acquisition of Real Media, Inc. in October 2001, the Company
acquired a note payable of $4.5 million to Publigroupe, who as a result of the
merger is a significant shareholder. The note bears interest at 4.5% and
principal and interest are due on October 30, 2006. In addition, in accordance
with the Real Media purchase agreement in January 2002, the Company received
cash of $1.5 million and signed a promissory note bearing interest at 6%, with
interest and principal due in January 2005. If the Company achieves certain
target operating results for the three months ended March 31, 2002 it will be
entitled to receive another $1.5 million in exchange for a 6% three-year
promissory note.

On March 21, 2001, we entered into a common stock purchase agreement with
Maya Cove Holdings. The agreement gives us the ability to sell our common stock
to Maya pursuant to periodic draw downs once a Registration Statement covering
these shares has been declared effective by the SEC. The draw downs would be
subject to our ability to continue trading on the Nasdaq, our trading volumes
and prices and our ability to comply with securities registration requirements
for this type of facility. Based on current market price, we estimate the
maximum potential draw down is approximately

30

$2.0 million. To date, no amounts have been drawn under this facility. There can
be no assurances that it will provide the resources necessary to fund our needs
and we are continuing to evaluate other fund raising vehicles.

On January 22, 2002, we completed the sale of our wholly owned subsidiary,
Imake, to Schaszberger Corporation. Under the terms of the sale, the purchase
price payable to Schaszberger Corporation payable to us was up to approximately
$6.5 million for the stock of Imake consisting of $2.0 million in the form of a
6% four year secured note due in January 2006, approximately $0.5 million in
cash consideration, and a potential earnout of up to $4.0 million over the next
three years based on gross revenue. Additionally, we received Series A preferred
stock of Schaszberger Corp which, as of the closing date, represented 19.9% of
the buyer. The note is secured by certain assets of Imake and is guaranteed by
Schaszberger Corporation. We have recorded the consideration received at its
estimated fair value of $0.5 million for the note receivable and $1.5 million
for the earnout as part of assets held for sale at December 31, 2001. In January
2002, we received the cash consideration of $0.5 million for the note receivable
and have received the first monthly earnout payment as scheduled.

Pursuant to the sale of Exactis to Experian, $1.5 million was to be held in
escrow until August 2002. This amount has been reflected as restricted cash in
the consolidated balance sheet as of December 31, 2001. We received a letter
from Experian alleging that we made certain misrepresentations and omissions in
connection with the sale. On March 28, 2002, we reached a settlement agreement
with Experian whereby we authorized the escrow agent to release $750,000 to
Experian and Experian authorized the escrow agent to release the remaining
balance of approximately $780,000 to us. The funds have been received by us.

Despite significant rationalizations in our cost structure, our current cash
and other resources may not be sufficient to meet our anticipated operating cash
needs for 2002. We have limited operating capital and no current access to any
meaningful funds. Our continued operations therefore may depend on our ability
to raise additional funds through sale of equity or debt financing or another
strategic transaction that raises capital. We are in discussion with several
potential sources of financing, however, we cannot be certain that we will be
able to sell additional equity or issue debt securities in the future or that
additional financing will be available to us on commercially reasonable terms,
or at all.

MARKET FOR COMPANY'S COMMON EQUITY

The shares of our common stock are currently listed on the Nasdaq national
market. Due to the recent decline in the share price of our common stock and our
continued operating losses in April 2001, we received a letter from Nasdaq
stating that they have determined that we have failed to meet Nasdaq's minimum
listing requirements and as a result, our common stock could be delisted if we
do not satisfy these requirements by July 5, 2001. On August 31, 2001, the
Company announced that, in order to seek to increase the price per share of its
common stock and regain compliance with Nasdaq requirements, it intended to
recommend to its stockholders approval of a reverse stock split of its common
stock, which would result in stockholders being issued one new share for each
ten to 20 shares previously held. In late September 2001 the Company received
notice from Nasdaq that due to the market turmoil brought about by the terrorist
attack in September 2001, Nasdaq was suspending its minimum share bid price and
market capitalization requirements through at least December 31, 2001. Nasdaq
reinstated its bid price and market capitalization requirements as of
January 2, 2002. On February 14, 2002, we received a letter from Nasdaq stating
that they have determined that we have failed to meet Nasdaq's minimum listing
requirements and as a result, our common stock could be delisted if we do not
satisfy these requirements by May 15, 2002. We plan to appeal the Nasdaq
determination, although there can be no assurance that our appeal will be
successful.

If the Company's stock price remains below $1.00 through May 15, 2002, the
Company will again have to consider steps to regain compliance with Nasdaq
requirements, which may include a reverse stock split or a transition to the
Nasdaq SmallCap Market, in which case we would have at least 90 days' additional
time and up to 270 days, additional time if our stockholders'equity meets
certain

31

requirements to regain compliance with the $1.00 bid price requirement. There
can be no assurance that the Company will be able to maintain its Nasdaq listing
in the future.

Our failure to meet NASDAQ's maintenance criteria may result in the
delisting of our common stock from Nasdaq. In such event, trading, if any, in
the securities may then continue to be conducted in the non-NASDAQ
over-the-counter market in what are commonly referred to as the electronic
bulletin board and the "pink sheets". As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value of
the securities. In addition, we would be subject to a Rule promulgated by the
Securities and Exchange Commission that, if we fail to meet criteria set forth
in such Rule, imposes various practice requirements on broker-dealers who sell
securities governed by the Rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
Rule may have a materially adverse effect on the ability of broker-dealers to
sell the securities, which may materially affect the ability of shareholders to
sell the securities in the secondary market.

Delisting could make trading our shares more difficult for investors,
potentially leading to further declines in share price. It would also make it
more difficult for us to raise additional capital. We would also incur
additional costs under state blue sky laws to sell equity if we are delisted.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

GOODWILL AND OTHER INTANGIBLE ASSETS. In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations. SFAS No. 141 also specifies criteria that intangible assets
acquired in a business combination must meet to be recognized and reported
separately from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS No. 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and subsequently,
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
after its adoption.

We adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS No.
142 effective January 1, 2002. Goodwill and intangible assets determined to have
an indefinite useful life acquired in a purchase business combination completed
after June 30, 2001, but before SFAS No. 142 is adopted in full, will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the full adoption of SFAS No. 142. Upon
adoption of SFAS No. 142, we are required to evaluate our existing intangible
assets and goodwill that were acquired in purchase business combinations, and to
make any necessary reclassifications in order to conform with the new criteria
in SFAS No. 141 for recognition separate from goodwill. We will be required to
reassess the useful lives and residual values of all intangible assets acquired
and make any necessary amortization period adjustments by the end of the first
interim period after adoption, and, if an intangible asset is identified as
having an indefinite useful life, we will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS No. 142 within
the first interim period. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle in the first interim period.

32

In connection with Statement 142's transitional goodwill impairment
evaluation, the Statement will require the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Company will then have up to six
months from the date of adoption to determine the fair value of each reporting
unit and compare it to the carrying amount of the reporting unit. To the extent
the carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test. In
the second step, the Company must compare the implied fair value of the
reporting unit goodwill with the carrying amount of the reporting unit goodwill,
both of which would be measured as of the date of adoption. The implied fair
value of goodwill is determined by allocating the fair value of the reporting
unit of all of the assets (recognized and unrecognized) and liabilities of the
reporting unit in a manner similar to a purchase price allocation, in accordance
with Statement 141. The residual fair value after this allocation is the implied
fair value of the reporting unit goodwill. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

And finally, any unamortized negative goodwill (and equity method negative
goodwill) existing at the date that Statement 142 is adopted must be written off
as the cumulative effect of a change in accounting principle.

Because of the extensive effort needed to comply with adopting Statements
141 and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.

In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement 121) and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions (Opinion 30), for the disposal of a segment of
a business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
Statement 121. For example, Statement 144 provides guidance on how a long-lived
asset that is used as part of a group should be evaluated for impairment,
establishes criteria for when a long-lived asset is held for sale, and
prescribes the accounting for a long-lived asset that will be disposed of other
than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to
present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike Statement 121, an impairment assessment under Statement 144
will never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under Statement No. 142, Goodwill and Other Intangible Assets.

33

Goodwill is excluded from the scope of Statement No. 144. That is, a
goodwill impairment write-down will never occur as a result of applying
Statement 144. However, it is possible for a long-lived asset group under
Statement 144 to include goodwill. Goodwill will be included in the carrying
amount of a Statement 144 asset group if that group is, or includes, a reporting
unit under Statement 142. This scenario is unlikely for large companies,
however, it could be encountered for small companies. When impairment is
measured under Statement 144, the carrying amount of the asset group is compared
to the group's fair value. Any shortfall is recognized as a reduction to the
carrying amounts of only the long-lived assets in the group. The carrying amount
of goodwill is then evaluated for impairment under Statement No. 142, Goodwill
and Other Intangible Assets, once Statement No. 142 is adopted. Companies are
required to adopt Statement No. 142 no later than the year beginning after
December 15, 2001.

The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001, and plans to adopt its provisions for the
quarter ending March 31, 2002. Management does not expect the adoption of
Statement 144 for long-lived assets held for use to have a material impact on
the Company's financial statements because the impairment assessment under
Statement 144 is largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities. Therefore, management cannot determine the potential effects that
adoption of Statement 144 will have on the Company's financial statements.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

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.

Our accounts receivables are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. Due to the current economic environment, we believe that we have
sufficiently provided for any material losses in this area, however, there can
be no assurance that unanticipated material losses may not result.

We transact business in various foreign countries. Accordingly, we are
subject to exposure from adverse movements in foreign currency exchange rates.
This exposure is primarily related to revenue and operating expenses the United
Kingdom and in countries which the currency is the Euro. The effect of foreign
exchange rate fluctuations for 2001, 2000 and 1999 was not material. We do not
use derivative financial instruments to limit our foreign currency risk
exposure.

Our debt is at fixed rates; therefore, there is no rate risk.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "--Risk Factors" below.

Words such as "expect", "anticipate", "intend", "plan", "believe",
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We

34

undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur.

RISK FACTORS

WE WILL NEED TO RAISE ADDITIONAL FUNDS TO CONTINUE OPERATIONS AND OUR
RECURRING OPERATING LOSSES AND WORKING CAPITAL DEFICIENCY RAISE SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our current cash may not be sufficient to meet our anticipated operating
cash needs for 2002 and there can be no assurance that new funds can be secured
when needed. The support of our vendors, customers, stockholders and employees
will continue to be key to our future success. There can be no assurance that we
will be able to raise additional financing to meet our cash and operational
needs or reduce our operating expenses or increase revenues significantly to
address this going concern issue.

Since our inception, we have incurred significant operating losses and we
believe we will continue to incur operating losses for the foreseeable future.
We also expect to incur negative cash flows for the foreseeable future as a
result of our operating losses.

We have received a report from our independent accountants on our
December 31, 2001 consolidated financial statements containing an explanatory
"going concern" paragraph stating that our recurring losses from operations and
working capital deficiency since inception raise substantial doubt about our
ability to continue our business as a going concern. Management's plans to
continue as a going concern rely heavily on achieving revenue targets, reducing
operating expenses and raising additional financing. Management is currently
exploring a number of strategic alternatives and is also continuing to identify
and implement internal actions to improve our liquidity. These alternatives may
include selling assets, which could result in changes in our business plan.

To the extent we encounter additional opportunities to raise cash, we may
sell additional equity or debt securities. Stockholders may experience extreme
dilution due to our current stock price and the significant amount of financing
we need to raise and these securities may have rights senior to those of holders
of our common stock. We do not have any contractual restrictions on our ability
to incur debt. Any indebtedness could contain covenants that restrict our
operations.

We have limited access to the capital markets to raise capital. The capital
markets have been unpredictable in the past, especially for unprofitable
companies such as ours. In addition, it is difficult to raise capital in the
current market conditions. The amount of capital that a company such as ours is
able to raise often depends on variables that are beyond our control, such as
the share price of our stock and its trading volume. As a result, there is no
guarantee that our efforts to secure financing will be available on terms
attractive to us, or at all. Due to our operating losses, it may be difficult to
obtain debt financing. If we are able to consummate a financing arrangement,
there is no guarantee that the amount raised will 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 adversely effected.

THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN ITS DELISTING FROM THE NASDAQ
NATIONAL MARKET.

The shares of our common stock are currently listed on the Nasdaq national
market. Due to the recent decline in the share price of our common stock and our
continued operating losses in April 2001, we received a letter from Nasdaq
stating that they have determined that we have failed to meet Nasdaq's minimum
bid price requirements and as a result, our common stock could be delisted if we
do not satisfy these requirements by July 5, 2001. On August 31, 2001, the
Company announced

35

that, in order to seek to increase the price per share of its common stock and
regain compliance with Nasdaq requirements, it intended to recommend to its
stockholders approval of a reverse stock split of its common stock, which would
result in stockholders being issued one new share for each ten to 20 shares
previously held. In late September 2001 the Company received notice from Nasdaq
that due to the market turmoil brought about by the terrorist attacks in
September 2001, Nasdaq was suspending its minimum share bid price and market
capitalization requirements through at least December 31, 2001. Nasdaq
reinstated its bid price and market capitalization requirements as of
January 2, 2002. On February 14, 2002, we received a letter from Nasdaq stating
that they have determined that we have failed to meet Nasdaq's minimum listing
requirements and as a result, our common stock could be delisted if we do not
satisfy these requirements by May 15, 2002.

If the Company's stock price remains below $1.00 through May 15, 2002, the
Company will again have to consider steps to regain compliance with Nasdaq
requirements, which may include a reverse stock split or a transition to the
Nasdaq SmallCap Market, in which case we would have at least 90 days' additional
time and up to 270 days, additional time if our stockholders'equity meets
certain requirements to regain compliance with the $1.00 bid price requirement.
There can be no assurance that the Company will be able to maintain its Nasdaq
listing in the future.

Our failure to meet Nasdaq's maintenance criteria may result in the
delisting of our common stock from Nasdaq. In such event, trading, if any, in
the securities may then continue to be conducted in the non-NASDAQ
over-the-counter market in what are commonly referred to as the electronic
bulletin board and the "pink sheets". As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value of
the securities. In addition, we would be subject to a Rule promulgated by the
Securities and Exchange Commission that, if we fail to meet criteria set forth
in such Rule, imposes various practice requirements on broker-dealers who sell
securities governed by the Rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
Rule may have a materially adverse effect on the ability of broker-dealers to
sell the securities, which may materially affect the ability of shareholders to
sell the securities in the secondary market.

Delisting could make trading our shares more difficult for investors,
potentially leading to further declines in share price. It would also make it
more difficult for us to raise additional capital. We would also incur
additional costs under state blue sky laws to sell equity if we are delisted.

HIGH VOLATILITY OF STOCK PRICE.

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.

REVENUE GROWTH IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROWTH.

At times in the past, our revenues have grown significantly, primarily as a
result of our numerous acquisitions. Our limited operating history makes
prediction of future revenue growth difficult. Accurate predictions of future
revenue growth are also difficult because of the rapid changes in our

36

markets and the possible need by us to sell assets to fund operations.
Accordingly, investors should not rely on past revenue growth rates as a
prediction of future revenue growth.

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

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

- develop new relationships and maintain existing relationships with our Web
sites, advertisers, and other third parties;

- further develop and upgrade our technology;

- respond to competitive developments;

- implement and improve operational, financial and management information
systems; and

- attract, retain and motivate qualified employees.

WE ANTICIPATE CONTINUED LOSSES AND WE MAY NEVER BE PROFITABLE.

We have not achieved profitability in any period and we may not be able to
achieve or sustain profitability in the future. We incurred net losses of
$199.6 million and $779.9 million for the 12 months ended December 31, 2001 and
2000, respectively. Even if we do achieve profitability, we cannot assure you
that we can sustain or increase profitability on a quarterly or annual basis in
the future.

OUR FUTURE REVENUES AND RESULTS OF OPERATIONS MAY BE DIFFICULT TO FORECAST.

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:

- the addition of new or loss of existing clients;

- changes in fees paid by advertisers and direct marketers or other clients;

- changes in service fees payable by us to owners of Web sites or email
lists, or ad serving fees payable by us to third parties;

- the demand by advertisers, Web publishers and direct marketers for our
advertising solutions;

- the introduction of new Internet marketing services by us or our
competitors;

- variations in the levels of capital or operating expenditures and other
costs relating to the maintenance or expansion of our operations,
including personnel costs;

- changes in governmental regulation of the Internet; and

- general economic conditions.

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

37

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 FINANCIAL PERFORMANCE AND REDUCTION OF OUR WORKFORCE MAY AFFECT THE MORALE
AND PERFORMANCE OF OUR PERSONNEL.

We have incurred significant net losses since our inception. In an effort to
reduce our cash expenses, we began to implement certain restructuring
initiatives and cost reductions. In the past 12 months, we reduced our workforce
by over 1,000 employees. We have also left positions unfilled when employees
have left the company. In addition, recent trading levels of our common stock
have decreased the value of the stock options granted to employees pursuant to
our stock option plan. As a result of these factors, our remaining personnel may
seek employment with larger, more stable companies they perceive to have better
prospects. Our failure to retain qualified employees to fulfill our current and
future needs could impair our future growth and have a material adverse effect
on our business.

OUR FINANCIAL PERFORMANCE MAY AFFECT OUR ABILITY TO ENTER INTO NEW BUSINESS
RELATIONSHIPS AND TO COLLECT REVENUES.

The publicity we receive in connection with our financial performance and
our measures to remedy this performance generate negative publicity, which may
negatively affect our reputation and our business partners' and other market
participants' perception of our company. If we are unable to maintain the
existing relationships and develop new ones, our revenues and collections could
suffer materially.

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 continues to remain soft or
fails to develop in the near future. There are currently no widely accepted
standards to measure the effectiveness of Internet marketing other than
clickthrough rates, which generally have been declining. We cannot be certain
that such standards will develop to sufficiently support Internet marketing as a
significant advertising medium. Actual or perceived ineffectiveness of online
marketing 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 BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL.

A significant part of our business model is to generate revenue by providing
interactive marketing solutions to advertisers, ad agencies and Web publishers.
The profit potential for this business model is unproven. To be successful, both
Internet advertising and our solutions will need to achieve broad market
acceptance by advertisers, ad 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 ad 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.

38

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. 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, and demand for
its solutions. We cannot assure you that demand for its new solutions will
emerge or become sustainable.

BANNER ADVERTISING, FROM WHICH WE CURRENTLY DERIVE A SIGNIFICANT PORTION OF OUR
REVENUE, MAY NOT BE AN EFFECTIVE ADVERTISING METHOD IN THE FUTURE.

A significant portion of our revenues are derived from the delivery of
banner advertisements. Online banner advertising has dramatically decreased
since the middle of 2000 and has continued to decline throughout 2001 and is
expected to continue through the second quarter of 2002, which could have a
material adverse effect on our business. If advertisers determine that banner
advertising is an ineffective or unattractive advertising medium, we cannot
assure you that we will be able to effectively make the transition to any other
form of Internet advertising. Also, there are "filter" software programs that
limit or prevent advertising from being delivered to a user's computer. The
commercial viability of Internet advertising, and our business, results of
operations and financial condition, would be materially and adversely affected
by Web users' widespread adoption of such software. In addition, many online
advertisers have been experiencing financial difficulties, which could
materially impact our revenues and our ability to collect our receivables.

GROWTH OF OUR BUSINESS DEPENDS ON THE DEVELOPMENT OF ONLINE DIRECT MARKETING.

Adoption of online direct marketing, particularly by those entities that
have historically relied upon traditional means of direct marketing, such as
telemarketing and direct mail, is an important part of our business model.
Intensive marketing and sales efforts may be necessary to educate prospective
advertisers regarding the uses and benefits of our products and services to
generate demand for our direct marketing services. 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 market 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 our clients.

LOSS OF OUR MAJOR WEB SITES WOULD SIGNIFICANTLY REDUCE OUR REVENUES.

The 24/7 Network generates a significant portion of our revenues, and we
expect that the 24/7 Network will continue to account for a significant portion
of our revenue for the foreseeable future. The 24/7 Network consists of a
limited number of our Web sites that have contracted for our services under
agreements cancelable generally upon a short notice period. For the 12 months
ended December 31, 2001 and 2000, approximately 15.0% and 20.9%, respectively,
of our total revenues were derived from advertisements on our top ten Web sites.
For the 12 month period ended December 31, 2001, the top ten Web sites included
Earthlink, Inc., AT&T WorldNet Service, Epipo, Inc. (180 Solutions),
Spedia.com, Inc., 2GK Inc. (Quotetracker), Community Connect, Inc.,
Womensforum.com, Inc., MusicCity.com, Infogames Inc. (Games.com) and Desktop
Dollars, Inc. We experience turnover from time to time among our Web sites, and
we cannot be certain that the Web sites named above will remain associated with
us or that such Web sites will not experience a reduction in online traffic on
their sites. We cannot assure you that we will be able to replace any departed
Web site in a timely and effective manner with a Web site with comparable
traffic patterns and user demographics. Our business, results of operations and
financial condition would be materially adversely

39

affected by the loss of one or more of the Web sites that account for a
significant portion of our revenue from the 24/7 Network.

LOSS OF MAJOR CUSTOMERS WOULD REDUCE OUR REVENUES.

We generate a significant portion of our revenues from a limited number of
customers. We expect that a limited number of these entities may continue to
account for a significant percentage of our revenues for the foreseeable future.
For the 12 months ended December 31, 2001, our top ten customers accounted for
approximately 28.7% of our total revenues. Customers typically purchase
advertising or services under agreements on a short-term basis. Since these
contracts are short-term, we will have to negotiate new contracts or renewals in
the future that may have terms that are not as favorable to us as the terms of
existing contracts. We cannot be certain that current customers will continue to
purchase advertising or services from us or that we will be able to attract
additional customers successfully, or that customers will make timely payment of
amounts due to us. 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. Our business, results of operations and
financial condition would be materially adversely affected by the loss of one or
more of our customers that account for a significant portion of our revenue.

WE HAVE GROWN OUR BUSINESS THROUGH ACQUISITION.

We were formed in February 1998 to consolidate three Internet advertising
companies and have since acquired thirteen more companies. In combining these
entities, we have faced risks and continue to face risks of integrating and
improving our financial and management controls, ad 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. We may continue
pursuing selective acquisitions of businesses, technologies and product lines as
a key component of our growth strategy. 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
goodwill and other intangible assets. In addition, acquisitions involve numerous
risks, including:

- the difficulties in the integration and assimilation of the operations,
technologies, products and personnel of an acquired business;

- the diversion of management's attention from other business concerns;

- the availability of favorable acquisition financing for future
acquisitions; and

- the potential loss of key employees of any acquired business.

Our inability to successfully integrate any acquired company could adversely
affect our business.

OUR ADVERTISING CUSTOMERS AND THE COMPANIES WITH WHICH WE HAVE STRATEGIC
RELATIONSHIPS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD ADVERSELY
AFFECT OUR BUSINESS.

As a result of unfavorable conditions in the public equity 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, from time
to time, we have entered into strategic business relationships with other
companies, the nature of which varies, but generally in the context of customer
relationships. 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.

40

OUR REVENUES ARE SUBJECT TO SEASONAL FLUCTUATIONS.

Our revenues are subject to seasonal fluctuations because advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year and direct marketers mail substantially more marketing
materials in the third quarter each year. Internet user traffic typically drops
during the summer months, which reduces the number of advertisements to sell and
deliver. Expenditures by advertisers and direct marketers 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, direct marketers 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.

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

Open Adstream is our proprietary next generation ad serving technology that
is intended to serve as our sole ad serving solution. We launched Open Adstream
Central and Network in mid-2001, and we must, among other things, ensure that
this 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. This development effort could fail
technologically or could take more time than expected. Our Open Adstream
technology resides on a computer system located in our data centers housed by
Exodus Communications. These systems' continuing and uninterrupted performance
is critical to our success. Customers may become dissatisfied by any system
failure that interrupts our ability to provide our services to them, including
failures affecting our ability to deliver advertisements without significant
delay to the viewer. Sustained or repeated system failures would reduce the
attractiveness of our solutions to advertisers, ad agencies and Web publishers
and result in contract terminations, fee rebates and make goods, thereby
reducing revenue. Slower response time or system failures may also result from
straining the capacity of our deployed software or hardware due to an increase
in the volume of advertising delivered through our servers. To the extent that
we do not effectively address any capacity constraints or system failures, our
business, results of operations and financial condition could be materially and
adversely affected. Our operations are dependent on our ability to protect our
computer systems against damage from fire, power loss, water damage,
telecommunications failures, vandalism and other malicious acts, and similar
unexpected adverse events. In addition, interruptions in our solutions could
result from the failure of our telecommunications providers to provide the
necessary data communications capacity in the time frame we require. 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.

OUR FAILURE TO SUCCESSFULLY COMPETE 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 successfully compete may hinder our growth. We believe that our ability to
compete depends upon many factors both within and beyond our control, including:

- the timing and market acceptance of new products and enhancements of
existing services developed by us and our competitors;

- changing demands regarding customer service and support;

- shifts in sales and marketing efforts by us and our competitors; and

- the ease of use, performance, price and reliability of our services and
products.

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Many 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 cannot be certain
that we will be able to successfully compete 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 or direct marketing medium,
advertisers and direct marketers may be reluctant to devote a significant
portion of their advertising budgets to Internet marketing, which could limit
the growth of Internet marketing.

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

The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit our
collection and use of information regarding Internet users in Europe. The
effectiveness of our Open Adstream technology could be limited by any regulation
limiting the collection or use of information regarding Internet users. Since
many of the proposed laws or regulations are just being developed, we cannot yet
determine the impact these regulations may have on its business. In addition,
growing public concern about privacy and the collection, distribution and use of
information about individuals has led to self-regulation of these practices by
the Internet advertising and direct marketing industry and to increased federal
and state regulation. The Network Advertising Initiative, or NAI, of which 24/7
Real Media is a member along with other Internet advertising companies, has
developed self-regulatory principles for online preference marketing. These
principles were recently endorsed by the Federal Trade Commission, and are in
the process of being adopted by the NAI companies. The Direct Marketing
Association, or DMA, the leading trade association of direct marketers, has
adopted guidelines regarding the fair use of this information which it
recommends participants, such as us, through our services, in the direct
marketing industry follow. We are also subject to various federal and state
regulations concerning the collection, distribution and use of information
regarding individuals. These laws include the Children's Online Privacy
Protection Act, and state laws that limit or preclude the use of voter
registration and drivers license information, as well as other laws that govern
the collection and use of consumer credit information. Although our compliance
with the DMA's guidelines and applicable federal and state laws and regulations
has not had a material adverse effect on us, we cannot assure you that the DMA
will not adopt additional, more burdensome guidelines or that additional, more
burdensome federal or state laws or regulations, including antitrust and
consumer privacy laws, will not be enacted or applied to us or our clients,
which could materially and adversely affect our business, financial condition
and results of operations.

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

Our success depends, to a significant extent, upon our senior management and
key sales and technical personnel, particularly David J. Moore, Chief Executive
Officer. The loss of the services of one or more of these persons could
materially adversely affect our ability to develop our business. Our success
also depends on our ability to attract and retain qualified technical, sales and
marketing, customer support, financial and accounting, and managerial personnel.
Competition for such personnel in the Internet industry is intense, and we
cannot be certain that we will be able to retain our key personnel or that we
can attract, integrate or retain other highly qualified personnel in the future.
We

42

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.

OUR INTERNATIONAL OPERATIONS MAY POSE LEGAL AND CULTURAL CHALLENGES.

We have operations in a number of international markets, including Canada,
Europe and Asia. To date, we have limited experience in marketing, selling and
distributing our solutions internationally. International operations are subject
to other risks, including changes in regulatory requirements, reduced protection
for intellectual property rights in some countries, potentially adverse tax
consequences, general import/export restrictions relating to encryption
technology and/or privacy, difficulties and costs of staffing and managing
foreign operations, political and economic instability, fluctuations in currency
exchange rates; and seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world.

In addition to these factors, due to our minority stake in 24/7 Real Media
Korea in Asia, we are relying on our partner to conduct operations, build the
network, aggregate Web publishers and coordinate sales and marketing efforts.
The success of the 24/7 Network in Asia is directly dependent on the success of
our partner and its dedication of sufficient resources to our relationship.

DEPENDENCE ON PROPRIETARY RIGHTS AND 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. We cannot
assure you that any of our patent applications or trademark applications will 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. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

We have licensed, and we may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, such partners may take actions that could materially and
adversely affect the value of our proprietary rights or our reputation. We
cannot assure you that any of our proprietary rights will be of value in the
future since the validity, enforceability and scope of protection of certain
proprietary rights in Internet-related industries is uncertain and still
evolving.

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

43

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.

INTELLECTUAL PROPERTY LIABILITY.

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

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 Adstream technology
targets advertising to users through the use of identifying data, or "cookies"
and other non-personally-identifying information. Open Adstream enables the use
of cookies to deliver targeted advertising and to limit the frequency with which
an advertisement is shown to the 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 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. Recently, Microsoft Corporation 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
we are capable of profiling 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 reengineering 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. In addition, privacy
concerns may cause some Web users to be less likely to visit Web sites that
contribute data to our databases. This could have a material adverse effect on
our financial condition. In addition, we are developing our database to collect
data derived from user activity on our networks and from other sources. We
collect and compile information in databases for the product offerings of all
our businesses. Individuals or entities may claim in the future, that our
collection of this information is illegal. Although we believe that we have the
right to use and compile the information in these databases, we cannot assure
you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our business.

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WE MAY HAVE TO CHANGE OUR BUSINESS PLANS BASED UPON CHANGES IN INFORMATION
COLLECTION PRACTICES.

There has been public debate about how fair information collection practices
should be formulated for the online and offline collection, distribution and use
of information about a consumer. Some of the discussion has focused on the fair
information collection practices that should apply when information about an
individual that is collected in the offline environment is associated with
information that is collected over the Internet about that individual. We are
working with industry groups, such as the NAI and the Online Privacy Alliance,
to establish such standards with the U.S. government regarding the merger of
online and offline consumer information. We cannot assure you that we will be
successful in establishing industry standards acceptable to the U.S. government
or the various state governments, or that the standards so established will not
require material changes to our business plans. We also cannot assure you that
our business plans, or any U.S. industry standards that are established, will
either be acceptable to any non-U.S. government or conform to foreign legal and
business practices. As a consequence of governmental legislation or regulation
or enforcement efforts or evolving standards of fair information collection
practices, we may be required to make changes to our products or services in
ways that could diminish the effectiveness of the product or service or their
attractiveness to potential customers. In addition, given the heightened public
discussion about consumer online privacy, we cannot assure you that our products
and business practices will gain market acceptance, even if they do conform to
industry standards.

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 European Union has
enacted its own privacy regulations that may result in limits on the collection
and use of certain user information by us. 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.

DEPENDENCE ON THE WEB INFRASTRUCTURE.

Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions

45

of its infrastructure. Such outages and delays could impact the clients using
our solutions and the level of user traffic on Web sites on our networks.

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.

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:

- discourage potential acquisition proposals;

- delay or prevent a change in control;

- impede the ability of our stockholders to change the composition of our
board of directors in any one year; and

- limit the price that investors might be willing to pay in the future for
shares of our common stock.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Part IV, Item 14 of this Report.

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

There have been no changes in or disagreements with our auditors on
accounting principles or financial statement disclosure.

46

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

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

DAVID J. MOORE has been our Chief Executive Officer and a director since
February 1998, and Chairman of the Board of Directors since January 2002.
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.

PHILIPP A. GERBERT has been a director since 2001. Mr. Gerbert has been a
Partner and Director of The McKenna Group, a high-tech strategy consulting firm
headquartered in Silicon Valley, since October 1998. From 1991 to 1998, he
worked for McKinsey & Company, a consulting firm. Mr. Gerbert holds a Master's
Degree from the Max-Planck Institute, Munich, Germany, a Certificate from Ecole
Normale Superieure, Paris, France, and a Ph.D. from MIT, Cambridge, MA.

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

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RICHARD BURNS has been a director since October 2001. Mr. Burns is currently
the President and Chief Executive Officer of Thomson Financial Media, a company
holding the banking, insurance and electronic commerce media assets of The
Thomson Corporation, which he joined in 1999. From 1995 to 1999 he served as
president and CEO of Euromoney Publications America and Institutional Investor
magazine. Mr. Burns received BA and MA degrees from Oxford University and an MS
from Columbia University's Graduate School of Journalism.

ROBERT J. PERKINS has been a director since October 2001. Mr. Perkins was
most recently 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 CEO of Chamber Communications, a for-profit branch of the US
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 MA
degree from Texas Tech University and a BBA degree from the University of Iowa.

MORITZ F. WUTTKE has been a director since October 2001. Mr. Wuttke has been
the Head of Business Development at Publigroupe SA since October 2001 and was
the Head of e-Business Development at PubliOnline, the new media divison 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.

In accordance with the terms of our Certificate of Incorporation, our board
of directors is divided into three classes, denominated Class I, Class II and
Class III, with members of each class holding office for staggered three-year
terms. At each annual meeting of our stockholders, the successors to the
directors whose terms expire are elected to serve from the time of their
election and qualification until the third annual meeting of stockholders
following their election or until a successor has been duly elected and
qualified. David J. Moore and Richard Burns are the Class I directors, whose
terms expire at the 2002 annual meeting. Robert Perkins and Moritz Wuttke are
the Class II directors, whose terms expire at the 2003 annual meeting. Philipp
Gerbert and Arnie Semsky are the Class III directors whose term expires at the
2004 annual meeting. Directors' terms are subject to the election and
qualification of their successors or to their earlier death, resignation or
removal.

OTHER EXECUTIVE OFFICER INFORMATION

Set forth below is information about each executive officer, including data
on their business backgrounds. The information concerning the executive officers
and their security holdings has been furnished to us by each executive officer.

NORMAN M. BLASHKA joined the Company as Executive Vice President and Chief
Financial Officer in November 2001. Previously, he served as Chief Financial
Officer and Executive Vice President of Real Media, Inc., which we acquired,
since September 1999. From January 1997 to September 1999, Mr. Blashka was
Senior Vice President and Chief Financial Officer of Mickelberry
Communications, Inc., an integrated marketing services company, and Executive
Vice President of Union Capital Corporation, a merchant bank and holding company
affiliated with Mickelberry. From January 1999 to September 1999, Mr. Blashka
was also the Chief Investment Officer at Union Capital. From October 1993 to
September 1996, Mr. Blashka was the Vice President and Chief Financial Officer
of Lang Communications, L.P., a privately-held magazine publisher. Mr. Blashka,
a certified

48

public accountant, obtained an M.B.A. from Columbia University's Graduate School
of Business and a B.A., summa cum laude, in Economics from the State University
of New York, College at New Paltz.

MARK E. MORAN has been General Counsel and Secretary of the Company 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, a M.B.A. degree in
Finance from Fordham Graduate School of Business, and a B.A. degree in Economics
from The University of Virginia.

ANTHONY PLESNER has been the Chief Operating Officer since April 2001. From
October 2000 to March 2001, Mr. Plesner was our Senior Vice President, Strategic
Planning. Mr. Plesner brings to our company more than 15 years of experience
directing finance, business development and operations at a series of
information and software-focused organizations. From March 1999 to
October 2000, he was responsible for finance and business development with
Medscape, a leading healthcare information and services organization. In
May 1998, Mr. Plesner founded nicheConsulting, an organization focused on
supporting its clients through assistance with/implementation of key programs in
strategy, business partnering and operational efficiencies. From January 1997 to
May 1998, Mr. Plesner served as Chief Financial Officer and Vice President of
Corporate Development for Confer Software, an internet-based workflow engine
vendor. From February 1985 to December 1996, Mr. Plesner held a variety of key
roles at Reuters, the worldwide information organization, where he was
responsible for managing key operations in finance, business development and
planning, from early stage through significant growth, both in the core
activities of the company as well as in its new internet and content offerings.
Mr. Plesner received an M.B.A. from the Katz Graduate School of Business at the
University of Pittsburgh and a B.A. degree in Economics and Economic History
from Manchester University (Great Britain).

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Under the securities laws of the United States, our directors, executive
officers, and any persons holding more than ten percent of our common stock are
required to report their ownership of our securities and any changes in that
ownership to the Securities and Exchange Commission. Specific due dates for
these reports have been established and we are required to report in this report
any failure to file by these dates during 2001. Based solely on its review of
such forms received by it from such persons for their 2001 transactions, we
believe that all filing requirements applicable to such directors, executive
officers and greater than ten percent beneficial owners were complied with
except for Form 3. Statements of Initial Holdings for Messrs. Wuttke, Gerbert
and Blashka that were not timely filed.

49

ITEM 11. EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides information about the compensation paid or
payable by us for services rendered in all capacities to our Chief Executive
Officer and our executive officers for 2001.

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

(1) Mr. Plesner commenced employment with us in October 2000 and earned less
than $100,000 during 2000.

(2) Mr. Moore's 2001 bonus and a portion of his 2000 bonus was paid in shares of
our common stock

(3) Mr. Moore's 125,000 options issued in January 2000 were cancelled in
May 2000 in exchange for 41,666 shares of restricted stock that vest over
four years from January 2, 2000.

(4) Mr. Moran's 75,000 options issued in January 2000 were cancelled in
May 2000 in exchange for 25,000 shares of restricted stock that vest over
four years from January 2, 2000.

STOCK OPTIONS

The following table contains information concerning the grant of options to
each of our executive officers during the year ended December 31, 2001. We did
not grant any stock appreciation rights in 2001.

OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 2001

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

(1) All options were granted pursuant to the 1998 Stock Incentive Plan.

(2) The total number of options granted to directors and employees in 2001 was
6,283,400.

(3) 1/3 of the options was granted at each of $0.53, $1.25 and $2.00.

50

(4) Each option may be subject to earlier termination if the officer's
employment with us is terminated.

(5) The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates as set by the Securities and Exchange Commission and
are not intended to forecast future price appreciation of our common stock.
The gains reflect a future value based upon growth at these prescribed
rates. It is important to note that options have value to recipients only if
the stock price advances beyond the exercise price shown in the table during
the effective option period.

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, 2001 and the value of outstanding and unexercised options held as
of December 31, 2001. There were no stock appreciation rights exercised during
2001 and none were outstanding as of December 31, 2001.

AGGREGATED OPTION EXERCISES DURING YEAR ENDED DECEMBER 31, 2001
AND FISCAL YEAR-END OPTION VALUES

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

(1) Based on the closing market price of the common stock as reported by Nasdaq
on December 31, 2001 of $0.23 per share.

EXECUTIVE 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:

- the employment term runs through December 31, 2002, except as stated
below, and is automatically renewable for successive one-year terms unless
either party gives written notice to the other at least six months prior
to the expiration of the then employment term;

- during the employment term and thereafter, we will indemnify the executive
to the fullest extent permitted by law, in connection with any claim
against such executive as a result of such executive serving as one of our
officers or directors or in any capacity at our request in or with regard
to any other entity, employee benefit plan or enterprise;

- any dispute or controversy arising under or in connection with the
employment agreement (other than injunctive relief) will be settled
exclusively by arbitration;

- we may terminate the agreement at any time with or without cause (as
defined in the agreement) and, if an executive is terminated without cause
(including our giving notice of non-renewal), he will receive severance
pay and bonus, plus continued medical benefits generally for a period
equal to the severance period; and

- if termination is the result of the executive's death or disability, we
will pay to the executive or his estate an amount generally equal to six
months' base salary at his then current rate of pay (reduced in the case
of disability by his long-term disability policy payments).

51

- Our original employment agreement with David J. Moore extends through
January 1, 2003 and automatically renews each year. Mr. Moore's agreement
provides for an annual base salary of $255,000 and a target bonus of
$325,000 for 2002. If we terminate Mr. Moore without cause or elect not to
renew his contract, he is entitled to receive severance pay in an amount
equal to two times his base salary, plus the target 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 $157,500 and a target bonus of $100,000 for 2002. If we
terminate Mr. Moran without cause or elect not to renew his contract, he
is entitled to receive severance pay in an amount equal to three-quarters
of his base salary, plus three-quarters of the target bonus for which he
is eligible during the fiscal year of termination.

- Our employment agreement with Anthony Plesner extends through
December 31, 2002 and provides for an annual base salary of $200,000 and a
target bonus of $150,000 for 2002. If we terminate Mr. Plesner without
cause, he is entitled to receive severance pay in an amount equal to one
year's base salary, plus the target bonus for which he is eligible during
the fiscal year of termination.

- Our employment agreement with Norman Blashka extends until December 31,
2002 and provides for an annual base salary of $200,000 and a target bonus
of $150,000 for 2002. If we terminate Mr. Blashka without cause or elect
not to renew his contract, he is entitled to receive as severance pay his
base salary for a period equal to the remainder of the employment term
plus one year, subject to a maximum period of 18 months, plus 50% of the
target bonus for which he is eligible during the fiscal year of
termination.

COMPENSATION OF DIRECTORS. Directors do not receive salaries or cash fees
for serving as directors or for serving on committees. All members of the board
of directors who are not employees or consultants are reimbursed for their
expenses for each meeting attended and are eligible to receive stock options
pursuant to the 1998 Stock Incentive Plan. Under the 1998 Stock Incentive Plan,
each non-employee director received an initial grant of a non-qualified option
to purchase 18,750 shares of common stock at the fair market value on the date
of grant, and also received, upon the date of each annual stockholders' meeting,
a non-qualified option to purchase 4,688 shares of common stock, or a pro rata
portion thereof if the director did not serve the entire year since the date of
the last annual meeting. In October 2001, each director received a non-qualified
option to purchase 50,000 shares of common stock at the fair market value on the
date of grant, such option to vest in three equal annual installments. On the
anniversary of this grant, each director will also receive a non-qualified
option to purchase 16,667 shares of common stock at the fair market value on the
date of grant.

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

BACKGROUND; PURPOSE; ELIGIBILITY. The following provisions are applicable
to both our 1998 Stock Incentive Plan and 2001 Stock Incentive Plan for
Non-Officers, except as noted, and are intended only as a summary. The incentive
plans are intended to foster stock ownership by employees and directors and
thereby attract, retain and reward such employees and directors. All of our
employees, consultants and non-employee directors that satisfy requirements are
eligible to be granted awards under the incentive plans.

ADMINISTRATION. The incentive plans are administered by the compensation
committee of our board of directors. The compensation committee has full
authority and discretion, subject to the terms of the incentive plans, to
determine who is eligible to receive awards and the amount and type of awards.
Terms and conditions of awards are set forth in written grant agreements. No
option may have

52

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 9,901,313 and 2,500,000
shares of common stock may be issued pursuant to the 1998 Plan and 2001 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
250,000. As of December 31, 2001, there were outstanding options to purchase an
aggregate of 3,612,717 shares and 653,693 shares of common stock under the 1998
Plan and 2001 Plan, respectively. 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. 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
1,750,000 shares in any given year.

AMENDMENTS. The incentive plans may be amended by the board of directors,
except that, generally, stockholder approval is required to take the following
actions: increase the aggregate number of shares of common stock reserved for
awards or the maximum individual limits for any fiscal year; change the
classification of employees and non-employee directors eligible to receive
awards; decrease the minimum option price of any option; extend the maximum
option period under the incentive plans; or change any rights with respect to
non-employee directors.

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

RESTRICTED STOCK. The 1998 incentive plan authorizes the compensation
committee to award shares of restricted stock. Upon the award of restricted
stock, the recipient has all rights of a stockholder, unless otherwise specified
by the compensation committee at the time of grant, subject to the conditions
and restrictions generally applicable to restricted stock.

CHANGE OF CONTROL. Unless otherwise determined by the compensation
committee of the board of directors at the time of grant, in the event that we
merge with another company, upon the sale of substantially all of our assets or
securities representing 40% or more of the total combined voting power of our
then outstanding securities, or upon changes in membership of the board of
directors during any two-year period, then: each option will be fully vested and
immediately exerciseable, or each option may be repurchased by us for an amount
of cash equal to the excess of the change of control price (as defined in the
incentive plans) over the exercise price; and the restrictions on shares of
restricted stock shall lapse as if the applicable restriction period had ended.

53

THE 2001 EQUITY COMPENSATION PLAN

On February 26, 2001, we adopted the 24/7 Real Media, Inc. 2001 Equity
Compensation Plan to enable us to offer and issue to certain employees, former
employees, advisors and consultants of the company and its affiliates our common
stock in payment of amounts owed by us to such third parties. The aggregate
number of shares of common stock that may be issued pursuant to the 2001 Equity
Compensation Plan shall not exceed 1,250,000 shares. We may from time to time
issue to employees, former employees, advisors and consultants to the company or
its affiliates shares of our common stock in payment or exchange for or in
settlement or compromise of amounts due by us to such persons for goods sold and
delivered or to be delivered or services rendered or to be rendered. Shares of
our common stock issued pursuant to the 2001 Equity Compensation Plan will be
issued at a price per share of not less than ninety-five percent (95%) of the
fair market value per share on the date of issuance and on such other terms and
conditions as determined by us. Our Chief Executive Officer is authorized to
issue shares pursuant to and in accordance with the terms of the 2001 Equity
Compensation Plan, and the plan may be amended at any time.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Audit Committee, composed of Messrs. Burns, Gerbert
and Perkins, who are not employed by us and are, thus, independent directors,
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees; and reviews
the adequacy of our internal accounting controls.

COMPENSATION COMMITTEE. The Compensation Committee, composed of
Messrs. Burns, Perkins, Semsky and Wuttke, directors who all qualify as outside
directors under Section 162(m) of the Code and as non-employee directors under
Rule 16b-3(c) of the Exchange Act, approves the salaries and other benefits of
our executive officers and administers any of our non-stock based bonus or
incentive compensation plans, excluding any cash awards intended to qualify for
the exception for performance-based compensation under Section 162(m) of the
Code. It also administers any of our stock-based incentive plans, including the
1998 Stock Incentive Plan and 2001 Stock Incentive Plan 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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Each of Messrs. Burns, Semsky, Perkins 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.

54

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information regarding beneficial ownership of
our common stock as of March 28, 2002, by: (i) each person who we know to own
beneficially more than 5% of the common stock; (ii) each of our directors and
executive officers; and (iii) our current directors and executive officers as a
group.

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

* Represents less than 1% of the outstanding common stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities, subject to community property
laws, where applicable. Shares of common stock subject to options or
warrants that are exercisable within 60 days of March 28, 2002 and
beneficially owned by the person holding such options and warrants are
treated as outstanding for the purpose of computing the percentage ownership
for such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. The address for each
of the Persons listed above, unless otherwise specified below, is c/o 24/7
Real Media, Inc., 1250 Broadway, New York, NY 10001.

(2) Includes 41,666 shares of restricted stock issued under the 1998 stock
incentive plan that vest over four years from January 1, 2000 and that are
subject to forfeiture under the plan. Includes 211,463 shares of common
stock held by a family trust and other trusts held for the benefit of family
members, beneficial ownership of which is disclaimed by Mr. Moore. Mr.
Moore's wife is the trustee of each such trust. Includes options to purchase
415,625 shares.

(3) Includes options to purchase 133,333 shares of common stock.

(4) Includes 25,000 shares of restricted stock issued under the 1998 stock
incentive plan that vest over four years from January 1, 2000 and that are
subject to forfeiture under the plan. Also, includes options to purchase
258,319 shares of common stock.

(5) Represents options to purchase 12,891 shares of common stock.

(6) Includes options to purchase 198,944 shares of common stock.

55

(7) The address of PubliGroupe USA Holding, Inc. is 1100 Santa Monica Blvd,
Suite 550, Los Angeles, CA, 90025. Represents shares held by PubliGroupe USA
Holding, Inc. Mr. Wutte is an officer of the parent company of PubliGroupe
USA. Mr. Wuttke disclaims beneficial ownership over these shares. Pursuant
to a Lock-Up and Standstill Agreement dated October 31, 2001, PubliGroupe
USA Holding has agreed: (i) to certain limitations and restrictions on its
disposition of its shareholdings, (ii) for three years, without the consent
of the Company, not to acquire additional shares of the Company's common
stock or take any corporate action inconsistent with the recommendations of
the Board of Directors of the Company, and (iii) for five years, to vote its
shares at any stockholder meeting in the manner recommended by the Board of
Directors of the Company, as reflected in the Company's proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2001, there were no transactions or series of transactions that the
company was or is 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.

PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, AND REPORTS ON
FORM 8-K.

(a) See Index to Consolidated Financial Statements immediately following
Exhibit Index on page F-1.

(b) Current Reports on Form 8-K filed during the fourth quarter of 2001:

Report on Form 8-K dated November 1, 2001 (file no. 0-29768). The
report contained information about the merger with Real Media.

Report on Form 8-K dated February 6, 2002 (file no. 0-29768). The
report contained information about the sale of our IMAKE subsidiary.

(c) Exhibits. See Exhibit Index immediately following signature pages.

(d) Financial Statement Schedules.

All other schedules not listed above have been omitted since they are
either not applicable or the information is contained elsewhere in the
consolidated financial statements or the notes thereto.

56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of 24/7 Real
Media, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss) and cash flows for each of the years in the three-year period
ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of 24/7 Real
Media, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations since inception and has a working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ KPMG LLP

New York, New York
March 29, 2002

F-2

24/7 REAL MEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

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)

See accompanying notes to consolidated financial statements.

F-4

24/7 REAL MEDIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements.

F-5

24/7 REAL MEDIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consoldiated financial statements.

F-6

24/7 REAL MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

F-7

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF OPERATIONS AND GOING CONCERN

On November 9, 2001, the Company amended its Certificate of Incorporation to
change its name from 24/7 Media, Inc. to 24/7 Real Media, Inc ("24/7 Real Media"
or the "Company"). 24/7 Real Media together with its subsidiaries is a provider
of marketing solutions to the digital advertising industry including Web
publishers, online advertisers, advertising agencies, e-marketers and e-commerce
merchants. In October 2001, through the merger with Real Media, the Company has
expanded its operations into Europe.

The Company operates in two principal lines of business: Integrated Media
Solutions and Technology Solutions.

- Integrated Media Solutions connects advertisers to audiences via Web-based
advertising including banner ads, sponsorships, targeted search traffic
delivery, and promotions as well as serves as a list manager for
permission-based email lists.

- Technology Solutions, through Open Adstream, its propriety technology,
provides advertising delivery and management.

The Company's business is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including its limited operating
history, unproven business model and the limited history of commerce and
advertising on the Internet. The Company's success may depend, in part, upon the
continued expansion of the Internet as a communications medium, prospective
product development efforts and the acceptance of the Company's solutions by the
marketplace.

The Company's independent public accountants have included a "going concern"
explanatory paragraph in their audit report accompanying the 2001 consolidated
financial statements which have been prepared assuming that the Company will
continue as a going concern. The explanatory paragraph states that the Company's
recurring losses from operations since inception and working capital deficiency
raises substantial doubt about the Company's ability to continue as a going
concern and that the consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Management believes that despite significant rationalizations in its cost
structure, its current cash and cash equivalents may not be sufficient to meet
its anticipated operating cash needs for 2002 and there can be no assurance that
new funds can be secured on commercially reasonable terms acceptable to the
Company, when needed, or at all.

Management also believes that the support of the Company's vendors,
customers, stockholders and employees, among others, continue to be key factors
affecting the Company's future success. Management's plan to continue as a going
concern relies heavily on achieving revenue targets and raising additional
financing, as well as, reducing its operating expenses. Management is currently
exploring a number of strategic alternatives and is also continuing to identify
and implement internal actions to improve the Company's liquidity. These
alternatives may include selling core assets which could result in significant
changes in its business plan. The Company has limited operating capital and no
current access to credit facilities. The Company's continued operations
therefore will depend on its ability to raise additional funds through equity
financing. There can be no assurance that the Company

F-8

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
will be able to sell additional equity in the future or that additional
financing will be available to the Company on commercially reasonable terms,
when needed, or at all.

PRINCIPLES OF CONSOLIDATION

The Company's consolidated financial statements as of December 31, 2001 and
2000 and for each of the years in the three year period ended December 31, 2001
include the accounts of the Company and its majority-owned and controlled
subsidiaries from their respective dates of acquisition (see note 2). The
interest of shareholders other than those of the Company is recorded as minority
interest in the accompanying consolidated statements of operations and
consolidated balance sheets. When losses applicable to minority interest holders
in a subsidiary exceed the minority interest in the equity capital of the
subsidiary, these losses are included in the Company's results, as the minority
interest holder has no obligation to provide further financing to the
subsidiary. All significant intercompany transactions and balances have been
eliminated in consolidation.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS AND LETTERS OF CREDIT

The Company considers all highly liquid securities, with original maturities
of three months or less, to be cash equivalents. Cash and cash equivalents
consisted principally of money market accounts.

As of December 31, 2001 and 2000, the Company maintained $0.7 million and
$0.6 million, respectively, in letters of credit, primarily related to leases.

PROPERTY AND EQUIPMENT

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

INTANGIBLE ASSETS

Goodwill and intangible assets relate to the Company's acquisitions
accounted for under the purchase method of accounting. Under the purchase method
of accounting, the excess of the purchase

F-9

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
price over the identifiable net tangible assets of the acquired entity is
recorded as identified intangible assets and goodwill. Intangible assets are
estimated by management to be primarily associated with the acquired workforce,
contracts, technological know how and goodwill. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified Internet professionals and customers, recorded
intangible assets are amortized on the straight-line basis over the estimated
period of benefit, which is two to four years (see notes 2 and 3).

CAPITALIZED SOFTWARE

In accordance with American Institute of Certified Public Accountants'
Statement of Position No. 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use ("SOP No. 98-1"), the Company requires
all costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
SOP No. 98-1 also provides guidance on the capitalization of costs incurred
during the application development stage for computer software developed or
obtained for internal use. As of December 31, 2000, the Company had capitalized
approximately $16.6 million in connection with the 24/7 Connect ad serving
system. Capitalized computer software was depreciated using the straight-line
method over the estimated useful life of the software, generally 4 years. In
December 2001, pursuant to a formal restructuring plan, the Company decided to
abandon its 24/7 Connect technology. As a result, the Company wrote off any
remaining capitalized software related to Connect (see note 7).

INVESTMENTS

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

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

INCOME TAXES

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

F-10

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities of a change in tax rates is recognized in results of operations in
the period that the tax change occurs.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in foreign functional currencies are
translated at the exchange rate as of the balance sheet date. Translation
adjustments are recorded as a separate component of stockholders' equity.
Revenues, costs and expenses denominated in foreign functional currencies are
translated at the weighted average exchange rate for the period. The Company's
translation adjustment was $318,000, $380,000, and $0 for the years ended
December 31, 2001, 2000 and 1999, respectively.

REVENUE AND EXPENSE RECOGNITION

INTEGRATED MEDIA SOLUTIONS

The Company's network revenues are derived principally from short-term
advertising agreements in which it delivers advertising impressions for a fixed
fee to third-party Web sites comprising the Company's Network. The Company's
email related revenues are derived principally from short-term delivery based
agreements in which the Company delivers advertisements to email lists for
advertisers and Web sites. Revenues are recognized as services are delivered
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is probable. Service revenue is derived
from driving traffic to a client website or the delivery of email messages for
clients both of which are recognized upon delivery.

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

TECHNOLOGY SOLUTIONS

The Company's technology revenues are derived from licensing of its ad
serving software and related maintenance and support contracts. In addition, the
Company derived revenue from its broadband and professional services subsidiary,
IMAKE, which was sold in January 2000 (see note 17); and its email service
bureau subsidiary, Exactis, and its third party ad serving subsidiary, Sabela,
both of which were sold in May of 2001 (see note 5). Revenue from software
licensing agreements is recognized in accordance with Statements of Position
("SOP") 97-2, "Software Revenue Recognition," and Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" upon delivery of the
software, which is generally when customers begin utilizing the software, there
is pervasive evidence of an arrangement, collection is reasonably assured, the
fee is fixed or determinable, and vendor-specific objective evidence exists to
allocate the total fees to all elements of the arrangement.

F-11

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue related to the central ad serving product is recognized monthly based on
specified pricing dependent upon usage levels.

Revenue from software maintenance and support services is recognized ratably
over the life of the maintenance agreements, which typically do not exceed one
year. Maintenance revenue invoiced in advance of the related services is
recorded as deferred revenue. Expense from the Company's licensing, maintenance
and support revenues are primarily payroll costs incurred to deliver, modify and
support the software. These expenses are classified as cost of revenues in the
accompanying consolidated statements of operations.

Consulting revenues derived from the Company's broadband professional
services subsidiary, IMAKE, are under fixed price contracts that are recognized
on a percentage of completion basis based on labor hours incurred to total
estimated contract hours. Revenues under time and materials contracts are
recognized as the hours are incurred. Fixed monthly maintenance contracts are
recognized in the corresponding months. Commencing January 1, 2002, the Company
will no longer generate revenue from these consulting contracts due to the sale
of IMAKE in January 2002 (see note 17).

At December 31, 2001 and 2000, accounts receivable included approximately
$2.4 million and $4.0 million, respectively, of unbilled receivables, which are
a normal part of the Company's business, as receivables are sometimes invoiced
in the month following the completion of the earnings process. The decrease in
unbilled receivables from December 31, 2000 to December 31, 2001 resulted from
the decrease in revenues generated in the fourth quarter of 2001. The terms of
the related advertising contracts typically require billing at the end of each
month. All unbilled receivables as of December 31, 2001 have been subsequently
billed.

PRODUCT DEVELOPMENT COSTS

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

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and FASB interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation--an interpretation of APB Opinion No. 25," and
complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation." 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.

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 EITF
96-18, Accounting For Equity Instruments That Are Issued To Other Than Employees
For Acquiring, or in Conjunction With Selling Goods or Services.

F-12

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

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

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

In 2001 and 2000, the Company wrote off $74.4 million and $500.2 million,
respectively, in goodwill and intangible assets (see note 3). It is reasonably
possible that the impairment factors evaluated by management will change in
subsequent periods, given that the Company operates in a volatile business
environment. This could result in significant additional impairment charges in
the future.

RESTRUCTURING ACTIVITIES

Restructuring activities are accounted for in accordance with the guidance
provided in the consensus opinion of the Emerging Issues Task Force ("EITF") in
connection with EITF Issue 94-3 ("EITF 94-3"). EITF 94-3 generally requires,
with respect to the recognition of severance expenses, management approval of
the restructuring plan, the determination of the employees to be terminated, and
communication of benefit arrangement to employees (see note 7).

ADVERTISING EXPENSE

The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing on the statement of
operations and totaled $1.8 million, $7.6 million and $2.1 million for the years
ended December 31, 2001, 2000 and 1999, respectively.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is presented in the consolidated statement of
stockholders' equity. Total comprehensive income (loss) for the years ended
December 31, 2001, 2000 and 1999 was $(203.1) million, $(971.3) million and
$155.7 million, respectively. Comprehensive loss resulted primarily from net
losses of $(199.6) million and $(779.9) million, respectively, as well as a
change in unrealized gains

F-13

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(losses), net of tax, of marketable securities of $(3.8) million and $(191.0)
million, respectively, and foreign currency translation adjustments of
$0.3 million and $(0.4) million, respectively. The net change in unrealized
losses for the year ended December 31, 2001 of $(3.8) million is comprised of
net unrealized holding losses arising during the period of $6.3 million related
to chinadotcom, a reclassification adjustment of $5.0 million for net gains
related to the sale of all of the Company's available-for-sale securities and
some cost based investments and a reclassification adjustment of $2.5 million
for other-than-temporary losses related to available-for-sale securities of
Network Commerce and i3Mobile. The net change in unrealized gains (losses) for
the year ended December 31, 2000 of $(191.0) million is comprised of net
unrealized holding losses arising during the period of $215.6 million related to
chinadotcom, a reclassification adjustment of $52.1 million for gains on the
sale of chinadotcom and a reclassification adjustment of $27.5 million for
other-than-temporary losses related to available-for-sale securities of Network
Commerce and i3Mobile.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable, certain investments, accounts payable and accrued liabilities. At
December 31, 2001 and 2000, the fair value of these instruments approximated
their financial statement carrying amount because of the short term maturity of
these instruments. Substantially all of the Company's cash equivalents were
invested in money market accounts and other highly-liquid instruments. For the
years ended December 31, 2001, 2000 and 1999, the Company derived
$16.9 million, $46.5 million and $6.8 million, respectively, in revenue
denominated in foreign currencies related principally to its discontinued
operation. The Company has not experienced any material adverse impact due to
fluctuations in foreign currency rates.

No single customer accounted for a material portion (>10%) of total revenues
for the years ended December 31, 2001, 2000 and 1999. No single customer
accounted for a material portion (>10%) of the accounts receivable balance at
December 31, 2001 or 2000. To date, accounts receivable have been derived
primarily from advertising fees billed to advertisers. The Company generally
requires no collateral. The Company maintains reserves for potential credit
losses; historically, management believes that such losses have been adequately
reserved for.

LOSS PER SHARE

Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("EPS"). Basic EPS
excludes dilution for potentially dilutive securities and is computed by
dividing income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock and resulted in the
issuance of common stock. Diluted net loss per share is equal to basic net loss
per share since all potentially dilutive securities are anti-dilutive for each
of the periods presented. Diluted net loss per common share for the year ended
December 31, 2001, 2000 and 1999 does not include the effects of options to
purchase 4.3 million, 6.9 million and 3.3 million shares of common stock,
respectively; 4.0 million, 2.9 million and 3.3 million common stock

F-14

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
warrants, respectively, on an "as if" converted basis, as the effect of their
inclusion is anti-dilutive during each period.

RECLASSIFICATIONS

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

(2) BUSINESS COMBINATIONS

ACQUISITIONS OF INTERAD AND NETBOOKINGS

On January 20, 1999, the Company invested $3.9 million in the aggregate to
purchase a 60% interest in 24/7 Media Europe, Ltd. (formerly InterAd Holdings
Limited), which operates The 24/7 Media Europe Network. Approximately
$1.9 million was paid in cash to acquire shares directly from 24/7 Europe. The
remaining balance included $1.2 million which was used to acquire shares from
existing shareholders and $846,000 in cash which was subsequently used to repay
a loan payable. On June 22, 1999, the Company made an additional investment of
$500,000 in the common stock of 24/7 Media Europe.

In August of 1999, the Company issued approximately 41,677 shares and 24/7
Media Europe issued shares to acquire Netbooking, a Finnish Internet advertising
company, which diluted the Company's investment in 24/7 Media Europe to 58% as
of December 31, 1999.

On January 1, 2000, the Company acquired the remaining interest in 24/7
Media Europe through the issuance of common stock. The Company issued 428,745
shares of 24/7 Real Media common stock, valued at approximately $24.1 million,
resulting in additional goodwill and other intangible assets of $24.1 million.
The goodwill and other intangible assets were being amortized over the remaining
period of benefit of three years. As of June 30, 2001, these entities were
treated as a discontinued operation (see note 4).

ACQUISITION OF SIFT

On March 8, 1999, the Company acquired Sift, Inc., a provider of email based
direct marketing services, for approximately 763,000 shares of 24/7 Real Media's
common stock plus the assumption of previously-outstanding stock options which
were converted into options to acquire approximately 100,000 shares of the
Company's common stock.

The acquisition of Sift has been accounted for as a pooling-of-interests
and, accordingly, the Company's historical consolidated financial statements
have been restated to include the accounts and results of operations of Sift.

ACQUISITION OF CLICKTHROUGH

On July 26, 1999, the Company acquired ClickThrough Interactive
("ClickThrough"), a leading Canadian Internet advertising sales network. The
acquisition was accomplished through the issuance of 150,000 redeemable
non-voting preferred shares of the Company's subsidiary and a cash payment of
$750,000. The subsidiary's redeemable non-voting preferred shares are
exchangeable into an equal

F-15

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)
number of shares of the Company's common stock at the option of the holders or
the Company, of which 76,875 have been converted through of December 31, 2001.

ACQUISITION OF CONSUMERNET

On August 17, 1999, the Company acquired Music Marketing Network Inc. d/b/a
ConsumerNet ("ConsumerNet"), a leading provider of email marketing solutions.
The aggregate purchase price of approximately $52.0 million consists of
approximately 1.7 million shares of 24/7 Real Media common stock valued at
approximately $47.0 million, $3.2 million in cash (including acquisition costs
of $320,000) and the assumption of previously outstanding options. The fair
value of the options of approximately $1.8 million was determined using the
Black-Scholes option pricing model.

ACQUISITION OF IMAKE

On January 13, 2000, the Company acquired IMAKE, a provider of technology
products that facilitate the convergence of Internet technologies with broadband
video programming. The purchase price of approximately $34.7 million, excluding
contingent consideration of 916,000 shares, consists of 400,000 shares
originally valued at approximately $18.7 million, fair value of options assumed
of $9.9 million, $5.8 million of deferred compensation and $0.3 million in
acquisition costs. The deferred compensation relates to 124,000 shares of
restricted stock issued to employees of IMAKE. The contingent shares will be
issued when certain revenue targets are attained, as amended. The valuation of
in-process technology of $4.7 million in connection with the acquisition of
IMAKE is based on an independent appraisal which determined that the e.merge
technology acquired from IMAKE had not been fully developed at the date of
acquisition. As a result, the Company will be required to incur additional costs
to successfully develop and integrate the e.merge platform. The remaining
purchase price in excess of the value of identified assets and liabilities
assumed of $24.9 million has been allocated $1.0 million to workforce and
$23.9 million to goodwill. Goodwill and workforce are being amortized over their
expected period of benefit which is four years for goodwill and two years for
workforce. The acquisition was accounted for as a purchase business combination,
effective as of January 1, 2000, for accounting purposes.

On July 20, 2000, the Company issued 880,000 contingent shares. The shares
had a value of $11.9 million, which was considered additional goodwill. At
September 30, 2000, an additional 18,000 contingent shares were earned pursuant
to the agreement, resulting in $0.2 million of additional goodwill. At
September 30, 2001, the remaining 14,000 contingent shares, valued at
approximately $3,000 were earned. The additional amounts of goodwill are being
amortized over the remaining period of benefit. The Company sold IMAKE in
January 2002 (See note 17).

ACQUISITION OF SABELA

On January 9, 2000, the Company acquired Sabela, a global ad serving,
tracking and analysis company with products for online advertisers and Web
publishers. The purchase price of approximately $65.0 million consists of
approximately 1.2 million shares of 24/7 Real Media common stock valued at
approximately $58.3 million, cash consideration of $2.1 million, fair value of
warrants assumed of $1.2 million, fair value of options assumed of $1.7 million
and $1.7 million in acquisition costs. The purchase price in excess of the value
of identified assets and liabilities assumed of $64.7 million has

F-16

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)
been allocated $7.1 million to technology, $1.1 million to workforce and
$56.5 million to goodwill. Goodwill and other intangible assets are being
amortized over their expected period of benefit which is four years for goodwill
and technology; and two years for workforce. The acquisition was accounted for
as a purchase business combination, effective as of January 1, 2000, for
accounting purposes. The Company sold Sabela in May 2001 (See note 5).

ACQUISITION OF AWARDTRACK

On February 11, 2000, the Company acquired AwardTrack, Inc. ("AwardTrack"),
which offers a private label loyalty customer relationship management program
that enables Web retailers and content sites to issue points to Web users as a
reward for making purchases, completing surveys or investigating promotions. The
purchase price of approximately $69.3 million consists of approximately
1.1 million shares of 24/7 Real Media common stock valued at approximately
$64.0 million, fair value of options assumed of $4.6 million and $0.7 million in
acquisition costs. The purchase price in excess of the value of identified
assets and liabilities assumed of $69.4 million has been allocated $7.7 million
to technology, $0.5 million to tradename, $0.4 million to workforce and
$60.8 million to goodwill. Goodwill and other intangible assets are being
amortized over their expected period of benefit which is four years for
goodwill, technology and tradename; and two years for workforce. The acquisition
was accounted for as a purchase business combination effective as of
February 11, 2000 for accounting purposes. The Company abandoned the operations
of Award in December 2000 and sold certain intellectual property assets in
May 2001 (see note 5).

ACQUISITION OF EXACTIS

On June 28, 2000, the Company acquired all of the outstanding common stock
of Exactis.com, Inc., a provider of email based direct marketing services, in
exchange for Company common stock. Exactis.com stockholders received shares of
24/7 Real Media common stock based on an exchange ratio of 0.6 shares of 24/7
Real Media common stock for each share of Exactis.com common stock. The purchase
price of approximately $475.6 million consists of approximately 8.2 million
shares of 24/7 Real Media common stock valued at approximately $383.0 million,
fair value of options assumed of $82.9 million, fair value of warrants assumed
of $2.3 million, deferred compensation of $2.9 million and acquisition costs of
$4.5 million. The purchase price in excess of the value of identified assets and
liabilities assumed of $428.8 million has been allocated $60.8 million to
technology, $1.0 million to tradename, $3.2 million to workforce, $2.1 million
to customer base and $361.7 million to goodwill. Goodwill and other intangible
assets are being amortized over their expected period of benefit which is four
years for goodwill, technology, customer base and tradename; and two years for
workforce. The acquisition was accounted for as a purchase business combination
effective as of June 30, 2000 for accounting purposes. The Company sold Exactis
in May 2001 (see note 5).

ACQUISITION OF WSR

On August 24, 2000, the Company acquired WSR, which engages in the business
of delivering targeted search traffic on behalf of its clients. The purchase
price of approximately $66.7 million, excluding contingent consideration of
2.8 million shares, consists of approximately 4.3 million shares of

F-17

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)
24/7 Media common stock valued at approximately $61.3 million, fair value of
options assumed of $4.1 million and acquisition costs of $1.3 million. The
purchase price in excess of the value of identified assets acquired of
$63.0 million has been allocated $54.0 million to technology, $6.6 million to
goodwill, $1.1 million to deferred compensation and $1.3 to workforce. The
goodwill and intangible assets are being amortized over their expected period of
benefit, which is four years for goodwill and technology and two years for
workforce. The acquisition was accounted for as a purchase business combination.

On March 15, 2001, the Company signed an amendment to the WSR purchase
agreement dated August 24, 2000. The amendment changed the earn out criteria as
it related to the contingent consideration to be based on revenue rather than
EBIT, as defined in the original agreement. Based on the new criteria 710,000
shares related to the period ended December 31, 2000 were issued on March 23,
2001 valued at approximately $0.2 million. In addition, employee loans amounting
to $0.3 million were forgiven. These amounts were recorded as compensation
expense in the first quarter of 2001, of which $0.2 million is included in stock
based compensation and $0.3 million is included in sales and marketing expense
in the 2001 consolidated statement of operations. An additional cash earn out of
up to $1.5 million in cash was put into place for two employees who were the
former principal stockholders of WSR.

On September 25, 2001, the Company and the former principal stockholders
entered into a settlement and mutual general release (the "Settlement"). The
Settlement rescinded all prior agreements and amendments of the purchase
agreement and called for the former principal stockholders (i) to return
approximately 3.3 million shares of outstanding stock held by them,
(ii) forfeit their rights to the potential earn out of another 1.9 million
shares and the $1.5 million in cash and (iii) transfer certain strategic assets
and agreements in exchange for $275,000 in cash and forgiveness of any remaining
indebtedness of these individuals to the Company. The Company has reflected the
return of the common stock as treasury stock amounting to $392,000 using the
market price on the settlement date and immediately retired all shares.

ACQUISITION OF KENDRO COMMUNICATIONS

On April 1, 2000, our subsidiary 24/7 Media Europe NV acquired Kendro
Communications, a Swiss based banner network service, for approximately 26,000
shares of the Company's common stock valued at approximately $487,000, excluding
contingent consideration of up to $6.7 million to be paid in the Company's
common stock, excluding contingent consideration subject to performance
standards and other contractual requirements. The performance standards are
based on revenues of the acquired business for the fiscal years ended March 31,
2001 and 2002, and the price of the Company's common stock at March 31, 2001 and
2002, respectively, and will be payable by 24/7 Europe within fourteen days
after the delivery of audited revenue statements provided that the sellers are
employees of the Company. As of March 31, 2001, the Company accrued an estimate
of $1.1 million for the settlement of this contingency. In May 2001, the
European Board of Directors approved a plan to close down the Swiss operations
as well as certain other offices in an effort to restructure the European
operations. As a part of that restructuring, the Company entered into an
agreement terminating the original Kendro purchase agreement. As full settlement
for termination the Company made a cash payment of $1.1 million and issued
1.0 million shares valued at $490,000 to the former shareholders. The Company
has reflected the share issuance as stock based compensation which along with
the remaining charges

F-18

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)
are included in the loss from discontinued operations line item in the 2001
consolidated statement of operations. As of June 30, 2001, the Company treated
this as a discontinued operation (see note 4).

ACQUISITION OF IPROMOTIONS

On April 17, 2000, the Company acquired iPromotions, Inc., a Seattle based
promotions and sweepstakes management firm. The purchase price of $3.5 million
consists of $2.0 million in cash, approximately 33,000 shares of common stock
valued at approximately $654,000, fair value of options assumed of $736,000 and
$100,000 in acquisition costs.

ACQUISITION OF REAL MEDIA

On October 30, 2001, the Company entered into a merger agreement with Real
Media, Inc. ("Real Media"), a privately-held Delaware Corporation. Pursuant to
the Agreement and Plan of Merger, the Company acquired all the outstanding
common and preferred shares of Real Media in a merger transaction whereby an
indirect subsidiary of the Company was merged with and into Real Media, in
exchange for approximately 8.2 million shares valued at $2.2 million of the
Company's common stock, equal to 19.9 percent of the Company common stock prior
to the merger. The total purchase price of $6.7 million also included
acquisition and transaction costs of $0.9 million and assumption of
$3.6 million in net liabilities. The merger created cost reductions for the
combined Company, one of which was to focus on Real Media's proprietary Open
AdStream technology ("OAS") and abandon the Company's existing technology, 24/7
Connect. Other cost reductions were achieved through the elimination of
redundant personnel, affiliate contracts with low split rates on the Real Media
network, renegotiation of supplier contracts at better rates due to increased
volume and the consolidation of numerous offices. The Company also adopted a new
name "24/7 Real Media, Inc." to capitalize on Real Media's and 24/7's brand
names. The purchase price in excess of the value of net liabilities acquired of
$6.7 million has been allocated $3.5 million to acquired technology,
$0.5 million to tradename and $2.7 million to goodwill. The acquired technology
and tradename are being amortized over the expected period of benefit of four
years. The acquisition was accounted for as a purchase business combination in
accordance with Statement of Financial Accounting Standards Board 141, "Business
Combinations" and Statement of Financial Accounting Standards Board 142,
"Goodwill and Other Intangible Assets". Accordingly, goodwill was not amortized.

The Company also guaranteed a Promissory Note for $4.5 million issued by
Publigroupe USA Holding, Inc. ("Publigroupe"), former principal shareholder of
Real Media, as of the acquisition date, which was to be used primarily to
finance Real Media's restructuring plan. The note bears interest at 4.5% and
principal and interest are due on October 30, 2006. The restructuring plan
provides for office closings of $0.2 million, workforce reduction of
approximately 120 employees for $3.1 million and other related obligations of
$1.2 million. Publigroupe also promised to provide additional funding in the
form of three-year notes of $1.5 million which was received in January 2002 and
$1.5 million contingent upon the achievement of target operating results for the
three months ended March 31, 2002, as defined in the agreement. In addition,
certain key executives had clauses in their Real Media employment agreements
that called for transactional bonuses to be paid in the case of a change in
control. These bonuses of $0.5 million were assumed as part of the acquisition
and were paid in November 2001.

F-19

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)

The net liabilities acquired consist of the following:

SUMMARY

Except for Sift, each of the Company's acquisitions have been accounted for
using the purchase method of accounting, and accordingly, each purchase price
has been allocated to the tangible and identifiable intangible assets acquired
and liabilities assumed on the basis of their fair values on the respective
acquisition dates. The following summarizes the purchase price allocation for
each of the acquisitions:

The following unaudited pro forma consolidated amounts give effect to the
Company's 2001 and 2000 acquisitions accounted for by the purchase method of
accounting as if they had occurred at the

F-20

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(2) BUSINESS COMBINATIONS (CONTINUED)
beginning of the respective period by consolidating the results of operations of
the acquired entities for the year ended December 31, 2001 and 2000.

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

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

(1) The weighted average common shares used to compute pro forma basic and
diluted net loss per common share for the period ended December 31, 2001
includes the 8,216,868 shares issued for Real Media as if the shares were
issued on January 1, 2001. The weighted average common shares used to
compute pro forma basic and diluted net loss per common share for the period
ended December 31, 2000 includes the 1,129,344, 8,156,843, 4,260,000 and
8,216,868 shares issued for AwardTrack, Exactis WSR and Real Media,
respectively as if the shares were issued on January 1, 2000.

WRITE OFF OF ACQUIRED IN PROCESS TECHNOLOGY AND MERGER RELATED COSTS

Merger related costs for the year ended December 31, 2000 shown separately
on the consolidated statement of operations include a $4.7 million write-off of
in-process technology associated with the IMAKE acquisition and approximately
$0.8 million of integration related costs.

(3) BALANCE SHEET COMPONENTS

Property and Equipment, Net

F-21

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(3) BALANCE SHEET COMPONENTS (CONTINUED)
At December 31, 2001 and 2000, computer equipment includes equipment with a
cost of $0.5 million acquired under a capital lease. The net book value of the
related equipment at December 31, 2001 and 2000 was $0.2 million and
$0.3 million, respectively.

INTANGIBLE ASSETS, NET

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

Through August 2000, the Company completed numerous acquisitions that were
financed principally with shares of the Company's common stock, and were valued
based on the price of the Company's common stock at that time (see note 2).
Starting with the fourth quarter of 2000, the Company has reevaluated the
carrying value of its businesses on a quarterly basis. The Company's revaluation
was triggered by the continued decline in the Internet advertising and marketing
sectors throughout 2000 and 2001. In addition, each of these entities have
experienced declines in operating and financial metrics over several quarters,
primarily due to the continued weak overall demand of on-line advertising and
marketing services, in comparison to the metrics forecasted at the time of their
respective acquisitions. These factors significantly impacted current projected
revenue generated from these businesses. The Company's evaluation of impairment
was also based on achievement of the unit's business plan objectives and
milestones, the fair value of each business unit relative to its carrying value,
the financial condition and prospects of each business unit and other relevant
factors. The business plan objectives and milestones that were considered
included, among others, those related to financial performance, such as
achievement of planned financial results, and other non-financial milestones
such as successful deployment of technology or launching of new products and the
loss of key employees. The impairment analysis also considered when these
properties were acquired and that the intangible assets recorded at the time of
acquisition were being amortized over useful lives of 2-4 years. The amount of
the impairment charge was determined by comparing the carrying value of goodwill
and other long-lived assets to fair value at each respective period end.

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

F-22

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(3) BALANCE SHEET COMPONENTS (CONTINUED)
As a result, the Company's management determined that the fair value of
goodwill and other intangible assets attributable to several of its operating
units were less than their recorded carrying values. In addition, during 2000,
the Company had abandoned operations of its AwardTrack subsidiary and entered
into negotiations for the sale of its Sabela subsidiary. In February 2002, the
Company sold its Imake division. The Company has recorded Sabela's and Imake's
assets at their estimated realizable value at December 31, 2000 and 2001,
respectively. As a result of these actions the Company has written off all
remaining goodwill and intangible assets related to AwardTrack, Sabela and
Imake. Accordingly, the Company recognized $74.4 million and $500.2 million in
impairment charges to adjust the carrying values in 2001 and 2000 respectively.
Impairments taken were as follows:

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

After giving effect to the aforementioned impairment charges of
$74.4 million, the remaining amount of goodwill and other intangibles, net, as
of December 31, 2001 was $14.5 million: $6.7 million related to Real Media,
$3.8 million related to ConsumerNet, $2.9 million related to WSR and
$1.1 million related to ClickThrough.

F-23

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(3) BALANCE SHEET COMPONENTS (CONTINUED)
ACCRUED LIABILITIES

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

(1) Incentives, commissions and expenses include commissions earned by the
Company's sales staff for the most recent period, as well as out-of-pocket
expenses incurred by those employees. All such balances as of December 31,
2001 and 2000, except $846 and $739, respectively, have subsequently been
paid.

(4) DISCONTINUED OPERATION

On August 6, 2001, the Company, determined that it would cease funding its
European subsidiaries and communicated that to 24/7 Europe NV's management team
and Board of directors. Management of 24/7 Europe advised the Company that 24/7
Europe NV was insolvent and shut down all operations in the third quarter of
2001. The consolidated financial statements of the Company have been restated to
reflect the disposition of the international segment as a discontinued operation
in accordance with APB Opinion No. 30. Accordingly, revenues, costs and
expenses, assets, liabilities, and cash flows of Europe have been excluded from
the respective captions in the Consolidated Statements of Operations,
Consolidated Balance Sheets and Consolidated Statements of Cash Flows, and have
been reported through the date of disposition as "Loss from discontinued
operation," "Net assets of discontinued operation," and "Net cash used by
discontinued operation," for all periods presented.

During the second quarter of 2001, the Company had reduced the carrying
value of the net assets of the European operations to zero. The write down
included $12.3 million in impairment charges related to goodwill and other
intangible assets.

F-24

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(4) DISCONTINUED OPERATION (CONTINUED)
Summarized financial information for the discontinued operation is as
follows (in thousands):

(5) DISPOSAL OF NON-CORE ASSETS

On May 23, 2001, the Company completed the sale of Exactis to Direct
Marketing Technologies, Inc., a subsidiary of Experian. The purchase price was
$15.25 million of which $1.5 million was deposited into escrow until
August 2002 as security for the Company's indemnification obligations under the
Stock Purchase Agreement and $1.75 million was retained as a prepayment for
future services that are to be purchased by the Company from Experian pursuant
to a services agreement that expires on December 31, 2002. The $1.5 million in
escrow and $1.75 million prepayment were initially reflected as deferred gain on
sale of subsidiary on the consolidated balance sheet. During 2001, the Company
has been billed approximately $942,000 in services. Accordingly, the Company
reduced the prepayment and deferred gain for such services which have been
reflected as cost of revenues and gain on sale of subsidiary in the 2001
statement of operations. Through December 31, 2001, the sale has resulted in a
loss of $4.4 million in the aggregate, not including the remainder of the
aforementioned deferred gain of $2.3 million yet to be realized. The Company has
reflected the remaining $0.8 million of prepaid services in prepaid and other
current assets and the $1.5 million escrow amounts in restricted cash held in
escrow on the consolidated balance sheet. Subsequent to the sale, Experian
disputed the $1.5 million and subsequently settled (see note 14).

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

(6) INVESTMENTS

On December 30, 1998, the Company acquired a 10% equity interest in
chinadotcom by issuing 203,851 shares of the Company's common stock, valued at
approximately $6.6 million, plus $3 million in cash. In July 1999, the Company
purchased an additional 450,000 shares for $9.0 million. In July 1999,
chinadotcom completed its initial public offering. Accordingly, the Company's
investment in

F-25

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(6) INVESTMENTS (CONTINUED)
chinadotcom was reclassified as an available-for-sale security and has been
reflected at its fair market value from that date.

On April 5, 1999, the Company entered into a securities purchase agreement
with Network Commerce (formerly ShopNow.com). Pursuant to this agreement, 24/7
Real Media acquired approximately 18% of Network Commerce in exchange for
consideration of $5.1 million in cash, 476,410 shares of 24/7 Real Media's
common stock with a value equal to $23.6 million and 24/7 Real Media's
investment in CardSecure. In September 1999, Network Commerce completed its
initial public offering. Accordingly, the Company's investment in Network
Commerce was reclassified as an available-for-sale security and has been
reflected at its fair value from that date.

On August 24, 2000, the Company acquired a 19.9% interest in 24/7
Media-Asia, a subsidiary of chinadotcom, in exchange for 2.5 million shares of
the Company's common stock valued at $39.4 million. Pursuant to the exchange
agreement, chinadotcom is entitled to one Class I member on the Company's board,
with a term expiring in 2002. The Company cannot sell its interest in Media-Asia
nor can chinadotcom sell any of the 2.5 million shares received for a period of
twelve months. Each of the parties received the right of first refusal to
purchase the others shares, except in the case of an IPO. The Company agreed to
provide funding of up to approximately $2.0 million in additional capital in
proportion to its equity interest, provided 24/7 Media-Asia's 80.1% stockholder,
chinadotcom, provides up to approximately $8.0 million in additional capital. In
addition, 24/7 Real Media received an option to put back the Company's shares in
Media-Asia for approximately 1.8 million shares of chinadotcom (i) upon change
of control of chinadotcom or (ii) upon the third anniversary of the agreement if
an IPO of Media-Asia doesn't occur within conditions as specified in the
agreement. The Company has recorded its investment in Media-Asia as a cost based
investment.

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

The Company has entered into licensing and service agreements with
Media-Asia relating to use of the 24/7 Media name, use of the 24/7 Mail brand
and related technology and rights to sell associated suite of products, and
service agreements to provide 24/7 Connect. The Company also entered into a
license and service agreement with AT-Asia to use the AT technology and the AT
products and rights to sublicense the AT technology and products to third party
websites in the Territory, as defined in the agreement. The respective
agreements call for exclusive licensing rights which would terminate if minimum
revenue amounts aren't met or if meaningful operations are not established
within a twelve month period. Many of these agreements call for upfront initial
licensing fees. Due to the exclusive nature of these license arrangements, the
Company is required to recognize any upfront licensing fees over the applicable
licensing periods or the expected term of the agreement which ranges from three
to five years. Upfront licensing fees under the respective agreements amounted
to $0.8 million of which $0.5 million related to AwardTrack is currently in
dispute. As of December 31, 2001, none of the upfront fees have been received
and therefore are not reflected in the consolidated balance sheet or statement
of operations. Some of the agreements also call for minimum royalty amounts.

F-26

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(6) INVESTMENTS (CONTINUED)

Some of the agreements also call for minimum royalty amounts

The Company and Media-Asia also agreed upon amounts still owed to the
Company relating to Network royalties under the former agreement for all of 1999
and through December 31, 2000 of which $1.0 million has been received and is
reflected in the consolidated statement of operations for the year ended
December 31, 2000 since then no amounts have been received or reflected in our
operating results. Minimum royalty amounts relating to the aforementioned
agreements for the years ended December 31, 2001 and 2002 are $1.6 million and
$2.4 million respectively.

On December 15, 2000, in accordance with the Company's formal plan of
restructuring, the Company abandoned operations of its subsidiary, Awardtrack.
As a result, the Company is currently in breach of its licensing agreement and
is in negotiations with chinadotcom to dissolve AT-Asia and eliminate any
further funding requirements. It is not possible at this time to determine the
extent of expenses related to this breach, if any, however the Company does not
believe it to be material.

During the fourth quarter of 2000, the Company wrote down certain of its
investments and recognized impairment charges of approximately $101.4 million
for other-than-temporary declines in value of certain investments. The Company's
management made an assessment of the carrying value of its cost-based
investments and determined that they were in excess of their carrying values due
to the significance and duration of the decline in valuations of comparable
companies operating in the Internet and technology sectors. The write downs of
cost based investments were $73.9 million, of which $38.8 million related to
Media-Asia, $23.5 million related to Idealab!, $5.6 million to Naviant,
$3.0 million to Bidland.com and $3.0 million in other investments. The Company's
management also recognized that the decline in value of its available-for-sale
investments in Network Commerce and i3Moble were other-than-temporary and
recorded an impairment of $26.4 million and $1.1 million, respectively. These
impairment charges are included in "Impairment of investments" within other
income (expense) in the Company's 2000 consolidated statement of operations.

As of December 31, 2001, no investments remain. Investments at December 31,
2000 are comprised of:

During the year ended December 31, 2001, the Company sold all its remaining
shares of chinadotcom stock at prices ranging from $2.00 to $7.69 per share. The
shares had a cost basis of $1.7 million, which resulted in a gain of
approximately $4.6 million. The Company also sold its interest in Idealab for
$2.5 million resulting in a gain of approximately $0.9 million. In addition, the
Company sold all of its investments in Network Commerce and i3Mobile, which
resulted in proceeds of $0.6 million and a loss of approximately $0.5 million.

During the year ended December 31, 2000, the Company sold approximately
5.2 million shares of chinadotcom stock at prices ranging from $6.63 to $40.48
per share. The shares had a cost basis of

F-27

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(6) INVESTMENTS (CONTINUED)
$13.8 million, which resulted in a gain on sale of investments of approximately
$52.1 million. At December 31, 2000, the Company's available-for-sale
investments of $9.1 million is comprised of the following: $5.5 million relating
to approximately 1.2 million shares of chinadotcom; $3.2 million relating to
approximately 4.3 million shares of Network Commerce, and $0.4 million relating
to approximately 94,000 shares of i3Mobile.

(7) RESTRUCTURING CHARGE

During the years ended December 31, 2001 and 2000, restructuring charges of
approximately $18.2 million and $11.7 million, respectively, were recorded by
the Company in accordance with the provisions of EITF 94-3, and Staff Accounting
Bulletin No. 100. The Company's restructuring initiatives in 2001 were to reduce
employee headcount, consolidate operations and reduce office space in order to
better align its sales, development and administrative organization and to
position the Company for profitable growth consistent with management's
long-term objectives. The 2001 restructurings involved the involuntary
termination of approximately 150 employees, the exiting of two offices, a
reduction of space at two additional offices, and the abandonment of our Connect
adserving solution. The $18.2 million charge consists of severance of
$2.2 million, acceleration of restricted stock grants of $0.1 million, office
closing costs of $0.2 million, disposal of fixed assets related to offices of
$1.2 million, disposal of fixed assets related to Connect of $13.9 million, and
other exit costs of $1.2 million primarily related to contracts for Connect. In
addition, the Company acquired a restructuring reserve of $4.5 million related
to Real Media operations. As a result of the sale of Exactis, the unutilized
portion of their provision amounting to $0.6 million was reversed. The
restructuring charge includes non-cash charges of approximately $15.1 million.

The 2000 restructuring involved the involuntary termination of approximately
200 employees, the exiting of six sales office locations, a significant
reduction of space at two additional offices, and the abandonment of the
Company's AwardTrack subsidiary. As of December 31, 2000, the Company entered
into negotiations to sell Sabela and recorded its assets at their estimated
realizable value. The Company recorded a $11.7 million charge to operations
consisting of severance of approximately $3.2 million, lease exit costs of
approximately $1.7 million, acceleration of restricted stock grants of
approximately $0.9 million and the write down of assets to net realizable value
primarily related to AwardTrack and Sabela and certain leasehold improvements of
$5.5 million, and other exit costs of approximately $0.4 million. This amount
includes non-cash charges of approximately $6.4 million.

F-28

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(7) RESTRUCTURING CHARGE (CONTINUED)
The following sets forth the activities in the Company's restructuring
reserve which is included in accrued expenses in the 2001 consolidated balance
sheet:

(8) INCOME TAXES

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

At December 31, 2001, the Company had approximately $174.7 million of US and
$1.1 million of foreign net operating loss carryforwards, and a net capital loss
carryforward of at least $56.8 million. Foreign net operating loss carryforwards
have been reduced to reflect the disposition of the international operations of
24/7 Europe NV. The company's net operating loss carryforwards expire in various
years through 2021, and the net capital loss carryforwards expire in 2006. As a
result of various equity transactions during 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
substantial part of the net operating loss carryforwards are limited.

F-29

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(8) INCOME TAXES (CONTINUED)
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, 2001 and 2000 are presented below.

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 the Section 382
limitation, there is substantial uncertainty surrounding whether the Company
will ultimately realize its deferred tax assets. Accordingly, these assets have
been fully reserved. During 2001 and 2000, the valuation allowance increased by
$50.1 million and by $41.1 million respectively. Of the total valuation
allowance of $103.1 million, tax benefits recognized in the future of
approximately of $4.6 million will be applied directly to additional paid-in
capital. This amount relates to the tax effect of employee stock option
deductions included in the Company's net operating loss carryforward.

F-30

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(9) RELATED PARTY INSTRUMENTS

LOAN PAYABLE

In conjunction with the merger with Real Media, the Company also guaranteed
a Promissory Note for $4.5 million issued by Publigroupe as of the acquisition
date, which is to be used in accordance with Real Media's restructuring plan and
in payment of transactional bonuses. The restructuring plan provides for office
closings, workforce reduction and other related obligations (see note 7 for
details). The note bears interest at 4.5% and principal and interest are due on
October 30, 2006. In addition, in accordance with the Real Media purchase
agreement in January 2002, the Company received cash of $1.5 million and signed
a promissory note bearing interest at 6%, with interest and principal due in
January 2006. If the Company achieves certain target operating results for the
three months ended March 31, 2002 it will be entitled to receive another
$1.5 million in the form of a 6% three year promissory note.

RECEIVABLE FROM PUBLIGROUPE

As of December 31, 2001, the Company has a $0.6 million receivable from a
wholly owned subsidiary of Publigroupe, a principle stockholder.

(10) EQUITY INSTRUMENTS

WARRANTS

As of February 24, 1998, Interactive Imaginations and an executive officer
entered into a Confidential Separation Agreement and General Release ("Release
Agreement") pursuant to which the executive officer's employment with
Interactive Imaginations was terminated. The terms of the Release Agreement
generally provide that the executive officer and Interactive Imaginations agreed
to release and discharge the other party (and its successors and assigns) from
all causes of action, claims, judgments, obligations, damages or liabilities.
Interactive Imaginations agreed to issue to the executive officer Class C
Warrants to purchase up to 625,000 shares of common stock at an exercise price
of $3.81 per share. Accordingly, the Company recorded $450,000 of expense during
the first quarter of 1998 in connection with this transaction based upon an
independent valuation of the Class C Warrants. In addition, Interactive
Imaginations agreed to extend the term from January 31, 2000 to January 31, 2005
in respect of a fully vested option held by the executive officer to purchase
13,000 shares of Interactive Imaginations common stock at $1.72 per share.
During January 1999, the executive officer exercised his Class C Warrants to
purchase 625,000 shares of common stock in exchange for 546,775 shares of common
stock in a cashless exercise.

In February 1998, the Company issued to a consultant a warrant to purchase
28,750 shares of common Stock at an exercise price of $3.48 per share in
exchange for services. Under the terms and conditions of the Securities Purchase
Agreement (as determined by negotiations among the parties to such agreement),
such warrants were converted into 12,650 shares of common stock. The Company
recorded compensation expense of $20,000, based upon the fair market value
($1.60 per common share as determined by an independent valuation of the
Company's Common Stock) of the 12,650 shares of common stock into which the
warrants were converted under the terms and conditions of the Securities
Purchase Agreement.

F-31

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2001

(10) EQUITY INSTRUMENTS (CONTINUED)
Upon consummation of the agreement and plan of merger ("II Merger") to
acquire all of the outstanding stock of Intelligent Interactions in April of
1998, each share of common stock of Intelligent Interactions was converted into
approximately 16.3 shares of common stock, 2.3 Class A Warrants, 2.3 Class B
Warrants and 1.2 Class C Warrants of the Company. Therefore, the Company issued
949,242 shares of common stock, 265,212 of Class A Warrants, 265,212 of Class B
Warrants and 136,553 of Class C Warrants. The warrants have exercise prices of
$7.62, $11.42 and $3.81 per share, respectively and expire in five years. The
Company's Class A, B, and C Warrants were determined to have a fair value of $0,
$0, and $0.72 per share, respectively, using the Black-Scholes Option Model and
supported by an independent valuation of the Warrants issued in the transaction.
Each share of Preferred Stock, Series A Preferred Stock, Series AA Preferred
Stock or Series AAA Preferred Stock of Intelligent Interactions was converted to
approximately 18 shares of Mandatorily Redeemable Convertible Preferred
Stock--Series A, par value $.01 per share, 2.7 Class A Warrants, 2.7 Class B
Warrants and 1.4 Class C Warrants of the Company.

In March 1999, the Company issued warrants to purchase up to 150,000 shares
of common stock to NBC-Interactive Neighborhood as part of a three-year
exclusive agreement to sell advertising on NBC Network television stations and
their associated Web sites at the local market level. In October 1999, the
Company issued warrants to purchase up to 150,000 shares of the Company's common
stock to AT&T WorldNet Service as part of a 15-month extension, plus a one-year
renewal option of the current strategic agreement.

In March 2001, the Company issued warrants to purchase up to 200,000 shares
of common stock at $.70 per share to Pacific Crest Securities, Inc. and Maya
Cove Holdings, Inc. as part of the Common Stock Purchase Agreement. The fair
value of the warrants relating to the term of the common stock purchase
agreement for the purchase of the 200,000 shares were valued at approximately
$0.1 million based on a Black Scholes pricing model. The warrants were
immediately charged to operations and included in general and administrative
expense in the 2001 consolidated statement of operations. The Black-Scholes
pricing model was used with the following assumptions at the date of issuance:
risk free interest rate of 4.59%, dividend yield of 0%, expected life of
3 years and volatility of 150%.

In September 2001, the Company issued warrants to purchase up to 1,000,000
shares of common stock at $.15 cent per share to Lazard Freres & Co. LLC as a
settlement for services associated with the sale of Exactis. The fair value of
the warrants relating to the term of the common stock purchase agreement for the
purchase of the 1,000,000 shares were valued at approximately $0.1 million based
on a Black Scholes pricing model. The warrants were immediately charged to
operations and included in the gain on sale of assets in the 2001 consolidated
statement of operations. The Black-Scholes pricing model was used with the
following assumptions at the date of issuance: risk free interest rate of 3.74%,
dividend yield of 0%, expected life of 3.25 years and volatility of 150%.

F-32

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(10) EQUITY INSTRUMENTS (CONTINUED)

Warrant activity during the periods indicated is as follows:

Warrants generally expire five years from the date of grant.

COMMON STOCK

On May 3, 1999, the Company completed a secondary offering of the Company's
common stock. In this offering, the Company sold 2,339,000 primary shares, and
selling shareholders sold 1,161,000 shares. Net proceeds for the sale of primary
shares was approximately $100.5 million.

On January 18, 2000, the Company issued 31,000 shares of common stock to
employees of the Company valued at approximately $1.5 million and accrued
$0.3 million in related taxes. The related compensation expense of approximately
$1.8 million is included as part of stock-based compensation in the 2000
statement of operations, however, it would normally be reported as $0.7 million
in general and administrative and $1.1 million in sales and marketing expenses.

On May 23, 2000, the Company offered certain members of management the
option of exchanging their January 1, 2000 option grants for restricted stock in
a ratio of one share for three options. As a result, the Company cancelled
832,500 options and issued approximately 285,000 shares of restricted stock to
these employees of the Company, which vest over a period of three to four years.
Such grants resulted in a deferred compensation expense of approximately
$4.5 million, which is being amortized over the vesting period of those shares.
As of December 31, 2001 and 2000, 177,425 and 47,044, respectively, of the
285,0000 shares were granted to employees according to their vesting schedule.
As part of the restructuring in November 2000, certain employees with restricted
stock were terminated. The restricted stock held by the terminated employees
vested immediately, resulting in a charge of approximately $0.9 million which
has been reflected in "Restructuring and exit costs" in the consolidated
statement of operations (see note 7).

F-33

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(10) EQUITY INSTRUMENTS (CONTINUED)
On June 28, 2000, pursuant to shareholder approval, the Company amended its
Certificate of Incorporation to increase the authorized number of shares of its
common stock to 140,000,000 shares.

On October 24, 2000, the Company issued 62,921 shares to investment bankers
for services rendered in connection with the acquisition of WSR. The value of
these shares was approximately $335,000.

The Company also issued shares of common stock as part of the purchase price
for various acquisitions and investments as discussed in Notes 2 and 5,
respectively.

On March 23, 2001, the Company issued 710,000 shares of common stock to
employees of the Company for meeting the earn-out provisions in the WSR merger
agreement, as amended. The related compensation expense of approximately
$0.2 million is reflected as stock based compensation expense in the
consolidated statements of operations. Substantially all of these shares were
returned as part of the settlement with the former principal stockholders on
September 25, 2001.

On May 19, 2001, the Company issued 1.0 million shares of common stock on
behalf of 24/7 Europe NV as settlement for terminating the Kendro acquisition
agreement. A non-cash charge of approximately $490,000 is reflected in loss from
discontinued operation in the 2001 consolidated statements of operations.

On September 25, 2001, the Company entered into a Settlement and Mutual
release agreement with the former principal shareholders of Website
Results, Inc., which resulted in the return to the Company of approximately
3.3 million shares of common stock previously reflected as outstanding. These
shares were immediately retired and are no longer reflected as issued or
outstanding.

Shares reserved for future issuance as of December 31, 2001 are as follows:

COMMON STOCK PURCHASE AGREEMENT

On March 21, 2001, the Company entered into a Common Stock Purchase
Agreement and a Registration Rights Agreement with Maya Cove Holdings Inc.
("Maya"). Pursuant to the terms of these agreements, beginning on the date that
a registration statement covering a number of shares estimated to be issued
under the Common Stock Purchase Agreement is declared effective by the SEC, and
continuing for 18 months thereafter, the Company has the right, but not the
obligation, subject to the satisfaction or waiver of certain conditions as set
forth in the Common Stock Purchase Agreement,

F-34

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(10) EQUITY INSTRUMENTS (CONTINUED)
to sell its common stock to Maya pursuant to such periodic draw downs as the
Company may elect to make (the "Equity Line"). Maya will purchase such shares at
a discount of between 3.0% and 3.5%, depending on the market capitalization of
the Company's outstanding common stock at the time of issuance. The minimum
amount that may be drawn down at any one time is $250,000. As of December 31,
2001, management estimates that the maximum potential draw down is approximately
$2.0 million. To date, no amounts have been drawn under this facility.

In conjunction with this agreement the Company issued to Maya and Pacific
Crest Securities, Inc., who acted as the Company's financial advisors, warrants
to purchase up to 100,000 shares each of the Company's Stock. The fair value of
the warrants relating to the term of the common stock purchase agreement for the
purchase of the 200,000 shares were valued at approximately $0.1 million based
on a Black Scholes pricing model. The warrants were immediately charged to
operations and included in general and administrative expense in the 2001
consolidated statement of operations. The Black-Scholes pricing model was used
with the following assumptions at the date of issuance: risk free interest rate
of 4.59%, dividend yield of 0%, expected life of 3 years and volatility of 150%.

(11) STOCK INCENTIVE PLAN

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

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

The Plan allows for an automatic increase in the shares available for
issuance under the Plan on the first trading day of each calendar year,
beginning with 2001 by an amount equal to 3% of the total number of shares of
common stock outstanding on the last trading day of the immediately preceding
calendar year, not to exceed 1,750,000 shares in any given year.

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.

During 2001, the total number of options that may be issued or used for
reference purposes pursuant to the Plan was increased to 8,860,855. The amount
was increased by 109,331 for the pooling with Sift and 77,134, 297,000, 42,299,
88,698, 76,750, and 349,250 for the acquisitions of ConsumerNet, IMAKE, Sabela,
AwardTrack, iPromotions and WSR, respectively, for a total of 9,901,317.

On January 1, 2002, in accordance in the terms of the Plan, shares available
under the Plan were increased by 1,485,230. The maximum number of shares of
common stock subject to each of stock

F-35

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(11) STOCK INCENTIVE PLAN (CONTINUED)
options or stock appreciation rights that may be granted to any individual under
the Plan is 250,000 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.

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 2.5 million
shares of common stock may be issued or used for reference purposes pursuant to
the 2001 Plan. The maximum number of shares of common stock subject to each
stock option grant to any individual under the 2001 Plan is 250,000 for each
fiscal year during the term of the 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
1.25 million shares.

The per share weighted-average fair value of stock options granted during
2001, 2000 and 1999 was $0.43, $24.17 and $22.21, respectively, on the date of
grant using the Black-Scholes method with the following weighted-average
assumptions: 2001--risk-free interest rate 4.59%, and an expected life of
4 years; 2000--risk free interest rate 4.61%, and an expected life of 4 years;
and 1999--risk-free interest rate 6.58%, and an expected life of 2 years or
4 years, depending on the option grant. For option grants in 1998 subsequent to
the Company's August 1998 IPO, a volatility factor of 150% was used. For option
grants in 1999, a volatility factor of 99% was used for 4-year grants and 101%
for 2-year grants. For options granted in 2000 and 2001, a volatility factor of
150% was used.

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
attributable to common stockholders would have been increased to the pro forma
amounts indicated below:

F-36

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(11) STOCK INCENTIVE PLAN (CONTINUED)
Stock option activity during the periods indicated is as follows:

The following table summarizes information about stock options outstanding
at December 31, 2001:

F-37

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(12) SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

During 2001, 2000, and 1999, the amount of cash paid for interest was
$18,000, $47,000 and $68,000, respectively.

NON-CASH FINANCING ACTIVITIES

Warrants to purchase 398,759 shares of the Company's common stock at an
average of $8.68 per share were exercised during the year ended December 31,
2000 in exchange for 359,839 shares of the Company's common stock in cashless
exercises of warrants.

Warrants to purchase 625,000 shares of the Company's common stock at $3.81
per share were exercised in January 1999 in exchange for 546,775 shares of the
Company's common stock in a cashless exercise of warrants. During
September 1999, warrants to purchase 134,382 shares of the Company's common
stock at prices ranging from $3.81 to $11.42 were exchanged in a cashless
exercise for 101,074 shares of the Company's common stock

During 1999 and 2000, the Company entered into capital leases for equipment
of approximately $85,000 and $250,000, respectively.

(13) 401(K) PLAN

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

(14) COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company leases various facilities and certain equipment under operating
lease agreements. These lease agreements include the space for the Company's
corporate headquarters, the Company's sales offices and various types of
equipment for varying periods of time, with the last lease expiring in
March 2010. Rent expense from all operating leases amounted to $4.4 million,
$6.8 million and $3.0 million for the years ended 2001, 2000 and 1999,
respectively.

F-38

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under noncancelable operating leases and capital
leases at December 31, 2001 are as follows:

The Company's ad serving system is housed at Exodus in two primary
locations. The agreements provide for Internet connectivity services, the lease
of certain hardware, the licensing of certain software, and the lease of secure
space to store and operate such equipment. Projected payments for 2002 are
approximately $1.0 million.

The Company has various employment agreements with employees, the majority
of which are for one year with automatic renewal. The obligation under these
contracts is approximately $2.8 million for 2002 salary and performance based
targeted bonuses. All European employees have employment contracts as required
by local law. The majority of these contracts allow for resignation or
termination by either party at any time, according to the notice period
provisions contained in the employment contracts, or according to the minimum
notice period as mandated by local law. The contracts, or if no expressed
provision is included in the contract, local law, also require severance for
involuntary terminations ranging from one to six months. As of January 31, 2002,
there were approximately 80 employees in Europe whose annualized base salaries
were approximately $3.1 million.

LITIGATION

EXCHANGE OF PATENT RIGHTS, NET

In December 1999, DoubleClick, Inc. filed a patent infringement lawsuit
against our subsidiary, Sabela Media, Inc., in the United States District Court
for the Southern District of New York. The suit alleged that Sabela was
infringing, and inducing and contributing to the infringement by third parties
of a patent held by DoubleClick entitled "Method for Delivery, Targeting and
Measuring Advertising Over Networks". DoubleClick was seeking treble damages in
an unspecified amount, a preliminary and permanent injunction from further
alleged infringement and attorney's fees and costs. On May 4, 2000, we filed
suit in the U.S. District Court for the Southern District of New York against
DoubleClick Inc.

F-39

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
alleging infringement by DoubleClick of our U.S. Patent No. 6,026,368, entitled
"On-Line Interactive System and Method for Providing Content and Advertising
Information to a Targeted Set of Viewers."

On November 6, 2000, the Company and DoubleClick, Inc settled the
DoubleClick, Inc. v. Sabela Media, Inc. and 24/7 Media, Inc. v.
DoubleClick, Inc. patent litigation. Both lawsuits have been dismissed with
prejudice. As part of the settlement, 24/7 Media and DoubleClick have granted
each other certain rights in certain of their respective patents. Under the
settlement agreement, no other terms of the settlement were disclosed. Proceeds
were recorded net of related legal expenses in the fourth quarter. As a result
of the agreement, $4.1 million is included in "Gain on exchange of patent
rights, net" in the 2000 consolidated statement of operations.

On February 6, 2002, the Company filed a summons and complaint against
ValueClick, Inc. and its subsidiary, Mediaplex, Inc., alleging that they
infringe U.S. Patent No. 6,026,368 entitled "On-line System and Method for
Providing Content and Advertising Information to a Targeted Set of Viewers." The
complaint seeks monetary damages, injunctive relief, and recovery of attorneys'
fees and costs.

On February 21, 2002, ValueClick, Inc. and Mediaplex, Inc. filed a complaint
against the Company seeking a declaratory judgment that U.S. Patent
No. 6,026,368 entitled "On-line System and Method for Providing Content and
Advertising Information to a Targeted Set of Viewers" is invalid, unenforceable
and not infringed by ValueClick and Mediaplex. The complaint also seeks
injunctive relief and recovery of attorneys' fees.

On February 13, 2002, the Company filed a summons and complaint against
Advertising.com, Inc. alleging that Advertising.com, Inc. infringes U.S. Patent
No. 6,026,368 entitled "On-line System and Method for Providing Content and
Advertising Information to a Targeted Set of Viewers." The complaint seeks
monetary damages, injunctive relief, and recovery of attorneys' fees and costs.
The Company has provided a copy of the summons and complaint to Advertising.com,
but has not yet formally served them. In response to the receipt of the summons
and complaint, Advertising.com has requested certain information from the
Company with respect to the Company's infringement assertion in order to assess
the possibility of settlement.

Six former employees of the Company's Sabela subsidiary in France have
commenced proceedings alleging that they were terminated without good reason and
asserting damages. DoubleClick, Inc. is named as a co-defendant in these cases
and the Company is obligated to indemnify DoubleClick against any damages that
may arise from them. The Company is in settlement discussions and does not
expect the settlement amount to have a material adverse impact on the Company.

In September 2001, the Company received a letter from Experian Marketing
Solutions, Inc. ("Experian") alleging that the Company made certain
misrepresentations and omissions in connection with the Stock Purchase Agreement
relating to the sale of the Company's Exactis.com subsidiary to Experian in
May 2001. Experian alleged that the Company knew that certain customers of
Exactis had terminated or materially altered their relationship with Exactis
prior to the closing and failed to disclose this information to Experian.
Experian attributed at least $2.0 million of decreased Exactis revenues to the
accounts that were allegedly terminated or altered prior to the closing.
Experian had commenced an arbitration hearing before the American Arbitration
Association, seeking to claim $1.5 million that is scheduled to be held in
escrow by Bank One (the "Escrow Agent) through August 2002 as security for the
representations and warranties made under the Stock Purchase

F-40

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Agreement. The Company and Experian reached a settlement agreement whereby the
Company authorized the escrow agent to release $750,000 to Experian, and
Experian authorized the escrow agent to release the remaining balance of
approximately $780,000 to the Company. As of March 28, 2002, the funds have been
released.

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 operations or liquidity.

(15) SEGMENTS

On October 30, 2001, the Company merged with Real Media. As a result of this
merger and the restructuring performed by both companies, the Company has
changed how it operates its businesses and views its reportable segments. Based
on these operational changes the consolidated financial statements presented
have been restated to reflect these new reportable segments. The Company's
business is currently comprised of two reportable segments: integrated media
solutions and technology solutions. The integrated media solutions segment
generates the majority of its revenues by delivering advertisements and
promotions to affiliated Web sites, search engine traffic delivery and marketing
services to target online users compiled by list management. The technology
solutions segment generates revenue by providing third party ad serving,
software, email delivery service bureau, broadband software solutions and
technology services. The Company's management reviews corporate assets and
overhead expenses for each segment.. The summarized segment information as of
and for the three years ended December 31, 2001, are as follows:

F-41

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(15) SEGMENTS (CONTINUED)
Not included in the segment assets for 2000 is $22,787 of net long-term
assets of discontinued operation.

Prior to 1999, the Company operated only in the United States. In 1999, the
Company acquired subsidiaries in Canada and Europe, which operate as part of the
global network business. In August 2001, the Company announced it was ceasing
funding of its European division and has reflected its operations as a
discontinued operation (see note 4).

(16) VALUATION AND QUALIFYING ACCOUNTS

F-42

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(17) SUBSEQUENT EVENTS

OPTION GRANTS

As of January 2, 2002, the Company granted approximately 6.4 million stock
options under the 1998 Stock Incentive Plan and 1.5 million stock options under
the 2001 Stock Incentive Plan for Non-officers to employees at exercise prices
based on the fair market value of the Company's common stock at the respective
dates of grant.

STOCK BASED COMPENSATION

During the first quarter of 2002, approximately 49 employees including
members of senior management agreed to receive between 5-20% of their
compensation in the form of the Company's common stock in lieu of cash. As a
result, approximately 611,000 shares will be issued by March 31, 2002.

SALE OF IMAKE

On January 22, 2002, the Company completed the sale of its wholly owned
subsidiary, IMAKE Software & Services, Inc, to Schaszberger Corporation, the
previous owner and officer of IMAKE. Under the terms of the sale, the purchase
price payable by the buyer was approximately $6.5 million for the stock of IMAKE
of which $2.0 million was in the form of a 6% four year secured note,
approximately $500,000 in cash consideration, a potential earnout of up to
$4 million over the next three years based on gross revenue as defined in the
agreement and Series A preferred stock of Schaszberger Corp which as of the
closing date represented 19.9% of the buyer. The Note secured by certain assets
of IMAKE is guaranteed by Schaszberger Corporation. In the event that the
earnout is not met within the three year period, the Company is entitled to
receive a $1.00 Warrant for common stock equivalent to the difference between
$3.0 million and actual earn out paid to date. The shares to be received is
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 negotiations between the buyer and the Company. The
Company has discounted the note receivable and recorded the net present value of
the earnout based on its estimates of projected revenues and reflected
$0.5 million and $1.5 million, respectively. Approximately $0.7 million has been
reflected as assets held for sale and approximately $1.7 million as long-term
assets held for sale on the consolidated balance sheet at December 31, 2001. In
January, the Company received the upfront cash consideration of $0.5 million and
has been receiving the monthly earnout payments as scheduled.

PUBLIGROUPE FUNDING

In January 2002, the Company received a $1.5 million loan from PubliGroupe.
The promissory note bears an interest rate of 6% and interest and principal are
due in January 2005.

F-43

24/7 REAL MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001 AND 2000

(18) SELECTED QUARTERLY FINANCIAL DATA--UNAUDITED

The following is a summary of selected quarterly financial data for the
years ended December 31, 2001 and 2000:

F-44

SIGNATURES

KNOW ALL MEN BY THESE PRESENT, THAT EACH PERSON OR ENTITY WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS DAVID J. MOORE AND MARK E. MORAN, AND
EACH OF THEM, ITS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION, FOR IT AND IN ITS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REPORT ON
FORM 10-K AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY
TO BE DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS IT MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO
OR CAUSE TO BE DONE BY VIRTUE THEREOF.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of New
York, State of New York on April 1, 2002.

24/7 REAL MEDIA, INC.

By: /s/ DAVID J. MOORE
-----------------------------------------
David J. Moore
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below on April 1, 2002 by the following
persons in the capacities indicated:

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

+ Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 dated August 23, 1998 (File No. 333-56085).

++ Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 dated March 19, 1999. (File No. 333-70857).

# Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-8 dated February 28, 2001 (File No. 333-56308).

* Confidential treatment has been requested for certain provisions of this
Exhibit pursuant to Rule 406 under the Securities Act of 1933, as amended.
The omitted portions have been separately filed with the Commission.

** Incorporated by reference to Exhibit 2.1 to the Registrant's filings on
Form 8-K dated January 25, 2000, January 27, 2000 and February 28, 2000.

*** Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-4 dated April 20, 2000 (File No. 333-35306).

**** Incorporated by reference to Exhibit 2.1 to the Registrant's filings on
Form 8-K dated August 24, 2000.

***** Incorporated by reference to Exhibit 2.1 to Registrant's filings on
Form 8-K dated June 7, 2001.

****** Incorporated by reference to Exhibit 2.1 to the Registrant's filings on
form 8-K dated February 6, 2002.