VALUECLICK INC/CA - 10-K Annual Report

4353 Park Terrace Drive,
Westlake Village, California 91361
(Address of principal executive offices, including zip code)

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

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

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

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

As of June 30, 2003, which was the last business day of the registrant's most recently completed second fiscal quarter, the approximate aggregate market value of voting stock held by non-affiliates of the registrant was $449.4 million (based upon the closing price for shares of the Registrant's Common Stock as reported by The National Market System of the National Association of Securities Dealers Automated Quotation System as of that date). As of February 29, 2004, there were approximately 78,113,000 shares of Common Stock outstanding.

Portions of the Definitive Registrant's Proxy Statement for the 2004 Annual Meeting of Stockholders, to be held June 3, 2004, are incorporated by reference in Part III of this Form 10-K to the extent described therein. The Exhibit Index begins on page 45.

This Annual Report on Form 10-K, including information incorporated herein by reference, contains "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. These statements relate to expectations concerning matters that are not historical facts. Words such as "projects," "believes," "anticipates," "will," "estimate," "plans," "expects," "intends," and similar words and expressions are intended to identify forward-looking statements. Although we believe that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Important language regarding factors which could cause actual results to differ materially from such expectations are disclosed in this Report, including without limitation under the caption "Risk Factors" beginning on page 13 of this Report and in the other documents we file, from time to time, with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements attributable to ValueClick, Inc. are expressly qualified in their entirety by such language. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

We offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display/web advertising, search marketing, email marketing, and affiliate marketing. Additionally, we provide software that assists advertising agencies with information management regarding their financial, workflow, and offline media buying and planning processes. The broad range of products and services that we provide enables our customers to address all aspects of the marketing process, from strategic planning through execution, including results measurement and campaign refinements. By combining our media, affiliate marketing and technology offerings with our experience in both online and offline marketing, we help our customers around the world optimize their marketing campaigns both on the Internet and through offline media.

Our customers are predominantly advertisers and direct marketers, as well as the agencies that service these groups. Our value proposition to these groups is our ability to provide distinctive expertise, flexible product customization, superior service, and a diligent focus on the performance of their marketing investments. This approach has enabled us to build relationships with over 4,000 advertisers and agencies, assisting them in their use of the Internet to create awareness, attract visitors, generate qualified leads and drive sales, and to do so with both acquisition and retention programs.

Another key component in our value proposition is the base of relationships we have developed with quality website publishers. To fulfill our clients' marketing programs, we rely on our relationships with websites of all sizes—from many of the largest portals on the web, to heavily-trafficked and well-known content and shopping sites, to high-quality niche content properties. Our relationships with these partners span from representation of most of their advertising space, to monetization of their unsold advertising inventory, to regular spot buys of media and email for specific client needs. Our ability to offer these partners a wide variety of ways to generate revenue has enabled us to now reach over 60 million unique Internet users in the U.S. each month, and over 130 million worldwide. ValueClick believes that the effectiveness of our advertising solutions is dependent on the quality of the partner relationships, and therefore we have established stringent quality standards that include rejection on the basis of inappropriate content, illegal activity and fraudulent clicking activity, among other criteria. We enforce these quality standards using a combination of manual and automated auditing processes that continually monitor and review both Web site content and adherence to advertiser campaign specifications.

We derive our revenue from three business segments, based on the types of products and services provided. These business segments are Media, Affiliate Marketing and Technology, which are described in more detail below. For information regarding the revenues, gross profits, and total assets of these segments, see Item 7 below.

ValueClick's Media segment provides a comprehensive suite of online media services and tailored programs that help marketers create awareness, attract visitors and generate leads and sales through the Internet. Our Media segment has grown through the acquisition of complementary firms, such as Search123.com, completed on May 30, 2003, and Hi-Speed Media, completed on December 17, 2003. Our strategic expansion and subsequent integration within the Media segment has increased our presence in interactive marketing with powerful offerings that are offered to advertiser and agency clients in the following product categories:

Through partnerships with online publishers that span more than 7,500 online media properties in the U.S. and more than 11,000 worldwide, we provide advertisers and agencies with access to one of the largest and most reputable online advertising networks. With a single buy, advertisers can reach their target online audience using a variety of online display ad units and any of 17 standard channels of online content.

We offer our marketing clients a variety of display ad units that can be delivered onto the Web pages of our online advertising network, and tracked to evaluate success against the goals of the program. With traditional banner ads, rich media, interstitials, text links and other online ad units, we attempt to maximize the impact of marketing campaigns by using the most effective placement for each type of campaign. Within these placements, we also offer clients the ability to execute a wide variety of rich media applications, providing even greater visual and auditory impact.

The Company began as a performance-based marketing network, and we continue to offer flexible pricing arrangements, designed around maximizing our clients' return on investment. Our Web advertising placements are offered on both cost-per-thousand (CPM) pricing, whereby our clients pay based on the number of times the target audience is exposed to the advertisement, and cost-per-click (CPC), where payment is triggered only when an interested individual visits the client's website.

The benefits that our clients enjoy in Web advertising include our flexible pricing models, the ability to reach new and larger audience segments through our Website property partners, the ability to have a single source for media negotiation, and the ability to improve campaigns in a variety of ways while the campaign is still running, by optimizing at site, placement and creative levels, based on both response and conversion.

Our Media E-mail Marketing services allow marketers to target qualified prospective customers on a large scale with opt-in e-mail lists from a select group of e-mail list partners who meet our stringent criteria for data integrity, as well as who comply with all aspects of federal email legislation. Through ValueClick Media's relationships with quality business and consumer opt-in e-mail list owners and managers, E-mail Marketing clients can target audiences within specific selection criteria.

Through our acquisition of Hi-Speed Media, we now possess a database of more than 40 million opt-in email profiles that comply with recently enacted U.S. federal e-mail legislation. Through this business, we provide marketers with the ability to advertise their products and services to the members of this email database.

Our Lead Generation Marketing services enable marketers to develop their own proprietary permission-based lists of leads for re-marketing. Creating lists of consumers who have expressed interest in a specific company or offer gives marketers the ability to generate immediate sales while building on-going relationships with prospective customers.

ValueClick's proprietary UltraLeads product is an email marketing solution whereby we develop customized and permissioned databases of individuals who have voluntarily expressed interest in learning more about a specific client's product or service. Using a technique called co-registration, we place opt-in offers on registration areas of publisher partners' sites, providing the visitors to those sites the ability to get more information, or to receive special offers from a specific advertiser. If consumers voluntarily opt-in to a given offer, they first receive a verification message to ensure their permission, followed by the requested information via an e-mail from us to the address they provided. UltraLeads is priced on a cost-per-lead (CPL) basis.

An additional email marketing offering is our onResponse product. This offering is priced on a cost-per-action (CPA) basis, whereby clients only pay us—and we only pay our publisher partners—when Internet users perform specific actions, such as completing requests for more information, website registrations, product sample requests, trial subscriptions, etc. These marketing messages are delivered by our publisher partners via solo email messages and e-newsletters to their base of registered visitors. When one of the recipients of these messages responds, they are directed toward the client's website to complete the desired action.

Search Marketing allows marketers to find prospective customers who are actively engaged in researching and buying products and services online. At the core of ValueClick Media's Search Marketing offerings is Search123, a pay-per-click search engine, in which marketers bid for placement within search results and pay only when targeted leads are delivered to their site.

ValueClick Media's Search Marketing acts as an affordable complement to other pay-per-click engines, enabling marketers to realize additional qualified sales leads from search results at a competitive price. Search123 has a network of hundreds of online publisher partner Web sites, which collectively generate hundreds of millions of searches per month.

Our automated online application process is supported by a team of network development and customer service professionals across all ValueClick properties. Their responsibilities include screening and approving, or declining prospective Web publishers, monitoring network quality, maintaining relationships, consulting with publishers on additional revenue opportunities, and the trafficking and optimization of client advertising campaigns.

Affiliate marketing is a technique whereby online properties agree to display advertising messages in a variety of locations and configurations in return for either compensation for every lead developed, or based on a share of any revenue that is generated when their website visitors respond to the advertisement by purchasing products or services from the advertiser. We provide comprehensive marketing systems that enable online marketers to use this technique to attract, convert and retain customers easily and cost effectively.

ValueClick Affiliate Marketing products and services, outlined below, are offered through our wholly-owned subsidiaries Be Free, Inc., acquired on May 23, 2002, and Commission Junction, acquired on December 7, 2003.

Our affiliate marketing business includes technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs. Specifically, our affiliate marketing services enable our advertiser clients to: build relationships with affiliate partners; manage the offers they make available to their affiliate partners; track the online traffic, leads and sales that these offers drive to the advertiser's Website; analyze the effectiveness of the offers and affiliate partners; and track the commissions due to their affiliates.

We offer affiliate marketing services that address the needs of advertisers that seek to build and manage a private-labeled network of third party online publishers, as well as advertisers that wish to conduct an affiliate marketing program through our existing network of third party online affiliate publishers. Our affiliate marketing services are offered on a hosted basis to enable marketers to execute their own affiliate marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

Affiliate Marketing revenues are driven by a combination of fixed fees and variable compensation that is based on either a cost-per-lead (CPL) scenario or on a percentage of transaction revenue generated from the programs managed with our affiliate marketing platforms.

In addition to the technology-related revenue streams, we also receive service fees from clients who elect to utilize our Outsourced Program Management (OPM) service and Commission Junction Vantage offerings. With these services, we assume full responsibility for the all aspects of managing the advertiser's program including planning, publisher recruitment, review and management, and program administration.

The benefits of our affiliate marketing technology include professional services, a pay-for-performance model, the option of owning affiliate partner relationships, comprehensive technology platforms, and extensive expertise.

Our Technology segment provides marketers, agencies, website publishers and other firms with the tools they need to manage both their business operations and marketing programs effectively. The technology products and services outlined below are offered through our wholly-owned subsidiaries Mediaplex, Inc. and AdWare Systems, Inc., which were acquired on October 19, 2001.

Our Mediaplex subsidiary offers technology infrastructure tools and services that enable advertisers, advertising agencies and online publishers to implement and manage their own online display advertising (adserving) and email campaigns. Our Mediaplex products are based on its proprietary MOJO® technology platform, which has the ability to automatically configure messages in response to real-time information from a marketer's enterprise data system and to provide ongoing campaign optimization. Mediaplex's products are priced primarily on a cost-per-impression (CPM) or email delivered basis.

Mediaplex's solutions provide span three primary categories—Third Party Adserving, Publisher Ad Management and Email Campaign Management.

Our third-party adserving product, MOJO® Adserver, allows users to configure web advertising campaigns, serve those campaigns according to time and site placements—commonly known in the industry as trafficking—and report results from such campaigns through to conversion. MOJO® Adserver operates on the same platform as MOJO® Mail (see Mediaplex—Email Campaign Management below), is web-based and is available as either a full-service or ASP offering.

The benefits of our third-party adserving technology and service include an intuitive interface, advanced targeting options, response and conversion tracking, near real-time reporting, full-service or ASP, automated creative and placement optimization, the ability to handle rich media, and back-end data feeds for quantitative analysis.

MOJO® Publisher is an ad management technology solution for websites and networks, which has powered the ValueClick Media network of thousands of publisher partners since 1999. With MOJO® Publisher, websites and networks can quickly implement, manage, sell, and traffic advertising inventory on their properties, ensuring maximum revenue from those properties.

The benefits of our publisher ad management technology and service include flexible configuration, effective inventory management, accurate forecasting, advanced targeting capabilities, real-time reporting, conversion tracking, and financial system integration.

Either alone or in combination with ValueClick Media's Email Marketing solutions above, our email campaign management product—MOJO® Mail—allows users to configure, traffic and report results for permission-based prospect and customer email campaigns. In addition to basic email campaign execution, MOJO® Mail affords the user the unique ability to populate email messages with dynamic content that is updated in real-time when the recipient opens the email. The product's Web-based interfaces, MOJO® Works (delivery configuration) and MOJO® Reports (tracking results), provide a single point of access for email messaging campaigns across all platforms, including web advertising and wireless devices. The system—available in both full-service and Application Service Provider (ASP) modes—provides the ability to target customer and prospect audience segments with tailored offers and creative message versions, and to track through to conversion activity in near-real-time.

The benefits of our email campaign management technology include an intuitive interface, systematic list management and segmentation, advanced targeting options, unsubscribe and bounce management, near real-time reporting, response and conversion tracking, back-end data feeds for quantitative analysis, full-service or ASP, ability to handle rich media programs, and integration with our email marketing media programs above.

Our AdWare subsidiary is an ASP that delivers high-quality web-based information management systems to advertising agencies, marketing communications companies, public relations agencies and other large corporate advertisers. The solutions that AdWare provides span three primary categories—Business Management, Media Management and Content Management, as outlined below. AdWare's revenue is generated primarily from monthly service fees paid by customers over the service periods.

The benefits offered by our enterprise management solutions include increased productivity, improved tracking and monitoring of business processes, ease of implementation, exceptional customer service, web-based ASP and significant scalability.

Business Management—Our business management systems consist of the following:

Media Management—Our media management systems enable customers—primarily media planners in corporate marketing departments and advertising agencies—to plan, execute, track, analyze and bill out media buys for network broadcast, spot broadcast, national cable, local cable, syndication, newspaper, magazine, and outdoor media channels. Media planners use these systems to record the available advertising opportunities and their corresponding cost, then choosing the configuration that best meets campaign needs. They can then generate a media plan that consists of the media placements they have selected. Different systems are available for each type of media buying—print, network, and spot advertisements.

Content Management—Content Depot is a web-based digital asset management solution that stores, indexes, retrieves and plays/views digital assets such as documents, audio files, video files, and graphics. Accessible via both Macintosh and PC, Content Depot is designed for both easy installation and use, and is targeted at any business that needs an affordable way to manage and utilize their digital assets.

We currently have international operations in the United Kingdom, Germany, France and Japan. All operations are wholly-owned subsidiaries, with the exception of ValueClick Japan, in which we have a majority ownership position.

ValueClick Japan commenced operations in November 1998. We currently own a 59.2% interest in ValueClick Japan, which has 40 employees. In May 2000, ValueClick Japan completed its initial public offering on the Tokyo Stock Exchange for emerging growth companies. In August 1999, we commenced operations in the European market with ValueClick Europe Ltd., a wholly-owned subsidiary of ValueClick based in the United Kingdom. In 2000, we expanded in Europe by opening wholly-owned subsidiaries in Paris, France and Munich, Germany. Employees in our international subsidiaries, including Japan, totaled 84 as of December 31, 2003.

As part of its tender offer, livedoor would acquire all of ValueClick's equity interest in ValueClick Japan for approximately $24 million in cash, excluding transaction fees. The tender offer is expected to be completed near the end of the first quarter of 2004.

For further financial information regarding our international sales, see note 15 to our consolidated financial statements contained in this Report.

To help ensure our success in offering quality media products, in a number of different channels, several proprietary software applications have been developed. Each application has been developed by a qualified team of information technology professionals whose primary mission is to partner with our customers and a ValueClick product specialist to transform functionality requirements into technology solutions.

Our proprietary applications are constructed from established, readily available technologies. These technologies are crafted into applications whose main objective is to out-perform offerings of our competitors within the same business segment. Some of the basic components our products are built on come from leading software providers such as Oracle, IBM, Sun, Dell, EMC, and Cisco while some components are constructed from leading Open Source software projects such as Apache Web Server, FreeBSD, and Perl. By striking the proper balance between using commercially available software and Open Source software, we direct our Information Technology expenditures toward developing distinguishing application functionality while minimizing third party technology supplier costs.

We build in high performance, availability and reliability into our product offerings. Within the particular business segment, each offering out-performs industry-wide acceptable performance measurements. We safeguard against the potential for service interruptions at our third party technology vendors by engineering failsafe controls into our critical components. ValueClick delivers its hosted solutions primarily from three co-location centers, geographically disbursed within the United States. ValueClick applications are monitored 24 hours a day, 365 days a year by specialized monitoring systems that aggregate alarms to a human staffed network operations center. If a problem occurs, appropriate engineers are notified and corrective action is taken.

Our continued investment in ValueClick's technology infrastructure helps to ensure our product offerings remain innovative, competitive, and cost-effective.

We market our products and services primarily through direct marketing, print advertising and online advertising throughout the year. We also market them through the ValueClick properties' Web sites, trade show participation and other media events. In addition, we actively pursue public relations programs to promote our brand, products and services to potential network Web publishers and advertisers, as well as to industry analysts.

We sell our products and services to a variety of advertisers and advertising agencies primarily through our internal sales team, consisting of approximately 135 direct sales and support personnel across all ValueClick properties. We make extensive use of telemarketing and e-marketing strategies. Each of our account executives assists the advertisers he or she services, typically advertising, direct marketing and e-commerce companies, with all aspects of media planning and design of their advertising campaigns and their related technology needs. These services and products include advertisement purchasing and placement, assessment of results and optimization of performance and related technology platforms

We derive our revenue from three business segments based on the types of products and services provided. These business segments are Media, Affiliate Marketing, and Technology. For the year ended December 31, 2003, revenue from our technology products and services accounted for 24.3% of our revenue. Revenue generated by our technology products and services have been derived from a limited number of advertisers and advertising agencies. Our results of operations would be materially adversely impacted by the loss of any of these clients. For the year ended December 31, 2003, one individual company accounted for 9.9% of our overall revenue and 39.8% of revenue generated by our Technology segment. Another customer accounted for 18.9% of our Technology segment revenue.

For additional information regarding our business segments, see note 15 to our consolidated financial statements contained in this Report.

We face intense competition in the Internet advertising market. We expect that this competition will continue to intensify in the future as a result of industry consolidations and the continuing maturation of the industry. We compete with a diverse and large pool of advertising, media and Internet companies.

Additional competitive factors include each competitor's reputation, knowledge of the advertising market, financial controls, geographical coverage, relationships with clients, technological capability and quality and breadth of services. We expect that we will face additional competition from new entrants into the market in the future.

We believe that our business is subject to seasonal fluctuations. Marketers generally place fewer advertisements during the first and third calendar quarters of each year, and direct marketers generally mail substantially more marketing materials in the third calendar quarter of each year. In addition, expenditures by advertisers and direct marketers vary in cycles and tend to reflect the overall economic conditions, as well as budgeting and buying patterns. Furthermore, user traffic on the Internet tends to decrease during the summer months which results in fewer advertisements to sell and deliver. A further decline in the general economy or in the economic prospects of advertisers and direct marketers could adversely affect our revenue.

We currently rely on a combination of copyright and trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access

to and distribution of our software documentation and other proprietary information. We have registered the trademark "ValueClick" in the United States, the European Union and Japan. We currently have four pending U.S. patent applications. We do not know if our current patent applications or any future patent application will result in a patent being issued within the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. Although patents are only one component of the protection of intellectual property rights, if our patent applications are denied, it may result in increased competition and the development of products substantially similar to our own. In addition, it is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to those of our own. We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

On December 30, 2002, we purchased a license from 24/7 Real Media for the '368' patent under a Patent License Agreement. In connection with the Patent License Agreement, 24/7 Real Media also agreed to terminate their lawsuit against the Company for patent infringement. The terms of the Patent License and Settlement Agreements are confidential.

In November 2002, in connection with our Stock Repurchase Program, we repurchased 7,878,562 shares of our common stock held by DoubleClick. In the related repurchase agreement, both parties agreed not to sue or threaten to sue each other or any of their customers for infringement of outstanding patents for a three-year period beginning in November 2002.

We commenced operations as ValueClick, LLC, a California limited liability company, on May 1, 1998. Prior to the formation of ValueClick, LLC, the ValueClick Internet advertising business began in July 1997 as a line of business within Web-Ignite Corporation, a company wholly-owned by the founding member of ValueClick, LLC. The reorganization and formation of ValueClick, LLC was effected by the transfer of the Internet advertising business of Web-Ignite to ValueClick, LLC. On December 31, 1998, ValueClick, LLC reorganized as ValueClick, Inc., a Delaware corporation. On March 30, 2000, we completed our initial public offering of common stock. Our common stock is publicly traded and is reported on the Nasdaq National Market under the symbol "VCLK."

Hi-Speed Media, Inc. On December 17, 2003, we completed the acquisition of Hi-Speed Media, Inc., a California corporation ("Hi-Speed Media"), pursuant to an Agreement and Plan of Merger, dated as of December 7, 2003, by and among ValueClick, Inc., HS Acquisition Corp., a wholly-owned subsidiary of ValueClick, Hi-Speed Media, the shareholders of Hi-Speed Media and Farshad Fardad, in his capacity as Shareholder Agent. Hi-Speed Media provides e-mail marketing services. Through our acquisition of Hi-Speed Media, we now possess a database of more than 40 million opt-in email profiles that comply with recently enacted U.S. federal e-mail legislation. Through this business, we provide marketers with the ability to advertise their products and services to the members of this email database. We accounted for the acquisition under the purchase method. Accordingly, the results of Hi-Speed Media's operations are included in the Company's consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. Under the terms of the agreement, ValueClick acquired all of the outstanding capital stock of Hi-Speed Media for an aggregate purchase price of approximately $9.0 million in cash and additional contingent cash consideration of up to $1.0 million per quarter, assuming the achievement of certain revenue and operating income milestones over the eight quarters beginning January 1, 2004. In connection with the transaction, Hi-Speed Media's outstanding employee stock options were converted into options to purchase approximately 80,000 shares of ValueClick common stock.

Commission Junction, Inc. On December 7, 2003, we completed the acquisition of Commission Junction, Inc., a Delaware corporation ("Commission Junction"), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of October 9, 2003, by and among ValueClick, NCJ Acquisition Corp., a wholly-owned subsidiary of ValueClick, Commission Junction and Idealab Holdings LLC, a Delaware limited liability company, in its capacity as Stockholder Agent. Pursuant to the terms of the merger agreement, Commission Junction was merged with and into NCJ Acquisition and became a wholly-owned subsidiary of ValueClick. Commission Junction is an affiliate marketing business, which provides technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs. We accounted for the acquisition under the purchase method. Accordingly, the results of Commission Junction's operations are included in our consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. Pursuant to the terms of the agreement, ValueClick acquired all the outstanding capital stock in Commission Junction for approximately 3.0 million shares of ValueClick common stock, valued at approximately $29.5 million, and approximately $26.1 million in cash. The cash portion of the purchase price was derived from existing working capital. Additionally, outstanding options to acquire common stock of Commission Junction were converted into an aggregate of 1.2 million options to acquire ValueClick common stock.

Search123.com Inc. On May 30, 2003, we completed the acquisition of Search123.com Inc. ("Search123"). Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Search123, with Search123 surviving as a wholly-owned subsidiary of ValueClick. Search123 is a search marketing company that allows marketers to find prospective customers who are actively engaged in researching and buying products and services online. We accounted for the acquisition under the purchase method. Accordingly, the results of Search123's operations are included in our consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. The aggregate consideration, constituting the purchase price of approximately $4.9 million, included a cash payment of $3.2 million, the assumption of a net working capital deficit of $1.5 million and transaction costs of approximately $200,000.

Be Free, Inc. On May 23, 2002, we completed our acquisition of Be Free, Inc. Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Be Free and Be Free survived as a wholly-owned subsidiary of the Company. Under the terms of the merger agreement, Be Free stockholders received 0.65882 shares of ValueClick common stock for each share of Be Free common stock. The Company issued a total of approximately 43.4 million shares of its common stock, valued at approximately $122.3 million, for all the outstanding stock of Be Free. In addition, the Company issued options to purchase approximately 4.2 million additional shares of ValueClick common stock in exchange for outstanding options to acquire Be Free common stock. The acquisition of Be Free expanded our online and offline marketing and advertising technology capabilities.

Mediaplex, Inc. On October 19, 2001, we completed our acquisition of Mediaplex, Inc., a provider of technology software tools used in both online and offline advertising campaigns. Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Mediaplex, and Mediaplex survived as a wholly-owned subsidiary of ValueClick. Under the terms of the merger agreement, Mediaplex stockholders received 0.4113 shares of ValueClick common stock for each share of Mediaplex common stock. We issued approximately 15.1 million shares of our common stock, valued at approximately $42.7 million, for all the outstanding stock of Mediaplex. In addition, we issued options to purchase approximately 2.8 million additional shares of ValueClick common stock in exchange for outstanding options to acquire Mediaplex common stock.

Z Media, Inc. On January 31, 2001, we completed our acquisition of Z Media, Inc., a leading co-registration company. ValueClick accounted for the merger as a pooling-of-interests, and as such, the consolidated financial statements were restated to include Z Media's financial data as if the Z Media

had always been a part of ValueClick. Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Z Media, and Z Media survived as a wholly-owned subsidiary of ValueClick. In connection with the merger, we issued a total of approximately 2.7 million shares of our common stock in exchange for all outstanding shares of Z Media. In addition, we issued options to purchase approximately 420,000 additional shares of ValueClick common stock in exchange for outstanding options to acquire Z Media common stock. With the acquisition of Z Media, we added co-registration to our product line.

We may collect personally identifiable data on a permitted basis. We store this data securely and do not use the data without the explicit, knowing permission of the user when we collect the data on behalf of our clients. We rely on our clients to treat such data with the appropriate precaution and responsibility as stated in their privacy policies. In addition, we use non-personally identifiable information provided by Web sites, pursuant to their privacy policies, about their viewers' general demographics and interests in order to target appropriate advertising to the sites.

Moreover, if our clients have databases of their customers, we can use this data on behalf of those clients, again pursuant to their privacy policies. The premise is that both the site providing the ad space and the advertiser (1) have a relationship with the customer, or opt-in, (2) have an opportunity to share their privacy policy with their customers, and (3) provide an opportunity to opt-out.

Our clients retain the right to use data, which they have obtained through explicit permission from an Internet user; for example, if a customer of our client provides an email address to receive information and updates. We rely on our clients' consumer privacy policies, as well as the privacy practices of the publisher sites included in each campaign.

We collect certain technical data (such as type of browser, operating system, domain type, date and time of viewer's response) when serving Internet advertisements. This type of information is defined by the Network Advertising Initiative as Non-personally Identifiable Information ("Ad Delivery and Reporting Data".) We may retain this Ad Delivery and Reporting Data indefinitely.

We use "cookies," among other techniques, to measure and report non-personalized information to advertisers, such as the number of people who see their ads or emails and the number of times people see the advertisement. A cookie is a small file that is stored in a web user's hard drive. Cookies cannot read information from the user's hard drive; rather they allow sites and advertisers to track advertising effectiveness and to ensure that viewers do not receive the same ads repeatedly. Cookies, by themselves, cannot be used to identify any user if the user does not provide any personally identifiable information. They can be used to allow personalization features such as stock portfolio tracking and targeted news stories.

We are compliant with the Platform for Privacy Protection Project, or P3P, compliance criteria. P3P is the most current privacy standard effort in the industry, providing simple and automated privacy controls for users.

As of December 31, 2003, we had 492 employees in the U.S., 40 employees in Japan and 44 employees in our other international locations. None of these employees are covered by collective bargaining agreements. Management believes that our relations with our employees are good.

Our primary Internet address is www.valueclick.com. We make our periodic SEC reports (Forms 10-Q and Forms 10-K) and current reports (Form 8-K), and amendments to these reports, available

free of charge through our Web site as soon as reasonably practicable after they are filed electronically with the SEC. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our Web site, as allowed by SEC rules.

Materials we file with the SEC may be read and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

You should carefully consider the following risks before you decide to buy shares of our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our stock.

This Report contains forward-looking statements based on the current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this Report. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

INTEGRATING OUR ACQUIRED OPERATIONS MAY DIVERT MANAGEMENT'S ATTENTION AWAY FROM OUR DAY-TO-DAY OPERATIONS.

We have grown in part because of business combinations with other companies, and we expect to continue to evaluate and consider future acquisitions. Acquisitions generally involve significant risks, including difficulties in the assimilation of operations, services, technologies and corporate culture of the acquired companies, diversion of management's attention from other business concerns, overvaluation of the acquired companies, and the acceptance of the acquired companies' products and services by our customers. The integration of our acquired operations, products and personnel may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the transition and integration process could harm our business. Moreover, we consummated the acquisitions of Search123, Commission Junction and Hi-Speed Media on May 30, 2003, December 7, 2003 and December 17, 2003, respectively. Because of the number of acquisitions we performed in 2003, the differences in the customer base and functionality of Search123, Commission Junction and Hi-Speed Media and our products, these acquisitions may present a materially higher product, marketing, research and development, facilities, information systems, accounting, personnel, and other integration challenges than those we have faced in connection with our prior acquisitions and may delay or jeopardize the complete integration of certain businesses we had acquired previously.

If we finance future acquisitions by using equity securities, this would dilute our existing stockholders. Any amortization of intangible assets, or other charges resulting from the costs of these acquisitions could have an adverse effect on the results of our operations. In addition, we may pay more for an acquisition than the acquired products, services, technology or business are ultimately worth.

IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR EXPENSES COULD INCREASE AND OUR MANAGEMENT'S TIME AND ATTENTION COULD BE DIVERTED.

As we continue to increase the scope of our operations, we will need an effective planning and management process to implement our business plan successfully in the rapidly evolving Internet advertising market. Our business, results of operations and financial condition will be substantially harmed if we are unable to manage our expanding operations effectively. We plan to continue to expand our sales and marketing, customer support and research and development organizations. Past growth has placed, and any future growth will continue to place, a significant strain on our management systems and resources. We will likely need to continue to improve our financial and managerial controls and our reporting systems and procedures. In addition, we will need to expand,

train and manage our work force. Our failure to manage our growth effectively could increase our expenses and divert management's time and attention.

At December 31, 2003 we had an accumulated deficit of approximately $64.4 million. Though we have achieved operational profitability in 2003, events could arise that prevent us from achieving net income in future periods.

Because we have a relatively limited operating history, it may be difficult to evaluate our business and prospects. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by early-stage companies in the rapidly-changing Internet market. These risks include, but are not limited to, our ability to:

If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL TO DIRECT MARKETING COMPANIES, OUR REVENUE COULD DECLINE.

Our Media segment accounted for 49.5% of our revenue for the year ended December 31, 2003 by delivering advertisements that generate impressions, click-throughs and other actions to our advertisers' Web sites. This business model may not continue to be effective in the future for a number of reasons, including the following: click rates have always been low and may decline as the number of banner advertisements on the Web increases; Internet users can install "filter" software programs which allow them to prevent advertisements from appearing on their computer screens or email boxes; Internet advertisements are, by their nature, limited in content relative to other media; direct marketing companies may be reluctant or slow to adopt online advertising that replaces, limits or competes with their existing direct marketing efforts; and direct marketing companies may prefer other forms of Internet advertising we do not offer, including certain forms of search engine placements. If the number of direct marketing companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

IF OUR BUSINESS MODEL IS NOT ACCEPTED BY INTERNET ADVERTISERS OR WEB PUBLISHERS, OUR REVENUE COULD DECLINE.

Traditionally, most of our revenue has been derived from our Media segment. Although we intend to grow our Affiliate Marketing and Technology segments, we expect that our Media segment will continue to generate a substantial amount of our revenue in the future. For the year ended December 31, 2003, our Media segment accounted for 49.5% of our revenue. In addition, our Media

segment includes products and services that are based on a cost-per-click ("CPC"), cost-per-action ("CPA") or cost-per-lead ("CPL") pricing model. These business models differ from the cost-per-thousand impressions ("CPM") pricing model, which many other Internet advertising companies use. Our ability to generate significant revenue from advertisers will depend, in part, on our ability to demonstrate the effectiveness of our various pricing models to advertisers, many of which may be more accustomed to the CPM pricing model, and to Web publishers; and on our ability to attract and retain advertisers and Web publishers by differentiating our technology and services from those of our competitors. One component of our strategy is to enhance advertisers' ability to measure their return on investment and track the performance and effectiveness of their advertising campaigns. To date, not all advertisers have taken advantage of the most sophisticated tool we offer for tracking Internet users' activities after they have reached advertisers' Web sites. We will not be able to assure you that our strategy will succeed.

Intense competition among Web sites, search services and Internet advertising services has led to the proliferation of a number of alternative pricing models for Internet advertising. These alternatives, and the likelihood that additional pricing alternatives will be introduced, make it difficult for us to project the levels of advertising revenue or the margins that we, or the Internet advertising industry in general, will realize in the future. Moreover, an increase in the amount of advertising on the Web may result in a decline in click rates. Since we rely on performance-based pricing models to generate revenue, any decline in click rates may make our pricing models less viable or less attractive solutions for Web publishers and advertisers.

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

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

Our pay-per-click search service is dependent upon a limited number of sources to direct Internet users to our search service. Our sources for users conducting searches are members of our affiliate network, including portals, browsers, or other affiliates and our own website. Revenues are generated when users conducting searches are directed to advertisers through a paid search link in our search

results. The more traffic our sources direct to our advertisers through our search technology, the more revenue we will generate. Unfavorable changes in our relationship with these sources or loss of these relationships would adversely affect our revenue and results of operations.

WE MAY FACE INTELLECTUAL PROPERTY ACTIONS THAT ARE COSTLY OR COULD HINDER OR PREVENT OUR ABILITY TO DELIVER OUR PRODUCTS AND SERVICES.

We may be subject to legal actions alleging intellectual property infringement (including patent infringement), unfair competition or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of our technology or business. One of the primary competitors of our Search123 subsidiary, Overture Services, Inc., purports to be the owner of U.S. Patent No. 6,269,361, which was issued on July 31, 2001 and is entitled "System and method for influencing a position on a search result list generated by a computer network search engine." Overture has aggressively pursued its alleged patent rights by filing lawsuits against other pay-per-click search engine companies such as FindWhat.com and Google. FindWhat.com and Google have asserted counter-claims against Overture including, but not limited to, invalidity, unenforceability and non-infringement.

IF THE TECHNOLOGY THAT WE CURRENTLY USE TO TARGET THE DELIVERY OF ONLINE ADVERTISEMENTS AND TO PREVENT FRAUD ON OUR NETWORK IS RESTRICTED OR BECOMES SUBJECT TO REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Web sites typically place small files of non-personalized (or "anonymous") information, commonly known as cookies, on an Internet user's hard drive, generally without the user's knowledge or consent. Cookies generally collect information about users on a non-personalized basis to enable Web sites to provide users with a more customized experience. Cookie information is passed to the Web site through an Internet user's browser software. We currently use cookies to track an Internet user's movement through the advertiser's Web site and to monitor and prevent potentially fraudulent activity on our network. Most currently available Internet browsers allow Internet users to modify their browser settings to prevent cookies from being stored on their hard drive, and some users currently do so. Internet users can also delete cookies from their hard drives at any time. Some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies, and legislation has been introduced in some jurisdictions to regulate the use of cookie technology. The effectiveness of our technology could be limited by any reduction or limitation in the use of cookies. If the use or effectiveness of cookies were limited, we would have to switch to other technologies to gather demographic and behavioral information. While such technologies currently exist, they are substantially less effective than cookies. We would also have to develop or acquire other technology to prevent fraud. Replacement of cookies could require significant reengineering time and resources, might not be completed in time to avoid losing customers or advertising inventory, and might not be commercially feasible. Our use of cookie technology or any other technologies designed to collect Internet usage information may subject us to litigation or investigations in the future. Any litigation or government action against us could be costly and time-consuming, could require us to change our business practices and could divert management's attention.

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

We earn advertising revenue and make payments to Web publishers based on the number of impressions, clicks and actions from advertisements delivered on our network of Web sites and email lists. Advertisers' and Web publishers' willingness to use our services and join our network will depend on the extent to which they perceive our measurements of clicks to be accurate and reliable. Advertisers and Web publishers often maintain their own technologies and methodologies for counting

clicks, and from time to time we have had to resolve differences between our measurements and theirs. Any significant dispute over the proper measurement of clicks or other user responses to advertisements could cause us to lose customers or advertising inventory.

IF WE FAIL TO COMPETE EFFECTIVELY AGAINST OTHER INTERNET ADVERTISING COMPANIES, WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY AND OUR REVENUE COULD DECLINE.

The Internet advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing client demands. The introduction of new services embodying new technologies and the emergence of new industry standards and practices could render our existing services obsolete and unmarketable or require unanticipated investments in research and development. Our failure to adapt successfully to these changes could harm our business, results of operations and financial condition.

The market for Internet advertising and related services is intensely competitive. We expect this competition to continue to increase because there are no significant barriers to entry. Increased competition may result in price reductions for advertising space, reduced margins and loss of our market share. Our principal competitors include other companies that provide advertisers with Internet advertising solutions, such as CPM, CPC, CPL or CPA, and companies that offer pay-per-click search services. We directly compete with a number of competitors in the CPC market segment, such as Advertising.com. We compete in the performance-based marketing segment with CPL and CPA performance-based companies such as Direct Response and Linkshare, and we compete with other Internet advertising networks that focus on the traditional CPM model, including 24/7 Real Media. We also compete with pay-per-click search companies such as Overture, recently acquired by Yahoo, Google and FindWhat. Large Web sites with brand recognition, such as Yahoo, AOL and MSN, have direct sales personnel and substantial proprietary inventory that provide significant competitive advantage compared to our networks and have significant impact on pricing for online advertising. These companies have longer operating histories, greater name recognition and have greater financial and marketing resources than we have.

Competition for advertising placements among current and future suppliers of Internet navigational and informational services, high-traffic Web sites and ISPs, as well as competition with other media for advertising placements, could result in significant price competition, declining margins and/or reductions in advertising revenue. In addition, as we continue to expand the scope of our Web services, we may compete with a greater number of Web publishers and other media companies across an increasing range of different Web services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition would be negatively affected. We will also compete with traditional advertising media, such as direct mail, television, radio, cable and print, for a share of advertisers' total advertising budgets. Many current and potential competitors enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic Web sites, and significantly greater financial, technical and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue could decline.

OUR REVENUE GROWTH COULD BE NEGATIVELY IMPACTED IF INTERNET USAGE AND THE DEVELOPMENT OF INTERNET INFRASTRUCTURE DO NOT CONTINUE TO GROW.

Our business and financial results will depend on continued growth in the use of the Internet. Internet usage may be inhibited for a number of reasons, such as: inadequate network infrastructure; security concerns; inconsistent quality of service; and unavailability of cost-effective, high-speed service.

If Internet usage grows, our infrastructure may not be able to support the demands placed on it and our performance and reliability may decline. In addition, Web sites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure, and as a result of sabotage, such as electronic attacks designed to interrupt service on many Web sites. The Internet could lose its viability as a commercial medium due to delays in the development or adoption of new technology required to accommodate increased levels of Internet activity. If use of the Internet does not continue to grow, or if the Internet infrastructure does not effectively support our growth, our revenue could be materially and adversely affected.

OUR LONG-TERM SUCCESS MAY BE MATERIALLY ADVERSELY AFFECTED IF THE MARKET FOR E-COMMERCE DOES NOT GROW OR GROWS SLOWER THAN EXPECTED.

Because many of our customers' advertisements encourage online purchasing, our long-term success may depend in part on the growth and market acceptance of e-commerce. Our business will be adversely affected if the market for e-commerce does not continue to grow or grows slower than now expected. A number of factors outside of our control could hinder the future growth of e-commerce, including the following:

In particular, any well-publicized compromise of security involving Web-based transactions could deter people from purchasing items on the Internet, clicking on advertisements, or using the Internet generally, any of which could cause us to lose customers and advertising inventory and could materially, adversely affect our revenue.

The successful integration of the companies we have acquired will depend in part on the retention of personnel critical to our combined business and operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, technical, sales and customer support personnel that are critical to the success of the integrated company, resulting in disruption of operations, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs and otherwise diminishing anticipated benefits of these acquisitions.

Our future success is substantially dependent on the continued service of our key senior management. Our employment agreements with our key personnel are short-term and on an at-will basis. We do not have key-person insurance on any of our employees. The loss of the services of any member of our management team, or of any other key employees, could divert management's time and attention, increase our expenses and adversely affect our ability to conduct our business efficiently. Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. We have experienced difficulty from time to time in attracting the personnel necessary to support the growth of our business, and may experience similar difficulties in the future.

DELAWARE LAW AND OUR STOCKHOLDER RIGHTS PLAN CONTAIN ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER ATTEMPTS THAT COULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring the Company without the board of director's consent for at least three years from the date they first hold 15% or more of the voting stock. In addition, our Stockholder Rights Plan has significant anti-takeover effects by causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors.

SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, WHICH COULD CAUSE US TO LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process users' responses to advertisements, would reduce significantly the attractiveness of our solutions to advertisers and Web publishers. 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 computer systems will be vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. We lease server space in Los Angeles and Sunnyvale, California; Louisville, Kentucky; Pittsburgh, Pennsylvania and Tokyo, Japan. Therefore, any of the above factors affecting the Los Angeles, Sunnyvale, Louisville, Pittsburgh or Tokyo areas would substantially harm our business. Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future. Our data storage centers incorporate redundant systems, consisting of additional servers, but our primary system does not switch over to our backup system automatically. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

Our future success depends in part on the efficient performance of our software and technology, as well as the efficient performance of the systems of third parties. As the numbers of Web pages and Internet users increase, our services and infrastructure may not be able to grow to meet the demand. A sudden and unexpected increase in the volume of advertising delivered through our servers or in click rates could strain the capacity of the software or hardware that we have deployed. Any capacity constraints we experience could lead to slower response times or system failures and adversely affect the availability of advertisements, the number of advertising views delivered and the level of user responses received, which would harm our revenue. To the extent that we do not effectively address capacity constraints or system failures, our business, results of operations and financial condition could be harmed substantially. We also depend on the Internet service providers, or ISPs, that provide consumers with access to the Web sites on which our customers' advertisements appear. Internet users have occasionally experienced difficulties connecting to the Web due to failures of their ISPs' systems. Any disruption in Internet access provided by ISPs or failures by ISPs to handle the higher volumes of traffic expected in the future could materially and adversely affect our revenue.

IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

Our revenue and operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and investors or our own forecasts in some future periods. If this happens, the market price of our common stock may fall. The factors that may affect our quarterly operating results include:

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Any decline in the economic prospects of advertisers or the economy generally may alter current or prospective advertisers' spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations and financial condition.

IF WE DO NOT SUCCESSFULLY DEVELOP OUR INTERNATIONAL STRATEGY, OUR REVENUE AND CASH FLOWS AND THE GROWTH OF OUR BUSINESS COULD BE HARMED.

We initiated operations, through joint ventures and wholly-owned subsidiaries or divisions, in Japan in 1998, in the United Kingdom in 1999, and France and Germany in 2000. Our foreign operations subject us to foreign currency exchange risks. We currently do not utilize hedging instruments to mitigate foreign exchange risks.

Our international expansion will subject us to additional foreign currency exchange risks and will require management's attention and resources. We expect to pursue expansion through a number of international alliances and to rely extensively on these business partners initially to conduct operations, establish local networks, register Web sites as affiliates and coordinate sales and marketing efforts. Our success in these markets will depend on the success of our business partners and their willingness to dedicate sufficient resources to the relationships. We cannot assure you that we will be successful in our efforts overseas. International operations are subject to other inherent risks, including:

Our failure to address these risks adequately could materially and adversely affect our business, results of operations and financial condition.

WE MAY BE LIABLE FOR CONTENT DISPLAYED ON OUR NETWORKS OF PUBLISHERS WHICH COULD INCREASE OUR EXPENSES.

We may be liable to third parties for content in the advertising we deliver if the artwork, text or other content involved violates copyright, trademark, or other intellectual property rights of third parties or if the content is defamatory. Any claims or counterclaims could be time-consuming, could result in costly litigation and could divert management's attention.

REVENUE GENERATED BY OUR TECHNOLOGY PRODUCTS AND SERVICES DEPEND UPON A LIMITED NUMBER OF CLIENTS, AND IF WE LOSE A MAJOR CLIENT FOR THESE PRODUCTS OR SERVICES, OUR REVENUE MAY BE SIGNIFICANTLY REDUCED.

For the year ended December 31, 2003, revenue from our technology products and services accounted for 24.3% of our revenue. Revenue generated by our technology products and services have been derived from a limited number of advertisers and advertising agencies. Our results of operations would be materially adversely impacted by the loss of any of these clients. For the year ended December 31, 2003, one individual company accounted for 9.9% of our overall revenue and 39.8% of revenue generated by our Technology segment. Another customer accounted for 18.9% of our Technology segment revenue. We expect that these and other entities may continue to account for a significant percentage of our revenue generated by our technology products and services. Current advertisers may not continue to purchase advertising services from us or may significantly reduce their purchases or we may not be able to successfully attract additional advertisers, all of which would have a material adverse impact on our results of operations. If sales of our technology products and services do not grow, we will be unable to grow our Technology segment.

IF WE FAIL TO ESTABLISH, MAINTAIN AND EXPAND OUR TECHNOLOGY BUSINESS AND MARKETING ALLIANCES AND PARTNERSHIPS, OUR ABILITY TO GROW COULD BE LIMITED, WE MAY NOT ACHIEVE DESIRED REVENUE AND OUR STOCK PRICE MAY DECLINE.

In order to grow our technology business, we must generate, retain and strengthen successful business and marketing alliances with advertising agencies.

We depend, and expect to continue to depend, on our business and marketing alliances, which are companies with which we have written or oral agreements to work together to provide services to our clients and to refer business from their clients and customers to us. If companies with which we have business and marketing alliances do not refer their clients and customers to us to perform their online campaign and message management, our revenue and results of operations would be severely harmed.

WE WILL BE DEPENDENT UPON TECHNOLOGIES, INCLUDING OUR MOJO, ADWARE, COMMISSION JUNCTION, HI-SPEED MEDIA, SEARCH123 AND BE FREE TECHNOLOGIES, FOR OUR FUTURE REVENUE, AND IF THESE TECHNOLOGIES DO NOT GENERATE REVENUE, OUR BUSINESS MAY FAIL.

Our future revenue is likely to be dependent on the acceptance by clients of the use of technologies, which we believe to be the cornerstone of the technology business. If these technologies

do not perform as anticipated or otherwise do not attract clients to use our services, our operations will suffer. In addition, we have incurred and will continue to incur significant expense developing our technologies. If our revenue generated from the use of our technologies does not cover these development costs, our financial condition would suffer.

IF OUR TECHNOLOGIES SUFFER FROM DESIGN DEFECTS, WE MAY NEED TO EXPEND SIGNIFICANT RESOURCES TO ADDRESS RESULTING PRODUCT LIABILITY CLAIMS.

Our business will be harmed if our technologies suffer from design or performance defects and, as a result, we could become subject to significant product liability claims. Technology as complex as our technology may contain design and/or performance defects which are not detectable even after extensive internal testing. Such defects may become apparent only after widespread commercial use. Our contracts with our clients currently do not contain provisions to completely limit our exposure to liabilities resulting from product liability claims. Although we have not experienced any product liability claims to date, we cannot assure you that we will not do so in the future. A product liability claim brought against us, which is not adequately covered by our insurance, could materially harm our business.

TECHNOLOGY SALES AND IMPLEMENTATION CYCLES ARE LENGTHY, WHICH COULD DIVERT OUR FINANCIAL AND OTHER RESOURCES, AND ARE SUBJECT TO DELAYS, WHICH COULD RESULT IN DELAYED REVENUE.

If the sales and implementation cycle of our technology products and services are delayed, our revenue will likewise be delayed. Our sales and implementation cycles are lengthy, causing us to recognize revenue long after our initial contact with a client. During our sales effort, we spend significant time educating prospective clients on the use and benefit of our message management services. As a result, the sales cycle for our products and services is long, ranging from a few weeks to several months for our larger clients. The sales cycle for our message management services and media management applications is likely to be longer than the sales cycle for competitors because we believe that clients may require more extensive approval processes related to integrating internal business information with their advertising campaigns. In addition, in order for a client to implement our services, the client must commit a significant amount of resources over an extended period of time. Furthermore, even after a client purchases our services, the implementation cycle is subject to delays. These delays may be caused by factors within our control, such as possible technology defects, as well as those outside our control, such as clients' budgetary constraints, internal acceptance reviews, functionality enhancements, lack of appropriate customer staff to implement our media management applications and the complexity of clients' advertising needs. Also, failure to deliver service or application features consistent with delivery commitments could result in a delay or cancellation of a client agreement.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM UNAUTHORIZED USE, WHICH COULD DIMINISH THE VALUE OF OUR SERVICES, WEAKEN OUR COMPETITIVE POSITION AND REDUCE OUR REVENUE.

Our success depends in large part on our proprietary technologies, including tracking management software, our affiliate marketing technologies and our MOJO platform. In addition, we believe that our trademarks are key to identifying and differentiating our services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our services could be diminished and our competitive position may suffer.

We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-party software providers could copy or otherwise obtain and use our technology without authorization or develop

similar technology independently which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendor clients and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our services or technologies. Our precautions may not prevent misappropriation of our services 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.

IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES, WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

The Internet advertising market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing customer demands. The introduction of new products and services embodying new technologies and the emergence of new industry standards and practices can render existing products and services obsolete and unmarketable or require unanticipated investments in research and development. Our success will depend on our ability to adapt to rapidly changing technologies, to enhance existing solutions and to develop and introduce a variety of new solutions to address our customers' changing demands. For example, advertisers are increasingly requiring Internet advertising networks to have the ability to deliver advertisements utilizing new formats that surpass stationary images and incorporate rich media, such as video and audio, interactivity, and more precise consumer targeting techniques. Our system does not support some types of advertising formats, such as certain video and audio formats, and many of the Web sites in our network have not implemented systems to allow rich media advertisements. In addition, an increase in the bandwidth of Internet access resulting in faster data delivery may provide new products and services that will take advantage of this expansion in delivery capability. If we fail to adapt successfully to such developments, we could lose customers or advertising inventory. We purchase most of the software used in our business from third parties. We intend to continue to acquire technology necessary for us to conduct our business from third parties. We cannot assure you that, in the future, these technologies will be available on commercially reasonable terms, or at all. We may also experience difficulties that could delay or prevent the successful design, development, introduction or marketing of new solutions. Any new solution or enhancement that we develop will need to meet the requirements of our current and prospective customers and may not achieve significant market acceptance. If we fail to keep pace with technological developments and the introduction of new industry and technology standards on a cost-effective basis, our expenses could increase, and we could lose customers or advertising inventory.

CHANGES IN GOVERNMENT REGULATION AND INDUSTRY STANDARDS COULD DECREASE DEMAND FOR OUR SERVICES AND INCREASE OUR COSTS OF DOING BUSINESS.

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Web and adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children's privacy, copyrights, sending of unsolicited commercial email (e.g., the Federal CAN-Spam Act of 2003) and taxation. Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, Spyware, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, acceptable content, taxation and quality of products and services. This legislation could

hinder growth in the use of the Web generally and decrease the acceptance of the Web as a communications, commercial and advertising medium.

Due to the global nature of the Web, it is possible that, although our transmissions originate in California, Kentucky, Pennsylvania and Japan, the governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. In addition, the growth and development of the market for 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. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine how existing laws, including those governing intellectual property, privacy, libel and taxation, apply to the Internet and Internet advertising. 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, or the application of existing laws to the Internet or Internet-based advertising.

WE COULD BE HELD LIABLE FOR OUR OR OUR CLIENTS' FAILURE TO COMPLY WITH FEDERAL, STATE AND FOREIGN LAWS GOVERNING CONSUMER PRIVACY.

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices. Any failure by us to comply with applicable foreign, federal and state laws and regulatory requirements of regulatory authorities may result in, among other things, indemnification liability to our clients and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. Recently, class action lawsuits have been filed alleging violations of privacy laws by Internet service providers. The European Union's directive addressing data privacy limits our ability to collect and use information regarding Internet users. These restrictions may limit our ability to target advertising in most European countries. Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the high-technology and direct marketing industries are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us adversely. Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our clients and us. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these regulations may have on our business. However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

Our customers are also subject to various federal and state regulations concerning the collection and use of information regarding individuals. These laws include the Children's Online Privacy Protection Act, the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the CAN SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our clients are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our clients use our technology in a manner that is not in compliance with these laws or their own stated privacy standards.

Our common stock has been publicly traded only since March 30, 2000. The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering.

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of technology companies. As a result, the market price of our common stock may materially decline, regardless of our operating performance. 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. We may become involved in this type of litigation in the future. Litigation of this type is often expensive and diverts management's attention and resources.

IF REQUIREMENTS RELATING TO ACCOUNTING TREATMENT FOR EMPLOYEE STOCK OPTIONS ARE CHANGED, WE MIGHT DECIDE TO CHANGE OUR COMPENSATION PRACTICES, WHICH MIGHT INCREASE OUR CASH COMPENSATION EXPENSE.

We currently account for the issuance of stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." If proposals currently under consideration by administrative and governmental authorities are adopted, we may be required to treat the value of the stock options granted to employees as compensation expense. Such a change would likely have a negative effect on our earnings. In response to a requirement to expense the value of stock options, we might decide to decrease the number of employee stock options granted to our employees. Such a reduction could affect our ability to retain existing employees and attract qualified candidates, and increase the cash compensation we would have to pay to them. An increase in employee wages and salaries would decrease our cash available for marketing, product development and other uses.

Our principal executive offices are located in Westlake Village, California, where we lease a property with approximately 14,300 square feet of space. This facility is also used by our Media segment's operations. Other leased facilities used in our Media segment operations include a 3,200 square foot facility in Sherman Oaks, California, and a 21,700 square foot facility in San Francisco and 7,500 square foot facility in New York, New York, shared with our Technology Segment.

Leased facilities used by our Affiliate Marketing segment include an approximate 35,700 square foot facility in Marlborough, Massachusetts and an approximate 24,000 square foot facility in Pittsburgh, Pennsylvania, both used by our Be Free operations, and an approximate 17,700 square foot facility used by our Commission Junction operations in Santa Barbara, California.

Our Technology segment occupies an approximate 21,700 square foot facility in San Francisco, California, and 7,700 square foot facility in New York, New York, both shared by our Mediaplex operations and our Media Segment, and an approximate 20,800 square feet of office space for our AdWare Systems enterprise solutions organization in Louisville, Kentucky.

We also lease small office space and facilities in Agoura Hills, California; Tarzana, California; London, England; Paris, France; Munich, Germany and Tokyo, Japan. In addition, we use third-party co-location facilities that house our web servers in Sunnyvale, California; Pittsburgh, Pennsylvania and El Segundo, California. Our existing office space is adequate for our current operations. For additional information regarding our obligations under leases, see note 13 to our consolidated financial statements included in this Report.

On September 27, 2000, Joseph Lorenc, a former employee of Be Free, Inc. filed a lawsuit against Be Free and two officers of Be Free, Steven Joseph and Gordon Hoffstein, in the United States

District Court, District of Massachusetts. The complaint alleges, among other things, breach of contract. Lorenc seeks, among other things, compensatory damages, punitive damages and attorney's fees to the greatest extent allowed by law. The case is now pending before the state court in Massachusetts. The case is set for trial in May of 2004. ValueClick believes that the plaintiffs' allegations are without merit and intends to vigorously defend itself. ValueClick has not recorded an accrual related to damages, if any, resulting from this case, as an unfavorable outcome is, in management's opinion, not probable.

This case was filed on September 5, 2003 and brought against ValueClick and Company executives Sam Paisley, Jim Zarley and Scott Barlow, by Gurbaksh Chahal and Tajinder Chahal for, among other things, fraud. The Chahals are former employees of the Company's Click Agents Inc. subsidiary and the case arises out of the Company's repurchase of the Chahals' ValueClick stock. The case is pending before the Los Angeles County Superior Court. The Chahals seek, among other things, general, special and punitive damages according to proof as well as the imposition of a constructive trust. The Company believes this case to be wholly without merit and intends to vigorously defend itself. ValueClick has not recorded an accrual related to damages, if any, resulting from this case, as an unfavorable outcome is, in management's opinion not probable.

Other than the matters discussed above, we are not a party to any other material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows or financial condition. From time to time, we may become subject to additional legal proceedings, claims, and litigation arising in the ordinary course of business. In addition, we may receive letters alleging infringement of patent or other intellectual property rights. Our management believes that these letters are without merit and intends to contest them vigorously.

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

Our common stock has traded on The NASDAQ National Market under the symbol "VCLK" since our initial public offering on March 30, 2000. The following table sets forth, for the periods indicated, the high and low sales prices per share of the common stock as reported on the Nasdaq National Market. On December 31, 2003, the last sale price of our common stock reported by The NASDAQ National Market was $9.07 per share.

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2003
Fourth Quarter	$	10.75	$	7.35
Third Quarter		9.96		6.10
Second Quarter		6.38		3.18
First Quarter		3.21		2.65

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2002
Fourth Quarter	$	2.87	$	2.00
Third Quarter		3.10		2.11
Second Quarter		3.24		2.55
First Quarter		3.11		2.35

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2001
Fourth Quarter	$	2.93	$	1.87
Third Quarter		3.03		1.95
Second Quarter		3.74		2.58
First Quarter		5.88		3.03

As of February 29, 2004, there were 700 stockholders of record who held shares of our common stock.

We have not declared or paid any cash dividends on our capital stock since our inception and we intend to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.

The selected consolidated financial data set forth below with respect to our consolidated statement of operations for each of the years ended December 31, 2003, 2002 and 2001 and with respect to our consolidated balance sheet as of December 31, 2003 and 2002 have been derived from the audited

financial statements of ValueClick which are included elsewhere herein. The consolidated statement of operations data for the years ended 2000 and 1999 and the consolidated balance sheet data as of December 31, 2001, 2000 and 1999 have been derived from our audited consolidated financial statements not included herein. The selected consolidated financial data set forth below is qualified in our entirety by, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes to those statements included elsewhere herein.

	Year ended
	2003		2002		2001		2000		1999
Sales and Marketing	$	113	$	488	$	864	$	1,610	$	1,122
General and Administrative		181		779		1,376		2,718		1,893
Product Development		58		260		459		730		491

	$	352	$	1,527	$	2,699	$	5,058	$	3,506

The following table sets forth some of our selected financial information for our eight most recent fiscal quarters in dollar terms. In the opinion of our management, this unaudited financial information has been prepared on the same basis as the audited financial information, and includes all adjustments, consisting only of normal recurring adjustments, necessary to present this information fairly when read in conjunction with our financial statements and the related notes contained elsewhere herein. These operating results are not necessarily indicative of results of any future period.

	Three-Month Period Ended
	Dec. 31, 2003		Sept. 30, 2003		Jun. 30, 2003		Mar. 31, 2003		Dec. 31, 2002		Sept. 30, 2002		Jun. 30, 2002		Mar. 31, 2002
Sales and marketing	$	28	$	23	$	31	$	31	$	44	$	130	$	140	$	174
General and administrative		44		37		50		50		54		212		228		285
Product development		14		12		16		16		23		70		76		91

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

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Report on Form 10-K beginning on page F-1. The following discussion contains forward-looking statements that involve risks and uncertainties including anticipated financial performance, business prospects, anticipated capital expenditures and other similar matters, which reflect managements best judgment based on factors currently known. Actual results could differ materially from those discussed herein. Factors that could cause or contribute to the differences are discussed in "Business—Risk Factors" and elsewhere in this Report.

In prior periods, we operated in two reportable operating segments: Media and Technology. With the acquisition of Commission Junction, Inc. ("Commission Junction") in December 2003, we reassessed our reportable operating segments and determined that we now have an additional reportable operating segment, Affiliate Marketing, which combines the operations of Be Free, Inc. ("Be Free") and Commission Junction. For prior periods, Be Free was included in the technology reporting segment. Accordingly, our prior period operating segment information has been reclassified to conform to 2003 presentation.

We derive our revenue from three business segments based on the types of products and services provided. These business segments are Media, Affiliate Marketing and Technology.

MEDIA—Our Media segment provides a comprehensive suite of online media services and tailored programs that help marketers create awareness, attract visitors and generate leads and sales through the Internet. Our Media segment has grown both organically and through the acquisition of complementary firms such as Search123.com, completed in May 2003, and Hi-Speed Media, completed in December 2003.

We offer advertisers and agencies a range of online media solutions in the categories of Web/Display Advertising, Email Marketing, Lead Generation Marketing, and Search Marketing that are described in detail in Item 1 of this document. To accomplish this, we have partnered with thousands of online publishers to provide advertisers and agencies with access to one of the largest and most reputable online advertising networks, and we have employed rigorous network quality control and advanced proprietary targeting technology.

Our Media services are sold on a variety of pricing models, including cost-per-impression (CPM), cost-per-click (CPC), cost-per-lead (CPL), and cost-per-action (CPA).

AFFILIATE MARKETING—Our Affiliate Marketing segment operates through our wholly-owned subsidiaries Be Free acquired on May 23, 2002, and Commission Junction, acquired on December 7, 2003.

We offer affiliate marketing services that address the needs of advertisers that seek to build and manage a private-labeled network of third party online publishers, as well as advertisers that wish to conduct an affiliate marketing program through our existing network of third party online affiliate publishers. Affiliate Marketing revenues are driven by a combination of fixed fees and variable compensation that is based on either a cost-per-lead (CPL) scenario or on a percentage of transaction revenue generated from the programs managed with our affiliate marketing platforms.

TECHNOLOGY—Our Technology segment operates through our wholly-owned subsidiaries Mediaplex, Inc. (Mediaplex) and AdWare Systems, Inc. (AdWare), which were acquired on October 19, 2001.

Our Mediaplex subsidiary offers technology infrastructure tools and services that enable advertisers, advertising agencies and online publishers to implement and manage their own online display advertising and email campaigns. Our Mediaplex products are based on its proprietary MOJO® technology platform, which has the ability to automatically configure messages in response to real-time information from a marketer's enterprise data system and to provide ongoing campaign optimization. Mediaplex's revenues are primarily derived from software access and use charges paid by our software clients. These fees vary based on the client's use of the technology.

AdWare is an applications service provider ("ASP") delivering high-quality information management systems to advertising agencies, marketing communications companies, and public relations agencies. AdWare's revenue is generated primarily from monthly service fees paid by customers over the service periods.

Revenue, gross profit and total assets by segment are listed in the following table (in thousands). Media Segment revenue includes sales of certain Affiliate Marketing and Technology products made by Media operations outside the United States, amounting to $749,000 and $3,072,000, and $0 and $748,000, for the years ended 2003 and 2002, respectively.

Revenue. Net revenue from our Media, Affiliate Marketing and Technology segments accounted for $45.8 million, $24.3 million, and $22.4 million, respectively, resulting in net revenue for the year ended December 31, 2003 of $92.5 million compared to $62.6 million for 2002, an increase of $29.9 million or 47.9%. The increase in net revenue was a result of the inclusion of a full year of Be Free operations (versus seven months in the prior year), seven months of Search123 operations and one month of Commission Junction operations in the 2003 period, in addition to core growth in all three segments.

Cost of Revenue. Cost of revenue for the Media segment consists primarily of amounts that we pay to Web site publishers on the ValueClick consolidated networks. We pay these publishers on either a CPC, CPA, CPL or CPM basis. Cost of revenue for both the Media and Technology segments also includes depreciation on revenue producing technologies and Internet access costs. Cost of revenue was $32.0 million for the year ended December 31, 2003 compared to $21.7 million for 2002, an increase of $10.3 million or 47.4%. Cost of revenue decreased as a percentage of net revenue over the 2002 period. This decrease, as well as the corresponding increase in the gross profit margin to 65.4% for the year ended December 31, 2003 from 65.3% for the 2002 fiscal year, was primarily attributable to higher margins in our Technology segment and the inclusion of one full year of results from Be Free at a higher margin, partially offset by a decline in margins for our Japan operations.

Sales and Marketing. Sales and marketing expense consist primarily of compensation, sales commissions, travel, advertising, trade show costs and costs of marketing materials. Sales and marketing expenses for the year ended December 31, 2003 were $21.2 million compared to $17.0 million for 2002, an increase of $4.2 million or 24.5%. The increase in sales and marketing expenses was due primarily to the inclusion of sales and marketing expense for Be Free for a full year and the addition of Search123 and Commission Junction for seven months and one month, respectively. Our sales and marketing costs as a percentage of revenue decreased to 22.9% for the year ended December 31, 2003 from 27.2% for 2002 due primarily to the productivity of our sales teams.

General and Administrative. General and administrative expense consists primarily of facilities costs, executive and administrative compensation and professional services and other administrative costs. General and administrative expense increased to $19.7 million for the year ended December 31, 2003 from $17.8 million in 2002, an increase of $1.9 million or 10.8%. Our general and administrative costs as a percentage of revenue decreased to 21.3% for the year ended December 31, 2003 from 28.4% for 2002. General and administrative cost increases due to the inclusion of Be Free for a full year and the addition of Search123 and Commission Junction for seven months and one month, respectively, were offset partially by on-going cost reduction activities. The decrease in general and administrative expense as a percent of revenue resulted from improved operating leverage and the on-going cost reduction efforts.

Product Development. Product development costs include expenses for the development of new technologies designed to enhance the performance of our service, including the salaries and related expenses for our software engineering department, as well as costs for contracted services and supplies. With the exception of certain internal use software qualifying for capitalization, all product development costs have been expensed as incurred. Product development costs were $10.5 million for the years ended December 31, 2003 and 2002. Product development cost increases resulting from the inclusion of Be Free for a full year and the addition of Search123 and Commission Junction for seven months and one month, respectively, were offset by continuing efforts to reduce the number of our co-location facilities and consolidate technology teams.

Stock-Based Compensation. Stock-based compensation included in the accompanying consolidated statements of operations reflects the amortization of the difference between the deemed fair value of our common stock for financial accounting purposes and the exercise price of options on the date of the options were granted. Stock-based compensation expense for the year ended December 31, 2003 amounted to $352,000, which relates primarily to the amortization of existing deferred compensation recorded in prior periods for stock options and restricted shares. The decrease in stock-based compensation from $1.5 million for the year ended December 31, 2002 relates to our amortization method that charges to expense a higher portion of the deferred stock-based compensation in the earlier years of the option vesting period. We anticipate higher stock-based compensation expense in 2004 due to deferred compensation recorded for options assumed in the Hi-Speed and Commission Junction acquisitions, which closed in December 2003.

Amortization of Intangible Assets. Amortization of intangible assets for the year ended December 31, 2003 of $1.6 million represents principally the amortization of intangible assets acquired through business combinations and purchased intellectual property. Amortization of intangible assets for the year ended December 31, 2002 of $533,000 represents principally the amortization of intangible assets acquired through business combinations. We anticipate higher amortization of intangible assets in 2004 due to additional intangible assets purchased in the Search 123, Hi-Speed Media and Commission Junction acquisitions, closed in 2003.

For the year ended December 31, 2001, amortization of intangible assets also included the amortization of goodwill created as a result of the acquisitions of Bach Systems and a majority interest in ValueClick Japan.

Merger-Related Costs. Merger-related costs represent the direct transaction costs incurred related to the merger with Z Media in January 2001, accounted for as a pooling-of-interests.

Restructuring charge. In the second quarter of 2002 and in the fourth quarter of 2001, we recorded restructuring charges of $2.3 million and $515,000, respectively. These restructuring charges were the result of certain redundancies as a result of our acquisitions of Be Free and Mediaplex and primarily represent a provision for consolidating certain leased facilities, which will be paid out through 2010. As of December 31, 2003, $922,000 of the charges had been paid.

Provision for Income Taxes. For the year ended December 31, 2003, our provision for federal, state and foreign income taxes amounted to $830,000, compared to $163,000 for 2002. The effective income tax rate reflects certain non-deductible expenses, including the stock-based compensation charges. Additionally, income tax benefits from the available net operating losses are not fully reflected in the provision as the realization of these benefits is not deemed more likely than not.

Minority Share of Income of ValueClick Japan. For the year ended December 31, 2003, minority share of loss of ValueClick Japan was $84,000 compared to minority share of income of $15,000 for the year ended December 31, 2002. We account for our interest in ValueClick Japan on a consolidated basis for financial reporting purposes, resulting in a minority interest in the net income or losses incurred by ValueClick Japan.

Cumulative Effect of a Change in Accounting Principle. On January 1, 2002, we adopted the accounting standards set forth in SFAS No. 142, "Goodwill and other Intangible Assets." Although the application of this standard did not change our evaluation of our other identifiable intangible assets, the initial application of this statement resulted in an impairment of goodwill of $7.6 million to write down goodwill related to the Bach Systems and ValueClick Japan acquisitions. The amount of the impairment was estimated based on a valuation process that considered both the estimated present value of future cash flows and the application of market value to revenue multiples for comparable publicly traded companies to the projected and historical revenue of Bach Systems and ValueClick Japan. The impairment amount was reported as a cumulative effect of a change in accounting principle during the first quarter of 2002.

Revenue. Net revenue from our Media segment, Affiliate Marketing segment, and our Technology segment accounted for $29.8 million, $11.9 million, and $20.9 million respectively, resulting in net revenue for the year ended December 31, 2002 of $62.6 million compared to $44.9 million for 2001, an increase of $17.7 million or 39.4%. The increase in net revenue was a result of the inclusion of the Technology segment in the 2002 period, with a full year of Mediaplex operations and seven months of Be Free operations. The decline in Media segment revenue reflects the continued effects of the generally weak U.S. and Japan economies and advertising markets, offset by increased media revenue in the Europe market.

Cost of Revenue. Cost of revenue for the Media segment consists primarily of amounts that we pay to Web site publishers on the ValueClick consolidated networks. We pay these publishers on either a CPC, CPA, CPL or CPM basis. Cost of revenue for both the Media and Technology segments also includes depreciation costs of the revenue producing technologies and Internet access costs. Cost of revenue was $21.7 million for the year ended December 31, 2002 compared to $20.4 million for 2001, an increase of $1.4 million or 6.7%. Cost of revenue decreased as a percentage of net revenue over the 2001 period. This decrease, as well as the corresponding increase in the gross profit margin to 65.3% for the year ended December 31, 2002 from 54.6% for the 2001 fiscal year, was primarily attributable to the change in product mix as a result of the inclusion of the operations of our higher profit margin Technology segment in the 2002 period.

Sales and Marketing. Sales and marketing expenses consist primarily of compensation, sales commissions, travel, advertising, trade show costs and costs of marketing materials. Sales and marketing expenses for the year ended December 31, 2002 were $17.0 million compared to $12.0 million for 2001, an increase of $5.0 million or 42.0%. The increase in sales and marketing expenses was due primarily to the addition of sales and marketing personnel for our Affiliate Marketing and Technology segments. Our sales and marketing costs as a percentage of revenue increased to 27.7% for the year ended December 31, 2002 from 26.7% for 2001 due primarily to the mix of sales and marketing personnel within our Affiliate Marketing and Technology segments.

General and Administrative. General and administrative expenses consist primarily of facilities costs, executive and administrative compensation and professional service and other public reporting fees. General and administrative expenses increased to $17.8 million for the year ended December 31, 2002 compared to $13.3 million for the 2001 year, an increase of $4.5 million or 33.7%. General and administrative expenses increased due primarily to the addition of facilities costs and additional executive and administrative personnel in our Affiliate Marketing and Technology segments offset by management's efforts to scale general and administrative costs in line with revenue, as well as cost reductions associated with the merger integration activities related to Mediaplex and Be Free.

Product Development. Product development costs include expenses for the development of new technologies designed to enhance the performance of our service, including the salaries and related expenses for our software engineering department, as well as costs for contracted services and supplies. With the exception of certain internal use software qualifying for capitalization, all product development costs have been expensed as incurred. Product development costs for the year ended December 31, 2002 were $10.5 million compared to $5.3 million for 2001, an increase of $5.2 million or 96.9%. The increase in product development expenses was due primarily to the addition of engineers and support personnel in our Affiliate Marketing and Technology segments as a result of the acquisitions of Mediaplex and Be Free.

the options were granted. Stock-based compensation expense for the year ended December 31, 2002 amounted to $1.5 million, which relates primarily to the amortization of existing deferred compensation recorded in prior periods for stock options and restricted shares. The decrease in stock-based compensation from $2.7 million for the year ended December 31, 2001 relates to our amortization method that charges to expense a higher portion of the deferred stock-based compensation in the earlier years of the option vesting period, offset by additional deferred compensation recorded in 2002 related to stock options granted to Be Free employees.

Amortization of Intangible Assets and Acquired Software. Amortization of intangible assets for the year ended December 31, 2002 represents principally the amortization of software acquired through business combinations. For the year ended December 31, 2001, amortization of intangible assets also included the amortization of goodwill created as a result of the acquisitions of Bach Systems and a majority interest in ValueClick Japan.

Merger-Related Costs. Merger-related costs represent the direct transaction costs incurred related to the mergers with ClickAgents and Z Media in December 2000 and January 2001, respectively, accounted for as a pooling-of-interests.

Restructuring charge. In the second quarter of 2002 and in the fourth quarter of 2001, we recorded restructuring charges of $2.3 million and $515,000, respectively. These restructuring charges were the result of certain redundancies as a result of our acquisitions of Mediaplex and Be Free and primarily represent a provision for consolidating certain leased facilities which will be paid out through 2010. As of December 31, 2002, $484,000 of the charges had been paid.

Interest Income, Net. Interest income, net principally consists of interest earned on our cash and cash equivalents and marketable debt securities and is net of interest paid on debt obligations. Interest income was $5.9 million for the year ended December 31, 2002 compared to $5.1 million for 2001. The increase is attributable to increased balances of cash and cash equivalents and marketable debt securities resulting from the Mediaplex and Be Free acquisitions offset by the effects of decreasing average investment yields due to declines in interest rates since 2001. Interest income in future periods may decline in correlation with decreases in the market rates of our investment and with the average cash and investment balances we maintain which may be reduced by funds used for items such as our Stock Repurchase Program and capital expenditures.

Provision for Income Taxes. For the year ended December 31, 2002, our provision for federal, state and foreign income taxes amounted to $163,000, compared to $34,000 for 2001. The effective income tax rate reflects certain non-deductible expenses, including the stock-based compensation charges and goodwill amortization and impairment charges. Additionally, income tax benefits from the available net operating losses are not fully reflected in the 2002 and 2001 provisions as the realization of these benefits is not deemed more likely than not. The tax expense in 2002 and 2001 relate primarily to state and foreign taxes.

Minority Share of Income of ValueClick Japan. Minority share of income of ValueClick Japan was $15,000 for the year ended December 31, 2002. We account for our interest in ValueClick Japan on a consolidated basis for financial reporting purposes, resulting in a minority interest in the net income or losses incurred by ValueClick Japan.

Since our inception, we have financed our operations through working capital generated from operations, equity financing and corporate development activities. At December 31, 2003, our combined cash and cash equivalents and marketable securities balances totaled $220.1 million. Net cash provided by operating activities totaled $15.9 million for the year ended December 31, 2003 compared to

$1.7 million in the prior year and net cash used in operations of $5.0 million in 2001. The increases in both 2003 compared to 2002 and 2002 compared to 2001 are attributable primarily to increased income from operations.

The net cash used in investing activities for the year ended December 31, 2003 of $0.5 million resulted primarily from the use of $18.5 million for acquisitions and $3.2 million for equipment purchases, offset by the net sale of marketable securities of $22.5 million, which was used to fund acquisitions and purchases of ValueClick common stock pursuant to the Stock Repurchase Program. For the year ended December 31, 2002, net cash provided by investing activities totaled $49.8 million, resulting primarily from the net sale of marketable securities, which was used primarily to fund purchases of ValueClick common stock pursuant to the Stock Repurchase Program. For the year ended December 31, 2001, net cash used in investing activities totaled $85.1 million and was due primarily from net purchases of marketable debt securities.

Net cash used in financing activities for the year ended December 31, 2003 of $8.8 million resulted from the use of $9.2 million in market purchases of ValueClick common stock pursuant to the Stock Repurchase Program and the repayment of $1.8 million on notes payable, offset by net proceeds received from the exercise of stock options of $2.2 million. For the year ended December 31, 2002, net cash used in financing activities totaled $53.8 million, resulting from the use of $56.2 million in market purchases of ValueClick common stock pursuant to the Stock Repurchase Program and the repayment of $0.8 million on notes payable, offset by proceeds received from the exercise of stock options of $3.3 million. For the year ended December 31, 2001, net cash used in financing activities totaled $0.5 million, primarily attributable to the use of $0.7 million for purchases of ValueClick common stock pursuant to the Stock Repurchase Program.

In September 2001, the board of directors authorized a $10 million Stock Repurchase Program to purchase outstanding shares of ValueClick common stock from time to time at prevailing market prices in the open market or through unsolicited negotiated transactions depending on market conditions. The Stock Repurchase Program was increased by the board of directors to $30 million in February 2002, to $50 million in July 2002 and to $75 million in October 2002. Under the program, the purchases are funded from available working capital, and the repurchased shares will be retired, held in treasury or used for ongoing stock issuances such as issuances under employee stock plans. There is no guarantee as to the exact number of shares that will be repurchased by us and we may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2003 and since the initiation of the Stock Repurchase Program we had repurchased a total of approximately 26.3 million shares of our common stock for approximately $71.4 million, $68.0 million of which was purchased pursuant to the Stock Repurchase Program. As a result of the October 2002 increase to the Stock Repurchase Program, up to $7.0 million of our capital may be used to purchase shares of our outstanding common stock.

Future minimum lease payments under non-cancellable operating and capital leases and related sublease income with initial or remaining lease terms in excess of one year as of December 31, 2003 are as follows (in thousands):

We believe that our existing cash and cash equivalents and our marketable securities are sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. However, it is possible that we may need or elect to raise additional funds to fund our activities beyond the next year or to consummate acquisitions of other businesses, products or technologies. We could raise such funds by selling more stock to the public or to selected investors, or by borrowing money. In addition, even though we may not need additional funds, we may still elect to sell additional equity securities or obtain credit facilities for other reasons. We cannot assure you that we will be able to obtain additional funds on commercially favorable terms, or at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock.

Although we believe we have sufficient capital to fund our activities for at least the next twelve months, our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will depend on many factors, including:

Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting

principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, investments, deferred taxes, impairment of long-lived assets, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We apply the following critical accounting policies in the preparation of our consolidated financial statements:

Incurred in a Restructuring)." This Statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002, though early adoption is encouraged. The application of SFAS No. 146 did not have a material impact on our financial position, results of operations or cash flows.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosures Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The Company adopted the disclosure requirements of this interpretation that were effective on December 31, 2002. The recognition provisions of the interpretation adopted were effective for the Company in 2003 and are applicable only to guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did not have a material impact on our financial position, results of operations or cash flows.

In January 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". EITF issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Adoption of EITF Issue No. 00-21 did not have a material impact on our financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition Disclosure—an amendment of FAS 123" (SFAS No. 148). This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of FAS 148 are effective for financial statements for fiscal years ending after December 15, 2002, and disclosure requirements shall be effective for interim periods beginning after December 15, 2002. We intend to continue to account for stock-based compensation to our employees and directors using the intrinsic value method prescribed by APB Opinion No. 25, and related interpretations. We have made certain disclosures required by SFAS No. 148 in our consolidated financial statements for the year ended December 31, 2002 and began making the additional interim disclosures required by SFAS No. 148 in the first quarter of 2003. Accordingly, adoption of SFAS No. 148 did not have a material impact on our financial position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," clarifying accounting and reporting for derivative instruments and hedging activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with some exceptions, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for

mandatory redeemable financial instruments of nonpublic entities. Adoption of SFAS No. 150 did not have a material impact on our financial position, results of operations or cash flows.

In December 2003, the SEC issued SAB No. 104, "Revenue Recognition In Financial Statements". SAB No. 104 revises or rescinds portions of the interpretive guidance included in Topic 13 of the codification of Staff Accounting Bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. It also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13. The adoption of SAB No. 104 in the December 2003 quarter did not have a material impact on our financial position, results of operations or cash flows.

Inflation was not a material factor in either revenue or operating expenses during the past three fiscal years ended December 31, 2003, 2002 and 2001.

The primary objective of our investment activities is to preserve capital while at the same time maximizing yields without significantly increasing risk. We are exposed to the impact of interest rate changes and changes in the market values of our investments. Our interest income is sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on our cash equivalents and marketable debt securities. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest a portion of our excess cash in debt instruments of high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities, which have declined in market value due to changes in interest rates.

Marketable securities as of December 31, 2003 consist primarily of marketable debt securities in high-grade corporate and government securities with maturities of less than two years. As of December 31, 2003, our investment in marketable securities had a weighted-average time to maturity of approximately 303 days. We classify all of our investments as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. As of December 31, 2003, unrealized losses in our investments in marketable securities aggregated $77,000.

During the year ended December 31, 2003, our investments in marketable securities yielded an effective interest rate of 1.77%. If interest rates were to decrease 1%, the result would be an annual decrease in our interest income related to our cash and cash equivalents of approximately $1.8 million. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such action. Further, this analysis does not consider the effect of the change in the level of overall economic activity that could exist in such an environment.

We transact business in various foreign countries and are thus subject to exposure from adverse movements in other foreign currency exchange rates. This exposure is primarily related to revenue and operating expenses for ValueClick Japan and ValueClick Europe, which denominate their transactions in Japanese Yen and primarily in U.K. pounds, respectively. The effect of foreign exchange rate fluctuations for the year ended December 31, 2003 was not material to the consolidated results of operations. If there were an adverse change of 10% in overall foreign currency exchange rates over an entire year, the result of translations would be a reduction of revenue of approximately $2.1 million. Historically, we have not hedged our exposure to exchange rate fluctuations. Accordingly, we may experience economic loss and a negative impact on earnings, cash flows or equity as a result of foreign currency exchange rate fluctuations. We assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. As of December 31, 2003, we had $24.2 million in cash and cash equivalents denominated in foreign currencies, primarily the Japanese yen.

Our international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in these or other factors.

ValueClick, Inc. financial statements, schedules and supplementary data, as listed under Item 15, appear in a separate section of this Report beginning on page F-1.

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

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 ("Exchange Act") Rules 13a-15(e) and 15d-15(e)) under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

Changes in our internal control over financial reporting. Additionally, our Chief Executive Officer and Chief Financial Officer have determined that there have been no changes to our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required by this Item is incorporated by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders to be held June 3, 2004.

We have adopted a Code of Ethics and Business Conduct (the "Code") within the meaning of Item 406(b) of Regulation S-K. The Code applies to our principal executive, financial and accounting officers, and our directors, employees, agents and consultants. The Code is publicly available on our website at www.valueclick.com under "Corporate Info". If we make substantive amendments to the Code or grant any waiver, including any implicit waiver, to our principal executive, financial or accounting officer, or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.

The information required by this Item is incorporated by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders to be held June 3, 2003.

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

The following table provides aggregated information with respect to our compensation plans under which equity securities of ValueClick are authorized for issuance as of December 31, 2003:

The remaining information required by this Item is incorporated by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders to be held June 3, 2004.

The information required by this Item is incorporated by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders to be held June 3, 2004.

Exhibit Number		Description of Document
2.1(1)		Agreement and Plan of Merger, dated as of October 9, 2003, by and among ValueClick, NCJ Acquisition Corporation and Commission Junction, Inc.
2.2(2)		Agreement and Plan of Merger, dated as of May 30, 2003, by and among ValueClick, Search123.com Acquisition Corporation and Search123
2.3(3)		Agreement and Plan of Merger, dated as of March 20, 2002, by and among ValueClick, Bravo Acquisition I Corporation and Be Free, Inc.
2.4(4)		Agreement and Plan of Merger, dated as of July 1, 2001, by and among ValueClick, Mars Acquisition Corporation and Mediaplex, Inc.
3.1.1(5)		Amended and Restated Certificate of Incorporation of ValueClick
3.1.2(5)		Certificate of Amendment to Amended and Restated Certificate of Incorporation of ValueClick
3.2(5)		Amended and Restated Bylaws of ValueClick
4.1		See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws for ValueClick, Inc. defining the rights of holders of common stock of ValueClick, Inc.
4.2(5)		Specimen stock certificate for the ValueClick common stock
4.3(11)		Rights Agreement, dated as of June 4, 2002, between ValueClick, Inc. and Mellon Investor Services LLC, a New Jersey limited liability company, which includes the form of Certificate of Designation for the Series A junior participating preferred stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Series A Preferred Stock as Exhibit C.
10.1(5)		Form of Indemnification Agreement by and between ValueClick and directors and executive officers
10.2(5)		Deed of Assignment, dated January 1, 1999 by and between Web-Ignite Corporation and ValueClick
10.3(5)		Trademark Assignment, dated as of May 1, 1998 from Web-Ignite Corporation to ValueClick
10.4(5)		Exchange Agreement, dated December 31, 1998, by and between ValueClick and ValueClick, LLC
10.5(5)		Bill of Sale and Assignment and Assumption of Liabilities, dated December 31, 1998
10.6(5)		License and Option Agreement, dated January 1, 1999, by and between ValueClick, LLC and ValueClick Japan, Inc. in effect from January 1, 1999 to December 17, 1999

In our opinion, the accompanying consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of ValueClick, Inc. and its consolidated subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respect, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."

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

VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)

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

ValueClick, Inc., and its subsidiaries ("ValueClick" or "the Company") offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display/web advertising, search marketing, email marketing, and affiliate marketing. Additionally, the Company provides software that assists advertising agencies with information management regarding their financial, workflow, and offline media buying and planning processes. The broad range of products and services that the Company provides enables its customers to address all aspects of the marketing process, from strategic planning through execution, including results measurement and campaign refinements. By combining the Company's media, affiliate marketing and technology offerings with its experience in both online and offline marketing, the Company helps its customers optimize their marketing campaigns both on the Internet and through offline media.

In prior periods, the Company operated in two reportable operating segments: Media and Technology. With the acquisition of Commission Junction, Inc. ("Commission Junction") in December 2003, management reassessed the Company's reportable operating segments and determined that the Company now has an additional reportable operating segment, Affiliate Marketing, which combines the operations of Be Free, Inc. ("Be Free") and Commission Junction. For prior periods, Be Free was included in the Technology reporting segment. Accordingly, prior period operating segment information has been reclassified to conform to 2003 presentation.

The Company derives its revenue from three business segments based on the types of products and services provided. These business segments are Media, Affiliate Marketing and Technology.

MEDIA—ValueClick's Media segment provides a comprehensive suite of online media services and tailored programs that help marketers create awareness, attract visitors and generate leads and sales through the Internet. The Company's Media segment has grown both organically and through the acquisition of complementary firms such as Search123.com, completed in May 2003, and Hi-Speed Media, completed in December 2003.

The Company offers advertisers and agencies a range of online media solutions in the categories of Web/Display Advertising, Email Marketing, Lead Generation Marketing, and Search Marketing. The Company has aggregated thousands of online publishers to provide advertisers and agencies with access to one of the largest online advertising networks.

The Company's Media services are sold on a variety of pricing models, including cost-per-impression (CPM), cost-per-click (CPC), cost-per-lead (CPL), and cost-per-action (CPA).

AFFILIATE MARKETING—The ValueClick Affiliate Marketing segment operates through its wholly-owned subsidiaries Be Free, acquired on May 23, 2002, and Commission Junction, acquired on December 7, 2003.

The Company's Affiliate Marketing segment offers technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs. Specifically, the Company's affiliate marketing services enable its advertiser clients to: build relationships with affiliate partners, manage the offers they make available to their affiliate partners, track the online traffic, leads and sales that these offers drive to the advertiser's Website, analyze the effectiveness of the offers and affiliate partners and track the commissions due to their affiliates.

ValueClick's affiliate marketing services address the needs of advertisers that seek to build and manage a private-labeled network of third party online publishers, as well as advertisers that wish to conduct an affiliate marketing program through the Company's existing network of third party online affiliate publishers. Affiliate Marketing revenues are driven by a combination of fixed fees and variable compensation that is based on either a cost-per-lead (CPL) basis or on a percentage of transaction revenue generated from the programs managed with the Company's affiliate marketing platforms.

TECHNOLOGY—ValueClick's Technology segment operates through its wholly-owned subsidiaries Mediaplex, Inc. ("Mediaplex") and AdWare Systems, Inc. ("AdWare"), which were acquired on October 19, 2001.

Mediaplex offers technology infrastructure tools and services that enable advertisers, advertising agencies and online publishers to implement and manage their own online display advertising and email campaigns. Mediaplex's products are based on its proprietary MOJO® technology platform, which has the ability to automatically configure messages in response to real-time information from a marketer's enterprise data system and to provide ongoing campaign optimization. Mediaplex's revenues are primarily derived from software access and use charges paid by its software clients. These fees vary based on the client's use of the technology.

The consolidated financial statements include the accounts of the Company, its majority owned subsidiary and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements include the accounts of the Company and its subsidiaries from the dates of their respective acquisitions, acquisition of majority voting control or date of formation. For subsidiaries accounted for as a pooling of interests, all prior period financial statements have been restated to include the results of their operations.

Accounting principles generally accepted in the United States require management of the Company to make estimates and assumptions in the preparation of these consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

The most significant areas that require management judgment are revenue recognition, allowance for doubtful accounts, deferred income taxes, impairment of long-lived assets and goodwill, and contingencies and litigation. The accounting policies for these areas are discussed in this or other footnotes to these consolidated financial statements.

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. At December 31, 2003 and 2002, cash equivalents consist of money market accounts.

Marketable securities are classified as available-for-sale and accordingly are recorded at fair value with unrealized gains and losses reflected as a separate component of stockholders' equity, net of tax, until realized or until a determination is made that an other than temporary decline in market value has occurred. Factors considered by management in assessing whether an other than temporary impairment has occurred include: fair value is significantly below cost for a significant period of time, generally six months or more; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; and whether the Company has both the ability and intent to hold the investment. When it is determined that an other than temporary impairment has occurred, the investment is permanently written down to the market value at the end of the period in which it is determined that an other than temporary decline has occurred. The cost of securities sold is based upon the specific identification method.

Marketable securities at December 31, 2003 are comprised of investment grade corporate debt securities with an aggregate cost and estimated fair value of $183.6 million and $183.5 million, respectively. At December 31, 2002, the aggregate cost and estimated fair value of these financial instruments totaled $205.9 million.

Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets ranging from 3 to 5 years. Leasehold improvements are amortized over their estimated useful lives, or the term of the lease, whichever is shorter.

The Company tests goodwill for impairment in accordance with the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," adopted on January 1, 2002 (see Note 4). Accordingly, goodwill is tested at least annually at the reporting unit level or whenever events or circumstances indicate that goodwill might be impaired. At December 31, 2003, the Company's goodwill principally resides in the Affiliate Marketing and Media reporting units as a result of the 2003 acquisitions of Commission Junction (Affiliate Marketing), Search 123 and Hi-Speed Media (Media). The Company has elected to test for goodwill impairment annually as of December 31.

Management evaluates the recoverability of the Company's identifiable intangible assets and other long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which generally requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Events and circumstances considered by

the Company in determining whether the carrying value may not be recoverable include: significant changes in performance relative to expected historical or projected future operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company's stock price for a sustained period of time; and changes in the Company's business strategy. In determining if an impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If an impairment is indicated based on a comparison of the assets carrying value and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair market value of the asset.

The Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements". Under SAB 104, the Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant Company obligations remain and collection of the related receivable is reasonable assured.

The Company's Media segment revenue is principally derived from the delivery of advertising impressions, click-throughs, actions, as specifically defined, from click-throughs and customer leads delivered from third-party Web sites, online newsletters and email lists, comprising the ValueClick Consolidated Network (the "Network"). Revenue is recognized in the period that the advertising impressions, click-throughs or actions occur or when lead-based information is delivered, provided that no significant Company obligations remain and collection of the resulting receivable is reasonably assured and prices are fixed and determinable. To date, the Company's agreements have not required a guaranteed minimum number of click-throughs or actions.

The Company becomes obligated to make payments to third-party Web sites, online newsletters and email lists, which have contracted with the Company to be part of the Network, in the period the advertising impressions, click-throughs or actions are delivered. Such expenses are classified as cost of revenue in the accompanying consolidated statements of operations.

Revenue for the Company's Affiliate Marketing and Technology segments is generated primarily from fees for campaign management services and from application management services and professional services. Affiliate marketing and campaign management service revenue is recognized when the related services are performed, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured and fees are fixed and determinable. Application management services revenue consists of monthly recurring fees for hosting services and is recognized as the services are performed, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured and fees are fixed and determinable. The Company's application management services provide customers rights to access applications, hardware for the application access and customer service. The Company's customers do not have the right to take possession of the software at any time during the hosting agreement or at its termination. Contracts for application management services that exceed designated minimum monthly or quarterly volume usage are recognized as revenue by the Company in the month or quarter in which minimum volume is exceeded.

Deferred revenue consists of fees received or billed in advance of the delivery of the services or services performed in which cash receipt is not reasonably assured. This revenue is recognized when the services are provided and no significant Company obligations remain or when cash is received for previously performed services. To date, the Company has not had any barter transactions.

Cost of revenue consists of payments to third-party owners of Web sites, online newsletters and email lists, in the Company's Network, telecommunication costs and depreciation of equipment related to the Company's ad-delivery and affiliate marketing infrastructure.

Sales and marketing expenses include salaries, sales commissions, employee benefits, travel and related expenses for the Company's sales force, and advertising costs.

Advertising costs are expensed as incurred and totaled approximately $235,000, $129,000 and $979,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

General and administrative expenses include facility costs, professional service fees, salaries, related benefits and expenses for the executive, finance, legal and human resources personnel, and other general overhead costs.

Product development costs include expenses for the development of new technologies designed to enhance the performance of the Company's service, including the salaries and related expenses for its software engineering department, as well as costs for contracted services and supplies. With the exception of certain internal use software qualifying for capitalization, all product development costs have been expensed as incurred. The Company follows the guidance of Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." As of December 31, 2003, capitalized software development costs aggregated $473,000 net of related accumulated amortization of $1,085,000, compared to capitalized software development costs aggregated $841,000 net of related accumulated amortization of $233,000 as of December 31, 2002. Capitalized software costs are being amortized over 18 months. There were no capitalized software development costs as of December 31, 2001.

At December 31, 2003, the Company has six stock-based employee compensation plans which are described more fully in Note 9. The Company accounts for its employee stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and the related interpretations of FASB Interpretation (FIN) No. 44, "Accounting for Certain Transactions involving Stock Compensation." Accordingly, compensation expense related to employee stock options is recorded only if, on the date of the grant, the fair value of the underlying stock exceeds the exercise price.

Certain options have been granted or assumed with exercise prices below the market value of the underlying common stock on the grant date or assumption date in business combinations. The following table illustrates the effect on stock-based compensation, net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," using the Black-Scholes option pricing model, to stock-based employee compensation (in thousands, except per share data).

		Year Ended December 31,
		2003		2002			2001
Stock-based compensation:
	As reported	$	352	$	1,527		$	2,699
	Additional stock-based compensation expense determined under the fair value method		5,298		2,172			3,803

	Pro forma	$	5,650	$	3,699		$	6,502

Net income (loss):
	As reported	$	9,823	$	(10,572	)	$	(7,218	)
	Additional stock-based compensation expense determined under the fair value method		5,298		2,172			3,803

	Pro forma	$	4,525	$	(12,744	)	$	(11,021	)

Net income (loss) per share—basic and diluted:
	As reported	$	0.13	$	(0.14	)	$	(0.20	)
	Per share effect of additional stock-based compensation expense determined under the fair value method	$	0.07	$	(0.03	)	$	(0.10	)

	Pro forma	$	0.06	$	(0.17	)	$	(0.30	)

The Company's foreign subsidiaries measure their operations in the local currency and translate these operations into U.S. dollars for purposes of consolidation.

Assets and liabilities of the Company's foreign subsidiaries are translated at the period-end exchange rate while revenue and expenses are translated at the average rates in effect for the period. The effects of these translation adjustments are reported in a separate component of stockholders' equity. Transaction gains and losses are included in the statement of operations and were not significant for the years ended December 31, 2003, 2002 and 2001.

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, marketable securities and accounts receivable. Cash and cash equivalents are deposited in local currency with major financial institutions in the United States, Europe and Japan; at most times, such balances with any one financial institution may be in excess of FDIC insurance limits. Credit is extended to customers based on an evaluation of their financial condition.

The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential bad debts. To date such losses, if any, have been within management's expectations. At December 31, 2003 and 2002, no customer comprised more than 10% of accounts receivable. For the years ended December 31, 2003 and 2001, no customer comprised more than 10% of total revenue. For the year ended December 31, 2002, one customer accounted for 14.5% of total revenue.

The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at historical basis. At December 31, 2003 and 2002, the fair values of these instruments approximated their financial statement carrying amounts because of the short-term maturity of these instruments. The historical basis of the Company's notes payable approximates the fair value based on quoted market prices for the same or similar issues offered to the Company or its subsidiaries for debt with the same or similar remaining maturities.

ValueClick uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of the available evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share". Basic and diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average shares of common stock outstanding for the period.

The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. The elements of comprehensive income, other than net income (loss), relate to foreign currency translation adjustments for all periods presented and unrealized gains on marketable securities for the years ended December 31, 2003 and 2002.

As of December 31, 2003, the Company has $77,000 in unrealized losses on marketable securities and has reported such losses, net of tax, in comprehensive income.

Certain reclassifications have been made to 2002 amounts to conform to 2003 presentation.

The Company uses the "management approach" defined in SFAS No. 131 "Disclosures About Segments at an Enterprise and Related Information", to identify its reportable business segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company's reportable segments.

In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002, though early adoption is encouraged. The application of SFAS No. 146 did not have a material impact on the Company's financial position, results of operations or cash flows.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosures Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The Company adopted the disclosure requirements of this interpretation that were effective on December 31, 2002. The recognition provisions of the interpretation adopted were effective for the Company in 2003 and are applicable only to guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did not have a material impact on the Company's financial position, results of operations or cash flows.

In January 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". EITF issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Adoption of EITF Issue No. 00-21 did not have a material impact on the Company's financial position, results of operations or cash flows.

results. The provisions of FAS 148 are effective for financial statements for fiscal years ending after December 15, 2002, and disclosure requirements shall be effective for interim periods beginning after December 15, 2002. The Company intends to continue to account for stock-based compensation to its employees and directors using the intrinsic value method prescribed by APB Opinion No. 25, and related interpretations. The Company has made certain disclosures required by SFAS No. 148 in its consolidated financial statements for the year ended December 31, 2002 and began making the additional interim disclosures required by SFAS No. 148 in the first quarter of 2003. Accordingly, adoption of SFAS No. 148 did not have a material impact the Company's financial position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," clarifying accounting and reporting for derivative instruments and hedging activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with some exceptions, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company's financial position, results of operations or cash flows.

In December 2003, the SEC issued SAB No. 104, "Revenue Recognition In Financial Statements". SAB No. 104 revises or rescinds portions of the interpretive guidance included in Topic 13 of the codification of Staff Accounting Bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. It also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13. The adoption of SAB No. 104 in the December 2003 quarter did not have a material impact on the Company's financial position, results of operations or cash flows.

Hi-Speed Media, Inc. On December 17, 2003, the Company completed its acquisition of Hi-Speed Media, Inc., a California corporation ("Hi-Speed Media"), pursuant to an Agreement and Plan of Merger, dated as of December 7, 2003, by and among ValueClick, Inc., HS Acquisition Corp., a wholly-owned subsidiary of ValueClick, Hi-Speed Media, the shareholders of Hi-Speed Media and Farshad Fardad, in his capacity as Shareholder Agent. Hi-Speed Media provides e-mail marketing services.

ValueClick accounted for the acquisition under the purchase method. Accordingly, the results of Hi-Speed Media's operations are included in the Company's consolidated financial statements from the

beginning of the period closest to the acquisition date. Under the terms of the agreement, ValueClick acquired all of the outstanding capital stock of Hi-Speed Media for an aggregate purchase price of approximately $9.0 million in cash and additional contingent cash consideration of up to $1.0 million per quarter, assuming the achievement of certain revenue and operating income milestones over the eight quarters beginning January 1, 2004. In connection with the transaction, Hi-Speed Media's outstanding employee stock options were converted into options to purchase approximately 80,000 shares of ValueClick common stock valued at $0.4 million using the Black-Scholes option pricing model. Identifiable intangible assets and goodwill of approximately $3.8 million and $7.9 million, respectively, have been recorded related to this acquisition.

Commission Junction, Inc. On December 7, 2003, the Company completed its acquisition of Commission Junction, Inc., a Delaware corporation ("Commission Junction"), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of October 9, 2003, by and among ValueClick, NCJ Acquisition Corp., a wholly-owned subsidiary of ValueClick, Commission Junction and Idealab Holdings LLC, a Delaware limited liability company, in its capacity as Stockholder Agent. Pursuant to the terms of the merger agreement, Commission Junction was merged with and into NCJ Acquisition and became a wholly-owned subsidiary of ValueClick. Commission Junction is an affiliate marketing business, which provides technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs.

ValueClick accounted for the acquisition under the purchase method. Accordingly, the results of Commission Junction's operations are included in the Company's consolidated financial statements from the beginning of the period closest to the acquisition date. Pursuant to the terms of the agreement, ValueClick acquired all the outstanding capital stock in Commission Junction for approximately 3.0 million shares of ValueClick common stock valued at approximately $29.5 million, approximately $26.1 million in cash and transaction costs of $0.4 million. Additionally, outstanding options to acquire common stock of Commission Junction were converted into an aggregate of 1.2 million options to acquire ValueClick common stock valued at approximately $6.1 million using the Black-Scholes option pricing model. Identifiable intangible assets and goodwill of approximately $9.7 million and $37.5 million, respectively, have been recorded related to this acquisition.

Search123.com Inc. On May 30, 2003, the Company completed its acquisition of Search123.com Inc. ("Search123"). Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Search123, with Search123 surviving as a wholly-owned subsidiary of ValueClick. Search123 is a search marketing company that allows marketers to find prospective customers who are actively engaged in researching and buying products and services online.

ValueClick accounted for the acquisition under the purchase method. Accordingly, the results of Search123's operations are included in the Company's consolidated financial statements from the beginning of the accounting period closest to the acquisition date. The aggregate consideration, constituting the purchase price of approximately $4.9 million, included a cash payment of $3.2 million, the assumption of a net working capital deficit of $1.5 million and transaction costs of approximately $200,000. Identifiable intangible assets and goodwill of approximately $1.4 million and $4.0 million, respectively, have been recorded related to this acquisition.

Be Free, Inc. On May 23, 2002, the Company completed its acquisition of Be Free, Inc. Under the terms of the merger agreement, a wholly-owned subsidiary of the Company was merged with and into

Be Free and Be Free survived as a wholly-owned subsidiary of the Company. Be Free is a provider of performance-based marketing technology and services.

Under the terms of the merger agreement, Be Free stockholders received 0.65882 shares of the Company common stock for each share of Be Free common stock. The Company issued a total of approximately 43.4 million shares of its common stock for all the outstanding stock of Be Free. In addition, the Company assumed options to purchase approximately 4.2 million additional shares of ValueClick common stock.

The Company accounted for the acquisition under the purchase method. Accordingly, the results of Be Free's operations are included in the Company's consolidated financial statements from the beginning of the accounting period closest to the acquisition date. The aggregate consideration constituting the purchase price of approximately $129.3 million, includes the issuance of 43,361,717 shares of common stock valued at approximately $122.3 million (based on the average common stock price for the public announcement date and the day before, the day of and after that date), the assumption of options and warrants to purchase an aggregate of 4,164,918 shares of common stock valued at $5.0 million using the Black-Scholes option pricing model and transaction costs of approximately $2.0 million, which include legal fees, accounting fees, and fees for other related professional services.

Mediaplex, Inc. On October 19, 2001, ValueClick completed its acquisition of Mediaplex, Inc. and its wholly-owned subsidiary AdWare Systems, Inc. Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Mediaplex and Mediaplex survived as a wholly-owned subsidiary of ValueClick. Mediaplex serves the marketing communications industry with technology solutions for digital messaging, support services that enhance campaign return, and infrastructure tools to ensure effective program implementation.

Under the terms of the merger agreement, Mediaplex stockholders received .4113 shares of ValueClick common stock for each share of Mediaplex common stock. ValueClick issued a total of approximately 15.1 million shares of its common stock for all the outstanding stock of Mediaplex. In addition, based on shares of Mediaplex common stock underlying its outstanding stock options as of the record date and the exchange ratio, options to purchase approximately 3.0 million additional shares of ValueClick common stock were assumed by ValueClick.

ValueClick accounted for the acquisition under the purchase method. Accordingly, the results of Mediaplex's operations are included in the Company's consolidated financial statements from the beginning of the accounting period closest to the acquisition date. The aggregate consideration constituting the purchase price of approximately $47.6 million at closing, includes the issuance of 15,084,898 shares of common stock valued at approximately $42.7 million (based on the average ValueClick common stock price for the public announcement date and the five trading before and after that date), the assumption options and warrants to purchase an aggregate of 2,968,562 shares of common stock valued at $3.4 million and transaction costs of approximately $1.5 million, which include legal fees, accounting fees, and fees for other related professional services.

The purchase price approximated the fair value of the tangible net assets acquired.

The historical operating results of Hi-Speed Media, Commission Junction, Search123, and Be Free prior to the beginning of the accounting period closest to the acquisition date have not been included

in the Company's historical operating results. Pro forma data (unaudited) for the years ended December 31, 2003 and 2002 as if these acquisitions had been effective as of January 1, 2002 is as follows (in thousands, except per share data):

	2003		2002
Revenue	$	116,588	$	89,941
Net income (loss) before cumulative effect of a change in accounting principle	$	10,271	$	(7,929	)
Net income (loss) attributable to its common shareholders	$	10,271	$	(15,578	)
Basic net income (loss) per share	$	0.14	$	(0.17	)
Diluted net income (loss) per share	$	0.13	$	(0.17	)

Z Media, Inc. On December 18, 2000, ValueClick, Z Media and Z Media Acquisition Corp., a wholly-owned subsidiary of ValueClick, entered into an Agreement and Plan of Merger, under which ValueClick agreed to acquire Z Media. The merger was completed on January 31, 2001. On that date, Z Media was merged with and into Z Media Acquisition Corp., which became the surviving corporation and a wholly-owned subsidiary of ValueClick. ValueClick accounted for the merger as a pooling-of-interests, and as such, the consolidated financial statements were restated to include Z Media's financial data as if the Z Media had always been a part of ValueClick.

Z Media is a co-registration company that provides highly qualified email subscribers to advertisers and direct marketers.

In connection with the merger, ValueClick issued an aggregate of 2,727,678 shares of its common stock in exchange for all outstanding shares of Z Media and reserved 419,366 additional shares of Common Stock for issuance upon exercise of outstanding employee stock options of Z Media.

Merger-related costs of $17,000 included in the consolidated statements of operations for the year ended December 31, 2002 was comprised of direct transaction and other costs related to the Z Media merger.

On February 28, 2000, the Company consummated an investment by DoubleClick, Inc. ("DoubleClick") under a common stock and warrant purchase agreement entered into on January 11, 2000 whereby DoubleClick acquired 7,878,562 shares of the Company's common stock for an estimated purchase price of $12.16 per share to be paid in cash of $10.0 million and 732,860 shares of DoubleClick common stock. The shares of DoubleClick common stock were valued at approximately $85.8 million for accounting purposes based on an average price of $117.07 per share for the public announcement date of January 13, 2000 and the 5 trading days before and 5 trading days thereafter. Under the Agreement, the Company also issued a warrant to DoubleClick to acquire additional shares of the Company's common stock at $21.76 per share payable in DoubleClick common stock which is exercisable for that number of shares that would result in DoubleClick owning 45% of the Company's outstanding common stock on a fully diluted basis. The warrant was exercisable for the 15-month period commencing on February 28, 2000. The warrant expired unexercised in May 2001.

During 2000, the Company sold 165,000 shares of its DoubleClick common stock for cash proceeds of $10.3 million. The sale of these shares resulted in a realized non-cash loss of $9.0 million. In December 2000, the Company's management made an assessment that the decline in market value of the remaining DoubleClick stock was other than temporary. Accordingly, for the year ended December 31, 2000 the Company recorded a non-cash charge to operations of $60.2 million representing the unrealized holding losses previously accounted for a separate component of stockholders' equity. In April 2001, the Company sold its remaining 567,860 shares of its DoubleClick common stock for cash proceeds of $6.9 million. The sale of these shares resulted in a realized gain of $701,000. In November 2002, in connection with the Stock Repurchase Program, the Company repurchased the remaining 7,878,562 shares of its common stock held by DoubleClick for an aggregate purchase price of $21.3 million.

On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets." SFAS No. 142 changed the methodology for assessing goodwill impairments and ceased the continued amortization of goodwill. Although the application of this standard did not change management's evaluation of the Company's other identifiable intangible assets, the initial application of this statement resulted in an impairment of goodwill of $7.6 million to write down goodwill related to the Bach Systems and ValueClick Japan acquisitions. The amount of the impairment was estimated based on a valuation process that combined estimating the present value of the future cash flows of Bach Systems and ValueClick Japan with obtaining the market value to revenue multiples of comparable publicly traded companies and applying these multiples to the projected and historical revenue of Bach Systems and ValueClick Japan and was reported as a cumulative effect of a change in accounting principle during the first quarter of 2002.

With the adoption of SFAS No. 142, amortization of goodwill ceased on January 1, 2002. Pro forma net loss and basic and diluted net loss per common share for the year ended December 31, 2001, excluding amortization of goodwill is as follows (in thousands, except per share data):

		Year Ended December 31, 2001
Reported net loss		$	(7,218	)
	Add back: Goodwill amortization		1,722

Pro forma net loss		$	(5,496	)

Reported basic and diluted net loss per common share		$	(0.20	)
	Add back: Goodwill amortization		0.05

Pro forma basic and diluted net loss per common share		$	(1.69	)

As of December 31, 2003 and 2002, all other intangible assets were subject to amortization. A summary of goodwill and other intangible assets as of December 31, 2003 and 2002 is set forth below (in thousands):

		Gross Balance		Accumulated Amortization			Amount Carrying
December 31, 2003:
	Goodwill	$	49,375	$	—		$	49,375
	Customer relationships		11,092		(189	)		10,903
	Other		7,367		(2,296	)		5,071

Total intangible assets		$	67,834		(2,485	)	$	65,349

December 31, 2002:
	Patent license	$	1,841		—		$	1,841
	Other		1,892		(914	)		978

Total goodwill and intangible assets		$	3,733	$	(914	)	$	2,819

Intangible assets created as a result of acquisitions during 2003 include customer relationships, acquired technology and tradename intangibles that are being amortized using the straight-line method over the periods benefited, ranging from 2 to 7 years.

In 2003, $49.4 million and $14.8 million were added to the goodwill and intangible asset balances, respectively, related to the purchases of Search123, Commission Junction and Hi-Speed Media. In 2002, $1.0 million was added to the intangible asset balance as part of the purchase of Be Free, Inc. attributable to acquired technology and $1.8 million related to a patent license acquisition. Amortization expense for all intangible assets was $1,570,000 and $533,000 for the years ended December 31, 2003 and 2002, respectively. Estimated intangible asset amortization expense remaining for the next five years ending December 31 is as follows (amounts in thousands):

	December 31,
	2003			2002
Computer equipment and purchased software	$	22,321		$	17,282
Furniture and equipment		3,124			2,770
Vehicles		35			41
Leasehold improvements		558			445

		26,038			20,538
Less: accumulated depreciation and amortization		(15,479	)		(11,301	)

	$	10,559		$	9,237

Accounts payable and accrued expenses consisted of the following (in thousands):

The provision for income taxes for the years ended December 31, 2003, 2002 and 2001 is comprised of the following (in thousands):

		Year Ended December 31,
		2003			2002			2001
Current:
	Federal	$	566		$	(413	)	$	(280	)
	State		321			406			21
	Foreign		55			131			330

		$	942		$	124		$	71
Deferred:
	Federal		(30	)	$	(144	)	$	(32	)
	State		—			(42	)		(5	)
	Foreign		(82	)		—			—

			(112	)		(186	)		(37	)
Equity:			—			225			—

Provision for income taxes		$	830		$	163		$	34

The components of the deferred tax assets at December 31, 2003 and 2002 are as follows (in thousands):

		December 31,
		2003			2002
Deferred tax assets:
	Net operating losses	$	65,932		$	52,227
	Capital loss carry-forward		26,438			26,438
	Depreciation and amortization		7,891			9,231
	Other		4,594			2,557

Gross deferred tax assets			104,855			90,453
	Valuation allowance		(93,907	)		(83,412	)

	Net deferred tax assets		10,948			7,041
Deferred tax liabilities:
	Capital gains on issuance of ValueClick Japan Stock		5,454			5,454
	Acquired intangibles		5,876			—
	Other		168			335

	Total deferred tax liabilities		11,498			5,789

	Net deferred tax assets (liabilities)	$	(550	)	$	1,252

Current portion of net deferred tax assets		$	1,446		$	1,252
Long-term portion of net deferred tax liabilities		$	1,996		$	—

Consistent with prior periods, in evaluating the need for a valuation allowance at December 31, 2003, the Company evaluated both positive and negative evidence in accordance with the requirements of SFAS No. 109. The key factors evaluated included: significant cumulative losses with only a recent trend towards profitability; annual limitations on utilization of acquired net operating losses pursuant to Internal Revenue Code Section 382 and related expiration dates; limitations on the utilization of capital loss carryforwards and related expiration dates; potential for future stock option deductions to significantly reduce taxable income thus limiting the ability to utilize net operating loss carryforwards prior to expiration; and future income projections and tax planning strategies with the need to generate significant amounts of taxable income in future periods on a consistent and prolonged basis. Based upon an evaluation of these factors, the Company concluded that, with the exception of short-term net deferred tax asset temporary differences that will reverse in the next year, it is not more likely than not that the remaining deferred tax assets will be realized. In future periods the Company will reassess the available evidence and if the Company continues to meet its financial projections, generates improved and sustained taxable income and develops additional tax planning strategies, it is possible that the Company may develop enough positive evidence to release a portion or all its valuation allowance in future periods.

The increase in gross deferred tax assets during 2003 is primarily attributable to acquired net operating loss-carryforwards and other tax assets of Commission Junction. At December 31, 2003, the Company had net operating loss carry-forwards for federal and state purposes of $180.6 million and $76.2 million, respectively, and had capital loss carry-forwards for federal and state purposes of

$66.2 million. The federal and state net operating losses begin to expire in 2011 and 2004, respectively, and the capital loss carryforwards expire in 2005 and 2006.

The overall effective tax rate differs from the statutory Federal tax rate for the years ended December 31, 2003, 2002 and 2001 as follows:

	Year Ended December 31,
	2003		2002		2001
Tax provision (benefit) based on the federal statutory rate	34.0	%	(34.0	)%	(34.0	)%
State income taxes, net of federal benefit	3.0		6.6		(6.1	)
Stock based compensation	2.2		—		11.6
Non-deductible amortization / impairment	—		1.0		4.2
Non-deductible merger-related costs	—		—		3.0
Effects of foreign income	(0.3	)	—		6.9
Federal effect of state rate change	—		2.5		6.9
Deferred tax recognition for prior acquisition	—		—		8.6
Adjustment to valuation allowance, net of purchase accounting adjustments	(34.0	)	28.8		—
Other, net	2.9		1.0		(0.6	)

	7.8	%	5.9	%	0.5	%

In connection with the Mediaplex acquisition, the Company assumed a fully vested warrant to purchase 205,650 shares of common stock at $1.22 per share. The warrant was exercised during 2001.

In September 2001, the Board of Directors authorized a $10 million Stock Repurchase Program to purchase outstanding shares of ValueClick common stock from time to time at prevailing market prices in the open market or through unsolicited negotiated transactions depending on market conditions. The Stock Repurchase Program was increased by the board of directors to $30 million in February 2002, to $50 million in July 2002 and to $75 million in November 2002. Under the program, the purchases are funded from available working capital, and the repurchased shares will be retired, held in treasury or used for ongoing stock issuances such as issuances under employee stock plans. There is no guarantee as to the exact number of shares that will be repurchased by the Company and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2003, and since the initiation of the Stock Repurchase Program, the Company has repurchased approximately 26.3 million shares of the Company's common stock for approximately $71.4 million, $68.0 million of which was purchased pursuant to the Stock Repurchase Program. All purchases of treasury stock have been retired. As December 31, 2003 up to an additional $7.0 million of the Company's capital may be used to purchase shares of the Company's outstanding common stock under the Stock Repurchase Program.

On June 4, 2002, the board of directors of ValueClick, Inc. declared a dividend of one preferred share purchase right for each outstanding share of the Company's common stock. The dividend was payable on June 14, 2002 to the stockholders of record at the close of business on that date. Each right entitles the registered holder to purchase from the Company one unit consisting of one-thousandth of a share of Series A junior participating preferred stock of the Company at a price of $25.00 per unit. The description and terms of the rights are set forth in a rights agreement, dated as of June 4, 2002, by and between the Company and Mellon Investor Services LLC, a New Jersey limited liability Company, as Rights Agent.

Until the earlier to occur of (i) the close of business on the tenth day after a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding common stock or (ii) ten business days (or such later date as may be determined by action of the Company's board of directors prior to such time as any person becomes an acquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the bidder's beneficial ownership of 15% or more of the outstanding common stock (the earlier of such dates being called the distribution date), the rights will be evidenced by the Company's common stock certificates.

The rights are not exercisable until the distribution date. The rights will expire at the close of business on June 4, 2012 unless the final expiration date is extended or the rights are earlier redeemed or exchanged by the Company.

The Series A preferred stock purchasable upon exercise of the rights will not be redeemable. Each share of Series A preferred stock will be entitled to a dividend of 1,000 times the dividend declared per share of common stock. In the event of liquidation, the holders of the shares of Series A preferred stock will be entitled to a payment of 1,000 times the payment made per share of common stock. Each share of Series A preferred stock will have 1,000 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of Series A preferred stock will be entitled to receive 1,000 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions.

The terms of the rights may be amended by the board of directors of the Company without the consent of the holders of the rights except that from and after such time that there is an acquiring person no amendment may adversely affect the interests of the holders of the rights.

Until a right is exercised, the holder of a right will have no rights by virtue of ownership as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

On May 23, 2002, the Board of Directors adopted and the stockholders approved, the 2002 Stock incentive Plan (the "2002 Stock Plan") replacing the 1999 Stock Option Plan. A total of 10,000,000 shares of common stock have been reserved for issuance under the 2002 Stock Plan, of which 4,577,022 shares were available for future grant at December 31, 2003.

The 2002 Stock Plan provides for the granting of non-statutory and incentive stock options to employees, officers, directors and consultants of the Company. Options granted generally begin vesting on the employee's date of employment, and vest over a four-year period, with one-fourth vesting on the first anniversary date and the remainder vesting pro rata monthly over the remaining three years and generally expire ten years from the date of grant.

On May 13, 1999, the Board of Directors adopted and the stockholders approved, the 1999 Stock Option Plan (the "1999 Stock Plan"). A total of 5,000,000 shares of common stock had been reserved for issuance under the 1999 Stock Plan, of which 1,123,901 shares were available for future grant at December 31, 2003.

The 1999 Stock Option Plan provided for the granting of non-statutory and incentive stock options to employees, officers, directors and consultants of the Company. Options granted generally begin vesting on the employee's date of employment, and vest pro rata monthly over periods ranging from 12 to 42 months or annually over 4 years and generally expire ten years from the date of grant.

Pursuant to the Company's business combinations with Hi-Speed Media, Commission Junction, Be Free, Mediaplex, Z Media and ClickAgents, the Company assumed the following Stock Option Plans:

Name of Plan	Incentive Stock Options	Exercise Prices	Maximum Exercise Term	Vesting Periods
Hi-Speed Media—2001 Stock Incentive Plan	80,710	$1.99	10 years	Up to 4 years
Commission Junction—2001 Stock Incentive Plan and 1999 Stock Option Plan	1,217,693	$3.45 to $8.62	10 years	Up to 4 years
Be Free—1998 Stock Incentive Plan	4,164,875	$0.23 to $68.59	10 years	Up to 4 years
Mediaplex—1997 Stock Option Plan	2,762,912	$1.22 to $247.99	10 years	Up to 4 years
Z Media—Stock Option Plan	419,366	$0.26 to $7.91	10 years	Up to 4 years
ClickAgents—Stock Option Plan	427,269	$0.07 to $3.95	10 years	Up to 4 years

The following table summarizes activity under the all stock option plans for the years ended December 31, 2003, 2002 and 2001:

		Number of Shares		Price Per Share	Weighted Average Exercise Price
Options outstanding at December 31, 2000		3,800,948		$0.07 to $11.00	$	1.20
	Granted	1,708,366		2.03 to 5.69		4.03
	Assumed from Mediaplex	2,762,912		1.22 to 247.99		10.52
	Exercised	(207,749	)	0.07 to 2.00		2.49
	Forfeited/expired	(1,755,853	)	0.07 to 190.86		4.01

Options outstanding at December 31, 2001		6,308,624		$0.07 to $247.99	$	5.65
	Granted	4,025,100		2.30 to 2.90		2.46
	Assumed from Be Free	4,164,875		0.23 to 68.59		6.27
	Exercised	(2,801,394	)	0.07 to 2.85		1.17
	Forfeited/expired	(1,598,917	)	0.07 to 190.86		9.87

Options outstanding at December 31, 2002		10,098,288		$0.07 to $247.99	$	5.24
	Granted	2,512,501		2.83 to 9.20		7.27
	Assumed from Commission Junction and Hi-Speed Media	1,298,403		1.99 to 8.62		3.47
	Exercised	(2,083,341	)	0.23 to 7.90		1.68
	Forfeited/expired	(786,893	)	0.07 to 79.02		5.31

Options outstanding at December 31, 2003		11,038,958		$0.07 to $247.99	$	6.15

Options acquired in business combinations or granted during the years ended December 31, 2003, 2002 and 2001, net of cancellations, resulted in a total deferred compensation amount of approximately $1,042,000, $547,000, and $282,000, respectively, which was included in deferred stock compensation in stockholders' equity. Deferred compensation expense is recognized over the service period by using the aggregate percentage of compensation accrued by the end of each year of service (the vesting period). During the years ended December 31, 2003, 2002 and 2001, such compensation expense included in stock-based compensation in the statement of operations amounted to approximately $352,000, $1,527,000, and $2,699,000 respectively.

Additional information with respect to the outstanding options as of December 31, 2003 is as follows:

				Options Exercisable
	Options Outstanding Average Remaining Contractual Life (In Years)			Options Exercisable
Number of Shares		Average Exercise Prices		Number of Shares	Average Exercise Price
1,596,670	5.98	$	1.04	1,540,174	$	1.01
2,854,272	8.43		2.39	1,111,804		2.36
3,247,188	6.74		3.26	2,073,052		3.33
2,424,942	9.15		8.08	447,242		6.86
531,789	4,82		13.10	498,490		13.23
384,097	6.27		57.83	364,227		57.88

11,038,958	7.49	$	6.15	6,034,989	$	6.96

The options exercisable and the weighted average exercise price per share at December 31, 2002 and 2001 were 5,641,804 at $6.26 and 4,342,261 at $3.86, respectively.

During the years ended December 31, 2003, 2002 and 2001, the exercise price for all options granted under the 2002 and 1999 stock plans equaled the market price at the dates of grants. The weighted average estimated fair value of stock options assumed during the years ended December 31, 2003, 2002 and 2001 were $6.47, $1.33, and $1.77 per share, respectively.

The Company calculated the fair value of each option grant on the date of grant using the option-pricing models as prescribed by Statement No. 123 using the following assumptions:

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share data):

		Year Ended December 31,
		2003		2002			2001
Basic:
Numerator:
	Net income (loss)	$	9,823	$	(10,572	)	$	(7,218	)
Denominator:
	Weighted average common shares		74,300		73,744			37,058

Basic net income (loss) per common share		$	0.13	$	(0.14	)	$	(0.20	)

Diluted:
Numerator:
	Net income (loss)	$	9,823	$	(10,572	)	$	(7,218	)
Denominator:
	Weighted average common shares		78,436		73,744			37,058

Diluted net income (loss) per common share		$	0.13	$	(0.14	)	$	(0.20	)

The diluted per share computations exclude common stock options which were antidilutive. The numbers of shares excluded from the diluted net loss per common share computation were 2,457,729, and 4,023,977 for the years ended December 31, 2002 and 2001, respectively.

		December 31, 2002
Short Term Borrowing, ValueClick Japan		$	45
Note payable bank, 3.25%, $14 principal and interest paid monthly, due December 2007			760
Note payable shareholder, non-interest bearing, $100 due in March 2002 and $110 due in March 2003			110

	Total		915
Less current portion			307

		$	608

The Company has a Savings Plan (the "Savings Plan") that qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees may defer a percentage (not to exceed 20%) of their eligible pretax earnings up to the Internal Revenue Service's annual contribution limit. All full time employees on the payroll of the Company are eligible to participate in the plan. The Savings Plan does not invest participant contributions in the Company's common stock. Company matching and profit sharing contributions are discretionary. Company contributions to the Plan amounted to $152,000, $75,000, and $135,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Future minimum lease payments under noncancellable operating and capital leases and related sublease income, with initial or remaining lease terms in excess of one year as of December 31, 2003 are as follows (in thousands):

			Operating Lease
Year Ending December 31:			Operating Lease		Operating Sublease Income			Capital Leases
Year Ending December 31:			Commitments		Operating Sublease Income			Capital Leases
2004			$	4,595	$	(557	)	$	271
2005				2,130		(259	)		189
2006				1,469		(259	)		14
2007				1,215		(301	)		—
2008				954		(253	)		—
Thereafter				1,485		—			—

	Total minimum lease payments		$	11,848	$	(1,629	)	$	474

		Less amount representing interest							(22	)

	Present value of minimum lease payments								452
		Less current portion							(265	)

								$	187

Total rent expense under operating leases, net of sublease income, was $2.6 million, $2.2 million, and $2.2 million, for the years ended December 31, 2003, 2002 and 2001, respectively.

On September 27, 2000, Joseph Lorenc, a former employee of Be Free, Inc. filed a lawsuit against Be Free and two officers of Be Free, Steven Joseph and Gordon Hoffstein, in the United States District Court, District of Massachusetts. The complaint alleges, among other things, breach of contract. Lorenc seeks, among other things, compensatory damages, punitive damages and attorney's fees to the greatest extent allowed by law. The case is now pending before the state court in Massachusetts. The case is set for trial in May of 2004. ValueClick believes that the plaintiffs' allegations are without merit and intends to vigorously defend itself. ValueClick has not recorded an accrual related to damages, if any, resulting from this case, as an unfavorable outcome is, in management's opinion, not probable.

Other than the matters discussed above, the Company is not a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that would have a material adverse effect on its business, operating results, cash flows or financial condition. From time to time, the Company may become subject to additional legal proceedings, claims, and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company's management believes that these letters are without merit and intend to contest them vigorously.

In the second quarter of 2002 and in the fourth quarter of 2001, the Company recorded restructuring charges of $2.3 million and $515,000, respectively. These restructuring charges were the result of certain redundancies as a result of ValueClick's acquisitions of Mediaplex and Be Free and primarily represent a provision for consolidating certain leased facilities which will be paid out through

2010. As a result of this process, four existing ValueClick employee positions were eliminated. As of December 31, 2003, $922,000 of the charges has been paid.

	Employee Related			Lease Exit Costs			Total
	(in thousands, except per share data)
Restructuring accruals	$	9		$	2,827		$	2,836
Cash payments		(9	)		(475	)		(484	)

Accrual at December 31, 2002	$	—		$	2,352		$	2,352

Cash payments		—			(438	)		(438	)

Accrual at December 31, 2003	$	—		$	1,914		$	1,914

As discussed in Note 1, in the prior year the Company operated in two reportable segments: Media and Technology. With acquisition of Commission Junction in December 2003, the reportable segments were reassessed and as a result a third reportable segment was established, the Affiliate Marketing segment which combines the operations of Commission Junction and Be Free, previously included in the Technology segment. Accordingly, the prior year results of Be Free have been reclassified out of the Technology segment and included in Affiliate Marketing to conform the 2003 presentation.

ValueClick derives its revenue from three business segments based on the types of products and services provided. These business segments are ValueClick Media, ValueClick Affiliate Marketing and ValueClick Technology. Media Segment revenue includes sales of certain Affiliate Marketing and Technology products made by Media operations outside the United States, amounting to $749,000 and $3,072,000, and $0 and $748,000, for the years ended 2003 and 2002, respectively.

Revenue, gross profit and total assets by segment are as follows (in thousands):

	Revenue								Gross Profit						Total Assets
	2003			2002			2001		2003		2002		2001		2003		2002		2001
Media	$	45,761		$	30,252		$	41,446	$	23,212	$	15,824	$	22,026	$	214,574	$	129,895	$	136,375
Affiliate Marketing		24,302			11,848			—		18,829		9,076		—		95,160		76,938		—
Technology		23,559			20,934			3,427		18,451		15,921		2,477		13,365		57,017		54,251
Intercompany eliminations		(1,106	)		(480	)		—		—		—		—		—		—		—

Total	$	92,516		$	62,554		$	44,873	$	60,492	$	40,821	$	24,503	$	323,099	$	263,850	$	190,626

The Company's operations are domiciled in the United States with operations in Japan through its majority owned subsidiary, ValueClick Japan and with operations in Europe through its wholly-owned subsidiaries, ValueClick Europe, ValueClick France and ValueClick Germany. Other international subsidiaries included ValueClick Canada and ValueClick Brazil, which were closed during 2001.

		Year Ended December 31, 2003
		Year Ended December 31, 2003					Long-lived Assets at December 31, 2003
		Revenue		Income (Loss) from Operations			Long-lived Assets at December 31, 2003
United States		$	71,782	$	10,047		$	75,335
Japan			7,574		(122	)		1,487
Europe			13,160		(102	)		561

	Total Foreign		20,734		(224	)		2,048

Total		$	92,516	$	9,823		$	77,383

		Year Ended December 31, 2002
		Year Ended December 31, 2002					Long-lived Assets at December 31, 2002
		Revenue		Loss from Operations			Long-lived Assets at December 31, 2002
United States		$	48,048	$	(6,811	)	$	12,731
Japan			7,476		(230	)		851
Europe			7,030		(1,779	)		208

	Total Foreign		14,506		(2,009	)		1,059

Total		$	62,554	$	(8,820	)	$	13,790

		Year Ended December 31, 2001
		Year Ended December 31, 2001					Long-lived Assets at December 31, 2001
		Revenue		Loss from Operations			Long-lived Assets at December 31, 2001
United States		$	29,513	$	(11,233	)	$	13,389
Japan			10,199		(179	)		1,101
Europe			5,094		(1,283	)		111
Other International			67		(268	)		24

	Total Foreign		15,360		(1,730	)		1,236

Total		$	44,873	$	(12,963	)	$	14,625

On February 19, 2004, ValueClick, Inc. entered into a definitive agreement to sell its equity position in ValueClick Japan, Inc. to livedoor Co., Ltd., a Japanese Internet and technology product and services company. ValueClick's agreement with livedoor is part of livedoor's tender offer, announced in Japan on February 19, 2004, to acquire all of the outstanding shares of ValueClick Japan. As part of its tender offer, livedoor would acquire ValueClick's equity interest of approximately 59 percent in ValueClick Japan for approximately $24 million in cash, excluding transaction fees. The tender offer is expected to be completed near the end of the first quarter of 2004.

		Balance at Beginning of Period		Additions Charged to Costs and Expenses		Other Adjustments(1)		Deductions			Balance at End of Period
2003:
	Allowance for doubtful accounts	$	1,892	$	1,213	$	206	$	(1,251	)	$	2,060
2002:
	Allowance for doubtful accounts	$	1,546	$	1,409	$	573	$	(1,636	)	$	1,892
2001:
	Allowance for doubtful accounts	$	1,759	$	1,751	$	349	$	(2,313	)	$	1,546

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Westlake Village, State of California, on the 15^th day of March, 2004.

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint each of James R. Zarley and Samuel J. Paisley their true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his respective substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			Page
PART I			1
	ITEM 1.	BUSINESS	1
	ITEM 2.	PROPERTIES	25
	ITEM 3.	LEGAL PROCEEDINGS	25
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	26
PART II			27
	ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	27
	ITEM 6.	SELECTED FINANCIAL DATA	27
	ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	43
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	43
	ITEM 9A.	CONTROLS AND PROCEDURES	43
PART III			44
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	44
	ITEM 11.	EXECUTIVE COMPENSATION	44
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	44
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	44
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	44
PART IV			45
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	45
		SIGNATURES
		CERTIFICATION OF CEO—Sarbanes-Oxley Act Section 302
		CERTIFICATION OF CFO—Sarbanes-Oxley Act Section 302
		CERTIFICATION OF CEO—Sarbanes-Oxley Act Section 906
		CERTIFICATION OF CFO—Sarbanes-Oxley Act Section 906

			For the Years ended December 31,
			2003		2002			2001			2000			1999
			(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue			$	92,516	$	62,554		$	44,873		$	64,332		$	25,971
Cost of revenue				32,024		21,733			20,370			31,930			12,465

	Gross profit			60,492		40,821			24,503			32,402			13,506
Operating expenses:
	Sales and marketing (1)			21,162		17,001			11,976			11,436			2,989
	General and administrative (1)			19,699		17,784			13,301			12,896			4,706
	Product development (1)			10,504		10,459			5,313			4,846			1,100
	Stock-based compensation			352		1,527			2,699			5,058			3,506
	Amortization of intangible assets and acquired software			1,570		533			1,875			1,069			401
	Merger-related costs			—		17			1,787			353			—
	Restructuring charges			—		2,320			515			—			—

		Total operating expenses		53,287		49,641			37,466			35,658			12,702

Income (loss) from operations				7,205		(8,820	)		(12,963	)		(3,256	)		804
	Equity in loss of investee			—		—			—			—			(64	)
	Interest income, net			3,364		5,909			5,051			4,120			45
	Gain (loss) on sale of marketable securities			—		134			701			(9,006	)		—
	Impairment write-down of marketable securities			—		—			—			(60,233	)		—
	Gain from consolidated subsidiary stock issuance			—		—			—			13,656			—
	Gain on the sale of consolidated subsidiary stock			—		—			—			2,344			—
	Other income (expense)			—		32			(5	)		—			—

Income (loss) before income taxes, minority interests and cumulative effect of change in accounting principle				10,569		(2,745	)		(7,216	)		(52,375	)		785
	Provision for income taxes			830		163			34			2,539			1,853

Income (loss) before minority interest and cumulative effect of change in accounting principle				9,739		(2,908	)		(7,250	)		(54,914	)		(1,068	)
	Minority share of (income) loss in consolidated subsidiary			84		(15	)		32			(419	)		(6	)

Income (loss) before cumulative effect of change in accounting principle				9,823		(2,923	)		(7,218	)		(55,333	)		(1,074	)
	Cumulative effect of change in accounting principle (2)			—		(7,649	)		—			—			—

		Net income (loss)	$	9,823	$	(10,572	)	$	(7,218	)	$	(55,333	)	$	(1,074	)

Basic net income (loss) per common share:			$	0.13	$	(0.14	)	$	(0.20	)	$	(1.72	)	$	(0.06	)

	Shares used to calculate basic net income (loss) per common share			74,300		73,744			37,058			32,151			17,683

Diluted net income (loss) per common share:			$	0.13	$	(0.14	)	$	(0.20	)	$	(1.72	)	$	(0.06	)

	Shares used to calculate diluted net income (loss) per common share			78,436		73,744			37,058			32,151			17,683

	December 31,
	2003		2002		2001		2000		1999
	(In thousands)
Cash, cash equivalents and marketable securities	$	220,120	$	232,978	$	163,355	$	127,450	$	3,681
Working capital		213,809		234,229		161,928		129,036		6,828
Total assets		323,099		263,850		190,626		154,050		18,737
Total stockholders' equity		274,207		231,981		165,507		127,493		11,593

			Three-Month Period Ended
			Dec. 31, 2003		Sept. 30, 2003		Jun. 30, 2003			Mar. 31, 2003			Dec. 31, 2002			Sept. 30, 2002			Jun. 30, 2002			Mar. 31, 2002
Revenue			$	30,273	$	22,694	$	20,086		$	19,463		$	18,789		$	17,302		$	14,107		$	12,356
Cost of revenue				10,044		8,532		6,947			6,501			6,250			5,951			4,961			4,571

	Gross profit			20,229		14,162		13,139			12,962			12,539			11,351			9,146			7,785
Operating expenses:
	Sales and marketing (1)			6,251		5,002		4,931			4,978			4,541			4,899			3,690			3,871
	General and administrative (1)			5,841		4,772		4,634			4,452			4,486			4,839			4,417			4,042
	Product development (1)			2,925		2,510		2,497			2,572			2,837			3,189			2,521			1,912
	Stock-based compensation			86		72		97			97			121			412			444			550
	Amortization of intangible assets			515		401		342			312			220			219			49			45
	Merger-related costs			—		—		—			—			—			—			—			17
	Restructuring charges			—		—		—			—			—			—			2,320			—

		Total operating expenses		15,618		12,757		12,501			12,411			12,205			13,558			13,441			10,437

Income (loss) from operations				4,611		1,405		638			551			334			(2,207	)		(4,295	)		(2,652	)
	Interest income, net			675		716		934			1,039			1,490			1,641			1,501			1,277
	Gain on sale of marketable securities			—		—		—			—			—			—			134			—
	Other income (expense)			—		—		—			—			—			(10	)		(17	)		59

Income (loss) before income taxes, minority interest and cumulative effect of change in accounting principle				5,286		2,121		1,572			1,590			1,824			(576	)		(2,677	)		(1,316	)
	Provision for (benefit from) income taxes			16		196		233			385			(18	)		200			118			(137	)

Income (loss) before minority interest and cumulative effect of change in accounting principle				5,270		1,925		1,339			1,205			1,842			(776	)		(2,795	)		(1,179	)
	Minority share of (income) loss in consolidated subsidiary			76		82		(55	)		(19	)		(25	)		(10	)		(44	)		64

Income (loss) before cumulative effect of change in accounting principle				5,346		2,007		1,284			1,186			1,817			(786	)		(2,839	)		(1,115	)
	Cumulative effect of change in accounting principle (2)			—		—		—			—			—			—			—			(7,649	)

Net income (loss)			$	5,346	$	2,007	$	1,284		$	1,186		$	1,817		$	(786	)	$	(2,839	)	$	(8,764	)

Basic net income (loss) per share			$	0.07	$	0.03	$	0.02		$	0.02		$	0.02		$	(0.01	)	$	(0.04	)	$	(0.14	)
Diluted net income (loss) per share			$	0.07	$	0.03	$	0.02		$	0.02		$	0.02		$	(0.01	)	$	(0.04	)	$	(0.14	)

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights(1)		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	7,550,600	$	4.17	5,700,923
Equity compensation plans not approved by security holders(2)	3,488,358	$	10.42	—

Total	11,038,958	$	6.15	5,700,923

					Page
			ValueClick, Inc. Consolidated Financial Statements
			Report of Independent Auditors		F-2
			Consolidated Balance Sheets at December 31, 2003 and 2002		F-3
			Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001		F-4
			Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001		F-5
			Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001		F-6
			Notes to Consolidated Financial Statements		F-8

10.7(5)		Stock Purchase Agreement, dated August 6, 1999, by and between Jonathan Hendricksen and Timothy Williams and ValueClick
10.8(5)		Share Purchase Agreement, dated December 31, 1999, by and between ValueClick and Todd Treusdell
10.9(5)		Share Purchase Agreement, dated December 31, 1999, by and between ValueClick and James R. Zarley
10.10(5)		Share Purchase Agreement, dated December 31, 1999, by and between ValueClick and Brian Coryat
10.11(5)		License Agreement, dated August 17, 1999, between ValueClick and ValueClick Europe, Limited
10.12(6)†		1999 Stock Option Plan, as amended, and form of option agreement
10.13(7)†		2002 Stock Incentive Plan and form of option agreement
10.14(8)†		Key Employee Agreement between ValueClick and James R. Zarley dated January 1, 2002
10.15(9)†		Key Employee Agreement between ValueClick and Samuel J. Paisley dated January 1, 2002
10.16(10)†		Key Employee Agreement between ValueClick and Peter Wolfert dated January 1, 2002
10.18(5)		Intercompany License Agreement dated December 19, 1999, between ValueClick and ValueClick Japan, Inc.
10.19(5)		Stock Purchase Agreement, dated January 20, 2000, between Jonathan Hendriksen and Timothy Williams and ValueClick.
21.1		Subsidiaries of ValueClick
23.1		Consent of PricewaterhouseCoopers LLP
31.1		Certification of CEO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of CFO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

				December 31,
				2003			2002
				(in thousands, except share data)
Assets
Current assets:
	Cash and cash equivalents			$	36,642		$	27,066
	Marketable securities				183,478			205,912
	Accounts receivable, net of allowance for doubtful accounts of $2,060 and $1,892 as of December 31, 2003 and 2002, respectively				21,942			13,739
	Prepaid expenses and other current assets				1,768			1,513
	Income taxes receivable				440			578
	Deferred tax assets				1,446			1,252

		Total current assets			245,716			250,060
Property and equipment, net					10,559			9,237
Goodwill					49,375			—
Intangible assets, net					15,974			2,819
Other assets					1,475			1,734

		Total assets		$	323,099		$	263,850

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable and accrued expenses			$	29,567		$	13,654
	Income taxes payable				811			218
	Deferred revenue				1,264			739
	Notes payable				—			307
	Capital lease obligations				265			913

		Total current liabilities			31,907			15,831
Notes payable, less current portion					—			608
Capital lease obligations, less current portion					187			337
Deferred tax liabilities					1,996			—
Other non-current liabilities					3,493			3,681

		Total liabilities			37,583			20,457

Minority interest in consolidated subsidiary					11,309			11,412
Stockholders' equity:
	Convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued or outstanding at December 31, 2003 and 2002				—			—
	Common stock, $0.001 par value; 500,000,000 shares authorized; 77,953,774 and 99,118,475 shares issued and outstanding at December 31, 2003 and 2002, respectively;				78			99
	Additional paid-in capital				339,597			370,438
	Treasury stock, at cost, 0 and 22,853,073 shares at December 31, 2003 and 2002, respectively				—			(60,883	)
	Deferred stock compensation				(1,163	)		(473	)
	Accumulated other comprehensive income (loss)				78			(2,994	)
	Accumulated deficit				(64,383	)		(74,206	)

		Total stockholders' equity			274,207			231,981

			Total liabilities and stockholders' equity	$	323,099		$	263,850

			Preferred Stock			Common Stock											Deferred Stock Compensation Loss
			Preferred Stock			Common Stock					Additional Paid-In Capital			Treasury Stock						Accumulated Other Comprehensive			Accumulated Deficit			Total Stockholders' Equity
			Shares		Amount	Shares		Amount			Additional Paid-In Capital			Treasury Stock						Accumulated Other Comprehensive			Accumulated Deficit			Total Stockholders' Equity
			(in thousands, except share data)
Balance at December 31, 2000			402,103		—	36,029,778			37			190,595			(574	)		(4,529	)		(1,620	)		(56,416	)		127,493
	Conversion of preferred stock upon merger		(402,103	)	—	402,103			—			—			—			—			—			—			—
	Stock issued in the Bach Systems purchase business combination		—		—	768,439			1			1,688			—			—			—			—			1,689
	Stock issued in the Mediaplex purchase business combination		—		—	15,084,898			15			46,160			—			—			—			—			46,175
	Purchase of treasury shares		—		—	—			—			—			(739	)		—			—			—			(739	)
	Conversion of acquired company's purchased stock to treasury stock		—		—	—			—			—			(1,646	)		—			—			—			(1,646	)
	Deferred stock compensation		—		—	—			—			282			—			(282	)		—			—			—
	Amortization of stock-based compensation		—		—	—			—			—			—			2,699			—			—			2,699
	Deferred compensation adjustment for forfeited stock options		—		—	—			—			(659	)		—			659			—			—			—
	Exercise of common stock options		—		—	207,749			—			206			—			—			—			—			206
	Exercise of common stock warrants		—		—	205,650			—			250			—			—			—			—			250
	Comprehensive loss:
		Net loss	—		—	—			—			—			—			—			—			(7,218	)		(7,218	)
		Change in market value of marketable securities, net of tax	—		—	—			—			—			—			—			281			—			281
		Foreign currency translation	—		—	—			—			—			—			—			(3,683	)		—			(3,683	)

	Total comprehensive loss		—		—	—			—			—			—			—			(3,402	)		(7,218	)		(10,620	)

Balance at December 31, 2001			—		—	52,698,617			53			238,522			(2,959	)		(1,453	)		(5,022	)		(63,634	)		165,507
	Stock issued in the Be Free purchase business combination		—		—	43,361,717			43			127,252			—			—			—			—			127,295
	Stock issued in the Bach Systems purchase business combination		—		—	259,375			1			633			—			—			—			—			634
	Purchase of treasury shares		—		—	—			—			—			(56,250	)		—			—			—			(56,250	)
	Conversion of acquired company's purchased stock to treasury stock		—		—	—			—			—			(1,674	)		—			—			—			(1,674	)
	Deferred stock compensation		—		—	—			—			547			—			(547	)		—			—			—
	Amortization of stock-based compensation		—		—	—			—			—			—			1,527			—			—			1,527
	Exercise of common stock options		—		—	2,798,766			2			3,259			—			—			—			—			3,261
	Tax benefit from the exercise of stock options		—		—	—			—			225			—			—			—			—			225
	Comprehensive loss:
		Net loss	—		—	—			—			—			—			—			—			(10,572	)		(10,572	)
		Change in market value of marketable securities, net of tax	—		—	—			—			—			—			—			(430	)		—			(430	)
		Foreign currency translation	—		—	—			—			—			—			—			2,458			—			2,458

	Total comprehensive loss		—		—	—			—			—			—			—			2,028			(10,572	)		(8,544	)

Balance at December 31, 2002			—		—	99,118,475		$	99		$	370,438		$	(60,883	)	$	(473	)	$	(2,994	)	$	(74,206	)	$	231,981
	Amortization of stock-based compensation		—		—	—			—			—			—			352			—			—			352
	Exercise of common stock options		—		—	2,085,969			2			2,186			—			—			—			—			2,188
	Deferred stock compensation		—		—	—			—			1,042			—			(1,042	)		—			—			—
	Issuance of shares in purchase transaction—Commission Junction		—		—	3,018,586			3			29,428			—			—			—			—			29,431
	Assumed options in the Commission Junction and Hi-Speed Media business combinations		—		—	—			—			6,521			—			—			—			—			6,521
	Purchase of treasury stock		—		—	—			—			—			(9,161	)		—			—			—			(9,161	)
	Retirement of treasury stock		—		—	(26,269,256	)		(26	)		(70,018	)		70,044			—			—			—			—
	Comprehensive income:
		Net income	—		—	—			—			—			—			—			—			9,823			9,823
		Change in market value of marketable securities, net of tax	—		—	—			—			—			—			—			87			—			87
		Foreign currency translation	—		—	—			—			—			—			—			2,985			—			2,985

	Total comprehensive income		—		—	—			—			—			—			—			3,072			9,823			12,895

Balance at December 31, 2003			—		—	77,953,774		$	78		$	339,597			—		$	(1,163	)	$	78		$	(64,383	)	$	274,207

Supplemental disclosures of cash flow information:
	Cash paid for interest	$	52		$	109		$	30

	Cash paid for taxes	$	511		$	670		$	2,937

Non-cash investing and financing activities:
	Issuance of common stock in the Commission Junction, Inc. acquisition	$	29,431		$	—		$	—

	Issuance of common stock in the Be Free, Inc. acquisition	$	—		$	127,295		$	—

	Purchase of Patent license through payables	$	—		$	788		$	—

	Issuance of common stock in the Mediaplex, Inc. acquisition	$	—		$	—		$	46,175

	Issuance of common stock in the Bach Systems, Inc. acquisition	$	—		$	634		$	1,689

	Conversion of acquired company's purchased stock to treasury stock	$	—		$	1,645		$	1,646

	Finance of Director and Officer Insurance	$	—		$	—		$	912

Effect of Acquisitions:
	Marketable securities	$	—		$	(124,948	)	$	(44,357	)
	Accounts receivable, net		(1,310	)		(3,103	)		(1,937	)
	Prepaid expenses and other current assets		(535	)		(1,650	)		(456	)
	Property and equipment, net		(2,789	)		(5,272	)		(3,998	)
	Goodwill		(49,375	)		—			—
	Intangible assets, net		(14,703	)		(1,013	)		—
	Other assets		(47	)		(1,222	)		(870	)
	Accounts payable and accrued expenses		12,015			3,373			7,790
	Deferred revenue		2			1,563			49
	Income taxes payable		281			—			—
	Notes payable		—			1,426			641
	Other non-current liabilities		—			1,377			33
	Deferred tax liabilities		1,996			—			—
	Additional paid-in capital		36,994			129,257			47,566
	Deferred stock compensation		(1,042	)		—			—

	December 31,
	2003		2002
Accounts payable	$	3,154	$	1,714
Accrued payments to third-party web sites		11,286		3,940
Other accrued liabilities		15,127		8,000

	$	29,567	$	13,654

		VALUECLICK, INC.

		By:		/s/ JAMES ZARLEY James Zarley President and Chief Executive Officer

Signature	Title	Date

/s/ JAMES R. ZARLEY James R. Zarley	Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer)	March 15, 2004
/s/ SAMUEL J. PAISLEY Samuel J. Paisley	Chief Financial Officer and Chief Operating Officer of Media	March 15, 2004
/s/ DAVID S. BUZBY David S. Buzby	Director	March 15, 2004
/s/ MARTIN T. HART Martin T. Hart	Director	March 15, 2004
/s/ TOM A. VADNAIS Tom A. Vadnais	Director	March 15, 2004
/s/ SAMUEL P. GERACE Samuel P. Gerace	Director	March 15, 2004
/s/ JEFFREY F. RAYPORT Jeffrey F. Rayport	Director	March 15, 2004

2004	$	3,455
2005	$	3,402
2006	$	3,257
2007	$	2,403
2008	$	1,658