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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File No. 0-29768

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

(212) 231-7100
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)

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

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

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

        As of June 30, 2004, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting common equity held by non-affiliates of the registrant was $185,865,050. Shares of common equity held by each of the registrant's directors and officers on that date and by each person who beneficially owned 10% or more of the outstanding common stock on that date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The aggregate market value has been computed based on a price per share of $5.61, which is the price at which the common equity was last sold on June 30, 2004. The registrant does not have any non-voting common equity outstanding.

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

24/7 REAL MEDIA, INC.
2004 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

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

PART I

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

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

ITEM 1.    BUSINESS.

24/7 REAL MEDIA

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

        Our Media Solutions is comprised principally of the 24/7 Web Alliance, through which we represent Web sites with brand names, quality content and global reach. We promote our media representation services to Web publishers seeking to increase advertising revenues from their Web sites and maximize revenues from their existing advertising inventory. We also promote our 24/7 Web

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

        Through our Search Solutions, we provide performance-based search marketing services for the Internet. Through 24/7 Search, we connect advertisers with consumers using search engines to search for information about products and services. We use proprietary Decide DNA technology to help advertisers determine the keywords most relevant to their products and services that will lead users from search engines to the advertisers' Web sites and to help advertisers optimize their search budgets. Through our relationships with major search engines, we also help advertisers optimize their Web pages and receive better placement in search results.

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

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

        See Note 18 to the Consolidated Financial Statements for revenue and income (loss) from operations attributable to each of our lines of business and revenues and long-lived asset information by geographic area.

INDUSTRY OVERVIEW

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

Objectives of Web Publishers, Advertisers and Consumers

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

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Challenges Facing Web Publishers

        Specific challenges of many Web publishers include:

Increasing revenue from their advertisement inventory.    Most Web sites lack the critical mass of audience necessary to attract attention from prospective advertisers and advertising agencies. As a result, it is not economically justifiable for many Web publishers to build and maintain their own sales force. Further, most Web sites lack sufficient audience to subdivide their advertising sales by content area, and therefore lose the opportunity to enhance the value of their advertising space by allowing advertisers to target specific subsets of their audience. Attention to sales also draws significant management attention and resources away from a Web publisher's other operations. As a result, many Web publishers outsource their advertising sales function to third-party representatives that represent a portfolio or network of many Web sites.

Delivering and managing high volumes of advertisements.    Many Web publishers lack the resources to develop and operate advanced computer systems and software required to deliver high volumes of advertisements efficiently, while providing adequate targeting and accurate reporting to advertisers. They may also lack the resources to implement billing and collections procedures for advertisers after the sale is completed. As a result, many Web publishers rely on third-party firms that provide solutions to deliver and manage advertisements and account data on their Web sites.

Leveraging, but not compromising, proprietary user information.    Web publishers collect data from users that may be considered personal or sensitive to users, but could prove valuable to the Web publishers. When they collect user information, Web publishers want third-party solutions that allow them to retain access to and control over the data, allowing them to benefit by using the data to target advertising and improve their Web sites. By retaining access to and management over the data, Web publishers are better able to properly handle sensitive user information and adapt their practices to satisfy user concerns and industry standards with respect to privacy.

Challenges Facing Advertisers

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

Cost-effectively reaching and building a large online audience.    The number of Web sites in existence today is growing rapidly worldwide. As new Web sites offer Web users an increasing variety of content, online audiences are becoming more fragmented and harder to reach. It is also becoming increasingly costly for advertisers to work directly with smaller Web sites to coordinate online advertising campaigns across numerous Web sites. Accordingly, advertisers need better tools to reach and target their desired audiences online and more cost-effective solutions in working with Web sites to aggregate their online audiences into a larger customer base.

Actively managing Internet advertisement campaigns.    Advertisers need accurate and timely measurement of the performance of advertising campaigns to determine the cost-effectiveness of their campaigns. However, many advertisers lack the analytical tools to actively manage larger advertising campaigns, target appropriate users and efficiently run advertising campaigns utilizing a variety of online advertising formats. Large Internet advertising campaigns often require sophisticated technology to ensure the accuracy of measurement and billing when high volumes of advertisements are delivered or when campaigns are based on actions taken by users, such as clicking on banner advertisements.

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Limitations of Competing Internet Advertising Solutions

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

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

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

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

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

24/7 REAL MEDIA'S SOLUTION

        24/7 Real Media offers a suite of media services and software products and services for the online advertising needs of Web publishers and advertisers, including Web representation, search engine marketing services, online advertisement serving and analytics. We work closely with Web publishers and advertisers to implement integrated solutions to sell and deliver advertising on Web sites and manage other critical operations including campaign planning, execution, measurement and analysis. Our 24/7 Web Alliance of over 800 affiliated Web sites aggregates advertising inventory and targets audience segments to attract advertisers worldwide. Through 24/7 Search, we connect advertisers with consumers who use search engines to find information, products and services. We believe our Open AdSystem technology platform enables Web publishers and advertisers to target, convert and retain their best online customers, maintain customer relationships and safeguard the privacy of Web users. We sell our products and services worldwide from 18 sales locations in 11 countries throughout North America, Europe, Asia and Australia.

Benefits to Web Publishers and Advertisers

        Our media, search and technology solutions help Web publishers build and target audiences on their Web sites, better manage the delivery of higher volumes of advertisements and collect and safeguard valuable information about their Web users and audiences. Our 24/7 Web Alliance also enables Web publishers to leverage their advertising inventory as part of a network of Web sites that

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offer advertisers broader reach and improved targeting through deeper content. This functionality helps Web publishers attract advertisers and generate additional revenue from their existing advertisement inventory. Our solutions also provide advertisers a one-stop shop for reaching and targeting the audiences of hundreds of Web sites as well as an efficient system for measuring, analyzing and actively managing advertising campaigns across numerous Web sites. This functionality helps advertisers more cost-effectively purchase advertisement campaigns from numerous Web publishers.

Comprehensive and Integrated Solution

        We offer a broad range of solutions to Web publishers and advertisers and leverage our Open AdSystem technology to integrate with all of our products. For Web publishers in our 24/7 Web Alliance, we utilize our Open AdSystem technology to help them identify and target relevant audience segments. We also combine our Open AdSystem technology with our Insight analytics products to offer Web publishers sophisticated tools to measure and understand online audience behavior. For advertisers, we designed our Open Advertiser service using the same data analysis and programming architecture as our Open AdStream platform to deliver the same level of campaign management and targeting that we provide to Web publishers. We believe our integrated solutions reduce the need for Web publishers and advertisers to work with multiple vendors, making it less costly for our customers to capitalize on advertising inventory, regardless of the format or the nature of the advertising campaign.

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

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

Customer Service

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

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Global Presence

        We sell our products and services worldwide from 18 sales locations in 11 countries throughout North America, Europe, Asia and Australia. Through our global sales and marketing organization, we deliver solutions to Web publishers and advertisers worldwide in the languages and according to the laws and customs of each local market. Specifically, for Web publishers we utilize our global technology development and support team to support the sale, installation and customization of technology solutions in almost any major local market. For international advertisers, we run advertising campaigns to reach globally dispersed audiences and target particular online segments at the same time. We apply market intelligence learned in local markets throughout our global organization to deliver the most relevant solutions in an effort to ensure that our customers benefit from proven advertising techniques learned by us worldwide.

24/7 REAL MEDIA'S GROWTH STRATEGY

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

Extend and enhance product line.    Our goal is to continue to extend and enhance our product line in the media, search and technology segments of the Internet advertising market. To enhance our media solutions, we seek to add Web sites to our 24/7 Web Alliance that have high-quality content, recognizable brand names and audience demographics that are attractive to our client advertisers. To enhance our search solutions, we plan to strengthen our relationships with our existing distribution partners and pursue additional partners. We intend to enhance our state-of-the-art technology platform and extend the power and functionality of our Decide DNA technology and our Open AdSystem advertisement serving, management and analytics products.

Increase global presence.    We intend to increase our global presence by entering new, high-growth markets worldwide. In Asia, we may seek additional acquisitions, like our acquisition of RMK, that will enable us immediately to have a strong national presence and to target the largest national advertisers in the market. We also plan to leverage our presence in South Korea to roll out search marketing services in important markets, such as our recent entry into Japan. In Europe, we plan to continue to increase our presence by entering new markets and bringing new analytics, search and advertiser solutions to the market and aggressively targeting the largest Web publishers that require global service and support.

Cross-sell into installed base.    We intend to continue providing comprehensive solutions to the market and to aggressively cross-sell our solutions. More specifically, when marketing our media representation services, we plan to promote our technology solutions to Web publishers as a way to better target their online audiences and make their Web sites more attractive advertising media. In addition, we believe significant opportunities exist to sell additional products to our installed base of existing customers who are not currently taking advantage of our full suite of products and services. We plan to cross-sell our technology solutions to Web publishers within our 24/7 Web Alliance to help them actively manage their campaigns. We also plan to promote our 24/7 Search services to advertisers purchasing inventory in our 24/7 Web Alliance as an additional, cost-effective means of directly targeting consumers who use search engines.

Pursue strategic acquisitions.    We plan to pursue strategic acquisitions that enhance our technology and media reach and extend our presence into new and high-growth online advertising markets. First, we plan to build a presence in additional markets worldwide where our international advertising clients require local service and support to run online advertising campaigns. Second, we plan to pursue acquisitions, similar to our acquisition of RMK and Decide, that can make us a

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leading player in a high-growth market. Third, we will also pursue acquisitions or other partnering opportunities that augment our ability to provide search services worldwide.

OUR PRINCIPAL LINES OF BUSINESS

Media Solutions ("Media")

The 24/7 Web Alliance

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

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

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The 24/7 Portfolio

Our 24/7 Portfolio is a select portfolio of brand name Web sites, independent from our 24/7 Network, to which we provide advertising sales and media representation services. We believe our 24/7 Portfolio Web sites offer our client advertisers premier brands, quality content and large online audiences.

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24/7 Verticals

Our 24/7 Verticals groups together partner Web sites, categorized by content, demographic and psychographic characteristics, through which our client advertisers can target specific audiences across multiple sites with a single advertising buy. 24/7 Verticals enables advertisers to target audience segments by content (identifying specified sites, sections, pages or positions on a page that receives ads) and to customize their online marketing strategies to improve reach and response. We believe our 24/7 Verticals solution offers advertisers one of the most cost-effective marketing solutions for great reach. Our 24/7 Verticals currently include, among others, the following areas of interest to online advertisers:

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The 24/7 Network

Our 24/7 Network aggregates hundreds of Web sites that we believe are attractive to advertisers because they generate a high number of advertising impressions and offer a variety of online content. We believe the 24/7 Network is a cost-effective marketing solution for advertisers to reach quality audiences, build brand value and get response on Web sites with quality content and brand names. We offer advertisers a range of impression-based and performance-based pricing models for advertising across the 24/7 Network.

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24/7 OnTarget

24/7 OnTarget allows advertisers to target Internet users based on their behavior across the 24/7 Network. 24/7 OnTarget uses our Insight ACT technology to target segments of users in a three-step process:

Analyze:    Determine which audience attributes are most beneficial for advertisers.
Cluster:    Group the audience into segments based on advertisers' needs.
Target:    Deliver targeted messages to defined audience clusters.

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

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

Delivers an attractive audience.    The 24/7 Web Alliance consolidates Web sites that are attractive to advertisers for several reasons, including their brand names, the quality and targeted nature of their published content and the number and type of users. We also regularly monitor key audience metrics, including the number of times users view advertising on our affiliated Web sites, or impressions levels, and the number of new or unique visitors to the Web sites. In addition, we require Web sites in our 24/7 Web Alliance to comply strictly with specific standards regarding content quality and brand name recognition, levels of existing and projected page views and user demographics.

Offers global reach and exposure.    The 24/7 Web Alliance attracts a global audience, including users in North America, Europe, Asia and other parts of the world, and served approximately 59.3 billion paid impressions in 2004. We believe the Web sites in the 24/7 Web Alliance are among the most frequently visited Internet destinations, publishing quality content with recognizable brand names. Through our global sales force, we promote the 24/7 Web Alliance to advertisers worldwide to run international, pan-regional or regional advertising campaigns. We also offer advertisers access to single-site campaigns on individual Web sites, access to cross sections of the 24/7 Web Alliance to target campaigns to specific content and "run of network" advertising campaigns on all of our partner Web sites.

Provides customized, active management and reporting.    We use our Open AdSystem platform to actively monitor and manage Web sites across the network, enabling advertisers to more quickly make campaign refinements. Open AdSystem helps Web publishers in our network forecast the amount of advertising space available on their site by automatically analyzing historical data to project inventory capacity, and by determining the quantity of available inventory and the amount of inventory that already has been sold.

Publishers In The 24/7 Web Alliance

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

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affiliated Web sites are well-represented to advertisers worldwide and promoted as the leading solution for advertisers to reach the audiences of these Web sites.

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

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

Advertisers On The 24/7 Web Alliance

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

Search Solutions ("Search")

        24/7 Search provides performance-based, search marketing services for the Internet. Through 24/7 Search, we connect advertisers with consumers using search engines to search for information about products and services. Our 24/7 Search solution uses proprietary technology to help advertisers determine the keywords most relevant to their products and services that will lead users from search engines to the advertisers' Web sites. Through our relationships with search engines, whom we refer to as distribution partners, we also help advertisers optimize their Web pages to receive better placement in search results.

        24/7 Search provides the following services:

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Campaign Management.    Prior to our acquisition of Decide, we provided two primary services for advertisers running campaigns on pay-for-placement and algorithmic search engines that are now included in our managed account services. These services are:



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Pay-for-Placement.    For client advertisers running campaigns on pay-for-placement search engines, we submit Web site listings into search engine databases and manage their bidding for keywords related to their Web site listings. Prior to our acquisition of Decide, we charged client advertisers an agreed cost-per-click ("CPC") when search engine users

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clicked on their Web site listing and we retained the spread between that agreed CPC and the CPC bid we placed on search engines. Following our acquisition of Decide, we generally agree with our client a range of CPC bids for keywords we manage for them and retain the difference between the range and the CPC bid we placed on search engines.

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Paid-inclusion.    For client advertisers running campaigns on algorithmic search engines, we submit Web sites listings into search engine databases. Our client advertisers pay us an agreed CPC when search engine users click on their Web site listings. We pay search engines a share of our advertising revenue when their users click on our client advertisers' Web site listings.



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Managed Account Services.    For clients that employ us for managed account services, we manage the complete search marketing process across all search engines. Our managed account services include initial site audits, planning search media campaigns, buying search media, building search engine submissions, managing pay-per-click and paid-inclusion campaigns, reporting on campaign results, and optimizing campaign performance and search engine submissions. We typically charge client advertisers a fee based, among other things, on their total committed budget for our managed account services and our achievement of specific performance target, among other factors.



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Optimization Services.



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For Advertisers.    We provide optimization services for client advertisers that desire to maintain direct relationships with search engines. We build and optimize advertiser Web site listings submissions and report campaign results to them. Our client advertisers buy search media directly, although we may be involved in their media planning. We typically charge advertisers a fee for optimization services determined by multiplying an agreed upon CPC by the number of clicks on Web site listings we submit to search engines. We may also charge fixed fees for reporting.



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For Search Engines.    We build and optimize advertiser Web site listings submissions for our search engine distribution partners. This service is referred to in our industry as "trusted feed generation." We typically charge a fee based on a percentage of revenue generated by the search engine from advertisers that have Web site listing submissions built and optimized by us.



Currently, we provide trusted feed generation services primarily for Overture. 24/7 Search works with clients of Overture's Site Match Xchange™ Program to build and optimize Web site listings, report campaign performance and provide ongoing optimization. Overture employs us to ensure all relevant deep Web site content is fed accurately into their database on a guaranteed and frequently updated basis. This process requires extensible mark-up language ("XML") data feed formatting to facilitate large quantities of data transfers. The Overture Site Match Xchange service simplifies and automates the work required to build, report and optimize XML feeds. Clients provide us, in spreadsheet or simple text file format, the basic data used or referenced in the client's Web site that the client would like to include in Overture's paid inclusion feed.

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Consulting Services.    Our consulting services include organic search engine optimization services and site audits. We optimize key attributes of client advertiser Web sites to ensure the greatest opportunity for proper indexing, listing and inclusion in the editorial results of algorithmic search engines. We do not submit Web site listings for advertisers as part of our consulting services. Site audits are reviews of client advertiser Web sites to determine how best to plan, build and manage search campaigns.

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Decide DNA Technology

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

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

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

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Comparing campaign expenditure as measured against planned and forecast expenditure targets to recommend and/or change keyword bids to stay within pacing objectives;



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Comparing the number of clicks delivered within a given campaign budget, based on the set maximum, minimum or average keyword bid price for a group of keyword terms;



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Adjusting keyword bid prices to maintain target rankings for our client advertisers Web listings in search results;



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Adjusting keyword bid prices based on ROI metrics and objectives for single and groups of keyword terms;



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Adjusting keyword bid prices to take advantage of "gap" opportunities, or situations in which we can purchase a keyword for a different price with the same performance; and



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Applying customized optimization rules to achieve desired campaign performance results for our client advertisers. For example, maintaining a desired search engine results ranking for a set of keyword while achieving a campaign performance target and a bid price target.

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

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

Decide DNA Technology Features and Functionality

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Technology Solutions ("Technology")

The Open AdSystem Platform

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

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

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Active campaign management.    Our Open AdSystem technology enables our customers to actively monitor and manage their advertising campaigns, allowing them to make more rapid campaign refinements. Our Open AdSystem technology provides multiple delivery options to ensure optimal planning and reporting with respect to advertising campaigns.



•

Specific targeting.    Our Open AdSystem technology, together with integrated plug-ins and modules, enables our customers to refine the targeting capabilities of our products and services to their needs. In particular, we leverage our proprietary Open AdSystem technology platform to offer our customers the ability to target advertisements narrowly to particular audience segments.



•

Flexible reporting.    With our Open AdSystem technology, we can generate a broad range of reports using many characteristics including site, advertiser, section, viewer and click-throughs.



•

Inventory management.    Our Open AdSystem technology helps publishers manage advertising revenue by forecasting the amount of advertising space available on their site. The Open AdSystem platform can analyze historical data to project inventory capacity and determine the quantity of available inventory.



•

Flexible format delivery.    With our Open AdSystem technology, our customers can deliver and manage advertising in many different formats from standard banner advertisements to rich media advertisements including streaming media, expanding advertisements, floating advertisements, interactive advertisements, window advertisements, interstitials, full page advertisements and commercial breaks. We believe our Open AdSystem technology offers our customers one of the most versatile advertisement delivery engines available.



•

Data accessibility.    Through an XML interface, our customers can import data to or export data from our Open AdSystem software. This flexible and open data access allows Open AdSystem to integrate easily with other enterprise systems such as customer relationship management, billing or reporting.

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

•

Open AdStream Local, which we license to Web publishers to run on their proprietary, local servers;



•

Open AdStream Central, which we provide to Web publishers from software hosted centrally on our servers; and



•

Open Advertiser, which we provide to advertisers and advertising agencies from software hosted centrally on our servers.

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        Our Insight software solutions offer Web publishers active campaign reporting and marketing intelligence and help advertisers measure, analyze and monetize audiences.

The Open AdStream Solution

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

•

Ownership and control of user data.    Strong relationships with online consumers are key to building leading online brands that attract top dollars from advertisers. We designed our Open AdSystem technology to help protect the privacy of online consumers and safeguard private information.



•

Control over advertisement delivery.    Since the Web publisher operates, controls and physically owns the equipment that is serving the advertisements, a local advertisement delivery installation maintains the maximum amount of control over advertisement serving.



•

Cost advantage based on return on investment.    We believe a compelling cost advantage is created when Web publishers use OAS Local. Since the software is purchased and the Web publisher is not charged per advertisement delivered, it is able to leverage a virtually fixed cost base.



•

Speed, efficiency and scalability.    We believe our OAS Local advertisement delivery architecture is faster and more efficient than third-party delivery since the advertisement comes directly from the Web publisher's servers. We have designed OAS Local to offer high scalability and believe OAS Local offers greater scalability than other competing products.

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

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

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

The Open Advertiser Solution

        Our Open Advertiser ("OAD") solution, similar to our OAS Central solution, is an application distributed from our servers that enables advertisers and their agencies to increase their return on investment and to streamline the advertising management process through analytical reporting and active work-flow management. In particular, our OAD service is designed to enable agencies to analyze

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their advertisers' online campaigns in great detail and provide value-added recommendations for follow-up marketing programs through detailed analytical reporting options. OAD features a dedicated cookie assigned to each advertiser and agency that allows marketers to retarget their audience based on previously performed post-click actions, such as buying a product or requesting information. OAD can also track the branding effectiveness of each advertisement by reporting the number of users who did not click on the advertisement but eventually visited the advertiser's Web site.

        We currently sell our OAD product primarily in Europe.

The Insight Platform of Audience Management and Web Analytics Tools

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

        Insight XE's features include:

•

Everyday business language.    Insight XE taxonomy allows a Web publisher to define its site in its own terms, not as pages, URLs, or pre-built categories.



•

Audience segmentation.    Insight XE allows a Web publisher to segment its audience based on audience behavior, thereby identifying hidden affinities for more effective cross-merchandising and marketing.



•

Relevant metrics.    Insight XE builds an anonymous profile for every unique visitor to a Web site. It provides the relevant metrics a Web publisher needs to understand the way its audience interacts with the Web site.



•

Data export.    An XML data router interacts with most commercial enterprise and desktop applications, allowing users to work with data using the tools of their choice.

        Insight ACT, an application that is fully integrated with OAS, enables a Web publisher to enhance the value of its advertising inventory by identifying and targeting segments of its audience who may be receptive to a specific advertiser's message.

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

•

Analyze.    Determine which audience attributes are most beneficial for advertisers.



•

Cluster.    Cluster the audience into segments, based on advertisers' requests.



•

Target.    Deliver targeted messages to the defined audience clusters.

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

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

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

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

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

SALES AND MARKETING ORGANIZATION

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

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

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

PRIVACY PROTECTION

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

        We may act on behalf of our customers to collect non-personally identifiable information in the delivery of Internet advertising. When we perform such services, we provide notice to users about our use of such information and insist that our customers provide users the choice not to participate. We do not collect or maintain a database of personally identifiable information about online consumers or associate online and offline information collected about users. We insist that our customers provide notice to users about the marketing uses of personally identifiable information collected online, including whether they associate online and offline information about users, and that they provide users with the choice not to participate.

INTELLECTUAL PROPERTY

        We own U.S. Patent No. 6,026,368 (the "Patent") entitled "On-Line Interactive System And Method For Providing Content And Advertising Information To A Targeted Set of Viewers." Licensees of the Patent include DoubleClick, Advertising.com, Accipiter, ValueClick and several smaller technology providers. The Patent, which expires in 2015, embodies pioneering technology in the field of targeted delivery of content. The Patent relates to an online system for managing the delivery of targeted advertisements or other content that adjusts the priorities associated with such advertisements or content in order to satisfy exposure goals or other predetermined criteria. We also own U.S. Patent No. 6,601,041 entitled "Method of Providing Targeted Advertisement to a Computer Mediated Communications Network," which covers methods relating to the sequencing of advertising, which we believe further extends our competitive advantage.

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

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

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

COMPETITION

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

•

our ability to adapt and scale our existing technology, and develop and bring to market new technologies, as customer needs evolve;



•

the timing and acceptance of new products and services and enhancements to existing products and services either developed or acquired by us;



•

the performance, functionality, price and reliability of our products and services;



•

our global sales and marketing efforts;



•

our customer service and support efforts; and



•

the relative impact of general economic and industry conditions on us and our competitors.

Media Solutions

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

Search Solutions

        24/7 Search competes with several other companies that provide service optimization, including DoubleClick/Performics, aQuantive/GoToast, Did-It, iProspect and Advertising.com. as well as start-up companies with untested search marketing solutions. In addition, Overture, Google and FindWhat also provide search engine marketing services for advertisers looking to drive traffic to their Web sites using performance-based, keyword search services.

Technology Solutions

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

EMPLOYEES

        As of February 1, 2005, we employed approximately 325 persons worldwide, including approximately 182 in sales and marketing, 50 in technology and product development and 57 in accounting, human resources and administration. We consider our employee relations to be good. Our subsidiaries in France, Spain and Scandinavia are parties to collective bargaining agreements pursuant to and in accordance with applicable law.

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COMPANY INFORMATION

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

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

24/7 Real Media, Inc.
132 West 31^st Street
New York, NY 10001
Attn: Investor Relations

RECENT DEVELOPMENTS

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

ITEM 2.    PROPERTIES.

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

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

•

Fort Washington, PA

•

Los Angeles, CA

•

San Francisco, CA

•

Sunnyvale, CA

        We currently lease office space in the following countries for our international operations:

•

Australia

•

Canada

•

United Kingdom

•

France

•

Germany

•

Spain

•

Sweden

•

Switzerland (European HQ)

•

South Korea

•

Japan

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

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ITEM 3.    LEGAL PROCEEDINGS.

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

        On April 19, 2002, aQuantive, Inc. (formerly Avenue A, Inc.) filed a complaint against us seeking a declaratory judgment that U.S. Patent No. 6,206,368 is invalid and not infringed by aQuantive. The complaint also sought injunctive relief and recovery of attorney's fees. On May 10, 2002, we filed our answer to the complaint, in which we denied the material allegations of the complaint and asserted a counterclaim for infringement of the "368 patent. On January 2, 2003, aQuantive filed a motion for summary judgment of non-infringement, to which we filed papers in opposition on April 28, 2003. On July 3, 2003, the U.S. Federal Court for the Western District of Washington granted partial summary judgment to aQuantive, Inc. and held that, based on the court's construction of the patent's claims, aQuantive's Atlas DMT advertisement serving system does not infringe the "368 patent. We appealed the court's ruling to the Court of Appeals for the Federal Circuit and agreed with aQuantive to dismiss the remaining claims in the case to expedite the appeal. In March 2004, the Federal Circuit Court of Appeals affirmed, without opinion, the July 2003 decision of the U.S. Federal Court for the Western District of Washington. We filed a request for rehearing but that was denied on May 7, 2004.

Brian Anderson

        On July 5, 2001, Brian Anderson, former Chief Executive of our AwardTrack, Inc. subsidiary, served us with notice of a lawsuit filed in Superior Court for the State of California in and for the County of Santa Cruz, alleging breach of contract, fraud, intentional infliction of emotional distress and breach of fiduciary duty, in connection with the acquisition of AwardTrack and subsequent events. We removed the lawsuit to federal court in California and moved to dismiss the complaint in its entirety. This motion was granted in part, with leave to amend, and denied in part. The plaintiff subsequently refiled the complaint and we filed a counterclaim. Discovery has concluded and a trial was scheduled for October 2004. However, Mr. Anderson's counsel resigned as counsel on the eve of the trial. The proceedings have been halted until Mr. Anderson obtains new counsel.

chinadotcom Corp.

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

        On April 29, 2003, chinadotcom filed an action in court in Hong Kong against David Moore, our Chief Executive Officer, alleging, among other things, breach of fiduciary duty by Mr. Moore in connection with his service as a director of chinadotcom and its subsidiary, 24/7 Media-Asia Ltd. On November 24, 2003, the Hong Kong Court dismissed chinadotcom's complaint against Mr. Moore in its entirety, and Mr. Moore requested chinadotcom to reimburse him for all of his legal expenses. chinadotcom appealed the dismissal of its claim. We filed a motion to dismiss.

        On July 22, 2003, chinadotcom filed an arbitration claim with the International Court of Commerce asserting certain alleged breaches of contract in connection with the Media Asia Agreement entered into between the parties as of June 30, 2000. The claim sought damages totaling $24.0 million. We believed chinadotcom's claims were without merit. We filed an Answer and Counterclaim in the matter.

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

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

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

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

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

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

        Shares of common stock were voted as follows:

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PART II

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

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

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

HOLDERS OF RECORD

        Our authorized capital stock consists of 350,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. As of February 28, 2005, there were 44,830,431 shares of our common stock, and 78,000 shares of our preferred stock outstanding. As of February 28, 2005, there were approximately 494 holders of record of our common stock.

DIVIDENDS

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

RECENT SALES OF UNREGISTERED SECURITIES

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

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

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

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

ITEM 6.    SELECTED FINANCIAL DATA.

        The selected consolidated financial data as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004 have been derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of December 31, 2002, 2001 and 2000 and for each of the years in the two-year period ended December 31, 2001 are derived from our audited financial statements, which are not included herein. We believe that due to the numerous acquisitions and dispositions that we made in recent years, the period to period comparisons for 2000 through 2004 are not meaningful and should not be relied upon as indicative of future performance.

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

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

OVERVIEW

        We were formed through the combination of 24/7 Media, Inc. and Real Media, Inc. in 2001. 24/7 Media, our legal and accounting predecessor, has been publicly-traded since August 1998. Real Media was a privately-held company that developed the first generation of our Open AdStream software and operated small advertising networks in the United States and Europe. Following the downturn in the global economy and, in particular, the correction in the Internet market, we executed a strategic plan to restructure our operations, focusing on our core businesses, including web representation, advertisement serving, analytics and search marketing services, and exited non-core businesses. In May 2001, we divested Exactis, an e-mail business, Sabela, an advertisement serving technology business, and AwardTrack, an online promotions and purchase rewards business. In January 2002, we divested IMAKE, a broadband convergence technology business and in May 2002, we exited e-mail marketing in the U.S. by selling certain assets related to our U.S. e-mail management product. In January 2003, we sold iPromotions, an online promotions business and acquired Insight First, Inc., a provider of Web analytics technology. During 2004, we acquired Real Media Korea Co. Ltd. ("RMK"), a provider of media and technology solutions in South Korea, and Decide Holdings Pty Limited ("Decide"), a provider of search marketing services in Europe and Australia. The foregoing acquisitions and dispositions may affect the comparability of our results from period to period.

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        We offer a comprehensive suite of media services and software products and services for the online advertising needs of Web publishers and advertisers, including Web representation, search engine marketing, online advertisement serving and analytics. We work closely with Web publishers and advertisers to implement integrated solutions to sell and deliver advertising on Web sites and manage other critical operations including campaign planning, execution, measurement and analysis. Our 24/7 Web Alliance of affiliated Web sites aggregates Internet advertising inventory and targets audience segments to attract advertisers worldwide. Through 24/7 Search, we connect advertisers with consumers who use search engines to find information, products and services. Our Open AdSystem technology helps Web publishers and advertisers target, convert and retain online customers, maintain customer relationships and safeguard the privacy of Web users.

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

Media Solutions ("Media")

        We generate revenue from our Media segment from fees paid by client advertisers for advertising impressions. We typically offer advertisers a pricing model based on cost-per-thousand-impressions ("CPM") enabling a client advertiser to pay a fee based on the number of times its advertisement is viewed. We typically count an advertising impression each time a request is made to our computer servers to transmit an advertisement to the Web browser of a user. We may charge higher CPMs to advertisers that use advanced targeting solutions, such as our behavioral targeting solution, in comparison to those that use our content channel or run of network advertising solutions.

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

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

Search Solutions ("Search")

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

        Our search services include:

•

Campaign Management.  Prior to our acquisition of Decide, we provided two primary services for advertisers running campaigns on pay-for-placement and algorithmic search engines that are now included in our managed account services. These services include:



•

Pay-for-Placement.  For client advertisers running campaigns on pay-for-placement search engines, we generate revenue from fees paid by client advertisers based on a CPC for submitting their Web sites listings into search engine databases and managing their bidding for keywords related to their Web site listings. Prior to our acquisition of Decide, we charged client advertisers an agreed CPC when search engine users clicked on their Web site listing and we retained the spread between that agreed CPC and the CPC bid we

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placed on search engines. Following our acquisition of Decide, we generally agree on a range of CPC bids for keywords we manage for clients.

•

Paid-inclusion.  For client advertisers running campaigns on algorithmic search engines, we generate revenue from fees paid by client advertisers based on CPC for submitting their Web sites listings into search engine databases. Our client advertisers pay us an agreed CPC when search engine users click on their Web site listings. We pay search engines a share of our advertising revenue when their users click on our client advertisers' Web site listings. The revenue share we pay search engines for paid-inclusion is generally 70%.



•

Managed Account Services.  For managed account services, we generate revenue from fees paid by client advertisers to manage the complete search marketing process for them across all search engines. Our managed account services include initial site audits, planning search media campaigns, buying search media, building search engine submissions, managing pay-per-click and paid-inclusion campaigns, reporting on campaign results, and optimizing campaign performance and search engine submissions. We typically charge client advertisers a fee based, among other things, on their total committed budget for our managed account services and our achievement of specific performance target, among other factors.



•

Optimization Services.  



•

For Advertisers.  We generate revenue from fees paid by client advertisers for building and optimizing their Web site listings submissions and reporting campaign results. We provide optimization services for client advertisers that desire to maintain direct relationships with search engines. These client advertisers buy search media directly, although we maybe involved in their media planning. We typically charge advertisers a fee for optimization services determined by multiplying an agreed CPC by the number of clicks on Web site listings we submit to search engines. We may also charge fixed fees for reporting.

•

For Search Engines.  We generate revenue from fees paid by search engines for building and optimizing submissions to their databases by their advertisers. This service is referred to in our industry as "trusted feed generation." We typically charge a fee based on a percentage of revenue generated by the search engine from advertisers that have Web site listing submissions built and optimized by us. We also may receive additional amounts related to the volume of services we perform for the search engine.

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Consulting Services.  For consulting services, we generate a revenue from fixed fees charged for search engine optimization services and site audits. We optimize key attributes of client advertiser Web sites to ensure the greatest opportunity for proper indexing, listing and inclusion in the editorial results of algorithmic search engines. We do not submit Web site listings for advertisers as part of our consulting services. Site audits are reviews of client advertiser Web sites to determine how best to plan, build and manage search campaigns.

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

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Technology Solutions ("Technology")

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

•

Open AdStream Central Service.  We generate revenue from our Open AdStream Central service from fees paid by Web publishers for administering Open AdStream on our servers. We typically charge Web publishers a fee based on a CPM related to advertising impressions. Our revenue is determined by multiplying the CPM by the number of impressions delivered and is typically billed on a monthly basis.



•

Open AdStream Local Software.  We generate revenue from licensing our Open AdStream Local advertisement delivery and management software to Web publishers. Our license agreements typically provide for a license fee and software maintenance and technical support services fee. We negotiate license fees based on, among other things, the forecasted number of advertising impressions a Web publisher will deliver using our software.



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Open Advertiser Service.  We generate revenue from our Open Advertiser advertisement delivery and management service from fees paid by advertisers and agencies for administering Open Advertiser on our servers. We typically charge customers a fee based on a CPM related to advertising impressions. Our revenue is determined by multiplying the CPM by the number of impressions delivered and is typically billed on a monthly basis. In the fourth quarter of 2004, we made the strategic decision to integrate Open Advertiser functionality into Open AdStream. As a result, we expect Open Advertiser service revenue to begin declining.



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Insight XE Software and Service.  Our Insight XE solution offers Web publishers active campaign reporting and marketing intelligence and helps advertisers measure, analyze and manage online audiences. We generate revenue from Insight XE from license or service fees paid by Web publishers based on a CPM for page views. Our revenue is calculated by multiplying the CPM by the number of page views measured by our software.



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Insight ACT Software.  Our Insight ACT software, which requires our Open AdStream and Insight XE software, enables Web publishers to identify and target segments of their audiences based on user activity. We generate revenue from Insight Act on the same basis as the associated Open AdStream and Insight XE arrangement. As of December 31, 2004, we have not generated significant revenue from Insight ACT.

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

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

CRITICAL ACCOUNTING POLICIES

General

        Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain

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estimates, judgments and assumptions that management believes are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

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

Revenue Recognition; Cost of Revenues

Media

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

Search

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

Technology

        Our Technology revenues are derived primarily from licensing our software, hosted advertisement serving, and software maintenance and technical support services. Revenue from software licensing agreements is recognized in accordance with Statements of Position ("SOP") No. 97-2, Software Revenue Recognition, and Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, upon delivery of the software, which is generally when the software is made available for download, there is persuasive evidence of an arrangement, collection is reasonably assured, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fees to all elements of the arrangement. Contracts that bundle the software license with software maintenance and technical support are recognized ratably over the contract term. Revenue from advertisement serving is recognized upon delivery. Revenue from software maintenance and technical support contracts is recognized ratably over the life of the agreement, which typically does not exceed one year.

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

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Deferred Revenue

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

Allowance for Doubtful Accounts; Sales Allowance

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

Valuation of Goodwill, Intangible Assets and Long-Lived Assets

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

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

Business Combinations

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

Contingencies and Litigation

        We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS No. 5, Accounting for Contingencies, and record accruals when the outcome of these matters is deemed probable and the liability is reasonably estimable. We make these assessments based on the facts and circumstances and in some instances based in part on the advice of outside legal counsel.

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Restructuring Activities

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

Short-Term Investments

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

RESULTS OF OPERATIONS—2004 COMPARED TO 2003

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

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

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

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

Media.

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

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

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

Search.

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

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

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

Technology.

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

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

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

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Sales And Marketing Expenses.

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

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

General And Administrative Expenses.

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

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

Product Development Expenses.

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

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

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

Amortization Of Intangible Assets And Deferred Financing Costs.

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

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

        Amortization expense was $4.3 million for the year ended December 31, 2004 and $2.7 million for the year ended December 31, 2003. For 2004, amortization expense related $2.3 million to acquired technology, $0.7 million to other intangible assets, $0.6 million to deferred financing costs and $0.7 million to the transition payment to Lycos. In December 2004, we impaired the analytics technology that was acquired with Insight due to significant rewrite of the underlying software code during 2004. The remaining balance of $0.9 million, inclusive of an earn-out amount of $250,000 due to Insight, was considered impaired at December 31, 2004. Amortization expense for 2003 related $2.5 million to acquired technology, $0.1 million to other intangible assets and $0.1 million to deferred financing costs. In the fourth quarter of 2003, the Company made the strategic decision to no longer support the 24/7 Messenger product that was acquired with Now Marketing. The related acquired technology was amortized until December 31, 2003 and the remaining balance of $1.3 million was considered impaired.

Stock-Based Compensation.

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

Restructuring Costs.

        During 2004, we took steps to align our sales, development and administrative organization and reduce corporate overhead, partially related to redundancies due to the acquisition of Decide. Our efforts involved the involuntary termination of approximately 17 employees, as well as charges for excess real estate space, primarily at our office in Germany. We recorded a restructuring charge of approximately $0.8 million during 2004. The 2003 restructuring involved the involuntary termination of approximately 26 employees and a revision of the estimate of the cost to dispose of office space at the corporate headquarters in New York. The $1.7 million charge consists of $1.2 million in office closing costs and $0.5 million in employee costs.

Impairment Of Intangibles Assets.

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

        In December 2004, we determined the analytics technology that was acquired with Insight was impaired due to significant rewrite of the underlying software code during 2004. The remaining balance of $0.9 million, inclusive of an earn-out amount of $250,000 due to Insight, was written off as an impairment loss at December 31, 2004. In the fourth quarter of 2003 we made the strategic decision to no longer support the 24/7 Messenger product that was acquired with Now Marketing. The related acquired technology was amortized until December 31, 2003. The remaining balance of $1.3 million was written off as an impairment loss.

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Impairment Of Property And Equipment.

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

Interest Expense, Net.

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

Change In Fair Value Of Warrant Liability.

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

Gain On Legal Settlement.

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

Impairment Of Investments.

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

Other Income (Expense), Net.

        Other income of $0.2 million for the year ended December 31, 2004 includes $0.3 million in amounts recovered from a former subsidiary and settlement of professional service fees offset by $0.1 million of legal fees and other expenses relates to previous patent litigation. In 2003, the expense includes $1.4 million of legal fees related to patent litigation and $0.6 million in legal fees related to litigation with chinadotcom, offset by the reversal of $0.4 million in liabilities related to disposed businesses that were no longer considered necessary.

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Dividends On Preferred Stock.

        Our preferred stock accrue and accumulate dividends at a rate of 6% per year, compounded monthly, payable when, as and if declared by our Board of Directors. All accrued dividends must be paid before any dividends may be declared or paid on the common stock, and shall be paid as an increase in the liquidation preference of the preferred stock payable upon a sale, merger, liquidation, dissolution or winding up of the Company. Accrued but unpaid dividends are cancelled upon conversion of the preferred stock. After giving effect to conversions in 2004, 78,000 shares of preferred stock were outstanding at December 31, 2004.

RESULTS OF OPERATIONS—2003 COMPARED TO 2002

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

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

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

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

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

Media.

        Revenue.    Our Media revenue was derived from 24/7 Web Alliance and Other Media Services. 24/7 Web Alliance generated $21.4 million in revenue in 2003 compared to $16.6 million in 2002, an increase of 29.4%. The increase was due to increasing the amount of paid impressions by 61.0% from 15.4 billion in 2002 to 24.8 billion in 2003. The CPM declined slightly year over year primarily due to increasing the average advertising campaign order size, as large campaign orders receive a lower price due to volume.

        Other Media Services revenue was generated primarily from e-mail and iPromotions. E-mail revenue decreased from $2.7 million in 2002 to $2.0 million in 2003 due to the sale of our U.S. e-mail management product, known as 24/7 Mail, to Naviant on May 3, 2002. We maintain the ability to sell e-mail domestically as a broker through 24/7 Mail and internationally without restriction. In January 2003, we sold our iPromotions unit, which accounted for $0.2 million in 2003 and $1.2 million in 2002.

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

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

Search.

        Revenue.    Search revenue increased to $10.3 million in 2003 from $8.3 million in 2002, an increase of 24.8%. This was due to an increase in the number of valid visitors delivered to our clients from 41.2 million in 2002 to 49.1 million in 2003, an increase of 19.2% and an increase in the costs-per-click that we were able to charge. Historically, we generated a significant portion of our 24/7 Search revenue from relationships with a small number of search engine distribution partners, particularly Inktomi. Due to changes at our largest search engine distribution partner, Inktomi, since its acquisition by Yahoo!, the revenue we generated from Inktomi began to decline in the second quarter of 2003, and our contract with Inktomi expired at the end of May 2003. Despite the loss of our largest distribution partner we were able to increase valid visitors by expanding our strategic relationships with other distribution partners and increasing the number of distribution partners. CPCs have fluctuated due to the change in distribution partners.

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

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

Technology.

        Revenue.    Our Technology revenue was $15.3 million in 2003 and $13.8 million in 2002, an increase of 11.0%. Revenue from our centrally hosted services, including Open AdStream Central, Open Advertiser and Insight XE, continued to grow during 2003 as impressions delivered climbed from 23.9 billion in 2002 to 50.7 billion in 2003. Open AdStream Central continued to be an attractive solution because it requires minimal up-front cost and does not require the customer to dedicate its assets to hosting the software. In 2003, we changed to a subscription-based contract model for new customers for our Open AdStream Local software. Accordingly, total contract value was recognized ratably over the term of the license and service agreement rather than upon delivery as was the case in software licenses signed in 2002. If we had changed contracts in 2002, approximately $1.4 million in 2002 revenue would have been deferred until future periods and reported revenue for 2002 would have been approximately $12.3 million.

        Cost of Revenues.    The cost of Technology Solutions revenues consisted of the cost of operating equipment and broadband capacity for our third party advertisement serving solutions and payroll costs to deliver and support software, offset by the portion allocated to the Media segment for advertisement serving.

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

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Sales And Marketing Expenses.

        Sales and marketing expenses consisted primarily of sales force salaries and commissions, advertising expenditures and costs of trade shows, conventions and marketing materials. Sales and marketing expenses decreased as a percentage of revenue from 29.8% for 2002 to 25.6% for 2003 as we were able to gain operating leverage off the existing cost structure. Headcount decreased from 140 sales and marketing employees at December 31, 2002 to 104 at December 31, 2003. The decrease in headcount was offset by an increase in commissions.

General And Administrative Expenses.

        General and administrative expenses consisted primarily of compensation, facilities expenses and other overhead expenses incurred to support the business. General and administrative expenses decreased as a percentage of revenue from 33.4% in 2002 to 22.1% in 2003. The significant decrease was due to our reductions of headcount, office space, professional fees and related expenses. Efforts to streamline operations successfully reduced headcount from 60 general and administrative employees at December 31, 2002 to 42 at December 31, 2003.

Product Development Expenses.

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

Amortization Of Intangible Assets And Deferred Financing.

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

Stock-Based Compensation.

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

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

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Restructuring Costs.

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

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

Impairment Of Intangibles Assets.

        We perform on-going business reviews and, based on quantitative and qualitative measures, assess the need to record impairment losses on long-lived assets used in operations when impairment indicators are present. Where impairment indicators were identified, management determined the amount of the impairment charge by comparing the carrying values of goodwill and other long-lived assets to their fair values. In the fourth quarter of 2003 we made the strategic decision to no longer support the 24/7 Messenger product that was acquired with Now Marketing. The related acquired technology was amortized until December 31, 2003. The remaining balance of $1.3 million was considered impaired.

Loss On Sale Of Non-Core Assets, Net.

        The $0.3 million loss in 2002 included a $1.4 million loss on the sale of certain assets related to our U.S. e-mail management product offset by a $1.1 million gain related to the sale of Exactis in May 2001.

Interest Expense, Net.

        Interest expense related to our notes payable and capital lease obligations and interest income related to our cash and cash equivalents. Interest expense in 2003 related to the PubliGroupe debt that was settled in the second quarter of 2003 and the subordinated convertible debentures that were issued in the third quarter of 2003. Interest expense in 2002 primarily related to the PubliGroupe loans. Interest expense in 2003 and 2002 was offset by interest income from cash in overnight deposit and money market accounts.

Other Expense (Income), Net.

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

Dividends On Preferred Stock.

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

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Preferred Stock Conversion Discount.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

        Net cash used in investing activities was approximately $22.4 million in 2004. Those activities related $2.0 million to the acquisition of RMK, $15.7 million to the acquisition of Decide, $2.0 million to short-term investments, and $2.7 million to capital expenditures. Investing activities used $1.5 million in 2003, related to purchases of computer equipment for general operational purposes, cash used in the acquisition of Insight First and investing in iPromotions. Investing activities provided $3.7 million in 2002 primarily related to proceeds received from the sale of non-core assets, net of expenses, and cash acquired in acquisitions offset by capital expenditures.

        Net cash provided by financing activities of $38.0 million in 2004 related to $37.2 million of net proceeds from our secondary offering of common stock and $0.8 million of proceeds from the exercise of stock options and common stock warrants. Financing activities provided $20.2 million in 2003 primarily related to proceeds from the issuance of preferred stock, the issuance of subordinated convertible debentures and the exercise of stock options offset by the settlement of notes to PubliGroupe for $1.5 million in cash and approximately 1.0 million shares of common stock. Financing

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activities provided $10.2 million in 2002 primarily related to proceeds from the issuance of preferred stock, issuance of notes payable and the exercise of stock options.

        No provision for federal or state income taxes has been recorded because we incurred net operating losses for all periods presented. At December 31, 2004, we had approximately $162.8 million of U.S. net operating loss carryforwards. Our net operating loss carryforwards expire in various years through 2024. As a result of various equity transactions during 2001, 2000, 1999, and 1998, we believe that we have undergone an "ownership change" as defined by Section 382 of the Internal Revenue Code. Accordingly, utilization of a substantial part of the net operating loss carryforward is limited. Due to our history of operating losses and the Section 382 limitation, there is substantial uncertainty surrounding whether we will ultimately realize our deferred tax assets. Accordingly, these assets have been fully reserved. During 2004 and 2003, the valuation allowance decreased by $1.6 million and $19.4 million, respectively. Of the total valuation allowance of $69.6 million, tax benefits recognized in the future of approximately of $2.1 million will be applied directly to additional paid in capital. This amount relates to the tax effect of employee stock option deductions included in our net operating loss carryforward.

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS AND CONTINGENCIES

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

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

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