24/7 MEDIA INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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

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

COMMISSION FILE NO. 0-29768

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24/7 REAL MEDIA, INC.

(Exact name of registrant as specified in its charter)

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

1250 BROADWAY
NEW YORK, NEW YORK 10001

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 231-7100

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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

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

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

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

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

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

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

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

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PART I

ITEM 1. BUSINESS OF THE REGISTRANT

OVERVIEW

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

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

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

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

COMPANY HISTORY

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

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

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

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

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

INDUSTRY BACKGROUND

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

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

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

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

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

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

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

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

BENEFITS TO ADVERTISERS AND DIRECT MARKETERS

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

BENEFITS TO WEB PUBLISHERS

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

THE 24/7 REAL MEDIA STRATEGY

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

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

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

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

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

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

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

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

OUR PRINCIPAL LINES OF BUSINESS

TECHNOLOGY SOLUTIONS

OPENADSTREAM

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

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

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

OPENADSTREAM LOCAL (OASL)

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

- Cost advantage based on return-on-investment;

- Speed, efficiency, and scalability;

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- Exclusive ownership of user data; and

- Control over ad delivery

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

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

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

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

Other key benefits to the customer include:

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

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

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

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

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

SELECTED OPEN ADSTREAM CLIENTS

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

OPENADSTREAM CENTRAL (OASC)

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

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

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

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OPENADSTREAM NETWORK (OASN)

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

OPENADVERTISER (OAD)

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

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

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

INTEGRATED MEDIA SOLUTIONS

INTERNET ADVERTISING NETWORK

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

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

Our premier Websites include the following:

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

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

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

CHANNELS ON THE 24/7 NETWORK

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

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

ADVERTISERS ON THE 24/7 NETWORK

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

Our advertisers in the past year have included:

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

24/7 MAIL

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

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

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

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

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

24/7 MAIL PRODUCTS

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

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

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

24/7 WEBSITE RESULTS

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

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

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

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

24/7 IPROMOTIONS

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

PRODUCT OFFERINGS INCLUDE:

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

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

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

BENEFITS THAT IPROMOTIONS BRINGS TO ITS CLIENTS INCLUDE:

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

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

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

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

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

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

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

SALES ORGANIZATION

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

PRIVACY PROTECTION

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

INTERNATIONAL OPERATIONS

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

INTELLECTUAL PROPERTY

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

10

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

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

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

COMPETITION

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

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

EMPLOYEES

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

11

ITEM 2. PROPERTIES.

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

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

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

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

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

We are continually evaluating our facilities requirements.

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

ITEM 3. LEGAL PROCEEDINGS.

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

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

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

12

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

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

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

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

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

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

A. Election Of Class III Directors:

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

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

13

PART II

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

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

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

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

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

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

14

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

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

15

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

16

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

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

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

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

CRITICAL ACCOUNTING POLICIES

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

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

GENERAL

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

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

REVENUE RECOGNITION

INTEGRATED MEDIA SOLUTIONS

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

17

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

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

TECHNOLOGY SOLUTIONS

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

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

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

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

ACCOUNTS RECEIVABLE

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

18

IMPAIRMENT OF LONG-LIVED ASSETS

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

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

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

RESULTS OF OPERATIONS--2001 COMPARED TO 2000

FACTORS AFFECTING COMPARABILITY OF 2001 TO 2000

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

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

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

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

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

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

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

19

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

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

The core elements of our business that remain are:

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

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

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

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

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

REVENUES

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

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

COST OF REVENUE AND GROSS PROFIT

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

20

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

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

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

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

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

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

21

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

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

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

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

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

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

22

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

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

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

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

23

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

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

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

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

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

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

RESULTS OF OPERATIONS--2000 COMPARED TO 1999

REVENUES

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

24

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

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

COST OF REVENUE AND GROSS PROFIT

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

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

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

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

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

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

25

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

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

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

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

RESTRUCTURING AND EXIT COSTS. During the fourth quarter of 2000, we
recorded a restructuring charge of approximately $11.7 million. Our
restructuring initiatives were to reduce employee headcount, consolidate
operations and reduce office space in order to better align our sales,
development and administrative organization and to position us for profitable
growth consistent with our long-term objectives. This restructuring involved the
involuntary termination of approximately 200 employees, the exiting of six sales
office locations, a significant reduction of space at two additional offices,
and the abandonment of our AwardTrack subsidiary. In addition, we had entered
into negotiations to sell our Sabela subsidiary and recorded its assets at their
estimated realizable value.

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

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

26

identified, management determined the amount of the impairment charge by
comparing the carrying values of goodwill and other long-lived assets to their
fair values.

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

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

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

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

27

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

28

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

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

The annual lease for our corpora