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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


ý
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, 2002.


o
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

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

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

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)

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

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

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

        Aggregate market value of voting stock held by non-affiliates of registrant as of March 26, 2003: $8,700,009.

        Number of shares of Common Stock outstanding as of March 26, 2003: approximately 67,736,210.


24/7 REAL MEDIA, INC.
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

ITEM NO.
    
   PAGE
PART I        

1.
 
Business
 
3
2.   Properties   21
3.   Legal Proceedings   22
4.   Submission of Matters to a Vote of Security Holders   22

PART II
 
 
 
 

5.
 
Market for Registrant's Common Equity and Related Stockholder Matters
 
23
6.   Selected Consolidated Financial Data   24
7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   26
7A.   Quantitative and Qualitative Disclosures About Market Risk   61
8.   Consolidated Financial Statements and Supplementary Data   62
9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   62

PART III
 
 
 
 

10.
 
Directors and Executive Officers
 
63
11.   Executive Compensation Summary of Cash and Certain Other Compensation   67
12.   Security Ownership of Certain Beneficial Owners and Management   71
13.   Certain Relationships and Related Transactions   75
14.   Controls and Procedures   76

PART IV
 
 
 
 

15.
 
Exhibits, Consolidated Financial Statements, and Reports on Form 8-K
 
76

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PART I

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


ITEM 1. BUSINESS

24/7 REAL MEDIA

        We are a gateway to the full spectrum of solutions for interactive marketing. We believe our Open AdSystem™ platform, based on our patent-protected technology, enables Internet marketers to target, convert and retain their best online customers and manage and protect customer relationships. We work closely with our customers to implement integrated, value-enhancing solutions to manage critical aspects of Internet marketing from ad sales and media representation to campaign planning, execution and optimization as well as audience measurement and analysis.

        Our global business operates in 11 countries in North America and Europe and is organized into two principal business lines: Integrated Media Solutions and Technology Solutions.

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Corporate

        24/7 Real Media is a Delaware Corporation formed in 1998 with its principal executive offices located at 1250 Broadway, 28th Floor, New York, New York 10001. Our main telephone number is (212)-231-7100 and our main corporate Web site is www.247realmedia.com. All of our EDGAR filings with the Securities and Exchange Commission may be accessed through this Web site.

        See Note 15 to the Consolidated Financial Statements for revenues and gross profit attributable to each of our lines of business and revenues and long-lived asset information by geographic area.

INDUSTRY OVERVIEW

        We operate in the Internet advertising and marketing services industry. Our ad delivery and management technology, and media and marketing solutions, empower our Web publisher customers and Internet advertisers target, convert and retain online customers and manage and protect customer relationships.

The Market for Internet Advertising

        The Internet provides one of the most important global mediums for advertising and marketing, and, while capturing only a fraction of total advertising spending, it remains poised for significant growth. Spending on online advertising was approximately 3.1% of total U.S. advertising spending in 2000 (eMarketer, December 2002). Despite the global economic downturn, and, in particular, the correction in the Internet market since mid-2000, advertisers have continued to rely on the Internet to build brand awareness and target buyers for their products and services. Spending on online advertising held firm at approximately 2.5% of total U.S. advertising spending in 2002 and is expected to reach between 2.8% and 3.4% by 2005 (eMarketer, December 2002). During the correction in the Internet market, many of our competitors altered their business plans, restructured, and even ceased operations. We believe this market turmoil presents an opportunity to capture market share, define industry standards, and anchor our company to remain a leading developer and global provider of technology-driven solutions for Internet marketing.

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        Within the advertising sector, several favorable trends are emerging as the industry adjusts fundamentally to the introduction of new delivery mediums (i.e., Internet, Wireless, iTV, Cable, etc.). Specifically, the growth of new mediums, including the Internet, is coming at the direct expense of traditional mediums. With respect to the Internet, projections for growth in US online ad spending range between 4.0% and 10.7% for 2003 (eMarketer, December 2002). By comparison growth in total US ad spending is expected to range between 1.9% and 6.6% for 2003 (eMarketer, December 2002). At the same time more people are turning to the Internet and away from other mediums. For example, the average hours per week spent online increased to an average of 11.1 hours per week in 2002, up from 9.8 in 2001 and 9.4 in 2000, with Internet users spending 5.4 fewer hours a week watching television than non-users in 2002 as compared to 2001 (eMarketer, December 2002).

        The growing number of Internet users continues to drive the attractiveness of the Internet for marketers. In 2002, the number of people with online access was estimated at 619 million people worldwide of which 230 million were English-speaking users and 165 million were in the U.S. (Neilsen/Netrating, May 2002). In addition, 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 improves and becomes more dynamic. By 2004, the number of people with online access is expected to reach 940 million worldwide of which 280 million will be English-speaking users and 175 million will be in the U.S. (Global Reach, September 2002). We believe fundamentally that, as the number of people using the Internet worldwide continues to grow, marketers will increase their spending on Internet advertising, and related advertising and marketing services, both worldwide and in the U.S.

Evolution of Ad Serving Technology: Building and Protecting the Customer Relationship

        The interactive nature of the Internet offers marketers several distinct advantages over traditional media. Internet users interact with Web sites in multiple ways, such as browsing content, searching for information, playing games, registering for sites, entering promotions and buying products and services. Internet technologies enable sites to capture the data generated by this interaction, which may include aggregate audience demographics and behavioral data, specific user profiles and preferences as well as transactional and geographic data. Analyzing this data permits Internet publishers to better understand the characteristics of their users and report this detailed information to online advertisers and marketers.

        Internet ad serving technologies have evolved as Internet publishers have realized that increasing the number, frequency and duration of visits to their own sites, rather than sending consumers and businesses to other Web sites, yielded greater potential advertising and e-commerce opportunities. Accordingly, these companies evolved into portals, or online media companies that deliver a broad array of content and other services designed to keep consumers and businesses at their sites. These dynamics also have led to the formation of concentrated networks of Web sites and Web portals. At the same time, Internet marketers have made it a high priority to build and protect their relationships with online consumers, and to retain ownership of the data generated by their marketing campaigns to reach those consumers.

        We believe Internet marketers are best served by a company that can service all of their marketing needs. We strive to help our customers identify the best online media to reach their target audience and to provide ad serving technology and marketing services that allows them to target, convert and keep online customers as well as control the commercial use of data generated by their marketing campaigns. We believe such control is achieved by an ad serving platform that keeps the most valuable user data under the exclusive domain of the marketer. We accomplish this, consistent with our commitment to online privacy, by using "cookies" that are exclusively associated with, and accessible by, our customers. Browser cookies are small text files commonly delivered by Web sites and accepted through a user's Web browser that function with browser software to help gather marketing information

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about the user's online behavior. Other ad serving technologies, particularly technologies that systematically redirect browser cookies to the technology provider, limit the marketer's ability to build exclusive and useful consumer profiles. Such technology providers place less value on marketers' customer relationships and seek to leverage their connection with marketers to gain commercial use of the data generated by online marketing campaigns.

Limitations Of Traditional Internet Marketing Solutions

        Historically, Internet advertising platforms have failed to integrate many functions required to help marketers build, manage and protect their audience relationships. The priority given customer relationships in the online environment has dramatically increased the emphasis on measuring and analyzing audience behavior to exploit the Internet's direct marketing potential and achieve higher consumer click-through and conversion rates. Ad serving platforms that do not have sophisticated audience analytics functionality leave advertisers paying for exposure to many viewers who may not be interested in the product or service advertised. In addition, if an ad serving platform systematically redirects browser cookies away from the marketer, the marketer has less ability to manage its relationships with online consumers, by studying their buying behavior and other click-stream data.

        Internet marketers find it increasingly difficult to cost-effectively acquire qualified consumer and business leads online for many reasons, including the concentration of online advertising on large Web sites, the diffusion of consumer and business attention across the Internet, limitations on their ability to gather and analyze information about their online consumers and the pricing of Internet advertisements on a CPM basis. This is particularly true for Internet marketers seeking to reach targeted audiences, despite the unique abilities of the Internet to facilitate direct marketing. As a result, the needs of Internet marketers, and the desires of Internet publishers to meet those needs, often go unmatched.

        Further, as the results of Internet advertising are scrutinized more and more, we believe advertisers may progressively seek performance-based pricing models for media representation and marketing services. These pricing models may include models known as cost-per-click, cost-per-action and cost-per-lead, in which an advertiser only pays when an Internet user clicks on an advertiser's banner advertisement or performs a specific action, such as a software download, an online registration or other transactions. These models are intended to reduce the risk of advertising by only charging for a specific outcome, with the objective of maximizing the number of responses per advertising dollar. Responses can include an electronic reply by the Internet user, user registration and actual e-commerce transactions. Performance-based solutions also encourage consumers to respond immediately to advertising and interact directly with the advertiser in real-time, thereby enabling the marketer to build a better customer relationship.

        We believe significant demand exists for an efficient, scalable ad serving platform that integrates audience analytics tools and provides controllable, performance-based Internet marketing solutions.

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THE 24/7 REAL MEDIA STRATEGY

        We aim to build shareholder value by providing the best technology-driven solutions for Internet marketers to target, convert and retain online customers and manage and protect customer relationships. We intend to further this objective by continuing to implement the following interconnected strategies:

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As an integrated technology and media company, we benefit from a diversified revenue stream that has cushioned the negative financial impact of the recent advertising slowdown. In connection with a rationalized operating cost structure, we continue to believe our full-service model will offer significant operating leverage as the advertising market rebounds and build shareholder value.

OUR PRINCIPAL LINES OF BUSINESS

Integrated Media Solutions

The 24/7 Web Alliance

        Our 24/7 Web Alliance of web sites provides an extensive online marketing channel offering branded and niche web sites, high-quality content and mass reach. The 24/7 Web Alliance is aimed at online marketers who wish to develop online strategies to build brands, target audiences, and monitor campaigns for greater ROI and at Web publishers looking to increase revenues and maximize their advertising inventory. The 24/7 Web Alliance is a customized Internet marketing solution that delivers targeted campaigns for marketers who demand the highest response, content alignment, quality brand affiliation, and best value in online advertising. To join our 24/7 Web Alliance, member web sites must satisfy our strict quality standards for content and traffic.

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

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        Our 24/7 Web Alliance consists of two distinct elements:

        One of our key strategies is our Content Channels where we offer client advertisers the ability to target specific audience segments of our 24/7 Web Alliance by content (identifying specified sites, sections, pages or positions on a page that receives ads). We believe our Content Channels contribute significantly to our ability to offer our client advertisers customized online marketing strategies that combine premier brands and mass reach. To accomplish this, we sell contextual advertising throughout our 24/7 Web Alliance under two major categories: Network or Portfolio Categories. Our Network ad sales offer our client advertisers advertising placement in one or more of the targeted content channels in our 24/7 Network, without specifically targeting individual Web sites. We believe our content channel solution offers advertisers one of the most cost-effective marketing solutions for the greatest reach. Our Portfolio ad sales offer our client advertisers advertising placement in the content channels of one or more of our 24/7 Portfolio Web sites. The use of these categories of advertisements enables our client advertisers to target a particular audience segment.

        Our content channels currently cover the following areas of interest to online consumers:

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        We also leverage our proprietary Open AdSystem technology platform, our experienced traffic and account management staff and our strategic technology partners to offer client advertisers the ability to target advertisements to particular audience segments. In addition to our content channels, we have the ability and expertise to target a variety of ways, including, but not limited to, keyword (serving ads related to specific words entered into a search engine by an online consumer), geography (delivering ads based on country, state or zip code), day parting (specifying a particular hour of day or week the ad is viewed) and frequency capping (defining the number of times a particular ad is delivered to the same user within a 24 hour period).

Publishers In The 24/7 Web Alliance

        Our 24/7 Web Alliance currently consists of over 700 affiliated Web sites worldwide. By aggregating the underutilized advertising inventory of our affiliated Web sites, we believe we have developed one of the most cost-effective solutions for advertisers who want to reach the millions of visitors to these Web sites.

        We believe inclusion in our 24/7 Web Alliance benefits our affiliated Web sites in significant ways. First, inclusion in our 24/7 Network offers our affiliated Web sites the technology for managing and delivering Internet advertising. The affiliated Web sites can avoid the hardware, software and personnel costs associated with building and maintaining their own ad-serving technology and, in some cases, their own advertising sales force. Second, we offer affiliated Web sites a potential stream of recurring revenue by selling their ad inventory that often would remain unsold. We believe that many Web sites that attract advertisers who want impression-based solutions rarely sell their entire advertising inventory. By using our 24/7 Portfolio solution, these Web sites gain the opportunity to selectively monetize portions of their unsold inventory. This selectivity helps protect the value of the Web site's brand name without jeopardizing the Web site's published CPM (cost-per-thousand ad impressions) rate card. Third, all of our affiliated Web sites benefit from our experienced management team, our sales and marketing organization and our access to advertisers.

        We believe the effectiveness of our media solutions depend, in part, on the quality of the Web sites in our 24/7 Web Alliance. We actively seek to add Web sites to our 24/7 Network that have high-quality content, recognizable brand names and audience demographics that we believe are attractive to our client advertisers. We enforce our quality standards by reviewing and periodically auditing Web site content. We apply similar criteria and review standards to Web sites that seek to join our 24/7 Portfolio. We will reject membership requests from Web sites that do not meet our quality standards. Our quality standards generally are intended to screen out Web sites with inappropriate content, insufficient traffic, illegal activity and fraudulent clicking activity. We also may eliminate Web sites that encourage users to click on banner advertisements for reasons other than an interest in our client advertisers' messages.

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Advertisers On The 24/7 Web Alliance

        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 customized 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.

24/7 Website Results

        Our 24/7 Website Results service enables advertisers to attact a high volume of targeted visitors from Internet search engines, who are ready and willing to buy the customer's product. Through this service, known as "pay for inclusion," our clients' Web sites appear prominently in search results served in response to a consumer's inquiry for particular keyphrases. We achieve this for our customers through our understanding of search engine algorithms and constant monitoring of search engine behavior. We use this understanding to help our customer select hundreds of keywords and/or phrases most relevant to their products or services. Our proprietary technology converts these selections into priorities in the users' individual Internet search, causing our customers' Web site links to appear prominently for relevant user queries. We also work with our customers to ensure that these targeted search visitors are delivered to the appropriate landing pages within our customers' Web sites in order to increase buyer conversion.

        24/7 Website Results performance-based fees are determined by multiplying the number of click-throughs to a client's Web sites as a result of our efforts by the amount we charge per valid visitor. We pay our distribution partners a percentage of our revenue generated from users of their search engines as a royalty, but receive no preferential ranking within the search listings. The 24/7 Website Results service is a turn-key, performance-based marketing solution that provides seamless delivery of search engine traffic without any changes to a customer's Web site and with no setup fees.

        Key components of our strategy for our 24/7 Web sites Results business include the following:

Other Media Services

Desktop Messaging

        We provide an interactive desktop information and messaging tool, known as 24/7 Messenger. 24/7 Messenger enables marketers to send standard and rich media messages (including creative messages produced in Flash, text, HTML, video and/or audio) to a targeted audience based on preferences the audience selects themselves. Specifically, in a co-branded engagement, after a consumer has

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downloaded and installed 24/7 Messenger, an icon containing an advertiser's branded logo will flash on the consumer's computer desktop to alert the consumer that one or more messages from the advertiser are waiting to be activated. With one click by the consumer, the icon activates the messages which the consumer can view, click-through or delete.

        Our 24/7 Messenger technology has built-in reporting functionality. We believe our self-administration interface makes it easy for marketers to measure the results of their 24/7 Messenger marketing campaigns on a real-time basis. The reports produced by 24/7 Messenger can include, among other variables, the number of installations, the number of registrations, the number of unique visitors and the total number of click-throughs.

Internet Promotions

        In January of 2003, we sold a majority stake in iPromotions, Inc. to a group of private investors including employees. We retained a minority interest in iPromotions and have entered into a strategic partnership to continue to provide access to iPromotions technology and services to our customers. Through our new strategic alliance with iPromotions we can assist our customers in choosing the right online promotional campaign that will meet the customer's objectives, then help them create and manage the entire process.

        iPromotions offers design, hosting, management and maintenance of customized online incentive marketing programs. iPromotions develops and manages online sweepstakes, instant-win games and viral marketing campaigns to enhance online media buys. In addition, iPromotions designs banners for advertising campaigns; enhances e-mail broadcasts with HTML or other rich media; and develops customized Flash pieces for Web sites, company newsletters, or online letterhead and business cards. iPromotions services include Incentive consulting, Sweepstakes, Viral marketing, Banner creation, Flash and interstitial creation, Rich Media deliverables, HTML emails and copywriting.

E-mail Brokerage

        We act as an e-mail broker to provide access to email direct marketing services. We have access to a permission-based email marketing database that we believe is one of the largest such databases in the United States. Our e-mail services enable 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. We believe that our list brokers deliver the industry's most sophisticated multi-source e-mail campaign planning, implementation and reporting services.

Technology Solutions

The Open AdSystem™ Platform

        Our Open AdSystem platform is the foundation of 24/7 Real Media's proprietary technology offering. Our Open AdSystem platform, based on our patented technology, is an ad format agnostic delivery engine capable of delivering virtually all types of ad formats across the Internet and other interactive platforms. Our Open AdSystem platform was designed with a view towards enhancing the ability of Web sites and advertisers to protect the information generated by users interacting on Web sites—the "media asset" of the Web. This competitive advantage is a unique feature that clearly sets us apart from the competition.

        24/7 Real Media has a comprehensive suite of products based on the Open AdSystem platform. Since each of our products is derived from the Open AdSystem technology, we have several ways to effectively leverage our platform cost. For example, we believe our cost structure is relatively lower than some of our competitors because we can use one group of personnel to maintain and support several different products. In addition, we believe we have a competitive advantage in supporting and

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retaining customers because our customers can migrate between our products with minimal cost, labor, and downtime.

        Key benefits to advertisers and publishers of our Open AdSystem™ technology include the following:

Content:   A method consisting of identifying specified sites, sections, pages or positions on a page that receives ads;

Keyword:
 
A method consisting of serving ads related to specific words entered into a search engine by an online consumer;

Geography:
 
A method consisting of delivering ads based on country, state or zip code;

Domain-Type:
 
A method of locating users with the unique name that identifies an Internet site, such the domain which typically ends in .com, .net, .org;

Day-part:
 
A method consisting of specifying a particular hour of day or week the ad is viewed;

Frequency Capping:
 
A method consisting of defining the number of times a particular ad is delivered to the same user within a 24 hour period;

Pixel Tracking:
 
A method of determining the precise impetus for a particular user action; and

User Soft/Hardware:
 
A method of pin-pointing users based on their browser, browser version or operating system.

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        Our Open AdSystem platform consists of a comprehensive suite of software products designed to meet the individual needs of different Internet advertisers and publishers. Our key product offerings include our advertising delivery and management solutions: the Open AdStream™ software, the Open AdStream™ service, and the Open Advertiser™ service. Our product offering enables Internet publishers to generate advertising revenue with a choice of our Open AdStream software, our licensed advertising delivery and management software designed to run on local servers operated by our customer, and our Open AdStream service, an application distributed to our customers from software hosted centrally on our servers. Our Open Advertiser service, similar to our Open AdStream service, is an application distributed from our servers that enables Internet advertisers and their agencies to increase their return on investment and to streamline the advertising management process through analytical reporting.

        We offer Internet publishers a licensed version of our OpenAdStream (OAS) advertising delivery and management software designed to run on local servers operated by our customer. We believe this application of the software offers our customers compelling advantages over other ad serving solutions, including the following:

        We also offer Internet publishers our Open AdStream Central service, an application distributed to our customers from software hosted centrally on our servers. We host the software for our customers using multi-location, fully redundant data centers. Our Open AdStream Central service provides seamless advertising delivery and management services for Internet publishers and allows them to offer

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their advertisers sophisticated targeting and reporting capabilities. Our OAS Central service provides all the features and functionality of the locally installed OAS product within a secure, managed environment.

        Our Open AdStream Central service is priced per thousand ads delivered and is purchased by Internet publishers who do not wish to host a local ad serving solution because they do no want to devote the resources, time, or personnel required to host their own ad serving system. Our centrally hosted solution enables our customers to execute marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

        Like all 24/7 Real Media products and services based on the Open AdSystem platform, our OAS Central service protects the user data that is a Web publisher's most important asset. We believe that our Open AdStream Central service is the only centrally-served ad management solution that can make this claim.

        Our Open Advertiser (OAD) service is our newest offering based on OAS software. Our OAD service, similar to our Open AdStream service, is an application distributed from our servers that enables Internet advertisers and their agencies to increase their return on investment and to streamline the advertising management process through analytical reporting. In particular, our OAD service is designed to enable agencies to precisely analyze their advertisers' campaigns and provide value-added recommendations for follow-up marketing programs through detailed analytical reporting options. OAD is currently in use by customers in Europe and is in development testing in the US, scheduled for release in the summer of 2003.

        As an agency's online advertising business grows, the customer data generated by marketing campaigns becomes the most important link between any agency and its advertising clients. Ownership and control of the commercial use of that data is the lifeblood of any marketing campaign and the place where an advertiser's brand is built and protected. We believe that when an agency works with other providers of third-party ad serving software, they engage in a process that, in the offline world, is like selling print ads and giving the service bureau the subscription list for the publication in the process. These providers of third-party ad serving software seek to use an advertiser's customer data to reach those customers for other marketing campaigns not conducted by that advertiser.

        Like all 24/7 Real Media products and services based on the Open AdSystem platform, our OAD service protects the user data that is a Web publisher's most important asset. OAD provides full control of all the data associated with each campaign, including the data on unique users—the aggregate of Web users who comprise advertisers' targets. We believe OAD enables agencies to build new business models based on the ownership and control of this customer data. In addition, agencies can monetize all the customer data associated with their online campaigns, leveraging this data for their clients and enabling them to build recurrent revenue streams. We believe our Open Advertiser service is the only centrally-served ad management solution in the world that can make this claim.

        In January 2003, we acquired Insight First, Inc. which enables us to provide tools for audience management and web analytics tools. Based on patent-pending technology, the Insight First™ web analytics solution is designed to speak the same language businesses use when talking about their customers. Insight First provides real-time reporting functionality and revenue-generating marketing intelligence to Internet publishers and helps marketers measure, analyze and monetize their audience. Our acquisition of Insight First accelerated our efforts to bring to market next generation technology that integrates audience management strategies and tools to help marketers leverage their customer relationships across content, e-commerce and other online applications.

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        We also provide technology services, including the support and resources that meet the varying needs of our customers. Our technology services include trafficking (the upload of creative units onto the Open AdStream software and distribution of corresponding links to campaign sites), consulting services (including customized implementation, unique reporting needs, integration of business data), customer support, training, and a help desk.

SALES ORGANIZATION

        We believe we maintain one of the best Internet advertising and technology sales organizations. We sell our products and services worldwide from 14 sales locations in 8 countries through a sales and marketing organization that included 63 sales professionals as of December 31, 2002. In the United States, these employees are located at our headquarters in New York and our sales locations in Los Angeles, San Francisco, Chicago, Denver, and Fort Washington, PA. Globally, we also have offices in Canada, France, Germany, Spain, Sweden, Switzerland and the United Kingdom.

        Advertisers can purchase regionally, pan regionally or internationally from any office in our system. Our Advertisers purchase advertising under written purchase order agreements that run for a limited duration. We believe the terms of our purchase order agreements are consistent with industry practice. These agreements typically require the advertiser to indemnify us 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 advertiser's ability to cancel the agreement. Sponsorship advertising involves a greater degree of cooperation among the advertiser, our Web sites and us. We believe that we have a competitive advantage due to the geographic breadth of our sales force and our ability to continually improve our sales and marketing capabilities.

        We continuously leverage the substantial media expertise of our management team to maximize the value of ad campaigns for both our advertisers and our Web sites. We also employ a Web site relationship department that surveys our Web sites and monitors qualitative indicators of service levels in order to continuously improve our customer service. 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 to deliver the right message to the right user at the right time. We believe we have been, and will remain, a leader in respecting users' privacy in all of our marketing initiatives. We actively monitor privacy laws and regulations, and endeavor to comply with all applicable privacy requirements. We believe our view on privacy matters is consistent with the highest privacy standards in our industry, which rest on the principle that consumers must have notice and choice and the confidence that their information is secure.

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

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that our customers provide notice to users about the marketing uses of personally identifiable information collected online, including whether they associate online and offline information about users, and the provide users with the choice not to participate. We will not serve on behalf of our customers to associate any personally identifiable information about a user with such user's Internet browser or anonymous "cookie" unless that user has first been provided with notice about the collection and use of personally identifiable information about that user, and has affirmatively consented to participate. In addition, we believe that some sensitive information, such as health-related information, financial information or information regarding children, warrant higher levels of caution when used to target advertising. We will not make such sensitive information part of our targeting systems without the express affirmative consent of the user or the user's legal guardian, in the case of a child. Even in such event, we insist that our customers have privacy policies consistent with the highest industry standards.

        We designed our Open AdSystem™ technology platform to help protect the privacy of online consumers. In particular, we offer a Privacy-Proxy module for Open AdStream designed to act as a third-party ad intermediary that safeguards a visitor's private information. We believe our privacy position is a significant competitive advantage.

INTERNATIONAL OPERATIONS

        Headquartered in New York, 24/7 Real Media currently has offices/representatives in seven cities, spanning North America. Through our wholly-owned subsidiary, Real Media Europe, and our associates, Real Media Korea and Real Media Latin America, we provide coverage in Europe, Asia and Latin America.

INTELLECTUAL PROPERTY

        We own 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, which expires in 2015, 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. In January of 2003, the U.S. Patent and Trademark Office granted us a notice of allowance for an additional patent relating to the sequencing of advertising, which we believe further extends our competitive advantage.

        We have pursued a strategy of aggressively seeking to license our '368 patent and prosecuting enforcement actions against those with whom we cannot reach license agreements on commercially reasonable terms. Licensees of our '368 patent include DoubleClick, Advertising.com and ValueClick. We believe that our '368 patent cannot be circumvented easily by our competition.

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

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

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        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 intellectual property. We have filed and intend to file additional applications with the United States Patent and Trademark Office to protect additional aspects of our Open AdSystem and other technologies we develop or acquire. We also have applied to register our trademarks both domestically and internationally. We note that, for a variety of reasons beyond our control, our 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 we provide our products and services or otherwise conduct our operations. We protect our intellectual property and other proprietary rights through the use of confidentiality agreements with employees, consultants and customers and the selective use of enforcement litigation.

COMPETITION

        The market for Internet advertising and marketing services remains very competitive. We believe our ability to compete depends on many factors including the following:

        Other competitive factors include our competitors' reputation, financial resources, knowledge of the advertising market, corporate governance and financial controls, geographical coverage, customer relationships, technological capability and quality and breadth of services.

        We compete against other established providers of ad serving solutions and several other companies that provide third-party ad serving services as well as start-up companies with untested products and services. Our competitors for ad serving solutions include DoubleClick, ValueClick, Avenue A and, to a lesser extent, Advertising.com, Accipiter, Blue Streak, and Falk among others.

        We compete against a vast number of web publishers and portals for Internet advertising revenues. We also compete with a variety of Internet advertising networks and companies that facilitate Internet advertising. Specifically, our 24/7 Network of web sites competes for marketers with a variety of other Internet advertising networks, including MaxWorldwide, Advertising.com, ValueClick, and Interep Interactive. We also compete with the traditional advertising media of television, radio, cable and print for a share of advertisers' total advertising budgets.

        We compete against a variety of new and innovative companies in the fast-growing market for performance-based Internet search marketing solutions. 24/7 Website Results encounters competition from several other companies that provide service optimization as well as start-up companies with untested search marketing solutions. In particular, we compete against Inceptor, Traffic Leader and GoToast for marketing customers looking to drive traffic to their web sites using performance-based key word search services. We believe our relationships with major search engines, some of which are exclusive, provides 24/7 Website Results with a competitive advantage in helping our customers get weel represented within the search results for selected keyphrases. We also believe our full-service approach

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to Internet marketing, enables us to better serve our customers and leverage our resources to gain market intelligence necessary to develop innovative strategies that complement our core solutions.

        We expect to encounter new forms of competition and competitors as our market further matures. We have begun to face competition from other sources, including content aggregators, companies engaged in ad sales networks, advertising agencies, and other entities that facilitate Internet advertising. Additionally, the search engine partners of 24/7 Website Results may decide in the future to develop a competing product internally. From time to time, we also have encountered competition from regional competitors in each of our business lines.    Some of our existing competitors, as well as a number of potential new competitors, may have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. We believe we have adapted successfully to market conditions and will continue to capture market share, define industry standards, and anchor our company to remain a leading developer and global provider of technology-driven solutions for Internet marketing.

EMPLOYEES

        As of December 31, 2002, we employed approximately 256 persons worldwide, including approximately 162 in operations, sales, marketing and customer support, 36 in technology and product development, and 58 in accounting, human resources and administration. The Company's 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.

COMPANY HISTORY

        Each of our predecessors was an early entrant in the Internet advertising market. 24/7 Media, our legal and accounting predecessor, has been publicly-traded since August 1998 and was formed earlier that year in a consolidation of three Internet advertising companies. 24/7 Media's solutions included advertising and direct marketing sales, ad serving, promotions, email services, search engine optimization services and broadband/convergence solutions. Following the downturn in the global economy and, in particular, the correction in the Internet market, 24/7 Media executed a strategic plan to reduce costs in operations by focusing on its core businesses and geographies, internet advertising delivery and management, and divesting non-core assets. Real Media was a privately-held company that commenced sales of its Internet advertising solutions, including first generation Open AdStream software, in 1996 and operated small advertising networks in the United States and Europe. The execution of our merger has created lasting cost synergies through the rationalization of our technology platforms, the elimination of redundant personnel, and the consolidation of our facilities.

        24/7 Real Media finished 2002 as one of the few remaining long-term, on-line integrated technology and media players. Our customers continue to rely on the combination of our proprietary Open AdStream technology and our comprehensive suite of media and marketing services as a means of driving advertising revenue consistent with the goal of building and protecting their customer relationships. With the acquisition of Insight First in January 2003, we accelerated our efforts to bring to market next generation technology that integrates audience management and web analytics tools to help Internet marketers leverage their customer relationships across content, e-commerce and other online applications.

RECENT DEVELOPMENTS

Acquisition of Insight First, Inc.

        On January 21, 2003, we entered into an Asset Purchase Agreement with Insight First, Inc. and its primary stockholders (the "Sellers"). Pursuant to the terms of the Asset Purchase Agreement, we purchased from the Sellers certain assets, including specific contracts, intangibles and employee

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relationships, related to Sellers' web analytics solutions, including the intellectual property relating to specific products in exchange for 3,526,093 shares of our common stock valued at approximately $1.06 million, plus $150,000 in cash. In addition, we may pay contingent consideration in the future of up to $2.2 million, in either cash or common stock, in the Company's discretion, subject to achievement of earn-out targets relating to revenue generated by the business. We agreed to register for resale shares of our common stock issued at closing. In the event that such registration has not been effected prior to the 90th business day following the closing, we may be required to repurchase from the Sellers up to an aggregate $114,160 of our common stock issued at closing.

Disposition of iPromotions, Inc.

        On January 31, 2003, we entered into an Asset Purchase Agreement with iPromotions, Inc., a new corporation formed by private investors including some of our employees. Pursuant to the terms of the Asset Purchase Agreement, we sold to the investors, specific contracts, intangibles and employee relationships related to our iPromotions business, including the intellectual property relating to specific products, in exchange for shares of preferred stock representing a 19.9% interest in iPromotions, Inc. on an as converted basis. The loss on the transaction is not significant.


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 $800,000, subject to increase annually to reflect increases in operating expenses.

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

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

        We are continually evaluating our facilities requirements.

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ITEM 3. LEGAL PROCEEDINGS.

Chinadotcom Corp.

        On February 19, 2003, the Company filed a complaint against Chinadotcom Corporation for breach of contract, unjust enrichment, breach of duty of good faith and fair dealing, and promissory estoppel arising out of a certain equity exchange agreement dated August 16, 2000 between the Company and Chinadotcom. The complaint seeks monetary damages in excess of $6 million as well as certain equitable relief. Chinadotcom has until April 17, 2003 to answer or otherwise respond to the complaint. We recently became aware that Chinadotcom may have filed an action in a court in Hong Kong against David Moore, our Chief Executive Officer, alleging, among other things, breach of fiduciary duty by Mr. Moore in connection with his serving as a director of Chinadotcom and its subsidiary, 24/7 Media Asia Ltd. If this action is formally commenced, the Company will indemnify Mr. Moore and assume his defense, which it intends to vigorously assert.

Avenue A, Inc.

        On April 19, 2002, Avenue A, Inc. filed a complaint against the Company seeking a declaratory judgment that U.S. Patent No, 6,206,368 is invalid and not infringed by Avenue A. The complaint also seeks injunctive relief and recovery of attorney's fees. On May 10, 2002, the Company filed its answer to the compliant, in which the Company denied the material allegations of the compliant and asserted a counterclaim for infringement of the '368 patent. On January 2, 2003, Avenue A filed a motion for summary judgment of non-infringement, to which the Company will file papers in opposition on April 28, 2003. The parties are presently in discovery.

ValueClick

        On February 6, 2002, we filed a summons and complaint against ValueClick, Inc. and its subsidiary, Mediaplex, Inc., the US District Court for the southern district of New York, 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 sought monetary damages, injunctive relief, and recovery of attorneys' fees and costs.

        On February 21, 2002, ValueClick, Inc. and Mediaplex, Inc. filed a complaint against the Company seeking a declaratory judgment that U.S. Patent No. 6,026,368 entitled "On-line System and Method for Providing Content and Advertising Information to a Targeted Set of Viewers" is invalid, unenforceable and not infringed by ValueClick and Mediaplex. The complaint also sought injunctive relief and recovery of attorneys' fees. In December 2002, we reached a settlement agreement with ValueClick pursuant to which ValueClick made a cash payment to us and received a non-exclusive license under our '368 Patent.

Beate Uhse

        In January 2002, the Company's German subsidiary Real Media Germany filed suit in the commercial court of Flensburg, Germany for breach of contract. The Company alleges that under Article 87 of the Handelsgesetzbuch (Commercial Code) Beate Uhse owes Real Media for all revenue generated on Beate Uhse's behalf for the calendar year 2002 prior to the cancellation of the contract by Beate Uhse. The sum in dispute is approximately $800,000. We have retained $400,000 of revenue generated by Beate Uhse in January 2002. Beate Uhse has counterclaimed for this amount. Both parties have appeared before the Flensburg court, which has scheduled a hearing on April 24, 2003 to further review the evidence.


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

        None.

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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 until June 2002, our common stock traded on the Nasdaq National Market under the symbol "TFSM." In June 2002, we transferred our common stock to the Nasdaq SmallCap Market. Accordingly, 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 and the Nasdaq SmallCap Market.

 
   High
   Low
YEAR ENDED DECEMBER 31, 2001        
First Quarter   2.22   0.25
Second Quarter   0.76   0.19
Third Quarter   0.34   0.09
Fourth Quarter   0.48   0.11
YEAR ENDED DECEMBER 31, 2002        
First Quarter   0.30   0.16
Second Quarter   0.33   0.19
Third Quarter   0.65   0.20
Fourth Quarter   0.45   0.14

        On March 26, 2003, the last reported sale price for our common stock on the NASDAQ SmallCap Market was $0.26.

HOLDERS OF RECORD

        Our authorized capital stock consists of 140,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2002, there were 59,219,844 shares of our common stock, and 925,000 shares of our preferred stock outstanding. As of December 31, 2002, there were approximately 1,439 holders of record of our common stock.

DIVIDENDS

        We have never paid cash dividends on our capital stock and do not expect to pay any dividends in the foreseeable future. We intend to retain future earnings, if any, for use in our business.

RECENT SALES OF UNREGISTERED SECURITIES

        Acquisition of Insight First, Inc.

        On January 21, 2003, we acquired the assets of the web analytics solutions business of Insight First, Inc. in exchange for 3,526,093 shares of our common stock, par value $0.01 per share valued at approximately $1.06 million, plus $150,000 in cash. In addition, we may pay contingent consideration in the future of up to $2.2 million, in either cash or Common Stock in our discretion, subject to achievement of specific performance milestone by the business.

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        In connection with the transaction, we agreed to register for resale, on behalf of the stockholders of Insight First, Inc., all of the shares issued by us. In our opinion the issuance of shares to Insight First, Inc. was exempt from registration pursuant to Section 4(2) of the Securities Act due to the fact the transaction did not involve a public offering.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

        The table containing the Equity Compensation Plan Information is included in Item 12 for this Form 10-K.


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

        The selected consolidated financial data as of December 31, 2002 and 2001, and for each of the years in the three-year period ended December 31, 2002 have been derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of December 31, 2000, 1999 and 1998 and for each of the years in the two-year period ended December 31, 1999 are derived from our audited financial statements, which are not included herein. We believe that due to the many acquisitions and dispositions that we made in recent years, the period to period comparisons for 1998 through 2002 are not meaningful and should not be relied upon as indicative of future performance.

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

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   Years ended December 31,
  
 
   2002
   2001
   2000
   1999
   1998
  
 
   (in thousands, except per share amounts)

  
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                
Revenues:                                
  Integrated media solutions   $ 28,800     36,470     121,867   $ 84,352   $ 20,747  
  Technology solutions     13,758     9,760     16,503     —     —  
  Other     —     —     —     —     119  
   
 
 
 
 
 
    Total revenues     42,558     46,230     138,370     84,352     20,866