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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003.

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)

(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

        As of June 30, 2003, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $48,080,114. Shares of common equity held by each of the registrant's directors and officers on that date and by each person who beneficially owned 10% or more of the outstanding common stock on that date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The aggregate market value has been computed based on a price per share of $4.05, which is the price at which the common equity was last sold on June 30, 2003.

24/7 REAL MEDIA, INC.
2003 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

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

PART I

        Reverse Split.    On February 27, 2004, we completed a one-for-five reverse split of our common stock. As a result of the reverse split, every five shares of 24/7 Real Media common stock were combined into one share of common stock. The number of shares of preferred stock and warrants outstanding is not affected by the reverse split, however, the conversion ratio will be adjusted. All figures relating to common stock, preferred stock, stock options, warrants and other equity-linked instruments have been adjusted in this Form 10-K to reflect the reverse split.

        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" and elsewhere in this Annual Report. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged, however, to review the risk factors set forth in reports that we file from time to time with the Securities and Exchange Commission. Unless the context requires otherwise in this Annual Report the terms "24/7 Real Media," the "Company," "we," "us" and "our" refer to 24/7 Real Media, Inc. and its subsidiaries, and references to "24/7 Search" refer to 24/7 Search, Inc., formerly 24/7 Website Results, Inc., a wholly owned subsidiary of 24/7 Real Media, Inc.

ITEM 1. BUSINESS.

24/7 REAL MEDIA

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

        Our Integrated Media Solutions consist of the 24/7 Web Alliance, a global alliance of Web sites represented by us through which advertisers can run campaign orders directly with us, and 24/7 Search, an Internet search marketing service designed to connect advertisers with consumers using search engines to find product information. Our 24/7 Search solution uses proprietary technology to help advertisers determine the keywords most relevant to their products and services in order to lead users

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from search engines to the advertisers' Web sites. Through our relationships with major search engines, we also help advertisers receive enhanced placement in search results.

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

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



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



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

        We designed our Insight software solutions to fully integrate with our Open AdStream technology, to offer Web publishers active campaign reporting and marketing intelligence and help advertisers measure, analyze, manage and monetize audiences.

        We are one of the few established global providers of Internet media representation services and online advertising technology. We sell our products and services worldwide from fourteen sales locations in nine countries throughout North America, Europe and Asia. In January 2004, we acquired Real Media Korea Co. Ltd., a leading provider of Internet advertising and marketing solutions in the Republic of South Korea. Our patent-protected technology is the foundation of our award-winning advertising delivery, management and analytics platform, which was recently named the 2003 Ad Tech "Best Interactive Marketing Technology."

        See Note 16 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

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

        PricewaterhouseCoopers forecasts global online advertising spending to grow to over $12.6 billion in 2007, representing a 9.1% compounded annual growth rate from global spending of $8.9 billion in 2003.

        The primary drivers of Internet advertising growth include the following:

Global advertising spending increasing.

        According to PricewaterhouseCoopers, the global advertising industry is expected to experience continued solid growth through 2007, with worldwide advertising spending increasing to $375.3 billion from $313.8 billion in 2003, representing an increase of approximately 19.6%.

Global Internet connectivity and usage increasing.

        According to PricewaterhouseCoopers, the number of households with broadband online access is expected to grow significantly, increasing to 153.3 million worldwide in 2007 from 61.7 million in 2003. Additionally, the increasing availability and usage of faster connections are

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driving increases in both percent of total media consumption allocated to the Internet as well as total time spent online.

Share of total advertising spending allocated to Internet advertising is increasing.

        As a percentage of total U.S. advertising spending, online advertising is projected by eMarketer to grow from approximately 2.8% in 2003 to 3.2% in 2007, a 16.4% increase in spending allocation. Internet usage currently represents approximately 14% of all media consumption according to Arbitron/Edison Media Research, suggesting that online advertising spending is poised for additional growth to narrow this gap.

Search advertising is driving online advertising.

        According to eMarketer, search-related advertising is an important driver for growth in the Internet advertising sector. Search advertising is expected to grow from $2.1 billion in 2003 to $3.0 billion in 2005, representing an increase of 43.3%.

Objectives of Web Publishers, Advertisers and Consumers

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

Challenges Facing Web Publishers

        Specific challenges of many Web publishers include:

Increasing revenue from their advertisement inventory.

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

Delivering and managing high volumes of advertisements.

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

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Leveraging, but not compromising, proprietary user information.

        Web publishers collect data from users that may be considered personal or sensitive to users, but that could prove valuable to the Web publishers. When they collect user information, Web publishers want third-party solutions that allow them to retain access to and control over the data, allowing them to benefit by using the data to target advertising and improve their Web sites. By retaining access to and management over the data, Web publishers are better able to properly handle sensitive user information and adapt their practices to satisfy user concerns and industry standards with respect to privacy.

Challenges Facing Advertisers

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

Cost-effectively reaching and building a large online audience.

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

Actively managing Internet advertisement campaigns.

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

Limitations of Competing Internet Advertising Solutions

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

Lack of comprehensive solution set.

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

Technology limitations.

        Given the increased number of Web sites and the associated audience fragmentation, Web publishers and advertisers need flexible advertising delivery and management technology that can collect and protect the information generated by users interacting on Web sites. The technology must be capable of delivering all types of advertisement formats used by Web sites and other emerging interactive media, including standard banners and rich media advertisements containing

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moving graphics, sound and video. Finally, the technology must scale to deliver high volumes of advertisements without significant incremental costs or risk of system failure.

Need for superior customer service.

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

Need for global presence.

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

24/7 REAL MEDIA'S SOLUTION

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

Benefits to Web Publishers and Advertisers

        Our media and technology solutions help Web publishers build and target audiences on their Web sites, better manage the delivery of higher volumes of advertisements and collect and safeguard valuable information about their Web users and audiences. Our 24/7 Web Alliance also enables Web publishers to leverage their advertising inventory as part of a network of Web sites that offer advertisers broader reach and improved targeting through deeper content. This functionality helps Web publishers attract advertisers and generate additional revenue from their existing advertisement inventory. Our solutions also provide advertisers a one-stop shop for reaching and targeting the audiences of hundreds of Web sites as well as an efficient system for measuring, analyzing and actively managing advertising campaigns across numerous Web sites. This functionality helps advertisers more cost-effectively purchase advertisement campaigns from numerous Web publishers.

Comprehensive and Integrated Solution

        We offer a broad range of solutions to Web publishers and advertisers and leverage our Open AdSystem technology to integrate with all of our products. For Web publishers in our 24/7 Web Alliance, we utilize our Open AdSystem technology to help them identify and target relevant audience segments. We also combine our Open AdSystem technology with our Insight analytics products to offer Web publishers sophisticated tools to measure and understand online audience behavior. For

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advertisers, we designed our Open Advertiser service using the same data analysis and programming architecture as our Open AdStream platform to deliver the same level of campaign management and targeting that we provide to Web publishers. We believe that our integrated solutions reduce the need for Web publishers and advertisers to work with multiple vendors, making it less costly for our customers to capitalize on advertising inventory, regardless of the format or the nature of the advertising campaign.

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

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

Customer Service

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

Global Presence

        We sell our products and services worldwide from fourteen sales locations in nine countries throughout North America, Europe and Asia. Through our global sales and marketing organization of approximately 140 people, we can deliver solutions to Web publishers and advertisers worldwide in the languages and according to the laws and customs of each local market. Specifically, for Web publishers we utilize our global technology development and support team of approximately 70 employees to support the sale, installation and customization of technology solutions in almost any major local market. For international advertisers we can run advertising campaigns to reach globally dispersed audiences and target particular online segments at the same time. We apply market intelligence learned in local markets throughout our global organization to deliver the most relevant solutions in an effort to ensure that our customers benefit from proven advertising techniques learned by us worldwide.

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24/7 REAL MEDIA'S GROWTH STRATEGY

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

Extend and enhance product line.

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

Cross-sell into installed base.

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

Increase global presence.

        We intend to increase our global presence by entering new, high-growth markets worldwide. In Asia, we may seek additional acquisitions, like our acquisition of Real Media Korea, that will enable us immediately to have a strong national presence and to target the largest national advertisers in the market. We also plan to leverage our presence in South Korea to rapidly roll out paid inclusion and other search marketing services not currently available in that market. In Europe, we plan to continue to increase our presence by entering new markets and bringing new analytics, search and advertiser solutions to the market and aggressively targeting the largest Web publishers that require global service and support.

Pursue strategic acquisitions.

        We plan to pursue strategic acquisitions that enhance our technology and media reach and extend our presence into new and high-growth online advertising markets. First, we plan to build a presence in additional markets worldwide where our international advertising clients require local service and support to run online advertising campaigns. Second, we plan to pursue acquisitions, similar to our acquisition of Real Media Korea, that can make us a leading player in a high-growth market. Third, we will also pursue acquisitions or other partnering opportunities that augment our ability to provide paid inclusion and other search services worldwide.

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OUR PRINCIPAL LINES OF BUSINESS

Integrated Media Solutions

The 24/7 Web Alliance

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

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

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The 24/7 Portfolio.

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

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24/7 Verticals.

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

Our 24/7 Verticals currently include, among others, the following areas of interest to online advertisers:

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The 24/7 Network.

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

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

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advertisement is viewed) and frequency capping (limiting the number of times a particular advertisement is delivered to the same user within specific time periods).

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

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Delivers an attractive audience.

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

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Offers global reach and exposure.

The 24/7 Web Alliance attracts a global audience, including users in North America, Europe, Asia and other parts of the world, and served approximately 6.6 billion paid impressions in the fourth quarter of 2003, which does not include the impact of the acquisition of Real Media Korea or of the advertising services agreement entered into with Lycos, Inc., both of which occurred in the first quarter of 2004. We believe the Web sites in the 24/7 Web Alliance are among the most frequently visited Internet destinations, publishing quality content with recognizable brand names. Through our global sales force, we promote the 24/7 Web Alliance to advertisers worldwide to run international, pan-regional or regional advertising campaigns. We also offer advertisers access to single-site campaigns on individual Web sites, access to cross sections of the 24/7 Web Alliance to target campaigns to specific content and "run of network" advertising campaigns on all of our partner Web sites.

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Provides customized, active management and reporting.

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

Publishers In The 24/7 Web Alliance

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

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

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value of the Web site's brand name and the rate the Web site can charge for its advertising inventory generally. Third, all of our affiliated Web sites benefit from our experienced management team, our sales and marketing organization and our worldwide access to advertisers.

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

Advertisers On The 24/7 Web Alliance

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

24/7 Search

        24/7 Search provides performance-based, search marketing services for the Internet. Through 24/7 Search, we connect advertisers with consumers using search engines to search for information about products and services. Our 24/7 Search solution uses proprietary technology to help advertisers determine the keywords most relevant to their products and services that will lead users from search engines to the advertisers' Web sites. Through our relationships with major search engines, we also help advertisers receive enhanced placement in search results. Advertisers pay us a "per-click" fee for each user delivered to their Web sites from our search engine partners.

        24/7 Search provides two primary services:

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Paid inclusion.

24/7 Search provides a paid inclusion service for advertisers, which consists of producing an editorially reviewed search listing that appears prominently in search results displayed by our partner search engines in response to a user's inquiry for particular keywords and phrases. We assist our client advertisers in selecting keywords and phrases most relevant to their products or services. Our tightly controlled editorial process ensures that only relevant search results are shown to a search engine user. We help our client advertisers determine the most relevant pages in their Web sites to which visitors will be directed, known as landing pages, in order to increase the percentage of visitors that are converted into buyers, or the conversion rate. We submit the search listing, after our editorial review, to our search engine partners through frequently refreshed "trusted feeds," employing a proprietary extensible mark-up language (XML) platform. A proprietary filtering technology ensures that our client advertisers pay only for valid visitors to their landing pages by eliminating clicks generated by automated tools, spiders, robots, repetitive addresses and foreign visitors. We carefully monitor results with our client advertisers and actively manage our filtering technology accordingly.

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Pay-per-click bid management.

24/7 Search also provides campaign and bid management services used by client advertisers to actively manage the return on the "pay-per-click" fee charged by search engines to advertisers for sponsored listings, which are additional search results displayed adjacent to the natural search results and identified as sponsored advertisements. We manage the bidding process on our client advertisers' principal keywords and help them develop cost-efficient variations on their principal keywords, carefully calculating the incremental return on investment from better positioning in search results. We help actively manage our client advertisers' Web sites, editorial copy and selection of landing pages to increase their conversion rates, and we provide for an automated XML feed to our search engine partners to upload client advertising data efficiently.

        Our search distribution network for paid inclusion and pay-per-click bid management services includes numerous branded search engines, including Alta Vista, Ask Jeeves, Engine 54, FAST, FindWhat, Google, InfoSpace, Inktomi and Overture. In turn these sites maintain relationships with other search destinations including About.com, AOL, Excite, MSN and Yahoo!, among others.

Technology Solutions

The Open AdSystem Platform

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

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

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Active campaign management.

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

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Specific targeting.

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

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Flexible reporting.

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

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Inventory management.

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

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Flexible format delivery.

With our Open AdSystem technology, our customers can deliver and manage advertising in many different formats from standard banner advertisements to rich media advertisements

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including streaming media, expanding advertisements, floating advertisements, interactive advertisements, window advertisements, interstitials, full page advertisements and commercial breaks. We believe our Open AdSystem technology offers our customers one of the most versatile advertisement delivery engines available.

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Data accessibility.

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

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

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

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

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

        We have designed our Insight software solutions to fully integrate with our Open AdStream technology, to offer Web publishers active campaign reporting and marketing intelligence and help advertisers measure, analyze, manage and monetize audiences.

The Open AdStream Solution

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

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

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

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

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

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

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

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

The Open Advertiser Solution

        Our Open Advertiser (OAD) solution, similar to our OAS Central solution, is an application distributed from our servers that enables advertisers and their agencies to increase their return on investment and to streamline the advertising management process through analytical reporting and active work-flow management. In particular, our OAD service is designed to enable agencies to analyze their advertisers' online campaigns in great detail and provide value-added recommendations for follow-up marketing programs through detailed analytical reporting options. OAD features a dedicated cookie assigned to each advertiser and agency that allows marketers to retarget their audience based on previously performed post-click actions, such as buying a product or requesting information. OAD can also track the branding effectiveness of each advertisement by reporting the number of users who did not click on the advertisement but eventually visited the advertiser's Web site.

        As an agency's online advertising business grows, the customer data generated by advertising campaigns becomes the most important link between the agency and its advertising clients. Ownership and control of the commercial use of that data is vital to any advertising campaign and the place where an advertiser's brand is built and protected. Accordingly, OAD features a Confidential Cookie file, which guarantees that the user, and the data associated with the user/advertiser relationship, remains exclusively within the hands of the advertiser.

        We currently sell our OAD product primarily in Europe, and we launched a U.S. beta version of this product in 2003. We expect to launch this product to customers in the U.S. in 2004.

The Insight Platform of Audience Management and Web Analytics Tools

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

        Insight XE's features include:

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

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

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

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

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        Insight ACT, an application that will be fully integrated with OAS, will enable a Web publisher to enhance the value of its advertising inventory by identifying and targeting segments of its audience who may be receptive to a specific advertiser's message. We expect to launch this product commercially in the first half of 2004.

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

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

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

Target.    Deliver targeted messages to the defined audience clusters.

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

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

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

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

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

        Insight SE is an application that will allow an advertiser to create targeted campaigns using keywords and phrases, and generate performance metrics that link traffic from specific search engines throughout the entire sales cycle, from prospecting by new customers to the final sale. We expect to launch this product commercially in the first half of 2004.

        Insight SE's active reporting is designed to enable advertisers to answer the following business-critical questions:

Which keywords offer the best return on investment?

Which search engine provides the most traffic?

Which search engines drive the most sales?

Where does drop-off occur as prospects move from search to sale?

What is the return on advertising spending?

Where should an advertiser concentrate its marketing budget?

SALES AND MARKETING ORGANIZATION

        We sell our products and services worldwide through a sales and marketing organization that includes fourteen sales locations in nine countries throughout North America, Europe and Asia. Our sales and marketing team consists of a total of approximately 140 employees, including approximately 65 in the United States and 75 internationally. In the United States, our sales force is located at our headquarters in New York and our sales locations in Chicago, Fort Washington, PA, Los Angeles and San Francisco. We also have sales offices in Canada, France, Germany, Spain, Sweden, Switzerland, the United Kingdom and South Korea.

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

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PRIVACY PROTECTION

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

        We may act on behalf of our customers to collect non-personally identifiable information in the delivery of Internet advertising. When we perform such services, we provide notice to users about our use of such information and insist that our customers provide users the choice not to participate. 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 collected about users. We insist that our customers provide notice to users about the marketing uses of personally identifiable information collected online, including whether they associate online and offline information about users, and that they provide users with the choice not to participate. We will not associate any personally identifiable information about a user with such user's Internet browser or anonymous "cookie" on behalf of our customers 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.

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." Licensees of our '368 patent include DoubleClick, Advertising.com, ValueClick and several smaller technology providers. 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 advertisements or other content that adjusts the priorities associated with such advertisements 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.

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

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

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

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COMPETITION

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

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



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



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



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our global sales and marketing efforts;



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our customer service and support efforts; and



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

        We believe we compete favorably in all of the foregoing areas.

Integrated Media Solutions

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

        We compete against a variety of new and innovative companies in the fast-growing market for performance-based Internet search marketing solutions. 24/7 Search competes with several other companies that provide service optimization as well as start-up companies with untested search marketing solutions. In addition, Overture, Google and FindWhat also provide paid inclusion services for advertisers looking to drive traffic to their Web sites using performance-based, keyword search services.

Technology Solutions

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

EMPLOYEES

        As of February 1, 2004, we employed approximately 255 persons worldwide, including approximately 140 in sales and marketing, 70 in technology and product development and 45 in accounting, human resources and administration. We consider our employee relations to be good. Our subsidiaries in France, Spain and Scandinavia are parties to collective bargaining agreements pursuant to and in accordance with applicable law.

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RECENT DEVELOPMENTS

Acquisition of Outstanding Shares of Real Media Korea Co., Ltd

        On January 6, 2004, we completed the acquisition of Real Media Korea Co., Ltd., a company formed under the laws of the Republic of South Korea ("RMK"), by acquiring the approximately 90.4% of the outstanding shares of RMK that we did not already own pursuant to the terms and conditions of the Share Acquisition Agreement (the "Acquisition Agreement"), dated as of December 16, 2003, by and among the Company, RMK and the other shareholders of RMK (the "Selling Shareholders").

        We paid total consideration of $20.1 million in exchange for the RMK shares of the Selling Shareholders, which consisted of $5.0 million in cash, approximately 2.1 million shares valued at $14.6 million and approximately $0.5 million in transaction costs. Approximately 0.9% of the outstanding shares of RMK are held in an employee stock union established under Korean law. The employee shareholders agreed to transfer their RMK shares to us upon vesting in accordance with the terms and conditions of the stock union and Korean law. The cash portion of the purchase price was paid out of our working capital and the common stock portion of the purchase price consisted of newly issued shares. For accounting purposes the effective date of the acquisition is January 1, 2004.

        The parties entered into a registration rights agreement that required us to file within 20 days of closing a registration statement (the "Registration Statement") covering the resale of the shares of common stock issued to the Selling Shareholders in connection with this transaction. The Registration Statement was declared effective on January 28, 2004. Pursuant to the Acquisition Agreement, the Selling Shareholders agreed to a lock-up provision restricting the resale of the shares of common stock received by them in the transaction. The lock-up restrictions generally lapse in four equal installments, one on each of the effective date of the Registration Statement, July 6, 2004, January 6, 2005 and July 6, 2005, respectively. The parties also entered into an escrow agreement, pursuant to which approximately 0.4 million shares of the common stock payable to the Selling Shareholders will be held in escrow to secure the indemnification obligations of the Selling Shareholders.

        We also entered into an employment agreement with Mr. Jae Woo Chung, pursuant to which Mr. Chung will continue as Chief Executive Officer of RMK.

Lycos, Inc. Services Agreements

        On February 11, 2004, we entered into a five-year arrangement with Lycos, Inc. ("Lycos") to provide media sales, advertisement serving and analytics technology services to Lycos' U.S. Web properties and to transition personnel and other services from Lycos to us. Lycos operates a network of branded Web properties.

        Pursuant to an advertising services agreement, our sales force will represent the U.S. Web properties of Lycos for all advertising. The properties that we will represent include: Angelfire.com, Gamesville.com, HotWired.com, Tripod.com, Quote.com, Webmonkey.com, WhoWhere.com and Wired News (Wired.com), which collectively attracted more than 50 million U.S. monthly unique users in 2003 according to industry estimates. The agreement requires us to pay Lycos the greater of 65% of all net advertising sales revenue generated by us in respect of the Lycos properties, or specified minimum required annual payments. For 2004, our minimum required annual payment is $10 million and we also will pay Lycos an initial payment of $4.5 million for transition related services over the course of 2004. Our revenue share with Lycos and our annual minimum payment requirements under this agreement may be adjusted during the term of the agreement if the Lycos properties generate significantly different levels of advertisement impressions. To the extent that we fail to generate revenue in excess of the minimum annual payments, our obligations under this agreement may materially and adversely

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affect our business, results of operations and financial condition. In addition, we currently expect that the Lycos relationship will generate between 15% and 20% of our revenue. If we or Lycos is acquired, Lycos may have the right to terminate the agreement.

        Pursuant to a technology services agreement, Lycos will utilize Open AdStream, our advertisement management technology, to serve advertisements for all Lycos U.S. Web properties. Additionally, all Lycos U.S. properties will deploy Insight XE, our Web analytics technology. The agreement requires Lycos to pay us a technology services fee based on the number of advertisement impressions in the case of Open AdStream technology, or page views, in the case of Insight XE technology, delivered in respect of the Lycos properties and provides for a total minimum monthly fee of $100,000 for the next five years. If the advertising services agreement is terminated, either we or Lycos may terminate the technology services agreement.

Proposed Offering of Common Stock

        On February 11, 2004, we filed a registration statement with the Securities and Exchange Commission relating to a proposed public offering of shares of our common stock by us and some of our stockholders. We intend to use the net proceeds of this offering for working capital and general corporate purposes and for potential future acquisitions of complementary businesses and technologies. As of the date of this report, the registration statement relating to the securities has not been declared effective. We will not sell securities nor accept offers to buy securities prior to the time that the registration statement is declared effective. We will not receive any proceeds from the sale of common stock by the selling stockholders.

Reverse Split of Common Stock

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

ITEM 2.    PROPERTIES.

        Our principal executive offices are located at 1250 Broadway, New York, New York. We are using approximately 14,000 square feet under a lease that expires in 2008 and provides for total annual rent of approximately $0.4 million, subject to increase annually to reflect increases in operating expenses.

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

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Fort Washington, PA



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Los Angeles, CA



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San Francisco, CA

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

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Canada



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United Kingdom



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France



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Germany



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Spain



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Sweden



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Switzerland (European HQ)



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South Korea

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

ITEM 3.    LEGAL PROCEEDINGS.

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

        On April 19, 2002, aQuantive, Inc. (formerly Avenue A, Inc.) filed a complaint against us seeking a declaratory judgment that U.S. Patent No. 6,206,368 is invalid and not infringed by aQuantive. The complaint also seeks injunctive relief and recovery of attorney's fees. On May 10, 2002, we filed our answer to the complaint, in which we denied the material allegations of the complaint and asserted a counterclaim for infringement of the '368 patent. On January 2, 2003, aQuantive filed a motion for summary judgment of non-infringement, to which we filed papers in opposition on April 28, 2003. On July 3, 2003, the U.S. Federal Court for the Western District of Washington granted partial summary judgment to aQuantive, Inc. and held that, based on the court's construction of the patent's claims, aQuantive's Atlas DMT advertisement serving system does not infringe the '368 patent. We have appealed the court's ruling to the Court of Appeals for the Federal Circuit and agreed with aQuantive to dismiss the remaining claims in the case to expedite the appeal.

Brian Anderson

        On July 5, 2001, Brian Anderson, former Chief Executive of our AwardTrack, Inc. subsidiary, served us with notice of a lawsuit filed in Superior Court for the State of California in and for the County of Santa Cruz, alleging breach of contract, fraud, intentional infliction of emotional distress and breach of fiduciary duty, in connection with the acquisition of AwardTrack and subsequent events. We removed the lawsuit to federal court in California and moved to dismiss the complaint in its entirety. This motion was granted in part, with leave to amend, and denied in part. The plaintiff has subsequently refiled the complaint and we have filed a counterclaim. Discovery is concluded, and we intend to move for summary judgment to dismiss the complaint in its entirety.

chinadotcom Corp.

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

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        On April 29, 2003, chinadotcom filed an action in court in Hong Kong against David Moore, our Chief Executive Officer, alleging, among other things, breach of fiduciary duty by Mr. Moore in connection with his service as a director of chinadotcom and its subsidiary, 24/7 Media-Asia Ltd. On November 24, 2003, the Hong Kong Court dismissed chinadotcom's complaint against Mr. Moore in its entirety, and Mr. Moore has requested chinadotcom to reimburse him for all of his legal expenses. chinadotcom has appealed the dismissal of its claim and that appeal is pending. We have assumed Mr. Moore's defense and will indemnify him in the event of any liability. We believe that the claims against Mr. Moore are without merit and that the action was brought solely in retaliation against us for asserting our rights in the matter discussed above.

        On July 22, 2003, chinadotcom filed an arbitration claim with the International Court of Commerce asserting certain alleged breaches of contract in connection with the Media Asia Agreement entered into between the parties as of June 30, 2000. The claim seeks damages totaling $24.0 million. We believe that chinadotcom's claims are without merit. We have filed an Answer and Counterclaim in the matter and we intend to defend ourselves vigorously against these claims.

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.

        From 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.

        On February 27, 2004, the last reported sale price for our common stock on the Nasdaq SmallCap Market was $9.38.

HOLDERS OF RECORD

        Our authorized capital stock consists of 350,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2003, there were 23,367,421 shares of our common stock, and 828,250 shares of our preferred stock outstanding. As of December 31, 2003, there were approximately 595 holders of record of our common stock.

DIVIDENDS

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

RECENT SALES OF UNREGISTERED SECURITIES

Acquisition of Outstanding Shares of Real Media Korea Co., Ltd

        On January 6, 2004, we completed the acquisition of approximately 90.4% of the outstanding shares of Real Media Korea Co., Ltd., a company formed under the laws of the Republic of South Korea ("RMK"), we did not already own pursuant to the terms and conditions of the Share Acquisition Agreement (the "Acquisition Agreement"), dated as of December 16, 2003, by and among the Company, RMK and the other shareholders of RMK (the "Selling Shareholders"). We paid total consideration of $20.1 million in exchange for the RMK shares of the Selling Shareholders, which consisted of $5.0 million in cash, approximately 2.1 million shares valued at $14.6 million and approximately $0.5 million in transaction costs. The cash portion of the purchase price was paid out of

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our working capital and the common stock portion of the purchase price consisted of newly issued shares. Pursuant to the Acquisition Agreement, the parties also entered into a registration rights agreement that required us to file a registration statement (the "Registration Statement") covering the resale of the shares of common stock issued to the Selling Shareholders in connection with this transaction. The Registration Statement was declared effective on January 28, 2004. The sale of shares of our common stock to RMK shareholders was exempt from registration under the U.S. Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and Regulation S promulgated thereunder. We will not receive any proceeds from the sale by the Selling Shareholders of the common stock that they received in connection with the acquisition of RMK.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA.

        The selected consolidated financial data as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003 have been derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of December 31, 2001, 2000 and 1999 and for each of the years in the two-year period ended December 31, 2000 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 1999 through 2003 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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