24/7 MEDIA INC, S-1, 1999-01-20

24/7 MEDIA INC
S-1, 1999-01-20
ADVERTISING

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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
24/7 MEDIA, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7319 13-3995672
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

1250 Broadway, New York, NY 10001
(212) 231-7100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
DAVID J. MOORE
Chief Executive Officer
24/7 Media, Inc.
1250 Broadway, New York, New York 10001
(212) 231-7100
Fax (212) 760-1081
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of Communications to:

<TABLE>
<S> <C>
Ronald R. Papa, Esq. Larry W. Sonsini, Esq.
Proskauer Rose LLP David Drummond, Esq.
1585 Broadway Wilson Sonsini Goodrich & Rosati
New York, New York 10036-8299 Professional Corporation
(212) 969-3000 650 Page Mill Road
Fax (212) 969-2900 Palo Alto, California 94304
(650) 493-9300
Fax (650) 493-6811
</TABLE>

---------------

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Share(2) Offering Price(2) Fee
- ----------------------------- ------------------ ------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share.............. 4,600,000 shares $ 35.875 $165,025,000 $ 45,876.95
</TABLE>

- --------------------------------------------------------------------------------
(1) Includes shares which the Underwriters have an option to purchase to cover
over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(c) of the Securities Act of 1933, as amended,
based upon the average of the high and low prices of the Common Stock as
reported on the Nasdaq National Market on January 19, 1999.

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================
<PAGE>

Subject to Completion
Preliminary Prospectus dated January 20, 1999

PROSPECTUS

4,000,000 Shares

[24/7 Media logo]

Common Stock
----------------
24/7 Media, Inc. is offering 2,000,000 shares of common stock and selling
stockholders are offering 2,000,000 shares. Our shares are traded on the Nasdaq
National Market under the symbol "TFSM." The last reported sale price of our
common stock on January 19, 1999 was $35-3/4 per share.

Investing in our common stock involves risks which are described in the "Risk
Factors" section beginning on page 4 of this prospectus.
----------------

<TABLE>
<CAPTION>
Per Share Total
----------- ------
<S> <C> <C>
Public Offering Price ............................ $ $
Underwriting Discount ............................ $ $
Proceeds, Before Expenses, to 24/7 Media ......... $ $
Proceeds to Selling Stockholders ................. $ $
</TABLE>

The underwriters may also purchase up to an additional 600,000 shares from
the selling stockholders at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

The shares of common stock will be ready for delivery in New York, New
York on or about , 1999.

----------------

Merrill Lynch & Co.
Allen & Company Incorporated
CIBC Oppenheimer
J.P. Morgan & Co.
PaineWebber Incorporated

----------------

The date of this prospectus is , 1999.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>

[SEE GRAPHIC INDEX, LOCATED AFTER BACK COVER, FOR DESCRIPTION OF ARTWORK]

<PAGE>

TABLE OF CONTENTS

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Page
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Prospectus Summary ..................................................................... 1
Risk Factors ........................................................................... 4
Use of Proceeds ........................................................................ 12
Dividend Policy ........................................................................ 12
Price Range of Common Stock ............................................................ 12
Capitalization ......................................................................... 13
Dilution ............................................................................... 13
Selected Consolidated Financial Data ................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of Operations .. 15
Business ............................................................................... 23
Management ............................................................................. 33
Certain Transactions ................................................................... 41
Principal and Selling Stockholders ..................................................... 43
Description of Capital Stock ........................................................... 45
Shares Eligible for Future Sale ........................................................ 48
Underwriting ........................................................................... 50
Legal Matters .......................................................................... 52
Experts ................................................................................ 52
Where You Can Find More Information .................................................... 52
Index to Financial Statements .......................................................... F-1
</TABLE>

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "Risk Factors".

Words such as "expect", "anticipate", "intend", "plan", "believe",
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur.

----------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you different information. If anyone provides you different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.

(i)

<PAGE>

PROSPECTUS SUMMARY

This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. The terms "we" and "our
company" mean 24/7 Media, Inc., its subsidiaries and each of its predecessor
entities. Unless otherwise indicated, all information in this prospectus
assumes no exercise of the underwriters' over-allotment option.

24/7 Media

Overview

We are an Internet advertising and direct marketing firm which enables
both advertisers and Web publishers to capitalize on the many opportunities
presented by Internet advertising, direct marketing and electronic commerce. We
generate revenue by selling advertisements and promotions for our Affiliated
Web sites. In particular, we:

o operate the 24/7 Network, a network of over 125 high profile Affiliated
Web sites to which we delivered an aggregate of more than 900 million
advertisements in December 1998;

o operate the ContentZone, a network of over 2,500 small to medium-sized
Affiliated Web sites to which we delivered an aggregate of more than 50
million advertisements in December 1998;

o operate the 24/7 Media Europe Network, a network of over 60 Web sites
that generated an aggregate of more than 200 million page views in
December 1998, through our recently acquired 60% owned subsidiary, 24/7
Media Europe; and

o are developing the 24/7 Media Asia Network through an agreement with
China.com Corporation.

We believe that advertisers seek to place Internet ads in ways to maximize
unduplicated "reach" (the number of unique Web users that visit a Web site or
set of Web sites at least once in the given month). According to Media Metrix,
our networks reached 50% of all Internet users in December 1998. We believe
that this reach figure is among the highest in the Internet advertising
industry.

We plan to aggressively recruit Web sites, both domestically and
internationally, for our networks. We expect this strategy to further extend
our reach, provide advertisers with a broad and diverse base of online content
and Web page views, and improve our brand awareness and visibility with media
buyers.

In addition, as online advertisers and direct marketers increase their use
of the Internet, they seek solutions and technologies that allow them to
efficiently deliver highly targeted messages. Our customized solutions allow
advertisers and direct marketers to tailor their ad campaigns to reach desired
audiences, while reducing costs, easing time pressures and alleviating the need
to purchase a series of ad campaigns from numerous Web publishers. We are
currently working on several initiatives to increase our targeting
capabilities, including the further development of our Adfinity[TM] ad serving
technology and our Profilz[TM] database.

As Internet traffic grows, Web publishers increasingly seek to maximize
the value of their online advertising inventory. Our extensive sales and
marketing experience provides Web publishers access to media buyers at large ad
agencies and enables them to sell advertising without incurring the costs and
challenges associated with building and maintaining an ad sales force.
Additionally, the ad serving and targeting capabilities of Adfinity effectively
deliver advertisements to our Affiliated Web sites.

Our senior management team includes several individuals with over fifteen
years of experience in advertising sales in the television and proprietary
online network industries. Other members of senior management contribute
extensive knowledge of ad serving technology and data base targeting. We
leverage our media sales and technology expertise to maximize the value of ad
campaigns for both advertisers and Affiliated Web sites.

Our principal executive offices are located at 1250 Broadway, New York,
New York, 10001, and our telephone number at that location is (212) 231-7100.
Our company's main Web site address is www.247media.com.

1
<PAGE>

The Offering

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<S> <C>
Common stock offered by 24/7 Media ......... 2,000,000 shares

Common stock offered by the selling
stockholders .............................. 2,000,000 shares

Total offering ........................... 4,000,000 shares

Common stock to be outstanding after the
offering .................................. 18,282,835 shares(1)

Use of proceeds ............................ For general corporate purposes, including working capital,
expansion of sales and marketing capabilities, and
possible acquisitions. See "Use of Proceeds."

Risk factors ............................... See "Risk Factors" for a discussion of factors you should
carefully consider before deciding to invest in our
common stock.

Nasdaq National Market symbol .............. TFSM
</TABLE>

- ------------
(1) Excludes approximately 2,155,305 shares of common stock issuable upon
exercise of stock options outstanding at January 15, 1999 granted under
our 1998 Stock Incentive Plan (of which 211,186 are vested and exercisable
at January 15, 1999) and approximately 721,400 shares of common stock
reserved for issuance pursuant to future grants under the 1998 Stock
Incentive Plan. The outstanding stock options have a weighted average
exercise price of $12.69 per share. Also excludes approximately 3,177,985
shares of common stock issuable upon exercise of outstanding warrants at
January 15, 1999. Such warrants have a weighted average exercise price of
$9.20 per share.

2
<PAGE>

Summary Consolidated Financial Data

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31, June 30, Sept. 30,
1997 1997 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Pro Forma (1)
- -------------
Consolidated Statement of Operations Data:
Advertising revenue .............. $ 414,983 $ 591,722 $ 806,543
Consulting and license fees ...... 805,245 639,588 244,890
Total revenue .................. 1,220,228 1,231,310 1,051,433
Gross profit ..................... 741,263 626,595 147,149
Operating loss (2) ............... (3,148,037) (4,431,798) (5,852,286)
Net loss ......................... (3,133,895) (4,433,098) (5,882,888)
Cumulative dividends on
mandatorily redeemable
convertible preferred stock...... (136,500) (136,500) (136,500)
Net loss attributable to
common stockholders ............. $ (3,270,895) $ (4,569,598) $ (6,019,388)
Pro forma:
Basic and diluted net loss
per share (3) ................... $ (0.86) $ (0.98) $ (1.30)
Weighted average shares
outstanding (3) ................ 3,786,202 4,652,006 4,652,006

Historical
- ----------
Consolidated Statement of Operations Data:
Advertising revenue .............. $ 388,892 $ 355,346 $ 315,697
Consulting and license fees ...... 805,245 630,588 233,130
Total revenue .................. 1,194,137 985,934 548,827
Gross profit ..................... 734,550 551,294 37,361
Operating loss ................... (798,059) (1,423,535) (2,400,167)
Net loss ......................... (784,377) (1,427,594) (2,433,302)
Cumulative dividends on
mandatorily redeemable
convertible preferred stock...... -- -- --
Net loss attributable to
common stockholders ............. (784,377) (1,427,594) (2,433,302)
Basic and diluted net loss per
share (4) ....................... $ (0.73) $ (1.32) $ (2.25)
Weighted average shares
outstanding (4) ................. 1,079,116 1,079,116 1,079,116

<CAPTION>
Three Months Ended
---------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30,
1997 1998 1998 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Pro Forma (1)
- -------------
Consolidated Statement of Operations Data:
Advertising revenue .............. $ 1,819,545 $ 2,347,307 $ 4,126,498 $ 5,461,341
Consulting and license fees ...... 57,173 88,362 39,178 66,000
Total revenue .................. 1,876,718 2,435,669 4,165,676 5,527,341
Gross profit ..................... 555,006 542,938 816,035 911,799
Operating loss (2) ............... (3,359,372) (4,412,069) (5,193,928) (6,041,801)
Net loss ......................... (3,437,217) (4,590,761) (5,157,817) (5,796,349)
Cumulative dividends on
mandatorily redeemable
convertible preferred stock...... (136,500) (136,500) (151,689) (90,607)
Net loss attributable to
common stockholders ............. $ (3,573,717) $ (4,727,261) $ (5,309,506) $ (5,886,956)
Pro forma:
Basic and diluted net loss
per share (3) ................... $ (0.76) $ (0.75) $ (0.67) $ (0.50)
Weighted average shares
outstanding (3) ................ 4,681,998 6,342,350 7,892,251 11,737,255

Historical
- ----------
Consolidated Statement of Operations Data:
Advertising revenue .............. $ 407,170 $ 1,076,250 $ 3,661,110 $ 5,461,341
Consulting and license fees ...... 12,501 -- 39,178 66,000
Total revenue .................. 419,671 1,076,250 3,700,288 5,527,341
Gross profit ..................... 170,024 146,247 602,341 911,799
Operating loss ................... (587,601) (2,130,580) (10,291,973) (6,041,801)
Net loss ......................... (660,555) (2,297,838) (10,256,792) (5,796,349)
Cumulative dividends on
mandatorily redeemable
convertible preferred stock...... -- (33,500) (151,689) (90,607)
Net loss attributable to
common stockholders ............. (660,555) (2,331,338) (10,408,481) (5,886,956)
Basic and diluted net loss per
share (4) ....................... $ (0.60) $ (0.76) $ (1.32) $ (0.50)
Weighted average shares
outstanding (4) ................. 1,109,108 3,055,432 7,892,251 11,737,255
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1998
---------------------------------
Actual As Adjusted (5)
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<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ............................................... $42,784,975 $109,602,475
Working capital ......................................................... 41,400,833 108,218,333
Goodwill, net ........................................................... 11,519,218 11,519,218
Total assets ............................................................ 62,566,159 129,383,659
Obligations under capital leases, excluding current installments ........ 42,759 42,759
Total stockholders' equity .............................................. 54,580,974 121,398,474
</TABLE>

- ----------------
(1) Pro forma consolidated statement of operations data reflects the
consolidation of the results of operations of Petry, Advercomm,
Intelligent Interactions and CliqNow! as if each entity had been acquired
on January 1, 1997 (or inception, if later). Our pro forma results of
operations for the three months ended September 30, 1998 are equal to our
historical results for the same period because our last acquisition took
place on June 1, 1998.

(2) Includes acquisition related non-cash charges for amortization of goodwill
beginning in the first quarter of pro forma 1997 and excludes the one-time
write-off of in-process technology. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

(3) See Note 2 to our Consolidated Financial Statements for the determination
of shares used in computing pro forma basic and diluted net loss per
share.

(4) See Note 1 to our Consolidated Financial Statements for the determination
of shares used in computing basic and diluted net loss per share.

(5) Adjusted to reflect our sale of 2,000,000 shares of common stock, the net
proceeds from which are estimated to be approximately $66,817,500 after
deducting underwriting discounts and estimated offering expenses payable
by us. We intend to use the net proceeds of the offering for general
corporate purposes, including working capital, and for the expansion of
our operations and sales and marketing capabilities. See "Use of
Proceeds."

3
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors before you decide
to buy our common stock. The risks and uncertainties described below are not
the only ones facing our company. These risks and other risks and uncertainties
may adversely impair our business operations.

This prospectus contains forward-looking statements that are based largely
on our current expectations and that are subject to a number of risks and
uncertainties, including those set forth below. Our actual results could differ
materially from the results discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this prospectus.

Extremely Limited Operating History

None of our predecessor companies had an operating history of more than
four years, and thus we have an extremely limited operating history. You must
consider the risks, expenses and difficulties typically encountered by
companies with limited operating histories, particularly companies in new and
rapidly expanding markets such as Internet advertising. To address these risks,
among other things, we must effectively:

o develop new relationships and maintain existing relationships with
Affiliated Web sites, advertisers, and other third parties;

o further develop and upgrade our technology;

o respond to competitive developments;

o implement and improve operational, financial and management information
systems; and

o attract, retain and motivate qualified employees.

We were formed in January 1998 to consolidate three Internet advertising
companies and have since acquired two companies and a 60% interest in a third
company. To effectively integrate these previously independent operations, we
must continue to integrate and improve our financial and management controls,
ad serving technology, reporting systems and procedures, and expand, train and
manage our work force. Completion of such integration may take a significant
period of time and will require the dedication of management and other
resources, which may distract management's attention from our other operations.

History of Losses and Anticipation of Continued Losses

We incurred pro forma net losses of $16.9 million for the year ended
December 31, 1997 and $15.5 million for the nine months ended September 30,
1998, and each of our predecessors had net losses in every year of their
operation. We anticipate that we will incur operating losses for the
foreseeable future due to a high level of planned operating and capital
expenditures. Although our revenue has grown rapidly in recent periods, such
growth may not continue and may not lead to profitability.

Our Quarterly Operating Results are Subject to Significant Fluctuations

Our results of operations may fluctuate significantly in the future as a
result of a variety of factors, many of which are beyond our control. These
factors include:

o the addition of new or loss of current advertisers or Affiliated Web
sites;

o changes in fees paid by advertisers;

o changes in service fees payable by us to Web publishers, or ad serving
fees payable by us to third parties;

o the introduction of new Internet advertising services by us or our
competitors;

o variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and

o general economic conditions.

Our future revenues and results of operations may be difficult to forecast due
to such factors.

We believe that our revenues are also subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. Additional seasonal patterns in Internet

4
<PAGE>

advertising spending may emerge as the industry matures. Expenditures by
advertisers tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue could be materially reduced
by a decline in the economic prospects of advertisers or the economy in
general, which could alter current or prospective advertisers' spending
priorities or budget cycles or extend our sales cycle.

Our expense levels are based in large part on our investment plans and
estimates of future revenues. In particular, we expect to significantly
increase our operating expenses to expand our sales and marketing organization
and to integrate and scale our Adfinity technology. Such expenses may precede
or may not be followed by increased revenues, as we may be unable to, or may
elect not to, adjust spending in a timely manner to compensate for any
unexpected revenue shortfall.

Due to the foregoing factors, we believe that period-to-period comparisons
of our results of operations may not be meaningful, and you should not rely on
past periods as indicators of future performance. In future periods, our
results of operations may fall below the expectations of securities analysts
and investors, which could adversely affect the trading price of the common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The Internet Advertising Market is New and Unproven

In the new and rapidly evolving Internet advertising market, demand and
market acceptance for products and services are subject to high levels of
uncertainty, and a significant number of entrants continually seek to penetrate
the market. Since we expect to derive substantially all of our revenues in the
foreseeable future from Internet advertising, our future success is highly
dependent on the increased use of the Internet as an advertising medium.

The Internet as an advertising medium has not been in existence for a
sufficient period of time to demonstrate its effectiveness as compared with
traditional advertising media. Most of our current or potential advertising
customers have limited or no experience using the Internet as an advertising
medium, have not devoted a significant portion of their advertising
expenditures to Internet advertising and may not find Internet advertising to
be effective for promoting their products and services relative to advertising
across traditional media. Companies adopting Internet advertising, particularly
those that use traditional media for advertising, must accept new ways of
conducting business and exchanging information. In addition, most Web
publishers have limited or no experience in generating revenues from
advertising on their Web sites. We cannot be certain that the market for
Internet advertising will continue to emerge or be sustainable.

Online advertising must prove effective to justify a reallocation of
resources from traditional forms of advertising to this developing medium.
There are currently no widely accepted standards to measure the effectiveness
of Internet advertising and we cannot be certain that such standards will
develop to sufficiently support Internet advertising as a significant
advertising medium. Advertisers may not accept our or third-party measurements
of impressions on Web sites utilizing our services and such measurements may
contain errors. In addition, the effectiveness of Internet advertising is
dependent upon the accuracy of information contained in the databases used to
target advertisements. We cannot be certain that the information in our
database will be accurate or that advertisers will be willing to have
advertisements targeted by any database containing such potential inaccuracies.
Actual or perceived ineffectiveness of online advertising in general, or
accuracy of measurements or database information in particular, could limit the
long-term growth of online advertising.

Banner advertising, from which we currently derive most of our revenues,
may not be an effective advertising method in the future. We cannot be certain
that any other forms of Internet advertising will be developed or accepted by
the market. Even if new methods are developed, we may not be able to take
advantage of them. Moreover, "filter" software programs that limit advertising
from being delivered to a Web site are currently available. The Internet
advertising market and our business could be adversely affected if use of
filter software becomes widespread.

Adoption of online direct marketing, particularly by those entities that
have historically relied upon traditional means of direct marketing (such as
telemarketing and direct mail), requires the broad acceptance of a new and
substantially different approach to direct marketing. As with online
advertising and other new markets, intensive marketing and sales efforts may be
necessary to educate prospective advertisers regarding the uses and benefits of
our products and services to generate demand for our services. Enterprises that
have already invested substantial resources in other methods of conducting
business may be reluctant or slow to adopt a new approach that may replace,
limit, or compete with their existing systems. In addition, since online direct
marketing is emerging as a

5
<PAGE>

new and distinct market apart from online advertising, potential adoptors of
online direct marketing services will increasingly demand functionality
tailored to their specific requirements.

Reliance on a Limited Number of Web Publishers and Dependence on the 24/7
Network

The 24/7 Network consists of a limited number of Affiliated Web sites that
have contracted for our services under agreements cancellable upon a specified
notice period. For the nine months ended September 30, 1998 and for the year
ended December 31, 1997, approximately 40% and 68%, respectively, of the 24/7
Network's pro forma advertising revenues were derived from advertisements on
the top ten Affiliated Web sites on the 24/7 Network. For the nine months ended
September 30, 1998, the top ten Web sites included AT&T WorldNet Service,
Netscape Communications, Reuters, Comedy Central, Encompass, Earthlink Network,
Blizzard Entertainment, The Mining Company, Meredith and Reality Online. The
top ten Web sites for the year ended December 31, 1997 included AT&T WorldNet
Service, Reuters, USA.NET, Columbia House, Comedy Central, Reuters-MoneyNet,
Maps on Us, Universal Media, FlashNet Communications and FoxNews Internet. We
experience turnover from time to time in our Affiliated Web sites, and we
cannot be certain that the Web sites named above remain or will remain
associated with us. Affiliated Web sites generally measure satisfaction by
acceptable revenue levels, adequate "click-thru rates" (the number of times
users click on an advertisement as a percentage of page views), high levels of
customer service and timely and accurate reporting. Levels of traffic on
Affiliated Web sites may not remain consistent or increase over time, and we
may be unable to replace any departed Affiliated Web site with another Web
publisher with comparable traffic patterns and user demographics. The loss or
reduction in traffic on these Web sites may cause advertisers or Web publishers
to withdraw from the 24/7 Network.

Reliance on a Limited Number of Advertisers and Ad Agencies

We generate our revenues from a limited number of advertisers and ad
agencies that purchase space on Affiliated Web sites and we expect that a
limited number of these entities may continue to account for a significant
percentage of our revenues for the foreseeable future. In particular, for the
nine months ended September 30, 1998 and for the year ended December 31, 1997,
our top ten advertisers and ad agencies accounted for an aggregate of
approximately 41% and 48%, respectively, of the 24/7 Network's pro forma
advertising revenues. See "Management's Discussion and Analysis--General."
Advertisers and ad agencies typically purchase advertising under purchase order
agreements that run for a limited time. We cannot be certain that current
advertisers and ad agencies will continue to purchase advertising from us or
that we will be able to attract additional advertisers and ad agencies
successfully, or that agencies and advertisers will make timely payment of
amounts due to us.

Integration of Adfinity Technology and Dependence on Third Party Technology

We currently use several ad serving technologies to deliver advertisements
to our networks, including our Adfinity system, the Adforce service from
Adforce, Inc., the MatchLogic service from Excite, Inc. and our own proprietary
system for the ContentZone. We intend to migrate all of our Affiliated Web
sites to the Adfinity system during 1999. To complete the transition to
Adfinity, we must, among other things, ensure scalability of the Adfinity
system, assimilate our current sales and reporting functions into the Adfinity
model and work with certain existing Affiliated Web sites to re-tag such Web
sites. Although we expect that the transition to Adfinity will be completed in
the second half of 1999, we cannot be certain that we will be able to complete
this transition on a timely basis. Our strategy to deliver targeted
advertisements depends upon the successful integration of Adfinity as well as
further development of interfaces between Adfinity, our Profilz database and
third party demographic data. Our failure to effect a successful transition to
Adfinity could result in a loss of Affiliated Web sites, a disruption in our
ability to effectively deliver advertisements and a negative impact on our
business.

Until the integration of Adfinity is complete, we will be dependent in
part upon Adforce and MatchLogic to deliver ads to the 24/7 Network and to
produce frequent operational reports. If either service becomes unavailable or
fails to serve our advertisements or effectively deliver our reports, our
business would be materially adversely affected. Additionally, the use of
multiple systems require us to employ a significant amount of effort to prepare
information for financial reporting. This causes difficulties in preparing
financial statements and reporting information on a timely basis. We are in the
process of upgrading our systems to integrate newly developed and purchased
modules with Adfinity to improve our accounting, control and reporting methods.
Our inability to add additional software and hardware or to further develop and
upgrade our existing technologies, systems or network infrastructure may cause
unanticipated delays in delivering our customers' advertisements and providing
timely reporting of accurate financial information.

6
<PAGE>

Our Markets are Highly Competitive

The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to increase. We believe
that our ability to compete depends upon many factors both within and beyond
our control, including:

o the timing and market acceptance of new products and enhancements of
existing services developed by us and our competitors;

o changing demands regarding customer service and support;

o shifts in sales and marketing efforts by us and our competitors; and

o the ease of use, performance, price and reliability of our services and
products.

We compete for Internet advertising revenues with large Web publishers and
Web portals, such as America Online, Excite, GeoCities, Go Network, Infoseek,
Lycos, Microsoft Network and Yahoo! Further, our networks compete for Web site
clients with a variety of Internet advertising networks, including DoubleClick,
Link Exchange, Flycast and 2Can Media. We also encounter competition from a
number of other sources, including content aggregators, companies engaged in
advertising sales networks, advertising agencies and other entities that
facilitate Internet advertising. Many of our existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than ours. We cannot be certain that we will
be able to successfully compete against current or future competitors. In
addition, the Internet must compete for a share of advertisers' total budgets
with traditional advertising media, such as television, radio, cable and print.
To the extent that the Internet is perceived to be a limited or ineffective
advertising medium, advertisers may be reluctant to devote a significant
portion of their advertising budgets to Internet advertising, which could limit
the growth of Internet advertising.

Risks Associated with Technological Change

The Internet market is characterized by rapidly changing technology,
evolving industry standards, frequent new product announcements and
enhancements, and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete. Our
future success depends on our ability to adapt to rapidly changing technologies
and to improve the performance, features and reliability of our services and
products in response to changing customer and industry demands. Furthermore, we
may experience difficulties that could delay or prevent the successful design,
development, testing, introduction or marketing of services. New services or
enhancements to existing services may not adequately meet the requirements of
our current and prospective advertisers and Affiliated Web sites or achieve any
degree of significant market acceptance.

Dependence on the Web Infrastructure

Our success depends upon, among other things, the continued expansion of,
and reliance on, the Internet and the development and maintenance of a viable
Web network infrastructure. The maintenance and improvement of this
infrastructure will require timely development of products, such as high speed
modems and communications equipment, to continue to provide reliable Web access
and improved content. The current Web infrastructure may be unable to support
an increased number of users or the increased bandwidth requirements of users
and, as such, the performance or reliability of the Web may be adversely
affected. Furthermore, the Web has experienced certain outages and delays as a
result of damage to portions of its infrastructure. Such outages and delays,
including those resulting from Year 2000 problems, could adversely affect Web
sites and the level of traffic on our networks. The effectiveness of the Web
may decline due to delays in the development or adoption of new standards and
protocols (for example, the next-generation Internet protocol) designed to
support increased levels of activity. Even if such infrastructure, standards or
protocols or complementary products, services or facilities are developed, we
may be required to incur substantial expenditures to adapt our services to
changing or emerging technologies. Moreover, critical issues concerning the
commercial use and government regulation of the Internet (including security,
cost, ease of use and access, intellectual property ownership and other legal
liability issues) remain unresolved and could materially and adversely impact
both the growth of the Internet and our business.

Dependence on Third Party Systems and Risk of System Failure

A key to our strategy is to generate a high volume of traffic for our
products and services. In particular, our success depends on the performance of
Adfinity and of services we employ from third parties. Adfinity's computer

7
<PAGE>

hardware and software is housed at GlobalCenter, Inc., a third party provider
of Internet communication services. See "Business--Facilities and Systems." Any
Adfinity or third party ad server system failure, including failures that delay
the delivery of advertisements to Web sites, could reduce customer
satisfaction.

In general, our operations are dependent upon the proper operation of our
own and third party computer systems. Any damage from fire, power loss,
telecommunications failures, vandalism and other malicious acts, human error,
and similar unexpected events could adversely affect our business. In addition,
failure of our telecommunications providers to provide the data communications
capacity in the time frame required by us for any reason could cause
interruptions in the services we provide. Large increases in the volume of
advertising delivered through our ad servers could strain the capacity of the
software or hardware we deploy, which could lead to slower response time or
system failures. Despite precautions taken by us, unanticipated problems
affecting our computer and telecommunications systems in the future could cause
interruptions in the delivery of our services.

Need to Manage Growth

We have experienced rapid growth and expansion in operations that have
placed a significant strain on our managerial, operational and financial
resources. We have grown from approximately 60 employees on a pro forma basis
as of September 30, 1997 to approximately 166 employees as of December 31, 1998
and expect the number of employees to increase in the future. To successfully
compete in the evolving Internet industry, we must continue to improve our
financial and management controls, enhance our reporting systems and
procedures, continue to scale our ad serving systems and expand, train and
manage our work force. We cannot be certain that our systems, procedures or
controls will be adequate to support our expanding operations, or that
management will be able to respond effectively to such growth. Our future
results of operations also depend on the expansion of our sales, marketing and
customer support departments.

Risks Associated with Acquisitions or Investments

We intend to continue pursuing selective acquisitions of businesses,
technologies and product lines as a key component of our growth strategy. We
regularly seek to identify and acquire or invest in companies or assets that
will enhance our revenue growth, operations and profitability. Any future
acquisition or investment may result in the use of significant amounts of cash,
potentially dilutive issuances of equity securities, incurrence of debt and
amortization expenses related to goodwill and other intangible assets. In
addition, acquisitions involve numerous risks, including:

o the difficulties in the integration and assimilation of the operations,
technologies, products and personnel of an acquired business;

o the diversion of management's attention from other business concerns;

o the availability of favorable acquisition financing for future
acquisitions; and

o the potential loss of key employees of any acquired business.

Our inability to successfully integrate any acquired company could
adversely affect our business.

Risks Associated with International Expansion

We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in marketing, selling
and distributing our solutions internationally. International operations are
subject to other inherent risks, including:

o changes in regulatory requirements;

o reduced protection for intellectual property rights in some countries;

o potentially adverse tax consequences;

o general import/export restrictions relating to encryption technology
and/or privacy;

o difficulties and costs of staffing and managing foreign operations;

o political and economic instability either domestically or
internationally;

o fluctuations in currency exchange rates; and

8
<PAGE>

o seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.

In addition to these factors, due to our minority stake in our Asian
operation, we are relying on our business partner to conduct operations,
establish our network, aggregate Web publishers and coordinate sales and
marketing efforts. Our success in Asia is directly dependent on the success of
our business partner and its dedication of sufficient resources to our
relationship.

Dependence on Key Personnel

Our success depends upon our senior management and key sales and technical
personnel, particularly David J. Moore, Chief Executive Officer, and Jacob I.
Friesel, Executive Vice President. The loss of the services of one or more of
these persons could materially adversely affect our business. Our success also
depends on our ability to attract and retain qualified technical, sales and
marketing, customer support, financial and accounting, and managerial
personnel. Competition for such personnel in the Internet industry is intense,
and we cannot be certain that we will be able to retain our key personnel or
that we can attract, assimilate or retain other highly qualified personnel in
the future. We have experienced in the past, and may continue to experience in
the future, difficulty in hiring and retaining candidates with appropriate
qualifications, especially in sales and marketing positions. Although we have
not experienced any material impact from the difficulty in hiring and retaining
qualified employees, we may be materially impacted in the future from such
hiring difficulties.

Dependence on Proprietary Rights and Risk of Infringement

We rely upon patent, trademark, copyright and trade secret laws to protect
our intellectual property. We have pursued the protection of our trademarks by
applying to register them in the United States and internationally. We are the
owner of a registration for the 24/7 Media trademark in the United States. Our
trademark registrations or patent applications may not be approved or granted
or may be successfully challenged by others or invalidated through
administrative process or litigation. Further, if our trademark registrations
are not approved or granted due to the prior issuance of trademarks to third
parties or for other reasons, we cannot be certain that we will be able to
enter into arrangements with such third parties on commercially reasonable
terms to allow us to continue to use such trademarks. Such patent, trademark,
copyright and trade secret protection may not be available in every country in
which our services are distributed or made available. In addition, we protect
our proprietary rights through the use of confidentiality agreements with
employees and affiliates. We also license certain proprietary rights to third
parties. There is a risk that:

o these agreements and licenses may not provide adequate protection of our
proprietary rights;

o our employees and affiliates may not keep such information confidential;
and

o this proprietary information will otherwise become known, or be
independently developed by competitors.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and we cannot be certain as to the future
viability or value of any of our proprietary rights or other companies within
the industry. The steps taken by us to protect our proprietary rights may not
be adequate and third parties may infringe or misappropriate our proprietary
rights. Additionally, our business activities may infringe upon the proprietary
rights of others, or other parties may assert infringement claims against us.
We anticipate that we may be subject to claims in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by us and our business partners.
Such claims and any resultant litigation, should it occur, could subject us to
significant liability for damages and could result in invalidation of our
proprietary rights and, even if not meritorious, could be time-consuming and
expensive to defend, and could result in the diversion of management time and
attention.

Privacy Concerns

Our Adfinity technology and Profilz database collect and use data derived
from user activity on our networks, Affiliated Web sites and other sources. We
cannot be certain that any trade secret, copyright or other protection will be
available for such data or that others will not claim rights to such data. We
must also keep certain information regarding Web publishers confidential
pursuant to our contracts with Web publishers. Adfinity enables the use of
"cookies," in addition to other mechanisms, to deliver targeted advertising, to
help compile demographic information, and to limit the frequency with which an
advertisement is shown to the user. Cookies are bits of information keyed to a
specific server,

9
<PAGE>

file pathway or directory location that are stored on a user's hard drive and
passed to a Web site's server through the user's browser software. Cookies are
placed on the user's hard drive without the user's knowledge or consent, but
can be removed by the user at any time. Currently available Internet browsers
allow a user to delete cookies or prevent cookies from being stored on the
user's hard drive. Due to privacy concerns, some Internet commentators,
advocates and governmental bodies have suggested that the use of cookies be
limited or eliminated. Any limitation on our ability to use cookies could
impair our targeting capabilities and adversely affect our business.

Government Regulation and Legal Uncertainties

Due to the increasing popularity and use of the Web, a number of laws and
regulations may be adopted regarding user privacy, pricing, acceptable content,
taxation and quality of products and services. Although there are currently few
laws or regulations directly governing access to or commerce on the Internet,
any new legislation could inhibit the growth in use of the Web and decrease the
acceptance of the Web as a communications and commercial medium, which could
have a material adverse effect on our business, results of operations and
financial condition. In addition, the growing use of the Web has burdened
existing telecommunications infrastructure and has caused interruptions in
telephone service. Certain telephone carriers have petitioned the government to
regulate and impose fees on Internet service providers and online service
providers in a manner similar to long distance telephone carriers. Any such
regulations could affect the costs of communicating on the Web and adversely
affect the growth in use of the Web, which could in turn decrease the demand
for our products. Further, due to the global nature of the Web, governments of
states or foreign countries may attempt to regulate Internet transmissions or
levy sales or other taxes relating to our activities. We cannot be certain that
violations of local laws will not be alleged by applicable governments, we will
not violate such laws or new laws will not be enacted in the future. Moreover,
the applicability of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain in regards to the Internet.

Year 2000 Risks

Beginning in the year 2000, the date fields coded in certain software
products and computer systems will need to accept four digit entries in order
to distinguish 21st century dates from 20th century dates. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance issues. We are working with our external
suppliers and service providers to ensure that they and their systems will be
able to support our needs and, where necessary, interoperate with our hardware
and software infrastructure in preparation for the year 2000. We do not
anticipate that we will incur material expenses to make our computer software
programs and operating systems Year 2000 compliant. However, we cannot be
certain that unanticipated costs associated with any Year 2000 compliance will
not exceed our present expectations. In addition, our ad servers and certain of
our customers may also be impacted by Year 2000 complications. Any failure by
us, ad servers or our customers to make their products Year 2000 compliant
could result in a decrease in sales of our products, an increase in the
allocation of resources to address Year 2000 problems of our customers without
additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered by our customers due
to such Year 2000 problems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Control by Principal Stockholders, Officers and Directors

After this offering, the directors and executive officers and their
affiliates will beneficially own approximately 35% of the outstanding common
stock. As a result, these stockholders will be able to exercise substantial
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in our control. See "Management" and "Security Ownership of Certain
Beneficial Owners and Management."

Broad Discretion in Use of Proceeds

The net proceeds of this offering will be added to our working capital and
will be available for general corporate purposes, including capital
expenditures and potential future acquisitions. As of the date of this
prospectus, we cannot specify with certainty the particular uses for the net
proceeds to be received upon completion of this offering. Accordingly, our
management will have broad discretion in the application of the net proceeds.
See "Use of Proceeds."

Shares Eligible for Future Sale and Registration Rights

Sales of significant amounts of common stock in the public market after
this offering, or the perception that such sales will occur, could materially
affect the market price of the common stock or our future ability to raise
capital through an offering of our equity securities. We will have 18,282,835
shares of common stock outstanding after this offering.

10
<PAGE>

The 3,550,000 million shares sold in our initial public offering and the
4,000,000 shares offered hereby will be eligible for immediate sale in the
public market without restriction, except shares purchased by our "affiliates"
within the meaning of Rule 144 promulgated under the Securities Act. The
remaining 10,732,835 shares of common stock held by existing stockholders are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k)
or 701 promulgated under the Securities Act. Our directors and officers and a
majority of our stockholders have agreed that they will not sell, directly or
indirectly, any common stock without the prior consent of the representatives
of the underwriters for a period of 90 days from the date of this prospectus.
See "Underwriting." As a result of contractual restrictions and the provisions
of Rules 144, 144(k) and 701, additional shares will be available for sale in
the public market, if an exemption under Rule 144 is available, as follows:

o ___ shares may be eligible for sale upon the expiration of their
respective one-year holding periods which for a majority of these shares
will occur on April 9, 1999; and

o ___ shares may be eligible for sale upon the expiration of lock-up
agreements 90 days after the date of this prospectus.

In addition, there are outstanding options to purchase 2,155,305 shares of
common stock, 211,186 of which will, upon exercise, be eligible for sale in the
public market immediately after the date of this prospectus and an additional
126,061 of which will be eligible for sale in the public market not more than
90 days after the date of this prospectus. There are also outstanding warrants
to purchase 3,177,985 shares of common stock, ____ of which may be eligible for
sale upon the expiration of their respective one-year holding periods, which
for all of these shares will occur on April 9, 1999, and ____ of which will be
eligible for sale in the public market until expiration of lock-up agreements
90 days after the date of this prospectus. In addition, certain stockholders,
representing approximately 8 million shares of common stock, have the right,
subject to certain conditions, to include their shares in future registration
statements relating to our securities and/or to cause us to register certain
shares of common stock owned by them. See "Shares Eligible For Future Sale."

Continued Extreme Volatility of Stock Price

The trading price of the common stock has fluctuated widely in its short
history and is likely to continue to be highly volatile and subject to wide
fluctuations caused by, among other things, investors' perceptions, variations
in quarterly results of operations, the gain or loss of significant advertisers
or Affiliated Web sites, changes in our earning estimates by industry analysts,
announcements of technological innovations or new services by us or our
competitors, or general conditions in the economy in general or in
Internet-related industries.

In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price for many companies in
industries similar or related to ours and that have been unrelated to the
operating performance of these companies. These market fluctuations may have a
material adverse effect on the market price of our common stock.

11
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 2,000,000 shares of common stock
sold by us in this offering are estimated to be approximately $66,817,500 after
deducting underwriting discounts and estimated offering expenses payable by us.
The primary purpose of this offering is to obtain additional working capital.

We intend to use the net proceeds of this offering for general corporate
purposes, including working capital, and for the expansion of our operations
and sales and marketing capabilities. In addition, we may use a portion of the
net proceeds of this offering to acquire or invest in complementary businesses,
technologies, services or products. As of the date of this prospectus, we
cannot specify with certainty the particular uses for the net proceeds to be
received upon completion of this offering. Accordingly, our management will
have broad discretion in the application of the net proceeds. Pending such
uses, the net proceeds will be primarily invested in short-term, investment
grade instruments, certificates of deposit or direct or guaranteed obligations
of the United States.

DIVIDEND POLICY

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 the
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.

PRICE RANGE OF COMMON STOCK

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

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Year Ended December 31, 1998
Third Quarter (from August 14, 1998) ............. 20-1/4 6-3/4
Fourth Quarter ................................... 34-1/8 6-3/8
Year Ending December 31, 1999
First Quarter (through January 19, 1999) ......... 41-1/2 26-1/4
</TABLE>

On January 19, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $35.75. As of January 15, 1999, there were
approximately 300 holders of record of our common stock.

12
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1998
(i) on an actual basis and (ii) on an as adjusted basis to give effect to our
sale of 2,000,000 shares of common stock, after deducting underwriting
discounts and estimated offering expenses payable by us. See "Use of Proceeds."
The capitalization information set forth in the table below should be read in
conjunction with the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------
Actual As Adjusted
---------------- ----------------
<S> <C> <C>
Obligations under capital leases, excluding current installments ......... $ 42,759 $ 42,759
Stockholders' equity(1)
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding on an actual
or as adjusted basis .................................................. -- --
Common stock, $.01 par value; 70,000,000 shares authorized;
15,482,804 shares issued and outstanding actual; 17,482,804
shares issued and outstanding on an as adjusted basis ................. 154,828 174,828
Additional paid-in-capital ............................................. 86,731,261 153,528,761
Deferred stock compensation ............................................ (372,922) (372,922)
Accumulated deficit .................................................... (31,932,193) (31,932,193)
------------- -------------
Total stockholders' equity ............................................ 54,580,974 121,398,474
------------- -------------
Total capitalization ................................................. $ 54,623,733 $ 121,441,233
============= =============
</TABLE>

DILUTION

As of September 30, 1998, our net tangible book value was $43,038,447 in
the aggregate, or $2.78 per share. Net tangible book value per share represents
our total tangible assets less total liabilities, divided by the number of
outstanding shares of common stock. Dilution per share represents the
difference between the amount per share paid by investors in this offering of
common stock and the net tangible book value per share after the offering.
After giving effect to the sale of 2,000,000 shares of common stock and after
our application of the estimated net proceeds from the offering, our net
tangible book value as of September 30, 1998 would have been $109,855,947 in
the aggregate, or $6.28 per share. This represents an immediate increase in net
tangible book value of $3.50 per share to existing shareholders and an
immediate dilution in net tangible book value of $ 29.47 per share to new
investors purchasing shares of common stock in the offering. If the public
offering price is higher or lower, the dilution to the new investors will
increase or decrease accordingly. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share ....................................... $ 35.75
Net tangible book value per share before the offering ............... $ 2.78
Increase in net tangible book value per share attributable
to new investors ................................................... 3.50
-------
Net tangible book value per share after the offering .................. 6.28
--------
Dilution in net tangible book value per share to new investors ........ $ 29.47
========
</TABLE>

13
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data as of and for each of the years
in the three-year period ended December 31, 1997 have been derived from our
audited consolidated financial statements, which are included elsewhere in this
prospectus. The selected consolidated financial data for the period from
September 1994 through December 31, 1994 have been derived from the financial
statements of Interactive Imaginations not included in this prospectus and our
accounting records. The selected consolidated financial data as of September
30, 1998 and for the nine months ended September 30, 1997 and 1998 are derived
from unaudited consolidated financial statements appearing in this prospectus.
In our opinion, such unaudited data reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the financial
data for such period. The consolidated results of operations for the nine
months ended September 30, 1998 are not necessarily indicative of results that
may be expected for the full year. We believe that due to the acquisitions in
1998, the period to period comparisons are not meaningful and should not be
relied upon as indicative of future performance. You should read the selected
consolidated financial data set forth 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 in this prospectus.

<TABLE>
<CAPTION>
September
1994 (inception) Year Ended December 31,
through December 31, ---------------------------------------------
1994(1) 1995 1996 1997
-------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Advertising ..................................... $ -- $ 151,750 $ 1,106,329 $ 1,467,105
Consulting and license fees ..................... -- -- 435,834 1,681,464
--------- ------------ ------------ ------------
Total revenues ................................. -- 151,750 1,542,163 3,148,569
Cost of revenues ................................. -- 198,291 1,592,771 1,655,340
--------- ------------ ------------ ------------
Gross profit (loss) ............................. -- (46,541) (50,608) 1,493,229
Operating expenses:
Sales and marketing ............................. -- 114,348 2,240,399 1,672,999
General and administrative ...................... (35,771) 581,068 3,010,009 2,622,743
Product development ............................. -- 426,187 1,460,928 1,417,750
Other expenses (2) .............................. -- -- -- 989,099
Write-off of acquired in-process technology -- -- -- --
Amortization of goodwill ........................ -- -- -- --
--------- ------------ ------------ ------------
Total operating expenses ....................... (35,771) 1,121,603 6,711,336 6,702,591
Operating loss ................................... (35,771) (1,168,144) (6,761,944) (5,209,362)
Interest (expense) income, net ................... -- -- (33,731) (96,466)
--------- ------------ ------------ ------------
Net loss ......................................... (35,771) (1,168,144) (6,795,675) (5,305,828)
Cumulative dividends on mandatorily
convertible preferred stock ..................... -- -- -- --
--------- ------------ ------------ ------------
Net loss attributable to common stockholders ..... $ (35,771) $ (1,168,144) $ (6,795,675) $ (5,305,828)
========= ============ ============ ============
Basic and diluted net loss per share (3) ......... $ (.14) $ (2.78) $ (6.48) $ (4.88)
Weighted average shares outstanding (3) .......... 250,000 420,908 1,049,432 1,086,614

<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Advertising ..................................... $ 1,059,935 $ 10,198,701
Consulting and license fees ..................... 1,668,963 105,178
------------ -------------
Total revenues ................................. 2,728,898 10,303,879
Cost of revenues ................................. 1,405,693 8,643,492
------------ -------------
Gross profit (loss) ............................. 1,323,205 1,660,387
Operating expenses:
Sales and marketing ............................. 1,475,763 4,806,710
General and administrative ...................... 2,194,824 5,207,699
Product development ............................. 1,285,280 1,002,478
Other expenses (2) .............................. 989,099 --
Write-off of acquired in-process technology -- 5,477,281
Amortization of goodwill ........................ -- 3,630,573
------------ -------------
Total operating expenses ....................... 5,944,966 20,124,741
Operating loss ................................... (4,621,761) (18,464,354)
Interest (expense) income, net ................... (23,512) 113,375
------------ -------------
Net loss ......................................... (4,645,273) (18,350,979)
Cumulative dividends on mandatorily
convertible preferred stock ..................... -- (275,796)
------------ -------------
Net loss attributable to common stockholders ..... $ (4,645,273) $ (18,626,775)
============ =============
Basic and diluted net loss per share (3) ......... $ (4.30) $ (2.45)
Weighted average shares outstanding (3) .......... 1,079,116 7,610,191
</TABLE>

<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------
1994 1995 1996 1997
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................... $ 10,722 $ -- $1,689,395 $ 93,945
Working capital (deficit) .................... (9,278) (235,342) (6,493) (1,165,482)
Goodwill, net ................................ -- -- -- --
Total assets ................................. 29,229 497,165 3,950,790 1,038,941
Long-term debt ............................... -- -- -- 2,316,511
Obligations under capital leases, excluding
current installments ........................ -- -- -- --
Total stockholders' equity (deficit) ......... 9,229 202,573 1,750,202 (2,727,967)

<CAPTION>
As of September 30, 1998
----------------------------
Actual As Adjusted(4)
------------ --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................... $42,784,975 $109,602,475
Working capital (deficit) .................... 41,400,833 108,218,333
Goodwill, net ................................ 11,519,218 11,519,218
Total assets ................................. 62,566,159 129,383,659
Long-term debt ............................... -- --
Obligations under capital leases, excluding
current installments ........................ 42,759 42,759
Total stockholders' equity (deficit) ......... 54,580,974 121,398,474
</TABLE>

- ----------------
(1) We were incorporated in September 1994 and had insignificant activities
from inception through December 31, 1994.

(2) Includes an aggregate of $232,304 in legal costs incurred in defending a
class-action lawsuit filed by certain Affiliated Web sites on the
ContentZone, which defense resulted in grant of summary judgment in our
favor and a net write-off of approximately $756,795 of property and
equipment that was deemed to have no future economic benefit. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and the related
Notes thereto.

(3) See Note 1 to our Consolidated Financial Statements for the determination
of shares used in computing basic and diluted net loss per share.

(4) Adjusted to reflect our sale of 2,000,000 shares of common stock, the net
proceeds from which are estimated to be approximately $66,817,500 after
deducting underwriting discounts and estimated offering expenses payable by
us. We intend to use the net proceeds of the offering for general corporate
purposes, including working capital, and for expansion of our operations and
sales and marketing capabilities. See "Use of Proceeds."

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

General

We are the result of several recent mergers and acquisitions and the
combination of these entities resulted in an integrated Internet advertising
company with both media sales and technology expertise. We were incorporated in
January 1998 to consolidate three Internet advertising companies: Petry
Interactive, Inc., Advercomm, Inc. and Interactive Imaginations, Inc. Petry
established the network business model and contributed its network of Web sites
which became the foundation for the 24/7 Network. Advercomm folded several high
profile Web sites into the 24/7 Network, which increased the breadth of content
available on the 24/7 Network and accelerated our ability to organize our
Affiliated Web sites into channels. Interactive Imaginations' ContentZone
provided us with the ability to offer advertising solutions for small to
medium-sized Web sites. We subsequently acquired Intelligent Interactions, a
developer of ad serving and targeting technology, and CliqNow!, a network of
over 75 medium to large Web sites. We believe that the combination of these
predecessor entities has enabled us to offer advertisers and Web publishers
comprehensive advertising solutions and to pursue our objective of becoming the
leading Internet advertising and direct marketing firm.

We generate substantially all of our revenues by delivering advertisements
and promotions to Affiliated Web sites on our networks. We typically sell our
advertisements under purchase order agreements with advertisers which are
short-term in nature or subject to cancellation. We sell our products and
services through our sales and marketing staff located in New York, Boston,
Chicago, Dallas, Detroit, Los Angeles, San Francisco, Seattle and the
Washington, D.C. area.

The pricing of ads is based on a variety of factors, including the gross
dollar amount spent on the advertising campaign and whether the campaign is
delivered on a specific Web site basis, a channel basis or a run of network
basis. We strive to sell 100% of our inventory through the combination of
advertisements sold on a "CPM" basis (the cost to the advertiser to run 1,000
ads) and a "cost-per-action" basis (whereby revenues are generated if the user
responds to the ad with an action, such as an inquiry or a purchase of the
product advertised).

We recognize advertising revenues in the period that the advertisement is
delivered, provided that no significant obligations remain. In nearly all
cases, we recognize revenues generated from advertising sales, net of any
commissions paid to advertising agencies on behalf of their clients. We pay our
Affiliated Web sites a service fee calculated as a percentage of revenues
generated by advertisements run on the Web site, which amount is included in
cost of revenues. In addition, we are generally responsible for billing and
collecting for advertisements delivered to our networks. We expect to generate
most of our revenues for the foreseeable future from advertisements delivered
to Affiliated Web sites on our networks.

We have recently started to sell sponsorship advertising, which involves a
greater degree of coordination among us, the advertiser and Affiliated Web
sites. These sponsorships are generally priced based on the length of time that
the sponsorship runs, rather than on a CPM basis. Revenues relating to
sponsorship advertising are recognized ratably over the sponsorship period.

Our strategy is to aggressively recruit Web sites of all sizes for our
networks in order to extend our reach and to provide advertisers with a broad
base of page views and online content. We added a number of high-profile Web
sites during the third and fourth quarters of 1998, including cars.com,
Cybershop, New York Mets, Real Cities, Reuters Health, San Francisco Giants,
Server.com, and Sports Network.com. For the nine months ended September 30,
1998 and for the year ended December 31, 1997, approximately 40% and 68%,
respectively, of the 24/7 Network's pro forma advertising revenues were derived
from advertisements on the top ten Affiliated Web sites on the 24/7 Network.
For the nine months ended September 30, 1998, one Affiliated Web site accounted
for approximately 13% of our total advertising revenue.

In addition, for the nine months ended September 30, 1998 and the year
ended December 31, 1997, our top ten advertisers and ad agencies accounted for
an aggregate of approximately 41% and 48%, respectively, of the 24/7 Network's
pro forma advertising revenues.

We believe that the period-to-period comparisons of our historical
operating results are not meaningful and should not be relied upon as
indicative of future performance. Our prospects should be considered in light
of the

15
<PAGE>

risks, expenses and difficulties encountered by companies in the early stages
of development, particularly companies in the rapidly evolving Internet market.
Although we have experienced revenue growth in recent periods, we anticipate
that we will incur operating losses for the foreseeable future due to a high
level of planned operating and capital expenditures. In particular, we expect
to increase our operating expenses in order to expand our sales and marketing
organization and to integrate and scale our Adfinity technology.

Pro Forma Results of Operations

Because we have a limited operating history, we have included in the
following table our results of operations on a pro forma basis so investors can
better understand our business as a result of the combination of the businesses
of Petry, Advercomm, Interactive Imaginations, Intelligent Interactions and
CliqNow!. The unaudited pro forma consolidated statements of operations give
effect to these acquisitions as if they had occurred on January 1, 1997 (or
inception, if later) by consolidating the results of operations of the acquired
entities with our results of operations for the periods presented.

As a result, for pro forma purposes, amortization of goodwill has been
recognized beginning in the first quarter of pro forma 1997 and the one-time
write-off of in-process technology has been excluded. For financial reporting
purposes:

o amortization of goodwill will be recognized over a two-year period from
the respective dates of the acquisitions, and

o the write-off of acquired in-process technology of approximately $5.5
million related to the Intelligent Interactions acquisition has been
recognized in the second quarter of 1998 (the date of acquisition).

We believe that all necessary adjustments, consisting of normal recurring
adjustments, have been included in the amounts stated below. The unaudited pro
forma consolidated statements of operations are not necessarily indicative of
the operating results that would have been achieved had the transactions been
in effect as of the beginning of the periods presented and should not be
construed as being representative of future operating results. Our pro forma
results of operations for the three months ended September 30, 1998 are equal
to our historical results for the same period because our last acquisition took
place on June 1, 1998.

<TABLE>
<CAPTION>
Pro Forma
Three Months Ended
-----------------------------------------------
March 31, June 30, Sept. 30,
1997 1997 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Advertising ..................... $ 414,983 $ 591,722 $ 806,543
Consulting and license fees ..... 805,245 639,588 244,890
------------ ------------ ------------
Total revenues ................. 1,220,228 1,231,310 1,051,433
Cost of revenues ................. 478,965 604,715 904,284
------------ ------------ ------------
Gross profit.................... 741,263 626,595 147,149
Operating expenses:
Sales and marketing ............. 983,756 1,474,497 1,583,320
General and administrative ...... 1,185,545 1,444,037 1,555,818
Product development ............. 469,309 542,683 521,708
Other expenses .................. -- 123,843 865,256
Amortization of goodwill ........ 1,250,690 1,473,333 1,473,333
------------ ------------ ------------
Total operating expenses ....... 3,889,300 5,058,393 5,999,435
Operating loss .................. (3,148,037) (4,431,798) (5,852,286)
Interest (expense) income:
Interest income ............... 16,070 6,939 3,954
Interest expense .............. (1,928) (8,239) (34,556)
------------ ------------ ------------
Total interest (expense)
income ......................... 14,142 (1,300) (30,602)
------------ ------------ ------------
Net loss ........................ $ (3,133,895) $ (4,433,098) $ (5,882,888)
============ ============ ============

<CAPTION>
Pro Forma
Three Months Ended
---------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30,
1997 1998 1998 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Advertising ..................... $ 1,819,545 $ 2,347,307 $ 4,126,498 $ 5,461,341
Consulting and license fees ..... 57,173 88,362 39,178 66,000
------------ ------------ ------------ ------------
Total revenues ................. 1,876,718 2,435,669 4,165,676 5,527,341
Cost of revenues ................. 1,321,712 1,892,731 3,349,641 4,615,542
------------ ------------ ------------ ------------
Gross profit ................... 555,006 542,938 816,035 911,799
Operating expenses:
Sales and marketing ............. 1,028,940 1,300,636 1,731,154 2,524,284
General and administrative ...... 1,200,060 1,888,876 1,950,017 2,118,610
Product development ............. 212,045 66,738 515,699 486,779
Other expenses .................. -- -- -- --
Amortization of goodwill ........ 1,473,333 1,698,757 1,813,093 1,823,927
------------ ------------ ------------ ------------
Total operating expenses ....... 3,914,378 4,955,007 6,009,963 6,953,600
Operating loss .................. (3,359,372) (4,412,069) (5,193,928) (6,041,801)
Interest (expense) income:
Interest income ............... 2,449 25,504 51,309 250,403
Interest expense .............. (80,294) (204,196) (15,198) (4,951)
------------ ------------ ------------ ------------
Total interest (expense)
income ......................... (77,845) (178,692) 36,111 245,452
------------ ------------ ------------ ------------
Net loss ........................ $ (3,437,217) $ (4,590,761) $ (5,157,817) $ (5,796,349)
============ ============ ============ ============
</TABLE>

Revenues

Advertising Revenue. Our pro forma advertising revenue increased each
quarter primarily due to an increase in the number of Web sites on the 24/7
Network, the number of advertisers using our advertising solutions and the
number of advertisements delivered to the 24/7 Network. Such increase was
partially offset by a decline in pro

16
<PAGE>

forma advertising revenue generated by the ContentZone through the first three
quarters of 1997. We expect the 24/7 Network to continue to account for a
significant portion of our total advertising revenue. Pro forma barter and
prize revenue decreased sequentially from approximately 15.4% of total pro
forma advertising revenue for the first quarter of 1997 to 0% in all quarters
of 1998. We believe that barter and prize revenue will continue to comprise an
insignificant portion of our total revenues in the future.

Consulting and License Fees. Through the first three quarters of 1997, we
derived pro forma consulting and license fees primarily from an agreement with
SegaSoft, whereby SegaSoft licensed certain software from Interactive
Imaginations. We do not expect to realize any additional revenues from the
SegaSoft license agreement in the future. Pro forma consulting and license fees
in the fourth quarter of 1997 and all quarters of 1998 consisted primarily of
fees generated from licensing the Adfinity system to third parties. We no
longer offer new licenses for Adfinity to third parties and we do not currently
expect to recognize any meaningful revenues from the licensing of Adfinity in
the future.

Cost of Revenues and Gross Profit. Cost of revenues consists primarily of
fees paid to Affiliated Web sites, which are calculated as a percentage of
revenues resulting from ads delivered on our networks. Cost of revenues also
includes third party ad serving costs, depreciation of our ad serving system
and Internet access costs. Pro forma gross profit, in dollars, generally
declined through 1997 but generally increased during the first three quarters
of 1998. However, pro forma gross margin, which is pro forma gross profit as a
percent of total pro forma revenues, has generally declined and remained at low
levels during the most recent periods. The general decline in pro forma gross
margin over the periods presented was caused by:

o the significant growth in advertising revenue generated by the 24/7
Network, which typically pays higher fees to Affiliated Web sites, at
the same time that advertising revenue generated by the ContentZone
declined;

o an increase in third party ad serving costs related to the growth of the
24/7 Network, as well as increased costs relating to ad serving capacity
for the ContentZone for the first three quarters of 1997; and

o the increase, which began late in the first quarter of 1998, in third
party ad serving costs incurred by us in connection with the transition
to Adfinity.

o the significant quarter-to-quarter decline during 1997 in high margin
consulting and license fees generated by the SegaSoft agreement;

Until we complete the transition to Adfinity, we expect to incur ad serving
costs that are significantly higher than historical levels. Thereafter, we
expect gross margins to increase because third party ad serving fees will no
longer be paid.

Operating Expenses. Each of pro forma sales and marketing expenses,
general and administrative expenses and product development expenses increased
over the first three quarters of 1997 as Petry, CliqNow! and Interactive
Imaginations incurred expenses in connection with the growth of their
respective businesses. All of such expense categories decreased in the fourth
quarter of 1997 because (i) Petry's pro forma fourth quarter results no longer
included expenses of its then-parent and (ii) Interactive Imaginations reduced
its expense levels as it consolidated its operations in the third quarter of
1997.

Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of sales force salaries and commissions, advertising expenditures and
costs of trade shows, conventions and marketing materials. Through all quarters
of 1998, pro forma sales and marketing expenses increased as a result of the
growth of our business. We expect sales and marketing expenses to increase as
we continue to invest in sales and marketing personnel, expand into new markets
and broaden our visibility.

General and Administrative Expenses. General and administrative expenses
consist primarily of compensation, facilities expenses and other overhead
expenses incurred to support the growth of our business. Through all quarters
of 1998, pro forma general and administrative expenses increased as a result of
the growth of our business. We expect general and administrative expenses to
continue to increase due to the additional personnel and other expenses
required to support our anticipated business growth.

Product Development Expenses. Product development expenses consist
primarily of compensation and related costs incurred to further develop our ad
serving capabilities. Pro forma product development expenses increased
beginning in the second quarter of 1998 primarily as a result of our Adfinity
development and integration efforts. We believe that continued investment in
product development, particularly for our Adfinity system,

17
<PAGE>

is critical to our strategy of providing excellent service, and we expect to
increase the future amounts spent on product development.

Other Expenses. Pro forma other expenses in 1997 included an aggregate of
$232,304 in legal costs incurred during the second and third quarters in
defending a class-action lawsuit filed by certain Affiliated Web sites on the
ContentZone. Our defense of the lawsuit resulted in a grant of summary judgment
in our favor, but the lawsuit resulted in a diversion of management resources
during that period. During September 1997, as part of our consolidation and
downsizing, we conducted a book-to-physical inventory of our property and
equipment primarily with the intent to identify any property or equipment that
no longer existed as a result of the rapid expansion in our operations and
employee headcount in 1996 and the first half of 1997 combined with the
significant downsizing in our headcount in the third quarter of 1997. As a
result of this book-to-physical observation, we identified and wrote-off
$756,795 of equipment purchases, net of accumulated depreciation, that could no
longer be located. As a result, management has instituted specific internal
controls over our fixed assets to properly inventory and safeguard our assets
into the future. We recorded pro forma goodwill amortization expense beginning
in the first quarter of 1997, which represents the excess purchase price over
the fair value of net liabilities of the acquired businesses of Petry,
Advercomm, CliqNow! and Intelligent Interactions.

Historical Results of Operations

Years Ended December 31, 1997, 1996 and 1995

Interactive Imaginations (our then parent) was merged into us on April 9,
1998 in a manner similar to a pooling-of-interests. As a result, our historical
results of operations for the fiscal years ended December 31, 1997, 1996 and
1995 represent the results of Interactive Imaginations and do not reflect any
of the operating results of Petry, Advercomm, CliqNow! or Intelligent
Interactions, or the pro forma adjusting entries resulting from the merger of
these entities into us in 1998.

During 1997, the historical results of operations of Interactive
Imaginations, the stability and morale of its workforce and overall value of
the common stock of Interactive Imaginations were negatively impacted by
certain significant factors. Such events included a class action lawsuit in the
second and third quarters of 1997, which resulted in extraordinary expenses of
$232,304 in legal costs, unfavorable publicity to Interactive Imaginations, a
significant diversion of management resources, and difficulty in obtaining
financing to continue its operations.

We do not believe that the historical revenues or expenses as presented
below are reliable or accurate indicators of the future performance of the
combined company. See "Selected Consolidated Financial Data" and our
Consolidated Financial Statements and related Notes thereto.

Revenues. Total revenues were $3,148,569, $1,542,163 and $151,750 for the
years ended December 31, 1997, 1996 and 1995, respectively. Year-to-year growth
resulted from increases in (i) advertising revenue generated by the ContentZone
and Riddler.com, our online games site, and (ii) consulting and license fees
derived from the SegaSoft agreement, under which SegaSoft licensed certain
software from Interactive Imaginations. We do not expect to realize meaningful
revenues from the SegaSoft agreement in the future. Two customers (SegaSoft and
Microsoft Corporation) accounted for $326,707 and $157,019 of Interactive
Imaginations' total cash advertising revenues (excluding barter), respectively,
during 1997, two customers (SegaSoft and Microsoft Corporation) accounted for
$211,936 and $178,191 of total cash advertising revenues (excluding barter),
respectively, during 1996, and four customers (Marion Foundation, AT&T, Coors
and 20th Century) accounted for $50,000, $32,000, $30,000 and $20,000 of total
cash advertising revenues (excluding barter), respectively, during 1995.

Cost of Revenues and Gross Profit (Loss). Cost of revenues was $1,655,340,
$1,592,771 and $198,291 for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in cost of revenues in all years was due to the
related growth in advertising revenue, and the smaller percentage increase from
1996 to 1997 was due to a significant increase in the percentage of total
advertising revenue generated by Riddler.com, which does not entail payment of
fees to Affiliated Web sites. Gross profit increased from 1996 to 1997
primarily due to a significant increase in high margin revenues generated by
the SegaSoft agreement.

Operating Expenses. Total operating expenses were $6,702,591, $6,711,336
and $1,121,603 for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase from 1995 to 1996 was caused by increased
expenditures incurred in anticipation of our continued growth. The decrease
from 1996 to 1997 was primarily due to the consolidation of the Interactive
Imaginations business, offset by $989,099 in other expenses recorded in 1997.
Other expenses included $232,304 of legal costs associated with the successful
defense of a class-action lawsuit

18
<PAGE>

filed by certain Affiliated Web sites on the ContentZone, as well as a net
write-off of $756,795 of property and equipment that was deemed to have no
future economic value.

Nine Months Ended September 30, 1998 and 1997

For the nine month period ended September 30, 1998, our historical results
of operations reflect the acquisitions of Petry, Advercomm, CliqNow! and
Intelligent Interactions from their respective dates of acquisition. For the
nine month period ended September 30, 1997, our historical results of
operations only include the results of Interactive Imaginations. We do not
believe that the historical revenues or expenses as presented below are
accurate indicators of the future performance of our combined company.

Revenues. Total revenues were $10,303,879 for the nine month period ended
September 30, 1998, as compared to $2,728,898 for the nine month period ended
September 30, 1997. This increase was caused primarily by the inclusion of the
acquired companies' activities and a significant increase in advertising
revenue, offset by a decline in revenues caused by the cessation of the
SegaSoft agreement in 1997.

Cost of Revenues. Cost of revenues was $8,643,492 for the nine month
period ended September 30, 1998, as compared to $1,405,693 for the nine month
period ended September 30, 1997. This increase was primarily related to
increased payments to our Affiliated Web sites and increases in third party ad
serving costs which were caused by growth in advertising revenue and the
temporary increase in costs in connection with the transition to Adfinity. This
increase was offset by reduced ContentZone ad serving costs.

Operating Expenses. Total operating expenses were $20,124,741 for the nine
month period ended September 30, 1998, as compared to $5,944,966 for the nine
month period ended September 30, 1997. These increases were caused by:

o higher sales and marketing and general and administrative expenses
resulting from the acquisitions we completed in 1998;

o additional operating expenses incurred in anticipation of future growth;

o acquired in-process technology of approximately $5.5 million from the
acquisition of Intelligent Interactions which was immediately charged to
operations in April 1998; and

o amortization of goodwill resulting from the acquisitions we completed in
1998.

This increase was partially offset in the nine months ended September 30, 1998
by the significant reduction of product development expense prior to our
acquisition of Intelligent Interactions in April 1998. The value of the
acquired in-process technology was determined using a combination of a
risk-adjusted income approach and an independent valuation. The acquired
in-process technology had not reached the stage of technological feasibility at
the date of acquisition and had no alternative future use.

Liquidity and Capital Resources

Historically, we financed our operations primarily from private placements
of equity and convertible debt securities. Concurrently with the merger of
Petry and Advercomm into us, we completed a private placement of preferred
stock and warrants which resulted in net proceeds of $9.8 million. In August
1998, we completed an initial public offering of our common stock pursuant to
which we realized net proceeds of approximately $44.8 million. As of September
30, 1998, we had cash and cash equivalents of $42,784,975.

In addition to funding on-going operations, our principal commitments
consist of various obligations under operating and capital leases. Total lease
expenses, excluding rent, was $229,881 for the nine-month period ended
September 30, 1998, as compared to $567,855 for the nine-month period ended
September 30, 1997. An operating lease which we initially entered into in 1996
requires current quarterly payments of approximately $43,000 and expired in
November 1998. During the second and third quarters of 1998, we entered into a
series of operating leases for computer equipment and software related to our
Adfinity system, with a combined fair market value of $849,488. These operating
leases, as amended, require monthly payments and expire in November 2000.
During the fourth quarter of 1998, we entered into a lease line of credit for
up to $3.0 million to finance capital equipment. As of December 1998, total
obligations under this lease line of credit were approximately $600,000. Total
rent expense for currently outstanding leases is expected to be approximately
$130,000 per quarter.

Furthermore, we expect to incur approximately $1 million in leasehold
improvements prior to moving into additional leased office space at our
headquarters in New York City, through 2008. In the aggregate, our annual

19
<PAGE>

lease expense for this office space will be approximately $1.2 million. We
believe that the expenses associated with such additional office space will not
have a material effect on our financial position.

Net cash used in operating activities was $9,364,523 for the nine months
ended September 30, 1998 as compared to $3,724,711 for the nine months ended
September 30, 1997. Net cash used in operating activities resulted from our net
operating losses, adjusted for certain non-cash items, including:

o the write-off of acquired in-process technology in the second quarter of
1998;

o the amortization of goodwill in the first nine months of 1998 related to
the acquisitions we completed in 1998;

o the write-off of property and equipment in 1997; and

o a significant advance by SegaSoft in late 1996 for revenues that were
primarily recognized during 1997.

Net cash used in operating activities also resulted from a high level of
accounts receivable and related accrued liabilities due to the time lag between
revenue recognition and receipt of payments from advertisers. We have recently
taken steps to improve the timeliness of our billing procedures such as working
with our ad serving providers to ensure the timely receipt of reports and
improving our internal billing and collection procedures and systems. We
anticipate that we will be able to further improve the timeliness of our
billing and collections processes as we complete the transition to a single ad
serving solution, which will enable us to produce required reports internally.

Net cash used in investing activities was $2,437,519 for the nine months
ended September 30, 1998 as compared to $11,616 for the nine months ended
September 30, 1997. Net cash used in investing activities resulted primarily
from capital expenditures relating to computer equipment as well as the cash
portion of the purchase of CliqNow! To the extent that we purchase significant
ad serving hardware in the future, net cash used in investing activities could
increase.

Net cash provided by financing activities was $54,493,072 for the nine
months ended September 30, 1998 as compared to $2,125,011 for the nine months
ended September 30, 1997. Net cash provided by financing activities for the
nine month periods ended September 30, 1998 and 1997 included issuances of
convertible notes, convertible preferred stock, common stock and warrants.
Prior to September 30, 1998, all of the previously issued convertible notes,
convertible preferred stock and warrants were converted or exercised into
common stock, except for warrants to purchase approximately 3.8 million shares
of common stock with exercise prices ranging from $3.81 to $11.42 per share.

No provision for federal or state income taxes has been recorded because
we incurred net operating losses for all periods presented. At December 31,
1997, we had approximately $13,394,000 of federal net operating loss
carryforwards available to offset future taxable income; such carryforwards
expire in various years through 2012.

As a result of various equity transactions during 1996, 1997 and 1998,
management believes that we have undergone an "ownership change" as defined by
section 382 of the Internal Revenue Code. Accordingly, the utilization of a
portion of the net operating loss carryforward may be limited. Due to this
limitation, and the uncertainty regarding the ultimate utilization of the net
operating loss carryforward, we have not recorded any tax benefit for losses
and a valuation allowance has been recorded for the entire amount of the net
deferred tax asset.

In addition, certain events, including this offering, our initial public
offering and other sales of our stock, may partially restrict our ability to
utilize our net operating loss carryforwards.

Subsequent to September 30, 1998, we completed three transactions that
involved the use of net cash for investing activities. On December 30, 1998, we
completed the acquisition, for $1.0 million in cash, of an initial 80% (on an
as converted basis) interest in CardSecure, Inc., which manufactures the
transactional banner software that we employ in our e-commerce applications.
CardSecure also operates a Web site hosting service. On December 31, 1998, we
invested $3.0 million in cash and issued 203,851 shares of common stock to
China.com Corporation in exchange for a 10% equity interest in China.com.
Finally, on January 20, 1999, we invested a total of $3.9 million to purchase a
60% interest in InterAd Holdings Limited, which will operate the 24/7 Media
Europe Network. We expect to invest an additional aggregate of $5 million of
working capital in CardSecure and InterAd in 1999 to support their future
operations.

We believe that our current cash and cash equivalent balances will be
sufficient to fund our requirements for working capital and capital
expenditures for at least the next 12 months. To the extent that we encounter

20
<PAGE>

unanticipated opportunities, we may need to raise additional funds sooner, in
which case we may sell additional equity or debt securities or borrow funds
from banks or other financial sources. Sales of additional equity or
convertible debt securities may result in additional dilution of our
stockholders. We cannot be certain that we will be able to sell additional
equity or debt securities in the future or that additional financing will be
available to us when needed on commercially reasonable terms, or at all.

Year 2000 Compliance

Beginning in the Year 2000, the date fields coded in certain software
products and computer systems will need to accept four digit entries in order
to distinguish 21st century dates from 20th century dates and, as a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.

Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. Significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance issues.

State of Readiness

We have developed a remediation plan for our Year 2000 issue that involves
identification, assessment and testing of the equipment and systems affected:

o We have assessed our information technology (IT) equipment and systems,
which includes our ad servers and ad serving technology.

o We have identified and assessed non-information technology (non-IT)
embedded systems such as building security, voice mail, fire prevention,
climate control and other systems.

o We are analyzing the readiness of significant third party vendors and
suppliers of services.

Our evaluation, which we expect to complete by the second quarter of 1999,
covers the following phases:

o identification of all IT equipment and systems, and non-IT systems;

o assessment of repair or replacement requirements;

o repair or replacement;

o testing;

o implementation; and

o creation of contingency plans in the event of Year 2000 failures.

We have reviewed our non-IT systems and internally developed programs, and
we do not consider them to be date sensitive to the Year 2000. Based on this
evaluation, we do not believe that our systems and programs present Year 2000
issues, and we generally believe that we will be Year 2000 compliant.

Although we believe that we will be Year 2000 compliant, we use third
party equipment and software that may not be Year 2000 compliant. We are
currently in the process of evaluating the Year 2000 compliance of the third
party products used in our internal systems and our major vendors, but are
unable to predict the extent to which:

o the Year 2000 issue will affect our suppliers; or

o we would be vulnerable to the suppliers' failure to remediate any Year
2000 issues on a timely basis.

The failure of such a major supplier to convert its systems on a timely basis
or in a manner compatible with our systems causing us to incur unanticipated
expenses to remedy any problems, could adversely affect our business.

In addition, the software and hardware products used by Web publishers,
advertisers, governmental agencies, and public utilities and telecommunication
companies and others, may not be Year 2000 compliant. If these products are not
Year 2000 compliant, our customers' ability to use our products may be
disrupted. Furthermore, the purchasing patterns of advertisers may be affected
by Year 2000 issues as companies expend significant resources to become Year
2000 compliant. These expenditures may result in reduced funds available for
Web advertising or sponsorship of Web services, which could adversely affect
our business.

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<PAGE>

Costs to Address Our Year 2000 Issue

To date, we have not incurred any material expenditures in connection with
identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to the opportunity cost of time spent by our employees evaluating
our software, the current versions of our products, and Year 2000 compliance
matters generally.

We do not believe that the costs to evaluate or address Year 2000 issues
will be material. However, the impact of the Year 2000 issues cannot be
determined at this time. The failure by certain third parties to address their
Year 2000 issues on a timely basis could adversely affect our business.

Contingency Plan

We have not developed a Year 2000-specific contingency plan. If Year 2000
compliance issues are discovered, we then will evaluate the need for
contingency plans relating to such issues. We intend to actively work with and
encourage our suppliers to minimize the risks of business disruptions resulting
from Year 2000 issues and develop contingency plans where necessary. Such plans
may include, but are not limited to, using alternative suppliers and
establishing contingent supply arrangements. We expect to have such plans in
place by the second quarter of 1999.

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<PAGE>

BUSINESS

Overview

We are an Internet advertising and direct marketing firm that enables both
advertisers and Web publishers to capitalize on the many opportunities
presented by Internet advertising, direct marketing and electronic commerce. We
generate revenue by selling advertisements and promotions for our Affiliated
Web sites. In particular, we:

o operate the 24/7 Network, a network of over 125 high profile Affiliated
Web sites to which we delivered an aggregate of more than 900 million
advertisements in December 1998;

o operate the ContentZone, a network of over 2,500 small to medium-sized
Affiliated Web sites to which we delivered an aggregate of more than 50
million advertisements in December 1998;

o are developing the 24/7 Media Asia Network through an agreement with
China.com Corporation.

We operate in the rapidly growing Internet advertising industry.
International Data Corp. ("IDC") estimates that at the end of 1998 there were
over 51 million Web users in the United States and over 97 million Web users
worldwide and that by the end of 2002 the number of Web users will increase to
over 135 million in the United States and to over 319 million worldwide. There
can be no assurance that such rapid industry growth rates will be achieved or
that we will experience similar rates of growth. Forrester Research estimates
that the dollar value of Internet advertising will increase from $1.5 billion
in 1998 to $15.3 billion in 2003.

We believe that advertisers seek to place Internet ads in ways to maximize
unduplicated reach. In December 1998 we delivered an aggregate of approximately
one billion impressions and, according to Media Metrix, our networks reached
50% of all Internet users. We believe that this reach figure is among the
highest in the Internet advertising industry. We plan to aggressively recruit
Web sites for our networks to:

o further extend our reach;

o provide advertisers with a broad and diverse base of online content and
page views; and

o improve our brand awareness and visibility with media buyers.

In addition, as online advertisers and direct marketers increase their use
of the Internet, they seek solutions and technologies that allow them to
efficiently deliver highly targeted messages. Our customized solutions allow
advertisers and direct marketers to tailor their ad campaigns to reach desired
audiences, while reducing costs, easing time pressures and alleviating the need
to purchase a series of ad campaigns from numerous Web publishers. Advertisers
and direct marketers can achieve their objectives by buying ad space on a
specific Web site, within a particular content channel or across an entire
network. We are currently working on several initiatives to increase our
targeting capabilities, including the further development of our Adfinity ad
serving technology and our Profilz database.

As Internet traffic grows, Web publishers increasingly seek to maximize
the value of their online inventory. Our extensive sales and marketing
experience provides Web publishers access to media buyers at large ad agencies
and enables them to sell advertisement space without incurring the costs and
challenges associated with building and maintaining an ad sales force.

Our senior management team includes several individuals with over fifteen
years of experience in advertising sales in the television and proprietary
online network industries. Other members of senior management contribute
extensive knowledge of ad serving technology and database targeting. We
leverage our media sales and technology expertise to maximize the value of ad
campaigns for both advertisers and Affiliated Web sites.

Industry Background

Growth of the Internet and the Web
The Internet and the Web are experiencing dramatic growth in terms of both
the number of Web users and the number of Web sites. IDC estimates that at the
end of 1998 there were over 51 million Web users in the United States and over
97 million Web users worldwide, and that by the end of 2002 the number of Web
users will increase

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<PAGE>

to over 135 million in the United States and to over 319 million worldwide. In
addition, Web users are spending an increasing amount of time on the Web; a
1997 U.S. Department of Commerce study estimated that overall traffic on the
Internet is doubling every 100 days. According to Network Solutions, the number
of paid active Internet domains (.com, .net, .edu and .org) had grown to over 3
million by January 1999. The growth in the number of Web users, the amount of
time users spend on the Web and the number of Web sites is being driven by the
increasing importance of the Internet as a sales and distribution channel, a
communications medium and an information resource.

Growth of Online Commerce

The Internet is dramatically affecting the methods by which consumers and
businesses are buying and selling goods and services. The Web provides online
merchants with the ability to reach a global audience and to operate with
minimal infrastructure, reduced overhead and greater economies of scale, while
providing consumers with a broad selection, increased pricing power and
unparalleled convenience. As a result, a growing number of consumers are
transacting business on the Web, including trading securities, buying consumer
goods, paying bills and purchasing airline tickets. IDC estimates that
approximately 28% of Web users purchased goods or services over the Web in 1998
and that approximately 40% of Web users will make online purchases in 2002.
Jupiter Communications also estimates that retail consumer purchases of goods
and services over the Internet will increase from $5.0 billion in 1998 to $29.4
billion in 2002. We believe that as electronic commerce expands, advertisers
and direct marketers will increasingly use the Web to advertise products, drive
traffic to their Web sites, attract customers and facilitate transactions.

Growth of Internet Advertising

The Web is evolving into an important medium for advertisers due to its
interactive nature, global reach, rapidly growing audience and the expected
increase in online commerce. Unlike more traditional advertising methods, the
Web gives advertisers the potential to target advertisements to broad audiences
or to selected groups of users with specific interests and characteristics. The
Web also allows advertisers and direct marketers to measure the effectiveness
and response rates of advertisements and to track the demographic
characteristics of Web users. The interactive nature of Web advertising enables
advertisers to better understand potential customers, and to change messages
rapidly and cost effectively in response to customer behavior and product
availability. Additionally, the Web allows advertisers and direct marketers to
reach users with attractive demographic profiles. In June 1998, IDC estimated
that 38% of Web users have a college degree, 40% have a household income
greater than $60,000, and the average Web user is approximately 33 years old.

The unique capabilities of online advertising, the growth in traffic on
the Web and the favorable characteristics of Web users have led to a
significant increase in online advertising. Forrester Research estimates that
the dollar value of Internet advertising in the U.S. will increase from $1.3
billion in 1998 to $10.4 billion in 2003, representing a 52% compounded annual
growth rate. International online ad spending is expected to grow from $0.2
billion in 1998 to $4.9 billion in 2003, representing an 87% compounded growth
rate. By comparison, Broadcasting & Cable estimates that $130 billion was spent
on traditional media advertising in the U.S. (television, radio, outdoor and
print) in 1998. Until recently, the leading Internet advertisers have been
technology companies, search engines and Web publishers. However, many of the
largest advertisers utilizing traditional media, including consumer products
companies and automobile manufacturers, are expanding their use of online
advertising. We believe that online advertising will continue to capture an
increasing share of available advertising dollars and that this trend will
drive demand for online ad inventory and for sophisticated Internet advertising
solutions.

Opportunities for Direct Marketing

The Web also represents an attractive medium for direct marketing, which
has traditionally been conducted through direct mail, telemarketing and
televison infomercials. The interactive nature of the Web enables direct
marketers to deliver targeted promotions to consumers at the point-of-sale. The
success of a direct marketing campaign is measured by the response rate of
consumers (e.g., number of leads, number of sales or transactions as a
percentage of promotions viewed). The Internet has the potential to enable
direct marketers to increase consumer response rates and decrease
costs-per-transaction by targeting and delivering direct marketing campaigns to
particular consumers based on their demographic profile, self-selected
interests and online behavioral characteristics. By providing a more
cost-effective method to reach target customers, online advertising is expected
to improve the direct marketer's return on investment. The Direct Marketing
Association estimates that in 1998

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$163 billion was spent on direct marketing initiatives in the United States,
and Jupiter Communications estimates that expenditures on direct marketing over
the Internet will exceed $1.3 billion in 2002.

Challenges Facing Advertisers, Direct Marketers and Web Publishers

While the Web offers numerous opportunities, most online advertisers,
direct marketers and Web publishers face a number of significant challenges to
realizing the potential of Internet advertising. As online advertisers, direct
marketers and Web publishers increase their use of the Internet, they seek
solutions and technologies which will allow them to deliver highly targeted
messages, receive real-time feedback, benefit from business efficiencies and
capitalize on other potential advantages of online advertising and direct
marketing.

Advertisers and Direct Marketers. For advertisers and direct marketers,
large advertising campaigns can be time-consuming, expensive and difficult to
manage and can require the use of media purchasers at advertising agencies to
place advertisements. Given the breadth of content available on the Web, it is
difficult for advertisers and direct marketers to justify the costs of
transacting individually with a number of smaller, but desirable, sites in
order to reach a large online audience. In addition, many advertisers and
direct marketers lack the analytical tools to evaluate and optimize the
effectiveness of advertising campaigns, target appropriate users, efficiently
place advertisements and deliver content. Advertisers and direct marketers also
find that individual Web sites typically lack the technology to serve a variety
of advertisements to a broad reach of Internet users.

Web Publishers. Web publishers who seek to sell ad space on their Web
sites face an array of challenges. Most Web publishers have difficulty
attracting and maintaining experienced personnel to sell ad space on their Web
sites and justifying the costs of establishing such a sales force. In addition,
most Web publishers cannot afford, or lack the ability, to operate and maintain
sophisticated ad servers and databases to provide effective ad serving,
targeting and reporting to advertisers. Furthermore, for sales personnel at all
but the largest Web sites, it can be difficult to gain access to media buyers
at large advertising agencies. As a result, online advertising spending is
highly concentrated on large Web sites. In March 1998, Forrester Research
estimated that Internet portals accounted for 15% of total Web page views and
59% of all dollars spent on Internet advertising. The Company believes all but
the largest Web sites will continue to face challenges in capturing a share of
the total advertising dollars spent on the Internet.

Our Solution

We operate the 24/7 Network and the ContentZone, which are networks of Web
sites that enable both advertisers and Web publishers to capitalize on the many
opportunities presented by Internet advertising, direct marketing and
electronic commerce. The 24/7 Network is comprised of over 125 high profile Web
sites and the ContentZone is comprised of over 2,500 small to medium-sized Web
sites. We offer comprehensive advertising sales solutions for both emerging and
mature Web publishers and provide advertisers and direct marketers with
targeted ad delivery across our networks. In December 1998, we delivered an
aggregate of approximately one billion impressions and, according to Media
Metrix, our networks reached 50% of all Internet users. We believe that this
reach figure is among the highest in the Internet advertising industry.

Benefits to Advertisers and Direct Marketers

We reduce costs and ease time pressures for advertisers and direct
marketers by alleviating the need to purchase a series of ad campaigns from
numerous Web publishers. Our networks provide advertisers and direct marketers
with access to a wide variety of online content and a broad reach of Internet
users. Advertisers and direct marketers can enhance the effectiveness of
advertising and direct marketing campaigns by customizing their ad delivery on
our networks and buying ad space either on selected Affiliated Web sites,
within a particular content channel or across an entire network. We believe
that our Adfinity ad serving technology and our Profilz database will enable
advertisers to optimize ad performance by reaching highly targeted audiences
based on demographic profiles and user behavior. In addition, we provide
advertisers and direct marketers with comprehensive reporting services to
monitor the effectiveness of ad delivery.

Benefits to Web Publishers

Membership in our networks enables Web publishers to immediately generate
advertising revenues by gaining access to advertisers and direct marketers
without the costs and challenges associated with building and maintaining their
own ad sales force and ad serving technology. Web sites included on our
networks benefit from our experienced

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<PAGE>

management team, our extensive sales and marketing organization and our direct
access to advertisers and agencies. The organization of our networks into
channels of Web publishers' content enhances the value of inventory on small to
medium-sized Web sites and enables such Web sites to generate revenues by
selling ad space within a channel that is attractive to advertisers.
Furthermore, we believe that the targeting capabilities of our Adfinity ad
serving technology and our Profilz database will increase the value of Web
publishers' inventory. We also provide sophisticated tracking and reporting
functions for our Affiliated Web sites.

Strategy

Our objective is to provide superior turnkey advertising solutions for Web
publishers to maximize the effectiveness of advertisers' Internet advertising
campaigns. We intend to reach our objective by implementing the following
interconnected strategies:

Expand our Networks of Web Sites. We plan to aggressively recruit Web
sites for our networks, both domestically and internationally, to extend our
reach and to provide a broad base of page views and online content to
advertisers. We believe that our approach to expansion is unique in that we
recruit Web sites of all sizes, including high-profile or larger to
medium-sized Web sites on the 24/7 Network, as well as medium to smaller-sized
Web sites on the ContentZone. Such a collection of Web sites of diverse sizes
and content allows advertisers to target Internet users by interest and
enhances the value of each Affiliated Web site's inventory. An increased number
of Affiliated Web sites and an expanded breadth of available content will
further enable advertisers to consolidate their ad purchases and will improve
our brand awareness and visibility with media buyers.

Maximize Sales and Marketing Effectiveness. We believe that our sales and
marketing organization is among the largest in the Internet advertising
industry, providing us with a competitive advantage. We intend to leverage the
substantial media sales experience of our management team in order to maximize
the value of ad campaigns to benefit both advertisers and its Affiliated Web
sites. We believe that advertiser awareness of us is critical to our success.
Accordingly, we continually expand our services for advertisers and advertising
agencies in order to establish and expand the recognition of our corporate
identity. We also promote our service offerings through our Web site, trade
publication advertisements, direct mail and promotional activities, trade shows
and other media events.

Increase Value of Ad Inventory. We seek to increase click-thru rates as
our Adfinity ad serving technology and Profilz database deliver advertisements
to a more highly targeted audience, resulting in more effective advertising
campaigns and enabling us to charge higher CPM rates. Furthermore, we believe
that as we increase the breadth and depth of our content channels, the sale of
ads targeted to specific channels will increase, displacing lower CPM run of
network campaigns, in which ads are delivered across the Web sites in a
network, and cost-per-action campaigns that generate revenues only if the user
responds to the ad with an action, such as an inquiry or a purchase of the
product advertised. We intend to further increase the value of our Affiliated
Web sites' ad inventory by seeking to sell 100% of inventory through the sale
of a combination of advertisements sold on a CPM basis and a cost-per-action
basis, by selling sponsorships on Affiliated Web sites and by further refining
our management of ad space inventory.

Enhance Capabilities of Ad Targeting Technology. We intend to enhance our
targeting capabilities and technology through continued investment in our
Adfinity ad serving technology and Profilz database. We believe that Adfinity
and Profilz will create significant value for advertisers, direct marketers and
our Affiliated Web sites. Adfinity and Profilz are designed to create a profile
of an individual Internet user by integrating such user's online behavior with
third party demographic and lifestyle data. We believe that these profiles will
enable us to deliver targeted advertisements to the right person at the right
time.

Provide Highest Level of Customer Service. We emphasize service for our
Affiliated Web sites and advertisers. For example, we employ techniques of
benchmarking, statistical analysis and continuous process improvement to
provide its Affiliated Web sites and advertisers with "best of class" service.
We continually survey our Affiliated Web sites and advertisers to monitor
service levels and identify and resolve problems. In addition, we expect that
Adfinity will offer enhanced reporting capabilities that allow Web publishers
and advertisers to better assess the efficiency and performance of ad
campaigns.

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Our Products and Services

Internet Advertising Networks

The 24/7 Network. Through the 24/7 Network, we provide advertisement sales
and delivery services and related functions to over 125 Affiliated Web sites.
The 24/7 Network aggregates large and medium-sized Web sites that are
attractive to advertisers, generate a high number of ad impressions and
contribute a variety of online content to the network. Web publishers seeking
to join the 24/7 Network must meet specified standards, such as quality content
and brand name recognition, specified levels of existing and projected page
views, attractive user demographics, and sponsorship opportunities. The 24/7
Network includes, among others, the following Web sites:

<TABLE>
<S> <C>
o AT&T WorldNet Service o HeadHunter.NET
o All Apartments o Knight Ridder/Real Cities
o The Associated Press--The Wire o MapQuest
o Baltimore Orioles o Match.com
o Blizzard o New York Magazine
o BottomDollar.com o New York Mets
o cars.com o Partes' FreeEdgar
o ChannelOne.com o Reader's Digest
o College Hoops Insider o Reuters' MoneyNet
o Comedy Central o Reuters' News Network
o Currency Site o Soap Opera Digest
o Delphi o Talk City
o Doonesbury o Thomson Financial Services
o EarthLink o Wall Street Sports
o Encompass o YachtWorld
</TABLE>

For all Affiliated Web sites on the 24/7 Network, we sell Web
site-specific advertising campaigns as well as bundle advertisements for sale
in one of the channels listed above or across the entire network. For our
flagship Affiliated Web sites on the 24/7 Network, we appoint a relationship
manager, actively solicit sponsorships and integrate sales efforts with the Web
site's management.

ContentZone. The ContentZone is a network of over 2,500 small to
medium-sized Web sites to which we provide advertisement sales and delivery
services and related functions. Such Web sites encompass a broad and diverse
range of content that reflects the eclectic, grass-roots nature of the Web. The
ContentZone provides one of a few advertising opportunities for such small and
emerging Web sites. Advertisement delivery is highly automated and ads are
delivered across Web sites included in specific channels on the ContentZone or
across the entire ContentZone. Any Web publisher possessing non-objectionable
content on its Web site can qualify for admission to the ContentZone, and we
"graduate" ContentZone members to the 24/7 Network if they generate a
sufficient number of ad impressions and satisfy the requisite standards.

The 24/7 Media Europe Network. Through our majority owned subsidiary
acquired in January 1999, we operate the 24/7 Media Europe Network. The 24/7
Media Europe Network provides advertisement sales and delivery services and
related functions to over 60 Affiliated Web sites that during December 1998
aggregated more than 200 million page views. This network currently covers
Belgium, Central Europe, Denmark, France, Germany, Holland, Italy, Norway,
Portugal, Spain, Sweden, and UK.

The 24/7 Media Asia Network. Through an agreement with China.com
Corporation, we are developing the 24/7 Media Asia Network. This network covers
Australia, China, Hong Kong, Japan, Korea, Singapore, Southeast Asia and
Taiwan. The 24/7 Media Asia Network, launched in November 1998, includes high
profile Asian Web sites such as China.com, Hongkong.com, Taiwan.com, and
Netscape's Netsearch, Netguide and Goyoyo Web sites.

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<PAGE>

Channels on the Networks

The 24/7 Network's and the ContentZone's Affiliated Web sites are
currently organized into the following 21 topical channels:

<TABLE>
<S> <C>
o Automotive o Local
o Business/Financial o Music
o Careers o News/Information
o Community o Real Estate
o E-commerce o Search/Directory
o Entertainment o Sports
o Games o Technology
o Health o Teen/College
o International o Travel
o ISP/Portal o Women/Family
o Kids
</TABLE>

We are presently enhancing existing channels and developing several new
channels for our networks prompted by user and advertiser interests.

To enhance our Sports channel, we entered into an agreement with American
Cities Studios, a new media design and sports marketing firm, to co-market our
services to professional sports franchises and leagues and NCAA teams. As a
result of the agreement, leading sports sites designed by American Cities
Studios, including the official team Web sites of the New York Mets, Baltimore
Orioles, Detroit Tigers, Chicago White Sox and San Francisco Giants, as well as
other high profile sports sites, including College Hoops Insider, Corel WTA
tour and NYSports.net, joined the Sports channel of the 24/7 Network.

Advertisers on the Networks

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 ad agencies typically buy advertising using written purchase
order agreements that run for a limited time. Based on our breadth of online
content and our extensive reach, we have the ability to package personalized
advertising solutions for advertisers and ad agencies. Our sales force works
closely with advertisers to customize ad delivery to enhance the effectiveness
of advertising campaigns. Set forth below is a representative list of
advertising agencies and advertisers that delivered advertisements on our
networks in 1998. Certain of these advertising agencies and advertisers
represented less than one percent of 24/7 Media's total revenues in 1998.

Advertising Agencies

<TABLE>
<S> <C>
o Agency.com o J. Walter Thompson
o Anderson & Lembke o Kirshenbaum Bond & Partners
o BBDO Interactive o Left Field
o Black Dog Design o McCann-Erickson
o Catalina Marketing o Media.com
o CKS o Mercury Seven
o Dahlin Smith White o Modem Media
o DMB&B o Ogilvy & Mather
o Eagle River Interactive o planet U
o Freeman o Rives Carlberg
o Giant Step o THINK New Ideas
o Grey Interactive o Thunderhouse
o Hal Riney o US Interactive
o iballs o Wolverine
o i-frontier o Y&R Wunderman
o i-traffic
</TABLE>

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<PAGE>

Advertisers

<TABLE>
<S> <C>
o Amazon.com o Internet Shopping Network
o Ameritech o MatchLogic
o AT&T o Microsoft
o Bell Atlantic o Mining Company
o CDnow o Netscape
o Cendant o NextCard
o Charles Schwab o PointCast
o Citibank o PolyGram Music
o Compaq o Procter & Gamble
o Dell o Sony
o Disney o Sprint
o eBay o Standard & Poor's
o Encyclopedia Britannica o Tower Records
o Ford o U.S. Marine Corps
o General Motors o US West
o Hewlett Packard o Visa
o IBM o Web Genesis
o Intel o Wells Fargo
</TABLE>

Technology

Adfinity

Adfinity ad serving technology is designed to allow Web sites to target,
deliver, and track a high volume of advertisements to Internet viewers without
degrading the performance of the Web site or causing a delay in ad delivery. We
expect Adfinity to serve as our technology platform, delivering all of the
advertisements to our networks, and intend to migrate all of our Affiliated Web
sites to the Adfinity system during 1999. To complete the transition to
Adfinity, we must, among other things, ensure scalability of the Adfinity
system, assimilate our current sales and reporting functions into the Adfinity
model and work with certain existing Affiliated Web sites to re-tag such Web
sites.

Adfinity's targeting engine is designed to enable advertisers and direct
marketers to target advertisements and Internet content to individuals or
audience segments using flexible, advertiser-defined demographic profiles.
Advertisers can control the advertisement delivered, the user groups targeted,
and the frequency of ad delivery. Adfinity is able to integrate information,
such as a user's online response rate to advertisements, name, address, age, or
e-mail address, with third-party databases to generate a comprehensive
demographic profile of the Internet user.

Profilz

We are in the process of building Profilz, an online database of Web user
profiles, which is expected to be employed with Adfinity to deliver ads based
on demographic profiles. We will compile data for Profilz through agreements
with Affiliated Web sites that have a database of registered users as well as
through our strategic relationship with Intelliquest Information Group, Inc.
IntelliQuest registers one million consumers in an average month, and processed
electronic registrations for over 1.8 million new technology products during
December 1998. With these partners we will set cookies and retrieve basic user
information, including name, address, city, state, zip code and e-mail address.
To complete the demographic and lifestyle profile of these records, we will
match them with the IntelliQuest High-tech Household file which contains more
than 200 demographic and lifestyle data characteristics on over 100 million
U.S. households. Since advertisers seek to reach consumers who fit their
demographically-profiled target, our Profilz database will provide online
advertisers the ability to execute highly targeted, database marketing
campaigns based on consumers' lifestyles and interests, and track the
effectiveness of the campaigns markets.

E-Commerce Initiatives

We recently acquired rights to a technology that enables transactional
banners, through which an Internet user is able to view a banner, click on the
banner, and purchase products directly in the banner without being transported
to another Web site. We believe this service is attractive to Affiliated Web
sites because it is designed to allow them to run

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<PAGE>

transaction-based advertising at potentially high rates and receive a
percentage of the e-commerce sale without losing user traffic to the e-commerce
merchant. The technology also enables us and the product manufacturer to track
the success of a campaign in real-time. We are currently testing this service
under the consumer brand "Click2Buy by 24/7".

Privacy Protection

In using our targeting technology and software, we adhere to the
principles of the Direct Marketing Association regarding privacy concerns. To
address privacy concerns, users are permitted, at their request, to "opt-out"
of demographic profile targeting. When a subscriber objects to profile
targeting, Adfinity automatically delivers ads based only on non-user specific
information, such as Web page subject matter.

Sales and Marketing

We believe we maintain one of the largest Internet advertising sales
organizations. We sell services in the United States through a sales and
marketing organization which included 72 salespeople as of December 31, 1998.
These employees are located at our headquarters in New York and our offices in
Boston, Chicago, Dallas, Detroit, Los Angeles, San Francisco, Seattle and the
Washington, D.C. area.

Advertisers typically purchase advertising under written purchase order
agreements that run for a limited time. We believe that the terms of our
purchase order agreements are consistent with industry practice. These
agreements provide for our indemnification by the advertiser for breach of
representations and warranties included therein and limit the right of the
advertiser to cancel or modify a campaign once commenced. In addition to
purchase order sales, we have recently started to sell sponsorship advertising
whereby an advertiser enters into a long-term agreement with a single Web site,
typically with some exclusivity and renewal privileges and restrictions on the
advertisers' ability to cancel the agreement. Such sponsorship advertising
involves a greater degree of integration among our company, the advertiser and
the Affiliated Web sites.

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
experience of our management team to maximize the value of ad campaigns for
both advertisers and Affiliated Web sites. We also employ a Web site
relationship department that surveys Affiliated 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.

International

Our international strategy consists of acquiring or entering into
strategic alliances with existing Internet advertising networks in foreign
countries. We recently acquired a 60% interest in InterAd Holdings Limited,
which has been renamed 24/7 Media Europe Ltd. and operates the 24/7 Media
Europe Network. In October 1998 we entered into an agreement with China.com
Corporation to develop the 24/7 Media Asia Network. We collaborate with
China.com on expanding and training its China and Hong Kong-based sales force
as well as recruiting Web sites for the network. We receive royalties from all
sales through the 24/7 Media Asia Network for a period of between seven and ten
years and we acquired a 10% equity stake in China.com in exchange for $3.0
million in cash and approximately 204,000 shares of common stock. We also have
mutual sales agreements with both the 24/7 Media Europe Network and the 24/7
Media Asia Network. Additionally, ClickThrough Interactive of Canada has the
exclusive third party right to sell page views on the 24/7 Network when such
pages are accessed by Canadian Internet users, and we have the exclusive third
party right to sell page views on the ClickThrough network when accessed by
U.S. Internet users.

Intellectual Property

We regard our intellectual property as critical to our success, and rely
upon patent, trademark, copyright and trade secret laws in the United States
and other jurisdictions to protect our proprietary rights and intellectual
property. Although we do not currently have any patents, we have filed
applications with the United States Patent and Trademark Office to protect
certain aspects of our Adfinity technology. We have pursued the protection of
our trademarks by applying to register our trademarks both domestically and
internationally. These trademark

30
<PAGE>

registrations and patent applications may not be approved or granted and may be
challenged by others or invalidated through administrative process or
litigation. Patent, trademark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available. In addition, we protect our proprietary rights through the use of
confidentiality agreements with employees, consultants and affiliates.

Profilz collects demographic profiles of Internet users and Adfinity
collects and uses data derived from user activity on our networks and
Affiliated Web sites. This data is used for advertisement targeting and for
predicting advertisement performance. Although we believe that we have the
right to use such data, trade secret, copyright or other protection may not be
available for such information or others may claim rights to such information.
Further, under our contracts with Web publishers using our services, we are
obligated to keep certain information regarding the Web publisher confidential.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and currently evolving. The future viability or value of any of our
proprietary rights is unknown. Steps taken by us to protect our proprietary
rights may not be adequate and third parties may infringe or misappropriate our
proprietary rights.

Competition

The markets for Internet advertising and related products and services are
intensely competitive and we expect competition to increase. We believe that
our ability to compete depends upon many factors within and beyond our control,
including:

o the timing and market acceptance of new services and enhancements to
existing services developed by us and our competitors;

o our customer service and support;

o our sales and marketing efforts; and

o the ease of use, performance, price and reliability of our products and
services.

Employees

As of December 31, 1998, we employed 166 persons, including 110 in sales,
marketing and customer support, 28 in technology and product development, and
28 in accounting, human resources and administration. We are not subject to any
collective bargaining agreements and believe that we enjoy a good relationship
with our employees.

Facilities and Systems

Our principal executive offices are located at 1250 Broadway, New York,
New York. They consist of approximately 39,000 square feet under a lease that
expires in 2008 and provides for total annual rent of approximately $1,200,000
(subject to increase annually to reflect increases in operating expenses).
26,000 square feet of this space is currently under construction to provide for
the expansion of personnel and facilities and is expected to be occupied in the
second quarter of 1999. We also temporarily lease office space at One Penn
Plaza, New York, New York.

In addition, we lease office space for our sales, marketing and product
development staff in Boston, Chicago, Dallas, Detroit, Los Angeles, San
Francisco, Seattle and the Washington, D.C. area. We believe that our existing
facilities, will be sufficient for our purposes over the next 12 months.

31
<PAGE>

Our Adfinity ad serving software and hardware are housed at GlobalCenter,
Inc. in Herndon, Virginia. Our agreement with GlobalCenter provides for
Internet connectivity services, the lease of certain hardware, the licensing of
certain software, and the lease of secure space to store and operate such
equipment. Service orders currently in place under this agreement, which expire
in May 1999, require monthly payments of $27,000. GlobalCenter may not increase
prices or terminate services during the pendency of any service order. Our
agreement with GlobalCenter includes a "99% Uptime Guarantee" with respect to
the services provided. Downtime results in certain returns of payment and gives
rise to a right of termination by us. In the future, we may opt to utilize
other facilities similar to GlobalCenter, including facilities owned by us, in
other regions of the United States and the world.

Legal Proceedings

We are not a party to any material legal proceedings.

32
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information concerning our
executive officers and directors:

<TABLE>
<CAPTION>
Name Age Position and Offices
- ------------------------- --- -------------------------------------------------------
<S> <C> <C>
David J. Moore 46 President and Chief Executive Officer and a Director
R. Theodore Ammon 48 Chairman of the Board
Jacob I. Friesel 49 Executive Vice President -- Sales and Marketing and a
Director
C. Andrew Johns 39 Executive Vice President, Treasurer and Chief Financial
Officer
John F. Barry III 46 Director
Jack L. Rivkin 57 Director
Arnie Semsky 52 Director
Charles W. Stryker, Ph.D. 51 Director
</TABLE>

David J. Moore has been our President and Chief Executive Officer and a
Director since February 1998. Mr. Moore was Chief Executive Officer of Petry
from December 1995 to February 1998. From 1993 to 1994, Mr. Moore was President
of Geomedica, an online service for physicians, which he sold to Reuters. From
1982 to 1992, Mr. Moore was a Group Vice President at Hearst/ABC-Viacom
Entertainment Services, where he participated in the launch of Cable Health
Network, Lifetime Television, Lifetime Medical Television, a service targeted
to physicians, and HealthLink Television, a physician waiting room television
service. From 1979 to 1982, Mr. Moore had a television advertising sales
position with Turner Broadcasting. Mr. Moore received a B.A. degree in
Communications from Northern Illinois University.

R. Theodore Ammon, Chairman of our Board, has been Chairman of the Board
of Big Flower Holdings, Inc. and its predecessor company, Big Flower Press
Holdings, Inc. since 1993. From 1990 to 1992, Mr. Ammon was a General Partner
of Kohlberg Kravis Roberts & Co., a New York and San Francisco-based investment
firm, and an executive of such firm prior to 1990. Mr. Ammon also serves on the
board of directors of each of Host Marriott Corporation, Culligan Water
Technologies, Inc. and Samsonite Corporation. Mr. Ammon received a B.A. degree
in Economics from Bucknell University.

Jacob I. Friesel has been our Executive Vice President -- Sales and
Marketing and a Director since February 1998. From 1997 to 1998, Mr. Friesel
was President of Katz Millennium Marketing, the Internet media sales division
of Katz Media Group, Inc. He was Vice President, Strategic Planning for the
Katz Television Group from 1994 to 1997. From 1993 to 1994, he was a Vice
President and General Sales Manager of Katz American Television, a leading
advertising representative of major market television stations. He was Vice
President, General Sales Manager of Katz Continental Television from 1991
through 1993, and was employed in various media advertising sales and
management positions with the Katz Agency from 1976 to 1991. Mr. Friesel
received a B.A. degree in Mass Communications from the City University of New
York.

C. Andrew Johns has been Executive Vice President, Treasurer and Chief
Financial Officer since April 1998. From 1996 to 1998, he was co-founder and
Managing Director of Manufacturers Renaissance Network, Inc., which provides
strategic consulting and investment banking services to small and medium-sized
businesses. From 1990 to 1996, Mr. Johns was President and owner of Strathmore
Hill Associates, Inc., an investment banking and strategic consulting firm. Mr.
Johns received a M.B.A. degree from Stanford University Graduate School of
Business and a B.S. degree in Commerce from The University of Virginia. Mr.
Johns is a Chartered Financial Analyst.

John F. Barry III, a Director, is presently the Managing General Partner
of Prospect Street Ventures, a private equity and venture capital firm, which
he joined in 1990. From 1988 to 1989, he was the head of investment banking at
L.F. Rothschild & Co. From 1983 to 1988, he was a corporate finance specialist
at Merrill Lynch and from 1979 to 1983, he was a securities attorney with Davis
Polk & Wardwell. Mr. Barry serves on the boards of directors of nine
information technology companies, including Skyline Multimedia, Inc. Mr. Barry
is also the chairman of Bondnet Trading Systems, Inc. Mr. Barry received a J.D.
degree from Harvard Law School and a B.A. degree in History from Princeton
University.

33
<PAGE>

Jack L. Rivkin, a Director, has been a Senior Vice President of Travelers
Investment Group Inc. since January 1997, where he is responsible for the
management of venture capital and private equity partnerships for various
Travelers insurance companies. He is also a director and member of the
investment committee of Greenwich Street Capital Partners, L.P., a $460 million
merchant banking fund affiliated with Travelers, and an adjunct professor at
Columbia University Business School. From October 1995 to December 1996, he was
a Senior Vice President of the Investment Group of Travelers Group Inc. From
March 1993 to October 1995, Mr. Rivkin was vice chairman and director of Global
Research at Smith Barney. From 1987 to 1992, Mr. Rivkin was director of the
Equities Division and Director of Research of Lehman Brothers. From 1984 to
1987, Mr. Rivkin was President of PaineWebber Capital, Inc., the merchant
banking arm of PaineWebber Group, and Chairman of Mitchell Hutchins Asset
Management. Mr. Rivkin is also a director of HumaScan Inc., a medical device
company, and PRT Group, Inc., an information technology company. Mr. Rivkin
received a M.B.A. degree from Harvard Business School and a B.A. degree in
Metallurgical Engineering from the Colorado School of Mines.

Arnie Semsky, a Director, recently retired from his position as the
Executive Vice President, Worldwide Media Director of the BBDO Worldwide unit
of Omnicom Group. Mr. Semsky joined BBDO Worldwide in 1979 as Vice President
and Associate Director of Network Programming and he has served as a member of
the board of directors of BBDO Worldwide since 1991.

Charles W. Stryker, Ph.D., a Director, has been President of IntelliQuest
Marketing Information Solutions, Inc. and President of Zona/Research since
1998. Dr. Stryker served as a Director of IntelliQuest Information Group Inc.
from October 1997 to March 1998. From 1991 to 1997, he was President of each of
MkIS User Forum and Information Technology Forum, companies providing marketing
information, consulting and service products to executives and technology
companies. Dr. Stryker received a B.S. degree and a M.S. degree in Electrical
Engineering and a Ph.D. in Computer Science from New York University.

Key Employees

Joseph T. Apprendi has been Senior Vice President -- Strategic Sales since
January 1999. Mr. Apprendi was Senior Vice President -- Sponsorships and
Promotions from June 1998 to December 1998. From March 1998 to June 1998, Mr.
Apprendi was Executive Vice President of the CliqNow! Sales Group of K2 Design,
Inc. From February 1996 to March 1998, Mr. Apprendi was Senior Vice President
of Media and Promotion for K2 Design, Inc., from September 1995 to February
1996, Mr. Apprendi was an Account Executive with Harrington, Righter, and
Parson, Inc. and from June 1992 to September 1995, Mr. Apprendi was an Account
Executive with MMT Sales, Inc., a national broadcast advertising sales rep
firm. Mr. Apprendi received a B.A. degree in Economics from Oberlin College.

Mark A. Burchill has been Senior Vice President of Business Development
and International since February 1998 and was Senior Vice President and
co-founder of Petry from December 1995 to February 1998. In 1994, Mr. Burchill
was Director of International Sales & Development for Petry Media Corp, a
television rep firm. From 1992 to 1994, Mr. Burchill was a market consultant
for the Los Angeles Rams and MTV Networks while also pursuing a graduate
degree. From 1989 to 1992, Mr. Burchill was a Senior Media Planner in the media
department of Young & Rubicam Advertising. Mr. Burchill received a M.B.A.
degree from Anderson School of Management at the University of California at
Los Angeles and a B.A. degree from Hobart College.

Garrett P. Cecchini has been Senior Vice President, e-Commerce since
January 1999. Mr. Cecchini was Senior Vice President of National Sales from
February 1998 through December 1998. From February 1997 to February 1998, he
was Vice President, General Manager of Katz Millennium Marketing. From December
1994 to February 1997, Mr. Cecchini was co-founder of Goodman Cecchini Media
Design, a Web site development concern, and US Cybersites, a commercial
bandwidth reseller. From 1992 to 1994, Mr. Cecchini was Vice President,
Director of Sales for Sony Pictures Entertainment's Columbia TriStar Television
Division, a syndicator of television programming. From January 1991 to December
1992, Mr. Cecchini was Senior Vice President, Director of Sales for Telemundo
Group, Inc., a Spanish language television network. Mr. Cecchini received a
B.S. degree in Accounting and Marketing from Manhattan College.

Ronald A. Johnson has been Senior Vice President and Chief Information
Officer since December 1998. Prior to joining our company, Mr. Johnson was with
Bell Atlantic since 1983 where he led development and network integration of
systems for Bell Atlantic's cellular, video, Internet and electronic publishing
subsidiaries. Immediately prior to joining our company, Mr. Johnson headed
systems development for Bell Atlantic Internet Solutions, Inc.

34
<PAGE>

and Big Yellow, Bell Atlantic's online yellow pages. Mr. Johnson managed the
systems/network integration of interactive video-on-demand (VOD) systems for
Bell Atlantic's Northern Virginia ADSL trial resulting in the integration and
deployment of VOD for Telecom Italia in Rome, Italy. Specifically, he managed
billing and operational support systems for Bell Atlantic, NYNEX and US West as
they started their cellular businesses. Mr. Johnson received a B.A. degree in
Chemistry from Central Methodist College.

Geoff Judge has been Senior Vice President of Affiliate Relations since
February 1998. Mr. Judge was President of Interactive Imaginations from
September 1997 to February 1998 and was Executive Vice President, Marketing and
Sales from May 1997 to September 1997. From 1995 to 1997, Mr. Judge was Vice
President, Marketing for iMarket Inc., a software company. From 1994 to 1995,
Mr. Judge was Vice President--Marketing at Doubleday Direct, where he managed
the membership base of the company's nine book clubs. From 1985 to 1994, Mr.
Judge was at American Express in numerous roles including Vice President and
General Manager, Travel & Corporate Insurance Group, where he managed an
operating group of over 70 people, and a $90 million portfolio of products that
were direct marketed to cardmembers. Mr. Judge received a M.B.A. degree from
the Columbia University Graduate School of Business and a B.A. degree in
Economics from Northwestern University.

Mark E. Moran has been Senior Vice President and General Counsel since
April 1998. From June 1993 to April 1998, Mr. Moran was an associate attorney
at Proskauer Rose LLP. From April 1986 to May 1993, Mr. Moran was a financial
analyst in the Securities Processing Division of The Bank of New York. Mr.
Moran received a J.D. degree from Fordham Law School, a M.B.A. degree in
Finance from Fordham Graduate School of Business, and a B.A. degree in
Economics from The University of Virginia.

Scott Paternoster has been Senior Vice President--National Sales since
January 1999. From June 1998 to December 1998, Mr. Paternoster was President of
the CliqNow! division of our company. From February 1996 to June 1998, Mr.
Paternoster was Founder and President of the CliqNow! Sales Group of K2 Design,
Inc. and from 1989 to February 1996, Mr. Paternoster was the New York Sales
Manager and an Account Executive at MMT Sales, Inc., a national broadcast
advertising sales rep firm. Mr. Paternoster received a B.S. degree in Economics
and Management from Ithaca College.

Stuart D. Shaw has been Senior Vice President of Finance & Administration
since February 1998. He was Vice President and Chief Financial Officer of Petry
Interactive, Inc. from October 1997 to February 1998. From 1991 to 1997, Mr.
Shaw was Director of Financial Reporting, then Vice President of Customer
Resources for Penguin Books, a trade publisher. From 1989 to 1991, Mr. Shaw was
Controller for Warren, Gorham & Lamont, a publisher of professional resource
literature. From 1983 to 1989, Mr. Shaw was an auditor with Arthur Andersen.
Mr. Shaw received a B.B.A. degree in Public Accounting from Pace University.
Mr. Shaw is a Certified Public Accountant.

Matthew B. Walker has been Senior Vice President and Chief Technology
Officer since April 1998. Mr. Walker was co-founder and Senior Vice President
of Intelligent Interactions Corporation from February 1995 to April 1998. From
August 1990 to February 1995, Mr. Walker worked in a series of positions at
Oracle Corporation including director of the Emerging Technologies Group,
Manager of Design and Development of the interactive television trial system
for Bell Atlantic Video Services, Inc., and director of Advanced Technologies.
Mr. Walker received a M.B.A. degree from George Mason University and a B.S.
degree in Systems Engineering and Economics from The University of Virginia.

Committees of the Board of Directors

Audit Committee. The Audit Committee, composed of Messrs. Ammon, Rivkin
and Barry, who are not employed by us and are, thus, independent directors,
does the following:

o makes recommendations concerning the engagement of independent public
accountants;

o reviews with the independent public accountants the plans and results of
the audit engagement;

o approves professional services provided by the independent public
accountants;

o reviews the independence of the independent public accountants;

o considers the range of audit and non-audit fees; and

o reviews the adequacy of our internal accounting controls.

35
<PAGE>

Compensation Committee. The Compensation Committee, composed of Messrs.
Moore, Rivkin and Stryker, approves the salaries and other benefits of our
executive officers and administers any of our non-stock based bonus or
incentive compensation plans (excluding any cash awards intended to qualify for
the exception for performance-based compensation under Section 162(m) of the
Code). In addition, the Compensation Committee consults with our management
regarding pension and other benefit plans, and compensation policies and our
practices.

Stock Option Committee. The Stock Option Committee, composed of Messrs.
Ammon, Rivkin and Barry, directors who qualify as outside directors under
Section 162(m) of the Code and as non-employee directors under Rule 16b-3(c) of
the Exchange Act, administers any of our stock-based incentive plans, including
the 1998 Stock Incentive Plan (the "Incentive Plan"). In addition, the Stock
Option Committee is responsible for granting any cash awards intended to
qualify for the exception for performance-based compensation under Section
162(m) of the Code.

Election of Directors

Prior to our first annual stockholders' meeting our board of directors
will be divided into three classes. Directors of each class will be elected at
the annual stockholders' meeting held in the year in which the term for such
class expires and will serve the following for three years. No determination
has been made as to which directors will be members of each class.

Compensation of Directors

Directors do not receive salaries or cash fees for serving as directors
nor do they receive any cash compensation for serving on committees; however,
all members of the board of directors who are not one of our employees or
consultants ("Non-Employee Directors") are reimbursed for their expenses for
each meeting attended and are eligible to receive stock options pursuant to the
Incentive Plan. Under the Incentive Plan, each existing Non-Employee Director
has been granted a non-qualified option to purchase 18,750 shares of common
stock at the fair market value on the date of grant, and each new Non-Employee
Director upon the date of his or her election or appointment will be granted a
non-qualified option to purchase 18,750 shares of common stock at the fair
market value on the date of grant. Upon the date of each annual stockholders'
meeting, each existing Non-Employee Director shall be granted a non-qualified
option to purchase 4,688 shares of common stock (or a pro rata portion thereof
if the director did not serve the entire year since the date of the last annual
meeting). All options granted to Non-Employee Directors will vest at the rate
of 25% on each of the first four anniversaries of the date of grant, assuming
the Non-Employee Director is a director on those dates, and all such options
generally will be exercisable for a period of ten years from the date of grant.
Upon a Change of Control (as defined in the 1998 Stock Incentive Plan), all
unvested options (which have not yet expired) will automatically become 100%
vested. Directors who are employed by or act as our consultants to us will not
be compensated for services as a director.

Executive Compensation and Employment Agreements

We have entered into employment agreements with our executive officers and
each of our key employees named in this document providing for annual
compensation in excess of $100,000. The material terms of such employment
agreements generally are as follows:

o the employment term runs through December 31, 1999 (except as set forth
below) and is automatically renewable for successive one-year terms
unless either party gives written notice to the other at least six
months prior to the expiration of the then employment term;

o during the employment term and thereafter, we will indemnify the
executive to the fullest extent permitted by law, in connection with any
claim against such executive as a result of such executive serving as
one of our officers or directors or in any capacity at our request in or
with regard to any other entity, employee benefit plan or enterprise;

o any dispute or controversy arising under or in connection with the
employment agreement (other than injunctive relief) shall be settled
exclusively by arbitration;

o we may terminate the agreement at any time with or without cause (as
defined in the agreement) and, if an executive is terminated without
cause (including our giving notice of non-renewal), he will receive
severance pay in an amount generally equal to six months' base salary
and bonus, plus continued medical benefits for a period equal to the
severance period as well as acceleration of outstanding options; and

36
<PAGE>

o if termination is the result of the executive's death or disability, we
will pay to the executive or his estate an amount equal to six months'
base salary at his then current rate of pay (reduced in the case of
disability by his long-term disability policy payments).

The agreement of David J. Moore extends through January 1, 2001. Mr.
Moore's agreement provides for an annual base salary of $225,000 and a target
bonus of $275,000, $300,000 and $325,000 for 1998, 1999, and 2000,
respectively. Mr. Moore was also awarded 56,250 shares of restricted stock that
vest over three years. In connection with this issuance, we are recognizing
compensation expense of $90,000 ratably over the three-year vesting period. If
we terminate Mr. Moore without cause, he is entitled to receive severance pay
in an amount equal to two times base salary, plus the maximum bonus for which
he is eligible during the fiscal year of termination.

The agreements of our other executive officers and named key employees
provide for base salaries between $100,000 and $180,000 and target incentives,
based on attainment of corporate goals, between $35,000 and $130,000.

On December 14, 1998, we entered into a severance agreement with Yale R.
Brown, our former director and Executive Vice President under which Mr. Brown
resigned as an officer and director. We agreed to pay Mr. Brown the sum of
$136,894 as severance, including attorneys' fees, and we exchanged mutual
releases of substantially all claims arising out of his employment.

37
<PAGE>

Executive Compensation And Other Information

Summary of Cash and Certain Other Compensation

The following table sets forth information about the compensation paid or
payable by us for services rendered in all capacities to our Chief Executive
Officer and each of our most highly paid executive officers who earned more
than $100,000 for 1998 (the "Named Executive Officers").

Annual Long Term
Compensation Compensation
----------------------------------------------------- ------------------------------ All
Other Restricted Securities Other
Name and Annual Stock Underlying Compen-
Principal Position Salary ($) Bonus ($) Compensation ($) Award(s) ($) Options (#) sation
- -------------------------- ------------------ ----------- ------------------ -------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
David J. Moore ........... 259,137 343,750 0 56,250 0 0
President and
Chief Executive
Officer
C. Andrew Johns .......... 105,192 (1) 66,706 0 0 62,500 0
Chief Financial
Officer
Jacob I. Friesel ......... 153,125 (2) 150,391 0 0 0 0
Executive Vice
President
Yale R. Brown ............ 255,202 (3) 13,923 0 0 0 0
Former Executive
Vice President
</TABLE>

- ------------
(1) Mr. Johns commenced his employment with us on April 17, 1998.

(2) Mr. Friesel commenced his employment with us on February 24, 1998.

(3) Mr. Brown commenced his employment with us on April 13, 1998 and terminated
his employment on December 14, 1998. Amounts include all payments,
totaling approximately $136,894, to be made pursuant to a severance
agreement.

Stock Options

The following table contains information concerning the grant of options
under the 1998 Stock Incentive Plan to each of the Named Executive Officers
during the year ended December 31, 1998. We did not grant any stock
appreciation rights ("SARS") in 1998.

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of
Securities Options Stock Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Expiration -------------------------
Name Granted(#)(1) Fiscal Year(2) ($/Share) Date(3) 5% 10%
- ----------------- --------------- ---------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
C. Andrew Johns 62,500 4.3% $ 4.00 3/25/08 $157,224 $398,436
</TABLE>

- ------------
(1) All options granted in 1998 were granted pursuant to the 1998 Stock
Incentive Plan. The grant to Mr. Johns is exercisable in annual increments
of 25% of the total grant, beginning on the first anniversary of the date
of grant. All options were granted at the fair market value of common
stock on the effective date of grant.

(2) The total number of options granted to employees in 1998 was 1,456,145.

(3) Each option may be subject to earlier termination if the officer's
employment with us is terminated.

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<PAGE>

The following table sets forth information for each of the Named Executive
Officers with respect to the value of options exercised during the year ended
December 31, 1998 and the value of outstanding and unexercised options held as
of December 31, 1998. There were no SARs exercised during 1998 and none were
outstanding as of December 31, 1998.

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-end Option Values

<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at December 31, 1998 at December 31, 1998(1)
on Exercise Realized ------------------------------- ---------------------------------
Name ($) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------- --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
C. Andrew Johns -- -- 0 62,500 $0 $1,500,000
</TABLE>

- ------------
(1) Represents the difference between the closing market price of the common
stock as reported by Nasdaq on December 31, 1998 of $28.00 per share and
the exercise price per share of in-the-money options multiplied by the
number of shares underlying the in-the-money options.

1998 Stock Incentive Plan

Background; Purpose; Eligibility. The following description of the
Incentive Plan is intended only as a summary and is qualified in its entirety
by reference to the Incentive Plan. The purpose of the Incentive Plan is to
create a means to raise the level of stock ownership by employees, attract,
retain and reward such employees, and make stock-based awards to non-employee
directors thereby attracting, retaining and rewarding such non-employee
directors. All of our employees and consultants and non-employee directors that
satisfy certain requirements are eligible to be granted awards under the
Incentive Plan. As of January 15, 1999, we have issued and outstanding pursuant
to the Incentive Plan stock options to purchase a total of 2,155,305 shares of
common stock at a weighted average price of $12.69.

Administration. The Incentive Plan is administered by the Stock Option
Committee of our board of directors. The Stock Option Committee has full
authority and discretion, subject to the terms of the Incentive Plan, to
determine those individuals eligible to receive awards and the amount and type
of awards. Terms and conditions of awards are set forth in written grant
agreements, the terms of which are consistent with the terms of the Incentive
Plan. No option may have an exercise price less than the fair market value of
the common stock at the time of grant (or, in the case of an incentive stock
option granted to a ten percent stockholder, 110% of fair market value), except
that, in the case of certain modifications of the stock options that are deemed
to be new issuances under the Code, the exercise price may continue to be the
original exercise price. Awards under the Incentive Plan may not be made on or
after the tenth anniversary of the date of its adoption, but awards granted
prior to such date may extend beyond that date. All options granted under the
Incentive Plan expire no more than ten years from the date of grant.

Available Shares and Other Units. A maximum of 3,000,000 shares of common
stock may be issued or used for reference purposes pursuant to the Incentive
Plan. The maximum number of shares of common stock subject to each issue of
stock options that may be granted to any individual under the Incentive Plan is
187,500 for each fiscal year during the term of the Incentive Plan. In general,
upon the cancellation or expiration of an award, the unissued shares of common
stock subject to such awards will again be available for awards under the
Incentive Plan, but will still count against the individual specified limits.

Amendments. The Incentive Plan may be amended by the board of directors,
except that no such amendment, without stockholder approval (to the extent such
approval is required by Rule 16b-3 of the Exchange Act, the exception for
performance-based compensation under Section 162(m) of the Code or, to the
extent applicable to incentive stock options, under Section 422 of the Code),
may:

o increase the aggregate number of shares of common stock reserved for
awards or the maximum individual limits for any fiscal year;

o change the classification of employees and non-employee directors
eligible to receive awards;

o decrease the minimum option price of any option;

39
<PAGE>

o extend the maximum option period under the Incentive Plan; or

o change any rights with respect to non-employee directors.

Stock Options. Under the Incentive Plan, the Stock Option Committee may
grant awards in the form of options to purchase shares of common stock. Options
may be in the form of incentive stock options or non-qualified stock options.
The Stock Option Committee will, with regard to each stock option, determine
the number of shares subject to the option, the term of the option (which shall
not exceed ten years, provided, however, that the term of an incentive stock
option granted to one of our ten percent stockholders shall not exceed five
years), the exercise price per share of stock subject to the option, the
vesting schedule (if any), and the other material terms of the option.

Restricted Stock. The Incentive Plan authorizes the Stock Option Committee
to award shares of restricted stock. Upon the award of restricted stock, the
recipient has all rights of a stockholder with respect to the shares, unless so
specified by the Stock Option Committee at the time of grant, subject to the
conditions and restrictions generally applicable to restricted stock or
specifically set forth in the recipient's restricted stock award agreement.
Unless otherwise determined by the Committee at grant, payment of dividends, if
any, shall be deferred until the date that the relevant share of restricted
stock vests.

Change of Control. In the event that we merge with another company, the
sale of substantially all of our assets or securities representing 40% or more
of the total combined voting power of our then outstanding securities or upon
certain changes in membership of the board of directors during any two-year
period, then:

o each option will be fully vested and immediately exerciseable, or each
option may be repurchased by us for an amount of cash equal to the
excess of the Change of Control Price (as defined in the Incentive Plan)
over the exercise price; and

o the restrictions on shares of restricted stock shall lapse as if the
applicable restriction period had ended.

40
<PAGE>

CERTAIN TRANSACTIONS

Investments by The Travelers Insurance Company

In November 1996, we entered into a Securities Purchase Agreement with
certain investors, including The Travelers Insurance Company, for the sale and
issuance of convertible preferred shares with an initial conversion price of
$11.48, subject to anti-dilution adjustment. Travelers' investment was
approximately $1,000,000 and was subsequently converted into 119,613 shares of
common stock. In addition, in 1997 and January 1998, we issued to The Travelers
Insurance Company senior convertible notes in an aggregate principal amount of
$1,400,000 with initial conversion prices ranging from $1.60 per share to
$11.48 per share and also issued warrants. These securities were subsequently
converted into approximately 642,401 shares of common stock. Jack L. Rivkin,
one of our directors, is the Senior Vice President of the Investment Group of
Travelers Group Inc.

Merger of Petry, Advercomm and Interactive Imaginations into our Company

Pursuant to an Agreement and Plan of Merger, dated February 2, 1998, among
Interactive Imaginations, 24/7 Acquisitions Corp. (a wholly-owned subsidiary of
Interactive Imaginations), Petry and Advercomm, each of Petry and Advercomm
were merged into 24/7 Acquisition Corp., and 24/7 Acquisition Corp. changed its
name to 24/7 Media, Inc. Upon consummation of these mergers, each share of
common stock of Petry was converted into 20,988.74 shares of our common stock
and each share of common stock of Advercomm was converted into 262.36 shares of
our common stock.

In connection with the acquisitions of Petry and Advercomm, Interactive
Imaginations entered into a Securities Purchase Agreement, dated February 25,
1998, with certain investors (including David J. Moore, our President and Chief
Executive Officer), for the sale and issuance of preferred shares and warrants
in a private placement for total proceeds of $10,060,002. For each $10,000
invested, the investors received 10,000 shares of Series A preferred stock,
which were automatically converted into common stock at a conversion price of
$3.81 upon consummation of our initial public offering, and approximately 1,313
Class A warrants, exercisable into common stock at an exercise price of $7.62
per share, and approximately 1,313 Class B warrants, exercisable into common
stock at an exercise price of $11.42 per share.

Petry entered into an oral consulting agreement with Manufacturers
Renaissance Network, Inc. ("MRN"), a corporation of which C. Andrew Johns, our
Executive Vice President, Treasurer and Chief Financial Officer was an officer
and a 50% stockholder, pursuant to which MRN was paid $75,000 and Class C
warrants to purchase 18,750 shares of common stock at an exercise price of
$3.81 per share for consulting services rendered in connection with the merger.
We recorded $13,500 of acquisition costs in connection with these warrants. We
also paid MRN a consulting fee of approximately $33,000 for services rendered
in connection with the acquisition of Intelligent Interactions.

On February 24, 1998, Interactive Imaginations and Michael P. Paolucci,
one of our former directors, entered into a Confidential Separation Agreement
and General Release ("Separation Agreement") pursuant to which Mr. Paolucci's
employment as an executive, but not as a director, of Interactive Imaginations
was terminated as of February 24, 1998. The terms of the Separation Agreement
generally provide that each of Mr. Paolucci and Interactive Imaginations agreed
to release and discharge the other party (and its successors and assigns) from
all causes of action, claims, judgments, obligations, damages or liabilities.
Interactive Imaginations agreed to issue to Mr. Paolucci Class C warrants to
purchase up to 625,000 shares of common stock at an exercise price of $3.81 per
share. In addition, Interactive Imaginations agreed to extend the term from
January 31, 2000 to January 31, 2005 in respect of a fully vested option held
by Mr. Paolucci to purchase 13,000 shares of Interactive Imaginations common
stock at $1.72 per share. Accordingly, we recorded compensation expense of
$450,000 during the three month period ended March 31, 1998 in connection with
this transaction.

Interactive Imaginations also entered into a Consulting Agreement, dated
as of January 1, 1998 with Neterprises, Inc., pursuant to which Mr. Paolucci,
President and sole stockholder of Neterprises, Inc., agreed to provide
management and consulting services to Interactive Imaginations for a term of up
to one year in connection with the identification and evaluation of potential
strategic relationships and potential acquisition targets. In return for such
services, Mr. Paolucci received a lump sum payment of $180,000 and received a
monthly fee of $12,500. This agreement terminated December 31, 1998.

41
<PAGE>

Intelligent Interactions Acquisition

Pursuant to an Agreement and Plan of Merger, dated as of April 9, 1998,
among us, Interactions Acquisition Corp. and Intelligent Interactions
Corporation, Interactions Acquisition Corp., one of our wholly-owned
subsidiaries, was merged with and into Intelligent Interactions. Shareholders
of Intelligent Interactions received shares of our capital stock. In connection
with the acquisition of Intelligent Interactions, certain shareholders (i)
entered into an amended and restated version of the Shareholders' Agreement and
(ii) were granted registration rights with respect to their shares of common
stock. See "Description of Capital Stock--Registration Rights."

During 1995 and 1996, Intelligent Interactions borrowed $56,000 and
$55,000, respectively, from Yale R. Brown, who was the founder and principal
stockholder of Intelligent Interactions. All amounts outstanding at September
6, 1996 under these notes, plus accrued interest on those amounts, were
converted into one instrument in the amount of $113,856. During 1997, the full
outstanding balance was paid on this obligation.

Future Transactions

Our board of directors has adopted a policy that future transactions
between us and our officers, directors, principal stockholders and their
affiliates will be subject to approval of a majority of the Independent
Directors, and will be on terms no less favorable to us than we could obtain
from unaffiliated third parties.

Other

For information regarding the grant of stock options to executive officers
and directors, see "Management-- Awards to Non-employee Directors,"
"--Executive Compensation and Employment Agreements," "--1998 Stock Incentive
Plan" and "Security Ownership of Certain Beneficial Owners and Management."

42
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of the common stock as of January 15, 1999, by: (i) each person who we know to
own beneficially more than 5% of the common stock; (ii) each of our directors
and executive officers; (iii) our current directors and executive officers as a
group and (iv) other selling stockholders as a group.

<TABLE>
<CAPTION>
Ownership After
Offering and
Ownership After Over-Allotment
Ownership Prior to Offering (1) Offering (2) Option (3)
--------------------------------------- ------------------------ ----------------------
Number of Shares Being Number of Number of
Beneficial Owner Shares Percentage Offered Shares Percentage Shares Percentage
- ---------------------------- ----------- ------------ -------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Executive Officers and
Directors:
David J. Moore (4) (5) 994,893 6.1%
R. Theodore Ammon (6) 1,750,703 10.2
Jacob I. Friesel (4) (7) 787,078 4.8
C. Andrew Johns (4) (8) 9,375 *
John F. Barry III (9) 1,750,703 10.2
Jack L. Rivkin (10) 2,576,540 15.0
Arnie Semsky (4) -- --
Charles W. Stryker (11) -- --
All directors and executive
officers as a group (8
persons) 7,869,292 41.6
Other 5% Stockholders:
Yale R. Brown (12) 865,759 7.1
All other Selling
Stockholders: 6,931,764 41.7
</TABLE>

- ------------
* Represents less than 1% of the outstanding common stock.

(1) Applicable percentage ownership is based on 16,282,835 shares of common
stock outstanding as of January 15, 1999. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities, subject to community property laws, where applicable.
Shares of common stock subject to options or warrants that are presently
exercisable within 60 days of January 15, 1999 and beneficially owned by
the person holding such options and warrants are treated as outstanding
for the purpose of computing the percentage ownership for such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.

(2) Assumes that the underwriters' over-allotment option to purchase up to
600,000 shares is not exercised.

(3) Assumes that the underwriters' over-allotment option to purchase 600,000
shares is exercised in full.

(4) The address of Messrs. Moore, Friesel, Johns and Semsky is c/o 24/7 Media,
Inc., 1250 Broadway, New York, New York 10001.

(5) Includes 37,500 unvested shares of common stock issued pursuant to the
Incentive Plan and subject to forfeiture pursuant thereto. Includes
244,505 shares held by a family trust and certain other trusts held for
the benefit of family members, beneficial ownership of which is disclaimed
by Mr. Moore. Mr. Moore's wife is the trustee of each such trust.

(6) Represents 875,351 shares, Class A warrants to purchase 437,676 shares and
Class B warrants to purchase 437,676 shares held by Big Flower Digital
Services, Inc., an indirect subsidiary of Big Flower Holdings, Inc. Mr.
Ammon is the Chairman of the board of directors of Big Flower Holdings,
Inc. Mr. Ammon does not own any shares our common stock in his individual
capacity and expressly disclaims beneficial ownership of the shares held
by Big Flower Digital Services, Inc. The address of each of these entities
is c/o Big Flower Holdings, Inc., 3 East 54th Street, New York, New York
10022.

(7) Includes 262,360 shares held by a family trust, beneficial ownership of
which is disclaimed by Mr. Friesel.

(8) Represents Class C warrants to purchase 9,375 shares.

(9) Represents 656,513 shares, Class A warrants to purchase 328,257 shares and
Class B warrants to purchase 328,257 shares held by Prospect Street NYC
Discovery Fund, L.P. and 218,838 shares, Class A warrants to purchase
109,419 shares and Class B warrants to purchase 109,419 shares held by
Prospect Street NYC Co-Investment Fund, L.P. Mr. Barry is one of our
directors and is the Managing General Partner of Prospect Street NYC
Discovery Fund, L.P. Mr. Barry does not own any shares of our common stock
in his individual capacity and expressly disclaims beneficial ownership of
the shares held by Prospect Street NYC Discovery Fund, L.P. and Prospect
Street NYC Co-Investment Fund, L.P. The address of each of these entities
is c/o Prospect Street Ventures, 10 East 40th St., 44th floor, New York,
New York 10016.

(10) Represents 1,666,829 shares, Class A warrants to purchase 437,676 shares
and Class B warrants to purchase 437,676 shares held by The Travelers
Insurance Company, and 34,359 shares held by The Travelers Indemnity
Company. Mr. Rivkin is one of our directors and is Senior Vice President
of Travelers Investment Group Inc., an affiliate of The Travelers
Insurance Company and The Travelers Indemnity Company. Mr. Rivkin does not
own any shares of our common stock in his individual capacity and
expressly disclaims beneficial ownership

43
<PAGE>

of the shares held by The Travelers Insurance Company and The Travelers
Indemnity Company. The address of each of these entities is c/o Travelers
Group Inc., 388 Greenwich Street, 36th floor, New York, New York 10013.
None of Travelers Group Inc., The Travelers Insurance Company, The
Travelers Indemnity Company or their respective affiliates has assumed or
has any responsibility for our management, business or operations, or for
the statements contained in this prospectus or the registration statement
of which this prospectus forms a part, other than the limited information
regarding securities ownership contained in this table.

(11) The address of Mr. Stryker is c/o IntelliQuest Information Systems, Inc.,
380 Interstate North Parkway, Suite 310, Atlanta, Georgia 30339.

(12) Represents 636,611 shares, Class A warrants to purchase 87,534
shares, Class B warrants to purchase 87,534 shares and Class C warrants to
purchase 45,080 shares. Mr. Brown is a former officer and director of our
company and was co-founder of Intelligent Interactions Corporation. Mr.
Brown's address is 1175 North East Miami Gardens Drive, Apt. 709E, North
Miami Beach, Florida 33719.

Our company and certain of the selling stockholders are parties to
registration rights agreements under which those selling stockholders are
participating in this offering. Pursuant to this agreement, we are required to
pay expenses incident to the registration, offering and sale of the securities,
other than underwriting commissions, and to indemnify the selling stockholders
against certain civil liabilities, including liabilities under the Securities
Act.

44
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock is not complete and should
be read in conjunction with (i) applicable provisions of Delaware law and (ii)
the provisions of our certificate of incorporation and by-laws, copies of which
have been filed as exhibits to the registration statement of which this
prospectus is a part.

Our authorized capital stock consists of 70,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share, which may be issued in one or more classes and series.
Upon consummation of this offering, there will be 18,282,835 shares of common
stock and no shares of preferred stock issued and outstanding. The following
description of our capital stock is based upon our certificate of
incorporation.

Common Stock

Each holder of common stock is entitled to one vote per share of record on
all matters to be voted upon by the stockholders. Holders do not have
cumulative voting rights. Stockholders casting a plurality of the votes of
stockholders entitled to vote in an election of directors may elect all of the
directors. Subject to the preferential rights of any preferred stock that may
at the time be outstanding, each share of common stock will have an equal and
ratable right to receive dividends when, if, and as declared from time to time
by the board of directors. We may be subject to certain future agreements which
restrict the payment of dividends. We do not anticipate paying cash dividends
in the foreseeable future. See "Dividend Policy."

If we are liquidated, dissolved or subject to winding up, then holders of
our common stock are entitled to an equal share of all assets remaining after
payments to creditors and after satisfaction of any liquidation preference of
shares of preferred stock that may at the time be outstanding. Holders of
common stock have no preemptive, subscription, conversion or redemption rights
and are not subject to further calls or assessments by us. The outstanding
shares of common stock are validly issued, fully paid and nonassessable. The
shares of common stock offered by us in this offering will also be, when issued
and paid for, validly issued, fully paid and nonassessable.

Preferred Stock

Our certificate of incorporation authorizes the board of directors,
without any vote or action by the stockholders (subject to applicable law,
regulations and stock exchange rules) to issue up to 10,000,000 shares of
preferred stock in one or more classes and series and to fix the designations,
preferences, rights, qualifications, limitations and restrictions thereof,
including the voting rights, dividend rights, dividend rate, conversion rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and number of shares constituting any series.
Although it presently has no intention to do so, the board of directors could
issue preferred stock with voting and conversion rights that could adversely
affect the voting powers of the holders of the common stock and the market
price of the common stock. The issuance of preferred stock may also have the
effect of delaying, deferring or preventing a change in our control without
further action by the stockholders. Such issuance may also discourage bids for
the common stock at a premium over the market price.

Registration Rights

Under the terms of the registration rights agreements, dated as of April
9, 1998 and June 1, 1998, among us and the investors named therein, and also
under certain stock purchase agreements with certain former shareholders of
Interactive Imaginations, the beneficial holders of approximately 8,000,000
shares of common stock are entitled to certain registration rights with respect
to the registration of such shares under the Securities Act. Under these
registration rights agreements, the holders of such shares are entitled to
demand that we register their shares under the Securities Act, subject to
certain limitations. Subject to limited exceptions, we are not required to
effect more than two such registrations for such investors except that The
Travelers Insurance Company may demand three such registrations pursuant to
such demand registration rights. In addition, the holders of such shares of
common stock are entitled to certain "piggyback" registration rights with
respect to the registration of such shares of common stock under the Securities
Act. In the event that we propose to register any shares of common stock under
the Securities Act, either for our account or for the account of other security
holders, the holders of shares having piggyback registration rights are
entitled to receive notice of such registration and are entitled to include
their shares therein, subject to certain limitations. Further, at any time
after we become eligible to file a registration statement on Form S-3, such
holders may require us to file registration statements under the Securities Act
on Form S-3 with respect to their shares of common stock. These registration
rights are subject to certain conditions and limitations,

45
<PAGE>

among them the right of the underwriters of an offering to limit the number of
shares of common stock held by security holders with registration rights to be
included in such registration. We are generally required to bear all of the
expenses of all such registrations, except underwriting discounts and
commissions. Registration of any of the shares of common stock held by security
holders with registration rights would result in such shares becoming freely
tradable without restriction under the Securities Act immediately upon
effectiveness of such registration.

Delaware Anti-Takeover Law and Certain Charter Provisions

We are subject to Section 203 of the Delaware General Corporation Law
("Section 203") which generally prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years following the date that such stockholder became an interested
stockholder. Section 203 applies unless:

o prior to the date such stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder;

o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (the number of shares outstanding excludes
those shares owned (A) by persons who are both directors and officers,
and (B) by employee stock plans in which participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or

o on or after such date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders (not by
written consent) by the affirmative vote of at least 66-2/3% of the
outstanding voting stock which is not owned by the interested
stockholder.

Section 203 defines a business combination to include:

o any merger or consolidation involving the corporation and the interested
stockholder;

o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

o certain transactions that result in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder;

o any transaction involving the corporation that increases the
proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or

o the receipt by the interested stockholder of any loans, advances,
guarantees, pledges or other financial benefits provided through the
corporation. In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

Certain provisions of our certificate of incorporation and Delaware law
may delay, defer or prevent a change in our control and may adversely affect
the voting and other rights of holders of common stock. In particular, the
ability of the board of directors to issue preferred stock without stockholder
approval may delay, defer or prevent a change in our control and may adversely
affect the voting and other rights of other holders of common stock. In
addition, our certificate of incorporation provides for a classified board of
directors and the inability of stockholders to vote cumulatively for directors.

Limitation on Directors' Liability and Indemnification Matters

Our certificate of incorporation provides that, except to the extent
prohibited by Delaware law, our directors will not be personally liable to us
or our stockholders for monetary damages for any breach of fiduciary duty while
serving as directors. Under Delaware law, the directors have a fiduciary duty
to us which is not eliminated by this provision of the certificate of
incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under Delaware
law for:

46
<PAGE>

o breach of the director's duty of loyalty;

o acts or omissions which are found by a court of competent jurisdiction
to be not in good faith or which involve intentional misconduct;

o knowing violations of law;

o actions leading to improper personal benefit to the director; and

o payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Delaware law.

This provision also does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws or state or Federal
environmental laws. Insofar as the indemnification for liabilities arising
under the Securities Act may be permitted to our directors or officers, we have
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.

We have obtained liability insurance for our senior officers and directors
and have entered into indemnity agreements to indemnify our executive officers
and directors in addition to the indemnification provided for in our
certificate of incorporation and bylaws. These agreements, among other things,
indemnify our directors and executive officers for certain expenses (including
attorneys' fees and associated legal expenses), judgments and fines and amounts
paid in settlement, actually and reasonably incurred by any such person in any
action, suit or proceeding arising out of such person's services as a director
or executive officer on our behalf. We believe that these provisions and
agreements are necessary to attract and retain qualified directors and
officers.

Certain Effects of Authorized but Unissued Stock

Upon consummation of this offering, there will be 18,282,835 shares of
common stock (not including shares reserved for issuance upon the exercise of
outstanding warrants or reserved under the Incentive Plan) and 10,000,000
shares of preferred stock available for issuance without stockholder approval,
except as may be required by our certificate of incorporation, by applicable
law or regulatory agencies or by the rules of the Nasdaq National Market or any
stock exchange on which the common stock may then be listed. We do not
currently have plans to issue additional shares of capital stock. See "Shares
Eligible for Future Sale; Registration Rights."

Stock Transfer Agent and Registrar

The Stock Transfer Agent and Registrar for the common stock is The Bank of
New York, located at 101 Barclay Street, 11E, New York, New York and its
telephone number at such location is (800) 524-4458.

47
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
(as described below), sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding an aggregate of
18,282,835 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 3,550,000 shares sold in our initial public offering and the 4,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. The remaining 10,732,835 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. Holders of a majority of our shares of common stock,
including all of our directors and officers, have agreed that they will not
sell, directly or indirectly, any common stock without the prior consent of the
representatives of the underwriters for a period of 90 days from the date of
this prospectus. As a result of these contractual restrictions and the
provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market, if an exemption under Rule 144 is available, as
follows:

o ___ shares may be eligible for sale upon expiration of the lock-up
agreements 90 days after the date of this prospectus; and

o ___ shares may be eligible for sale upon the expiration of their
respective one-year holding periods which for a majority of such
shares occurs on April 9, 1999.

In addition, there are outstanding options to purchase 2,155,305 shares of
common stock, 337,247 of which will, upon exercise, be eligible for sale in the
public market less than 90 days after the date of this prospectus and an
additional 1,818,058 of which will, upon exercise, be eligible for sale in the
public market 90 or more days after the date of this prospectus. There are also
outstanding warrants to purchase 3,177,985 shares of common stock, of
which will be eligible for sale in the public market upon expiration of their
one-year holding periods, generally occuring on April 9, 1999, and of
which will be eligible for sale in the public market upon expiration of lock-up
agreements 90 days after the date of this prospectus.

Certain holders of shares of common stock, or their transferees, are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act (except for shares purchased by Affiliates) immediately upon
the effectiveness of such registration.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year (including the holding period of any prior owner except an
Affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

o one percent of the number of shares of common stock then outstanding
(which will equal approximately 182,828 shares immediately after this
offering); or

o the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is deemed not to have been one of our
Affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the Restricted Shares for at least two years (including the
holding period of any prior owner except an Affiliate), is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144; therefore, unless otherwise
restricted, such "144(k) shares" may be sold immediately upon the completion of
this offering. In general, under Rule 701 of the Securities Act as currently in
effect, any of our

48
<PAGE>

employees, consultants or advisors who purchased shares from us in connection
with a compensatory stock or option plan or other written agreement is eligible
to resell such shares immediately after the effective date of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.

We have filed a registration statement on Form S-8 under the Securities
Act covering shares of common stock reserved for issuance under our 1998 Stock
Incentive Plan. Such registration statement has become effective. Accordingly,
shares registered under such registration statement will generally be available
for sale in the open market, unless such shares are subject to vesting
restrictions with us or the lock-up agreements described herein.

49
<PAGE>

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Allen & Company
Incorporated, CIBC Oppenheimer Corp., J.P. Morgan Securities Inc. and
PaineWebber Incorporated are acting as representatives (the "Representatives")
of each of the underwriters (the "Underwriters") named below. Subject to the
terms and conditions set forth in the Purchase Agreement among us and the
Underwriters, we and the selling stockholders (the "Selling Stockholders") have
agreed to sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, has agreed to purchase from us and the Selling
Stockholders the number of shares of common stock set forth opposite its name
below.

<TABLE>
<CAPTION>
Underwriter Number of Shares
- -------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................
Allen & Company Incorporated .........
CIBC Oppenheimer Corp. ...............
J.P. Morgan Securities Inc. ..........
PaineWebber Incorporated ............. ---------
Total ........................... 4,000,000
=========
</TABLE>

In the Purchase Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to the Purchase Agreement if any shares of
common stock are purchased. Under certain circumstances, under the terms of the
Purchase Agreement, the commitments of the non-defaulting Underwriters may be
increased or the Purchase Agreement may be terminated.

The Representatives have advised us and the Selling Stockholders that they
propose initially to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share on sales to certain other dealers. After the
initial offering, the public offering price, concession and discount may be
changed.

The Selling Stockholders have granted to the Underwriters an option
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of an additional 600,000 shares of common stock at the public
offering price set forth on the cover of this prospectus, less the underwriting
discount. The Underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of the common stock offered hereby.
To the extent that the Underwriters exercise this option, each Underwriter will
be obligated, subject to certain conditions, to purchase a number of additional
shares of common stock proportionate to such Underwriter's initial amount
reflected in the foregoing table.

The following table shows the per share and total underwriting discounts
to be paid by us and the Selling Stockholders to the Underwriters. This
information is presented assuming either no exercise or full exercise by the
Underwriters of their over-allotment options.

<TABLE>
<CAPTION>
Without
Per Share Option With Option
----------- -------- ------------
<S> <C> <C> <C>
Public Offering Price ............................ $ $ $
Underwriting Discount ............................ $ $ $
Proceeds, before expenses, to 24/7 Media ......... $ $ $
Proceeds to Selling Stockholders ................. $ $ $
</TABLE>

We will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. The expenses of the offering are estimated at $____ and
are payable by us.

The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.

We have agreed, for a period of 90 days after the date of this prospectus,
subject to certain exceptions, not to directly or indirectly (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of
or otherwise dispose of or transfer any

50
<PAGE>

shares of common stock or securities convertible into or exchangeable or
exercisable for common Stock, whether now owned or thereafter acquired by the
person executing the agreement or with respect to which the person executing
the agreement thereafter acquires the power of disposition, or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the common stock whether any such swap or
transaction is to be settled by delivery of common stock or other securities,
in cash or otherwise, without the prior written consent of Merrill Lynch on
behalf of the Underwriters; provided that we may at any time and from time to
time (a) grant options to purchase shares of common stock under our 1998 Stock
Incentive Plan and (b) issue shares of common stock upon the exercise of
outstanding warrants. See "Shares Eligible for Future Sale."

We and the Selling Stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the common stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.

If the Underwriters create a short position in the common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the Representatives
may reduce that short position by purchasing common stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

Neither we nor any of the Selling Stockholders or Underwriters make any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the common
stock. In addition, neither we nor any of the Selling Stockholders or
Underwriters make any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.

51
<PAGE>

LEGAL MATTERS

The validity of the common stock offered hereby is being passed upon by
Proskauer Rose LLP, New York, New York. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

Our financial statements as of December 31, 1996 and 1997 and for each of
the years in the three-year period ended December 31, 1997 and the financial
statements of Interactive Holdings, LLC as of December 31, 1997 and for the
period from February 1, 1997 (inception) to September 28, 1997 (Predecessor)
and the period from September 29, 1997 to December 31, 1997 (Successor), have
been included in this prospectus and elsewhere in the Registration Statement in
reliance on the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
auditing and accounting.

The financial statements of (i) Intelligent Interactions Corporation as of
December 31, 1997 and 1996 and for the years ended December 31, 1997 and 1996
and the period from inception (February 28, 1995) to December 31, 1995 and (ii)
CliqNow!, a division of K2 Design, Inc., as of December 31, 1997 and for the
fiscal year ended December 31, 1997 included in this prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving their reports.

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements and other information with the
Commission. Our Commission filings are also available over the Internet at the
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file at the Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their
copy charges. You may also inspect our Commission reports and other information
at the Nasdaq National Market, Inc., 1735 K Street, N.W., Washington, D.C.
20606-1500.

-------------------------

24/7 Media, Intelligent Interactions, ContentZone, Riddler.com, CliqNow!,
Profilz and Adfinity are our trademarks. This prospectus contains our other
product names, tradenames and trademarks and of other entities, all of which
are the property of their respective owners.

<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Page
----
24/7 MEDIA, INC. (Successor Company to Interactive Imaginations, Inc.)
Independent Auditors' Report .................................................... F-2
Consolidated Balance Sheets ..................................................... F-3
Consolidated Statements of Operations ........................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) ....................... F-5
Consolidated Statements of Cash Flows ........................................... F-6
Notes to Consolidated Financial Statements ...................................... F-7

INTERACTIVE HOLDINGS, LLC (Successor to Petry Interactive, Inc.)
Independent Auditors' Report .................................................... F-30
Balance Sheet ................................................................... F-31
Statements of Operations ........................................................ F-32
Statements of Cash Flows ........................................................ F-33
Notes to Financial Statements ................................................... F-34

INTELLIGENT INTERACTIONS CORPORATION
Report of Independent Public Accountants ........................................ F-38
Balance Sheets .................................................................. F-39
Statements of Operations ........................................................ F-40
Statements of Stockholders' Equity .............................................. F-41
Statements of Cash Flows ........................................................ F-42
Notes to Financial Statements ................................................... F-43

CLIQNOW!
Report of Independent Public Accountants ........................................ F-50
Balance Sheets .................................................................. F-51
Statements of Operations and Changes in Parent Company's Investment and Advances F-52
Statements of Cash Flows ........................................................ F-53
Notes to Financial Statements ................................................... F-54
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
24/7 Media, Inc.

We have audited the accompanying balance sheets of 24/7 Media, Inc.
(successor company to Interactive Imaginations, Inc.) as of December 31, 1996
and 1997, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 24/7 Media, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.

KPMG LLP

New York, New York
June 2, 1998, except for note 12,
which is as of July 20, 1998

F-2
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-------------------------------- September 30,
1996 1997 1998
--------------- ---------------- ----------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 1,689,395 $ 93,945 $ 42,784,975
Accounts receivable, net of allowance for doubtful
accounts of $66,000, $63,723 and $313,723,
respectively ......................................................... 267,173 176,034 6,229,674
Prepaid expenses and other current assets ............................. 237,527 14,936 328,610
------------ ------------- -------------
Total current assets .............................................. 2,194,095 284,915 49,343,259
------------ ------------- -------------
Property and equipment, net .............................................. 1,677,936 591,337 1,474,279
Goodwill, net ............................................................ -- -- 11,519,218
Deferred offering costs .................................................. -- 110,602 --
Intangible assets, net ................................................... 17,287 2,711 23,309
Deposits ................................................................. 61,472 49,376 206,094
------------ ------------- -------------
Total assets ...................................................... $ 3,950,790 $ 1,038,941 $ 62,566,159
============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ...................................................... $ 136,523 $ 882,696 $ 5,128,306
Accrued liabilities ................................................... 514,355 471,205 2,726,160
Current installments of obligations under capital leases .............. -- -- 41,960
Deferred revenue ...................................................... 1,549,710 96,496 46,000
------------ ------------- -------------
Total current liabilities ......................................... 2,200,588 1,450,397 7,942,426
------------ ------------- -------------
Senior convertible notes payable--related parties, net of debt
discount of $158,348 .................................................... -- 2,316,511 --
Obligations under capital leases, excluding current installments ......... -- -- 42,759
Stockholders' equity (deficit):
Convertible preferred stock, $.01 par value; 10,000,000 shares
authorized; 140,722, 158,144 and no shares issued and
outstanding, respectively; with aggregate liquidation
preference of $4,038,722 and $4,538,733 at December 31,
1996 and 1997, respectively .......................................... 1,407 1,581 --
Common stock, $.01 par value; 70,000,000 shares authorized;
1,079,116, 1,148,762 and 15,482,804 shares issued and
outstanding, respectively ............................................ 10,791 11,488 154,828
Additional paid-in capital ............................................ 9,737,594 10,564,382 86,731,261
Deferred stock compensation ........................................... -- -- (372,922)
Accumulated deficit ................................................... (7,999,590) (13,305,418) (31,932,193)
------------ ------------- -------------
Total stockholders' equity (deficit) .............................. 1,750,202 (2,727,967) 54,580,974
------------ ------------- -------------
Commitments and contingencies

Total liabilities and stockholders' equity
(deficit) ........................................................ $ 3,950,790 $ 1,038,941 $ 62,566,159
============ ============= =============
</TABLE>

F-3
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Nine months
ended
Years ended December 31, September 30,
----------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues: (unaudited)
Advertising ..................................... $ 151,750 $ 1,106,329 $ 1,467,105 $ 1,059,935 $ 10,198,701
Consulting and license fees ..................... -- 435,834 1,681,464 1,668,963 105,178
------------ ------------ ------------ ------------- -------------
Total revenues .............................. 151,750 1,542,163 3,148,569 2,728,898 10,303,879
Cost of revenues ................................ 198,291 1,592,771 1,655,340 1,405,693 8,643,492
------------ ------------ ------------ ------------- -------------
Gross profit (loss) ......................... (46,541) (50,608) 1,493,229 1,323,205 1,660,387
------------ ------------ ------------ ------------- -------------
Operating expenses:
Sales and marketing .......................... 114,348 2,240,399 1,672,999 1,475,763 4,806,710
General and administrative ................... 581,068 3,010,009 2,622,743 2,194,824 5,207,699
Product development .......................... 426,187 1,460,928 1,417,750 1,285,280 1,002,478
Write-off of property and equipment .......... -- -- 756,795 756,795 --
Legal costs in connection with claim ......... -- -- 232,304 232,304 --
Write-off of acquired in-process
technology .................................. -- -- -- -- 5,477,281
Amortization of goodwill ..................... -- -- -- -- 3,630,573
------------ ------------ ------------ ------------- -------------
Total operating expenses ................. 1,121,603 6,711,336 6,702,591 5,944,966 20,124,741
------------ ------------ ------------ ------------- -------------
Loss from operations ..................... (1,168,144) (6,761,944) (5,209,362) (4,621,761) (18,464,354)
Interest income ................................. -- 11,704 17,597 17,060 326,286
Interest expense ................................ -- (45,435) (114,063) (40,572) (212,911)
------------ ------------ ------------ ------------- -------------
Net loss ................................. (1,168,144) (6,795,675) (5,305,828) (4,645,273) (18,350,979)
Cumulative dividends on mandatorily
convertible preferred stock .................... -- -- -- -- (275,796)
------------ ------------ ------------ ------------- -------------
Net loss attributable to common
stockholders ................................... $ (1,168,144) $ (6,795,675) $ (5,305,828) $ (4,645,273) $ (18,626,775)
============ ============ ============ ============= =============
Net loss per share--basic and diluted ........... $ (2.78) $ (6.48) $ (4.88) $ (4.30) $ (2.45)
Weighted average shares outstanding ............. 420,908 1,049,432 1,086,614 1,079,116 7,610,191
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1995, 1996 and 1997 and the Nine Months Ended
September 30, 1998 (unaudited)

<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------
Convertible Common stock Common stock
preferred stock voting Class A
------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
------------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1994 ....................... -- $ -- -- $ -- 25,000 $ 250
Issuance of Class B common stock subsequently
converted to Class A ................................. -- -- -- -- 15,677 157
Issuance of Class A common stock, net of $20,512
issuance costs ....................................... -- -- -- -- 32,656 327
Net loss .............................................. -- -- -- -- -- --
-------- --------- --------- -------- -------- ---------
Balance as of December 31, 1995 ....................... -- -- -- -- 73,333 734
Issuance of Class A common stock, net of $39,125
issuance costs ....................................... -- -- -- -- 34,371 343
Common stock Class A converted ........................ -- -- 1,077,033 10,770 (107,704) (1,077)
Issuance of common stock to officer ................... -- -- 2,083 21 -- --
Issuance of warrants in connection
with mandatory conversion subordinated notes.......... -- -- -- -- -- --
Notes converted to preferred stock .................... 52,262 523 -- -- -- --
Issuance of preferred stock, net of $236,820
issuance costs ....................................... 88,460 884 -- -- -- --
Net loss .............................................. -- -- -- -- -- --
-------- --------- --------- -------- -------- ---------
Balance as of December 31, 1996 ....................... 140,722 1,407 1,079,116 10,791 -- --
Issuance of preferred stock ........................... 17,422 174 -- -- -- --
Issuance of common stock to officer ................... -- -- 10,462 105 -- --
Issuance of warrants in connection
with senior convertible notes--related parties ....... -- -- -- -- -- --
Senior convertible notes payable--related parties
converted into common stock .......................... -- -- 59,184 592 -- --
Net loss .............................................. -- -- -- -- -- --
-------- --------- --------- -------- -------- ---------
Balance as of December 31, 1997 ....................... 158,144 1,581 1,148,762 11,488 -- --
Issuance of warrants in connection with senior
convertible notes payable--related parties ........... -- -- -- -- -- --
Issuance of warrants to former officer ................ -- -- -- -- -- --
Issuance of warrants to consultant .................... -- -- -- -- -- --
Issuance of common stock for acquired businesses....... -- -- 5,278,167 52,782 -- --
Issuance of stock options to employees ................ -- -- -- -- -- --
Issuance of common stock to officer ................... -- -- 56,250 563 -- --
Amortization of deferred stock compensation ........... -- -- -- -- -- --
Issuance of common stock to consultants ............... -- -- 5,909 59 -- --
Offering costs in connection with mandatorily
redeemable convertible preferred stock ............... -- -- -- -- -- --
Senior convertible notes payable--related parties
converted into common stock .......................... -- -- 828,036 8,280 -- --
Convertible preferred stock converted into
common stock ......................................... (158,144) (1,581) 542,908 5,429 -- --
Conversion of warrants into common stock .............. -- -- 191,349 1,913 -- --
Imputed interest on loans payable--related parties..... -- -- -- -- -- --
Accrual of cumulative dividends on mandatorily
redeemable convertible preferred stock ............... -- -- -- -- -- --
Issuance of common stock in initial public
offering, net ........................................ -- -- 3,550,000 35,500 -- --
Conversion of mandatorily redeemable convertible
preferred stock into common stock .................... -- -- 3,807,533 38,075 -- --
Exercise of stock options ............................. -- -- 73,890 739 -- --
Net loss for the period ............................... -- -- -- -- -- --
-------- --------- --------- -------- -------- ---------
Balance as of September 30, 1998 (unaudited) .......... -- $ -- 15,482,804 $154,828 -- $ --
======== ========= ========== ======== ======== =========

<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------

Additional Deferred
paid-in stock Accumulated
capital compensation deficit
------------ ------------ ---------------
<S> <C> <C> <C>
Balance as of December 31, 1994 ....................... $ 44,750 $ -- $ (35,771)
Issuance of Class B common stock subsequently
converted to Class A ................................. 92,843 -- --
Issuance of Class A common stock, net of $20,512
issuance costs ....................................... 1,268,161 -- --
Net loss .............................................. -- -- (1,168,144)
----------- ---------- -------------
Balance as of December 31, 1995 ....................... 1,405,754 -- (1,203,915)
Issuance of Class A common stock, net of $39,125
issuance costs ....................................... 4,485,532 -- --
Common stock Class A converted ........................ (9,693) -- --
Issuance of common stock to officer ................... 37,606 -- --
Issuance of warrants in connection
with mandatory conversion subordinated notes.......... 17,900 -- --
Notes converted to preferred stock .................... 1,499,477 -- --
Issuance of preferred stock, net of $236,820
issuance costs ....................................... 2,301,018 -- --
Net loss .............................................. -- -- (6,795,675)
----------- ---------- -------------
Balance as of December 31, 1996 ....................... 9,737,594 -- (7,999,590)
Issuance of preferred stock ........................... 499,837 -- --
Issuance of common stock to officer ................... 31,786 -- --
Issuance of warrants in connection
with senior convertible notes--related parties ....... 201,000 -- --
Senior convertible notes payable--related parties
converted into common stock .......................... 94,165 -- --
Net loss .............................................. -- -- (5,305,828)
----------- ---------- -------------
Balance as of December 31, 1997 ....................... 10,564,382 -- (13,305,418)
Issuance of warrants in connection with senior
convertible notes payable--related parties ........... 12,156 -- --
Issuance of warrants to former officer ................ 450,000 -- --
Issuance of warrants to consultant .................... 20,240 -- --
Issuance of common stock for acquired businesses....... 10,768,785 -- --
Issuance of stock options to employees ................ 331,500 (331,500) --
Issuance of common stock to officer ................... 89,437 (90,000) --
Amortization of deferred stock compensation ........... -- 48,578 --
Issuance of common stock to consultants ............... 22,441 -- --
Offering costs in connection with mandatorily
redeemable convertible preferred stock ............... (229,105) -- --
Senior convertible notes payable--related parties
converted into common stock .......................... 2,665,614 -- --
Convertible preferred stock converted into
common stock ......................................... (3,848) -- --
Conversion of warrants into common stock .............. (1,913) -- --
Imputed interest on loans payable--related parties..... 9,000 -- --
Accrual of cumulative dividends on mandatorily
redeemable convertible preferred stock ............... -- -- (275,796)
Issuance of common stock in initial public
offering, net ........................................ 44,735,433 -- --
Conversion of mandatorily redeemable convertible
preferred stock into common stock .................... 17,168,730 -- --
Exercise of stock options ............................. 128,409 -- --
Net loss for the period ............................... -- -- (18,350,979)
----------- ---------- -------------
Balance as of September 30, 1998 (unaudited) .......... $86,731,261 $ (372,922) $ (31,932,193)
=========== ========== =============

<CAPTION>
Total
stockholders'
equity (deficit)
----------------
<S> <C>
Balance as of December 31, 1994 ....................... $ 9,229
Issuance of Class B common stock subsequently
converted to Class A ................................. 93,000
Issuance of Class A common stock, net of $20,512
issuance costs ....................................... 1,268,488
Net loss .............................................. (1,168,144)
--------------
Balance as of December 31, 1995 ....................... 202,573
Issuance of Class A common stock, net of $39,125
issuance costs ....................................... 4,485,875
Common stock Class A converted ........................ --
Issuance of common stock to officer ................... 37,627
Issuance of warrants in connection
with mandatory conversion subordinated notes.......... 17,900
Notes converted to preferred stock .................... 1,500,000
Issuance of preferred stock, net of $236,820
issuance costs ....................................... 2,301,902
Net loss .............................................. (6,795,675)
--------------
Balance as of December 31, 1996 ....................... 1,750,202
Issuance of preferred stock ........................... 500,011
Issuance of common stock to officer ................... 31,891
Issuance of warrants in connection
with senior convertible notes--related parties ....... 201,000
Senior convertible notes payable--related parties
converted into common stock .......................... 94,757
Net loss .............................................. (5,305,828)
--------------
Balance as of December 31, 1997 ....................... (2,727,967)
Issuance of warrants in connection with senior
convertible notes payable--related parties ........... 12,156
Issuance of warrants to former officer ................ 450,000
Issuance of warrants to consultant .................... 20,240
Issuance of common stock for acquired businesses....... 10,821,567
Issuance of stock options to employees ................ --
Issuance of common stock to officer ................... --
Amortization of deferred stock compensation ........... 48,578
Issuance of common stock to consultants ............... 22,500
Offering costs in connection with mandatorily
redeemable convertible preferred stock ............... (229,105)
Senior convertible notes payable--related parties
converted into common stock .......................... 2,673,894
Convertible preferred stock converted into
common stock ......................................... --
Conversion of warrants into common stock .............. --
Imputed interest on loans payable--related parties..... 9,000
Accrual of cumulative dividends on mandatorily
redeemable convertible preferred stock ............... (275,796)
Issuance of common stock in initial public
offering, net ........................................ 44,770,933
Conversion of mandatorily redeemable convertible
preferred stock into common stock .................... 17,206,805
Exercise of stock options ............................. 129,148
Net loss for the period ............................... (18,350,979)
--------------
Balance as of September 30, 1998 (unaudited) .......... $ 54,580,974
==============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (1,168,144) $ (6,795,675) $ (5,305,828)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................... 59,196 305,050 364,607
Amortization of debt discount ........................... -- 17,900 42,652
Write-off of property and equipment ..................... -- -- 756,795
Write-off of acquired in-process technology ............. -- -- --
Accrued interest on senior convertible notes--related
parties ................................................ -- -- 68,609
Imputed interest on note payable--related party ......... -- -- --
Provision for doubtful accounts ......................... 10,000 66,000 --
Amortization of intangible assets ....................... -- -- --
Non-cash compensation ................................... -- 37,627 31,891
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable .................................... (69,250) (273,923) 91,139
Prepaid assets and other current assets ................ -- (237,527) 222,591
Deposits ............................................... (14,588) (45,554) 12,096
Accounts payable ....................................... 136,231 292 746,172
Accrued liabilities .................................... 51,361 442,994 (43,150)
Deferred revenue ....................................... -- 1,549,710 (1,453,214)
------------ ------------ ------------
Net cash used in operating activities ................ (995,194) (4,933,106) (4,465,640)
------------ ------------ ------------
Cash flows from investing activities:
Increase in intangible assets ............................ -- (41,205) --
Cash paid for acquisitions, net .......................... -- -- --
Proceeds from sale of property and equipment ............. -- -- 22,850
Purchases of property and equipment ...................... (464,016) (1,537,071) (42,069)
------------ ------------ ------------
Net cash used in investing activities ................ (464,016) (1,578,276) (19,219)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of Mandatorily
Redeemable Series A Preferred Stock ..................... -- -- --
Deferred offering costs .................................. -- -- (110,602)
Proceeds from senior convertible notes payable--
related parties ......................................... -- -- 2,500,000
Proceeds from notes payable--related parties ............. 122,000 -- --
Repayment of notes payable--related parties .............. (35,000) (87,000) --
Proceeds from exercise of stock options .................. -- -- --
Proceeds from mandatory conversion subordinated
notes payable ........................................... -- 1,500,000 --
Proceeds from issuance of common stock, net .............. 1,361,488 4,485,875 --
Proceeds from issuance of convertible preferred stock,
net ..................................................... -- 2,301,902 500,011
------------ ------------ ------------
Net cash provided by financing activities ............ 1,448,488 8,200,777 2,889,409
------------ ------------ ------------
Net change in cash and cash equivalents .............. (10,722) 1,689,395 (1,595,450)
Cash and cash equivalents at beginning of period ............ 10,722 -- 1,689,395
------------ ------------ ------------
Cash and cash equivalents at end of period .................. $ -- $ 1,689,395 $ 93,945
============ ============ ============

<CAPTION>
Nine months
ended
September 30,
----------------------------------
1997 1998
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (4,645,273) $ (18,350,979)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................... 291,679 289,263
Amortization of debt discount ........................... 12,936 158,348
Write-off of property and equipment ..................... 756,795 --
Write-off of acquired in-process technology ............. -- 5,477,281
Accrued interest on senior convertible notes--related
parties ................................................ 27,636 14,630
Imputed interest on note payable--related party ......... -- 9,000
Provision for doubtful accounts ......................... 27,000 250,000
Amortization of intangible assets ....................... 18,000 3,630,573
Non-cash compensation ................................... 15,876 536,318
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable .................................... 188,672 (4,468,316)
Prepaid assets and other current assets ................ 135,874 (257,455)
Deposits ............................................... (271) (156,718)
Accounts payable ....................................... 841,075 2,632,773
Accrued liabilities .................................... (62,972) 921,255
Deferred revenue ....................................... (1,331,738) (50,496)
------------ -------------
Net cash used in operating activities ................ (3,724,711) (9,364,523)
------------ -------------
Cash flows from investing activities:
Increase in intangible assets ............................ -- (20,598)
Cash paid for acquisitions, net .......................... -- (1,458,886)
Proceeds from sale of property and equipment ............. 22,850 --
Purchases of property and equipment ...................... (34,466) (958,035)
------------ -------------
Net cash used in investing activities ................ (11,616) (2,437,519)
------------ -------------
Cash flows from financing activities:
Net proceeds from issuance of Mandatorily
Redeemable Series A Preferred Stock ..................... -- 10,060,002
Deferred offering costs .................................. -- (321,066)
Proceeds from senior convertible notes payable--
related parties ......................................... 1,625,000 150,000
Proceeds from notes payable--related parties ............. -- --
Repayment of notes payable--related parties .............. -- (295,945)
Proceeds from exercise of stock options .................. -- 129,148
Proceeds from mandatory conversion subordinated
notes payable ........................................... -- --
Proceeds from issuance of common stock, net .............. -- 44,770,933
Proceeds from issuance of convertible preferred stock,
net ..................................................... 500,011 --
------------ -------------
Net cash provided by financing activities ............ 2,125,011 54,493,072
------------ -------------
Net change in cash and cash equivalents .............. (1,611,316) 42,691,030
Cash and cash equivalents at beginning of period ............ 1,689,395 93,945
------------ -------------
Cash and cash equivalents at end of period .................. $ 78,079 $ 42,784,975
============ =============
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies

(a) Summary of Operations

24/7 Media, Inc. (successor company to Interactive Imaginations, Inc.
("Interactive Imaginations")) operates networks of Web sites that enable both
advertisers and Web publishers to capitalize on the opportunities presented by
Internet advertising, direct marketing and electronic commerce. The Company
generates revenues by delivering advertisements and promotions to Web sites
affiliated with the Company. Interactive Imaginations's network properties
included the ContentZone, which is a network of small to medium-sized Web sites
to which advertisements and promotions are served; and Riddler.com, an
advertising supported Web site that enables users to play intellectually
challenging games for prizes and cash.

Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, unproven business model and the
limited history of electronic commerce on the Internet. The Company's success
may depend in part upon the emergence of the Internet as a communications
medium, prospective project development efforts, and the acceptance of the
Company's solutions by the marketplace.

Interactive Imaginations was incorporated in the State of New York in
September 1994 and first recognized revenue in June 1995. 24/7 Media, Inc.
("24/7 Media" or the "Company") was incorporated in Delaware on
January 23, 1998, as a wholly owned subsidiary of Interactive Imaginations, to
consolidate three Internet advertising companies: (i) Petry Interactive, Inc.
("Petry"), which sold advertising for Web sites organized in a network, (ii)
Advercomm, Inc. ("Advercomm"), a newly formed corporation which brought a
number of high profile Web sites to the 24/7 Network, and (iii) Interactive
Imaginations.

On February 25, 1998, pursuant to an Agreement and Plan of Merger, dated
February 2, 1998, the Company simultaneously consummated the merger of each of
Petry and Advercomm with and into the Company (the mergers, together with the
concurrent investment of approximately $10 million by certain third party
investors concurrent with an existing investor of Interactive Imaginations, the
"Initial Merger"). Effective February 25, 1998, 24/7 Media commenced operations
of the 24/7 Network, a network of high profile Web sites to which
advertisements are served. On April 9, 1998, Interactive Imaginations (24/7
Media's then parent) was merged with and into the Company in a manner similar
to a pooling of interests. As a result, 24/7 Media's historical results of
operations for all periods prior to the Initial Merger represent those of
Interactive Imaginations. In addition, on April 13, 1998, the Company acquired
Intelligent Interactions Corporation ("Intelligent Interactions"), a
corporation that developed and licensed ad serving technology and e-commerce
software, and as of June 1, 1998, the Company acquired CliqNow!, a network of
Web sites ("CliqNow!").

Pursuant to the Agreement and Plan of Merger, certain conditions necessary
to cause the merger included the following: the Company was required to cause
(i) the conversion of all of the then outstanding shares of its Convertible
Preferred Stock into common stock, (ii) the conversion of substantially all of
the then outstanding senior convertible notes payable to related parties into
common stock, (iii) substantially all warrants exerciseable for common stock to
be surrendered in exchange for common stock, and (iv) the investment of at
least $10 million in the Company, pursuant to the Securities Purchase
Agreement.

In connection with the Initial Merger, Interactive Imaginations entered
into a Securities Purchase Agreement, dated February 25, 1998, with certain
investors (including David J. Moore, the President and Chief Executive Officer
of the Company), for the sale and issuance of preferred shares and warrants in
a private placement for total proceeds of $10,060,002. For each $10,000
invested, the investors received 10,000 shares of Series A Preferred Stock,
which had automatic conversion rights into common stock at a conversion price
of $3.81 upon consummation of the Company's initial public offering in August
1998 ("IPO"), and approximately 1,313 Class A Warrants, exercisable into Common
Stock at an exercise price of $7.62 per share, and approximately 1,313 Class B
Warrants, exercisable into Common Stock at an exercise price of $11.42 per
share. The Securities Purchase Agreement also contained other standard terms
and conditions, including covenants, representations and warranties, and mutual

F-7
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

indemnification. Also in connection with the Initial Merger, Interactive
Imaginations entered into a Shareholders' Agreement, dated February 25, 1998,
among The Travelers Insurance Company (an existing investor in Interactive
Imaginations), Prospect Street NYC Discovery Fund, L.P., Big Flower Digital
Services, Inc. and certain individual investors (the "Shareholders'
Agreement"), which included standard terms and conditions and provided these
shareholders with a right to elect three members of the seven member board of
directors of the Company and a right of first refusal with respect to transfers
of Company securities. The Shareholders' Agreement was terminated in its
entirety upon the consummation of the IPO. In connection with the Initial
Merger, certain shareholders of the Company were granted registration rights
with respect to their shares of Common Stock.

Petry Interactive entered into an oral consulting agreement with
Manufacturers Renaissance Network, Inc. ("MRN"), a corporation of which C.
Andrew Johns, the Executive Vice President, Treasurer and Chief Financial
Officer of the Company, was an officer and a 50% stockholder, pursuant to which
MRN was paid $75,000 and Class C Warrants to purchase 18,750 shares of Common
Stock at an exercise price of $3.81 per share for consulting services rendered
in connection with the Merger. The Company recorded $13,500 of acquisition
costs in connection with these warrants. 24/7 Media also paid MRN a consulting
fee of approximately $33,000 for services rendered in connection with the
acquisition of Intelligent Interactions.

(b) Principles of Consolidation

The Company's audited financial statements as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31, 1997
include the historical results of Interactive Imaginations and do not reflect
any operating results of the companies acquired subsequent to December 31,
1997; namely, Petry, Advercomm, Intelligent Interactions or CliqNow!
(collectively, the "Acquisitions") (see note 2).

In connection with the Initial Merger, no single former shareholder group
obtained more than 50 percent of the outstanding shares of the Company
following the transaction. However, the Company's former common shareholder
interest group received the largest portion of the voting rights in the
combined entity and, therefore, was deemed to be the accounting acquirer in
connection with the Initial Merger.

The Company's unaudited consolidated financial statements as of September
30, 1998 and for the nine months ended September 30, 1998 include the
consolidated accounts of the Company, and from their respective dates of
acquisition (i) Petry and Advercomm from February 25, 1998, (ii) Intelligent
Interactions from April 13, 1998, and (iii) CliqNow! from June 1, 1998. For the
nine months ended September 30, 1997, the Company's historical results of
operations only include the results of Interactive Imaginations. All
significant intercompany transactions and balances have been eliminated in
consolidation.

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(d) Cash and Cash Equivalents

The Company considers all highly liquid securities, with original
maturities of three months or less, to be cash equivalents. Cash equivalents at
December 31, 1996 and 1997 and September 30, 1998 were $1,252,802, $0 and
$41,510,047, respectively, which consisted principally of money market
accounts.

(e) Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets,
generally three to five years. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the assets or the term
of the leases, whichever is shorter.

F-8
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

(f) Intangible Assets

Intangible assets including trademarks and licenses are being amortized
using the straight-line method over one to five years.

Goodwill resulting from the acquisition of Internet advertising businesses
is estimated by management to be primarily associated with the acquired
workforce, contracts and technological know how. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified Internet professionals and customers, recorded
goodwill is amortized on the straight-line basis over the estimated period of
benefit, which is two years.

At each balance sheet date, the Company assesses the value of recorded
goodwill for possible impairment based upon a number of factors, including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows in relation to each company acquired. To date, the
Company has not recorded any provisions for possible impairment of intangible
assets.

(g) Income Taxes

The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in results of
operations in the period that the tax change occurs.

(h) Deferred Revenue

Deferred revenue consists of a prepaid software license fee for use of the
Company's proprietary technology and prepaid advertising fees, although the
majority of the Company's advertising customers generally pay after the
services have been provided. As of December 31, 1996 and 1997 and September 30,
1998, the Company had deferred revenue related to the software license of
$1,071,059, $0 and $0 and advertising agreements of $454,064, $96,496 and
$46,000, respectively.

(i) Revenue Recognition

The Company's advertising revenues are derived principally from short-term
advertising agreements in which the Company delivers advertising impressions or
full-page advertisements for a fixed fee to third-party Web sites comprising
the 24/7 Network, the CliqNow! Network and the ContentZone and to a lesser
extent its Riddler.com Web site.

Revenues from advertising are recognized in the period the advertising
impressions are delivered, provided collection of the resulting receivables is
probable. For the years ended December 31, 1996 and 1997 and the nine months
ended September 30, 1998, the Company recognized $436,476, $682,853, and
$908,719, respectively, of cash advertising revenue related solely to the
ContentZone.

Third party Web sites which register web page(s) with the Company's
networks and display advertising banners on those pages are commonly referred
to as "Affiliated Web sites." These third party Web sites are not "related
party" relationships or transactions as defined in Statement of Financial
Accounting Standards No. 57, "Related Party Disclosures." The Company pays its
Affiliated Web sites a service fee for providing advertising space to the
Company's networks. The Company becomes obligated to make payments to such
Affiliated Web sites, which have contracted with

F-9
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

the Company to be part of the Company's networks, in the period the advertising
impressions are delivered. Such expenses are classified as cost of revenues in
the consolidated statements of operations.

The Company's licensing revenue is derived principally from software
licensing fees and fees from maintenance, consulting and support of its
software. Licensing fees are recognized as performance occurs under the terms
of the applicable agreement. Expenses from the Company's licensing revenues are
primarily payroll costs to deliver, modify and support the software. These
expenses are classified in cost of revenues in the consolidated statements of
operations and were not material.

At December 31, 1997 and September 30, 1998, accounts receivable include
approximately $56,000 and $1,493,782, respectively, of unbilled receivables,
all of which have been subsequently billed.

(j) Barter Transactions

The Company historically traded advertisements on its Web properties in
exchange for advertisements on the Internet sites of other companies. Barter
revenues and expenses are recorded at the fair market value of services
provided or received, whichever is more determinable in the circumstances.
Revenue from barter transactions is recognized as income when advertisements
are delivered on the Company's Web properties. Barter expense is recognized
when the Company's advertisements are run on other companies' Web sites, which
is typically in the same period when the barter revenue is recognized.
Advertising barter revenues and expenses were approximately $0, $55,000,
$83,000 and $0 for the years ended 1995, 1996, 1997 and the nine months ended
September 30, 1998, respectively.

The Company also receives payment for its advertising services in the form
of goods that are used as prizes for the Riddler game site. Prize revenue and
the corresponding prize expense is recorded at the estimated fair market value
of the prizes received. Advertising prize revenues were approximately $0,
$196,000, $86,000 and $0 for the years ended 1995, 1996 and 1997 and the nine
months ended September 30, 1998, respectively.

The Company expects that barter revenue will continue to represent a
significantly smaller percentage of total revenues in the future.

(k) Product Development Costs

Product development costs and enhancements to existing products are
charged to operations as incurred. Software development costs are required to
be capitalized when a product's technological feasibility has been established
by completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software
development costs since such costs have not been significant.

(l) Deferred Offering Costs

At December 31, 1997, specific incremental costs directly attributable to
the issuance of mandatorily redeemable convertible preferred stock were
deferred. These costs have been charged against additional paid-in capital as a
result of the Company's issuance of mandatorily redeemable convertible
preferred stock during the first quarter of 1998.

(m) Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to
acquire the stock.

F-10
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.

(n) Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.

(o) Advertising Expenses

The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing on the statements of
operations and totaled $54,123, $514,637, $181,280 and $937,255 for the years
ended December 31, 1995, 1996 and 1997 and the nine months ended September 30,
1998, respectively.

(p) Financial Instruments and Concentration of Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities. At December 31, 1996 and
1997, the fair value of these instruments approximated their financial
statement carrying amount because of the short term maturity of these
instruments. Substantially all of the Company's cash equivalents were invested
in certificates of deposit. The Company has not experienced any significant
credit losses to date.

The fair value of the Senior Convertible Notes Payable was determined
based on an imputed market rate of interest which is equal to its carrying
amount on the balance sheet.

Total cash advertising revenues associated with major advertising
customers (excluding barter) are as follows:

<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- -------------- -----
Customer(1) (unaudited)
<S> <C> <C> <C> <C> <C>
A ............. $50,000 $ -- $ -- $ -- $--
B ............. 32,000 -- -- -- --
C ............. 30,000 -- -- -- --
D ............. 20,000 -- -- -- --
E ............. -- 211,936 326,707 244,693 --
F ............. -- 178,191 157,019 139,819 --
</TABLE>

For the nine months ended September 30, 1998, one Affiliated Web site
accounted for approximately 13% of the Company's total advertising revenues.

Accounts receivable regarding significant advertising customers are as
follows:

<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1996 1997 1998
---------- --------- --------------
Customer(1) (unaudited)
<S> <C> <C> <C>
H ............. $93,800 $ -- $ --
I ............. 41,000 -- --
J ............. -- 31,000 --
</TABLE>

(1) Each of the customers listed in the revenue and accounts receivable
tables are different.

F-11
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

To date, accounts receivable have been derived from advertising fees
billed to advertisers located in the United States. The Company generally
requires no collateral. The Company maintains reserves for potential credit
losses; historically, such losses have been minor and within management's
expectations.

(q) Interim Results (Unaudited)

The accompanying interim consolidated financial statements as of September
30, 1998 and for the nine months ended September 30, 1997 and 1998 are
unaudited. In the opinion of management, the unaudited interim consolidated
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position as of
September 30, 1998 and the results of the Company's operations and its cash
flows for the nine months ended September 30, 1997 and 1998. The financial data
and other information disclosed in these notes to consolidated financial
statements related to these periods are unaudited. The results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
to be expected for the year ending December 31, 1998.

(r) Loss Per Share

Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) and
the Securities and Exchange Commission Staff Accounting Bulletin No. 98. SFAS
128 replaced the presentation of primary and fully diluted earnings (loss) per
share (EPS), with a presentation of basic EPS and diluted EPS. Under SFAS 128,
basic EPS excludes dilution for common stock equivalents and is computed by
dividing income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and resulted in the issuance of common stock. Diluted net loss per share is
equal to basic loss per share since all common stock equivalents are
anti-dilutive for each of the periods presented. Anti-dilutive potential common
shares outstanding were 64,425, 466,635, and 1,636,474 for the years ended
December 31, 1995, 1996 and 1997, respectively, and 885,419 and 4,993,984 for
the nine-month periods ended September 30, 1997 and 1998, respectively.

Net loss applicable to common stockholders for the nine-month period ended
September 30, 1998 has been increased to give effect to $275,796 of cumulative
dividends on mandatorily redeemable convertible preferred stock through the
date of its conversion into common stock in connection with the Company's
August initial public offering (see note 6).

(s) Recent Accounting Pronouncements

The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in the quarter
ended March 31, 1998. SFAS No. 130 requires the Company to report in its
financial statements, in addition to its net income (loss), comprehensive
income (loss), which includes all changes in equity during a period from
non-owner sources including, as applicable, foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. There were no differences between
the Company's comprehensive loss and its net loss as reported.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for determining whether computer software is internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the
public. It also provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The Company has not
yet determined the impact, if any, of adopting SOP 98-1, which will be
effective for the Company's year ending December 31, 1999.

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information

F-12
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

about operating segments. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. The Company
has determined that it does not have any separately reportable business
segments.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. This statement is not expected to affect the Company as the Company
currently does not have any derivative instruments or hedging activities.

(2) Acquisitions

Petry and Advercomm Acquisitions

On February 25, 1998, in connection with the Initial Merger, the Company
acquired all of the outstanding stock of Petry and Advercomm in separate
transactions in exchange for 2,623,591 and 1,705,334 shares of the Company's
Common Stock, respectively, for a total purchase price of $4,197,800 and
$2,728,500, respectively, plus acquisition costs of $157,000. The fair value of
the 4,328,925 aggregate shares of Common Stock issued in connection with the
acquisition of Petry and Advercomm was estimated to be $1.60 per share,
determined primarily by reference to the common stock conversion price of $1.60
per share in connection with the Company's issuance of approximately $1,000,000
senior convertible notes payable and detachable warrants during September and
November 1997, and supported by an independent valuation of the Company's
Common Stock as of February 25, 1998.

The Petry and Advercomm acquisitions have been accounted for using the
purchase method of accounting, and accordingly, the purchase price has been
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
The aggregate purchase price of the Petry and Advercomm acquisitions were
$7,083,300. Of this, $(1,979,000) of the aggregate purchase price was allocated
to net tangible liabilities consisting primarily of cash, accounts receivable,
property and equipment, accounts payable and accrued liabilities. The
historical carrying amounts of such net liabilities approximated their fair
values. The purchase price in excess of the fair value of identified tangible
and intangible assets and liabilities assumed in the amount of $9,062,300 was
allocated to goodwill and is being amortized over its estimated useful life of
two years from the date of acquisition.

The Petry and Advercomm acquisitions have been primarily structured as tax
free exchanges of stock; therefore, the differences between the recognized fair
value of the acquired assets, including intangible assets, and their historical
tax bases is not deductible for income tax purposes.

Intelligent Interactions Acquisition

During April 1998, the Company entered into an Agreement and Plan of
Merger (the "II Merger") to acquire all of the outstanding stock of Intelligent
Interactions.

Upon consummation of the II Merger, each share of common stock of
Intelligent Interactions was converted into approximately 16.3 shares of common
stock, 2.3 Class A Warrants, 2.3 Class B Warrants and 1.2 Class C Warrants of
the Company. Therefore, the Company issued 949,242 shares of common stock,
265,152 of Class A Warrants, 265,152 of Class B Warrants and 136,553 of Class C
Warrants. The warrants have exercise prices of $7.62, $11.42 and $3.81 per
share, respectively, and expire in five years. The Company's Class A, B, and C
Warrants were determined to have a fair value of $0, $0, and $0.72 per share,
respectively, using the Black-Scholes Option Model and supported by an
independent valuation of the Warrants issued in the transaction. Additionally,
the Company assumed 212,804 stock options for the purchase of Common Stock in
accordance with the II Merger. The stock

F-13
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(2) Acquisitions--Continued

options have an exercise price ranging from $0.16 to $0.48, as defined in the
II Merger Agreement, and expire no later than 10 years.

Each share of Preferred Stock, Series A Preferred Stock, Series AA
Preferred Stock or Series AAA Preferred Stock of Intelligent Interactions was
converted to approximately 18 shares of Mandatorily Redeemable Convertible
Preferred Stock--Series A, par value $.01 per share, 2.7 Class A Warrants, 2.7
Class B Warrants and 1.4 Class C Warrants of the Company. Total Mandatorily
Redeemable Convertible Preferred Shares issued were 3,561,505 shares which
converted into 0.2626 shares of the Company's Common Stock, or 935,269 shares
of Common Stock in connection with the Company's August initial public
offering. Each shareholder of record of the Mandatorily Redeemable Convertible
Shares had the right to cause the Company to redeem at the option of
shareholder or part of the shareholder's outstanding shares by paying cash of
$1.00 per share plus accrued dividends no later than the fifth anniversary of
the original issue date. The convertible note payable was also converted into
Mandatorily Redeemable Convertible Preferred Stock--Series A and detachable
warrants were terminated as a result of the merger.

In addition, each option to purchase shares of common stock of Intelligent
Interactions was converted into an option to purchase approximately 16 shares
of common stock of the Company under the terms and pursuant to the conditions
of the Company's 1998 Stock Incentive Plan.

The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the total purchase price of $7,670,500 has been
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
Approximately $(154,200) of the aggregate purchase price was allocated to net
tangible liabilities consisting primarily of cash, accounts receivable,
property and equipment, accounts payable and accrued liabilities. The
historical carrying amounts of such net liabilities approximated their fair
values. The fair value of the purchased existing technology and in-process
technology were determined by management using a risk-adjusted income valuation
approach. This approach directly measured the value of the purchased in-process
technology (exclusive of the purchased existing technology) by converting the
cash flows directly attributable to the purchased in-process technology at a
rate of return adjusted for the risks inherent in the development and ultimate
technological feasibility of such technology. Based upon an independent
appraisal, which takes into account replacement cost of assets, market
multiples and present value of future after-tax earnings attributable to the
purchased in-process technology, approximately $5,477,300 of the purchase price
was allocated to in-process technology and was immediately charged to
operations because such in-process technology had not reached the stage of
technological feasibility at the acquisition date and had no alternative future
use. The value was derived exclusive of the value of the purchased existing
technology. The purchase price in excess of the fair value of identified
tangible assets and liabilities assumed in the amount of $2,347,400 was
allocated to goodwill and other intangibles and is being amortized over its
estimated useful life of two years.

The fair value of the Company's equity securities issued as consideration
for the Intelligent Interactions acquisition was determined based upon a number
of factors, including the sale of 10,060,002 shares of Mandatorily Convertible
Redeemable Preferred Stock-Series A on February 25, 1998 (excluding detachable
warrants) for $10,060,002 in cash. The fair value of the Company's Mandatorily
Convertible Redeemable Preferred Stock was estimated to be $1.06 per preferred
share ($4.24 per common share on an as if converted basis) and its Common Stock
at $4.00 per share. The higher fair value attributable to the Mandatorily
Convertible Preferred Shares versus Common Shares is due to the convertible
feature of the Preferred Shares.

CliqNow! Acquisition

As of June 1, 1998, the Company acquired the CliqNow! division of K2
Design, Inc., an Internet advertising network comprised of medium to large Web
sites organized into eight topical channels, for $4,295,000, plus acquisition
costs

F-14
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(2) Acquisitions--Continued

of $95,800, with $1,295,000 payable in cash and $3,000,000 payable in Series B
Convertible Redeemable Preferred Stock. The Company issued 3,000 shares of
Preferred Stock which, by its terms, automatically converted into 230,415
shares of Common Stock upon consummation of the IPO, at the IPO price per
share, net of the underwriting discount, or $13.02 per share, which was deemed
to be the fair value of the securities. Approximately $223,200 of the aggregate
purchase price was allocated to net tangible assets consisting primarily of
cash, accounts receivable, property and equipment, accounts payable and accrued
liabilities. The purchase price in excess of the fair value of identifiable
tangible and intangible assets and liabilities assumed in the amount of
$4,167,600 was allocated to goodwill and is being amortized over its estimated
useful life of two years.

Summary

Each of the Acquisitions has been accounted for using the purchase method
of accounting, and accordingly, each purchase price has been allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed on
the basis of their fair values on the acquisition dates. The historical
carrying amounts of such assets and liabilities approximated their fair values.
The following summarizes the purchase price allocation for each of the
respective acquisitions:

<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
------------------------------------------------
NET
TANGIBLE IN-PROCESS
EFFECTIVE ACQUISITION ASSETS RESEARCH AND INTANGIBLES/
ACQUIRED ENTITY DATE COSTS (LIABILITIES) DEVELOPMENT GOODWILL
- -------------------------- ------------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Petry February 25, 1998 $ 4,292,800 $ (2,064,400) $ -- $ 6,357,200
Advercomm February 25, 1998 2,790,500 85,400 -- 2,705,100
Intelligent Interactions April 13, 1998 7,670,500 (154,200) 5,477,300 2,347,400
CliqNow! June 1, 1998 4,390,800 223,200 -- 4,167,600
----------- ------------ ---------- -----------
$19,144,600 $ (1,910,000) $5,477,300 $15,577,300
=========== ============ ========== ===========
</TABLE>

The following unaudited pro forma consolidated amounts give effect to the
Acquisitions as if they had occurred at January 1, 1997, or date of inception,
if later, by consolidating the results of operations of Petry, Advercomm,
Intelligent Interactions and CliqNow! with the results of the Company for year
ended December 31, 1997 and the nine month periods ended September 30, 1997 and
1998. The pro forma adjustments include the elimination of all intercompany
transactions. Advercomm was incorporated in November 1997 and had no operations
in 1997; however, the operation of Advercomm's network based advertising
services commenced on February 1, 1998; accordingly, Advercomm results of
operations are only included in the pro forma statement of operations for the
period from February 1, 1998 to February 25, 1998 (date of acquisition).

The unaudited pro forma consolidated statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as being representative of future
operating results.

F-15
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(2) Acquisitions--Continued

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
December 31, -----------------------------------
1997 1997 1998
--------------- ---------------- ----------------
<S> <C> <C> <C>
Total revenues ....................................... $ 5,379,689 $ 3,502,971 $ 12,128,686
Net loss ............................................. 16,887,098 (13,449,881) (21,022,208)
Net loss attributable to common stockholders ......... 17,433,098 (13,859,381) (21,401,004)
Net loss per share--basic and diluted ................ $ 3.92 $ (3.18) $ (2.46)
Weighted average shares used in basic and diluted net
loss per share calculation(1) ....................... 4,443,053 4,363,405 8,688,842
</TABLE>

- ------------
(1) The Company computes net loss per share in accordance with the provisions
of SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin
No. 98. Under SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss for the period by the weighted average
number of common shares outstanding during the period. The weighted
average common shares used to compute pro forma basic net loss per share
includes the actual weighted average common shares outstanding for the
historical year ended December 31, 1997 and for the historical nine month
periods ended September 30, 1997 and 1998, respectively, plus the common
shares issued in connection with each of the Acquisitions from January 1,
1997 or inception of operations of the acquired companies, if later. The
common stock issued in connection with the acquisition of each of the
acquired companies were as follows: Intelligent Interactions' 949,242
shares, as if the acquisition occurred on January 1, 1997; Petry's
2,623,591 shares based on the February 1, 1997 date of inception of
operations and Advercomm's 1,705,334 shares based on the February 1, 1998
date of inception of operations, all of which were adjusted for the
weighted average period such shares were considered to be outstanding. In
addition, diluted net loss per share is equal to basic net loss per share
as common stock issuable upon exercise of employee stock options and upon
exercise of outstanding warrants are not included because they are
antidilutive. In future periods, the weighted average shares used to
compute diluted earnings per share will include the incremental shares of
Common Stock relating to outstanding options and warrants to the extent
such incremental shares are dilutive.

(3) Balance Sheet Components

Prepaid Expenses and Other Current Assets

<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
1996 1997 1998
----------- --------- -------------
(unaudited)
<S> <C> <C> <C>
Prepaid operating lease ......... $108,946 $ -- $114,940
Prepaid insurance ............... -- -- 105,463
Barter receivable ............... 85,358 -- --
Other prepaid ................... 43,223 14,936 108,207
-------- ------- --------
$237,527 $14,936 $328,610
======== ======= ========
</TABLE>

Property and Equipment, Net

<TABLE>
<CAPTION>
December 31,
----------------------------- September 30,
1996 1997 1998
------------- ------------- --------------
(unaudited)
<S> <C> <C> <C>
Computer equipment ..................................... $1,893,217 $ 972,283 $1,973,359
Furniture and fixtures ................................. 87,922 -- 214,637
Leasehold improvements ................................. 33,517 -- 21,069
---------- ---------- ----------
2,014,656 972,283 2,209,065
Less accumulated depreciation and amortization ......... (336,720) (380,946) (734,786)
---------- ---------- ----------
$1,677,936 $ 591,337 $1,474,279
========== ========== ==========
</TABLE>

During September 1997, as part of the Company's consolidation and
downsizing, it conducted a book-to-physical inventory of its property and
equipment. As a result of this book-to-physical observation, the Company

F-16

<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(3) Balance Sheet Components--Continued

identified and wrote-off $756,795 of equipment purchases, net of accumulated
depreciation, that could no longer be located and has instituted additional
controls to safeguard its fixed assets.

Intangible Assets

<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1996 1997 1998
------------ ----------- --------------
(unaudited)
<S> <C> <C> <C>
Goodwill .............................. $ -- $ -- $ 15,149,791
Less accumulated amortization ......... -- -- (3,630,573)
--------- -------- ------------
$ -- $ -- $ 11,519,218
========= ======== ============
Licenses .............................. $ 37,040 $ -- $ 58,760
Trademarks ............................ 4,165 4,165 4,165
--------- -------- ------------
41,205 4,165 62,925
Less accumulated amortization ......... (23,918) (1,454) (39,616)
--------- -------- ------------
$ 17,287 $ 2,711 $ 23,309
========= ======== ============
</TABLE>

Accrued Liabilities

<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1996 1997 1998
----------- ----------- --------------
(unaudited)
<S> <C> <C> <C>
Professional fees ......................... $102,105 $225,691 $ 96,982
Employee commissions and expenses ......... -- -- 1,425,347
Ad management fees ........................ -- -- 160,639
Barter payable ............................ 85,358 -- --
Affiliate royalties ....................... 43,955 81,384 390,303
Prizes .................................... 68,474 -- --
Rent and lease obligations ................ -- -- 176,019
Other ..................................... 214,463 164,130 476,870
-------- -------- ----------
$514,355 $471,205 $2,726,160
======== ======== ==========
</TABLE>

(4) Income Taxes

No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented and has no
carryback potential. At December 31, 1997, the Company had approximately
$13,394,000 of federal net operating loss carryforwards available to offset
future taxable income; such carryforwards expire in various years through 2012.

As a result of various equity transactions during 1996 and 1997 as well as
during 1998 (see notes 2 and 6), management believes the Company has undergone
an "ownership change" as defined by section 382 of the Internal Revenue Code.
Accordingly, the utilization of a portion of the net operating loss
carryforwards may be limited. Due to this limitation, and the uncertainty
regarding the ultimate utilization of the net operating loss carryforwards, no
tax benefit for losses has been recorded by the Company in 1995, 1996 and 1997,
and a full valuation allowance has been recorded for the entire amount of the
net deferred tax asset.

The tax effects of temporary differences and tax loss carryforwards that
give rise to significant portions of federal deferred tax assets and deferred
tax liabilities at December 31, 1996 and 1997 are presented below.

F-17
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(4) Income Taxes--Continued

<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ................................... $ 2,223,000 $ 4,554,000
Deferred revenues .................................................. 527,000 33,000
Accounts receivable principally due to allowance for doubtful
accounts .......................................................... 22,000 22,000
Other .............................................................. 24,000 22,000
------------ ------------
Gross deferred tax assets ............................................. 2,796,000 4,631,000
Less: valuation allowance ............................................. (2,698,000) (4,501,000)
------------ ------------
Net deferred tax assets ........................................ 98,000 130,000
------------ ------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation (98,000) (130,000)
------------ ------------
Gross deferred tax liabilities ........................................ (98,000) (130,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>

(5) Notes Payable

Notes Payable--Related Parties

An officer and stockholder of the Company loaned the Company $80,000 in
1995 at an interest rate of 5.76%. The entire principal and accrued interest
totaling $85,618 related to those loans were paid in full in 1996. Affiliates
of this same stockholder loaned the Company $10,000 and $25,000 in 1995 at
interest rates of 6.97% and 6.19%, respectively. The entire principal balance
of $35,000 related to those loans was paid in full in 1995. In addition, an
officer and stockholder of the Company loaned the Company $7,000 in 1995 at an
interest rate of 6.60%. This loan was offset against certain personal expenses
paid by the Company on behalf of this officer and stockholder.

Mandatory Conversion Subordinated Notes

In August, September and October 1996, the Company issued Mandatory
Conversion Subordinated Notes ("Notes") in the aggregate principal amount of
$1,500,000, and bearing an interest rate equal to 8% per annum and convertible
into Series A Preferred Stock at the price per share achieved in the then
proposed private placement of Series A Preferred Stock. Under the terms and
conditions of the Notes, the Notes were converted into 52,262 shares of Series
A Preferred Stock of the Company upon completion of the November 1996 private
placement of Series A Preferred Stock at the purchase price per share ($28.70)
of such sale of Series A Preferred Stock (See Note 6--Convertible Preferred
Shares). All accrued interest on these Notes, aggregating $21,919, was paid to
the holders thereof in connection with the conversion to Convertible Preferred
Shares.

In connection with the issuance of Mandatory Convertible Subordinated
Notes in August 1996, in the principal amount of $500,000, the Company also
issued to the note holder detachable warrants to purchase 6,533 of the
Company's Common shares at a price of $11.48 per share. Such warrants expire no
later than three years from the date of issuance. The value attributed to the
warrants of $17,900 was recorded as debt discount and subsequently charged to
interest expense in connection with the conversion of the aforementioned notes.
The Company determined the value of the warrants based upon its estimate of its
effective borrowing rate of 12% at the date of issuance.

Senior Convertible Notes Payable--Related Parties

During 1997, the Company received $2,500,000 in proceeds from the issuance
of senior convertible notes payable primarily to affiliates of stockholders of
the Company, bearing an interest rate of 8% compounded semi-annually. The
notes, including interest thereon, were due on the earlier of prepayment,
redemption, conversion of

F-18

<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(5) Notes Payable--Continued

the notes into common stock or May 15, 1999, the maturity date. Each of the
notes was issued with detachable warrants allowing such holders to purchase
shares of the Company's common stock at prices ranging from $1.60 to $11.48 per
share. The value attributed to the warrants of $201,000 has been recorded as
debt discount and is being amortized to interest expense using the imputed
interest method over the term of the notes. The Company determined the value of
the warrants based upon its estimate of its effective borrowing rates at the
date of each issuance (which rates were 12% prior to September 1, 1997 and 15%
subsequent to September 1, 1997).

The notes were convertible into common stock at conversion prices, as
defined in the original note agreements, ranging from $1.60 to $11.48 per share
upon occurrence of certain events, subject to anti-dilution provisions. The
original conversion price for the $1.5 million of Notes issued prior to
September 1, 1997 was $11.48 per share and for the $1.0 million of Notes issued
between September 1, 1997 and December 31, 1997 was $1.60 per share. The
conversion prices were determined by negotiations among the parties. On
December 22, 1997, $94,757 of the notes, including interest thereon, were
converted into 59,184 shares of common stock at $1.60 per share. During 1997,
the Company recorded $42,652 of interest expense in connection with the
amortization of the debt discount and conversion of the aforementioned notes.

During January 1998, the Company received $150,000 in proceeds from the
issuance of senior convertible notes payable with terms similar to the notes
issued during 1997. The notes were convertible into 43,321 shares of common
stock at $3.48 per share, subject to anti-dilution provisions. The value
attributable to 4,310 warrants, to purchase shares of the Company's common
stock at $3.48 per share, of $12,156 was recorded as debt discount. The Company
determined the value of the warrants based upon its estimate of its effective
borrowing rate of 15% at the date of issuance.

In connection with the Securities Purchase Agreement and the Merger,
$2,056,250 of the Senior Convertible Notes Payable--Related Parties, plus
accrued interest thereon, were converted into 750,586 shares of common stock,
and approximately $500,000 of such notes, plus accrued interest thereon, was
converted into 77,450 shares of common stock. With regard to the $1.5 million
of notes issued prior to September 1, 1997, the original conversion price of
$11.48 per share was adjusted to $8.36 per share under the anti-dilution
provisions triggered by the subsequent financings at lower conversion prices
per share.

Additionally, in accordance with the terms and conditions of the
Securities Purchase Agreement (which terms and conditions were determined by
negotiations among the various parties to the agreement), 177,679 warrants
converted into 99,119 shares of Common Stock. Accordingly, the Company charged
the unamortized portion of the applicable debt discount of $146,000 to interest
expense in connection with the conversion of the Notes.

Loan Payable--Related Party

On September 30, 1998, the Company settled all of its obligations to Petry
Media Corporation which arose in connection with the Company's acquisition of
Petry in February 1998. In connection therewith, the Company made a lump sum
payment in the amount of $828,500 settling its outstanding loan payable and
royalty payable balances of $183,500 and $217,500, respectively, at September
30, 1998, as well as any additional obligations in connection with its
contingent purchase obligation to Petry Media Corporation, the total of which
was limited to $1,000,000. Accordingly, the difference between the lump sum
payment of $828,500 and the Company's outstanding obligations of $401,000 was
attributed to the contingent purchase obligation which was accounted for as an
adjustment of $427,500 to the Petry purchase price. Such amount is now included
as part of goodwill and will be amortized over its remaining amortization
period commencing October 1, 1998.

Warrants

F-19
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(5) Notes Payable--Continued

Company's Common shares at a price of $11.48 per share. Such warrants expire no
later than three years from the date of issuance. The Company recorded an
original issue debt discount on such warrants.

On April 9, 1997, the Company granted warrants to a consultant to purchase
4,375 of the Company's Common shares at an exercise price of $49.72 per share.
The fair value, using a Black-Scholes Option Model, of the warrants was deemed
insignificant on the date of grant.

In connection with the issuance of Senior Convertible Notes
Payable--Related Parties, warrants to purchase 169,316 and 35,609 Common shares
at a prices ranging from $1.60 to $11.48, were outstanding as of December 31,
1997 and February 25, 1998, respectively, and such warrants expire no later
than three years from the date of issuance. The Company recorded an original
issue debt discount on such warrants.

On February 24, 1998, Interactive Imaginations and Michael P. Paolucci
entered into a Confidential Separation Agreement and General Release
("Separation Agreement") pursuant to which Mr. Paolucci's employment as an
executive, but not as a Director, of Interactive Imaginations was terminated as
of February 24, 1998. The terms of the Separation Agreement generally provide
that Mr. Paolucci and Interactive Imaginations agreed to release and discharge
the other party (and its successors and assigns) from all causes of action,
claims, judgments, obligations, damages or liabilities. Interactive
Imaginations agreed to issue to Mr. Paolucci Class C Warrants to purchase up to
625,000 shares of Common Stock at an exercise price of $3.81 per share.
Accordingly, the Company recorded compensation expense of $450,000 during the
first quarter of 1998 in connection with this transaction based upon an
independent valuation of the Class C Warrants. In addition, Interactive
Imaginations agreed to extend the term from January 31, 2000 to January 31,
2005 in respect of a fully vested option held by Mr. Paolucci to purchase
13,000 shares of Interactive Imaginations common stock at $1.72 per share. No
compensation expense was recorded in connection with such extension although
the exercise price of $1.72 per share was below the fair value of the Company's
Common Stock on the date the options were extended, at $3.81 per share, such
amount was deemed insignificant on the date of extension.

In February 1998, the Company issued to a consultant 28,750 warrants to
purchase common stock at an exercise price of $3.48 in exchange for services.
Under the terms and conditions of the Securities Purchase Agreement (as
determined by negotiations among the parties to such agreement), such warrants
were converted into 12,650 shares of Common Stock. The Company recorded
compensation expense of $20,240, based upon the fair market value ($1.60 per
common share as determined by an independent valuation of the Company's Common
Stock) of the 12,650 shares of Common Stock into which the warrants were
converted under the terms and conditions of the Securities Purchase Agreement.

F-20
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(5) Notes Payable--Continued

Warrant activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Warrants Exercise
Granted Price
------------ -----------
<S> <C> <C>
Outstanding at December 31, 1995 ...................... 0
Granted ............................................... 6,533 $ 11.48
Exercised ............................................. 0
Canceled .............................................. 0
---------
Outstanding at December 31, 1996 ...................... 6,533 11.48
Granted ............................................... 173,695 3.56
Exercised ............................................. 0
Canceled .............................................. 0
---------
Outstanding at December 31, 1997 ...................... 180,228 3.84
Granted ............................................... 3,985,615 8.34
Exercised ............................................. (362,858) 6.15
Canceled .............................................. 0
---------
Outstanding at September 30, 1998 (unaudited) ......... 3,802,985 $ 8.32
=========
</TABLE>

All warrants are exerciseable and have expiration dates generally five
years from the date of grant.

(6) Common Stock, Convertible Preferred Shares and Mandatorily Redeemable
Convertible Preferred Stock

Common Stock

In connection with its formation in September 1994, the Company authorized
1,000,000 Common shares, par value $.01 per share, and immediately thereafter
issued a total of 25,000 Common shares to its founders in exchange for
approximately $30,000 worth of expenses, as well as $15,000 in cash.

In February 1995, the Company amended its capital structure to eliminate
the existing Common shares and create Common Stock Class A and Common Stock
Class B. Accordingly, the Company amended its Certificate of Incorporation to
provide for: (i) conversion of the 1,000,000 authorized Common shares (975,000
authorized but not issued; 25,000 issued and outstanding) into 250,000 Class A
Common shares, par value $.01 per share; and (ii) authorization of 250 Class B
Common shares, par value $.01 per share.

In March 1995, the Company issued a total of 250 Class B Common shares in
exchange for approximately $93,000 in cash, which were subsequently (in June
1995) converted to 15,677 Class A Common shares. During the remainder of 1995,
the Company issued a total of 32,656 additional Class A Common shares in
exchange for $1,289,000 in cash. As of December 31, 1995, the Company had
authorized: (i) 1,000,000 Class A Common shares, of which 73,333 were issued
and outstanding; and (ii) 1,000 Class B Common shares, of which none were
outstanding.

During 1996, the Company issued an additional 34,371 Class A Common shares
in exchange for $4,525,000 in cash. Each Class A common share was converted
into 2.5 shares of Common Stock pursuant to a recapitalization in March 1996.

As part of an employment agreement, an officer of the Company was given
approximately 12,500 shares of common stock which were to be issued pro rata on
a monthly basis, over a three-year period beginning in July 1996, as additional
compensation. On October 31, 1997, the officer signed a termination agreement
with the

F-21
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(6) Common Stock, Convertible Preferred Shares and Mandatorily Redeemable
Convertible Preferred Stock--Continued

Company whereby the officer received the remaining 8,333 of the 12,500 shares.
The Company recorded compensation expense at the time of each issuance of
Common Stock based upon the Company's estimate of the fair value using the
conversion rates of the Company's most recent issuance of convertible debt. The
fair market value of the shares issued at the date of each issuance was
approximately $11.48 per share in 1996 and $11.48 per share for issuances prior
to September 1, 1997 and $1.60 per share for issuances between September 1,
1997 and October 31, 1997. As a result, for the years ended December 31, 1996
and 1997, the Company recorded compensation expense of $37,627 and $31,891,
respectively.

In February 1998, the Company awarded to the President 56,250 shares of
restricted common stock which were granted at the fair market value of the
Company's Common Stock of $1.60 per share determined by an independent
appraisal of the Company's Common Stock in connection with the Initial Merger,
and vest over a three year period. In connection with this issuance, the
Company is recognizing compensation expense of $90,000 ratably over a
three-year period. For the nine-month period ended September 30, 1998, the
Company recognized $17,500 in compensation expense.

In March 1996, the Company's shareholders approved a recapitalization plan
which provided for: (i) conversion of the 1,000,000 authorized Class A Common
Shares into 30,000,000 Common Shares, par value $.01 per share; (ii) conversion
of each of the 107,703 issued and outstanding Class A Common shares into 2.5 of
the new Common Shares (any remaining fractional shares could be purchased or
sold by each shareholder in the conversion); and (iii) conversion of the 1,000
authorized Class B Common shares into 2,000,000 Preferred Shares, par value
$.01 per share.

In August 1998, the Company completed an offering of 3,550,000 shares of
its common stock, par value $.01 per share, in an initial public offering at an
offering price of $14.00 per share. Net proceeds to the Company from this
initial public offering totaled $44.8 million, after offering costs of $1.4
million.

Convertible Preferred Shares

In November 1996, the Company designated 500,000 Convertible Preferred
Shares, par value $.01 per share, out of the 2,000,000 Preferred Shares which
were authorized in March 1996, the rights and preferences of which are
generally senior to the Company's Common Shares and are more fully described in
the Company's Amended Certificate of Incorporation (the "Amended Certificate").
Thereafter, the Company completed a private placement of 140,722 Preferred
Shares for an aggregate price of $4,038,722. Such consideration consisted of
the cancellation of outstanding Notes (described above) in the aggregate
principal amount of $1,500,000 plus $2,538,722 in cash. Each Preferred Share is
convertible into 2.5 Common Shares (subject to anti-dilution adjustment as set
forth in the Amended Certificate) upon the occurrence of certain events in
respect of the Company or the holders of Preferred Shares. The Preferred share
conversion feature is subject to anti-dilution adjustment. In January 1997, the
Company issued 17,422 shares of Preferred Stock for a payment of $500,011 in
cash.

As of December 31, 1996 and 1997, the 140,722 and 158,144 issued and
outstanding Preferred Shares were convertible into 351,805 and 542,908 Common
Shares, however, no Preferred Shares were converted as of those dates.

These Preferred Shares, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, as defined, on a pari
passu basis, were entitled to receive an amount equal to $28.70 per share, to
be paid out of the assets of the Company available for distribution before any
such payments were to be made on any shares of the Company's common shares or
any other capital stock of the Company other than the Preferred Shares, plus
any declared and unpaid dividends.

The Preferred Shares were subject to mandatory conversion, and would
automatically convert into common shares, as noted above, in the event:

F-22
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(6) Common Stock, Convertible Preferred Shares and Mandatorily Redeemable
Convertible Preferred Stock--Continued

(i) the Company successfully consummated a firm commitment for an
underwritten initial public offering of its equity securities for:

(a) a gross per share price offered to the public of at least 200% of the
then current per share conversion price, as defined; and

(b) a total gross offering amount, as defined, of at least $20,000,000;
or

(ii) the holders of a majority of the Preferred Shares voted in favor of
or consent to such conversion.

For as long as the Preferred Shares were outstanding, the Company could
not, without the prior written consent or affirmative vote of the holders of at
least 66 2/3 % of all of the outstanding Preferred Shares:

(i) authorize or issue any other equity securities of the Company which
rank superior to the Preferred Shares with respect to conversion,
dividends, redemption, liquidation, antidilution or other preferences,
designations, rights or powers;

(ii) authorize or issue any securities of the Company which have voting
rights superior to the Preferred Shares; or

(iii) otherwise amend, alter or repeal the preferences, designations,
rights or powers of the Preferred Shares or enter into any transaction
that shall result in any such amendment, alteration, or repeal, which
would have an adverse effect upon holders of such shares.

On February 25, 1998, in accordance with the terms and conditions of the
Securities Purchase Agreement, all 158,144 issued and outstanding Preferred
Shares were converted into 542,908 Common Shares, after giving effect to
anti-dilution provisions.

Mandatorily Redeemable Convertible Preferred Stock

On February 25, 1998, the Company entered into a Securities Purchase
Agreement for the sale and issuance of 10,060,002 shares of Mandatorily
Redeemable Convertible Preferred Stock--Series A ("Mandatorily Redeemable
Convertible Preferred Stock" or "Series A"), par value $.01 per share,
1,320,904 Class A Warrants to purchase common stock at an exercise price of
$7.62 per share and 1,320,904 Class B Warrants to purchase common stock at an
exercise price of $11.42 per share in a private placement for total proceeds of
$10,060,002.

After giving effect to the Securities Purchase Agreement, including the
Merger, the capital stock of the Company consisted of: (i) 100,000,000 common
shares, of which 6,870,300 shares were issued and outstanding, 2,641,808 shares
were reserved for issuance upon conversion of issued and outstanding
Mandatorily Redeemable Convertible Preferred Stock or "Series A," 1,320,904
shares were reserved for issuance upon exercise of issued and outstanding Class
A Warrants, 1,320,904 shares were reserved for issuance upon exercise of issued
and outstanding Class B Warrants, 643,750 were reserved for issuance upon
exercise of issued and outstanding Class C Warrants, 35,609 were reserved for
issuance upon exercise of issued and outstanding unclassified warrants, 62,757
(subject to adjustment) were reserved for issuance upon exercise of outstanding
convertible debentures, and 1,437,500 shares were reserved for issuance to key
employees, officers and directors of, and consultants to, the Company under
stock incentives that had been granted or were available for grant by the
Company pursuant to the 1998 Stock Incentive Plan; and (ii) 30,000,000
preferred shares, of which 10,060,002 were outstanding, all of which were
designated as Mandatorily Redeemable Convertible Preferred Stock or Series A
shares, all of which were in a private placement.

The Series A shares ranked (i) prior to the Common Stock of the Company;
(ii) pari passu with any Securities (as defined in the Securities Purchase
Agreement); and (iii) junior to any Senior Securities, in each case as to
dividends and other distribution of assets and upon liquidation, dissolution or
winding up of the Company, whether

F-23
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(6) Common Stock, Convertible Preferred Shares and Mandatorily Redeemable
Convertible Preferred Stock--Continued

voluntary or involuntary. The Series A shareholders were entitled to receive,
when and as declared by the Board of Directors out of funds legally available,
dividends at a rate of $0.04 per share per annum. Such dividends were cancelled
pursuant to the Securities Purchase Agreement because the Company consummated a
qualified initial public offering (as defined in the Securities Purchase
Agreement) prior to January 31, 1999.

Each share of Series A was convertible, at the option of the holder, at
any time and without the payment of additional consideration into common stock
determined by the sum of (i) the Payment Price of $1.00 per Series A share
divided by the conversion price of $3.81 per common share (as adjusted), plus
(ii) all accrued and unpaid dividends with respect to such share divided by the
dividend conversion price which is equal to twice the conversion price of
$3.81.

The Company's Mandatorily Redeemable Convertible Preferred Stock was
subject to certain anti-dilution protection, if the Company raises funds in the
future, while the Preferred Stock was still outstanding, at a common
stock-equivalent value which was less than the conversion price of the
Preferred Stock. The Preferred Stock was converted, by its terms, automatically
into common stock simultaneously with the completion of the August initial
public offering. Accordingly, there was no adjustment to the conversion ratio.

Each Series A share (and, as applicable, all accrued but unpaid dividends
thereon) was automatically converted into common shares at the conversion price
(and dividend conversion price) immediately upon the closing of the August
initial public offering.

In the event the Company had not completed a qualified public offering on
or prior to the fifth anniversary of the original issue date, each shareholder
of record of Series A shares would have the right to cause the Company to
redeem at the option of the shareholder all or part of the shareholder's
outstanding Series A shares by paying cash of $1.00 per share plus any
dividends accrued. Additionally, if the Company failed to maintain at least $10
million of Key-Man Life Insurance on the President and Chief Executive Officer
of the Company, each shareholder of record of Series A Shares would have the
right to cause the company to redeem at the option of the shareholder all or
part of the shareholder's outstanding Series A Shares by paying cash of $1.00
per share plus any dividends accrued.

Series A shareholders had one vote for each full common share into which a
Series A share would be convertible.

All of the Company's mandatorily redeemable convertible preferred stock
converted into 3,577,118 shares of Common Stock (including 935,269 common
shares issued in connection with the Intelligent Interactions acquisition on a
converted basis and 2,641,849 common shares issued in connection with the
Initial Merger on a converted basis) and 3,000 shares of Series B Preferred
Stock (representing 230,415 common shares issued in connection with the
CliqNow! acquisition on a converted basis), representing 3,807,533 shares of
Common Stock in the aggregate which, by their terms, automatically converted in
connection with the Company's August initial public offering.

In conjunction with the Securities Purchase Agreement, the Company issued
both Class A Warrants and Class B Warrants to purchase 1,320,904 shares of the
Company's common stock, par value $.01 per share, at $7.62 and $11.42 per
share, respectively. Such warrants are immediately exerciseable and expire on
February 25, 2003. No value has been attributed to the Class A and Class B
warrants based upon an independent valuation of the securities.

(7) Stock Option Plan

1995 Stock Option Plan--amended

During 1995, the Company established the 1995 Stock Option Plan, which was
amended (the "Amended Plan") by the board of directors in December 1996. Under
the Amended Plan, the board of directors may issue incentive stock options or
non-qualified stock options to purchase up to 217,500 common shares. Incentive
stock options may be granted

F-24
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(7) Stock Option Plan--Continued

to officers who are employees of the Company, Directors of the Company and
other employees of the Company who are deemed to be "key employees." Incentive
stock options must be issued at the fair market value of the Company's common
stock at the date the option is issued. Non-qualified stock options may be
granted to officers, directors, other employees, consultants and advisors of
the Company. The option price for non-qualified stock options shall be at least
85% of the fair market value of the Company's common stock. The granted options
under the amended plan shall be for periods not to exceed ten years. Options
granted to shareholders who own greater than 10% of the outstanding stock must
be issued at 110% of the fair market value of the stock on the date the options
are granted. Subsequent to December 31, 1997, the Amended Plan was replaced by
the 1998 Stock Incentive Plan (see below).

The per share weighted-average fair value of stock options granted during
1995, 1996 and 1997 was $2.56, $9.28 and, $1.60, respectively, on the date of
grant using the Black-Scholes method with the following weighted-average
assumptions: 1995--risk-free interest rate 6.39%, and an expected life of two
years; 1996--risk-free interest rate 6.18%, and an expected life of three
years; and 1997--risk-free interest rate 5.64%, and an expected life of two
years.

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the accompanying financial statements.

Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss:
As reported ......... $ (1,168,144) $ (6,795,675) $ (5,305,828)
Pro forma ........... (1,179,998) (6,838,920) (5,322,570)
Net loss per share:
As reported ......... $ (2.78) $ (6.48) $ (4.88)
Pro forma ........... (2.80) (6.52) (4.90)
</TABLE>

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
Weighted
average
Options exercise
granted price
----------- --------
<S> <C> <C>
Outstanding at December 31, 1994 ............... -- $ --
Granted ........................................ 64,425 3.08
Exercised ...................................... -- --
Canceled ....................................... -- --
------ ------
Outstanding at December 31, 1995 ............... 64,425 3.08
Granted ........................................ 56,889 11.28
Exercised ...................................... -- --
Canceled ....................................... (13,017) 5.12
------- ------
Outstanding at December 31, 1996 ............... 108,297 7.16
Granted (a) .................................... 207,797 1.60
Exercised ...................................... -- --
Canceled ....................................... (22,783) 6.44
------- ------
Outstanding at December 31, 1997 ............... 293,311 $ 3.72
======= ======
Vested at December 31, 1997 .................... 132,373
=======
Options available at December 31, 1997 ......... --
=======
</TABLE>

F-25
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(7) Stock Option Plan --Continued

(a) At December 31, 1997, the total number of options outstanding for
purchase of common shares under the Amended Plan exceeded the options
available for issuance. Subsequent to December 31, 1997, the Company
replaced the Amended Plan with the 1998 Stock Incentive Plan (see below)
and increased the number of shares available under the plan to a maximum
of 3,000,000.

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ------------- ------------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.60-1.72 264,918 7.1 years $ 1.60 105,230 $ 1.60
4.00-5.16 9,464 2.1 years 4.92 8,214 5.04
8.00-11.92 18,929 3.3 years 10.80 18,929 10.80
------- -------
293,311 132,373
======= =======
</TABLE>

1998 Stock Incentive Plan

During 1998, the board of directors and stockholders of the Company
approved the 1998 Stock Incentive Plan as amended (the "Plan"). The following
is a summary of the material features of the Plan. This Plan replaced the 1995
Stock Option Plan--Amended.

All employees of and consultants to the Company are eligible under the
Plan. Eligibility under the Plan shall be determined by the Stock Incentive
Committee. The Plan provides for the grant of any or all of the following types
of awards: (i) stock options, including incentive stock options and
non-qualified stock options; (ii) stock appreciation rights, in tandem with
stock options or free standing; and (iii) restricted stock. In addition, the
Plan provides for the non-discretionary award of stock options to non-employee
directors of the Company.

A maximum of 3,000,000 shares of Common Stock may be issued or used for
reference purposes pursuant to the Plan. The maximum number of shares of Common
Stock subject to each of stock options or stock appreciation rights that may be
granted to any individual under the Plan is 187,500 for each fiscal year during
the term of the Plan. If a stock appreciation right is granted in tandem with a
stock option, it shall be applied against the individual limits for both stock
options and stock appreciation rights, but only once against the maximum number
of shares available under the Plan.

Subsequent to December 31, 1997 through September 30, 1998, the Company
granted a total of 1,071,495 stock options; 477,750 of such were at an exercise
price of $4.00 per share, 300,000 of such were granted at an exercise price of
$6.00 per share and 212,807 of such were assumed as a result of the acquisition
of Intelligent Interactions at exercise prices ranging from $0.16 to $0.48 per
share, and 80,938 of such were at exercise prices of $9.00 to $14.00 per share,
which were granted at the fair market value of the underlying stock at the time
of grant. At September 30, 1998, the Company had 1,190,999 options outstanding
at a weighted average exercise price of $4.20 per share (see Note 13).

The Company has recorded a deferred compensation charge of approximately
$331,500 in the second quarter of 1998, in connection with the grant of
approximately 300,000 stock options to employees, representing the difference
between the deemed fair value of the Company's Common Stock for accounting
purposes and the exercise price of such options at the date of grant. Such
amount is presented as reduction of stockholders' equity (deficit) and
amortized over the vesting period of the applicable options, generally over
four years. The Company granted such options at a weighted average exercise
price of $5.74 per share. Amortization of deferred stock compensation is
recorded in general and administrative expense in the consolidated statement of
operations.

F-26
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(8) Major Contracts

In November 1996, the Company entered into an agreement with SegaSoft to
license the rights to its registration-driven ad targeting software. The
contract term was for two years from the earlier of the first commercial use of
SegaSoft's Heat Network or August 1, 1997. The Company accounted for the
SegaSoft agreement in accordance with Statement of Position 91-1," Software
Revenue Recognition. The Company received license fees of $1.8 million, of
which $1.2 million was received by December 31, 1996. In addition, the Company
received a $300,000 non-refundable consulting retainer fee in November 1996.
This fee, plus an additional $100,000 credit, was applied against consulting
service fees for design modifications to the software for the SegaSoft Heat
Network, which were recognized as revenues as services were performed. The
Company accounted for the majority of the license fee, or $1.3 million, as
performance occurred over the period during which the licensed software was
transferred to SegaSoft and modified to perform to SegaSoft's specifications.
The period in which the fees associated with software license transfer and
consulting services both commenced in November 1996 and concluded in August
1997. For the years ended December 31, 1996 and 1997 and for the nine months
ended September 30, 1998, the Company recorded approximately $429,000,
$1,681,000 and $0 in revenue, respectively, the cost of sales associated with
the Segasoft consulting and license fee were $9,800, and $57,400 and $0,
respectively for all periods presented.

During 1996, the Company entered into an agreement with SegaSoft for
advertising on the Company's ContentZone Web sites and/or Riddler.com. The term
of the contract was for one year from the date of signing. The Company received
a prepayment in full for $540,000 in 1996. Revenue from the agreement was
recognized ratably over the terms of the contracts. For the years ended
December 31, 1996 and 1997, the Company recorded $212,000 and $326,000 in
revenue, respectively.

During 1996, the Company entered into an agreement with Microsoft
Corporation for advertising on the Company's ContentZone Web sites. The term of
the contracts was for one year from the date of signing. The Company received a
prepayment in full for $150,000 in 1996. Revenue from the agreement was
recognized ratably over the terms of the contracts. For the years ended
December 31, 1996 and 1997, the Company recorded $75,000 and $75,000 in
revenue, respectively.

(9) Supplemental Cash Flow Information

Supplemental disclosure of cash flow information:

During 1996, 1997 and 1998, the amount of cash paid for interest was
$27,535, $0 and $0, respectively.

Non-cash financing activities:

During 1996, the Company converted $1.5 million of mandatory conversion
subordinated notes into Preferred Shares.

During 1997, the Company converted $94,757 of senior convertible notes
into common stock.

For the nine months ended September 30, 1998, the Company issued an
aggregate of 5,278,167 shares of common stock, 3,561,505 Series A shares, 3,000
Series B shares, 265,212 Class A Warrants, 265,212 Class B Warrants and 136,553
Class C Warrants in connection with the Acquisitions.

For the nine months ended September 30, 1998, the Company converted all
outstanding shares of convertible preferred stock into 4,350,441 shares of
common stock, converted $2,556,250 of senior convertible notes payable--related
parties, plus accrued interest, into 828,036 shares of Common Stock and
outstanding warrants were converted into 191,349 shares of common stock.

For the nine months ended September 30, 1998, the Company recorded imputed
interest payable on loans payable--related party of $9,000.

F-27
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(9) Supplemental Cash Flow Information --Continued

In February 1998, the Company issued warrants to a former officer for
$450,000 (see Note 5).

In April 1998, the Company issued 5,909 shares of common stock to a
consultant for $22,500.

In September 1998, the Company entered into a capital lease for
approximately $85,000 of equipment.

(10) Commitments

The Company leases its facilities and certain equipment under operating
lease agreements. During May 1996, the Company converted its New York office
lease agreements to a month-to-month basis for approximately 11,000 square feet
of office space. Rental expense from operating leases amounted to $31,000,
$175,000, $183,000 and $417,000 for the years ended 1995, 1996 and 1997 and for
the nine month period ended September 30, 1998, respectively.

On June 1, 1996, the Company entered into an eighteen-month operating
lease for the use of computer equipment with a fair market value of
approximately $852,000. The lease requires six quarterly payments of $163,420
beginning on June 1, 1996. In October 1997, the lease agreement was modified
and as a result the quarterly payments were adjusted to $45,935 through the
extended term of the lease, November 30, 1998. Rent expense for the operating
lease was $381,313 and $611,637 for the years ended 1996 and 1997,
respectively.

Future minimum payments under noncancelable operating leases at December
31, 1997 are as follows:

<TABLE>
<CAPTION>
Operating
Year ending December 31 leases
- ----------------------- ----------
<S> <C>
1998 ........................................ $271,000
1999 ........................................ 128,000
2000 ........................................ 23,000
2001 ........................................ 1,000
--------
Total minimum payments required ......... $423,000
========
</TABLE>

Interactive Imaginations also entered into a Consulting Agreement, dated
as of January 1, 1998 with Neterprises, Inc. ("Consulting Agreement"), pursuant
to which Mr. Paolucci, President and sole stockholder of Neterprises, Inc.,
agreed to provide management and consulting services to Interactive
Imaginations for a term of up to one year in connection with the identification
and evaluation of potential strategic relationships and potential acquisition
targets. In return for such services, Mr. Paolucci received a lump sum payment
of $180,000 and currently receives a monthly fee of $12,500.

In 1998, the Company entered into a lease agreement for space rental at
its new corporate headquarters for a period of 5 years. The Company's annual
lease expense for this office space will be approximately $1.2 million. The
Company expects to incur approximately $1 million in leasehold improvements in
connection with the new office space.

On May 14, 1998 and July 7, 1998, the Company entered into two operating
leases for computer equipment and software related to its Adfinity system, with
a combined fair market value of $849,488. The operating lease as, amended,
requires monthly payments and expires in September, 2001. Total rent expense
for currently outstanding leases is expected to be approximately $90,500 per
quarter.

On May 1, 1998 the Company entered into a one year operating lease for
space to house its Adfinity system, including leasing telephone equipment to
transmit data. Monthly rent expense is $27,000.

F-28
<PAGE>

24/7 MEDIA, INC.
(Successor Company to Interactive Imaginations, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(All information subsequent to December 31, 1997 is Unaudited)

(11) Legal Proceedings

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
financial position, results of operation or liquidity. During 1997, the Company
successfully defended claims against the Company; however, legal costs incurred
in connection with such claims amounted to $232,304.

(12) Stock Split

On July 20, 1998, the Company effected a 1-for-4 reverse stock split.
Accordingly, all references in the financial statements to the number of shares
and to per share amounts have been retroactively restated to reflect these
changes.

(13) Subsequent Events--Unaudited

During the fourth quarter of 1998, the Company entered into a lease line
of credit for up to $3.0 million to finance capital equipment. As of December
1998, total obligations under this lease line of credit were approximately
$600,000.

Subsequent to September 30, 1998, the Company completed three transactions
that involved the use of net cash for investing activities. On December 30,
1998, the Company completed the acquisition, for $1.0 million in cash, for an
initial 80% (on an as converted basis) interest in CardSecure, Inc., which
manufactures the transactional banner software that the Company employs in its
e-commerce applications. CardSecure also operates a Web site hosting service.
On December 31, 1998, the Company invested $3.0 million in cash and issued
203,851 shares of common stock to China.com Corporation in exchange for a 10%
equity interest in China.com. Finally, on January 20, 1999, the Company
invested a total of $3.9 million to purchase a 60% interest in InterAd Holdings
Limited, which will operate the 24/7 Media Europe Network. The Company expects
to invest an additional aggregate of $5 million of working capital in
CardSecure and InterAd in 1999 to support their future operations.

On December 14, 1998, the Company entered into a severance agreement with
Yale R. Brown, a former director and Executive Vice President under which Mr.
Brown resigned as an officer and director. The Company agreed to pay Mr. Brown
the sum of $136,894 as severance, including attorneys' fees, and the Company
exchanged mutual releases of substantially all claims arising out of this
employment.

During the fourth quarter of 1998, the Company granted 384,150 stock
options at exercise prices of $6.75 to $31.88 per share, which were granted at
the fair market value of the underlying stock at the time of grant. These stock
options have a weighted average exercise price of $13.42 per share. During
January 1999, the Company granted 647,000 stock options at exercise prices of
$27.00 to $41.50 per share, which were granted at the fair market value of the
underlying stock at the time of grant. These stock options have a weighted
average exercise price of $27.09 per share.

During January 1999, Mr. Paolucci exercised his Class C Warrants to
purchase 625,000 shares of common stock at an exercise price of $3.81 per share
in exchange for 546,775 shares of common stock in a cashless exercise.

F-29
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Members of Interactive Holdings, LLC
(successor to Petry Interactive, Inc.)

We have audited the accompanying balance sheet of Interactive Holdings,
LLC (successor to Petry Interactive, Inc.) as of December 31, 1997 (Successor),
and the related statements of operations and cash flows for the period from
February 1, 1997 (inception) to September 28, 1997 (Predecessor) and for the
period from September 29, 1997 to December 31, 1997 (Successor). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interactive Holdings, LLC
as of December 31, 1997 (Successor), and the results of its operations and its
cash flows for the period February 1, 1997 (inception) to September 28, 1997
(Predecessor) and the period from September 29, 1997 to December 31, 1997
(Successor) in conformity with generally accepted accounting principles.

As discussed in note 1 to the financial statements, on September 29, 1997,
Interactive Holdings, LLC acquired Petry Interactive, Inc. As a result of the
change in control, the financial information for the period after the change in
control is presented on a different cost basis than that for the period before
the change in control and, therefore, is not comparable.

KPMG LLP

New York, New York
June 2, 1998

See accompanying notes to financial statements.

F-30
<PAGE>

INTERACTIVE HOLDINGS, LLC
(SUCCESSOR TO PETRY INTERACTIVE, INC.)

BALANCE SHEET

<TABLE>
<CAPTION>
December 31,
1997
-------------
Successor
<S> <C>
ASSETS
Current Assets:
Cash ...................................................................... $ 117,849
Accounts receivable, net of allowance for doubtful accounts of $158,777 ... 803,089
Prepaid expenses and other current assets ................................. 6,449
----------
Total current assets .................................................. 927,387
----------
Other assets ................................................................. 5,000
----------
Total assets .......................................................... $ 932,387
==========

LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Loan payable--related party ............................................... $ 300,000
Accounts payable .......................................................... 8,875
Accrued liabilities ....................................................... 1,297,024
----------
Total current liabilities ............................................. 1,605,899
----------
Other long-term liabilities .................................................. 16,733
----------
Total liabilities ............................................................ 1,622,632
----------

Members' deficit:
Common Stock; $0.01 par value, 200,000 shares authorized, 100 shares issued
and outstanding .......................................................... 1
Paid in capital ........................................................... 6,000
Members' deficit .......................................................... (696,246)
----------
Total members' equity (deficit) ....................................... (690,245)
----------

Commitments and contingencies
Total liabilities and members' deficit ................................ $ 932,387
==========
</TABLE>

See accompanying notes to financial statements.

F-31
<PAGE>

INTERACTIVE HOLDINGS, LLC
(SUCCESSOR TO PETRY INTERACTIVE, INC.)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period from
February 1, 1997 Period from
(inception) September 29, 1997
to to
September 28, 1997 December 31, 1997
-------------------- -------------------
(Predecessor) (Successor)
<S> <C> <C>
Advertising revenue ..................... $ 514,982 $ 754,279
Cost of revenues ........................ 449,621 724,973
------------ ----------
Gross profit ..................... 65,361 29,306
------------ ----------

Operating expenses:
Sales and marketing .................. 1,306,125 424,386
General and administrative ........... 950,210 295,163
------------ ----------
Total operating expenses ......... 2,256,335 719,549
Interest expense ..................... -- 6,000
------------ ----------
Net loss ......................... $ (2,190,974) $ (696,243)
============ ==========
</TABLE>

See accompanying notes to financial statements.

F-32
<PAGE>

INTERACTIVE HOLDINGS, LLC
(SUCCESSOR TO PETRY INTERACTIVE, INC.)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
February 1, 1997 Period from
(inception) September 29, 1997
to to
September 28, 1997 December 31, 1997
-------------------- -------------------
(Predecessor) (Successor)
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (2,190,974) $ (696,243)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ................................................... 10,358 --
Provision for doubtful accounts ................................ 12,992 145,786
Imputed interest on loan payable--related party ................ 6,000
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable ........................................... (424,800) (410,861)
Prepaid assets and other current assets ....................... (5,490) (960)
Other assets .................................................. -- (5,000)
Accounts payable .............................................. 15,000 (6,125)
Accrued liabilities ........................................... 528,501 785,252
------------ ----------
Net cash used by operating activities ....................... (2,054,413) (182,151)
------------ ----------

Cash flows from financing activities:
Proceeds from loan payable--related party ....................... -- 300,000
Net cash transferred from--related party ........................ 2,180,617 --
------------ ----------
Net cash provided by financing activities ................... 2,180,617 300,000
------------ ----------
Net change in cash .......................................... 126,204 117,849

Cash at the beginning of period .................................... -- --
------------ ----------
Cash at end of period .............................................. $ 126,204 $ 117,849
============ ==========
</TABLE>

See accompanying notes to financial statements.

F-33
<PAGE>

INTERACTIVE HOLDINGS, LLC
(FORMERLY PETRY INTERACTIVE, INC.)

NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies

(a) Summary of Operations

Interactive Holdings, LLC. (the "Company") operates a network of Web sites
that enables both advertisers and Web publishers to capitalize on the many
opportunities presented by Internet advertising, direct marketing and commerce.
The Company generates revenues by delivering advertisements and promotions to
Web sites affiliated with the Company ("Affiliated Web sites"). The Company was
formed on September 24, 1997, to acquire Petry Interactive, Inc., a wholly
owned subsidiary of Petry Media Corporation. The Company did not have any
operations prior to its acquisition of Petry Interactive, Inc. At the time of
its acquisition, Petry Interactive, Inc.'s operations consisted solely of a
network of Web sites to which the Company delivered advertisements and
promotions.

Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, unproven business model and the
limited history of commerce on the Internet. The Company's success may depend
in part upon the emergence of the Internet as a communications medium,
prospective project development efforts, and the acceptance of the Company's
solutions by the marketplace.

On February 24, 1998, the Company distributed all of the issued and
outstanding shares of Petry Interactive, Inc. to its members, and such shares
were exchanged by Interactive Holdings, LLC's members for 2,623,592 shares of
24/7 Media, Inc.'s stock under a Plan of Merger and Securities Purchase
Agreement.

(b) Basis of Presentation

On February 1, 1997, Petry Interactive commenced its Internet advertising
network solutions business (Predecessor). Predecessor financial statements
presented herein relate solely to that business. On September 29, 1997, the
Company entered into a Stock Purchase Agreement whereby all of the outstanding
shares of Petry Interactive, Inc. were purchased by the Company in exchange for
$100 in cash plus a warrant to purchase 20% of the Company for $0.25.
Accordingly, the statements of operations and cash flows for the period
February 1, 1997 (inception) to September 28, 1997 reflect the operations of
the Predecessor, and the balance sheet as of December 31, 1997 and the
statements of operations, members' deficit and cash flows for the period
September 29, 1997 to December 31, 1997 reflect the operations and financial
position under the ownership of the Company (Successor).

As a result of the change in control, the financial information for the
period after the change in control is presented on a different cost basis than
that for the period before the change in control and, therefore, is not
comparable.

The accompanying financial statements include certain corporate general
and administrative expenses incurred on a consolidated basis by PMC for the
period February 1, 1997 (inception) to September 28, 1997 that have been
allocated to the Company. Such allocations include corporate salaries, rent,
professional services and depreciation and are included in general and
administrative expenses in the Company's statement of operations. In
management's opinion, the basis for the allocation of such costs is reasonable
and is based upon a proportionate allocation of actual costs incurred using an
estimate of the amount of time spent and equipment and space used. However, the
expenses allocated to the Company, although made on a basis management believes
to be reasonable, may not necessarily be representative of what the Company
would have incurred on a stand alone basis.

F-34
<PAGE>

INTERACTIVE HOLDINGS, LLC
(FORMERLY PETRY INTERACTIVE, INC.)

NOTES TO FINANCIAL STATEMENTS--Continued
December 31, 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies --Continued

Allocated costs are as follows:

<TABLE>
<CAPTION>
Period from
February 1, 1997
(inception) to
September 28, 1997
-------------------
(Predecessor)
<S> <C>
Corporate salaries ............ $534,686
Rent .......................... 63,896
Professional services ......... 23,594
Depreciation .................. 10,358
--------
$632,534
========
</TABLE>

The purchase of the Predecessor Interactive Holdings LLC was accounted for
using the purchase method of accounting. The estimated fair value of the net
assets acquired is as follows:

<TABLE>
<S> <C>
Accounts receivable, net ...................... $538,013
Prepaid and other current assets .............. 5,490
Accounts payable and accrued expenses ......... 543,502
</TABLE>

The estimated fair value of the net assets acquired was determined by
management by reference to the fair value of these instruments at the date of
purchase which approximated their financial statement carrying amount.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(d) Income Taxes

For the period February 1, 1997 (inception) to September 28, 1997, federal
and state income taxes are provided as if the Company filed a separate tax
return. On a stand alone basis, the Company owes no current taxes and has not
been allocated any income tax expense (benefit) by PMC.

For the period September 29, 1997 to December 31, 1997, for federal and
state income tax purpose, the Company is treated as a partnership. The Company
incurred a net operating loss of $696,243 for the period, accordingly, no
provision has been made for income taxes, as income or loss is included in the
tax returns of the members.

(e) Revenue Recognition

The Company's advertising revenues are derived principally from short-term
advertising agreements in which the Company delivers advertising impressions or
full-page deliveries for a fixed fee to third-party Web sites comprising the
Petry Network. For the period February 1, 1997 (inception) to September 28,
1997, revenues from advertising were recognized ratably over the term of the
agreement as services were performed. For the period from September 29, 1997,
to December 31, 1997, revenues from advertising are recognized in the period
the advertising impressions are delivered provided collection of the resulting
receivable is probable.

Third party Web sites which register web page(s) with the Company's
network and display advertising banners on those pages are commonly referred to
as "Affiliated Web sites." These third party Web sites are not "related party"

F-35
<PAGE>

INTERACTIVE HOLDINGS, LLC
(FORMERLY PETRY INTERACTIVE, INC.)

NOTES TO FINANCIAL STATEMENTS--Continued
December 31, 1997
(All information subsequent to December 31, 1997 is Unaudited)

(1) Summary of Operations and Significant Accounting Policies--Continued

relationships or transactions as defined in Statement of Financial Accounting
Standards No. 57, "Related Party Disclosures." The Company pays its Affiliated
Web sites a service fee for providing advertising space to the Petry Network.
The Company becomes obligated to make payments to such Affiliated Web sites,
which have contracted with the Company to be part of the Petry Network, in the
period the advertising impressions are delivered. Such expenses are classified
as cost of revenues in the statements of operations.

At December 31, 1997, accounts receivable include approximately $500,700
of unbilled receivables for which revenue was recognized in 1997.

(f) Advertising Expenses
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing in the statement of
operations and totaled $18,000 and $19,765 for the period February 1, 1997
(inception) to September 28, 1997 and for the period September 29, 1997 to
December 31 1997, respectively.

(g) Financial Instruments and Concentration of Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, accounts receivable,
accounts payable and accrued liabilities. At December 31, 1997 the fair value
of these instruments approximated their financial statement carrying amount.

Accounts receivable have been derived from advertising fees billed to
advertisers located in the United States. The Company generally requires no
collateral. The Company maintains reserves for potential credit losses. At
December 31, 1997, one customer accounted for over 10% of the Company's
accounts receivable, accounting for 12% of total receivables.

(2) Balance Sheet Components

Accrued Liabilities

A summary of accrued liabilities follows:

<TABLE>
<CAPTION>
December 31,
1997
-------------
<S> <C>
Affiliate royalties .......... $ 684,532
Ad management fees ........... 219,120
Employee commissions ......... 203,729
Other ........................ 189,643
----------
$1,297,024
==========
</TABLE>

(3) Loan Payable--Related Party

In connection with the Stock Purchase Agreement with PMC, dated September
29, 1997, PMC agreed to lend an aggregate of $300,000 during the period
September 29, 1997 to December 31, 1997. The loan is repaid at a rate of 5% of
the gross commissions or other revenues received by the Company, after
deducting advertising agency commissions and web-site royalties. The loan has
no stated interest and is expected to be paid within the next year.

In accordance with Staff Accounting Bulletin Topic 5:T, the Company has
imputed an interest cost because these loans have no stated interest rate. The
imputed interest rate used was based on a market rate of interest of 12%. For
the three month period ended December 31, 1997, interest expense was $6,000.

F-36
<PAGE>

INTERACTIVE HOLDINGS, LLC
(FORMERLY PETRY INTERACTIVE, INC.)

NOTES TO FINANCIAL STATEMENTS--Continued
December 31, 1997
(All information subsequent to December 31, 1997 is Unaudited)

(4) Commitments

In connection with the Stock Purchase Agreement dated September 29, 1997,
the Company is obligated to pay PMC a royalty of 5% of the gross commissions or
other revenues received by the Company, after deducting advertising agency
commissions and web-site royalties. Total royalties to be paid will not exceed
$1,000,000. Any payments of the royalty amount commences upon full repayment of
the loan payable--related party (See note 3). As of December 31, 1997, the
Company had accrued $16,733 in royalty payments to PMC which are included in
other long-term liabilities.

(5) Legal Proceedings

The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
financial position, results of operation or liquidity.

(6) Warrants

In connection with the Stock Purchase Agreement dated September 29, 1997,
the Company issued to PMC a warrant for 25 shares of common stock, $.01 par
value for $0.25. The warrant was exercised in connection with the February 1998
Plan of Merger and Securities Purchase Agreement (see Note 1).

F-37
<PAGE>

Report of Independent Public Accountants

To Intelligent Interactions Corporation:

We have audited the accompanying balance sheets of Intelligent
Interactions Corporation (a Delaware corporation in the development stage) as
of December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the period from inception (February
28, 1995) to December 31, 1995 and the years ended December 31, 1996 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Intelligent Interactions
Corporation as of December 31, 1996 and 1997, and the results of its operations
and its cash flows for the period from inception to December 31, 1995 and the
years ended December 31, 1996 and 1997, in conformity with generally accepted
accounting principles.

/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
May 13, 1998

F-38
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION (A Development Stage Company)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, March 31,
----------------------------- ---------------
1996 1997 1998
------------- --------------- ---------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ......................................................... $ 531,100 $ 423,548 $ 3,675
Accounts receivable ............................................................... -- 23,768 87,499
Other current assets .............................................................. 100 7,169 13,568
---------- ------------- -------------
Total current assets ............................................................ 531,200 454,485 104,742
---------- ------------- -------------
Property and equipment, at cost:
Computer equipment ................................................................ 93,243 151,163 151,163
Furniture and fixtures ............................................................ 2,329 16,648 16,648
Software .......................................................................... 2,656 22,714 22,714
---------- ------------- -------------
98,228 190,525 190,525
Less--Accumulated depreciation .................................................... (11,537) (46,073) (61,074)
---------- ------------- -------------
86,691 144,452 129,451
---------- ------------- -------------
Total assets .................................................................... $ 617,891 $ 598,937 $ 234,193
========== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................. $ 27,298 $ 100,542 $ 121,801
Accrued expenses .................................................................. 36,184 121,991 183,102
Line of credit .................................................................... -- 19,583 17,195
Note payable to officer ........................................................... 86,446 -- --
Convertible notes payable ......................................................... -- 450,000 450,000
---------- ------------- -------------
Total current liabilities ....................................................... 149,928 692,116 772,098
Commitments (Note 5) ................................................................
Convertible, redeemable preferred stock; $0.01 par value
Series A; 71,870 shares authorized; 71,870 issued and outstanding in 1996, 1997
and 1998, respectively; entitled to liquidation preference of $16.42 per share
plus unpaid dividends; 8% per annum ($1,209,075, $1,303,483 and $1,327,085
in the aggregate in 1996, 1997 and 1998, respectively) ........................... 1,209,075 1,303,483 1,327,085
Series A-1; 71,870 shares authorized; none issued or outstanding .................. -- -- --
Series AA; 54,150 shares authorized; 0 and 54,142 issued and outstanding in 1996
and in 1997 and 1998, respectively; entitled to liquidation preference of $18.47
per share plus unpaid dividends; 8% per annum ($1,056,447 and $1,076,447 in
the aggregate in 1997 and 1998, respectively) .................................... -- 1,056,447 1,076,447
Series AA-1; 54,150 shares authorized; none issued or outstanding ................. -- -- --
Series AAA; 78,304 shares authorized; 0 and 48,712 issued and outstanding in
1996 and in 1997 and 1998, respectively; entitled to liquidation preference of
$20.53 per share plus unpaid dividends; 8% per annum ($1,030,948 and
$1,050,949 in 1997 and 1998, respectively in the aggregate)....................... -- 1,030,948 1,050,949
Series AAA-1; 78,304 shares authorized; none issued or outstanding ................ -- -- --
---------- ------------- -------------
Total convertible, redeemable preferred stock value 1,209,075 3,390,878 3,454,481
---------- ------------- -------------
Stockholders' deficit:
Common stock; $0.01 par value; 930,000 shares authorized; 230,170 shares issued
and outstanding in 1996, 1997, and 1998, respectively ............................ 2,412 2,412 2,412
Additional paid-in capital ........................................................ 142,290 142,290 142,290
Treasury stock .................................................................... (6,600) (6,600) (6,600)
Deficit accumulated during the development stage .................................. (879,214) (3,622,159) (4,130,488)
---------- ------------- -------------
Total stockholders' deficit ..................................................... (741,112) (3,484,057) (3,992,386)
---------- ------------- -------------
Total liabilities and stockholders' deficit ..................................... $ 617,891 $ 598,937 $ 234,193
========== ============= =============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-39
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION
(A Development Stage Company)

STATEMENTS OF OPERATIONS

Period From Period From
Inception Inception
(February 28, (February 28,
1995) To Year Ended Year Ended Quarter Ended Quarter Ended 1995) To
December 31, December 31, December 31, March 31, March 31, March 31,
1995 1996 1997 1997 1998 1998
--------------- -------------- ---------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting and license
fees and support ............... $ -- $ -- $ 65,432 $ -- $ 88,362 $ 153,794
Cost of revenues ................ -- -- -- -- 13,200 13,200
---------- ---------- ------------ ---------- ---------- ------------
Gross profit ................. -- -- 65,432 -- 75,162 140,594
Operating expenses:
Sales and marketing ............. -- 254,515 1,249,910 182,043 226,548 1,730,973
Product development ............. 21,964 92,280 327,995 91,386 66,738 508,977
General and
administrative ................. 133,238 350,368 1,055,589 250,165 221,168 1,760,363
---------- ---------- ------------ ---------- ---------- ------------
Total operating expenses ......... 155,202 697,163 2,633,494 523,594 514,454 4,000,313
---------- ---------- ------------ ---------- ---------- ------------
Loss from operations ............. (155,202) (697,163) (2,568,062) (523,594) (439,292) (3,859,719)
Interest income (expense),
net ............................. 473 (1,438) 6,861 460 (5,434) 462
Other income ..................... -- 3,085 -- -- -- 3,085
---------- ---------- ------------ ---------- ---------- ------------
Net loss ......................... (154,729) (695,516) (2,561,201) (523,134) (444,726) (3,856,172)
Less dividends on
preferred stock ................. -- (28,969) (181,744) (23,602) (63,603) (274,316)
---------- ---------- ------------ ---------- ---------- ------------
Net loss applicable to
common stock .................... $ (154,729) $ (724,485) $ (2,742,945) $ (546,736) $ (508,329) $ (4,130,488)
========== ========== ============ ========== ========== ============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-40
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION (A Development Stage Company)

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Stockholders'
Deficit
-------------------
Preferred Stock Common Stock
----------------------- -------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Inception, February 28, 1995 ....................... -- $ -- -- $ --
Sale of Common Stock to Founders at $0.60 per
share, July, September, and December 1995 ........ -- -- 206,670 2,067
Stock issued to employees for services rendered
valued at $0.60 per share, December 1995.......... -- -- 14,500 145
Net loss .......................................... -- -- -- --
------ ---------- ------- ------
Balance, December 31, 1995 ......................... -- -- 221,170 2,212
Stock issued to employee for services rendered
valued at $0.60 per share, February 1996.......... -- -- 20,000 200
Sale of Series A Preferred Stock to investors
valued at $16.42 per share, September 1996........ 71,870 1,180,106 -- --
Repurchase of 11,000 of terminated employee's
shares by the Company at $0.60 per share,
November 1996 ..................................... -- -- -- --
Accrued dividends on Preferred Stock .............. -- 28,969 -- --
Net loss .......................................... -- -- -- --
------ ---------- ------- ------
Balance, December 31, 1996 ......................... 71,870 1,209,075 241,170 2,412
Sale of Series AA Preferred Stock to investors
valued at $18.47 per share, April 1997............ 54,142 1,000,002 -- --
Sale of Series AAA Preferred Stock to investors
valued at $20.53 per share, August 1997........... 48,712 1,000,057 -- --
Accrued Dividends on Preferred Stock .............. -- 181,744 -- --
Net loss .......................................... -- -- -- --
------ ---------- ------- ------
Balance, December 31, 1997 ......................... 174,724 3,390,878 241,170 2,412
Accrued dividends on Preferred Stock
(unaudited) ...................................... -- 63,603 -- --
Net loss (unaudited) .............................. -- -- -- --
------- ---------- ------- ------
Balance, March 31, 1998 (unaudited) ................ 174,724 $3,454,481 241,170 $2,412
======= ========== ======= ======

<CAPTION>
Stockholders' Deficit
------------------------------------------
Deficit
Accumulated
Additional During the
Paid-In Treasury Development
Capital Stock Stage
------------ ------------- ---------------
<S> <C> <C> <C>
Inception, February 28, 1995 ....................... $ -- $ -- $ --
Sale of Common Stock to Founders at $0.60 per
share, July, September, and December 1995 ........ 121,935 -- --
Stock issued to employees for services rendered
valued at $0.60 per share, December 1995.......... 8,555 -- --
Net loss .......................................... -- -- (154,729)
-------- --------- ------------
Balance, December 31, 1995 ......................... 130,490 -- (154,729)
Stock issued to employee for services rendered
valued at $0.60 per share, February 1996.......... 11,800 -- --
Sale of Series A Preferred Stock to investors
valued at $16.42 per share, September 1996........ -- -- --
Repurchase of 11,000 of terminated employee's
shares by the Company at $0.60 per share,
November 1996 ..................................... -- (6,600) --
Accrued dividends on Preferred Stock .............. -- -- (28,969)
Net loss .......................................... -- -- (695,516)
-------- --------- ------------
Balance, December 31, 1996 ......................... 142,290 (6,600) (879,214)
Sale of Series AA Preferred Stock to investors
valued at $18.47 per share, April 1997............ -- -- --
Sale of Series AAA Preferred Stock to investors
valued at $20.53 per share, August 1997........... -- -- --
Accrued Dividends on Preferred Stock .............. -- -- (181,744)
Net loss .......................................... -- -- (2,561,201)
-------- --------- ------------
Balance, December 31, 1997 ......................... 142,290 (6,600) (3,622,159)
Accrued dividends on Preferred Stock
(unaudited) ...................................... -- -- (63,603)
Net loss (unaudited) .............................. -- -- (444,726)
-------- --------- ------------
Balance, March 31, 1998 (unaudited) ................ $142,290 $ (6,600) $ (4,130,488)
======== ========= ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-41
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period From
Inception
(February 28,
1995) To Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
--------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (154,729) $ (695,516) $ (2,561,201)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation ........................................ 2,185 9,352 34,536
Compensation expense on stock grants ................ 8,700 12,000 --
Changes in operating assets and liabilities:
Accounts receivable ................................ -- -- (23,768)
Other current assets ............................... (1,000) 900 (7,069)
Accounts payable and accrued expenses .............. 5,497 57,985 159,051
---------- ----------- ------------
Net cash used in operating activities ............. (139,347) (615,279) (2,398,451)
Cash flows from investing activities:
Purchases of property and equipment .................. (13,109) (85,119) (92,297)
---------- ----------- ------------
Net cash used in investing activities ............. (13,109) (85,119) (92,297)
Cash flows from financing activities:
Proceeds from sale of common stock ................... 124,002 -- --
Proceeds from sale of preferred stock ................ -- 1,180,106 2,000,059
Purchase of treasury shares .......................... -- (6,600) --
Proceeds from note payable ........................... -- -- 450,000
Net proceeds from (payments on) line of credit ....... 10,000 (10,000) 19,583
Net proceeds from (payments on) note payable to
officer ............................................. 56,000 30,446 (86,446)
---------- ----------- ------------
Net cash provided by financing activities ......... 190,002 1,193,952 2,383,196
---------- ----------- ------------
Net increase (decrease) in cash ....................... 37,546 493,554 (107,552)
Cash and cash equivalents, beginning of period ........ -- 37,546 531,100
---------- ----------- ------------
Cash and cash equivalents, end of period .............. $ 37,546 $ 531,100 $ 423,548
========== =========== ============
Supplemental cash flow information:
Cash paid for interest ............................... $ -- $ 10,331 $ 15,284
========== =========== ============

<CAPTION>
Period From
Inception
(February 28,
Quarter Ended Quarter Ended 1995) To
March 31, March 31, March 31,
1997 1998 1998
--------------- --------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (523,134) $ (444,726) $ (3,856,172)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation ........................................ 3,815 15,001 61,074
Compensation expense on stock grants ................ -- -- 20,700
Changes in operating assets and liabilities:
Accounts receivable ................................ (100) (63,731) (87,499)
Other current assets ............................... (19,192) (6,399) (13,568)
Accounts payable and accrued expenses .............. 101,677 82,370 304,903
---------- ---------- ------------
Net cash used in operating activities ............. (436,934) (417,485) (3,570,562)
Cash flows from investing activities:
Purchases of property and equipment .................. (50,749) -- (190,525)
---------- ---------- ------------
Net cash used in investing activities ............. (50,749) -- (190,525)
Cash flows from financing activities:
Proceeds from sale of common stock ................... -- -- 124,002
Proceeds from sale of preferred stock ................ -- -- 3,180,165
Purchase of treasury shares .......................... -- -- (6,600)
Proceeds from note payable ........................... -- -- 450,000
Net proceeds from (payments on) line of credit ....... -- (2,388) 17,195
Net proceeds from (payments on) note payable to
officer ............................................. (28,101) -- --
---------- ---------- ------------
Net cash provided by financing activities ......... (28,101) (2,388) 3,764,762
---------- ---------- ------------
Net increase (decrease) in cash ....................... (515,784) (419,873) 3,675
Cash and cash equivalents, beginning of period ........ 531,100 423,548 --
---------- ---------- ------------
Cash and cash equivalents, end of period .............. $ 15,316 $ 3,675 $ 3,675
========== ========== ============
Supplemental cash flow information:
Cash paid for interest ............................... $ 1,928 $ 6,626 $ 32,241
========== ========== ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-42
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(1) Business Description and Risk Factors

Intelligent Interactions Corporation (the "Company"), was incorporated on
February 28, 1995, in the state of Delaware. The Company is developing the
Intelligent Programming Engine (IPE[TM]), an enabling technology necessary to
ensure the economic viability of the information super highway. The IPE[TM]
provides targeted content delivery through interactive on-line networks. The
Company is in the development stage and has a limited operating history, has
incurred operating losses since its inception, and expects losses to continue
and increase. Since its inception, the Company has been engaged in development
and organizational efforts, including development of its IPE[TM] software
technology; creation of development and deployment plans; and recruitment of
administrative, technical, and business development staff. Many of the
Company's current and potential competitors have substantially greater
financial and technological resources, sales and marketing capabilities, and
experience than the Company. The Company's success will depend on the continued
service of its management team and technical personnel. There can be no
assurance that the Company will be successful in the development or
commercialization of its services.

In April 1998, the Company was acquired by 24/7 Media, Inc. ("24/7 Media"
See Note 8). 24/7 Media has committed to fund the future operations of
Intelligent Interactions.

Common Stock Split
Pursuant to the amendment of its certificate of incorporation in 1996, the
Company exchanged existing outstanding common stock for 241,170 shares of $0.01
par value common stock completing a 10 to 1 stock split. All amounts have been
restated to reflect the 10 to 1 stock split and change in par value.

(2) Summary of Significant Accounting Policies

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Included in cash and
cash equivalents are investments in a money market account.

Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over a three-year period. Depreciation expense
for 1996 and 1997 was $9,352 and $34,536, respectively.

Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or income tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Management has established a valuation reserve against the net deferred tax
asset related primarily to the Company's net operating loss carryforward.

The Company, with the consent of its stockholders, had previously elected
under the Internal Revenue Code to be an "S" corporation, effective February
28, 1995. In lieu of corporate income taxes, the stockholders of an

F-43
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(2) Summary of Significant Accounting Policies --Continued

"S" corporation are taxed on their proportionate shares of the Company's
taxable income. No provision or liability for income taxes has been included in
the financial statements for the period of time that the Company was a
Subchapter "S" corporation.

The Company terminated the Subchapter "S" election, by the admittance of a
nonqualified stockholder, on September 10, 1996.

Revenue Recognition

Revenue from software licenses and software support agreements is
recognized ratably over the term of the agreement. Revenue from consulting
services is recognized as the services are provided.

The American Institute of Certified Public Accountants (the "AICPA") has
issued a Statement of Position (the "SOP") SOP-97-2, "Software Revenue
Recognition," and is effective for fiscal years beginning after December 15,
1997. The Company adopted SOP-97-2 effective January 1, 1998 and the adoption
did not have a material impact on the Company.

Product Development Costs

Unaudited Interim Financial Statements

The accompanying balance sheet as of March 31, 1998 and the accompanying
statements of operations stockholders' deficit and cash flows for the three
months ended March 31, 1997 and 1998 included herein have been prepared by the
Company and are unaudited. The information furnished in the unaudited financial
statements referred to above includes all adjustments which are, in the opinion
of management, necessary for a fair presentation of such financial statements.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal
year.

Increase in Authorized Shares

In March 1998, the Board of Directors increased the authorized stock of
the company to consist of 930,000 shares of common stock, $0.01 par value, and
78,304 shares of Series AAA Preferred Stock, no par value. All share amounts in
the accompanying financial statements reflect the increase in authorized
shares.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform
to the December 31, 1997 presentation.

(3) Line of Credit and Note Payable

The Company maintains a line of credit with a bank in the amount of
$50,000. The agreement with the bank provides for a floating interest rate of
prime plus 2 percent, which was 10.25 and 10.50 percent as of December 31, 1996
and 1997, respectively. Borrowings are secured by government securities
belonging to a founder of the Company. The line of credit expires in September
1998. There were no borrowings outstanding at December 31, 1996 and 1997.

F-44
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(3) Line of Credit and Note Payable --Continued

In January 1997, the Company obtained an additional line of credit with a
bank in the amount of $400,000. The agreement with the bank provides for a
floating interest rate of prime plus one and a half percent which was 10
percent at December 31, 1997. Borrowings are secured by all assets of the
Company. The line of credit expires on July 31, 1998. As of December 31, 1997,
borrowings of $19,583 were outstanding. The line was repaid and cancelled in
April 1998.

During 1995, the Company borrowed $56,000 from the Company's founder and
principal stockholder. The note was originally due in December 1996 and accrued
interest at an annual rate of 10 percent, which was to be paid quarterly.
During 1996, the Company borrowed an additional $55,500 from the Company's
founder and principal stockholder. All amounts outstanding at September 6,
1996, under these notes as well as the 1995 note, plus accrued interest on
those amounts were converted into one instrument in the amount of $113,856.
Principal and interest at the annual rate of 10 percent is due monthly over a
12 month period that began in October 1996. During 1996, the Company paid
$27,410 and $7,052 in principal and interest, respectively, on this obligation.
During 1997, the balance of $86,446 and $3,642 in principal and interest,
respectively, was paid on this obligation.

During 1997, the Company received an aggregate of $450,000 in proceeds
from the issuance of convertible notes payable, bearing an interest rate of 9.5
percent per annum. The notes, and accrued interest, are due on June 29, 1998.
The notes are convertible into any new series of preferred stock ("New Series")
issued by the Company through June 29, 1998 at the same price at which the New
Series is issued. If the Notes are not so converted within this period,
thereafter, each holder of the notes will have the right to convert the
principal and interest of its note into the Series AAA Preferred stock with a
purchase price of $20.53. The Notes were converted as a result of the Merger
(Note 8) at the same price at which the New Series is issued.

(4) Stockholders' Equity

Common Stock
In September 1996, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 25,000 to 900,000
shares, as well as to effect a 10 for 1 stock split. Common shares are subject
to repurchase by the Company under certain circumstances. In the event a
stockholder terminates employment with the Company, the Company may elect to
repurchase any or all of the shares at the higher of the employee's original
purchase price per share or fair market value. To the extent the employee's
shares are not fully vested, the Company may elect to repurchase any or all of
the unvested shares at the employee's original purchase price. The Company also
has the right of first refusal to purchase a stockholder's shares for the price
offered to the stockholder in the event a stockholder elects to sell his or her
shares. This right of first refusal and repurchase upon termination expires in
the event of an initial public offering of the Company's stock. The Company
recognized compensation expense on the shares of common stock issued to
employees in 1995 and 1996 for services rendered. Compensation expense was
$8,700 and $12,000 for the years ended December 31, 1995 and 1996,
respectively.

Preferred Stock

In 1996, the Company issued 71,870 shares of Series A Convertible,
Redeemable and Voting Preferred Stock ("Series A Preferred Stock") at $16.42
per share. The Preferred Stock is redeemable at any time after September 10,
2003, upon written request from not less than 67 percent of the outstanding
Preferred stockholders at the time of the request. The redemption price shall
be paid in cash equal to the original issue price per share ($16.42) plus any
accrued but unpaid dividends. Dividends are cumulative and accrue at the rate
of 8 percent per share per annum.

In April 1997, the Company issued 54,l42 shares of Series AA Convertible,
Redeemable and Voting Preferred Stock ("Series AA Preferred Stock") at $18.47
per share. The Series AA Preferred Stock is redeemable at any time after April
16, 2004, upon written request from not less than 67 percent of the outstanding
Preferred stockholders at the time of request. The redemption price shall be
paid in cash equal to the original price per share ($18.47) plus any accrued
but unpaid dividends. Dividends are cumulative and accrue at the rate of 8
percent per share per annum.

F-45
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(4) Stockholders' Equity --Continued

In August 1997, the Company issued 48,712 shares of Series AAA
Convertible, Redeemable and Voting Preferred Stock ("Series AAA Preferred
Stock") at $20.53 per share. The Series AAA Preferred Stock is redeemable at
any time after August 11, 2004, upon written request from not less than 67
percent of the outstanding Preferred stockholders at the time of request. The
redemption price shall be paid in cash equal to the original price per share
($20.53) plus any accrued but unpaid dividends. Dividends are cumulative and
accrue at the rate of 8 percent per share per annum.

The Series A, Series AA, and Series AAA (collectively, "Preferred Stock")
automatically converts to common stock at an initial ratio of 1 to 1 upon a
firm commitment of an underwritten public offering, at not less than $65.68 per
share or $10,000,000 in aggregate proceeds. The conversion ratio is adjustable
for certain future dilutive events. Conversion to common stock can also occur
upon written request of 67 percent of the outstanding Preferred stockholders.

In the event of liquidation, dissolution, or winding up of the Company,
the holders of each share of Preferred Stock will be paid out prior to and in
preference of holders of common stock in an amount equal to the original issue
price ($16.42 for Series A, $18.47 for Series AA, and $20.53 for Series AAA)
plus all declared but unpaid dividends.

Warrants

The convertible notes payable contained detachable warrants which can be
exercised after the first to occur of the conversion of the notes into the New
Series or June 29, 1998. If the Notes convert into the New Series, the warrants
will be exercisable for the New Series at the same price as those received by
the New Series. If the Notes do not convert into the New Series by June 29,
1998, the warrants will thereafter be exercisable for the Series AAA Preferred
Stock at a purchase price of $20.53. Such warrants will expire within five
years of the agreement. The aggregate purchase price payable upon full exercise
of the warrants equals $157,500 and the number of shares issuable upon full
exercise equals the aggregate purchase price divided by the purchase price per
share under the warrants. The warrants were deemed to have no value as the
Company believes the exercise price of the warrants is in excess of the fair
value of the Company's common stock. In addition, the warrants were terminated
as a result of the Merger (Note 8).

1996 Stock Option Plan
The Company has issued stock options to its employees under the 1996
Equity Incentive Plan. These options were issued at fair market value at the
date of grant. These options are summarized as follows:

<TABLE>
<CAPTION>
Number Weighted Average Option Price
of Shares Exercise Price Per Share
----------- ------------------ -----------------
<S> <C> <C> <C>
Company inception ............................. -- $ -- $ --
Granted ....................................... 70,700 1.09 0.60 -- 1.65
Exercised ..................................... -- -- --
Forfeited ..................................... (10,000) .60 0.60
------- ----- ------
Balance at December 31, 1996 .................. 60,700 1.17 0.60 -- 1.65
Granted ....................................... 22,500 1.77 1.65 -- 2.05
Exercised ..................................... -- -- --
Forfeited ..................................... (24,000) 1.65 1.65
------- ----- ------
Balance at December 31, 1997 .................. 59,200 1.20 0.60 -- 2.05
Granted ....................................... 2,000 2.05 2.05
Exercised ..................................... -- -- --
Forfeited ..................................... (9,600) 1.65 1.65
------- ----- ------
Balance at March 31, 1998 (unaudited) ......... 51,600 $ 1.15 $0.60 -- 2.05
======= ====== ===============
</TABLE>

No options are exercisable at December 31, 1996 and 1997. The weighted
average remaining life for options outstanding at December 31, 1996 and 1997,
was 7.14 years and 6.47 years, respectively, and at March 31, 1998 was 6.11
years.

F-46
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(4) Stockholders' Equity --Continued

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a
"fair value based method" of accounting for an employee stock option or similar
equity instrument. Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period.

SFAS No. 123 allows an entity to continue to use the intrinsic value
method as defined by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and management has elected to do so. Under the intrinsic value
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. However, entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value based method of accounting had
been applied. Accordingly, net loss would be as follows:

<TABLE>
<CAPTION>
As Reported Pro Forma
Year Ended Net Loss Net Loss
- ----------------- --------------- --------------
<S> <C> <C>
1996 ......... $ (695,516) $ (701,914)
1997 ......... (2,561,201) (2,564,751)
</TABLE>

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1996 and 1997: no dividend yield, zero percent volatility, risk-free
interest rates approximating 6 percent, and the estimated life of the option is
the contractual term of the option. The weighted-average fair value of options
granted for the years ended December 31, 1996 and 1997 and the three months
ended March 31, 1997 and 1998, were $0.39, $0.79, $0.72 and $0.89,
respectively.

(5) Commitments

In January 1997, the Company entered into a noncancelable operating lease
for office space that expires April 30, 1998. Minimum lease payments required
under this lease are $23,576 in 1998. Total rent paid in 1996 and 1997 was
$27,086 and $69,000, respectively.

(6) Income Taxes

As of December 31, 1996 and 1997, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $213,000 and
$3,082,000, respectively, that begin expiring in 2011. Net operating loss
carryforwards are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of significant changes in the
ownership of the Company.

SFAS No. 109 requires that the tax benefit of financial reporting net
operating losses and tax credits be recorded as an asset to the extent that
management assesses the utilization of such net operating losses and tax
credits to be "more likely than not." As of December 31, 1996 and 1997, the
Company's net deferred tax assets were approximately $81,000 and $1,171,000,
respectively, which consists primarily of the net operating loss carryforward
and a valuation reserve was recorded against the entire amount.

F-47
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)

(7) Accrued Expenses

Accrued expenses consists of the following as of:

<TABLE>
<CAPTION>
December 31,
March 31,
1996 1997 1998
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Vacation $13,808 $ 33,809 $ 23,685
Accrued Compensation -- 20,000 26,000
Professional Fees -- 36,000 73,000
Travel Expenses -- 21,425 36,042
Other 22,376 10,757 24,375
------- -------- --------
$36,184 $121,991 $183,102
======= ======== ========
</TABLE>

(8) Intelligent Interactions Acquisition

During April 1998, 24/7 Media, Inc. ("24/7 Media") acquired all of the
outstanding stock of Intelligent Interactions (the "Merger").

Upon consummation of the Merger, each share of common stock of Intelligent
Interactions was converted into approximately 4.1 shares of common stock, 0.6
Class A Warrants, 0.6 Class B Warrants and 0.3 Class C Warrants of 24/7 Media.
In the aggregate 949,243 shares of Common Stock, 3,561,505 shares of Series A
Preferred Stock, 265,152 Class A Warrants, 265,152 Class B Warrants and 136,553
Class C Warrants were issued in connection with the transaction. The Warrants
expire on April 10, 2003.

The Series A shares rank (i) prior to the Common Stock of 24/7 Media; (ii)
pari passu with any Securities (as defined in the Securities Purchase
Agreement); and (iii) junior to any Senior Securities, in each case as to
dividends and other distribution of assets and upon liquidation, dissolution or
winding up of 24/7 Media, whether voluntary or involuntary. The Series A
shareholders are entitled to receive, when and as declared by the Board of
Directors out of funds legally available, dividends at a rate of $0.04 per
share per annum. Such dividends shall be cancelled pursuant to the Securities
Purchase Agreement if 24/7 Media consummates a qualified initial public
offering (as defined in the Securities Purchase Agreement) prior to January 1,
1999.

Each share of Series A shall be convertible, at the option of the holder,
at any time and without the payment of additional consideration into common
stock determined by the sum of (i) the Payment Price of $1.00 per Series A
share divided by the conversion price of $3.81 per common share (as adjusted),
plus (ii) all accrued and unpaid dividends with respect to such share divided
by the dividend conversion price of equal to twice the conversion price of
$3.81.

Each Series A share (and, as applicable, all accrued but unpaid dividends
thereon), shall automatically be converted into common shares at the conversion
price (and dividend conversion price) immediately upon the closing of a
qualified public offering.

In the event 24/7 Media has not completed a qualified public offering on
the prior to the fifth anniversary of the original issue date, each shareholder
of record of Series A shares will have the right to cause 24/7 Media to redeem
at the option of the shareholder all or part of the shareholder's outstanding
Series A shares by paying cash of $3.81 per share plus any dividends accrued.
Additionally, if 24/7 Media fails to maintain at least $10 million of Key-Man
Life Insurance on the President and Chief Executive Officer of the Company,
each shareholder of record of Series A Shares will have the right to cause the
company to redeem at the option of the shareholder all or part of the
shareholder's outstanding Series A Shares by paying cash of $3.81 per share
plus any dividends accrued.

Series A shareholders have one vote for each full common share into which
a Series A share would be convertible.

F-48
<PAGE>

INTELLIGENT INTERACTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and 1996 and
As of March 31, 1998 (unaudited)
(All information subsequent to December 31, 1997 is Unaudited)
(8) Intelligent Interactions Acquisition --Continued

In addition, each option to purchase shares of common stock of Intelligent
Interactions was converted into an option to purchase approximately 4 shares of
common stock of 24/7 Media under the terms and pursuant to the conditions of
the 24/7 Media 1998 Stock Incentive Plan.

F-49
<PAGE>

Report of Independent Public Accountants

To CliqNow!:

We have audited the accompanying balance sheet of CliqNow!, a division of
K2 Design, Inc. as of December 31, 1997 and the related statements of
operations and changes in parent company's investment and advances and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CliqNow! as of December 31,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Roseland, New Jersey
June 12, 1998

F-50
<PAGE>

CLIQNOW!
(A Division of K2 Design, Inc.)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash ...................................................................... $ 0 $ 0
Accounts receivable, net of allowance for doubtful accounts of $21,000..... 535,708 634,643
Prepaid and other current assets .......................................... 52,960 12,250
-------- --------
Total current assets .................................................... 588,668 646,893
Fixed Assets, net of accumulated depreciation ............................... 30,936 36,574
-------- --------
Total assets ............................................................ $619,604 $683,467
-------- --------
LIABILITIES AND PARENT COMPANY'S INVESTMENT AND ADVANCES
Current Liabilities:
Accounts payable .......................................................... $165,337 $183,051
Accrued liabilities ....................................................... 189,297 164,586
Deferred revenue .......................................................... 25,607 336,172
-------- --------
Total current liabilities ............................................... 380,241 683,809
Parent Company's Investment and Net Advances ................................ 239,363 (342)
-------- --------
Total liabilities and parent company's investment and advances .......... $619,604 $683,467
-------- --------
</TABLE>

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

F-51
<PAGE>

CLIQNOW!
(A Division of K2 Design, Inc.)

STATEMENTS OF OPERATIONS AND CHANGES IN
PARENT COMPANY'S INVESTMENT AND ADVANCES

<TABLE>
<CAPTION>
Year Ended Quarter Ended Quarter Ended
December 31, March 31, March 31,
1997 1997 1998
-------------- --------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Advertising Revenues ........................ $ 896,427 $ 15,295 $ 500,559
Cost of Revenues ........................... 479,742 4,616 284,452
---------- ---------- ----------
Gross Profit ............................. 416,685 10,679 216,107
Operating Expenses:
Sales and Marketing ........................ 417,093 60,694 122,198
General and Administrative ................. 461,755 77,073 143,365
---------- ---------- ----------
Total Operating Expenses .................... 878,848 137,767 265,563
Loss from operations ........................ (462,163) (127,088) (49,456)
Provision for Income Taxes .................. -- -- --
---------- ---------- ----------
Net loss .................................... (462,163) (127,088) (49,456)
Parent Company's Investment and Net Advances,
beginning of the period .................... -- -- 239,363
Parent Company advances (payments) .......... 701,526 147,619 (190,249)
---------- ---------- ----------
Parent Company's Investment and Net Advances,
end of the period .......................... $ 239,363 $ 20,531 $ (342)
========== ========== ==========
</TABLE>

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

F-52
<PAGE>

CLIQNOW!
(A Division of K2 Design, Inc.)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended Quarter Ended Quarter Ended
December 31, March 31, March 31,
1997 1997 1998
-------------- --------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .................................................. $ (462,163) $ (127,088) $ (49,456)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation ............................................. 8,809 -- 3,806
Changes in operating assets and liabilities:
Accounts receivable ..................................... (535,708) (15,295) (98,935)
Prepaid and other current assets ........................ (52,960) -- 40,710
Accounts payable ........................................ 165,337 -- 17,714
Accrued liabilities ..................................... 189,297 10,514 (24,711)
Deferred revenue ........................................ 25,607 -- 310,565
---------- ---------- ----------
Net cash provided by (used in) operating
activities ............................................ (661,781) (131,869) 199,693
Cash Flows from Investing Activities:
Purchases of fixed assets ................................. (39,745) (15,750) (9,444)
Cash Flows from Financing Activities:
Increase (decrease) in due to parent company, net ......... 701,526 147,619 (190,249)
---------- ---------- ----------
Net increase in cash ................................... -- -- --
Cash, beginning of the period .............................. -- -- --
---------- ---------- ----------
Cash, end of the period .................................... $ -- $ -- $ --
========== ========== ==========
</TABLE>

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

F-53
<PAGE>

CLIQNOW!
(A Division of K2 Design, Inc)

NOTES TO FINANCIAL STATEMENTS
As of December 31, 1997 and
As of March 31, 1998 (unaudited)

(1) Organization and Business

CliqNow! ("Cliq" or "the Company") is a division of K2 Design, Inc.
("K2"). The Company was established in 1996 with operations commencing in 1997.
The Company creates Web site networks which are composed of individual,
homogenous websites joined by a link page. Each website network creates a
synergy yielding greater exposure for each website than could have been
achieved individually.

K2 is a full service interactive communications, design and technology
company, engaged primarily in the business of interactive advertising. K2 also
provides various other information delivery services. K2's customers are
primarily U.S.-based corporations operating in a wide variety of industries.

(2) Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation
The accompanying financial statements include certain corporate general
and administrative expenses incurred on a consolidated basis by K2 that have
been allocated to the Company. Such allocations include various sales and
marketing costs, general and administrative expenses, depreciation and other
indirect costs and are included in the Company's statement of operations. In
management's opinion, the basis for the allocation of such costs is reasonable
and is based upon proportionate allocation of actual costs incurred using an
estimate of the amount of time spent and equipment and space used. However, the
expenses allocated to the Company, although made on a basis management believes
to be reasonable, may not necessarily be representative of what the Company
would have incurred on a stand-alone basis.

Allocated costs are as follows:

<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
1998 1997
----------------- -------------
<S> <C> <C>
General and administrative ......... $ 85,409 $303,565
Sales and marketing ................ 1,864 --
Depreciation ....................... 3,806 8,809
Other indirect costs ............... 22,451 120,953
-------- --------
$113,530 $433,327
======================================== ======== ========
</TABLE>

The allocation of costs for the three months ended March 31, 1997 was not
material.

Revenue Recognition
The Company sells advertising space for banners on all webpages in the
network. The advertisers are pre-billed based on terms of the specific
agreements entered into. Revenue is earned progressively as adviews occur. At
the end of each reporting period all unearned revenue is deferred.

Each website is paid a commission based on the number of clicks on their
respective website.

F-54
<PAGE>

CLIQNOW!
(A Division of K2 Design, Inc.)

NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997 and
As of March 31, 1998 (unaudited)

(2) Summary of Significant Accounting Policies --Continued

Fixed Assets

Fixed assets are carried at cost and depreciated using the straight-line
method over the estimated useful lives. Fixed assets are primarily comprised of
computer equipment and are being depreciated over three years.

Income Taxes

K2 has elected to be treated as a C Corporation. As a result, K2 is
subject to Federal, New York state and city income taxes on K2's taxable
income. Cliq's operations are included in the consolidated tax return of K2.
Income taxes are calculated and provided for on a consolidated basis.
Accordingly, no provision for income taxes has been recorded for Cliq for the
year ended December 31, 1997.

Federal, state and city income taxes are provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred taxes were not significant for
the year ended December 31, 1997.

Fair Value of Financial Instruments

The carrying amounts of the Company's cash, accounts receivable, and
accounts payable approximate fair market value based upon the relatively
short-term nature of these financial instruments.

Unaudited Interim Financial Statements
The accompanying balance sheet as of March 31, 1998 and the accompanying
statements of operations and changes in parent Company's investment and
advances, and cash flows for the three months ended March 31, 1997 and 1998
included herein have been prepared by the Company and are unaudited. The
information furnished in the unaudited financial statements referred to above
includes all adjustments which are, in the opinion of management, necessary for
a fair presentation of such financial statements. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire fiscal year.

Reclassifications

Certain expenses in the December 31, 1997 statement of operations of Cliq
have been classified on a basis different than those reported in the December
31, 1997 Form 10-K of K2.

(3) Parent Company's Investment and Advances

Operations of Cliq are funded through advances from K2. As of December 31,
1997, $701,526 of advances from K2 were outstanding. Those advances have no
defined repayment terms and will be repaid from the operations of Cliq. In
addition, the balance at December 31, 1997 also includes the accumulated losses
of Cliq from inception.

(4) Major Customers

During 1997, the Company had sales to 2 customers representing 23% and 11%
of revenues. The Company had accounts receivable from these customers amounting
to $307,501 as of December 31, 1997.

(5) Subsequent Event (unaudited)

In May 1998, K2 entered into an agreement with 24/7 Media, Inc. to sell
the Cliq division. K2 will receive $1 million in cash and $3 million in 24/7
Media, Inc. Series B Convertible Preferred Stock. A portion of this cash and
stock will be paid to executives of Cliq.

F-55

<PAGE>

================================================================================

4,000,000 Shares

[24/7 LOGO OMITTED]

Common Stock

-------------------
P R O S P E C T U S
-------------------

Merrill Lynch & Co.
Allen & Company Incorporated
CIBC Oppenheimer
J.P. Morgan & Co.
PaineWebber Incorporated

, 1999

================================================================================
<PAGE>

EDGAR GRAPHIC-IMAGES DESCRIPTION:

INSIDE FRONT COVER

Graphic: Logo of Company
Language: We provide advertising solutions to advertisers and
web sites by offering media expertise combined with sophisticated
technology. We reach one-half of the online audience.
Source: Media Metrix, December 1998, indicating that we reached
over 28 million users representing 50% of the online
audience.

INSIDE FRONT GATEFOLD

Title: 24/7 MEDIA AT A GLANCE
Caption 1: STRATEGIES FOR CONTINUED GROWTH. Our objective is to
provide superior turnkey advertising solutions for web sites and
maximize the effectiveness of Internet advertising campaigns.
- Expand our networks of Web sites.
- Maximize sales and marketing effectiveness.
- Increase value of ad inventory.
- Enhance capabilities of ad targeting technology.
- Provide highest level of customer service.

Caption 2: BRAND NAME WEB SITES. We provide advertising sales
solutions for more than 125 high profile Web sites. (see inside
back cover for additional Web sites). [Names of Web sites to be
inserted]

Caption 3: INDUSTRY GROWTH. Revenue from Worldwide Internet advertising
is estimated to increase from $1.5 billion in 1998 to $15.3
billion in 2003.
- Graphic bar chart depicting growth of the online advertising
industry.
- Source: Forrester Research, Media and Technologies Report,
August 1998.
- We cannot be certain that such rapid industry growth rates
will be achieved or that we will experience similar rates
of growth.

Caption 4: EXPERIENCED MANAGEMENT TEAM. Our senior managers have
extensive media sales and technology expertise. Combined: More
than 85 years experience in advertising sales and media and more
than 30 years experience in technology and operations.

Caption 5: REACH. During December 1998, the one billion impressions generated
by our networks of Web sites reached 50% of U.S. Internet
users.
- Graphic bar chart depicting our reach statistics relative to
those of other Web sites.
- Source: Media Metrix, Top Web Properties, December 1998. Media
Metrix does not rank ad networks.
*Based upon our list of Web sites submitted to Media Metrix.

Caption 6: ENHANCED TECHNOLOGY. More than ad serving - a technology
platform designed with database marketing in mind. Adfinity
was developed to address the opportunities presented by online
database marketing.

<PAGE>

Adfinity's management system serves ads to and supports our
networks of Web sites.

Caption 7: PRESTIGIOUS ADVERTISERS. We maintain sales and marketing
relationships with leading Internet and traditional
advertisers and advertising agencies. (see inside back cover for
additional advertisers).
-[Names of advertisers to be inserted]

INSIDE BACK COVER

Caption: 24/7 MEDIA.
We provide turnkey advertising sales solutions to top Web sites
and maintain sales and marketing relationships with leading
advertisers.
-(Advertisers:)
-[Names of advertisers to be inserted]
- This is a partial, but representative, list of our
advertisers and Web sites. [Names of Web sites to be inserted.]
- See the "Business" section of this prospectus for additional
advertisers and Web sites.

<PAGE>

Part II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses and costs (other
than underwriting discounts and commissions) expected to be incurred by the
Company in connection with the issuance and distribution of the securities
being registered, all of which will be paid by the Registrant.

<TABLE>
<S> <C>
SEC registration fee ...................... $ 45,877
NASD fee ..................................
Nasdaq Listing Fee ........................
Legal fees and expenses ................... 125,000
Printing and engraving expenses ........... 175,000
Accounting fees and expenses ..............
Blue Sky fees and expenses ................
Transfer agent and registrar fees ......... 5,000
Miscellaneous ............................. 55,000
----------
Total ................................... $
==========
</TABLE>

Item 14. Indemnification of Directors and Officers.

The General Corporation Law of the State of Delaware ("DGCL") permits the
Company and its stockholders to limit directors' exposure to liability for
certain breaches of the directors' fiduciary duty, either in a suit on behalf
of the Company or in an action by stockholders of the Company.

The Certificate of Incorporation of the Company (the "Charter") eliminates
the liability of directors to stockholders or the Company for monetary damages
arising out of the directors' breach of their fiduciary duty of care. The
Charter also authorizes the Company to indemnify its directors, officers,
incorporators, employees, and agents with respect to certain costs, expenses,
and amounts incurred in connection with an action, suit, or proceeding by
reason of the fact that such person was serving as a director, officer,
incorporator, employee, or agent of the Company. In addition, the Charter
permits the Company to provide additional indemnification rights to its
officers and directors and to indemnify them to the greatest extent possible
under the DGCL. The Company has entered into indemnification agreements with
each of its officers and directors and intends to enter into indemnification
agreements with each of its future officers and directors. Pursuant to such
indemnification agreements, the Company has agreed to indemnify its officers
and directors against certain liabilities, including liabilities arising out of
the offering made by this registration statement.

The Company maintains a standard form of officers' and directors'
liability insurance policy which provides coverage to the officers and
directors of the Company for certain liabilities, including certain liabilities
which may arise out of this registration statement.

The Underwriting Agreement filed as Exhibit 1.1 hereto provides for
reciprocal indemnification between the Company and its controlling persons, on
the one hand, and the Underwriters and their controlling persons, on the other
hand, against certain liabilities in connection with this offering, including
liabilities under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

The Registrant has sold and issued the following securities within the
past three years. None of the transactions set forth below involved any public
offering or any underwriter, and the Company believes that each transaction was
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof, Regulation D promulgated thereunder, or Rule 701 pursuant
to compensatory benefit plans and contracts relating to compensation as
provided under such Rule 701, or, with respect to paragraph 13 below, in
reliance on Rule 145(a)(2) under the Securities Act. The recipients in each
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Company. The shares of common stock set forth below reflect the one
for four reverse split of the Registrant's Common Stock to be effective prior
to the closing of the offering of common stock.

II-1
<PAGE>

(1) During 1996, the Registrant issued 34,371 shares of its Class A Common
Stock (which were converted into 85,928 shares of common stock) to certain
members of senior management, including Michael P. Paolucci, immediate family
members of senior management, and certain sophisticated investors, including
The Travelers Insurance Company, for an aggregate purchase price of $4,525,000.
Each of the investors was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(2) In August 1996, the Registrant issued convertible subordinated notes to
G.E. Pension Trust, The Travelers Insurance Company and Porridge Partners II,
institutional investors, in the principal amount of $500,000, convertible into
common stock at a price of $11.48 per share and warrants to purchase 6,533
shares of common stock at a price of $11.48 per share. Each of the purchasers
was sophisticated within the meaning of the exemption provided for by Section
4(2) of the Securities Act.

(3) In November 1996 through January 1997, the Registrant completed a series
of private placements of 158,144 shares of preferred stock, to a group of
investors including The Travelers Insurance Company, convertible into common
stock at a price of $11.48 per share, subject to anti-dilution adjustment, for
an aggregate purchase price of $4,538,733. Each of the investors was
sophisticated within the meaning of the exemption provided for by Section 4(2)
of the Securities Act.

(4) During 1997, the Registrant received $2,500,000 in proceeds from the
issuance of senior convertible notes primarily to affiliates and stockholders
of the Company, including The Travelers Insurance Company, bearing an interest
rate of 8% compounded semiannually. Each of the notes was issued with
detachable warrants allowing the holder to purchase shares of common stock at
price ranges ranging from $1.60 to $11.48 per share. Each of the investors was
sophisticated within the meaning of the exemption provided for by Section 4(2)
of the Securities Act. was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(5) In April 1997, the Registrant granted warrants to Hambrecht & Quist, LLC,
an investment banking firm, to purchase 4,375 shares of common stock at $49.72
per share. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(6) In January 1998, the Registrant issued $150,000 in senior convertible
notes to The Travelers Insurance Company, convertible into 43,321 shares of
common stock at $3.48 per share. The purchaser was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(7) In January 1998, the Registrant granted warrants to purchase 28,750 shares
of common stock to Cowan and Company, an investment banking firm, in
consideration of services rendered to the Registrant. The recipient was
sophisticated within the meaning of the exemption provided for by Section 4(2)
of the Securities Act.

(8) In connection with the February 1998 merger of Petry Interactive, Inc. and
Advercomm, Inc. with and into the Registrant, (i) the Registrant issued
2,623,592 shares of common stock to former shareholders of Petry Interactive,
Inc., including David J. Moore, Mark A. Burchill and Scott E. Cohen, and
1,705,334 shares of common stock to former shareholders of Advercomm, Inc.,
including Jacob I. Friesel and Garrett P. Cecchini; (ii) the Registrant granted
a former employee (Michael P. Paolucci) warrants to purchase 625,000 shares of
common stock at a purchase price of $3.81 per share in connection with the
termination of such employee's employment with the Registrant; (iii) the
registrant issued to certain investors 10,060,002 shares of preferred stock,
convertible into common stock at a conversion price of $3.81 per share, for
aggregate proceeds of $10,000,000; (iv) the Registrant granted certain
investors warrants to purchase 1,320,904 share of common stock at $7.61 per
share and warrants to purchase 1,320,904 shares of common stock at $11.42 per
share; (v) the Registrant granted to consultants warrants to purchase an
aggregate of 18,750 shares of common stock at $3.81 per share. Each of the
recipients of securities pursuant to the Merger Agreement was sophisticated
within the meaning of the exemption provided for by Section 4(2) of the
Securities Act.

(9) In connection with the reincorporation of the Registrant from a New York
corporation to a Delaware corporation in March 1998, the Company issued shares
of its Common Stock and Series A Convertible Preferred Stock in exchange for
the issued and outstanding capital stock of its predecessor corporation. In
addition, in connection with such reincorporation, all options and warrants to
purchaser common shares of the predecessor were converted into options or
warrants to purchase shares of Common Stock.

(10) In connection with the April 1998 acquisition of Intelligent
Interactions, Corp., (i) the Registrant issued 949,243 shares of common stock
to certain former shareholders of Intelligent Interactions Corp., including
Yale

II-2
<PAGE>

R. Brown and Matthew B. Walker; (ii) the Registrant issued 3,561,505 shares of
preferred stock, convertible into common stock at a conversion price of $3.81
per share, to certain former preferred shareholders of Intelligent Interactions
Corp; (iii) the Registrant granted to certain former shareholders of
Intelligent Interactions Corp., including Yale R. Brown and Matthew B. Walker,
warrants to purchase 265,152 shares of common stock at a purchase price of
$7.61 per share, warrants to purchase 265,152 shares of common stock at a
purchase price of $11.42 per share and warrants to purchase 136,553 shares of
common stock at a purchase price of $3.81 per share. Each of the recipients of
securities pursuant to the Merger Agreement was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(11) In April 1998, the Registrant issued 5,909 shares of common stock to
Heritage Capital Corp., an investment banking firm, in consideration of
services rendered to the Registrant. The recipient was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(12) In June 1998, in connection with the acquisition of the CliqNow! division
of K2 Design, Inc., the Registrant issued to K2 Design 3,000 shares of the
Registrant's Series B Convertible Preferred Stock, which automatically
converted into 230,415 shares of common stock at the time of the initial public
offering. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(13) The Registrant from time to time has granted stock options to employees
in reliance upon an exemption under the Securities Act of 1933 pursuant to Rule
701. From January 1996 through January 15, 1999 an aggregate of 2,441,176
shares of common stock were issued pursuant to option exercises at exercise
prices ranging from $0.16 to $41.50 to employees, directors and consultants.

(14) We issued 203,851 shares of common stock to China.com Corporation in
connection with an Equity Exchange Agreement, dated December 31, 1998. The
recipient was sophisticated within the meaning of the exemption provided for by
Section 4(2) of the Securities Act.

II-3
<PAGE>

Item 16. Exhibits and Financial Statement Schedule/Index

The following exhibits are filed herewith or incorporated herein by
reference.

<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 *Form of Underwriting Agreement.
1.2 *Form of Lock Up Agreement.
3.1 +Amended and Restated Certificate of Incorporation of the Company.
3.2 +By-laws of the Company.
5.1 *Opinion of Proskauer Rose LLP.
10.1 +1998 Stock Incentive Plan.
10.2 +Form of Stock Option Agreement.
10.3.1 +Lease Agreement, dated April 30, 1998, between the Company and 38-32 Associates.
10.3.2 +Lease Option Notice, dated July 7, 1998 between the Company and 38-32 Associates.
10.4 +Agreement and Plan of Merger dated February 2, 1998 by and among Interactive
Imaginations, Inc., 24/7 Acquisition Corp., Petry Interactive, Inc. and Advercomm, Inc.
10.5 +Agreement and Plan of Merger dated as of April 9, 1998 by and among 24/7 Media, Inc.,
Interactions Acquisition Corp. and Intelligent Interactions Corporation and the persons set
forth on the signature pages thereto.
10.6 +Asset Purchase Agreement, dated as of June 1, 1998, by and between 24/7 Media, Inc. and
K2 Design, Inc.
10.7 +Securities Purchase Agreement, dated February 25, 1998, among Interactive Imaginations and
certain investors named therein.
10.8 +Registration Rights Agreement, dated April 9, 1998 by and among 24/7 Media, Inc., The
Travelers Insurance Company, Prospect Street NYC Discovery Fund, L.P., Prospect Street
NYC Co-Investment Fund, L.P. , Big Flower Digital Services, Inc., David Banks, Trinity
Ventures V, L.P., Trinity V Side-By-Side Fund, L.P., Zero Stage Capital V Limited
Partnership, and F&W Investments 1996.
10.9 +Employment Agreement between David J. Moore and Interactive Imaginations, Inc., dated
February 24, 1998.
10.10 +Employment Agreement between Jacob I. Friesel and Interactive Imaginations, Inc., dated
February 24, 1998.
10.11 +Employment Agreement between Yale R. Brown and 24/7 Media, Inc., dated April 9, 1998.
10.12 +Employment Agreement between C. Andrew Johns and 24/7 Media, Inc., dated April 20,
1998.
10.13 +Consulting Agreement dated as of January 1, 1998 by and between Interactive Imaginations,
Inc. and Neterprises, Inc.
10.14 +Confidential Separation Agreement and General Release by and between Michael P. Paolucci
and Interactive Imaginations, Inc., dated February 24, 1998.

10.15 +Form of Indemnification Agreement.
10.16 +GlobalCenter Master Service Agreement, dated May 1, 1998.
10.17 +Operating Lease agreement dated June 1, 1996 between Brentwood Credit Corporation, AT&T
Systems Leasing and Interactive Imaginations, Inc. (including amendments thereto).
10.18 +Operating Lease agreement, dated May 18, 1998, as amended on July 7, 1998 between Sun
Microsystems and 24/7 Media, Inc. and as amended on July 7, 1998.
10.19 +Pledge and Security Agreement, dated as of November 11, 1997, between Interactive
Imaginations, Inc. and The Travelers Insurance Company.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
10.20 +Senior Convertible Note with Warrants Purchase Agreement, dated as of June 11, 1997,
between Interactive Imaginations, Inc. and The Travelers Insurance Company.
10.21 +Amended and Restated Stockholders' Agreement by and among 24/7 Media, Inc. and certain
investors named therein.
11.1 Statement regarding computation of per share earnings.
21.1 *Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 *Consent of Proskauer Rose LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included with signature page).
27.1 Financial Data Schedule.
</TABLE>

- ----------------
+ Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No.
333-56085).
* To be filed by amendment.

II-5
<PAGE>

Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
a registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-6
<PAGE>

SIGNATURES AND POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT, that each person or entity whose signature
appears below constitutes and appoints David J. Moore, C. Andrew Johns and Mark
E. Moran, and each of them, its true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for it and in its name,
place and stead, in any and all capacities, to sign any and all amendments,
including post-effective amendments, to this Registration Statement on Form S-1
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as it might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, State of New York on January 20, 1999.

24/7 MEDIA, INC.

By: /s/ David J. Moore
----------------
David J. Moore
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 20, 1999 by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
Signature Title
- --------------------------- ------------------------------------------------
<S> <C>
/s/ David J. Moore Chief Executive Officer and Director
- -------------------------
(Principal Executive Officer)
David J. Moore
Chairman of the Board
- -------------------------
R. Theodore Ammon
/s/ Jacob I. Friesel Executive Vice President and Director
- -------------------------
Jacob I. Friesel
/s/ John F. Barry Director
- -------------------------
John F. Barry
Director
- -------------------------
Jack L. Rivkin
/s/ Arnie Semsky Director
- -------------------------
Arnie Semsky
/s/ Charles W. Stryker Director
- -------------------------
Charles W. Stryker, Ph.D.
/s/ C. Andrew Johns Executive Vice President, Treasurer & Chief
- -------------------------
Financial Officer (Principal Financial Officer)
C. Andrew Johns
/s/ Stuart D. Shaw Senior Vice President and Controller
- -------------------------
(Principal Accounting Officer)
Stuart D. Shaw
</TABLE>

II-7
<PAGE>

Exhibits and Financial Statement Schedule/Index

II-8
<PAGE>

- ----------------
+ Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 333-56085).
* To be filed by amendment.

II-9

Exhibit 11.1

Computation of net loss per share

<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic:
Net loss $(1,168,144) $(6,795,675) $(5,305,828) $(4,645,273) $(18,350,979)

Cumulative Dividends on manditorily
convertible preferred stock 0 0 0 0 (275,796)
---------- ---------- ---------- ---------- ----------
Net loss applicable to common
stockholders $(1,168,144) $(6,795,675) $(5,305,828) $(4,645,273) $(18,626,775)
========== ========== ========== ========== ==========
Basic weighted average shares
outstanding 420,908 1,049,432 1,086,614 1,079,116 7,610,191
========== ========== ========== ========== ==========

Basic net loss per common share $ (2.78) $ (6.48) $ (4.88) $ (4.30) $ (2.45)
========== ========== ========== ========== ==========

Diluted:
Net loss applicable to common
stockholders $(1,168,144) $(6,795,675) $(5,305,828) $(4,645,273) $(18,626,775)
========== ========== ========== ========== ==========
Basic weighted average shares
outstanding 420,908 1,049,432 1,086,614 1,079,116 7,610,191

Net effect of dilutive securities 0 0 0 0 0
---------- ---------- ---------- ---------- ----------

Diluted weighted average shares
outstanding 420,908 1,049,432 1,086,614 1,079,116 7,610,191
========== ========== ========== ========== ==========
Diluted net loss per common share $ (2.78) $ (6.48) $ (4.88) $ (4.30) $ (2.45)
========== ========== ========== ========== ==========
</TABLE>

Exhibit 23.1

ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE

The Board of Directors
24/7 Media, Inc.:

The audits referred to in our report dated June 2, 1998, except for Note
12, which is as of July 20, 1998, included the related financial statement
schedule of 24/7 Media, Inc. as of December 31, 1997, and for each of the years
in the three-year period ended December 31, 1997, included in the Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

We consent to the use of our reports included herein related to the audits
of 24/7 Media, Inc. (successor company to Interactive Imaginations, Inc.) and
Interactive Holdings, LLC (successor to Petry Interactive, Inc.) and to the
reference to our firm under the heading "Experts" in the prospectus.

KPMG LLP
/s/ KPMG LLP
New York, New York
January 20, 1999

<PAGE>

SCHEDULE
24/7 MEDIA, INC.
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS

BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF PERIOD TO EXPENSE DEDUCTIONS OF PERIOD
--------- ---------- ---------- ---------

<S> <C> <C> <C> <C>
Year ended December 31, 1995 $0 $10,000 $--- $10,000
Year ended December 31, 1996 $10,000 $66,000 $10,000 $66,000
Year ended December 31, 1997 $66,000 $--- $2,277 $63,723
</TABLE>

S-1

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our
report dated May 13, 1998 on the Intelligent Interactions Corporation financial
statements and to all references to our Firm included in or made a part of this
24/7 Media, Inc. Form S-1 Registration Statement.

Arthur Andersen LLP
/s/ Arthur Andersen LLP
Washington, D.C.
January 20, 1999

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our
report dated June 12, 1998 on the CliqNow! division of K2 Design, Inc. financial
statements and to all references to our Firm included in or made a part of this
24/7 Media, Inc. Form S-1 registration statement.

Arthur Andersen LLP
/s/ Arthur Andersen LLP
Roseland, NJ
January 19, 1999

<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted
from the consolidated balance sheet as of September 30, 1998 and
December 31, 1997 and the consolidated statement of operations
for the nine months ended September 30, 1998 and the year ended
December 31, 1997.
</LEGEND>
<MULTIPLIER> 1000

<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 42,785 94
<SECURITIES> 0 0
<RECEIVABLES> 6,543 240
<ALLOWANCES> 314 64
<INVENTORY> 0 0
<CURRENT-ASSETS> 49,343 285
<PP&E> 2,209 972
<DEPRECIATION> 735 381
<TOTAL-ASSETS> 62,566 1,039
<CURRENT-LIABILITIES> 7,942 1,450
<BONDS> 0 2,317
0 0
0 2
<COMMON> 155 11
<OTHER-SE> 54,426 (2,715)
<TOTAL-LIABILITY-AND-EQUITY> 62,566 1,039
<SALES> 10,199 1,467
<TOTAL-REVENUES> 10,304 3,149
<CGS> 8,643 1,655
<TOTAL-COSTS> 20,125 6,703
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 213 114
<INCOME-PRETAX> (18,351) (5,306)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (18,351) (5,306)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18,627) (5,306)
<EPS-PRIMARY> (2.45) (4.88)
<EPS-DILUTED> (2.45) (4.88)

</TABLE>