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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/02/04  Advertising Com                   S-1                    7:266                                    RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML  1,217K 
 2: EX-4.2      Instrument Defining the Rights of Security Holders  HTML     77K 
 3: EX-4.3      Instrument Defining the Rights of Security Holders  HTML    271K 
 4: EX-10.1     Material Contract                                   HTML    157K 
 5: EX-10.3     Material Contract                                   HTML    113K 
 6: EX-10.4     Material Contract                                   HTML    123K 
 7: EX-23.2     Consent of Experts or Counsel                       HTML      6K 

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As filed with the Securities and Exchange Commission on April 2, 2004

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

ADVERTISING.COM, INC.

(Exact name of Registrant as specified in its charter)

1020 Hull Street

Ivory Building

Baltimore, MD 21230

(410) 244-1370

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive office)

Scott A. Ferber

Chief Executive Officer

Advertising.com, Inc.

1020 Hull Street

Ivory Building

Baltimore, MD 21230

(410) 244-1370

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.

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, 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, 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 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(d) under the Securities Act, check the following box and list the Securities Act registration statement 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

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.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject To Completion. Dated April 2, 2004.

             Shares

Common Stock

This is an initial public offering of shares of common stock of Advertising.com, Inc. All of the              shares of common stock are being sold by us.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . Application has been made for quotation on The Nasdaq National Market under the symbol “ADCM.”

See “Risk Factors” on page 6 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

To the extent that the underwriters sell more than              shares of our common stock, the underwriters have the option to purchase up to an additional              shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                         , 2004.

Goldman, Sachs & Co.

Deutsche Bank Securities

Piper Jaffray

Prospectus dated                 , 2004.

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 PROSPECTUS SUMMARY

The following is a brief summary of selected contents of this prospectus. It does not contain all the information that may be important to you. You should read the entire prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed under the caption “Risk Factors” before making an investment decision. Unless otherwise indicated, the terms “Advertising.com,” the “company,” “we,” “us,” and “our” refer to Advertising.com and its subsidiaries.

Our Company

Advertising.com is a leading provider of results-based interactive marketing services. The results we deliver benefit both advertisers and interactive publishers, such as websites and search engines. We develop, target and place web, search engine and email marketing campaigns under which advertisers pay us only if we deliver the results they specify, such as customer purchases or leads. We deliver these services through our network of advertising space, known as inventory, that we purchase from interactive publishers. For publishers, we are a significant and consistent buyer of large quantities of inventory, primarily at fixed prices with no performance or other contingencies. Using our proprietary AdLearn yield management and optimization technology, we automatically match our advertisers’ campaigns to our inventory in a manner designed to maximize the revenues produced by our network.

As estimated by comScore Media Metrix, advertisements we delivered across our web inventory alone reached 70% of all U.S. web users in February 2004. In that month, our network was estimated to be the largest third-party Internet advertising network in the United States, as tracked and defined by comScore Media Metrix.

Market Opportunity

Advertisers desire a measurable return on their marketing investment. The Internet, as an advertising medium, gives them the potential to obtain direct information about consumers’ responses to advertisements. It also enables advertisers to reach large audiences with targeted messages in a cost-effective manner. IDC, a market research firm, projected that the percentage of U.S. households with Internet access will grow from 58% in 2003 to 73% in 2006. However, correlating online advertising expenditures to identifiable consumer actions remains challenging, due largely to the prevalence of the traditional cost-per-thousand impressions pricing model, which only measures the number of advertisements shown without regard to their effectiveness. We believe this has led to the emergence of results-based pricing models, such as cost-per-action and cost-per-click.

Our Strengths

Since our founding, our business has been the delivery of measurable results to Internet advertisers. In 2003 alone, the advertisements we delivered generated over 60 million consumer actions, primarily purchases, registrations and requests for information.

Our ability to deliver effective results-based interactive marketing services is based on the following strengths:

Network reach. The size and diversity of our network enhance our ability to reach the consumer segments that are most likely to respond to advertisements placed on our network. As the volume of our network inventory grows, our ability to reach specific audiences with targeted messages improves.

AdLearn technology. We have developed a proprietary technology that uses the results of prior advertising campaigns to select and schedule the optimal advertisements for our inventory. As the number of advertising campaigns executed increases and our network inventory grows, AdLearn’s ability to predict the most effective advertising placements improves.

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Interactive marketing experience. Over the past five years, we have acquired data and expertise that enhance our ability to plan, price, execute and evaluate interactive marketing programs that meet our advertisers’ specific objectives.

Publisher relationships. We are able to secure the volume and quality of advertising inventory necessary to support our marketing services by offering interactive publishers primarily fixed-rate pricing. We believe this provides them with greater predictability than arrangements that subject their return to advertising performance risk.

Our Strategy

Our objective is to be the leading provider of results-based interactive marketing services for advertisers and publishers. Specific elements of our strategy include:

Aggressively pursue new advertiser clients. We intend to expand our client base by aggressively pursuing advertisers seeking to obtain measurable results from their marketing efforts.

Increase revenues from existing advertiser clients. We will seek to increase revenues from our advertiser clients by selling them additional products and services designed to further increase the return from their interactive marketing investment.

Aggressively add new publisher inventory to our network. We intend to expand our network by aggressively pursuing new advertising inventory from our existing publishers as well as pursuing new publishers.

Develop new products and services. We plan to increase our research and development efforts in order to add new products and services that respond to emerging market opportunities and changing advertiser demands.

Continue to develop new technologies. We plan to continue to develop technologies that will enable us to plan and execute more effective interactive advertising programs for our clients.

Expand our international presence. We intend to continue to invest in markets based outside of the United States and to expand our service offering for our domestic clients to include advertising on websites directed at international audiences.

Company Information

We were incorporated in Maryland in August 1998. The address of our principal executive office is 1020 Hull Street, Ivory Building, Baltimore, Maryland 21230 and our telephone number is (410) 244-1370. We maintain a website at www.advertising.com on which we will post all reports we file with the Securities and Exchange Commission under Section 13(a) of the Securities Exchange Act of 1934 after the closing of this offering. We also will post on this website our key corporate governance documents, including our board committee charters, our ethics policy and our principles of corporate governance. Information on our website is not, however, a part of this prospectus.

“ADVERTISING.COM”, “ADLEARN”, “ACE PRO”, “ACE SERVE” and “ACE DIRECT” are our trademarks and “ADLEARN” is our registered trademark in the United States and other countries. All other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of use by, these other parties.

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The Offering

The share information in the table above is based on 4,624,051 shares outstanding as of December 31, 2003 and excludes:

Except as otherwise noted, all information in this prospectus:

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Summary Consolidated Financial Data

(in thousands, except share and per share data)

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2001, 2002 and 2003, and the balance sheet data as of December 31, 2003, are derived from, and are qualified by reference to, our consolidated financial statements that have been audited by Ernst and Young LLP, our independent auditors, and that are included in this prospectus.

We computed unaudited pro forma net income available to common stockholders per share for the year ended December 31, 2003 by using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of our convertible preferred stock into shares of common stock effective upon the closing of the offering as if such conversion occurred on January 1, 2003.

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The following unaudited pro forma consolidated balance sheet data gives effect to the conversion of our outstanding convertible preferred stock into common stock upon the closing of this offering as if such conversion had taken place on December 31, 2003. The following unaudited pro forma as adjusted consolidated balance sheet data adjusts the pro forma balances to give effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, and our receipt of the net proceeds therefrom after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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 RISK FACTORS

This offering involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information in this prospectus, including the consolidated financial statements and related notes, before making a decision to invest in our common stock. If any of the following risks actually occurs, our business, financial condition or operating results could suffer. As a result, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

General Risks Related to Our Business

Our limited operating history makes it difficult to evaluate our business and prospects and may increase your investment risk.

We commenced operations in 1998 and, as a result, have only a limited operating history upon which you can evaluate our business and prospects. Although we have experienced significant revenue growth in recent periods, we may not be able to sustain this growth. We will encounter risks and difficulties frequently encountered by early-stage companies in rapidly evolving industries, such as the Internet advertising industry. Some of these risks include the need to:

If we do not successfully address these risks, it could cause a significant decrease in our revenues and negatively affect our ability to generate income.

If we fail to maintain our position as an intermediary between interactive publishers who supply advertising inventory and Internet advertisers who purchase results-based marketing programs, our business could suffer.

We purchase advertising inventory from interactive publishers and sell results-based interactive marketing programs to advertisers. Our business will suffer to the extent our advertiser and publisher clients purchase and sell Internet advertising directly from each other or through other intermediaries that compete with us. Our ability to maintain our position as an effective intermediary between publishers and advertisers depends on several factors, including:

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Our business will suffer if the market for results-based Internet marketing services fails to develop.

Most of our services are offered to advertisers using results-based pricing models. The market for results-based Internet advertising has only recently developed, and the viability and profitability of this market is unproven. If advertisers fail to understand the value of results-based marketing services, the Internet advertising market could move away from these services, and our revenues could decline or fail to grow.

We may not be able to manage the risk inherent in our business as an intermediary of results-based marketing services, which could result in losses.

Each time we enter into a contract to deliver results-based advertising programs or to purchase advertising inventory, we assume risks such as:

We could lose money if we are unable to accurately evaluate and manage these risks, especially as our business increases in size and complexity.

We have only recently become profitable and may not maintain our level of profitability.

Although we have generated net income in recent quarters, we may not be profitable in future periods, either on a short- or long-term basis. We have incurred substantial operating losses since our inception, and had cumulative losses of $15.1 million as of December 31, 2003. We can give you no assurance that operating losses will not recur in the future or that we will maintain our level of profitability for a substantial period of time.

Our quarterly operating results have fluctuated in the past and may do so in the future, which could cause our stock price to decline.

Our prior operating results have fluctuated due to changes in our business and the advertising industry. Similarly, our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may affect our quarterly operating results include the following:

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Our operating results may fall below the expectations of market analysts and investors in some future periods. If this happens, even just temporarily, the market price of our common stock may fall.

We may not be able to promptly reduce our overall expenses in response to any decrease in our revenues, which could cause us to incur operating losses.

Our expenses related to selling, general and administrative functions and the costs of operating our network are generally fixed in the short-term. As a result, we may not be able to reduce promptly our overall expenses in response to a decrease in our revenues, and our failure to do so would affect our operating results and could cause operating losses.

Furthermore, any efforts to reduce costs might include a restructuring of our business, reduction in the number of employees, office closings and the reduction or elimination of various administrative functions. These efforts could give rise to significant accounting charges, contract termination fees, and separation or severance benefits payments.

Risks Related to Our Internet Marketing Services

Any decrease in demand for our Internet marketing services could substantially reduce our revenues.

To date, substantially all of our revenues have been derived from Internet advertising. We expect that Internet advertising will continue to account for a substantial portion of our revenues in the future. However, our revenues from Internet advertising may decrease in the future for a number of reasons, including the following:

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If our pricing models are not accepted by our advertiser clients, we could lose clients and our revenues could decline.

Most of our services are offered to advertisers based on cost-per-action, or CPA, or cost-per-click, or CPC, pricing models. These results-based pricing models differ from the cost-per-thousand impressions, or CPM, pricing model used by many Internet advertising companies. Our ability to generate significant revenues from advertisers will depend, in part, on our ability to demonstrate the effectiveness of our primary pricing models to advertisers, who may be more accustomed to a CPM pricing model.

Furthermore, intense competition among websites and other Internet advertising providers has led to the development of a number of alternative pricing models for Internet advertising. The proliferation of multiple pricing alternatives may confuse advertisers and make it more difficult for them to differentiate among these alternatives. In addition, it is possible that new pricing models may be developed and gain widespread acceptance that are not compatible with our business model or our technology. These alternatives, and the likelihood that additional pricing models will be introduced, make it difficult for us to project the levels of advertising revenues or the margins that we, or the Internet advertising industry in general, will realize in the future. If advertisers do not understand the benefits of our pricing models, then the market for our services may decline or develop more slowly than we expect, which may limit our ability to grow our revenues or cause our revenues to decline.

We depend on a limited number of advertisers for a significant percentage of our revenues, and the loss of one or more of these advertisers could cause our revenues to decline.

For the year ended December 31, 2003, revenues from our ten largest advertisers accounted for 34% of our total revenues. Although no single advertiser accounted for 10% or more of our revenues in 2003, two companies affiliated with the Apollo Group, in the aggregate, accounted for 13% of our total revenues that year. We believe that a limited number of clients will continue to be the source of a substantial portion of our revenues for the foreseeable future. Key factors in maintaining our relationships with these clients include our performance on individual campaigns, the strength of our professional reputation, and the relationships of our key executives with client personnel. To the extent that our performance does not meet client expectations, or our reputation or relationships with one or more major clients are impaired, our revenues could decline and our operating results could be adversely affected.

Because our advertiser client contracts generally can be cancelled by the client with little or no notice or penalty, the termination of one or more large contracts could result in an immediate decline in our revenues.

We derive substantially all of our revenues from marketing services under short-term contracts, most of which are cancelable upon 90 days or less notice. In addition, these contracts generally do not contain penalty provisions for cancellation before the end of the contract term. The non-renewal, re-negotiation, cancellation or deferral of large contracts, or a number of contracts that in the aggregate account for a significant amount of revenues, could cause an immediate and significant decline in our revenues and harm our business.

Any limitation on our use of data derived from our clients’ advertising campaigns could significantly diminish the value of our services and cause us to lose clients and revenues.

When an individual visits our clients’ websites, we use technologies, including cookies and web beacons, to collect information such as the user’s IP address, advertisements served by us that have

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been viewed by the user, and responses by the user to such advertisements. We aggregate and analyze this information to determine the placement and to schedule the delivery of advertisements across our network. Although the data we collect from campaigns of different clients, once aggregated, are not identifiable, our clients might decide not to allow us to collect some or all of this data or might limit our use of this data. Any limitation on our ability to use such data could make it more difficult for us to deliver results-based marketing programs that meet client demands.

In addition, although our contracts generally permit us to aggregate data from advertising campaigns, our clients might nonetheless request that we discontinue using data obtained from their campaigns that have already been aggregated with other clients’ campaign data. It would be difficult, if not impossible, to comply with these requests, and such requests could result in significant expenditures of resources. Interruptions, failures or defects in our data collection, mining and storage systems, as well as privacy concerns regarding the collection of user data, could also limit our ability to aggregate and analyze data from our clients’ advertising campaigns. If that happens, we may lose clients and our revenues may decline.

Risks Related to the Supply of Advertising Inventory

We depend on interactive publishers for inventory to deliver our clients’ advertising campaigns, and any decline in the supply of advertising inventory available through our network could cause our revenues to decline.

The websites, search engines, and email publishers that sell their advertising space to us are not bound by long-term contracts that ensure us a consistent supply of advertising inventory. We generate a significant portion of our revenues from the advertising inventory provided by a limited number of publishers. In most instances, publishers can change the amount of inventory they make available to us at any time, as well as the price at which they make it available. In addition, publishers may place significant restrictions on our use of their advertising inventory. These restrictions may prohibit advertisements from specific advertisers or specific industries, or restrict the use of certain creative content or format. If a publisher decides not to make inventory available to us, or decides to increase the price, or places significant restrictions on the use of such inventory, we may not be able to replace this with inventory from other publishers that satisfy our requirements in a timely and cost-effective manner. If this happens, our revenues could decline or our cost of acquiring inventory may increase.

Our growth may be limited if we are unable to obtain sufficient advertising inventory that meets our pricing and quality requirements.

Our growth depends on our ability to effectively manage and expand the advertising inventory in our network. To attract new advertisers, we must increase our supply of inventory that meets our performance and pricing requirements. Our ability to purchase sufficient quantities of suitable advertising inventory will depend on various factors, some of which are beyond our control. These factors include:

In addition, the number of competing Internet advertising networks that purchase advertising inventory from websites, email and search engine publishers continues to increase. We cannot assure you that we will be able to purchase advertising inventory that meets our performance, price and quality requirements, and if we cannot do so, our ability to generate revenues could be limited.

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Any limitation on our ability to post advertisements throughout our network could harm our business.

We execute advertising programs for clients primarily by placing advertisements, which we refer to as ad serving, on our network inventory. Our business could suffer from a variety of factors that could limit or reduce our ability to serve advertisements across our network, including:

Consolidation of interactive publishers may impair our ability to provide marketing services, acquire advertising inventory at favorable rates and collect campaign data.

The consolidation of Internet advertising networks, web portals, search engines and other interactive publishers could eventually lead to a concentration of desirable advertising inventory on a very small number of networks and large websites. Such concentration could:

Risks Related to Our Technology

Our AdLearn optimization technology may not achieve its intended benefits.

We use our AdLearn yield management and optimization technology to match individual advertisements to the available inventory on our network in a manner designed to maximize the revenues produced by our network. Because AdLearn is relatively new, we cannot assure you that the use of this technology will achieve these results, in which case our revenues and margins could decline.

Disputes over the methods we use to measure the effectiveness or frequency of advertisements could cause us to lose clients or advertising inventory.

We earn the majority of our advertising revenues based on the number of consumer actions from advertisements delivered through our network and we make most payments to publishers based on the number of advertising impressions they deliver. Advertisers may be unwilling to use our services and publishers may be unwilling to sell inventory to us if they perceive that our measurements of impressions, clicks and actions are not accurate and reliable. Advertisers and publishers often maintain their own technologies and methodologies for counting these actions, and from time to time we have had to resolve differences between our measurements and theirs. Any significant dispute over measurement could cause us to lose advertiser clients or sources of inventory, which could decrease our revenues.

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We must keep pace with rapidly changing technologies to remain competitive.

The Internet advertising market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing client demands. These characteristics are caused in part by the changing nature of the Internet itself. Our future success therefore will depend on our ability to adapt to rapidly changing technologies, adapt our products and services to evolving industry standards and improve the performance, features and reliability of our service.

For example, advertisers are increasingly requiring Internet advertising providers to have the ability to deliver advertisements utilizing new formats that incorporate rich media, such as video and audio, interactivity, and more precise consumer targeting techniques. We could lose clients if we fail to successfully adapt to developments such as these, which could result in decreased revenues.

We must introduce new products and services to grow our business.

Our success depends on our ability to develop and introduce new services that address our clients’ changing demands. Any new products or services that we develop will need to meet the requirements of our current and prospective clients and may not achieve significant market acceptance. The introduction of new products and services by our competitors, and the emergence of new industry standards, could render our existing products and services obsolete and unmarketable or require unanticipated investments in research and development. If revenues generated from the use of our technologies does not cover these development costs, our operating results could be adversely affected.

Our business could be harmed if the use of tracking technology is restricted or becomes subject to new regulation.

In conjunction with serving advertisements on websites, we typically place small files of information, commonly known as cookies, on an Internet user’s hard drive, generally without the user’s knowledge or consent. Cookie information is passed to us through an Internet user’s browser software. We use cookies to collect information regarding the advertisements we deliver to Internet users and their interaction with these advertisements. We use this information to identify Internet users who have received our advertisements in the past and to monitor and prevent potentially fraudulent activity. In addition, our AdLearn optimization technology uses this information to monitor the performance of ongoing advertising campaigns and plan future campaigns.

Some Internet commentators and privacy advocates have proposed limiting or eliminating the use of cookies and other Internet tracking technologies, and legislation has been introduced in some jurisdictions to regulate Internet tracking technologies. The European Union has already adopted a directive requiring that when cookies are used, the user must be informed and offered an opportunity to opt-out of the cookies’ use. If there is a further reduction or limitation in the use of Internet tracking technologies such as cookies:

Any one or more of these occurrences could result in increased costs, require us to change our business practices or divert management’s attention.

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Our failure to protect our intellectual property rights could diminish the value of our services, weaken our competitive position and reduce our revenues.

Our success depends in large part on our proprietary technology. In addition, we believe that our service marks and trademarks are key to identifying and differentiating our products and services from those of our competitors. We rely on a combination of copyright, patent, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. These steps taken by us to protect our intellectual property may not prevent misappropriation of our technology or deter independent third-party development of similar technologies.

We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation.

In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States. If we fail to protect and maintain our intellectual property rights, the value of our services could be diminished, our competitive position may suffer and we could lose clients and revenues.

If we are found to infringe on the proprietary rights of others, we could be required to redesign our products, pay significant royalties or enter into license agreements with third parties.

A third party may assert that our technology violates its intellectual property rights. From time to time, we have been subject to legal proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims against us, particularly as we expand the complexity and scope of our business. Any claim, regardless of its merit, could be expensive and time consuming to defend. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business, or portions of our business. In addition, resolution of claims may require us to redesign our technology, obtain licenses to use intellectual property rights belonging to third parties or cease using those rights altogether. Any of these events could harm our business.

If our technologies suffer from design defects, we may need to expend significant resources to address resulting product liability claims.

Our technology may contain design or performance defects which may become apparent only after widespread commercial use. Our contracts with our clients do not contain provisions to completely limit our exposure to liabilities resulting from product liability claims. A product liability claim brought against us could be expensive to defend, could result in monetary liabilities and, even if covered by our insurance, could adversely affect the marketability of our services and our business reputation.

Risks Related to Our Management and Operations

If we do not retain our senior management and key employees, we may not be able to achieve our business objectives.

Our future success is substantially dependent on the continued service of our senior management and other key employees, particularly Scott A. Ferber, our chief executive officer, John B. Ferber, our chief product officer, W. Gar Richlin, our chief operating officer, and Robert Luenberger, our chief scientist. We do not have key-person insurance on any of our employees. We may be unable to

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retain existing management, technical, sales and client support personnel that are critical to our success, resulting in harm to key client relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and pursue our business goals.

If we are unable to attract and retain skilled employees, we might not be able to sustain our growth.

Our future success also depends on our ability to continue to attract, retain and motivate highly skilled employees, particularly employees with technical skills and management expertise. Competition for employees in our industry is intense. We have experienced difficulty from time to time in attracting the personnel necessary to support the growth of our business, and we may experience similar difficulties in the future. If we are unable to attract, assimilate and retain employees with the necessary skills, we may not be able to grow our business.

If we fail to manage our growth effectively, our operating results could be adversely affected.

We have expanded our operations rapidly since our inception in 1998. As of March 12, 2004, we had approximately 290 employees and 11 offices. We also provided services to over 650 U.S. advertiser clients in 2003. Past growth has placed, and any future growth will continue to place, a significant strain on our management systems and resources.

We plan to continue to expand our sales and marketing, technology, client support and research and development organizations. Also, we will likely need to continue to improve our financial and managerial controls and our reporting systems and procedures. If we are unable to effectively implement these plans and to otherwise manage our expanding operations, our operating results could be adversely affected.

We must increase the capacity of our operating systems and infrastructure to grow our business.

We will need to improve and upgrade our operating systems and infrastructure in order to allow our operations to grow in both size and scope. Without such improvements, our operations might suffer from slow delivery times, unreliable service levels or insufficient capacity, any of which could negatively affect our reputation and ability to attract and retain clients. We may be unable to expand our systems in a timely fashion, which could limit our ability to grow. In addition, the expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase. If we improve and upgrade our systems and the volume of our business does not increase to offset the costs, our operating results could be adversely affected and we could incur losses.

System failures, including those of third parties, could significantly disrupt our operations and cause us to lose clients or advertising inventory.

Our success depends on the continuing and uninterrupted performance of our systems, which we utilize to, among other things, place advertisements, monitor the performance of advertising campaigns and manage our inventory. Sustained or repeated system failures that interrupt our ability to provide services to clients, including failures affecting our ability to deliver advertisements quickly and accurately and to process users’ responses to advertisements, could significantly reduce the attractiveness of our services to advertisers and reduce our revenues. Our systems are vulnerable to

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damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. Any steps we take to increase the reliability and redundancy of our systems may be expensive, reduce our margins and may not be successful in preventing system failures.

Our services are substantially dependent on systems provided by third parties, over whom we have little control. Interruptions in our services could result from the failure of telecommunications providers and other third parties to provide the necessary data communications capacity as required. We have occasionally experienced significant difficulties delivering advertisements across our network due to system failures unrelated to our own systems.

Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems or those of service providers. As a result, system failures that disrupt our operations could harm our business.

Because we do not maintain a fully redundant data center, any failure of our data center could adversely affect our operating results.

We do not maintain a fully redundant data center for our network operations systems. Our precautions against system failure may not be adequate to prevent an interruption in the operation of our system. The failure of our network operations systems, due to hardware, software or other malfunction or interruption, could severely interrupt our business and cause us to lose clients and revenues. If we decide to establish a fully redundant data center, we could incur substantial costs and our operating results could suffer.

Our inability to use software licensed from third parties or our use of open source software under license terms that interfere with our proprietary rights, could disrupt our business.

Some of our products contain software licensed from third parties, including some software, known as open source software, that we use without charge. In the future, these licenses may not be available on terms that are acceptable to us, or at all. Our inability to use third-party software could result in disruptions to our business, or delays in the development of future products or enhancements of existing products, which could impair our business. In addition, the terms of open source software licenses may require us to provide software that we develop using such software to others on unfavorable license terms.

If we or our advertiser or publisher clients fail to comply with regulations governing consumer privacy, we could face substantial costs and our business could be harmed.

Our collection, maintenance and sharing of information regarding Internet users could result in lawsuits or government inquiries. These actions may include those related to U.S. federal and state legislation or European Union directives limiting the ability of companies like ours to collect, receive and use information regarding Internet users. Litigation and regulatory inquiries are often expensive and time-consuming and their outcome is uncertain. Any involvement by us in any of these matters could require us to:

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Further, we cannot assure you that our advertiser and publisher clients are currently in compliance, or will remain in compliance, with their own privacy policies, regulations governing consumer privacy or other applicable legal requirements. We may be held liable if our clients use our technology or the data we collect on their behalf in a manner that is not in compliance with applicable laws or regulations or their own stated privacy standards.

We may be liable for content in the advertisements we deliver for our clients.

We may be liable to third parties for content in the advertising we deliver if the artwork, text or other content involved violates copyrights, trademarks or other intellectual property rights of third parties or if the content is defamatory. Although we generally receive warranties from our advertisers that they have the right to use any copyrights, trademarks or other intellectual property included in an advertisement and are normally indemnified by the advertisers, a third party may still file a claim against us. Any claims by third parties against us could be time-consuming, could result in costly litigation and adverse judgments and could require us to change our business.

Misappropriation of confidential information held by us could cause us to lose clients or incur liability.

We retain highly confidential information on behalf of our clients in our systems and databases. Although we maintain security features in our systems, our operations may be susceptible to hacker interception, break-ins and other disruptions. These disruptions may jeopardize the security of information stored in and transmitted through our systems. If confidential information is compromised, we could be subject to lawsuits by the affected clients or Internet users, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenues.

Our international operations subject us to additional risks that could harm our business.

International operations subject us to additional risks, including:

We cannot assure you that we will be successful in our efforts in foreign countries. Some of these factors may cause our international costs to exceed our domestic costs of doing business. Failure to adequately address these risks could adversely affect our business, financial condition and operating results.

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Additional Business Risks

We face intense and growing competition, which could result in price reductions, reduced operating margins and loss of market share.

The market for Internet advertising and related services is highly competitive. If we fail to compete effectively against other Internet advertising service companies, we could lose clients or advertising inventory and our revenues could decline. We expect competition to continue to increase because there are no significant barriers to entry. Our principal competitors include other companies that provide advertisers with Internet advertising services, including advertising networks such as 24/7 Real Media and ValueClick, and affiliate networks. In addition, we compete with large interactive media companies with strong brand recognition, such as AOL, Google, Microsoft and Yahoo!, that sell advertising inventory directly to advertisers. These companies have significant competitive advantages, including direct sales personnel and substantial proprietary inventory. We also compete with traditional advertising media, such as direct mail, television, radio, cable and print, for a share of advertisers’ total advertising budgets.

Many current and potential competitors have advantages over us, such as longer operating histories, greater name recognition, larger client bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical and marketing resources. In addition, existing or future competitors may develop or offer services that provide significant performance, price, creative or other advantages over those offered by us.

Current and potential competitors may establish cooperative relationships among themselves or with third parties to increase the ability of their products and services to address the needs of our clients and prospective clients. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share.

If we fail to compete successfully, we could have difficulties attracting and retaining advertising clients or advertising inventory, which may decrease our revenues and adversely affect our operating results. Increased competition may also result in price reductions and reduced operating income.

We expect to pursue acquisitions or other investments, which may require significant resources and may be unsuccessful.

In the future, we may acquire or make investments in other businesses, or acquire products and technologies, to complement our current business. Any future acquisition or investment may require us to use significant amounts of cash, issue potentially dilutive equity securities or incur debt. We may not be able to identify, negotiate or finance any future acquisition successfully. Even if we do succeed in acquiring a business, product or technology, we have limited experience in integrating an acquisition into our business. Acquisitions involve numerous risks, any of which could disrupt our business and reduce the likelihood that we will receive the expected benefits of the acquisition, including:

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We may need additional financing in the future, which may not be available on favorable terms, if at all.

We may need additional funds to finance our operations, as well as to enhance our services, fund our expansion, respond to competitive pressures or acquire complementary businesses or technologies. However, our business may not generate the cash needed to finance such requirements. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing shareholders would be reduced, and these securities may have rights, preferences or privileges senior to those of our common stock. If adequate funds are not available or are not available on acceptable terms, our ability to enhance our services, fund our expansion, respond to competitive pressures or take advantage of business opportunities would be significantly limited, and we might need to significantly restrict our operations.

Some of our clients may not be able to pay for our services.

Some of our clients have limited operating histories, are unprofitable and may not be able to pay for our services. In the past we have lost clients, or have had difficulty collecting payments from clients, who could not pay for our services because they were unprofitable and unable to secure ongoing funding. The ability of several of our clients to meet their payment obligations is affected by the risks and difficulties encountered by companies with limited operating histories, particularly in the evolving Internet market. If any of our current or future clients are unable to pay for our services, our operating results could be adversely affected.

Risks Related to Our Industry

The Internet advertising industry could be adversely affected by general economic downturns, catastrophic events or declines or disruptions in industries that advertise heavily on the Internet.

The Internet advertising industry is sensitive to both general economic and business conditions and to specific events, such as acts of terrorism. In addition, Internet advertising spending can be affected by the condition of industries that advertise heavily on the Internet such as the financial services, travel and entertainment industries. Some of these industries tend to be sensitive to event-driven disruptions such as government regulation, war, terrorism, disease, natural disasters and other significant events. A general decline in economic conditions or disruptions in specific industries characterized by heavy spending on interactive advertising, could cause a decline in Internet advertising expenditures which could in turn cause a decline in our revenues.

If the market for Internet advertising fails to continue to develop, our revenues and our operating results could be harmed.

Our future success is highly dependent on the continued use and growth of the Internet as an advertising medium. The Internet advertising market is relatively new and rapidly evolving, and it uses different measurements than traditional media to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising services is uncertain. Many of our current or potential advertiser clients have little or no experience using the Internet for advertising purposes and have allocated only limited portions of their advertising budgets to the Internet. The adoption of Internet

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advertising, particularly by those entities that have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business, exchanging information, measuring success and evaluating new advertising products and services. Such clients may find Internet advertising to be less effective for promoting their products and services than traditional advertising media. We cannot assure you that the market for Internet advertising will continue to grow or become sustainable. If the market for Internet advertising fails to continue to develop or develops more slowly than we expect, our revenues and business could be harmed.

Our business is dependent on the continued growth of Internet usage.

Our business depends on the continued growth in the use of the Internet. Internet usage may be inhibited for a number of reasons, such as:

If Internet usage grows, its infrastructure may not be able to support the demands placed on it and its performance and reliability may decline. In addition, websites have experienced interruptions in service as a result of outages and other delays occurring throughout the Internet network infrastructure, and as a result of sabotage. The Internet could lose its viability as a commercial medium due to delays in the development or adoption of new technologies required to accommodate increased levels of Internet activity. If use of the Internet does not continue to grow, or if the Internet infrastructure does not effectively support this growth, our ability to grow our business could be compromised and our revenues could decline.

Changes in government regulation or industry standards applicable to the Internet, especially those governing privacy, could decrease the demand for our services and increase our costs of doing business.

Our business is subject to existing laws and regulations that have been applied to Internet communications, commerce and advertising. New laws and regulations may restrict specific Internet activities, and existing laws and regulations may be applied to Internet activities, either of which could increase our costs of doing business over the Internet and adversely affect the demand for our advertising services. In the United States, federal and state laws already apply or may be applied in the future to areas, including commercial email, children’s privacy, copyrights, taxation, user privacy, search engines, Internet tracking technologies, direct marketing, data security, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, acceptable content and quality of goods and services.

The European Union has adopted directives that may limit our ability to collect and use information regarding Internet users in Europe. The effectiveness of our AdLearn technology could be limited by any regulation limiting the collection or use of information regarding Internet users. Furthermore, due to the global nature of the Internet, it is possible that, although our transmissions originate in particular states, governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on

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companies conducting business over the Internet. Such legislation, if adopted, could hinder the growth in the use of the Internet generally and decrease the acceptance of the Internet as a communications, commercial and advertising medium.

In addition to government regulation, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards applicable to the Internet. Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our clients and us, which could harm our business.

Our business could be adversely affected if the market for e-commerce does not grow or grows slower than expected.

Because many of our clients’ advertisements encourage online purchasing, our ability to grow our business depends in part on the growth and market acceptance of e-commerce. A number of factors outside of our control could hinder the future growth of e-commerce, including the following:

In particular, any well-publicized compromise of security involving web-based transactions could deter people from purchasing items on the Internet, clicking on advertisements, or using the Internet generally, any of which could cause us to lose clients and advertising inventory and adversely affect our revenues.

Risks Related to This Offering

We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.

Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. The initial public offering price will be determined by negotiations between the underwriters and us, and may bear no relationship to the price at which the common stock will trade upon completion of the offering. You may not be able to resell your shares above the initial public offering price and may suffer a loss on your investment.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

The market prices of the securities of Internet-related and online commerce companies have been extremely volatile and have overall declined significantly since early 2000. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the stock price may include, among other things:

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In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

Future sales of our common stock could cause our stock price to decline.

If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. These sales, or the perception that these sales could occur, might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate.

Upon completion of this offering, we will have outstanding          shares of common stock, assuming no exercise of outstanding options and warrants. Of these shares, the          shares sold in this offering and          additional shares will be freely tradable immediately,          additional shares will be eligible for sale in the public market 90 days after the date of the final prospectus,          additional shares will be eligible for sale 180 days after the date of the final prospectus following the expiration of lock-up agreements between our officers, directors and some of our stockholders and the underwriters, and          more shares will become available for sale in the public market on subsequent dates. Goldman, Sachs & Co., on behalf of the underwriters, may release our directors, officers and stockholders from their lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sale of shares in the public market. As restrictions on resale end, the market price of our common stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them.

Purchasers in this offering will experience immediate and substantial dilution.

Prior investors have paid substantially less per share than the price in this offering. The initial public offering price is substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after this offering. As a result, investors purchasing our common stock in this offering will incur immediate dilution of          per share. The exercise of outstanding options and warrants and future equity issuances at prices below the initial public offering price would result in further dilution to purchasers in this offering.

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We do not expect to pay any dividends for the foreseeable future.

We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

We will have broad discretion over the use of proceeds from this offering.

We will have broad discretion to use the net proceeds to us from this offering, and you will be relying on the judgment of our board of directors and management regarding the application of these proceeds. Although we expect to use the net proceeds from this offering for general corporate purposes, including working capital, and for possible future strategic investments or acquisitions, we have not allocated these net proceeds for specific purposes. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for our company.

Some provisions of our charter, bylaws and Maryland law inhibit potential acquisition bids that you may consider favorable.

Our corporate documents and Maryland law contain provisions that may enable our board of directors to resist a change in control of our company even if a change in control were to be considered favorable by you and other stockholders. These provisions include:

These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.

Also, under Maryland law, business combinations between our company and any person who beneficially owns 10% or more of our common stock, or an affiliate of such person, are prohibited for a five-year period unless exempted in accordance with the statute, and the acquisition of control shares, defined in the statute as the ability to exercise voting power in excess of 20%, may not be voted except to the extent approved by the stockholders of our company.

Recently enacted changes in securities laws and regulations are likely to increase our costs.

The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission rules implementing that Act have required changes in corporate governance practices of public companies. As a public company, these new rules and regulations will increase our legal and financial compliance

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costs, and make some activities more difficult, time-consuming or costly. We also expect these new rules and regulations may make it more expensive for us to obtain desired director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our board of directors and qualified members of our management team.

Insiders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change in control.

Our principal stockholders, directors and executive officers and entities affiliated with them will own approximately     % of the outstanding shares of our common stock after this offering. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interest. The concentration of ownership could have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and could ultimately affect the market price of our common stock.

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 FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These forward-looking statements relate to future events or our future financial performance. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under “Risk Factors” and elsewhere in this prospectus. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Specifically, this prospectus contains foward-looking statements about:

You should read this prospectus, and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we currently expect.

The forward-looking statements contained in this prospectus reflect our views and assumptions only as of the date of this prospectus. Except as required by law, we assume no responsibility for updating any forward-looking statements.

This prospectus also contains market data related to our business and industry. This market data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, financial condition, results of operations and the market price of our common stock.

We qualify all of our forward-looking statements by these cautionary statements.

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 USE OF PROCEEDS

The net proceeds from our sale of          shares of common stock in this offering are estimated to be approximately $         million, assuming an initial public offering price of $         per share, which is the mid-point of the estimated price range shown on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, payable by us. We intend to use the net proceeds from this offering for working capital, general corporate purposes and possible future acquisitions.

The amounts that we actually expend for working capital and other general corporate purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash that we generate from operations. As a result, we will retain broad discretion over the allocation of the net proceeds of this offering. We also may use a portion of the net proceeds for the acquisition of businesses, products and technologies. We periodically review acquisitions and strategic investment opportunities that are related to our business and we believe that it is desirable to have funds on hand so that we have the ability to make acquisitions and strategic investments promptly. As of the date of this prospectus, we have no arrangements, agreements or commitments for acquisitions of any businesses, products or technologies and we can give no assurance that we will be able to consummate any acquisitions or strategic investments or that if consummated such acquisitions or investments would be on terms that are favorable to us.

Pending these uses, we will invest the net proceeds of this offering in interest bearing investment grade securities, including corporate paper and auction rate securities, and government agency notes.

 DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

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 CAPITALIZATION

The following table sets forth our cash, cash equivalents and investments in marketable securities and our capitalization as of December 31, 2003:

You should read this table together with the information under the headings “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the audited consolidated financial statements and related notes contained elsewhere in this prospectus.

The table above excludes the following shares of common stock:

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 DILUTION

Dilution is the amount by which the initial public offering price paid by the purchasers of common stock in this offering exceeds the net tangible book value per share of common stock following this offering. Our pro forma net tangible book value per share represents our pro forma tangible assets, or total assets less intangible assets, less our total liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2003 after giving effect to the conversion of our outstanding convertible preferred stock into common stock. As of December 31, 2003, our pro forma net tangible book value was approximately $54.9 million, or $5.77 per share of common stock.

After giving effect to the sale of      shares of common stock by us at the assumed initial public offering price of $     per share, and after deducting the underwriting discounts, commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at December 31, 2003 would have been approximately $     million, or $     per share of common stock. After giving effect to the offering, our pro forma as adjusted net tangible book value represents an immediate increase in the pro forma net tangible book value of $     per share to existing stockholders and an immediate dilution in the pro forma as adjusted net tangible book value of $     per share to the investors who purchase our common stock in this offering.

The following table illustrates this per share dilution:

The following table summarizes, on a pro forma as adjusted basis as of December 31, 2003, the difference between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and by the investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $     per share before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The share amounts in this table exclude 2,699,327 shares of our common stock that were subject to outstanding options and warrants as of December 31, 2003 at a weighted average exercise price of $5.69 per share of common stock. To the extent that any options or warrants are exercised, there will be further dilution to new investors. If all of our outstanding options and warrants as of December 31, 2003 had been exercised, the pro forma as adjusted net tangible book value per share after this offering would be $     per share, representing an immediate increase in net tangible book value of $     per share to our existing stockholders and an immediate decrease in the net tangible book value to our new investors of $    .

To the extent that the underwriters exercise their over-allotment option, there will be further dilution to the new public investors. If the underwriters exercise the option in full, the number of shares held by new investors will increase to     , or     % of the total number of shares of common stock outstanding after this offering.

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 SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands, except share and per share data)

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2001, 2002 and 2003, and the balance sheet data as of December 31, 2002 and 2003, are derived from, and are qualified by reference to, our consolidated financial statements that have been audited by Ernst and Young LLP, our independent auditors, and that are included in this prospectus. The statement of operations data for the years ended December 31, 1999 and 2000 and the balance sheet data as of December 31, 1999, 2000 and 2001 are derived from our unaudited consolidated financial statements that are not included in this prospectus. On March 2002, we acquired all of the outstanding common stock of Dayrates AS. See note 3 of our consolidated financial statements included elsewhere in this prospectus.

We computed unaudited pro forma net income available to common stockholders per share for the year ended December 31, 2003 by using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of our convertible preferred stock into shares of common stock effective upon the closing of the offering as if such conversion occurred on January 1, 2003.

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

The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained under the caption “Selected Consolidated Financial Data” contained elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this prospectus.

Overview

Advertising.com is a leading provider of results-based interactive marketing services. We operate principally in the United States, and also have operations in the United Kingdom, France, Germany, Norway, Sweden and Denmark.

Our business model. We deliver results-based interactive marketing programs for advertisers through a network of advertising inventory we purchase from web, search engine and email publishers. We use our proprietary AdLearn yield management and optimization technology to match individual advertisements to our inventory in a manner designed to maximize the revenues produced by our network.

The cost of inventory varies by publisher and by inventory source. The revenues we generate from any particular segment of inventory also varies depending on the specific advertisement shown on that inventory.

We offer our advertiser clients multiple pricing options, under which we charge only for achieved objectives, such as customer purchases or leads. The pricing options include cost-per-action, or CPA, cost-per-click, or CPC, and cost-per-thousand impressions, or CPM. We derive the majority of our revenues from CPA agreements.

We offer our publishers multiple payment options. We typically pay for our web inventory through fixed-rate contracts, under which we guarantee publishers in advance a CPM rate for specific inventory, or revenue-share contracts, under which we pay publishers a percentage of the advertising revenues we derive from their inventory. We use CPA and CPC agreements to pay email publishers and we use CPC agreements to pay search engine publishers.