We offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display/Web advertising, search marketing, email marketing, and affiliate marketing. Additionally, we provide software that assists advertising agencies and other companies with information management regarding their financial, workflow and offline media planning and buying processes. The broad range of products and services that we provide enables our customers to address all aspects of the marketing process, from strategic planning through execution, including results measurement and campaign refinements. By combining our media, affiliate marketing and technology offerings with our experience in both online and offline marketing, we help our customers around the world optimize their marketing campaigns both on the Internet and through offline media.

Our customers are predominantly advertisers and direct marketers, as well as the agencies that service these groups. Our value proposition to these groups is our ability to provide distinctive expertise, flexible product customization, superior service, and a diligent focus on the performance of their marketing investments. This approach has enabled us to build relationships with over 4,500 advertisers and agencies, assisting them in their use of the Internet to create awareness, attract visitors, generate qualified leads, and drive sales, and to do so with both customer acquisition and retention programs.

Another key component in our value proposition is the base of relationships we have developed with quality website publishers. To fulfill our clients’ marketing programs, we rely on our relationships with websites of all sizes—from many of the largest portals on the Web, to heavily-trafficked and well-known content and shopping sites, to high-quality niche content properties. Our relationships with these partners span from representation of most of their advertising space, to monetization of their unsold advertising inventory, to regular spot buys of media and email for specific client needs. Our ability to offer these partners a wide variety of ways to generate revenue has enabled us to now reach approximately 70 million unique Internet users in the U.S. each month and approximately 120 million worldwide. ValueClick believes that the effectiveness of our advertising solutions is dependent on the quality of the partner relationships, and therefore we have established stringent quality standards that include rejection on the basis of inappropriate content, illegal activity and fraudulent clicking activity, among other criteria. We enforce these quality standards using a combination of manual and automated auditing processes that continually monitor and review both website content and adherence to advertiser campaign specifications.

We derive our revenue from three business segments, based on the types of products and services provided. These business segments are Media, Affiliate Marketing and Technology, which are described in more detail below. For information regarding the revenue, gross profit and total assets of these segments, see Item 7 and Note 15 to the December 31, 2004 consolidated financial statements included herein.

MEDIA

ValueClick’s Media segment provides a comprehensive suite of online media services and tailored programs that help marketers create awareness, attract visitors and generate leads and sales through the Internet. Our Media segment has grown both organically and through the acquisition of complementary businesses such as Search123.com, completed in May 2003, Hi-Speed Media, completed in December 2003, and Pricerunner AB, completed in August 2004. Our strategic expansion and subsequent integration within the Media segment has increased our presence in interactive marketing with powerful offerings that are offered to advertiser and agency clients in the following product categories:

Display/Web Advertising

Through partnerships with online publishers that span more than 4,500 online media properties in the U.S. and more than 14,000 worldwide, we provide advertisers and agencies with access to one of the largest and most reputable online advertising networks. With a single buy, advertisers can reach their target online audience using a variety of online display ad units and any of 17 standard channels of online content.

We offer our marketing clients a variety of display ad units that can be delivered onto the Web pages of our online advertising network and tracked to evaluate success against the goals of the program. With traditional banner ads, interstitials, text links, and other online ad units, we attempt to maximize the impact of marketing campaigns by using the most effective placement for each type of campaign. Within these placements, we also offer our clients the ability to execute a wide variety of rich media applications, providing even greater visual and auditory impact.

We began as a performance-based marketing network and we continue to offer flexible pricing arrangements designed around maximizing our clients’ return on investment. Our Web advertising placements are offered on both cost-per-thousand impression (CPM) pricing, whereby our clients pay based on the number of times the target audience is exposed to the advertisement, and cost-per-click (CPC) pricing, whereby payment is triggered only when an interested individual visits the client’s website.

The benefits that our clients enjoy in Web advertising include: our flexible pricing models; the ability to reach new and larger audience segments through our website publisher partners; the ability to have a single source for media negotiation; and the ability to improve campaigns in a variety of ways while the campaign is still running, by optimizing at site, placement and creative levels, based on both response and conversion experience.

E-commerce

We sell a limited number of consumer products directly to end-user customers through a small number of Company owned e-commerce websites.

Email Marketing

Our email marketing services allow marketers to target qualified prospective customers on a large scale with opt-in email lists from a select group of email list partners who meet our stringent criteria for data integrity, as well as who comply with all aspects of federal email legislation. Through ValueClick Media’s relationships with quality business and consumer opt-in email list owners and managers, email Marketing clients can target audiences within specific selection criteria.

Through our acquisition of Hi-Speed Media, we now possess a database of approximately 40 million opt-in email profiles that comply with recently enacted U.S. federal email legislation. Through this business, we provide marketers with the ability to advertise their products and services to the members of this email database.

Lead Generation Marketing

Our Lead Generation Marketing services enable marketers to develop their own proprietary permission-based lists of leads for re-marketing. Creating lists of consumers who have expressed interest in a specific company or offer gives marketers the ability to generate immediate sales while building ongoing relationships with prospective customers.

ValueClick’s proprietary UltraLeads product is an email marketing solution whereby we develop customized and permissioned databases of individuals who have voluntarily expressed interest in learning more about a specific client’s product or service. Using a technique called co-registration, we place opt-in

offers on registration areas of publisher partners’ websites, providing the visitors to those websites the ability to get more information, or to receive special offers from a specific advertiser. If consumers voluntarily opt-in to a given offer, they first receive a verification message to ensure their permission, followed by the requested information via an email from us to the address they provided. UltraLeads is priced on a cost-per-lead (CPL) basis, whereby clients only pay us and we only pay our publisher partners when Internet users voluntarily opt-in to a given offer.

An additional email marketing offering is our onResponse product. This offering is priced on a cost-per-action (CPA) basis, whereby clients only pay us and we only pay our publisher partners when Internet users perform specific actions, such as completing requests for more information, website registrations, product sample requests, trial subscriptions, etc. These marketing messages are delivered by our publisher partners via solo email messages and e-newsletters to their base of registered visitors. When one of the recipients of these messages responds, they are directed toward the client’s website to complete the desired action.

Online Comparison Shopping

Our online comparison shopping service enables consumers to research and compare products from among thousands of online and offline merchants through our Pricerunner destination websites. We gather product and merchant data and organize it into a comprehensive catalog on our destination websites, along with relevant consumer and professional reviews. Our service is free for consumers and merchants primarily pay us on a cost-per-lead (CPL) basis when consumers click through to merchant websites from listings on our service.

Search Marketing

Search Marketing allows marketers to find prospective customers who are actively engaged in researching and buying products and services online. ValueClick Media’s Search offerings are pay-per-click search engines, in which marketers bid for placement within search results and pay only when targeted leads are delivered to their site. ValueClick Search consists of two offerings:

Search123 is ValueClick Search’s self-service paid search network that generates its traffic primarily through syndication relationships with other search engines, web portals and content sites.

Simpli is ValueClick Search’s premium paid search network. Simpli sources traffic through Simpli.com and sites where Simpli typically enables the entire search experience. Simpli’s meta-engine architecture queries leading paid and algorithmic search engines and presents highly relevant search results across image, audio, video and news; and local yellow pages and white pages search. Simpli also offers intelligent “are you looking for?” technology that allows users to refine their searches.

ValueClick Media Search offerings act as an affordable complement to other pay-per-click search engines, enabling marketers to realize additional qualified sales leads from search results at a competitive price. Search123 has a network of hundreds of online publisher partner websites, which collectively generate hundreds of millions of searches per month.

Web Publisher Relationships

Our automated online application process is supported by a team of network development and customer service professionals across all ValueClick properties. Their responsibilities include screening prospective Web publishers, monitoring network quality, maintaining relationships, consulting with publishers on additional revenue opportunities, and the trafficking and optimization of client advertising campaigns.

AFFILIATE MARKETING

Affiliate marketing is a technique whereby online properties agree to display advertising messages in a variety of locations and configurations in return for compensation based on every lead developed or based on a share of any revenue that is generated when their website visitors respond to the advertisement by purchasing products or services from the advertiser. We provide comprehensive marketing systems that enable online marketers to use this technique to attract, convert and retain customers easily and cost effectively.

ValueClick Affiliate Marketing segment products and services, outlined below, are offered through our wholly-owned subsidiaries Be Free, Inc., acquired in May 2002, and Commission Junction, acquired in December 2003. In 2004, Be Free and Commission Junction were integrated and we market our affiliate marketing offerings under the Commission Junction brand name.

Affiliate Marketing

Our affiliate marketing business includes technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs. Specifically, our affiliate marketing services enable our advertiser clients to: build relationships with affiliate partners; manage the offers they make available to their affiliate partners; track the online traffic, leads and sales that these offers drive to the advertiser’s website; analyze the effectiveness of the offers and affiliate partners; and, we have programs which facilitate payments to affiliates on our customers’ behalf.

We offer affiliate marketing services that address the needs of advertisers that seek to build and manage a private-labeled network of third-party online publishers, as well as advertisers that wish to conduct an affiliate marketing program through our existing network of third-party online affiliate publishers. Our affiliate marketing services are offered on a hosted basis to enable marketers to execute their own affiliate marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

Affiliate Marketing revenues are driven by a combination of fixed fees and variable compensation that is based on either a percentage of commissions paid to affiliates or on a percentage of transaction revenue generated from the programs managed with our affiliate marketing platforms.

In addition to the transaction-related revenue streams, we also receive service fees from clients who elect to utilize our Outsourced Program Management service and Commission Junction Vantage offerings. With these services, we assume full responsibility for all aspects of managing the advertiser’s program including planning, publisher recruitment, review and management, and program administration.

The benefits of our affiliate marketing offering include professional services, a pay-for-performance model, the option of owning affiliate partner relationships, comprehensive technology platforms, and extensive expertise.

TECHNOLOGY

Our Technology segment provides marketers, agencies, website publishers, and other firms with the tools they need to manage both their business operations and marketing programs effectively. The technology products and services outlined below are offered through our wholly-owned subsidiaries Mediaplex, Inc. and AdWare Systems, Inc. (now referred to as “Mediaplex Systems”), both acquired in October 2001.

Mediaplex—Online Adserving and Email Technology Tools

Our Mediaplex subsidiary offers technology infrastructure tools and services that enable advertisers, advertising agencies and online publishers to implement and manage their own online display advertising (adserving) and email campaigns. Our Mediaplex products are based on our proprietary MOJO® technology platform, which has the ability to automatically configure messages in response to real-time information from a marketer’s enterprise data system and to provide ongoing campaign optimization. Mediaplex’s products are priced primarily on a cost-per-thousand impression (CPM) or email delivered basis.

Mediaplex’s solutions span three primary categories—Third-Party Adserving, Publisher Ad Management and Email Campaign Management.

Mediaplex—Third-Party Adserving

Our third-party adserving product, MOJO® Adserver, allows users to configure Web advertising campaigns, serve those campaigns according to time and site placements—commonly known in the industry as trafficking—and report results from such campaigns through to conversion. MOJO® Adserver operates on the same platform as MOJO® Mail (see Mediaplex—Email Campaign Management below), is Web-based and is available as either a full-service or Application Service Provider (“ASP”) offering.

The benefits of our third-party adserving technology and services include an intuitive interface, advanced targeting options, response and conversion tracking, near real-time reporting, a choice of full-service or ASP offerings, automated creative and placement optimization, the ability to handle rich media, and back-end data feeds for quantitative analysis.

Mediaplex—Publisher Ad Management

MOJO® Publisher is an ad management technology solution for websites and networks and has powered the ValueClick Media network since 1999. With MOJO® Publisher, websites and networks can quickly implement, manage, sell, and traffic advertising inventory on their properties, ensuring maximum revenue from those properties.

The benefits of our publisher ad management technology and services include flexible configuration, effective inventory management, accurate forecasting, advanced targeting capabilities, near real-time reporting, conversion tracking, and financial system integration.

Mediaplex—Email Campaign Management

Either alone or in combination with ValueClick Media’s Email Marketing solutions described above, our email campaign management product, MOJO® Mail, allows users to configure, traffic and report results for permission-based prospect and customer email campaigns. In addition to basic email campaign execution, MOJO® Mail affords a user the ability to populate email messages with dynamic content that is updated in real-time when the recipient opens the email. The product’s Web-based interfaces, MOJO® Works (delivery configuration) and MOJO® Reports (tracking results), provide a single point of access for email messaging campaigns across all platforms, including online advertising and wireless devices. The system, available in both full-service and ASP modes, provides the ability to target customer and prospect audience segments with tailored offers and creative message versions, and to track through to conversion activity in near real-time.

The benefits of our email campaign management technology include an intuitive interface, systematic list management and segmentation, advanced targeting options, unsubscribe and bounce management, near real-time reporting, response and conversion tracking, back-end data feeds for quantitative analysis, a

choice of full-service or ASP offerings, the ability to handle rich media programs, and integration with our email marketing solutions above.

Mediaplex Systems—Enterprise Management Solutions

Our Mediaplex Systems subsidiary is an ASP that delivers high-quality, Web-based information management systems to advertising agencies, marketing communications companies, public relations agencies, and other large corporate advertisers. The solutions that Mediaplex Systems provides span three primary categories—Agency Management, Media Management and Content Management, as outlined below. Mediaplex Systems revenue is generated primarily from monthly service fees paid by customers over the contractual service period.

The benefits offered by our enterprise management solutions include increased productivity, improved tracking and monitoring of business processes, ease of implementation, exceptional customer service, Web-based ASP, and significant scalability.

Agency Management

Our agency management systems consist of the following:

· AdVault PRODUCTION: A comprehensive Web-based business management system, this module efficiently monitors workflow and enables control of the complex day-to-day activities involved in tracking, producing and billing jobs. Cost and time tracking and analysis, bid comparisons, automated email task assignment notification, status reporting, purchase order generation, expense tracking, and production billing are combined in a single menu-driven package designed for ease of use.

· AdVault FINANCIALS: A robust multi-company, multi-office financial system that provides for the managing of accounts receivable, accounts payable, general ledger, budgeting, and cost accounting functions.

Media Management

Our media management systems enable media planners in corporate marketing departments and advertising agencies to plan, execute, track, analyze, and bill out media buys for network broadcast, spot broadcast, national cable, local cable, syndication, newspaper, magazine, and outdoor media channels. Media planners use these systems to record the available advertising opportunities and their corresponding cost and choose the configuration that best meets their campaign needs. They can then generate a media plan that consists of the media placements they have selected. Different systems are available for each type of media buying:

· AdVault BROADCAST is a tool for making, tracking and analyzing spot broadcast, syndication and local cable media buys.

· AdVault NETWORK is a tool for making, tracking and analyzing network, national broadcast cable and syndication media buys. The system also enables efficient invoicing and payment capabilities for the commercial schedule.

· AdVault PRINT is a tool providing all of the functionality needed to estimate, contract for, buy, bill, and pay for ads scheduled in newspapers, magazines and trade publications. In addition, Ad Vault PRINT can handle outdoor media buys such as billboards.

Content Management

Content Depot is a Web-based digital asset management solution that stores, indexes, retrieves, and plays/views digital assets such as documents, audio files, video files, and graphics. Content Depot is designed for both easy installation and use, and is targeted at any business that needs an affordable way to manage and utilize their digital assets.

INTERNATIONAL OPERATIONS

We currently have international operations in the United Kingdom, Germany, France, and Sweden. All operations are wholly-owned subsidiaries. Prior to March 26, 2004, we had operations in Japan through our majority owned subsidiary, ValueClick Japan. We completed the sale of our approximately 59% equity interest in ValueClick Japan, Inc. to livedoor Co., Ltd., a Japanese Internet and technology product and services company, on March 26, 2004 for approximately $24 million in cash, excluding transaction fees.

In August 1999, we commenced operations in the European market with ValueClick Europe Ltd., a wholly-owned subsidiary of ValueClick, Inc., based in the United Kingdom. In 2000, we expanded in Europe by opening wholly-owned subsidiaries in Paris, France and Munich, Germany. In August 2004, we acquired Pricerunner AB, a leading provider of online comparison shopping services in Europe, based in Sweden. Employees in our international subsidiaries totaled 115 as of December 31, 2004.

TECHNOLOGY PLATFORMS

Our proprietary applications are constructed from established, readily available technologies. These technologies are crafted into applications whose main objective is to out-perform offerings of our competitors within the same business segment. Some of the basic components our products are built on come from leading software providers such as Oracle, IBM, Sun, Dell, EMC, and Cisco while some components are constructed from leading Open Source software projects such as Apache Web Server, FreeBSD and Perl. By striking the proper balance between using commercially available software and Open Source software, we direct our technology expenditures toward developing distinguishing application functionality while minimizing third-party technology supplier costs.

We build in high performance, availability and reliability into our product offerings. Within the particular business segment, each offering out-performs industry-wide acceptable performance measurements. We safeguard against the potential for service interruptions at our third-party technology vendors by engineering failsafe controls into our critical components. ValueClick delivers its hosted solutions primarily from three co-location centers, geographically disbursed within the United States. ValueClick applications are monitored 24 hours a day, 365 days a year by specialized monitoring systems that aggregate alarms to a human staffed network operations center. If a problem occurs, appropriate engineers are notified and corrective action is taken.

Our continued investment in ValueClick’s technology infrastructure helps to ensure that our product offerings remain innovative, competitive and cost-effective.

SALES, MARKETING AND CUSTOMER SERVICE

We market our products and services primarily through direct marketing, print advertising and online advertising throughout the year. We also market them through the ValueClick properties’ websites, trade show participation and other media events. In addition, we actively pursue public relations programs to promote our brand, products and services to potential network Web publishers and advertisers, as well as to industry analysts.

Customers

We sell our products and services to a variety of advertisers and advertising agencies primarily through our internal sales team. We make extensive use of telemarketing and e-marketing strategies. Each of our account executives assists the advertisers he or she services, typically advertising, direct marketing and e-commerce companies, with all aspects of media planning and design of their advertising campaigns and their related technology needs. These services and products include advertisement purchasing and placement, assessment of results and optimization of performance and related technology platforms.

We derive our revenue from three business segments based on the types of products and services provided. These business segments are Media, Affiliate Marketing and Technology.

For additional information regarding our business segments and international operations, see Note 15 to our consolidated financial statements contained in this Report.

Competition

We face intense competition in the Internet advertising market. We expect that this competition will continue to intensify in the future as a result of industry consolidation and the continuing maturation of the industry. We compete with a diverse and large pool of advertising, media and Internet companies.

Our ability to compete depends upon several factors, including the following:

· our ability to aggregate a large network of small- to medium-sized websites efficiently;

· the timing and market acceptance of new solutions and enhancements to existing solutions developed by us;

· our customer service and support efforts;

· our sales and marketing efforts;

· the ease of use, performance, price, and reliability of solutions developed by us; and

· our ability to remain price competitive while maintaining our gross margins.

Additional competitive factors include each competitor’s: reputation, knowledge of the advertising market, financial controls, geographical coverage, relationships with clients, technological capability, and quality and breadth of services.

Seasonality and Cyclicality

We believe that our business is subject to seasonal fluctuations with the fourth quarter generally being our strongest. Marketers generally place fewer advertisements during the first and third calendar quarters of each year, and direct marketers generally mail substantially more marketing materials in the third calendar quarter of each year. In addition, expenditures by advertisers and direct marketers vary in cycles and tend to reflect the overall economic conditions, as well as budgeting and buying patterns. Furthermore, user traffic on the Internet tends to decrease during the summer months which results in fewer advertisements to sell and deliver. A decline in the general economy or in the economic prospects of advertisers and direct marketers could adversely affect our revenue.

INTELLECTUAL PROPERTY RIGHTS

We currently rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our

employees, consultants and commercial partners and control access to, and distribution of our software documentation and other proprietary information. We have registered the trademark “ValueClick” in the United States and the European Union. We currently have four pending U.S. patent applications. We do not know if our current patent applications or any future patent application will result in a patent being issued within the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. Although patents are only one component of the protection of intellectual property rights, if our patent applications are denied, it may result in increased competition and the development of products substantially similar to our own. In addition, it is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to those of our own. We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

In December 2002, we purchased a license from 24/7 Real Media for the ‘368’ patent under a Patent License Agreement. In connection with the Patent License Agreement, 24/7 Real Media also agreed to terminate their lawsuit against us for patent infringement. The terms of the Patent License and Settlement Agreements are confidential.

In November 2002, in connection with our Stock Repurchase Program, we repurchased 7,878,562 shares of our common stock held by DoubleClick. In the related repurchase agreement, both parties agreed not to sue or threaten to sue each other or any of their customers for infringement of outstanding patents for a three-year period beginning in November 2002.

CORPORATE HISTORY AND RECENT ACQUISITIONS

We commenced operations as ValueClick, LLC, a California limited liability company, on May 1, 1998. Prior to the formation of ValueClick, LLC, the ValueClick Internet advertising business began in July 1997 as a line of business within Web-Ignite Corporation, a company wholly-owned by the founding member of ValueClick, LLC. The reorganization and formation of ValueClick, LLC was effected by the transfer of the Internet advertising business of Web-Ignite to ValueClick, LLC. On December 31, 1998, ValueClick, LLC reorganized as ValueClick, Inc., a Delaware corporation. On March 30, 2000, we completed our initial public offering of common stock. Our common stock is publicly traded and is reported on the NASDAQ National Market under the symbol “VCLK.”

Pricerunner AB. On August 6, 2004, we completed the acquisition of Pricerunner AB (“Pricerunner”), a leading provider of online comparison shopping services in Europe.

We accounted for the acquisition under the purchase method. Accordingly, the results of Pricerunner’s operations are included in the Company’s consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. Under the terms of the agreement, ValueClick acquired all of the outstanding capital stock of Pricerunner for an aggregate purchase price of approximately $30.1 million, including cash of $26.9 million and approximately 263,000 shares of ValueClick common stock valued at approximately $2.0 million (based on the average ValueClick common stock price at the public announcement date and the five trading days before and after that date), and transaction costs of the acquisition of approximately $1.2 million. The stock portion of the consideration is approximately 6.5% of the total purchase price. The Company also agreed to provide additional cash and stock consideration totaling up to $6.0 million, contingent upon Pricerunner exceeding certain performance milestones related to the Pricerunner fiscal year ending April 30, 2005. Such additional consideration, if earned, would be most likely distributed in the third quarter ending September 30, 2005 and will be reflected as an increase in goodwill.

Hi-Speed Media, Inc. On December 17, 2003, we completed the acquisition of Hi-Speed Media, Inc., a California corporation (“Hi-Speed Media”), pursuant to an Agreement and Plan of Merger, dated as of December 7, 2003, by and among ValueClick, Inc., HS Acquisition Corp., a wholly-owned subsidiary of ValueClick, Hi-Speed Media, the shareholders of Hi-Speed Media, and Farshad Fardad, in his capacity as Shareholder Agent. Hi-Speed Media provides email marketing and e-commerce services. We accounted for the acquisition under the purchase method. Accordingly, the results of Hi-Speed Media’s operations are included in the Company’s consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. Under the terms of the agreement, ValueClick acquired all of the outstanding capital stock of Hi-Speed Media for an aggregate purchase price of approximately $10.5 million, including cash of $9.0 million and transaction costs of $1.1 million. The Company also agreed to provide additional cash consideration of up to $1.0 million per quarter, contingent upon the achievement of certain revenue and operating income milestones over the eight quarters beginning January 1, 2004. Contingent cash consideration earned for the year ended December 31, 2004 totaled approximately $2.3 million, and was reflected as an increase in goodwill. In connection with the transaction, Hi-Speed Media’s outstanding employee stock options were converted into options to purchase approximately 81,000 shares of ValueClick common stock valued at approximately $0.4 million using the Black-Scholes option pricing model.

Commission Junction, Inc. On December 7, 2003, we completed the acquisition of Commission Junction, Inc., a Delaware corporation (“Commission Junction”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of October 9, 2003, by and among ValueClick, NCJ Acquisition Corp., a wholly-owned subsidiary of ValueClick, Commission Junction and Idealab Holdings LLC, a Delaware limited liability company, in its capacity as Stockholder Agent. Pursuant to the terms of the merger agreement, Commission Junction was merged with and into NCJ Acquisition and became a wholly-owned subsidiary of ValueClick. Commission Junction is an affiliate marketing business, which provides technology and services that enable advertisers to manage, track and analyze a variety of online marketing programs. We accounted for the acquisition under the purchase method. Accordingly, the results of Commission Junction’s operations are included in our consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. Pursuant to the terms of the agreement, ValueClick acquired all of the outstanding capital stock of Commission Junction for approximately 3.0 million shares of ValueClick common stock, valued at approximately $29.5 million, and approximately $26.1 million in cash and transaction costs of $0.4 million. Additionally, outstanding options to acquire common stock of Commission Junction were converted into an aggregate of approximately 1.2 million options to acquire ValueClick common stock with an estimated aggregate fair value of approximately $6.1 million.

Search123.com Inc. On May 30, 2003, we completed the acquisition of Search123.com Inc. (“Search123”). Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Search123, with Search123 surviving as a wholly-owned subsidiary of ValueClick. Search123 is a search marketing company that allows marketers to find prospective customers who are actively engaged in researching and buying products and services online. We accounted for the acquisition under the purchase method. Accordingly, the results of Search123’s operations are included in our consolidated financial statements from the beginning of the accounting period nearest to the date of acquisition. The aggregate consideration, constituting the purchase price of approximately $4.9 million, included a cash payment of $3.2 million, the assumption of a net working capital deficit of $1.5 million and transaction costs of approximately $200,000.

Be Free, Inc. On May 23, 2002, we completed the acquisition of Be Free, Inc. Under the terms of the merger agreement, a wholly-owned subsidiary of ValueClick was merged with and into Be Free and Be Free survived as a wholly-owned subsidiary of ValueClick. Under the terms of the merger agreement, Be Free stockholders received 0.65882 shares of ValueClick common stock for each share of Be Free common

stock. The Company issued a total of approximately 43.4 million shares of its common stock, valued at approximately $122.3 million, for all of the outstanding capital stock of Be Free. In addition, the Company issued options to purchase approximately 4.2 million additional shares of ValueClick common stock in exchange for outstanding options to acquire Be Free common stock. We accounted for the acquisition under the purchase method. Accordingly, the results of Be Free’s operations are included in our consolidated financial statements from the beginning of the accounting period nearest to the date of the acquisition. The aggregate consideration constituting the purchase price of approximately $129.3 million, includes the issuance of 43.4 million shares of common stock (based on the average common stock price for the public announcement date, the day before and after that date), the issuance of options and warrants to purchase an aggregate of 4.2 million shares of common stock valued at approximately $5.0 million using the Black-Scholes option pricing model and transaction costs of approximately $2.0 million, which include legal fees, accounting fees, and fees for other related professional services. The acquisition of Be Free expanded our online and offline marketing and advertising technology capabilities.

PRIVACY

We may collect personally identifiable information on a permitted basis. We store this data securely and do not use the data without the explicit, knowing permission of the user when we collect the data on behalf of our clients. We rely on our clients to treat such data with the appropriate precaution and responsibility as stated in their privacy policies. In addition, we use non-personally identifiable information provided by websites, pursuant to their privacy policies, about their viewers’ general demographics and interests in order to target appropriate advertising to the sites.

Moreover, if our clients have databases of their customers, we can use this data on behalf of those clients, again pursuant to their privacy policies. The premise is that both the site providing the ad space and the advertiser (1) have a relationship with the customer, or opt-in, (2) have an opportunity to share their privacy policies with their customers, and (3) provide an opportunity to opt-out.

Our clients retain the right to use data which they have obtained through explicit permission from an Internet user; for example, if a customer of our client provides an email address to receive information and updates. We rely on our clients’ consumer privacy policies, as well as the privacy practices of the publisher sites included in each campaign.

We collect certain technical data (such as type of browser, operating system, domain type, date and time of viewer’s response) when serving Internet advertisements. This type of information is defined by the Network Advertising Initiative as non-personally identifiable information (“Ad Delivery and Reporting Data”.) We may retain this Ad Delivery and Reporting Data indefinitely.

We use “cookies,” among other techniques, to measure and report non-personalized information to advertisers, such as the number of people who see their ads or emails and the number of times people see the advertisement. A cookie is a small file that is stored in a Web-user’s hard drive. Cookies cannot read information from the user’s hard drive; rather they allow sites and advertisers to track advertising effectiveness and to ensure that viewers do not receive the same ads repeatedly. Cookies, by themselves, cannot be used to identify any user if the user does not provide any personally identifiable information. They can be used to allow personalization features such as stock portfolio tracking and targeted news stories.

We are compliant with the Platform for Privacy Protection Project, or P3P, compliance criteria. P3P is the most current privacy standard effort in the industry, providing simple and automated privacy controls for users.

EMPLOYEES

As of December 31, 2004, we had 505 employees in the U.S. and 115 employees in our international locations. None of these employees are covered by collective bargaining agreements. Management believes that our relations with our employees are good.

EXECUTIVE OFFICERS

See Part III, Item 10 of this 10-K Report for information about Executive Officers of the Registrant.

WEBSITE ACCESS TO OUR PERIODIC SEC REPORTS

Our primary Internet address is www.valueclick.com. We make our Securities and Exchange Commission (“SEC”) periodic reports (Forms 10-Q and Forms 10-K) and current reports (Forms 8-K), and amendments to these reports, available free of charge through our website as soon as reasonably practicable after they are filed electronically with the SEC. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our website, as allowed by SEC rules.

Materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

CODE OF ETHICS AND BUSINESS CONDUCT

We have adopted a Code of Ethics and Business Conduct (the “Code”) for our principal executive, financial and accounting, and other officers, and our directors, employees, agents, and consultants. The Code is publicly available on our website at www.valueclick.com under “Corporate Info.” Among other things, the Code addresses such issues as conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets, compliance with applicable laws (including insider trading laws), and reporting of illegal or unethical behavior.

Within the Code, ValueClick has established an accounting ethics complaint procedure for all employees of the Company and its subsidiaries. The complaint procedure is for employees who may have concerns regarding accounting, internal accounting controls and auditing matters. The Company treats all complaints confidentially and with the utmost professionalism. If an employee desires, he or she may submit any concerns or complaints on an anonymous basis, and his or her concerns or complaints will be addressed in the same manner as any other complaints. The Company does not, and will not, condone any retaliation of any kind against an employee who comes forward with an ethical concern or complaint.

RISK FACTORS

You should carefully consider the following risks before you decide to buy shares of our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our stock.

This Report contains forward-looking statements based on the current expectations, assumptions, estimates, and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this Report. We

do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

INTEGRATING OUR ACQUIRED OPERATIONS MAY DIVERT MANAGEMENT’S ATTENTION AWAY FROM OUR DAY-TO-DAY OPERATIONS.

We have grown in part because of business combinations with other companies, and we expect to continue to evaluate and consider future acquisitions. Acquisitions generally involve significant risks, including difficulties in the assimilation of operations, services, technologies, and corporate culture of the acquired companies, diversion of management’s attention from other business concerns, overvaluation of the acquired companies, and the acceptance of the acquired companies’ products and services by our customers. The integration of our acquired operations, products and personnel may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the transition and integration process could harm our business. We consummated the acquisitions of Search123, Commission Junction, Hi-Speed Media, and Pricerunner on May 30, 2003, December 7, 2003, December 17, 2003 and August 6, 2004, respectively. Because of the number of acquisitions we completed in 2003 and 2004, the differences in the customer base and functionality of Search123, Commission Junction, Hi-Speed Media, and Pricerunner and our products, these acquisitions may present materially higher product, marketing, research and development, facilities, information systems, accounting, personnel, and other integration challenges than those we have faced in connection with our prior acquisitions and may delay or jeopardize the complete integration of certain businesses we had acquired previously.

If we finance future acquisitions by using equity securities, this would dilute our existing stockholders. Any amortization of intangible assets, or other charges resulting from the costs of these acquisitions, could have an adverse effect on the results of our operations. In addition, we may pay more for an acquisition than the acquired products, services, technology or business are ultimately worth.

IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR EXPENSES COULD INCREASE AND OUR MANAGEMENT’S TIME AND ATTENTION COULD BE DIVERTED.

As we continue to increase the scope of our operations, we will need an effective planning and management process to implement our business plan successfully in the rapidly evolving Internet advertising market. Our business, results of operations and financial condition will be substantially harmed if we are unable to manage our expanding operations effectively. We plan to continue to expand our sales and marketing, customer support and technology organizations. Past growth has placed, and any future growth will continue to place, a significant strain on our management systems and resources. We will likely need to continue to improve our financial and managerial controls and our reporting systems and procedures. In addition, we will need to expand, train and manage our work force. Our failure to manage our growth effectively could increase our expenses and divert management’s time and attention.

WE RECENTLY ACHIEVED PROFITABILITY AND MIGHT NOT REMAIN PROFITABLE.

Although we achieved profitability in 2003 and 2004, events could arise that prevent us from achieving net income in future periods.

Because we have a relatively limited operating history, it may be difficult to evaluate our business and prospects. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by early-stage companies in the rapidly-changing Internet market. These risks include, but are not limited to, our ability to:

· maintain and increase our inventory of advertising space on websites and with email list owners and newsletter publishers;

· maintain and increase the number of advertisers that use our products and services;

· continue to expand the number of products and services we offer and the capacity of our systems;

· adapt to changes in Web advertisers’ promotional needs and policies, and the technologies used to generate Web advertisements;

· respond to challenges presented by the large number of competitors in the industry;

· adapt to changes in legislation regarding Internet usage, advertising and commerce;

· adapt to changes in technology related to online advertising filtering software; and

· adapt to changes in the competitive landscape.

If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL TO DIRECT MARKETING COMPANIES, OUR REVENUE COULD DECLINE.

Our Media segment accounted for 55.2% of our revenue for the year ended December 31, 2004 by delivering advertisements that generate impressions, click-throughs and other actions to our advertisers’ websites. This business model may not continue to be effective in the future for a number of reasons, including the following: click rates have always been low and may decline as the number of banner advertisements on the Web increases; Internet users can install “filter” software programs which allow them to prevent advertisements from appearing on their computer screens or email boxes; Internet advertisements are, by their nature, limited in content relative to other media; direct marketing companies may be reluctant or slow to adopt online advertising that replaces, limits or competes with their existing direct marketing efforts; and direct marketing companies may prefer other forms of Internet advertising we do not offer, including certain forms of search engine placements. If the number of direct marketing companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

IF OUR BUSINESS MODEL IS NOT ACCEPTED BY INTERNET ADVERTISERS OR WEB PUBLISHERS, OUR REVENUE COULD DECLINE.

Traditionally, most of our revenue has been derived from our Media segment. Although we intend to grow our Affiliate Marketing and Technology segments, we expect that our Media segment will continue to generate a substantial amount of our revenue in the future. Our Media segment includes products and services that are based on a cost-per-click (“CPC”), cost-per-action (“CPA”), cost-per-lead (“CPL”) or cost-per-thousand impressions (“CPM”) pricing model. Our ability to generate significant revenue from advertisers will depend, in part, on our ability to demonstrate the effectiveness of our various pricing models to advertisers and to Web publishers; and on our ability to attract and retain advertisers and Web publishers by differentiating our technology and services from those of our competitors. One component of our strategy is to enhance advertisers’ ability to measure their return on investment and track the performance and effectiveness of their advertising campaigns. To date, not all advertisers have taken

advantage of the most sophisticated tools we offer for tracking Internet users’ activities after they have reached advertisers’ websites. We will not be able to assure you that our strategy will succeed.

Intense competition among websites, search services and Internet advertising services has led to the proliferation of a number of alternative pricing models for Internet advertising. These alternatives, and the likelihood that additional pricing alternatives will be introduced, make it difficult for us to project the levels of advertising revenue or the margins that we, or the Internet advertising industry in general, will realize in the future. Moreover, an increase in the amount of advertising on the Web may result in a decline in click rates. Since we rely heavily on performance-based pricing models to generate revenue, any decline in click rates may make our pricing models less viable or less attractive solutions for Web publishers and advertisers.

OUR REVENUE COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE OUR EXISTING ADVERTISING SPACE AND OUR GROWTH COULD BE IMPEDED IF WE FAIL TO ACQUIRE NEW ADVERTISING SPACE.

Our success depends in part on our ability to effectively manage our existing advertising space. The Web publishers and list owners that list their unsold advertising space with us are not bound by long-term contracts that ensure us a consistent supply of advertising space, which we refer to as inventory. In addition, websites can change the amount of inventory they make available to us at any time. If a Web publisher or email list owner decides not to make advertising space from its websites, newsletters or lists available to us, we may not be able to replace this advertising space with advertising space from other websites or list owners that have comparable traffic patterns and user demographics quickly enough to fulfill our advertisers’ requests. This would result in lost revenue. We expect that our customers’ requirements will become more sophisticated as the Web matures as an advertising medium. If we fail to manage our existing advertising space effectively to meet our customers’ changing requirements, our revenue could decline. Our growth depends on our ability to expand our advertising inventory. To attract new customers, we must maintain a consistent supply of attractive advertising space. We intend to expand our advertising inventory by selectively adding to our network new Web publishers and list owners that offer attractive demographics, innovative and quality content and growing Web user traffic and email volume. Our ability to attract new Web publishers and list owners to our network and to retain Web publishers and list owners currently in our network will depend on various factors, some of which are beyond our control. These factors include our ability to introduce new and innovative product lines and services, our ability to efficiently manage our existing advertising inventory, our pricing policies, and the cost-efficiency to Web publishers and list owners of outsourcing their advertising sales. In addition, the number of competing intermediaries that purchase advertising inventory from Web publishers and list owners continues to increase. We will not be able to assure you that the size of our inventory will increase or even remain constant in the future.

Our pay-per-click search service is dependent upon a limited number of sources to direct Internet users to our search service. Our sources for users conducting searches are members of our affiliate network, including portals, browsers, or other affiliates and our own website. Revenues are generated when users conducting searches are directed to advertisers through a paid search link in our search results. The more traffic our sources direct to our advertisers through our search technology, the more revenue we will generate. Unfavorable changes in our relationship with these sources or loss of these relationships would adversely affect our revenue and results of operations.

WE MAY FACE INTELLECTUAL PROPERTY ACTIONS THAT ARE COSTLY OR COULD HINDER OR PREVENT OUR ABILITY TO DELIVER OUR PRODUCTS AND SERVICES.

We may be subject to legal actions alleging intellectual property infringement (including patent infringement), unfair competition or similar claims against us. Companies may apply for or be awarded

patents or have other intellectual property rights covering aspects of our technology or business. One of the primary competitors of our Search123 subsidiary, Overture Services, Inc., purports to be the owner of U.S. Patent No. 6,269,361, which was issued on July 31, 2001 and is entitled “System and method for influencing a position on a search result list generated by a computer network search engine.” Overture has aggressively pursued its alleged patent rights by filing lawsuits against other pay-per-click search engine companies such as FindWhat.com and Google. FindWhat.com and Google have asserted counter-claims against Overture including, but not limited to, invalidity, unenforceability and non-infringement. We are currently indemnifying Barnesandnoble.com, Inc. in its patent infringement litigation with BTG International, Inc. (“BTG”). This case could prove to be very expensive to us and, if successful for BTG, hinder our ability to deliver our affiliate marketing products and services.

IF THE TECHNOLOGY THAT WE CURRENTLY USE TO TARGET THE DELIVERY OF ONLINE ADVERTISEMENTS AND TO PREVENT FRAUD ON OUR NETWORK IS RESTRICTED OR BECOMES SUBJECT TO REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Websites typically place small files of non-personalized (or “anonymous”) information, commonly known as cookies, on an Internet user’s hard drive, generally without the user’s knowledge or consent. Cookies generally collect information about users on a non-personalized basis to enable websites to provide users with a more customized experience. Cookie information is passed to the website through an Internet user’s browser software. We currently use cookies to track an Internet user’s movement through the advertiser’s website and to monitor and prevent potentially fraudulent activity on our network. Most currently available Internet browsers allow Internet users to modify their browser settings to prevent cookies from being stored on their hard drive, and some users currently do so. Internet users can also delete cookies from their hard drives at any time. Some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies, and legislation (including, but not limited to, Spyware legislation such as U.S. House of Representatives Bill HR 29 the “Spy Act”) has been introduced in some jurisdictions to regulate the use of cookie technology. The effectiveness of our technology could be limited by any reduction or limitation in the use of cookies. If the use or effectiveness of cookies were limited, we would have to switch to other technologies to gather demographic and behavioral information. While such technologies currently exist, they are substantially less effective than cookies. We would also have to develop or acquire other technology to prevent fraud. Replacement of cookies could require significant reengineering time and resources, might not be completed in time to avoid losing customers or advertising inventory, and might not be commercially feasible. Our use of cookie technology or any other technologies designed to collect Internet usage information may subject us to litigation or investigations in the future. Any litigation or government action against us could be costly and time-consuming, could require us to change our business practices and could divert management’s attention.

WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY IF WE FAIL TO MEASURE IMPRESSIONS, CLICKS AND ACTIONS ON ADVERTISEMENTS IN A MANNER THAT IS ACCEPTABLE TO OUR ADVERTISERS AND WEB PUBLISHERS.

We earn advertising revenue and make payments to Web publishers based on the number of impressions, clicks and actions from advertisements delivered on our network of websites and email lists. Advertisers’ and Web publishers’ willingness to use our services and join our network will depend on the extent to which they perceive our measurements of impressions, clicks or actions to be accurate and reliable. Advertisers and Web publishers often maintain their own technologies and methodologies for counting impressions, clicks or actions, and from time to time we have had to resolve differences between our measurements and theirs. Any significant dispute over the proper measurement of clicks or other user responses to advertisements could cause us to lose customers or advertising inventory.

IF WE FAIL TO COMPETE EFFECTIVELY AGAINST OTHER INTERNET ADVERTISING COMPANIES, WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY AND OUR REVENUE COULD DECLINE.

The Internet advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions, and changing client demands. The introduction of new services embodying new technologies and the emergence of new industry standards and practices could render our existing services obsolete and unmarketable or require unanticipated technology investments. Our failure to adapt successfully to these changes could harm our business, results of operations and financial condition.

The market for Internet advertising and related services is intensely competitive. We expect this competition to continue to increase because there are no significant barriers to entry. Increased competition may result in price reductions for advertising space, reduced margins and loss of our market share. Our principal competitors include other companies that provide advertisers with Internet advertising solutions, such as CPM, CPC, CPL or CPA, and companies that offer pay-per-click search services. We directly compete with a number of competitors in the CPC market segment, such as Advertising.com. We compete in the performance-based marketing segment with CPL and CPA performance-based companies such as Direct Response and Linkshare, and we compete with other Internet advertising networks that focus on the traditional CPM model, including 24/7 Real Media. We also compete with pay-per-click search companies such as Overture, recently acquired by Yahoo, Google and FindWhat. In addition, we now compete in the online comparison shopping market with focused comparison shopping websites such as Shopping.com, Kelkoo (which was recently acquired by Yahoo), NexTag, and Pricegrabber, and with search engines and portals such as Yahoo, Google and MSN, and with online retailers such as Amazon.com and Ebay. Large websites with brand recognition, such as Yahoo, AOL and MSN, have direct sales personnel and substantial proprietary inventory that provide significant competitive advantages compared to our networks and have significant impact on pricing for online advertising. These companies have longer operating histories, greater name recognition and have greater financial and marketing resources than we have.

Competition for advertising placements among current and future suppliers of Internet navigational and informational services, high-traffic websites and Internet service providers, or ISPs, as well as competition with other media for advertising placements, could result in significant price competition, declining margins and/or reductions in advertising revenue. In addition, as we continue to expand the scope of our Web services, we may compete with a greater number of Web publishers and other media companies across an increasing range of different Web services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition would be negatively affected. We will 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 enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue could decline.

OUR REVENUE GROWTH COULD BE NEGATIVELY IMPACTED IF INTERNET USAGE AND THE DEVELOPMENT OF INTERNET INFRASTRUCTURE DO NOT CONTINUE TO GROW.

Our business and financial results will depend on continued growth in the use of the Internet. Internet usage may be inhibited for a number of reasons, such as: inadequate network infrastructure; security concerns; inconsistent quality of service; and, unavailability of cost-effective, high-speed service.

If Internet usage grows, our infrastructure may not be able to support the demands placed on it and our performance and reliability may decline. In addition, websites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure, and as a result of sabotage, such as electronic attacks designed to interrupt service on many websites. The Internet could lose its viability as a commercial medium due to delays in the development or adoption of new technology 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 our growth, our revenue could be materially and adversely affected.

OUR LONG-TERM SUCCESS MAY BE MATERIALLY ADVERSELY AFFECTED IF THE MARKET FOR E-COMMERCE DOES NOT GROW OR GROWS SLOWER THAN EXPECTED.

Because many of our customers’ advertisements encourage online purchasing, our long-term success may depend in part on the growth and market acceptance of e-commerce. Our business will be adversely affected if the market for e-commerce does not continue to grow or grows slower than now expected. A number of factors outside of our control could hinder the future growth of e-commerce, including the following:

· the network infrastructure necessary for substantial growth in Internet usage may not develop adequately or our performance and reliability may decline;

· insufficient availability of telecommunication services or changes in telecommunication services could result in inconsistent quality of service or slower response times on the Internet;

· negative publicity and consumer concern surrounding the security of e-commerce could impede our growth; and

· financial instability of e-commerce customers.

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 customers and advertising inventory and could materially, adversely affect our revenue.

WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HARM OUR BUSINESS.

The successful integration of the companies we have acquired will depend in part on the retention of personnel critical to our combined business and operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, technical, sales, and customer support personnel that are critical to the success of the integrated company, resulting in disruption of operations, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs and otherwise diminishing anticipated benefits of these acquisitions.

Our future success is substantially dependent on the continued service of our key senior management. Our employment agreements with our key personnel are short-term and on an at-will basis. We do not have key-person insurance on any of our employees. The loss of the services of any member of our management team, or of any other key employees, could divert management’s time and attention, increase our expenses and adversely affect our ability to conduct our business efficiently. Our future success also

depends on our continuing ability to attract, retain and motivate highly skilled employees. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. We have experienced difficulty from time to time in attracting the personnel necessary to support the growth of our business, and may experience similar difficulties in the future.

DELAWARE LAW AND OUR STOCKHOLDER RIGHTS PLAN CONTAIN ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER ATTEMPTS THAT COULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring the Company without the board of directors’ consent for at least three years from the date they first hold 15% or more of the voting stock. In addition, our Stockholder Rights Plan has significant anti-takeover effects by causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors.

SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, WHICH COULD CAUSE US TO LOSE CUSTOMERS OR ADVERTISING INVENTORY.

Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process users’ responses to advertisements, would reduce significantly the attractiveness of our solutions to advertisers and Web publishers. Our business, results of operations and financial condition could be materially and adversely affected by any damage or failure that interrupts or delays our operations. Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts, and natural disasters. We lease server space in El Segundo and Sunnyvale, California, Louisville, Kentucky and Stockholm, Sweden. Therefore, any of the above factors affecting the Los Angeles, Sunnyvale or Louisville areas would substantially harm our business. Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future. Our data storage centers incorporate redundant systems, consisting of additional servers, but our primary system does not switch over to our back-up system automatically. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

WE MAY EXPERIENCE CAPACITY CONSTRAINTS THAT COULD REDUCE OUR REVENUE.

Our future success depends in part on the efficient performance of our software and technology, as well as the efficient performance of the systems of third-parties. As the numbers of Web pages and Internet users increase, our services and infrastructure may not be able to grow to meet the demand. A sudden and unexpected increase in the volume of advertising delivered through our servers or in click rates could strain the capacity of the software or hardware that we have deployed. Any capacity constraints we experience could lead to slower response times or system failures and adversely affect the availability of advertisements, the number of advertising views delivered and the level of user responses received, which would harm our revenue. To the extent that we do not effectively address capacity constraints or system failures, our business, results of operations and financial condition could be harmed substantially. We also depend on ISPs that provide consumers with access to the websites on which our customers’

advertisements appear. Internet users have occasionally experienced difficulties connecting to the Web due to failures of their ISPs’ systems. Any disruption in Internet access provided by ISPs or failures by ISPs to handle the higher volumes of traffic expected in the future could materially and adversely affect our revenue.

IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

Our revenue and 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 results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and investors or our own forecasts in some future periods. If this happens, the market price of our common stock may fall. The factors that may affect our quarterly operating results include:

· fluctuations in demand for our advertising solutions;

· fluctuations in click, lead and action rates;

· fluctuations in the amount of available advertising space, or views, on our networks;

· the timing and amount of sales and marketing expenses incurred to attract new advertisers;

· fluctuations in sales of different types of advertising, for example, the amount of advertising sold at higher rates rather than lower rates;

· seasonal patterns in Internet advertisers’ spending;

· changes in our pricing policies, the pricing policies of our competitors or the pricing policies for advertising on the Internet generally;

· timing differences at the end of each quarter between our payments to Web publishers for advertising space and our collection of advertising revenue for that space; and

· costs related to acquisitions of technology or businesses.

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Any decline in the economic prospects of advertisers or the economy generally may alter current or prospective advertisers’ spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations and financial condition.

IF WE DO NOT SUCCESSFULLY DEVELOP OUR INTERNATIONAL STRATEGY, OUR REVENUE AND CASH FLOWS AND THE GROWTH OF OUR BUSINESS COULD BE HARMED.

We initiated operations, through wholly-owned subsidiaries or divisions, in the United Kingdom in 1999, France and Germany in 2000 and Sweden in 2004. Our foreign operations subject us to foreign currency exchange risks. We currently do not utilize hedging instruments to mitigate foreign exchange risks.

Our international expansion will subject us to additional foreign currency exchange risks and will require management’s attention and resources. We expect to pursue expansion through a number of international alliances and to rely extensively on these business partners initially to conduct operations, establish local networks, register websites as affiliates and coordinate sales and marketing efforts. Our success in these markets will depend on the success of our business partners and their willingness to

dedicate sufficient resources to the relationships. We cannot assure you that we will be successful in our efforts overseas. International operations are subject to other inherent risks, including:

· the impact of recessions in economies outside the United States;

· changes in and differences between regulatory requirements, domestic and foreign;

· export restrictions, including export controls relating to encryption technologies;

· reduced protection for intellectual property rights in some countries;

· potentially adverse tax consequences;

· difficulties and costs of staffing and managing foreign operations;

· political and economic instability;

· tariffs and other trade barriers; and

· seasonal reductions in business activity.

Our failure to address these risks adequately could materially and adversely affect our business, results of operations and financial condition.

WE MAY BE LIABLE FOR CONTENT DISPLAYED ON OUR NETWORKS OF PUBLISHERS WHICH COULD INCREASE OUR EXPENSES.

We may be liable to third-parties for content in the advertising we deliver if the artwork, text or other content involved violates copyright, trademark, or other intellectual property rights of third-parties or if the content is defamatory. Any claims or counterclaims could be time-consuming, could result in costly litigation and could divert management’s attention.

IF WE FAIL TO ESTABLISH, MAINTAIN AND EXPAND OUR TECHNOLOGY BUSINESS AND MARKETING ALLIANCES AND PARTNERSHIPS, OUR ABILITY TO GROW COULD BE LIMITED, WE MAY NOT ACHIEVE DESIRED REVENUE AND OUR STOCK PRICE MAY DECLINE.

In order to grow our technology business, we must generate, retain and strengthen successful business and marketing alliances with advertising agencies.

We depend, and expect to continue to depend, on our business and marketing alliances, which are companies with which we have written or oral agreements to work together to provide services to our clients and to refer business from their clients and customers to us. If companies with which we have business and marketing alliances do not refer their clients and customers to us to perform their online campaign and message management, our revenue and results of operations would be severely harmed.

WE WILL BE DEPENDENT UPON TECHNOLOGIES, INCLUDING OUR MOJO, MEDIAPLEX SYSTEMS, COMMISSION JUNCTION, HI-SPEED MEDIA, SEARCH123, AND PRICERUNNER TECHNOLOGIES, FOR OUR FUTURE REVENUE, AND IF THESE TECHNOLOGIES DO NOT GENERATE REVENUE, OUR BUSINESS MAY FAIL.

Our future revenue is likely to be dependent on the acceptance by clients of the use of our technologies, which we believe to be the cornerstone of our technology business. If these technologies do not perform as anticipated or otherwise do not attract clients to use our services, our operations will suffer. In addition, we may incur significant expenses in the future developing our existing and purchased technologies. If our revenue generated from the use of our technologies does not cover these development costs, our results of operations and financial condition would suffer.

IF OUR TECHNOLOGIES SUFFER FROM DESIGN DEFECTS, WE MAY NEED TO EXPEND SIGNIFICANT RESOURCES TO ADDRESS RESULTING PRODUCT LIABILITY CLAIMS.

Our business will be harmed if our technologies suffer from design or performance defects and, as a result, we could become subject to significant product liability claims. Technology as complex as our technology may contain design and/or performance defects which are not detectable even after extensive internal testing. Such defects may become apparent only after widespread commercial use. Our contracts with our clients currently do not contain provisions to completely limit our exposure to liabilities resulting from product liability claims. Although we have not experienced any product liability claims to date, we cannot assure you that we will not do so in the future. A product liability claim brought against us, which is not adequately covered by our insurance, could materially harm our business.

TECHNOLOGY SALES AND IMPLEMENTATION CYCLES ARE LENGTHY, WHICH COULD DIVERT OUR FINANCIAL AND OTHER RESOURCES, AND ARE SUBJECT TO DELAYS, WHICH COULD RESULT IN DELAYED REVENUE.

If the sales and implementation cycle of our technology products and services are delayed, our revenue will likewise be delayed. Our sales and implementation cycles are lengthy, causing us to recognize revenue long after our initial contact with a client. During our sales effort, we spend significant time educating prospective clients on the use and benefit of our message management services. As a result, the sales cycle for our products and services is long, ranging from a few weeks to several months to over one year for our larger clients. The sales cycle for our message management services and media management applications is likely to be longer than the sales cycle for competitors because we believe that clients may require more extensive approval processes related to integrating internal business information with their advertising campaigns. In addition, in order for a client to implement our services, the client must commit a significant amount of resources over an extended period of time. Furthermore, even after a client purchases our services, the implementation cycle is subject to delays. These delays may be caused by factors within our control, such as possible technology defects, as well as those outside our control, such as clients’ budgetary constraints, internal acceptance reviews, functionality enhancements, lack of appropriate customer staff to implement our applications, and the complexity of clients’ advertising needs. Also, failure to deliver service or application features consistent with delivery commitments could result in a delay or cancellation of a client agreement.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM UNAUTHORIZED USE, WHICH COULD DIMINISH THE VALUE OF OUR SERVICES, WEAKEN OUR COMPETITIVE POSITION AND REDUCE OUR REVENUE.

Our success depends in large part on our proprietary technologies, including tracking management software, our affiliate marketing technologies and our MOJO platform. In addition, we believe that our trademarks are key to identifying and differentiating our services from those of our competitors. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our services could be diminished and our competitive position may suffer.

We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-party software providers could copy or otherwise obtain and use our technology without authorization or develop similar technology independently which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendor clients, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our services or technologies. Our precautions may not prevent misappropriation of our services or technologies, particularly in 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 KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES, WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY.

The Internet advertising market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions, 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 and unmarketable or require unanticipated technology investments. Our success will depend on our ability to adapt to rapidly changing technologies, to enhance existing solutions and to develop and introduce a variety of new solutions to address our customers’ changing demands. For example, advertisers are increasingly requiring Internet advertising networks to have the ability to deliver advertisements utilizing new formats that surpass stationary images and incorporate rich media, such as video and audio, interactivity, and more precise consumer targeting techniques. Our system does not support some types of advertising formats, such as certain video and audio formats, and many of the websites in our network have not implemented systems to allow rich media advertisements. In addition, an increase in the bandwidth of Internet access resulting in faster data delivery may provide new products and services that will take advantage of this expansion in delivery capability. If we fail to adapt successfully to such developments, we could lose customers or advertising inventory. We purchase most of the software used in our business from third-parties. We intend to continue to acquire technology necessary for us to conduct our business from third-parties. We cannot assure you that, in the future, these technologies will be available on commercially reasonable terms, or at all. We may also experience difficulties that could delay or prevent the successful design, development, introduction or marketing of new solutions. Any new solution or enhancement that we develop will need to meet the requirements of our current and prospective customers and may not achieve significant market acceptance. If we fail to keep pace with technological developments and the introduction of new industry and technology standards on a cost-effective basis, our expenses could increase, and we could lose customers or advertising inventory.

CHANGES IN GOVERNMENT REGULATION AND INDUSTRY STANDARDS COULD DECREASE DEMAND FOR OUR SERVICES AND INCREASE OUR COSTS OF DOING BUSINESS.

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Web and adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children’s privacy, copyrights, sending of unsolicited commercial email (e.g., the Federal CAN-Spam Act of 2003), Spyware (e.g., H.R. 29, the “Spy Act”), and taxation. Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, Spyware, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, acceptable content, taxation, and quality of products and services. This legislation could hinder growth in the use of the Web generally and decrease the acceptance of the Web as a communications, commercial and advertising medium.

Due to the global nature of the Web, it is possible that, although our transmissions originate in California, Kentucky and Sweden, the 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 companies conducting business over the Internet. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine how existing laws, including those governing intellectual property, privacy, libel and taxation, apply to the Internet and Internet advertising. Our business, results of operations and financial condition could be materially and adversely affected by the adoption or modification of laws or regulations relating to the Internet, or the application of existing laws to the Internet or Internet-based advertising.

WE COULD BE HELD LIABLE FOR OUR OR OUR CLIENTS’ FAILURE TO COMPLY WITH FEDERAL, STATE AND FOREIGN LAWS GOVERNING CONSUMER PRIVACY.

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices. Any failure by us to comply with applicable foreign, federal and state laws and regulatory requirements of regulatory authorities may result in, among other things, indemnification liability to our clients and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. Recently, class action lawsuits have been filed alleging violations of privacy laws by ISPs. The European Union’s directive addressing data privacy limits our ability to collect and use information regarding Internet users. These restrictions may limit our ability to target advertising in most European countries. Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the high-technology and direct marketing industries are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us adversely. 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. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these regulations may have on our business. However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

Our customers are also subject to various federal and state regulations concerning the collection and use of information regarding individuals. These laws include the Children’s Online Privacy Protection Act, the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the CAN-SPAM Act of 2003, H.R. 29 the Spy Act of 2005, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our clients are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our clients use our technology in a manner that is not in compliance with these laws or their own stated privacy standards.

OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.

Our common stock has been publicly traded only since March 30, 2000. The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering.

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of technology companies. As a result, the market price of our common stock may materially decline, regardless of our operating performance. In

the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation of this type is often expensive and diverts management’s attention and resources.

DECREASED EFFECTIVENESS OF EQUITY COMPENSATION COULD ADVERSELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES, AND CHANGES IN ACCOUNTING FOR EQUITY COMPENSATION WILL ADVERSELY AFFECT EARNINGS.

We have historically used stock options as a key component of our total employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. Volatility or lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options, or attract additional highly-qualified personnel. Many of our outstanding employee stock options have exercise prices in excess of our current stock price. To the extent these circumstances continue or recur, our ability to retain present employees may be adversely affected. In addition, the Financial Accounting Standards Board (“FASB”) has finalized changes to Generally Accepted Accounting Principles (“GAAP”) that will require an expense to be recorded for employee stock option grants and other equity incentives beginning July 1, 2005. Moreover, applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. As a result, in addition to recording additional compensation expense, we may incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, any of which could materially adversely affect our business.

ITEM 2. PROPERTIES

We lease a number of properties in both domestic and foreign locations.

Our principal corporate offices are located in Westlake Village, California, where we lease a property with approximately 14,300 square feet of space. This facility is also used by our Media segment’s operations. Other leased facilities used in our Media segment operations include separate 4,000 square-foot and 2,900 square-foot facilities in Tarzana, California, a 3,200 square-foot facility in Sherman Oaks, California, and a 7,000 square-foot facility in New York, New York, as well as a 10,600 square-foot facility in San Francisco, shared with our Technology segment. In December 2004, we signed a lease to relocate our corporate offices to a new 35,000 square-foot facility in Westlake Village, California. We anticipate that relocation will be completed by March 31, 2005.

Leased facilities used by our Affiliate Marketing segment include an approximate 12,500 square-foot facility in Marlborough, Massachusetts, a 12,200 square-foot facility in Pittsburgh, Pennsylvania, and an approximate 17,700 square-foot facility in Santa Barbara, California. In December 2004, we signed a lease to relocate our west coast affiliate marketing offices to a new 28,000 square-foot facility in Santa Barbara, California. We anticipate that relocation will be completed by March 31, 2005.

Our Technology segment occupies an approximate 10,600 square-foot facility in San Francisco, California, and 7,000 square-foot facility in New York, New York, both shared by our Mediaplex operations and our Media Segment, and an approximate 20,800 square-feet of office space for our Mediaplex Systems enterprise solutions organization in Louisville, Kentucky.

We also lease small office space and facilities in Agoura Hills, California; London, England; Paris, France; Munich, Germany; and Stockholm, Sweden. In addition, we use third-party co-location facilities that house our Web servers in Sunnyvale, California; El Segundo, California; Louisville, Kentucky; and Stockholm, Sweden. Our existing office space is adequate for our current operations. For additional

information regarding our obligations under leases, see note 13 to our consolidated financial statements included in this Report.

ITEM 3. LEGAL PROCEEDINGS

Lorenc v. Be Free, Inc. et al.

On September 27, 2000, Joseph Lorenc, a former employee of Be Free, Inc. filed a lawsuit against Be Free and two officers of Be Free, Steven Joseph and Gordon Hoffstein, in the United States District Court, District of Massachusetts. The complaint alleged, among other things, breach of contract. Lorenc sought, among other things, compensatory damages, punitive damages and attorney’s fees to the greatest extent allowed by law. The case was pending before the state court in Massachusetts. The case was set for trial in May of 2004. On May 3, 2004, the day of trial, Lorenc agreed to dismiss his case against the Company with prejudice, in exchange for the Company’s agreement not to pursue a claim against Lorenc for its attorney’s fees expended in defending Lorenc’s action. The case is now concluded.

Chahal v. ValueClick, Inc. et al.

This case was filed on September 5, 2003 and brought against ValueClick and Company executives Sam Paisley, Jim Zarley and Scott Barlow, by Gurbaksh Chahal and Tajinder Chahal for, among other things, fraud. The Chahals are former employees of the Company’s Click Agents Inc. subsidiary and the case arises out of the Company’s repurchase of the Chahals’ ValueClick stock. The case was pending before the Los Angeles County Superior Court. The Chahals sought, among other things, general, special and punitive damages according to proof as well as the imposition of a constructive trust. On July 19, 2004, the Company reached a settlement with the Chahals, which was not material to the Company’s financial statements. Terms of the settlement agreement are confidential.

BTG International Inc. v. Barnesandnoble.com

On September 28, 2004, the Company received a letter from Barnesandnoble.com (“B&N”) requesting that the Company fully indemnify B&N for the costs and expenses associated with a lawsuit for patent infringement filed by BTG International, Inc. (“BTG”) against B&N and other defendants. The case is pending before the United States District Court, District of Delaware. The complaint alleges that through the use of certain online advertising technologies, B&N infringes two patents obtained by BTG purporting to cover methods and apparatuses for “Attaching Navigational History Information to Universal Resource Locator Links on a World Wide Web Page” (U.S. Patent No. 5,712,979) and for “Tracking the Navigational Path of a User on the World Wide Web” (U.S. Patent No. 5,717,860) and seeks injunctive relief, monetary damages in an amount no less than a reasonable royalty, treble damages for alleged willful infringement, prejudgment interest, costs, and attorneys’ fees. B&N’s request for indemnification stems from standard mutual indemnification language included in a services agreement between B&N and ValueClick’s wholly-owned subsidiary, Be Free, Inc. B&N alleges that is has been named in the patent infringement suit as a result of B&N’s use of Be Free’s technology. The Company has agreed to indemnify B&N and is providing legal counsel while fully reserving its legal rights. Moreover, we dispute the allegations of wrongdoing in the complaint and intend to defend ourselves and B&N vigorously in this matter. We believe that a contingent loss in this matter is reasonably possible but the probability of inaccuracy of any estimate of such loss is more than slight, and thus cannot be made.

From time to time, we may become subject to additional legal proceedings, claims, and litigation arising in the ordinary course of business. In addition, we may receive letters alleging infringement of patent or other intellectual property rights. Other than the matters discussed above, we are not a party to any other material legal proceedings, nor are we aware of any other pending or threatened litigation that

would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

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

No matters were submitted to a vote of securities holders during the quarter ended December 31, 2004.

PART II.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has traded on The NASDAQ National Market under the symbol “VCLK” since our initial public offering on March 30, 2000. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ National Market. On December 31, 2004, the last sale price of our common stock reported by the NASDAQ National Market was $13.33 per share.

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2004
Fourth Quarter	$	13.93	$	9.02
Third Quarter	11.94		6.48
Second Quarter	12.48		9.47
First Quarter	11.94		9.24

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2003
Fourth Quarter	$	10.75	$	7.35
Third Quarter	9.96		6.10
Second Quarter	6.38		3.18
First Quarter	3.21		2.65

	Price Range of Common Stock
	High		Low
Fiscal Year Ended December 31, 2002
Fourth Quarter	$	2.87	$	2.00
Third Quarter	3.10		2.11
Second Quarter	3.24		2.55
First Quarter	3.11		2.35

Holders

As of December 31, 2004, there were 892 stockholders of record who held shares of our common stock.

Dividend Policy

We have not declared or paid any cash dividends on our capital stock since our inception and we intend to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to our consolidated statement of operations for each of the years ended December 31, 2004, 2003 and 2002 and with respect to our consolidated balance sheet as of December 31, 2004 and 2003 have been derived from the audited financial

statements of ValueClick which are included elsewhere herein. The consolidated statement of operations data for the years ended December 31, 2001 and 2000 and the consolidated balance sheet data as of December 31, 2002, 2001 and 2000 have been derived from our audited consolidated financial statements not included herein. The selected consolidated financial data set forth below is qualified in our entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes to those statements both included elsewhere herein and not included herein.

CONSOLIDATED STATEMENT OF OPERATIONS DATA

	For the Years ended December 31,
	2004			2003		2002			2001			2000
	(In thousands, except per share data)
Consolidated Statement of Operations Data(3):
Revenue	$	169,178		$	92,516	$	62,554		$	44,873		$	64,332
Cost of revenue	50,762			32,024		21,733			20,370			31,930
Gross profit	118,416			60,492		40,821			24,503			32,402
Operating expenses:
Sales and marketing(1)	36,000			21,162		17,001			11,976			11,436
General and administrative(1)	27,168			19,699		17,784			13,301			12,896
Technology(1)	15,891			10,504		10,459			5,313			4,846
Stock-based compensation	739			352		1,527			2,699			5,058
Amortization of intangible assets and acquired software	4,111			1,570		533			1,875			1,069
Merger-related costs	—			—		17			1,787			353
Restructuring charges (reversals)	(1,003		)	—		2,320			515			—
Total operating expenses	82,906			53,287		49,641			37,466			35,658
Income (loss) from operations	35,510			7,205		(8,820		)	(12,963		)	(3,256		)
Interest income	3,665			3,364		5,909			5,051			4,120
Gain (loss) on sale of marketable securities	—			—		134			701			(9,006		)
Impairment write-down of marketable securities	—			—		—			—			(60,233		)
Gain from consolidated subsidiary stock issuance	—			—		—			—			13,656
Gain on sale of consolidated subsidiary stock	—			—		—			—			2,344
Gain on sale of equity interest in Japan subsidiary	8,007			—		—			—			—
Other income (expense)	63			—		32			(5		)	—
Income (loss) before income taxes, minority interest and cumulative effect of a change in accounting principle	47,245			10,569		(2,745		)	(7,216		)	(52,375		)
Income tax expense (benefit)	(40,512		)	830		163			34			2,539
Income (loss) before minority interest and cumulative effect of a change in accounting principle	87,757			9,739		(2,908		)	(7,250		)	(54,914		)
Minority share of loss (income) in consolidated subsidiary	130			84		(15		)	32			(419		)
Income (loss) before cumulative effect of a change in accounting principle	87,887			9,823		(2,923		)	(7,218		)	(55,333		)
Cumulative effect of a change in accounting principle(2)	—			—		(7,649		)	—			—
Net income (loss)	$	87,887		$	9,823	$	(10,572	)	$	(7,218	)	$	(55,333	)
Basic net income (loss) per common share:	$	1.10		$	0.13	$	(0.14	)	$	(0.20	)	$	(1.72	)
Shares used to calculate basic net income (loss) per common share	80,063			74,300		73,744			37,058			32,151
Diluted net income (loss) per common share:	$	1.05		$	0.13	$	(0.14	)	$	(0.20	)	$	(1.72	)
Shares used to calculate diluted net income (loss) per common share	84,038			78,436		73,744			37,058			32,151

(1) Excludes stock-based compensation for the following periods (in thousands):

	For the Years ended December 31,
	2004		2003		2002		2001		2000
Sales and marketing	$	369	$	113	$	488	$	864	$	1,610
General and administrative	245		181		779		1,376		2,718
Technology	125		58		260		459		730
	$	739	$	352	$	1,527	$	2,699	$	5,058

(2) On January 1, 2002, we adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, “Goodwill and other Intangible Assets” (“SFAS No. 142”). In accordance with the transitional guidance of SFAS No. 142, we completed our impairment assessment in the second quarter of 2002 from the adoption of this standard and determined that goodwill of $7.6 million related to the Bach Systems and ValueClick Japan acquisitions was impaired at January 1, 2002 and reflected a cumulative effect of a change in accounting principle for the goodwill impairment.

(3) The amounts included in the Consolidated Statement of Operations Data for the years presented reflect acquisitions and a disposition as follows:

Acquisitions				Date
Pricerunner AB				August 2004
Commission Junction, Inc.				December 2003
Hi-Speed Media, Inc.				December 2003
Search123.com, Inc.				May 2003
Be Free, Inc.				May 2002
Mediaplex, Inc.				October 2001
Z Media, Inc.				December 2000
ClickAgents.com, Inc.				November 2000
Bach Systems, Inc.				November 2000

Dispositions				Date
ValueClick Japan				March 2004

Consolidated Balance Sheet Data:

	As of December 31,
	2004		2003		2002		2001		2000
	(In thousands)
Cash, cash equivalents and marketable securities	$	242,583	$	220,120	$	232,978	$	163,355	$	127,450
Working capital	241,639		213,809		234,229		161,928		129,036
Total assets	430,426		323,099		263,850		190,626		154,050
Total stockholders’ equity	384,905		274,207		231,981		165,507		127,493

Quarterly Results

The following table sets forth some of our selected financial information for our eight most recent fiscal quarters in dollar terms. In the opinion of our management, this unaudited financial information has been prepared on the same basis as the audited financial information, and includes all adjustments, consisting only of normal recurring adjustments, necessary to present this information fairly when read in conjunction with our financial statements and the related notes contained elsewhere herein. These operating results are not necessarily indicative of results of any future period.

	For the Three-Month Period Ended
	Dec. 31, 2004			Sept. 30, 2004		Jun. 30, 2004			Mar. 31, 2004		Dec. 31, 2003		Sept. 30, 2003		Jun. 30, 2003			Mar. 31, 2003
	(In thousands, except per share data)
Revenue	$	54,371		$	43,492	$	34,606		$	36,709	$	30,273	$	22,694	$	20,086		$	19,463
Cost of revenue	15,011			13,206		11,416			11,129		10,044		8,532		6,947			6,501
Gross profit	39,360			30,286		23,190			25,580		20,229		14,162		13,139			12,962
Operating expenses:
Sales and marketing(1)	11,597			9,760		7,198			7,445		6,251		5,002		4,931			4,978
General and administrative(1)	7,624			6,962		5,931			6,651		5,841		4,772		4,634			4,452
Technology(1)	3,984			3,663		4,168			4,076		2,925		2,510		2,497			2,572
Stock-based compensation	203			124		174			238		86		72		97			97
Amortization of intangible assets and acquired software	1,276			1,107		864			864		515		401		342			312
Restructuring reversals	—			—		(1,003		)	—		—		—		—			—
Total operating expenses	24,684			21,616		17,332			19,274		15,618		12,757		12,501			12,411
Income from operations	14,676			8,670		5,858			6,306		4,611		1,405		638			551
Interest and other income, net	1,188			1,001		843			696		675		716		934			1,039
Gain on sale of equity interest in Japan subsidiary	—			—		—			8,007		—		—		—			—
Income before income taxes and minority interest	15,864			9,671		6,701			15,009		5,286		2,121		1,572			1,590
Income tax expense (benefit)	(45,443		)	2,053		1,187			1,691		16		196		233			385
Income before minority interest	61,307			7,618		5,514			13,318		5,270		1,925		1,339			1,205
Minority share of loss (income) in consolidated subsidiary	—			—		—			130		76		82		(55		)	(19		)
Net income	$	61,307		$	7,618	$	5,514		$	13,448	$	5,346	$	2,007	$	1,284		$	1,186
Basic net income per common share	$	0.75		$	0.09

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2004
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware	77-0495335
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

		Page
PART I		1
ITEM 1.	BUSINESS	1
ITEM 2.	PROPERTIES	25
ITEM 3.	LEGAL PROCEEDINGS	26
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	27
PART II		28
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	28
ITEM 6.	SELECTED FINANCIAL DATA	28
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	48
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	48
ITEM 9A.	CONTROLS AND PROCEDURES	48
ITEM 9B.	OTHER INFORMATION	52
PART III		53
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	53
ITEM 11.	EXECUTIVE COMPENSATION	53
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	53
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	53
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	53
PART IV		54
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	54
	SIGNATURES
	CERTIFICATION OF CEO—Sarbanes-Oxley Act Section 302
	CERTIFICATION OF CFO—Sarbanes-Oxley Act Section 302
	CERTIFICATION OF CEO—Sarbanes-Oxley Act Section 906
	CERTIFICATION OF CFO—Sarbanes-Oxley Act Section 906