##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2005.
|- | --------------------------------------------------------------------------------------------------------------------------------------



or



| ̈ | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period from
 to
|- | ----------------------------------------------------------------------------------------------------------------------------



Commission file number: 000-26393



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Jupitermedia Corporation

(Exact name of Registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 06-1542480                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|23 Old Kings Highway South Darien, Connecticut                 |  | 06820                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



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(203) 662-2800

(Registrants telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year, if changed

since last report)



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



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes  x    No ̈



The number of outstanding shares the Registrants common stock, par
value $.01 per share, as of August 5, 2005 was 34,775,264.



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##### Table of Contents

Jupitermedia Corporation



Index



|           |  |                                                                                                                       |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                       |  | Page
|PART I.    |  | Financial Information                                                                                                 |  |     
|           |  |                                                                                                                      
|Item 1.    |  | Financial Statements                                                                                                  |  |     
|           |  |                                                                                                                      
|           |  | Unaudited Consolidated Condensed Balance Sheets  December 31, 2004 and June 30, 2005                                 |  | 3   
|           |  |                                                                                                                      
|           |  | Unaudited Consolidated Condensed Statements of Operations  For the Three and Six Months Ended June 30, 2004 and 2005 |  | 4   
|           |  |                                                                                                                      
|           |  | Unaudited Consolidated Condensed Statements of Cash Flows  For the Six Months Ended June 30, 2004 and 2005           |  | 5   
|           |  |                                                                                                                      
|           |  | Notes to Consolidated Condensed Financial Statements                                                                  |  | 6   
|           |  |                                                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 15  
|           |  |                                                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                            |  | 29  
|           |  |                                                                                                                      
|Item 4.    |  | Controls and Procedures                                                                                               |  | 30  
|           |  |                                                                                                                      
|PART II.   |  | Other Information                                                                                                     |  |     
|           |  |                                                                                                                      
|Item 1.    |  | Legal Proceedings                                                                                                     |  | 31  
|           |  |                                                                                                                      
|Item 2.    |  | Changes in Securities                                                                                                 |  | 31  
|           |  |                                                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                                                       |  | 31  
|           |  |                                                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                   |  | 31  
|           |  |                                                                                                                      
|Item 5.    |  | Other Information                                                                                                     |  | 32  
|           |  |                                                                                                                      
|Item 6.    |  | Exhibits                                                                                                              |  | 32  
|           | 
|Signatures |  | 33                                                                                                                   



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##### Table of Contents

Jupitermedia Corporation



Unaudited Consolidated Condensed Balance Sheets



December 31, 2004 and June 30, 2005

(in thousands, except share and per share amounts)



|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                         |  | December 31, 2004 |          |   | June 30, 2005 |  
|ASSETS                                                                                                                                                   |  |                   |          |   |               |   |          |  
|Current assets:                                                                                                                                          |  |                   |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                                |  | $                 | 30,179   |   |               | $ | 19,950   |  
|Accounts receivable, net of allowances of $966 and $1,351, respectively                                                                                  |  |                   | 15,385   |   |               |   | 21,417   |  
|Unbilled accounts receivable                                                                                                                             |  |                   | 1,530    |   |               |   | 1,336    |  
|Prepaid expenses and other                                                                                                                               |  |                   | 2,713    |   |               |   | 4,238    |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total current assets                                                                                                                                     |  |                   | 49,807   |   |               |   | 46,941   |  
|                                                                                                                                                         |  |                  
|Property and equipment, net of accumulated depreciation of $9,256 and $9,876, respectively                                                               |  |                   | 2,339    |   |               |   | 8,673    |  
|Intangible assets, net                                                                                                                                   |  |                   | 20,939   |   |               |   | 31,877   |  
|Goodwill                                                                                                                                                 |  |                   | 42,015   |   |               |   | 103,674  |  
|Investments and other assets                                                                                                                             |  |                   | 1,197    |   |               |   | 1,345    |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total assets                                                                                                                                             |  | $                 | 116,297  |   |               | $ | 192,510  |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                     |  |                   |          |   |               |   |          |  
|Current liabilities:                                                                                                                                     |  |                   |          |   |               |   |          |  
|Accounts payable                                                                                                                                         |  | $                 | 2,277    |   |               | $ | 8,157    |  
|Accrued payroll and related expenses                                                                                                                     |  |                   | 1,785    |   |               |   | 3,039    |  
|Accrued expenses and other                                                                                                                               |  |                   | 5,037    |   |               |   | 8,198    |  
|Deferred revenues                                                                                                                                        |  |                   | 14,183   |   |               |   | 18,957   |  
|Current portion of long-term debt                                                                                                                        |  |                   |         |   |               |   | 8,333    |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total current liabilities                                                                                                                                |  |                   | 23,282   |   |               |   | 46,684   |  
|                                                                                                                                                         |  |                  
|Long-term debt                                                                                                                                           |  |                   |         |   |               |   | 11,744   |  
|Deferred revenues                                                                                                                                        |  |                   | 510      |   |               |   | 847      |  
|Deferred income tax liabilities                                                                                                                          |  |                   | 121      |   |               |   | 1,234    |  
|Other long-term liabilities                                                                                                                              |  |                   | 225      |   |               |   |         |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total liabilities                                                                                                                                        |  |                   | 24,138   |   |               |   | 60,509   |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Stockholders equity:                                                                                                                                    |  |                   |          |   |               |   |          |  
|Preferred stock, $.01 par value, 4,000,000 shares authorized, no shares issued                                                                           |  |                   |          |   |               |   |          |  
|Common stock, $.01 par value, 75,000,000 shares authorized, 32,378,361 and 34,694,930 shares issued at December 31, 2004 and June 30, 2005,
respectively |  |                   | 324      |   |               |   | 347      |  
|Additional paid-in capital                                                                                                                               |  |                   | 215,648  |   |               |   | 243,856  |  
|Accumulated deficit                                                                                                                                      |  |                   | (123,690 | ) |               |   | (111,108 | )
|Treasury stock, 65,000 shares at cost                                                                                                                    |  |                   | (106     | ) |               |   | (106     | )
|Accumulated other comprehensive income                                                                                                                   |  |                   | (17      | ) |               |   | (988     | )
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total stockholders equity                                                                                                                               |  |                   | 92,159   |   |               |   | 132,001  |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                               |  | $                 | 116,297  |   |               | $ | 192,510  |  
|                                                                                                                                                         |  |                   |          |   |               |   |          |  



See notes to
consolidated financial statements.



3



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##### Table of Contents

Jupitermedia Corporation



Unaudited Consolidated Condensed Statements of Operations



For the Three Months and Six Months Ended June 30, 2004 and 2005

(in thousands, except per share
amounts)



|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                            |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                                                            |  | 2004                        |        |   | 2005                      |   |        | 2004 |  |   | 2005   |  
|Revenues                                                                                                    |  | $                           | 17,846 |   |                           | $ | 33,795 |      |  | $ | 32,199 |   |  | $ | 58,809 |  
|Cost of revenues                                                                                            |  |                             | 6,547  |   |                           |   | 13,113 |      |  |   | 12,567 |   |  |   | 22,665 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                                                                |  |                             | 11,299 |   |                           |   | 20,682 |      |  |   | 19,632 |   |  |   | 36,144 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                                                                         |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Advertising, promotion and selling                                                                          |  |                             | 4,550  |   |                           |   | 6,900  |      |  |   | 8,125  |   |  |   | 11,593 |  
|General and administrative                                                                                  |  |                             | 2,152  |   |                           |   | 4,521  |      |  |   | 4,677  |   |  |   | 7,928  |  
|Depreciation                                                                                                |  |                             | 242    |   |                           |   | 423    |      |  |   | 465    |   |  |   | 710    |  
|Amortization                                                                                                |  |                             | 722    |   |                           |   | 876    |      |  |   | 1,117  |   |  |   | 1,705  |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                                    |  |                             | 7,666  |   |                           |   | 12,720 |      |  |   | 14,384 |   |  |   | 21,936 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Operating income                                                                                            |  |                             | 3,633  |   |                           |   | 7,962  |      |  |   | 5,248  |   |  |   | 14,208 |  
|                                                                                                            |  |                             |        |  
|Income (loss) on investments and other, net                                                                 |  |                             | 105    |   |                           |   | (11    | )    |  |   | 119    |   |  |   | (41    | )
|Interest income                                                                                             |  |                             | 9      |   |                           |   | 95     |      |  |   | 27     |   |  |   | 214    |  
|Interest expense                                                                                            |  |                             | (56    | ) |                           |   | (200   | )    |  |   | (62    | ) |  |   | (288   | )
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income before income taxes, minority interests and equity loss from venture fund investments and other, net |  |                             | 3,691  |   |                           |   | 7,846  |      |  |   | 5,332  |   |  |   | 14,093 |  
|Provision for income taxes                                                                                  |  |                             | 140    |   |                           |   | 934    |      |  |   | 140    |   |  |   | 1,612  |  
|Minority interests                                                                                          |  |                             | (26    | ) |                           |   | (8     | )    |  |   | (37    | ) |  |   | (31    | )
|Equity income (loss) from venture fund investments and other, net                                           |  |                             | (16    | ) |                           |   | 132    |      |  |   | (9     | ) |  |   | 132    |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                                  |  | $                           | 3,509  |   |                           | $ | 7,036  |      |  | $ | 5,146  |   |  | $ | 12,582 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Earnings per share:                                                                                         |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                       |  | $                           | 0.13   |   |                           | $ | 0.21   |      |  | $ | 0.19   |   |  | $ | 0.38   |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                                     |  | $                           | 0.11   |   |                           | $ | 0.19   |      |  | $ | 0.17   |   |  | $ | 0.35   |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing earnings per share:                                                                |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                       |  |                             | 27,903 |   |                           |   | 34,304 |      |  |   | 26,965 |   |  |   | 33,523 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                                     |  |                             | 30,906 |   |                           |   | 36,836 |      |  |   | 29,783 |   |  |   | 36,044 |  
|                                                                                                            |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



See notes to
consolidated financial statements.



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Jupitermedia Corporation



Unaudited Consolidated Condensed Statements of Cash Flows



For the Six Months Ended June 30, 2004 and 2005

(in thousands)



|                                                                                  |  |                           |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Six Months Ended June 30, |        
|                                                                                  |  | 2004                      |         |   | 2005 |  
|Cash flows from operating activities:                                             |  |                           |         |   |      |   |         |  
|Net income                                                                        |  | $                         | 5,146   |   |      | $ | 12,582  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                           | 1,582   |   |      |   | 2,415   |  
|Provision (benefit) for losses on accounts receivable                             |  |                           | (144    | ) |      |   | (65     | )
|Provision for income taxes                                                        |  |                           | 37      |   |      |   | 1,009   |  
|Minority interests                                                                |  |                           | 37      |   |      |   | 31      |  
|Equity (income) loss from venture fund investments and other, net                 |  |                           | 9       |   |      |   | (132    | )
|(Income) loss on investments and other, net                                       |  |                           | (119    | ) |      |   | 41      |  
|Changes in current assets and liabilities (net of businesses acquired):           |  |                           |         |   |      |   |         |  
|Accounts receivable                                                               |  |                           | 322     |   |      |   | 919     |  
|Unbilled accounts receivable                                                      |  |                           | (46     | ) |      |   | 195     |  
|Prepaid expenses and other                                                        |  |                           | (267    | ) |      |   | 326     |  
|Accounts payable and accrued expenses                                             |  |                           | 1,408   |   |      |   | (4,138  | )
|Deferred revenues                                                                 |  |                           | 1,855   |   |      |   | 659     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                           | 9,820   |   |      |   | 13,842  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                           |         |   |      |   |         |  
|Additions to property and equipment                                               |  |                           | (207    | ) |      |   | (846    | )
|Acquisitions of businesses and other                                              |  |                           | (22,917 | ) |      |   | (49,523 | )
|Distribution from internet.com venture funds                                      |  |                           | 148     |   |      |   |        |  
|Proceeds (distributions) from sales of assets and other                           |  |                           | 135     |   |      |   | (65     | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                           | (22,841 | ) |      |   | (50,434 | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                           |         |   |      |   |         |  
|Proceeds of issuance of common stock, net                                         |  |                           | 30,580  |   |      |   |        |  
|Borrowings under credit facilities                                                |  |                           | 13,000  |   |      |   | 20,000  |  
|Debt issuance costs                                                               |  |                           |        |   |      |   | (257    | )
|Repayment of borrowings under credit facilities                                   |  |                           | (13,000 | ) |      |   |        |  
|Proceeds from exercise of stock options                                           |  |                           | 2,096   |   |      |   | 6,620   |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                           | 32,676  |   |      |   | 26,363  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                           | 19,655  |   |      |   | (10,229 | )
|Cash and cash equivalents, beginning of period                                    |  |                           | 9,567   |   |      |   | 30,179  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                         | 29,222  |   |      | $ | 19,950  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Supplemental disclosures of cash flow:                                            |  |                           |         |   |      |   |         |  
|Cash paid for income taxes                                                        |  | $                         |        |   |      | $ | 482     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash paid for interest                                                            |  | $                         | 62      |   |      | $ | 196     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Non-cash investing activities:                                                    |  |                           |         |   |      |   |         |  
|Common stock issued for acquisitions                                              |  | $                         |        |   |      | $ | 21,611  |  
|                                                                                  |  |                           |         |   |      |   |         |  



See notes to
consolidated financial statements.



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##### Table of Contents

Jupitermedia Corporation



Notes
to Consolidated Condensed Financial Statements



June 30,
2005

(unaudited)



1. THE COMPANY



Jupitermedia is a global provider of original online information, images, research and events for information technology (IT), business and
creative professionals. Jupitermedia includes JupiterImages, which serves creative professionals with over 7.0 million images online with brands like Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock
Footage, Goodshoot Images, Photos.com, HemeraImages.com, Ablestock.com, PhotoObjects.net, Clipart.com and Animations.com. JupiterWeb, the online division of Jupitermedia, operates five distinct online networks: internet.com and EarthWeb.com for IT
and business professionals; DevX.com for developers; ClickZ.com for interactive marketers; and Graphics.com for creative professionals. Jupitermedia also includes JupiterResearch, an international research advisory organization specializing in
business and technology market research in 18 business areas and 14 vertical markets. In addition, JupiterEvents produces offline conferences and trade shows focused on IT and business-specific topics, including Search Engine Strategies and IT
Service Management Forum.



2. BASIS OF PRESENTATION



The accompanying unaudited consolidated condensed financial statements have
been prepared from the books and records of Jupitermedia in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The consolidated statements of operations for the six months ended June 30, 2005 are
not necessarily indicative of the results to be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Jupitermedias
Annual Report on Form 10-K for the year ended December 31, 2004, as amended. In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the interim periods presented have been reflected in such
consolidated financial statements.



The consolidated financial
statements include the accounts of Jupitermedia and its majority-owned and wholly-owned subsidiaries. All intercompany transactions have been eliminated.



3. STOCK BASED COMPENSATION



Jupitermedia grants stock options with an exercise price equal to or greater than the fair value of the shares at the date of grant. Jupitermedia accounts
for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly, recognizes no compensation expense for such grants. If Jupitermedia
determined compensation cost for its stock options based on the fair value at the date of grant under the provisions of Statement of Financial



6



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##### Table of Contents

Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, its pro forma net income and basic and diluted earnings
per share would be as follows (in thousands, except per share amounts):



|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |  
|                                                                                                                |  | 2004                       |       |   | 2005                     |   |        | 2004 |  |   | 2005   |  
|Net income                                                                                                      |  | $                          | 3,509 |   |                          | $ | 7,036  |      |  | $ | 5,146  |   |  | $ | 12,582 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                            | (635  | ) |                          |   | (1,013 | )    |  |   | (1,294 | ) |  |   | (2,028 | )
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                            |  | $                          | 2,874 |   |                          | $ | 6,023  |      |  | $ | 3,852  |   |  | $ | 10,554 |  
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share                                                                                        |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                     |  | $                          | 0.13  |   |                          | $ | 0.21   |      |  | $ | 0.19   |   |  | $ | 0.38   |  
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                       |  | $                          | 0.10  |   |                          | $ | 0.18   |      |  | $ | 0.14   |   |  | $ | 0.31   |  
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings per share                                                                                      |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                     |  | $                          | 0.11  |   |                          | $ | 0.19   |      |  | $ | 0.17   |   |  | $ | 0.35   |  
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                       |  | $                          | 0.09  |   |                          | $ | 0.16   |      |  | $ | 0.13   |   |  | $ | 0.29   |  
|                                                                                                                |  |                            |       |   |                          |   |        |      |  |   |        |   |  |   |        |  



These pro forma
amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional options may be granted in future years.



The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for grants during the periods presented:

|                         |  |                            |   |  |                          |   |  |      |   |  |      |  
|------------------------ |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                         |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                         |  | 2004                       |   |  | 2005                     |   |  | 2004 |   |  | 2005 |  
|Risk-free interest rate  |  | 2.98                       | % |  | 3.72                     | % |  | 2.58 | % |  | 3.69 | %
|Expected life (in years) |  | 3                          |   |  | 3                        |   |  | 3    |   |  | 3    |  
|Dividend yield           |  | 0                          | % |  | 0                        | % |  | 0    | % |  | 0    | %
|Expected volatility      |  | 121                        | % |  | 67                       | % |  | 122  | % |  | 61   | %



4. RECENT ACCOUNTING PRONOUNCEMENTS



In December 2004, the Financial Accounting Standards
Board (FASB) issued Statement No. 123 (revised) (SFAS 123R), Share-Based Payment. SFAS 123R established standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or
services. It also addressed transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity
instruments. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in exchange for the award.



SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. Compensation
cost will be recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123R for either
recognition or pro forma disclosures. SFAS 123R is effective as of the beginning of the first fiscal year beginning after June 15, 2005. The specific impact of SFAS 123R is not known as Jupitermedia is currently reviewing the adoption and valuation
methods permitted under SFAS 123R. The adoption of SFAS 123R will not have any impact on Jupitermedias cash flows or liquidity.



In June 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS 154). SFAS 154 replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 requires that a voluntary change in accounting principle be



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applied retrospectively with all prior period financial statements presented on the new accounting principle. SFAS 154 also requires that a change in method
of depreciating or amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. SFAS 154 is effective for
accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of SFAS 154 will not have an impact on Jupitermedias consolidated financial statements.



5. COMPUTATION OF EARNINGS PER SHARE



Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental
common shares issuable upon the exercise of stock options. Common equivalent shares are excluded from the calculation if their effect is anti-dilutive.



Computations of basic and diluted earnings per share for the three months and six months ended June 30, 2004 and 2005 are as follows (in thousands, except
per share amounts):



|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|----------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                                              |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                                                              |  | 2004                       |        | 2005                     |   | 2004   |  | 2005
|Basic Earnings Per Share:                                                     |  |                            |        |                          |   |        |  |      |        |  |   |       
|Income available to common stockholders (numerator)                           |  | $                          | 3,509  |                          | $ | 7,036  |  | $    | 5,146  |  | $ | 12,582
|Weighted average common shares outstanding (denominator)                      |  |                            | 27,903 |                          |   | 34,304 |  |      | 26,965 |  |   | 33,523
|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic earnings per share                                                      |  | $                          | 0.13   |                          | $ | 0.21   |  | $    | 0.19   |  | $ | 0.38  
|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted Earnings Per Share:                                                   |  |                            |        |                          |   |        |  |      |        |  |   |       
|Income available to common stockholders (numerator)                           |  | $                          | 3,509  |                          | $ | 7,036  |  | $    | 5,146  |  | $ | 12,582
|                                                                              |  |                            |        |                         
|Weighted average common shares outstanding                                    |  |                            | 27,903 |                          |   | 34,304 |  |      | 26,965 |  |   | 33,523
|Effect of dilutive stock options                                              |  |                            | 3,003  |                          |   | 2,532  |  |      | 2,818  |  |   | 2,521 
|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total weighted average common shares and dilutive stock options (denominator) |  |                            | 30,906 |                          |   | 36,836 |  |      | 29,783 |  |   | 36,044
|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted earnings per share                                                    |  | $                          | 0.11   |                          | $ | 0.19   |  | $    | 0.17   |  | $ | 0.35  
|                                                                              |  |                            |        |                          |   |        |  |      |        |  |   |       



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The following table summarizes the number of outstanding stock options excluded for the calculation of
diluted earnings per share for the periods presented because the result would have been anti-dilutive (in thousands, except weighted average exercise price):



|                                      |  |                            |       |                          |   |       |  |      |       |  |   |      
|------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                      |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                      |  | 2004                       |       | 2005                     |   | 2004  |  | 2005
|Number of anti-dilutive stock options |  |                            | 2,528 |                          |   | 857   |  |      | 2,535 |  |   | 857  
|Weighted average exercise price       |  | $                          | 13.30 |                          | $ | 18.72 |  | $    | 13.29 |  | $ | 18.72



6. INTANGIBLE ASSETS AND GOODWILL



Intangible assets and goodwill include the preliminary
allocation of the purchase prices relating to the acquisition of Hemera Technologies Inc. on November 12, 2004, the acquisition of Dynamic Graphics Group on March 7, 2005 and the acquisition of Goodshoot S.A.S. on May, 19, 2005 (see Note 7).
Jupitermedia is in the process of obtaining final third party valuations of certain intangible assets, thus the allocation of the purchase prices relating to these acquisitions is subject to refinement.



Amortized Intangible Assets



The following table sets forth the intangible assets that are subject to
amortization, including the related accumulated amortization (in thousands):



|                           |  |                   |        |                         |   |        |                   |  |   |       
|-------------------------- |  | ----------------- | ------ | ----------------------- | - | ------ | ----------------- |  | - | ------
|                           |  | December 31, 2004
|                           |  | Cost              |        | AccumulatedAmortization |   |        | Net CarryingValue
|Image library              |  | $                 | 15,864 |                         | $ | (930   | )                 |  | $ | 14,934
|Customer lists             |  |                   | 1,668  |                         |   | (352   | )                 |  |   | 1,316 
|Web site development costs |  |                   | 2,710  |                         |   | (1,649 | )                 |  |   | 1,061 
|Trademarks                 |  |                   | 2,635  |                         |   | (2,057 | )                 |  |   | 578   
|Non-compete agreements     |  |                   | 434    |                         |   | (193   | )                 |  |   | 241   
|Other                      |  |                   | 188    |                         |   | (188   | )                 |  |   |      
|                           |  |                   |        |                         |   |        |                   |  |   |       
|Total                      |  | $                 | 23,499 |                         | $ | (5,369 | )                 |  | $ | 18,130
|                           |  |                   |        |                         |   |        |                   |  |   |       
|                           | 
|                           |  | June 30, 2005    
|                           |  | Cost              |        | AccumulatedAmortization |   |        | Net CarryingValue
|Image library              |  | $                 | 26,201 |                         | $ | (1,866 | )                 |  | $ | 24,335
|Customer lists             |  |                   | 1,668  |                         |   | (474   | )                 |  |   | 1,194 
|Web site development costs |  |                   | 3,217  |                         |   | (1,928 | )                 |  |   | 1,289 
|Trademarks                 |  |                   | 2,713  |                         |   | (2,276 | )                 |  |   | 437   
|Non-compete agreements     |  |                   | 1,032  |                         |   | (343   | )                 |  |   | 689   
|Other                      |  |                   | 188    |                         |   | (188   | )                 |  |   |      
|                           |  |                   |        |                         |   |        |                   |  |   |       
|Total                      |  | $                 | 35,019 |                         | $ | (7,075 | )                 |  | $ | 27,944
|                           |  |                   |        |                         |   |        |                   |  |   |       



Intangibles that are
subject to amortization are amortized on a straight-line basis over their expected useful lives. The image library is amortized over periods ranging from seven to fifteen years, customer lists are amortized over periods ranging from three to eight
years, Web site development costs are amortized over three or five years and trademarks are amortized over three years. Non-compete agreements are amortized over the period of the agreements.



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Amortization expense related to intangible assets subject to amortization was $722,000 and $1.1 million
for the three months and six months ended June 30, 2004, respectively, and $876,000 and $1.7 million for the three months and six months ended June 30, 2005, respectively. Estimated annual amortization expense for the next five years, including the
remainder of 2005, is expected to be as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Year Ending December 31,
|2005                     |  | $ | 2,303 
|2006                     |  |   | 4,177 
|2007                     |  |   | 3,744 
|2008                     |  |   | 3,391 
|2009                     |  |   | 3,199 
|Thereafter               |  |   | 11,130
|                         |  |   |       
|                         |  | $ | 27,944
|                         |  |   |       



Unamortized
Intangible Assets



|             |  |                  |       |              |   |      
|------------ |  | ---------------- | ----- | ------------ | - | -----
|             |  | December 31,2004 |       | June 30,2005
|Domain names |  | $                | 2,809 |              | $ | 3,933
|             |  |                  |       |              |   |      
|Total        |  | $                | 2,809 |              | $ | 3,933
|             |  |                  |       |              |   |      



Goodwill



The changes in the carrying amount of goodwill for
the six months ended June 30, 2005, are as follows:



|                                |  |              |        |             |   |       |          |  |        |       |       |   |    |  |   |         |  
|------------------------------- |  | ------------ | ------ | ----------- | - | ----- | -------- |  | ------ | ----- | ----- | - | -- |  | - | ------- | -
|                                |  | OnlineImages |        | OnlineMedia |   |       | Research |  | Events |       | Total |  
|Balance as of December 31, 2004 |  | $            | 30,764 |             | $ | 8,570 |          |  | $      | 2,632 |       | $ | 49 |  | $ | 42,015  |  
|Goodwill acquired during period |  |              | 61,590 |             |   | 334   |          |  |        |      |       |   |   |  |   | 61,924  |  
|Purchase accounting adjustments |  |              | 526    |             |   | (791  | )        |  |        |      |       |   |   |  |   | (265    | )
|                                |  |              |        |             |   |       |          |  |        |       |       |   |    |  |   |         |  
|Balance as of June 30, 2005     |  | $            | 92,880 |             | $ | 8,113 |          |  | $      | 2,632 |       | $ | 49 |  | $ | 103,674 |  
|                                |  |              |        |             |   |       |          |  |        |       |       |   |    |  |   |         |  



Purchase accounting
adjustments pertain primarily to adjustments made to the fair value of certain assets purchased in conjunction with the acquisitions of Hemera Technologies Inc. and the assets of Comstock Inc. and Megapixel.net.



7. ACQUISITIONS



On March 7, 2005, Jupitermedia acquired all of the equity of Creatas, L.L.C., the parent company of Dynamic Graphics, Inc.
and PictureQuest Acquisition Company, L.L.C., and their many stock photo and related graphics brands (Dynamic Graphics Group), for $38.2 million in cash and 1,483,074 restricted shares of Jupitermedia common stock preliminarily valued at
$21.6 million when issued. Jupitermedia financed the cash portion of the purchase price with cash on hand and a $20.0 million term loan under a credit facility with JPMorgan Chase Bank, N.A. (JPMorgan) obtained in connection with the
transaction.



On May 19, 2005, Jupitermedia acquired all of the
shares of Goodshoot S.A.S. (Goodshoot), a French corporation, for $9.9 million in cash.



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The results of Dynamic Graphics Group and Goodshoot have been included in the Consolidated Condensed
Financial Statements of Jupitermedia since March 7, 2005 and May 19, 2005, respectively.



The unaudited pro forma information below presents results of operations as if the acquisitions of Dynamic Graphics Group and Goodshoot had occurred on the first day of the periods presented. The unaudited pro forma
information is not necessarily indicative of the results of operations of the combined companies had these events occurred at the beginning of the year presented nor is it indicative of future results (in thousands, except per share amounts):



|                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|-------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                           |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                           |  | 2004                       |        | 2005                     |   | 2004   |  | 2005
|Revenues                   |  | $                          | 18,936 |                          | $ | 34,441 |  | $    | 44,288 |  | $ | 72,648
|                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                 |  | $                          | 3,795  |                          | $ | 7,258  |  | $    | 5,320  |  | $ | 13,616
|                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic earnings per share   |  | $                          | 0.14   |                          | $ | 0.21   |  | $    | 0.20   |  | $ | 0.41  
|                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted earnings per share |  | $                          | 0.12   |                          | $ | 0.20   |  | $    | 0.18   |  | $ | 0.38  
|                           |  |                            |        |                          |   |        |  |      |        |  |   |       



8. CREDIT FACILITIES



On March 7, 2005, in connection with its acquisition of
Dynamic Graphics Group, Jupitermedia entered into a Credit Agreement (the Original Credit Agreement) with JPMorgan, which provided for a $20 million senior term loan, of which $20.0 million was outstanding as of June 30, 2005. The $20.0
million term loan was scheduled to mature on March 7, 2008 and was permitted to be prepaid without penalty. Jupitermedia could elect that the loan bear interest at a rate per annum equal to either (i) an adjusted LIBOR-based rate, plus 1.75% (or, if
debt to our EBITDA is less than .50 to 1.00, 1.50%) or (ii) the prime rate, as announced by JPMorgan. The Original Credit Agreement required Jupitermedia to pay principal in quarterly installments of $1,666,667, commencing on June 30, 2005. The
Original Credit Agreement contained customary covenants including, among others, restrictions on Jupitermedias ability to pay dividends, incur additional indebtedness (other than subordinated indebtedness) or liens on its assets, make
investments in excess of $2 million in the aggregate or make acquisitions in excess of $25 million in any four consecutive fiscal quarters or in excess of $5 million for any single transaction. The Original Credit Agreement also required
Jupitermedia to meet certain financial tests, including, a net income test, a net loss test, a minimum net worth test and a minimum cash balance test. The Original Credit Agreement contained customary events of default, including among other things,
non payment of principal, interest, fees or other amounts when due, inaccuracy of representations and warranties, violation of covenants, a material adverse change, a change of control or the occurrence of a bankruptcy or a certain ERISA-related
events. Upon an event of default, all amounts owing under the Original Credit Agreement would immediately become due and payable and would bear interest at a default rate equal to the then applicable rate of interest plus 2%. Borrowings under the
Original Credit Agreement were guaranteed by Jupitermedias material subsidiaries and were collateralized by substantially all of its assets.



On July 18, 2005, the Original Credit Agreement was amended and restated in its entirety (the Amended and Restated Credit Agreement). The
Amended and Restated Credit Agreement now provides for a $90 million senior credit facility (comprised of a $30 million term loan facility, a $10 million revolving credit facility and a $50 million bridge facility), and replaces the senior term loan
provided under the Original Credit Agreement. The bridge facility is scheduled to mature on January 18, 2006 and the term loan and revolving credit facility are scheduled to mature on July 18, 2008. Jupitermedia may request that the bridge
facilitys maturity date be extended to April 18, 2006. Jupitermedia may elect that the loans bear interest at a rate per annum equal to (i) the Adjusted Libor Rate, plus, with respect to the term loan and revolving credit facility, a rate
between 1.75% and 3.25% depending on the ratio of debt to EBITDA and, with respect to the bridge facility, 3.50% plus periodic increases or (ii) the prime rate, as announced by JPMorgan, plus, with respect to the term loan and the revolving credit
facility, a rate between 0.75% and 2.25% depending on the ratio of debt to EBITDA, and, with respect to the bridge facility, 2.50% plus periodic increases. The Amended and Restated



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Credit Agreement requires the repayment of principal of the term loan in quarterly installments of $2,500,000, commencing on September 30, 2005 and ending on
July 18, 2008, repayment of principal of the revolving credit facility on July 18, 2008 and repayment of principal of the bridge facility on January 18, 2006, or on April 18, 2006 if the bridge facilitys maturity is extended. Proceeds from the
Amended and Restated Credit Agreement were used to finance the acquisition of PictureArts Corporation on July 18, 2005 (see Note 12), for working capital needs and general corporate purposes.



The Amended and Restated Credit Agreement contains customary covenants
including, among others, restrictions on Jupitermedias ability to pay dividends, incur additional indebtedness (other than subordinated indebtedness) or liens on assets, make investments in excess of $2 million in the aggregate or make
acquisitions in excess of $25 million in the aggregate or, for so long as indebtedness under the bridge loan facility is outstanding, in excess of $1.5 million for any single transaction. The Amended and Restated Credit Agreement also requires
Jupitermedia to meet certain financial tests, including, a net income test, a net loss test, a minimum net worth test and a minimum cash balance test. The Amended and Restated Credit Agreement contains customary events of default, including among
other things, non payment of principal, interest, fees or other amounts when due, inaccuracy of representations and warranties, violation of covenants, a material adverse change, a change of control or the occurrence of a bankruptcy or ERISA event
(as defined in the Amended and Restated Credit Agreement). Upon an event of default, all amounts owing under the Amended and Restated Credit Agreement shall immediately become due and payable and shall bear interest at a default rate equal to the
then applicable rate of interest plus 2%.



Borrowings under the
Amended and Restated Credit Agreement are guaranteed by certain material subsidiaries of Jupitermedia and are secured by substantially all of Jupitermedias assets.



9. SEGMENT INFORMATION



The following tables summarize the results of the segments of Jupitermedia for the three and six months ended June 30, 2004 and 2005. Online images
consists of the JupiterImages business that includes Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Goodshoot Images, Photos.com, HemeraImages.com, Ablestock.com, PhotoObjects.net, Clipart.com
and Animations.com. Online media consists of the JupiterWeb business that includes the internet.com, EarthWeb.com, DevX.com, ClickZ.com and Graphics.com Networks. Research represents the JupiterResearch business. Events represent the JupiterEvents
business. Other includes corporate overhead, depreciation, amortization and venture fund related activities. With the exception of goodwill, Jupitermedia does not identify or allocate assets by operating segment. See Note 6 for the allocation of
goodwill to Jupitermedias reportable segments.



12



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Summary information by segment for the three and six months ended June 30, 2004 and 2005 is as follows
(in thousands):



|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                         |  | 2004                       |        |   | 2005                     |   |        | 2004 |  |   | 2005   |  
|Revenues:                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Online images                            |  | $                          | 5,791  |   |                          | $ | 19,731 |      |  | $ | 8,248  |   |  | $ | 31,894 |  
|Online media                             |  |                            | 8,002  |   |                          |   | 9,336  |      |  |   | 15,221 |   |  |   | 16,876 |  
|Research                                 |  |                            | 2,201  |   |                          |   | 2,801  |      |  |   | 4,543  |   |  |   | 5,356  |  
|Events                                   |  |                            | 1,841  |   |                          |   | 1,919  |      |  |   | 4,163  |   |  |   | 4,667  |  
|Other                                    |  |                            | 11     |   |                          |   | 8      |      |  |   | 24     |   |  |   | 16     |  
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                         |  |                            | 17,846 |   |                          |   | 33,795 |      |  |   | 32,199 |   |  |   | 58,809 |  
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Cost of revenues and operating expenses: |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Online images                            |  |                            | 2,643  |   |                          |   | 11,601 |      |  |   | 3,851  |   |  |   | 16,960 |  
|Online media                             |  |                            | 4,441  |   |                          |   | 5,533  |      |  |   | 9,448  |   |  |   | 10,578 |  
|Research                                 |  |                            | 2,275  |   |                          |   | 2,426  |      |  |   | 4,426  |   |  |   | 4,957  |  
|Events                                   |  |                            | 2,030  |   |                          |   | 1,931  |      |  |   | 4,174  |   |  |   | 4,283  |  
|Other                                    |  |                            | 2,824  |   |                          |   | 4,342  |      |  |   | 5,052  |   |  |   | 7,823  |  
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                         |  |                            | 14,213 |   |                          |   | 25,833 |      |  |   | 26,951 |   |  |   | 44,601 |  
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Operating income (loss):                 |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Online images                            |  |                            | 3,148  |   |                          |   | 8,130  |      |  |   | 4,397  |   |  |   | 14,934 |  
|Online media                             |  |                            | 3,561  |   |                          |   | 3,803  |      |  |   | 5,773  |   |  |   | 6,298  |  
|Research                                 |  |                            | (74    | ) |                          |   | 375    |      |  |   | 117    |   |  |   | 399    |  
|Events                                   |  |                            | (189   | ) |                          |   | (12    | )    |  |   | (11    | ) |  |   | 384    |  
|Other                                    |  |                            | (2,813 | ) |                          |   | (4,334 | )    |  |   | (5,028 | ) |  |   | (7,807 | )
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                         |  | $                          | 3,633  |   |                          | $ | 7,962  |      |  | $ | 5,248  |   |  | $ | 14,208 |  
|                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  



10. INCOME TAXES



Based on estimated tax rates, Jupitermedia recorded provisions for federal,
state and foreign income taxes of $629,000, $255,000 and $50,000, respectively, for the three months ended June 30, 2005; $1.1 million, $443,000, and $55,000, respectively, for the six months ended June 30, 2005; and $37,000, $35,000 and $68,000,
respectively, for the three and six months ended June 30, 2004. The provision for federal income taxes is due primarily to deferred income tax expense related to the amortization of certain intangibles, primarily goodwill from various acquisitions,
for income tax purposes that are not amortized in our financial statements.



See Note 12 for further discussion regarding income taxes.



11. COMMITMENTS AND CONTINGENCIES



On May 12, 2004, Jupitermedia filed a lawsuit against eMarketer, Inc. (eMarketer) in United States District Court for the Southern District of New York, alleging that eMarketer violated Jupitermedias
copyright, trademark and related rights. Jupitermedia is seeking an injunction, damages and legal costs. On June 30, 2004, eMarketer filed an answer and counterclaim seeking a declaratory judgment that the conduct of which Jupitermedia complains is
not violative of Jupitermedias rights and is not seeking damages. Jupitermedia replied to the counterclaim on July 30, 2004, and discovery has commenced.



On August 3, 2004, Mario Cisneros and Michael Voight filed a class action lawsuit on behalf of themselves and all others situated and/or the general
public against thirteen co-defendants including Jupitermedia. Cisneros et al. allege that defendants posting of paid advertising providing links to Internet gambling Web sites constitutes unfair competition and unlawful business acts and
practices under California law. Plaintiffs seek declaratory and injunctive relief, disgorgement of profits and restitution. Jupitermedia denies liability and intends to continue to defend itself vigorously.



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Jupitermedia is subject to legal proceedings and claims that arise in the ordinary course of its
business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial statements of Jupitermedia.



12. SUBSEQUENT EVENTS



On July 19, 2005, Jupitermedia acquired PictureArts Corporation for approximately $63.2 million in cash, subject to certain post-closing adjustments. The
acquisition includes PictureArts brands: Brand X Pictures, FoodPix, Botanica and Nonstock, as well as its image distribution business. Jupitermedia financed the purchase price with cash on hand and borrowings under a $90.0 million senior
credit facility with JPMorgan obtained in connection with the transaction, which replaced its $20.0 million credit facility with JPMorgan (see Note 8). The entire amount due under the $20.0 million credit facility was replaced with borrowings under
the new $90.0 million senior credit facility.



On August 5,
2005, Jupitermedia sold its Search Engine Strategies trade shows and its ClickZ.com Network of Web sites, collectively known as SES, to Incisive Media plc (INM.L.), a London Stock Exchange listed media company, for $43.0 million in cash (subject to
certain post-closing adjustments). The carrying value of the net assets of SES at the time of sale was approximately $1.0 million and the sale of SES is expected to result in a gain of approximately $38.0 million, net of tax. As a result of
the gain on the sale of SES, Jupitermedia is expected to utilize its remaining net operating losses for federal and state income tax purposes. Jupitermedia is currently evaluating whether the sale of SES will result in its Events segment being
accounted for as a discontinued operation beginning in the third quarter of 2005 in accordance with Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion should be read in conjunction with our unaudited financial statements and the accompanying notes, which appear elsewhere in
this filing. Statements in this Form 10-Q, which are not historical facts, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The potential risks and uncertainties address a variety of subjects including, for example: the
competitive environment in which Jupitermedia competes; the unpredictability of Jupitermedias future revenues, expenses, cash flows and stock price; Jupitermedias ability to integrate acquired businesses, products and personnel into its
existing businesses; Jupitermedias dependence on a limited number of advertisers; and Jupitermedias ability to protect its intellectual property. For a more detailed discussion of such risks and uncertainties, refer to
Jupitermedias reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The forward-looking statements included herein are made as of the date of this Form 10-Q, and we are under no obligation
to update the forward-looking statements after the date hereof.



Overview



We are a global provider of original
online images, information, research and events for information technology (IT), business and creative professionals. Our operations are classified into four principal segments: Online images, Online media, Research and Events.



Online images. Online images includes our
JupiterImages network, which serves creative professionals with over 7.0 million images online with brands like Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, HemeraImages.com, Ablestock.com,
PhotoObjects.net, Goodshoot Images, Photos.com, Clipart.com and Animations.com.



We generate our Online images revenues from paid subscriptions that provide access to our image libraries, licensing of single image downloads and sales of CD-ROMs. Our images are licensed online through our networks,
through our direct sales force and through third party relationships. We also have agreements with a number of distributors of digital images and footage clips, whereby the distributors make sales to third party customers and remit a percentage of
the sales to us. The principal costs of our Online images business relate to production, sales and marketing personnel, technology infrastructure, royalties for images that we license, lead generation fees for sales referrals and credit card
processing fees.



Online media.Online media
includes JupiterWeb, which consists of our internet.com, EarthWeb.com, DevX.com, ClickZ.com and Graphics.com networks of over 170 Web sites and over 170 e-mail newsletters that are viewed by over 20 million viewers and generate over 300 million page
views monthly. Online media also includes the STEP Inside Design and Dynamic Graphics magazines produced by the Dynamic Graphics Group. These magazines are geared towards graphic design professionals and provide the reader with ideas and information
to help them with both online and offline graphic design and publishing projects.



We generate our Online media revenues from:



| |  |  | advertising and custom publishing on our Web sites, e-mail newsletters, online discussion forums and moderated e-mail discussion lists;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | e-commerce agreements, which generally include a fixed fee for advertising and either a bounty for new customer accounts or revenue sharing;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | advertising, subscriptions and newsstand sales for our magazines
| | - |  | ----------------------------------------------------------------



| |  |  | paid subscription services for our paid e-mail newsletters and services;
| | - |  | ------------------------------------------------------------------------



| |  |  | renting our permission based opt-in e-mail list names.
| | - |  | ------------------------------------------------------



| |  |  | advertiser sponsorships of our Webinars; and
| | - |  | --------------------------------------------



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| |  |  | licensing our editorial content, software and brands to third parties for fixed fees and royalties based on the licensees revenues generated by the licensed property.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



The principal costs of our Online media business
relate to payroll for our editorial, technology and sales personnel as well as technology related costs for facilities and equipment.



Research.Research includes our JupiterResearch business, which provides clients with original and proprietary information to better
understand how the Internet and new technologies impact marketing and commerce.



We generate our Research revenues primarily from the sale of our syndicated research products. These products deliver data and analysis via written research reports and analyst inquiry. Our syndicated research is
typically sold on an annual subscription basis. We also generate revenue through the sale of our custom research product, which delivers specific research based on the needs of our customers. The results of our Research business vary with the amount
of custom research projects completed during each period.



The
principal costs of our Research business relate to analyst and sales personnel and costs to acquire third party research data.



Events.Events include our JupiterEvents business that produces offline events focused on IT and business-specific topics that are of
interest to our users.



We generate our Events revenues from
attendee registrations, the purchase of exhibition space by exhibitors who pay a fixed price per square foot of booth space and advertiser and vendor sponsorships. The results of our Events business vary with the topics, frequency and timing of the
events we produce.



The principal costs of our Events business
relate to operations and sales personnel, venue and speaker costs and advertising expenses to attract attendees to our events.



Recent Acquisitions and Dispositions



On March 7, 2005, Jupitermedia acquired all of the equity of Creatas, L.L.C., the parent company of Dynamic Graphics, Inc. and PictureQuest Acquisition
Company, L.L.C., and their many stock photo and related graphics brands (Dynamic Graphics Group), for $38.2 million in cash and 1,483,074 restricted shares of Jupitermedia common stock preliminarily valued at $21.6 million when issued.



On May 19, 2005, Jupitermedia acquired all of the shares of
Goodshoot S.A.S., (Goodshoot), a French corporation, for $9.9 million in cash.



On July 19, 2005, Jupitermedia acquired PictureArts Corporation for approximately $63.2 million in cash, subject to certain post-closing adjustments. The acquisition includes PictureArts brands: Brand X
Pictures, FoodPix, Botanica and Nonstock, as well as its image distribution business. Jupitermedia financed the purchase price with cash on hand and $80.0 million of aggregate borrowings under a $90.0 million senior credit facility with JPMorgan
obtained in connection with the transaction.



On August 5,
2005, Jupitermedia sold its Search Engine Strategies trade shows and its ClickZ.com Network of Web sites, collectively known as SES, to Incisive Media plc (INM.L.), a London Stock Exchange listed media company, for $43.0 million in cash (subject to
certain post-closing adjustments).



During 2004, we made three
significant acquisitions. On April 1, 2004, Jupitermedia acquired substantially all of the assets and certain liabilities of Comstock, Inc. (Comstock Images) for approximately $20.85 million in cash (the Comstock
Acquisition).



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##### Table of Contents

On July 28, 2004, we acquired the assets of the Thinkstock Images and Thinkstock Footage businesses, or
Thinkstock, from Thinkstock, LLC for $4.0 million in cash, the assumption of certain limited liabilities and 50,000 restricted shares of Jupitermedia common stock.



On November 12, 2004, Jupitermedia acquired all of the stock of Hemera Technologies Inc. and its subsidiaries
(Hemera) for approximately $7.3 million in cash (the Hemera Acquisition).



We expect to continue to develop and expand our current offerings through internal development and, where appropriate opportunities are identified,
through acquisitions to drive revenue and earnings growth.



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##### Table of Contents

Results of Operations



Revenues



The following tables sets forth, for the periods indicated, a comparison of our revenues by segment (dollars in thousands):



|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|------------- |  | -------------------------- | ------ | ------------- | - | ------ | ------------------------ | - | ------------- | - |  | ---- | - | ---- | - | ------ |  | - | ------ |  | - | ------ | - |  | --- | -
|              |  | Three Months EndedJune 30, |        | 2004 vs. 2005 |   |        | Six Months EndedJune 30, |   | 2004 vs. 2005 |  
|              |  | 2004                       |        | 2005          |   | $      |                          |   | %             |   |  | 2004 |   | 2005 |   | $      |  |   | %      | 
|Online images |  | $                          | 5,791  |               | $ | 19,731 |                          |   | 13,940        |   |  | 241  | % |      | $ | 8,248  |  | $ | 31,894 |  | $ | 23,646 |   |  | 287 | %
|Online media  |  |                            | 8,002  |               |   | 9,336  |                          |   | 1,334         |   |  | 17   |   |      |   | 15,221 |  |   | 16,876 |  |   | 1,655  |   |  | 11  |  
|Research      |  |                            | 2,201  |               |   | 2,801  |                          |   | 600           |   |  | 27   |   |      |   | 4,543  |  |   | 5,356  |  |   | 813    |   |  | 18  |  
|Events        |  |                            | 1,841  |               |   | 1,919  |                          |   | 78            |   |  | 4    |   |      |   | 4,163  |  |   | 4,667  |  |   | 504    |   |  | 12  |  
|Other         |  |                            | 11     |               |   | 8      |                          |   | (3            | ) |  | (27  | ) |      |   | 24     |  |   | 16     |  |   | (8     | ) |  | (33 | )
|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|              |  | $                          | 17,846 |               | $ | 33,795 |                          | $ | 15,949        |   |  | 89   | % |      | $ | 32,199 |  | $ | 58,809 |  | $ | 26,610 |   |  | 83  | %
|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  



Online images. We acquired the
assets of Comstock Images on April 1, 2004, the assets of Thinkstock on July 28, 2004, the stock of Hemera on November 12, 2004, Dynamics Graphics Group on March 7, 2005 and Goodshoot on May 19, 2005 and therefore there are no financial results for
these businesses prior to these respective dates. The acquisition of the assets of Thinkstock contributed $787,000 to revenues during the three months ended June 30, 2005 and $1.5 million for the six months ended June 30, 2005. The acquisition of
Hemera contributed $918,000 to revenues for the three months ended June 30, 2005 and $2.1 million for the six months ended June 30, 2005, and the acquisition of Dynamic Graphics Group contributed $10.9 million and $14.2 million, respectively, during
the same periods. The acquisition of Goodshoot contributed $323,000 for the three and six months ended June 30, 2005. The remaining year over year growth for the three months ended June 30, 2005 of $1.0 million is due primarily to increased revenues
from our subscription image offerings. The remaining year over year growth for the six months ended June 30, 2005 is due primarily to the acquisition of Comstock, which contributed $3.3 million to revenues during the first quarter of 2005, and the
increased revenues from our subscription image offerings.



The
following table sets forth, for the three and six months ended June 30, 2004 and 2005, the components of our Online images revenues (dollars in thousands):



|                                  |  |                            |       |                          |   |        |  |      |       |  |   |       
|--------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ------ |  | ---- | ----- |  | - | ------
|                                  |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                  |  | 2004                       |       | 2005                     |   | 2004   |  | 2005
|Subscriptions                     |  | $                          | 2,592 |                          | $ | 5,398  |  | $    | 4,983 |  | $ | 9,355 
|Single images and CD-ROMs         |  |                            | 2,477 |                          |   | 11,759 |  |      | 2,539 |  |   | 16,970
|Distributors, licensing and other |  |                            | 722   |                          |   | 2,574  |  |      | 726   |  |   | 5,569 
|                                  |  |                            |       |                          |   |        |  |      |       |  |   |       
|Total Online images               |  | $                          | 5,791 |                          | $ | 19,731 |  | $    | 8,248 |  | $ | 31,894
|                                  |  |                            |       |                          |   |        |  |      |       |  |   |       



The following table
sets forth, as of the last day in the periods indicated, a quarter-by-quarter comparison of our revenues and bookings for our subscription image products (dollars in thousands):



|                   |  |          |  |                      
|------------------ |  | -------- |  | ---------------------
|                   |  | Revenues |  | Subscription Bookings
|March 31, 2004     |  | $2,391   |  | $3,017               
|June 30, 2004      |  | 2,592    |  | 2,948                
|September 30, 2004 |  | 2,744    |  | 3,388                
|December 31, 2004  |  | 3,129    |  | 3,986                
|March 31, 2005     |  | 3,957    |  | 5,098                
|June 30, 2005      |  | 5,398    |  | 6,019                



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##### Table of Contents

Revenues and subscription bookings have increased due primarily to an increase in the number of
subscribers, the acquisitions of Dynamic Graphics Group and Hemera and an increase in average selling price of the mix of products purchased by our customers. The decrease in subscription bookings during the quarter ended June 30, 2004 was due
primarily to seasonality. We expect our subscription bookings to continue to increase in the future.



Online media. We acquired Dynamic Graphics Group on March 7, 2005 and this acquisition contributed $473,000 and $567,000, respectively, to online
media revenues during the three and six months ended June 30, 2005. The remaining increase in revenues during the three and six months ended June 30, 2005 was due primarily to an increase in revenues from our e-commerce partners. We expect our
Online media revenues to decrease in the third quarter of 2005 in comparison to the second quarter of 2005 based on the seasonality of the advertising business.



The following table sets forth a quarter-by-quarter comparison of the number of our Online media advertisers and the average revenue derived from each
advertiser (dollars in thousands):



|                   |  |                      |  |                              
|------------------ |  | -------------------- |  | -----------------------------
|                   |  | Numberof Advertisers |  | Average Revenueper Advertiser
|March 31, 2004     |  | 210                  |  | $29                          
|June 30, 2004      |  | 220                  |  | 29                           
|September 30, 2004 |  | 220                  |  | 24                           
|December 31, 2004  |  | 235                  |  | 28                           
|March 31, 2005     |  | 213                  |  | 26                           
|June 30, 2005      |  | 219                  |  | 32                           



Research. We
have experienced continued increases in renewal rates in 2004 and into 2005 as conditions in the U.S. economy improved, as we launched several new research coverage areas and as companies once again began investing in market research. We also saw an
increase in the amount of custom research projects completed for our customers.



The following table sets forth, for the periods indicated, a quarter-by-quarter comparison of the JupiterResearch syndicated renewal rates for 2004 through the second quarter of 2005:



|                     |  |                                    |   |  |                                         |   |  |      |   |  |      |  
|-------------------- |  | ---------------------------------- | - |  | --------------------------------------- | - |  | ---- | - |  | ---- | -
|                     |  | Percentage ofContract ValueRenewed |   |  | Percentage ofNumber ofContracts Renewed |  
|Fiscal Quarter Ended |  | 2004                               |   |  | 2005                                    |   |  | 2004 |   |  | 2005 |  
|March 31             |  | 103                                | % |  | 116                                     | % |  | 77   | % |  | 80   | %
|June 30              |  | 88                                 |   |  | 115                                     |   |  | 71   |   |  | 53   |  
|September 30         |  | 93                                 |   |  |                                        |   |  | 70   |   |  |     |  
|December 31          |  | 97                                 |   |  |                                        |   |  | 83   |   |  |     |  



The amounts above
reflect renewal activity to date. The ultimate results regarding renewals for the quarter ended June 30, 2005 will not be known until a future date due to the timing of the renewal of certain contracts. We expect the percentage of contract value
renewed and the percentage of the number of contracts renewed to be greater than the results presented above for the quarter ended June 30, 2005.



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The following table sets forth, as of the last day in the periods indicated, a quarter-by-quarter
comparison of the JupiterResearch active contracts (dollars in thousands):



|                     |  |                           |  |                             |  |      |       |      |   |       
|-------------------- |  | ------------------------- |  | --------------------------- |  | ---- | ----- | ---- | - | ------
|                     |  | Number of ActiveContracts |  | Total Active Contract Value
|Fiscal Quarter Ended |  | 2004                      |  | 2005                        |  | 2004 |       | 2005
|March 31             |  | 240                       |  | 299                         |  | $    | 8,236 |      | $ | 9,784 
|June 30              |  | 243                       |  | 304                         |  |      | 8,407 |      |   | 10,580
|September 30         |  | 259                       |  |                            |  |      | 8,691 |      |   |      
|December 31          |  | 277                       |  |                            |  |      | 8,948 |      |   |      



Total active contract
value is defined as the total value of all active syndicated research contracts without taking into account the amount of revenue recognized to date or the amount of revenue available to be recognized in the future.



Events. The results of our Events business vary with the topics,
frequency and timing of the events that we produce. We have made investments in events focused on specific vertical content areas that align with our other properties and, depending upon their success, we may or may not produce the events in the
future. The following table sets forth, for the three and six months ended June 30, 2004 and 2005, a comparison of the number of events we produced and the amount of our revenues relating to paid attendance, sponsors and exhibitors and barter during
the periods shown (dollars in thousands):



|                                      |  |                            |       |                          |   |       |  |      |       |  |   |      
|------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                      |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                      |  | 2004                       |       | 2005                     |   | 2004  |  | 2005
|Number of trade shows and conferences |  |                            | 5     |                          |   | 5     |  |      | 10    |  |   | 6    
|Number of training seminars           |  |                            |      |                          |   | 3     |  |      |      |  |   | 4    
|                                      |  |                            |       |                         
|Attendee revenue                      |  | $                          | 948   |                          | $ | 1,195 |  | $    | 2,226 |  | $ | 2,956
|Sponsor and exhibitor revenue         |  |                            | 832   |                          |   | 700   |  |      | 1,806 |  |   | 1,650
|Barter revenue                        |  |                            | 61    |                          |   | 24    |  |      | 131   |  |   | 61   
|                                      |  |                            |       |                          |   |       |  |      |       |  |   |      
|Total Events revenue                  |  | $                          | 1,841 |                          | $ | 1,919 |  | $    | 4,163 |  | $ | 4,667
|                                      |  |                            |       |                          |   |       |  |      |       |  |   |      



The increase in
revenues from 2004 to 2005 is due primarily to the growth of our Search Engine Strategies event and the addition of training seminars acquired through Dynamic Graphics Group.



Barter revenues vary in correlation to the number of barter transactions into which we enter.



Other.Other revenues represent management fees from our management of
internet.com Venture Fund I LLC. Due to the liquidation and dissolution of internet.com Venture Fund II LLC and internet.com Venture Partners III LLC and the size of internet.com Venture Fund I these revenues will continue to be negligible in the
future.



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##### Table of Contents

Cost of revenues and gross profit



The following table sets forth, for the periods indicated, a comparison of our cost of revenues and gross profit by segment
(dollars in thousands):



Cost of revenues



|              |  |                            |       |               |   |        |                          |   |               |  |      |   |      |   |        |  |   |        |  |   |        |  |     |  
|------------- |  | -------------------------- | ----- | ------------- | - | ------ | ------------------------ | - | ------------- |  | ---- | - | ---- | - | ------ |  | - | ------ |  | - | ------ |  | --- | -
|              |  | Three Months EndedJune 30, |       | 2004 vs. 2005 |   |        | Six Months EndedJune 30, |   | 2004 vs. 2005 | 
|              |  | 2004                       |       | 2005          |   | $      |                          | % |               |  | 2004 |   | 2005 |   | $      |  | % |       
|Online images |  | $                          | 1,143 |               | $ | 6,935  |                          | $ | 5,792         |  | 507  | % |      | $ | 1,778  |  | $ | 10,120 |  | $ | 8,342  |  | 469 | %
|Online media  |  |                            | 2,867 |               |   | 3,455  |                          |   | 588           |  | 21   |   |      |   | 5,770  |  |   | 6,526  |  |   | 756    |  | 13  |  
|Research      |  |                            | 1,318 |               |   | 1,409  |                          |   | 91            |  | 7    |   |      |   | 2,554  |  |   | 2,849  |  |   | 295    |  | 12  |  
|Events        |  |                            | 1,219 |               |   | 1,314  |                          |   | 95            |  | 8    |   |      |   | 2,465  |  |   | 3,170  |  |   | 705    |  | 29  |  
|              |  |                            |       |               |   |        |                          |   |               |  |      |   |      |   |        |  |   |        |  |   |        |  |     |  
|              |  | $                          | 6,547 |               | $ | 13,113 |                          | $ | 6,566         |  | 100  | % |      | $ | 12,567 |  | $ | 22,665 |  | $ | 10,098 |  | 80  | %
|              |  |                            |       |               |   |        |                          |   |               |  |      |   |      |   |        |  |   |        |  |   |        |  |     |  



Gross profit



|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|------------- |  | -------------------------- | ------ | ------------- | - | ------ | ------------------------ | - | ------------- | - |  | ---- | - | ---- | - | ------ |  | - | ------ |  | - | ------ | - |  | --- | -
|              |  | Three Months EndedJune 30, |        | 2004 vs. 2005 |   |        | Six Months EndedJune 30, |   | 2004 vs. 2005 |  
|              |  | 2004                       |        | 2005          |   | $      |                          |   | %             |   |  | 2004 |   | 2005 |   | $      |  |   | %      | 
|Online images |  | $                          | 4,648  |               | $ | 12,796 |                          | $ | 8,148         |   |  | 175  | % |      | $ | 6,470  |  | $ | 21,774 |  | $ | 15,304 |   |  | 237 | %
|Online media  |  |                            | 5,135  |               |   | 5,881  |                          |   | 746           |   |  | 15   |   |      |   | 9,451  |  |   | 10,350 |  |   | 899    |   |  | 10  |  
|Research      |  |                            | 883    |               |   | 1,392  |                          |   | 509           |   |  | 58   |   |      |   | 1,989  |  |   | 2,507  |  |   | 518    |   |  | 26  |  
|Events        |  |                            | 622    |               |   | 605    |                          |   | (17           | ) |  | (3   | ) |      |   | 1,698  |  |   | 1,497  |  |   | (201   | ) |  | (12 | )
|Other         |  |                            | 11     |               |   | 8      |                          |   | (3            | ) |  | (27  | ) |      |   | 24     |  |   | 16     |  |   | (8     | ) |  | (33 | )
|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|              |  | $                          | 11,299 |               | $ | 20,682 |                          | $ | 9,383         |   |  | 83   | % |      | $ | 19,632 |  | $ | 36,144 |  | $ | 16,512 |   |  | 84  | %
|              |  |                            |        |               |   |        |                          |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  



Gross profit %



|              |  |                            |   |  |                          |   |  |      |   |  |      |  
|------------- |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|              |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|              |  | 2004                       |   |  | 2005                     |   |  | 2004 |   |  | 2005 |  
|Online images |  | 80                         | % |  | 65                       | % |  | 78   | % |  | 68   | %
|Online media  |  | 64                         |   |  | 64                       |   |  | 62   |   |  | 61   |  
|Research      |  | 40                         |   |  | 50                       |   |  | 44   |   |  | 47   |  
|Events        |  | 34                         |   |  | 32                       |   |  | 41   |   |  | 32   |  
|Other         |  | 100                        |   |  | 100                      |   |  | 100  |   |  | 100  |  
|              |  |                            |   |  |                          |   |  |      |   |  |      |  
|              |  | 63                         | % |  | 61                       | % |  | 61   | % |  | 61   | %
|              |  |                            |   |  |                          |   |  |      |   |  |      |  



Online images.
Cost of revenues primarily consists of commissions paid to third party image suppliers, payroll costs for production personnel, communications infrastructure, Web site hosting, storage for our image library and royalties. The acquisition of Dynamic
Graphics Group added $5.6 million and $7.2 million to cost of revenues during the three and six months ended June 30, 2005, respectively. The acquisition of Goodshoot contributed $90,000 for the three and six months ended June 30, 2005. The
acquisition of the assets of Thinkstock added $75,000 and $149,000 to cost of revenues for the three and six months ended June 30, 2005, respectively, and the acquisition of Hemera added $166,000 and $595,000 to cost of revenues for the same
periods.



The increase in gross profit for the three and six
months ended June 30, 2005 is directly attributable to the increased revenues for the respective periods.



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##### Table of Contents

We intend to make investments through internal development and, where appropriate opportunities arise,
acquisitions to continue to expand our image library. As we continue to make investments to increase the size of our image library, we may need to increase our spending for Web site hosting and storage costs.



Online media. Cost of revenues primarily consists of payroll for
editorial personnel, freelance costs, communications infrastructure and Web site hosting. The increase in cost of revenues from 2004 to 2005 was due primarily to increased costs resulting from the acquisition of Dynamics Graphics Group that added
$401,000 and $489,000 for the three and six months ended June 30, 2005, respectively.



The increase in gross profit for the three months ended June 30, 2005 from the same period in 2004 was due primarily to the increase in revenues from 2004 to 2005.



We intend to make investments through internal development and, where
appropriate opportunities arise, acquisitions to continue to expand our content offerings. We may need to increase our spending in order to create additional content related to new topics or offerings.



Research. Cost of revenues primarily consists of payroll costs related
to research analysts and costs to acquire third party research data. Cost of revenues increased during the three and six months ended June 30, 2005 in comparison to the three and six months ended June 30, 2004 due primarily to an increase in payroll
costs of $77,000 and $256,000 related to research analysts.



The increase in gross profit for the three and six months ended June 30, 2005 is directly attributable to the increased revenues for the respective periods.



We intend to make investments in new research coverage areas where appropriate and this may result in increased costs
related to hiring personnel and acquiring data to produce our research.



Events.Cost of revenues primarily consists of payroll costs related to operations employees and event production costs such as venue and speaker costs. The increase in cost of revenues during the six months ended June 30, 2005 in
comparison to the prior year was due primarily to the growth in the size of our Search Engine Strategies event and the addition of training seminars acquired through Dynamic Graphics Group.



Gross profit and gross profit percentage may vary with the topics, frequency
and timing of the events we produce in addition to the impact of launching first-time events. The decrease in gross profit percentage during the six months ended June 30, 2005 is due primarily to the additional costs incurred in 2005 in connection
with the Search Engine Strategies event and the newly acquired Dynamic Graphics Group training seminars, which produced lower margins.



On August 5, 2005, we sold our Search Engine Strategies trade shows and our ClickZ.com Network of Web sites, collectively known as SES. As a result of the
sale of SES, we are currently evaluating whether the sale of SES will result in our Events segment being accounted for as a discontinued operation beginning in the third quarter of 2005 in accordance with Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.



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Advertising, promotion and selling



The following table sets forth, for the periods indicated, a comparison of our advertising, promotion and selling expenses
by segment (dollars in thousands):



|              |  |                            |       |               |   |       |                          |   |               |   |  |      |   |      |   |       |  |   |        |  |   |       |   |  |     |  
|------------- |  | -------------------------- | ----- | ------------- | - | ----- | ------------------------ | - | ------------- | - |  | ---- | - | ---- | - | ----- |  | - | ------ |  | - | ----- | - |  | --- | -
|              |  | Three Months EndedJune 30, |       | 2004 vs. 2005 |   |       | Six Months EndedJune 30, |   | 2004 vs. 2005 |  
|              |  | 2004                       |       | 2005          |   | $     |                          |   | %             |   |  | 2004 |   | 2005 |   | $     |  |   | %      | 
|Online images |  | $                          | 1,237 |               | $ | 3,583 |                          | $ | 2,346         |   |  | 190  | % |      | $ | 1,556 |  | $ | 5,159  |  | $ | 3,603 |   |  | 232 | %
|Online media  |  |                            | 1,760 |               |   | 1,915 |                          |   | 155           |   |  | 9    |   |      |   | 3,444 |  |   | 3,708  |  |   | 264   |   |  | 8   |  
|Research      |  |                            | 780   |               |   | 833   |                          |   | 53            |   |  | 7    |   |      |   | 1,498 |  |   | 1,701  |  |   | 203   |   |  | 14  |  
|Events        |  |                            | 773   |               |   | 569   |                          |   | (204          | ) |  | (26  | ) |      |   | 1,627 |  |   | 1,025  |  |   | (602  | ) |  | (37 | )
|              |  |                            |       |               |   |       |                          |   |               |   |  |      |   |      |   |       |  |   |        |  |   |       |   |  |     |  
|              |  | $                          | 4,550 |               | $ | 6,900 |                          | $ | 2,350         |   |  | 52   | % |      | $ | 8,125 |  | $ | 11,593 |  | $ | 3,468 |   |  | 43  | %
|              |  |                            |       |               |   |       |                          |   |               |   |  |      |   |      |   |       |  |   |        |  |   |       |   |  |     |  



Online images.
Advertising, promotion and selling expense primarily consists of payroll for sales and marketing personnel, commissions to third parties for referrals, credit card transaction fees and advertising. The acquisition of the assets of Thinkstock added
$56,000 and $116,000 to advertising, promotion and selling expenses during the three and six months ended June 30, 2005. In addition, the acquisitions of Hemera and Dynamic Graphics Group added $175,000 and $2.5 million, respectively, to
advertising, promotion and selling expenses during the three months ended June 30, 2005, and $367,000 and $3.0 million, respectively, during the six months ended June 30, 2005. The effect of these acquisitions was partially offset for the three
months ended June 30, 2005 by a reduction in marketing costs of $398,000 for our Comstock business.



Online media. Advertising, promotion and selling expense primarily consists of payroll costs for sales and marketing personnel. In addition, it
includes costs related to marketing activities including barter. The increase from 2004 to 2005 in advertising, promotion and selling expenses relates primarily to increased payroll related costs of $80,000 and $32,000 for the three and six months
ended June 30, 2005, respectively, and to the acquisition of Dynamic Graphics Group that added $71,000 and $113,000 for the three and six months ended June 30, 2005.



Research. Advertising, promotion and selling expense primarily consists of payroll for sales and marketing personnel.
These expenses increased in 2005 due primarily to an increase in payroll related costs of $75,000 and $207,000, respectively, for sales personnel in comparison to the three and six months ended June 30, 2004.



Events. Advertising, promotion and selling expense primarily consist
of payroll for sales and marketing personnel and advertising expense. Expenses for the three and six months ended June 30, 2005 have decreased primarily due to a reduction in attendee marketing costs of $155,000 and $436,000, respectively, due to a
decrease in the number of trade shows and conferences we produced. In addition, payroll related costs for our events decreased $31,000 and $122,000 for the three and six months ended June 30, 2005.



Barter expense was $58,000 and $24,000 for the three months ended June 30,
2004 and 2005, respectively, and $128,000 and $61,000 for the six months ended June 30, 2004 and 2005, respectively. Barter expenses vary in correlation to the number of barter transactions into which we enter.



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##### Table of Contents

General and administrative



The following table sets forth, for the periods indicated, a comparison of our general and administrative expenses by
segment (dollars in thousands):



|              |  |                            |       |               |      |   |                          |  |               |       |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  
|------------- |  | -------------------------- | ----- | ------------- | ---- | - | ------------------------ |  | ------------- | ----- |  | ---- | - | ---- | - | ----- |  | - | ----- |  | - | ----- |  | --- | -
|              |  | Three Months EndedJune 30, |       | 2004 vs. 2005 |      |   | Six Months EndedJune 30, |  | 2004 vs. 2005 |      
|              |  | 2004                       |       |               | 2005 |   | $                        |  | %             |       |  | 2004 |   | 2005 |   | $     |  | % |      
|Online images |  | $                          | 263   |               |      | $ | 1,083                    |  | $             | 820   |  | 312  | % |      | $ | 517   |  | $ | 1,681 |  | $ | 1,164 |  | 255 | %
|Online media  |  |                            | (186  | )             |      |   | 163                      |  |               | 349   |  | 188  |   |      |   | 234   |  |   | 344   |  |   | 110   |  | 47  |  
|Research      |  |                            | 177   |               |      |   | 184                      |  |               | 7     |  | 4    |   |      |   | 374   |  |   | 407   |  |   | 33    |  | 9   |  
|Events        |  |                            | 38    |               |      |   | 48                       |  |               | 10    |  | 26   |   |      |   | 82    |  |   | 88    |  |   | 6     |  | 7   |  
|Other         |  |                            | 1,860 |               |      |   | 3,043                    |  |               | 1,183 |  | 64   |   |      |   | 3,470 |  |   | 5,408 |  |   | 1,938 |  | 56  |  
|              |  |                            |       |               |      |   |                          |  |               |       |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  
|              |  | $                          | 2,152 |               |      | $ | 4,521                    |  | $             | 2,369 |  | 110  | % |      | $ | 4,677 |  | $ | 7,928 |  | $ | 3,251 |  | 70  | %
|              |  |                            |       |               |      |   |                          |  |               |       |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  



Online images.
General and administrative expense primarily consists of payroll for administrative personnel, office related costs and professional fees. The acquisition of the assets of Thinkstock and the acquisitions of Dynamics Graphics Group and Hemera added
$51,000, $524,000 and $164,000, respectively, to general and administrative expenses during the second quarter of 2005 and $96,000, $638,000 and $330,000, respectively, during the six months ended June 30, 2005. In addition, the acquisition of
Goodshoot added $58,000 for the three and six months ended June 30, 2005.



Online media. General and administrative expense primarily consists of office related costs and provisions for losses on accounts receivable. The increase in general and administrative expenses from 2004 to
2005 was due primarily to our provision for losses on accounts receivable. Due to decreases in the amounts of receivables due from certain advertising agencies we recorded a reduction from our allowance for doubtful accounts of $387,000 during the
second quarter of 2004. We recorded a reduction of $42,000 during the second quarter of 2005, which resulted in a net increase of $345,000 during the three months ended June 30, 2005.



Research.General and administrative expense primarily consists of payroll for administrative personnel, office
related costs, professional fees and provisions for losses on accounts receivable.



Events. General and administrative expense primarily consists of payroll for administrative personnel, office related costs and professional fees.



Other. General and administrative expense primarily consists of payroll costs for administrative personnel, office
related costs and professional fees. The acquisition of Dynamic Graphics Group added $710,000 and $1.0 million, respectively, to general and administrative costs during the three and six months ended June 30, 2005. The remaining increase in general
and administrative expenses during the three months ended June 30, 2005 relates to an increase in payroll related costs of $259,000 and audit fees of $146,000. The remaining increase during the six months ended June 30, 2005 relates to an increase
in payroll related costs of $495,000, audit fees of $163,000, state capital taxes of $151,000 and legal expenses of $106,000.



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##### Table of Contents

Depreciation and amortization



The following table sets forth, for the periods indicated, a comparison of our depreciation and amortization expenses
(dollars in thousands):



|             |  |                            |     |               |   |       |                          |   |               |  |      |   |      |   |       |  |   |       |  |   |     |  |    |  
|------------ |  | -------------------------- | --- | ------------- | - | ----- | ------------------------ | - | ------------- |  | ---- | - | ---- | - | ----- |  | - | ----- |  | - | --- |  | -- | -
|             |  | Three Months EndedJune 30, |     | 2004 vs. 2005 |   |       | Six Months EndedJune 30, |   | 2004 vs. 2005 | 
|             |  | 2004                       |     | 2005          |   | $     |                          | % |               |  | 2004 |   | 2005 |   | $     |  | % |      
|Depreciation |  | $                          | 242 |               | $ | 423   |                          | $ | 181           |  | 75   | % |      | $ | 465   |  | $ | 710   |  | $ | 245 |  | 53 | %
|Amortization |  |                            | 722 |               |   | 876   |                          |   | 154           |  | 21   |   |      |   | 1,117 |  |   | 1,705 |  |   | 588 |  | 53 |  
|             |  |                            |     |               |   |       |                          |   |               |  |      |   |      |   |       |  |   |       |  |   |     |  |    |  
|             |  | $                          | 964 |               | $ | 1,299 |                          | $ | 335           |  | 35   | % |      | $ | 1,582 |  | $ | 2,415 |  | $ | 833 |  | 53 | %
|             |  |                            |     |               |   |       |                          |   |               |  |      |   |      |   |       |  |   |       |  |   |     |  |    |  



Depreciation expense
increased during the three and six months ended June 30, 2005 due primarily to the acquisition of Dynamic Graphics Group.



Amortization expense increased during the three and six months ended June 30, 2005 due primarily to amortization of intangible assets related to the
acquisitions of Thinkstock, Hemera, Dynamic Graphics Group and Goodshoot.



The acquisition of the assets of Thinkstock and the acquisitions of Hemera, Dynamic Graphics Group and Goodshoot added $226,000, $204,000, $369,000 and $49,000, respectively, to depreciation and amortization expense
during the six months ended June 30, 2005.



Our depreciation
and amortization expenses may vary in future periods based upon a change in our capital expenditure levels, any purchase accounting adjustments relating to the acquisitions of Hemera, Dynamic Graphics Group and Goodshoot or any acquisitions that may
be completed during the remainder of 2005.



Income (loss) on
investments and other, net



The following table sets
forth, for the periods indicated, a quarter-over-quarter comparison of our income (loss) on investments and other, net (dollars in thousands):



|                                            |  |                            |     |      |               |     |   |                          |   |      |               |  |      |    |      |   |     |   |   |     |   |  |   |      |   |  |      |   
|------------------------------------------- |  | -------------------------- | --- | ---- | ------------- | --- | - | ------------------------ | - | ---- | ------------- |  | ---- | -- | ---- | - | --- | - | - | --- | - |  | - | ---- | - |  | ---- | --
|                                            |  | Three MonthsEnded June 30, |     |      | 2004 vs. 2005 |     |   | Six Months EndedJune 30, |   |      | 2004 vs. 2005 | 
|                                            |  | 2004                       |     | 2005 |               |     | $ |                          |   | %    |               |  | 2004 |    | 2005 |   |     | $ |   |     | % | 
|Income (loss) on investments and other, net |  | $                          | 105 |      | $             | (11 | ) |                          | $ | (116 | )             |  | (110 | )% |      | $ | 119 |   | $ | (41 | ) |  | $ | (160 | ) |  | (134 | )%



During the three and
six months ended June 30, 2004, we recorded other income of $130,000 relating to litigation settlements offset by a loss on investments of $9,000.



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##### Table of Contents

Interest income and interest expense



The following table sets forth, for the periods indicated, a comparison of
our interest income and interest expense (dollars in thousands):



|                 |  |                            |     |   |               |   |      |                          |  |   |               |   |  |      |   |  |      |     |   |   |   |      |   |  |   |      |   |  |      |  
|---------------- |  | -------------------------- | --- | - | ------------- | - | ---- | ------------------------ |  | - | ------------- | - |  | ---- | - |  | ---- | --- | - | - | - | ---- | - |  | - | ---- | - |  | ---- | -
|                 |  | Three Months EndedJune 30, |     |   | 2004 vs. 2005 |   |      | Six Months EndedJune 30, |  |   | 2004 vs. 2005 |  
|                 |  | 2004                       |     |   | 2005          |   |      | $                        |  |   | %             |   |  | 2004 |   |  | 2005 |     |   | $ |   |      | % | 
|Interest income  |  | $                          | 9   |   |               | $ | 95   |                          |  | $ | 86            |   |  | 956  | % |  | $    | 27  |   |   | $ | 214  |   |  | $ | 187  |   |  | 693  | %
|Interest expense |  |                            | (56 | ) |               |   | (200 | )                        |  |   | (144          | ) |  | (257 | ) |  |      | (62 | ) |   |   | (288 | ) |  |   | (226 | ) |  | (365 | )



The increase in
interest income from 2004 to 2005 was due to a higher average cash balance resulting from the completion of our follow-on public offering of common stock in May 2004.



Interest expense relates to a $20.0 million term loan under a credit facility with JPMorgan Chase Bank N.A. used to
partially finance the acquisition of Dynamic Graphics Group on March 7, 2005.



Provision for income taxes



Based on estimated tax rates, we recorded provisions for federal, state and foreign income taxes of $629,000, $255,000 and $50,000, respectively, for the three months ended June 30, 2005; $1.1 million, $443,000, and $55,000, respectively,
for the six months ended June 30, 2005; and $37,000, $35,000 and $68,000, respectively, for the three and six months ended June 30, 2004. The provision for federal income taxes is due primarily to deferred income tax expense related to the
amortization of certain intangibles, primarily goodwill from various acquisitions, for income tax purposes that are not amortized in our financial statements.



As a result of the gain on the sale of SES on August 5, 2005, we expect to utilize our remaining net operating losses for federal and state income tax
purposes.



Minority interests



Minority interests represent the minority stockholders proportionate
share of profits or losses of our majority-owned Japanese subsidiary, Japan.internet.com KK, which is our online media business focused on Japan.



Equity income from venture fund investments and other, net



Equity income represents our net equity interests in the investments in internet.com venture funds and event-related joint
ventures. As a result of the dissolution of internet.com Venture Fund II LLC and internet.com Venture Partners III LLC during 2004, the remaining carrying value of our venture fund investments is limited to the carrying value of our investment in
internet.com Venture Fund I LLC, which was $171,000 as of June 30, 2005. Equity income for the three and six months ended June 30, 2005 relates solely to our event-related joint ventures.



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##### Table of Contents

Liquidity and Capital Resources



The following table sets forth, for the periods indicated, a comparison of the key components of our liquidity and capital
resources (dollars in thousands):



|                                     |  |                           |         |   |               |   |         |   |  |   |         |   |  |     |   
|------------------------------------ |  | ------------------------- | ------- | - | ------------- | - | ------- | - |  | - | ------- | - |  | --- | --
|                                     |  | Six Months Ended June 30, |         |   | 2004 vs. 2005 |  
|                                     |  | 2004                      |         |   | 2005          |   |         | $ |  |   | %       |  
|Operating cash flows                 |  | $                         | 9,820   |   |               | $ | 13,842  |   |  | $ | 4,022   |   |  | 41  | % 
|Investing cash flows                 |  | $                         | (22,841 | ) |               | $ | (50,434 | ) |  | $ | (27,593 | ) |  | 121 | % 
|Financing cash flows                 |  | $                         | 32,676  |   |               | $ | 26,363  |   |  | $ | (6,313  | ) |  | (19 | )%
|Acquisitions of businesses and other |  | $                         | (22,916 | ) |               | $ | (49,523 | ) |  | $ | (26,607 | ) |  | 116 | % 
|Capital expenditures                 |  | $                         | (207    | ) |               | $ | (846    | ) |  | $ | (639    | ) |  | 309 | % 



|                          |  |                  |        |               |   |        |  |   |         |   |  |     |   
|------------------------- |  | ---------------- | ------ | ------------- | - | ------ |  | - | ------- | - |  | --- | --
|                          |  | As of            |        | 2004 vs. 2005 |  
|                          |  | December 31,2004 |        | June 30, 2005 |   | $      |  |   | %       |  
|Cash and cash equivalents |  | $                | 30,179 |               | $ | 19,950 |  | $ | (10,229 | ) |  | (34 | )%
|Accounts receivable, net  |  | $                | 15,385 |               | $ | 21,417 |  | $ | 6,032   |   |  | 39  | % 
|Working capital           |  | $                | 26,525 |               | $ | 257    |  | $ | (26,268 | ) |  | (99 | )%



Since inception, we
have funded operations primarily with cash proceeds from our initial and follow-on public offerings of our common stock in June 1999, February 2000 and May 2004, respectively. Cash decreased in 2005 primarily due to the acquisition of Dynamic
Graphics Group, which resulted in a cash payment of $38.2 million, and the acquisition of Goodshoot, which resulted in a cash payment of $9.9 million. This decrease was partially offset by a $20.0 million term loan under a credit facility obtained
in connection with the acquisition along with cash inflows from operating activities of $13.3 million.



Cash provided by operating activities increased in 2005 due primarily to increases in our net income and our deferred revenues as well as decreases in
accounts receivables offset by decreases in accounts payable and accrued expenses. In 2005, deferred revenues increased primarily due to the increased bookings for our Online images business and bookings for paid attendance, sponsorships and
exhibition space fees for certain events to be held in the future.



The amounts of cash used in investing activities vary in correlation to the number and value of the acquisitions consummated. Net cash used in investing activities in 2005 increased from cash used in 2004 primarily due to the acquisition of
Dynamic Graphics Group. As part of the acquisition of ArtToday, Inc., we are required to make earn-out payments totaling up to a maximum of $4.0 million based on net revenue targets achieved by ArtToday, Inc. for the period from July 1, 2003 to
December 31, 2003; for the period from January 1, 2004 to June 30, 2004; and for the period from July 1, 2004 to June 30, 2005. Based on the results of ArtToday, Inc. for the period from July 1, 2003 to December 31, 2003 and from January 1, 2004 to
June 30, 2004, the seller, International Microcomputer Software, Inc. (IMSI), was paid $1.0 million in February 2004 and $1.0 million in August 2004, which represents the maximum amount that could have been earned for those earn-out
periods. Based upon the results of ArtToday, Inc. for the period from July 1, 2004 to June 30, 2005, IMSI will be paid $2.0 million during the third quarter of 2005. This amount is included in accrued expenses in our June 30, 2005 Consolidated
Condensed Balance Sheet.



Cash provided from financing
activities in 2005 relates primarily to borrowings from a $20.0 million term loan under a credit facility with JPMorgan Chase Bank N.A. obtained in connection with the acquisition of Dynamic Graphics Group, as well as proceeds received from the
exercise of employee stock options.



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##### Table of Contents

On March 7, 2005, Jupitermedia acquired Creatas, L.L.C., the parent company of Dynamic Graphics, Inc. and
PictureQuest Acquisition Company, L.L.C., and their many stock photo and related graphics brands (Dynamic Graphics Group), for $38.2 million in cash and 1,483,074 restricted shares of Jupitermedia common stock preliminarily valued at
$22.2 million when issued. Jupitermedia financed the cash portion of the purchase price with cash on hand and a $20.0 million term loan pursuant to a credit agreement (the Original Credit Agreement) with JPMorgan Chase Bank, N.A.
(JPMorgan) obtained in connection with the transaction. The Original Credit Agreement, which was subsequently amended and restated on July 19, 2005, provided for a $20 million senior term loan, of which $20.0 million was outstanding as
of June 30, 2005. The $20.0 million term loan was scheduled to mature on March 7, 2008 and could be prepaid without penalty. Jupitermedia could elect that the loan bear interest at a rate per annum equal to either (i) an adjusted LIBOR-based rate,
plus 1.75% (or, if debt to our EBITDA is less than .50 to 1.00, 1.50%) or (ii) the prime rate, as announced by JPMorgan. The Original Credit Agreement required us to pay principal in quarterly installments of $1,666,667, commencing on June 30, 2005
and ending on March 31, 2008. Borrowings under the Original Credit Agreement were guaranteed by Jupitermedias material subsidiaries and were collateralized by substantially all of our assets.



On July 18, 2005, the Original Credit Agreement was amended and restated in
its entirety (the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement now provides for a $90 million senior credit facility (comprised of a $30 million term loan facility, a $10 million revolving credit
facility and a $50 million bridge facility), and replaced the $20 million senior term loan provided under the Original Credit Agreement. The bridge facility is scheduled to mature on January 18, 2006 and the term loan and revolving credit facility
are scheduled to mature on July 18, 2008. Jupitermedia may request that the bridge facilitys maturity date be extended to April 18, 2006. Jupitermedia may elect that the loans bear interest at a rate per annum equal to (i) the Adjusted Libor
Rate, plus, with respect to the term loan and revolving credit facility, a rate between 1.75% and 3.25% depending on the ratio of debt to EBITDA and, with respect to the bridge facility, 3.50% plus periodic increases or (ii) the prime rate, as
announced by JPMorgan, plus, with respect to the term loan and the revolving credit facility, a rate between 0.75% and 2.25% depending on the ratio of debt to EBITDA, and, with respect to the bridge facility, 2.50% plus periodic increases. The
Amended and Restated Credit Agreement requires the repayment of principal of the term loan in quarterly installments of $2,500,000, commencing on September 30, 2005 and ending on July 18, 2008, repayment of principal of the revolving credit facility
on July 18, 2008 and repayment of principal of the bridge facility on January 18, 2006, or on April 18, 2006 if the bridge facilitys maturity is extended. Proceeds from the Amended and Restated Credit Agreement were used to finance the
acquisition of PictureArts Corporation on July 18, 2005, for working capital needs and general corporate purposes.



The Amended and Restated Credit Agreement contains customary covenants including, among others, restrictions on Jupitermedias ability to pay
dividends, incur additional indebtedness (other than subordinated indebtedness) or liens on assets, make investments in excess of $2 million in the aggregate or make acquisitions in excess of $25 million in the aggregate or, for so long as
indebtedness under the bridge loan facility is outstanding, in excess of $1.5 million for any single transaction. The Amended and Restated Credit Agreement also requires Jupitermedia to meet certain financial tests, including, a net income test, a
net loss test, a minimum net worth test and a minimum cash balance test. The Amended and Restated Credit Agreement contains customary events of default, including among other things, non payment of principal, interest, fees or other amounts when
due, inaccuracy of representations and warranties, violation of covenants, a material adverse change, a change of control or the occurrence of a bankruptcy or ERISA event (as defined in the Amended and Restated Credit Agreement). Upon an event of
default, all amounts owing under the Amended and Restated Credit Agreement shall immediately become due and payable and shall bear interest at a default rate equal to the then applicable rate of interest plus 2%. Borrowings under the Amended and
Restated Credit Agreement are guaranteed by certain material subsidiaries of Jupitermedia and are secured by substantially all of Jupitermedias assets.



On May 19, 2005 Jupitermedia acquired all of the shares of Goodshoot S.A.S., a French corporation, for $9.9 million in cash.



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We expect to continue our investing activities, which includes the potential to strategically acquire
companies, content and images that are complementary to our business. Although we are currently considering potential strategic acquisitions, we have no binding commitments or agreements with respect to any such acquisitions. We expect to finance
future acquisitions through a combination of long-term and short-term financing including debt, equity and cash and internally generated cash flow. We may obtain long-term financing through the issuance of equity securities and the incurrence of
long-term secured or unsecured debt.



Our existing cash and
investment balances may decline during the remainder of 2005 in the event of a downturn in the general economy, particularly related to technology advertising, or changes in our planned cash outlay. However, based on our current business plan and
revenue prospects, we believe that our existing balances together with our anticipated cash flows from operations will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months.



Recent Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised) (SFAS 123R), Share-Based Payment. SFAS 123R established standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or
services. It also addressed transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity
instruments. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in exchange for the award.



SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. Compensation
cost will be recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123R for either
recognition or pro forma disclosures. SFAS 123R is effective as of the beginning of the first fiscal year beginning after June 15, 2005. The specific impact of SFAS 123R is not known as Jupitermedia is currently reviewing the adoption and valuation
methods permitted under SFAS 123R. The adoption of SFAS 123R will not have any impact on Jupitermedias cash flows or liquidity.



In June 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS 154). SFAS 154 replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the
new accounting principle. SFAS 154 also requires that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial
statements should be termed a restatement. SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of SFAS 154 will not have an impact on Jupitermedias
consolidated financial statements.



Critical Accounting Policies



There have been no changes to our critical accounting
policies from those included in our most recent Form 10-K for the year ended December 31, 2004.



Item 3. Quantitative and Qualitative Disclosure about Market Risks



We have no derivative financial instruments or derivative commodity instruments. We invest our excess cash primarily in debt instruments of the U.S.
Government and its agencies.



We invest in equity instruments
of privately held, online media and technology companies for business and strategic purposes. These investments are included in investments and other assets and are accounted for under



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the cost method, as we do not have the ability to exert significant influence over the companies or their operations. For these no-quoted investments, our
policy is to regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the carrying values. We identify and record impairment losses on long-lived assets when events and circumstances indicate that
such assets might be impaired.



We are the portfolio manager
of, and an investor in, internet.com Venture Fund I LLC, or Fund I, a $5.0 million venture fund formed in March 1999. This fund invested in early-stage content-based Internet properties that are not competitive with our business. We invested
$700,000 in Fund I, all of which is now fully invested. The remaining $4.3 million of capital raised and funded in Fund I was sourced from third party investors. We no longer have any outstanding capital commitments related to Fund I. The aggregate
carrying value of our investment in Fund I was $171,000 as of June 30, 2005.



Our transactions are generally conducted, and as of June 30, 2005, 79% of our cash is held in accounts that are denominated, in United States dollars. Accordingly, we are not exposed to significant foreign currency
risk.



Item 4. Controls and Procedures



Jupitermedia management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of June 30, 2005. Based on such evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be to be disclosed by the Jupitermedia in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no changes in Jupitermedias internal
control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Jupitermedias internal control over financial reporting.



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PART IIOTHER INFORMATION



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | LEGAL PROCEEDINGS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 
|        |  | On May 12, 2004, Jupitermedia filed a lawsuit against eMarketer, Inc. (eMarketer) in United States District Court
for the Southern District of New York, alleging that eMarketer violated Jupitermedias copyright, trademark and related rights. Jupitermedia is seeking an injunction, damages and legal costs. On June 30, 2004, eMarketer filed an answer and
counterclaim seeking a declaratory judgment that the conduct of which Jupitermedia complains is not violative of Jupitermedias rights and is not seeking damages. Jupitermedia replied to the counterclaim on July 30, 2004, and discovery has
commenced.  On August 3, 2004, Mario Cisneros and Michael
Voight filed a class action lawsuit on behalf of themselves and all others situated and/or the general public against thirteen co-defendants including Jupitermedia. Cisneros et al. allege that defendants posting of paid advertising providing
links to Internet gambling Web sites constitutes unfair competition and unlawful business acts and practices under California law. Plaintiffs seek declaratory and injunctive relief, disgorgement of profits and restitution. Jupitermedia denies
liability and intends to continue to defend itself vigorously.  Jupitermedia is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial
statements of Jupitermedia.
|        | 
|Item 2. |  | CHANGES IN SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 
|        |  | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 
|Item 3. |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 
|        |  | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 
|Item 4. |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 
|        |  | Jupitermedias annual meeting of stockholders was held on June 9, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 
|        |  | The following nominees were elected as directors, each to hold office until their successor is elected and qualified, by the vote set forth below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



|                                                                                                                                                                                                                                                                    |  |            |  |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | ---------
|NOMINEE                                                                                                                                                                                                                                                             |  | FOR        |  | AGAINST  
|Alan M. Meckler                                                                                                                                                                                                                                                     |  | 24,215,316 |  | 7,303,785
|Christopher S. Cardell                                                                                                                                                                                                                                              |  | 24,277,535 |  | 7,241,566
|Gilbert F. Bach                                                                                                                                                                                                                                                     |  | 29,260,832 |  | 2,258,269
|Michael J. Davies                                                                                                                                                                                                                                                   |  | 29,261,632 |  | 2,257,469
|John R. Patrick                                                                                                                                                                                                                                                     |  | 29,161,534 |  | 2,357,567
|William A. Shutzer                                                                                                                                                                                                                                                  |  | 29,245,082 |  | 2,274,019
|                                                                                                                                                                                                                                                                   
|The proposal to approve the appointment of Deloitte & Touche LLP, independent registered public accounting firm, to act as independent auditors for Jupitermedia Corporation for
the fiscal year ending December 31, 2005 was approved by the vote set forth below:
|                                                                                                                                                                                                                                                                    |  |           
|FOR                                                                                                                                                                                                                                                                 |  | AGAINST    |  | ABSTAIN  
|31,186,546                                                                                                                                                                                                                                                          |  | 329,889    |  | 2,666    



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|Item 5. |  | OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                    
|        | 
|        |  | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                       
|        | 
|Item 6. |  | EXHIBITS                                                                                                                                                                                                                                                                                                                                                                                             
|        | 
|        |  | The following is a list of exhibits filed as part of this Report on Form 10-Q. Where so indicated by footnote, exhibits, which were previously filed, are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically except for in those situations where the exhibit number was the same as set forth below.



|              |  |                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                           
|3.1*          |  | Registrants Amended and Restated Certificate of Incorporation, as amended                                            
|3.2**         |  | Registrants Bylaws                                                                                                   
|11            |  | Statement Regarding Computation of Per Share Earnings (Loss) (included in notes to consolidated financial statements) 
|31.1          |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|31.2          |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

| | * | Incorporated herein by reference to the Registrants Form 10-K filed on March 5, 2004.
| | - | --------------------------------------------------------------------------------------

| | ** | Incorporated herein by reference to the Registrants Registration Statement on Form S-1 (File No. 333-76331) filed on April 15, 1999.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



Pursuant to the requirements of
the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |                                                     
|--------------------- |  | ----------------------------------------------------
|Dated: August 9, 2005 |  | Jupitermedia Corporation                            
|                      | 
|                      |  | /s/ Christopher S. Cardell                          
|                      |  | Christopher S. Cardell                              
|                      |  | Director, President and Chief Operating Officer     
|                      | 
|                      |  | /s/ Christopher J. Baudouin                         
|                      |  | Christopher J. Baudouin                             
|                      |  | Executive Vice President and Chief Financial Officer



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