##### 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 September 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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)



|                                               |  |           
|---------------------------------------------- |  | ----------
|23 Old Kings Highway South Darien, Connecticut |  | 06820     
|(Address of principal executive offices)       |  | (Zip Code)



(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 ̈



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



The number of outstanding shares the
Registrants common stock, par value $.01 per share, as of November 4, 2005 was 34,909,541.



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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 September 30, 2005                                         |  | 3   
|           |  |                                                                                                                                   
|           |  | Unaudited Consolidated Condensed Statements of Operations  For the Three Months and Nine Months Ended September 30, 2004 and 2005 |  | 4   
|           |  |                                                                                                                                   
|           |  | Unaudited Consolidated Condensed Statements of Cash Flows  For the Nine Months Ended September 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                                              |  | 16  
|           |  |                                                                                                                                   
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                         |  | 27  
|           |  |                                                                                                                                   
|Item 4.    |  | Controls and Procedures                                                                                                            |  | 28  
|           |  |                                                                                                                                   
|PART II.   |  | Other Information                                                                                                                  |  |     
|           |  |                                                                                                                                   
|Item 1.    |  | Legal Proceedings                                                                                                                  |  | 29  
|           |  |                                                                                                                                   
|Item 2.    |  | Changes in Securities                                                                                                              |  | 29  
|           |  |                                                                                                                                   
|Item 3.    |  | Defaults Upon Senior Securities                                                                                                    |  | 29  
|           |  |                                                                                                                                   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                |  | 29  
|           |  |                                                                                                                                   
|Item 5.    |  | Other Information                                                                                                                  |  | 29  
|           |  |                                                                                                                                   
|Item 6.    |  | Exhibits                                                                                                                           |  | 29  
|           | 
|Signatures |  | 31                                                                                                                                



2



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##### Table of Contents

Jupitermedia Corporation



Unaudited Consolidated Condensed Balance Sheets



December 31, 2004 and September 30, 2005

(in thousands, except share data)



|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                   |  | December 31,2004 |          |   | September 30, 2005 |  
|ASSETS                                                                                                                                                             |  |                  |          |   |                    |   |         |  
|                                                                                                                                                                   |  |                 
|Current assets:                                                                                                                                                    |  |                  |          |   |                    |   |         |  
|Cash and cash equivalents                                                                                                                                          |  | $                | 30,179   |   |                    | $ | 20,247  |  
|Accounts receivable, net of allowances of $966 and $1,562, respectively                                                                                            |  |                  | 13,724   |   |                    |   | 23,692  |  
|Unbilled accounts receivable                                                                                                                                       |  |                  | 1,530    |   |                    |   | 1,531   |  
|Prepaid expenses and other                                                                                                                                         |  |                  | 2,633    |   |                    |   | 4,216   |  
|Assets of discontinued operations                                                                                                                                  |  |                  | 1,789    |   |                    |   |        |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total current assets                                                                                                                                               |  |                  | 49,855   |   |                    |   | 49,686  |  
|                                                                                                                                                                   |  |                 
|Property and equipment, net                                                                                                                                        |  |                  | 2,339    |   |                    |   | 10,045  |  
|Intangible assets, net                                                                                                                                             |  |                  | 20,939   |   |                    |   | 42,968  |  
|Goodwill                                                                                                                                                           |  |                  | 41,967   |   |                    |   | 158,781 |  
|Deferred income taxes                                                                                                                                              |  |                  |         |   |                    |   | 11,014  |  
|Investments and other assets                                                                                                                                       |  |                  | 1,197    |   |                    |   | 2,000   |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total assets                                                                                                                                                       |  | $                | 116,297  |   |                    | $ | 274,494 |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                               |  |                  |          |   |                    |   |         |  
|                                                                                                                                                                   |  |                 
|Current liabilities:                                                                                                                                               |  |                  |          |   |                    |   |         |  
|Accounts payable                                                                                                                                                   |  | $                | 2,060    |   |                    | $ | 5,071   |  
|Accrued payroll and related expenses                                                                                                                               |  |                  | 1,666    |   |                    |   | 3,115   |  
|Accrued expenses and other                                                                                                                                         |  |                  | 4,642    |   |                    |   | 13,352  |  
|Current portion of long-term debt                                                                                                                                  |  |                  |         |   |                    |   | 10,000  |  
|Deferred revenues                                                                                                                                                  |  |                  | 12,023   |   |                    |   | 15,568  |  
|Liabilities of discontinued operations                                                                                                                             |  |                  | 2,891    |   |                    |   |        |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total current liabilities                                                                                                                                          |  |                  | 23,282   |   |                    |   | 47,106  |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Long-term debt                                                                                                                                                     |  |                  |         |   |                    |   | 26,322  |  
|Deferred revenues                                                                                                                                                  |  |                  | 510      |   |                    |   | 616     |  
|Deferred income tax liabilities                                                                                                                                    |  |                  | 121      |   |                    |   |        |  
|Other long-term liabilities                                                                                                                                        |  |                  | 225      |   |                    |   |        |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total liabilities                                                                                                                                                  |  |                  | 24,138   |   |                    |   | 74,044  |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Stockholders equity:                                                                                                                                              |  |                  |          |   |                    |   |         |  
|Preferred stock, $0.01 par value, 4,000,000 shares authorized, no shares issued and outstanding                                                                    |  |                  |         |   |                    |   |        |  
|Common stock, $0.01 par value, 75,000,000 shares authorized, and 32,378,361 and 34,881,241 shares issued at December 31, 2004 and
September 30, 2005, respectively |  |                  | 324      |   |                    |   | 349     |  
|Additional paid-in capital                                                                                                                                         |  |                  | 215,648  |   |                    |   | 251,532 |  
|Accumulated deficit                                                                                                                                                |  |                  | (123,690 | ) |                    |   | (50,730 | )
|Treasury stock, 65,000 shares, at cost                                                                                                                             |  |                  | (106     | ) |                    |   | (106    | )
|Accumulated other comprehensive loss                                                                                                                               |  |                  | (17      | ) |                    |   | (595    | )
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total stockholders equity                                                                                                                                         |  |                  | 92,159   |   |                    |   | 200,450 |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  
|Total liabilities and stockholders equity                                                                                                                         |  | $                | 116,297  |   |                    | $ | 274,494 |  
|                                                                                                                                                                   |  |                  |          |   |                    |   |         |  



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 Nine Months Ended September 30, 2004 and 2005

(in thousands, except
per share amounts)



|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                              |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|                                                                                              |  | 2004                             |        |   | 2005                            |   |         | 2004 |  |   | 2005   |  
|Revenues                                                                                      |  | $                                | 15,779 |   |                                 | $ | 34,351  |      |  | $ | 43,815 |   |  | $ | 88,493  |  
|Cost of revenues                                                                              |  |                                  | 5,377  |   |                                 |   | 11,478  |      |  |   | 15,479 |   |  |   | 30,973  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Gross profit                                                                                  |  |                                  | 10,402 |   |                                 |   | 22,873  |      |  |   | 28,336 |   |  |   | 57,520  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Operating expenses:                                                                           |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Advertising, promotion and selling                                                            |  |                                  | 3,031  |   |                                 |   | 7,035   |      |  |   | 9,529  |   |  |   | 17,603  |  
|General and administrative                                                                    |  |                                  | 2,668  |   |                                 |   | 5,320   |      |  |   | 7,263  |   |  |   | 13,160  |  
|Depreciation                                                                                  |  |                                  | 129    |   |                                 |   | 656     |      |  |   | 594    |   |  |   | 1,366   |  
|Amortization                                                                                  |  |                                  | 360    |   |                                 |   | 1,239   |      |  |   | 1,477  |   |  |   | 2,944   |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Total operating expenses                                                                      |  |                                  | 6,188  |   |                                 |   | 14,250  |      |  |   | 18,863 |   |  |   | 35,073  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Operating income                                                                              |  |                                  | 4,214  |   |                                 |   | 8,623   |      |  |   | 9,473  |   |  |   | 22,447  |  
|                                                                                              |  |                                  |        |  
|Gain on sale of assets, net                                                                   |  |                                  | 5      |   |                                 |   | 13,265  |      |  |   | 124    |   |  |   | 13,224  |  
|Interest income                                                                               |  |                                  | 55     |   |                                 |   | 74      |      |  |   | 82     |   |  |   | 288     |  
|Interest expense                                                                              |  |                                  | (39    | ) |                                 |   | (677    | )    |  |   | (101   | ) |  |   | (965    | )
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Income before income taxes, minority interests and equity income (loss) from investments, net |  |                                  | 4,235  |   |                                 |   | 21,285  |      |  |   | 9,578  |   |  |   | 34,994  |  
|Provision (benefit) for income taxes                                                          |  |                                  | 5      |   |                                 |   | (22,153 | )    |  |   | 145    |   |  |   | (20,541 | )
|Minority interests                                                                            |  |                                  | (20    | ) |                                 |   | (18     | )    |  |   | (57    | ) |  |   | (49     | )
|Equity income (loss) from investments, net                                                    |  |                                  | (108   | ) |                                 |   |        |      |  |   | (117   | ) |  |   | 132     |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Income from continuing operations                                                             |  |                                  | 4,102  |   |                                 |   | 43,420  |      |  |   | 9,259  |   |  |   | 55,618  |  
|Income from discontinued operations, net of taxes                                             |  |                                  | 957    |   |                                 |   | 1,104   |      |  |   | 946    |   |  |   | 1,488   |  
|Gain on sale of discontinued operations, net of taxes                                         |  |                                  |       |   |                                 |   | 15,854  |      |  |   |       |   |  |   | 15,854  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Net income                                                                                    |  | $                                | 5,059  |   |                                 | $ | 60,378  |      |  | $ | 10,205 |   |  | $ | 72,960  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Earnings per share:                                                                           |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Basic                                                                                         |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Income from continuing operations                                                             |  | $                                | 0.13   |   |                                 | $ | 1.25    |      |  | $ | 0.33   |   |  | $ | 1.64    |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Net income                                                                                    |  | $                                | 0.16   |   |                                 | $ | 1.74    |      |  | $ | 0.36   |   |  | $ | 2.15    |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Diluted                                                                                       |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Income from continuing operations                                                             |  | $                                | 0.12   |   |                                 | $ | 1.16    |      |  | $ | 0.30   |   |  | $ | 1.52    |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Net income                                                                                    |  | $                                | 0.15   |   |                                 | $ | 1.62    |      |  | $ | 0.33   |   |  | $ | 2.00    |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Shares used in computing earnings per share:                                                  |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Basic                                                                                         |  |                                  | 31,382 |   |                                 |   | 34,749  |      |  |   | 28,448 |   |  |   | 33,936  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  
|Diluted                                                                                       |  |                                  | 34,141 |   |                                 |   | 37,323  |      |  |   | 30,815 |   |  |   | 36,401  |  
|                                                                                              |  |                                  |        |   |                                 |   |         |      |  |   |        |   |  |   |         |  



See notes to
consolidated financial statements.



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##### Table of Contents

Jupitermedia Corporation



Unaudited Consolidated Condensed Statements of Cash Flows



For the Nine Months Ended September 30, 2004 and 2005

(in thousands)



|                                                                                                         |  |                                |         |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                                         |  | Nine Months EndedSeptember 30, |        
|                                                                                                         |  | 2004                           |         |   | 2005 |  
|Cash flows from operating activities:                                                                    |  |                                |         |   |      |   |          |  
|Income from continuing operations                                                                        |  | $                              | 9,259   |   |      | $ | 55,618   |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                                |         |   |      |   |          |  
|Depreciation and amortization                                                                            |  |                                | 2,071   |   |      |   | 4,310    |  
|Provision (benefit) for losses on accounts receivable                                                    |  |                                | (388    | ) |      |   | (267     | )
|Minority interests                                                                                       |  |                                | 57      |   |      |   | 49       |  
|Equity (income) loss from investments, net                                                               |  |                                | 117     |   |      |   | (132     | )
|Gain on sale of assets, net                                                                              |  |                                | (124    | ) |      |   | (13,224  | )
|Deferred income taxes                                                                                    |  |                                |        |   |      |   | (24,084  | )
|Changes in assets and liabilities (net of businesses acquired):                                          |  |                                |         |   |      |   |          |  
|Accounts receivable                                                                                      |  |                                | 2,116   |   |      |   | 1,126    |  
|Unbilled accounts receivable                                                                             |  |                                | (173    | ) |      |   | (1       | )
|Prepaid expenses and other                                                                               |  |                                | 278     |   |      |   | (5       | )
|Accounts payable and accrued expenses                                                                    |  |                                | (184    | ) |      |   | (5,111   | )
|Deferred revenues                                                                                        |  |                                | 790     |   |      |   | (587     | )
|                                                                                                         |  |                                |         |   |      |   |          |  
|Net cash provided by operating activities                                                                |  |                                | 13,819  |   |      |   | 17,692   |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Cash flows from investing activities:                                                                    |  |                                |         |   |      |   |          |  
|                                                                                                         |  |                               
|Purchases of property and equipment                                                                      |  |                                | (269    | ) |      |   | (1,388   | )
|Acquisitions of businesses and other                                                                     |  |                                | (27,233 | ) |      |   | (112,286 | )
|Proceeds from sales of assets and other                                                                  |  |                                | 191     |   |      |   | 14,805   |  
|Proceeds from sale of discontinued operations                                                            |  |                                |        |   |      |   | 28,135   |  
|Distribution from internet.com venture funds                                                             |  |                                | 148     |   |      |   |         |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Net cash used in investing activities                                                                    |  |                                | (27,163 | ) |      |   | (70,734  | )
|                                                                                                         |  |                                |         |   |      |   |          |  
|Cash flows from financing activities:                                                                    |  |                                |         |   |      |   |          |  
|Proceeds from issuance of common stock, net                                                              |  |                                | 30,340  |   |      |   |         |  
|Borrowings under credit facilities                                                                       |  |                                | 13,000  |   |      |   | 87,998   |  
|Debt issuance costs                                                                                      |  |                                |        |   |      |   | (1,357   | )
|Repayment of borrowings under credit facility                                                            |  |                                | (13,000 | ) |      |   | (51,677  | )
|Proceeds from exercise of stock options                                                                  |  |                                | 5,069   |   |      |   | 7,715    |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Net cash provided by financing activities                                                                |  |                                | 35,409  |   |      |   | 42,679   |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Effect of exchange rates on cash                                                                         |  |                                |        |   |      |   | (200     | )
|                                                                                                         |  |                                |         |   |      |   |          |  
|Cash flows provided by operating activities related to discontinued operations                           |  |                                | 1,075   |   |      |   | 631      |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                     |  |                                | 23,140  |   |      |   | (9,932   | )
|Cash and cash equivalents, beginning of period                                                           |  |                                | 9,567   |   |      |   | 30,179   |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Cash and cash equivalents, end of period                                                                 |  | $                              | 32,707  |   |      | $ | 20,247   |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Supplemental disclosures of cash flow:                                                                   |  |                                |         |   |      |   |          |  
|Cash paid for income taxes                                                                               |  | $                              |        |   |      | $ | 806      |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Cash paid for interest                                                                                   |  | $                              | 13      |   |      | $ | 245      |  
|                                                                                                         |  |                                |         |   |      |   |          |  
|Non-cash investing activities:                                                                           |  |                                |         |   |      |   |          |  
|Common stock issued for acquisitions                                                                     |  | $                              | 541     |   |      | $ | 21,611   |  
|                                                                                                         |  |                                |         |   |      |   |          |  



See notes to
consolidated financial statements.



5



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##### Table of Contents

Jupitermedia Corporation



Notes
to Consolidated Condensed Financial Statements



September 30, 2005

(unaudited)



1. THE COMPANY



Jupitermedia Corporation (Jupitermedia) is a global provider of original information, images and research 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 Brand X, FoodPix, Botanica, Nonstock, Comstock Images, Creatas
Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Goodshoot, ITStockFree, Photos.com, Ablestock.com, PhotoObjects.net, Clipart.com and Animations.com. JupiterWeb, the online division of Jupitermedia, operates four distinct
online networks: internet.com and EarthWeb.com for IT and business professionals; DevX.com for developers; 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.



2. BASIS OF PRESENTATION



The accompanying unaudited interim 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 condensed statements of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to
prior period amounts to conform to current period presentation. 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 under the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations 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 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):



6



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|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                              |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                                                                                                              |  | 2004                            |       |   | 2005                           |   |        | 2004 |  |   | 2005   |  
|Net income                                                                                                                    |  | $                               | 5,059 |   |                                | $ | 60,378 |      |  | $ | 10,205 |   |  | $ | 72,960 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes |  |                                 | (996  | ) |                                |   | (894   | )    |  |   | (1,916 | ) |  |   | (2,061 | )
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                          |  | $                               | 4,063 |   |                                | $ | 59,484 |      |  | $ | 8,289  |   |  | $ | 70,899 |  
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share                                                                                                      |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                   |  | $                               | 0.16  |   |                                | $ | 1.74   |      |  | $ | 0.36   |   |  | $ | 2.15   |  
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                                     |  | $                               | 0.13  |   |                                | $ | 1.71   |      |  | $ | 0.29   |   |  | $ | 2.09   |  
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings per share                                                                                                    |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                   |  | $                               | 0.15  |   |                                | $ | 1.62   |      |  | $ | 0.33   |   |  | $ | 2.00   |  
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                                     |  | $                               | 0.12  |   |                                | $ | 1.59   |      |  | $ | 0.27   |   |  | $ | 1.95   |  
|                                                                                                                              |  |                                 |       |   |                                |   |        |      |  |   |        |   |  |   |        |  



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 EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                         |  | 2004                            |   |  | 2005                           |   |  | 2004 |   |  | 2005 |  
|Risk-free interest rate  |  | 2.93                            | % |  | 3.98                           | % |  | 2.69 | % |  | 3.78 | %
|Expected life (in years) |  | 3                               |   |  | 3                              |   |  | 3    |   |  | 3    |  
|Dividend yield           |  | 0                               | % |  | 0                              | % |  | 0    | % |  | 0    | %
|Expected volatility      |  | 65                              | % |  | 54                             | % |  | 68   | % |  | 60   | %



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 impact of SFAS 123R on Jupitermedias results of operations 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 May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS 154). SFAS
154 replaces APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting



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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 is not expected to have a material impact on Jupitermedias consolidated financial statements.



5. COMPUTATION OF EARNINGS PER SHARE



Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by 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 nine months ended September 30, 2004 and 2005 are as follows (in
thousands, except per share amounts):



|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|--------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                                      |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                                      |  | 2004                            |        | 2005                           |   | 2004   |  | 2005
|Income from continuing operations                                     |  | $                               | 4,102  |                                | $ | 43,420 |  | $    | 9,259  |  | $ | 55,618
|Income from discontinued operations, net of taxes                     |  |                                 | 957    |                                |   | 1,104  |  |      | 946    |  |   | 1,488 
|Gain on sale of discontinued operations, net of taxes                 |  |                                 |       |                                |   | 15,854 |  |      |       |  |   | 15,854
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                               | 5,059  |                                | $ | 60,378 |  | $    | 10,205 |  | $ | 72,960
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Basic weighted average common shares outstanding                      |  |                                 | 31,382 |                                |   | 34,749 |  |      | 28,448 |  |   | 33,936
|Effect of dilutive stock options                                      |  |                                 | 2,759  |                                |   | 2,574  |  |      | 2,367  |  |   | 2,465 
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total basic weighted average common shares and dilutive stock options |  |                                 | 34,141 |                                |   | 37,323 |  |      | 30,815 |  |   | 36,401
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Earnings Per Share:                                                   |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Basic                                                                 |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Income from continuing operations                                     |  | $                               | 0.13   |                                | $ | 1.25   |  | $    | 0.33   |  | $ | 1.64  
|Income from discontinued operations, net of taxes                     |  |                                 | 0.03   |                                |   | 0.03   |  |      | 0.03   |  |   | 0.04  
|Gain on sale of discontinued operations, net of taxes                 |  |                                 |       |                                |   | 0.46   |  |      |       |  |   | 0.47  
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                               | 0.16   |                                | $ | 1.74   |  | $    | 0.36   |  | $ | 2.15  
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Diluted                                                               |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Income from continuing operations                                     |  | $                               | 0.12   |                                | $ | 1.16   |  | $    | 0.30   |  | $ | 1.52  
|Income from discontinued operations, net of taxes                     |  |                                 | 0.03   |                                |   | 0.03   |  |      | 0.03   |  |   | 0.04  
|Gain on sale of discontinued operations, net of taxes                 |  |                                 |       |                                |   | 0.43   |  |      |       |  |   | 0.44  
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                               | 0.15   |                                | $ | 1.62   |  | $    | 0.33   |  | $ | 2.00  
|                                                                      |  |                                 |        |                                |   |        |  |      |        |  |   |       



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The following table summarizes the number of outstanding stock options excluded from 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 EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                      |  | 2004                            |       | 2005                           |   | 2004  |  | 2005
|Number of anti-dilutive stock options |  |                                 | 364   |                                |   | 860   |  |      | 2,499 |  |   | 869  
|Weighted average exercise price       |  | $                               | 17.11 |                                | $ | 18.80 |  | $    | 13.33 |  | $ | 18.78



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, the acquisition of Goodshoot S.A.S. on May, 19, 2005 and the
acquisition of PictureArts Corporation on July 18, 2005 (see Note 8). 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
|                           |  |                    |        |                         |   |        |                   |  |   |       
|                           | 
|                           |  | September 30, 2005
|                           |  | Cost               |        | AccumulatedAmortization |   |        | Net CarryingValue
|Image library              |  | $                  | 37,730 |                         | $ | (2,667 | )                 |  | $ | 35,063
|Customer lists             |  |                    | 1,668  |                         |   | (535   | )                 |  |   | 1,133 
|Web site development costs |  |                    | 3,302  |                         |   | (2,076 | )                 |  |   | 1,226 
|Trademarks                 |  |                    | 2,911  |                         |   | (2,355 | )                 |  |   | 556   
|Non-compete agreements     |  |                    | 1,531  |                         |   | (488   | )                 |  |   | 1,043 
|Other                      |  |                    | 188    |                         |   | (188   | )                 |  |   |      
|                           |  |                    |        |                         |   |        |                   |  |   |       
|Total                      |  | $                  | 47,330 |                         | $ | (8,309 | )                 |  | $ | 39,021
|                           |  |                    |        |                         |   |        |                   |  |   |       



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 $360,000 and $1.5 million
for the three months and nine months ended September 30, 2004, respectively, and $1.2 million and $2.9 million for the three months and nine months ended September 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                     |  | $ | 1,403 
|2006                     |  |   | 5,307 
|2007                     |  |   | 4,876 
|2008                     |  |   | 4,400 
|2009                     |  |   | 4,075 
|Thereafter               |  |   | 18,960
|                         |  |   |       
|                         |  | $ | 39,021
|                         |  |   |       



Unamortized Intangible Assets



|             |  |                  |       |                   |   |      
|------------ |  | ---------------- | ----- | ----------------- | - | -----
|             |  | December 31,2004 |       | September 30,2005
|Domain names |  | $                | 2,809 |                   | $ | 3,947
|             |  |                  |       |                   |   |      
|Total        |  | $                | 2,809 |                   | $ | 3,947
|             |  |                  |       |                   |   |      



Goodwill



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



|                                 |  |              |         |             |   |        |          |  |       |       |  |   |         |  
|-------------------------------- |  | ------------ | ------- | ----------- | - | ------ | -------- |  | ----- | ----- |  | - | ------- | -
|                                 |  | OnlineImages |         | OnlineMedia |   |        | Research |  | Total |      
|Balance as of January 1, 2005    |  | $            | 30,764  |             | $ | 8,571  |          |  | $     | 2,632 |  | $ | 41,967  |  
|Goodwill acquired during period  |  |              | 118,179 |             |   | 299    |          |  |       |      |  |   | 118,478 |  
|Purchase accounting adjustments  |  |              | 286     |             |   | (791   | )        |  |       |      |  |   | (505    | )
|Goodwill disposed during period  |  |              |        |             |   | (1,159 | )        |  |       |      |  |   | (1,159  | )
|                                 |  |              |         |             |   |        |          |  |       |       |  |   |         |  
|Balance as of September 30, 2005 |  | $            | 149,229 |             | $ | 6,920  |          |  | $     | 2,632 |  | $ | 158,781 |  
|                                 |  |              |         |             |   |        |          |  |       |       |  |   |         |  



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. Goodwill disposed during the period
relates to the sale of Jupitermedias ClickZ.com network of Web sites (See Note 8).



7. COMPREHENSIVE INCOME (LOSS)



Comprehensive income was $43,000 and $57,000 for the three and nine months ended September 30, 2004, respectively. Comprehensive income was $393,000 for the three months ended September 30, 2005 and comprehensive loss was $578,000
for the nine months ended September 30, 2005. Comprehensive income (loss) consisted of net foreign currency translation adjustments.



8. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS



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 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 valued at $21.6 million when issued.



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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 18, 2005, Jupitermedia acquired PictureArts Corporation (PictureArts) for $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.



The results of Dynamic Graphics Group, Goodshoot and PictureArts have been included in the Unaudited Consolidated Condensed Financial Statements of Jupitermedia since March 7, 2005, May 19, 2005 and
July 18, 2005, respectively.



The unaudited pro forma
information below presents results of operations as if the acquisitions of Dynamic Graphics Group, Goodshoot and PictureArts 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 EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                           |  | 2004                            |        | 2005                           |   | 2004   |  | 2005
|Revenues                   |  | $                               | 33,325 |                                | $ | 35,431 |  | $    | 91,769 |  | $ | 110,722
|                           |  |                                 |        |                                |   |        |  |      |        |  |   |        
|Net income                 |  | $                               | 5,720  |                                | $ | 56,448 |  | $    | 12,941 |  | $ | 70,829 
|                           |  |                                 |        |                                |   |        |  |      |        |  |   |        
|Basic earnings per share   |  | $                               | 0.18   |                                | $ | 1.64   |  | $    | 0.45   |  | $ | 2.09   
|                           |  |                                 |        |                                |   |        |  |      |        |  |   |        
|Diluted earnings per share |  | $                               | 0.17   |                                | $ | 1.51   |  | $    | 0.42   |  | $ | 1.95   
|                           |  |                                 |        |                                |   |        |  |      |        |  |   |        



On August 5,
2005, Jupitermedia sold its Search Engine Strategies events and its ClickZ.com Network of Web sites (collectively known as SES) to Incisive Media plc, 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 $727,000 and the sale of SES resulted in a gain of $29.1 million, net of income taxes. As a result of the sale of the Search Engine Strategies
events, the Events segment is now reflected as a discontinued operation in accordance with Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Income from discontinued operations for the three and nine
months ended September 30, 2005 were net of income taxes of $859,000. The gain on the sale of discontinued operations for the three and nine months ended September 30, 2005 were net of income taxes of $11.1 million. Prior year financial
results have been presented to reflect Jupitermedias Events segment as a discontinued operation.



Assets and liabilities of discontinued operations were as follows (in thousands):



|                                       |  |                  |      
|-------------------------------------- |  | ---------------- | -----
|                                       |  | December 31,2004
|Current assets                         |  | $                | 1,741
|Goodwill                               |  |                  | 48   
|                                       |  |                  |      
|Assets of discontinued operations      |  | $                | 1,789
|                                       |  |                  |      
|Accounts payable and accrued expenses  |  | $                | 731  
|Deferred revenues                      |  |                  | 2,160
|                                       |  |                  |      
|Liabilities of discontinued operations |  | $                | 2,891
|                                       |  |                  |      



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9. 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 Chase Bank, N.A. (JPMorgan), which provided for a $20.0 million senior term loan, of which $20.0 million was outstanding as of June 30, 2005.



On July 18, 2005, Jupitermedia entered into an Amended and Restated
Credit Agreement (the Amended and Restated Credit Agreement) with JPMorgan, as Administrative Agent and lender. The Amended and Restated Credit Agreement amended and restated the Original Credit Agreement. The Amended and Restated Credit
Agreement provides for a $90.0 million senior credit facility (comprised of a $30.0 million term loan facility, a $10.0 million revolving credit facility and a $50.0 million bridge facility), and replaces the senior term loan provided under the
Original Credit Agreement. The bridge loan and the term loan were fully drawn on the effective date of the Amended and Restated Credit Agreement and are not available to be re-borrowed. The revolving credit facility is available to be borrowed from
time to time. The term loan and revolving credit facility are scheduled to mature on July 18, 2008. The bridge facility was scheduled to mature on January 18, 2006. At Jupitermedias option, loans under the facility bear interest at a
rate per annum equal to (i) the Adjusted LIBO Rate, plus, with respect to the term loan and revolving credit facility, a rate between 1.50% and 2.75% per annum depending on the ratio of Jupitermedias consolidated debt to consolidated
EBITDA (the leverage ratio) 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 0.50% and 1.75% depending on Jupitermedias leverage ratio, and, with respect to the bridge facility, 2.50% plus periodic increases. If an Event of Default has occurred and is continuing under the Amended and Restated Credit Agreement,
Jupitermedia does not have the right to select the Adjusted LIBO Rate interest rate option. Overdue amounts of interest and principal bear interest at a rate equal to 2.0% above the rate otherwise applicable. In addition, Jupitermedia is required to
pay a commitment fee at a rate between 0.25% and 0.50% per annum depending on Jupitermedias leverage ratio the unused portion of the lenders revolving loan commitments. The Amended and Restated Credit Agreement requires amortization
of principal of the term loan in quarterly installments of $2.5 million, 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 the
bridge facility on January 18, 2006. In addition, the Amended and Restated Credit Agreement requires mandatory prepayment of the term loan out of certain proceeds received by Jupitermedia or its subsidiaries from equity issuances, the
incurrence of certain indebtedness and the sale of assets. Proceeds from the Amended and Restated Credit Agreement were used to refinance borrowings under the Original Credit Agreement, to finance the acquisition of PictureArts on July 18, 2005
(see Note 8), for working capital needs and general corporate purposes.



The borrowings under the bridge facility have been repaid in full. Jupitermedia used $42.0 million of proceeds from the sale of SES on August 5, 2005, to pay down the bridge facility. In addition, Jupitermedia borrowed $8.0 million
under the revolving credit facility and used the proceeds to repay the remaining borrowings under the bridge facility.



The Amended and Restated Credit Agreement contains customary affirmative and negative covenants including, among others, restrictions on
Jupitermedias ability to pay dividends, incur additional indebtedness (other than subordinated indebtedness) or liens on assets, enter into new leases, make capital expenditures, make investments or make certain permitted acquisitions in
excess of $25.0 million in the aggregate. 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.
Jupitermedia is in compliance with its debt covenants as of September 30, 2005. 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 of Jupitermedia 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 may be declared or become immediately due and payable.



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



On October 5, 2005, Jupitermedia entered into a First Amendment, Waiver and Consent, dated as of October 5, 2005 (the Amendment), to
the Amended and Restated Credit Agreement. The Amendment provides for an increase in the amount available for borrowing under the revolving credit facility from $10.0 million to $30.0 million. Proceeds from the increased revolving credit facility
will be used to financial future acquisitions, for working capital needs and for general corporate purposes.



On October 6, 2005, Jupitermedia borrowed an aggregate of $17.8 million under the revolving credit facility included in the Amended and Restated
Credit Agreement. Proceeds from the loan were used to finance the acquisition of BananaStock Limited on October 13, 2005 (see Note 13).



10. SEGMENT INFORMATION



The following tables summarize the results of the segments of Jupitermedia for the three and nine months ended September 30, 2004 and 2005. Online
images consists of the JupiterImages business that includes Brand X, FoodPix, Botanica, Nonstock, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Goodshoot Images, ITStockFree, Photos.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, and Graphics.com Networks. Research represents the JupiterResearch 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.



13



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##### Table of Contents

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



|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|---------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                         |  | Three Months EndedSeptember 30, |        |   | Nine Months Ended September 30, |  
|                                         |  | 2004                            |        |   | 2005                            |   |        | 2004 |  |   | 2005   |  
|Revenues:                                |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|Online images                            |  | $                               | 6,797  |   |                                 | $ | 24,011 |      |  | $ | 15,045 |   |  | $ | 55,905  |  
|Online media                             |  |                                 | 6,692  |   |                                 |   | 7,775  |      |  |   | 21,913 |   |  |   | 24,651  |  
|Research                                 |  |                                 | 2,279  |   |                                 |   | 2,557  |      |  |   | 6,822  |   |  |   | 7,913   |  
|Other                                    |  |                                 | 11     |   |                                 |   | 8      |      |  |   | 35     |   |  |   | 24      |  
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|                                         |  |                                 | 15,779 |   |                                 |   | 34,351 |      |  |   | 43,815 |   |  |   | 88,493  |  
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|Cost of revenues and operating expenses: |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|Online images                            |  |                                 | 2,232  |   |                                 |   | 13,740 |      |  |   | 6,083  |   |  |   | 30,700  |  
|Online media                             |  |                                 | 4,371  |   |                                 |   | 4,471  |      |  |   | 13,819 |   |  |   | 15,049  |  
|Research                                 |  |                                 | 2,185  |   |                                 |   | 2,239  |      |  |   | 6,611  |   |  |   | 7,196   |  
|Other                                    |  |                                 | 2,777  |   |                                 |   | 5,278  |      |  |   | 7,829  |   |  |   | 13,101  |  
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|                                         |  |                                 | 11,565 |   |                                 |   | 25,728 |      |  |   | 34,342 |   |  |   | 66,046  |  
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|Operating income (loss):                 |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|Online images                            |  |                                 | 4,565  |   |                                 |   | 10,271 |      |  |   | 8,962  |   |  |   | 25,205  |  
|Online media                             |  |                                 | 2,321  |   |                                 |   | 3,304  |      |  |   | 8,094  |   |  |   | 9,602   |  
|Research                                 |  |                                 | 94     |   |                                 |   | 318    |      |  |   | 211    |   |  |   | 717     |  
|Other                                    |  |                                 | (2,766 | ) |                                 |   | (5,270 | )    |  |   | (7,794 | ) |  |   | (13,077 | )
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  
|                                         |  | $                               | 4,214  |   |                                 | $ | 8,623  |      |  | $ | 9,473  |   |  | $ | 22,447  |  
|                                         |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |         |  



11. INCOME TAXES



In connection with the gain on the sale of the Search Engine Strategies
events and the ClickZ.com network of Web sites, Jupitermedia expects to utilize its remaining federal operating loss carryforwards and accordingly has reversed the valuation allowance of $14.1 million related to those net operating loss
carryforwards during the three months ended September 30, 2005.



At September 30, 2005, Jupitermedia determined that it is more likely than not that the remaining deferred tax assets, consisting primarily of amortization and impairment of intangible assets, will be realized. As a result,
Jupitermedia recorded a reversal of the valuation allowance of $23.5 million related to its remaining deferred tax assets during the three months ended September 30, 2005.



12. 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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##### Table of Contents

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.



13. SUBSEQUENT EVENTS



On October 5, 2005, Jupitermedia entered into a First Amendment, Waiver and Consent, dated as of October 5, 2005 (the Amendment), to
the Amended and Restated Credit Agreement. The Amendment provides for an increase in the amount available for borrowing under the revolving credit facility from $10.0 million to $30.0 million. Proceeds from the increased revolving credit facility
will be used to finance future acquisitions, for working capital needs and for general corporate purposes.



On October 6, 2005, Jupitermedia borrowed an aggregate of $17.8 million under the revolving credit facility included in the Amended and Restated
Credit Agreement. Proceeds from the loan were used to finance the acquisition of BananaStock Limited on October 13, 2005.



On October 13, 2005, Jupitermedia acquired all of the shares of BananaStock Limited for $19.0 million in cash, subject to certain post-closing
adjustments. BananaStock Limited, based in Oxfordshire, United Kingdom, is a resource for royalty free digital images for business users and creative professionals.



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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 and research for information technology (IT), business and creative professionals. Our operations are classified into three principal segments: Online images, Online media and Research.



Online images. Online images includes our JupiterImages
network, which serves creative professionals with over 7.0 million images online with brands like Brand X, FoodPix, Botanica, Nonstock, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage,
Ablestock.com, PhotoObjects.net, Goodshoot, ITStockFree, 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 commissions paid to third party image suppliers, payroll costs for production personnel, sales
and marketing personnel, technology infrastructure, 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 and Graphics.com networks of over
150 Web sites and over 150 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
| | - |  | --------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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 may 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.



Recent
Acquisitions and Dispositions



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 $20.85 million in cash (the Comstock Acquisition).



On July 28, 2004, we acquired the assets of the
Thinkstock Images and Thinkstock Footage businesses (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 $7.3 million in cash (the Hemera Acquisition).



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 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 18, 2005, Jupitermedia acquired PictureArts Corporation (PictureArts) for $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.



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



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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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 EndedSeptember 30, |        | 2004 vs. 2005 |   |        | Nine Months EndedSeptember 30, |   | 2004 vs. 2005 |  
|              |  | 2004                            |        | 2005          |   | $      |                                |   | %             |   |  | 2004 |   | 2005 |   | $      |  |   | %      | 
|Online images |  | $                               | 6,797  |               | $ | 24,011 |                                | $ | 17,214        |   |  | 253  | % |      | $ | 15,045 |  | $ | 55,905 |  | $ | 40,860 |   |  | 272 | %
|Online media  |  |                                 | 6,692  |               |   | 7,775  |                                |   | 1,083         |   |  | 16   |   |      |   | 21,913 |  |   | 24,651 |  |   | 2,738  |   |  | 12  |  
|Research      |  |                                 | 2,279  |               |   | 2,557  |                                |   | 278           |   |  | 12   |   |      |   | 6,822  |  |   | 7,913  |  |   | 1,091  |   |  | 16  |  
|Other         |  |                                 | 11     |               |   | 8      |                                |   | (3            | ) |  | (27  | ) |      |   | 35     |  |   | 24     |  |   | (11    | ) |  | (31 | )
|              |  |                                 |        |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|              |  | $                               | 15,779 |               | $ | 34,351 |                                | $ | 18,572        |   |  | 118  | % |      | $ | 43,815 |  | $ | 88,493 |  | $ | 44,678 |   |  | 102 | %
|              |  |                                 |        |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  



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, Goodshoot on May 19, 2005 and
PictureArts on July 18, 2005 and therefore there are no financial results for these businesses prior to these respective dates. These acquisitions contributed $4.0 million and $6.9 million to revenues for the three and nine months ended
September 30, 2004, respectively, and $20.2 million and $44.8 million for the three and nine months ended September 30, 2005, respectively. The remaining year-over-year growth for the three and nine months ended September 30, 2005, is
due primarily to increased revenues from our subscription image offerings in the amount of $703,000 and $2.3 million, respectively.



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



|                                  |  |                                 |       |                                |   |        |  |      |        |  |   |       
|--------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                  |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                  |  | 2004                            |       | 2005                           |   | 2004   |  | 2005
|Single images and CD-ROMs         |  | $                               | 2,551 |                                | $ | 16,587 |  | $    | 5,088  |  | $ | 33,557
|Subscriptions                     |  |                                 | 2,745 |                                |   | 5,423  |  |      | 7,728  |  |   | 14,778
|Distributors, licensing and other |  |                                 | 1,501 |                                |   | 2,001  |  |      | 2,229  |  |   | 7,570 
|                                  |  |                                 |       |                                |   |        |  |      |        |  |   |       
|Total Online images               |  | $                               | 6,797 |                                | $ | 24,011 |  | $    | 15,045 |  | $ | 55,905
|                                  |  |                                 |       |                                |   |        |  |      |        |  |   |       



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 |  |          | 2,745 |                       |   | 3,388
|December 31, 2004  |  |          | 3,129 |                       |   | 3,986
|March 31, 2005     |  |          | 3,957 |                       |   | 5,098
|June 30, 2005      |  |          | 5,398 |                       |   | 6,019
|September 30, 2005 |  |          | 5,423 |                       |   | 6,074



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. 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 $460,000 and $1.0 million, respectively, to Online media revenues during the three and nine months ended September 30, 2005.
The remaining increase in revenues during the three and nine months ended September 30, 2005 in comparison to the same periods in 2004 was due primarily to an increase in revenues from our e-commerce partners, as well as an increase in the
average amount of advertising purchased by our customers.



18



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##### Table of Contents

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):



|                   |  |                       |  |                               |   
|------------------ |  | --------------------- |  | ----------------------------- | --
|                   |  | Number of 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
|September 30, 2005 |  | 193                   |  |                               | 29



The number of
advertisers declined during the third quarter of 2005 due to the sale of the ClickZ.com network of Web sites.



Research. We have experienced continued increases in the number of active research contracts, as well as the total value of those active contracts
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 have also seen an increase in the amount of custom research
projects completed for our customers.



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                       |  | 299                         |  |      | 8,691 |      |   | 10,667
|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.



The following table sets forth, for the periods indicated, a
quarter-by-quarter comparison of the JupiterResearch syndicated renewal rates for 2004 through the third 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                                 |   |  | 117                                     | % |  | 71   |   |  | 60   | %
|September 30         |  | 93                                 |   |  | 89                                      | % |  | 70   |   |  | 69   | %
|December 31          |  | 97                                 |   |  |                                        |   |  | 83   |   |  |     |  



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The amounts above reflect renewal activity to date. The ultimate results regarding renewals for the
quarter ended September 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 September 30, 2005.



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.



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 EndedSeptember 30, |       | 2004 vs. 2005 |   |        | Nine Months EndedSeptember 30, |   | 2004 vs. 2005 |  
|              |  | 2004                            |       | 2005          |   | $      |                                |   | %             |   |  | 2004 |   | 2005 |   | $      |  | % |       
|Online images |  | $                               | 1,250 |               | $ | 7,277  |                                | $ | 6,027         |   |  | 482  | % |      | $ | 3,028  |  | $ | 17,397 |  | $ | 14,369 |  | 475 | %
|Online media  |  |                                 | 2,781 |               |   | 2,917  |                                |   | 136           |   |  | 5    |   |      |   | 8,551  |  |   | 9,443  |  |   | 892    |  | 10  |  
|Research      |  |                                 | 1,346 |               |   | 1,284  |                                |   | (62           | ) |  | (5   | ) |      |   | 3,900  |  |   | 4,133  |  |   | 233    |  | 6   |  
|              |  |                                 |       |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |  |     |  
|              |  | $                               | 5,377 |               | $ | 11,478 |                                | $ | 6,101         |   |  | 113  | % |      | $ | 15,479 |  | $ | 30,973 |  | $ | 15,494 |  | 100 | %
|              |  |                                 |       |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |  |     |  



Gross profit



|              |  |                                 |        |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|------------- |  | ------------------------------- | ------ | ------------- | - | ------ | ------------------------------ | - | ------------- | - |  | ---- | - | ---- | - | ------ |  | - | ------ |  | - | ------ | - |  | --- | -
|              |  | Three Months EndedSeptember 30, |        | 2004 vs. 2005 |   |        | Nine Months EndedSeptember 30, |   | 2004 vs. 2005 |  
|              |  | 2004                            |        | 2005          |   | $      |                                |   | %             |   |  | 2004 |   | 2005 |   | $      |  |   | %      | 
|Online images |  | $                               | 5,547  |               | $ | 16,734 |                                | $ | 11,187        |   |  | 202  | % |      | $ | 12,017 |  | $ | 38,508 |  | $ | 26,491 |   |  | 220 | %
|Online media  |  |                                 | 3,911  |               |   | 4,858  |                                |   | 947           |   |  | 24   |   |      |   | 13,362 |  |   | 15,208 |  |   | 1,846  |   |  | 14  |  
|Research      |  |                                 | 933    |               |   | 1,273  |                                |   | 340           |   |  | 36   |   |      |   | 2,922  |  |   | 3,780  |  |   | 858    |   |  | 29  |  
|Other         |  |                                 | 11     |               |   | 8      |                                |   | (3            | ) |  | (27  | ) |      |   | 35     |  |   | 24     |  |   | (11    | ) |  | (31 | )
|              |  |                                 |        |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  
|              |  | $                               | 10,402 |               | $ | 22,873 |                                | $ | 12,471        |   |  | 120  | % |      | $ | 28,336 |  | $ | 57,520 |  | $ | 29,184 |   |  | 103 | %
|              |  |                                 |        |               |   |        |                                |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |     |  



Gross profit %



|              |  |                                 |   |  |                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|              |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|              |  | 2004                            |   |  | 2005                           |   |  | 2004 |   |  | 2005 |  
|Online images |  | 82                              | % |  | 70                             | % |  | 87   | % |  | 69   | %
|Online media  |  | 58                              |   |  | 62                             |   |  | 61   |   |  | 62   |  
|Research      |  | 41                              |   |  | 50                             |   |  | 43   |   |  | 48   |  
|Other         |  | 100                             |   |  | 100                            |   |  | 100  |   |  | 100  |  
|              |  |                                 |   |  |                                |   |  |      |   |  |      |  
|              |  | 66                              | % |  | 67                             | % |  | 63   | % |  | 65   | %
|              |  |                                 |   |  |                                |   |  |      |   |  |      |  



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 acquisitions of the
assets of Comstock and Thinkstock and the acquisitions of Hemera, Dynamic Graphics Group, Goodshoot and PictureArts contributed $605,000 and $1.0 million to cost of revenues for the three and nine months ended September 30, 2004, respectively,
and contributed $6.8 million and $15.9 million for the three and nine months ended September 30, 2005, respectively. These increases were offset by decreases in royalty expense of $239,000 and $595,000 during the three and nine months ended
September 30, 2005, respectively.



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The increase in gross profit for the three and nine months ended September 30, 2005 is directly
attributable to the increased revenues for the respective periods. The decrease in gross profit percentage is primarily due to the acquisition of Dynamic Graphics Group, a distributor that traditionally has lower gross margins.



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
$355,000 and $844,000 for the three and nine months ended September 30, 2005, respectively. During the three months ended September 30, 2005, the increase was offset by a decrease in payroll related costs of $207,000.



The increase in gross profit and gross profit percentage for the three months
ended September 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 decreased during the three months ended September 30, 2005 in comparison to 2004 due primarily to a decline in acquired data costs. Cost of revenues increased during the nine months ended September 30, 2005 in comparison to the
three and nine months ended September 30, 2004 due primarily to an increase in payroll costs of $287,000 due to an increase in the number of research analysts.



The increase in gross profit and gross profit percentage for the three and nine months ended September 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.



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 EndedSeptember 30, |       | 2004 vs. 2005 |   |       | Nine Months EndedSeptember 30, |   | 2004 vs. 2005 | 
|              |  | 2004                            |       | 2005          |   | $     |                                | % |               |  | 2004 |   | 2005 |   | $     |  | % |       
|Online images |  | $                               | 694   |               | $ | 4,550 |                                | $ | 3,856         |  | 556  | % |      | $ | 2,250 |  | $ | 9,709  |  | $ | 7,459 |  | 332 | %
|Online media  |  |                                 | 1,602 |               |   | 1,703 |                                |   | 101           |  | 6    |   |      |   | 5,046 |  |   | 5,411  |  |   | 365   |  | 7   |  
|Research      |  |                                 | 735   |               |   | 782   |                                |   | 47            |  | 6    |   |      |   | 2,233 |  |   | 2,483  |  |   | 250   |  | 11  |  
|              |  |                                 |       |               |   |       |                                |   |               |  |      |   |      |   |       |  |   |        |  |   |       |  |     |  
|              |  | $                               | 3,031 |               | $ | 7,035 |                                | $ | 4,004         |  | 132  | % |      | $ | 9,529 |  | $ | 17,603 |  | $ | 8,074 |  | 85  | %
|              |  |                                 |       |               |   |       |                                |   |               |  |      |   |      |   |       |  |   |        |  |   |       |  |     |  



Online images.
Advertising, promotion and selling expense primarily consists of payroll for sales and marketing personnel and advertising. The acquisitions of the assets of Comstock and Thinkstock and the acquisitions of Hemera, Dynamic Graphics Group, Goodshoot
and PictureArts contributed $436,000 and $1.3 million to advertising, promotion and selling expenses during the three and nine months ended September 30, 2004, respectively, and contributed $4.1 million and $8.6 million for the three and nine
months ended September 30, 2005, respectively. The remaining increase in advertising, promotion and selling during the three months ended September 30, 2005 primarily relates to an increase in advertising expense of $131,000. The remaining
increase during the nine months ended September 30, 2005 related primarily to an increase in credit card fees of $154,000.



Online media. Advertising, promotion and selling expense primarily consists of payroll costs for sales and marketing personnel and marketing costs.
The increase from 2004 to 2005 in advertising, promotion and selling



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expenses relates primarily to increased payroll related costs of $39,000 and $111,000 for the three and nine months ended
September 30, 2005, respectively, and to the acquisition of Dynamic Graphics Group that added $116,000 and $229,000 for the three and nine months ended September 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 $31,000 and $238,000, respectively, for sales personnel in comparison to the three and nine months ended September 30, 2004.



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 EndedSeptember 30, |       |   | 2004 vs. 2005 |   |       | Nine Months EndedSeptember 30, |  | 2004 vs. 2005 |      
|              |  | 2004                            |       |   | 2005          |   |       | $                              |  |               | %     |   |  | 2004  |   | 2005 |   | $     |  |   | %      | 
|Online images |  | $                               | 288   |   |               | $ | 1,913 |                                |  | $             | 1,625 |   |  | 564   | % |      | $ | 805   |  | $ | 3,594  |  | $ | 2,789 |   |  | 346 | %
|Online media  |  |                                 | (12   | ) |               |   | (149  | )                              |  |               | (137  | ) |  | 1,142 |   |      |   | 222   |  |   | 195    |  |   | (27   | ) |  | (12 | )
|Research      |  |                                 | 104   |   |               |   | 173   |                                |  |               | 69    |   |  | 66    |   |      |   | 478   |  |   | 580    |  |   | 102   |   |  | 21  |  
|Other         |  |                                 | 2,288 |   |               |   | 3,383 |                                |  |               | 1,095 |   |  | 48    |   |      |   | 5,758 |  |   | 8,791  |  |   | 3,033 |   |  | 53  |  
|              |  |                                 |       |   |               |   |       |                                |  |               |       |   |  |       |   |      |   |       |  |   |        |  |   |       |   |  |     |  
|              |  | $                               | 2,668 |   |               | $ | 5,320 |                                |  | $             | 2,666 |   |  | 99    | % |      | $ | 7,263 |  | $ | 13,160 |  | $ | 5,897 |   |  | 81  | %
|              |  |                                 |       |   |               |   |       |                                |  |               |       |   |  |       |   |      |   |       |  |   |        |  |   |       |   |  |     |  



Online images.
General and administrative expense primarily consists of payroll for administrative personnel and office related costs. The acquisitions of the assets of Comstock and Thinkstock and the acquisitions of Hemera, Dynamic Graphics Group, Goodshoot and
PictureArts contributed $220,000 and $412,000 to general and administrative expense during the three and nine months ended September 30, 2004, respectively, and contributed $1.9 million and $3.4 million for the three and nine months ended
September 30, 2005, respectively.



Online media.
General and administrative expense primarily consists of office related costs and provisions for losses on accounts receivable. The decrease in general and administrative expenses from 2004 to 2005 was due primarily to reduced costs related to
Dynamic Graphics Group.



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



Other. General and administrative expense primarily consists of payroll costs for administrative personnel, office related costs and professional
fees. The acquisitions of Dynamic Graphics Group and PictureArts added $906,000 and $1.9 million, respectively, to general and administrative costs during the three and nine months ended September 30, 2005. The remaining increase in general and
administrative expenses during the three months ended September 30, 2005 relates to an increase in payroll related costs of $155,000. The remaining increase during the nine months ended September 30, 2005 relates to an increase in payroll
related costs of $651,000, professional fees of $297,000 and state capital taxes of $223,000.



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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 Ended September 30, |     | 2004 vs. 2005 |   |       | Nine Months Ended September 30, |   | 2004 vs. 2005 | 
|             |  | 2004                             |     | 2005          |   | $     |                                 | % |               |  | 2004 |   | 2005 |   | $     |  | % |      
|Depreciation |  | $                                | 129 |               | $ | 656   |                                 | $ | 527           |  | 409  | % |      | $ | 594   |  | $ | 1,366 |  | $ | 772   |  | 130 | %
|Amortization |  |                                  | 360 |               |   | 1,239 |                                 |   | 879           |  | 244  |   |      |   | 1,477 |  |   | 2,944 |  |   | 1,467 |  | 99  |  
|             |  |                                  |     |               |   |       |                                 |   |               |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  
|             |  | $                                | 489 |               | $ | 1,895 |                                 | $ | 1,406         |  | 288  | % |      | $ | 2,071 |  | $ | 4,310 |  | $ | 2,239 |  | 108 | %
|             |  |                                  |     |               |   |       |                                 |   |               |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  



Depreciation and
amortization expense increased during the three and nine months ended September 30, 2005 due primarily to the acquisitions of Hemera, Dynamic Graphics Group, Goodshoot and PictureArts. These acquisitions added $914,000 and $1.5 million to
depreciation and amortization expense during the three and nine months ended September 30, 2005, respectively.



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, Goodshoot and PictureArts or any acquisitions that may be completed during the remainder of 2005.



Gain on sale of assets and other, net



The following table sets forth, for the periods indicated, a comparison of our gain on sale of assets and other, net
(dollars in thousands):



|                                      |  |                                  |   |               |   |        |                                 |   |               |  |         |   |      |   |     |  |   |        |  |   |        |  |        |  
|------------------------------------- |  | -------------------------------- | - | ------------- | - | ------ | ------------------------------- | - | ------------- |  | ------- | - | ---- | - | --- |  | - | ------ |  | - | ------ |  | ------ | -
|                                      |  | Three Months Ended September 30, |   | 2004 vs. 2005 |   |        | Nine Months Ended September 30, |   | 2004 vs. 2005 | 
|                                      |  | 2004                             |   | 2005          |   | $      |                                 | % |               |  | 2004    |   | 2005 |   | $   |  | % |       
|Gain on sale of assets and other, net |  | $                                | 5 |               | $ | 13,265 |                                 | $ | 13,260        |  | 265,200 | % |      | $ | 124 |  | $ | 13,224 |  | $ | 13,100 |  | 10,565 | %



As part of the sale of
SES on August 5, 2005, we sold our ClickZ.com network of Web sites to Incisive Media plc, which resulted in a gain of $13.3 million.



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 Ended September 30, |     |   | 2004 vs. 2005 |   |      | Nine Months Ended September 30, |  |   | 2004 vs. 2005 |  
|                 |  | 2004                             |     |   | 2005          |   |      | $                               |  |   | %             |   |  | 2004  |   |  | 2005 |      |   | $ |   |      | % | 
|Interest income  |  | $                                | 55  |   |               | $ | 74   |                                 |  | $ | 19            |   |  | 35    | % |  | $    | 82   |   |   | $ | 288  |   |  | $ | 206  |   |  | 251 | %
|Interest expense |  | $                                | (39 | ) |               | $ | (677 | )                               |  | $ | (638          | ) |  | 1,636 | % |  | $    | (101 | ) |   | $ | (965 | ) |  | $ | (864 | ) |  | 855 | %



The increase in
interest income for the three months ended September 30, 2005 is due primarily to higher interest rates.



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The increase in interest income from 2004 to 2005 for the nine months ended September 30, was due to
a higher average cash balance resulting from the completion of our follow-on public offering of common stock in May 2004 and increased cash flows and profitability along with higher interest rates.



Interest expense relates primarily to borrowings under a senior credit
facility with JPMorgan Chase Bank N.A. used to partially finance the acquisitions of Dynamic Graphics Group on March 7, 2005 and of PictureArts on July 18, 2005 (see Liquidity and Capital Resources).



Provision for income taxes



In connection with the gain on the sale of the Search Engine Strategies
events and the ClickZ.com network of Web sites, we expect to utilize our remaining federal operating loss carryforwards and accordingly has reversed the valuation allowance of $14.1 million related to those net operating loss carryforwards during
the three months ended September 30, 2005.



At
September 30, 2005, we determined that it is more likely than not that the remaining deferred tax assets, consisting primarily of amortization and impairment of intangible assets, will be realized. As a result, we recorded a reversal of
the valuation allowance of $23.5 million related to our remaining deferred tax assets during the three months ended September 30, 2005.



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 (loss) from investments, net



Equity income represents our net equity interests in the investments in internet.com venture funds and 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 September 30, 2005. Equity income for the
three and nine months ended September 30, 2005 relates solely to our joint ventures.



Gain on sale of discontinued operations, net of taxes



As part of the sale of SES on August 5, 2005, we sold our Search Engine Strategies events, which resulted in a gain on sale of discontinued operations of $15.9 million, net of income taxes of $11.1 million.



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):



|                                     |  |                                 |         |   |               |   |          |   |  |   |         |   |  |      |   
|------------------------------------ |  | ------------------------------- | ------- | - | ------------- | - | -------- | - |  | - | ------- | - |  | ---- | --
|                                     |  | Nine Months Ended September 30, |         |   | 2004 vs. 2005 |  
|                                     |  | 2004                            |         |   | 2005          |   |          | $ |  |   | %       |  
|Operating cash flows                 |  | $                               | 13,819  |   |               | $ | 17,692   |   |  | $ | 3,875   |   |  | 28   | % 
|Investing cash flows                 |  | $                               | (27,163 | ) |               | $ | (70,734  | ) |  | $ | (43,571 | ) |  | (160 | )%
|Financing cash flows                 |  | $                               | 35,409  |   |               | $ | 42,679   |   |  | $ | 7,270   |   |  | 21   | % 
|Acquisitions of businesses and other |  | $                               | (27,233 | ) |               | $ | (112,286 | ) |  | $ | (85,053 | ) |  | (312 | )%
|Capital expenditures                 |  | $                               | (269    | ) |               | $ | (1,388   | ) |  | $ | (1,119  | ) |  | (416 | )%



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|                          |  |                  |        |                    |   |        |  |   |         |   |  |     |   
|------------------------- |  | ---------------- | ------ | ------------------ | - | ------ |  | - | ------- | - |  | --- | --
|                          |  | As of            |        | 2004 vs. 2005      |  
|                          |  | December 31,2004 |        | September 30, 2005 |   | $      |  |   | %       |  
|Cash and cash equivalents |  | $                | 30,179 |                    | $ | 20,247 |  | $ | (9,932  | ) |  | (33 | )%
|Accounts receivable, net  |  | $                | 13,724 |                    | $ | 23,692 |  | $ | 9,968   |   |  | 73  | % 
|Working capital           |  | $                | 26,573 |                    | $ | 2,580  |  | $ | (23,993 | ) |  | (90 | )%
|Long-term debt            |  | $                |       |                    | $ | 26,322 |  | $ | 26,332  |   |  | N/M |   



Since inception, we
have funded operations primarily with cash proceeds from our initial and follow-on public offerings of our common stock in September 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, the acquisition of Goodshoot, which resulted in a cash payment of $9.9 million and the acquisition of PictureArts, which resulted in a cash payment of $63.2 million. This
decrease was partially offset by a $30.0 million term loan and borrowings of $8.0 million under a $10.0 million revolving credit facility obtained in connection with the acquisitions of Dynamic Graphics and PictureArts, cash proceeds from sale of
SES of $42.0 million, net of $1.0 million held in escrow, along with cash inflows from operating activities of $18.1 million.



Cash provided by operating activities increased in 2005 due primarily to increases in our income from continuing operations offset by increases in
accounts receivable and prepaid expenses as well as decreases in accounts payable and accrued expenses. In 2005, accounts receivable increased primarily due to the increased distribution sales for our Online images business as a result of
acquisitions.



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 acquisitions of Dynamic Graphics Group and PictureArts.



As part of the acquisition of ArtToday, Inc., we were 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 was paid $2.0 million during the third quarter of 2005. There are no further payments due related to this acquisition.



Cash provided from financing activities in 2005 relates primarily to
borrowings under a senior credit facility with JPMorgan Chase Bank N.A. obtained in connection with the acquisitions of Dynamic Graphics Group and PictureArts, as well as proceeds received from the exercise of employee stock options.



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 Chase Bank, N.A. (JPMorgan), which provided for a $20.0 million senior term loan, of which $20.0 million was outstanding as of
June 30, 2005.



On July 18, 2005, Jupitermedia
entered into an Amended and Restated Credit Agreement (the Amended and Restated Credit Agreement) with JPMorgan, as Administrative Agent and lender. The Amended and Restated Credit Agreement amended and restated the Original Credit
Agreement. The Amended and Restated Credit Agreement provides for a $90.0 million senior credit facility (comprised of a $30.0 million term loan facility, a $10.0 million revolving credit facility and a $50.0 million bridge facility), and replaces
the senior term loan provided under the Original Credit Agreement. The bridge loan and the term loan were fully drawn on the effective date of the Amended and Restated Credit Agreement and are not available to be re-borrowed. The revolving credit
facility is available to be borrowed from time to time. The term loan and revolving credit facility are scheduled to mature on July 18, 2008. The bridge facility was scheduled to mature on January 18,



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2006. At Jupitermedias option, loans under the facility bear interest at a rate per annum equal to (i) the
Adjusted LIBO Rate, plus, with respect to the term loan and revolving credit facility, a rate between 1.50% and 2.75% per annum depending on the ratio of Jupitermedias consolidated debt to consolidated EBITDA (the leverage
ratio) 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 0.50% and 1.75%
depending on Jupitermedias leverage ratio, and, with respect to the bridge facility, 2.50% plus periodic increases. If an Event of Default has occurred and is continuing under the Amended and Restated Credit Agreement, Jupitermedia does not
have the right to select the Adjusted LIBO Rate interest rate option. Overdue amounts of interest and principal bear interest at a rate equal to 2.0% above the rate otherwise applicable. In addition, Jupitermedia is required to pay a commitment fee
at a rate between 0.25% and 0.50% per annum depending on Jupitermedias leverage ratio the unused portion of the lenders revolving loan commitments. The Amended and Restated Credit Agreement requires amortization of principal of the
term loan in quarterly installments of $2.5 million, 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 the bridge facility on
January 18, 2006. In addition, the Amended and Restated Credit Agreement requires mandatory prepayment of the term loan out of certain proceeds received by Jupitermedia or its subsidiaries from equity issuances, the incurrence of certain
indebtedness and the sale of assets. Proceeds from the Amended and Restated Credit Agreement were used to refinance borrowings under the Original Credit Agreement, to finance the acquisition of PictureArts on July 18, 2005, for working capital
needs and general corporate purposes.



The borrowings under the
bridge facility have been repaid in full. Jupitermedia used $42.0 million of proceeds from the sale of SES on August 5, 2005, to pay down the bridge facility. In addition, Jupitermedia borrowed $8.0 million under the revolving credit facility
and used the proceeds to repay the remaining borrowings under the bridge facility.



The Amended and Restated Credit Agreement contains customary affirmative and negative covenants including, among others, restrictions on Jupitermedias ability to pay dividends, incur additional indebtedness
(other than subordinated indebtedness) or liens on assets, enter into new leases, make capital expenditures, make investments or make certain permitted acquisitions in excess of $25.0 million in the aggregate. 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. Jupitermedia is in compliance with its debt covenants as of
September 30, 2005. 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 of Jupitermedia 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 may be declared or become immediately due and payable.



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



On October 5, 2005, Jupitermedia entered into a First
Amendment, Waiver and Consent, dated as of October 5, 2005 (the Amendment), to the Amended and Restated Credit Agreement. The Amendment provides for an increase in the amount available for borrowing under the revolving credit
facility from $10.0 million to $30.0 million. Proceeds from the increased revolving credit facility will be used to financial future acquisitions, for working capital needs and for general corporate purposes.



On October 6, 2005, Jupitermedia borrowed an aggregate of $17.8 million
under the revolving credit facility included in the Amended and Restated Credit Agreement. Proceeds from the loan were used to finance the acquisition of BananaStock Limited on October 13, 2005.



On October 13, 2005, Jupitermedia acquired all of the shares of
BananaStock Limited for $19.0 million in cash, subject to certain post-closing adjustments. BananaStock Limited, based in Oxfordshire, United Kingdom, is a resource for royalty free digital images for business users and creative professionals.



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



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 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 Statement 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 is not expected
to have a material 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.



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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 the cost method, as we do not have the ability to exert significant influence over the companies or their operations. For these non-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 September 30, 2005.



Our transactions are generally conducted in United States dollars and as of September 30, 2005, 74% of our cash is held in accounts that are
denominated in United States currency.



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 September 30, 2005, pursuant to Rule 13a-15 of
the Securities Exchange Act. 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 1A. |  | RISK FACTORS  Jupitermedias Risk Factors were updated and revised as part of its Registration Statement on Form S-3 filed September 7, 2005, as amended (the Registration
Statement). The Risk Factors set forth in the Registration Statement are hereby incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | 
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         | 
|         |  | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | 
|Item 5.  |  | OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | 
|         |  | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | 
|Item 6.  |  | EXHIBITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



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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.



|               |  |                                                                                                                                                                                                                                                                                 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                     
|3.1*           |  | Registrants Amended and Restated Certificate of Incorporation, as amended                                                                                                                                                                                                      
|               | 
|3.2**          |  | Registrants Bylaws                                                                                                                                                                                                                                                             
|               | 
|10.1***        |  | Stock Purchase Agreement, dated as of June 30, 2005, by and among JupiterImages Corporation, Jeffrey Burke and Lorraine Triolo                                                                                                                                                  
|               | 
|10.2****       |  | Amended and Restated Credit Agreement, dated July 18, 2005, by and among Jupitermedia Corporation, as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as lender, and such
other financial institutions as may from time to time become party thereto as lenders
|               | 
|10.3****       |  | Amended and Restated Guaranty Agreement, dated July 18, 2005, by and among Jupitermedia Corporations material subsidiaries party thereto as guarantors in favor of JP Morgan Chase Bank,
N.A., as administrative agent                                                         
|               | 
|10.4****       |  | Amended and Restated Security Agreement, dated July 18, 2005, by and among Jupitermedia Corporation, as borrower, the material subsidiaries party thereto and JPMorgan Chase Bank, N.A., as
administrative agent                                                                
|               | 
|10.5****       |  | Amended and Restated Pledge Agreement, dated July 18, 2005, by and among Jupitermedia Corporation, as borrower, the material subsidiaries party thereto and JPMorgan Chase Bank, N.A., as
administrative agent                                                                  
|               | 
|10.6*****      |  | Asset Purchase Agreement, dated as of August 2, 2005, by and between Jupitermedia Corporation and Incisive Media plc                                                                                                                                                            
|               | 
|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.
|-- | -------------------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated herein by reference to the Registrants Form 8-K filed on July 1, 2005.
|--- | ------------------------------------------------------------------------------------

|**** | Incorporated herein by reference to the Registrants Form 8-K filed on July 20, 2005.
|---- | -------------------------------------------------------------------------------------

|***** | Incorporated herein by reference to the Registrants Form 8-K filed on August 2, 2005.
|----- | --------------------------------------------------------------------------------------



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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: November 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



31