##### Table of Contents

---

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



|x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2006.

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



---

Jupitermedia Corporation

(Exact name of Registrant as specified in its charter)



---



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

(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 a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act: (Check one):

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

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 3, 2006 was 35,652,494.



---



---

##### Table of Contents

Jupitermedia Corporation

Index



|           |  |                                                                                                                             |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                             |  | Page
|PART I.    |  | Financial Information                                                                                                       |  |     
|           |  |                                                                                                                            
|Item 1.    |  | Financial Statements                                                                                                        |  |     
|           |  |                                                                                                                            
|           |  | Unaudited Consolidated Condensed Balance Sheets  December 31, 2005 and September 30, 2006                                  |  | 3   
|           |  |                                                                                                                            
|           |  | Unaudited Consolidated Condensed Statements of Operations  For the Three and Nine Months Ended September 30, 2005 and 2006 |  | 4   
|           |  |                                                                                                                            
|           |  | Unaudited Consolidated Condensed Statements of Cash Flows  For the Nine Months Ended September 30, 2005 and 2006           |  | 5   
|           |  |                                                                                                                            
|           |  | Notes to Consolidated Condensed Financial Statements                                                                        |  | 6   
|           |  |                                                                                                                            
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 14  
|           |  |                                                                                                                            
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                  |  | 20  
|           |  |                                                                                                                            
|Item 4.    |  | Controls and Procedures                                                                                                     |  | 20  
|           |  |                                                                                                                            
|PART II.   |  | Other Information                                                                                                           |  |     
|           |  |                                                                                                                            
|Item 1.    |  | Legal Proceedings                                                                                                           |  | 21  
|           |  |                                                                                                                            
|Item 1A.   |  | Risk Factors                                                                                                                |  | 21  
|           |  |                                                                                                                            
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |  | 21  
|           |  |                                                                                                                            
|Item 3.    |  | Defaults Upon Senior Securities                                                                                             |  | 21  
|           |  |                                                                                                                            
|Item 4.    |  | Other Information                                                                                                           |  | 21  
|           |  |                                                                                                                            
|Item 5.    |  | Exhibits                                                                                                                    |  | 22  
|           | 
|Signatures |  | 23                                                                                                                         



2



---

##### Table of Contents

Jupitermedia Corporation

Unaudited Consolidated Condensed Balance Sheets

December 31, 2005 and September 30, 2006

(in thousands, except share and per share amounts)



|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                              |  | December 31, 2005 |         |   | September 30, 2006 |  
|ASSETS                                                                                                                                                        |  |                   |         |   |                    |   |         |  
|Current assets:                                                                                                                                               |  |                   |         |   |                    |   |         |  
|Cash and cash equivalents                                                                                                                                     |  | $                 | 18,546  |   |                    | $ | 10,264  |  
|Accounts receivable, net of allowances of $1,935 and $1,918, respectively                                                                                     |  |                   | 20,640  |   |                    |   | 24,365  |  
|Prepaid expenses and other                                                                                                                                    |  |                   | 3,517   |   |                    |   | 4,703   |  
|Deferred income taxes                                                                                                                                         |  |                   | 425     |   |                    |   | 2,756   |  
|Assets of discontinued operations                                                                                                                             |  |                   | 8,763   |   |                    |   |        |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total current assets                                                                                                                                          |  |                   | 51,891  |   |                    |   | 42,088  |  
|Property and equipment, net of accumulated depreciation of $10,211 and $12,614, respectively                                                                  |  |                   | 9,807   |   |                    |   | 11,203  |  
|Intangible assets, net                                                                                                                                        |  |                   | 66,799  |   |                    |   | 78,515  |  
|Goodwill                                                                                                                                                      |  |                   | 169,960 |   |                    |   | 190,928 |  
|Deferred income taxes                                                                                                                                         |  |                   | 8,690   |   |                    |   | 1,626   |  
|Investments and other assets                                                                                                                                  |  |                   | 1,766   |   |                    |   | 2,001   |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total assets                                                                                                                                                  |  | $                 | 308,913 |   |                    | $ | 326,361 |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                          |  |                   |         |   |                    |   |         |  
|Current liabilities:                                                                                                                                          |  |                   |         |   |                    |   |         |  
|Accounts payable                                                                                                                                              |  | $                 | 6,552   |   |                    | $ | 5,645   |  
|Accrued payroll and related expenses                                                                                                                          |  |                   | 2,390   |   |                    |   | 3,198   |  
|Accrued expenses and other                                                                                                                                    |  |                   | 13,287  |   |                    |   | 10,682  |  
|Current portion of long-term debt                                                                                                                             |  |                   | 16,000  |   |                    |   | 16,000  |  
|Deferred revenues                                                                                                                                             |  |                   | 11,743  |   |                    |   | 13,143  |  
|Liabilities of discontinued operations                                                                                                                        |  |                   | 7,211   |   |                    |   |        |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total current liabilities                                                                                                                                     |  |                   | 57,183  |   |                    |   | 48,668  |  
|Long-term debt                                                                                                                                                |  |                   | 46,214  |   |                    |   | 48,250  |  
|Deferred revenues                                                                                                                                             |  |                   | 156     |   |                    |   | 179     |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total liabilities                                                                                                                                             |  |                   | 103,553 |   |                    |   | 97,097  |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Stockholders equity:                                                                                                                                         |  |                   |         |   |                    |   |         |  
|Preferred stock, $.01 par value, 4,000,000 shares authorized, no shares issued                                                                                |  |                   |        |   |                    |   |        |  
|Common stock, $.01 par value, 75,000,000 shares authorized, 34,937,025 and 35,559,264 shares issued at December 31, 2005 and
September 30, 2006, respectively |  |                   | 349     |   |                    |   | 356     |  
|Additional paid-in capital                                                                                                                                    |  |                   | 251,919 |   |                    |   | 260,643 |  
|Accumulated deficit                                                                                                                                           |  |                   | (45,291 | ) |                    |   | (32,669 | )
|Treasury stock, 65,000 shares at cost                                                                                                                         |  |                   | (106    | ) |                    |   | (106    | )
|Accumulated other comprehensive income (loss)                                                                                                                 |  |                   | (1,511  | ) |                    |   | 1,040   |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total stockholders equity                                                                                                                                    |  |                   | 205,360 |   |                    |   | 229,264 |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  
|Total liabilities and stockholders equity                                                                                                                    |  | $                 | 308,913 |   |                    | $ | 326,361 |  
|                                                                                                                                                              |  |                   |         |   |                    |   |         |  

See notes to consolidated condensed financial statements.



3



---

##### Table of Contents

Jupitermedia Corporation

Unaudited Consolidated Condensed Statements of Operations

For the Three Months and Nine Months Ended
September 30, 2005 and 2006

(in thousands, except per share amounts)



|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                       |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                                                                       |  | 2005                             |         |   | 2006                            |   |        | 2005 |  |   | 2006    |  
|Revenues                                                                               |  | $                                | 31,794  |   |                                 | $ | 33,784 |      |  | $ | 80,580  |   |  | $ | 102,751 |  
|Cost of revenues (exclusive of items shown separately below)                           |  |                                  | 10,194  |   |                                 |   | 12,115 |      |  |   | 26,840  |   |  |   | 36,752  |  
|Advertising, promotion and selling                                                     |  |                                  | 6,253   |   |                                 |   | 7,120  |      |  |   | 15,120  |   |  |   | 22,161  |  
|General and administrative                                                             |  |                                  | 5,146   |   |                                 |   | 7,259  |      |  |   | 12,579  |   |  |   | 20,626  |  
|Depreciation                                                                           |  |                                  | 656     |   |                                 |   | 996    |      |  |   | 1,357   |   |  |   | 2,498   |  
|Amortization                                                                           |  |                                  | 1,239   |   |                                 |   | 2,637  |      |  |   | 2,944   |   |  |   | 7,003   |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Total operating expenses                                                               |  |                                  | 23,488  |   |                                 |   | 30,127 |      |  |   | 58,840  |   |  |   | 89,040  |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Operating income                                                                       |  |                                  | 8,306   |   |                                 |   | 3,657  |      |  |   | 21,740  |   |  |   | 13,711  |  
|                                                                                       |  |                                  |         |  
|Income (loss) on investments and other, net                                            |  |                                  | 13,265  |   |                                 |   | (79    | )    |  |   | 13,224  |   |  |   | 58      |  
|Interest income                                                                        |  |                                  | 74      |   |                                 |   | 99     |      |  |   | 288     |   |  |   | 380     |  
|Interest expense                                                                       |  |                                  | (677    | ) |                                 |   | (1,395 | )    |  |   | (965    | ) |  |   | (4,107  | )
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Income before income taxes, minority interests and equity income from investments, net |  |                                  | 20,968  |   |                                 |   | 2,282  |      |  |   | 34,287  |   |  |   | 10,042  |  
|Provision (benefit) for income taxes                                                   |  |                                  | (22,153 | ) |                                 |   | 1,326  |      |  |   | (20,541 | ) |  |   | 3,129   |  
|Minority interests                                                                     |  |                                  | (18     | ) |                                 |   | (32    | )    |  |   | (49     | ) |  |   | (67     | )
|Equity income from investments, net                                                    |  |                                  |        |   |                                 |   | 86     |      |  |   | 132     |   |  |   | 136     |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations                                                      |  |                                  | 43,103  |   |                                 |   | 1,010  |      |  |   | 54,911  |   |  |   | 6,982   |  
|Income from discontinued operations, net of taxes                                      |  |                                  | 1,421   |   |                                 |   |       |      |  |   | 2,195   |   |  |   | 67      |  
|Gain on sale of discontinued operations, net of taxes                                  |  |                                  | 15,854  |   |                                 |   |       |      |  |   | 15,854  |   |  |   | 5,573   |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                             |  | $                                | 60,378  |   |                                 | $ | 1,010  |      |  | $ | 72,960  |   |  | $ | 12,622  |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Earnings per share:                                                                    |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                  |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|                                                                                       |  |                                  |         |  
|Income from continuing operations                                                      |  | $                                | 1.24    |   |                                 | $ | 0.03   |      |  | $ | 1.62    |   |  | $ | 0.20    |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                             |  | $                                | 1.74    |   |                                 | $ | 0.03   |      |  | $ | 2.15    |   |  | $ | 0.36    |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Income from continuing operations                                                      |  | $                                | 1.15    |   |                                 | $ | 0.03   |      |  | $ | 1.51    |   |  | $ | 0.19    |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Net income                                                                             |  | $                                | 1.62    |   |                                 | $ | 0.03   |      |  | $ | 2.00    |   |  | $ | 0.35    |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Shares used in computing earnings per share:                                           |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                  |  |                                  | 34,749  |   |                                 |   | 35,517 |      |  |   | 33,936  |   |  |   | 35,322  |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                |  |                                  | 37,323  |   |                                 |   | 35,777 |      |  |   | 36,401  |   |  |   | 36,109  |  
|                                                                                       |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  

See notes to consolidated condensed financial statements.



4



---

##### Table of Contents

Jupitermedia Corporation

Unaudited Consolidated Condensed Statements of Cash Flows

For the Nine Months Ended September 30, 2005
and 2006

(in thousands)



|                                                                                                         |  |                                 |          |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                                         |  | Nine Months Ended September 30, |         
|                                                                                                         |  | 2005                            |          |   | 2006 |  
|Cash flows from operating activities:                                                                    |  |                                 |          |   |      |   |         |  
|Income from continuing operations                                                                        |  | $                               | 54,911   |   |      | $ | 6,982   |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                                 |          |   |      |   |         |  
|Depreciation and amortization                                                                            |  |                                 | 4,301    |   |      |   | 9,501   |  
|Stock-based compensation                                                                                 |  |                                 |         |   |      |   | 2,894   |  
|Provision (benefit) for losses on accounts receivable                                                    |  |                                 | (267     | ) |      |   | 361     |  
|Minority interests                                                                                       |  |                                 | 49       |   |      |   | 67      |  
|Equity income from investments, net                                                                      |  |                                 | (132     | ) |      |   | (136    | )
|Income on investments and other, net                                                                     |  |                                 | (13,224  | ) |      |   | (58     | )
|Deferred income taxes                                                                                    |  |                                 | (24,084  | ) |      |   | 1,885   |  
|Excess tax benefit from stock-based compensation                                                         |  |                                 |         |   |      |   | (3,014  | )
|Changes in current assets and liabilities (net of businesses acquired):                                  |  |                                 |          |   |      |   |         |  
|Accounts receivable, net                                                                                 |  |                                 | 6        |   |      |   | (4,300  | )
|Prepaid expenses and other                                                                               |  |                                 | (114     | ) |      |   | (2,189  | )
|Accounts payable and accrued expenses                                                                    |  |                                 | (5,120   | ) |      |   | (9,078  | )
|Deferred revenues                                                                                        |  |                                 | 178      |   |      |   | 1,423   |  
|Discontinued operations                                                                                  |  |                                 | 1,819    |   |      |   | 1,110   |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Net cash provided by operating activities                                                                |  |                                 | 18,323   |   |      |   | 5,448   |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Cash flows from investing activities:                                                                    |  |                                 |          |   |      |   |         |  
|Purchases of property and equipment                                                                      |  |                                 | (1,388   | ) |      |   | (2,302  | )
|Acquisitions of businesses and other                                                                     |  |                                 | (112,286 | ) |      |   | (29,162 | )
|Proceeds from sales of assets                                                                            |  |                                 | 14,805   |   |      |   | 368     |  
|Proceeds from sale of discontinued operations                                                            |  |                                 | 28,135   |   |      |   | 9,600   |  
|Discontinued operations                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Net cash used in investing activities                                                                    |  |                                 | (70,734  | ) |      |   | (21,496 | )
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Cash flows from financing activities:                                                                    |  |                                 |          |   |      |   |         |  
|Borrowings under credit facilities                                                                       |  |                                 | 87,998   |   |      |   | 19,000  |  
|Debt issuance costs                                                                                      |  |                                 | (1,357   | ) |      |   | (38     | )
|Repayment of borrowings under credit facilities                                                          |  |                                 | (51,677  | ) |      |   | (16,965 | )
|Proceeds from exercise of stock options                                                                  |  |                                 | 7,715    |   |      |   | 2,647   |  
|Excess tax benefit from stock-based compensation                                                         |  |                                 |         |   |      |   | 3,014   |  
|Discontinued operations                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Net cash provided by financing activities                                                                |  |                                 | 42,679   |   |      |   | 7,658   |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Effects of exchange rates on cash                                                                        |  |                                 | (200     | ) |      |   | 108     |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                                |  |                                 | (9,932   | ) |      |   | (8,282  | )
|Cash and cash equivalents, beginning of period                                                           |  |                                 | 30,179   |   |      |   | 18,546  |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Cash and cash equivalents, end of period                                                                 |  | $                               | 20,247   |   |      | $ | 10,264  |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Supplemental disclosures of cash flow:                                                                   |  |                                 |          |   |      |   |         |  
|Cash paid for income taxes                                                                               |  | $                               | 806      |   |      | $ | 7,818   |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Cash paid for interest                                                                                   |  | $                               | 245      |   |      | $ | 2,854   |  
|                                                                                                         |  |                                 |          |   |      |   |         |  
|Non-cash investing activities:                                                                           |  |                                 |          |   |      |   |         |  
|Common stock issued for acquisitions                                                                     |  | $                               | 21,611   |   |      | $ |        |  
|                                                                                                         |  |                                 |          |   |      |   |         |  

See notes to consolidated condensed financial statements.



5



---

##### Table of Contents

Jupitermedia Corporation

Notes to Consolidated Condensed Financial Statements

September 30, 2006

(unaudited)

1. THE COMPANY

Jupitermedia Corporation (Jupitermedia) is a global provider of original online information, images and digital content 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 BananaStock, Workbook Stock, Brand X Pictures,
FoodPix, Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Bigshot Media, Goodshoot, ITStockFree, Stock Image, Pixland, Photos.com,
Ablestock.com, PhotoObjects.net, Clipart.com, FlashFoundry.com, AnimationFactory.com, RoyaltyFreeMusic.com and JupiterGreetings.com; and JupiterWeb, the online media division of Jupitermedia, which 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.

2. BASIS OF
PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been prepared from the books and records of
Jupitermedia in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements. The consolidated condensed statements of operations for the nine months ended September 30, 2006 are not necessarily
indicative of the results to be expected for the full year. These unaudited consolidated condensed 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, 2005. 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
condensed financial statements.

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

3. ACCOUNTING FOR SHARE BASED COMPENSATION

Effective January 1, 2006, Jupitermedia adopted Financial Accounting Standards Board (FASB) Statement No. 123
(revised), Share-Based Payment (SFAS 123R). Among its provisions, SFAS 123R requires Jupitermedia to recognize compensation expense for equity awards over the vesting period based on their grant-date fair value. Prior to the
adoption of SFAS 123R, Jupitermedia utilized the intrinsic-value based method of accounting under APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, and adopted the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under the intrinsic value based method of accounting, compensation expense for stock options granted to Jupitermedias employees was measured as the
excess of the quoted market price of common stock at the grant date over the amount the employee must pay for the stock. Jupitermedias policy is to grant stock options with an exercise price equal to or greater than the fair value on the date
of grant and as a result no compensation expense was historically recognized for stock options.

Jupitermedia adopted SFAS 123R in the
first quarter of 2006 using the modified prospective approach. Under this transition method, the measurement and our method of amortization of costs for share-based payments granted prior to, but not vested as of January 1, 2006, would be based
on the same estimate of the grant-date fair value and the same amortization method that was previously used in our SFAS 123 pro forma disclosure. Results for prior periods have not been restated as provided for under the modified prospective
approach. For equity awards granted after the date of adoption, Jupitermedia will amortize share-based compensation expense on a straight-line basis over the vesting term.

Compensation expense is recognized only for share-based payments expected to vest. Jupitermedia estimates forfeitures at the date of grant based on
Jupitermedias historical experience and future expectations. Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro forma expense amounts was recognized based on actual forfeitures.

The adoption of SFAS 123R reduced our basic and diluted earnings per share by $0.02 and $0.05 for the three and nine months ended September 30,
2006, respectively. Total share-based compensation expense recognized in continuing operations was $1.2 million for the three months ended September 30, 2006, which is before an income tax benefit of $511,000, resulting in a decrease to net
income of $715,000.



6



---

##### Table of Contents

Total share-based compensation expense recognized in continuing and discontinued operations was
$2.9 million and $177,000, respectively, for the nine months ended September 30, 2006, which is before an income tax benefit of $1.3 million, resulting in a decrease to net income of $1.8 million.

The following table shows the effect on net income and earnings per share for the three and nine months ended September 30, 2005 had compensation
expense been recognized based upon the estimated fair value on the grant date of awards, in accordance with SFAS 123, as amended by SFAS No. 148 Accounting for Stock-Based Compensation  Transition and Disclosure (in thousands,
except per share amounts):



|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------ | - | ------ | -
|                                                                                                                                            |  | Three Months Ended September 30, 2005 |        |   | Nine Months Ended September 30, 2005 |  
|Net income                                                                                                                                  |  | $                                     | 60,378 |   |                                      | $ | 72,960 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                       | (894   | ) |                                      |   | (2,061 | )
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|Pro forma net income                                                                                                                        |  | $                                     | 59,484 |   |                                      | $ | 70,899 |  
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|Basic earnings per share                                                                                                                    |  |                                       |        |   |                                      |   |        |  
|As reported                                                                                                                                 |  | $                                     | 1.74   |   |                                      | $ | 2.15   |  
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|Pro forma                                                                                                                                   |  | $                                     | 1.71   |   |                                      | $ | 2.09   |  
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|Diluted earnings per share                                                                                                                  |  |                                       |        |   |                                      |   |        |  
|As reported                                                                                                                                 |  | $                                     | 1.62   |   |                                      | $ | 2.00   |  
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  
|Pro forma                                                                                                                                   |  | $                                     | 1.59   |   |                                      | $ | 1.95   |  
|                                                                                                                                            |  |                                       |        |   |                                      |   |        |  

As of September 30, 2006, there was approximately $6.7 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under the stock incentive plan. That cost is expected to be recognized over a weighted-average period of 13 months.

Each stock option has a ten year term from date of grant except for stock options granted to the Chairman and Chief Executive Officer, which have a five
year term. All stock option grants vest equally on each of the first three anniversaries of their respective grant dates. The stock incentive plan will terminate on April 15, 2009. In June 2006, Jupitermedias stock incentive plan was
amended to increase the number of shares of Jupitermedia common stock and options to purchase shares of Jupitermedia common stock available for issuance thereunder by 2,000,000 shares. As of September 30, 2006, there were 2,417,081 options
remaining for future issuance under the stock incentive plan.

The following table summarizes option activity during the three and nine
months ended September 30, 2006:



|                                  |  |           |   |  |                                 |      
|--------------------------------- |  | --------- | - |  | ------------------------------- | -----
|                                  |  | Shares    |   |  | Weighted Average Exercise Price
|Outstanding at June 30, 2006      |  | 5,419,685 |   |  | $                               | 9.81 
|Granted                           |  |          |   |  |                                 |     
|Exercised                         |  | (134,113  | ) |  |                                 | 3.12 
|Forfeited or expired              |  | (214,961  | ) |  |                                 | 14.69
|                                  |  |           |   |  |                                 |      
|Outstanding at September 30, 2006 |  | 5,070,611 |   |  | $                               | 11.00
|                                  |  |           |   |  |                                 |      



7



---

##### Table of Contents

|                                  |  |           |   |  |                                 |       |                                                     |      |                                          |   |       
|--------------------------------- |  | --------- | - |  | ------------------------------- | ----- | --------------------------------------------------- | ---- | ---------------------------------------- | - | ------
|                                  |  | Shares    |   |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual Term (years) |      | Aggregate Intrinsic Value (in
thousands)
|Outstanding at December 31, 2005  |  | 5,187,416 |   |  | $                               | 9.50  |                                                     |      |                                          |   |       
|Granted                           |  | 853,250   |   |  | $                               | 15.50 |                                                     |      |                                          |   |       
|Exercised                         |  | (674,740  | ) |  | $                               | 3.82  |                                                     |      |                                          |   |       
|Forfeited or expired              |  | (295,315  | ) |  | $                               | 14.00 |                                                     |      |                                          |   |       
|                                  |  |           |   |  |                                 |       |                                                     |      |                                          |   |       
|Outstanding at September 30, 2006 |  | 5,070,611 |   |  | $                               | 11.00 |                                                     | 5.97 |                                          | $ | 11,853
|                                  |  |           |   |  |                                 |       |                                                     |      |                                          |   |       
|Exercisable at September 30, 2006 |  | 3,787,817 |   |  | $                               | 9.78  |                                                     | 5.53 |                                          | $ | 4,226 
|                                  |  |           |   |  |                                 |       |                                                     |      |                                          |   |       

The aggregate intrinsic value in the table above is before income taxes, based on the
Companys closing stock price of $8.66 as of September 30, 2006.

During the three months and nine months ended
September 30, 2006, the total intrinsic value of stock options exercised was $811,000 and $7.4 million, respectively.

The following
table summarizes nonvested option activity for the three months and nine months ended September 30, 2006:



|                                                   |  |           |   |  |                                 |      
|-------------------------------------------------- |  | --------- | - |  | ------------------------------- | -----
|                                                   |  | Shares    |   |  | Weighted Average Exercise Price
|Outstanding nonvested shares at June 30, 2006      |  | 1,411,018 |   |  | $                               | 14.05
|Granted                                            |  |          |   |  |                                 |     
|Vested                                             |  | (109,607  | ) |  |                                 | 7.86 
|Forfeited or expired                               |  | (18,617   | ) |  |                                 | 11.95
|                                                   |  |           |   |  |                                 |      
|Outstanding nonvested shares at September 30, 2006 |  | 1,282,794 |   |  | $                               | 14.61
|                                                   |  |           |   |  |                                 |      



|                                                   |  |           |   |  |                                |      
|-------------------------------------------------- |  | --------- | - |  | ------------------------------ | -----
|                                                   |  | Shares    |   |  | Weighted AverageExercise Price
|Outstanding nonvested shares at December 31, 2005  |  | 1,325,583 |   |  | $                              | 11.16
|Granted                                            |  | 853,250   |   |  |                                | 15.50
|Vested                                             |  | (804,814  | ) |  |                                | 10.19
|Forfeited or expired                               |  | (91,225   | ) |  |                                | 11.87
|                                                   |  |           |   |  |                                |      
|Outstanding nonvested shares at September 30, 2006 |  | 1,282,794 |   |  | $                              | 14.61
|                                                   |  |           |   |  |                                |      

Jupitermedia received $418,000 and $2.6 million from the exercise of stock options during the
three and nine months ended September 30, 2006, respectively. The tax benefits realized from the exercise of stock options totaled $8,000 and $705,000 for the three and nine months ended September 30, 2006, respectively.

Cash provided by operating activities decreased and cash provided by financing activities increased by $3.0 million related to excess tax benefits from
stock-based payment arrangements.



8



---

##### Table of Contents

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 Ended September 30, |   | Nine Months Ended September 30, |     
|                         |  | 2005                             |   |                                 | 2006 |  | 2005 |   |  | 2006 |  
|Risk-free interest rate  |  | 3.98                             | % |                                 | N/A  |  | 3.78 | % |  | 4.98 | %
|Expected life (in years) |  | 3                                |   |                                 | N/A  |  | 3    |   |  | 4.5  |  
|Dividend yield           |  | 0                                | % |                                 | N/A  |  | 0    | % |  | 0    | %
|Expected volatility      |  | 54                               | % |                                 | N/A  |  | 60   | % |  | 56   | %

The expected stock price volatility is based on the historical volatility of Jupitermedias
common stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is
based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.

4. RECENT ACCOUNTING PRONOUNCEMENTS

On July 13, 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an
entitys financial statements in accordance with FAS 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally,
Interpretation 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with
early adoption permitted. We are currently evaluating whether the adoption of Interpretation 48 will have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due
to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB
108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. We do not believe SAB 108 will have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements , (FAS
157). The Statement defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles and expands disclosures about fair value measurements. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating whether the adoption of FAS 157 will have an impact on our consolidated financial position, results
of operations or cash flows.

5. COMPUTATION OF EARNINGS PER SHARE

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

Computations of basic and diluted earnings per share for the three months and nine months ended September 30, 2005 and
2006 are as follows (in thousands, except per share amounts):



|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|--------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                      |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                                      |  | 2005                             |        | 2006                            |   | 2005   |  | 2006
|Income from continuing operations                                     |  | $                                | 43,103 |                                 | $ | 1,010  |  | $    | 54,911 |  | $ | 6,982 
|Income from discontinued operations, net of taxes                     |  |                                  | 1,421  |                                 |   |       |  |      | 2,195  |  |   | 67    
|Gain on sale of discontinued operations, net of taxes                 |  |                                  | 15,854 |                                 |   |       |  |      | 15,854 |  |   | 5,573 
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                                | 60,378 |                                 | $ | 1,010  |  | $    | 72,960 |  | $ | 12,622
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Basic weighted average common shares outstanding                      |  |                                  | 34,749 |                                 |   | 35,517 |  |      | 33,936 |  |   | 35,322
|Effect of dilutive stock options                                      |  |                                  | 2,574  |                                 |   | 260    |  |      | 2,465  |  |   | 787   
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Total basic weighted average common shares and dilutive stock options |  |                                  | 37,323 |                                 |   | 35,777 |  |      | 36,401 |  |   | 36,109
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Earnings Per Share:                                                   |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Basic                                                                 |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Income from continuing operations                                     |  | $                                | 1.24   |                                 | $ | 0.03   |  | $    | 1,62   |  | $ | 0.20  
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                                | 1.74   |                                 | $ | 0.03   |  | $    | 2.15   |  | $ | 0.36  
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Diluted                                                               |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Income from continuing operations                                     |  | $                                | 1.15   |                                 | $ | 0.03   |  | $    | 1.51   |  | $ | 0.19  
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Net income                                                            |  | $                                | 1.62   |                                 | $ | 0.03   |  | $    | 2.00   |  | $ | 0.35  
|                                                                      |  |                                  |        |                                 |   |        |  |      |        |  |   |       

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 Ended September 30, |       | Nine Months Ended September 30,
|                                      |  | 2005                             |       | 2006                            |   | 2005  |  | 2006
|Number of anti-dilutive stock options |  |                                  | 860   |                                 |   | 3,323 |  |      | 869   |  |   | 1,894
|Weighted average exercise price       |  | $                                | 18.80 |                                 | $ | 14.94 |  | $    | 18.78 |  | $ | 16.71



9



---

##### Table of Contents

6. INTANGIBLE ASSETS AND GOODWILL

Intangible assets and goodwill include the preliminary allocation of the purchase prices relating to the acquisition of Bananastock Limited on October 13, 2005, the acquisition of the assets of Animation Factory,
Inc. on December 23, 2005 and Jupitermedias additional acquisitions that took place during the nine months ended September 30, 2006. Jupitermedia is in the process of obtaining 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, 2005 
|                                       |  | Cost               |        | Accumulated Amortization |   |         | Net Carrying Value
|Image library                          |  | $                  | 49,602 |                          | $ | (3,531  | )                  |  | $ | 46,071
|Customer and distributor relationships |  |                    | 4,484  |                          |   | (915    | )                  |  |   | 3,569 
|Web site development costs             |  |                    | 5,179  |                          |   | (2,431  | )                  |  |   | 2,748 
|Trademarks                             |  |                    | 3,053  |                          |   | (2,458  | )                  |  |   | 595   
|Non-compete agreements                 |  |                    | 1,549  |                          |   | (647    | )                  |  |   | 902   
|                                       |  |                    |        |                          |   |         |                    |  |   |       
|Total                                  |  | $                  | 63,867 |                          | $ | (9,982  | )                  |  | $ | 53,885
|                                       |  |                    |        |                          |   |         |                    |  |   |       
|                                       | 
|                                       |  | September 30, 2006
|                                       |  | Cost               |        | Accumulated Amortization |   |         | Net Carrying Value
|Image library                          |  | $                  | 48,675 |                          | $ | (7,492  | )                  |  | $ | 41,183
|Customer and distributor relationships |  |                    | 5,970  |                          |   | (1,739  | )                  |  |   | 4,231 
|Web site development costs             |  |                    | 5,361  |                          |   | (3,299  | )                  |  |   | 2,062 
|Supplier and contributor contracts     |  |                    | 18,217 |                          |   | (1,517  | )                  |  |   | 16,700
|Trademarks                             |  |                    | 3,552  |                          |   | (2,753  | )                  |  |   | 799   
|Non-compete agreements                 |  |                    | 1,033  |                          |   | (759    | )                  |  |   | 274   
|                                       |  |                    |        |                          |   |         |                    |  |   |       
|Total                                  |  | $                  | 82,808 |                          | $ | (17,559 | )                  |  | $ | 65,249
|                                       |  |                    |        |                          |   |         |                    |  |   |       

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 and distributor relationships 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. Supplier and contributor contracts are amortized over seven years. Non-compete agreements are amortized over the period of the agreements.

Estimated annual amortization expense for the next five years, including the remainder of 2006, is expected to be as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Year Ending December 31, |  |  
|2006                     |  | $ | 2,747 
|2007                     |  |   | 10,813
|2008                     |  |   | 10,357
|2009                     |  |   | 9,656 
|2010                     |  |   | 7,581 
|Thereafter               |  |   | 24,095
|                         |  |   |       
|                         |  | $ | 65,249
|                         |  |   |       



10



---

##### Table of Contents

Unamortized Intangible Assets

The following table sets forth the intangible assets that are not subject to amortization (in thousands):



|                       |  |                   |        |                    |   |       
|---------------------- |  | ----------------- | ------ | ------------------ | - | ------
|                       |  | December 31, 2005 |        | September 30, 2006
|Domain and trade names |  | $                 | 12,914 |                    | $ | 13,266
|                       |  |                   |        |                    |   |       
|Total                  |  | $                 | 12,914 |                    | $ | 13,266
|                       |  |                   |        |                    |   |       

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2006, are as follows (in thousands):



|                                 |  |               |         |              |   |       |  |   |        
|-------------------------------- |  | ------------- | ------- | ------------ | - | ----- |  | - | -------
|                                 |  | Online Images |         | Online Media |   | Total
|Balance as of December 31, 2005  |  | $             | 163,042 |              | $ | 6,918 |  | $ | 169,960
|Goodwill acquired during period  |  |               | 13,662  |              |   |      |  |   | 13,662 
|Purchase accounting adjustments  |  |               | 7,306   |              |   |      |  |   | 7,306  
|                                 |  |               |         |              |   |       |  |   |        
|Balance as of September 30, 2006 |  | $             | 184,010 |              | $ | 6,918 |  | $ | 190,928
|                                 |  |               |         |              |   |       |  |   |        

Purchase accounting adjustments pertain primarily to adjustments made in finalizing the valuations
of the fair value of certain assets purchased in conjunction with the acquisitions of Goodshoot S.A.S. and PictureArts Corporation.



11



---

##### Table of Contents

7. DISPOSITIONS AND DISCONTINUED OPERATIONS

On March 28, 2006, Jupitermedia sold its JupiterResearch division. As a result of the sale of the JupiterResearch division, the Research segment is
now reflected as a discontinued operation in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Income from discontinued operations for the nine months ended September 30,
2006 was $119,000 net of income taxes of $48,000. Prior year financial results have been presented to reflect Jupitermedias Research segment as a discontinued operation.

The following table summarizes the revenue and income before income taxes of the discontinued Research operation (in thousands):



|                           |  |                                  |       |                                 |   |      |  |      |       |  |   |      
|-------------------------- |  | -------------------------------- | ----- | ------------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                           |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                           |  | 2005                             |       | 2006                            |   | 2005 |  | 2006
|Revenues                   |  | $                                | 2,801 |                                 | $ |     |  | $    | 5,356 |  | $ | 2,388
|Income before income taxes |  | $                                | 375   |                                 | $ |     |  | $    | 399   |  | $ | 119  

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



|                                       |  |                   |      
|-------------------------------------- |  | ----------------- | -----
|                                       |  | December 31, 2005
|Current assets                         |  | $                 | 5,916
|Goodwill                               |  |                   | 2,632
|Other assets                           |  |                   | 215  
|                                       |  |                   |      
|Assets of discontinued operations      |  | $                 | 8,763
|                                       |  |                   |      
|Accounts payable and accrued expenses  |  | $                 | 377  
|Deferred revenues                      |  |                   | 6,834
|                                       |  |                   |      
|Liabilities of discontinued operations |  | $                 | 7,211
|                                       |  |                   |      

8. DEBT

On December 22, 2005, Jupitermedia entered into a Credit Agreement (the Credit Agreement) with JPMorgan Chase Bank N.A., as Administrative Agent and lender. The Credit Agreement provides for a $100.0
million senior credit facility (comprised of a $50.0 million term loan facility and a $50.0 million revolving credit facility). The future minimum payments under the Credit Agreement are $4.0 million, $16.0 million and $44.2 million for the years
ended December 31, 2006, 2007 and 2008, respectively. Jupitermedias outstanding debt, relating to the Credit Agreement, as of December 31, 2005 and September 30, 2006, respectively, is reflected in the unaudited consolidated
condensed balance sheet. Jupitermedia made three quarterly debt payments on its term loan totaling $12.0 million during the nine months ended September 30, 2006. In addition, Jupitermedia made an additional $5.0 million payment in May 2006 with
proceeds from the sale of its JupiterResearch division. On November 7, 2006, Jupitermedias Credit Agreement was amended to increase the maximum amount of Consolidated Capital Expenditures, as defined, to $3.5 million for the fiscal year
ending December 31, 2006 and to $4.5 million for the fiscal year ending December 31, 2007. In addition, the amendment also revised the definition of the term Consolidated EBITDA.

9. SEGMENT INFORMATION

The following tables
summarize the results of the segments of Jupitermedia for the three and nine months ended September 30, 2005 and 2006. Online images consists of the Jupiterimages business that includes BananaStock, Workbook Stock, Brand X Pictures, Food Pix,
Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Bigshot Media, Goodshoot, ITStockFree, Stock Image, Pixland, Photos.com, Ablestock.com,
PhotoObjects.net, Clipart.com, FlashFoundry.com, AnimationFactory.com and RoyaltyFreeMusic.com. Online media consists of the JupiterWeb business that includes the internet.com, EarthWeb.com, DevX.com and Graphics.com Networks. Other includes
corporate overhead, depreciation and amortization. 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. Certain
reclassifications have been made to the prior year summary information by segment to conform to current year presentation.



12



---

##### Table of Contents

Summary information by segment for the three and nine months ended September 30, 2005 and 2006 is as
follows (in thousands):



|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                         |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|                                         |  | 2005                             |        |   | 2006                            |   |        | 2005 |  |   | 2006    |  
|Revenues:                                |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Online images                            |  | $                                | 24,011 |   |                                 | $ | 26,177 |      |  | $ | 55,905  |   |  | $ | 79,549  |  
|Online media                             |  |                                  | 7,775  |   |                                 |   | 7,607  |      |  |   | 24,651  |   |  |   | 23,196  |  
|Other                                    |  |                                  | 8      |   |                                 |   |       |      |  |   | 24      |   |  |   | 6       |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|                                         |  |                                  | 31,794 |   |                                 |   | 33,784 |      |  |   | 80,580  |   |  |   | 102,751 |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Cost of revenues and operating expenses: |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Online images                            |  |                                  | 13,592 |   |                                 |   | 16,975 |      |  |   | 30,856  |   |  |   | 50,944  |  
|Online media                             |  |                                  | 4,471  |   |                                 |   | 4,616  |      |  |   | 15,251  |   |  |   | 15,254  |  
|Depreciation and amortization            |  |                                  | 1,895  |   |                                 |   | 3,633  |      |  |   | 4,301   |   |  |   | 9,501   |  
|Other                                    |  |                                  | 3,530  |   |                                 |   | 4,903  |      |  |   | 8,432   |   |  |   | 13,341  |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|                                         |  |                                  | 23,488 |   |                                 |   | 30,127 |      |  |   | 58,840  |   |  |   | 89,040  |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Operating income (loss):                 |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Online images                            |  |                                  | 10,419 |   |                                 |   | 9,202  |      |  |   | 25,049  |   |  |   | 28,605  |  
|Online media                             |  |                                  | 3,304  |   |                                 |   | 2,991  |      |  |   | 9,400   |   |  |   | 7,942   |  
|Other (a)                                |  |                                  | (5,417 | ) |                                 |   | (8,536 | )    |  |   | (12,709 | ) |  |   | (22,836 | )
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|                                         |  | $                                | 8,306  |   |                                 | $ | 3,657  |      |  | $ | 21,740  |   |  | $ | 13,711  |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  

---

|(a) | Includes depreciation and amortization expense.
|--- | -----------------------------------------------

10. INCOME TAXES

In connection with the sale of the JupiterResearch division in March 2006, Jupitermedia was able to utilize all its capital loss carry
forwards of approximately $1.1 million. The reversal of the valuation allowance related to the capital loss carry forwards was recorded during the nine months ended September 30, 2006 and is included in the gain on sale of discontinued
operations in the accompanying consolidated statements of operations. In addition, Jupitermedia reversed the valuation allowance of approximately $1.5 million related to certain foreign deferred tax assets.

11. COMMITMENTS AND CONTINGENCIES

On August 3,
2004, Mario Cisneros and Michael Voight filed a class action lawsuit in the Superior Court of the State of California, County of San Francisco, on behalf of themselves and all others situated and/or the general public against Jupitermedia and twelve
co-defendant companies that operate Internet search engines. 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. On September 3, 2004, Jupitermedia blocked all advertisements from being published on its Web properties from third-party search
engines for the gambling-related terms specified in the Complaint. Moreover, Jupitermedia does not accept advertisements for gambling-related Web sites directly from companies that operate them. Jupitermedia has demanded contractual indemnity from
two companies that supplied advertisements that are the subject matter of the lawsuit. Neither of these two companies, however, has stated a final position as whether it will provide indemnity. Jupitermedia intends to vigorously defend itself. In
December 2005, the plaintiffs filed a motion for preliminary injunction. Jupitermedia is not named or implicated in this motion. On April 3, 2006, the plaintiffs filed a motion for leave to amend the complaint to add a new named plaintiff.
No hearing date on either motion has been set and the litigation is ongoing.

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



---

##### 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 leading global provider of
original online information, images and digital content for information technology (IT), business and creative professionals. Our operations are classified into two principal segments: Online images and Online media.

Online images.Jupiterimages, our Online images business, is one of the leading images companies in the world with over 7.0 million images
online serving creative professionals with brands like BananaStock, Workbook Stock, Brand X Pictures, FoodPix, Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock
Images, Thinkstock Footage, Bigshot Media, Goodshoot, ITStockFree, Stock Image, Pixland, Photos.com, Ablestock.com, PhotoObjects.net, Clipart.com, FlashFoundry.com, AnimationFactory.com, RoyaltyFreeMusic.com and JupiterGreetings.com.

We derive revenue from granting rights to use images that are downloaded from the Internet or delivered on CD-ROMs. Revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. Delivery occurs upon shipment or the availability of the image for downloading by
the customer.

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. We recognize the revenue from the sale by the
distributor at the time of the sale.

We also generate our Online images revenues from paid subscriptions that provide access to our image
libraries. Customers may purchase subscriptions, which are offered based on a variety of prices and terms, to access our image libraries. Once a customer becomes a subscriber, they have the ability to obtain copies of images within our image
libraries.

We also license a portion of our images to third parties for royalties based on the licensees revenues generated by the
licensed images.

The principal costs of our Online images business relate to commissions paid to third party image suppliers, payroll and
benefits costs for technology, production, 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 generated, as of September 2006, over 350 million page views monthly. Online media also includes the STEP Inside Design and Dynamic Graphics print magazines. 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 and e-mail newsletters;
| | - |  | --------------------------------------------------------------------------



| |  |  | e-commerce agreements, which generally include a fixed advertising fee;
| | - |  | -----------------------------------------------------------------------



| |  |  | advertiser sponsorships for our Webcasts;
| | - |  | -----------------------------------------



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



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



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



14



---

##### Table of Contents

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

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

JupiterResearch Disposition

On March 28, 2006, Jupitermedia sold its JupiterResearch business division. As a result of the sale of JupiterResearch, the Research segment is now
reflected as a discontinued operation in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

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 Ended September 30, |        | 2005 vs. 2006 |   |        | Nine Months Ended September 30, |   | 2005 vs. 2006 |  
|              |  | 2005                             |        | 2006          |   | $      |                                 |   | %             |   |  | 2005 |   | 2006 |   | $      |  |   | %       | 
|Online images |  | $                                | 24,011 |               | $ | 26,177 |                                 | $ | 2,166         |   |  | 9    | % |      | $ | 55,905 |  | $ | 79,549  |  | $ | 23,644 |   |  | 42  | %
|Online media  |  |                                  | 7,775  |               |   | 7,607  |                                 |   | (168          | ) |  | (2   | ) |      |   | 24,651 |  |   | 23,196  |  |   | (1,455 | ) |  | (6  | )
|Other         |  |                                  | 8      |               |   |       |                                 |   | (8            | ) |  | (100 | ) |      |   | 24     |  |   | 6       |  |   | (18    | ) |  | (75 | )
|              |  |                                  |        |               |   |        |                                 |   |               |   |  |      |   |      |   |        |  |   |         |  |   |        |   |  |     |  
|              |  | $                                | 31,794 |               | $ | 33,784 |                                 | $ | 1,990         |   |  | 6    | % |      | $ | 80,580 |  | $ | 102,751 |  | $ | 22,171 |   |  | 28  | %
|              |  |                                  |        |               |   |        |                                 |   |               |   |  |      |   |      |   |        |  |   |         |  |   |        |   |  |     |  

Online images. We acquired Dynamic Graphics Group on March 7, 2005, Goodshoot S.A.S.
on May 19, 2005, PictureArts Corporation on July 18, 2005, Bananastock Limited on October 13, 2005 and the assets of Animation Factory, Inc. on December 23, 2005 and, therefore, there are no financial results for these businesses
included in our financial statements prior to these respective dates. The increase in revenues is due primarily to the numerous acquisitions made by the company.

The following table sets forth, for the three and nine months ended September 30, 2005 and 2006, the components of our Online images revenues (dollars in thousands):



|                                  |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|--------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                  |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                  |  | 2005                             |        | 2006                            |   | 2005   |  | 2006
|Single images and CD-ROMs         |  | $                                | 12,312 |                                 | $ | 13,566 |  | $    | 29,247 |  | $ | 42,241
|Subscriptions                     |  |                                  | 5,423  |                                 |   | 6,376  |  |      | 14,778 |  |   | 18,851
|Distributors, licensing and other |  |                                  | 6,276  |                                 |   | 6,235  |  |      | 11,880 |  |   | 18,457
|                                  |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Total Online images               |  | $                                | 24,011 |                                 | $ | 26,177 |  | $    | 55,905 |  | $ | 79,549
|                                  |  |                                  |        |                                 |   |        |  |      |        |  |   |       

Online media. The decrease in revenues during the three and nine months ended
September 30, 2006 was due primarily to the sale of the ClickZ.com Network of Web sites on August 5, 2005, which had revenues of $270,000 and $1.8 million for the three and nine months ended September 30, 2005, respectively.



15



---

##### 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 Revenue per Advertiser
|March 31, 2005     |  | 213                   |  | $                              | 26
|June 30, 2005      |  | 219                   |  |                                | 32
|September 30, 2005 |  | 193                   |  |                                | 29
|December 31, 2005  |  | 158                   |  |                                | 40
|March 31, 2006     |  | 155                   |  |                                | 36
|June 30, 2006      |  | 138                   |  |                                | 47
|September 30, 2006 |  | 141                   |  |                                | 42

Other.Other revenues represent management fees from our management of internet.com Venture
Fund I LLC. These revenues will continue to be negligible in the future.

Cost of revenues

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



|              |  |                                  |        |               |   |        |                                 |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |    |  
|------------- |  | -------------------------------- | ------ | ------------- | - | ------ | ------------------------------- | - | ------------- | - |  | ---- | - | ---- | - | ------ |  | - | ------ |  | - | ------ | - |  | -- | -
|              |  | Three Months Ended September 30, |        | 2005 vs. 2006 |   |        | Nine Months Ended September 30, |   | 2005 vs. 2006 |  
|              |  | 2005                             |        | 2006          |   | $      |                                 |   | %             |   |  | 2005 |   | 2006 |   | $      |  |   | %      | 
|Online images |  | $                                | 7,277  |               | $ | 9,216  |                                 | $ | 1,939         |   |  | 27   | % |      | $ | 17,397 |  | $ | 27,438 |  | $ | 10,041 |   |  | 58 | %
|Online media  |  |                                  | 2,917  |               |   | 2,899  |                                 |   | (18           | ) |  | (1   | ) |      |   | 9,443  |  |   | 9,314  |  |   | (129   | ) |  | (1 | )
|              |  |                                  |        |               |   |        |                                 |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |    |  
|              |  | $                                | 10,194 |               | $ | 12,115 |                                 | $ | 1,921         |   |  | 19   | % |      | $ | 26,840 |  | $ | 36,752 |  | $ | 9,912  |   |  | 37 | %
|              |  |                                  |        |               |   |        |                                 |   |               |   |  |      |   |      |   |        |  |   |        |  |   |        |   |  |    |  

Online images. Cost of revenues primarily consists of commissions paid to third party image
suppliers, payroll and benefits costs for technology and production personnel, communications infrastructure, Web site hosting and storage for our image library. Cost of revenues excludes depreciation and amortization. The increase in cost of
revenues during the three and nine months ended September 30, 2006 is primarily due to an increase in commission expense to third party image suppliers, of $632,000 and $5.1 million, respectively, and an increase in employee related costs of
$1.4 million and $3.0 million, respectively. These increases were primarily a result of acquisitions made by the company. Stock-based compensation expense was $82,000 and $147,000, respectively, for the three and nine months ended September 30,
2006.

We intend to make investments through internal development and, where appropriate opportunities arise, acquisitions to continue to
expand our image library and to substitute licensed images with images that we own that will result in reduced royalty expense in the future. As we continue to make investments to increase the size of our image library, we may need to increase our
spending for Web site hosting and storage costs.

Online media. Cost of revenues primarily consists of payroll and benefits costs
for technology and editorial personnel, freelance costs, communications infrastructure and Web site hosting. Cost of revenues excludes depreciation and amortization. The decrease in cost of revenues from 2005 to 2006 for the three and nine months
ended was due primarily to the sale of the ClickZ.com Network of Web sites. Cost of revenues includes $61,000 and $215,000, respectively, in stock-based compensation expense for the three and nine months ended September 30, 2006.

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.



16



---

##### Table of Contents

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 Ended September 30, |       | 2005 vs. 2006 |   |       | Nine Months Ended September 30, |   | 2005 vs. 2006 |  
|              |  | 2005                             |       | 2006          |   | $     |                                 |   | %             |   |  | 2005 |   | 2006 |   | $      |  | % |       
|Online images |  | $                                | 4,550 |               | $ | 5,505 |                                 | $ | 955           |   |  | 21   | % |      | $ | 9,709  |  | $ | 16,720 |  | $ | 7,011 |  | 72 | %
|Online media  |  |                                  | 1,703 |               |   | 1,615 |                                 |   | (88           | ) |  | (5   | ) |      |   | 5,411  |  |   | 5,441  |  |   | 30    |  | 1  |  
|              |  |                                  |       |               |   |       |                                 |   |               |   |  |      |   |      |   |        |  |   |        |  |   |       |  |    |  
|              |  | $                                | 6,253 |               | $ | 7,120 |                                 | $ | 867           |   |  | 14   | % |      | $ | 15,120 |  | $ | 22,161 |  | $ | 7,041 |  | 47 | %
|              |  |                                  |       |               |   |       |                                 |   |               |   |  |      |   |      |   |        |  |   |        |  |   |       |  |    |  

Online images. Advertising, promotion and selling expenses primarily consists of payroll
and benefits costs for sales and marketing personnel and advertising. The increase in advertising, promotion and selling from 2005 to 2006 for the three and nine months ended September 30, 2006 is due to an increase in employee related costs of
$899,000 and $4.8 million, respectively, and an increase in advertising expense of $1.9 million for the nine months ended September 30, 2006. These increases were primarily due to the expansion of our direct sales team and the impact of
acquisitions. Stock-based compensation expense was $72,000 and $100,000, respectively, for the three and nine months ended September 30, 2006.

Online media. Advertising, promotion and selling expenses primarily consists of payroll and benefits costs for sales and marketing personnel. In addition, advertising, promotion and selling expenses includes costs related to
marketing activities. Advertising, promotion and selling expenses include $87,000 and $318,000, respectively, in stock-based compensation expense for the three and nine months ended September 30, 2006.

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 Ended September 30, |       | 2005 vs. 2006 |      |   | Nine Months Ended September 30, |  | 2005 vs. 2006 |      
|              |  | 2005                             |       |               | 2006 |   | $                               |  | %             |       |  | 2005 |   | 2006 |   | $      |  | % |       
|Online images |  | $                                | 1,765 |               |      | $ | 2,254                           |  | $             | 489   |  | 28   | % |      | $ | 3,750  |  | $ | 6,786  |  | $ | 3,036 |  | 81 | %
|Online media  |  |                                  | (149  | )             |      |   | 102                             |  |               | 251   |  | N/M  |   |      |   | 397    |  |   | 497    |  |   | 100   |  | 25 |  
|Other         |  |                                  | 3,530 |               |      |   | 4,903                           |  |               | 1,373 |  | 39   |   |      |   | 8,432  |  |   | 13,343 |  |   | 4,911 |  | 58 |  
|              |  |                                  |       |               |      |   |                                 |  |               |       |  |      |   |      |   |        |  |   |        |  |   |       |  |    |  
|              |  | $                                | 5,146 |               |      | $ | 7,259                           |  | $             | 2,113 |  | 41   | % |      | $ | 12,579 |  | $ | 20,626 |  | $ | 8,047 |  | 64 | %
|              |  |                                  |       |               |      |   |                                 |  |               |       |  |      |   |      |   |        |  |   |        |  |   |       |  |    |  

Online images. General and administrative expenses primarily consists of payroll and
benefits costs for administrative personnel, office related costs and professional fees. The increase from 2005 to 2006 in general and administrative expense for the three and nine months ended September 30 is due to an increase in employee
related expenses of $221,000 and $868,000, respectively, an increase in office related costs of $99,000 and $931,000, respectively, an increase in accounting and consulting fees of $89,000 and $562,000, respectively, and an increase in bad debt
expense of $238,000 and $362,000, respectively. These increases were primarily due to the impact of acquisitions made by the company.

Online media. General and administrative expenses primarily consist of office related costs and provisions for losses on accounts receivable. The increase in general and administrative expenses from 2005 to 2006 was due primarily to
an increase in bad debt expense.

Other. General and administrative expenses primarily consist of payroll and benefits costs for
administrative personnel, office related costs and professional fees. The increase from 2005 to 2006 in general and administrative expense for the three months ended September 30 is due to $919,000 in stock-based compensation expense and an
increase in professional fees of $467,000. The increase from 2005 to 2006 for the nine months ended September 30 is due to an increase in employee related costs of $2.8 million, which includes $2.1 million in stock-based compensation expense,
and an increase in professional fees of $1.4 million.



17



---

##### Table of Contents

Depreciation and amortization

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



|             |  |                                  |       |               |   |       |                                 |   |               |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  
|------------ |  | -------------------------------- | ----- | ------------- | - | ----- | ------------------------------- | - | ------------- |  | ---- | - | ---- | - | ----- |  | - | ----- |  | - | ----- |  | --- | -
|             |  | Three Months Ended September 30, |       | 2005 vs. 2006 |   |       | Nine Months Ended September 30, |   | 2005 vs. 2006 | 
|             |  | 2005                             |       | 2006          |   | $     |                                 | % |               |  | 2005 |   | 2006 |   | $     |  | % |      
|Depreciation |  | $                                | 656   |               | $ | 996   |                                 | $ | 340           |  | 52   | % |      | $ | 1,357 |  | $ | 2,498 |  | $ | 1,141 |  | 84  | %
|Amortization |  |                                  | 1,239 |               |   | 2,637 |                                 |   | 1,398         |  | 113  |   |      |   | 2,944 |  |   | 7,003 |  |   | 4,059 |  | 138 |  
|             |  |                                  |       |               |   |       |                                 |   |               |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  
|             |  | $                                | 1,895 |               | $ | 3,633 |                                 | $ | 1,738         |  | 92   | % |      | $ | 4,301 |  | $ | 9,501 |  | $ | 5,200 |  | 121 | %
|             |  |                                  |       |               |   |       |                                 |   |               |  |      |   |      |   |       |  |   |       |  |   |       |  |     |  

Depreciation and amortization expense increased during the three and nine months ended
September 30, 2006 due primarily to acquisitions made by the Company.

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 our acquisitions or any acquisitions that may be completed during the remainder of 2006.

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, |      |   | 2005 vs. 2006 |   |        | Nine Months Ended September 30, |  |   | 2005 vs. 2006 |  
|                 |  | 2005                             |      |   | 2006          |   |        | $                               |  |   | %             |   |  | 2005 |   |  | 2006 |      |   | $ |   |        | % | 
|Interest income  |  | $                                | 74   |   |               | $ | 99     |                                 |  | $ | 25            |   |  | 34   | % |  | $    | 288  |   |   | $ | 380    |   |  | $ | 92     |   |  | 32  | %
|Interest expense |  | $                                | (677 | ) |               | $ | (1,395 | )                               |  | $ | (718          | ) |  | 106  | % |  | $    | (965 | ) |   | $ | (4,107 | ) |  | $ | (3,142 | ) |  | 326 | %

Interest expense relates primarily to borrowings under a senior credit facility with JPMorgan
Chase Bank N.A. (see Liquidity and Capital Resources).

Provision for income taxes

In connection with the sale of the JupiterResearch division in March 2006, Jupitermedia was able to utilize all its capital loss carry forwards of
approximately $1.1 million. The reversal of the valuation allowance related to the capital loss carry forward was recorded during the nine months ended September 30, 2006 and is included in the gain on sale of discontinued operations in the
accompanying consolidated statements of operations. In addition, Jupitermedia reversed the valuation allowance of approximately $1.5 million related to certain foreign deferred tax assets during the three months ended June 30, 2006.

Minority interests

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

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, |          |   | 2005 vs. 2006 |  
|                                     |  | 2005                            |          |   | 2006          |   |         | $ |  |   | %       |  
|Operating cash flows                 |  | $                               | 18,323   |   |               | $ | 5,448   |   |  | $ | (12,875 | ) |  | (70 | )%
|Investing cash flows                 |  | $                               | (70,734  | ) |               | $ | (21,496 | ) |  | $ | 49,238  |   |  | 70  | % 
|Financing cash flows                 |  | $                               | 42,679   |   |               | $ | 7,658   |   |  | $ | (35,021 | ) |  | (82 | )%
|Acquisitions of businesses and other |  | $                               | (112,286 | ) |               | $ | (29,162 | ) |  | $ | 83,124  |   |  | 74  | % 
|Capital expenditures                 |  | $                               | (1,388   | ) |               | $ | (2,302  | ) |  | $ | (914    | ) |  | 66  | % 



18



---

##### Table of Contents

|                                         |  |                  |        |   |                    |   |        |   |  |   |        |   |  |     |   
|---------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | ------ | - |  | - | ------ | - |  | --- | --
|                                         |  | As of            |        |   | 2005 vs. 2006      |  
|                                         |  | December 31,2005 |        |   | September 30, 2006 |   |        | $ |  |   | %      |  
|Cash and cash equivalents                |  | $                | 18,546 |   |                    | $ | 10,264 |   |  | $ | (8,282 | ) |  | (45 | )%
|Accounts receivable, net                 |  | $                | 20,640 |   |                    | $ | 24,365 |   |  | $ | 3,725  |   |  | 18  | % 
|Working capital deficit                  |  | $                | (5,292 | ) |                    | $ | (6,580 | ) |  | $ | (1,288 | ) |  | (24 | )%
|Long-term debt including current portion |  | $                | 62,214 |   |                    | $ | 64,250 |   |  | $ | 2,036  |   |  | 3   | % 

Since inception, we have funded operations through various means including our initial and
follow-on public offerings of our common stock in June 1999, February 2000 and May 2004, the sale of our Events and Research businesses, through various credit agreements and through cash flows from operating activities. Cash decreased in 2006
primarily due to acquisitions of businesses partially offset by cash flows from operations.

Cash provided by operating activities
decreased in 2006 due primarily to an increase in accounts receivable and a decrease in accounts payable and accrued expenses. In 2006, deferred revenues increased primarily due to increased bookings of subscription products for our Online images
business.

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 related primarily to the acquisitions of Dynamic Graphics Group and PictureArts Corporation. Net cash used in investing activities in 2006 relates primarily to various investments made for our Online
images business.

Cash provided from financing activities in 2005 relates primarily to borrowings under a senior credit facilities with
JPMorgan Chase Bank N.A. obtained in connection with the acquisition of Dynamic Graphics Group.

On December 22, 2005, Jupitermedia
entered into a Credit Agreement (the Credit Agreement) with JPMorgan Chase Bank N.A., as Administrative Agent and lender. The Credit Agreement provides for a $100.0 million senior credit facility (comprised of a $50.0 million term loan
facility and a $50.0 million revolving credit facility). The future minimum payments under the Credit Agreement are $4.0 million, $16.0 million and $44.2 million for the years ended December 31, 2006, 2007 and 2008, respectively.
Jupitermedias outstanding debt, relating to the Credit Agreement, as of December 31, 2005 and September 30, 2006, respectively, is reflected in the unaudited consolidated condensed balance sheet. Jupitermedia made three quarterly
debt payments on its term loan totaling $12.0 million during the nine months ended September 30, 2006. In addition, Jupitermedia made an additional $5.0 million payment in May 2006 with proceeds from the sale of its JupiterResearch division. On
November 7, 2006, Jupitermedias Credit Agreement was amended to increase the maximum amount of Consolidated Capital Expenditures, as defined, to $3.5 million for the fiscal year ending December 31, 2006 and to $4.5 million for the fiscal year
ending December 31, 2007. In addition, the amendment also revised the definition of the term Consolidated EBITDA.

We expect to
continue our investing activities, which includes the potential to strategically acquire companies, content and images that are complementary to our business. On November 7, 2006, we signed a definitive written agreement to increase our
ownership position in HAAP Media Ltd. from an initial 49.7% equity investment made in January 2006 to 90%. The transaction is expected to close during the fourth quarter of 2006. 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 additional long-term financing through the issuance of equity securities and the incurrence of additional long-term secured or
unsecured debt.

Our existing cash and investment balances may decline during the remainder of 2006 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

On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with FAS 109 and prescribes a
recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, Interpretation 48 provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. We are currently evaluating whether the adoption of
Interpretation 48 will have a material impact on our consolidated financial position, results of operations or cash flows.

In
September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the
process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application
is encouraged. We do not believe SAB 108 will have a material impact on our consolidated financial position, results of operations or cash flows.



19



---

##### Table of Contents

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements , (FAS 157). The Statement defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. FAS
157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating whether the adoption of FAS 157 will have an impact on our
consolidated financial position, results of operations or cash flows.

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, 2005.

Item 3. Quantitative and Qualitative Disclosure about Market Risks

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

We invest in equity instruments of privately held, online media and technology companies for business and strategic purposes. These investments are included in investments and other assets and are accounted for under 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 $25,000 as of September 30, 2006.

Our transactions are generally conducted in the United States, and as of September 30, 2006, 60% of our cash is held in accounts that are denominated in United States dollars. Accordingly, we are not exposed to
significant foreign currency risk.

Item 4. Controls and Procedures

The Companys 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, 2006. 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 disclosed by 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.



20



---

##### Table of Contents

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On August 3, 2004, Mario Cisneros and Michael Voight filed a
class action lawsuit in the Superior Court of the State of California, County of San Francisco, on behalf of themselves and all others situated and/or the general public against Jupitermedia and twelve co-defendant companies that operate Internet
search engines. 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. On September 3, 2004, Jupitermedia blocked all advertisements from being published on its Web properties from third-party search engines for the gambling-related terms
specified in the Complaint. Moreover, Jupitermedia does not accept advertisements for gambling-related web sites directly from companies that operate them. Jupitermedia has demanded contractual indemnity from two companies that supplied
advertisements that are the subject matter of the lawsuit. Neither of these two companies, however, has stated a final position as whether it will provide indemnity. Jupitermedia continues to vigorously defend itself. In December 2005, the
plaintiffs filed a motion for preliminary injunction. Jupitermedia is not named or implicated in this motion. On April 3, 2006, the plaintiffs filed a motion for leave to amend the complaint to add a new named plaintiff. No hearing date on
either motion has been set and the litigation is ongoing.

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

Not Applicable

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4. OTHER INFORMATION

Not Applicable



21



---

##### Table of Contents

Item 5. EXHIBITS

The following is a list of exhibits filed as part of this Report on Form 10-Q. Where so
indicated by footnote, exhibits, which were previously filed, are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically except for in those situations where
the exhibit number was the same as set forth below.



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

---

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

|** | Incorporated herein by reference to the Registrants Registration Statement on Form S-1 (File No. 33-76331) filed on April 15, 1999.
|-- | ------------------------------------------------------------------------------------------------------------------------------------

|*** | Included in notes to consolidated financial statements.
|--- | -------------------------------------------------------



22



---

##### Table of Contents

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, 2006

Jupitermedia Corporation/s/ Christopher S. CardellChristopher S. CardellDirector, President and Chief Operating Officer/s/ Christopher J. BaudouinChristopher J. BaudouinExecutive Vice President and Chief Financial Officer




23