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 March 31,
2005.
 or o
    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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
   23 Old Kings Highway SouthDarien, 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 o
  Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x
    No o
  The number of outstanding shares the Registrant s common stock, par value
$.01 per share, as of May 5, 2005 was 34,161,066. 
         Jupitermedia Corporation  Index   PagePART I.
    Financial InformationItem 1.
    Financial StatementsUnaudited Consolidated Condensed Balance Sheets December 31, 2004
      and March 31, 2005
    3Unaudited Consolidated Condensed Statements of Operations For the
      Three Months Ended March 31, 2004 and 2005
    4Unaudited Consolidated Condensed Statements of Cash Flows For the
      Three Months Ended March 31, 2004 and 2005
    5Notes to Consolidated Condensed Financial Statements
    6Item 2.
    Management s Discussion and Analysis of Financial Condition and
      Results of Operations
    14Item 3.
    Quantitative and Qualitative Disclosures About Market
      Risk
    27Item 4.
    Controls and Procedures
    27PART II.
    Other InformationItem 1.
    Legal Proceedings
    28Item 2.
    Changes in Securities
    28Item 3.
    Defaults Upon Senior Securities
    28Item 4.
    Submission of Matters to a Vote of Security Holders
    29Item 5.
    Other Information
    29Item 6.
    Exhibits
    29Signatures
    
    30
         Jupitermedia Corporation Unaudited Consolidated Condensed Balance Sheets December 31, 2004 and March 31, 2005 (in thousands, except share and per share amounts)  ASSETS
    
    
    
    December 31, 2004
    
    
    
    March 31, 2005Current assets:Cash and cash equivalents
    
    
    
    $
    30,179
    
    
    
    $
    19,586Accounts receivable, net of allowances of $966 and $1,550,
      respectively
    
    
    
    
    15,385
    
    
    
    
    20,496Unbilled accounts receivable
    
    
    
    
    1,530
    
    
    
    
    1,580Prepaid expenses and other
    
    
    
    
    2,713
    
    
    
    
    3,970Total current assets
    
    
    
    
    49,807
    
    
    
    
    45,632Property and equipment, net of accumulated depreciation of $9,256
      and $9,495, respectively
    
    
    
    
    2,339
    
    
    
    
    8,645Intangible assets, net
    
    
    
    
    20,939
    
    
    
    
    28,695Goodwill
    
    
    
    
    42,015
    
    
    
    
    95,259Investments and other assets
    
    
    
    
    1,197
    
    
    
    
    1,336Total assets
    
    
    
    $
    116,297
    
    
    
    $
    179,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    
    $
    2,277
    
    
    
    $
    9,423Accrued payroll and related expenses
    
    
    
    
    1,785
    
    
    
    
    2,525Accrued expenses and other
    
    
    
    
    5,037
    
    
    
    
    7,263Deferred revenues
    
    
    
    
    14,183
    
    
    
    
    19,457Current portion of long-term debt
    
    
    
    
    —
    
    
    
    
    6,667Total current liabilities
    
    
    
    
    23,282
    
    
    
    
    45,335Long-term debt
    
    
    
    
    —
    
    
    
    
    13,333Deferred revenues
    
    
    
    
    510
    
    
    
    
    586Deferred income tax liabilities
    
    
    
    
    121
    
    
    
    
    606Other long-term liabilities
    
    
    
    
    225
    
    
    
    
    197Total liabilities
    
    
    
    
    24,138
    
    
    
    
    60,057Stockholders equity:Preferred stock, $.01 par value, 4,000,000 shares authorized, no
      shares issued
    
    
    
    
    —
    
    
    
    
    —Common stock, $.01 par value, 75,000,000 shares authorized,
      32,378,361 and 33,912,127 shares issued at December 31, 2004 and March 31,
      2005, respectively
    
    
    
    
    324
    
    
    
    
    339Additional paid-in capital
    
    
    
    
    215,648
    
    
    
    
    237,574Accumulated deficit
    
    
    
    
    (123,690
    )
    
    
    
    (118,144
    )Treasury stock, 65,000 shares at cost
    
    
    
    
    (106
    )
    
    
    
    (106
    )Accumulated other comprehensive income
    
    
    
    
    (17
    )
    
    
    
    (153
    )Total stockholders equity
    
    
    
    
    92,159
    
    
    
    
    119,510Total liabilities and stockholders equity
    
    
    
    $
    116,297
    
    
    
    $
    179,567
 See notes to consolidated financial statements.   3       Jupitermedia Corporation Unaudited Consolidated Condensed Statements of Operations For the Three Months Ended March 31, 2004 and 2005 (in thousands, except per share amounts)   Three Months Ended March 31,2004
    
    
    2005Revenues
    $
    14,353
    
    
    $
    25,014Cost of revenues
    
    6,020
    
    
    
    9,552Gross profit
    
    8,333
    
    
    
    15,462Operating expenses:Advertising, promotion and selling
    
    3,575
    
    
    
    4,693General and administrative
    
    2,525
    
    
    
    3,407Depreciation
    
    223
    
    
    
    287Amortization
    
    395
    
    
    
    829Total operating expenses
    
    6,718
    
    
    
    9,216Operating income
    
    1,615
    
    
    
    6,246Income (loss) on investments and other, net
    
    14
    
    
    
    (30
    )Interest income
    
    18
    
    
    
    119Interest expense
    
    (6)
    
    
    
    (88
    )Income before income taxes, minority interests and equity income
      from venture fund investments and other, net
    
    1,641
    
    
    
    6,247Provision for income taxes
    
    —
    
    
    
    678Minority interests
    
    (11)
    
    
    
    (23
    )Equity income from venture fund investments and other, net
    
    7
    
    
    
    —Net income
    $
    1,637
    
    
    $
    5,546Earnings per share:Basic
    $
    0.06
    
    
    $
    0.17Diluted
    $
    0.06
    
    
    $
    0.16Shares used in computing earnings per share:Basic
    
    26,026
    
    
    
    32,733Diluted
    
    29,544
    
    
    
    35,693
  See notes to consolidated financial statements.   4       Jupitermedia Corporation Unaudited Consolidated Condensed Statements of Cash Flows For the Three Months Ended March 31, 2004 and 2005 (in thousands)   Three Months Ended March 31,2004
    
    
    2005Cash flows from operating activities:Net income
    $
    1,637
    
    
    $
    5,546Adjustments to reconcile net income to net cash provided by
      operating activities:Depreciation and amortization
    
    618
    
    
    
    1,116Provision (benefit) for losses on accounts receivable
    
    217
    
    
    
    (38
    )Minority interests
    
    11
    
    
    
    23Equity income from venture fund investments and other, net
    
    (7)
    
    
    
    —(Income) loss on investments and other, net
    
    (14)
    
    
    
    30Changes in current assets and liabilities (net of businesses
      acquired):Accounts receivable
    
    (645)
    
    
    
    1,483Unbilled accounts receivable
    
    (10)
    
    
    
    (50
    )Prepaid expenses and other
    
    196
    
    
    
    264Accounts payable and accrued expenses
    
    (965)
    
    
    
    (2,084
    )Deferred revenues
    
    2,203
    
    
    
    913Net cash provided by operating activities
    
    3,241
    
    
    
    7,203Cash flows from investing activities:Additions to property and equipment
    
    (61)
    
    
    
    (221
    )Acquisitions of businesses and other
    
    (1,273)
    
    
    
    (37,830
    )Distribution from internet.com venture funds
    
    144
    
    
    
    —Proceeds from sales of assets and other
    
    5
    
    
    
    —Net cash used in investing activities
    
    (1,185)
    
    
    
    (38,051
    )Cash flows from financing activities:Borrowings under credit facilities
    
    —
    
    
    
    20,000Debt issuance costs
    
    —
    
    
    
    (75
    )Proceeds from exercise of stock options
    
    1,080
    
    
    
    330Net cash provided by financing activities
    
    1,080
    
    
    
    20,255Net increase (decrease) in cash and cash equivalents
    
    3,136
    
    
    
    (10,593
    )Cash and cash equivalents, beginning of period
    
    9,567
    
    
    
    30,179Cash and cash equivalents, end of period
    $
    12,703
    
    
    $
    19,586Supplemental disclosures of cash flow:Cash paid for income taxes
    $
    —
    
    
    $
    227Cash paid for interest
    $
    6
    
    
    $
    5Non-cash investing activities:Common stock issued for acquisitions
    $
    —
    
    
    $
    21,611
  See notes to consolidated financial statements.   5       Jupitermedia Corporation Notes to Consolidated Condensed Financial Statements March 31, 2005 (unaudited)  1.
    THE COMPANY
 Jupitermedia is a global provider of original online information, images,
research and events for information technology ( IT ), business and creative
professionals. JupiterImages serves creative professionals with over 7.0 million
images online with brands like Comstock Images, Creatas Images, PictureQuest,
Liquid Library, Thinkstock Images, Thinkstock Footage, Photos.com,
HemeraImages.com, Ablestock.com, PhotoObjects.net, Clipart.com and
Animations.com. JupiterWeb, the online division of Jupitermedia, operates five
distinct online networks: internet.com and EarthWeb.com for IT and business
professionals; DevX.com for developers; ClickZ.com for interactive marketers;
and Graphics.com for creative professionals. Jupitermedia also includes
JupiterResearch, an international research advisory organization specializing in
business and technology market research in 18 business areas and 14 vertical
markets. In addition, JupiterEvents produces offline conferences and trade shows
focused on IT and business-specific topics, including Search Engine Strategies
and WiFi/VoWiFi Planet. 2.
    BASIS OF PRESENTATION
 The accompanying unaudited consolidated condensed financial statements
have been prepared from the books and records of Jupitermedia in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. The consolidated statements of operations for the
three months ended March 31, 2005 are not necessarily indicative of the results
to be expected for the full year. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in Jupitermedia s Annual Report on Form
10-K for the year ended December 31, 2004, as amended.In the opinion of management,
all adjustments considered necessary for a fair presentation of the results for
the interim periods presented have been reflected in such consolidated financial
statements. The consolidated financial statements include the accounts of
Jupitermedia and its majority-owned and wholly-owned subsidiaries.All intercompany transactions have been
eliminated. 3.
    STOCK BASED COMPENSATION
 Jupitermedia grants stock options with an exercise price equal to or
greater than the fair value of the shares at the date of grant. Jupitermedia
accounts for stock option grants in accordance with Accounting Principles Board
( APB ) Opinion No. 25, Accounting for Stock Issued to Employees , and
accordingly, recognizes no compensation expense for such grants. If Jupitermedia
determined compensation cost for its stock options based on the fair value at
the date of grant under the provisions of Statement of Financial Accounting
Standards ( SFAS ) No. 123, Accounting for Stock-Based Compensation , its pro
forma net income and basic and diluted earnings per share would be as follows
(in thousands, except per share amounts):   6        Three Months Ended March 31,2004
    
    2005Net income
    
    $
    1,637
    
    $
    5,546Deduct: Total stock-based employee compensation expense determined
      under fair value based method for all awards
    
    
    (813
    )
    
    (1,072
    )Pro forma net income
    
    $
    824
    
    $
    4,474Basic earnings per shareAs reported
    
    $
    0.06
    
    $
    0.17Pro forma
    
    $
    0.03
    
    $
    0.14Diluted earnings per shareAs reported
    
    $
    0.06
    
    $
    0.16Pro forma
    
    $
    0.03
    
    $
    0.13
  These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants during the periods presented:   Three Months Ended March 31,2004
    
    2005Risk-free interest rate
    
    2.17
    %
    3.66
    %Expected life (in years)
    
    3
    
    3Dividend yield
    
    0
    %
    0
    %Expected volatility
    
    123
    %
    57
    %
  4.
    RECENT ACCOUNTING PRONOUNCEMENTS
 In December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123 (revised) (“SFAS 123R”), Share-Based Payment.SFAS 123R established
standards for the accounting for transactions in which an entity exchanges it
equity instruments for goods or services. It also addressed transactions in
which a entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity s equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the
award. SFAS 123R applies to all awards granted after the required effective date
and to awards modified, repurchased or cancelled after that date. Compensation
cost will be recognized on or after the required effective date for the portion
of outstanding awards for which the requisite service has not yet been rendered,
based on the grant-date fair value of those awards calculated under SFAS 123R
for either recognition or pro forma disclosures. SFAS 123R is effective as of
the beginning of the first fiscal year beginning after June 15,
2005.The specific impact of
SFAS 123R is not known as Jupitermedia is currently reviewing the adoption and
valuation methods permitted under SFAS 123R.The adoption of
SFAS 123R will not have any impact on Jupitermedia s cash flows or
liquidity.  In
September 2004, the Emerging Issues Task Force announced Topic No. D-108 “Use of Residual Method to Value Acquired Assets
Other Than Goodwill” (“D-108”).
D-108requires
companies who have applied the residual value method in the valuation of
intangible assets for purposes of impairment testing to use the direct value
method by no later than the beginning of their first fiscal year beginning after
December 15, 2004. Jupitermedia adopted D-108 during the first quarter of 2005
and there was no impact on its results of operations.   7       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
ended March 31, 2004 and 2005 are as follows (in thousands, except per share
amounts):   Three Months Ended March 31,2004
    
    2005Basic Earnings Per Share:Income available to common stockholders (numerator)
    
    $ 1,637
    
    $ 5,546Weighted average common shares outstanding (denominator)
    
    26,026
    
    32,733Basic earnings per share
    
    $ 0.06
    
    $ 0.17
    Diluted Earnings Per Share:Income available to common stockholders (numerator)
    
    $ 1,637
    
    $ 5,546Weighted average common shares outstanding
    
    26,026
    
    32,733Effect of dilutive stock options
    
    3,518
    
    2,960Total weighted average common shares and dilutive stock options
      (denominator)
    
    29,544
    
    35,693Diluted earnings per share
    
    $ 0.06
    
    $ 0.16
  The following table summarizes the number of outstanding stock options
excluded for the calculation of diluted earnings per share for the periods
presented because the result would have been anti-dilutive (in thousands, except
weighted average exercise price):   Three Months Ended March 31,2004
    
    2005Number of anti-dilutive stock options
    
    1,415
    
    77Weighted average exercise price
    
    $ 14.60
    
    $ 26.50
    8       6.
    INTANGIBLE ASSETS AND GOODWILL
 Intangible assets and goodwill include the preliminary allocation of the
purchase prices relating to the acquisition of Hemera Technologies Inc. on
November 12, 2004 and the acquisition of Dynamic Graphics Group on March 7, 2005
(See Note 7). Jupitermedia is in the process of obtaining final third party
valuations of certain intangible assets, thus the allocation of the purchase
prices relating to these acquisitions is subject to refinement. Amortized Intangible Assets The following table sets forth the intangible assets that are subject to
amortization, including the related accumulated amortization (in
thousands):   December 31, 2004Cost
    Accumulated Amortization
    Net Carrying ValueImage library
    $15,864
    $(930)
    $14,934Customer lists
    1,668
    (352)
    1,316Web site development costs
    2,710
    (1,649)
    1,061Trademarks
    2,635
    (2,057)
    578Non-compete agreements
    434
    (193)
    241Other
    188
    (188)
    —Total
    $23,499
    $(5,369)
    $18,130
   March 31, 2005Cost
    Accumulated Amortization
    Net Carrying ValueImage library
    $21,903
    $(1,319)
    $20,584Customer lists
    2,168
    (413)
    1,755Web site development costs
    3,210
    (1,747)
    1,463Trademarks
    3,664
    (2,295)
    1,369Non-compete agreements
    934
    (237)
    697Other
    188
    (188)
    —Total
    $32,067
    $(6,199)
    $25,868
  Intangibles that are subject to amortization are amortized on a
straight-line basis over their expected useful lives. The image library is
amortized over periods ranging from seven to fifteen years, customer lists are
amortized over periods ranging from three to eight years, Web site development
costs are amortized over three or five years and trademarks are amortized over
three years. Non-compete agreements are amortized over the period of the
agreements. Amortization expense related to intangible assets subject to amortization
was $829,000 for the three months ended March 31, 2005. Estimated annual
amortization expense for the next five years, including the remainder of 2005,
is expected to be as follows (in thousands):   Year Ending December 31,2005
    
    $
    3,1302006
    
    
    3,8292007
    
    
    3,5442008
    
    
    3,3402009
    
    
    3,240Thereafter
    
    
    8,785$
    25,868
    9       Unamortized Intangible Assets  December 31, 2004
    
    March 31, 2005Domain names
    $
    2,809
    
    $
    2,827Total
    $
    2,809
    
    $
    2,827
  Goodwill The changes in the carrying amount of goodwill for the three months ended
March 31, 2005, are as follows:   Online Images
    
    
    Online Media
    
    
    Research
    
    
    Events
    
    TotalBalance as of December 31, 2004
    
    $
    30,764
    
    
    $
    8,570
    
    
    $
    2,632
    
    
    $
    49
    
    $
    42,015Goodwill acquired during period
    
    
    52,746
    
    
    
    300
    
    
    
    —
    
    
    
    —
    
    
    53,046Purchase accounting adjustments
    
    
    208
    
    
    
    —
    
    
    
    —
    
    
    
    —
    
    
    208Balance as of March 31, 2005
    
    $
    83,718
    
    
    $
    8,870
    
    
    $
    2,632
    
    
    $
    49
    
    $
    95,259
  Purchase accounting adjustments pertain primarily to adjustments made to
the fair value of certain assets purchased in conjunction with the acquisitions
of Hemera Technologies Inc. and the assets of Comstock Inc.  7.
    ACQUISITIONS
 On March 7, 2005, Jupitermedia acquired all of the equity of Creatas,
L.L.C., the parent company of Dynamic Graphics, Inc. and PictureQuest
Acquisition Company, L.L.C., and their many stock photo and related graphics
brands ( Dynamic Graphics Group ), for $38.2 million in cash and 1,483,074
restricted shares of Jupitermedia common stock preliminarily valued at $21.6
million when issued. Jupitermedia financed the cash portion of the purchase
price with cash on hand and a $20.0 million term loan under a credit facility
with JPMorgan Chase Bank, N.A. ( JPMorgan ) obtained in connection with the
transaction.   10      The
results of Dynamic Graphics Group have been included in the Consolidated
Condensed Financial Statements of Jupitermedia since March 7, 2005. The unaudited pro forma information below presents results of operations
as if the acquisition of Dynamic Graphics Group had occurred on the first day of
each period presented.The unaudited pro forma information is not necessarily indicative of the
results of operations of the combined companies had these events occurred at the
beginning of the year presented nor is it indicative of future results (in
thousands, except per share amounts):   Three Months Ended March 31,2004
    
    2005Revenues
    $
    24,320
    
    $
    33,690Net income
    $
    1,255
    
    $
    5,575Basic earnings per share
    $
    0.05
    
    $
    0.17Diluted earnings per share
    $
    0.04
    
    $
    0.16
   8.
    CREDIT FACILITIES
 On March 7, 2005, in connection with its acquisition of Dynamic Graphics
Group, Jupitermedia entered into a Credit Agreement (the Credit Agreement ) with
JPMorgan, which provides for a $20 million senior term loan, of which $20.0
million was outstanding as of March 31, 2005. The $20.0 million term loan is
scheduled to mature on March 7, 2008 and may be prepaid without penalty.
Jupitermedia may elect that the loan bear interest at a rate per annum equal to
either (i) an adjusted LIBOR-based rate, plus 1.75% (or, if debt to our EBITDA
is less than .50 to 1.00, 1.50%) or (ii) the prime rate, as announced by
JPMorgan. The Credit Agreement requires Jupitermedia to pay principal in
quarterly installments of $1,666,667, commencing on June 30, 2005 and ending on
March 31, 2008. The Credit Agreement contains customary covenants including,
among others, restrictions on Jupitermedia s ability to pay dividends, incur
additional indebtedness (other than subordinated indebtedness) or liens on its
assets, make investments in excess of $2 million in the aggregate or make
acquisitions in excess of $25 million in any four consecutive fiscal quarters or
in excess of $5 million for any single transaction. The Credit Agreement also
requires Jupitermedia to meet certain financial tests, including, a net income
test, a net loss test, a minimum net worth test and a minimum cash balance test.
The Credit Agreement contains customary events of default, including among other
things, non payment of principal, interest, fees or other amounts when due,
inaccuracy of representations and warranties, violation of covenants, a material
adverse change, a change of control or the occurrence of a bankruptcy or a
certain ERISA-related events. Upon an event of default, all amounts owing under
the Credit Agreement will immediately become due and payable and will bear
interest at a default rate equal to the then applicable rate of interest plus
2%. Borrowings under the Credit Agreement are guaranteed by Jupitermedia s
material subsidiaries and are collateralized by substantially all of its
assets.  In connection with entering into the Credit Agreement of JPMorgan,
Jupitermedia terminated its credit facilities with HSBC Bank USA (HSBC).The HSBC credit
facilities provided for up to $23 million in borrowings on a revolving basis and
were secured by substantially all of the assets of Jupitermedia.There were no amounts outstanding under the HSBC credit facilities at the
time of their termination. 9.
    SEGMENT INFORMATION
 The following tables summarize the results of the segments of
Jupitermedia for the three months ended March 31, 2004 and 2005. Online images
consists of the JupiterImages business that includes Comstock Images, Creatas
Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage,
Photos.com, HemeraImages.com, Ablestock.com, PhotoObjects.net, Clipart.com and
Animations.com. Online media consists of the JupiterWeb business that includes
the internet.com, EarthWeb.com, DevX.com, ClickZ.com and Graphics.com Networks.
Research represents the JupiterResearch business. Events represent the
JupiterEvents business. Other includes corporate overhead, depreciation,
amortization and venture fund related activities. With the exception of
goodwill, Jupitermedia does not identify or allocate assets by operating
segment. See Note 6 for the allocation of goodwill to Jupitermedia s reportable
segments.      11       Summary information by segment for the three months ended March 31, 2004
and 2005 is as follows (in thousands):   Three Months Ended March 31,2004
    
    
    2005Revenues:Online images
    $
    2,457
    
    $
    12,163Online media
    
    7,219
    
    
    7,540Research
    
    2,342
    
    
    2,555Events
    
    2,322
    
    
    2,748Other
    
    13
    
    
    814,353
    
    
    25,014Cost of revenues and operating expenses:Online images
    
    1,208
    
    
    5,359Online media
    
    5,007
    
    
    5,045Research
    
    2,151
    
    
    2,531Events
    
    2,144
    
    
    2,352Other
    
    2,228
    
    
    3,48112,738
    
    
    18,768Operating income (loss):Online images
    
    1,249
    
    
    6,804Online media
    
    2,212
    
    
    2,495Research
    
    191
    
    
    24Events
    
    178
    
    
    396Other
    
    (2,215
    )
    
    (3,473
    )$
    1,615
    
    $
    6,246
  10.
    INCOME TAXES
 Jupitermedia recorded provisions for federal, state and foreign income
taxes of $485,000, $188,000 and $5,000, respectively, for three months ended
March 31, 2005 based upon estimated tax rates and did not record a provision for
income taxes for the three months ended March 31, 2004, as Jupitermedia did not
have taxable income for that period. The provision for federal income taxes is
due to deferred income tax expense related to the amortization of certain
intangibles, primarily goodwill from various acquisitions, for income tax
purposes that are not amortized in our financial statements.  11.
    COMMITMENTS AND CONTINGENCIES
 On February 28, 2003, Jupitermedia filed a lawsuit in the United States
District Court for the District of Colorado alleging that the defendants,
Michael Anderson, Prime Directive, Inc. and Part-15 Corporation, are knowingly
and willfully using the name WISPCON to advertise, promote and conduct a variety
of Internet / information technology trade shows, where such name is
deliberately and confusingly similar to the plaintiffs pre-existing use in
connection with their own Internet / information technology trade shows of the
trademarked, service marked and branded name ISPCON. Jupitermedia owns 49.9% of
the ISPCON joint venture, through which it provides marketing, sales and other
event support for the ISPCON trade shows. Defendants filed a motion to dismiss
for lack of personal jurisdiction and have also filed an Answer and
Counterclaim. Defendants sought injunctive relief and damages on their
counterclaim for what they alleged was the plaintiffs wrongful use of the name
WISPCON. The District Court, by Order dated September 7, 2004, dismissed the
lawsuit and counterclaim without prejudice, with each party to bear its own
costs. The parties entered into a settlement agreement to settle all claims of
the lawsuit and counterclaim. In connection with the settlement, the ISPCON
joint venture paid an amount that did not materially affect the financial
statements of Jupitermedia. On May 12, 2004, Jupitermedia filed a lawsuit against eMarketer, Inc. (
eMarketer ) in United States District Court for the Southern District of New
York, alleging that eMarketer violated Jupitermedia s copyright, trademark and
related rights. Jupitermedia is seeking an injunction, damages and legal costs.
On June 30, 2004, eMarketer filed an answer and counterclaim  12      seeking a declaratory judgment that the conduct of which Jupitermedia
complains is not violative of Jupitermedia s rights and is not seeking damages.
Jupitermedia replied to the counterclaim on July 30, 2004, and discovery has
commenced. On August 3, 2004, Mario Cisneros and Michael Voight filed a class action
lawsuit on behalf of themselves and all others situated and/or the general
public against thirteen co-defendants including Jupitermedia. Cisneros et al.
allege that defendants posting of paid advertising providing links to Internet
gambling Web sites constitutes unfair competition and unlawful business acts and
practices under California law. Plaintiffs seek declaratory and injunctive
relief, disgorgement of profits and restitution. Jupitermedia denies liability
and intends to continue to defend itself vigorously. Jupitermedia is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial statements of Jupitermedia.    13       Item 2.
    Management s Discussion and Analysis of Financial Condition and
      Results of Operations
 The following discussion should be read in conjunction with our unaudited
financial statements and the accompanying notes, which appear elsewhere in this
filing. Statements in this Form 10-Q, which are not historical facts, are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. The
potential risks and uncertainties address a variety of subjects including, for
example: the competitive environment in which Jupitermedia competes; the
unpredictability of Jupitermedia s future revenues, expenses, cash flows and
stock price; Jupitermedia s ability to integrate acquired businesses, products
and personnel into its existing businesses; Jupitermedia s dependence on a
limited number of advertisers; and Jupitermedia s ability to protect its
intellectual property. For a more detailed discussion of such risks and
uncertainties, refer to Jupitermedia s reports filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934. The
forward-looking statements included herein are made as of the date of this Form
10-Q, and we are under no obligation to update the forward-looking statements
after the date hereof. Overview We are a global provider of original online information, images, research
and events for information technology ( IT ), business and creative
professionals. Our operations are classified into four principal segments:
Online images, Online media, Research and Events. Online images.Online images includes our
JupiterImages network, which serves creative professionals with over 7.0 million
images online with brands like Comstock Images, Creatas Images, PictureQuest,
Liquid Library, Thinkstock Images, Thinkstock Footage, HemeraImages.com,
Ablestock.com, PhotoObjects.net, Photos.com, Clipart.com and
Animations.com. We generate our Online images revenues from paid subscriptions that
provide access to our image libraries, licensing of single image downloads and
sales of CD-ROMs. Our images are licensed online through our networks,
through our direct sales force and through third party relationships. We also
have agreements with a number of distributors of digital images and footage
clips, whereby the distributors make sales to third party customers and remit a
percentage of the sales to us. The principal costs of our Online images business
relate to production, sales and marketing personnel, technology infrastructure,
royalties for images that we license, lead generation fees for sales referrals
and credit card processing fees. Online media.Online media includes
JupiterWeb, which consists of our internet.com, EarthWeb.com, DevX.com,
ClickZ.com and Graphics.com networks of over 150 Web sites and over 150 e-mail
newsletters that are viewed by over 20 million viewers and generate over 300
million page views monthly. We generate our Online media revenues from: •
    advertising and custom publishing on our Web sites, e-mail
      newsletters, online discussion forums and moderated e-mail discussion
      lists;•
    e-commerce agreements, which generally include a fixed fee for
      advertising and either a bounty for new customer accounts or revenue
      sharing;
 •
    paid subscription services for our paid e-mail newsletters and
      services;•
    renting our permission based opt-in e-mail list
names.•
    advertiser sponsorships of our Webinars; and
 •
    licensing our editorial content, software and brands to third
      parties for fixed fees and royalties based on the licensee s revenues
      generated by the licensed property.
 The principal costs of our Online media business relate to payroll for
our editorial, technology and sales personnel as well as technology related
costs for facilities and equipment.  Research.Research includes our
JupiterResearch business, which provides clients with original and proprietary
information to better understand how the Internet and new technologies impact
marketing and commerce. We generate our Research revenues primarily from the sale of our
syndicated research products. These products deliver data and analysis via
written research reports and analyst inquiry. Our syndicated research is
typically sold on an annual subscription basis. We also generate revenue through
the sale of our custom research product, which delivers specific research based
on the needs of our customers. The results of our Research business vary with
the amount of custom research projects completed during each period.  14       The principal costs of our Research business relate to analyst and sales
personnel and costs to acquire third party research data. Events.Events include our JupiterEvents
business that produces offline events focused on IT and business-specific topics
that are of interest to our users. We generate our Events revenues from attendee registrations, the purchase
of exhibition space by exhibitors who pay a fixed price per square foot of booth
space and advertiser and vendor sponsorships. The results of our Events business
vary with the topics, frequency and timing of the events we produce. The principal costs of our Events business relate to operations and sales
personnel, venue and speaker costs and advertising expenses to attract attendees
to our events. Recent Acquisitions On March 7, 2005, Jupitermedia acquired Creatas, L.L.C., the parent
company of Dynamic Graphics, Inc. and PictureQuest Acquisition Company, L.L.C.,
and their many stock photo and related graphics brands ( Dynamic Graphics Group
), for $38.2 million in cash and 1,483,074 restricted shares of Jupitermedia
common stock preliminarily valued at $21.6 million when issued. During 2004, we made three significant acquisitions. On April 1, 2004,
Jupitermedia acquired substantially all of the assets and certain liabilities of
Comstock, Inc. ( Comstock Images ) for approximately $20.85 million in cash (the
Comstock Acquisition ). On July 28, 2004, we acquired the assets of the Thinkstock Images and
Thinkstock Footage businesses, or Thinkstock, from Thinkstock, LLC for $4.0
million in cash, the assumption of certain limited liabilities and 50,000
restricted shares of Jupitermedia common stock. On November 12, 2004, Jupitermedia acquired all of the stock of Hemera
Technologies Inc. and its subsidiaries ( Hemera ) for approximately $7.3 million
in cash (the Hemera Acquisition ). We expect to continue to develop and expand our current offerings through
internal development and, where appropriate opportunities are identified,
through acquisitions to drive revenue and earnings growth.    15       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 March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online images
    
    $
    2,457
    
    $
    12,163
    
    $
    9,706
    
    395
    %Online media
    
    
    7,219
    
    
    7,540
    
    
    321
    
    4Research
    
    
    2,342
    
    
    2,555
    
    
    213
    
    9Events
    
    
    2,322
    
    
    2,748
    
    
    426
    
    18Other
    
    
    13
    
    
    8
    
    
    (5
    )
    (39
    )$
    14,353
    
    $
    25,014
    
    $
    10,661
    
    74
    %
  Online images. We acquired the assets of Comstock
Images on April 1, 2004, the assets of Thinkstock on July 28, 2004, the stock of
Hemera on November 12, 2004 and Dynamics Graphics Group on March 7, 2005 and
therefore there are no financial results for these businesses prior to these
respective dates. The acquisition of the assets of Comstock and Thinkstock
contributed $3.3 million and $754,000, respectively, to revenues during the
three months ended March 31, 2005. The acquisition of Hemera contributed $1.2
million to revenues for the three months ended March 31, 2005 and the
acquisition of Dynamic Graphics Group contributed $3.3 million during the same
period. The following table sets forth, for the three months ended March 31,
2005, the components of our Online images revenues (dollars in
thousands):   Three Months Ended March 31,2004
    
    2005Subscriptions
    
    $
    2,392
    
    $
    3,948Single images and CD-ROMs
    
    
    45
    
    
    5,221Distributors, licensing and other
    
    
    20
    
    
    2,994Total Online images
    
    $
    2,457
    
    $
    12,163
  The following table sets forth, as of the last day in the periods
indicated, a quarter-by-quarter comparison of our Online images revenues and
subscription bookings for our subscription image products (dollars in
thousands):   Revenues
    
    Subscription BookingsMarch 31, 2004
    
    $
    2,392
    
    $
    3,017June 30, 2004
    
    
    2,592
    
    
    2,948September 30, 2004
    
    
    2,744
    
    
    3,388December 31, 2004
    
    
    3,129
    
    
    3,986March 31, 2005
    
    
    3,948
    
    
    5,098
  Revenues and subscription bookings have increased due primarily to an
increase in the number of subscribers, the acquisitions of Dynamic Graphics
Group and Hemera and an increase in average selling price of the mix of products
purchased by our customers. The decrease in subscription bookings during the
quarter ended June 30, 2004 was due primarily to seasonality. We expect our
subscription bookings to continue to increase in the future.   16       Onlinemedia.The increase in revenues during the three months ended
March 31, 2005 was due primarily to an increase in the number of advertisers. We
expect our Online media revenues to increase in the second quarter of 2005 in
comparison to the first quarter based on the seasonality of the advertising
business. The following table sets forth, for the periods indicated, a comparison
of our Online media revenues including barter (dollars in thousands):   Three Months Ended March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online media
    
    $
    7,214
    
    $
    7,516
    
    $
    302
    
    4
    %Barter
    
    
    5
    
    
    24
    
    
    19
    
    380Total Online media
    
    $
    7,219
    
    $
    7,540
    
    $
    321
    
    4
    %
  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 AdvertiserMarch 31, 2004
    
    210
    
    $
    29June 30, 2004
    
    220
    
    
    29September 30, 2004
    
    220
    
    
    24December 31, 2004
    
    235
    
    
    28March 31, 2005
    
    213
    
    
    26
  Barter revenues vary in correlation to the number of barter transactions
into which we enter. We acquired Dynamic Graphics Group on March 7, 2005 and this acquisition
contributed $94,000 to online media revenues during the three months ended March
31, 2005. Research. We have experienced continued increases
in renewal rates in 2004 and into 2005 as conditions in the U.S. economy
improved, as we launched several new research coverage areas and as companies
once again began investing in market research. We also saw an increase in the
amount of custom research projects completed for our customers. The following table sets forth, for the periods indicated, a
quarter-by-quarter comparison of the JupiterResearch syndicated renewal rates
for 2004 through the first quarter of 2005:   Percentage ofContract
      Value Renewed
    
    Percentage of Number of
      ContractsRenewedFiscal Quarter Ended
    
    2004
    
    2005
    
    2004
    
    2005March 31
    
    103
    %
    105
    %
    77
    %
    72
    %June 30
    
    88
    
    —
    
    71
    
    —September 30
    
    93
    
    —
    
    70
    
    —December 31
    
    97
    
    —
    
    83
    
    —
  The amounts above reflect renewal activity to date. The ultimate results
regarding renewals for the quarter ended March 31, 2005 will not be known until
a future date due to the timing of the renewal of certain contracts. We expect
the percentage of contract value renewed and the percentage of the number of
contracts renewed to be greater than the results presented above for the quarter
ended March 31, 2005.   17       The following table sets forth, as of the last day in the periods
indicated, a quarter-by-quarter comparison of the Jupiter Research active
contracts (dollars in thousands):   Number of Active Contracts
    
    Total Active Contract ValueFiscal Quarter Ended
    
    2004
    
    2005
    
    2004
    
    2005March 31
    
    240
    
    299
    
    $
    8,236
    
    $
    9,784June 30
    
    243
    
    —
    
    
    8,407
    
    
    —September 30
    
    259
    
    —
    
    
    8,691
    
    
    —December 31
    
    277
    
    —
    
    
    8,948
    
    
    —
  Active contract value is defined as the total value of all active
syndicated research contracts without taking into account the amount of revenue
recognized to date or the amount of revenue available to be recognized in the
future. Events.The results of our Events business vary
with the topics, frequency and timing of the events that we produce. We have
made investments in events focused on specific vertical content areas that align
with our other properties and, depending upon their success, we may or may not
produce the events in the future. The following table sets forth, for the three
months ended March 31, 2004 and 2005, a comparison of the number of events we
produced and the amount of our revenues relating to paid attendance, sponsors
and exhibitors and barter during the periods shown (dollars in
thousands):   Three Months Ended March 31,2004
    
    2005Number of events produced
    
    
    5
    
    
    1Attendee revenue
    
    $
    1,278
    
    $
    1,760Sponsor and exhibitor revenue
    
    
    974
    
    
    950Barter revenue
    
    
    70
    
    
    38Total Events revenue
    
    $
    2,322
    
    $
    2,748
  The increase in revenues from 2004 to 2005 is due primarily to the growth
of our Search Engine Strategies event. Barter revenues vary in correlation to the number of barter transactions
into which we enter. Other.Other revenues represent management fees
from our management of internet.com Venture Fund I LLC. Due to the liquidation
and dissolution of internet.com Venture Fund II LLC and internet.com Venture
Partners III LLC and the size of internet.com Venture Fund I these revenues will
continue to be negligible in the future.     18       Cost of revenues and gross profit The following table sets forth, for the periods indicated, a comparison
of our cost of revenues and gross profit by segment (dollars in
thousands): Cost of revenues  Three Months Ended March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online images
    
    $
    635
    
    $
    3,185
    
    $
    2,550
    
    402
    %Online media
    
    
    2,903
    
    
    3,071
    
    
    168
    
    6Research
    
    
    1,236
    
    
    1,440
    
    
    204
    
    17Events
    
    
    1,246
    
    
    1,856
    
    
    610
    
    49$
    6,020
    
    $
    9,552
    
    $
    3,532
    
    59
    %
  Gross profit  Three Months EndedMarch 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online images
    
    $
    1,822
    
    $
    8,978
    
    $
    7,156
    
    393
    %Online media
    
    
    4,316
    
    
    4,469
    
    
    153
    
    4Research
    
    
    1,106
    
    
    1,115
    
    
    9
    
    1Events
    
    
    1,076
    
    
    892
    
    
    (184
    )
    (17
    )Other
    
    
    13
    
    
    8
    
    
    (5
    )
    (39
    )$
    8,333
    
    $
    15,462
    
    $
    7,129
    
    86
    %
  Gross profit %  Three Months Ended March 31,2004
    2005Online images
    74%
    74%Online media
    60
    59Research
    47
    44Events
    46
    33Other
    100
    10058%
    62%
  Online images.Cost of revenues primarily
consists of payroll costs for production personnel, communications
infrastructure, Web site hosting, storage for our image library and royalties.
The acquisition of Dynamic Graphics Group added $1.6 million to cost of revenues
during the quarter ended March 31, 2005. The acquisition of the assets of
Comstock added $492,000 to cost of revenues during the three months ended March
31, 2005, and these costs consisted primarily of payroll related costs. The
acquisition of the assets of Thinkstock added $74,000 to cost of revenues for
the three months ended March 31, 2005 and the acquisition of Hemera added
$429,000 to cost of revenues for the same period. We license a portion of our image library from third parties and pay them
a portion of the revenues we receive from our customers as royalties. Royalty
expense was $324,000 and $1.3 million for the three months ended March 31, 2004
and 2005, respectively. The year-over-year increase is due to the acquisition of
Dynamic Graphics Group in March 2005.   19       The increase in gross profit and gross profit percentage for the three
months ended March 31, 2005 is directly attributable to the increased revenues
for the respective periods. 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 for editorial personnel, freelance costs, communications
infrastructure and Web site hosting. The increase in cost of revenues from 2004
to 2005 was due primarily to increased costs resulting from the acquisition of
Dynamics Graphics Group that added $88,000 to cost of revenues for the three
months ended March 31, 2005. The increase in gross profit for the three months ended March 31, 2005
from the same period in 2004 was due primarily to the increase in revenues from
2004 to 2005. We intend to make investments through internal development and, where
appropriate opportunities arise, acquisitions to continue to expand our content
offerings. We may need to increase our spending in order to create additional
content related to new topics or offerings. Research.Cost of revenues primarily consists of
payroll costs related to research analysts and costs to acquire third party
research data. Cost of revenues increased during the three months ended March
31, 2005 in comparison to the three months ended March 31, 2004 due primarily to
an increase in payroll costs of $179,000 related to research analysts. The increase in gross profit for the three months ended March 31, 2005 is
directly attributable to the increased revenues for the respective
periods. We intend to make investments in new research coverage areas where
appropriate and this may result in increased costs related to hiring personnel
and acquiring data to produce our research. Events.Cost of revenues primarily consists of
payroll costs related to operations employees and event production costs such as
venue and speaker costs. Costs of revenues have increased during the three
months ended March 31, 2005 in comparison to the prior year due primarily to the
growth in the size of our Search Engine Strategies event. Gross profit and gross profit percentage may vary with the topics,
frequency and timing of the events we produce in addition to the impact of
launching first-time events. The decrease in gross profit and gross profit
percentage during the three months ended March 31, 2005 is due primarily to the
additional costs incurred in 2005 in connection with the Search Engine
Strategies event. We intend to continue to make investments to launch new events that align
with our other properties. In addition, depending upon the success of certain
events, we may increase the number of times we run an event relating to a
specific topic.    20       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 March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online images
    
    $
    319
    
    $
    1,576
    
    $
    1,257
    
    394
    %Online media
    
    
    1,684
    
    
    1,793
    
    
    109
    
    7Research
    
    
    718
    
    
    868
    
    
    150
    
    21Events
    
    
    854
    
    
    456
    
    
    (398
    )
    (47
    )$
    3,575
    
    $
    4,693
    
    $
    1,118
    
    31
    %
  Online images.Advertising, promotion and selling
expenses primarily consists of payroll for sales and marketing personnel,
commissions to third parties for referrals, credit card transaction fees and
advertising. The acquisitions of the assets of Comstock and Thinkstock added
$436,000 and $60,000, respectively, to advertising, promotion and selling
expenses during the three months ended March 31, 2005. In addition, the
acquisitions of Hemera and Dynamic Graphics Group added $192,000 and $566,000,
respectively, to advertising, promotion and selling expenses during the three
months ended March 31, 2005. Online media.Advertising, promotion and selling
expenses primarily consists of payroll costs for sales and marketing personnel.
In addition, it includes costs related to marketing activities including barter.
The increase from 2004 to 2005 in advertising, promotion and selling expenses
relates primarily to increased advertising costs of $48,000 and to the
acquisition of Dynamic Graphics Group that added an additional $42,000 to
advertising, promotion and selling expenses for the three months ended March 31,
2005. Barter expense was $5,000 and $24,000 for the three months ended March
31, 2004 and 2005, respectively. Barter expenses vary in correlation to the
number of barter transactions into which we enter. Research.Advertising, promotion and selling
expenses primarily consists of payroll for sales and marketing personnel. These
expenses increased in 2005 due primarily to an increase in payroll related costs
of $132,000 for sales personnel in comparison to the three months ended March
31, 2004. Events.Advertising, promotion and selling
expenses primarily consists of payroll for sales and marketing personnel and
advertising expense. Expenses for the three months ended March 31, 2005 have
decreased due to a reduction of employee related costs of $98,000. In addition,
advertising costs for our events decreased $281,000 for the three months ended
March 31, 2005, due to a decrease in the number of events we produced during the
period. Barter expense was $70,000 and $38,000 for the three months ended March
31, 2004 and 2005, respectively. Barter expenses vary in correlation to the
number of barter transactions into which we enter.   21       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 March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Online images
    
    $
    254
    
    $
    598
    
    $
    344
    
    135
    %Online media
    
    
    420
    
    
    181
    
    
    (239
    )
    (57
    )Research
    
    
    197
    
    
    223
    
    
    26
    
    13Events
    
    
    44
    
    
    40
    
    
    (4
    )
    (9
    )Other
    
    
    1,610
    
    
    2,365
    
    
    755
    
    47$
    2,525
    
    $
    3,407
    
    $
    882
    
    35
    %
  Online images.General and administrative
expenses primarily consists of payroll for administrative personnel, office
related costs and professional fees. The acquisition of the assets of Comstock
and Thinkstock and the acquisitions of Dynamics Graphics Group and Hemera added
$189,000, $45,000, $114,000 and $166,000, respectively, to general and
administrative expenses during the first quarter of 2005. The effect of these
acquisitions was partially offset by a reduction in payroll and employee related
costs of $125,000. Online media.General and administrative expenses
primarily consist of office related costs and provisions for losses on accounts
receivable. The decrease in general and administrative expenses from 2004 to
2005 was due primarily to decreased provisions for losses on accounts receivable
of $233,000 for the three months ended March 31, 2005. This decrease was due to
improved collections of our receivables. We do not expect this decrease to be a
trend that will continue in the future. Research.General and administrative expenses
primarily consists of payroll for administrative personnel, office related
costs, professional fees and provisions for losses on accounts receivable. Events.General and administrative expenses
primarily consists of payroll for administrative personnel, office related costs
and professional fees. Other.General and administrative expenses
primarily consist of payroll costs for administrative personnel, office related
costs and professional fees. The acquisition of Dynamic Graphics Group added
$336,000 to general and administrative costs during the three months ended March
31, 2005. The remaining increase in general and administrative expenses during
2005 relates to an increase in payroll related costs of $236,000, legal expenses
of $87,000, professional fees for consulting services of $47,000 and $30,000 in
employee recruiting costs. The increase in legal expenses is due to increased
costs relating to certain legal proceedings. Additionally, we incurred an
increase in consulting fees in conjunction with the requirements of complying
with the Sarbanes-Oxley Act of 2002.    22       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 March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Depreciation
    
    $
    223
    
    $
    287
    
    $
    64
    
    29
    %Amortization
    
    
    395
    
    
    829
    
    
    434
    
    110$
    618
    
    $
    1,116
    
    $
    498
    
    81
    %
  Depreciation expense increased during the three months ended March 31,
2005 due primarily to the acquisition of Dynamic Graphics Group. Amortization expense increased during the three months ended March 31,
2005 due primarily to amortization of intangible assets related to the
acquisitions of Comstock, Thinkstock, Hemera and Dynamic Graphics Group. The acquisitions of the assets of Comstock and Thinkstock and the
acquisitions of Hemera and Dynamic Graphics Group added $229,000, $113,000,
$109,000 and $176,000, respectively, to depreciation and amortization expense in
2005. Our depreciation and amortization expenses may vary in future periods
based upon a change in our capital expenditure levels, any purchase accounting
adjustments relating to the acquisitions of Hemera and Dynamic Graphics Group or
any acquisitions that may be completed during the remainder of 2005. Income (loss) on investments and other, net The following table sets forth, for the periods indicated, a
quarter-over-quarter comparison of our income (loss) on investments and other,
net (dollars in thousands):  Three Months Ended March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Income (loss) on investments and other, net
    
    $
    14
    
    $
    (30
    )
    $
    (44
    )
    (314
    )%
  During the three months ended March 31, 2005, we recorded a net loss from
the sale of assets and other of $30,000.    23       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 March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Interest income
    
    $
    18
    
    $
    119
    
    $
    101
    
    561
    %Interest expense
    
    
    (6
    )
    
    (88
    )
    
    (82
    )
    (1,366
    )
  The increase in interest income from 2004 to 2005 was due to a higher
average cash balance resulting from the completion of our follow-on public
offering of common stock in May 2004. Interest expense relates to long-term financing arrangements assumed as
part of the June 2003 acquisition of ArtToday, Inc. as well as a $20.0 million
term loan under a credit facility with JPMorgan Chase Bank N.A. used to
partially finance the acquisition of Dynamic Graphics Group on March 7,
2005. Provision for income taxes Jupitermedia recorded provisions for federal, state and foreign income
taxes of $485,000, $188,000 and $5,000, respectively, for the three months ended
March 31, 2005 based upon estimated tax raesJupitermedia did not record a provision for
income taxes for the three months ended March 31, 2004, as Jupitermedia did not
have taxable income. Minority interests Minority interests represent the minority stockholders proportionate
share of profits or losses of our majority-owned Japanese subsidiary,
Japan.internet.com KK, which is our online media business focused on
Japan. Equity income from venture fund investments and other, net Equity income represents our net equity interests in the investments in
internet.com venture funds and event-related joint ventures. As a result of the
dissolution of internet.com Venture Fund II LLC and internet.com Venture
Partners III LLC during 2004, the remaining carrying value of our venture fund
investments is limited to the carrying value of our investment in internet.com
Venture Fund I LLC, which was $171,000 as of March 31, 2005.   24       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):   Three Months Ended March 31,
    
    2004 vs. 20052004
    
    2005
    
    $
    
    %Operating cash flows
    
    $
    3,241
    
    $
    7,203
    
    $
    3,962
    
    122
    %Investing cash flows
    
    $
    (1,185
    )
    $
    (38,051
    )
    $
    (36,866
    )
    3,111
    %Financing cash flows
    
    $
    1,080
    
    $
    20,255
    
    $
    19,175
    
    1,776
    %Acquisitions of businesses
    
    $
    (1,273
    )
    $
    (37,830
    )
    $
    (36,557
    )
    2,872
    %Capital expenditures
    
    $
    (61
    )
    $
    (221
    )
    $
    (160
    )
    263
    %
    As of
    
    2004 vs. 2005December 31, 2004
    
    March 31,2005
    
    $
    
    %Cash and cash equivalents
    
    $
    30,179
    
    $
    19,586
    
    $
    (10,593
    )
    (35
    %)Accounts receivable, net
    
    $
    15,385
    
    $
    20,496
    
    $
    5,111
    
    33
    %Working capital
    
    $
    26,525
    
    $
    297
    
    $
    (26,228
    )
    (99
    %)
  Since inception, we have funded operations primarily with cash proceeds
from our initial and follow-on public offerings of our common stock in June
1999, February 2000 and May 2004, respectively. Cash decreased in 2005 primarily
due to the acquisition of Dynamic Graphics Group, which resulted in a cash
payment of $38.2 million. This decrease was partially offset by a $20.0 million
term loan under a credit facility obtained in connection with the acquisition
along with cash inflows from operating activities of $7.2 million. Cash provided by operating activities increased in 2005 due primarily to
increases in our net income and our deferred revenues as well as decreases in
accounts receivables offset by decreases in accounts payable and accrued
expenses. In 2005, deferred revenues increased primarily due to the increased
bookings for our Online images business and bookings for paid attendance,
sponsorships and exhibition space fees for certain events to be held in the
future. The amounts of cash used in investing activities vary in correlation to
the number and value of the acquisitions consummated. Net cash used in investing
activities in 2005 increased from cash used in 2004 primarily due to the
acquisition of Dynamic Graphics Group. As part of the acquisition of ArtToday,
Inc., we are required to make earn-out payments totaling up to a maximum of $4.0
million based on net revenue targets achieved by ArtToday, Inc. for the period
from July 1, 2003 to December 31, 2003; for the period from January 1, 2004 to
June 30, 2004; and for the period from July 1, 2004 to June 30, 2005. Based on
the results of ArtToday, Inc. for the period from July 1, 2003 to December 31,
2003, the seller, International Microcomputer Software, Inc. ( IMSI ), was paid
$1.0 million in February 2004, which represents the maximum amount that could
have been earned for this earn-out period. Cash provided from financing activities in 2005 relates primarily to
borrowings from a $20.0 million term loan under a credit facility with JPMorgan
Chase Bank N.A. obtained in connection with the acquisition of Dynamic Graphics
Group.   25       On March 7, 2005, Jupitermedia acquired Creatas, L.L.C., the parent
company of Dynamic Graphics, Inc. and PictureQuest Acquisition Company, L.L.C.,
and their many stock photo and related graphics brands ( Dynamic Graphics Group
), for $38.2 million in cash and 1,483,074 restricted shares of Jupitermedia
common stock preliminarily valued at $22.2 million when issued. Jupitermedia
financed the cash portion of the purchase price with cash on hand and a $20.0
million term loan under a credit facility with JPMorgan Chase Bank, N.A. (
JPMorgan ) obtained in connection with the transaction. On March 7, 2005, in connection with our acquisition of Dynamic Graphics
Group, Jupitermedia entered into a Credit Agreement (the Credit Agreement ) with
JPMorgan which provides for a $20 million senior term loan, of which $20.0
million was outstanding as of March 31, 2005. The $20.0 million term loan is
scheduled to mature on March 7, 2008 and may be prepaid without penalty.
Jupitermedia may elect that the loan bear interest at a rate per annum equal to
either (i) an adjusted LIBOR-based rate, plus 1.75% (or, if debt to our EBITDA
is less than .50 to 1.00, 1.50%) or (ii) the prime rate, as announced by
JPMorgan. The Credit Agreement requires us to pay principal in quarterly
installments of $1,666,667, commencing on June 30, 2005 and ending on March 31,
2008. The Credit Agreement contains customary covenants including, among others,
restrictions on our ability to pay dividends, incur additional indebtedness
(other than subordinated indebtedness) or liens on our assets, make investments
in excess of $2 million in the aggregate or make acquisitions in excess of $25
million in any four consecutive fiscal quarters or in excess of $5 million for
any single transaction. The Credit Agreement also requires us to meet certain
financial tests, including, a net income test, a net loss test, a minimum net
worth test and a minimum cash balance test. The Credit Agreement contains
customary events of default, including among other things, non payment of
principal, interest, fees or other amounts when due, inaccuracy of
representations and warranties, violation of covenants, a material adverse
change, a change of control or the occurrence of a bankruptcy or certain
ERISA-related events. Upon an event of default, all amounts owing under the
Credit Agreement will immediately become due and payable and will bear interest
at a default rate equal to the then applicable rate of interest plus 2%.
Borrowings under the Credit Agreement are guaranteed by Jupitermedia s material
subsidiaries and are collateralized by substantially all of our
assets. We expect to continue our investing activities, which includes the
potential to strategically acquire companies, content and images that are
complementary to our business. Although we are currently considering potential
strategic acquisitions, we have no binding commitments or agreements with
respect to any such acquisitions. We expect to finance future acquisition
through a combination of long-term and short-term financing including debt,
equity and cash and internally generated cash flow. We may obtain long-term
financing through the issuance of equity securities and the incurrence of
long-term secured or unsecured debt. Our existing cash and investment balances may decline during the
remainder of 2005 in the event of a downturn in the general economy,
particularly related to technology advertising, or changes in our planned cash
outlay. However, based on our current business plan and revenue prospects, we
believe that our existing balances together with our anticipated cash flows from
operations will be sufficient to meet our working capital and operating resource
expenditure requirements for the next twelve months. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123 (revised) (“SFAS 123R”), Share-Based Payment.SFAS 123R established
standards for the accounting for transactions in which an entity exchanges it
equity instruments for goods or services. It also addressed transactions in
which a entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity s equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the
award. SFAS 123R applies to all awards granted after the required effective date
and to awards modified, repurchased or cancelled after that date. Compensation
cost will be recognized on or after the required effective date for the portion
of outstanding awards for which the requisite service has not yet been rendered,
based on the grant-date fair value of those awards calculated under SFAS 123R
for either recognition or pro forma disclosures. SFAS 123R is effective as of
the beginning of the first fiscal year beginning after June 15, 2005. The
specific impact of SFAS 123R is not known as Jupitermedia is currently reviewing
the adoption and valuation methods permitted under SFAS 123R.The adoption of SFAS 123R will not have
any impact on Jupitermedia s cash flows or liquidity. In
September 2004, the Emerging Issues Task Force announced Topic No. D-108 Use of
Residual Method to Value Acquired Assets Other Than Goodwill” (“D-108”). D-108requires
companies who have applied the residual value method in the valuation of
intangible assets for purposes of impairment testing to use the direct value
method by no later than the beginning of their first fiscal year beginning after
December 15, 2004. Jupitermedia adopted D-108 during the first quarter of 2005
and there was no impact on its results of operations.     26       Critical Accounting Policies There have been no changes to our critical accounting policies from those
included in our most recent Form 10-K for the year ended December 31, 2004. Item 3.
    Quantitative and Qualitative Disclosure about Market
      Risks
 We have no derivative financial instruments or derivative commodity
instruments. We invest our excess cash primarily in debt instruments of the U.S.
Government and its agencies. We invest in equity instruments of privately held, online media and
technology companies for business and strategic purposes. These investments are
included in investments and other assets and are accounted for under the cost
method, as we do not have the ability to exert significant influence over the
companies or their operations. For these no-quoted investments, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. We identify and record
impairment losses on long-lived assets when events and circumstances indicate
that such assets might be impaired. We are the portfolio manager of, and an investor in, internet.com Venture
Fund I LLC, or Fund I, a $5.0 million venture fund formed in March 1999. This
fund invested in early-stage content-based Internet properties that are not
competitive with our business. We invested $700,000 in Fund I, all of which is
now fully invested.The remaining $4.3 million of capital raised and funded in Fund I was
sourced from third party investors. We no longer have any outstanding capital
commitments related to Fund I. The aggregate carrying value of our investment in
Fund I was $171,000 as of March 31, 2005. Our transactions are generally conducted, and as of March 31, 2005, 86%
of our cash is held in accounts that are denominated, in United States dollars.
Accordingly, we are not exposed to significant foreign currency risk. Item 4.
    Controls and Procedures
 Jupitermedia management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures as of March 31, 2005. Based on such
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information required to be to be disclosed by the Company 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
beenno changes in the Company s
internal control over financial reporting during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the Company s internal control over financial reporting.    27       PART II - OTHER INFORMATION  Item 1.
    LEGAL PROCEEDINGSOn February 28, 2003, Jupitermedia filed a lawsuit in the United
      States District Court for the District of Colorado alleging that the
      defendants, Michael Anderson, Prime Directive, Inc. and Part-15
      Corporation, are knowingly and willfully using the name WISPCON to
      advertise, promote and conduct a variety of Internet / information
      technology trade shows, where such name is deliberately and confusingly
      similar to the plaintiffs pre-existing use in connection with their own
      Internet / information technology trade shows of the trademarked, service
      marked and branded name ISPCON. Jupitermedia owns 49.9% of the ISPCON
      joint venture, through which it provides marketing, sales and other event
      support for the ISPCON trade shows. Defendants filed a motion to dismiss
      for lack of personal jurisdiction and have also filed an Answer and
      Counterclaim. Defendants sought injunctive relief and damages on their
      counterclaim for what they alleged was the plaintiffs wrongful use of the
      name WISPCON. The District Court, by Order dated September 7, 2004,
      dismissed the lawsuit and counterclaim without prejudice, with each party
      to bear its own costs. The parties entered into a settlement agreement to
      settle all claims of the lawsuit and counterclaim. In connection with the
      settlement, the ISPCON joint venture paid an amount that did not
      materially affect the financial statements of Jupitermedia.
      
      On May 12, 2004, Jupitermedia filed a lawsuit against eMarketer,
      Inc. ( eMarketer ) in United States District Court for the Southern
      District of New York, alleging that eMarketer violated Jupitermedia s
      copyright, trademark and related rights. Jupitermedia is seeking an
      injunction, damages and legal costs. On June 30, 2004, eMarketer filed an
      answer and counterclaim seeking a declaratory judgment that the conduct of
      which Jupitermedia complains is not violative of Jupitermedia s rights and
      is not seeking damages. Jupitermedia replied to the counterclaim on July
      30, 2004, and discovery has commenced.
      
      On August 3, 2004, Mario Cisneros and Michael Voight filed a class
      action lawsuit on behalf of themselves and all others situated and/or the
      general public against thirteen co-defendants including Jupitermedia.
      Cisneros et al. allege that defendants posting of paid advertising
      providing links to Internet gambling Web sites constitutes unfair
      competition and unlawful business acts and practices under California law.
      Plaintiffs seek declaratory and injunctive relief, disgorgement of profits
      and restitution. Jupitermedia denies liability and intends to continue to
      defend itself vigorously.
      
      Jupitermedia is subject to legal proceedings and claims that arise
      in the ordinary course of its business. In the opinion of management, the
      amount of ultimate liability with respect to these actions will not
      materially affect the financial statements of
  Jupitermedia.Item 2.
    CHANGES IN SECURITIESNot ApplicableItem 3.
    DEFAULTS UPON SENIOR SECURITIESNot ApplicableItem 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNot Applicable
   28        Item 5.
    OTHER INFORMATIONNot Applicable
  Item 6.
    EXHIBITS
  The following is a list of exhibits filed as part of this Report on Form
10-Q. Where so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous filing is indicated parenthetically except for in
those situations where the exhibit number was the same as set forth
below.  Exhibit Number
    Description3.1*
    Registrant s Amended and Restated Certificate of Incorporation, as
      amended3.2**
    Registrant s Bylaws11
    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
      200231.2
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 *
    Incorporated herein by reference to the Registrant s Form 10-K
      filed on March 5, 2004.
 **
    Incorporated herein by reference to the Registrant s Registration
      Statement on Form S-1 (File No. 333-76331) filed on April 15,
      1999.
   29       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: May 10, 2005
    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
     30