UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K/A

(Mark One)ý

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Fiscal Year Ended December 31, 2008oro

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


Commission File Number: 0-30428

MIVA, Inc.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

88-0348835(I.R.S. Employer
Identification No.)5220 Summerlin Commons Blvd
Fort Myers, Florida 33907(Address of principal executive offices,
including zip code)

(239) 561-7229(Registrant's telephone number,
including area code)


Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class:

Name of Each Exchange on which Registered:Common Stock, par value $0.001 per share

The NASDAQ Stock Market LLC


Securities
registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 the filing requirements for at least the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and no
disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


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

The aggregate market value of the Registrant's common equity held by non-affiliates of the Registrant was approximately $35.2 million on
June 30, 2008.

There
were 35,069,239 shares of the Registrant's Common Stock outstanding on February 28, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by reference in Part III.



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Explanatory Note

MIVA, Inc. is amending its Annual Report on Form 10-K (the "Report") for its fiscal year ended December 31, 2008 filed
with the Securities and Exchange Commission on March 31, 2009. This amendment is being made to correct a typographical error, which inadvertently omitted brackets on the net cash (used in)
operating activities of $(24,857) for the year ended December 31, 2008, on our Consolidated Statements of Cash Flows within Item 8, which is being re-filed herein. The Certifications of
the Chief Executive Officer and Chief Financial Officer, which were previously filed as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively, with the Report are being re-filed herewith
pursuant to Regulation Section 240.12b-15 of the Securities and Exchange Commission. Additionally, the Power of Attorney, which was previously filed as Exhibit 24.1 with the Report is
being re-filed herewith. All such exhibits are filed as part of and incorporated by reference into the Report.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See index to Consolidated Financial Statements table of contents located on page 55.

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Exhibits

The following exhibits are filed as part of and incorporated by reference into this report:

Exhibit No.

Footnote

Description24.1



Power of Attorney.31.1



Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2



Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1



Certification of Chief Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.32.2



Certification of Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

MIVA, INC.Date: April 7, 2009

By:

/s/ PETER A. CORRAO President and Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on
the 7th day of April 2009.

Signature

Title/s/ PETER A. CORRAO Peter A. Corrao

President, Chief Executive Officer, and Director
(principal executive officer)/s/ MICHAEL CUTLER Michael Cutler

Chief Financial Officer
(principal financial and accounting officer)*/s/ LAWRENCE WEBER* Lawrence Weber

Chairman of the Board of Directors*/s/ GERALD W. HEPP* Gerald W. Hepp

Director*/s/ JOSEPH P. DURRETT* Joseph P. Durrett

Director*/s/ ADELE GOLDBERG* Adele Goldberg

Director*/s/ LEE S. SIMONSON* Lee S. Simonson

Director


---

*By:

/s/ PETER A. CORRAO

Attorney-in-Fact


53

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Index of Exhibits

The following exhibits are filed as part of and incorporated by reference into this report:

Exhibit No.

Footnote

Description24.1



Power of Attorney.31.1



Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2



Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1



Certification of Chief Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.32.2



Certification of Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.


54

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PageConsolidated Financial Statements:Report of Independent Registered Public Accounting Firm


56Consolidated Balance Sheets as of December 31, 2008 and 2007


57Consolidated Statements of Operations for each of the two years in the period ended December 31, 2008


58Consolidated Statements of Stockholders' Equity for each of the two years in the period ended December 31, 2008


59Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 2008


60Notes to Consolidated Financial Statements


61Financial Statement Schedules:Valuation and Qualifying Accounts for each of the two years in the period ended December 31, 2008


89All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto


55

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Report of Independent Registered Public Accounting Firm

Board
of Directors and Stockholders
MIVA, Inc.
Fort Myers, Florida

We
have audited the accompanying consolidated balance sheets of MIVA, Inc. (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the two years in the period ended December 31, 2008. In connection with the audits of the
consolidated financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and schedule are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MIVA, Inc. at December 31, 2008
and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in
the United States of America.

Also,
in our opinion, the schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein.

Miami, Florida

/s/ BDO Seidman, LLPMarch 31, 2009

Certified Public Accountants


56

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MIVA, Inc.        CONSOLIDATED BALANCE SHEETS        (in thousands, except par values)

December 31,
2008

December 31,
2007ASSETSCURRENT ASSETSCash and cash equivalents

$
6,699

$
29,905Accounts receivable, less allowances of $1,242 and $723 at December 31, 2008 and 2007


11,204


14,421Deferred tax assets


167


751Income tax receivable


247


Prepaid expenses and other current assets


1,584


2,027TOTAL CURRENT ASSETS


19,901


47,104Property and equipment, net


4,975


2,745Restricted cash


2,000


Intangible assetsGoodwill





14,743Vendor agreements, net





1,318Other intangible assets, net





4,038Other assets


703


1,109TOTAL ASSETS

$
27,579

$
71,057LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable

$
6,609

$
11,957Accrued expenses


9,620


14,844Current portion of long-term debt


783


Deferred revenue


1,914


3,427TOTAL CURRENT LIABILITIES


18,926


30,228Deferred tax liabilities long-term


167


751Long-term debt


4,595


Other long-term liabilities


1,305


1,237TOTAL LIABILITIES


24,993


32,216STOCKHOLDERS' EQUITYPreferred stock, $.001 par value; authorized, 500 shares; none issued and outstanding





Common stock, $.001 par value; authorized, 200,000 shares; issued 34,480 and 33,934, respectively; outstanding 32,731 and 32,204, respectively


34


34Additional paid-in capital


268,841


265,721Treasury stock; 1,749 and 1,730 shares at cost, respectively


(6,719
)

(6,694
)Accumulated other comprehensive income


12,393


6,294Accumulated Deficit


(271,963
)

(226,514
)TOTAL STOCKHOLDERS' EQUITY


2,586


38,841TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
27,579

$
71,057


The accompanying notes are an integral part of these consolidated statements.

57

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MIVA, Inc.        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

For the Years Ended December 31,2008

2007Revenues

$
116,363

$
151,050Cost of services


57,428


71,671Gross profit


58,935


79,379Operating expensesMarketing, sales, and service


37,090


47,798General and administrative


30,331


33,691Product development


4,921


5,914Amortization


2,211


4,826Impairment loss on goodwill and other assets


18,725


20,134Restructuring Charges


4,165


2,820Litigation settlements


1,683


1,312Total operating expenses


99,126


116,495Loss from operations


(40,191
)

(37,116
)Interest income


293


640Interest expense


(71
)

(62
)Exchange rate gain (loss)


(5,433
)

157Loss before provision for income taxes


(45,402
)

(36,381
)Income tax expense (benefit)


(343
)

557Net loss from continuing operations


(45,059
)

(36,938
)Income (loss) from discontinued operations


(394
)

403Net loss

$
(45,453
)
$
(36,535
)Basic Earnings (loss) per shareContinuing operations

$
(1.38
)
$
(1.15
)Discontinued operations

$
(0.01
)
$
0.01Diluted Earnings (loss) per shareContinuing operations

$
(1.38
)
$
(1.15
)Discontinued operations

$
(0.01
)
$
0.01Weighted-average number of common shares outstandingBasic


32,621


31,935Diluted


32,621


31,935


The
accompanying notes are an integral part of these consolidated statements.

58

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MIVA, Inc.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND  COMPREHENSIVE INCOME (LOSS)        (in thousands)

For the Year Ended
December 31,2008

2007Common stockBalance, beginning of year

$
34

$
33Common stock issued related to stock option and warrant exercises





1Balance, end of year

$
34

$
34Additional paid-in-capitalBalance, beginning of year

$
265,721

$
259,353Common stock issued related to stock option and warrant exercises





2,275Compensation charge related to restricted stock unit issuance and non-employee options


3,120


4,093Balance, end of year

$
268,841

$
265,721Treasury stockBalance, beginning of year

$
(6,694
)
$
(4,744
)Treasury stock received to satisfy accrued liabilities


(25
)

(1,950
)Balance, end of year

$
(6,719
)
$
(6,694
)Accumulated deficitBalance, beginning of year

$
(226,514
)
$
(189,281
)Equity Transition Adjustment


4


(698
)Net loss


(45,453
)

(36,535
)Balance, end of year

$
(271,963
)
$
(226,514
)Accumulated other comprehensive incomeBalance, beginning of year

$
6,294

$
5,548Foreign currency translation adjustment


6,099


746Balance, end of year

$
12,393

$
6,294Stockholders' Equity

$
2,586

$
38,841Comprehensive lossNet loss

$
(45,453
)
$
(36,535
)Other comprehensive income foreign currency translation


6,099


746Comprehensive loss

$
(39,354
)
$
(35,789
)




Number of SharesCommon stockBalance, beginning of year


33,934


32,805Common stock issued related to stock option and restricted stock unit issuances


546


1,129Balance, end of year


34,480


33,934


The
accompanying notes are an integral part of these consolidated statements.

59

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MIVA, Inc.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Year ended
December 31,2008

2007Cash Flows from Operating ActivitiesNet loss

$
(45,453
)
$
(36,535
)Adjustments to reconcile net loss to net cash (used in) provided by operating activitiesProvision for (recovery of) doubtful accounts


804


(107
)Depreciation and amortization


4,069


9,414Impairment loss on goodwill and other assets


18,725


20,134Equity based compensation


3,120


4,093Gain on disposal of discontinued operations





(160
)Gain on sale of assets


(75
)

(45
)Changes in operating assets and liabilitiesAccounts receivable


1,764


6,920Prepaid expenses and other current assets


1,226


(313
)Income taxes receivable


174


1,378Deferred revenue


(1,221
)

72Accounts payable, accrued expenses and other liabilities


(7,990
)

(3,756
)Net Cash (used in) provided by operating activities


(24,857
)

1,095Cash Flows from Investing ActivitiesProceeds from the sale of property and equipment





120Proceeds from the sale of discontinued operations assets





200Portion of secured line of creditrestricted


(2,000
)

Purchase of capital items including internally developed software


(3,190
)

(397
)Net Cash (used in) provided by investing activities


(5,190
)

(77
)Cash Flows from Financing ActivitiesProceeds from secured line of credit


4,000


Payments to secure line of credit


(796
)Payments made on capital leases and notes payable


(476
)

Payments made on software license obligation





(1,400
)Proceeds received from exercise of stock options and warrants





521Net Cash (used in) provided by financing activities


2,728


(879
)Effect of Foreign Currency Exchange Rates


4,113


178(Decrease) / Increase in Cash and Cash Equivalents


(23,206
)

317Cash and Cash Equivalents, Beginning of Year


29,905


29,588Cash and Cash Equivalents, End of Year

$
6,699

$
29,905Supplemental Disclosures of Cash Flow Information:Interest paid

$
165

$
137Income taxes paid

$
297

$
816Supplemental Schedule of Noncash Investing and Financing Activities:Treasury stock received to satisfy tax withholding liabilities

$
(25
)
$
(1,950
)Purchase of capital items under capital lease obligation

$
1,836

$



The accompanying notes are an integral part of these consolidated statements.

60

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MIVA, Inc.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ANATURE OF BUSINESS

MIVA, Inc., together with its wholly-owned subsidiaries, collectively, the "Company", "we", "us" or "MIVA", is an online media and advertising network company.

In
2008 we offered a range of products and services through the following divisions:



The
majority of our revenue at MVIA Direct is generated through Internet search queries at our website. MIVA Direct products generate search queries to our website http://search.alot.com, where we provide
algorithmic and sponsored search functionality to consumers through our contractual relationships with
third-party providers.

For
our MIVA Media division, which comprised a majority of our overall revenue in 2008, we derived our revenue primarily from online advertising by delivering relevant contextual and
search ad listings to our third-party ad network and our consumer audiences on a performance basis. Marketers only paid for advertising when a predetermined action occurs, such as when an Internet
user clicks on an ad.

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements include the accounts and operations of MIVA, Inc. and our wholly-owned domestic and
international operating subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

Liquidity

Despite the Company's negative operating performance in 2008 and 2007, we currently anticipate that our working capital of
approximately $8.3 million, including cash and cash equivalents of approximately $12.4 million as of March 12, 2009, along with cash flows from operations will be sufficient, at a
minimum, to meet our liquidity needs for working capital and capital expenditures over at least the next 12 months.

61

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
the future, we may seek additional capital through the issuance of debt or equity to fund working capital, expansion of our business and/or acquisitions, or to capitalize on market
conditions. Our future liquidity and capital requirements will depend on numerous factors including the pace of expansion of our operations, competitive pressures, and acquisitions of complementary
products, technologies or businesses. As we require additional capital resources, we may seek to sell additional equity or debt securities or look to enter into a new revolving loan agreement. The
sale of additional equity or convertible debt securities could result in additional dilution to existing stockholders. There can be no assurance that any financing arrangements will be available in
amounts or on terms acceptable to us, if at all. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties and actual results could vary materially as a result of the factors described above.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates in these consolidated financial statements include estimates of: asset impairment;
income taxes; tax valuation reserves; restructuring reserve; loss contingencies; allowances for doubtful accounts; share-based compensation; and useful lives for depreciation and amortization. Actual
results could differ materially from these estimates.

Revenue Recognition

When a MIVA Direct user clicks on a sponsored advertisement on a partner's network, revenues are recognized in the amount of the
partner's fee due to MIVA Direct. Non-click-through-related revenue from MIVA Direct is recognized when earned under the terms of the contractual arrangement with the advertiser or
advertising agency, provided that collection is probable.

In
our Media Division, revenue was generated primarily through click-throughs on our managed advertisers' paid listings. When an Internet user clicks on a keyword advertisement, revenue
was recognized in the amount of the advertiser's bid price. Click-through revenue was recognized as the click-throughs were performed in accordance with the guidance of Emerging Issue Task Force
No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent." We recorded the MIVA Media Network click-through revenue gross, and private label revenue net.

Cost of Services

The Company's cost of services consists of revenue-sharing or other payments to our MIVA Media distribution partners and other directly
related expenses associated with the production and usage of MIVA Media that includes our third party patent license royalty payments.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less. We did not maintain a balance
in short-term investments as of December 31, 2008 or 2007.

62

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Doubtful Accounts

The Company records its allowance for doubtful accounts based on its assessment of various factors. The Company considers historical
experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions, and other factors that may affect our customers' ability to pay to determine
the level of allowance required.

Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash
equivalents, and accounts receivable. As of December 31, 2008, substantially all of our cash and cash equivalents were managed by a number of financial institutions. As of December 31,
2008 our cash and cash equivalents and restricted cash with certain of these financial institutions exceed FDIC insured limits. Accounts receivable are typically unsecured and are derived from revenue
earned from customers primarily located in the United States and Europe. As of December 31, 2008, one customer (Google) accounted for approximately 21.8% of the accounts receivable balance and
represented approximately 33.3% of consolidated revenues for 2008. This same customer, as of December 31, 2007, represented approximately 26.9% of the accounts receivable balance and
approximately 28.4% of the consolidated revenues for 2007.

Capitalized Software

Product development costs for internal use software are expensed as incurred or capitalized into property and equipment in accordance
with Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application
development stage of a project be capitalized. Capitalized costs are amortized over the estimated useful life of two to five years using the straight line method. During 2008 and 2007, the
amortization of capitalized costs totaled approximately $2.2 million and $2.2 million, respectively.

Fair Value of Financial Instruments

At December 31, 2008, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, and
other long-term debt, including approximately $4.0 million under our credit facility with Bridge Bank that was entered into on November 7, 2008.

The
fair values of these financial instruments approximated their carrying values based on either their short maturity or current terms for similar instruments.

Advertising Costs

Advertising costs are expensed as incurred, and are included in Marketing, Sales and Service expense. We incurred approximately
$27.8 million and $34.1 million in advertising expense during 2008 and 2007, respectively. The majority of this was spent by MIVA Direct to promote its desktop consumer software product
in 2008 and 2007.

63

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Income taxes are accounted for in accordance with SFAS 109,Accounting for Income
Taxes. Under SFAS 109, deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities, loss
carry-forwards, and tax credit carry-forwards for which income tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets if it is
more likely than not that all, or some portion, of such deferred tax assets will not be realized. See Note P"Income Taxes" for additional information.

Property and Equipment

Equipment and furniture are stated at cost except in the case of items acquired as a part of business acquisitions, which are recorded
at fair value on the date of acquisition. Equipment and furniture are depreciated using the straight-line method over the estimated useful lives for the respective assets, which range from
two to five years. Depreciation expense consists of depreciation of computer equipment and furniture. Improvements to leased premises are capitalized and amortized over the shorter of the related
lease term or the useful lives of the improvements, which periods range from three to ten years.

Goodwill and Other Long-Lived Assets

Our methodology for allocating the purchase price of acquisitions is based on established valuation techniques. Goodwill is measured as
the excess of the cost of an acquired entity over the net of the amounts assigned to identifiable assets acquired and liabilities assumed. We account for goodwill and other indefinite lived intangible
assets in accordance with SFAS No. 142, "Goodwill and other Intangible Assets." We perform goodwill and indefinite lived intangible asset
impairment tests on an annual basis as of October 1st or more frequently in certain circumstances, if necessary. We compare the fair value of the reporting unit to its carrying amount
including goodwill. If the carrying amount of a reporting unit exceeds the fair value, we perform an additional fair value measurement calculation to determine the impairment loss, which would be
charged to operations.

We
evaluate the recoverability of long-lived assets, including property and equipment, and certain identifiable intangible assets, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Additionally, on an annual basis, we review the useful lives of these assets to ensure they remain appropriate. Factors considered
important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the
assets or the strategy for the overall business, significant decrease in the market value of the assets, an increase in competition or loss of affiliates, and significant negative industry or economic
trends. For example, unexpected increases in customer or distribution partner churn could affect our assessment about the recoverability of our intangible assets. When we determine that the carrying
amount of long-lived assets may not be recoverable based on the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future
undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying amount of a long-lived asset exceeds its estimated future undiscounted
cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value.

Goodwill,
indefinite life, and long-lived asset impairment assessments are generally determined based on fair value techniques, including determining the estimated future
discounted and undiscounted cash flows over the remaining useful life of the asset. Those models require estimates of future revenue, profits,

64

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

capital
expenditures and working capital for each unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans and industry data. Discounted cash flows are
calculated using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Determining the fair value of reporting units and goodwill includes
significant judgment by management and different judgments could yield different results. If these estimates or their related assumptions change in the future, we might be required to record
impairment charges for the assets.

Share Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions SFAS 123(R), Share-Based Payment,using the
modified-prospective-transition method. Under that transition method, compensation cost recognized in 2007 and 2008
includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123(R); and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R). In addition, in March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107 ("SAB 107") relating to SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).

Foreign Currency Translation

MIVA Media Europe operated in several European countries and used the local currency of these international subsidiaries as the
functional currency. The financial statements of these subsidiaries are translated into United States dollars using period-end rates of exchange for assets and liabilities and average
rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in other comprehensive income (loss) as a component of stockholders' equity.

Operating Leases

The Company leases office space and data centers under operating lease agreements with original lease periods up to 11 years.
Certain of the lease agreements contain rent holidays and rent escalation provisions. Rent holidays and rent escalation provisions are considered in determining straight-line rent expense
to be recorded over the lease term. The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense on a straight-line basis over
the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and generally are not included in determining the initial lease term rent expense.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)").
SFAS 141(R) establishes the principles and requirements for how an acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
(iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is to be
applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008,

65

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

with
early adoption prohibited. Previously any release of valuation allowances, for certain deferred tax assets would serve to reduce goodwill whereas under the new standard any release of the
valuation allowance related to acquisitions currently or in prior periods will serve to reduce our income tax provision in the period in which the reserve is released. Additionally, under
SFAS 141(R) transaction related expenses, which were previously capitalized as "deal cost", will be expensed as incurred. We have no capitalized deal costs or acquisitions pending at
December 31, 2008, therefore, we do not expect to have any transition adjustments resulting from our adoption of SFAS 141(R) on January 1, 2009.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes accounting and reporting standards that require (i) noncontrolling interests to be reported as a component of equity, (ii) changes in a parent's ownership
interest while the parent retains its controlling interest to be accounted for as equity transactions, and (iii) any retained noncontrolling equity investment upon the deconsolidation of a
subsidiary to be initially measured at fair value. SFAS 160 is
effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, with early adoption prohibited. We do not expect the adoption of
SFAS 160 to have a material effect on our financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, with earlier application encouraged. In February 2008, the FASB deferred the effective date of SFAS 157 by one year for certain non-financial assets
and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On January 1, 2008,
we adopted the provisions of SFAS 157, except as it applies to those nonfinancial assets and nonfinancial liabilities for which the effective date has been delayed by one year. The adoption of
SFAS 157 did not have a material effect on our financial position or results of operations. The book values of cash and cash equivalents, accounts receivable and accounts payable approximate
their respective fair values due to the short-term nature of these instruments.

NOTE CDISCONTINUED OPERATIONS

June 2008 MIVA MediaItaly

On June 17, 2008, we initiated a restructuring plan in order to maximize efficiencies within the Company, eliminate certain
unprofitable operations, and better position the Company for the future. In connection with this restructuring, the Company has closed the MIVA Media Italian operations and eliminated other redundant
positions within the Company. As a result of this restructuring plan, we recorded in the quarter ended June 30, 2008, a total of $0.2 million related to
termination benefits and one-time charges in connection with winding down our Italian operations.

August 2007MIVA Small Business

On August 1, 2007, we sold the assets, net of liabilities assumed, of our MIVA Small Business division for $0.2 million.
Our decision to divest our MIVA Small Business division was due primarily to inconsistencies between the division's products and services and the Company's current and future strategic plan. A gain of
approximately $0.16 million was recorded as a result of the sale.

66

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE CDISCONTINUED OPERATIONS (Continued)

In accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS 144") the financial data for our
Italian and MIVA Small Business Operations have been accounted for as discontinued operations and, accordingly, these operating results are segregated and reported as discontinued operations in the
accompanying consolidated statements of operations in all periods presented:

For the Year
Ended
December 31,2008

2007Revenues

$
803

$
3,058Gain on sale of discontinued operations





160Income (loss) before provision for income taxes


(394
)

403Income tax expense





Income (loss) from discontinued operations

$
(394
)
$
403


See
NOTE TSubsequent Events regarding the March 12, 2009 MIVA Media Sale.

NOTE DIMPAIRMENT OF GOODWILL, OTHER INTANGIBLES, AND LONG-LIVED ASSETS

We have experienced significant impairment losses in 2008 and 2007.

During
the fourth quarter of 2008, in connection with our annual impairment testing, we performed a step 1 impairment test of our two reporting units, Searchfeed and Miva Direct, with
remaining recorded indefinite lived intangible assets and goodwill for potential impairment. The fair value estimates used in the initial impairment test were based on market approaches and the
present value of future cash flows. As a result of this analysis, we determined that the estimated fair value of the reporting units exceeded their carrying values which could result in potential
impairment. We then performed an assessment of the long-lived assets of our Searchfeed and MIVA Direct divisions and determined these assets were impaired under the provisions of SFAS
No. 144. Accordingly, in the fourth quarter of 2008, we recorded approximately $2.9 million in non-cash impairment charges to reduce the carrying value of the remaining
long-lived tangible and intangible assets to their estimated fair values. We then performed a step 2 impairment test to determine if the remaining carrying values of recorded goodwill and
other indefinite lived intangible
intangible assets in these divisions was impaired under the provisions of SFAS No. 142. The step 2 impairment test resulted in a non-cash impairment charge of $14.7 million
and $1.1 million, respectively, to reduce the carrying value of goodwill and other indefinite lived intangible assets to their implied fair value. As a result of these impairment charges, the
carrying value of all of the Company's goodwill and other indefinite lived intangible assets was reduced to zero as of December 31, 2008.

In
the fourth quarter of 2007, as a result of continued operating losses related to our MIVA Media US business, we performed an impairment analysis to determine recoverability of the
recorded long-lived assets of this division. As a result of this analysis, we determined that certain long-lived assets of our MIVA Media US division were impaired under the
provisions of Financial Accounting Standards Board Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144)." Accordingly, during the
fourth quarter of 2007 we recorded approximately $4.7 million in non-cash impairment charges to reduce the carrying value of certain long-lived tangible and intangible
assets to their estimated fair value.

67

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE DIMPAIRMENT OF GOODWILL, OTHER INTANGIBLES, AND LONG-LIVED ASSETS (Continued)

In
the second quarter of 2007 our revenue and earnings forecasts were updated for each of our divisions to reflect events that occurred during the quarter that changed our expected
business prospects. Our MIVA Media Europe division's forecasts were particularly negatively affected by: the continuation of reduced traffic generated by our distribution partners; slower than
anticipated deployment of new services; and other factors. As a result of these indicators, we performed a test to determine if the carrying amount of goodwill and other long-lived assets
at MIVA Media Europe were impaired. The fair value estimates used in the initial impairment test were based on market approaches and the present value of future cash flows. These tests indicated that
the carrying amount of MIVA Media Europe exceeded its fair value, and led us to conclude that goodwill could be impaired. We then performed a preliminary impairment test of long-lived
assets, and a preliminary second step of the impairment analysis. As part of the two step analysis required, the implied fair value of goodwill was determined through the allocation of preliminary
estimates of the fair value to the underlying assets and liabilities, and an estimated non-cash impairment charge of $14.0 million was recorded to adjust the carrying value of
goodwill to its preliminary estimated fair value. This non-cash charge was recorded at MIVA Media Europe and after this impairment charge, MIVA Media Europe has no remaining goodwill.

At
the time of the filing of our 2007 second quarter Form 10-Q, the second step of the analysis had not been finalized, therefore, as discussed above, we recorded our
best estimate of the impairment, at the time, $14.0 million. The finalization of the impairment test of long-lived assets and the second step of the impairment analysis was
completed in the third quarter of 2007, resulting in an additional impairment charge of $1.4 million related to our long-lived assets in our MIVA Media Europe division. At
December 31, 2007, the total
remaining carrying value of the Company's goodwill and other intangible assets was $20.1 million, representing those of our U.S. operations.

We
will continue to assess the potential of impairment for other long-lived assets in future periods in accordance with SFAS 144. Should our business prospects change,
and our expectations for acquired business be further reduced, or other circumstances that affect our business dictate, we may be required to recognize additional impairment charges.

NOTE ERESTRUCTURING AND MASTER SERVICES AGREEMENT

RestructuringAugust 2008 United Kingdom, Germany, France, and Spain Operations

On August 21, 2008, the Company initiated a restructuring plan that further consolidated the MIVA Media EU operations primarily
in one office. The restructuring plan evolved to include a workforce reduction of approximately 40 employees, which involved cash payments totaling approximately $2.1 million that is expected
to be completed by April 2009. The restructuring plan resulted in the closure of our offices in Germany, reductions in headcount in our offices in Paris, Madrid and London, and exiting certain
contractual relationships with third party contracts. In the quarter ended September 30, 2008 we recorded a restructuring charge of approximately $2.7 million related to this
restructuring program, which includes severance and related costs, legal fees, and other costs specific to the execution of this program. During the fourth quarter of 2008, we recorded additional
charges of approximately $0.5 million. These charges are consistent with this restructuring plan and primarily included severance and related costs, legal fees, and other costs specific to the
execution of this program.

68

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE ERESTRUCTURING AND MASTER SERVICES AGREEMENT (Continued)

RestructuringJune 2008

On June 17, 2008, the Company initiated a restructuring plan in order to maximize efficiencies within the Company, eliminate
certain unprofitable operations, and better position the Company for the future. The Company recorded a total of $0.8 million in restructuring charges related to this action, excluding the
approximate $0.2 million included in the discontinued operations category related to the closure of our Italian operations. We have closed our MIVA Media Italian operations and eliminated other
redundant positions within the Company. Management developed a formal plan that included the identification of a workforce reduction totaling 30 employees, which is expected to involve cash payments
totaling approximately $1.0 million, that was completed in February 2009.

RestructuringFebruary 2008

On February 19, 2008, the Company announced a restructuring plan aimed at continued reduction of the overall cost structure of
the Company. The Company recorded $0.1 million in restructuring charges related to this action, which was designed to align the cost structures of our U.S. and U.K. operations with the
operational needs of these businesses. Management developed a formal plan that included the identification of a workforce reduction totaling 8 employees, all of which involved cash payments of
approximately $0.1 million made in the quarter ended June 30, 2008.

Master Services Agreement and Transformation Project

On May 11, 2007, the Company entered into a master services agreement (the "Master Services Agreement") with Perot Systems
Corporation ("Perot Systems"), pursuant to which the Company outsourced certain of its information technology infrastructure services, application development and maintenance, MIVA Media US support
services, and transactional accounting functions.

The
Master Services Agreement had a term of 84 calendar months commencing June 1, 2007, unless earlier terminated or extended pursuant to its terms. Aggregate fees payable by the
Company to Perot Systems under the Master Services Agreement were expected to be approximately $41.8 million, but as a result of the August 2008 amendment to the Master Services Agreement
described below, the total was reduced to approximately $37.9 million. As of December 31, 2008, the Company incurred approximately $12.6 million of operating expenses for services
received under the agreement since the agreement's inception.

As
a result of the Master Services Agreement, the Company's active employee base declined by approximately 50 employees and the full workforce reduction was completed in September 2007.
Approximately 29 Company employees transitioned to become employees of Perot Systems as a result of this agreement.

With
respect to the workforce reductions, the Company incurred total restructuring charges related to one-time employee severance ($0.2 million) and related costs
($0.3 million) of approximately $0.5 million in the quarter ended June 30, 2007. These related costs were attributed to legal fees incurred as part of both the February 2007 and
May 2007 restructuring plans.

On
April 10, 2008, we entered into an approximate $2.4 million software development statement of work with Perot Systems, pursuant to which the Company will pay Perot
Systems to develop a new global advertiser and distribution partner application called the "Transformation Project". The Transformation Project involves the development and implementation of one
enhanced consolidated global system to

69

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE ERESTRUCTURING AND MASTER SERVICES AGREEMENT (Continued)

replace
MIVA Media's existing Internet advertising management and distribution partner management systems. As of December 31, 2008, in connection with the Transformation Project, we have
incurred approximately $2.4 million of costs, including $1.9 million of cost with Perot Systems, and $0.5 million of internal development costs, all of which has been capitalized
and will be amortized over the five year estimated useful life of the software once it is placed in service. This Transformation Project was sold in March 2009 as part of the MIVA Media Sale.

On
August 26, 2008, we entered into an amendment to the Master Services Agreement with Perot, which, among other things, allowed us to "in-source" certain functions
(MIVA EU Information Technology functionality and administration and finance and accounting support). These changes took effect immediately and eliminated the related charges for those services
without termination fees as called for in the original contract. In return, we agreed to a reduction in certain service level agreement ("SLA") requirements, the elimination of benchmarking pricing, a
modified termination payment schedule, and a 10 day payment cycle for invoices.

The
Company accounted for the services received under the Master Services Agreement using the guidance in AICPA Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" and EITF No. 97-13 "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation".

See
NOTE TSubsequent Events regarding amendment of the Master Services Agreement.

RestructuringFebruary 2007

On February 8, 2007, the Company announced a restructuring plan aimed at reducing the overall cost structure of the Company. The
Company initially recorded $3.1 million (adjusted to $2.8 million in the quarter ended June 30, 2007) in restructuring charges related to this action, which was designed to align
the cost structures of our U.S. and U.K. operations with the operational needs of these businesses. Management developed a formal plan that included the identification of a workforce reduction
totaling 56 employees, all of which involved cash payments of approximately $0.5 million made in April 2007 and approximately $0.5 million made by the end of April 2008.

The
following reserve for restructuring is included in accrued expenses in the accompanying consolidated balance sheet as of December 31, 2008 and 2007 (in thousands):

Employee
Severance

Other
Charges

TotalBalance as of January 1, 2007








Restructuring charges in 2007

$
2.4

$
0.4

$
2.8Adjustments in 2007


(0.3
)




(0.3
)Cash payments in 2007


(2.0
)

(0.4
)

(2.4
)Balance as of December 31, 2007

$
0.1

$


$
0.1Restructuring charges in 2008

$
3.0

$
1.1

$
4.1Adjustments in 2008


(0.1
)

(0.2
)

(0.3
)Cash payments in 2008


(1.9
)

(0.4
)

(2.3
)Balance as of December 31, 2008

$
1.1

$
0.5

$
1.6


70

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE ERESTRUCTURING AND MASTER SERVICES AGREEMENT (Continued)

All
actions under the February 8, 2007, restructuring plan, other than cash payments, were completed by May 31, 2007. All cash payments with respect to the
May 11, 2007, restructuring plan were completed by April 30, 2008. All actions under the February 19, 2008, restructuring plan were completed by March 31, 2008. All actions
under the June 17, 2008, restructuring plan were completed by January 31, 2009. All actions under the August 21, 2008, restructuring plan are expected to be completed by April
2009.

The
Company accounted for and reported our restructuring plans using the guidance in the following: (i) SFAS No. 144, (ii) EITF 03-13,
"Applying the conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations",
(iii) SFAS No 112, "Employer's Accounting for Postemployment Benefits", and (iv) SFAS 146, "Accounting for
Costs Associated with Exit or Disposal Activities".

NOTE FACCOUNTING FOR SHARE-BASED COMPENSATION

In 2008 and 2007, the Company granted share-based compensation in the form of restricted stock units ("RSUs") to selected individuals within the management team. For the twelve months
ended December 31, 2008, our total share-based employee compensation expense consisted of stock option expense of $0.7 million and $2.4 million in restricted stock unit expense.
The RSU expense total includes approximately $0.6 million in accelerated stock-based compensation expense resulting from the vesting of certain RSUs related to a former officer's resignation in
August 2008. For the comparable period in 2007, the total share-based employee compensation expense was $4.1 million. Of this amount $1.6 million consisted of stock option expense and
$2.5 million related to restricted stock unit expense. Included within this 2007 total stock option expense is a net $0.3 million in stock option expense that is recorded in
restructuring expense as it relates to a terminated employee.

In
June 1999, the Board of Directors adopted the 1999 Stock Incentive Plan and in June 2004 the Board of Directors adopted the 2004 Stock Incentive Plan and the EMI Replacement Option
Plan. Awards permitted under the 1999 Plan and 2004 Plans consist of stock options (both qualified and non-qualified options), restricted stock awards, deferred stock awards, and stock
appreciation rights. Under these plans, there were 9.2 million shares approved for issuance and, as of August 16, 2006, prior to consolidation with the 2006 Plan, there were
1.3 million shares available for equity awards under these prior plans.

At
the Company's 2006 annual stockholders meeting, stockholders of the Company approved the 2006 Stock Award and Incentive Plan ("Plan"). The Plan, among other things, increased by
2.0 million the number of shares of common stock available for equity awards. Under the Plan, no further awards are
to be granted under the 1999 Stock Incentive Plan and the 2004 Stock Incentive Plan, although any outstanding awards under those plans continue in accordance with their terms.

Collectively,
as of December 31, 2008, there are approximately 1.5 million shares available for new equity awards after combining the shares of the 2006 Plan with the
remaining shares of the superseded plans. Options issued to employees generally vest in a range of immediate vesting to up to four years vesting, and expire ten years following the grant date.

71

---





MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE FACCOUNTING FOR SHARE-BASED COMPENSATION (Continued)

Stock option activity under the plans during the years ended December 31, 2008 and 2007, are summarized below (in thousands, except per share amounts):

Options

Weighted-
Average
Exercise
PriceOptions outstanding at December 31, 2006


3,969


7.36Granted





Exercised


(909
)

2.50Forfeited


(528
)

4.91Expired


(593
)

8.86Options outstanding at December 31, 2007


1,939

$
9.85Granted





Exercised





Forfeited


(310
)

14.17Expired


(53
)

11.44Options outstanding at December 31, 2008


1,576

$
8.94


The
following table summarizes information as of December 31, 2008, concerning outstanding and exercisable stock options under the plans (in thousands, except per
share amounts):

Range of Exercise Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual Life
(Years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price$  1.00 - $  3.00


116


6.8

$
2.75


66

$
2.62$  3.01 - $  6.00


1,029


6.4


4.87


808


4.87$  6.01 - $14.00


44


5.7


11.07


41


11.01$14.01 - $23.14


387


5.4


21.38


387


21.391,576


6.2

$
8.94


1,302

$
9.86


As
of December 31, 2008, unrecognized compensation expense related to stock options totaled approximately $0.2 million, which will be recognized over a
weighted average period of approximately one year. The fair value of the stock options is estimated at the date of the grant using the Black-Scholes option-pricing model. No stock options were granted
during the years ended December 31, 2008 or 2007.

In
January 2008, we issued restricted stock units with service based vesting provisions (4 year vesting in equal increments), and market condition performance based restricted
stock units that vest upon the Company's common stock reaching, and closing, at a share price at or exceeding $4.00 per share, for ten consecutive trading days.

In
January 2007, we issued restricted stock units with service based vesting provisions (4 year vesting in equal increments), and market condition performance based restricted
stock units that: vest in equal tranches upon the Company's common stock reaching, and closing, at share prices at or exceeding $6.00, $8.00, $10.00, and $12.00, respectively, for ten consecutive
trading days. In June 2007, all criteria was

72

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE FACCOUNTING FOR SHARE-BASED COMPENSATION (Continued)

satisfied
for the $6.00 tranche of restricted stock units and accordingly 86,412 shares attributable to the achievement of the $6.00 performance criteria were issued.

The
fair value of our service based restricted stock units is the quoted market price of the Company's common stock on the date of grant. Further, we utilize a Monte Carlo simulation
model to estimate the fair value and compensation expense related to our market condition performance based restricted stock units. The Company recognizes stock compensation expense for options or
restricted stock units that have graded vesting on the graded vesting attribution method.

New
stock options granted and new restricted stock units granted, each with the related expenses for the years ended December 31, 2008 and 2007, are summarized below (in
thousands):

For the Year Ended
December 31,2008

2007Stock options grantednew





Stock option expensenew

$


$
Restricted stock unitsnew


1,963


1,992Restricted stock unit expensenew

$
1,081

$
1,481


For
the years ended December 31, 2008 and 2007, the following assumptions were used in our performance based restricted stock units with market based conditions:

For the Year Ended
December 31,2008

2007Volatility


70.5
%
69.3%Expected life


10 yrs

10 yrsRisk-free rate


4.03
%
4.41% - 5.16%


The
restricted stock unit ("RSU") activity for the years ended December 31, 2008 and 2007 are summarized below (in thousands):

Performance based RSUs
with Market based conditionsTotal
RSUs

Service
Based
RSUs$4.00

$6.00

$8.00

$10.00

$12.00Balance, December 31, 2006


424


368





14


14


14


14Granted


1,992


1,611





87


98


98


98Vested


(379
)

(292
)




(87
)







Forfeited


(448
)

(362
)




(14
)

(24
)

(24
)

(24
)Expired




















Balance, December 31, 2007


1,589


1,325








88


88


88Granted


1,963


1,600


363











Vested


(729
)

(729
)













Forfeited


(567
)

(397
)

(110
)




(20
)

(20
)

(20
)Expired











Balance, December 31, 2008


2,256


1,799


253





68


68


68


73

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE GPROPERTY AND EQUIPMENT

Property and equipment at December 31, 2008 and 2007 consisted of the following (in thousands):

2008

2007

Estimated
Useful LifeTechnical equipment

$
17,864

$
18,851

3 yearsFurniture


1,488


1,947

5 yearsLeasehold improvements


826


1,112

10 yearsCapitalized software


12,833


10,364

1 to 5 yearsSubtotal


33,011


32,274Accumulated Depreciation & Amortization


(28,036
)

(29,529
)$
4,975

$
2,745


Depreciation
expense was $1.9 million and $4.6 million for the years ended December 31, 2008 and 2007, respectively.

NOTE HINTANGIBLE ASSETS

The balance in intangible assets at December 31, 2008, consists of the following (in thousands, except years):

Gross
Carrying
Amount

Accumulated
Amortization and
Impairment

Net
Carrying
Amount

Weighted
Average
Useful
Economic Life(Years)Vendor agreements

$
2,707

$
(2,707
)
$



3Developed technology


8,776


(8,776
)




4Customer relationships


100


(100
)




Other definite-lived intangibles


857


(857
)




4Indefinite-lived intellectual property


1,134


(1,134
)




IndefiniteGoodwill


14,743


(14,743
)




Indefinite$
28,317

$
(28,317
)
$



The
balance in intangible assets as of December 31, 2007, consisted of the following (in thousands, except years):

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Weighted
Average
Useful
Economic Life(Years)Vendor agreements

$
2,707

$
(1,389
)
$
1,318


3Developed technology


8,776


(6,245
)

2,531


4Customer relationships


100


(100
)




Other definite-lived intangibles


961


(588
)

373


4Indefinite-lived intellectual property


1,134





1,134


IndefiniteGoodwill


14,743





14,743


Indefinite$
28,421

$
(8,322
)
$
20,099


74

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE HINTANGIBLE ASSETS (Continued)

Amortization
expense related to intangible assets was $2.2 million and $2.5 million for the years ended December 31, 2008 and 2007, respectively.

The
carrying amount of goodwill at December 31, 2008 and 2007 consisted of the following (in thousands):

Balance as of January 1, 2007

$
28,566Goodwill impairment


(14,006
)Foreign currency translation adjustments


183Balance as of December 31, 2007

$
14,743Goodwill impairment


(14,743
)Balance as of December 31, 2008

$



At
December 31, 2008, we have no intangible assets that are not subject to amortization.

All
of the intangible assets were acquired in 2004 in connection with the acquisition or merger of MIVA Small Business, MIVA Direct, B&B Advertising and MIVA Media Europe. The weighted
average useful economic life for all definite-lived intangibles is approximately four years. It is estimated that there will be no significant residual value for the intangible assets. The
amortization associated with our intangible assets is not deductible for income tax purposes.

NOTE IACCRUED EXPENSES

Accrued expenses at December 31, 2008 and 2007 consisted of the following (in thousands):

December 31,2008

2007Revenue-sharing agreements

$
4,146

$
5,493Accrued compensation


1,777


1,843Professional fees


1,198


1,960Operating expenses


1,850


3,489Value added tax payable


210


36Other


439


2,023$
9,620

$
14,844


NOTE JPER SHARE DATA

For the years ended December 31, 2008 and 2007, we incurred a net loss. Therefore, potentially dilutive shares (related to stock options and restricted stock units) are not
included in the per share data, as they would have an anti-dilutive effect on net loss per share. Had we not recorded a net loss, the number of stock options excluded in the computation of
diluted EPS and the range of exercise prices would have been: 20081.8 million shares at a price range of $1.25 - $23.14; and, 20071.6 million shares at a price
range of $4.37 - $23.14.

75

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE JPER SHARE DATA (Continued)

The
following is the number of shares used in the basic and diluted computation of loss per share (in thousands):

For the Year Ended
December 31,2008

2007Weighted-average number of common shares outstanding basic and diluted


32,621


31,935


NOTE KLITIGATION

Shareholder Class Action Lawsuits

Beginning on May 6, 2005, five putative securities fraud class action lawsuits were filed against us and certain of our former
officers and directors in the United States District Court for the Middle District of Florida. The complaints allege that we and the individual defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (the "Act") and that the individual defendants also violated Section 20(a) of the Act as 'control persons' of MIVA. Plaintiffs purport to bring these claims on
behalf of a class of our investors who purchased our stock between September 3, 2003 and May 4, 2005.

Plaintiffs
allege generally that, during the putative class period, we made certain misleading statements and omitted material information. Plaintiffs seek unspecified damages and other
relief.

On
July 27, 2005, the Court consolidated all of the outstanding lawsuits under the case style In re MIVA, Inc. Securities Litigation, selected lead plaintiff and lead
counsel for the consolidated cases, and granted Plaintiffs leave to file a consolidated amended complaint, which was filed on August 16, 2005. We and the other defendants moved to
dismiss the complaint on September 8, 2005.

On
December 28, 2005, the Court granted Defendants' motion to dismiss. The Court granted Plaintiffs leave to submit a further amended complaint, which was filed on
January 17, 2006. On February 9, 2006, Defendants filed a renewed motion to dismiss. On March 15, 2007, the Court granted in large part Defendants' motion to dismiss. On
March 29, 2007, Defendants filed a motion for amendment to the March 15, 2007, order to include certification for interlocutory appeal or, in the alternative, for reconsideration of the
motion to dismiss. On July 17, 2007, the Court (1) denied the motion for
amendment to the March 15, 2007, order to include certification for interlocutory appeal and (2) granted the motion for reconsideration as to the issue of whether Plaintiffs pled a
strong inference of scienter in light of intervening precedent. The Court requested additional briefing on the scienter issue, and on February 15, 2008, entered an Order dismissing one of the
individual defendants from the lawsuit and limiting the claims that could be brought against another individual defendant. In addition, Plaintiffs previously had moved the Court to certify a putative
class of investors, and Defendants had filed briefs in opposition thereto. On March 12, 2008, the Court entered an Order certifying a class of those investors who purchased the Company's common
stock from February 23, 2005, to May 4, 2005. The Court also dismissed two of the proposed class representatives for lack of standing. Plaintiffs have served discovery requests on
Defendants, and the discovery phase of the lawsuit is presently underway.

Regardless
of the outcome, this litigation could have a material adverse impact on our results because of defense costs, including costs related to our indemnification obligations,
diversion of management's attention and resources, and other factors.

76

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE KLITIGATION (Continued)

Derivative Stockholder Litigation

On July 25, 2005, a shareholder, Bruce Verduyn, filed a putative derivative action purportedly on behalf of us in the United
States District Court for the Middle District of Florida, against certain of our directors and officers. This action is based on substantially the same facts alleged in the securities class action
litigation described above. The complaint is seeking to recover damages in an unspecified amount. By agreement of the parties and by Orders of the Court, the case was stayed pending the resolution of
Defendants' motion to dismiss and renewed motion to dismiss in the securities class action. On July 10, 2007, the parties filed a stipulation to continue the stay of the litigation. On
July 13, 2007, the Court granted the stipulation to continue the stay and administratively closed the case pending notification by plaintiff's counsel that the case is due to be reopened.
Regardless of the outcome, this litigation could have a material adverse impact on our results because of defense costs, including costs related to our indemnification obligations, diversion of
management's attention and resources, and other factors.

Comet Systems, Inc.

The agent for the former shareholders of Comet Systems, Inc., a company that merged with and into one of our subsidiaries in
March 2004, filed a lawsuit against us in Delaware Chancery Court on March 13, 2007. In the suit the shareholders' agent contended that our calculation and payment of contingent amounts payable
under the merger agreement were not correct and we contended that we calculated and paid the contingent amounts correctly. On October 22, 2008, the Court granted summary judgment to the
plaintiff in the amount of $1.7 million, pre-judgment interest in the amount of $0.6 million, and reimbursement of attorney fees of $0.1 million. After receiving
summary judgment we entered into negotiations with the plaintiffs and reached a binding settlement agreement to pay a lesser amount. We agreed to pay $1.875 million to resolve this dispute and
made payment, in full, in December 2008.

Bid For Position, LLC

On December 13, 2007, a patent infringement case was filed in the United States District Court for the Eastern District of
Virginia against AOL, Google, Microsoft, and us by Bid For Position, LLC. The complaint alleged that Bid For Position, LLC is the owner of U.S. Patent No. 7,225,151, which was
issued on May 29, 2007, entitled "Online Auction Bid Management System and Method," ("the '151 patent") and further alleged that we infringed this patent. We settled the case in June 2008
without admitting any liability, and the case was dismissed on July 15, 2008.

Lane's Gifts and Collectibles Litigation

As previously disclosed we entered into an agreement with the plaintiffs to settle this case in January 2008 and received court
approval in April 2008. Under the settlement agreement, all claims against us, including our indemnification obligations to a co-defendant, were dismissed without presumption or admission
of any liability or wrongdoing. Pursuant to the agreement, we established a settlement fund of $3,936,812, of which $1,312,270 was accrued as litigation settlement expense as of December 31,
2007 and paid, in June 2008, for plaintiffs' attorneys' fees and class representative incentive awards, and the balance is in advertising credits relating to the class members' advertising spending
with us during the class period. Advertising credits will be recorded as reductions to revenues in the periods they are redeemed. For the year ended December 31, 2008, approximately $26,674 in
advertising credits were redeemed.

77

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE KLITIGATION (Continued)

Other Litigation

We are a defendant in various other legal proceedings from time to time, regarded as normal to our business and, in the opinion of
management, the ultimate outcome of such
proceedings are not expected to have a material adverse effect on our financial position or our results of operations.

No
accruals for potential losses for litigation are recorded as of December 31, 2008, and although losses are possible in connection with the above litigation, we are unable to
estimate an amount or range of possible loss, in accordance with SFAS 5, but if circumstances develop that necessitate a loss contingency being disclosed or recorded, we will do so. We expense
all legal fees for litigation as incurred.

NOTE LDEBT

On November 7, 2008, we entered into a Loan and Security Agreement with Bridge Bank. The Loan Agreement provides a revolving credit facility to the Company of up to
$10.0 million ("Facility"). Subject to the terms of the Loan Agreement, the borrowing base used to determine loan availability under the Facility is equal to 80% of the our eligible U.S.
accounts receivable plus the lesser of $3.5 million or 65% of eligible U.K. accounts receivable, with account eligibility measured in accordance with standard determinations. All amounts
borrowed under the Facility are secured by a general security interest on the assets of the Company, including the Company's intellectual property, and a pledge of 65% of the outstanding shares of the
Company's UK subsidiary, MIVA (UK) Limited. In addition, MIVA (UK) Limited and certain of the Company's domestic subsidiaries are guarantying the Company's obligations under the Facility, to be
secured by general security interests in the assets of such companies. Except as otherwise set forth in the Loan Agreement, borrowings made pursuant to the Loan Agreement will bear interest at a rate
equal to the greater of (i) 6.5% or (ii) the Prime Rate (as announced by Bridge Bank) plus 1.5%. The Facility expires on November 7, 2010, at which time all outstanding loan
advances become due and payable. As of December 31, 2008, the effective interest rate was 6.5% and we had drawn approximately $4.0 million, which is included in long-term
debt within the consolidated balance sheet. Under the terms of the Loan Agreement, we are required to maintain in our account at Bridge Bank an amount equal to or greater than 50% of the funded loan
balance.

The
Loan Agreement contains certain covenants, including the following financial covenants: (i) minimum cash ratio, (ii) asset coverage ratio, (iii) Adjusted
Earnings Before: Interest, Taxes, Depreciation, and Amortization ("AEBITDA"). At December 31, 2008, we believe we are in compliance
with all covenants under the Loan Agreement. However, if we breach any of our covenants or are unable to comply with the required financial ratios under our Loan Agreement, the bank could elect to
declare all borrowings outstanding under the Loan Agreement, together with any accrued interest and other fees, to be due and payable, as well as require us to apply all available cash to repay the
amounts outstanding.

See
Note TSubsequent Events for information on a Consent and Amendment to The Loan and Security Agreement entered into on March 12, 2009.

NOTE MCOMMITMENTS AND CONTINGENCIES

In July 2005, we received payment of approximately $1.3 million following our receipt of a favorable court judgment in a dispute with a Media EU distribution partner. The amount
received, net of legal fees, was recorded as a deferred liability pending the appeal process. On May 22, 2008, we received notification

78

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE MCOMMITMENTS AND CONTINGENCIES (Continued)

the
original court's decision was reversed. This decision called for MIVA to refund the $1.3 million payment to the MIVA Media EU distribution partner. During the quarter ended
December 31, 2008, we negotiated and settled this dispute for approximately $0.7 million that was paid in this same period.

We
have ongoing contractual cash payment obligations to our distribution partners. These payments are funded by payments from our advertisers for the paid click-through (visitors),
delivered to them via our distribution partners. Agreements with certain distribution partners contain guaranteed minimum payments through November 2010.

We
have minimum contractual payments as part of our royalty bearing non-exclusive license to certain Yahoo! patents payable quarterly through August 2010. In addition, we
have ongoing royalty payments based on our use of those patents.

We
have minimum contractual payments as part of the Perot Master Services Agreement and the Transformation Project as described in Note ERestructuring and Master
Services Agreement (See NOTE TSubsequent Events regarding the amendment of the Master Services Agreement on February 1, 2009.)

Operating Leases

On September 30, 2008, we provided notice of termination for the operating lease agreements for both the Munich and Hamburg
office locations. The Munich lease ends on December 31, 2009 and the Hamburg office lease expires on March 31, 2009. Additionally, on October 3, 2008, we provided notice to
terminate the office lease for our Spain office, which is expected to expire on March 31, 2009.

On
September 10, 2008, we entered into an operating lease agreement with an unrelated third party to lease work space for our London office for the term of 12 months
commencing on December 1, 2008. The agreement includes a right to three month renewals. Base rent is approximately $0.3 million per year.

On
February 26, 2008, we entered into an agreement (the "Lease Amendment") amending the April 15, 2005 operating lease agreement for our London office. The Lease Amendment,
among other items, provided each party with an early termination right to terminate the underlying Lease Agreement on or before December 31, 2008. We exercised this termination right and in
accordance with the agreement received a one-time surrender premium of approximately $0.4 million in the fourth quarter of 2008.

For
the years ended December 31, 2008 and 2007, we recorded approximately $0.8 million and $2.8 million, respectively, as rent expense under operating leasing
arrangements. Included in the 2008 total is approximately $0.07 million of rent expense recorded in restructuring expense as it relates to lease agreements associated with the various
restructuring plans, and approximately $0.05 million included in discontinued operations as it relates to the Italian operations closure.

Sublease Income

During the fourth quarter of 2008, we entered into two separate and non-cancelable sublease agreements covering the
remaining lease obligations periods in both Germany (Munich) and France (Paris) leases with unrelated third parties. The sublease payments are expected to be received ratably over the next
12 months.

79

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE MCOMMITMENTS AND CONTINGENCIES (Continued)

In
August 2007, we entered into a real estate sublease agreement with an unrelated party to sublease 20,171 square feet (approximately 50% of our space) in our office located in Fort
Myers, Florida. The term of the sublease agreement commenced on August 17, 2007 and ends on November 30, 2012, unless certain conditions (as defined) are met for earlier termination.

Capital Leases

In September 2008, we entered into non-cancelable leases with unrelated third parties for software and related maintenance,
and hardware, for our new Transformation Project. The total fair market value of this software was approximately $1.0 million with a lease term of nineteen months. The software lease has an
imputed interest rate of 9% with quarterly cash outlays of approximately $0.2 million. The total fair market value of the hardware was approximately $1.1 million with a lease term of
three years. The hardware lease has an imputed interest rate of 12.0%. These leases were classified as capital lease obligations, are reported as long-term debt in our December 31,
2008, consolidated balance sheet, and represent non-cash investing and financing activities in our consolidated statement of cash flows for the year ended December 31, 2008. During
2008, we made cash payments, including interest, of approximately $0.9 million on these lease obligations.

The
following table summarizes our capital lease obligations as of December 31, 2008 and 2007 (in thousands):

December 31,2008

2007Software Lease Payments


728


Hardware Lease Payments


825


LessInterest


(175
)

Total debt

$
1,378

$
Current portion


783


Long-term debt

$
595

$



Interest
expense related to these leases was approximately $0.04 million in 2008.

As
of December 31, 2008 our minimum contractual payment obligations for the commitments described herein are as follows (in thousands):

2009

2010

2011

2012

2013

beyond

TotalPerot Master Services Agreement


5,382


4,900


4,880


4,839


4,837


2,025


26,863Operating Leases


1,989


1,557


1,464


1,411


517


1,130


8,068Sublease Income


(652
)

(565
)

(480
)

(442
)







(2,139
)Capital Leases


899


428


226











1,553Guaranteed Royalty Payments


800


400














1,200Transformation Project


1,100

















1,100Distribution Partner Payments


252


26














278


80

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE MCOMMITMENTS AND CONTINGENCIES (Continued)

Indemnification Agreements

In the ordinary course of business, we may provide indemnification of varying scope and terms to advertisers, agencies, distribution
partners, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be
provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers
that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We have also agreed to indemnify
certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may cover certain
liabilities arising from our obligation to indemnify our directors, and officers and former directors, officers and employees of acquired companies, in certain circumstances. Generally, it is not
possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in
each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these
agreements and we have not accrued any liabilities related to such indemnification obligations in our financial statements, except, however, in the fourth quarter of 2007
we accrued plaintiffs' attorney fees and class representative incentive awards of $1,312,270 regarding the Lane's Gifts and Collectibles class action litigation, a portion of which expense was related
to our indemnification obligation to a private label partner.

See
NOTE TSubsequent Events regarding some of the matters discussed above.

NOTE NSEGMENT INFORMATION

Historically, our merchant services segment did not meet the quantitative thresholds that required separate information to be reported. However, we have previously reported our operating
results in two operating segments, performance marketing and merchant services. Further, as described in Note CDiscontinued Operations, on August 1, 2007, we divested our
merchant services division, resulting in performance marketing becoming our one remaining operating segment. Our two remaining operating segments as of December 31, 2008, MIVA Media and MIVA
Direct, aggregate into our one remaining reportable segment, performance marketing. Therefore no separate segment disclosures are presented as of and for the years ended December 31, 2008 and
2007.

Summarized
information by geographical locations is as follows (in thousands):

Revenues

Long-Lived assetsYear ended December 31, 2008United States

$
89,708

$
5,306United Kingdom


12,307


205Other International


14,348


167Total

$
116,363

$
5,678


81

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE NSEGMENT INFORMATION (Continued)



Revenues

Long-Lived assetsYear ended December 31, 2007United States

$
106,676

$
22,598United Kingdom


17,329


1,154Other International


27,045


201Total

$
151,050

$
23,953


Amounts
are attributed to the country of the legal entity that recognized the sale or holds the asset. Other international activity as reported in the table above relates to one of
several European entities, including France that is a subsidiary of MIVA Media (UK) Ltd. In addition, activity from Sweden, Denmark, Norway and Finland is included to the extent of the private
label agreement with Eniro AB. This private label agreement, originally signed in 2005, and renewed in 2008 is in conjunction with the sale of substantially all of the assets of our indirect, wholly
owned subsidiary Espotting Scandinavia AB to Eniro AB.

NOTE ORELATED PARTY TRANSACTIONS

On December 31, 2008, Seb Bishop, who resigned his position of Chief Marketing Officer and President of MIVA, Inc. on August 5, 2008, resigned from the Board of
Directors. Mr. Bishop is a Director of Steakmedia Limited and also owns a 2.5% interest in Steakmedia. Steakmedia is an advertising agency owned predominately by Oliver Bishop,
Mr. Bishop's brother. We used this agency to generate advertisers onto our MIVA Media Networks and invoice them for all revenue generated on our networks through their advertisers. Amounts
invoiced to Steakmedia during the years ended December 31, 2008 and 2007, were $210,447 and $397,171, respectively.

In
addition to Steakmedia, Mr. Bishop is a Director of Adjug, a company that entered into a non-cancelable sublease obligation with our MIVA Media EU division to
sublet office space in Munich, Germany during the fourth quarter of 2008. This agreement has a term beginning December 1, 2008 through December 31, 2009 with annual sublease payments
totaling approximately $54,900.

Lawrence
Weber, who joined our Board of Directors in June 2005, and was subsequently elected Chairman of the Board of Directors in April 2006, is the Chairman and Founder of W2
Group Inc., which owns Racepoint Group, Inc. The Company entered into an agreement in November 2005 with Racepoint for public relations professional services. For the years ended
December 31, 2008 and 2007, we incurred fees from Racepoint of $15,000 and $84,141, respectively.

82

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE PINCOME TAXES

The provision (benefit) for income taxes consists of the following (in thousands):

For the Year
Ended
December 31,2008

2007Current:United States federal

$
160

$
State


112


344Foreign


(615
)

153(343
)

497Deferred:United States federal and state





Foreign





60


60$
(343
)
$
557


The
components of loss from continuing operations before income taxes are as follows (in thousands):

For the Year Ended
December 31,2008

2007United States

$
(28,951
)
$
(10,605
)Foreign


(16,451
)

(25,776
)$
(45,402
)
$
(36,381
)


A
reconciliation of the difference between the expected provision for income taxes using the statutory United States Federal tax rate and our actual provision is as follows (in
thousands):

For the Year Ended
December 31,2008

2007Tax benefit using statutory United States federal tax rate

$
(15,891
)
$
(12,683
)Effect of state income taxes


(32
)

169Write-down of non-deductible costs in excess of net assets of acquired companies


2,056


4,922Non-U.S. exchange difference on intercompany loan


1,521


Non-U.S. tax rate differential


679


1,938Deferred tax asset valuation allowances


9,799


5,124Other


1,525


1,087$
(343
)
$
557


Our
current tax provision (benefit) excludes the effect of stock option compensation deductible for tax purposes in the United States and overseas as these amounts were credited to
additional paid-in-capital.

83

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE PINCOME TAXES (Continued)

Due
to our losses, there was no tax benefit recorded in 2008 and 2007. The net benefit for 2008 includes the release of an estimated US tax liability of approximately $0.7 million, resulting
from certain prior year acquisitions for which no goodwill remains, which was determined during 2008 to no longer be payable, offset by state income tax expense. The deferred tax assets were subject
to corresponding valuation allowances.

Deferred
taxes arise due to temporary differences in reporting of certain income and expense items for book purposes and income tax purposes. We anticipate that our taxable temporary
differences will reverse over the same period as the deductible temporary differences, therefore assuring the realization of the non-reserved portion of our deferred tax assets. Details of
the significant components of deferred tax assets and liabilities in the accompanying consolidated balance sheet before netting within tax jurisdictions are as follows (in thousands):

December 31,2008

2007Deferred tax assets, short-termAccounts receivable allowances

$
92

$
151Accruals


60


549Other


15


51Total

$
167

$
751Fixed Assets


1,585


1,765Intangibles


4,242


Accruals


2,220


1,825Net operating losses


16,868


20,835Valuation allowance


(24,579
)

(23,989
)Total

$
336

$
436Capitalized software


(298
)

(101
)Intangibles





(1,086
)Other


(205
)

Total

$
(503
)
$
(1,187
)Net deferred tax assets

$


$



Undistributed
earnings in international subsidiaries are permanently invested abroad and will not be repatriated to the United States in the foreseeable future. In accordance with
APB 23, because those earnings are considered to be indefinitely reinvested, no U.S. federal or state deferred income taxes have been provided thereon. Upon distribution of those earnings, in
the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various international
countries. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested
indefinitely.

As
of December 31, 2008, we had United States and non-U.S. net operating loss ("NOL") carry-forwards for tax purposes of approximately
$40.0 million and $9.0 million, respectively. These U.S. NOL carry-forwards will expire at various dates beginning in 2019. The NOLs carry forward indefinitely in the non-U.S
entities. As of December 31, 2008, the deferred tax assets related to NOLs in the United States

84

---



MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE PINCOME TAXES (Continued)

and
international jurisdictions are fully offset by valuation allowances. We have foreign carry-forwards of $39.0 million, however, due to the closing of offices in Germany, Italy, Spain, and
Sweden, and the migration of those operations to the United Kingdom, $30.0 million of the $39.0 million of such NOLs have been written off by valuation allowances or deferred tax
liabilities. Upon adoption of SFAS 141(R) on January 1, 2009, subsequent releases, if any, of valuation allowances established at the time of acquisition for deferred tax assets
resulting from NOLs will be recorded as reductions to the income tax provision.

Utilization
of the acquired United States NOLs is subject to annual limitation due to the ownership change provisions of the Internal Revenue Code. At December 31, 2008, the
annual limitation is $3.5 million, with any unused amounts eligible to be carried forward to future years. This annual limitation may result in the expiration of a portion of the affected NOLs
before they are utilized.

We
record liabilities for probable assessments in income taxes payable. These liabilities would relate to uncertain tax positions in a variety of taxing jurisdictions and are based on
what we believe will be the ultimate resolution of these positions. The liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute of
limitations.

FIN48

In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.

The
Company adopted FIN 48 as of January 1, 2007. This standard modified the previous guidance provided by SFAS 5, "Accounting for Contingencies," and
SFAS 109, "Accounting for Income Taxes" for uncertainties related to the Company's global income tax liabilities. In connection with this adoption of FIN 48, the Company recorded a net
decrease to retained earnings of approximately $0.7 million related to the measurement of a position previously taken with respect to certain transfer pricing adjustments reported on our
foreign tax returns. This amount of unrecognized tax benefit did not materially change as of December 31, 2008.

A
condensed summary of the Company's unrecognized tax benefits is presented as follows (in $ millions):

Balance
Jan-07

Adjustments
in 2007

Balance
Dec-07

Adjustments
in 2008

Balance
Dec-08Unrecognized tax benefits that affect effective tax rate upon recognizition

$
0.6

$


$
0.6

$


$
0.6Interest / Penalties

$
0.1

$


$
0.1

$
0.1

$
0.2Total Unrecognized Tax Benefits

$
0.7

$


$
0.7

$
0.1

$
0.8


The
Company recognized accrued interest and penalties related to these unrecognized tax benefits in income tax expense. As of January 1, 2008, the Company had recorded a liability
of approximately $0.1 million for interest and penalties.

85

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE PINCOME TAXES (Continued)

As
of January 1, 2008, open tax years in major jurisdictions date back to 2002 due to the taxing authorities' ability to adjust operating loss carry-forwards.

It
is expected that the amount of unrecognized tax benefits will change in the next twelve months. However, the Company does not expect the change to have a material impact on the
results of operations or the financial position of the Company.

NOTE QQUARTERLY FINANCIAL SUMMARY (unaudited)

Three Months Ended2008

March 31

June 30

September 30

December 31(d)(in thousands, except per share data)Statements of operationsRevenues

$
32,671

$
30,163

$
28,167

$
25,362Gross profit


17,000


15,194


14,288


12,453Net loss


(5,127
)

(6,465
)

(10,526
)

(23,335
)Net loss per shareBasic

$
(0.16
)
$
(0.20
)
$
(0.32
)
$
(0.70
)Diluted


(0.16
)

(0.20
)

(0.32
)

(0.70
)




Three Months Ended2007

March 31

June 30(a)

September 30(b)

December 31(c)(in thousands, except per share data)Statements of operationsRevenues

$
42,244

$
38,716

$
35,942

$
34,148Gross profit


22,200


20,198


19,022


17,889Net loss


(5,322
)

(16,437
)

(3,316
)

(11,460
)Net loss per shareBasic

$
(0.17
)
$
(0.52
)
$
(0.10
)
$
(0.36
)Diluted


(0.17
)

(0.52
)

(0.10
)

(0.36
)


---

NOTE REMPLOYEE BENEFIT PLAN

We provide retirement benefits to our employees through the MIVA, Inc. 401(k) Plan, pursuant to which employees may elect a number of investment options. As allowed under Section
401(k) of the Internal Revenue Code, the plan provides tax deferred salary deductions for eligible employees. The 401(k) Plan permits substantially all United States employees to contribute up to 92%
of their base compensation (as defined) to the 401(k) Plan, limited to a maximum amount as set by the Internal Revenue Service. We may, at the discretion of the Board of Directors, make a matching
contribution to the

86

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE REMPLOYEE BENEFIT PLAN (Continued)

401(k)
Plan. Costs charged to operations for matching contributions were $0.06 million in 2008 and $0.03 million in 2007.

NOTE STREASURY STOCK

For the year ended December 31, 2008, the Company's shares held in treasury increased by 23,340 shares or approximately $0.03 million. This increase in treasury shares
resulted from shares withheld to pay the withholding taxes upon the vesting of restricted stock units during the year.

For
the year ended December 31, 2007, the Company's shares held in treasury increased by 433,178 shares or approximately $1.9 million. This increase in treasury shares
resulted from shares withheld to pay taxes in connection with the net issuances of stock options that were exercised by former executive officers. In addition, shares were withheld to pay withholding
taxes upon the vesting of certain restricted stock units during the year.

NOTE TSUBSEQUENT EVENTS

Amendment of Perot Master Services Agreement

On February 1, 2009, the Company entered into an amendment to the Perot Master Services Agreement with Perot Systems. Under the
terms of the amendment, the Master Services Agreement will expire on April 30, 2009, and certain other provisions of the Master Services Agreement have either been modified or terminated. In
connection with the Amendment, the Company has issued a letter of credit to Perot Systems for approximately $1.0 million for a portion of the remaining application development costs related to
the Company's new technology platform. Additionally, the Company expects to incur approximately $0.6 million in fees for transition services under the Amendment. It is expected that these fees
will be incurred over February, March and April 2009 as the transition services are received. As a result of the February 1, 2009 amendment, payments due to Perot Systems after
December 31, 2008 were reduced from 26.9 million in the table in Note MCommitments and Contingencies to $2.1 million due in 2009 above to $2.1 million
due in 2009.

Sale of MIVA Media Division

On March 12, 2009, we and certain of our subsidiaries entered into and consummated an Asset Purchase Agreement with
Adknowledge, Inc. and certain of its subsidiaries pursuant to which we sold to Adknowledge certain assets relating to our MIVA Media Division, including the MIVA name, for cash consideration of
approximately $11.6 million, plus assumption of certain balance sheet liabilities, and subject to certain retained assets and liabilities, including assets and liabilities of the MIVA Media
division in France, and post-closing adjustments (the "MIVA Media Sale").

The
Company and Adknowledge made customary representations, warranties and covenants in the Asset Purchase Agreement and each party has certain indemnification obligations under the
Asset Purchase Agreement. Further, the Asset Purchase Agreement prohibits the Company from competing in the business of owning and operating a pay-per-click network connecting
advertisers and third party publishers for five years, and prohibits the Company from diverting or soliciting past, existing or prospective clients, customers or sources of financing of Adknowledge or
from employing or soliciting for employment Adknowledge's employees (including the Company's employees that transferred to Adknowledge pursuant to the terms of the Asset Purchase Agreement) for two
years. In addition, the

87

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MIVA, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE TSUBSEQUENT EVENTS (Continued)

Asset
Purchase Agreement prohibits Adknowledge from employing or soliciting for employment the Company's employees who did not transfer to Adknowledge pursuant to the terms of the Asset Purchase
Agreement for two years.

As
of December 31, 2008 the MIVA Media Sale was not yet considered to be probable, therefore, the assets and liabilities of the division are classified as held and used, and the
operations are included in continuing operating in the accompanying consolidated financial statements. The approximate amount of major classes of assets and liabilities included as part of the
disposal group in the consolidated balance sheet at December 31, 2008 are as follows:

Current Assets

$
4,119Property and equipment, net

$
4,737Current liabilities

$
5,150Long-term debt

$
1,378


Amendment of Bank Loan Agreement

On March 12, 2009, we entered into a Consent and Amendment to Loan and Security Agreement (the "Amendment") with Bridge Bank,
which amends certain terms and conditions of the Loan Agreement. Pursuant to the Amendment, MIVA Direct became a borrower under the Loan Agreement and granted a general security interest in its assets
to Bridge Bank. The Amendment further provides Bridge Bank's consent to the MIVA Media Sale, provided that the Company was required to repay immediately, out of the proceeds of the MIVA Media Sale,
all outstanding advances plus any accrued interest under the Loan Agreement in the amount of approximately $4.4 million. In addition, no further advances under the Loan Agreement will be made
until the parties have agreed upon new terms and conditions for borrowing. The Amendment also provides that the letter of credit for the benefit of Perot Systems, Ltd. in the amount of $693,628
issued by Bridge Bank be secured by a cash deposit.

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