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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


(Mark One)


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




For the  Fiscal Year Ended December 31, 2005





or





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




For the transition period from __________ to __________





Commission File Number:  0-30428





MIVA, Inc.


(Exact name of registrant as  specified in its charter)





|Delaware                                                         |  | 88-0348835                                            
|---------------------------------------------------------------- |  | ------------------------------------------------------
|(State or    other jurisdiction of incorporation ororganization) |  | (I.R.S.    Employer    Identification No.)            
|                                                                 |  |                                                       
|5220    Summerlin Commons Blvd     Fort Myers, Florida 33907     |  | (239) 561-7229                                        
|(Address    of principal executive offices,including zip code)   |  | (Registrants    telephone number,including area code)




|Securities    registered pursuant to Section 12(b) of the Act: |  | None                            
|-------------------------------------------------------------- |  | --------------------------------
|Securities    registered pursuant to Section 12(g) of the Act: |  | Common Stock, $.001 par    value




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





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       No





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       No





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.





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





|Large accelerated    filer | Accelerated    filer | Non-accelerated    filer
|-------------------------- | -------------------- | ------------------------




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





The aggregate market value of the Registrants  common equity held by non-affiliates of the Registrant was approximately $129.0  million on June 30, 2005.





There were 31,089,150 shares of the  Registrants Common Stock outstanding on February 28, 2006.





Documents  Incorporated By Reference





None.





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PART I





Safe  Harbor Statement Under the Private Securities Litigation Reform Act of 1995





Some of the statements in  this report constitute forward-looking statements that are based upon current  expectations and involve certain risks and uncertainties within the meaning of  the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you  can identify forward-looking statements by terminology such as will,  should, intend, expect, plan, anticipate, believe, estimate,  predict, potential, or continue, or the negative of such terms or other  comparable terminology. This report includes, among others, statements  regarding our:





| |  | revenue;                                                                                                  
| | - | ----------------------------------------------------------------------------------------------------------
| |  | primary    operating costs and expenses;                                                                  
| |  | capital    expenditures;                                                                                  
| |  | operating    lease arrangements;                                                                          
| |  | evaluation    of possible acquisitions of, or investments in businesses, products and    technologies; and
| |  | existing    cash and investments being sufficient to meet operating requirements.                         




These statements involve  known and unknown risks, uncertainties and other factors that may cause our or  our industrys results, levels of activity, performance, or achievements to be  materially different from any future results, levels of activity, performance,  or achievements expressed or implied by such forward-looking statements. Such  factors include, among others, those listed in Part I, Item 1A Risk Factors and  elsewhere in this report. Although we believe that the expectations reflected  in the forward-looking statements are reasonable, we cannot guarantee future  results, events, levels of activity, performance, or achievements. We do not  assume responsibility for the accuracy and completeness of the forward-looking  statements. We do not intend to update any of the forward-looking statements  after the date of this report to conform them to actual results.





Item 1.  Business.





Overview





MIVA, Inc., together with its wholly-owned subsidiaries (collectively  referred to as we, us, our, MIVA, or the Company), is a leading  independent Performance Marketing Network dedicated to helping businesses grow.  We have been providing e-commerce solutions since 1998. Our new media platform  facilitates performance marketing for partners (publishers), advertisers and  consumers (end-users). Our primary focus is on providing our partners with a  complete set of innovative solutions enabling the acquisition, retention and  monetization of their online audiences. As an independent provider, MIVAs  primary focus is not to promote a branded destination search engine or portal  that actively competes with our distribution partners for end-users. For our  advertisers, we provide solutions to manage, optimize and measure return  on investment from keyword-targeted and context-related
performance marketing  programs. We generate traffic and leads to our advertisers through our network  of publisher partners. Our integrated e-commerce merchant solutions allow  online stores to capitalize on leads by offering online storefront, shopping  cart, shipping, and payment capabilities.





Our solutions provide a range of products and services through three  customer-facing divisions - MIVA Media, MIVA Direct and MIVA Small Business.  These divisions offer a suite of products and services aimed at significantly  enhancing our partners ability to monetize their traffic, our advertisers  return on investment, and consumers ability to find relevant online content.





| |  | MIVA    Media helps publisher partners and advertisers grow their    businesses through performance marketing services. Our MIVA Media division    efficiently distributes ads across our publisher network utilizing technology    to match advertiser selected keywords
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| |   | with consumers who are actively searching for    products and services that are related to the ad keywords. Advertisers only    pay MIVA Media when a consumer clicks on their relevant ad and in turn MIVA    Media shares the revenue with the publisher that served the ad, enabling the    publisher to monetize its consumer website traffic. In addition to our    Pay-Per-Click and our emerging Pay-Per-Call services, solutions for    publishers include private branded toolbars, configurable algorithmic search,    contextual capabilities and expandable banners. Our MIVA Media division also    offers a Private Label service that provides large publishers with the    opportunity to brand and sell their own performance marketing service;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | MIVA    Direct helps businesses grow by developing one-to-one    relationships with consumers through desktop software applications such as    private-branded toolbars and a variety of search-related applications. MIVA    Direct supports MIVA Media by launching these new and innovative products to    our publisher partners and advertisers;                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | MIVA    Small Business helps small businesses grow by developing    integrated online marketing and business solutions based on the MIVA Merchant    e-commerce platform that includes storefronts, payment processing, logistics    management, and professional services. Our MIVA Media advertising services    are integrated with our Small Business offerings to offer online businesses a    more complete solution.                                                                                                                                                                                                                                                                                                                                      




Our offerings reflect our commitment to five core values -  independence, infinite growth, service, customization, and value.





On June 13, 2005, we brought  together each of these offerings under one global brand name  MIVA  with one  business strategy and vision. In order to accomplish the rebranding, we amended  our Amended and Restated Certificate of Incorporation on June 13, 2005 pursuant  to a merger with a wholly-owned subsidiary in accordance with Section 253 of  the Delaware General Corporation Law pursuant to which our name was changed  from FindWhat.com, Inc. to MIVA, Inc. In addition, the charters of many of our  outward facing direct and indirect subsidiaries were also amended to reflect  the following name changes:





| | Espotting    Media Inc. became MIVA International, Inc. (MIVA Media Europe);
| | ------------------------------------------------------------------------------
| | Miva    Corporation became MIVA Small Business Solutions, Inc. (MSB);       
| | Comet    Systems, Inc. became MIVA Direct, Inc. (MIVA Direct);              
| | Espotting    Media (UK) Ltd. became MIVA (UK) Ltd.;                           
| | Espotting    Media (DE) GmbH became MIVA (Deutschland) GmbH;                  
| | Espotting    Media (FR) SARL became MIVA (France) S.a.r.l.;                   
| | Espotting    Espana, S.L. became MIVA Media S.L.; and                         
| | Espotting    Media S.r.l. became MIVA (Italia) S.r.l.  a socio unico.        




The assets acquired from  B&B Enterprises, Inc. will continue to be referred to as B&B  Advertising (B&B).





As a result of the  rebranding, our ticker symbol changed to NASDAQ:MIVA and our new corporate  website is www.MIVA.com.





We offer our marketing  services on three continents with direct products offerings in North America  and Europe and a private label service with Mitsui & Co., Ltd. in Japan.





MIVA  Media





Our Publishers


Our mission is to help publisher partners  effectively compete for audience and media spend, while protecting their brand,  audience and content value. Our primary focus is on providing our  partners with a complete set of innovative solutions enabling the acquisition,  retention and monetization of their online audiences.





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Our database of keyword advertisements represents continuously updated,  high-quality content for any qualifying publisher or browser application that  desires to offer its users access to relevant information. Our auction-based,  Pay-Per-Click and Pay-Per-Call environment encourages the most relevant,  highest-quality advertisers to actively pursue the top positions in our list of  keyword ads.





By displaying keyword-targeted ads from the MIVA Media Network, our  distribution partners can earn revenue from their users who are interested in  finding products or services. We handle all of the interaction with the  advertisers and advertising agencies and offer a comprehensive, targeted advertisement  service. As such, there is very little cost or time involved for our  distribution partners to receive their share of this recurring revenue stream.





Our full suite of publisher-partner focused offerings provide the  following advantages and opportunities:





Independent  partner advantage. We
    believe publishers have become increasingly wary of partnering with search
    providers who aggressively focus on aggregating end-users, in essence threatening
    the business prospects for the very partners they claim to serve. As an independent
    provider, MIVAs primary focus is not to promote a branded  destination
    search engine or portal that actively competes with our distribution partners
    for end-users.





Turnkey  set of solutions. Our solutions are designed to maximize the  monetization potential of our partners websites while engaging their end-users  through customized products and services. In addition to paid search ad  listings, our solutions for publishers include configurable algorithmic search,  private branded toolbars, contextual capabilities, and delivery of paid  listings through expandable banners, e-mails, parked domains and exit traffic.





| |  | Paid    search Our paid search solutions enable publishers in the    United States as well as in Europe, to serve targeted ads from our database    of keyword advertisers. Targeting can be based on exact and/or broad keyword    matching to search requests and/or site content.                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Algorithmic    search  We offer customizable algorithmic search,    localized and configurable to our partners requirements in Europe, with    plans to introduce this solution in the U.S. Our algorithmic search enables    partners to maintain inclusion and exclusion result lists and provides for    algorithmic back-fill results to MIVA advertiser paid listings.                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   | Algorithmic Internet search engines are    sophisticated software programs that enable computer users to locate    information on the Internet quickly and easily. In very general terms, it    utilizes a two-step process. First, the search engine (or a related program    called a spider) crawls across the Web, methodically following every link    and indexing the content of every page. When a user submits a search query,    the engine looks up the query topic in its index and returns a list of    relevant Web pages to the user.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Private    branded toolbars  Our private branded toolbars maintain a    continuous connection to our partners audience, even when that audience is    visiting unrelated websites. Our toolbars incorporate elements that directly    serve the needs of our partners audience and include pop-up blockers,    customized functional buttons and a variety of search capabilities, including    algorithmic, paid and contextual.                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Multiple    delivery methods
        of paid listings We offer publishers    multiple delivery
        methods for displaying relevant, keyword-targeted paid listings, including
        banners, e-mails, and pop-ups/unders. These various means of displaying
        paid listings can serve to increase revenue generation for publishers
        from
        their current audience, while offering their audience relevant content
        at the exact time the audience members may be seeking it.                                        




Global  network of advertisers. Our publishers gain access to tens of  thousands of advertisers placing ads and bidding on a multitude of keywords  within MIVAs global advertiser database. Our advertisers range from small  local businesses to large global marketers.





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Automated  solutions for small publishers.We have two programs designed  to provide small-to-medium-sized publishers with an automated solution for  realizing revenue by displaying our paid listings and monetizing their website  traffic while offering relevant content and services to their site visitors.  Combined, these programs have thousands of active publisher relationships.





| |  | AdRevenue    Xpress  Our
      AdRevenue Xpress program is directed toward advertisers and others using
      the MIVA Network.                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                   
| |  | B&B    Advertising  We acquired B&B Advertising in June 2004,    and continue to operate B&Bs paid listings service for small publishers    under its own brand.




Private  label solution.Our private label solution offers large  portals, search engines, high traffic websites and large companies with  leadership positions in their respective geographies and/or markets the  opportunity to brand and sell their own Pay-Per-Click, keyword-targeted  advertisement solution using our turnkey operation.





Our private label solution includes building and hosting a  partner-branded sign-up page for advertisers and a separate advertiser account  management center designed to the private label partners specifications. Our  private label partners are able to set certain key variables, such as the  minimum initial deposit and the minimum bid amount. This turnkey service makes  available our technology platform, our editorial review capabilities for all  keyword ads, customer service support and processing of advertiser deposits,  all in a manner that looks and feels like it is being provided by our private  label partner, from the way we answer incoming calls from advertisers, to the  colors and logos used within the private label partners account management  center. Most importantly, the private label partner owns the advertiser  relationship, and has the ability to work directly with advertisers on  promoting their keyword ad campaigns, or any other
advertising campaigns or  services offered by the private label partner on its own website.





During 2004, we launched new private label offerings with Verizon  Information Services SuperPages.com and Mitsui & Co. Ltd.s LISTOP  service, supported by our technology and business operations expertise. During  2005, we launched our first private label partnership in Europe with Eniro AB,  the leading directory company in the Nordic media market. The Eniro AB  relationship covers Sweden, Denmark, Norway and plans for service in Finland.  In January 2006, our private label agreement with Lycos expired in accordance  with its terms.





Our Advertisers


Historically, advertising, including most online advertising, has been  impression-based, where advertisers are charged based on the number of viewers,  listeners, readers or users who are potentially exposed to their ad. We believe  it is difficult for marketers to measure their precise return on investment  when employing impression-based advertising. Alternatively, keyword-targeted  advertising, also known as paid search, Pay-Per-Click or sponsored listings,  allows advertisers to accurately measure the effectiveness and response rates  of their ads. Our advertising solutions help advertisers deliver relevant ads  across our distribution network, targeted to search results or web content. Ads  are delivered to the prospect at the very time that prospect is displaying  interest in the product or service the advertiser is offering, either because  the prospect has searched for the keyword, clicked on a directory link, or has  visited a site with content that
relates to the ad keyword. We utilize  relevancy algorithms and human editors to ensure advertisers develop effective  paid listing ads and bid on the right keywords.





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Our advertiser solutions provide for the following benefits:





Effective  return on investment. Our performance marketing solutions are  cost effective and accountable; advertisers pay for every prospect that  undertakes a predetermined action such as a click-through to their websites or  a direct phone call from a prospective lead, resulting in a measurable return  on their ad investment spend.





Access  to our global network of publishers. By bidding into the top  positions for keywords or phrases, an advertisers keyword ad will appear on  the websites of our diverse network. Our network consists of thousands of  distribution partners including large traditional content publishers, search  engines, portals, directories, third-party networks, desktop applications and  vertical niches or category-specific websites.





Quality  distribution.We believe our commitment to leading the  industry in defining best practices by working with our partners to deliver  high-quality prospects from trusted sources has resulted in a high-quality  distribution network for our advertisers.





Multiple  services and multiple targeting opportunities. Advertisers  may utilize Pay-Per-Click and/or Pay-Per-Call and their paid listing ads are  displayed via multiple performance products covering search, directory,  content, expandable banners and email.





MIVA  Match. An algorithmic-based technology solution that expands  advertising opportunities by returning additional leads that have been more  broadly matched to an advertisers keyword selection.





Advertiser  management tools.Our advertisers can access their account to  change or edit their company or product description at any time. Advertisers  control, monitor, track, organize, budget and manage their auction bids,  placement of their keyword ads, total expenditures and their cost per lead. As  a result, advertisers can effectively measure and optimize their return on  investment. Our U.S. account management tools include Campaign Management,  AdAnalyzer, AutoBid, Bid Optimizer and AutoReplenish.





| |  | Campaign    Management  Tools designed to provide advertisers greater    control over the management of their advertisements and spend by allowing    them to group ad listings together into campaigns and then applying schedules    and budgets to those campaigns.                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                            
| |  | AdAnalyzer  Tool designed to provide fast, on-demand reports and    detailed keyword analysis to help advertisers distinguish their most    productive keywords from those that are less productive.                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                            
| |  | AutoBid     Tool
      designed to help advertisers optimize their keyword bids by automatically
      increasing the keyword bid price by $0.01 more than the next closest competitors
      bid, up to a maximum bid price set by the advertiser.                                                     
| |   |                                                                                                                                                                                                                                                                                                            
| |  | Bid    Optimizer  Tool designed to help advertisers    manually set a maximum keyword bid price and choose the network position they    want for the keyword.                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                            
| |  | AutoReplenish     Tool designed to help advertisers keep their listings online by    automatically depositing funds into their account when the balance reaches a    pre-determined level, which is set by the advertiser. A maximum monthly    deposit amount can also be chosen to help with budgeting.




Pay-Per-Call.  Using our Pay-Per-Call service, both online and offline advertisers are able to  participate in targeted performance marketing. When advertisers bid for  placement in Pay-Per-Call listings delivered in response to an Internet users  search or the web content of the site visited, Internet users are provided with  a unique toll free number that, upon calling, connects the user





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directly to the advertisers. Similar to Pay-Per-Click, the advertisers  only pay when the user actually calls the unique toll free number.





MIVA  Direct


Our MIVA Direct division was created  following our acquisition of Comet Systems, Inc. in March 2004. MIVA Direct  focuses on helping businesses grow by developing one-to-one relationships with  consumers by providing desktop software applications such as private-branded  toolbars and improved site performance through a variety of search-related  applications. MIVA Direct supports MIVA Media by launching consumer products to  our publisher partners.





MIVA Direct also leverages direct-to-consumer distribution channels,  resulting in increased third-party saleable inventory for MIVA Media paid  search ad listings, as well as third-party networks. In addition to increased  traffic for MIVA Media advertisers, the MIVA Direct division generates  additional revenue opportunities  such as desktop marketing, e-commerce, a  travel-related comparison shopping product for toolbar users and lead generation   through direct contact with consumers. This is accomplished by offering  customers the ability to download Internet search toolbars, customized cursors,  screensavers and other interactive products and services. Through MIVA Directs  toolbar, we have access to millions of consumers who have voluntarily  downloaded our software and search functionality directly onto their personal  computers. This direct connection to the consumer allows us to enhance our  keyword-targeted, performance marketing
solutions. In addition, we have  leveraged our desktop software technology to offer toolbars and other  downloadable applications to our MIVA Media partners under our partners own  brands, increasing the value we can provide to our distribution partners.





Search  and Directory.On December 29, 2004, we entered into a  Perpetual License Agreement with Fast Search & Transfer. Throughout 2005,  our search and directory group has undertaken a substantial development effort,  leveraging our core FAST Data Search 360 technology license to build new  applications that broaden our suite of solutions for advertisers and partners.  In June 2005, we introduced in Europe the first of our planned product  releases, customizable algorithmic search, localized and configurable to our  partners requirements. We plan a similar release in the United States in the  near future. In November 2005, we launched MIVA Match, an algorithmic-based  technology solution that expands advertising opportunities by returning  additional leads that have been more broadly matched to an advertisers keyword  selection. We currently plan to introduce additional FAST Data Search  360-related products during 2006.





MIVA Small Business


Our MIVA Small Business division was created following our acquisition  of Miva Corporation in January 2004.





The core focus in this division is e-commerce that primarily targets  small business by developing integrated marketing and business solutions based  on the MIVA Merchant platform. MIVA Merchant is a complete storefront  application that allows end users to get their online stores up and running  quickly and also provides end users access to payment processing, logistics and  professional services. A number of technologies surround MIVA Merchant, such as  MIVA Empressa Virtual Machine which is a part of the foundational architecture  to allow MIVA Merchant to run on a server. Others, like MIVA Synchro, and  various MIVA Merchant extensions are retailed to the MIVA Merchant user base.  Together these technologies are used by developers to create business  solutions, merchants to create online stores, and hosting partners who wish to  offer e-commerce solutions to their hosting customers. The MIVA Media platform  is integrated into MIVA Merchant for directly
connecting the e-commerce  offering with the pay-per-click network. We primarily sell our MIVA Merchant  software solutions to web hosting companies, which in turn bundle it with their  web hosting packages for small and medium-sized businesses (SMEs).





Our MIVA Small Business division has several additional services,  including MIVA Mailer, MIVA Service Club, MIVA Payment and MIVA  Marketplace, each of which has been designed to cater to our base of online  merchants. MIVA Marketplace includes direct access to traffic from the MIVA  Media Network, enabling tens of thousands of MIVA merchants to access  keyword-targeted,





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Pay-Per-Click advertising services accessible from the MIVA Merchant  administrative interface, which is capable of yielding a valuable source of  additional revenue for small to medium-sized merchants. The seamless  integration of the two products allows online SMEs an efficient, accessible way  to manage their online advertising campaigns, along with their online  storefronts, through one system.





Sales  and Marketing


We have sales and marketing efforts originating from Ft. Myers,  Florida, London, U.K., Paris, France, Munich and Hamburg, Germany, Madrid,  Spain, Milan and Treviso, Italy, San Diego, California, New York City, New  York, Boston, Massachusetts, and northern New Jersey. Our MIVA Direct sales and  marketing activities are concentrated in our Boston, Massachusetts and New York  City, New York offices, and our MIVA Small Business sales and marketing efforts  are concentrated in our San Diego, California office. As of December 31, 2005,  we had 49 people focused on sales, 205 in marketing, 5 business development  personnel and 2 corporate development personnel. Our MIVA Media sales  departments seek to continually add new advertisers and advertising agencies to  the MIVA Media Network. Our business development department focuses on adding  new distribution partners to the network. Our corporate development department  seeks potential mergers, acquisitions and
strategic transactions. Almost all of  our paid click-throughs and calls result from Internet user actions on our  distribution partners and private label partners websites, and, as a result,  we do not spend any marketing efforts to attract consumers to our website at  www.miva.com. However, we do have relationships with third parties to attract  online businesses to our website in order to encourage them to open an  advertising account or to learn more about our MIVA Small Business products and  services. Most of the downloads of our MIVA Direct consumer software are  generated through online advertising campaigns we run promoting our tools to  personalize an Internet users desktop experience or to have continual access  to timely information, such as news and weather forecasts. We also seek to  promote MIVA Central through our MIVA Merchant platform and online advertising  targeting small to medium-sized merchants, and the webmasters that serve those  types of
businesses.





Revenue  Model


We currently generate revenue primarily from paid click-throughs on the  MIVA Media Network, private label net revenue share payments, and performance  marketing revenue generated by MIVA Directs consumer software applications  along with sales of MIVA Small Business e-commerce solutions.





Our MIVA Media Network keyword advertising paid click-through and call  revenue is determined by multiplying the number of click-throughs and calls on  paid keyword advertisements by the amounts bid for applicable keywords.  Click-through and call revenue is earned based on activity to the extent that  the advertiser has deposited sufficient funds with us or we believe collection  is probable. We recognize 100% of the revenue from paid click-throughs and  calls from distribution partners in the MIVA Media Network and then share that  revenue with our distribution partners.





With our private label service, we recognize only our share of the  revenue generated from advertisers for click-throughs on our private label  partners sites. Our private label partners are responsible for reporting the  gross revenue generated from the click-throughs executed on their sites. In  certain cases, we also receive monthly fees and/or impression-based fees from  our private label partners.





Financial information about geographic areas is set forth in Note M to  the consolidated financial statements.





Customers


In the fourth quarter of 2005, we had approximately 90,000 active  relationships. We define active relationships as those that have had a paying  transaction with us during the quarter. In total, we have relationships with  approximately 100,000 businesses spanning North America, Europe and Asia,  including businesses that are using our MIVA Merchant storefront software, or  that have made deposits in their MIVA Media Network advertiser accounts to fund  future transactions.





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Competition





MIVA  Media Network


Our competitors engage in keyword-targeted performance marketing by  serving paid listing ads to users through their own branded portal/search  properties and through relationships with third-party distribution partners. In  contrast, as an independent provider, MIVAs primary focus is not to promote a  branded destination search engine or portal that actively competes with our  distribution partners for end-users. Portals and search engines that offer  keyword-targeted ad solutions for their own and third-party use include Yahoo!,  Google, MSN, IAC/InteractiveCorp (Ask Jeeves), InfoSpace, Interchange,  LookSmart, Marchex, ValueClick and Feedster.





Other competitors that primarily focus on providing performance  marketing solutions to their partners include Kanoodle, Tacoda and Quigo.





Private  Label Service


We compete with companies that allow large portals or high traffic  websites to offer their own branded, keyword-targeted performance marketing  service. These include Google, Marchex (Enhance Interactive, IndustryBrains), Interchange,  LookSmart, Quigo, and MyGeek.





MIVA  Direct


In addition to services offered by the companies already mentioned,  competitors to our MIVA Direct division include Intermix Media,  IAC/InteractiveCorp and Freeze.com. Each offers a form of online media or  entertainment through a series of websites or desktop applications. These  offerings can include social networking, casual gaming, viral networks,  screensavers, ring tones and many other products and services.





MIVA  Small Business


Main competitors to our MIVA Merchant e-commerce platform include  Yahoo! Stores, eBay Stores, OpenSource and Kurant.





In the future, other companies may offer directly competing services to  the MIVA Media Network, our private label service, our MIVA Direct division  and/or our MIVA Small Business division. Most providers of Web directories,  search engines and information services offer additional features and content  that we have elected not to offer at this time. We also compete with  traditional offline media such as television, radio and print for a share of  advertising budgets.





Technology  and Operations





We believe 1) high traffic, keyword-targeted advertising networks,  especially those that distribute their results to third-party partners, 2)  algorithmic search indices, and 3) consumer software download services, all  require a fast, reliable and secure infrastructure that can be easily expanded  to maintain acceptable response times under the stress of growth. We believe  that we have created an infrastructure that provides us with a platform from  which to grow our business, including technical operations in our headquarters  in Fort Myers and in hosted facilities in Atlanta, New York City, London, and  Paris. In addition, MIVA Small Business maintains its own technical operations  in our office in San Diego.





We believe our current infrastructure and operating environment are  appropriately sized and designed for their intended use, which includes  interaction with Internet users, advertisers, advertising agencies,  distribution partners, web hosting partners, and private label clients.  However, we will need to continue to invest significantly to maintain and  upgrade our infrastructure. The physical components of our infrastructure are  comprised of equipment made by industry-leading manufacturers including  Hewlett-Packard, Juniper Networks, EMC Corporation and Cisco Systems. The  software powering our services is internally developed proprietary software  built on top of industry standard commercial software. We believe that given the  solid mix of industry standard equipment and software, we are positioned to  sustain the effects of considerable growth.





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We secure our networks through the use of firewalls and intrusion  detection systems, as well as anti-virus and various other security related  software. We maintain a comprehensive security policy that provides us with the  ability to block out network traffic that is not required to operate our  services or represents a threat to the continued stable operation of our  systems. We are constantly monitoring and updating our security systems to  ensure that the ever-growing array of security risks do not impede the  operation of our service.





Intellectual  Property





We rely on a combination of patent, copyright, trademark and trade  secret laws, employee and third party nondisclosure agreements, and other  intellectual property protection methods to protect our services and related  products. We own patents related to our MIVA Direct division and have several  patent applications pending for various aspects of our products and services  filed with the U.S. Patent and Trademark Office. We own several domestic and  foreign trade and service mark registrations related to our products or  services, including U.S. Federal Registration for MIVA® and we have additional  registrations pending.





We rely on a patent license from Yahoo! for the  operation of certain portions of our pay-per-click business. We received the  license on August 15, 2005, when we settled a patent infringement lawsuit  brought by Overture Services (Overture Services) and Yahoo! Inc.  (collectively with Overture Services Yahoo!) against us regarding U.S. Patent  No. 6,269,361 and received a royalty bearing non-exclusive license from Yahoo!  regarding certain patents. The license agreement may be terminated by Yahoo! or  by us upon the occurrence of certain events, including upon certain  material breaches by either party of the agreement or if we were to challenge  the validity or enforceability of the Yahoo! patents.





Regulations


We are not currently subject to direct regulation by any government  agency, other than regulations applicable to businesses generally, and there  are currently few laws or regulations directly applicable to access to, or  commerce on, the Internet. However, due to the increasing popularity and use of  the Internet, it is possible that various laws and regulations may be adopted  with respect to the Internet, covering issues such as taxation, user privacy  and characteristics and quality of products and services. In 1998, the United  States Congress established the Advisory Committee on Electronic Commerce which  is charged with investigating and making recommendations to Congress regarding  the taxation of sales by means of the Internet. The adoption of any such laws  or regulations upon the recommendation of this Advisory Committee or otherwise,  in any or all of the countries we serve, may decrease the growth of the  Internet, which could in turn decrease
the demand for our products or services,  increase our cost of doing business or otherwise have an adverse effect on our  business, prospects, financial condition, or results of operations. Moreover,  the applicability to the Internet of existing laws governing issues such as  property ownership, libel and personal privacy is uncertain. Future  international, federal or state legislation or regulations could have a  material adverse effect on our business, prospects, financial conditions and  results of operations. For instance, legislation has been introduced and, in  one instance, enacted, that, if upheld, may impact our ability to display  contextual ads.





Additionally, the U.S. Congress and some state legislatures have  introduced legislation designed to regulate spyware, which has not been  precisely defined, but which is often defined as software installed on  consumers computers without their informed consent and which is designed to  gather and, in some cases, disseminate information about those consumers,  including personally identifiable information, without the consumers consent.  Our internal policies prohibit the reliance on spyware for any purpose and it  is not part of our product offerings, but the definition of spyware or proposed  legislation relating to spyware may be broadly defined or interpreted to  include legitimate ad-serving software, including toolbar offerings currently  provided by our MIVA Direct division. Currently, legislation has focused on  providing Internet users with notification of and the ability to consent to or  decline the installation
of such software, but there can be no guarantee that  future legislation will not provide more burdensome standards by which software





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can be downloaded onto consumers computers. Currently all downloadable  software that we distribute requires an express consent of the consumer and  provides consumers with an easy mechanism to delete the software once  downloaded. However, if future legislation is adopted that makes the consent,  notice or uninstall procedures more onerous, we may have to develop new  technology or methods to provide our services or discontinue those services in  some jurisdictions or altogether. There is no guarantee we will be able to  develop this new technology at all or in a timely fashion or on commercially  reasonable terms.





As we expand our international presence, we have also become exposed to  foreign laws and proposed legislation relating to user privacy and related  matters. For example, the European Union has adopted directives designed to  address privacy and electronic data collection concerns. These directives limit  the manner in which personal data of Internet users may be collected and  processed.





Moreover, the applicability to the Internet of existing laws governing  issues such as property ownership, libel and personal privacy is uncertain.  Future international, federal or state legislation or regulations could have a  material adverse effect on our business, prospects, financial conditions and  results of operations.





Employees


As of December 31, 2005, we had approximately 483 full-time employees.  We had approximately 261 employees in marketing, sales and service (which  includes, but is not limited to departments such as business development,  sales, marketing, customer service, credit transactions, business affairs,  corporate development and affiliate relations), 127 in our technical, product  development and product management departments and 95 in our general and  administrative departments.





Available  Information


We maintain an Internet website at http://www.miva.com. We make  available free of charge on our website links to our annual reports on Form  10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any  amendments to those reports filed or furnished pursuant to Section 13(a) of the  Securities Exchange Act of 1934 as soon as practicable after we electronically  file such material with, or furnish it to, the Securities and Exchange  Commission. We are providing the address to our Internet website solely  for the information of investors. None of the information on our Internet website  is part of this report. Additionally, individuals can access our electronically  filed reports, proxy statements and other information through the Internet site  maintained by the Securities and Exchange Commission at http://www.sec.gov. The  public may also read and copy any materials we file with the Securities and  Exchange Commission at the SECs
Public Reference Room at 100 F Street, N.E.,  Washington, D.C. 20549. You may obtain information on the operation of the  Public Reference Room by calling the SEC at 1-800-SEC-0330.





Item 1A.  Risk Factors


We desire to take advantage of the safe harbor provisions of the  Private Securities Litigation Reform Act of 1995. The following factors have  affected or could affect our actual results and could cause such results to  differ materially from those expressed in any forward-looking statements we may  make. Investors should consider carefully the following risks and speculative  factors inherent in and affecting our business and an investment in our common  stock. Factors that might cause such a difference include, but are not limited  to, those discussed below. Additional risks and uncertainties that we are  unaware of, or that we currently deem immaterial, also may become important  factors that affect us.





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Risks Related to Our Business





Our  business is difficult to evaluate because we have a limited operating history  in an emerging and rapidly evolving market and have recently acquired several  new businesses.





We began operating our business in 1998 and since that time we have  undergone significant changes:





| |  | we launched the FindWhat.com Network (now the MIVA    Media North America Network) in September 1999;                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | we launched our private label service in September    2002; and                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | in 2004, we acquired or merged with five companies,    including a leading supplier of e-commerce software and services to small and    medium-sized businesses, a provider of connected desktop consumer software, a    U.S. performance-based, keyword-targeted advertising business; and a leading    provider of performance-based, keyword-targeted Internet advertising services    in Europe, each of which substantially diversified and expanded the scope and    geographic reach of our operations.




Accordingly, we have a limited historical operating history upon which  an investor can make an evaluation of the likelihood of our success.  Additionally, we derive nearly all of our net revenue from online advertising,  which is a new and rapidly evolving market. An investor should consider the  likelihood of our future success to be speculative in light of our limited  operating history, as well as the problems, limited resources, expenses, risks  and complications frequently encountered by similarly situated companies in  emerging and changing markets, such as e-commerce. To address these risks, we  must, among other things:





| |  | maintain and increase our client base;                                    
| | - | --------------------------------------------------------------------------
| |   |                                                                           
| |  | implement and successfully execute our business and    marketing strategy;
| |   |                                                                           
| |  | continue to develop and upgrade our technology;                           
| |   |                                                                           
| |  | continually update and improve our service offerings    and features;     
| |   |                                                                           
| |  | provide superior customer service;                                        
| |   |                                                                           
| |  | find and integrate strategic transactions;                                
| |   |                                                                           
| |  | respond to industry and competitive developments;    and                  
| |   |                                                                           
| |  | attract, retain and motivate qualified personnel.                         




We may not be successful in addressing these  risks, particularly as some of these are largely outside of our control. If we  are unable to do so, our business, prospects, financial condition and results  of operations would be materially and adversely affected.





Our business  is dependent upon our relationships with, and the success of, our distribution  partners, including our ability to attract new distribution partners and retain  existing distribution partners.





Our distribution partners are very important to our business, revenue  and results of operations. These partners provide their users with our services  on their websites or otherwise direct their traffic to our paid listings. Our  distribution partners may experience difficulty in attracting and retaining a  substantial number of users due to, among other reasons, the rapidly changing  nature of the market, technological innovation, industry consolidation and  changing consumer preferences.





In addition, we may not be able to further develop and maintain  relationships with distribution partners. Difficulties may arise in our  relationships with distribution partners for a number of





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reasons, some of which are outside of our control. These distribution  partners may regard us as not significant for their own businesses, may regard  us as a competitor to their businesses or find our competitors to be more  attractive. In addition, our distribution partners face substantial  competition, and any inability on our part to align with successful  distribution partners could adversely affect our business. Our distribution  partners may not be able to increase or maintain in the future the Internet  traffic they have historically generated for our network. Additionally, we have  in the past and expect that in the future we will cease displaying  advertisements through certain distribution partners or their affiliates whose  traffic does not adequately convert to revenue for our advertisers. Moreover,  our agreements with our distribution partners vary in duration and generally  are not long-term agreements. Our distribution agreements are
generally  terminable upon the occurrence of certain events, including our failure to meet  certain service levels, general breaches of agreement terms and changes in  control in certain circumstances. We may not be successful in renewing our  existing distribution partnership agreements, or if they are renewed, any new  agreement may not be on as favorable terms. In addition, we may not be  successful in obtaining new distribution partners. Any adverse changes in the  business of, or our relationships with, key distribution partners or any  inability on our part to obtain new distribution partners could have a material  adverse effect on our business, revenue and results of operations.





We rely  on a patent license from Yahoo! for the operation of certain portions our  pay-per-click business.





We rely on a patent license from Overture
    Services for the operation of certain portions of our pay-per-click business.
    On August 15, 2005, we settled a patent infringement lawsuit brought by Overture
    Services (Overture Services) and Yahoo!, Inc. (collectively with
    Overture Services Yahoo!) against us regarding U.S. Patent No.
    6,269,361 and took a royalty bearing non-exclusive license from
    Yahoo! regarding certain patents.
    The license agreement may be terminated by Yahoo! or by us upon
    the occurrence of certain events, including upon certain material breaches
    by either party of the agreement or if we were to challenge the validity
    or enforceability of the Yahoo! patents. If we are unable to maintain the
    rights to use such patents, our business, financial condition and results
    of operations could be materially adversely affected. In addition, the settlement
    contains terms and conditions that may be unacceptable to a third party and
    negatively impact our ability to be sold or enter into a change of control

transaction.





We may  be negatively impacted by distribution partners and their sub-affiliates that  engage in activities in violation of our distribution guidelines.





From time to time we may discover that certain of our distribution  partners or their affiliates are obtaining Internet users in a manner that does  not adhere to our distribution guidelines. While we regularly monitor the  activities of our distribution partners to ensure their compliance with our  distribution guidelines, we do not monitor the distribution methods used by all  of our distribution partners all of the time. If we fail to detect activities  of our distribution partners that display our paid listings in a manner  contrary to our distribution guidelines, we could be associated with such  activities and such association could have a negative impact on our reputation  or our ability to attract and retain both advertisers and quality distribution  partners and could subject us to third-party or governmental claims or  investigations, which in turn could negatively impact our revenue and results  of operations.





Additionally, we have removed in the past - and we expect that we will  continue in the future - to remove all or a portion of the traffic generated by  one or more distribution partners, including some of our largest distribution  partners, because the traffic generated does not meet our distribution  guidelines or our standards of quality or those of our advertisers, any of  which would have a material adverse effect on our business, revenue and results  of operations. Compared to our revenue from the quarterly period ended  September 30, 2005, our revenue for the quarterly period ended December 31,  2005 decreased 3.9%, due, in part, to the removal from our network of certain  traffic generated by our distribution partners that did not meet our or our  advertisers guidelines or standards. Additionally, the removal of any  distribution partners or any of the traffic





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they generate for us, may cause us to reduce our future revenue and  earnings estimates, cause us to miss analysts expectations and could  consequently cause our stock price to decline.





Click-through fraud, whether we  detect it or not, could cause our revenues and our business to suffer.





From time to time, we receive fraudulent clicks on our ads by persons  seeking to increase the advertising fees paid to distribution partners within  our MIVA Media Network. Click-through fraud occurs when a person or program  clicks on an advertisement displayed on a website for the purpose of generating  a click-through payment to the MIVA Media Network partner or by a competitor to  deplete an advertisers budget rather than to view the underlying content. We  have implemented screening policies and procedures to minimize the effects of  these fraudulent clicks. We believe that these policies and procedures assist  us in detecting fraudulent click-throughs, which are not billed to our  advertisers. However, it is difficult to detect all fraudulent clicks, and  detection may become more difficult in the future if third parties implement  more sophisticated fraudulent click-through schemes. To the extent that we are  unable to detect click-through
fraud, we may refund revenue that our  advertisers have paid to us that is later discovered to be attributed to these  fraudulent click-throughs. If we find new evidence of past fraudulent clicks,  we may have to issue refunds to advertisers retroactively for amounts  previously paid to our MIVA Media Network distribution partners. Any of these situations  would adversely affect our profitability, and these types of fraudulent  activities could hurt our brands. If fraudulent clicks are not detected, the  affected advertisers may experience a reduced return on their investment in our  advertising programs because the fraudulent clicks would not lead to potential  revenue for the advertisers. If this occurs, our advertisers may become  dissatisfied with our advertising programs, and we may lose advertisers and  revenue.





Additionally, we, along with others in our industry, were named in a  putative class action lawsuit by Lanes Gifts and Collectibles, LLC, et. al, on  behalf of themselves and all others similarly situated. The plaintiffs claims  are principally predicated on the allegation that the plaintiffs have been  charged for clicks on their advertisements that were not made by bona fide  customers. The lawsuit is brought on behalf of a putative class of individuals  who allegedly were overcharged for [pay per click] advertising, and seeks  monetary damages, restitution, prejudgment interest, attorneys fees and other  remedies.





We were also named as a co-defendant
    with Advertising.com, Inc. in a putative class action lawsuit filed on October
    19, 2005 by Payday Advance Plus, Inc., on behalf of themselves and all others
similarly situated. The plaintiffs claims were predicated on the allegation that Advertising.com,  a MIVA Media Network distribution partner, engaged in click fraud to increase  revenues to themselves with MIVAs alleged knowledge and participation. The  complaint sought monetary damages, restitution, prejudgment interest,  attorneys fees, injunctive relief, and other remedies. The plaintiff  voluntarily dismissed the case on February 2, 2006; however, the plaintiff has  indicated they may re-file its claims in New York.





Allegations of the nature asserted in the foregoing cases, generally  relating to click-through fraud, whether accurate or not, may have the effect  of causing advertisers and advertising agencies to lose confidence in the services  we provide and to cease advertising with us. Any material reduction in our  advertisers and advertising agencies participation in the MIVA Media Network  on an aggregate basis could have a material adverse effect on our financial  condition or results of operations. Additionally, these litigations and similar  cases in the future could be costly, time-consuming and could result in the  diversion of our managements time and attention, any of which could have a  material adverse effect on our business, financial condition or results of  operations.





We have in the past and may in the  future incur impairment charges that materially adversely affect our earnings  and our operating results.





During the second quarter of 2005, our stock price declined significantly,  resulting in our market capitalization falling below the amount of our recorded  equity. As a result of the existence of this





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and other indicators, we performed an impairment test to determine if  the value of goodwill and other indefinite-lived intangibles was recoverable  under the provisions of FASB Statement No. 142, Goodwill and Other Intangible  Assets, and it was determined that an impairment existed. During the second quarter of 2005, we recorded a  non-cash impairment charge of $118.9 million to reduce our carrying value of  goodwill and other indefinite-lived intangible assets to their implied fair  value.





In addition, during the third quarter of 2005 the  Company updated its projections resulting in further indicators of goodwill  impairment for the Company. The projections for all reporting units were not  significantly changed with the exception of MIVA Small Business. Events  specific to MIVA Small Business caused us to further reduce our projections  significantly, primarily as a result of new products that were not released as  scheduled as well as reduced sales of our MIVA Merchant software. As a result,  we recorded an additional goodwill impairment charge of $1.8 million and a  long-lived asset impairment charge of $2.5 million for the quarter ended  September 30, 2005. As a result of this impairment charge, MIVA Small Business  has no related goodwill or long-lived intangible assets.





We will continue to evaluate our goodwill and other indefinitelived  intangible assets for impairment in accordance with FASB Statement No. 142 and  FASB Statement No. 144 annually or earlier if events occur or circumstances  change that would more likely than not reduce the fair value of our goodwill  below its carrying value. These events or circumstances would include a  significant change in business climate, including a significant, sustained  decline in an entitys market value, legal factors, operating performance  indicators, competition, sale or disposition of significant assets or other  factors. We cannot assure you that future impairments will not occur. If we  determine that significant impairment has occurred in the future, we would be  required to write off additional goodwill. Any future impairment charges could  have a material adverse effect on our financial condition, earnings and results  of operations and could cause our stock
price to decline.





Changes in legislation, regulation and standards relating to  online marketing, particularly online distribution of software, could harm our  business.





There is increasing awareness and concern among  the general public and federal and state governments regarding marketing and  privacy concerns, including those relating to online marketing and online  distribution of software. The U.S. Congress and some state legislatures  have introduced legislation designed to regulate spyware, which has not been  precisely defined, but which is often defined as software installed on  consumers computers without their informed consent and which is designed to  gather and, in some cases, disseminate information about those consumers,  including personally identifiable information, without the consumers consent.  We do not rely on spyware for any purpose and it is not part of our product  offerings, but the definition of spyware or proposed legislation relating to  spyware may be broadly defined or interpreted to include legitimate ad-serving  software, including toolbar offerings and
other downloadable software currently  provided by our MIVA Direct division. Currently, legislation has focused on  providing Internet users with notification of and the ability to consent or  decline the installation of such software, but there can be no guarantee that  future legislation will not provide more burdensome standards by which software  can be downloaded onto consumers computers. Currently all downloadable  software that we distribute requires an express consent of the consumer and  provides consumers with an easy mechanism to delete the software once  downloaded. However, if future legislation is adopted which makes the consent,  notice or uninstall procedures more onerous, we may have to develop new  technology or methods to provide our services or discontinue those services in  some jurisdictions or altogether. There is no guarantee we will be able to  develop this new technology at all or in a timely fashion or on commercially  reasonable terms.





The regulatory environment with respect
    to online marketing practices is also evolving. The Federal Trade Commission,
    or FTC, has increasingly focused on issues affecting online marketing, particularly
    online privacy and security issues. One of the key areas of focus for the
    FTC is the difference between spyware and ad-serving software, such as our
    downloadable toolbar applications.





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The enactment of new legislation, changes in the  regulatory climate, or the expansion, enforcement or interpretation of existing  laws could prevent us from offering some or all of our services or expose us to  additional costs and expenses, require substantial changes to our business or  otherwise substantially harm our business. Further, additional legislation or  regulation could be proposed or enacted at any time in the future, which could  materially and adversely affect our business.





We have  made significant investments in new initiatives related to current and future  product and service offerings that may not meet our expectations in terms of  the viability, success or profitability of such initiatives.





We have recently made significant investments in new initiatives  related to current and proposed product and service offerings, such as  Pay-Per-Call, private-branded toolbars and the purchase of an enterprise  license for FASTs Data SearchTM 360 data search and analysis  software. All such new and proposed initiatives require the expenditure of  significant time, money, personnel and other resources. There can be no  assurance that any of these initiatives will be viable, successful or  profitable. An investor should consider the likelihood of our future success  with respect to these and other initiatives to be speculative in light of our  limited history in successfully developing, introducing and commercially  exploiting new initiatives of this nature, as well as the problems, limited  resources, expenses, risks and complications frequently encountered by  similarly situated companies in emerging and changing markets, such as
e-commerce, with respect to the development and introduction of initiatives of  this nature. Any inability by us to successfully develop, introduce or  implement these or other products or services could materially adversely affect  our business, financial condition and results of operations.





The  business of our MIVA Media Network is dependent upon our ability to deliver  qualified leads to our advertisers.





Advertisers utilize our MIVA Media Network to deliver Internet traffic  to their websites. We believe advertisers will only use our services if we  deliver high quality Internet traffic that meets their needs. A typical way for  an advertiser to gauge the quality of Internet traffic is a conversion ratio  measuring conversions on their website against the amount of Internet traffic  delivered. If we are not satisfied with the quality of Internet traffic  delivered from our distribution partners we may take remedial action, including  removal of the distribution partner from our networks. We may not be successful  in identifying distribution partners with low quality traffic before we use  their services, or in delivering high quality traffic to our advertisers, and  we have removed in the past and may continue in the future to remove all or a  portion of the traffic generated by one or more distribution partners,  including some of our largest distribution
partners, or terminate our  relationships with distribution partners because the traffic generated does not  meet our distribution guidelines or our standards of quality or those of our  advertisers, any of which could have a material adverse effect on our business,  revenue and results of operations.





We face  substantial and increasing competition in the market for Internet-based  marketing services.





We face substantial competition in every aspect of our business, and  particularly from other companies that seek to connect people with information  on the Internet and provide them with relevant advertising and  commerce-enabling services, either directly or through a network of partners.  Some of our principal competitors include Yahoo! and its Search Marketing  Services division, Google, Ask Jeeves, Lycos, Microsoft and Time Warners AOL  division. Our principal competitors have longer operating histories, larger  customer bases, greater brand recognition and greater financial, marketing,  personnel and other resources than we have. These competitors historically have  developed and expanded their portfolios of products and services more rapidly  than we have. In addition, these and other competitors may have or obtain  certain intellectual property rights that may interfere with or prevent the use  of one or more of our business models. These and
other competitors can use  their experience and resources against us in a variety of competitive ways,  including by acquiring complementary companies or assets, investing more





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aggressively in research and development and competing more  aggressively for advertisers and partners. We expect that these competitors  will increasingly use their financial and technological resources to compete  with us. For example, Microsoft has announced plans to deepen the integration  of its search technologies with its desktop operating system and web browser  software.





We have sought protection from competition by filing applications for  several patents; however, there is no assurance that any of these patents  ultimately will be granted. In the absence of patent protection, we have only a  limited amount of proprietary technology that would preclude or inhibit  competitors from entering the keyword-targeted advertising market and the other  markets in which we operate. Therefore, we must compete based on the skill of  our personnel and the quality of our customer service. We believe that the  barriers to entry with respect to the development and provision of e-commerce  services are relatively low. Therefore, we expect that we continually will face  additional competition from new entrants into our markets in the future. The  emergence of these enterprises could have a material adverse effect on our  business, prospects, financial condition and results of operations.





Additionally, to the extent we pursue strategic transactions, we may  compete with other companies with similar growth strategies, some of which may  be larger and have greater financial and other resources than we have.  Competition for any such acquisition targets likely also will result  in increased prices of acquisition targets and a diminished pool of companies  available for acquisition.





If we do  not continue to innovate and provide products and services that are useful to  users, we may not remain competitive.





Our success depends on providing products and services that businesses  use to provide their clients with a high quality Internet experience. Our  competitors are constantly developing innovative Internet products. As a  result, we must continue to seek to enhance our technology and our existing  products and services and introduce new high-quality products and services that  businesses will use. Our success will depend, in part, on our ability to:





| |  | enhance and improve the responsiveness and    functionality of our MIVA Media Network, our private label service, our    primary traffic services and our merchant services;                                                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                             
| |  | license, develop or acquire technologies useful in    our business on a timely basis, enhance our existing services and develop new    services and technology that address the increasingly sophisticated and    varied needs of our prospective and current customers; and
| |   |                                                                                                                                                                                                                                                                             
| |  | respond to technological advances and emerging    industry standards and practices on a cost-effective and timely basis.                                                                                                                                                    




Because our markets are still developing and rapidly changing, we must  allocate our resources based on our predictions as to the future development of  the Internet and our markets. These predictions ultimately may not prove to be  accurate. If our competitors introduce new products and services embodying new  technologies, or if new industry standards and practices emerge, our existing  services, technology and systems may become obsolete and we may not have the  funds or technical know-how to upgrade our services, technology and systems. If  we are unable to predict user preferences or industry changes, or to modify our  products and services on a timely basis, we may lose partners and advertisers,  and our business, financial condition and results of operations could be  materially adversely affected.





If we  are not able to maintain or increase our average revenue per click, our  revenues and results of operations could be materially adversely affected.





Our average revenue per click in any
      given period is determined by dividing total click-through revenue by the
      number of clicks recorded during that same period. From 2004 to 2005 we
      experienced a significant decline in our average revenue per click for
      both our MIVA Media US and MIVA Media Europe platforms. A decline in our
      average revenue
  per click may be caused by a number of factors, including, among others, our
      overall mix of traffic sources, the bid prices submitted by our advertisers
      for a keyword advertisement, the bid prices of the more frequently clicked
      keyword terms, and the nexus between the three, as well as our recent implementation
      of MIVA Match and the inclusion, beginning in mid-2005, of third-party
      advertising feeds as a supplement to our own advertising network.


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If the trend with respect to the decline in our  average revenue per click continues, it could continue to have a material  adverse impact on our revenues and results of operations.





Our  success is dependent upon our ability to establish and maintain relationships  with our advertisers and advertising agencies.





We generate most of our revenue from our advertisers. Accordingly, our  ability to generate revenue from the MIVA Media Network is dependent upon our  ability to attract new advertisers and advertising agencies, maintain  relationships with existing advertisers and advertising agencies and generate  traffic to our advertisers websites. Our programs to attract advertisers and  advertising agencies include direct sales, agency sales, online promotions,  referral agreements and participation in tradeshows. We attempt to maintain  relationships with our advertisers and advertising agencies through customer  service and delivery of qualified traffic.





Our advertisers and advertising agencies can generally terminate their  contracts with us at any time and on limited or no advance notice. We believe  that advertisers will not continue to do business with us if their investment  in advertising with us does not generate sales leads, and ultimately customers,  or if we do not deliver their advertisements in an appropriate and effective  manner. If we are unable to remain competitive and provide value to our advertisers,  they may stop placing ads with us, which would have a material adverse effect  on our business, financial condition and results of operations.





We must  continue to successfully integrate several businesses acquired in 2004.





In 2004, we merged with, acquired or  acquired the assets of a number of businesses: Miva, Comet, B&B  Enterprises, Inc. (BBE), and Espotting (now MIVA Small Business Solutions, MIVA  Direct, B&B Advertising and MIVA Media Europe, respectively). In 2005, we  continued to integrate these businesses into our operations. The continued  integration of these businesses may be difficult, time consuming and costly.  The integration may divert our managements time and resources from the  operation of our businesses. The integration and management of these companies  is also more challenging because the primary operations of MIVA Media Europe  are conducted in Europe, while our historical operations and those of our other  new acquisitions are conducted primarily in the United States. Our integration  efforts may not be completed as planned, may take longer to complete or may be  more costly than anticipated, or these acquired businesses may not
achieve  their expected results, any of which would have a material adverse effect on  our business and results of operations. Additionally, if these acquired  businesses are unable to achieve their expected results, there is risk of an  impairment of the assets acquired, which in turn could have an adverse effect  on our results of operations.





We are  subject to income taxes in both the United States and numerous foreign  jurisdictions.





We are subject to income taxes in both the  United States and numerous foreign jurisdictions. Significant judgment is  required in determining our worldwide provision for income taxes. In the  ordinary course of our business, there are many transactions and calculations  where the ultimate tax determination is uncertain. Although we believe our tax  estimates are reasonable and appropriate, the final determination of tax audits  and any related tax litigation could be materially different than that which is  reflected in historical income tax provisions and accruals. Based on the  results of a tax audit or tax litigation, a material effect on our income tax  provision, net income or cash flows in the period or periods for which that  determination is made could result.





If we  fail to grow or manage our growth, our business will be adversely affected.





To succeed, we must continue to grow. We may  make additional acquisitions in the future as part of our growth initiatives.  These may include acquisitions of foreign companies or other international  operations. We have limited experience in acquiring and integrating companies,  and we may also





18


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expand into new lines of business in which we  have little or no experience. Additionally, we may fail to achieve the  anticipated synergies from such acquisitions. Accordingly, our growth strategy  subjects us to a number of risks, including the following:





| |  | we may incur substantial costs, delays or other operational    or financial problems in integrating acquired businesses, including in    integrating each companys accounting, management information, human resource    and other administrative systems to permit effective management;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                           
| |  | we may not be able to identify, acquire or    profitably manage any additional businesses;                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                           
| |  | with smaller acquired companies, we may need to    implement or improve controls, procedures and policies appropriate for a    public company;                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                           
| |  | the acquired companies may adversely affect our    consolidated operating results, particularly since some of the acquired    companies may have a history of operating losses;                                                                                                           
| |   |                                                                                                                                                                                                                                                                                           
| |  | acquisitions may divert our managements attention    from the operation of our businesses;                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                           
| |  | we may not be able to retain key personnel of    acquired businesses;                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                           
| |  | there may be cultural challenges associated with    integrating employees from our acquired companies into our organization; and                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                           
| |  | we may encounter unanticipated events, circumstances    or legal liabilities.                                                                                                                                                                                                             




Any of these factors could materially adversely affect our business,  prospects, financial condition, and results of operations.





We may  not be able to return to our historical growth rates and operating margins in  the future.





Although we grew rapidly through 2004, we may  not be able to return to our historical growth rates going forward and expect  that in the future our revenue growth rate will decline primarily as a result  of increased competition. During 2005 our growth rates declined as a result of  these factors. In addition, we believe our annual operating margins will  decline in 2006 as a result of:





| |  | integrating recently    acquired businesses with lower operating margins;                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                          
| |  | the impact of amortizing    intangible assets acquired in mergers and acquisitions;                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                          
| |  | increased competition;                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                          
| |  | increased expenditures for    certain aspects of our business as a percentage of our net revenues, which    may include product development expenditures, sales and marketing expenses    and increased costs of operating as an international public company with    multiple divisions.




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We are  subject to numerous risks associated with our recently-acquired international  operations.





Historically, we have operated primarily in the United States. In July  2004 we merged with MIVA Media Europe, which is based in the United Kingdom and  serves a number of additional European countries. Prior to this acquisition, we  had no prior experience integrating and managing international operations. Any  inability to successfully integrate and manage our international operations  could have a material adverse effect on our business, financial condition or  results of operations. In addition, our future operating results could be  adversely affected by a variety of factors arising out of our international  operations, some of which are beyond our control. These factors include:





| |  | lower per capita Internet usage or lower advertiser    spending in many countries, due to factors such as lower disposable incomes,    lack of telecommunications and computer infrastructure, greater concern about    security in online e-commerce transactions, and less access to and use of    credit cards;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | relatively smaller Internet markets in some    countries;                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | current or future competitors obtaining intellectual    property rights that they could assert against our business internationally,    which may adversely affect our foreign operations;                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | technological differences by marketplace, which we    may not be able to support;                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | foreign laws and regulations that may impact the    conduct of our business operations in a particular country;                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | difficulty in recruiting qualified local employees    and in building locally relevant products and services, which could limit our    ability to aggregate a large local advertiser base;                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | longer payment cycles and local economic downturns;                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | credit risk and potentially higher levels of payment    fraud;                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | currency exchange rate fluctuations, as well as    foreign exchange controls that might prevent us from repatriating cash earned    in countries outside the United States;                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | political and economic instability; and                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                   
| |  | higher costs associated with doing business    internationally.                                                                                                                                                                                                                                                   




Our  private label agreements are subject to a number of contingencies and risks.





We have agreements to provide our private label services to our private  label partners. Generally, under the terms of the agreements, we provide the  technology and expertise to our partners to launch keyword-targeted paid  listings services. These transactions are subject to numerous contingencies and  risks including:





| |  | the failure of our partners to successfully create    and manage paid listings networks;                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                               
| |  | the risk that development and implementation of the    different versions of our technology will be delayed or not completed when    expected;
| |   |                                                                                                                                               
| |  | the risk that development, implementation and    integration costs will be higher than anticipated;                                           
| |   |                                                                                                                                               
| |  | the inability of our partners to leverage their    existing client base;                                                                      

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| |  | the failure of the paid listing services market to    continue to grow;                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                   
| |  | intense competition in the paid listing services    market;                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                   
| |  | the potential for disagreements with our partners;                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                   
| |  | the potential that implementation of our private    label services violates intellectual property rights of third parties;                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                   
| |  | the potential we will have indemnification    obligations to our partners arising out of claims asserted against them in    connection with their use of our service;                                                                                                             
| |   |                                                                                                                                                                                                                                                                                   
| |  | economic changes in the Internet industry generally;                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                   
| |  | the potential that our partners will be acquired or    change their business plans and cease using our services; and                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                   
| |  | a shift in the parties with which we contract to    deliver our services from individual advertisers to advertising agencies, as    a result of increased reliance within the industry on advertising agency    services in the European Union as compared with the United States.




The occurrence of any of these contingencies or risks could have a  material adverse effect on our business, financial condition and results of  operations.





Certain  members of our management team have limited experience managing a public  company and many of our employees have recently joined us and must be  integrated into our operations.





Some of our officers had no senior management experience in public  companies prior to joining MIVA. As of December 31, 2005, we had 483 full time  employees. Some of our new employees include certain key managerial, technical,  financial, marketing and operations personnel, including our Chief Financial  Officer and our Chief Operating Officer, who joined our company on July 18,  2005 and September 6, 2005, respectively. These employees may not yet have been  fully integrated into our operations. We expect to add additional key personnel  in the near future. Our failure to attract and fully integrate our new  employees into our operations or successfully manage such employees could have  a material adverse effect on our business, financial condition and results of  operations.





The  continued service of our executive officers and key personnel is critical to  our success.





Our success is substantially dependent on the performance of our senior  management and key technical personnel.  Many of our management and key employees are not bound by agreements that could  prevent them from terminating their employment at any time. In addition, we do  not currently hold key personnel life insurance policies on any of our key  employees. We believe that the loss of the services of any of our executive  officers or other key employees could have a material adverse effect on our  business, financial condition and results of operations.





We may  have difficulty attracting and retaining qualified, highly skilled personnel.





We expect the expansion of our business to  place a significant strain on our managerial, operational and financial  resources. We will be required to expand our operational and financial systems  significantly and train and manage our work force in order to manage the  expansion of our operations. We will need to attract and retain highly  qualified, technical and other personnel to maintain and update our products  and services and meet our business objectives. Competition for such personnel  is intense. We may not be successful in attracting and retaining such qualified  personnel on a timely basis, on competitive terms, or at all. Our inability to  attract and retain the





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necessary technical and other personnel would  have a material adverse effect on our business, financial condition and results  of operations.





Our  reliance on internally developed technology systems may put us at a competitive  disadvantage.





We use internally developed technology systems for a portion of our  keyword-targeted paid listing request processing software. These systems were  designed primarily to increase the number of appropriate paid keyword-targeted  ads for each related keyword request made on our network, for our private label  partners and for customer service. A significant amount of manual effort by our  technical personnel may be required to update these systems if our competitors  develop superior processing methods. This manual effort is time-consuming and  costly and may place us at a competitive disadvantage when compared to  competitors with more efficient systems. We intend to upgrade and expand our  processing systems and to integrate newly-developed and purchased modules with  our existing systems to improve the efficiency of our paid listing methods and  support increased transaction volume. However, we are unable to predict whether  these upgrades will improve our
competitive position.





Constraints  on our current system capacity will require us to expand our network  infrastructure and customer support capabilities.





Our ability to provide high-quality customer service largely depends on  the efficient and uninterrupted operation of our computer and communications  systems in order to accommodate any significant increases in the numbers of  advertisers using our services and the queries and paid click-throughs we  receive. We believe that we will be required to expand our network  infrastructure and customer support capabilities to support an anticipated  expansion of the number of queries and paid click-throughs we receive.  Expansion will require us to make significant upfront expenditures for servers,  routers, computer equipment and additional Internet and intranet equipment, and  to increase bandwidth for Internet connectivity. Our expansion and enhancements  will need to be completed and integrated without system disruptions. Failure to  expand our network infrastructure or customer service capabilities either  internally or through third parties would materially
adversely affect our  business, financial condition and results of operations.





New  technologies could limit the effectiveness of our products and services, which  would harm our business.





New technologies may be developed by others that can block the display  of ads or sponsored listings. Since most of our net revenue is derived from  fees paid to us by advertisers, ad-blocking or similar technology could  adversely affect our operating results.





We  depend on third parties for certain software and services to operate our  business.





We depend on third-party software and services to operate our business.  Although we believe that several alternative sources for this software are  available, any failure to obtain and maintain the rights to use such software  on commercially reasonable terms would have a material adverse effect on our  business, financial condition and results of operations. We are also dependent  upon third parties to provide Internet services to allow us to connect to the  Internet with sufficient capacity and bandwidth so that our business can  function properly and our website can handle current and anticipated traffic.  We currently have contracts with certain telecommunications providers for these  services. Any restrictions or interruption in our connection to the Internet,  or any failure of these third-party providers to handle current or higher volumes  of use, could have a material adverse effect on our business, financial  condition and results of operations,
and our brand could be damaged if clients  or prospective clients believe our system is unreliable. Any financial or other  difficulties our providers face may have negative effects on our business, the  nature and extent of which we cannot predict. We exercise little control over  these third party vendors, which increases our vulnerability to problems with  the services they provide. We have experienced occasional





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systems interruptions in the past and we cannot assure you that such  interruptions will not occur again in the future.





Our  technical systems are vulnerable to interruption, security breaches and damage,  which could harm our business and damage our brands if our clients or prospective clients believe  that our products are unreliable.





Our systems and operations are vulnerable to damage or interruption  from fire, floods, hurricanes, power loss, telecommunications failures,  break-ins, sabotage, computer viruses, penetration of our network by  unauthorized computer users, or hackers, and similar events. Any such events  could interrupt our services and severely damage our business. The occurrence  of a natural disaster or unanticipated problems at our technical operations  facilities could cause material interruptions or delays in our business, loss  of data or render us unable to provide services to our customers. In addition,  we may be unable to provide services and websites due to a failure of the data  communications capacity we require, as a result of human error, natural  disaster or other operational disruptions. The occurrence of any or all of  these events could materially adversely affect our business, financial  condition and results of operations, and damage our
brands if clients or  prospective clients believe that our products are unreliable.





Internet security poses risks to our  entire business, and security breaches could damage our reputation and expose  us to loss or litigation.





The process of e-commerce aggregation by means of our hardware and  software infrastructure involves the transmission and analysis of confidential  and proprietary information of our clients, as well as our own confidential and  proprietary information. We rely on encryption and authentication technology  licensed from other companies to provide the security and authentication  necessary to effect secure Internet transmission of confidential information,  such as credit and other proprietary information. Advances in computer  capabilities, new discoveries in the field of cryptography or other events or  developments may result in a compromise or breach of the technology used by us  to protect client transaction data. Our security measures may not prevent  security breaches. Anyone who is able to circumvent our security measures could  misappropriate proprietary information or cause material interruptions in our  operations. We may be required to expend
significant capital and other  resources to protect against security breaches or to minimize problems caused  by security breaches. To the extent that our activities or the activities of  others involve the storage and transmission of proprietary information,  security breaches could damage our reputation and expose us to a risk of loss  or litigation and possible liability.





We may  be unable to obtain the Internet domain names that we hope to use.





The primary Internet domain name we are using for advertisers to access  our paid listings services and for our current merchant services business is  MIVA.com. We believe that this domain name is an extremely important part of  our business. We may desire, or it may be necessary in the future, to use other  domain names in the United States and abroad. Governmental authorities in  different countries may establish additional top-level domains, appoint  additional domain-name registrars or modify the requirements for holding domain  names. These new domains may allow combinations and similar domain names that  may be confusingly similar to our own. Additionally, we may be unable to  acquire or maintain relevant domain names in all countries in which we will  conduct business. In addition, there are other substantially similar domain  names that are registered by companies that may compete with us. There can be  no assurance that potential users
and advertisers will not confuse our domain  name with other similar domain names. If that confusion occurs, we may lose  business to a competitor and some users of our services may have negative  experiences with other companies on their websites that those users erroneously  associate with us.





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We may  be unable to promote and maintain our brands, which could harm our business and  prospects.





We believe that establishing and maintaining the brand identities of our  services is a critical aspect of attracting and expanding a large client base.  We anticipate that, as our markets become increasingly competitive, maintaining  and enhancing our brands may become increasingly difficult. Promotion and  enhancement of our brands will depend largely on our success in continuing to  provide high-quality service, which we may not do successfully. If businesses  do not perceive our existing services to be of high quality, or if we introduce  new services or enter into new business ventures that are not favorably  received by businesses, we will risk diluting our brand identities and  decreasing their attractiveness to existing and potential customers, which  could harm our business and prospects. In addition, actions by our competitors,  our distribution partners, and other third parties, as well as publicity  regarding abuses in Internet marketing, could
impair the value of our brand.





Our  intellectual property rights may not be protectable or of significant value in  the future.





We depend upon confidentiality agreements with specific employees,  consultants and subcontractors to maintain the proprietary nature of our  technology. These measures may not afford us sufficient or complete protection,  and others may independently develop know-how and services similar to ours,  otherwise avoid our confidentiality agreements or produce patents and  copyrights that would materially adversely affect our business, financial  condition and results of operations.





Legal standards relating to the validity, enforceability and scope of  the protection of certain intellectual property rights in Internet-related  industries are uncertain and still evolving. The steps we take to protect our  intellectual property rights may not be adequate to protect our future intellectual  property. Third parties may also infringe or misappropriate any copyrights,  trademarks, service marks, trade dress and other proprietary rights we may  have. Any such infringement or misappropriation could have a material adverse  effect on our business, financial condition and results of operations.





We own several domestic and foreign trade and service mark  registrations related to our products or services, including a U.S. Federal  Registration for MIVA, along with trademarks for the names of our collective  predecessor corporations. Additionally, we have filed applications to expand  the geographic scope of the registration of the MIVA mark among others and have  common law rights in several other marks. If other companies also claim rights  to use the marks we use in our business, we may be required to become involved  in litigation or incur additional expenses. Effective service mark, copyright  and trade secret protection may not be available in every country in which our  services are distributed or made available through the Internet.





The process and technology we use to operate our MIVA Media Network is  critical to the success of our business. In February 2000, we filed a patent  application for our MIVA Media Network with the United States Patent and  Trademark Office. This patent application is still pending approval at December  31, 2005. Subsequently, we have filed additional patent applications covering  additional services and the evolution of our business model. These applications  are currently pending. Our patent applications may be rejected and we may be  unable to prevent third parties from infringing on our proprietary rights.





To date, we have filed one patent application covering core technology  used in our MIVA Media Network in Europe. This patent application is currently  pending, and we cannot assure you that this patent ultimately will be granted.  Even if we file other patent applications for our European MIVA Media  technology in the future, we cannot assure you that any patents will ever be issued.  Further, even if patents are issued, they may not protect our intellectual  property rights, and third parties may challenge the validity or enforceability  of issued patents. In addition, other parties may





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independently develop similar or competing technologies designed around  any patents that may be issued to us.





In addition, the relationship between regulations governing domain  names and laws protecting trademarks and similar proprietary rights is unclear.  We may be unable to prevent third parties from acquiring domain names that are  similar to, infringe upon or otherwise decrease the value of our trademarks and  other proprietary rights, which may result in the dilution of the brand  identity of our services. See We may be unable to promote and maintain our  brands, which could harm our business and prospects.





Our  business has historically been and may continue to be partially subject to  seasonality, which may impact our quarterly growth rate.





We have historically experienced, and may continue to experience,  seasonal fluctuations in the number of click-throughs received by typical  distribution partners within our MIVA Media Network, both domestically and  internationally. Historically, during the first and fourth quarters of each  calendar year, we have realized more activity than the second and third  quarters, due to increased overall Internet usage during the first and fourth  quarters related to colder weather and holiday purchases. These seasonal  fluctuations may continue in the future.





We have material weaknesses in our  internal control over financial reporting that may prevent us from being able  to accurately report our financial results or prevent fraud, which could harm  our business and operating results.





Effective internal controls are necessary
    for us to provide reliable and accurate financial reports and prevent fraud.
    In addition, Section 404 under the Sarbanes-Oxley Act of 2002 requires that
    we assess, and our independent registered public accounting firm attest to,
    the design and operating effectiveness of our internal control over financial
    reporting. If we cannot provide reliable and accurate financial reports and
    prevent fraud, our business and operating results could be harmed. We have
    in the past discovered, and may in the future discover, areas of our internal
    controls that need improvement. We have identified two material weaknesses
    in our internal control as of December 31, 2005, with respect to income taxes
    and wire transfers. These matters and our efforts regarding remediation of
    these matters, as well as our efforts regarding internal controls generally
    are discussed in detail in Part II, Item 9A, Controls and Procedures, of
    this Annual Report on Form 10-K. Additionally, as of December 31, 2004, we
    had
    identified several other material weaknesses in our internal control as of
    December 31, 2004. Those matters and our efforts regarding remediation of
    those matters are also discussed under Item 9A, Controls and Procedures,
    of this filing on Form 10-K. At present we believe we have remedied all outstanding
    issues with respect to the material weaknesses we identified as of December
    31, 2004. However, as our material weaknesses in our internal control with
    respect to income taxes and wire transfers demonstrates, we cannot be certain
    that the remedial measures we have taken to date will ensure that we design,
    implement, and maintain adequate controls over our financial processes and
    reporting in the future. Additionally, since the requirements of Section
    404 are ongoing and apply for future years, we cannot be certain that we
    or our independent registered public accounting firm will not identify additional
     deficiencies or material weaknesses in our internal controls in the future,
    in addition to those identified as of December 31, 2004, and December 31,
    2005. Remedying the material weaknesses that have been presently identified
    or identified in the past, and any additional deficiencies, significant deficiencies
    or material weaknesses that we or our independent registered public accounting
    firm may identify in the future, has in the past and could in the future
    require us to incur significant costs, hire additional personnel, expend
    significant time and management resources or make other changes. Any delay
    or failure to design and implement new or improved controls, or difficulties
    encountered in their implementation or operation, could harm our operating
    results, cause us to fail to meet our financial reporting obligations, or
    prevent us from providing reliable and accurate financial reports or avoiding
    or detecting fraud. Disclosure of our material weaknesses, any failure to
    remediate such
material  weaknesses in a timely fashion or having or maintaining ineffective
    internal controls could cause investors to lose confidence in our





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reported financial information, which could have a negative effect on  the trading price of our stock and our access to capital.





When we account for employee stock  options using the fair value method, it will significantly reduce our net  income.





On December 16, 2004, the Financial Accounting Standards Board (FASB)  issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which  will require us, beginning in January 2006, to recognize, as an expense, the  fair value of stock options and other stock-based compensation to employees.  Prior to January 1, 2006, we accounted for stock-based compensation to  employees and directors using the intrinsic value method set forth in APB  Opinion No. 25, Accounting for Stock Issued to Employees  and related interpretations. We account for stock-based compensation to  non-employees using the fair value method set forth in FASB Statement No. 123,  and related interpretations. If we had used the fair value method of accounting  for stock options granted to employees using the Black-Scholes option valuation  methodology, our net loss would have increased by $13.0 million and $8.0  million than reported in the years ended December 31, 2005
and 2004,  respectively. By adopting this new statement in the future and expensing our  stock-based compensation plans using the fair value method as described in the  new statement, we will have ongoing accounting charges for compensation expense  significantly greater than those we would have recorded under our previous  method of accounting for stock options, which will reduce our reported  operating, pre-tax and net income. On  December 27, 2005, the Compensation Committee of the Board of Directors  approved accelerating the full vesting as of December 30, 2005 of approximately  0.4 million unvested stock options outstanding under our stock plans that were  granted between January 1, 2002, and December 31, 2004. The purpose of the  accelerated vesting was to enable us to reduce future stock compensation  expense associated with these options in future years upon adoption of SFAS  No. 123(R) on January 1, 2006. No compensation expense was recognized in  2005 upon the acceleration, although
$3.1 million is recognized in our 2005 pro  forma stock-based employee compensation expense presented in Note B. We would  have reflected this $3.1 million of pre-tax expense in our consolidated  financial statements in future years.





We  cannot predict our future capital needs and may not be able to secure  additional financing.





Except for our agreement with Fast Search & Transfer, we have no  other material long-term commitments for capital expenditures. However, we  anticipate an increase in capital expenditures consistent with anticipated  growth of operations, infrastructure and personnel. We currently anticipate  that our cash and cash equivalents as of December 31, 2005, together with cash  flows from operations, will be sufficient to meet the anticipated liquidity  needs for working capital and capital expenditures over the next 12 months.





Our future liquidity and capital requirements will depend on numerous  factors. The pace of expansion of our operations will affect our capital  requirements. We may also have increased capital requirements in order to  respond to competitive pressures. In addition, we may need additional capital to  fund acquisitions of complementary products, technologies or businesses. 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. As we require additional capital resources, we may  seek to sell debt securities or additional equity securities or obtain a bank  line of credit. There can be no assurance that any financing arrangements will  be available in amounts or on terms acceptable to us, if at all.





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Risks  Related to Our Industry





Regulatory  and legal uncertainties could harm our business.





While there are currently relatively few laws or regulations directly  applicable to Internet access, commerce or Internet commercial search activity,  there is increasing awareness and concern regarding some uses of the Internet  and other online services, leading federal, state, local and foreign governments  to consider adopting civil and criminal laws and regulations, amending existing  laws and regulations, conducting investigations or commencing litigation with  respect to the Internet and other online services covering issues such as:





| |  | user privacy;                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                         
| |  | trespass;                                                                                                                                                                               
| |   |                                                                                                                                                                                         
| |  | defamation;                                                                                                                                                                             
| |   |                                                                                                                                                                                         
| |  | database and data protection;                                                                                                                                                           
| |   |                                                                                                                                                                                         
| |  | limitations on the distribution of materials    considered harmful to children;                                                                                                         
| |   |                                                                                                                                                                                         
| |  | liability for misinformation provided over the web;                                                                                                                                     
| |   |                                                                                                                                                                                         
| |  | user protection, pricing, taxation and advertising    restrictions (including, for example, limitation on the advertising on    Internet gambling websites or of certain products);     
| |   |                                                                                                                                                                                         
| |  | delivery of contextual advertisements via connected    desktop software;                                                                                                                
| |   |                                                                                                                                                                                         
| |  | intellectual property ownership and infringement,    including liability for listing or linking to third-party websites that    include materials infringing copyrights or other rights;
| |   |                                                                                                                                                                                         
| |  | distribution, characteristics and quality of    products and services; and                                                                                                              
| |   |                                                                                                                                                                                         
| |  | other consumer protection laws.                                                                                                                                                         




Legislation has also been introduced in the U.S. Congress and some  state legislatures that is designed to regulate spyware, which does not have a  precise definition but is often known as software installed on consumers  computers without their informed consent that gathers and may disseminate  information about such consumers, including personally identifiable  information, without the consumers consent.





The adoption of any additional laws or regulations, application of  existing laws to the Internet generally or our industry or any governmental  investigation or litigation related to the Internet generally, our industry or  our services may decrease the growth of the Internet or other online services,  which could, in turn, decrease the demand for our services, increase our cost  of doing business, preclude us from developing additional products or services,  result in adverse publicity to us or our distribution partners, and subject us  to fines, litigation or criminal penalties, enjoin us from conducting our  business or providing any of our services, otherwise have a material adverse  effect on our business, prospects, financial condition and results of  operations or result in a substantial decline in the market price of our common  stock. Due to the global nature of the Internet, it is possible that multiple  federal, state or foreign jurisdictions
might inconsistently regulate Internet  activities, which would increase our costs of compliance and the risk of  violating the laws of a particular jurisdiction, both of which could have a  material adverse effect on our business, prospects, financial condition or  results of operations.





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The  market for our services is uncertain and is still evolving.





Internet marketing and advertising, in general, and advertising through  priority placement in keyword-targeted advertisements in particular, are at  early stages of development, are evolving rapidly and are characterized by an  increasing number of market entrants. The demand and market acceptance for recently  introduced services is generally subject to a high level of uncertainty. Most  potential advertisers have only limited experience advertising on the Internet  and have not devoted a significant portion of their advertising expenditures to  Internet advertising. If this trend continues, the market for our existing  services, which is dependent upon increased Internet advertising, may be  adversely affected, which in turn will have a material adverse effect on our  business, financial condition or results of operations.





Our  future success will depend on continued growth in the use of the Internet.





Our future success will depend substantially upon continued growth in  the use of the Internet to support the sale of our advertising services, as  well as continued acceptance of e-commerce transactions on the Internet. As  Internet advertising is a new and rapidly evolving industry, the ultimate  demand and market acceptance for Internet-related services is subject to a high  level of uncertainty. Significant issues concerning the commercial use of the  Internet and online service technologies, including security, reliability,  cost, ease of use and quality of service remain unresolved and may inhibit the  growth of Internet business solutions that utilize these technologies. In  addition, the Internet or other online services could lose their viability due  to, among other things, concerns over the security of Internet transactions and  the privacy of users, delays in the development or adoption of new standards  and protocols required to handle increased
levels of Internet activity, or due  to increased governmental regulation. In the event that the use of the Internet  and other online services does not continue to grow or grows more slowly than  we expect, or the Internet does not become a commercially viable marketplace,  our business, financial condition and results of operations would be materially  adversely affected.





We may  face third party intellectual property infringement claims that could be costly  to defend and result in the loss of significant rights.





Our current and future business activities, including implementation of  our MIVA Media Network service or our private label service, may infringe upon  the proprietary rights of others, and third parties may assert infringement  claims against us, including claims alleging, among other things, copyright,  trademark or patent infringement. We are aware of allegations from time to time  concerning these types of claims and in particular in respect of trademark  infringement claims. For example, certain potential claimants currently allege  that they have trademark rights in certain keywords and that we violate these  rights by allowing competitors of those potential claimants to bid on these  keywords. While we believe that we have defenses to these claims under  appropriate trademark legislation or, in certain circumstances, indemnification  rights under our agreements with advertisers, we may not prevail in our  defenses to any intellectual property
infringement claims, and we may not be able  to collect under any indemnification provisions relating to these claims, if  any. In addition, we may not be adequately insured for any judgments awarded in  connection with any litigation. Any such claims and resulting litigation could  subject us from time to time to significant liability for damages, or result in  the invalidation of our proprietary rights, which would have a material adverse  effect on our business, financial condition and results of operations. Even if  we were to prevail, these claims could be time-consuming, expensive to defend  and could result in the diversion of our managements time and attention.





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We may  face cultural pressures and legal challenges related to the content of the  advertisements we display to Internet users on the MIVA Media Network that  could cause us to limit the display of such content in some jurisdictions, and,  in the event of a legal challenge, could be costly to defend, may give rise to  indemnification claims from our distribution partners and others, and, in all  cases, could result in material losses.





From time to time, we may experience cultural pressures or legal  challenges with respect to the content of the advertisements displayed to  Internet users on our MIVA Media Network. As a result of these cultural or  legal challenges, we may decide to limit the display of the content in certain  jurisdictions where such an issue has arisen. The limitation on the display of  any content may have a material adverse effect on our results of operations.  Additionally, third parties may make claims against us, our distribution  partners and others affiliated with us in connection with the content of the  advertisement displayed on our MIVA Media Network. For example, on August 3,  2004, a putative class action lawsuit was filed, in the Superior Court of the  State of California, County of San Francisco, against us and others in our  market, including certain of our distribution partners, alleging that  acceptance of advertising for Internet gambling violates
several California laws  and constitutes an unfair business practice. Additionally, three of our  industry partners, each of which is a codefendant in the lawsuit, have asserted  indemnification claims against us for costs incurred as a result of such claims  arising from transaction with us, and we have entered into an agreement with  one of these industry partners to resolve such claims. Third party claims  related to the content of the advertisements placed on our networks can be  costly to defend, could result in our distribution partners and other  affiliates asserting indemnification claims against us if they become a party  to the suit, and could result in material losses for us, both as a result of  paying our own legal costs and those of our indemnities, as applicable, associated  with the defense against such claims, as well as any damages that may result if  we are unsuccessful in defending against such claims.





We may  incur liabilities for the activities of users of our services.





The law relating to the liability of providers of online services for  activities of their users and for the content of their advertisers listings is  currently unsettled and could harm our business. Our insurance policies may not  provide coverage for liability for activities of our users or advertisers for  the content of their listings. We may not successfully avoid civil or criminal  liability for alleged unlawful activities carried out by consumers of our  services or for the content of our listings. Our potential liability could  require us to implement measures to reduce our exposure to such liability,  which may require us, among other things, to spend substantial resources or to  discontinue certain service offerings. Any costs incurred as a result of such  liability or asserted liability could significantly harm our business,  financial condition and operating results.





Risks  Relating to an Investment in Our Common Stock





The  market price of our common stock has been and may continue to be volatile.





The market price of our common stock has in the past and may in the  future experience significant volatility as a result of a number of factors,  many of which are outside of our control. Each of the risk factors listed in  this Part I, Item 1A - Risk Factors, and the following factors, may affect the  market price for our common stock:





| |  | our quarterly results and ability to meet analysts    and our own published expectations;                                                                        
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                   
| |  | our ability to continue to attract and retain users,    advertisers and advertising agencies and distribution partners;                                           
| |   |                                                                                                                                                                   
| |  | the amount and timing of operating costs and capital    expenditures related to the maintenance and expansion of our businesses,    operations and infrastructure;
| |   |                                                                                                                                                                   
| |  | patents issued or not issued to us or our    competitors;                                                                                                         

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| |  | announcements of technological innovations, new    services or service enhancements, strategic alliances, mergers, acquisitions,    dispositions or significant agreements by us or by our competitors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                        
| |  | commencement or threat of litigation or new    legislation or regulation that adversely affects our business;                                                                                          
| |   |                                                                                                                                                                                                        
| |  | general economic conditions and those economic    conditions specific to the Internet and Internet advertising;                                                                                        
| |   |                                                                                                                                                                                                        
| |  | our ability to keep our products and services    operational at a reasonable cost and without service interruptions;                                                                                   
| |   |                                                                                                                                                                                                        
| |  | recruitment or departure of key personnel;                                                                                                                                                             
| |   |                                                                                                                                                                                                        
| |  | geopolitical events such as war, threat of war or    terrorist actions; and                                                                                                                            
| |   |                                                                                                                                                                                                        
| |  | sales of substantial amounts of our common stock,    including shares issued upon the exercise of outstanding options or warrants.                                                                     




Because our business is changing and evolving, our historical operating  results may not be useful in predicting our future operating results. In  addition, advertising spending has historically been cyclical in nature,  reflecting overall economic conditions as well as budgeting and buying  patterns. Also, online user traffic tends to be seasonal.





In addition, the stock market has experienced significant price and  volume fluctuations that particularly have affected the trading prices of equity  securities of many technology and Internet companies. Frequently, these price  and volume fluctuations have been unrelated to the operating performance of the  affected companies. Following periods of volatility in the market price of a  companys securities such as we have recently experienced, securities class  action litigation is often instituted against such a company, as we have  recently had a number of such suits instituted against us. See We have had a  number of purported class action lawsuits filed against us and certain of our  officers and directors alleging violations of securities laws. This type of  litigation, regardless of the outcome, could result in substantial costs and a  diversion of managements attention and resources, which could materially  adversely affect
our business, financial condition and results of operations.





If securities analysts downgrade our  stock, the price of our stock could decline.





The trading market for our common stock relies in part on the research  and reports that industry or financial analysts publish about us or our  business. We do not control these analysts. There are many large,  well-established publicly traded companies active in our industry and market,  which may mean it will be less likely that we receive widespread analyst  coverage. Furthermore, if one or more of the analysts who do cover us downgrade  our stock, our stock price would likely decline significantly. If one or more  of these analysts cease coverage of our company, we could lose visibility in  the market, which in turn could cause our stock price to decline.





If we  experience lower-than-anticipated revenue in any particular quarter, or if we  announce that we expect lower revenue or earnings than previously forecasted,  the market price of our common stock could decline.





Our revenue is difficult to forecast and is likely to fluctuate from  quarter to quarter due to many factors, including many that are outside of our  control. Any significant revenue shortfall, lowered revenue or earnings  forecast, or failure to meet analysts expectations could cause the market  price of our common stock to decline substantially. Factors that could lower  our revenue or affect our revenue and earnings forecast include:





| |  | the possibility that our customers may cancel, defer    or limit purchases as a result of reduced advertising budgets or weak and    uncertain economic and industry conditions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| |  | the potential for our competitors to gain market    share;                                                                                                                                                                                                           
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that our distribution partners will    introduce, market and sell products and services that compete with our    products and services;                                                                                                              
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that our distribution partners or    affiliates of our distribution partners will cease displaying our    advertisements or terminate their relationships with us, which would cause a    decline in sales and a reduction in our revenue;           
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that we will have to cease    displaying advertisements through certain distribution partners and their    affiliates whose traffic does not adequately convert to revenue for our    advertisers;                                                   
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that we will have to terminate our    relationships with certain of our distribution partners or affiliates of our    distribution partners that fail to adhere to our distribution guidelines or    otherwise have breached their agreement with us;
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that we fail to detect click-through    fraud, which could cause us to have to refund revenue to our advertisers;                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that new legislation will impact our    business model, which would cause a decline in sales and a reduction in    revenue;                                                                                                                          
| |   |                                                                                                                                                                                                                                                                      
| |  | pending or threatened litigation or governmental    investigation, including the costs associated with or any adverse results of    any such litigation or investigation or related indemnification obligations;                                                     
| |   |                                                                                                                                                                                                                                                                      
| |  | the timing of new product and service introductions    by us and the market acceptance of new products and services, which may be    delayed as a result of weak and uncertain economic and industry conditions;                                                     
| |   |                                                                                                                                                                                                                                                                      
| |  | the seasonal nature of our business;                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                      
| |  | the rate of adoption of new product and service    offerings we introduce;                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                      
| |  | changes in our pricing and distribution terms or    those of our competitors; and                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                      
| |  | the possibility that our business will be adversely    affected as a result of the threat of terrorism, terrorism or military    actions taken by the United States or its allies, or from force de majeure    events.                                               




Reliance should not be placed on the results of prior periods as an  indication of our future performance. Our operating expense levels are based,  in significant part, on our expectations of future revenue. If we have a  shortfall in revenue or sales in any given quarter, we may not be able to  reduce our operating expenses quickly in response. Therefore, any significant shortfall  in our revenues could have an immediate material adverse effect on our  operating results for that quarter. In addition, if we fail to manage our  business effectively over the long term, we may experience high operating  expenses, and our operating results may fall below the expectations of  securities analysts or investors, which could result in a substantial decline  in the market price of our common stock.





Significant  dilution will occur if outstanding options and warrants are exercised or  restricted stock unit grants vest.





As of December 31, 2005, we had stock options and warrants outstanding  to purchase a total of 4.7 million shares at a weighted average exercise price  of $6.87 per share under our stock incentive plans. On October 19, 2005, we entered  into Option Cancellation Agreements and





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Restricted Stock Unit Agreements with
    certain of our officers and directors. As a result of those agreements, options
    to purchase approximately 1.3 million shares of our stock were cancelled
    and 0.9 million restricted stock units, each of which represents a contingent
    right to receive one share of our common stock were issued to such officers
    and directors. Additionally, 118,593 restricted stock units were granted
    to an officer/director and a director on October 19, 2005. Accordingly, as
    of December 31, 2005, we issued 1.0 million restricted stock units, as discussed
    above of which 102,803 have fully vested and been issued to two of our former
    officers. To the extent options or warrants are exercised or restricted
    stock units vest, our
    stockholders will experience further dilution. In addition, in the event
    that any future financing should be in the form of, be convertible into,
    or exchangeable for, equity securities, and upon the conversion or exchange
    of these securities, investors may experience additional dilution of their
proportional ownership of our company.





Our  certificate of incorporation authorizes us to issue additional shares of stock,  which could impede a change of control that is beneficial to our stockholders.





We are authorized to issue up to 200 million shares of common stock  that may be issued by our board of directors for such consideration as they may  consider sufficient without seeking stockholder approval, subject to stock  exchange rules and regulations. Our certificate of incorporation also  authorizes us to issue up to 500,000 shares of preferred stock, the rights and  preferences of which may be designated by our board of directors. These  designations may be made without stockholder approval. The designation and  issuance of preferred stock in the future could create additional securities  that have dividend and liquidation preferences prior in right to the  outstanding shares of common stock. These provisions could be used by our board  to impede a non-negotiated change in control, even though such a transaction  may be beneficial to holders of our securities, and may deprive you of the  opportunity to sell your shares at a premium over prevailing
market prices for  our common stock. The potential inability of our shareholders to obtain a  control premium could reduce the market price of our common stock.





We do  not intend to pay future cash dividends.





We have never paid cash dividends and currently do not intend to pay  cash dividends on our common stock at any time in the near future. We may never  pay cash dividends or distributions on our common stock. Whether we pay cash  dividends in the future will be at the discretion of our board of directors and  will be dependent on our financial condition, results of operations, capital  requirements and any other factors that the board of directors decides are  relevant.





We have  had a number of purported class action lawsuits filed against us and certain of  our officers and directors alleging violations of securities laws.





Beginning on May 6, 2005, five putative securities fraud class action  lawsuits were filed against us and certain of our present and 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 misleading statements and omitted material information regarding (1) the  goodwill associated with a recent acquisition, (2) certain material weaknesses  in our internal controls, and (3) the Internet traffic generated by and  business relationships with certain distribution partners. Plaintiffs assert  that we and the individual defendants made these misstatements and omissions in  order to keep our stock price high to allow certain individual defendants to  sell stock at an artificially inflated price. Plaintiffs seek unspecified  damages and other relief.





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If it is determined that we or our officers or directors have engaged  in the types of activities alleged by these plaintiffs, we and our officers and  directors could be subject to damages and may be subject to further  prosecution. Regardless of the outcome, these litigations could have a material  adverse impact on our results because of harm to our reputation, defense costs,  diversion of managements attention and resources and other factors.





A putative  derivative action has been filed against certain of our officers and directors,  purportedly on behalf of the Company.





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 upon substantially the same facts alleged in the  securities class action litigation described above. The complaint is seeking to  recover damages in an unspecified amount.





If it is determined that our officers or directors have engaged in the  types of activities alleged in the putative derivative action, our officers and  directors could be subject to damages and may be subject to further prosecution.  We have agreed to indemnify our officers and directors in connection with the  defense of this action. Accordingly, regardless of the outcome, this litigation  could have a material adverse impact on our results because of harm to our  reputation, defense costs, diversion of managements attention and resources  and other factors.





Item 2. Properties.





Our primary administrative, sales, customer service and technical  facilities are leased in Fort Myers, Florida and London, U.K., which serve as  the headquarters for MIVA Media US and MIVA Media Europe, respectively. We also  lease offices internationally, including, New York, New York, Cambridge,  Massachusetts, Paris, France, Hamburg and Munich, Germany, Bridgewater, New  Jersey, San Diego, California, and other cities in the United States and  Europe, which serve as subsidiary headquarters or regional business development  and sales offices. We maintain additional technical operations centers within  third-party hosting facilities in New York, New York, Atlanta, Georgia and  London, UK. On February 23, 2006, we entered into a Lease Modification and  Extension Agreement, pursuant to which we reduced the amount of office space we  were leasing in New York from 32,062 square feet to 10,667 square feet. In  connection with this modification to the existing
lease for the New York space,  we also extended the term of such lease through January 31, 2016. Our monthly  lease payments were also reduced in connection with the reduction in space.  Accordingly, as of February 23, 2006, our leased properties provide us with an  aggregate of approximately 103,000 square feet for all of our operations (not  including our allocated space in third-party hosting facilities). We believe  these facilities are adequate, at this time, for their intended use, but due to  our growth in recent years we have begun to increase the amount of leased space  available to us at existing facilities or, in some cases, have entered into  lease agreements for new facilities.





Item 3.  Legal Proceedings.





Overture  Litigation





On August 15, 2005, we entered into a Settlement and License Agreement  (the Agreement) with Overture Services, Inc. (Overture Services) and Yahoo!  Inc. (collectively with Overture Services, Yahoo!). Pursuant to the  Agreement, the parties settled the patent infringement lawsuit brought by  Overture Services against MIVA regarding U.S. Patent No. 6,269,361, and Yahoo!  agreed to release all claims in the lawsuit. Under the terms of the Agreement,  we agreed to make a one-time payment of $8.0 million to Yahoo!, and took a  royalty bearing non-exclusive license to certain Yahoo! patents. The charge for  the $8.0 million one-time payment was recorded during the second quarter and  paid during the third quarter of 2005. The royalty is based on our use of  certain patents and is paid quarterly.





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Cisneros  Litigation





On August 3, 2004, a putative class action lawsuit was filed in the  Superior Court of the State of California, County of San Francisco, against us  and others in our sector, by two individuals, Mario Cisneros and Michael  Voight, on behalf of themselves, all other similarly situated, and/or for the  general public. The complaint alleges that acceptance of advertising for  Internet gambling violates several California laws and constitutes an unfair  business practice. The complaint seeks unspecified amounts of restitution and  disgorgement as well as an injunction preventing us from accepting paid  advertising for online gambling. Three of our industry partners, each of which  is a codefendant in the lawsuit, have asserted indemnification claims against  us for costs incurred as a result of such claims arising from transaction with  us, and we have entered into an agreement with one of these industry partners  to resolve such claims. We believe
that both the underlying and indemnity  claims are without merit and we intend to vigorously defend ourselves.  Regardless of the outcome, this litigation could have a material adverse impact  on our results because of defense costs, diversion of managements attention  and resources and other factors.





Lanes Gifts and Collectibles  Litigation





On February 17, 2005, a putative class action was filed in Miller  County Circuit Court, Arkansas, against us and others in our sector by Lanes  Gifts and Collectibles, LLC, U.S. Citizens for Fair Credit Card Terms, Inc.,  Savings 4 Merchants, Inc., and Max Caulfield d/b/a Caulfield Investigations, on  behalf of themselves and all others similarly situated. The Complaint names  eleven search engines, web publishers, or performance marketing companies as  defendants, including us, and alleges breach of contract, unjust enrichment,  and civil conspiracy. All of the plaintiffs claims are predicated on the  allegation that the plaintiffs have been charged for clicks on their advertisements  that were not made by bona fide customers. The lawsuit is brought on behalf of  a putative class of individuals who allegedly were overcharged for [pay per  click] advertising, and seeks monetary damages, restitution, prejudgment  interest,
attorneys fees, and other remedies.





Two plaintiffs - Savings 4 Merchants and U.S. Citizens for Fair Credit  Card Terms, Inc. - voluntarily dismissed themselves from the case, without  prejudice, on April 4, 2005. We believe we have no contractual or other  relationship with either of the remaining plaintiffs. On October 7, 2005, we  filed a motion to dismiss the complaint pursuant to Ark. R. Civ. Proc. 12(b)(6)  for failure to state claims upon which relief may be granted. On October 14,  2005, we timely filed a motion to dismiss pursuant to Ark. R. Civ. Proc.  12(b)(2) for lack of personal jurisdiction. The court has not yet ruled on  these motions. On January 9, 2006, the court stayed the case for 60 days to  permit two defendants, Google Inc. and AskJeeves, Inc., to mediate with the  Plaintiffs. The court will enter a new scheduling order for the case after the  stay expires.





We believe we have strong defenses to plaintiffs claims and that our  motions to dismiss are well founded. We have not assessed the amount of  potential damages involved in plaintiffs claims and would be unable to do so  unless and until a class is certified by the court. We intend to defend the  claims vigorously. An industry participant is a codefendant in the lawsuit and  has asserted an indemnification claim against us arising as a result of a  contract between the companies. We have agreed to defend and indemnify the  codefendant in accordance with the terms of our contract with them. Regardless  of the outcome, this litigation could have a material adverse impact on our  results because of defense costs, including as relates to our indemnification  obligations, diversion of managements attention and resources, and other  factors.





Shareholder  Class Action Lawsuits





Beginning on May 6, 2005, five putative securities fraud class action  lawsuits were filed against us and certain of our present and 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





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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 misleading statements and omitted material information regarding (1) the  goodwill associated with a recent acquisition, (2) certain material weaknesses  in our internal controls, and (3) the Internet traffic generated by and  business relationships with certain distribution partners. Plaintiffs assert  that we and the individual defendants made these misstatements and omissions in  order to keep our stock price high to allow certain individual defendants to  sell stock at an artificially inflated price. Plaintiffs seek unspecified  damages and other relief.





On July 27, 2005, the Court consolidated all of the outstanding  lawsuits under the case styled 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. Regardless
    of the outcome, this litigation could have a material adverse impact on our
    results because of defense costs, including as relates to our indemnification
    obligations, diversion of managements attention and resources, and other
    factors.





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 upon substantially the same facts alleged in the  securities class action litigation described above. The complaint is seeking to  recover damages in an unspecified amount.





On August 31, 2005, the Court entered an Order staying this case until  the motion to dismiss in the securities class action was resolved. On January  9, 2006, Defendants filed a Notice of Entry of Decision regarding the Courts  Order granting Defendants motion to dismiss in the securities class action  litigation described above. On January 11, 2006, the Court lifted the stay  imposed on August 31, 2005. On February 3, 2006, the Court entered an Order  staying the case until the renewed motion to dismiss in the securities class  action is resolved.
Regardless
    of the outcome, this litigation could have a material adverse impact on our
    results because of defense costs, including as relates to our indemnification
    obligations, diversion of managements attention and resources, and other
    factors.





Payday  Advance Plus, Inc.





On October 19, 2005, a putative class action was filed in the U.S.  District Court for the Central District of California, Los Angeles Division,  against us and Advertising.com, Inc. by Payday Advance Plus, Inc. The Complaint  alleged that Advertising.com, a MIVA Media Network distribution partner,  engaged in click fraud to increase revenues to themselves with MIVAs alleged  knowledge and participation. The lawsuit was brought on behalf of a putative  class of individuals who were allegedly overcharged by the defendants and  sought monetary damages, restitution, prejudgment interest, attorneys fees,  injunctive relief, and other remedies.





On January 3, 2006, we filed a motion to dismiss the Complaint for  improper venue because the Complaint was filed in violation of the forum  selection clause in MIVAs contract with the plaintiff, which requires that all  disputes be filed in New York. The plaintiff filed a request for voluntary dismissal  of the case on February 1, 2006, and the court dismissed the case on February  2, 2006. The plaintiff has indicated they may re-file the lawsuit in New York.





We believe we have strong defenses to plaintiffs claims, should they  be re-filed. We have not assessed the amount of potential damages involved in  plaintiffs claims and would be unable to do so unless and until a class was  certified by the court. If re-filed, we would defend the claims vigorously.  Regardless of the outcome, the litigation, if re-filed, could have a material  adverse impact on our results because of defense costs, diversion of  managements attention and resources, and other factors.





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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 the results of our operations.





No accruals for losses during 2005 (except the settlement with Yahoo!)  have been recorded related to any of the legal proceedings. We expense all  legal fees for litigation as incurred.





PART II





Item 5.  Market for Common Equity and Related Stockholder Matters and Issuer Purchases  of Equity Securities.





Market  for Common Stock





Our common stock trades on the Nasdaq Stock Market under the symbol  MIVA. The following table sets forth the high and low sales prices of our  common stock for the periods indicated as reported by the Nasdaq Stock Market:





|Quarter Ended      |  | High |       | Low |  
|------------------ |  | ---- | ----- | --- | -
|                   |  |      |       |     |  
|December 31, 2005  |  | $    | 6.12  |     | $
|September 30, 2005 |  | $    | 7.16  |     | $
|June 30, 2005      |  | $    | 10.32 |     | $
|March 31, 2005     |  | $    | 17.65 |     | $
|                   |  |      |       |     |  
|December 31, 2004  |  | $    | 23.70 |     | $
|September 30, 2004 |  | $    | 22.75 |     | $
|June 30, 2004      |  | $    | 26.21 |     | $
|March 31, 2004     |  | $    | 22.33 |     | $




Such prices reflect inter-dealer quotations, without retail mark-up,  mark-down or commission and may not necessarily represent actual transactions.





Our authorized capital stock consists of 200,000,000 shares of common  stock, $.001 par value per share, and 500,000 shares of preferred stock, $.001  par value per share. As of December 31, 2005, the number of record holders of  our common stock was 229. No shares of our preferred stock are outstanding.





Dividends





We have never paid cash dividends on our capital stock and do not  expect to pay any dividends in the foreseeable future. We intend to retain  future earnings, if any, for use in our business.





Securities  Authorized for Issuance Under Equity Compensation Plans





For information regarding securities authorized for issuance under the  Companys equity compensation plans, please see Item 12
of this Form 10-K.





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Item 6. Selected Financial Data





The following selected consolidated  statements of operations data for the years ended December 31, 2005, 2004,  2003, 2002, and 2001 and  the selected balance sheet data  as of December 31, 2005, 2004, 2003, 2002, and 2001 are derived from our  consolidated financial statements and related notes.





|                                    |  | For the years ended December 31, |         
|----------------------------------- |  | -------------------------------- | --------
|                                    |  |                                  |         
|                                    |  | 2005                             |         
|                                    |  |                                  |         
|                                    |  | (a), (b)                         |         
|Statements of operations            |  |                                  |         
|Revenues                            |  | $                                | 194,616 
|Net income (loss)                   |  |                                  | (130,167
|Net income (loss) per    share      |  |                                  |         
|Basic                               |  | $                                | (4.23   
|Diluted                             |  |                                  | (4.23   
|                                    |  |                                  |         
|Balance sheets                      |  |                                  |         
|Total assets                        |  | $                                | 190,792 
|Debt (including current    portion) |  |                                  | 2,600   
|Stockholders equity                |  |                                  | 146,513 




|                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)    Includes impairment charges
        related to goodwill and other intangible assets at MIVA Media Europe,
        MSB and MIVA Direct of $123.2 million. Also includes one-time payment
        of $8.0 million pursuant to the Agreement with Overture Services.
|(b)    Includes non-recurring revenue of $1.5 million recognized related to the    settlements of two distribution partner disputes.                                                                                                                                    
|(c)  Includes the acquisitions of MSB, MIVA    Direct, B&B, and MIVA Media Europe.                                                                                                                                                                                      
|(d)    Includes impairment charge
      related to goodwill and other intangible assets at MSB of $1.1 million.                                                                                                                                                         




Item 7. Managements Discussion and  Analysis of Financial Condition and Results of Operations





This managements discussion  and analysis of financial condition and results of operations contains  forward-looking statements, the accuracy of which involves risks and  uncertainties. We use words such as anticipates, believes, plans,  expects, future, intends, estimates, projects, and similar  expressions to identify forward-looking statements. This managements  discussion and analysis also contains forward-looking statements attributed to  certain third-parties relating to their estimates regarding the growth of the  Internet, Internet advertising, and online commerce markets and spending.  Readers should not place undue reliance on these forward-looking statements,  which apply only as of the date of this report. Our actual results could differ  materially from those anticipated in these forward-looking statements for many  reasons. Factors that
might cause or contribute to such differences include,  but are not limited to, those discussed under the section entitled Risk  Factors under Item 1A of Part I of this Annual Report on Form 10-K.





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Executive  Summary





We are a leading independent  Performance Marketing Network, dedicated to helping businesses grow. Our new  media platform facilitates performance marketing for partners (publishers),  advertisers and consumers (end-users). Our primary focus is on providing our  partners with a complete set of innovative solutions enabling the acquisition,  retention and monetization of their online audiences. As an independent  provider, our primary focus is not to promote a branded destination search  engine or portal that actively competes with our distribution partners for  end-users. For our advertisers, we provide solutions to manage, optimize and  measure return on investment from keyword-targeted and context-related  performance marketing programs. Our advertisers access distribution and generate  leads through our network of publisher partners and are able to capitalize on  leads through our integrated e-commerce merchant solution. We offer our  marketing
services on three continents with direct products offerings in North  America and Europe. During 2005, revenues generated from our European  operations accounted for 51.7% of our total.





During the second quarter of  2005, we changed our name to MIVA, Inc. in order to fully integrate our  operations and create a single brand around the businesses we have brought  together over the past two years.





Throughout 2005, we took a  number of specific steps to build our business and strengthen our Company.  Specifically we:





| |  | introduced    two fully redesigned applications, Account Setup and Ad Center, for our U.S.    advertisers;                                                                                                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | introduced    an innovative custom toolbar solution and a new expandable banner product for    our publishers;                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | introduced    configurable algorithmic web search to our distribution partners in Germany,    France, UK, Spain and Italy by leveraging our licensing agreement with Fast    Search & Transfer (FAST) and broadening the total suite of monetization    and user retention products available to our partners;
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | signed    Eniro as our first private label partner in Europe;                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | signed a    global distribution agreement with blinkx for delivering contextually    targeted advertising to blinkxs desktop toolbar and video search users;                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | signed an    exclusive content deal with Mirror Group Newspapers in the UK to provide    targeted Pay-Per-Click ads across the home, article and channel pages of    various MGN properties;                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | launched    MIVA Match®, a new search product providing advertisers with a greater number    of qualified leads by more broadly matching relevant keywords;                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | launched    a series of comprehensive campaign management tools providing the ability to    schedule campaigns based on time segments (day-parting) and campaign spend;                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | introduced    MIVA Mail in Europe, a new product enabling the Companys partners to    generate Pay-Per-Click revenue through email marketing programs; and                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                 
| |  | launched    the Companys MIVA Pay-Per-Call ad service in the UK.                                                                                                                                                                                                                                               




In addition, as more fully  discussed in Results of Operations, the following items had a significant  impact on the year ended December 31, 2005:





| |  | during    2005, we took actions to remove certain Internet traffic sources from our    MIVA Media Networks as they did not meet our traffic quality or distribution    guidelines;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| |  | we    experienced a decrease in overall Internet traffic generated by certain of    our distribution partners, increased competition, and decreased Internet    volume from new distribution partners;                                                                                                                                                                                 
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| |  | in August    2005, we entered into a Settlement and License Agreement (the Agreement)    with Overture Services, Inc. (Overture Services) and Yahoo! Inc.    (collectively with Overture Services Yahoo!), pursuant to which we agreed    to make a one-time payment of $8.0 million to Yahoo! and received a royalty    bearing non-exclusive license to certain Yahoo! patents;
| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| |  | during    the second and third quarters of 2005, factors indicated that the value of    goodwill and other indefinite-lived intangibles was not recoverable, and as    such we recorded impairment charges of $123.2 million as a result of the    impairment analyses performed; and                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| |  | in    October 2004, we ceased the
      display of online gambling-related advertising to users on the MIVA Media
      North America Network, this action has had a continued impact on the 2005
      revenues as well.                                                                                                                                                              




Recent Developments





During our past and as a  matter of ongoing business practice, we have removed and we expect to continue  to remove distribution partners from our networks or discontinue the display of  our advertisements through certain distribution channels used by some of our  distribution partners if the partners do not meet our traffic quality or  distribution guidelines. On May 5, 2005, we announced that, in late April 2005,  we began to remove certain distribution partners and/or their sub-affiliates  from our networks because we believe these partners and/or their sub-affiliates  did not follow our distribution guidelines. In addition, we believe our revenue  has been negatively impacted by a decrease in Internet traffic from our  distribution partners due in part to decreases in overall Internet traffic  generated by certain of our distribution partners, increased competition, and  decreased Internet traffic volume from new distribution partners.





The effect on revenue from  the removal of certain Internet traffic sources and the reduction in Internet  traffic from our current sources during the second, third, and fourth quarters  of 2005 was significant. We continue to actively monitor the quality and  sources of the traffic we purchase from our current and new distribution  partners, and we expect from time-to-time to continue to remove certain sources  of traffic that do not meet our distribution guidelines.





On December 27, 2005, the Compensation
    Committee of the Board of Directors approved accelerating the full vesting
    as of December 30, 2005 of approximately 0.4 million unvested stock options
    outstanding under our stock plans that were granted between January 1, 2002
    and December 31, 2004. The options had a range of exercise prices of $3.01
    to $23.50 and a weighted average exercise price of $16.18. The closing price
    of our common stock on December 30, 2005 was $4.95. The purpose of the accelerated
    vesting was to enable us to reduce stock compensation expense associated
    with these options in future years upon adoption of SFAS No. 123(R) on January  1, 2006. No compensation expense was recognized in 2005 upon the acceleration,  although $3.1 million is recognized in our 2005 pro forma stock-based employee  compensation expense presented in Note B. We would have reflected this $3.1  million of pre-tax expense in our consolidated financial
statements in future  years.





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On October 19, 2005, the Company entered into Restricted Stock Unit  Agreements and Option Cancellation Agreements with certain of its officers and  directors. Pursuant to these agreements, certain officers and directors  exchanged an aggregate of 1,332,806 stock options held by them having an  exercise price at or above $10 per share for an aggregate of 931,852 restricted  stock units. In addition, an aggregate of 118,593 restricted stock units were  granted to an officer/director and a director. As a result of this transaction,  the intrinsic value of the restricted stock units is required to be recognized  as compensation expense ratably over the vesting period and therefore a charge  of approximately $0.6 million was recorded in the fourth quarter of 2005.





On August 15, 2005, we  entered into a Settlement and License Agreement (the Agreement) with Overture  Services, Inc. (Overture Services) and Yahoo! Inc. (collectively with  Overture Services, Yahoo!). Pursuant to the Agreement, the parties settled  the patent infringement lawsuit brought by Overture Services against MIVA  regarding U.S. Patent No. 6,269,361, and Yahoo! agreed to release all claims in  the lawsuit. Under the terms of the Agreement, we agreed to make a one-time  payment of $8.0 million to Yahoo!, and received a royalty bearing non-exclusive  license to certain Yahoo! patents. The charge for the $8.0 million one-time  payment was recorded during the second quarter and paid during the third  quarter of 2005. The royalty is based on our use of certain patents and is paid  quarterly.





During the second quarter of  2005, our stock price declined significantly, resulting in our market  capitalization falling below the amount of our recorded equity. As a result of  the decline in our market capitalization and other indicators, we performed an  impairment test to determine if the value of goodwill and other  indefinite-lived intangibles was recoverable under the provisions of FASB  Statement No. 142, Goodwill and Other Intangible Assets, and it was determined  that an impairment existed. Therefore, we recorded a non-cash impairment charge  of $118.9 million to reduce the carrying value of goodwill and other  indefinite-lived intangibles to their fair value.





In addition, during the  third quarter of 2005, events specific to MIVA Small Business caused us to  further reduce our projections for MIVA Small Business, primarily as a result  of new products that were not released as scheduled as well as reduced sales of  our MIVA Merchant software. An additional goodwill impairment charge of $1.8  million has been recorded for the quarter ended September 30, 2005. As a result  of this impairment charge, MIVA Small Business has no remaining goodwill.





In connection with the  results of the FASB Statement No. 142 impairment tests disclosed above, factors  indicated that the carrying value of certain long-lived assets might not be  recoverable. Accordingly, impairment testing under FASB Statement No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets, was undertaken  as of September 30, 2005 resulting in an impairment charge of $2.5 million for  MIVA Small Business and is recorded in Impairment loss on goodwill and other  assets in the accompanying consolidated statements of operations. Impaired  long-lived assets mainly relate to trademarks, customer relationships,  developed technology and vendor agreements that were written down to their fair  value. As a result of this impairment charge, MIVA Small Business has no  remaining long-lived intangible assets.





We will continue to evaluate  our goodwill and other indefinite-lived intangible assets for impairment in  accordance with FASB Statement No. 142 as well as long-lived assets in  accordance with FASB Statement No. 144 in the future. Additional impairment  charges for our other acquisitions and mergers may be required if revenue and  cash flow expectations for those entities are further reduced.





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Organization  of Information





Managements discussion and analysis provides a narrative on our  financial performance and condition that should be read in conjunction with the  accompanying financial statements. It includes the following sections:





| |  | Results    of operations                            
| | - | ----------------------------------------------------
| |   |                                                     
| |  | Liquidity    and capital resources                  
| |   |                                                     
| |  | Contractual    obligations                          
| |   |                                                     
| |  | Use of    estimates and critical accounting policies




RESULTS  OF OPERATIONS





For the  Years Ended December 31, 2005, 2004 and 2003





We commercially launched the MIVA Media North America Network in September  1999, our first private label agreement commenced in September 2002, we  acquired MIVA Small Business Solutions, Inc. (MSB) in January 2004, MIVA  Direct, Inc. (MIVA Direct) in March 2004, the assets of B&B Enterprises,  Inc. (now B&B Advertising, Inc. or B&B) in June 2004, and in July  2004, through a subsidiary, we merged with MIVA Media International, Inc.  (formerly Espotting Media, Inc.). We changed our name to MIVA, Inc. in June  2005, and at the same time changed the names of many of our customer facing  subsidiaries, as well. When making comparisons between 2005 and 2004, readers  should note that the results of operations of MIVA Direct, B&B and MIVA  Media Europe have been included in our statements of operations since the  consummation date of each such acquisition or merger, and have contributed to  increases in our
revenue and operating expenses in 2005 compared to 2004. The  operations of MIVA Direct, B&B and MIVA Media Europe are being integrated  with our operations. Accordingly, their future stand-alone impact may be  difficult to isolate. Readers should also note that in 2005 we have not been able to return to our  historical growth rates and that in the future our revenue growth rate may  decline as a result of increased competition and loss of distribution partners.





Additionally, our annual operating margins declined in 2005 as a result  of integrating recently acquired businesses with lower operating margins, the  impact of amortizing intangible assets acquired in mergers and acquisitions,  increased competition and increased expenditures for certain aspects of our  business as a percentage of our net revenues, which includes product  development expenditures, sales and marketing expenses, and increased costs of  operating as an international public company with multiple divisions.





Revenue





During 2005, we recorded revenue of
    $194.6 million, an increase of 14.8% from the $169.5 million recorded in
    2004. The increase was the result of the inclusion of full year results from
    businesses acquired during 2004 described above (approximately $59.8 million).
    Also included in revenue for 2005 is non-recurring revenue recognized related
    to the settlements of two distribution partner disputes totaling $1.5 million.
    These increases in revenues have been partially offset as a result of actions
    taken in 2004 and 2005 to remove certain Internet traffic sources from our
    MIVA Media Networks, a reduction in paid clicks of 26% in the second half
    of 2005 as compared to the second half of 2004 from continuing sources, as
    well as a reduction in our average revenue per click in the second half of
2005 compared to the second half of 2004.





Our average revenue per click in any
    given period is determined by dividing total click-through revenue by the
    number of paid clicks recorded during that same period. From 2004 to 2005
    we experienced a significant decline in our average revenue per click for
    both our MIVA Media US and MIVA Media Europe platforms. A decline in our
    average revenue per click may be caused by a number of factors, including,
    among others, our overall mix
 of traffic sources, the bid prices submitted by our advertisers
for a keyword advertisement, the bid prices of the more frequently clicked
keyword terms, and the nexus between the three, as well as our recent implementation

of MIVA Match and the inclusion, beginning in mid-2005, of third-party
advertising feeds as a supplement to our own advertising network.





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If the trend with respect to the decline
    in our average revenue per click continues, it could have a material adverse
    impact on our revenues and results of operations. We are actively seeking
    to increase our average revenue per click and thereby reverse this trend
    by changing the overall mix of the MIVA Media Network traffic sources to
    increase the click-to-conversion ratio for our advertisers, maximizing keyword
    efficiency for our advertisers and seeking new implementations through which
our advertisers keyword advertisements may be displayed.





Revenue was $169.5 million in 2004, compared to $72.2 million in 2003,  an increase of $97.2 million or 134.7%. The increase in revenue was primarily  the result of the inclusion of results from businesses acquired during 2004  (approximately $73.4 million). In addition, revenue increased in our MIVA Media  Network and Private Label divisions as a result of adding new distribution  partners, expanding our relationships with our existing distribution partners,  adding private label partners and increasing the amount advertisers spent with  us for traffic from our distribution and private label partners.





During 2005, 2004, and 2003 no customer account represented more than  10% of our total revenue. We purchase Internet traffic from our distribution  partners through which we are able to make our clients advertisements  available for display over the Internet. Expressed as a percentage of revenue,  none of the purchases made from any of these distribution partners represented  over 10% of consolidated revenue in either 2005 or 2004, however, in 2003  purchases from one distribution partner represented more than 10% of revenue.





In October 2004, we ceased the display of online gambling-related  advertising to users on the MIVA Media North America Network with Internet  protocol, or IP, addresses originating from the United States or for which we  cannot determine the country of origin. As part of our ongoing efforts with  respect to delivering quality prospects to our advertisers, in the second half  of the fourth quarter of 2004, we ceased displaying advertisements through  certain distribution partners and their affiliates whose traffic did not  adequately convert to revenue for our advertisers. In late April 2005, we began  to remove from our networks certain distribution partners and/or their  sub-affiliates that had developed methods for obtaining new users or directed  traffic through distribution channels that did not follow our distribution  guidelines. Additionally, in the past and as a matter of ongoing business  practice, we have removed and we expect that we will continue
to remove  distribution partners from our networks or discontinue the display of our  advertisements through certain distribution channels used by some of our  distribution partners if the partners do not meet our guidelines. In addition,  we believe our revenue during 2005 has been negatively impacted by a decrease  in Internet traffic from our distribution partners due in part to decreases in  overall Internet traffic generated by certain of our distribution partners,  increased competition, and decreased Internet traffic volume from new  distribution partners.





From time to time, we  receive fraudulent clicks on our ads by persons seeking to increase the  advertising fees paid to distribution partners within our MIVA Media Networks.  Click-through fraud occurs when a person or program clicks on an advertisement  displayed on a website for the purpose of generating a click-through payment to  the MIVA Media Networks partner or to deplete the advertising account of a  competitor rather than to view the underlying content. We have developed  automated proprietary screening applications and procedures to minimize the  effects of these fraudulent clicks. Click-throughs received through the MIVA  Media Networks and through our private label partners networks are evaluated by  these screening applications and procedures. We constantly evaluate the  efficacy of our efforts to combat click-through fraud, and may adjust our  efforts for specific distribution partners or in general, depending on our  ongoing analysis.
These changes impact the number of click-throughs we record  and bill to our advertisers, the bid prices our advertisers are willing to pay  us for click-throughs and the revenue we generate.





Additionally, we have been  named in certain litigations, the outcome of which could directly or indirectly  impact our revenue. See Part I, Item 3, regarding the Lanes Gifts Litigation  and Payday Advance Plus Litigation.





42


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We plan to continue our efforts to invest in our business and seek  increases from additional revenue from Pay-Per-Call, private-branded toolbars,  and algorithmic web search tools, along with other initiatives.





Operating  Expenses





Operating expenses for the years ended December 31, 2005, 2004, and  2003 were as follows (in millions, except percentage growth rates):





|                                                           |  | For the Year Ended    December 31, |       | 2005 vs.2004 |   | 2004 vs.2003 | 
|---------------------------------------------------------- |  | ---------------------------------- | ----- | ------------ | - | ------------ | 
|                                                           |  |                                    |      
|                                                           |  | 2005                               |       | 2004         |   | 2003         | 
|                                                           |  |                                    |       |              |   |              | 
|Cost of services                                           |  | $                                  | 101.3 |              | $ | 86.1         | 
|Marketing, sales, and service                              |  |                                    | 36.0  |              |   | 19.0         | 
|General and administrative                                 |  |                                    | 38.5  |              |   | 25.1         | 
|Product development                                        |  |                                    | 10.6  |              |   | 5.6          | 
|Impairment loss on goodwill and other intangible    assets |  |                                    | 123.2 |              |   | 1.1          | 
|Amortization                                               |  |                                    | 8.1   |              |   | 5.7          | 
|Patent litigation settlement                               |  |                                    | 8.0   |              |   |             | 
|                                                           |  |                                    |       |              |   |              | 
|                                                           |  | $                                  | 325.7 |              | $ | 142.6        | 
|                                                           |  |                                    |       |              |   |              | 
|NM - not meaningful                                        |  |                                    |       |              |   |              | 







Operating expenses as a percent of revenue  for the years ended December 31, 2005, 2004, and 2003 were as follows:





|                                                           |  | For the Year Ended    December 31, |       | 2005 vs.2004 |  | 2004 vs.2003 |  
|---------------------------------------------------------- |  | ---------------------------------- | ----- | ------------ |  | ------------ | -
|                                                           |  |                                    |      
|                                                           |  | 2005                               |       | 2004         |  | 2003         |  
|                                                           |  |                                    |       |              |  |              |  
|Cost of services                                           |  |                                    | 52.1  | %            |  | 50.8         | %
|Marketing, sales, and service                              |  |                                    | 18.5  |              |  | 11.2         |  
|General and administrative                                 |  |                                    | 19.8  |              |  | 14.8         |  
|Product development                                        |  |                                    | 5.4   |              |  | 3.3          |  
|Impairment loss on goodwill and other intangible    assets |  |                                    | 63.3  |              |  | 0.7          |  
|Amortization                                               |  |                                    | 4.2   |              |  | 3.4          |  
|Patent litigation settlement                               |  |                                    | 4.1   |              |  |             |  
|                                                           |  |                                    |       |              |  |              |  
|                                                           |  |                                    | 167.3 | %            |  | 84.1         | %
|                                                           |  |                                    |       |              |  |              |  




Cost of services  Cost of services consists of revenue sharing or other arrangements with our  MIVA Media distribution partners, obligations under the royalty bearing  non-exclusive patent license agreement signed in August 2005, costs associated  with designing and maintaining the technical infrastructure that supports our  various services, cost of third-party providers of algorithmic search results,  and fees paid to telecommunications carriers for Internet connectivity. Costs  associated with our technical infrastructure, which supports our various  services, include salaries of related technical personnel, depreciation of  related computer equipment, co-location charges for our network equipment, and  software license fees.





During the second quarter of 2005, we reconsidered the nature of our  operating expenses and determined that certain operating expenses were more  appropriately classified as Cost of Services because of their direct  relationship with revenue. These expenses had previously been classified as  either search serving or marketing, sales, and service expenses. Financial results  for all periods presented have been reclassified to reflect the cost of  services presentation. The reclassification does not result in any increase or  decrease in total expenses for any period presented.





Cost of services increased for the year ended December 31, 2005, as  compared with the same period in the previous year primarily due to the  increase in revenue as most of our payments to our distribution partners are  calculated based on a percentage of the revenue we generate on the Internet  traffic we purchase from our distribution partners. As a result, an increase or  decrease in





43


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revenue will result in a corresponding
    increase or decrease in traffic acquisition costs. Cost of services in 2005
    compared to 2004 increased as a percent of revenue due to the fact that the
    results from MIVA Media Europe are included in all periods in 2005 (approximately
    $25.7 million in incremental expense in 2005 over 2004). In addition, as
    a result of actions taken to remove certain Internet traffic from our MIVA
    Media Network, a reduction in paid clicks and revenue per click in the second
    half of 2005 compared to the second half of 2004, our payments to distribution
    partners decreased by $17.7 million. On average, amounts paid under revenue
    sharing arrangements with distribution partners expressed as a percentage
    of revenue have been historically higher in Europe than in the U.S. In addition,
    cost of sales has increased as a result of the royalty bearing non-exclusive
patent license agreement signed in August 2005.





The increase in cost of services also included increases of $1.8  million in depreciation of recently acquired technical equipment, hub service  expense, and other technology expenses.





The increase in cost of services from 2003 to 2004 is primarily as a  result of the inclusion of results from companies acquired in 2004  (approximately $39.2 million of the increase). In addition cost of services  increased $8.6 million due to revenue-sharing payments and other fees paid to  MIVA Media US Network distribution partners, which increase as our revenue  increases.





Marketing,  sales, and service - Marketing, sales, and service expense  consists of payroll and related expenses for personnel engaged in marketing,  advertiser solutions, business development, sales functions, affiliate  relations, business affairs, corporate development, and credit transactions. It  also includes advertising expenditures, promotional expenditures such as  sponsorships of seminars, trade shows and expos, referral fees, and other  expenses to attract advertisers and advertising agencies to our services, and  fees to marketing and public relations firms.





Expenses have increased in all categories due to the inclusion of the  results from companies acquired in 2004 (approximately $17.1 million of the  incremental increase from 2004 to 2005).





Overall marketing, sales, and service
    expense increased $17.1 million in 2005. This increase is primarily the result
    of increased advertising efforts related to consumer toolbar downloads of
    $9.7 million to generate higher levels of revenue at MIVA Direct. In addition,
    during the second quarter of 2005, we invested approximately $1.4 million
    in a marketing effort in connection with rebranding our company to MIVA,
    Inc. as previously discussed. The marketing campaign served to communicate
    the name change, as well as re-position the company with advertisers and
    Internet users and raise awareness of our products and services. The remaining
    increase of $6.0 million is primarily attributable to increased personnel
costs.





Our marketing, sales, and service expense increased in 2004 as compared  to 2003. The primary reason for the increase was the inclusion of results from  companies acquired in 2004 (approximately $12.6 million of the increase). The  remaining $0.7 million increase in marketing, sales and service expense was  related primarily to increases in personnel costs, which includes salaries,  benefits, support expenses, commissions, recruiting fees and other costs, due  to expanding the number of business development, corporate development,  marketing, advertiser solutions, affiliate relations, business affairs and  sales personnel. Costs, primarily personnel related expenses, required to  service our Private Label function and advertising have increased as well.





General  and administrative -General and administrative expense  consists primarily of payroll and related expenses for executive and  administrative personnel; fees for professional services; costs related to  leasing, maintaining and operating our facilities; credit card fees; recruiting  fees; travel costs for administrative personnel; insurance; depreciation of  property and equipment not related to search serving or product development  activities; expenses and fees associated with the reporting and other  obligations of a public company; bad debt; and other general and administrative  services. Fees for professional services include amounts due to lawyers,  auditors, tax advisors, and other professionals in connection with operating  our business, supporting litigation, and evaluating and pursuing new  opportunities.





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General and administrative expenses
    increased in 2005 as compared to 2004 across all categories primarily due
    to the acquisitions that were included for only part of the year 2004 (approximately
$5.3 million in incremental expense from 2004 to 2005).





Overall, our general and administrative
    expenses increased $13.3 million in 2005 over 2004. Of this amount legal
    fees increased $2.0 million from $4.8 million in 2004 to $6.8 million in
    2005. This increase is attributable to our patent litigation with Yahoo!
    that came to trial during the second quarter of 2005, and we were named as
    a defendant in several new litigation matters. Additionally, in 2005 we incurred
    approximately $0.4 million in legal fees in connection with fulfilling our
    indemnification obligations to certain of our private label partners with
    respect to the defense of the Lanes
    Gifts and Cisneros litigations discussed elsewhere in this Form 10-K. Our
    indemnification obligations will continue into 2006, as neither of these
    litigations were concluded as of December 31, 2005. Additionally, our audit
    fees and fees related to Sarbanes-Oxley compliance further contributed to
    the increase in general and administrative expenses versus the prior period,
    increasing by $1.5 million from $1.4 million in 2004 to $2.9 million in 2005.
    Stock based compensation related to restricted stock units issued during
    the fourth quarter of 2005 also increased general and administrative expenses
    by $1.0 million. Another increase in general and administrative expenses
    resulted from an increase of $1.7 million in rent expense due to leases on
    new facilities in Europe and expansion of existing facilities in the U.S.
    The remaining increase of $7.1 million is primarily a result of personnel
    expenses which includes executive severance related to certain members of
    management
    who resigned during the year. General and administrative expenses as a percent
    of revenue increased in 2005 as compared to 2004 as well. This increase was
    primarily the result of increased costs related to the acquisitions completed
    in 2004, increased litigation expense and increased audit and Sarbanes-Oxley
    compliance costs, which collectively increased more than
revenue.





General and administrative expenses increased in 2004 over 2003  primarily due to the inclusion of results from acquisitions completed during  2004 (approximately $9.9 million of the increase), along with increases  totaling $6.6 million in legal and auditing fees, personnel costs, depreciation  on furniture and equipment, and costs associated with being a public company,  including costs related to Sarbanes-Oxley compliance.





We expect to continue to incur substantial  expenses related to our pending litigation matters into 2006. As we  litigate the lawsuits to which we are a party, and as we evaluate and pursue  new strategic opportunities, we will continue to incur substantial legal  expenses. Our legal expenses may increase significantly as a result of recently  filed class action lawsuits against us; however, no meaningful estimate of the  expenses associated with these lawsuits can be calculated at this time.





Product  development - Product
    development expense consists primarily of payroll and related expenses for
    personnel responsible for the development and maintenance of features, enhancements
    and functionality of our proprietary services. The increase in product development
    expenses during the year ended December 31, 2005 compared to 2004 and 2003
    was due to increases in personnel expense as well as incremental expenses
    due to the acquisitions that were included for only part of the year 2004
    (approximately $3.9 million of the increase from 2004 to 2005 and approximately
    $3.2 million of the increase from 2003 to 2004).





We believe that continued investment in product development is critical  to attaining our strategic objectives and as a result, we expect 2006 product  development expenses to continue to be in line with 2005 spending.





Impairment  loss  Goodwill 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, 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





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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.





During 2004, operating performance and resulting cash flow from  operations did not meet expectations at MIVA Small Business. Based on these  trends, the earnings forecast for the division was revised. We undertook our  normal annual assessment of goodwill and indefinite-lived intangible assets  under the provisions of FASB Statement No. 142, Goodwill and Other Intangible  Assets, during the fourth quarter of 2004, and determined that an impairment  existed. Step two analysis was completed as prescribed by FASB Statement No.  142, resulting in our recognition of an impairment loss on goodwill of $1.1 million.  This amount has been included in operating expenses in 2004.





During the second quarter of 2005, our stock price declined  significantly resulting in our market capitalization falling below the carrying  value of our equity. As a result of this and other indicators, our earnings  forecasts were updated for each of our divisions to reflect events that  occurred during the quarter, including our decision to remove traffic that did  not meet our distribution guidelines and other considerations with respect to  our current business environment that changed our expected business prospects.  As a result of the existence of these indicators, we performed an impairment  test to determine if the carrying value of goodwill and other indefinite-lived  intangibles was recoverable under the provisions of FASB Statement No. 142, Goodwill and  Other Intangible Assets, during the second quarter of 2005, and  determined that an impairment existed. At  the time of the filing of the second quarter 10-Q, the second step of the
impairment analysis had not been finalized, therefore we recorded the best  estimate of the impairment at the time of $118.9 million. The final measurement  of the impairment was completed in the third quarter of 2005, resulting in no  change from the original estimate.





In addition, during the third quarter of 2005 we  updated our projections of future cash flows resulting in further indicators of  goodwill impairment. The projections for all reporting units were not  significantly changed with the exception of MIVA Small Business. Events  specific to MIVA Small Business caused us to further reduce its projections  significantly, primarily as a result of new products that were not released as  scheduled as well as reduced sales of our MIVA Merchant software. As a result,  an additional goodwill impairment charge of $1.8 million was recorded for the  quarter ended September 30, 2005. As  a result of this impairment charge, MIVA Small Business has no remaining  goodwill.





In connection with the results of the FASB  Statement No. 142 impairment tests summarized above, factors indicated that the  carrying value of certain long-lived assets might not be recoverable.  Accordingly, impairment testing under FASB Statement No. 144, Accounting  for the Impairment or Disposal of Long-Lived Assets,was undertaken  as of September 30, 2005 resulting in an impairment charge of $2.5 million for  MIVA Small Business and is recorded in Impairment of goodwill and other  assets in the accompanying audited condensed consolidated statements of  operations. Impaired long-lived assets mainly relate to trademarks, customer  relationships, developed technology and vendor agreements that were written  down to their fair value. As a  result of this impairment charge, MIVA Small Business has no remaining  long-lived intangible assets.





For additional information on the impairment, please see Note G  Impairment of the notes to the consolidated financial statements. There were  no additional impairment charges recorded during the fourth quarter. We will  continue to assess the impairment of goodwill and other indefinite-lived  intangibles in accordance with FASB Statement No. 142 and long-lived assets in  accordance with FASB Statement No. 144 in future periods.





Amortization  -  Amortization
    expense in 2005 increased to $8.1 million from $5.7 million recorded in 2004.
    The increase is due to a full year of amortization during 2005 related to
the amortization





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of intangible assets associated with the acquisitions of MSB, MIVA  Direct, B&B and MIVA Media Europe on January 1, 2004, March 22, 2004, June  4, 2004 and July 1, 2004, respectively. We may continue to purchase assets or  businesses, which may result in additional intangible assets and amortization  expense. There were no assets that required amortization in 2003.





Patent  litigation settlement  In the second quarter of 2005, we  recorded an operating expense of $8.0 million related to the settlement of our  patent litigation with Yahoo!. In all periods going forward, there will be an  increase in cost of services related to the non-exclusive patent license  royalty we agreed to pay as part of this litigation settlement.





Interest  Income, Net





Interest income, net, consists primarily of earnings on our cash, cash  equivalents and short-term investments, net of interest expense. Net interest  income was $0.5 million for the years ended December 31, 2005, 2004 and 2003.





Income  Taxes





During the years ended December 31, 2005 and 2004, we recorded the  following tax provision (benefit) (in millions except percentages):





|                        |  | For the Year Ended    December 31, |       
|----------------------- |  | ---------------------------------- | ------
|                        |  |                                    |       
|                        |  | 2005                               |       
|                        |  |                                    |       
|Pretax income (loss)    |  |                                    | (130.7
|Tax provision (benefit) |  |                                    | (0.6  
|Effective tax rate      |  |                                    | 0.4   




The primary reason for the unusual relationship of income taxes to the  pretax loss in 2005 is the non-deductibility of the goodwill and other  indefinite lived asset portions of the impairment charge, the tax benefit  related to our ability to carry back a portion of current losses to prior years  that is credited to goodwill for accounting purposes, and the geographic  distribution of profits and losses in the applicable tax jurisdictions. The tax  provision recorded in 2004 represents our approximate statutory tax rate.





Deferred tax assets and liabilities are recognized based on temporary  differences between the financial statement carrying amount and the tax basis  of assets and liabilities for which income tax benefits are expected to be  realized in future years. Deferred tax assets are periodically reviewed for  recoverability based on projections of future operating results.





As of December 31, 2005, we have recorded
    a net current and long-term deferred tax asset of $4.7 million and deferred
    tax liabilities of $3.6 million. A valuation allowance of $9.2 million was established
    to reduce to zero those net deferred tax assets primarily resulting from
    our merger with MIVA Media Europe. This is due to MIVA Media Europes
    history of cumulative losses. Utilization of those NOLs is reflected as an
    adjustment to goodwill and will not be reflected in our results of operations.
    The balance in our deferred taxes relates primarily to NOLs associated with
    our other acquisitions from 2004. Based on our review of deferred tax assets
    in the United States, we have determined that it is more likely than not
    that we will achieve operating income sufficient to recover the recorded
    deferred tax assets at December 31, 2005 based on managements future
     projections of operating results and therefore these are recognized as assets
    without a valuation allowance.





Net  Income (Loss)





As a result of the factors described above, for the year ended December  31, 2005 we generated a net loss of $130.2 million, or a loss of $4.23 per  outstanding share. In 2004, we generated net income of $17.0 million, or $0.60  per diluted share. In 2003, we generated net income of $11.8 million, or $0.53  per diluted share.





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Weighted average common shares used in the earnings per share  computation increased 2.3 million shares from 28.5 million shares for the year  ended December 31, 2004 to 30.8 million for the year ended December 31, 2005.  The increase is due to the weighted impact of inclusion of approximately 8.0  million shares issued related to the 2004 acquisitions that were outstanding  for only part of 2004 but all of 2005. The increase in 2005 also is  attributable to shares issued related to the exercise of options, warrants, and  restricted stock units.





Diluted weighted average common shares outstanding increased 6.4  million shares from 22.1 million shares for the year ended December 31, 2003  compared with 28.5 million in 2004. The increase in shares is due to the  weighted impact of approximately 8.0 million shares issued during 2004 to  acquire MSB, MIVA Direct and MIVA Media Europe, and shares issued related to  the exercise of options and warrants.





Impact  of Foreign Currency Translation





As a result of our merger with MIVA Media EU in 2004, our international  net revenues were $100.7 and $57.3 million for the years ended December 31,  2005 and 2004, respectively. Prior to 2004, we had no international revenue.  The growth in our international operations has increased our exposure to  foreign currency fluctuations. Net revenues and related expenses generated from  international locations are denominated in the functional currencies of the  local countries, primarily British Pounds and Euros. The results of operations  and certain of our inter-company balances associated with our international  locations are exposed to foreign exchange rate fluctuations. The statements of  operations of our international subsidiaries are translated into  U.S. dollars at the average exchange rates in each applicable period. To  the extent the U.S. dollar weakens against foreign currencies, the  translation of these foreign currency denominated
transactions results in  increased consolidated net revenues, operating expenses and net income.  Similarly, our consolidated net revenues, operating expenses and net income  will decrease when the U.S. dollar strengthens against foreign currencies.





During 2005, the U.S. Dollar
    strengthened against the British Pound and the Euro.
    Had the exchange rates used in the financial statements not changed from
    December 31, 2004, our net revenues for the year ended December 31, 2005
    would have been approximately $6.5 million higher than we reported. In addition,
    had the exchange rates used in the financial statements not changed from
    the end of 2004, cost of services and operating expenses, excluding non-cash
    impairment charges, for year ended December 31, 2005 also would have been
    $5.5 million
    higher
    than we reported.





During 2004, the U.S. dollar
    weakened against the British pound and the Euro. Had the exchange rates used
    in the financial statements not changed from the July 1 date of the MIVA
    Media Europe acquisition, our net revenues for 2004 would have been approximately
    $1.1 million lower than we reported. In addition, had the exchange rates
    used in the financial statements not changed from the date of the merger,
    cost of services and operating expenses would have been approximately $1.0
    million lower than we reported.





LIQUIDITY  AND CAPITAL RESOURCES





As of December 31, 2005, the Company had $38.4 million in  cash and cash equivalents. This represents a $15.8 million or 29% decrease  from the total cash and investment position of $54.2 million at  December 31, 2004, which was comprised of $29.2 million in cash and  cash equivalents, and $25.0 million in short term investments, primarily  auction rate securities.





We historically have satisfied our
    cash requirements primarily through private placements of equity securities,
    cash flows provided by operations, and proceeds from the exercise of options
    and warrants. From inception through December 31, 2005, we have raised net
    proceeds of approximately $33.6 million through private equity financings,
    and received approximately $14.6 million in proceeds from the exercise of
options, warrants and restricted stock units. During 2005,





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2004 and 2003 we generated cash flows
    from operations of approximately $1.7 million, $18.9 million, and $15.5 million,
respectively.





Operating  Activities





In recent years, we have generated positive cash flows from our  operations primarily due to advertisers bidding for the placement of their  keyword-targeted ads within the MIVA Media Network and the networks of our  private label partners, and distribution and private label partners displaying  these keyword ads, leading to paid click-throughs. If we or our private label  partners fail to continue to provide our managed advertisers with high quality  click-throughs, those advertisers may reduce or cease their spending with us  and our private label partners, which may lead to lower average revenue per  paid click-through, and our operating revenue and cash flows may decline or  cause us to become cash flow negative. If we fail to offer our distribution  partners competitive keyword-targeted advertisements with respect to any one or  more of the following:





| |  | average revenue per paid click through;             
| | - | ----------------------------------------------------
| |  | the revenue share paid to the distribution partners;
| |  | the relevancy and coverage of our keyword ads; or   
| |  | the speed and delivery of such ads,                 




our partners may display fewer MIVA Media network advertisements, or  stop showing our keyword-targeted ads altogether, which would lead to lower  revenue and cash flows. Additionally, the number and quality of competitors,  some of which have much greater resources than us, of keyword-targeted ads is  increasing, which may adversely impact our ability to keep or grow our  advertiser and distribution partner relationships, as well as our average  revenue per paid click-through. These factors, coupled with any increase in  revenue share to and/or the payment terms with our distribution partners may  reduce our revenue and cash flows or cause us to become cash flow negative.





Net cash provided by operating activities
    totaled $1.7 million during the year ended December 31, 2005 compared to
    cash provided of $18.9 million in 2004. A significant cash outflow in 2005
    was the one-time payment ($8.0 million) made to Yahoo!
    under
    the litigation settlement as discussed previously. Deferred revenue decreased
    due to the fact that advertisers paid us less cash in advance of receiving
    click-throughs.
    The effect of these were offset by the effect of lower payments on accounts
    payable, accrued expenses and other liabilities of $0.5 million due to the
    timing
    of payments
    at the end of December 2005 as compared to December 2004. In addition there
    was a reduction in accounts receivable ($2.3 million) due to better collection
efforts in the period.





Investing  Activities





Net cash provided by investing activities
    totaled approximately $10.1 million during 2005. The amount used in 2005
    consisted primarily of capital expenditures for equipment, furniture and
    fixtures ($7.7 million), and payments made on earnouts and other acquisition
    costs related to the acquisition of B&B, MIVA Direct, and MIVA
    Media Europe ($7.8 million).  During the fourth quarter of 2005, we paid
    an additional $1.6 million related to these acquisitions. In addition, due
    to targets
    that were met during 2005, we will pay an additional $2.8 million related
    earnouts in 2006. These amounts were offset by the net of cash
    from the sale of short-term investments offset by purchases of short-term
    investments
    ($25.0
    million).
    In 2004, net cash was used in investing activities consisted primarily of
    capital expenditures ($7.5 million) and cash payments, net of cash acquired,
    made related to the acquisitions of MIVA Small Business, MIVA Direct and
    MIVA Media Europe ($20.3 million) offset by the net of proceeds from the
    sale of short-term investments offset by purchases of short-term investments
    ($12.1 million).





Financing  Activities





Net cash used in financing activities during 2005 was  $2.0 million, which primarily consisted of a $3.5 million payment made  pursuant to a perpetual software license agreement with FAST Search and  Transfer. In addition, there were payments of $0.4 million made on a note  payable during the period. These amounts were offset by $1.9 million of  proceeds from the exercise of stock options.





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During the same period in 2004, payments made on capital leases and  notes payable were $2.1 million, which was offset by proceeds from the exercise  of stock options of $3.3 million.





Liquidity


During January 2006, we announced that we retained the investment  banking firm Deutsche Bank Securities to assist our Board of Directors in  exploring and evaluating a range of strategic opportunities to enhance  shareholder value. Deutsche Bank will help the Board analyze options including,  but not limited to, the raising of capital through the sale of securities or  assets of the Company, a recapitalization, strategic acquisitions, and the  combination, sale or merger of the business with another entity offering  strategic opportunities for growth.





We have no material long-term commitments for capital expenditures;  however, we anticipate an increase in capital expenditures consistent with  anticipated growth of operations, infrastructure and personnel.  To ensure we have the necessary funds to  increase our capital expenditures, we have entered into a leasing line of  credit agreement which provides for up to $2.0 million to be used for capital  expenditures.  This agreement covers  only U.S. based assets and the expiration date for new draw downs is October  31, 2006.





On August 15, 2005, we entered into a Settlement and License Agreement  (the Agreement) with Overture Services, Inc. (Overture Services) and Yahoo!  Inc. (collectively with Overture Services, Yahoo!).  Pursuant to the Agreement, the parties settled the patent  infringement lawsuit brought by Overture Services against MIVA regarding U.S.  Patent No. 6,269,361, and Yahoo! agreed to release all claims in the  lawsuit.  Under the terms of the  Agreement, we agreed to make a one-time payment of $8.0 million to Yahoo!, and  entered into a royalty bearing non-exclusive license to certain Yahoo!  patents.  The charge for the $8.0  million one-time payment was recorded during the second quarter and paid during  the third quarter of 2005 reducing our net cash provided by operating  activities for the year ended December 31, 2005. The royalty is based on our  use of certain patents, subject to certain minimum payments,
and is paid  quarterly.





In the ordinary course of business, we may provide indemnifications 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.





We evaluate estimated losses for such indemnifications under SFAS No.  5, Accounting for Contingencies, as interpreted by FIN 45. At this time, 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.





Despite the negative operating performance recorded in the third and  fourth quarters of 2005, we currently anticipate that our cash and cash  equivalents as of December 31, 2005, together with cash flows from  operations, will be sufficient to meet our anticipated liquidity needs for  working capital, earnout payments and capital expenditures over the next 12  months. 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. On May 6, 2004, we filed a  registration statement on Form S-3 with respect to the possible future issuance  of





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up to 6 million shares of our authorized but unissued common stock  from time to time. To date, we have not utilized the registration statement to  sell any such shares. Our future liquidity and capital requirements will depend  upon 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 and in  the section entitled Risk Factors included in Part I, Item 1A of this Annual  Report on Form 10-K.





CONTRACTUAL  OBLIGATIONS





We have ongoing contractual cash payments to our distribution partners,  which are funded by collections from our advertisers for the paid  click-throughs (visitors), delivered to them via our distribution partners.  Agreements with certain distribution partners contain guaranteed minimum  payments through December 2007.





We have contingent liabilities for earnouts related to our MIVA Direct  acquisition. MIVA Direct stockholders had a right to receive up to an  additional $10.0 million in cash based on MIVA Directs operating performance in  2004 and 2005. At the end of 2004, approximately $1.1 million was earned out of  a possible $5.0 million related to the first earnout period and an additional  $1.7 million was earned in 2005 based on MIVA Directs operating performance.  The earnout periods have lapsed under the  agreement and therefore no additional amount under the possible $10.0 million  will be earned.





We have contractual obligations regarding future minimum payments under  non-cancelable operating leases, payments of principal and interest related to  long-term debt, guaranteed distribution partner payments, earnout payments,  royalty payments and payments on a software license which consisted of the  following at December 31, 2005 (in thousands):





|                                          |  | Payments Due by Period |       
|----------------------------------------- |  | ---------------------- | ------
|                                          |  |                        |       
|                                          |  | Total                  |       
|                                          |  |                        |       
|Operating Leases                          |  | $                      | 17,518
|Long-term Debt                            |  |                        | 50    
|Guaranteed Distribution  Partner Payments |  |                        | 828   
|Earnout                                   |  |                        | 2,795 
|Royalty Agreement                         |  |                        | 3,800 
|Software License Agreement                |  |                        | 2,800 
|                                          |  |                        |       
|Total                                     |  | $                      | 27,791
|                                          |  |                        |       




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On February 23, 2006, we entered into a Lease Modification and  Extension Agreement, pursuant to which MIVA, Inc. reduced the amount of office  space it was leasing in New York.  In  connection with this modification to the existing lease for the New York space,  we also extended the term of such lease through January 31, 2016.  Our monthly lease payments were also reduced  in connection with the reduction in space.   Future minimum payments related to this lease are as follows:





|2006       |  | $ | 517   | 
|---------- |  | - | ----- | 
|2007       |  |   | 432   | 
|2008       |  |   | 445   | 
|2009       |  |   | 459   | 
|2010       |  |   | 472   | 
|Thereafter |  |   | 2,629 | 
|           |  |   |       | 
|           |  | $ | 4,954 | 
|           |  |   |       | 




USE OF  ESTIMATES AND CRITICAL ACCOUNTING POLICIES





This Managements Discussion and Analysis of Financial Condition and  Results of Operations is based on our consolidated financial statements, which  have been prepared in accordance with accounting principles generally accepted  in the United States. When preparing our consolidated financial statements, we  make estimates and judgments that affect the reported amounts on our balance  sheets and income statements, and our related disclosure about contingent  assets and liabilities. We continually evaluate our estimates, including those  related to allowance for doubtful accounts and valuation allowance for deferred  tax assets. We base our estimates on historical experience and on various other  assumptions that we believe to be reasonable in order to form the basis for  making judgments about the carrying values of assets and liabilities that are  not readily ascertained from other sources. Different results would be obtained  if alternative assumptions

or conditions are used and actual results may  deviate from these estimates.





Revenue





Revenue is generated primarily through click-throughs on our managed  advertisers paid listings. Certain advertisers make deposits in advance of  receiving click-throughs and these deposits are recorded as deferred revenue.  When an Internet user clicks on a keyword advertisement, revenue is recognized  in the amount of the advertisers bid price. Revenue is also generated from our  private label service and is recognized in accordance with the contractual  payment agreements as the services are rendered and the click-throughs  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 record MIVA  Media Network click-through revenue gross and private label revenue net.





Revenue for network set-up fees are deferred and recognized over the  expected life of the advertisers relationship. Revenue for software licenses  is recognized when persuasive evidence of an arrangement exists, delivery has  occurred, the fee is fixed or determinable, and collectibility is probable.  Revenue from support arrangements is recognized ratably over the contract  period of the invoice.





When a MIVA Direct user clicks on a sponsored advertisement which is  routed to a distribution partners network, revenues and related profit are  recognized in the amount of MIVA Directs share of the partners fee.  Non-click-through-related revenue from MIVA Direct resulting from a variety of  search-related applications is recognized when earned under the terms of the  contractual arrangement with the advertiser or advertising agency, provided  that collection is probable.





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Allowance  for Doubtful Accounts





We maintain allowances for doubtful accounts for estimated losses  resulting from non-payments by our billable advertisers for services rendered.  Most of our advertisers prepay for services. The allowance for doubtful  accounts was approximately $1.9 million and $3.1 million as of December 31,  2005 and 2004, respectively. The following table illustrates the related bad  debt expense as a percentage of revenues for 2005, 2004 and 2003 (in thousands,  except percentages):





|                                            |  | 2005 |         | 2004 |   | 2003    |  
|------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                            |  |      |         |      |   |         |  
|Revenues                                    |  | $    | 194,616 |      | $ | 169,470 |  
|Bad debt expense    (recovery)              |  | $    | (519    | )    | $ | 658     |  
|Bad debt expense as a    percent of revenue |  |      | -0.3    | %    |   | 0.4     | %




The allowance for doubtful accounts is an estimate calculated based on  an analysis of current business and economic risks, customer credit-worthiness,  specific identifiable risks such as bankruptcies, terminations or discontinued  customers, or other factors that may indicate a potential loss. The allowance  is reviewed on a periodic basis to provide for all reasonably expected losses  in the receivable balances and an expense is recorded using a reserve rate  based on the age of outstanding accounts receivable or when it is probable that  a certain receivable will not be collected. An account may be determined to be  uncollectible if all collection efforts have been exhausted, the customer has  filed for bankruptcy and all recourse against the account is exhausted, or  disputes are unresolved and negotiations to settle are exhausted. This  uncollectible amount is written off against the allowance. If our billable  advertisers ability to pay our
invoices were to suffer, resulting in the  likelihood that we would not be paid for services rendered, additional  allowances may be necessary which would result in an additional general and  administrative expense in the period such determination was made.





Historically, our actual losses have been consistent with these  allowances. However, future changes in trends could result on a material impact  to future consolidated statement of income and cash flows. Based on our results  for the year ended December 31, 2005, a 25 point basis deviation from our  estimates would have resulted in an increase or decrease in operating income of  approximately $0.5 million. The following demonstrates, for illustrative  purposes only, the potential effect such a change would have upon our  consolidated financial statements and is not intended to provide a range of  exposure or expected deviation (in thousands, except share data):





|                                     |  | -25 Basis    Points |          | 2005 |   | +25 Basis    Points |  
|------------------------------------ |  | ------------------- | -------- | ---- | - | ------------------- | -
|                                     |  |                     |          |      |   |                     |  
|Bad debt expense    (recovery)       |  | $                   | (1,006   | )    | $ | (519                | )
|Income (loss) from    operations     |  |                     | (130,575 | )    |   | (131,062            | )
|Net income (loss)                    |  |                     | (129,680 | )    |   | (130,167            | )
|Diluted earnings (loss)    per share |  | $                   | (4.55    | )    | $ | (4.23               | )




53


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Income  Taxes





Deferred income taxes are recognized
    for temporary differences between financial statement and income tax bases
    of assets and liabilities, loss carryforwards and tax credit carryforwards
    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 after considering the positive and negative evidence
    as set forth in FASB Statement No. 109 Accounting  for Income Taxes.
    This also requires us to make estimates of our future taxable results by
    taxable jurisdiction and to evaluate tax-planning strategies. As of December
    31, 2005, we have net current and long-term deferred tax assets of $4.7 million
    and deferred tax liabilities of approximately $3.6 million. A valuation
    allowance of $9.2 million was established to reduce to zero those net deferred
    tax assets primarily resulting from our merger with MIVA Media Europe.





At December 31, 2005, we had a United States net operating loss (NOL)  carryforward of $24.5 million, which can currently be used at an annual rate of  only $3.5 million pursuant to Section 382.   The balance of the US NOL was generated as a result of current  operations in 2005, and is not limited in usage.  We also have foreign NOL carryforwards of $23.6 million. As of  December 31, 2005, the NOLs related to foreign jurisdictions are fully offset  by a valuation allowance, with the exception of a $0.4 million NOL related to  MIVA Media UKs financing activity. Subsequent release of the valuation  allowances will be recorded as a reduction to goodwill.





The following table illustrates the effective tax rates for 2005, 2004,  and 2003 (in thousands, except percentages):





|                                            |  | 2005 |          | 2004 |   | 2003   |  
|------------------------------------------- |  | ---- | -------- | ---- | - | ------ | -
|                                            |  |      |          |      |   |        |  
|Provision (benefit) for    taxes            |  | $    | (556     | )    | $ | 10,690 |  
|Income before provision    for income taxes |  | $    | (130,723 | )    | $ | 27,718 |  
|Effective tax rates                         |  |      | 0.4      | %    |   | 38.6   | %




Historically, these provisions have adequately provided for our actual  income tax liabilities. However, unexpected or significant future changes in  trends could result in a material impact to future consolidated statements of  income and cash flows. Based on our results for the year ended December 31,  2005, a
one-percentage change in our provision for income taxes as a percentage  of income before taxes would have resulted in an increase or decrease in the  provision of approximately $1.3 million. The following demonstrates, for illustrative  purposes only, the potential effect such a change would have upon our  consolidated financial statements and is not intended to provide a range of  exposure or expected deviation (in thousands, except share data):





|                              |  | -100 Basis    Points |          | 2005 |   | +100 Basis    Points |  
|----------------------------- |  | -------------------- | -------- | ---- | - | -------------------- | -
|                              |  |                      |          |      |   |                      |  
|Benefit for taxes             |  | $                    | 751      |      | $ | (556                 | )
|Net income                    |  |                      | (131,474 | )    |   | (130,167             | )
|Diluted earnings per    share |  | $                    | (4.61    | )    |   | (4.23                | )




Purchase  Accounting





We have made estimates of the fair values of the assets and liabilities  acquired as a part of our MSB, MIVA Direct, B&B and MIVA Media Europe  transactions during 2004 based on either appraisals from third parties, certain  internally generated information or both. In addition, we have estimated the  economic lives of certain of these assets and these lives were used to  calculate depreciation and amortization expense. The remaining estimated  economic lives are assessed on a regular basis and are subject to change. If  the asset amounts or the estimated lives were found to be different, our  amortization expense could vary. Our estimates of the economic useful lives of  our intangible assets range from 1 to 10 years, with a weighted average life of  approximately six years. If the estimated lives of our intangible assets were  one year shorter, our amortization expense for 2005 and 2006 would be higher by  $1.2 million in both periods. In addition, we
are required to monitor such  intangible assets for possible impairment charges.





54


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Impairment  Evaluations





Our methodology for allocating the purchase price relating to  acquisitions is based on established valuation techniques that reflect the  consideration of a number of factors including valuations performed by third  party appraisers. 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 perform goodwill 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  would 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, plant 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. We perform indefinite-lived impairment  tests on an annual basis as of October 1st or more frequently in certain  circumstances, if necessary. 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 and significant negative industry or economic  trends. For example, unexpected increases in customer or distribution partner  churn could effect 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 upon 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 an 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 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, 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.





During 2004, we acquired a number of businesses and recorded  substantial amounts of intangible assets and goodwill in our purchase  accounting. Due to the recency of our acquisitions, we have limited history on  which to base our future projections of cash flows from these businesses. In  addition, we are continually planning new initiatives for these businesses;  however, there can be no assurances about the revenue and other cash flows we  may realize from these initiatives. As a result, additional impairment losses  such as the ones recorded during 2005 are possible.  Should future operating results fall short of current  projections, further impairments to goodwill and other intangible assets could  be recognized.





As disclosed in Note G - Impairment, we recorded a goodwill  impairment charge of $118.4 million and $1.8 million during the second and  third quarters of 2005, respectively.   We recorded a goodwill impairment charge of $1.1 million during 2004. In  addition, we recorded long-lived asset impairment charges of $0.5 million and  $2.5 million during the second and third quarters of 2005, respectively.  As of December 31, 2005, there was $60.9  million of goodwill and other indefinite-lived intangibles remaining at MIVA  Media Europe, $9.5 million at B&B, $6.3 million at MIVA Direct and $0.0  million at MSB.





55


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Legal  Contingencies





We are subject to lawsuits and other claims related to our business and  operations. Periodically, we review the status of each significant matter and  assess potential financial exposure. If the potential loss from any claim or  legal proceeding is considered probable and the amount can be reasonably  estimated, we accrue a liability for the estimated loss. Because of  uncertainties related to these matters, accruals are based on the best  information available at the time. As additional information becomes available,  we reassess the potential liability related to pending claims and might revise  our estimates.





Item 7A.  Quantitative and  Qualitative Disclosures About Market Risk.





Foreign  Currency Risk





International revenues from our non-U.S.
    operations accounted for approximately 52% and 34% of total revenues during
    2005 and 2004, respectively. International revenues are generated from our
    foreign subsidiaries and are typically denominated in the local currency
    of each country. Generally, these subsidiaries incur most of their expenses
    in their local currency, and accordingly use the local currency as their
functional currency.





Our international operations are subject to risks, including, but not  limited to differing economic conditions, changes in political climate,  differing tax structures, other regulations and restrictions, and foreign  exchange rate volatility when compared to the United States. Accordingly, our  future results could be materially adversely impacted by changes in these or  other factors.





Foreign exchange rate fluctuations
    may adversely affect our consolidated financial position as well as our consolidated
    results of operations. Foreign exchange rate fluctuations may adversely impact
    our financial position as the assets and liabilities of our foreign operations
    are translated into U.S. dollars in preparing our consolidated balance sheet.
    Our exposure to foreign exchange rate fluctuations arises in part from intercompany
    accounts in which costs incurred in the United States or the United Kingdom
    are charged to our subsidiaries. These intercompany accounts are typically
    denominated in the functional currency of the foreign subsidiary. The effect
    of foreign exchange rate fluctuations on our consolidated financial position
    for the years ended December 31, 2005 and 2004, was a net translation loss
    of approximately $14.0 and gain of $12.8 million, respectively. These gains
    and losses are recognized as an adjustment to stockholders
equity through  accumulated other comprehensive income. Additionally, foreign
exchange rate fluctuations may significantly impact our consolidated results
from operations as exchange rate fluctuations on transactions denominated in
currencies other than our functional currencies result in gains and losses that
are reflected in our consolidated statement of income.   Had the exchange
rates used in our financial statements not changed from the end of the previous
years, our net revenues for the years ended December 31, 2005 and 2004 would
have been approximately $6.5 million higher and $1.1 million lower, respectively.   Additionally,
our cost of services and operating expenses, excluding non-cash impairment charges,
for
the
year ended December 31, 2005 and 2004, would have been $5.5 million and $1.0
million
lower,
respectively, than we reported for those years.





In addition, the merger with MIVA Media Europe occurred on July 1,  2004, and results from MIVA Media Europe were included from the date of the  acquisition. In 2005, results from MIVA Media Europe have been included for the  full year and as MIVA Media Europes results are denominated in foreign  currency we will have an increased risk related to changes in foreign currency  rates.





Interest  Rate Risk





Our exposure to market rate risk for changes in interest rates has been  primarily due to our short-term investment portfolio and issuance of debt. We  do not use derivative financial instruments in our investment portfolio. We  have a prescribed methodology whereby we invest excess cash in debt instruments  of government agencies and high quality corporate issuers. The portfolio is  reviewed on a periodic basis and adjusted in the event that the credit rating  of a security held in the portfolio has deteriorated.





56


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Item 8.   Financial  Statements and Supplementary Data.





See Index to Consolidated Financial Statements on page F-1.





Item 9.   Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure.


Ernst & Young LLP (“E&Y”) served as the independent registered public accountants for MIVA, Inc. for the 2004 fiscal year and throughout the periods covered by our financial statements included in our quarterly report on Form 10-Q on May 10, 2005.  E&Y resigned effective May 10, 2005.  On July 11, 2005, our audit committee engaged BDO Seidman LLP as its independent registered public accountants for fiscal year 2005.

The audit reports of E&Y on the financial statements of MIVA, Inc. for each of the two fiscal years ended December 31, 2004 and December 31, 2003 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the audit of the Company’s financial statements for the year ended December 31, 2004 and through the date of E&Y’s resignation effective May 10, 2005, there were no disagreements as described under Item 304(a)(1)(iv) with E&Y on a matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to E&Y’s satisfaction, would have caused them to make reference to the subject matter in connection with any reports they may have rendered on the Company’s consolidated financial statements, within either of the past two fiscal years ended December 31, 2004 and December 31, 2003, and for the subsequent period through the date
of E&Y’s resignation effective May 10, 2005, except as described below:

| |  | On April 26, 2005, E&Y reported to the Company and its Audit Committee chairman that the Company and E&Y had a disagreement with respect to the need to recognize an impairment of goodwill in connection with the Company’s 2004 consolidated financial statements. The Company recorded an adjustment in its 2004 consolidated financial statements, which resolved the matter to the satisfaction of E&Y. The Company’s Audit Committee discussed this matter with E&Y and authorized E&Y to respond fully to the inquiries of BDO Seidman LLP, successor accountant, concerning the subject of the disagreement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the audit of the Company’s financial statements for the year ended December 31, 2004 and through the date of E&Y’s resignation effective May 10, 2005, there were no reportable events described under Item 304(a)(1)(v) of Regulation S-K, within either of the past two fiscal years ended December 31, 2004 and December 31, 2003, and for the subsequent period through the date of E&Y’s resignation effective May 10, 2005, except as described below:

| |  | In the Company’s Amendment No. 1 to its Annual Report on Form 10-K/A, which the Company filed with the SEC on May 2, 2005, management’s Annual Report on the Internal Control over Financial Reporting stated, and E&Y’s report on internal control stated, that because of the material weaknesses disclosed in those reports, the Company’s internal control over financial reporting was not effective as of December 31, 2004, based on the COSO criteria. E&Y advised the Company of six material weaknesses in the Company’s system of internal control over financial reporting, which are disclosed in those reports, and these matters relate to (i) purchase accounting, (ii) goodwill impairment, (iii) revenue recognition for private label
agreements and other revenue agreements, excluding those related to FindWhat.com Network revenue, (iv) personnel resources and technical accounting expertise, (v) quarterly and year-end financial statement close and review process, and (vi) segregation of duties.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Since the engagement of our current
    independent auditors on July 11, 2005 through March 16, 2006, we have had
    no disagreements as described under these same SEC regulations. However,
    as described in Item 9A below, we have identified two material weaknesses
    in our internal control over financial reporting as of December 31, 2005.

During the two most recent fiscal years prior to our engagement of BDO Seidman LLP, and through May 10, 2005, we did not consult with BDO Seidman LLP regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report or oral advice was provided to us by BDO Seidman LLP as it relates to an accounting, auditing, or financial reporting issue; or (ii) any matter that was either the subject of disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K.




Item  9A.  Controls and Procedures





|(a) | Evaluation of Disclosure Controls    and Procedures
|--- | ---------------------------------------------------




Under the  supervision and with the participation of our management, including our Chief  Executive Officer and Chief Financial Officer, we evaluated the effectiveness  of the design and operation of our disclosure controls and procedures (as  defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of  1934, as amended (the Exchange Act)), as of the end of the period covered by  this Annual Report on Form 10-K. Based on that evaluation and because of the  material weaknesses identified below, our Chief Executive Officer and Chief  Financial Officer have concluded that our disclosure controls and procedures  were not effective as of December 31, 2005.





|(b) | Managements Annual Report on    Internal Control Over Financial Reporting
|--- | --------------------------------------------------------------------------




Our  management is responsible for establishing and maintaining adequate internal  control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)  under the Exchange Act.  Our internal  control system was designed to provide reasonable assurance regarding the  reliability of financial reporting and the preparation of financial statements  for external purposes in accordance with U.S. generally accepted accounting  principles.





57


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All  internal control systems, no matter how well designed, have inherent  limitations.  Therefore, even those systems  that are determined to be effective can provide only reasonable assurance as to  the adequacy and accuracy of financial statement preparation and presentation.





As defined  by the Public Company Accounting Oversight Board (PCAOB) in Auditing Standard  No. 2, an internal control significant deficiency is a control deficiency, or  combination of control deficiencies, that adversely affects a companys ability  to initiate, authorize, record, process, or report external financial data  reliably in accordance with generally accepted accounting principles such that  there is more than a remote likelihood that a misstatement of such companys  annual or interim financial statements that is more than inconsequential will  not be prevented or detected.  An internal  control material weakness is a significant deficiency, or combination of  significant deficiencies, that results in more than a remote likelihood that a  material misstatement of the annual or interim financial statements of a  company will not be prevented or
detected.





Our  management, under the supervision of and with the participation of our Chief  Executive Officer and Chief Financial Officer, evaluated and assessed the  effectiveness of our internal control over financial reporting as of December  31, 2005 based upon the framework in Internal  Control  Integrated Framework issued by the Committee of Sponsoring  Organizations of the Treadway Commission (COSO).  This evaluation and assessment led to the identification of  material weaknesses in our internal control over financial reporting.





The identified material weaknesses in our internal control over  financial reporting relate to the following matters, of which the first  resulted in an adjustment being recorded in our financial statements for the  year ended December 31, 2005:





| | Insufficient    controls over the preparation of the income tax provision.The error in the income    tax provision that resulted in an adjustment to our financial statements, was    not identified by our existing controls over the manual income tax provision    calculation. Although management concluded that the error was the result of    an oversight in our calculation, we are in the process of designing and    implementing improvements to our internal controls over financial reporting    related to the manual income tax provision calculation to include quarterly    meetings between our tax and accounting team members to formalize    communication between the two functions, hiring additional resources with tax    provision expertise, as well as purchasing software to aid in the    calculation.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Insufficient    controls over the system administration responsibilities within the treasury    function relating to wire transfers.  Although this material weakness did not    result in an adjustment to the quarterly or annual financial statement, it    represents a weakness with respect to our anti-fraud programs and    controls.  We are currently in the    process of designing and implementing improvements in our internal controls    over financial reporting related to wire transfers including working with our    bank to appropriately segregate the system administration responsibilities.                                                                                                                                                                                                                




Because
      of the material weaknesses described above, our management, under the supervision
      of and with the participation of our Chief Executive Officer and Chief
      Financial Officer, concluded that, as of December 31, 2005, our internal
      control over financial reporting was not effective based on the criteria
      in Internal Control  Integrated Framework issued by the COSO.





We  previously identified the existence of material weaknesses in our internal  control over financial reporting in our Annual Report of Form 10-K/A for the  Year Ended December 31, 2004.  As of  December 31, 2005, these material weaknesses in our internal control over  financial reporting have been fully remediated.





Our  independent registered public accounting firm, BDO Seidman LLP, has issued an  attestation report on our assessment of our internal control over financial  reporting and the effectiveness of our internal control over financial  reporting.  Their report appears on page  F-3 of this Annual Report on Form 10-K.





58


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|(c) | Changes in Internal Control Over    Financial Reporting
|--- | -------------------------------------------------------




We have made certain changes to our internal control over financial  reporting in connection with our fourth quarter evaluation that has materially  affected our internal control over financial reporting.  During the fourth quarter ended December 31,  2005 we have:





| |  | hired additional qualified accounting and    financial staff;                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                              
| |  | enhanced the internal control structure as it    relates to segregation of duties specifically in information technology    systems and financial applications by further restricting system access and    adjusting incompatible duties;                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                              
| |  | completed training of staff on the application of    accounting pronouncements, including specific technical training on matters    related to the material weaknesses;                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                              
| |  | held regular meetings of senior management,    including finance management and representatives of the accounting    department, to review and discuss all new and existing significant    transactions in order to determine the proper accounting treatment in    accordance with generally accepted accounting principles;
| |   |                                                                                                                                                                                                                                                                                                                              
| |  | prepared sufficient supporting documentation for    and performing timely review to support our position on the basis of    governing principles with regard to complex accounting standards;                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                              
| |  | documented and improved procedures for the    financial statement close process;                                                                                                                                                                                                                                             




Item  9B.  Other Information





Not applicable.





PART III





Item  10.  Directors and Executive Officers of the Registrant





Directors  of the Company





The following table sets forth the name, age,  committee memberships and a summary of the past five (5) years of employment  history for each of our directors:





| | Name and Principal Occupation or Employment                                          |  | Age    as of    2/24/06 |  | Committee    Membership
| | ------------------------------------------------------------------------------------ |  | ----------------------- |  | -----------------------
| |                                                                                      |  |                         |  |                        
| | Craig    A. Pisaris-Henderson                                                        |  | 36                      |  |                        
| |                                                                                      |  |                         |  |                        
| | Chairman of the Board of Directors since June 2002                                   |  |                         |  |                        
| | Chief Executive Officer of the Company since March    2001                           |  |                         |  |                        
| | President of the Company from June 1999 to July 2004                                 |  |                         |  |                        
| | Chief Technology Officer of the Company from June    1999 to March 2001              |  |                         |  |                        
| | Secretary of the Company from June 1999                                              |  |                         |  |                        
| | Director, YMCA of Lee County                                                         |  |                         |  |                        
| | Director, Advisory Board of College of Business at    Florida Gulf Coast University  |  |                         |  |                        
| |                                                                                      |  |                         |  |                        
| | Mr. Pisaris-Henderson is the half-brother of John    Pisaris, MIVAs General Counsel |  |                         |  |                        




59


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| | Phillip    R. Thune                                                                                                     |  | 35 |  |              
| | ----------------------------------------------------------------------------------------------------------------------- |  | -- |  | -------------
| |                                                                                                                         |  |    |  |              
| | Director since January 2002                                                                                             |  |    |  |              
| | President of the Company since July 2004                                                                                |  |    |  |              
| | Chief Operating Officer of the Company from November    2000 to September 2005                                          |  |    |  |              
| | Chief Financial Officer of the Company from April    2000 to June 2004                                                  |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Sebastian    Bishop                                                                                                     |  | 31 |  |              
| |                                                                                                                         |  |    |  |              
| | Director of the Company since September 2004                                                                            |  |    |  |              
| | Chief Marketing Officer of the Company since    February 2005                                                           |  |    |  |              
| | Senior
         Vice President, Marketing of the Company from August 2004 to January
         2005                      |  |    |  |              
| | Co-Founder, Espotting Media, Inc. (now MIVA Media    International, Inc.) from February 2000 to July 2004 (Advertising) |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Frederick    E. Guest II                                                                                                |  | 68 |  | Audit        
| |                                                                                                                         |  |    |  | Nominating   
| | Director of the Company since April 2001                                                                                |  |    |  |              
| | President and owner, Guest Capital LLC. since 1997    (Investments)                                                     |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Gerald    W. Hepp                                                                                                       |  | 69 |  | Audit (chair)
| |                                                                                                                         |  |    |  | Compensation 
| | Director of the Company since December 2004                                                                             |  |    |  |              
| | CEO
      and President, Gnosis Praxis Ltd. since March 1999 (Financial Consulting)                                     |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Charles    P. Rothstein                                                                                                 |  | 47 |  | Audit        
| |                                                                                                                         |  |    |  |              
| | Director of the Company since July 2004                                                                                 |  |    |  |              
| | Founder
      and Senior Managing Director, Beringea LLC since 1988 (Investments)                                       |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Lee S.    Simonson                                                                                                      |  | 57 |  | Compensation 
| |                                                                                                                         |  |    |  | (chair)      
| | Director of the Company since December 2003                                                                             |  |    |  |              
| | Independent Consultant, Simonson & Associates    since 2000 (Consulting)                                                |  |    |  |              
| |                                                                                                                         |  |    |  |              
| | Lawrence    Weber                                                                                                       |  | 50 |  | Nominating   
| |                                                                                                                         |  |    |  | (chair)      
| | Director of the Company since June 2005                                                                                 |  |    |  |              
| | Chairman and CEO, W2 Group, Inc. since September    2004 (Marketing)                                                    |  |    |  |              
| | Marketing Consultant from June 2003 to September 2004                                                                   |  |    |  |              
| | CEO, Advanced Marketing Services, a division of    Interpublic from January 2000 to June 2003 (Marketing)               |  |    |  |              




60


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Officers  of the Company





The following table sets for the name, age and a summary of the past  five (5) years of employment history for each of our executive officers, in  addition to Messrs. Pisaris-Henderson, Thune and Bishop: Name and Principal Occupation or Employment
      
      Age
  as of
  2/24/06Peter Corrao
      
      51Chief Operating Officer of the Company since September 2005CEO and Consultant, Bluestreak.com, Inc. from  September 2001 to January 2005 (Marketing)CEO and President, Cognit Corp. from August 1998 to September 2001 (Marketing)William Seippel
      
      49Chief Financial Officer of the Company since July 2005Independent Consultant from April 2004 to July 2005Chief Financial Officer, Airgate PCS from October 2002 to March 2004 (Telecommunications)Independent Consultant from October 2001 to September 2002COO and CFO, Digital Commerce Corp. from November 1999 to September 2001 (e-Commerce)Dave
              Rae
      
      50Chief
            Strategy Officer of the Company since December 2003Executive
            Vice President of the Company from April 2002 to December 2003Vice
            President of Operations of the Company from January 2002 to April
            2002Consultant,
            Rae Enterprises from 1999 to December 2001 (Consulting)Anthony
              Garcia
      
      26Chief
            Technology Officer of the Company since April 2001Director
            of Technology of the Company from June 1999 through April 2001John Pisaris
      
      40General Counsel of the Company since October 2004Vice President of Legal of the Company from February 2004 through September 2004Partner, Porter, Wright, Morris & Arthur LLP from January 2002 to January 2004 (Law Firm)Associate, Porter, Wright, Morris & Arthur LLP from 1993 to 2002 (Law Firm)Mr. Pisaris is the half brother of Craig Pisaris-Henderson, MIVAs chairman and chief executive officer.








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| | Adam Poulter                                                          |  | 42 |  | 
| | --------------------------------------------------------------------- |  | -- |  | 
| |                                                                       |  |    |  | 
| | Managing Director, Europe since October 2005.                         |  |    |  | 
| | CEO, IMD PLC. from May 2005 to October 2005 (Digital Media)           |  |    |  | 
| | CEO, Wayfield Mastin from October 2003 to May 2005 (Consulting)       |  |    |  | 
| | CEO, Carlton Cinema from September 1996 to October 2003 (Advertising) |  |    |  | 




Audit  Committee





In February 2000, our board of directors created an audit  committee.  The audit committee is  governed by the audit committee charter.   The audit committee charter has been filed as an exhibit to our annual  report on Form 10-K for the fiscal year ended December 31, 2004.  As
    of the fiscal year ended December 31, 2005, the members of the audit committee
were Messrs. Guest, Hepp and Rothstein.





Audit  Committee Financial Expert.





The board has determined that both Mr. Hepp, chairman of the audit  committee, and Mr. Guest are audit committee financial experts as set forth in Section 401(h)  of Regulation S-K promulgated by the SEC.   The board has determined that all audit committee members are  independent as defined in NASD Rule 4200(a)(15) and Rule 10A-3(b)(1)  promulgated under the Securities and Exchange Act of 1934, as amended, and that  the audit committee composition meets the requirement of NASD Rule 4350(d)(2).





Section  16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires our officers and directors, and greater than 10% stockholders, to file  reports of ownership and changes in ownership of our securities with the  Securities and Exchange Commission. Copies of the reports are required by  Securities and Exchange Commission regulation to be furnished to MIVA. Based on  our review of such reports and written representations from reporting persons,  we believe that all filing requirements were complied with during fiscal 2005.





Code of  Ethics





We have adopted a code of ethics as part of our corporate compliance  program.  The code of ethics applies to  our chief executive officer and all members of our Finance Department,  including our principal financial officer and comptroller.  The code has previously been filed as an  exhibit to our annual report on Form 10-K for the fiscal year ended December  31, 2003.  We will file any amendments  to, or waivers from, this code of ethics on Form 8-K.





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Item  11.  Executive Compensation





Summary  Compensation Table





|Name and Principal Position  |        | Fiscal
Year
Ended
December
31, |          | Annual
Compensation |                                     | Long Term Compensation |         | All Other
    Compensation |        
|---------------------------- | ------ | ------------------------------ | -------- | ------------------- | ----------------------------------- | ---------------------- | ------- | -------------------------- | -------
|                             |        |                                |          |                    
|                             | Salary |                                | Bonus($) |                     | Restricted    Stock    Award(s )(1) |                        | Options |                            |        
|                             |        |                                |          |                     |                                     |                        |         |                            |        
|Craig A. Pisaris-Henderson   |        |                                | 2005     |                     | $                                   | 414,346                |         |                            |       
|Chairman and                 |        |                                | 2004     |                     | $                                   | 335,961                |         | $                          | 67,000 
|Chief Executive Officer      |        |                                | 2003     |                     | $                                   | 283,077                |         | $                          | 215,000
|                             |        |                                |          |                     |                                     |                        |         |                            |        
|Phillip R. Thune             |        |                                | 2005     |                     | $                                   | 355,154                |         |                            |       
|President                    |        |                                | 2004     |                     | $                                   | 293,942                |         | $                          | 57,000 
|                             |        |                                | 2003     |                     | $                                   | 255,962                |         | $                          | 200,000
|                             |        |                                |          |                     |                                     |                        |         |                            |        
|Sebastian
        Bishop (3) |        |                                | 2005     |                     | $                                   | 383,432                |         |                            |       
|Chief Marketing Officer      |        |                                | 2004     |                     | $                                   | 181,922                |         | $                          | 38,532 
|                             |        |                                | 2003     |                     | $                                   |                       |         |                            |       
|                             |        |                                |          |                     |                                     |                        |         |                            |        
|David Rae                    |        |                                | 2005     |                     | $                                   | 263,789                |         |                            |       
|Chief Strategy Officer       |        |                                | 2004     |                     | $                                   | 251,922                |         | $                          | 47,000 
|                             |        |                                | 2003     |                     | $                                   | 215,769                |         | $                          | 165,000
|                             |        |                                |          |                     |                                     |                        |         |                            |        
|Tom Wilde (4)                |        |                                | 2005     |                     | $                                   | 245,000                |         |                            |       
|Former
      Senior Vice     |        |                                | 2004     |                     | $                                   | 46,154                 |         |                            | 8,000  
|President  of MIVA N.A.      |        |                                |          |                     |                                     |                        |         |                            |        










|   
|---
|(1)
|   
|   
|   
|   
|   
|(2)




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|(3) | Mr. Bishop joined the Company in
      July 2004 in conjunction with our merger with Espotting, Inc.                                                                                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(4) | Mr. Wilde joined the Company
         in October of 2004 and resigned his position with the Company effective
         January
         17, 2006. In accordance with the terms of his employment agreement,
         Mr. Wilde was entitled only to the earned but unpaid portion of his
         base salary through the termination date and any amounts or benefits
         earned, accrued or owed as of the termination date.




Options  Grants In Last Fiscal Year





The following table provides certain information regarding stock  options granted during 2005 to each of the executive officers named in the  Summary Compensation Table.





|                           |  | Individual    Grants   |         | Potential    Realizable Value    At Assumed Annual Rates    Of Stock Price Appreciation    For Option Term(2) | 
|-------------------------- |  | ---------------------- | ------- | ------------------------------------------------------------------------------------------------------------- | 
|                           |  |                        |         |                                                                                                               | 
|Name                       |  | Options    Granted (1) |         | % of Total    Options    Granted    To    Employees    In Fiscal    Year                                      | 
|                           |  |                        |         |                                                                                                               | 
|Craig A. Pisaris-Henderson |  |                        | 79,000  |                                                                                                               | 
|                           |  |                        |         |                                                                                                               | 
|Phillip R. Thune           |  |                        | 56,500  |                                                                                                               | 
|                           |  |                        |         |                                                                                                               | 
|Sebastian Bishop           |  |                        | 41,000  |                                                                                                               | 
|                           |  |                        |         |                                                                                                               | 
|David Rae                  |  |                        | 41,000  |                                                                                                               | 
|                           |  |                        |         |                                                                                                               | 
|Tom
      Wilde            |  |                        | 100,000 |                                                                                                               | 




|   
|---
|(1)
|   
|(2)




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Aggregated  Option Exercises and Fiscal Year-End Option Value Table





The  following table provides certain information regarding the exercise of stock  options during 2005, and the number and value of stock options held by the  executive officers named in the Summary Compensation Table set forth above as  of December 31, 2005.





|                           |  | Shares    Acquired on    Exercise    (#) |   | Value    Realized    ($) |  | Number of    Unexercised    Options at Fiscal Year End |  | Value of    Unexercised    In-the-Money Options at    Fiscal Year End ($)(1) |        
|-------------------------- |  | ---------------------------------------- | - | ------------------------ |  | ------------------------------------------------------ |  | ---------------------------------------------------------------------------- | -------
|                           |  |                                          |   |                          |  |                                                        | 
|Name                       |  |                                          |   | Exercisable              |  | Unexercisable                                          |  | Exercisable                                                                  |        
|                           |  |                                          |   |                          |  |                                                        |  |                                                                              |        
|Craig A. Pisaris-Henderson |  |                                          |  |                          |  |                                                       |  |                                                                              | 362,500
|                           |  |                                          |   |                          |  |                                                        |  |                                                                              |        
|Phillip R. Thune           |  |                                          |  |                          |  |                                                       |  |                                                                              | 578,750
|                           |  |                                          |   |                          |  |                                                        |  |                                                                              |        
|Sebastian Bishop           |  |                                          |  |                          |  |                                                       |  |                                                                              | 125,732
|                           |  |                                          |   |                          |  |                                                        |  |                                                                              |        
|Dave Rae                   |  |                                          |  |                          |  |                                                       |  |                                                                              | 60,000 
|                           |  |                                          |   |                          |  |                                                        |  |                                                                              |        
|Tom
      Wilde            |  |                                          |  |                          |  |                                                       |  |                                                                              |       




|   
|---
|(1)




Compensation  of Directors.





Directors who are MIVA employees do not receive any compensation for  service as directors.  The Company does reimburse its non-employee  directors for reasonable out-of-pocket expenses incurred in connection  with attendance at board meetings, committee and stockholder meetings  and other business of the Company. Each non-employee director generally  receives an option to purchase 12,500 shares of MIVA common stock at the  fair market value on the date of grant upon the directors appointment to the board.  Thereafter, each non-employee director continuing in service to the board of  directors generally receives an additional option to purchase 12,500 shares of  MIVA common stock or other equity interests in MIVA at the fair market value on  the date of grant on an annual basis. Furthermore, as established by the board  of directors on February 22, 2005, each non-employee director receives  compensation as shown in the

table below.





|Board    Meeting Compensation for Non-Employee Directors |   |       | 
|-------------------------------------------------------- | - | ----- | 
|In-Person Attendance                                     | $ | 2,000 | 
|Telephonic Attendance                                    | $ | 500   | 




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|Committee    Meeting Compensation For Non-Employee Directors |   |       | 
|------------------------------------------------------------ | - | ----- | 
|In-Person Attendance                                         | $ | 1,000 | 
|Audit Chairman: In-Person Attendance                         | $ | 2,000 | 
|Telephonic Attendance                                        | $ | 500   | 
|Audit Chairman: Telephonic Attendance                        | $ | 1,000 | 




On October 19, 2005, we entered into Restricted Stock Unit  Agreements and Option Cancellation Agreements with certain of our non-employee  directors, specifically Messrs. Guest, Hepp, Simonson and Rothstein.  Pursuant to these agreements, these  non-employee directors exchanged an aggregate of 100,000 stock options held by  them having an exercise price at or above $10 per share for an aggregate of  73,475 restricted stock units.  In  addition, an additional 4,336 restricted stock units were granted to Mr.  Rothstein.





Employment, Non-competition and  Confidentiality Agreements with Certain Executive Officers.





MIVA has entered into employment agreements
    with Messrs. Pisaris-Henderson, Thune, and Rae effective September 20, 2002
    and Mr. Bishop effective November 18, 2005. The agreements have an initial
    term of one year, after which each automatically renews for additional one
    year periods on the same terms and
    conditions, unless either party to the agreement provides notice to the other
    of an intention not to extend it prior to the end of its term.   The
    employment agreements provide for minimum annual base salaries for each executive
    that may be increased in the sole discretion of the board of directors, but
    may not be reduced once set. Currently the above named executives receive
    annual base salaries of $420,000, $360,000, $265,000 and $366,680 respectively.
    The employment agreements require MIVA to compensate the executives and provide
    them with certain benefits if their employment is terminated
     before the agreements expire. The compensation and benefits the executives
    are entitled to receive upon termination of employment vary depending on
    whether their employment is terminated: (1) by MIVA without  cause;
    (2) by MIVA for cause, or by the executive for good reason;
    (3) involuntarily due to death or disability; or (4) by the executive without good
    reason.





With respect to Mr. Pisaris-Henderson,
    in the event of a termination by MIVA without cause or a termination
    by Mr. Pisaris-Henderson for good  reason, Mr. Pisaris-Henderson
    would be entitled to receive the following: (1) his earned but unpaid basic
    salary through the termination date, plus a pro rata share of his bonus through
    the termination date; (2) an amount equal to two times the sum of his basic
    salary at the time of termination, plus a termination bonus equal to the
    bonus paid to Mr. Pisaris-Henderson during the four fiscal quarters prior
    to the date of termination, or, in the event of a change of control, payable
    over the twelve month period following termination; (3) any other amounts
    or benefits owing to Mr. Pisaris-Henderson under the then applicable employee
    benefit, long term incentive or equity plans and programs of MIVA, within
    the terms of such plans; and (4) benefits (including health, life, disability
    and  pension) as if Mr. Pisaris-Henderson were still an employee during the
    twelve month period following termination. Included in the definition of good
    reason, among other reasons, is a period of time from  180-210 days
    following a change of control, as defined in his employment agreement, during
    which Mr. Pisaris-Henderson may terminate his employment for any reason,
    in which case he will receive: (1) his earned but unpaid basic salary through
    the termination date, plus a pro rata share of his bonus through the termination
    date; (2) an amount equal to one times the sum of his basic salary at the
    time of termination, plus a termination bonus equal to the bonus paid to
    Mr. Pisaris-Henderson during the four fiscal quarters prior to the date of
    the change of control, payable over the twelve month period following termination;
    (3) any other amounts or benefits owing to Mr. Pisaris-Henderson under the
    then applicable employee benefit, long term incentive or equity plans and
    programs of  MIVA, within the terms of such plans; and (4) benefits (including
    health, life, disability and pension) as if Mr.





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Pisaris-Henderson were still an employee during the twelve month period following  termination.  Finally, in the event of a  termination without cause by MIVA, with good reason by Mr.  Pisaris-Henderson, or following a change of control, all stock options held by  Mr. Pisaris-Henderson would immediately vest and become exercisable throughout  the full term of such options as if Mr. Pisaris-Henderson were still employed  by MIVA.





With respect to Mr. Thune, in the event of a termination by MIVA  without cause or a termination by Mr. Thune for good reason, Mr. Thune  would be entitled to receive the following: (1) his earned but unpaid basic  salary through the termination date, plus a pro rata share of his bonus through  the termination date; (2) an amount equal to two times the sum of his basic  salary at the time of termination, plus a termination bonus equal to the bonus  paid to Mr. Thune during the four fiscal quarters prior to the date  termination, or, in the event of a change of control, the bonus paid to Mr.  Thune during the four fiscal quarters prior to the change of control, payable  over the twelve months period following termination; (3) any other amounts or  benefits owing to Mr. Thune under the then applicable employee benefit, long  term incentive or equity plans and programs of MIVA, within the terms of such  plans, payable over the twelve
month period following termination; (4) benefits  (including health, life, disability and pension) as if Mr. Thune were still an  employee during the twelve month period following termination; and (5) a one  time grant of common stock in an amount ranging from 0 up to 281,250 shares,  depending upon both (i) the average closing stock price of the stock as  reported by Nasdaq for the 20 trading days prior to the date of termination,  and (ii) the date of termination. Included in the definition of good reason,  is a period of time from 180 to 210 days following a change of control, as  defined in his employment agreement, during which Mr. Thune may terminate his  employment for any reason. Finally, in the event of a termination without  cause by MIVA, with good reason by Mr. Thune, or following a change of  control, all stock options held by Mr. Thune would immediately vest and become  exercisable throughout the full term of such options as if Mr. Thune were still
employed by MIVA.





With respect to Messrs.  Rae and Bishop
    (each an executive) in the event of a termination by MIVA without  cause or
    a termination by the executive for good reaason, the executive
    would be entitled to receive the following: (1) his earned but unpaid basic
    salary
    through
    the termination
    date, plus a pro rata share of his bonus through the termination date; (2)
    an amount equal to one times the sum of his basic salary at the time of termination,
    plus a termination bonus equal to the bonus paid to the executive during
    the four fiscal quarters prior to the date of termination, or in the event
    of
    a change
    of control, the bonus paid to the executive during the four fiscal quarters
    prior to the change of control, payable over the twelve month period following
    termination; (3) any other amounts or benefits owing to the executive under
    the then applicable employee benefit, long term incentive or equity plans
    and
    programs of MIVA, within the terms of such plans, payable over the twelve
    month period  following termination; and (4) benefits (including health,
    life, disability and pension) as if the executive was still an employee
    during the twelve month period following termination. Included in the definition
    of good  reason, is a period of time from 180 to 210 days following
    a change of control, as defined in his employment agreement, during which
    the executive may terminate his employment for any reason. Finally, in the
    event of a termination without cause by MIVA, with good
    reason by
    the executive, or following a change of control, all stock options held by
    the executive would immediately vest and become exercisable throughout the
    full term
    of such options as if the executive were still employed by MIVA.





In the event of a termination by MIVA
    with cause, Messrs. Pisaris-Henderson, Thune, Bishop and Rae,
    would be entitled to receive the earned but unpaid portion of such executives
    basic
    salary through the date of termination. In the event of a termination by
    executive without good reason, or the termination of employment
    as result of death or permanent disability, Messrs. Pisaris-Henderson, Thune,
    Bishop
    and Rae would be entitled to receive the earned but unpaid portion of  such
    executives basic salary through the date of termination, and the earned
    but unpaid portion of such executives vested incentive compensation under
    and consistent with plans adopted by MIVA prior to the date of termination.





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MIVA also entered into Confidentiality,
    Assignment and Non-Competition Agreements with Messrs. Pisaris-Henderson,
    Thune, Bishop and Rae which prohibit the executives from becoming
    directly or indirectly connected with any business or entity that is engaged
    in the same business as MIVA during the  term of their employment
    with MIVA and for a period of twelve months following employment separation.
    These agreements also provide MIVA with protection for its confidential information
    and intellectual property.





Additional  Information with Respect to Compensation Committee Interlocks and Insider  Participation in Compensation Decisions





The members of the compensation committee in the fiscal year ended  December 31, 2005 were Messrs. Hepp and Simonson.  Mr. Dan Brewster also served on the Compensation Committee in  2005. None of the members has ever been an officer or employee of MIVA or any  of its subsidiaries, and no compensation committee interlocks existed during  fiscal 2005.





Board Compensation Committee Report  on Executive Compensation





During fiscal 2005, the members of
    the compensation committee of MIVAs
    board of directors were Mr. Simonson for the full year, Mr. Brewster from
    the beginning of the year until August 2005 and Mr. Hepp from August 2005
    until the end of the year. The compensation committee establishes
MIVAs compensation program for all employees, including  executives.  For
executive officers, the compensation committee evaluates performance and determines
compensation policies and levels.





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Compensation Philosophy





The goals  of the compensation program are to align compensation with business objectives  and performance and to enable us to attract, retain and reward executive  officers and other key employees who contribute to our long-term success and to  motivate them to enhance long-term stockholder value. The key components of our  executive compensation includes both short-term compensation, consisting of an  annual base salary and annual bonuses and long-term equity based compensation  consisting of stock option awards and other equity interests in MIVA  securities.





Base  Salary.





The salary  compensation for our employees, including executive officers, is based upon the  compensation of employees in similar positions in similar companies in the  industry. Each of our named executive officers has entered into an employment  agreement with us which sets the executives base salary. When negotiating an  employment agreement, the compensation committee thoroughly reviewed the  performance and results obtained by each such officer and such officers  contribution to us. The compensation committee annually reviews each executive  officers base salary and performance. When reviewing base salaries, the  compensation committee considers individual and corporate performance, levels of  responsibility, prior experience, breadth of knowledge and competitive pay  practices.





Bonus  Plan.





At the  start of each year, the compensation committee reviews and approves the bonus  plan for that fiscal year. All employees of MIVA are eligible to participate in  the plan. The bonus plan pays cash awards to our employees based upon the  achievement of either key corporate objectives or the achievements of a  combination of corporate, departmental and/or individual objectives. The program  is designed to motivate all employees to positively impact our business  results.





Long-Term  Incentives.





The
    compensation committee provides for long-term incentives by issuing stock
    options under the 1999 Stock Incentive Plan and 2004 Stock Incentive Plan.
    The compensation committee has delegated authority to our chief executive
    officer and president to issue up to 20,000 options per employee per year.
    This authority does not extend to our Section 16 reporting officers. The
    purpose of these Stock Incentive Plans is to enable us to offer to our key
    employees and to key employees of our subsidiaries and other persons who
    are expected to contribute to the success of MIVA, long-term performance-based
    stock and/or other equity interests in MIVA, thereby enhancing our ability
    to attract, retain and reward such key employees or other persons, and to
    increase the mutuality of interest between those employees or other persons
and our stockholders.





Stock option awards are granted at
    the time of the hiring of key employees and annually for all key employees
    by the compensation committee or its delegates. The value of the stock options
    awarded depends entirely on our stock performance over a period of time.
    The number of shares of our common stock subject to the options granted during
    fiscal 2005 was determined based on a subjective evaluation of the past performance
    of the individual, the total compensation being paid to the individual, the
    individuals scope of  responsibility, and the anticipated value of
    the individuals contribution to  our future performance. No specific
    weight was given to any of these factors. Options awarded to each executive
    officer during previous years were reviewed by our compensation committee
    in determining the size of an option awarded for fiscal 2005.





Each
    stock option awarded during fiscal 2005 had an exercise price equal to the
    fair market value of our underlying common stock on the date of the grant.
    Generally, stock options granted to employees vest and become exercisable
    at the rate of 25% per year, if the option holder remains employed at the
    time of vesting, and terminates ten years from the date of grant.





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Chief Executive Officer Compensation





The  compensation committee has historically undertaken a review of a number of  factors in setting the total compensation payable to Craig Pisaris-Henderson,  our chief executive officer. Included among these factors, as with our other  executive officers, are comparisons of the compensation paid to similarly  situated executives in our industry, the achievement of both long-term and  short-term corporate objectives and corporate growth criteria, and the overall  performance of our stock price. Mr. Pisaris-Henderson does not participate in  the compensation committees discussions regarding the setting of his  compensation.





Base Salary and Bonus.





In February  2005, the compensation committee increased the base salary payable to Mr.  Pisaris-Henderson from $350,000 to $420,000 in order to keep Mr.  Pisaris-Hendersons base salary competitive with the base salary of his  industry peers. Mr. Pisaris-Hendersons 2005 salary was slightly lower than the  market average. The compensation committee believes it is important to provide  our chief executive officer with a base salary that is certain and not subject  to fluctuation in connection with our overall performance or performance in any  one particular area. The compensation committee engaged a third party  consultant to assist it in the preparation of its compensation analysis for Mr.  Pisaris-Henderson. For 2006, we set Mr. Pisaris-Hendersons target bonus level  at $147,000 or 35% of his base salary and set a maximum bonus of no more than  $294,000 or 70% of his base
salary.  Mr.  Pisaris-Hendersons actual level of cash compensation in 2005 is recorded in  the Summary Compensation Table above.





Long-Term Stock-Based Compensation.





In addition  to a base salary and cash bonus, in February 2005, Mr. Pisaris-Henderson was  also awarded options to purchase 79,000 shares of our common stock at $15.90  per share, which was the closing market price of our common stock the day prior  to the grant date. These options were granted under our 1999 Stock Incentive  Plan. The options would normally have vested over four years at a rate of 25% a  year on the anniversary of the date of grant. However, on October 19, 2005, we  entered into Restricted Stock Unit Agreements and Option Cancellation  Agreements with Mr. Pisaris-Henderson.   Pursuant to these agreements, Mr. Pisaris-Henderson exchanged an  aggregate of 304,000 stock options held by him having an exercise price at or  above $10 per share, including the stock options granted in February 2005, for  an aggregate of 210,051 restricted stock units.  It is the belief of the
compensation committee that the use of  stock option and restricted stock unit grants more closely aligns our chief  executive officers interests with the interests of our stockholders since the  equity ownership in the Company incentivizes Mr. Pisaris-Henderson to  diligently seek ways in which to enhance shareholder value.  The compensation committee believes that the  number of stock options and restricted stock units granted to Mr.  Pisaris-Henderson was in line with industry averages.





Certain Tax Considerations





The
    Budget Reconciliation Act of 1993 amended the Internal Revenue Code to add
    Section 162(m) which bars a deduction to any publicly held corporation for
    compensation paid to a covered employee in excess of $1,000,000
    per year. Generally, we intend that compensation paid to covered employees
    shall be deductible to the fullest extent permitted by law. However, we intend
    to retain the flexibility necessary to provide total compensation in line
    with competitive practices, our compensation philosophy and our best interests.
    Accordingly, we may from time to time pay compensation to our executive officers
    that may not be deductible. There were no amounts that were non-deductible
    in 2005. Additionally, our 1999 and 2004 Stock Incentive Plans are intended
    to qualify under Section
    162(m)
    of
    the
    Internal
    Revenue
    Code.





| | COMPENSATION COMMITTEE
| | ----------------------
| |                       
| | Lee S. Simonson       
| | Gerald W. Hepp        




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Report  on Stock Option for RSU Exchange Program





On October 19, 2005, we entered into
    Restricted Stock Unit Agreements and Option Cancellation Agreements with
    certain of our officers and directors.  Pursuant to these  agreements,
    certain officers and directors exchanged an aggregate of 1,332,806 stock
    options held by them having an exercise price at or above $10 per share for
    an aggregate of 931,852 restricted stock units.  In addition, an aggregate
    of 118,593 restricted stock units were granted to an officer/director and
    a director.   The
    agreements, the terms of the exchange and the grant of restricted stock units
    were approved by our Compensation Committee.  We and our Compensation
    Committee have consistently viewed appropriate equity incentives as a key
    element of our director and executive officer compensation policies and practices
    to attract, retain and motivate officers and directors.   The exchanges
    and grants were made in recognition that the related options were at  prices
    well in excess of the current price of our common stock and were not providing
    the intended motivation.





The options surrendered and the restricted
    stock units exchanged for those options were issued under our 1999 Stock
    Incentive Plan.  The 118,593 restricted stock units were  granted under
    our 2004 Stock Incentive Plan.   Each restricted stock unit represents
    a contingent right to receive one share of our common stock.  The  restricted
    stock units that were issued in exchange for options had an equivalent economic
    value, under the Black-Scholes option pricing model, to the options being
    exchanged.  The exchange  ratio for restricted stock units to options
    was based on the closing price of our common stock on October 18, 2005.   The
    options that were surrendered in the exchange by our officers and
    directors were cancelled and 400,954 shares, representing the difference
    between the
    number
    of shares
    underlying the restricted stock units granted and the number of shares underlying
    stock options surrendered and cancelled, are available for  future awards
    under our 1999 Plan.  The  restricted stock units granted under our
    2004 Stock Incentive Plan were determined on the basis of options issued,
    with an exercise price above $10 per share, under our 2004 Plan, computed
    on the same basis as the exchange of options for restricted stock units under
    our 1999 Plan.  Those options under our 2004 Plan remain  outstanding.





The restricted stock units vest as follows:  50% of the restricted stock units vest on October 19, 2006, and  the remaining 50% of the restricted stock units vest on October 19, 2007.  The vesting of the restricted stock units  may accelerate under certain circumstances, including upon any change in  control of our company.  Additionally, a  recipient typically will forfeit any unvested restricted stock units in the  event of a termination of employment or service as a director.  However, in general with respect to  officers, in the event of a without cause termination by us, or a termination  of employment by the officer for good reason, the restricted stock units would  immediately vest and would not be forfeited.   The forms of Restricted Stock Unit Agreements under the 1999 Plan and  the 2004 Plan are substantially the same in all material respects.





71


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The table below provides certain information concerning our named  executive officers who participated in the stock option-for-restricted stock  unit exchange:





10-YEAR  OPTION/SAR REPRICINGS





|Name                                                             |  | Date |            | Number Of    Securities    Underlying    Options    Repriced Or    Amended    (#) |  | Number Of    Securities    Underlying    RSUs    Granted    (#) |  | Market    Price Of    Stock At    Time Of    Repricing    Or    Amendment    ($) |                                                        | Exercise    Price At    Time Of    Repricing    Or    Amendment    ($) |  | New    Exercise    Price    ($)               |  | Length of    Original    Option    Term    Remaining    At Date Of    Repricing    Or    Amendment    (in years) |                                                   
|---------------------------------------------------------------- |  | ---- | ---------- | --------------------------------------------------------------------------------- |  | --------------------------------------------------------------- |  | -------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------------------------------------- |  | --------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | --------------------------------------------------
|                                                                 |  |      |            |                                                                                   |  |                                                                 |  |                                                                                  |                                                        |                                                                        |  |                                               |  |                                                                                                                  |                                                   
|Craig A. Pisaris-HendersonChairman and CEO                       |  |      | 10/19/2005 |                                                                                   |  | 116,453    8,547 
  95,025 4,975 72,711 6,289                   |  |                                                                                  | 80,464
    5,906    65,658    3,438    50,240    4,345 |                                                                        |  | 5.69
    5.69    5.69    5.69    5.69    5.69 |  |                                                                                                                  | 11.70    11.70
  20.10    20.10    15.90    15.90 
|                                                                 |  |      |            |                                                                                   |  |                                                                 |  |                                                                                  |                                                        |                                                                        |  |                                               |  |                                                                                                                  |                                                   
|Phillip Thune    President and Director                          |  |      | 10/19/2005 |                                                                                   |  | 91,453 8,547 75,025 4,975 50,211 6,289                          |  |                                                                                  | 63,031    5,891    51,709    3,429    34,606    4,335  |                                                                        |  | 5.69    5.69    5.69    5.69    5.69    5.69  |  |                                                                                                                  | 11.70    11.70    20.10    20.10    15.90    15.90
|                                                                 |  |      |            |                                                                                   |  |                                                                 |  |                                                                                  |                                                        |                                                                        |  |                                               |  |                                                                                                                  |                                                   
|Sebastian Bishop    Chief Marketing Officer and Director         |  |      | 10/19/2005 |                                                                                   |  | 0                                                               |  |                                                                                  | 114,257                                                |                                                                        |  | 5.69                                          |  |                                                                                                                  |                                                  
|                                                                 |  |      |            |                                                                                   |  |                                                                 |  |                                                                                  |                                                        |                                                                        |  |                                               |  |                                                                                                                  |                                                   
|David C. Rae    Chief Strategy Officer                           |  |      | 10/19/2005 |                                                                                   |  | 61,250 18,750 60,025 4,975 34,711 6,289                         |  |                                                                                  | 42,122    12,895    41,280    3,421    23,871    4,325 |                                                                        |  | 5.69    5.69    5.69    5.69    5.69    5.69  |  |                                                                                                                  | 11.70    11.70    20.10    20.10    15.90    15.90
|                                                                 |  |      |            |                                                                                   |  |                                                                 |  |                                                                                  |                                                        |                                                                        |  |                                               |  |                                                                                                                  |                                                   
|Tom Wilde 
Former 
Senior Vice President
      -
      MIVA N.A. |  |      | 10/19/2005 |                                                                                   |  | 4,688
     
    20,312
     
    18,750
     
    6,250         |  |                                                                                  | 3,418
    14,812
    13,673
    4,557                  |                                                                        |  | 5.69    5.69    5.69    5.69                  |  |                                                                                                                  | 19.69
    19.69
    15.90    15.90                




| | COMPENSATION COMMITTEE
| | ----------------------
| |                       
| | Lee S. Simonson       
| | Gerald W. Hepp        




72


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Performance  Graph





COMPARISON OF CUMULATIVE TOTAL RETURN  AMONG MIVA, GOLDMAN SACHS INTERNET INDEX,   AND NASDAQ STOCK MARKET INDEX





The following Performance Graph compares MIVAs performance with that  of the Goldman Sachs Internet Index and Nasdaq Stock Market Index. The  comparison of the cumulative total return to stockholders for each of the  periods assumes that $100 was invested on December 22, 1999 (the effective date  MIVAs common stock was registered under the Securities Exchange Act of 1934,  as amended) through December 31, 2005, in MIVA common stock, and the Goldman  Sachs Internet Index and Nasdaq Stock Market Index and that all dividends were  reinvested.











73


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Item 12.  Security  Ownership of Management.





The following table sets forth information
    regarding beneficial ownership of our common stock, as of February 24, 2006,
    by (i) each director and nominee, (ii) each of our named executive officers,
    and (iii) the directors and executive officers of MIVA as a group. Except
    as otherwise indicated below, each of the persons named in the table has
    sole voting and investment power with respect to the shares beneficially
owned by such person as set forth opposite that persons name. At February
24, 2006, we had 31,187,543 shares of common stock outstanding.





The address of each of the persons in the table is c/o MIVA, Inc., 5220  Summerlin Commons Boulevard, Suite 500, Ft. Myers, Florida 33907.





|Name of    and Address of    Beneficial Owner                   |  | Number of    Shares    Beneficially Owned (1) |           | Percentage    of Class (2) | 
|--------------------------------------------------------------- |  | --------------------------------------------- | --------- | -------------------------- | 
|                                                                |  |                                               |           |                            | 
|Craig A. Pisaris-Henderson                                      |  |                                               | 1,630,586 | (3)                        | 
|                                                                |  |                                               |           |                            | 
|Phillip R. Thune                                                |  |                                               | 610,000   | (4)                        | 
|                                                                |  |                                               |           |                            | 
|Sebastian Bishop                                                |  |                                               | 228,382   | (5)                        | 
|                                                                |  |                                               |           |                            | 
|Frederick E. Guest II                                           |  |                                               | 406,435   | (6)                        | 
|                                                                |  |                                               |           |                            | 
|Gerald W. Hepp                                                  |  |                                               | 1,000     |                            | 
|                                                                |  |                                               |           |                            | 
|Charles P. Rothstein                                            |  |                                               | 1,112,529 | (7)                        | 
|                                                                |  |                                               |           |                            | 
|Lee S. Simonson                                                 |  |                                               | 10,000    | (8)                        | 
|                                                                |  |                                               |           |                            | 
|Lawrence Weber                                                  |  |                                               | 0         |                            | 
|                                                                |  |                                               |           |                            | 
|David Rae                                                       |  |                                               | 80,000    | (9)                        | 
|                                                                |  |                                               |           |                            | 
|Tom
      Wilde                                                 |  |                                               | 0         | (10)                       | 
|                                                                |  |                                               |           |                            | 
|All directors and executive officers as a group (14    persons) |  |                                               | 4,818,180 | (11)                       | 




|   
|---
|*  
|   
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)




74


---






|(6)  | Includes 60,035 and 231,400 shares of common stock    owned by Mr. Guest and Guest Capital, LLC, respectively.  Also includes 25,000 shares subject to    options exercisable by Mr. Guest within 60 days of February 24, 2006, and    15,000 and 75,000 warrants to purchase MIVAs common stock owned by Mr. Guest    and Guest Capital, LLC, respectively.     Guest Capital, LLC is an affiliate of Mr. Guest.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                   
|(7)  | Includes 6,250 shares subject to
      options exercisable within 60 days of February 24, 2006 and 1,106,279 shares
      of common stock owned by Global Rights Fund II L.P., an affiliate of Mr.
      Rothstein. Mr. Rothstein disclaims beneficial ownership of these securities.                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                   
|(8)  | Includes 10,000 shares subject to options    exercisable within 60 days of February 24, 2006.                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                   
|(9)  | Includes 80,000 shares subject to options    exercisable within 60 days of February 24, 2006.                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                   
|(10) | Includes (i) an aggregate of 1,817,232 shares of    common stock subject to options exercisable within 60 days of February 24,    2006; and (ii) an aggregate of 90,000 shares of common stock subject to    currently exercisable warrants.                                                                                                                                                                      




75


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Security Ownership of Certain  Beneficial Owners





The following table sets forth information regarding beneficial  ownership of MIVAs common stock, as of February 24, 2006, filed by each person  known by MIVA to beneficially own five percent or more of any class of MIVAs  capital stock. As of February 24, 2006, MIVA had 31,187,543 common shares  outstanding.





|Name of    and Address of    Beneficial Owner                                                     |  | Number of    Shares    Beneficially Owned(1) |           | Percentage    of Class(2) | 
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | --------- | ------------------------- | 
|                                                                                                  |  |                                              |           |                           | 
|Craig Pisaris-Henderson    c/o MIVA, Inc.    5220 Summerlin Commons Blvd.    Fort Myers, FL 33907 |  |                                              | 1,630,586 | (3)                       | 
|                                                                                                  |  |                                              |           |                           | 
|Andrew Lessman    430 Parkson Road    Henderson, NV 89015                                         |  |                                              | 1,857,538 | (4)                       | 
|                                                                                                  |  |                                              |           |                           | 
|Robert Brahms     121 West 27th St.    Suite 903    New York, NY 10001                            |  |                                              | 1,930,326 | (5)                       | 
|                                                                                                  |  |                                              |           |                           | 
|Courtney Jones    826 Cal Cove Drive    Ft. Myers, FL 33919                                       |  |                                              | 1,921,898 | (6)                       | 




|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)
|   
|(6)




76


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Equity Compensation Plan  Information





The following table sets forth additional information as of December  31, 2005, concerning shares of MIVA common stock that may be issued upon the  exercise of options and other rights under MIVAs existing equity compensation  plans and arrangements, divided between plans approved by MIVA stockholders and  plans or arrangements not submitted to MIVAs stockholders for approval.  The information includes the number of  shares covered by and the weighted average exercise price of, outstanding  options and other rights and the number of shares remaining available for  future grants excluding the shares to be issued upon the exercise of  outstanding options, warrants, and other rights.





|Plan    category                                              |  | Number of    Securities    to be Issued upon    Exercise of    Outstanding    Options, Warrants    and Rights(A) |           | Weighted-Average    Exercise Price of    Outstanding Options,    Warrants and Rights    (B) |   | Number of    Securities    Remaining Available    for Future Issuance    under Equity    Compensation Plans    (Excluding Securities    Reflected in Column    (A))    (C) | 
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                              |  |                                                                                                                  |           |                                                                                             |   |                                                                                                                                                                            | 
|Equity compensation plans approved by security    holders     |  |                                                                                                                  | 5,528,215 |                                                                                             | $ | 6.76                                                                                                                                                                       | 
|Equity compensation plans not approved by security    holders |  |                                                                                                                  | 90,000    | (1)                                                                                         | $ | 1.00                                                                                                                                                                       | 
|Total                                                         |  |                                                                                                                  | 5,618,215 |                                                                                             | $ | 6.67                                                                                                                                                                       | 




|   
|---
|(1)
|   
|(2)




77


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Item  13.  Certain Relationships and Related Party Transactions





During November 2005, we entered into an  agreement for public relations professional services with Racepoint Group, Inc.  (Racepoint) through April 2006.  For the  year ended December 31, 2005, we incurred fees from Racepoint of approximately  $28,000.  Larry Weber, who joined our  Board of Directors in June 2005, is the Chairman and Founder of W2 Group, which  owns Racepoint.





During September 2005, Sebastian Bishop, our  Chief Marketing Officer and Director, became 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 use  this agency to generate advertisers onto our MIVA Media Networks and invoice  them for all revenue generated on our networks through their advertisers.  In addition, we pay Steakmedia a commission  on the revenue generated from these advertisers.  Amounts invoiced to Steakmedia during 2005 were approximately  $469,000 and commissions paid during 2005 were $39,000.





We believe that prior transactions with our  officers, directors, and principal stockholders were on terms that were no less  favorable than it could have obtained from unaffiliated third parties.  MIVA intends that all future  transactions between it and its officers, directors, and stockholders  beneficially owning 5% or more of its outstanding voting securities or their  affiliates will be on terms no less favorable to it than it could obtain in  arms-length negotiations from unaffiliated third parties.





Item 14.  Principal  Accountant Fees and Services





The following table shows the aggregate fees billed to the Company by  its independent certified public accountants for services rendered during the  fiscal years ended December 31, 2005 and 2004.





|Fees paid to BDO Seidman, LLP |  | 2005    Actual Fees |           | 2004Actual Fees |  
|----------------------------- |  | ------------------- | --------- | --------------- | -
|                              |  |                     |           |                 |  
|                              |  |                     |           |                 |  
|Audit    Fees (1)             |  | $                   | 2,275,280 |                 | $
|                              |  |                     |           |                 |  
|Audit-Related    Fees (2)     |  |                     | 9,250     |                 |  
|                              |  |                     |           |                 |  
|Tax    Fees (3)               |  |                     |          |                 |  
|                              |  |                     |           |                 |  
|All    Other Fees             |  |                     |          |                 |  
|Total Fees                    |  | $                   | 2,284,530 |                 | $
|                              |  |                     |           |                 |  




78


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|   
|---
|(1)
|   
|(2)
|   
|(3)




Under policies it has adopted, the audit committee must pre-approve all  engagements of our independent registered public accounting firm unless an  exception to such pre-approval exists under the Securities Exchange Act of 1934  or the rules of the Securities and Exchange Commission.  Each year, the independent registered public  accounting firms retention to audit our financial statements, including the  associated fee, is approved by the committee before the filing of the preceding  years annual report on Form 10-K.  At the  beginning of the fiscal year, the audit committee will evaluate other known  potential engagements of the independent registered public accounting firm,  including the scope of the work proposed to be performed and the proposed fees,  and approve or reject each service, taking into account whether the services  are permissible under applicable law and the possible impact of each non-audit  service on the
independent registered public accounting firms independence  from management.  At each subsequent  audit committee meeting, the committee will receive updates on the services  actually provided by the independent registered public accounting firm, and  management may present additional services for approval. Typically, these would  be services such as due diligence for an acquisition, that would not have been  known at the beginning of the year.  The  committee has delegated to the chairman of the audit committee the authority to  evaluate and approve engagements on behalf of the committee in the event that a  need arises for pre-approval between committee meetings.  This might occur, for example, if we  proposed to execute a financing on an accelerated timetable.  If the chairman so approves any such  engagements, he will report that approval to the full committee at the next  committee meeting.





Since the May 6, 2003 effective date
    of the Securities and Exchange Commission rules stating that a registered
    public accounting firm is not independent of an audit client if the services
    it provides to the client are not appropriately approved. Each new engagement
    of BDO Seidman was approved in advance by the audit committee, and none of
    those engagements made use of the de minimus exception to pre-approval contained
    in the SECs rules.





PART IV





Item 15.Exhibits,  Financial Statement Schedules, and Reports on Form 8-K.





| | (a) | The following documents are filed as part of this    Annual Report on Form 10-K:
| | --- | --------------------------------------------------------------------------------
| |     |                                                                                 
| |     | (1)                                                                             
| |     |                                                                                 
| |     |                                                                                 
| |     |                                                                                 
| |     |                                                                                 
| |     |                                                                                 
| |     |                                                                                 




79


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| |  |     | Consolidated Statements of Operations for the years    ended December 31, 2005, 2004 and 2003.                                                                                                                                                                       
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                      
| |  |     | Consolidated Statements of Stockholders Equity for    the years ended December 31, 2005, 2004 and 2003.                                                                                                                                                             
| |  |     |                                                                                                                                                                                                                                                                      
| |  |     | Consolidated Statements of Cash Flows for the years    ended December 31, 2005, 2004 and 2003.                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                      
| |  |     | Notes to the Consolidated Financial Statements.                                                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                      
| |  | (2) | Exhibits: Financial Statement Schedules
      (Schedules to the Financial Statements have been omitted because the information
      required to be set forth therein is not applicable as is shown in the accompanying
      Financial Statements or notes thereto).
| |  |     |                                                                                                                                                                                                                                                                      
| |  |     | Schedule II  Valuation and Qualifying Accounts                                                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                      
| |  |     | Exhibits                                                                                                                                                                                                                                                             




80


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





|Exhibit    No. |  | Footnote |  | Description                                                                                                                                                                                                                                                                                                                    
|-------------- |  | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|2.1            |  | a        |  | Certificate of Ownership and Merger, Merging MIVA    Renaming Corp. into FindWhat.com, Inc.                                                                                                                                                                                                                                    
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|3.1            |  | b        |  | Amended and Restated Certificate of Incorporation of    FindWhat.com, Inc.                                                                                                                                                                                                                                                     
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|3.2            |  | b        |  | Amended and Restated By-laws of FindWhat.com, Inc.                                                                                                                                                                                                                                                                             
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|3.3            |  | c        |  | Audit Committee Charter, as adopted by the Audit    Committee on December 16, 2004.                                                                                                                                                                                                                                            
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|3.4            |  | d        |  | Certificate of Ownership and Merger, Merging MIVA    Renaming Corp. into FindWhat.com, Inc.                                                                                                                                                                                                                                    
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.1           |  | e        |  | Lease agreement by and between MIVA (UK) Limited and    Commercial Union Life Assurance dated April 15, 2005.                                                                                                                                                                                                                  
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.2           |  | f+       |  | Executive Employment Agreement between MIVA, Inc.    and William Seippel.                                                                                                                                                                                                                                                      
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.3           |  | g        |  | Settlement and License Agreement with Overture    Services, Inc. and Yahoo! Inc.                                                                                                                                                                                                                                               
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.4           |  | g+       |  | Executive Employment Agreement between MIVA, Inc.    and Peter Corrao.                                                                                                                                                                                                                                                         
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.5           |  | h+       |  | Form of MIVA, Inc. Restricted Stock Unit Agreement.                                                                                                                                                                                                                                                                            
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.6           |  | h+       |  | Form of MIVA, Inc. Option Cancellation Agreement.                                                                                                                                                                                                                                                                              
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.7           |  | g+       |  | Executive Service Agreement between MIVA (UK)    Limited and Adam Poulter.                                                                                                                                                                                                                                                     
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.8           |  | +        |  | Amended and Restated Employment Agreement between    MIVA, Inc. and Anthony Garcia.                                                                                                                                                                                                                                            
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.9           |  | +        |  | Amended and Restated Employment Agreement between    MIVA, Inc. and Sebastian Bishop.                                                                                                                                                                                                                                          
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.10          |  | +        |  | Amendment No. 1 to Executive Employment Agreement    between MIVA, Inc. and William Seippel.                                                                                                                                                                                                                                   
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.11          |  | +        |  | Amendment to Executive Services Agreement between    MIVA, Inc. and Adam Poulter.                                                                                                                                                                                                                                              
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.12          |  | j        |  | Lease dated February
           29, 2000 by and between MIVA Direct, Inc. (formerly Comet Systems,
           Inc.) and The Rector, Church-Wardens and Vestrymen of Trinity Church
           in New York, a religious corporation in the State of New York, including
           the previious amendment dated August 8, 2000.
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|10.13          |  | j        |  | Lease Modification
        and Extension Agreement by and between MIVA Direct, Inc. and The Rector,
        Church-Wardens and Vestrymen of Trinity Church in New York, dated February
        23, 2006..                                                                                                                      
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|14.1           |  | i        |  | Code of Ethics.                                                                                                                                                                                                                                                                                                                
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|14.2           |  | c        |  | Code of Business Conduct.                                                                                                                                                                                                                                                                                                      
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|21.1           |  |          |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                          
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|23.1           |  |          |  | Consent of Independent
        Registered Certified Public Accountants BDO Seidman LLP.                                                                                                                                                                                                                                        
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|23.2           |  |          |  | Consent of Independent
        Registered Certified Public Accountants Ernst & Young
        LLP.                                                                                                                                                                                                                              
|               |  |          |  |                                                                                                                                                                                                                                                                                                                                
|24.1           |  |          |  | Powers 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                                                                                                                                                                                                                                                     




81


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|     |  |  |  | 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.




Footnote References:





|a. | Incorporated by reference to the exhibit previously    filed on June 16, 2005 with MIVAs Form 8-K/A.    
|-- | ---------------------------------------------------------------------------------------------------------
|   |                                                                                                          
|b. | Incorporated by reference to the exhibit previously    filed on September 3, 2004 with MIVAs Form 8-K.  
|   |                                                                                                          
|c. | Incorporated by reference to the exhibit previously    filed on March 16, 2005 with MIVAs Form 10-K.    
|   |                                                                                                          
|d. | Incorporated by reference to the exhibit previously    filed on June 16, 2005 with MIVAs Form 8-K/A.    
|   |                                                                                                          
|e. | Incorporated by reference to the exhibit previously    filed on April 20, 2005 with MIVAs Form 8-K.     
|   |                                                                                                          
|f. | Incorporated by reference to the exhibit previously    filed on August 15, 2005 with MIVAs Form 10-Q.   
|   |                                                                                                          
|g. | Incorporated by reference to the exhibit previously    filed on November 9, 2005 with MIVAs Form 10-Q.  
|   |                                                                                                          
|h. | Incorporated by reference to the exhibit previously    filed on October 21, 2005 with MIVAs Form 8-K.   
|   |                                                                                                          
|i. | Incorporated by reference to the exhibit previously    filed on March 5, 2004 with MIVAs Form 10-K.     
|   |                                                                                                          
|j. | Incorporated by reference to
         the exhibit previously filed on March 1, 2006 with MIVAs Form 8-K.
|   |                                                                                                          
|+  | Management compensatory contract or plan.                                                                




82


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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:  March    16, 2006 | By:          
|                         |              
|                         |              
|                         |              




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 16th day of March.





|Signature                      |  | Title                                         
|------------------------------ |  | ----------------------------------------------
|                               |  |                                               
|/s/ Craig A. Pisaris-Henderson |  | Chairman, Chief Executive Officer and Director
|                               |  | (principal executive officer)                 
|Craig A. Pisaris-Henderson     |  |                                               
|                               |  |                                               
|*Phillip R. Thune              |  | President and Director                        
|                               |  | (principal operating officer)                 
|Phillip R. Thune               |  |                                               
|                               |  |                                               
|*William Seippel               |  | Chief Financial Officer                       
|                               |  | (principal financial and accounting officer)  
|William Seippel                |  |                                               
|                               |  |                                               
|*Sebastian Bishop              |  | Chief Marketing Officer and Director          
|                               |  |                                               
|Sebastian Bishop               |  |                                               
|                               |  |                                               
|*Larry Weber                   |  | Director                                      
|                               |  |                                               
|Larry Weber                    |  |                                               
|                               |  |                                               
|*Frederick E. Guest II         |  | Director                                      
|                               |  |                                               
|Frederick E. Guest II          |  |                                               
|                               |  |                                               
|*Gerald W. Hepp                |  | Director                                      
|                               |  |                                               
|Gerald W. Hepp                 |  |                                               
|                               |  |                                               
|*Charles Rothstein             |  | Director                                      
|                               |  |                                               
|Charles Rothstein              |  |                                               
|                               |  |                                               
|*Lee S. Simonson               |  | Director                                      
|                               |  |                                               
|Lee S. Simonson                |  |                                               




|*By: | /s/ Craig A. Pisaris-Henderson               | 
|---- | -------------------------------------------- | 
|     |                                              | 
|     | Craig A. Pisaris-Henderson, Attorney-in-Fact | 




83





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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





|                                                        | Page
|------------------------------------------------------- | ----
|                                                        |     
|Report of BDO Seidman LLP                               | F-2 
|                                                        |     
|Report of BDO Seidman LLP on    Internal Controls       | F-3 
|                                                        |     
|Report of Ernst & Young LLP                             | F-5 
|                                                        |     
|Consolidated Balance Sheets                             | F-6 
|                                                        |     
|Consolidated Statements of    Operations                | F-7 
|                                                        |     
|Consolidated Statements
        of Stockholders Equity | F-8 
|                                                        |     
|Consolidated Statements of Cash    Flows                | F-9 
|                                                        |     
|Notes to Consolidated Financial    Statements           | F-10




F-1





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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 sheet of MIVA,  Inc. as of December 31, 2005, and the related consolidated statement of  operations, stockholders equity, and cash flows for the year ended. We have  also audited the 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 audit.





We conducted our audit 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.   An  audit also includes examining, on a test basis, evidence supporting the amounts  and disclosures in the financial statements and schedule, 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 audit  provides 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, 2005, and the results of its operations and its cash flows for  year then ended, in conformity with accounting principles generally accepted in  the United States of America.





Also, in our opinion, the schedule presents fairly, in all material  respects, the information set forth therein.





We also have audited, in accordance with the standards of the Public  Company Accounting Oversight Board (United States), the effectiveness of MIVA  Inc.s internal control over financial reporting as of December 31, 2005, based  on criteria established in Internal Control  Integrated Framework issued by  the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and  our report dated March 3, 2006, expressed an unqualified opinion on  managements assessment of, and an adverse opinion on the effective operation  of, internal control over financial reporting.





/s/ BDO Seidman,  LLP





Miami, Florida


March 3, 2006





F-2





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors and Stockholders


MIVA, Inc.


Fort Myers, Florida





We have audited managements  assessment, included in the accompanying Managements Annual Report on Internal  Control over Financial Reporting appearing under Item 9A, that MIVA, Inc. (the  Company) did not maintain effective internal control over financial reporting  as of December 31, 2005, because of the effect of the material weaknesses  identified in managements assessment, based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring  Organizations of the Treadway Commission (the COSO Criteria). The Companys  management is responsible for maintaining effective internal control over  financial reporting and for its assessment of the effectiveness of internal  control over financial reporting. Our responsibility is to express an opinion  on managements assessment and an opinion on the effectiveness of the Companys  internal control over
financial reporting based on our audit.





We conducted our audit 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 effective internal control over financial  reporting was maintained in all material respects. Our audit included obtaining  an understanding of internal control over financial reporting, evaluating  managements assessment, testing and evaluating the design and operation  effectiveness of internal control, and performing such other procedures as we  considered necessary in the circumstances. We believe that our audit provides a  reasonable basis for our opinion.





A companys internal control over  financial reporting is a process designed to provide reasonable assurance  regarding the reliability of financial reporting and the preparation of  financial statements for external purposes in accordance with generally  accepted accounting principles. A companys internal control over financial  reporting includes those policies and procedures that (1) pertain to the  maintenance of records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the company; (2)  provide reasonable assurance that transactions are recorded as necessary to  permit preparation of financial statements in accordance with generally  accepted accounting principles, and that receipts and expenditures of the  company are being made only in accordance with authorizations of management and  directors of the company; and (3) provide reasonable assurance regarding  prevention or timely
detection of unauthorized acquisition, use, or disposition  of the companys assets that could have a material effect on the financial  statements.





Because of its inherent limitations,  internal control over financial reporting may not prevent or detect  misstatements. Also, projections of any evaluation of effectiveness to future  periods are subject to the risk that controls may become inadequate because of  changes in conditions, or that the degree of compliance with the policies or  procedures may deteriorate.





A material weakness is a control  deficiency, or combination of control deficiencies, that results in more than a  remote likelihood that a material misstatement of the annual or interim  financial statements will not be prevented or detected. As of December 31,  2005, the following material weaknesses have been identified and included in  managements assessment:





| |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | The Company had    insufficient controls over the preparation and review of their tax provisions    for federal, state and foreign annual returns.  This
      represents a weakness with respect to the sufficiency of their accounting
      personnel in tax accounting matters. As a result of this weakness, a significant
      adjustment was required and has been recorded by the Company in preparing
      the 2005 financial statements.




F-3





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| |  | Treasury Process                                                                                                                                                                                                                                                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                   
| |   | The Company had    insufficient controls over the system administration responsibilities within    the treasury function as it relates to wire transfers.  Although this material weakness did not    result in an adjustment to the quarterly or annual financial statements, it    represents a weakness with respect to their anti-fraud programs and controls.




These material weaknesses were  considered in determining the nature, timing, and extent of audit tests applied  in our audit of the 2005 consolidated financial statements, and this report  does not affect our report dated March 3, 2006 on those financial statements,  which expressed an unqualified opinion.





In our opinion, managements assessment  that the Company did not maintain effective internal control over financial  reporting as of December 31, 2005 is fairly stated, in all material respects,  based on the COSO Criteria. Also, in our opinion, because of the effect of the  material weaknesses described above on the achievement of the objectives of the  control criteria, the Company has not maintained effective internal control  over financial reporting as of December 31, 2005, based on the COSO Criteria.





We do not express an opinion or any  other form of assurance on managements statements regarding corrective actions  taken by the Company after December 31, 2005.





We have also audited, in accordance  with the standards of the Public Company Accounting Oversight Board (United  States), the consolidated financial statements of MIVA, Inc. and our report  dated March 3, 2006 expressed an unqualified opinion.





/s/ BDO Seidman, LLP


Miami, Florida


March 3, 2006





F-4





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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS





The Board of Directors and Stockholders


MIVA, Inc. (formerly FindWhat.com, Inc.)





We have audited the accompanying consolidated
    balance sheet of MIVA, Inc. (formerly FindWhat.com, Inc.) as of December
    31, 2004, and the related statements of operations, stockholders equity,
    and cash flows for each of the two years in the period ended December 31,
    2004. Our audits also included the financial statement schedule for each
    of the two years in the period ended December 31, 2004 listed in the Index
    at Item 15(a). 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 are free of material
    misstatement. An audit includes examining, on a test basis, evidence supporting
    the amounts and disclosures in the financial statements. An audit also includes
    assessing the accounting principles used and significant estimates made by
    management, as well as evaluating the overall financial statement presentation.
    We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present  fairly, in all material respects, the consolidated financial position of MIVA,  Inc. (formerly FindWhat.com, Inc.) at December 31, 2004, and the consolidated  results of its operations and its cash flows for each of the two years in the  period ended December 31, 2004, in conformity with U.S. generally accepted  accounting principles. Also, in our opinion, the related financial statement  schedule for each of the two years in the period ended December 31, 2004, when  considered in relation to the basic financial statements taken as a whole,  presents fairly in all material respects the information set forth therein.





/s/ Ernst & Young  LLP





Tampa, Florida


March 16, 2005





F-5


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MIVA, Inc.


CONSOLIDATED BALANCE SHEETS


(in thousands, except par values)





|                                                                                                                                                                        |  | December 31,2005 |          | December 31,2004 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | ---------------- | -
|                                                                                                                                                                        |  |                  |          |                  |  
|ASSETS                                                                                                                                                                  |  |                  |          |                  |  
|CURRENT ASSETS                                                                                                                                                          |  |                  |          |                  |  
|Cash    and cash equivalents                                                                                                                                            |  | $                | 38,436   |                  | $
|Short-term    investments                                                                                                                                               |  |                  |         |                  |  
|Accounts    receivable, less allowance for doubtful accounts of $1,904 and $3,095 at
          December 31, 2005 and 2004, respectively                                 |  |                  | 22,387   |                  |  
|Deferred    tax assets                                                                                                                                                  |  |                  | 1,140    |                  |  
|Income    tax receivable                                                                                                                                                |  |                  | 7,105    |                  |  
|Prepaid    expenses and other current assets                                                                                                                            |  |                  | 1,263    |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    current assets                                                                                                                                                 |  |                  | 70,331   |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|PROPERTY AND EQUIPMENT  NET                                                                                                                                            |  |                  | 17,019   |                  |  
|INTANGIBLE ASSETS                                                                                                                                                       |  |                  |          |                  |  
|Goodwill                                                                                                                                                                |  |                  | 75,659   |                  |  
|Vendor    agreements, net                                                                                                                                               |  |                  | 13,871   |                  |  
|Other    intangible assets, net                                                                                                                                         |  |                  | 9,300    |                  |  
|DEFERRED TAX ASSETS, NET OF VALUATION ALLOWANCE                                                                                                                         |  |                  | 3,553    |                  |  
|OTHER ASSETS                                                                                                                                                            |  |                  | 1,059    |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    assets                                                                                                                                                         |  | $                | 190,792  |                  | $
|                                                                                                                                                                        |  |                  |          |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |                  |          |                  |  
|CURRENT LIABILITIES                                                                                                                                                     |  |                  |          |                  |  
|Accounts    payable                                                                                                                                                     |  | $                | 14,088   |                  | $
|Accrued    expenses                                                                                                                                                     |  |                  | 19,223   |                  |  
|Deferred    revenue                                                                                                                                                     |  |                  | 3,469    |                  |  
|Current    portion of long-term debt                                                                                                                                    |  |                  | 1,240    |                  |  
|Other    current liabilities                                                                                                                                            |  |                  | 831      |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    current liabilities                                                                                                                                            |  |                  | 38,851   |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|DEFERRED TAX LIABILITIES                                                                                                                                                |  |                  | 3,636    |                  |  
|LONG-TERM DEBT                                                                                                                                                          |  |                  | 1,360    |                  |  
|OTHER LONG-TERM LIABILITIES                                                                                                                                             |  |                  | 432      |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    liabilities                                                                                                                                                    |  |                  | 44,279   |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                           |  |                  |          |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|STOCKHOLDERS EQUITY                                                                                                                                                    |  |                  |          |                  |  
|Preferred    stock, $.001 par value; authorized, 500 shares; none issued and outstanding                                                                                |  |                  |         |                  |  
|Common
       stock, $.001 par value; authorized, 200,000 shares; issued 31,099 and
      30,502,
         respectively; outstanding 31,001 and 30,459,
   respectively |  |                  | 31       |                  |  
|Additional    paid-in capital                                                                                                                                           |  |                  | 250,465  |                  |  
|Treasury    stock; 98 and 43 shares at cost, respectively                                                                                                               |  |                  | (1,093   | )                |  
|Accumulated    other comprehensive income                                                                                                                               |  |                  | (1,235   | )                |  
|Retained    earnings (deficit)                                                                                                                                          |  |                  | (101,655 | )                |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    stockholders equity                                                                                                                                           |  |                  | 146,513  |                  |  
|                                                                                                                                                                        |  |                  |          |                  |  
|Total    liabilities and stockholders equity                                                                                                                           |  | $                | 190,792  |                  | $
|                                                                                                                                                                        |  |                  |          |                  |  




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





F-6





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MIVA, Inc.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share  amounts)





|                                                        |  | For the    Year Ended December 31, |         
|------------------------------------------------------- |  | ---------------------------------- | --------
|                                                        |  |                                    |         
|                                                        |  | 2005                               |         
|                                                        |  |                                    |         
|Revenues                                                |  | $                                  | 194,616 
|Cost of services                                        |  |                                    | 101,306 
|                                                        |  |                                    |         
|Gross profit                                            |  |                                    | 93,310  
|Operating expenses                                      |  |                                    |         
|Marketing,    sales, and service                        |  |                                    | 36,025  
|General    and administrative                           |  |                                    | 38,483  
|Product    development                                  |  |                                    | 10,595  
|Impairment    loss on goodwill and other assets         |  |                                    | 123,188 
|Amortization                                            |  |                                    | 8,081   
|Patent    litigation settlement                         |  |                                    | 8,000   
|                                                        |  |                                    |         
|Total operating expenses                                |  |                                    | 224,372 
|                                                        |  |                                    |         
|Income (loss) from    operations                        |  |                                    | (131,062
|Other expense                                           |  |                                    |        
|Interest income, net                                    |  |                                    | 458     
|Exchange rate gain (loss)                               |  |                                    | (119    
|                                                        |  |                                    |         
|Income (loss) before    provision for income taxes      |  |                                    | (130,723
|Income tax expense    (benefit)                         |  |                                    | (556    
|                                                        |  |                                    |         
|Net income (loss)                                       |  | $                                  | (130,167
|                                                        |  |                                    |         
|Net income (loss) per share                             |  |                                    |         
|Basic                                                   |  | $                                  | (4.23   
|                                                        |  |                                    |         
|Diluted                                                 |  | $                                  | (4.23   
|                                                        |  |                                    |         
|Weighted-average number of    common shares outstanding |  |                                    |         
|Basic                                                   |  |                                    | 30,782  
|                                                        |  |                                    |         
|Diluted                                                 |  |                                    | 30,782  
|                                                        |  |                                    |         




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





F-7


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MIVA, Inc.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(in thousands)





|                                                                                                   |  | For the Year
        EndedDecember 31, |         
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------- | --------
|                                                                                                   |  |                                        |         
|                                                                                                   |  | 2005                                   |         
|                                                                                                   |  |                                        |         
|Common    stock                                                                                    |  |                                        |         
|Balance,    beginning of year                                                                      |  | $                                      | 31      
|Common    stock issued related to stock option and warrant exercises                               |  |                                        |        
|Issuance    of common stock in connection with business acquisitions                               |  |                                        |        
|Issuance    of common stock in connection with private placement, net                              |  |                                        |        
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | 31      
|                                                                                                   |  |                                        |         
|Additional    paid-in-capital                                                                      |  |                                        |         
|Balance,    beginning of year                                                                      |  |                                        | 247,132 
|Common    stock issued related to stock option and warrant exercises                               |  |                                        | 1,900   
|Common    stock issued related to tax benefit of exercise of stock options                         |  |                                        | 284     
|Compensation    charge related to restricted stock unit   
      issuance and non-employee options |  |                                        | 1,149   
|Issuance    of common stock in connection with business acquisitions                               |  |                                        |        
|Issuance    of common stock in connection with private placement, net                              |  |                                        |        
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | 250,465 
|                                                                                                   |  |                                        |         
|Treasury    stock                                                                                  |  |                                        |         
|Balance,    beginning of year                                                                      |  |                                        | (804    
|Treasury    stock received to satisfy accrued liabilities                                          |  |                                        | (289    
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | (1,093  
|                                                                                                   |  |                                        |         
|Retained    earnings (deficit)                                                                     |  |                                        |         
|Balance,    beginning of year                                                                      |  |                                        | 28,512  
|Net    income (loss)                                                                               |  |                                        | (130,167
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | (101,655
|                                                                                                   |  |                                        |         
|Accumulated    other comprehensive income (loss)                                                   |  |                                        |         
|Balance,    beginning of year                                                                      |  |                                        | 12,808  
|Foreign    currency translation adjustment                                                         |  |                                        | (14,043 
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | (1,235  
|                                                                                                   |  |                                        |         
|Stockholders    Equity                                                                            |  | $                                      | 146,513 
|                                                                                                   |  |                                        |         
|Comprehensive    income (loss)                                                                     |  |                                        |         
|Net    income (loss)                                                                               |  | $                                      | (130,167
|Other    comprehensive income (loss)                                                               |  |                                        |         
|Foreign currency translation adjustment                                                            |  |                                        | (14,043 
|                                                                                                   |  |                                        |         
|Comprehensive    income (loss)                                                                     |  | $                                      | (144,210
|                                                                                                   |  |                                        |         
|                                                                                                   |  |                                        |         
|                                                                                                   |  | Number of    Shares                    |         
|                                                                                                   |  |                                        |         
|Common    stock                                                                                    |  |                                        |         
|Balance,    beginning of year                                                                      |  |                                        | 30,502  
|Issuance    of common stock in connection with business acquisitions                               |  |                                        |        
|Common    stock issued related to stock option warrant & restricted 
      stock unit    exercises |  |                                        | 597     
|Issuance    of common stock in connection with private placement, net                              |  |                                        |        
|                                                                                                   |  |                                        |         
|Balance,    end of year                                                                            |  |                                        | 31,099  
|                                                                                                   |  |                                        |         




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





F-8





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MIVA, Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)





|                                                                                           |  | Year ended    December 31, |         
|------------------------------------------------------------------------------------------ |  | -------------------------- | --------
|                                                                                           |  |                            |         
|                                                                                           |  | 2005                       |         
|                                                                                           |  |                            |         
|Cash Flows from Operating    Activities                                                    |  |                            |         
|Net    income (loss)                                                                       |  | $                          | (130,167
|Adjustments    to reconcile net income to net cash provided 
      by operating activities |  |                            |         
|Provision    for (recoveries of) doubtful accounts                                         |  |                            | (519    
|Depreciation    and amortization                                                           |  |                            | 13,383  
|Impairment    loss on goodwill and other assets                                            |  |                            | 123,188 
|Equity    based compensation                                                               |  |                            | 1,149   
|Tax    benefit of stock option exercises                                                   |  |                            | 284     
|Deferred    income tax expense                                                             |  |                            | (591    
|Loss    (gain) on sale of assets                                                           |  |                            | (387    
|Changes    in operating assets and liabilities                                             |  |                            |         
|Accounts    receivable                                                                     |  |                            | 2,306   
|Prepaid    expenses and other current assets                                               |  |                            | 231     
|Income    taxes receivable                                                                 |  |                            | (5,567  
|Other    assets                                                                            |  |                            | (131    
|Deferred    revenue                                                                        |  |                            | (1,964  
|Accounts    payable, accrued expenses and other liabilities                                |  |                            | 464     
|                                                                                           |  |                            |         
|Net    Cash Provided by Operating Activities                                               |  |                            | 1,679   
|                                                                                           |  |                            |         
|Cash Flows from Investing    Activities                                                    |  |                            |         
|Note    receivable                                                                         |  |                            |        
|Proceeds    from the sale of assets                                                        |  |                            | 582     
|Purchase    of short-term investments                                                      |  |                            | (51,051 
|Proceeds    from sale of short-term investments                                            |  |                            | 76,055  
|Purchase    of businesses, net of cash acquired                                            |  |                            | (7,827  
|Purchase    of equipment and furniture                                                     |  |                            | (7,653  
|                                                                                           |  |                            |         
|Net    Cash Provided by (Used in) Investing Activities                                     |  |                            | 10,106  
|                                                                                           |  |                            |         
|Cash Flows from Financing    Activities                                                    |  |                            |         
|Payments    made on capital leases and notes payable                                       |  |                            | (413    
|Payments    made on software license obligation                                            |  |                            | (3,500  
|Net    proceeds from private placements                                                    |  |                            |        
|Proceeds    received from exercise of stock options and warrants                           |  |                            | 1,900   
|                                                                                           |  |                            |         
|Net    Cash Provided by (Used in) Financing Activities                                     |  |                            | (2,013  
|                                                                                           |  |                            |         
|Effect of Foreign Currency    Exchange Rates                                               |  |                            | (556    
|                                                                                           |  |                            |         
|Increase
      in Cash and Cash Equivalents                                                |  |                            | 9,216   
|Cash and Cash Equivalents,    Beginning of Year                                            |  |                            | 29,220  
|                                                                                           |  |                            |         
|Cash and Cash Equivalents,    End of Year                                                  |  | $                          | 38,436  
|                                                                                           |  |                            |         
|Supplemental Disclosures of    Cash Flow Information:                                      |  |                            |         
|Interest    paid                                                                           |  | $                          | 92      
|                                                                                           |  |                            |         
|Income    taxes paid                                                                       |  | $                          | 485     
|                                                                                           |  |                            |         
|Supplemental Schedule of    Noncash Investing and Financing Activities:                    |  |                            |         
|Treasury    stock received to satisfy tax withholding liabilities                          |  | $                          | (289    
|                                                                                           |  |                            |         
|Debt    incurred for purchase of software license                                          |  | $                          |        
|                                                                                           |  |                            |         
|Common    stock issued for business acquisitions and mergers                               |  | $                          |        
|                                                                                           |  |                            |         
|Liabilities
         incurred for business acquisitions                                    |  | $                          | 1,667   
|                                                                                           |  |                            |         




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





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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 referred to as we, us, our, MIVA, or the Company), is    a leading independent Performance Marketing Network dedicated to helping    businesses grow.  Our new media    platform facilitates performance marketing for partners (publishers),    advertisers and consumers (end-users). Our primary focus is on providing our    partners with a complete set of innovative solutions enabling the    acquisition, retention and monetization of their online audiences. As an    independent provider, MIVAs primary focus is not to promote a branded    destination search engine or portal that actively competes with our    distribution partners for end-users. For our advertisers, we provide    solutions to manage, optimize and measure return on investment from    keyword-targeted and context-related performance marketing programs.
We    generate traffic and leads to our advertisers through our network of    publisher partners. Our integrated e-commerce merchant solutions allow online    stores to capitalize on leads by offering online storefront, shopping cart,    shipping, and payment capabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Our solutions provide a range of products and    services through three customer-facing divisions - MIVA Media, MIVA Direct    and MIVA Small Business.  These    divisions offer a suite of products and services aimed at significantly    enhancing: our partners ability to monetize their traffic, our advertisers    return on investment and consumers ability to find relevant online content.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  




| |  | MIVA    Media helps publisher partners and advertisers grow their businesses    through performance marketing services. Our MIVA Media division efficiently    distributes ads across our publisher network utilizing technology to match    advertiser selected keywords with consumers who are actively searching for    products and services that are related to the ad keywords. Advertisers only    pay MIVA Media when a consumer clicks on their relevant ad and in turn MIVA    Media shares the revenue with the publisher that served the ad, enabling the    publisher to monetize its consumer website traffic. In addition to our    Pay-Per-Click and our emerging Pay-Per-Call services, solutions for    publishers include private branded toolbars, configurable algorithmic search,    contextual capabilities and expandable banners. Our MIVA Media division also    offers a Private Label service that provides large publishers with the    opportunity to brand and sell
their own performance marketing service;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | MIVA    Direct helps businesses grow by developing one-to-one    relationships with consumers through desktop software applications such as    private-branded toolbars and a variety of search-related applications. MIVA    Direct supports MIVA Media by launching these new and innovative products to    our publisher partners and advertisers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | MIVA    Small Business helps small businesses grow by developing    integrated online marketing and business solutions based on the MIVA Merchant    e-commerce platform that includes storefronts, payment processing, logistics    management, and professional services. Our MIVA Media advertising services    are integrated with our Small Business offerings to offer online businesses a    more complete solution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                




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| | On June 13, 2005, we brought together each of these    offerings under one global brand name  MIVA  with one business strategy and    vision.  In order to accomplish the    rebranding, we amended our Amended and Restated Certificate of Incorporation    on June 13, 2005 pursuant to a merger with a wholly-owned subsidiary in accordance    with Section 253 of the Delaware General Corporation Law pursuant to which    our name was changed from FindWhat.com, Inc. to MIVA, Inc.  In addition, the charters of many of our    outward facing direct and indirect subsidiaries were also amended to reflect    the following name changes:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Espotting Media Inc. became MIVA International, Inc.    (MIVA Media Europe);
| | ------------------------------------------------------------------------------
| | Miva Corporation became MIVA Small Business    Solutions, Inc. (MSB);       
| | Comet Systems, Inc. became MIVA Direct, Inc. (MIVA    Direct);              
| | Espotting Media (UK) Ltd. became MIVA (UK) Ltd.;                              
| | Espotting Media (DE) GmbH became MIVA (Deutschland)    GmbH;                  
| | Espotting Media (FR) SARL became MIVA (France)    S.a.r.l.;                   
| | Espotting Espana, S.L. became MIVA Media S.L.; and                            
| | Espotting Media S.r.l. became MIVA (Italia) S.r.l.     a socio unico.        

The assets acquired from B&B Enterprises, Inc. will continue to be referred to as B&B Advertising (B&B).As a result of the re-branding, our ticker symbol changed to NASDAQ:MIVA and our new corporate website is www.MIVA.com.We offer our marketing services on three continents with direct product offerings in North America and Europe and a private label service with Mitsui & Co., Ltd. in Japan.NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES1.               Basis of PresentationThe consolidated financial statements include the accounts and operations of MIVA, Inc. and its direct and indirect wholly-owned domestic and foreign operating subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Investments in entities in which MIVA, Inc. can exercise significant influence but is not the primary beneficiary, are accounted for under the equity method of accounting and are included in other assets on the balance sheet.2.Use of EstimatesThe 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 acquisition liabilities, allowances for doubtful accounts, estimates of future cash flows associated with asset impairments, useful lives for depreciation and amortization, loss contingencies, income taxes and tax valuation reserves. Actual results could differ materially from these estimates.3.Cash and Cash EquivalentsCash equivalents consist of highly liquid investments with original maturities of three months or less.





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|4.               Short-term    Investments
|------------------------------------------
|                                          
|                                          




|                        |  | December 31, |  
|----------------------- |  | ------------ | -
|                        |  |              |  
|                        |  | 2005         |  
|                        |  |              |  
|Auction rate securities |  | $            | 
|Insurance annuity       |  |              | 
|                        |  |              |  
|Total                   |  | $            | 
|                        |  |              |  




|5.               Accounts Receivable         
|---------------------------------------------
|                                             
|                                             
|                                             
|6.               Concentration of Credit Risk
|                                             
|                                             
|                                             
|7.               Property and Furniture      
|                                             
|                                             




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|8.               Capitalized Software
|-------------------------------------
|                                     
|                                     
|                                     
|                                     
|                                     
|9.               Contingencies       
|                                     
|                                     
|                                     
|10.               Revenue            
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|11.               Deferred Revenue   
|                                     
|                                     




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|                                                          | support revenues, and other revenues that do not meet the criteria for revenue recognition as of the balance sheet date.                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|12.               Fair Value of Financial Instruments    
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                          | At December 31, 2005, our financial instruments    included cash and cash equivalents, accounts receivable, accounts payable,    note payable and long-term debt.                                                                                                                                                                                                                                                                                         
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                          | The fair values of these financial instruments    approximated their carrying values based on either their short maturity or    current terms for similar instruments.                                                                                                                                                                                                                                                                                    
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|13.               Business Segments                      
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                          | We currently report our results in two operating    segments, Performance Marketing and Merchant Services.  The Performance Marketing segment includes    the MIVA Media Networks, our Private Label agreements and MIVA Direct.  For the years ended December 31, 2005 and    2004, the Merchant Services segment, which consists of MIVA Small Business    did not meet the quantitative thresholds that require separate information to    be reported.
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|14.               Accounting for Stock-Based Compensation
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                          | We account for stock-based compensation to employees    and directors using the intrinsic value method set forth in APB Opinion No.    25, Accounting    for Stock Issued to Employees. We account for stock-based    compensation to non-employees using the fair value method set forth in    Financial Accounting Standards Board (FASB) Statement No. 123, as amended by    FASB Statement No. 148, and related interpretations.                      
|                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                          | The following table summarizes our pro forma results    as if we had recorded stock-based compensation expense related to employees    and directors for 2005, 2004, and 2003, using the fair value method of FASB    Statement No. 123, as amended by FASB Statement No. 148 using the    Black-Scholes option valuation methodology (in thousands, except per share    amounts):                                                                        




|                                         |                                                                                                                                           |   | For the year ended December 31, |        
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------- | -------
|                                         |                                                                                                                                           |   |                                 |        
|                                         |                                                                                                                                           |   | 2005                            |        
|                                         |                                                                                                                                           |   |                                 |        
|Net income (loss), as    reported        |                                                                                                                                           | $ | (130,167                        | )      
|Add: Stock based    compensation expense |                                                                                                                                           |   | 1,115                           |        
|Deduct:                                  | Total stock-based employee    compensation expense determined under fair value based method for all awards,    net of related tax effects |   |                                 | (13,009
|                                         |                                                                                                                                           |   |                                 |        
|Pro forma net income (loss)              |                                                                                                                                           | $ | (142,061                        | )      
|                                         |                                                                                                                                           |   |                                 |        
|Earnings (loss) per share:               |                                                                                                                                           |   |                                 |        
|                                         | Basic - as reported                                                                                                                       |   | $                               | (4.23  
|                                         |                                                                                                                                           |   |                                 |        
|                                         | Basic - pro forma                                                                                                                         |   | $                               | (4.62  
|                                         |                                                                                                                                           |   |                                 |        
|                                         | Diluted - as reported                                                                                                                     |   | $                               | (4.23  
|                                         |                                                                                                                                           |   |                                 |        
|                                         | Diluted - pro forma                                                                                                                       |   | $                               | (4.62  
|                                         |                                                                                                                                           |   |                                 |        




| | The pro forma net income and    pro forma diluted earnings per share amounts for the year ended December 31,    2004, have been revised from the proforma amounts previously reported of $8.5    million or $0.30 per diluted share to reflect a revised pro forma deduction    amount of $8.0 million or $0.32 per diluted share. This revision is limited    to the footnote disclosure of non-cash SFAS No. 123, Accounting for    Stock-Based Compensation pro forma expense and does not result in any    changes or impact to our historically reported statements of income or cash    flows. The previously reported pro forma net income was $8,474 for the year    ended December 31, 2004, and the previously reported pro forma diluted pro    forma earnings per share was $0.30 for same period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| | On December 27, 2005, the Compensation    Committee of the Board of Directors approved accelerating the full vesting as    of December 30, 2005 of approximately 0.4 million unvested stock options    outstanding under our stock plans that were granted between January 1, 2002,    and December 31, 2004.  The options had a range of exercise prices of    $3.01 to $23.50 and a weighted average exercise price of $16.18.  The    closing price of the Companys common stock on December 30, 2005 was    $4.95.  The purpose of the accelerated vesting was to enable us to    reduce future stock compensation expense associated with these options in    future years upon adoption of SFAS No. 123(R) on January 1, 2006.     No compensation expense was recognized in 2005 upon the acceleration,    although $3.1 million is recognized in our 2005 pro forma stock-based    employee compensation expense presented in Note B.  We would have reflected
this $3.1 million of pre-tax expense in    our consolidated financial statements in future years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | On December 16, 2004, the FASB    issued Statement No. 123 (revised 2004), Share-Based Payment, which is a    revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.    FASB Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock    Issued to Employees, and amends FASB Statement No. 95, Statement of Cash    Flows. Generally, the approach in FASB Statement No. 123(R) is similar to the    approach described in FASB Statement No. 123. However, FASB Statement No.    123(R) requires all share-based payments to employees, including grants of employee    stock options, to be recognized in the income statement based on their fair    values and pro forma disclosure will no longer be an alternative. FASB    Statement No. 123(R) is effective for public companies beginning with the    first annual period that begins after June 15, 2005 (January 1, 2006 in our    case).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The statement requires    companies to assess the most appropriate model to calculate the value of    stock-based compensation. Through December 31, 2005 we had used the    Black-Scholes option pricing model to value options and are currently    assessing which model we may use in the future under the statement, and we    may deem an alternative model to be the most appropriate. The use of a    different model to value options may result in a different fair value than    the use of the Black-Scholes option pricing model. In addition, there are a    number of other requirements under the new standard that will result in    differing accounting treatment than currently required. These differences    include, but are not limited to, the accounting for the tax benefit on    employee stock options. In addition to the appropriate fair value model to be    used for valuing share-based payments, we will also be required to determine    the transition method to be
used at the date of adoption. The statement    provides for two transition methods to be used at the date of adoption.  The modified retrospective method is an    alternative method that may be used by entities that had previously adopted    the fair value accounting called for in FASB Statement No. 123.  Since we did not adopt that accounting,    the election is not available to us.     Accordingly, we are required to use the modified prospective method,    which requires that compensation expense be recorded for all unvested stock    options and restricted stock on the effective date of FASB Statement No.    123(R), January 1, 2006 in our case.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Upon adoption, this statement    will have a significant impact on our consolidated financial statements as we    will be required to expense the fair value of our stock option grants rather    than merely disclosing the impact on our consolidated net income within our    footnotes as is our current practice. The amounts disclosed within our    footnotes are not necessarily indicative of the amounts that will be expensed    upon the adoption of FASB Statement No. 123(R). Compensation expense    calculated under FASB Statement No. 123(R) may differ from amounts currently    disclosed within our footnotes due to future changes in the fair value of our    common stock, changes in the number of options granted or the terms of such    options, the treatment of tax benefits and changes in interest rates, or    other factors. In addition, upon adoption of FASB Statement No. 123(R) we may    choose to use a different valuation model to value the compensation
expense    associated with employee stock options. FASB Statement No. 123(R) also    requires the benefits of tax deductions in excess of recognized compensation    cost to be reported as a financing cash flow, rather than as an operating    cash flow as required under current literature. This requirement will reduce    net operating cash flows and increase net financing cash flows in periods    after adoption. While we cannot estimate what those amounts will be in the    future (because they depend on, among other things, whether additional stock                                                                                                          




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|                                                       | options are granted and when    employees exercise stock options), the amounts of operating cash flows    recognized for such excess tax deductions were $0.3 million, $4.0 million and    $2.4 million in 2005, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                       | In March 2005, the Securities    and Exchange Commission released SEC Staff Accounting Bulletin (SAB) No. 107,    Share-Based Payment. SAB No. 107 provides the SEC staff position regarding    the application of SFAS No. 123(R). SAB No. 107 contains interpretive    guidance related to the interaction between SFAS No. 123(R) and certain SEC    rules and regulations, as well as provides the staffs views regarding the    valuation of share-based payment arrangements for public companies. SAB No.    107 also highlights the importance of disclosures made related to the    accounting for share-based payment transactions. We are currently reviewing    the effect of FASB Statement No. 123(R) and SAB No. 107 on our consolidated    financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|15.               Advertising Costs                   
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                       | Advertising costs are expensed as
      incurred, and are included in Marketing, Sales and Service expense. We
      incurred approximately $15.9 and $3.4 million in advertising expense during
      2005 and 2004, respectively. The majority of this was spent by MIVA Direct
      to promote their desktop consumer software product in 2005 and 2004. Additionally,
      in 2005 we invested approximately $1.4 million in a marketing effort in
      connection with rebranding our company to MIVA, Inc. as previously discussed.
      No material amounts were recognized in 2003 related to advertising expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|16.               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 carryforwards, and tax credit    carryforwards 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|17.               Goodwill and Other Long-lived Assets
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                       | Our methodology for allocating the purchase price of    acquisitions is based on established valuation techniques that reflect the    consideration of a number of factors, including valuations performed by third    party appraisers. 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 perform goodwill 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 perform indefinite-lived impairment tests on an    annual basis as of October 1st or more frequently in certain circumstances.    We evaluate the recoverability of long-lived assets, including property,    plant 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,




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|                                               | 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 an 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | The goodwill 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,    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.
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | During 2004, we acquired a number of businesses and    recorded substantial amounts of intangible assets and goodwill in our    purchase accounting. Due to the recency of our acquisitions, we have limited    history on which to base our future projections of cash flows from these    businesses. In addition, we are continually planning new initiatives for    these businesses; however, there can be no assurances about the revenue and    other cash flows we may realize from these initiatives. As a result,    additional impairment losses such as the ones recorded during 2004 and 2005    are possible.  Should future operating    results fall short of current projections, further impairments to goodwill    and other intangible assets could be recognized.                                                                                                                                                                                                     
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|18.               Reclassifications           
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | We have reclassified certain expenses previously    reported as Search Serving and Marketing, Sales, and Service expenses as Cost    of Services for all historical periods presented on the consolidated    statements of operations.  The    reclassification does not result in any increase or decrease in total    expenses for any period presented.     The nature of the expenses reclassified is discussed in the Cost of    Services section of this footnote.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|19.               Cost of Services            
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | Cost of services consists of revenue-sharing or    other payments to our MIVA Media distribution partners and other direct    expenses associated with the production and usage of the MIVA Media Network    including third party patent license royalty payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | Other cost of services consists primarily of costs    associated with designing and maintaining the technical infrastructure that    supports our various services and fees paid to telecommunications carriers    for Internet connectivity. Costs associated with our technical infrastructure,    which supports our various services, include salaries of related technical    personnel, depreciation of related computer equipment, co-location charges    for our network equipment, and software license fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|20.               Foreign Currency Translation
|                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                               | MIVA Media Europe operates in several European    countries whose functional currency is either the British Pound, the Euro or    the Swedish Krona. Results of operations from MIVA Media Europe are    translated to U.S. dollars using average exchange rates each month. Assets    and liabilities are translated into U.S. Dollars using the exchange rate on    the balance sheet date. Resulting translation adjustments are recorded in    Accumulated Other Comprehensive Income in the Stockholders Equity section of    the consolidated balance sheets.                                                                                                                                                                                                                                                                                                                                                                                                                       




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| | NOTE C     MERGERS , ACQUISITIONS, and DISPOSITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Mergers    and Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | There were no mergers or acquisitions during    2005.  Mergers and acquisitions    completed in 2004 included MIVA Small Business, MIVA Direct, B&B    Advertising and MIVA Media Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | MIVA Small Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | On January 1, 2004, we acquired all of the    outstanding stock of Miva (now MIVA Small Business or MSB), a leading    supplier of e-commerce software and services to small and medium-sized    businesses (SMEs). Through this acquisition, we combined several of MSBs    commerce enabling services to provide a more comprehensive business solution    to small and medium sized enterprises. Results from MIVA Small Business are    included in our operations beginning on January 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The total purchase price of approximately
      $6.2 million consisted of $1.3 million in cash consideration, the issuance
      of a note payable for $1.4 million, the issuance of 163,550 shares of common
      stock valued at $3.1 million, and direct transaction costs of approximately
      $0.4 million. For accounting purposes, the value of the common stock was
      based on the average of the closing prices for the two days prior to the
      completion of the acquisition. The note is non-interest bearing and payable
      in four quarterly installments beginning April 1, 2004 and as of
      December 31, 2004 the amount owed was $0.3 million. The final payment was
      made pursuant to the note in January 2005. We also assumed $1.8 million
      of MSBs liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | MIVA Direct                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On March 22, 2004, we acquired all of the    outstanding stock of Comet (now MIVA Direct), a leading provider of connected    desktop consumer software. Through MIVA Direct, we have access to the    millions of consumers who have voluntarily downloaded MIVA Direct software    and search functionality directly onto their personal computers. This direct    connection to the end consumer has allowed us to enhance our    keyword-targeted, performance-based advertising service. In addition, we have    leveraged MIVA Directs desktop software technology to offer toolbars and    other downloadable applications to our MIVA Media Network partners under our    partners own brands, increasing the value we can provide to our distribution    partners. Results from MIVA Direct are included in our operations beginning    on March 22, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The total purchase price of approximately
      $26.9 million consisted of $11.1 million in cash consideration, which
      included $1.1 million and $1.7 million of contingent earnout that has been
      earned by the sellers
      as of December 31, 2004 and 2005, respectively, the issuance of 837,510
      shares of common stock valued at $15.4 million, and direct transaction
      costs of
      approximately
      $0.4 million. For accounting purposes the value of the common stock was
      based on our stocks    average closing stock price for the date of
      the completion of the acquisition and the two trading days prior to the
      closing date. The purchase agreement provided MIVA Directs stockholders
      with the right to receive up to an additional $10.0 million in cash based
      on MIVA Directs operating performance    in 2004 and 2005 (up to
      $5.0 million for each calendar year). As of December 31, 2005, both of
      the contractual earnout periods had ended. Approximately $1.1 million of
      a possible $5.0 million

had been earned in the first period    and an additional $1.7 was earned in the
      second and final earnout period, of the possible $5.0 million, that ended
      on December 31, 2005.  The amounts earned in the first and second
       earnout periods will be paid during 2006.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | B&B Advertising                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On June 4, 2004, we acquired certain assets of    B&B Enterprises, Inc. (now B&B Advertising). The assets purchased    were comprised of B&Bs proprietary client tools, distribution partner    interfaces and implementation software used within its performance-based,    keyword-targeted advertising business. This acquisition allows the MIVA Media    Network to target small distribution partners through the related proprietary    tools and processes.  Results from B&B    Advertising are included in our operations beginning on June 4, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  




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| | The total purchase price of approximately
      $14.9 million consisted of $10.8 million in cash consideration, consulting
      agreements with the two founders of B&B for an aggregate consideration
      of $0.5 million, direct transaction costs of approximately $0.1 million
      and an advance of $3.5 million on a contingent earnout. The total possible
      earnout was $10.3 million and was based on B&Bs achievement of
      certain performance targets in 2004 and 2005. As of December 31, 2005,
      all of the targets related to the final earnout were met and the entire
      $10.3 million was earned and paid.                                                                                                                                                                                                                                      
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | MIVA Media Europe                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On July 1, 2004, our subsidiary merged with    Espotting (now MIVA Media Europe), one of Europes leading paid listing    providers, resulting in MIVA Media Europe becoming our wholly-owned    subsidiary. The combination of MIVA Media US and MIVA Media Europe created an    international leader in performance based marketing, with operations and partnerships    throughout the world. The merger also expanded our core services into a    geographic region where it previously had only a minor presence. Results from    MIVA Media Europe are included in our operations beginning on July 1, 2004.                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The total purchase price of approximately $183.9    million consisted of $12.0 million in cash consideration, the issuance of    6,999,995 shares of common stock valued at $155.7 million, the issuance of    options valued at $12.7 million to purchase 689,252 shares of our common    stock at a weighted average exercise price of $5.10, in exchange for options    and warrants held by MIVA Media Europe employees and affiliates, and    estimated direct transaction costs of approximately $3.4 million. The value    of our common stock issued in connection with the merger was based on the    average closing stock price for the date of the completion of the merger and    the two trading days prior to the closing date for accounting purposes. The    value of the stock options was based on the fair value of the options using    the Black-Scholes method.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The aggregate purchase price and cash consideration    for these acquisitions is reflected below (price in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                




Entity
  
  Date ofAcquisition/Merger
  
  AggregatePurchase    Price
  
  CashPortion ofPurchase    PriceMSB
  
  
  January 1, 2004
  
  $
  6,562
  
  $
  3,060MIVA Direct
  
  
  March 22, 2004
  
  
  26,912
  
  
  11,184B&B
  
  
  June 4, 2004
  
  
  14,923
  
  
  14,817MIVA Media    Europe
  
  
  July 1, 2004
  
  
  183,875
  
  
  12,040





| | The cash portion related to MIVA Direct and B&B    includes amounts earned subsequent to each acquisition with respect to    earnout agreements based on MIVA Direct and B&Bs operating performance    through December 31, 2005. Goodwill with a remaining balance at December 31,    2005 of approximately $75.7 million (net of non-cash impairment charges) and    other intangible assets of approximately $31.4 million (net of non-cash    impairment charges) were recorded as a result of the mergers and    acquisitions. The balances in goodwill and other intangible assets reflect    transactions and adjustments subsequent to the acquisition of the    subsidiaries.  The balances in    goodwill and other intangible assets are primarily recorded in British Pounds    Sterling and are subject to the fluctuations of foreign currency exchange    rates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The purchase price allocations for MSB, MIVA Direct,    B&B and MIVA Media Europe were finalized in 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The results of operations of MSB, MIVA Direct,    B&B and MIVA Media Europe have been included in our statements of operations    since the completion of the acquisitions on January 1, 2004, March 22, 2004,    June 4, 2004 and July 1, 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  




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| | The following unaudited pro forma information    presents a summary of the results of our operations assuming the acquisitions    of MSB, MIVA Direct, B&B and MIVA Media Europe occurred on January 1,    2003 (in thousands, except per share amounts):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|                                         |  | For the  year ended    December 31, |         
|---------------------------------------- |  | ----------------------------------- | --------
|                                         |  |                                     |         
|                                         |  | 2005                                |         
|                                         |  |                                     |         
|Net revenues                             |  | $                                   | 194,616 
|Net income    (loss)                     |  | $                                   | (130,167
|Net income    (loss) per share - basic   |  | $                                   | (4.23   
|Net income    (loss) per share - diluted |  | $                                   | (4.23   




| | Disposition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | On July 6, 2005, we announced that we had completed    a private label agreement with Eniro AB, the leading directory company in the    Nordic media market.  The agreement    covers all four Nordic Markets  Sweden, Denmark, Norway and Finland.  In connection with the agreement, Eniro    acquired substantially all of the assets of our indirect, wholly-owned    subsidiary Espotting Scandinavia AB.     The private label agreement allows MIVA to provide Eniro the    capability to enter the Performance Marketing sector under their own brand    name using our developed technology and advertisers.  We    have recorded the excess of purchase price received over the fair value of    the assets sold as a gain on the sale of this business of $0.6 million in the    2005 consolidated statement of operations.  Due to the continuing    involvement in the operations of this indirect, wholly-owned subsidiary    through the private label
agreement, we have concluded that this does not    qualify for discontinued operations classification.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | NOTE D  PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Property and equipment, net at December 31,    consisted of the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    







|                                               |  | December    31, |         | Estimated    Useful Life |  
|---------------------------------------------- |  | --------------- | ------- | ------------------------ | -
|                                               |  |                 |         |                         
|                                               |  | 2005            |         | 2004                     |  
|                                               |  |                 |         |                          |  
|Technical equipment                            |  | $               | 16,081  |                          | $
|Furniture                                      |  |                 | 2,276   |                          |  
|Leasehold improvements                         |  |                 | 860     |                          |  
|Capitalized software                           |  |                 | 9,289   |                          |  
|                                               |  |                 |         |                          |  
|                                               |  |                 | 28,506  |                          |  
|Less accumulated depreciation and amortization |  |                 | (11,487 | )                        |  
|                                               |  |                 |         |                          |  
|                                               |  | $               | 17,019  |                          | $
|                                               |  |                 |         |                          |  




| | Depreciation expense was $5.3 million, $3.4 million    and $1.8 million for the years ended December 31, 2005, 2004, and 2003,    respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------




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| | NOTE E    - ACCRUED EXPENSES                                                  
| | ------------------------------------------------------------------------------
| |                                                                               
| | Accrued expenses at December 31, consisted of the    following (in thousands):




|                                   |  | December 31, |       
|---------------------------------- |  | ------------ | ------
|                                   |  |              |       
|                                   |  | 2005         |       
|                                   |  |              |       
|Revenue-sharing agreements         |  | $            | 3,004 
|Accrued    compensation            |  |              | 2,566 
|Professional    fees               |  |              | 2,277 
|Operating    expenses              |  |              | 2,065 
|Earnout and    acquisition related |  |              | 2,794 
|Value added    tax payable         |  |              | 308   
|Other taxes    payable             |  |              | 3,938 
|Other                              |  |              | 2,271 
|                                   |  |              |       
|                                   |  | $            | 19,223
|                                   |  |              |       




| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | NOTE F     INTANGIBLE ASSETS                                                                                    
| |                                                                                                                  
| | The balance in intangible assets at December 31,    2005, consists of the following (in thousands, except years):




|                                       |  | Gross    Carrying     Amount |         | Accumulated        Amortization |   | Net    Carrying    Amount |   | Weighted    Average Useful     Economic Life |       
|-------------------------------------- |  | ---------------------------- | ------- | ------------------------------- | - | ------------------------- | - | -------------------------------------------- | ------
|                                       |  |                              |         |                                 |   |                           |   |                                              |       
|                                       |  |                              |         |                                 |   |                           |   |                                              |       
|Vendor    agreements                   |  | $                            | 18,416  |                                 | $ | (4,545                    | ) | $                                            | 13,871
|Developed    technology                |  |                              | 9,347   |                                 |   | (2,416                    | ) |                                              | 6,931 
|Customer    relationships              |  |                              | 1,776   |                                 |   | (938                      | ) |                                              | 838   
|Other    definite-lived intangibles    |  |                              | 912     |                                 |   | (419                      | ) |                                              | 493   
|Indefinite-lived intellectual property |  |                              | 1,038   |                                 |   |                          |   |                                              | 1,038 
|Goodwill                               |  |                              | 75,659  |                                 |   |                          |   |                                              | 75,659
|                                       |  |                              |         |                                 |   |                           |   |                                              |       
|                                       |  | $                            | 107,148 |                                 | $ | (8,318                    | ) | $                                            | 98,830
|                                       |  |                              |         |                                 |   |                           |   |                                              |       




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| | The balance in intangible assets at December 31,    2004, consisted of the following (in thousands, except years):
| | ------------------------------------------------------------------------------------------------------------------




|                                       |  | Gross    Carrying    Amount |         | Accumulated        Amortization |   | Net    Carrying    Amount |   | Weighted    Average Useful     Economic Life |        
|-------------------------------------- |  | --------------------------- | ------- | ------------------------------- | - | ------------------------- | - | -------------------------------------------- | -------
|                                       |  |                             |         |                                 |   |                           |   |                                              |        
|                                       |  |                             |         |                                 |   |                           |   |                                              |        
|Vendor agreements                      |  | $                           | 20,510  |                                 | $ | (1,774                    | ) | $                                            | 18,736 
|Developed technology                   |  |                             | 12,069  |                                 |   | (1,820                    | ) |                                              | 10,249 
|Customer relationships                 |  |                             | 4,392   |                                 |   | (1,745                    | ) |                                              | 2,647  
|Other definite-lived intangibles       |  |                             | 1,105   |                                 |   | (250                      | ) |                                              | 855    
|Indefinite-lived intellectual property |  |                             | 1,816   |                                 |   |                          |   |                                              | 1,816  
|Goodwill                               |  |                             | 201,183 |                                 |   |                          |   |                                              | 201,183
|                                       |  |                             |         |                                 |   |                           |   |                                              |        
|                                       |  | $                           | 241,075 |                                 | $ | (5,589                    | ) | $                                            | 235,486
|                                       |  |                             |         |                                 |   |                           |   |                                              |        




| | The significant change in the balance of goodwill in    2005 compared with the end of 2004 was the result of the impairment of    goodwill recorded in the second and third quarters of 2005.  Please see Note G Impairment for    additional information.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                             
| | Amortization expense related to
      intangible assets was $6.5 million, $5.6 million and $0 for the years ended
      December 31, 2005, 2004 and 2003, respectively.                                                                                     
| |                                                                                                                                                                                                                                                             
| | Changes in the carrying amount of
      goodwill for the years ended December 31, 2005 and 2004, are as follows
      (in thousands):                                                                                                                       




|                                                                     |  | PerformanceMarketing |          | MerchantServices |   | Total  |  
|-------------------------------------------------------------------- |  | -------------------- | -------- | ---------------- | - | ------ | -
|                                                                     |  |                      |          |                  |   |        |  
|Balance as    of January 1, 2004                                     |  | $                    |         |                  | $ |       |  
|Goodwill    recorded as result of acquisition                        |  |                      | 182,881  |                  |   | 4,442  |  
|Additional purchase price consideration due pursuant    to earn outs |  |                      | 4,653    |                  |   |       |  
|Goodwill    impairment                                               |  |                      |         |                  |   | (1,140 | )
|Income tax    adjustments                                            |  |                      | (1,453   | )                |   |       |  
|Foreign    currency translation adjustments                          |  |                      | 11,800   |                  |   |       |  
|                                                                     |  |                      |          |                  |   |        |  
|Balance as    of January 1, 2005                                     |  |                      | 197,881  |                  |   | 3,302  |  
|Additional purchase price consideration due pursuant    to earn outs |  |                      | 8,441    |                  |   | 360    |  
|Goodwill    impairment                                               |  |                      | (116,555 | )                |   | (3,662 | )
|Income tax    adjustments                                            |  |                      | (2,479   | )                |   |       |  
|Foreign    currency translation adjustments                          |  |                      | (11,629  | )                |   |       |  
|                                                                     |  |                      |          |                  |   |        |  
|Balance as    of December 31, 2005                                   |  | $                    | 75,659   |                  | $ |       |  
|                                                                     |  |                      |          |                  |   |        |  




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The income tax adjustments to goodwill relate    primarily to the partial utilization of NOLs that were offset by valuation    allowances established in our accounting for our acquisition of MIVA Media    Europe and the tax benefits of certain stock options exercised by MIVA Media    Europe option holders.  At December    31, 2005 we have $76.7 million of intangible assets that are not subject to    amortization.                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | All of the intangible assets were acquired in 2004    related to the acquisition or merger of MSB, MIVA Direct, B&B Advertising    and MIVA Media Europe. The weighted average useful economic life for all    definite-lived intangibles is approximately six 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.




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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | As of December 31, 2005, expected future intangible    asset amortization is as follows (in thousands):




|Fiscal Years: |  |   |        | 
|------------- |  | - | ------ | 
|2006          |  | $ | 5,720  | 
|2007          |  |   | 5,462  | 
|2008          |  |   | 5,182  | 
|2009          |  |   | 3,659  | 
|2010          |  |   | 1,757  | 
|Thereafter    |  |   | 353    | 
|              |  |   |        | 
|              |  | $ | 22,133 | 
|              |  |   |        | 




| | NOTE G    - IMPAIRMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In accordance with FASB Statement No. 142, Goodwill    and Other Intangible Assets,
      goodwill and other intangible assets with indefinite lives are tested for
      impairment annually and when an event occurs or circumstances change that
      would more likely than not reduce the fair value of a reporting unit below
      its carrying amount.  In performing this assessment, we compare    the carrying value of our reporting units to their fair value.  Quoted market prices in active stock    markets are often the best evidence of fair value; therefore a significant    decrease in our stock price could indicate that an impairment of goodwill    exists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | During the second quarter of 2005, our earnings    forecasts were updated for each of our divisions to reflect events that    occurred during the quarter that changed our expected business prospects    including reduced traffic generated by our distribution partners as a result    of traffic reductions resulting from the removal by us of certain    distribution partners or their sub-affiliates undertaken in late April 2005,    and lower-than-expected profitability at our MIVA Direct and MIVA Small    Business divisions.  In addition,    during the second quarter of 2005, our stock price declined significantly    resulting in our market capitalization falling below the amount of our    recorded equity. As a result of these indicators, we performed a test to    determine if the carrying amount of goodwill and other indefinite-lived    intangibles 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 the reporting units exceeded their fair value and led us to    conclude that goodwill was impaired. As part of the two step analysis    required, the implied fair value of goodwill and other intangibles was    determined through the allocation of the fair value to the underlying assets    and liabilities, and a preliminary non-cash impairment charge of $118.4    million was recorded to adjust the carrying value of goodwill and $0.5    million to adjust the value of other indefinite-lived intellectual property    to their fair value.  The non-cash    charge was recorded at MIVA Media Europe ($114.2 million), MIVA Direct ($2.8    million) and MSB ($1.9 million).  At the time of the filing of the second quarter    10-Q, the second step of the impairment analysis had not been finalized,    therefore we recorded the best estimate of the impairment at the time of    $118.9 million as
Impairment loss on goodwill and other assets in the    accompanying consolidated statements of operations.  The final measurement of the impairment was completed in the    third quarter of 2005, resulting in no change from the original estimate.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In addition, during the third    quarter of 2005 the Company updated its projections resulting in further    indicators of goodwill impairment for the Company.  The projections for all reporting units were not significantly    changed with the exception of MSB.     Events specific to MSB caused us to further reduce our projections    significantly, primarily as a result of new products that were not released    as scheduled as well as reduced sales of our MIVA Merchant software.  As a result, an additional goodwill impairment    charge of $1.8 million was recorded for the quarter ended September 30, 2005    as Impairment loss on goodwill and other assets in the accompanying    consolidated statements of operations. As a result of this impairment charge,    MSB has no remaining goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              




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| | The fair value of the reporting unit under step one    and individual assets under step two were determined by an independent    third-party using methodologies that include both a market and an income    approach.  The market approach    includes analysis of publicly traded companies comparable in terms of    functions performed, financial strengths, and markets serviced, along with a    survey of transactions involving similar public and non-public    companies.  The income approach was    based on the economic benefit stream of discounted future cash flows.  After the non-cash charge for impairment,    $60.9 million of goodwill and other indefinite-lived intangibles remains at    MIVA Media Europe, $9.5 million at B&B, $6.3 million at MIVA Direct and    $0.0 million at MSB.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | In connection with the results    of the FASB Statement No. 142 impairment tests summarized above, factors    indicated that the carrying value of certain long-lived assets might not be    recoverable. Accordingly, impairment testing under FASB Statement No. 144, Accounting    for the Impairment or Disposal of Long-Lived Assets,was    undertaken as of September 30, 2005 resulting in an impairment charge of $2.5    million for MIVA Small Business recorded in Impairment loss on goodwill and    other assets in the accompanying consolidated statements of operations.  Impaired long-lived assets mainly relate    to trademarks, customer relationships, developed technology and vendor    agreements that were written down to their fair value.  As a result of this impairment charge,    MIVA Small Business has no remaining long-lived intangible assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | We will continue to assess the potential of    impairment of goodwill and other indefinite-lived intangibles in accordance    with FASB Statement No. 142 as well as long-lived assets in accordance with    FASB Statement No. 144 in future periods.     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 in accordance with FASB Statements No. 142 and 144.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NOTE H  JOINT VENTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ThomasB2B.com                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | On April 1, 2004, we entered into a joint venture    with Thomas Global Register, LLC (Thomas), a leading publisher of global    business-to-business Internet directories, and a division of Thomas    Publishing Company LLC. Under the terms of the agreement, we and Thomas    established ThomasB2B.com LLC, which powered a marketplace listings service    using our Private Label service. We made an initial capital contribution of    $0.4 million on April 1, 2004 for our 50% membership interest and made an    additional contribution of $0.4 million in the fourth quarter of 2004. We    made additional capital contributions of $0.3 million during 2005. The terms of    the joint venture agreement provide that our losses will be limited to the    extent of our capital contribution. The investment in ThomasB2B.com is being    accounted for using the equity method. As of December 31, 2005 and 2004, the    carrying value of the investment was approximately
$0.0 million and $0.4    million, respectively and is recorded in Other Assets. The investment was    reduced to zero during September 2005 as the Board approved the dissolution    of the joint venture.  Our portion of    net losses of the joint venture was $0.4 million in both 2005 and 2004 and is    included in general and administrative expenses.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NOTE I  PER SHARE DATA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | For the year ended December 31, 2005, we incurred a    loss; therefore, potentially dilutive shares (related to stock options,    warrants and restricted stock units) are not included in the per share data,    as they would have an anti-dilutive effect on loss per share. Had we not    recorded a loss, the number of stock options excluded in the computation of    diluted EPS and the range of exercise prices would have been 1.1 million    shares at a price range of $7.75 - $26.81. The excluded anti-dilutive amounts    for the years ended December 31, 2004 and 2003, were options and    warrants outstanding to purchase 0.6 million shares at a price range of    $18.91$26.81 and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      




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| | options and warrants outstanding to purchase 34,000    shares at a price range of $15.33$27.72, respectively.                               
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                              
| | The following is a reconciliation of the number of    shares used in the basic and diluted computation of income per share (in    thousands):




|                                                                                                 |  | For the Year Ended December 31, |       
|------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------
|                                                                                                 |  |                                 |       
|                                                                                                 |  | 2005                            |       
|                                                                                                 |  |                                 |       
|Weighted-average number    of common shares outstanding-basic                                    |  |                                 | 30,782
|Dilution from stock    options, warrants, and restricted stock units                             |  |                                 |      
|                                                                                                 |  |                                 |       
|Weighted-average
      number of common shares and potential common shares outstanding - diluted |  |                                 | 30,782
|                                                                                                 |  |                                 |       




| | NOTE J     LITIGATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Overture    Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On August 15, 2005, we entered into a Settlement and    License Agreement (the Agreement) with Overture Services, Inc. (Overture    Services) and Yahoo! Inc. (collectively with Overture Services,    Yahoo!).  Pursuant to the Agreement,    the parties settled the patent infringement lawsuit brought by Overture    Services against MIVA regarding U.S. Patent No. 6,269,361, and Yahoo! agreed    to release all claims in the lawsuit.     Under the terms of the Agreement, we agreed to make a one-time payment    of $8.0 million to Yahoo!, and received a royalty bearing non-exclusive    license to certain Yahoo! patents.     The charge for the $8.0 million one-time payment was recorded during    the second quarter and paid during the third quarter of 2005. The royalty is    based on our use of certain patents and is paid quarterly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Cisneros    Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On August 3, 2004, a putative class action lawsuit    was filed in the Superior Court of the State of California, County of San    Francisco, against us and others in our sector, by two individuals, Mario    Cisneros and Michael Voight, on behalf of themselves, all other similarly    situated, and/or for the general public. The complaint alleges that    acceptance of advertising for Internet gambling violates several California    laws and constitutes an unfair business practice. The complaint seeks unspecified    amounts of restitution and disgorgement as well as an injunction preventing    us from accepting paid advertising for online gambling.  Three of our industry partners, each of    which is a codefendant in the lawsuit, have asserted indemnification claims    against us for costs incurred as a result of such claims arising from    transaction with us, and we have entered into an agreement with one of these    industry partners to
resolve such claims. We believe that both the underlying    and indemnity claims are without merit and we intend to vigorously defend    ourselves. Regardless of the outcome, this litigation could have a material    adverse impact on our results because of defense costs, diversion of    managements attention and resources and other factors.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Lanes Gifts and Collectibles    Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On February 17, 2005, a putative class action was    filed in Miller County Circuit Court, Arkansas, against us and others in our    sector by Lanes Gifts and Collectibles, LLC, U.S. Citizens for Fair Credit    Card Terms, Inc., Savings 4 Merchants, Inc., and Max Caulfield d/b/a    Caulfield Investigations, on behalf of themselves and all others similarly    situated.  The Complaint names eleven search engines, web publishers, or    performance marketing companies as defendants, including us, and alleges    breach of contract, unjust enrichment, and civil conspiracy.  All of the    plaintiffs claims are predicated on the allegation that the plaintiffs have    been charged for clicks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            




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| | on their advertisements that were not made by bona    fide customers.  The lawsuit is brought on behalf of a putative class of    individuals that allegedly were overcharged for [pay per click]    advertising, and seeks monetary damages, restitution, prejudgment interest,    attorneys fees, and other remedies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Two plaintiffs - Savings 4 Merchants and U.S.    Citizens for Fair Credit Card Terms, Inc. - voluntarily dismissed themselves    from the case, without prejudice, on April 4, 2005.  We believe we have    no contractual or other relationship with either of the remaining    plaintiffs.  On October 7, 2005, we filed a motion to dismiss the    complaint pursuant to Ark. R. Civ. Proc. 12(b)(6) for failure to state claims    upon which relief may be granted.  On October 14, 2005, we timely filed    a motion to dismiss pursuant to Ark. R. Civ. Proc. 12(b)(2) for lack of    personal jurisdiction.  The court has not yet ruled on these    motions.  On January 9, 2006, the    court stayed the case for 60 days to permit two defendants, Google Inc. and    AskJeeves, Inc., to mediate with the Plaintiffs. The court will enter a new    scheduling order for the case after the stay expires.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | We believe we have strong defenses to plaintiffs    claims and that our motions to dismiss are well founded.  We have not    assessed the amount of potential damages involved in plaintiffs claims and    would be unable to do so unless and until a class is certified by the    court.  We intend to defend the claims vigorously.  An industry    participant is a codefendant in the lawsuit and has asserted an    indemnification claim against us arising as a result of a contract between    the companies.  We have agreed to defend and indemnify the codefendant    in accordance with the terms of our contract with them.  Regardless of    the outcome, this litigation could have a material adverse impact on our    results because of defense costs, including as relates to our indemnification    obligations, diversion of managements attention and resources, and other    factors.     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Shareholder    Class Action Lawsuits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Beginning on May 6, 2005, five putative securities    fraud class action lawsuits were filed against us and certain of our present    and 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 misleading statements and omitted material    information regarding (1) the goodwill associated with a recent acquisition,    (2) certain material weaknesses in our internal controls, and (3) the    Internet traffic generated by and business relationships with certain    distribution partners.  Plaintiffs    assert that we and the individual defendants made these misstatements and    omissions in order to keep our stock price high to allow certain individual    defendants to sell stock at an artificially inflated price.  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. Regardless
      of the outcome, this litigation could have a material adverse impact on
      our results because of defense costs, including as relates to our indemnification
      obligations, diversion of managements attention and resources, and other
      factors.                                                                                                                                                                                                                                                                                                                                               




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| | 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 upon substantially the same facts alleged in the securities    class action litigation described above.     The complaint is seeking to recover damages in an unspecified    amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On August 31, 2005, the Court entered
      an Order staying this case until the motion to dismiss in the securities
      class action was resolved.  On January 9, 2006,    Defendants filed
      a Notice of Entry of Decision regarding the Courts Order    granting
      Defendants motion to dismiss in the securities class action    litigation
      described above.  On    January 11, 2006, the Court lifted the stay
      imposed on August 31, 2005.  On February 3, 2006, the Court entered
      an Order staying the case until the renewed motion to dismiss in the securities
      class action is resolved. Regardless of the outcome, this litigation could
      have a material adverse impact on our results because of defense costs,
      including as relates to our indemnification obligations, diversion of managements
      attention and resources, and other factors.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Payday    Advance Plus, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On October 19, 2005, a putative class action was    filed in the U.S. District Court for the Central District of California, Los    Angeles Division, against us and Advertising.com, Inc. by Payday Advance    Plus, Inc.  The Complaint alleged that    Advertising.com, a MIVA Media Network distribution partner, engaged in click    fraud to increase revenues to themselves with MIVAs alleged knowledge and    participation.  The lawsuit was brought    on behalf of a putative class of individuals who were allegedly overcharged    by the defendants alleged conduct and sought monetary damages, restitution,    prejudgment interest, attorneys fees, injunctive relief, and other    remedies.                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On January 3, 2006, we filed a motion to dismiss the    Complaint for improper venue because the Complaint was filed in violation of    the forum selection clause in MIVAs contract with the plaintiff, which    requires that all disputes be filed in New York.  The plaintiff filed a request for voluntary dismissal of the    case on February 1, 2006, and the court dismissed the case on February 2,    2006.  The plaintiff has indicated    that it may re-file the lawsuit in New York.                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | We believe we have strong defenses to plaintiffs    claims, should they be re-filed.  We    have not assessed the amount of potential damages involved in plaintiffs    claims and would be unable to do so unless and until a class was certified by    the court.  If re-filed, we would    defend the claims vigorously.     Regardless of the outcome, the litigation, if re-filed, could have a    material adverse impact on our results because of defense costs, diversion of    managements attention and resources, and other factors.                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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 the    results of our operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | No accruals for losses as of December 31, 2005 have been recorded related to any of the legal    proceedings.  We expense all legal    fees for litigation as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | NOTE K    - DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Bank Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | We have entered into a leasing line of credit agreement which provides for up to $2.0 million to be used for capital expenditures. This agreement only covers U.S. based assets and the expiration for new draw downs is October 31, 2006. As of December 31, 2005, we had no amounts outstanding under this agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | As of February 19, 2004, we entered into a $10.0    million revolving loan facility, which expired on June 30, 2005, with a    commercial lending institution. At the time of expiration and as of December    31, 2004, there were no outstanding borrowings under the facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              




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| | Seller    Notes Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Prior to our acquisition of MIVA Direct, MIVA Direct    purchased the domain names associated with Screensavers.com, Inc., which    requires monthly installments of $12,500 until April 2006 pursuant to a    non-interest bearing note. The obligation is collateralized by the underlying domain names. In    accounting for this obligation it was discounted to its present value using    an implied rate of 4.5%.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Software    License Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | On December 29, 2004, we    entered into a Perpetual License Agreement with Fast Search & Transfer,    entitling us to an enterprise license for FASTs Data SearchTM 360    data search and analysis software. We agreed to pay a license fee of $7.0    million for the software, $0.7 million of which was paid upon signing the    agreement in December 2004. A payment of $3.5 million was made in March 2005,    with additional payments of approximately $0.4 million to be made quarterly    through December 2007. The perpetual license is included in capitalized    software in the amount of $6.0 million at December 31, 2005 representing    payments made to date. The obligation is collateralized by the underlying    perpetual license and was discounted to its present value using an implied    interest rate of 5.14%.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The following table summarizes our long-term debt    (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            




|                                                                                                                          |  | December    31, |       
|------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------
|                                                                                                                          |  |                 |       
|                                                                                                                          |  | 2005            |       
|                                                                                                                          |  |                 |       
|Obligation to    Screensavers.com, principal and interest payable monthly - net of discount $0    and of $6, respectively |  | $               | 50    
|Obligation to formers    shareholders of MSB                                                                              |  |                 |      
|Obligation to FAST    Software-net of discount of $249 and $321, respectively                                             |  |                 | 2,550 
|                                                                                                                          |  |                 |       
|Total long-term debt                                                                                                      |  |                 | 2,600 
|                                                                                                                          |  |                 |       
|Less current portion -    net of discount of of $209 and $50, respectively                                                |  |                 | (1,240
|                                                                                                                          |  |                 |       
|Long-term debt                                                                                                            |  | $               | 1,360 
|                                                                                                                          |  |                 |       




| | The following table summarizes future payments to    FAST Search & Transfer, Screensavers.com and MSBs former shareholders as    of December 31, 2004 (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|2006 |  | $ | 1,450 | 
|---- |  | - | ----- | 
|2007 |  |   | 1,400 | 
|     |  |   |       | 
|     |  | $ | 2,850 | 
|     |  |   |       | 




| | Interest expense totaled $0.4 million in 2005 and    $0.1 million in 2004.                                                                                                                                                                                                                                                                                 
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                            
| | NOTE L     COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                            
| | We have ongoing contractual cash payment obligations    to our distribution partners. These payments are funded by payments from our    advertisers for the paid click-throughs (visitors), delivered to them via our    distribution partners. Agreements with certain distribution partners contain    guaranteed minimum payments through December 2007.
| |                                                                                                                                                                                                                                                                                                                                                            
| | 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.                                                                                                      




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| | We have contractual obligations regarding future    minimum payments under non-cancelable operating leases, guaranteed    distributor payments, a royalty agreement, and a prior acquisition agreement,    which consisted of the following at December 31, 2005 (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|           |  | Operating    Leases |        | Guaranteed    Distribution    Partner    Payments |   | Royalty    Agreement |  | Acquisition    Earnout |      
|---------- |  | ------------------- | ------ | ------------------------------------------------- | - | -------------------- |  | ---------------------- | -----
|           |  |                     |        |                                                   |   |                      |  |                        |      
|2006       |  | $                   | 2,610  |                                                   | $ | 781                  |  | $                      | 800  
|2007       |  |                     | 2,543  |                                                   |   | 47                   |  |                        | 800  
|2008       |  |                     | 2,475  |                                                   |   |                     |  |                        | 800  
|2009       |  |                     | 2,380  |                                                   |   |                     |  |                        | 800  
|2010       |  |                     | 2,497  |                                                   |   |                     |  |                        | 600  
|Thereafter |  |                     | 5,013  |                                                   |   |                     |  |                        |     
|           |  |                     |        |                                                   |   |                      |  |                        |      
|           |  | $                   | 17,518 |                                                   | $ | 828                  |  | $                      | 3,800
|           |  |                     |        |                                                   |   |                      |  |                        |      




| | For the years ended December 31, 2005, 2004, and    2003, we recorded $2.8 million, $1.8 million, and $0.9 million, respectively,    as rent expense under operating leasing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In the ordinary course of business, we may provide    indemnifications 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | During January 2006, we announced that we retained    the investment banking firm Deutsche Bank Securities to assist our Board of    Directors in exploring and evaluating a range of strategic opportunities to    enhance shareholder value. Deutsche Bank will help the Board analyze options    including, but not limited to, the raising of capital through the sale of    securities or assets of the Company, a recapitalization, strategic    acquisitions, and the combination, sale or merger of the business with    another entity offering strategic opportunities for growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   




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| | On February 23, 2006, we entered into a Lease    Modification and Extension Agreement, pursuant to which we reduced the amount    of office space we were leasing in New York.     In connection with this modification to the existing lease for the New    York space, we also extended the term of such lease through January 31,    2016.  Our monthly lease payments were    also reduced in connection with the reduction in space. Future minimum    payments related to this modified lease are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|2006       |  | $ | 517   | 
|---------- |  | - | ----- | 
|2007       |  |   | 432   | 
|2008       |  |   | 445   | 
|2009       |  |   | 459   | 
|2010       |  |   | 472   | 
|Thereafter |  |   | 2,629 | 
|           |  |   |       | 
|           |  | $ | 4,954 | 
|           |  |   |       | 




| | NOTE M     SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | We currently report our results in two operating    segments, performance marketing and merchant services.  The performance marketing segment    distributes ads across our publisher network to match advertiser selected    keywords with consumers who are searching for products and services related    to the keywords.  In addition,    products such as private branded toolbars, configurable algorithmic search,    contextual capabilities, and expandable banners are offered in the    performance marketing segment.  The    merchant services segment offers an e-commerce platform that includes storefronts,    payment processing, logistics management, and professional service.  In the years ended December 31, 2004 and    2005, the merchant services segment did not meet the quantitative thresholds    that require separate information to be reported. Our segment reporting is    consistent with the manner in which our business is managed and our
resources    are allocated by management. The accounting policies of the segments are the    same as those described in the summary of significant accounting policies.




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Information identifying results for the performance marketing and  merchant services segments are as follows (in thousands):





|                                              |  | Performance    Marketing |          | Merchant    Services |   | Total  |  
|--------------------------------------------- |  | ------------------------ | -------- | -------------------- | - | ------ | -
|                                              |  |                          |          |                      |   |        |  
|Year ended December 31,    2005               |  |                          |          |                      |   |        |  
|Revenue                                       |  | $                        | 190,772  |                      | $ | 3,844  |  
|Operating loss                                |  |                          | (125,390 | )                    |   | (5,672 | )
|Interest income                               |  |                          | 868      |                      |   |       |  
|Interest expense                              |  |                          | (406     | )                    |   | (4     | )
|Depreciation and    amortization              |  |                          | 12,966   |                      |   | 417    |  
|Patent litigation    settlement               |  |                          | 8,000    |                      |   |       |  
|Income tax expense    (benefit)               |  |                          | (20      | )                    |   | (536   | )
|Impairment loss on    goodwill & other assets |  |                          | 117,055  |                      |   | 6,133  |  
|Net loss                                      |  |                          | (125,028 | )                    |   | (5,139 | )
|Total assets                                  |  |                          | 188,717  |                      |   | 2,075  |  
|Year ended December 31,    2004               |  |                          |          |                      |   |        |  
|Revenue                                       |  |                          | 167,304  |                      |   | 2,166  |  
|Operating income (loss)                       |  |                          | 29,168   |                      |   | (2,265 | )
|Interest income                               |  |                          | 620      |                      |   |       |  
|Interest expense                              |  |                          | (125     | )                    |   | (1     | )
|Depreciation and    amortization              |  |                          | 8,636    |                      |   | 458    |  
|Income tax expense (benefit)                  |  |                          | 11,047   |                      |   | (357   | )
|Impairment loss on    goodwill & other assets |  |                          |         |                      |   | 1,140  |  
|Net income                                    |  |                          | 18,937   |                      |   | (1,909 | )
|Total assets                                  |  |                          | 332,842  |                      |   | 8,362  |  
|Year ended December 31,    2003               |  |                          |          |                      |   |        |  
|Revenue                                       |  |                          | 72,221   |                      |   |       |  
|Operating income                              |  |                          | 18,332   |                      |   |       |  
|Interest income                               |  |                          | 534      |                      |   |       |  
|Interest expense                              |  |                          | (2       | )                    |   |       |  
|Depreciation and    amortization              |  |                          | 1,755    |                      |   |       |  
|Income tax expense    (benefit)               |  |                          | 7,106    |                      |   |       |  
|Impairment loss on    goodwill & other assets |  |                          |         |                      |   |       |  
|Net income                                    |  |                          | 11,758   |                      |   |       |  
|Total assets                                  |  | $                        | 74,658   |                      | $ |       |  




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





|                                |  | Revenues |         | Long-Lived    Assets |  
|------------------------------- |  | -------- | ------- | -------------------- | -
|                                |  |          |         |                      |  
|Year    ended December 31, 2005 |  |          |         |                      |  
|United    States                |  | $        | 93,934  |                      | $
|United    Kingdom               |  |          | 60,080  |                      |  
|Other    International          |  |          | 40,601  |                      |  
|                                |  |          |         |                      |  
|Total                           |  | $        | 194,616 |                      | $
|                                |  |          |         |                      |  
|Year    ended December 31, 2004 |  |          |         |                      |  
|United    States                |  | $        | 112,172 |                      | $
|United    Kingdom               |  |          | 38,924  |                      |  
|Other    International          |  |          | 18,374  |                      |  
|                                |  |          |         |                      |  
|Total                           |  | $        | 169,470 |                      | $
|                                |  |          |         |                      |  
|Year    ended December 31, 2003 |  |          |         |                      |  
|United    States                |  | $        | 72,221  |                      | $
|United    Kingdom               |  |          |        |                      |  
|Other    International          |  |          |        |                      |  
|                                |  |          |         |                      |  
|Total                           |  | $        | 72,221  |                      | $
|                                |  |          |         |                      |  




| | 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, Germany, Spain, and Italy that are subsidiaries    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 was signed in conjunction with the    sale of substantially all of the assets of our indirect, wholly owned    subsidiary Espotting Scandinavia AB to Eniro AB during the third quarter of    2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | NOTE N    - RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | During November 2005, the Company entered into an    agreement for public relations professional services with Racepoint Group,    Inc. (Racepoint) through April 2006.     For the year ended December 31, 2005, we incurred fees from Racepoint    of approximately $28,000.  Larry    Weber, who joined our Board of Directors in June 2005, is the Chairman and    Founder of W2 Group, which owns Racepoint.                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | During September 2005, Sebastian Bishop, our Chief    Marketing Officer and Director, became 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 use    this agency to generate advertisers onto our MIVA Media Networks and invoice    them for all revenue generated on our networks through their    advertisers.  In addition, we pay    Steakmedia a commission on the revenue generated from these advertisers.  Amounts invoiced to Steakmedia during 2005    were approximately $469,000 and commissions paid during 2005 were    $39,000.           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      




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| |                                                                                      
| | -------------------------------------------------------------------------------------
| | NOTE O    - INCOME TAXES                                                             
| |                                                                                      
| | The provision (benefit) for income taxes consists of    the following (in thousands):







|                                |  | For the Year Ended December 31, |       
|------------------------------- |  | ------------------------------- | ------
|                                |  |                                 |       
|                                |  | 2005                            |       
|                                |  |                                 |       
|Current:                        |  |                                 |       
|United States federal           |  | $                               | (4,778
|State                           |  |                                 | 89    
|Foreign                         |  |                                 | 4,724 
|                                |  |                                 |       
|                                |  |                                 | 35    
|                                |  |                                 |       
|Deferred:                       |  |                                 |       
|United States federal and state |  |                                 | (550  
|Foreign                         |  |                                 | (41   
|                                |  |                                 |       
|                                |  |                                 | (591  
|                                |  |                                 |       
|                                |  | $                               | (556  
|                                |  |                                 |       




| | The components of income (loss) before income taxes    are as follows (in thousands):
| | -------------------------------------------------------------------------------------




|              |  | For the Year Ended December 31, |         
|------------- |  | ------------------------------- | --------
|              |  |                                 |         
|              |  | 2005                            |         
|              |  |                                 |         
|United States |  | $                               | (21,201 
|Foreign       |  |                                 | (109,522
|              |  |                                 |         
|              |  | $                               | (130,723
|              |  |                                 |         




| | 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, |        
|----------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                    |  |                                 |        
|                                                                                    |  | 2005                            |        
|                                                                                    |  |                                 |        
|Tax (benefit) using    statutory United States federal tax rate                     |  | $                               | (45,753
|Effect of state income    taxes                                                     |  |                                 | (89    
|Write-down of    non-deductible costs in excess of net assets of acquired companies |  |                                 | 2,569  
|Foreign tax rate    differential                                                    |  |                                 | 2,268  
|Foreign operating losses    not benefited                                           |  |                                 | 40,764 
|Transaction costs                                                                   |  |                                 |       
|Deferred tax asset    valuation allowance                                           |  |                                 |       
|Other                                                                               |  |                                 | (315   
|                                                                                    |  |                                 |        
|                                                                                    |  | $                               | (556   
|                                                                                    |  |                                 |        




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| | Our current tax benefit excludes
      the effect of stock option compensation deductible for tax purposes in
      the US and overseas as these amounts were credited to additional paid-in-capital.  The
      amount excluded is $0.3 million in the United States and $0.2 million in
      foreign jurisdictions for the year ended December 31, 2005.  These
      amounts were $4.0 million and $0.9 million, respectively, for the year
      ended December
      31, 2004, and $2.4 million in the United States only for the year ended
       December 31, 2003.  These amounts were credited
      to additional-paid-in-capital, with the exception of the $0.2 million and
      $0.9 million reduction to the foreign tax provision
      in 2005 and 2004, which were credited to goodwill as they related to options
      exchanged prior to our merger with MIVA Media Europe.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In addition, payments of our 2005
      and 2004 current tax liability was reduced by $1.3 million and by $0.6
      million, respectively, for our foreign operations representing the utilization
      of
      NOLs acquired
      in our merger with MIVA Media Europe.  The use of these NOLs resulted in a reduction in the valuation allowance for the same amounts with a corresponding credit to goodwill.  None of our goodwill is expected to be    deductible
      for income tax purposes.                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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 in the same period as the deductible temporary differences, therefore    assuring the realization of the non-reserved portion of its deferred tax    assets.  Detail 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, |       
|----------------------------------- |  | ------------ | ------
|                                    |  |              |       
|                                    |  | 2005         |       
|                                    |  |              |       
|Deferred tax assets,    short-term  |  |              |       
|Accounts receivable allowances      |  | $            | 191   
|Accruals                            |  |              | 827   
|Net operating losses                |  |              | 122   
|                                    |  |              |       
|Total                               |  |              | 1,140 
|Deferred tax assets,    long-term   |  |              |       
|Intangibles                         |  |              | 235   
|Accruals                            |  |              |      
|Net operating losses                |  |              | 18,837
|Valuation allowance                 |  |              | (9,189
|                                    |  |              |       
|Total                               |  |              | 9,883 
|Deferred tax liabilities, long-term |  |              |       
|Capitalized software                |  |              | (3,257
|Fixed assets                        |  |              | (254  
|Intangibles                         |  |              | (6,323
|Other                               |  |              | (132  
|                                    |  |              |       
|Total                               |  |              | (9,966
|                                    |  |              |       
|Net deferred tax liabilities        |  | $            | 1,057 
|                                    |  |              |       




| | Our investments in certain foreign subsidiaries are    permanently invested abroad and will not be repatriated to the U.S. 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 foreign 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| | At December 31, 2005, we are limited
      to annual acquired net operating loss (NOL) utilization in the United States
      of $3.5 million.  United States and foreign NOL    carryforwards,
      are comprised of (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Year of    Expiration |  |   | United    States |  |   | Foreign | 
|--------------------- |  | - | ---------------- |  | - | ------- | 
|                      |  |   |                  |  |   |         | 
|2008                  |  | $ |                 |  | $ | 3,022   | 
|2009                  |  |   |                 |  |   | 2,606   | 
|2017                  |  |   |                 |  |   | 2,815   | 
|2018                  |  |   |                 |  |   | 902     | 
|2019                  |  |   | 2,189            |  |   | 663     | 
|2020                  |  |   | 12,240           |  |   |        | 
|2021                  |  |   | 8,377            |  |   |        | 
|2022                  |  |   | 679              |  |   |        | 
|2023                  |  |   | 1,038            |  |   |        | 
|Indefinite            |  |   |                 |  |   | 13,574  | 
|                      |  |   |                  |  |   |         | 
|Total                 |  | $ | 24,523           |  | $ | 23,582  | 
|                      |  |   |                  |  |   |         | 




| | As of December 31, 2005, the deferred tax assets    related to NOLs in foreign jurisdictions are fully offset by a valuation    allowance. Tax benefits related to the subsequent utilization of the    valuation allowances recorded in conjunction with the merger and acquisitions    will be allocated to reduce goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | We record liabilities in current income taxes for    probable assessments. The accruals 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. These liabilities may be affected by    changing interpretations of laws, rulings by tax authorities, or the    expiration of the statute of limitations.     MIVA Media International has recorded an accrual in the amount of $0.8    million for contingent tax liabilities related to activity prior to our    acquisition in 2004.                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | NOTE P    - STOCK INCENTIVE PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | In June 1999, our Board of Directors adopted the    1999 Stock Incentive Plan. The total number of shares reserved and available    for distribution to our key employees, officers, directors, consultants and    other agents and advisors under the 1999 Plan as of December 31, 1999, was    1.0 million shares. Awards under the 1999 Plan consist of stock options (both    qualified and non-qualified options), restricted stock awards, deferred stock    awards and stock appreciation rights. In January 2000, the Board of Directors    amended the 1999 Plan to increase the total number of shares reserved and    available for distribution to key employees, officers, directors, consultants    and other agents to 2.0 million shares, which was approved by the    shareholders in July 2000.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On June 11, 2001, our shareholders approved an    amendment increasing the number of shares available for issuance under the    1999 Plan from 2.0 million to 4.2 million shares and increasing the number of    shares an individual employee can receive from 0.6 million to 1.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On December 15, 2003, our shareholders approved an    amendment increasing the number of shares available for issuance under the    1999 Plan from 4.2 million to 6.2 million. During 2004, our shareholders    approved the 2004 Stock Incentive Plan and the EMI Replacement Option Plan,    with 3.0 million shares initially available for issuance. As of December    31, 2005, 1.6 million shares remained available for future grants under these    plans. After grants related to                                                                                                                                                                                                                                                                                                                       




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| | contractual obligations and to non-executive    employees on January 5, 2006, 0.7 million shares remain available.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On October 19, 2005, the Company entered into    Restricted Stock Unit Agreements and Option Cancellation Agreements with    certain of its officers and directors.     Pursuant to these agreements, certain officers and directors exchanged    an aggregate of 1,332,806 stock options held by them having an exercise price    at or above $10 per share for an aggregate of 931,852 restricted stock    units.  In addition, an aggregate of    118,593 restricted stock units were granted to an officer/director and a    director.  All restricted stock units    vest over a two year period.  As a    result of this transaction, the intrinsic value of the restricted stock units    is required to be recognized as compensation expense ratably over the vesting    period and therefore a charge of approximately $0.6 million was recorded in    the fourth quarter of 2005.                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On December 27, 2005, the    Compensation Committee of the Board of Directors approved accelerating the    full vesting as of December 30, 2005, of approximately 0.4 million unvested    stock options outstanding under our stock plans that were granted between    January 1, 2002, and December 31, 2004.  The options had a range of    exercise prices of $3.01 to $23.50 and a weighted average exercise price of    $16.18.  The closing price of our common stock on December 30, 2005, was    $4.95.  The
      purpose of the accelerated vesting was to enable us to reduce stock compensation
      expense associated with these options in future years upon adoption of
      SFAS No. 123(R) on January 1, 2006.     No compensation expense was recognized in 2005 upon the acceleration,    although $3.1 million is recognized in our 2005 pro forma stock-based    employee compensation expense presented in Note B. We would have reflected    this $3.1
million of pre-tax expense in our consolidated financial statements    in future years.                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | We continue to believe that employee stock options    represent an appropriate and essential component of our overall compensation    program. We grant options to substantially all employees and believe that    this broad-based program helps us to attract, motivate, and retain high    quality employees, to the ultimate benefit of our stockholders. During the    years ended December 31, 2005, 2004, and 2003, we granted options to    employees and directors to purchase shares totaling approximately 2.1    million, 2.2 million, and 0.7 million, respectively.  We granted 35,000 options to non-employees    (other than directors) in 2005.  There    were no options issued to non-employees in 2004 and 2003. The options issued    in 2004 included options to purchase approximately 0.7 million shares issued    to employees and others associated with MIVA Media Europe in exchange for    options or warrants they held in MIVA Media Europe prior to our merger
with    MIVA Media Europe. The options issued to employees in 2005, 2004, and 2003    vest in a range of immediate vesting up to four years vesting and expire in    ten years.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The fair value of the stock options was estimated at    the date of grant using the Black-Scholes option-pricing model with the    following weighted-average assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    




|                      |  | For the year ended December 31, |          
|--------------------- |  | ------------------------------- | ---------
|                      |  |                                 |          
|                      |  | 2005                            |          
|                      |  |                                 |          
|Volatility            |  |                                 | 91.1     
|Risk-free    rate     |  |                                 | 3.9      
|Expected    life      |  |                                 | 7.1 Years
|Expected    dividends |  |                                 |         




| | The weighted-average fair value of plan options    granted during the years ended December 31, 2005, 2004 and 2003 was $5.73,    $14.12, and $11.31, respectively, and the weighted-average exercise price was    $7.87, $15.15, and $13.61, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | The following table summarizes information as of    December 31, 2005 concerning outstanding and exercisable stock options under    the plans (in thousands, except per share amounts and years):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|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            |  |                       | 1,288 |                                                                 |  | 5.1                                      |  | $                     | 1.34  |                                           | 
|$3.01    - $6.00            |  |                       | 2,172 |                                                                 |  | 8.0                                      |  |                       | 4.63  |                                           | 
|$6.01    - $14.00           |  |                       | 238   |                                                                 |  | 7.5                                      |  |                       | 9.86  |                                           | 
|$14.01    - $27.72          |  |                       | 897   |                                                                 |  | 8.2                                      |  |                       | 20.01 |                                           | 
|                            |  |                       |       |                                                                 |  |                                          |  |                       |       |                                           | 
|                            |  |                       | 4,595 |                                                                 |  | 7.2                                      |  | $                     | 6.98  |                                           | 
|                            |  |                       |       |                                                                 |  |                                          |  |                       |       |                                           | 




| | Stock option activity under the plans during the    years ended December 31, 2005, 2004 and 2003, is summarized below (in    thousands, except per share amounts):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------







|                              |  | Options |        | Weighted-    Average    Exercise    Price |  
|----------------------------- |  | ------- | ------ | ----------------------------------------- | -
|                              |  |         |        |                                           |  
|Balance,    December 31, 2002 |  |         | 3,444  |                                           | $
|Granted                       |  |         | 726    |                                           |  
|Exercised                     |  |         | (313   | )                                         |  
|Canceled                      |  |         | (50    | )                                         |  
|                              |  |         |        |                                           |  
|Balance,    December 31, 2003 |  |         | 3,807  |                                           |  
|Granted                       |  |         | 2,227  |                                           |  
|Exercised                     |  |         | (1,115 | )                                         |  
|Canceled                      |  |         | (126   | )                                         |  
|                              |  |         |        |                                           |  
|Balance,    December 31, 2004 |  |         | 4,793  |                                           |  
|Granted                       |  |         | 2,119  |                                           |  
|Exercised                     |  |         | (313   | )                                         |  
|Canceled                      |  |         | (2,004 | )                                         |  
|                              |  |         |        |                                           |  
|Balance,    December 31, 2005 |  |         | 4,595  |                                           | $
|                              |  |         |        |                                           |  




| | The restricted stock unit activity for the year    ended December 31, 2005 is summarized below (in thousands):
| | --------------------------------------------------------------------------------------------------------------




|                              |  | Restricted    Stock Units |      
|----------------------------- |  | ------------------------- | -----
|                              |  |                           |      
|Balance,    December 31, 2004 |  |                           |     
|Granted                       |  |                           | 1,050
|Vested                        |  |                           | (102 
|Canceled                      |  |                           | (15  
|                              |  |                           |      
|Balance,    December 31, 2005 |  |                           | 933  
|                              |  |                           |      




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| | As of December 31, 2005, 2004, and 2003, we had    warrants outstanding to purchase approximately 0.1 million, 0.3 million,    and 0.3 million shares of our common stock, respectively, at a weighted    average exercise price of $1.00, $3.40, and $3.36, respectively. The warrant    activity during the years ended December 31, 2005, 2004, and 2003, is    summarized below (in thousands, except for per share amounts):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|                              |  | Warrants |        | Weighted-    Average    Exercise    Price |  
|----------------------------- |  | -------- | ------ | ----------------------------------------- | -
|                              |  |          |        |                                           |  
|Balance,    December 31, 2002 |  |          | 2,258  |                                           | $
|Granted                       |  |          |       |                                           |  
|Exercised                     |  |          | (1,938 | )                                         |  
|Canceled                      |  |          | (25    | )                                         |  
|                              |  |          |        |                                           |  
|Balance,    December 31, 2003 |  |          | 295    |                                           |  
|Granted                       |  |          |       |                                           |  
|Exercised                     |  |          | (12    | )                                         |  
|Canceled                      |  |          |       |                                           |  
|                              |  |          |        |                                           |  
|Balance,    December 31, 2004 |  |          | 283    |                                           |  
|Granted                       |  |          |       |                                           |  
|Exercised                     |  |          | (188   | )                                         |  
|Canceled                      |  |          | (5     | )                                         |  
|                              |  |          |        |                                           |  
|Balance,    December 31, 2005 |  |          | 90     |                                           | $
|                              |  |          |        |                                           |  




| | The following table summarizes information    concerning currently outstanding and exercisable warrants as of December 31,    2005 (in thousands, except per share amounts and years):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Exercise    Price |  | Number    Outstanding |    | Weighted    Average    Remaining    Contractual    Life (years) |  | Weighted    Average    Exercise    Price |  | Number    Exercisable |      | Weighted    Average    Exercise    Price | 
|----------------- |  | --------------------- | -- | --------------------------------------------------------------- |  | ---------------------------------------- |  | --------------------- | ---- | ---------------------------------------- | 
|                  |  |                       |    |                                                                 |  |                                          |  |                       |      |                                          | 
|$1.00             |  |                       | 90 |                                                                 |  | 0.2                                      |  | $                     | 1.00 |                                          | 
|                  |  |                       |    |                                                                 |  |                                          |  |                       |      |                                          | 
|                  |  |                       | 90 |                                                                 |  | 0.2                                      |  | $                     | 1.00 |                                          | 
|                  |  |                       |    |                                                                 |  |                                          |  |                       |      |                                          | 




| | All warrants were exercised during the first quarter.
| | -----------------------------------------------------




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| | NOTE Q  QUARTERLY FINANCIAL    SUMMARY (unaudited)
| | ---------------------------------------------------




|                         |  | Three    Months Ended                    |       
|------------------------ |  | ---------------------------------------- | ------
|                         |  |                                          |       
|2005                     |  | March 31                                 |       
|                         |  |                                          |       
|                         |  | (In    thousands, except per share data) |       
|Statements of operations |  |                                          |       
|Revenues                 |  | $                                        | 58,188
|Gross profit             |  |                                          | 26,947
|Gain on sale of business |  |                                          |      
|Net income (loss)        |  |                                          | 3,201 
|Net income per share     |  |                                          |       
|Basic                    |  | $                                        | 0.10  
|Diluted                  |  |                                          | 0.10  




|                         |  | Three    Months Ended                    |       
|------------------------ |  | ---------------------------------------- | ------
|                         |  |                                          |       
|2004                     |  | March 31                                 |       
|                         |  |                                          |       
|                         |  | (In    thousands, except per share data) |       
|Statements of operations |  |                                          |       
|Revenues                 |  | $                                        | 24,686
|Gross profit             |  |                                          | 12,520
|Net income               |  |                                          | 3,802 
|Net income per share     |  |                                          |       
|Basic                    |  | $                                        | 0.17  
|Diluted                  |  |                                          | 0.16  




| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Includes impairment charges related to goodwill and    other intangible assets at MIVA Media Europe, MSB and MIVA Direct of $118.9    million. Also includes one-time payment of $8.0 million pursuant to the Agreement with    Overture Services.          
| | (b) Includes non-recurring revenue
        of $1.5 million recognized related to the settlements of two distribution
        partner disputes. Also, includes impairment charges related to goodwill
        and other intangible assets of $4.3 million at MSB.
| | (c) Includes impairment charge
      related to goodwill and other intangible assets at MSB of $1.1 million.                                                                                                                                                    







| | The aggregate of quarterly amounts may not equal    annual amounts due to rounding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | NOTE R     EMPLOYEE BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 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 Plan permits substantially all United States    employees to contribute up to 92% of their base compensation (as defined) to    the 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 Plan. Costs charged to operations for matching    contributions were $0.1 million in both 2005 and 2004.




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MIVA, Inc.  Valuation and Qualifying Accounts  (in thousands)





|Description                      |  | Balance at    the    Beginning    of Period |        | Charges to    Earnings |   | Charges to    Other    Accounts |   | Acquisitions |        | Deductions |   | Balance at    End of    Period |    
|-------------------------------- |  | ------------------------------------------- | ------ | ---------------------- | - | ------------------------------- | - | ------------ | ------ | ---------- | - | ------------------------------ | ---
|                                 |  |                                             |        |                        |   |                                 |   |              |        |            |   |                                |    
|Allowance for doubtful accounts: |  |                                             |        |                        |   |                                 |   |              |        |            |   |                                |    
|Year Ended December 31, 2005     |  | $                                           | 3,095  |                        | $ | (514                            | ) | $            | (293)  | (1)        | $ |                               |    
|Year Ended December 31, 2004     |  | $                                           | 223    |                        | $ | 658                             |   | $            | 235    | (1)        | $ | 2,194                          | (2)
|Year Ended December 31, 2003     |  | $                                           | 95     |                        | $ | 262                             |   | $            |       |            | $ |                               |    
|Income tax valuation allowance:  |  |                                             |        |                        |   |                                 |   |              |        |            |   |                                |    
|Year Ended December 31, 2005     |  | $                                           | 10,487 |                        | $ | 103                             |   | $            | (1,401 | )(1)       | $ |                               |    
|Year Ended December 31, 2004     |  | $                                           |       |                        | $ | (94                             | ) | $            | 1,199  | (1)        | $ | 9,382                          | (2)
|Year Ended December 31, 2003     |  | $                                           | 183    |                        | $ | (183                            | ) | $            |       |            | $ |                               |    




|                                                                                                  
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|(1) Change due to foreign currency translation,    which is included in other comprehensive income
|(2) Includes amount from merger with MIVA Media    Europe completed in 2004                       
|(3) Write-off fully reserved accounts receivable                                                  

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