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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 For the transition period from  to
 Commission File Number: 0-30428
 MIVA, Inc.
  Delaware
    
    88-0348835(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)5220 Summerlin Commons BlvdFort Myers, Florida 33907
    
    (239) 561-7229(Address of principal executive offices,
    
    (Registrants telephone number,including zip code)
    
    including area code)
  Title of Each Class:
    
    Name of Each Exchange on which Registered:Common Stock, par value $0.001 per share
    
    The NASDAQ Stock Market LLC
 
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ
   Documents Incorporated By Reference




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Table of Contents
 PageForward-Looking Statements
    
    
    1Part IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    7Item 1B.
    
    Unresolved Staff Comments
    
    
    29Item 2.
    
    Properties
    
    
    29Item 3.
    
    Legal Proceedings
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    33Item 6.
    
    Selected Financial Data
    
    
    35Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operation
    
    
    35Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9.
    
    Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    54Item 9A.
    
    Controls and Procedures
    
    
    55Item 9B.
    
    Other Information
    
    
    57Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    57Item 11.
    
    Executive Compensation
    
    
    57Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    57Item 13.
    
    Certain Relationships and Related Transactions, and Director
Independence
    
    
    57Item 14.
    
    Principal Accounting Fees and Services
    
    
    57Part IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    58Signatures
    
    
    61EX-10.1: EXECUTIVE EMPLOYMENT AGREEMENTEX-10.2: EXECUTIVE EMPLOYMENT AGREEMENTEX-10.3: 2007 LONG TERM INCENTIVE COMPENSATION PROGRAMEX-10.4: GOOGLE SERVICES AGREEMENT AND ORDER FORMEX-21.1: SUBSIDIARIESEX-23.1: CONSENT OF BDO SEIDMAN LLPEX-23.2: CONSENT OF ERNST & YOUNG LLPEX-24.1: POWERS OF ATTORNEYEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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PART I
 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
  
    
    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.
  
 ITEM 1. BUSINESS
 Overview
    1




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MIVA Media  Pay Per Click Advertising and Publishing Network
  Advertiser Overview
     
    
    Pay for Results:Advertisers only pay when consumers undertake a predetermined action such as clicking on an ad.
    
    Generate Targeted Leads:Targeted traffic results in higher conversion rates. MIVA targets online ads to users
who are interested in relevant products or services at the time they are searching for those products or
services. Advertisers can bid on specific keywords or broad match their keywords to additional, relevant terms
that are being searched within the MIVA Media Network.
    
    Manage, Measure, Control Advertising Spend:Advertisers can utilize a suite of sophisticated tools to manage
their campaigns. Advertisers have control to monitor, track, organize, budget, and manage keywords and
campaigns, placement of the keywords, total expenditures, and their cost per lead down to the individual click.
As a result, advertisers can effectively measure and optimize their return on investment.
 Publisher Overview
  
    
    Content Ads: Keyword or contextually targeted pay-per-click ads that are displayed in fully customized implementations
alongside website content.
    
    Search Ads: pay-per-click ads displayed in response to specific type-in search queries.
    
    InLine Ads:pay-per-click ads that appear when users move their mouse over select keywords within actual editorial
content.
 2




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
    
    Enhanced Monetization:MIVA Medias publisher solutions are
designed to maximize the monetization potential of publisher
properties, while engaging their end-users. A single interaction
can result in consumer exposure to multiple ad types enabling
publishers to maximize revenues, while enhancing relevance for and
engaging consumers. This enables publishers to drive increased
revenues without the need to increase page impressions.
    
    Flexibility:MIVA Media offers its publishers the option to enter
into non-exclusive contracts and does not require publishers to
sign up for minimum contract periods. MIVA Media partners can
choose to display InLine Ads, Content Ads, Search Ads or a
combination of the three. MIVA Media also offers publishers the
option to pull appropriate ads instead of pushing ads to their
properties.
    
    Customization:MIVA Media can customize ads to suit the design
style of publisher sites. Within the MIVA MC, partners can select
from a range of standard Interactive Advertising Bureau (IAB)
and custom formats, and can specify colors and the number of ads
they display.
    
    Large Network of Advertisers and Agencies: MIVA Media publishers
gain access to thousands of advertisers throughout North America
and Europe placing ads and bidding on keywords within MIVAs
global advertiser database. MIVA Media advertisers range from
small local businesses to large global marketers and advertising
agencies.
 Revenue Model
     3




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Competition
  MIVA Direct
     Revenue Model
  Competition
  MIVA Small Business  E-Commerce
  4




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Revenue Model
  Competition
  Technology and Operations
    Intellectual Property
 ®
  5




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Regulations
     6




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Employees
     Available Information
  
 ITEM 1A. RISK FACTORS
  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 launched the FindWhat.com Network (now the MIVA Media
North America Network) in September 1999;
 7




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
    
    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.
  
    
    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.
  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 on favorable terms.
   8




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We may be negatively impacted by distribution partners and their sub-affiliates that engage in
activities in violation of our distribution guidelines.
   Our success is dependent upon our ability to establish and maintain relationships with our
advertisers and advertising agencies.
   Click-through fraud, whether we detect it or not, could cause our revenues and our business to
suffer.
  9




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We rely on a patent license from Yahoo! for the operation of certain portions our pay-per-click
business.
  In early 2007 we replaced an advertisement feed provider that accounted for a significant portion
of our revenue in 2006. Replacing the advertisement feed provider exposes us to risk and could
result in reduced revenue and our business operations could be significantly harmed.
  10




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We have in the past and may in the future incur impairment charges that materially adversely affect
our earnings and our operating results.
     11




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Changes in legislation, regulation and standards relating to online marketing, particularly online
distribution of software, could harm 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.
  12




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The business of MIVA Media is dependent upon our ability to deliver qualified leads to our
advertisers.
  We face substantial and increasing competition in the market for Internet-based marketing services.
   13




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If we do not continue to innovate and provide products and services that are useful to users,
we may not remain competitive.
  
    
    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.
  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.
   14




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We must continue to successfully integrate several businesses acquired in 2004.
  We are subject to income taxes in both the United States and numerous international jurisdictions.
  If we fail to grow or manage our growth, our business will be adversely affected.
  
    
    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;
 15




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
    
    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.
  We may not be able to return to our historical growth rates and operating margins in the future.
  
    
    failure to efficiently integrate the 2004 acquisition entities into the core business and
effectively manage the consolidated company;
    
    operating in an environment of increased competition both domestically and internationally;
    
    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
    
    the impact of amortizing intangible assets acquired in mergers and acquisitions
 We are subject to numerous risks associated with our acquired international operations.
  
    
    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 international operations;
    
    technological differences by marketplace, which we may not be able to support;
    
    International laws and regulations that may impact the conduct of our
business operations in a particular country;
 16




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
    
    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 international exchange
controls that might prevent us from repatriating cash earned in countries
outside the United States;
    
    political and economic instability;
    
    higher costs associated with doing business internationally; and
    
    tax liabilities pertaining to years prior to our acquisition.
 Our private label agreements are subject to a number of contingencies and risks.
  
    
    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;
    
    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.
  17




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Certain members of our management team and many of our employees have recently joined us and
must be integrated into our operations.
  The continued service of our executive officers and key personnel is critical to our success.
  We may have difficulty attracting and retaining qualified, highly skilled personnel, including
accounting and finance personnel.
   Our reliance on internally developed technology systems may put us at a competitive disadvantage.
  18




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Constraints on our current system capacity will require us to expand our network
infrastructure and customer support capabilities.
  New technologies could limit the effectiveness of our products and services, which would harm
our business.
  We depend on third parties for certain software and services to operate our business.
  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.
  19




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Internet security poses risks to our entire business, and security breaches could damage our
reputation and expose us to loss or litigation.
  We may be unable to obtain the Internet domain names that we hope to use.
  We may be unable to promote and maintain our brands, which could harm our business and prospects.
  20




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Our intellectual property rights may not be protectable or of significant value in the future.
       Our business has historically been and may continue to be partially subject to seasonality, which
may impact our quarterly growth rate.
  21




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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, financial position, and operating results.
  We now must account for employee equity awards using the fair value method which will significantly
reduce any net income we may derive.
   22




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Accounting for Stock Issued to
Employees,
 We cannot predict our future capital needs and may not be able to secure additional financing.
   Risks Related to Our Industry
 Regulatory and legal uncertainties could harm our business.
  
    
    user privacy;
    
    trespass;
    
    defamation;
    
    database and data protection;
    
    limitations on the distribution of materials considered harmful to children;
 23




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
    
    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.
   The market for our services is uncertain and is still evolving.
  Our future success will depend on continued growth in the use of the Internet.
  24




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We may face third party intellectual property infringement claims that could be costly to defend
and result in the loss of significant rights.
  We may face cultural pressures and legal challenges related to the content of the advertisements we
display to Internet users on MIVA Media 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.
  We may incur liabilities for the activities of users of our services.
  25




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Risks Relating to an Investment in Our Common Stock
 The market price of our common stock has been and may continue to be volatile.
  
    
    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;
    
    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.
   26




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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.
  
    
    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;
    
    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
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
    
    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.
  Significant dilution will occur if outstanding options are exercised or restricted stock unit
grants vest.
    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 have had a number of purported class action lawsuits filed against us and certain of our
officers and directors alleging violations of securities laws.
  28




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A putative derivative action has been filed against certain of our officers and directors,
purportedly on behalf of the Company.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES.
   29




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Item 3. LEGAL PROCEEDINGS.
 Cisneros Litigation
 in pari delicto
 Lanes Gifts and Collectibles Litigation
   30




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Shareholder Class Action Lawsuits
     Derivative Stockholder Litigation
   31




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Payday Advance Plus, Inc .
   Comet Systems, Inc.
  Other Litigation
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 th
 32




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
 Market for Common Stock
  Common Stock Market PriceHigh
    
    Low2006Fourth Quarter
    
    $
    3.60
    
    
    $
    2.80Third Quarter
    
    
    4.27
    
    
    
    2.23Second Quarter
    
    
    4.50
    
    
    
    3.46First Quarter
    
    
    5.84
    
    
    
    3.722005Fourth Quarter
    
    $
    6.12
    
    
    $
    4.56Third Quarter
    
    
    7.16
    
    
    
    4.48Second Quarter
    
    
    10.32
    
    
    
    4.20First Quarter
    
    
    17.65
    
    
    
    9.85
 Stockholders
  Dividends
  Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  33




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Issuer Purchases and other Acquisitions of Equity SecuritiesTotal
    
    
    
    
    
    Total Number of
    
    Approximate DollarNumber of
    
    Average
    
    Shares Purchased
    
    Value of Shares thatShares
    
    Price Paid
    
    as Part of Publicly
    
    May Yet be PurchasedPeriod
    
    Purchased
    
    per Share
    
    Announced Program
    
    Under the ProgramOctober 1, 2006 through Oct. 31, 2006
    
    
    208,157
    
    
    $
    3.07
    
    
    
    N/A
    
    
    $
    9,112,652November 1, 2006 through Nov. 30, 2006
    
    
    1,758
    
    
    
    3.42
    
    
    
    N/A
    
    
    
    9,112,652December 1, 2006 through Dec. 31, 2006
    
    
    2,451
    
    
    
    3.38
    
    
    
    N/A
    
    
    
    9,112,6529,112,652Total
    
    
    212,366
    (1)
    
    
    
    
    
    
    
    (2)
 
 (1)
    
    Of this amount, 176,000 shares were withheld by us to satisfy the withholding taxes of a
certain officer payable upon vesting
of his stock options in connection with his second quarter 2006 resignation, 30,399 shares were
withheld by us to satisfy the
withholding taxes related to annual vesting of the restricted stock units granted on October 19,
2005, and 5,967 shares were
withheld by us to satisfy the withholding taxes of our non-employee directors upon vesting of their
restricted stock units.(2)
    
    During the 4th quarter the Company did not repurchase shares under the May 4, 2006 Board
approved plan. 
 
 
 *
    
    $100 invested on 12/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. 34




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ITEM 6. SELECTED FINANCIAL DATA
  For the years ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(a) (f)
    
    (b), (c)
    
    (d), (e)Statements of operationsRevenues
    
    $
    172,595
    
    
    $
    194,616
    
    
    $
    169,470
    
    
    $
    72,221
    
    
    $
    42,805Net income (loss)
    
    
    (87,626
    )
    
    
    (130,167
    )
    
    
    17,028
    
    
    
    11,758
    
    
    
    10,736Net income (loss) per shareBasic
    
    $
    (2.79
    )
    
    $
    (4.23
    )
    
    $
    0.65
    
    
    $
    0.59
    
    
    $
    0.63Diluted
    
    
    (2.79
    )
    
    
    (4.23
    )
    
    
    0.60
    
    
    
    0.53
    
    
    
    0.56Balance sheetsTotal assets
    
    $
    106,302
    
    
    $
    190,792
    
    
    $
    341,204
    
    
    $
    74,658
    
    
    $
    27,312Debt (including current portion)
    
    
    1,360
    
    
    
    2,600
    
    
    
    6,514
    
    
    
    
    
    
    
    4Stockholders equity
    
    
    70,909
    
    
    
    146,513
    
    
    
    287,679
    
    
    
    64,307
    
    
    
    22,168
 
 (a)
    
    Includes impairment charges related to goodwill and other intangible assets at MIVA Media
Europe of $63.7 million.(b)
    
    Includes impairment charges related to goodwill and other intangible assets at MIVA Media
Europe, MIVA Small Business and MIVA Direct of $123.2 million. Also includes one-time payment of
$8.0 million pursuant to the settlement agreement with Yahoo!(c)
    
    Includes non-recurring revenue of $1.5 million recognized related to the settlements of two
distribution partner disputes.(d)
    
    Includes the acquisitions of MIVA Small Business, MIVA Direct, B&B Advertising, and MIVA Media
Europe.(e)
    
    Includes impairment charge related to goodwill and other intangible assets at MSB of $1.1
million.(f)
    
    Includes approximately $7.4 million of additional compensation resulting from the adoption of
FAS 123(R). 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  Executive Summary
  35




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
    
    In the second quarter, we named Peter A. Corrao, previously chief operating officer, as
chief executive officer. Larry Weber, a leading marketing and digital media executive, who
served as a director on the MIVA board, assumed the position of non-executive chairman;
    
    In the second quarter, we initiated a global restructuring and integration plan in order
to maximize efficiencies and reduce cash operating expenses;
    
    In the third quarter, we invested in the development and beta launch of the Precision
Network, an optimization program for delivering more precise matching of advertiser and
traffic characteristics along specific categories (or verticals). We believe the Precision
Network is an important initiative to improve traffic quality and revenue per click and to
assist in the reduction of our advertiser attrition;
    
    In the third quarter, we decided to deemphasize our private label business in order to
allow us to devote more attention and resources to our core business and new initiatives.
At December 31, 2006, we had two active private label partners with one of the contracts
set to expire in February 2007. We intend to continue to evaluate our private label
initiatives as opportunities present themselves;
    
    In the fourth quarter, we named Lowell W. Robinson as Chief Financial Officer and Chief
Administrative Officer;
    
    Throughout 2006, we continued to grow our MIVA-owned consumer entertainment properties
through MIVA Direct in order to lessen our dependence on third-party sources of traffic.
MIVA Direct represented 22.9% of total revenue in the year-ended December 31, 2006 compared
to 12.4% in the comparable prior year period.
  
    
    reduction in our average revenue per click for the year ended December 31, 2006, as
compared to the same period in 2005, which caused us, among other things, to experience
lower than anticipated click-through revenue from MIVA Media;
    
    as an ongoing practice, we took actions to remove certain Internet traffic sources from
our MIVA Media third-party ad network as they did not meet our traffic quality or
distribution guidelines.
 Recent Developments
   36




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##### Table of Contents



Organization of Information
  
    
    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, 2006, 2005 and 2004
   37




---



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Revenue
      38




---



##### Table of Contents



Cost of Services
 Cost of services
  39




---



##### Table of Contents



Operating Expenses
  2006
    
    
    2005For the Year Ended December 31,
    
    
    vs.
    
    
    vs.2006
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Marketing, sales, and service
    
    $
    50.1
    
    
    $
    36.0
    
    
    $
    19.0
    
    
    
    14.1
    
    
    
    17.0General and administrative
    
    
    42.2
    
    
    
    38.5
    
    
    
    25.1
    
    
    
    3.7
    
    
    
    13.4Product development
    
    
    9.4
    
    
    
    10.6
    
    
    
    5.5
    
    
    
    (1.2
    )
    
    
    5.1Subtotal
    
    
    101.7
    
    
    
    85.1
    
    
    
    49.6
    
    
    
    16.6
    
    
    
    35.5Impairment loss on goodwill
and other intangible assets
    
    
    63.7
    
    
    
    123.2
    
    
    
    1.1
    
    
    
    (59.5
    )
    
    
    122.1Amortization
    
    
    7.4
    
    
    
    8.1
    
    
    
    5.7
    
    
    
    (0.7
    )
    
    
    2.4Patent litigation settlement
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    (8.0
    )
    
    
    8.0Total
    
    $
    172.8
    
    
    $
    224.4
    
    
    $
    56.4
    
    
    $
    (51.6
    )
    
    $
    168.0
 40




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##### Table of Contents



2006
    
    2005For the Year Ended December 31,
    
    vs.
    
    vs.2006
    
    2005
    
    2004
    
    2005
    
    2004Marketing, sales, and service
    
    
    29.1
    %
    
    
    18.5
    %
    
    
    11.2
    %
    
    
    10.6
    %
    
    
    7.3
    %General and administrative
    
    
    24.5
    %
    
    
    19.8
    %
    
    
    14.8
    %
    
    
    4.7
    %
    
    
    5.0
    %Product development
    
    
    5.5
    %
    
    
    5.4
    %
    
    
    3.3
    %
    
    
    0.1
    %
    
    
    2.1
    %Subtotal
    
    
    59.1
    %
    
    
    43.7
    %
    
    
    29.3
    %
    
    
    15.4
    %
    
    
    14.4
    %Impairment loss on goodwill and
other intangible assets
    
    
    36.9
    %
    
    
    63.3
    %
    
    
    0.7
    %
    
    
    -26.4
    %
    
    
    62.6
    %Amortization
    
    
    4.3
    %
    
    
    4.2
    %
    
    
    3.4
    %
    
    
    0.1
    %
    
    
    0.8
    %Patent litigation settlement
    
    
    0.0
    %
    
    
    4.1
    %
    
    
    0.0
    %
    
    
    -4.1
    %
    
    
    4.1
    %Total
    
    
    100.3
    %
    
    
    115.3
    %
    
    
    33.4
    %
    
    
    -15.0
    %
    
    
    81.9
    %
 Marketing, Sales, and Service
    General and Administrative
  41




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Product development
    Impairment loss
  42




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43




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Amortization
  Patent Litigation Settlement
  Interest Income, Net
  Income Taxes
  2006
    
    2005
    
    2004Provision (benefit) for taxes
    
    $
    (803
    )
    
    $
    (556
    )
    
    $
    10,690Income before provision for income taxes
    
    $
    (88,429
    )
    
    $
    (130,723
    )
    
    $
    27,718Effective tax rates
    
    
    NM
    
    
    
    NM
    
    
    
    38.6
    %
 
   Accounting for Income
Taxes
 44




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Net Income (Loss)
   Impact of Foreign Currency Translation
   45




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
     Operating Activities
  46




---



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Investing Activities
    Financing Activities
  47




---



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Liquidity
    CONTRACTUAL OBLIGATIONS
  48




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##### Table of Contents



Payments Due by Period (in thousands)Due in
    
    
    Due in
    
    
    Due in
    
    
    More thanTotal
    
    
    2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    5 yearsOperating Leases
    
    $
    15,767
    
    
    $
    2,738
    
    
    $
    5,250
    
    
    $
    4,601
    
    
    $
    3,178Guaranteed Distribution
Partner Payments
    
    
    621
    
    
    
    621
    
    
    
    
    
    
    
    
    
    
    
    Royalty Agreement
    
    
    3,000
    
    
    
    800
    
    
    
    1,600
    
    
    
    600
    
    
    
    Software License Agreement
    
    
    1,400
    
    
    
    1,400
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    20,788
    
    
    $
    5,559
    
    
    $
    6,850
    
    
    $
    5,201
    
    
    $
    3,178
 USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
  Revenue
 Reporting Revenue Gross as a Principal Versus Net as an Agent
  49




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Allowance for Doubtful Accounts
  2006
    
    2005
    
    2004Revenues
    
    $
    172,595
    
    
    $
    194,616
    
    
    $
    169,470Bad debt expense (recovery)
    
    $
    (187
    )
    
    $
    (519
    )
    
    $
    658Bad debt expense as a percent of revenue
    
    
    -0.1
    %
    
    
    -0.3
    %
    
    
    0.4
    %
    -25 Basis
    
    
    
    
    
    +25 BasisPoints
    
    2006
    
    PointsBad debt expense (recovery)
    
    $
    (618
    )
    
    $
    (187
    )
    
    $
    244Income (loss) from operations
    
    
    (88,972
    )
    
    
    (89,403
    )
    
    
    (89,834
    )Net income (loss)
    
    
    (87,195
    )
    
    
    (87,626
    )
    
    
    (88,057
    )Diluted earnings (loss) per share
    
    $
    (2.77
    )
    
    $
    (2.79
    )
    
    $
    (2.80
    )
 Income Taxes
 Accounting for Income Taxes
 50




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##### Table of Contents



2006
    
    2005
    
    2004Provision (benefit) for taxes
    
    $
    (803
    )
    
    $
    (556
    )
    
    $
    10,690Income before provision for income taxes
    
    $
    (88,429
    )
    
    $
    (130,723
    )
    
    $
    27,718Effective tax rates
    
    
    NM
    
    
    
    NM
    
    
    
    38.6
    %
 
   Purchase Accounting
  Impairment Evaluations
   51




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##### Table of Contents



Impairment of Goodwill and Other Intangibles , Goodwill
and Other Intangible Assets and FASB Statement No. 144, Accounting for the Impairment or Disposal
of Long-Lived Asset, respectively.
   Share-Based Compensation
 Shared Based Payment .
 Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards (FSP 123R-3).
 52




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##### Table of Contents



Legal Contingencies
 .
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Foreign Currency Risk
    Interest Rate Risk
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
  53




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
    
    
    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.
  
    
    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.
  54




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##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES
 a) Evaluation of Disclosure Controls and Procedures
  b) Managements Annual Report on Internal Control Over Financial Reporting
    Internal Control 
Integrated Framework
  
    
    Insufficient controls over the completeness, accuracy, and existence of its Technical
Equipment.Specifically, the controls over completeness,
accuracy, and existence were not formally documented to assure the review and approval of technical equipment assets at the
time of receipt. Additionally, the inventory of technical equipment assets placed in
 55




---



##### Table of Contents



service prior years was not completely reconciled. This control deficiency could result in
a misstatement of technical equipment assets that could result in a material misstatement
to the Companys interim or annual consolidated financial statements that would not be
prevented or detected. Accordingly, management has determined that this control deficiency
constitutes a material weakness.
    
    Insufficient controls over the system administration responsibilities within the
payroll.Specifically, the controls over access, authorization, and review were not
adequately segregated as it related to the Companys 3rd party payroll process.
This control deficiency did not result in adjustments to the 2006 interim or annual
consolidated financial statements. This control deficiency represents a weakness with
respect to our anti-fraud programs and controls to the Companys interim or annual
consolidated financial statements that would not be prevented or detected. Accordingly,
management has determined that this control deficiency constitutes a material weakness.
    
    Insufficient controls over the system administration responsibilities within the
Treasury functions.Specifically, the controls over access, authorization, and review were
not adequately segregated as it related to the Companys wire transfer, ACH process,
Accounts Payable trade vendor files, and subsequent issuance of check payments. This
control deficiency did not result in adjustments to the 2006 interim or annual consolidated
financial statements. This control deficiency represents a weakness with respect to our
anti-fraud programs and controls to the Companys interim or annual consolidated financial
statements that would not be prevented or detected. Accordingly, management has determined
that this control deficiency constitutes a material weakness.
 Internal Control  Integrated Framework
  c) Changes in Internal Control Over Financial Reporting
  
    
    Hired additional qualified accounting and financial staff, including:
 o
    
    A Chief Financial Officer with more than 20 years of senior global
strategic, financial, operational, and governance experience at Fortune 100
companies and high growth mid-sized companies in media, software, and technology.o
    
    A Senior Vice President of Accounting with 20 plus years of experience
including experience as a Chief Financial Officer within the telecom industry;o
    
    A director of internal audit with ten plus years experience
 
    
    Implemented a Global financial reporting system in our European Operations; North
American implementation completed in February 2007.
    
    Prepared documentation focused on improving procedures for the financial statement close
process.
 56




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  57




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 (a)
    
    The following documents are filed as part of this Annual Report on Form 10-K:
 (1)
    
    The following financial statements are included in this report under Item 8:Report of Independent Registered Public Accounting Firm  BDO Seidman LLPReport of Independent Registered Certified Public Accountants  Ernst & Young
LLPConsolidated Balance Sheets as of December 31, 2006 and 2005.Consolidated Statements of Operations for the years ended December 31, 2006,
2005 and 2004.Consolidated Statements of Stockholders Equity for the years ended December
31, 2006, 2005 and 2004.Consolidated Statements of Cash Flows for the years ended December 31, 2006,
2005 and 2004.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 AccountsExhibits
 58




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##### Table of Contents



Exhibit No.
    
    Footnote
    
    Description2.1
    
    
    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.10.1
    
    
    +
    
    Executive Employment Agreement between MIVA, Inc. and Lowell Robinson.10.2
    
    
    +
    
    Executive Employment Agreement between MIVA, Inc. and John Pisaris.10.3
    
    
    +
    

2007 Long Term Incentive Compensation Program.10.4
    
    
    *
    

Google Services Agreement and Order Form.10.5
    
    
    c
    
    Lease agreement by and between MIVA (UK) Limited and Commercial Union Life Assurance
dated April 15, 2005.10.6
    
    
    d*
    
    Settlement and License Agreement with Overture Services, Inc. and Yahoo! Inc.10.7
    
    
    d+
    

Executive Employment Agreement between MIVA, Inc. and Peter Corrao.10.8
    
    
    d+
    
    Executive Service Agreement between MIVA (UK) Limited and Adam Poulter.10.9
    
    
    e+
    
    Form of MIVA, Inc. Restricted Stock Unit Agreement.10.10
    
    
    f+
    

Service Based RSU Agreement for 2006 Stock Award and Incentive Plan.10.11
    
    
    f+
    

Performance Based RSU Agreement for 2006 Stock Award and Incentive Plan.10.12
    
    
    g+
    
    MIVA, Inc. 2006 Stock Award and Incentive Plan.10.13
    
    
    h+
    
    Amended and Restated Employment Agreement between MIVA, Inc. and Sebastian Bishop.10.14
    
    
    h+
    
    Amendment No. 1 to Executive Service Agreement between MIVA, Inc. and Adam Poulter.10.15
    
    
    p+
    

Executive Employment Agreement between MIVA, Inc. and William Seippel.10.16
    
    
    h+
    
    Amendment No. 1 to Executive Employment Agreement between MIVA, Inc. and William
Seippel.10.17
    
    
    h+
    
    Amended and Restated Employment Agreement between MIVA, Inc. and Anthony Garcia.10.18
    
    
    i
    
    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 previous amendment dated August 8,
2000.10.19
    
    
    i
    
    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, 2006.10.20
    
    
    j
    

Colonial Bank Plaza Office Building Lease, dated January 31, 2002, as amended.10.21
    
    
    k+
    
    Resignation Agreement dated as of April 6, 2006, by and between MIVA, Inc. and Craig
Pisaris-Henderson.10.22
    
    
    k+
    
    Resignation Agreement dated as of April 6, 2006, by and between MIVA, Inc. and Phillip
Thune.10.23
    
    
    l+
    
    MIVA, Inc. Policy for Compensation For Independent Members of the Board of Directors,
dated
June 14, 2006.10.24
    
    
    l+
    
    Form of Restricted Stock Unit Agreement for Non-Employee Directors.10.25
    
    
    l+
    
    Form of Restricted Stock Unit Agreement for the Chairman of the Board and Lead
Independent
Director.10.26
    
    
    m+
    

Executive Employment Agreement between MIVA, Inc. and Subhransu Brian Mukherjee.10.27
    
    
    o
    

Fast Data Search 360 Perpetual License Agreement, dated December 29, 2004.
 59




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##### Table of Contents



Exhibit No.
    
    Footnote
    
    Description14.1
    
    
    n
    
    Code of Ethics21.1
    
    
    
    
    List of Subsidiaries23.1
    
    
    
    

Consent of Independent Registered Public Accounting Firm  BDO Seidman LLP.23.2
    
    
    
    
    Consent of Independent Registered Certified Public Accountants Ernst & Young LLP.24.1
    
    
    
    
    Powers of Attorney31.1
    
    
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    Certification of Chief Executive Officer of Periodic Financial Reports pursuant
to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.32.2
    
    
    
    
    Certification of Chief Financial Officer of Periodic Financial Reports pursuant
to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
  
 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 April 20, 2005 with MIVAs Form
8-K.d.
    
    Incorporated by reference to the exhibit previously filed on November 9, 2005 with MIVAs
Form 10-Q.e.
    
    Incorporated by reference to the exhibit previously filed on October 21, 2005 with MIVAs
Form 8-K.f.
    
    Incorporated by reference to the exhibit previously filed on November 13, 2006 with
MIVAs Form 10Q/A.g.
    
    Incorporated by reference to the exhibit previously filed on August 22, 2006 with MIVAs Form
8-K.h.
    
    Incorporated by reference to the exhibit previously filed on March 16, 2006 with MIVAs Form
10-K.i.
    
    Incorporated by reference to the exhibit previously filed on
March 1, 2006 with MIVAs Form 8-K.j
    
    Incorporated by reference to the exhibit previously filed on
November 6, 2002 with MIVAs Form 10-QSB.k
    
    Incorporated by reference to the exhibit previously filed on April 7, 2006 with MIVAs Form 8-K.l.
    
    Incorporated by reference to the exhibit previously filed on June 20, 2006 with MIVAs Form
8-K.m.
    
    Incorporated by reference to the exhibit previously filed on July 14, 2006 with MIVAs Form
8-K.n.
    
    Incorporated by reference to the exhibit previously filed on March 5, 2004 with MIVAs Form
10-K.o.
    
    Incorporated by reference to the exhibit previously filed on March 16, 2005 with MIVAs Form
10-K.p.
    
    Incorporated by reference to the exhibit previously filed on
August 15, 2005 with MIVAs Form 10-Q.+
    
    Management compensatory contract or plan.*
    
    Portions of this exhibit have been omitted pursuant to a request for confidential treatment
filed with the Commission under Rule 24b-2. The omitted confidential material has been filed
separately with the Commission. The location of the omitted confidential information is
indicated in the exhibit with asterisks (***). 60




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##### Table of Contents



SIGNATURES
  MIVA, INC.Date:  March 16, 2007
    By:
    /s/ Peter A. CorraoChief Executive Officer th
 Signature
    
    Title/s/ Peter A. Corrao

Peter A. Corrao
    
    Chief Executive Officer and Director
(principal executive officer)* /s/ Sebastian Bishop

Sebastian Bishop
    
    President and Director* /s/ Lowell W. Robinson

Lowell W. Robinson
    
    Chief Financial Officer
(principal financial officer)* /s/ Michael A. Cutler

Michael A. Cutler
    
    Principal Accounting Officer*/s/ Lawrence Weber

Lawrence Weber
    
    Chairman of the Board of Directors*/s/ Gerald W. Hepp

Gerald W. Hepp
    
    Director*/s/ Joseph P. Durrett

Joseph P. Durrett
    
    Director*/s/ Adele Goldberg

Adele Goldberg
    
    Director*/s/ Mark W. Opzoomer

Mark W. Opzoomer
    
    Director*/s/ Lee S. Simonson

Lee S. Simonson
    
    Director
 *By:

/s/ Peter
A. Corrao
    , Attorney-in-Fact 61




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of BDO Seidman LLP
    
    F-2Report of BDO Seidman LLP on Internal Controls
    
    F-3Report of Ernst & Young LLP
    
    F-5Consolidated Balance Sheets
    
    F-6Consolidated Statements of Operations
    
    F-7Consolidated Statements of Stockholders Equity
    
    F-8Consolidated Statements of Cash Flows
    
    F-9Notes to Consolidated Financial Statements
    
    F-10
 F-1




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Report of Independent Registered Public Accounting Firm
 
      Internal Control  Integrated Framework
  
 F-2




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
     F-3




---



##### Table of Contents



Technical Equipment
  Treasury Process
  Payroll Process
     
 F-4




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
 
     
 F-5




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##### Table of Contents



MIVA, Inc.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
 December 31,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    29,588
    
    
    $
    38,436Accounts receivable, less allowance for doubtful accounts of $1,299
and $1,904 at December 31, 2006 and 2005, respectively
    
    
    20,654
    
    
    
    22,387Deferred tax assets
    
    
    60
    
    
    
    1,140Income tax receivable
    
    
    1,471
    
    
    
    7,105Prepaid expenses and other current assets
    
    
    1,634
    
    
    
    1,263Total current assets
    
    
    53,407
    
    
    
    70,331PROPERTY AND
EQUIPMENT, NET
    
    
    15,446
    
    
    
    17,019INTANGIBLE ASSETSGoodwill
    
    
    28,566
    
    
    
    75,659Vendor agreements, net
    
    
    1,704
    
    
    
    13,871Other intangible assets, net
    
    
    6,098
    
    
    
    9,300DEFERRED TAX ASSETS, NET
    
    
    
    
    
    
    3,553OTHER ASSETS
    
    
    1,081
    
    
    
    1,059Total assets
    
    $
    106,302
    
    
    $
    190,792LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    14,829
    
    
    $
    14,088Accrued expenses
    
    
    15,599
    
    
    
    19,223Deferred revenue
    
    
    3,210
    
    
    
    3,469Current portion of long-term debt
    
    
    1,360
    
    
    
    1,240Other current liabilities
    
    
    
    
    
    
    831Total current liabilities
    
    
    34,998
    
    
    
    38,851DEFERRED TAX LIABILITIES
    
    
    
    
    
    
    3,636LONG-TERM DEBT
    
    
    
    
    
    
    1,360OTHER LONG-TERM LIABILITIES
    
    
    395
    
    
    
    432Total liabilities
    
    
    35,393
    
    
    
    44,279STOCKHOLDERS EQUITYPreferred stock, $.001 par value; authorized,
500 shares; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; authorized, 200,000
shares; issued 32,805 and 31,099, respectively;
outstanding 31,512 and 31,001, respectively
    
    
    33
    
    
    
    31Additional paid-in capital
    
    
    259,353
    
    
    
    250,465Treasury stock; 1,293 and 98 shares at cost, respectively
    
    
    (4,744
    )
    
    
    (1,093
    )Accumulated other comprehensive income (loss)
    
    
    5,548
    
    
    
    (1,235
    )Deficit
    
    
    (189,281
    )
    
    
    (101,655
    )Total stockholders equity
    
    
    70,909
    
    
    
    146,513Total liabilities and stockholders equity
    
    $
    106,302
    
    
    $
    190,792
 The accompanying notes are an integral part of these consolidated statements.
 F-6




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##### Table of Contents



MIVA, Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 For the Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenues
    
    $
    172,595
    
    
    $
    194,616
    
    
    $
    169,470Cost of services
    
    
    89,165
    
    
    
    101,306
    
    
    
    86,086Gross profit
    
    
    83,430
    
    
    
    93,310
    
    
    
    83,384Operating expensesMarketing, sales, and service
    
    
    50,141
    
    
    
    36,025
    
    
    
    18,962General and administrative
    
    
    42,220
    
    
    
    38,483
    
    
    
    25,145Product development
    
    
    9,409
    
    
    
    10,595
    
    
    
    5,548Impairment loss on goodwill and
other assets
    
    
    63,680
    
    
    
    123,188
    
    
    
    1,140Amortization
    
    
    7,383
    
    
    
    8,081
    
    
    
    5,686Patent litigation settlement
    
    
    
    
    
    
    8,000
    
    
    
    Total operating expenses
    
    
    172,833
    
    
    
    224,372
    
    
    
    56,481Income (loss) from operations
    
    
    (89,403
    )
    
    
    (131,062
    )
    
    
    26,903Interest income, net
    
    
    823
    
    
    
    458
    
    
    
    476Exchange rate gain (loss)
    
    
    151
    
    
    
    (119
    )
    
    
    339Income (loss) before provision for income taxes
    
    
    (88,429
    )
    
    
    (130,723
    )
    
    
    27,718Income tax expense (benefit)
    
    
    (803
    )
    
    
    (556
    )
    
    
    10,690Net income (loss)
    
    $
    (87,626
    )
    
    $
    (130,167
    )
    
    $
    17,028Net income (loss) per shareBasic
    
    $
    (2.79
    )
    
    $
    (4.23
    )
    
    $
    0.65Diluted
    
    $
    (2.79
    )
    
    $
    (4.23
    )
    
    $
    0.60Weighted-average number of common
shares outstandingBasic
    
    
    31,433
    
    
    
    30,782
    
    
    
    26,318Diluted
    
    
    31,433
    
    
    
    30,782
    
    
    
    28,518
 The accompanying notes are an integral part of these consolidated statements.
 F-7




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##### Table of Contents



MIVA, Inc.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
 For the Year Ended December 31,2006
    
    
    2005
    
    
    2004Common stockBalance, beginning of year
    
    $
    31
    
    
    $
    31
    
    
    $
    21Common stock issued related to
stock option and warrant exercises
    
    
    2
    
    
    
    
    
    
    
    1Issuance of common stock in connection
with business acquisitions
    
    
    
    
    
    
    
    
    
    
    9Balance, end of year
    
    $
    33
    
    
    $
    31
    
    
    $
    31Additional paid-in-capitalBalance, beginning of year
    
    $
    250,465
    
    
    $
    247,132
    
    
    $
    52,884Common stock issued related to
stock option and warrant exercises
    
    
    1,481
    
    
    
    1,900
    
    
    
    3,309Common stock issued related to
tax benefit of exercise of stock options
    
    
    
    
    
    
    284
    
    
    
    4,005Compensation charge related to restricted
stock unit issuance and non-employee options
    
    
    7,407
    
    
    
    1,149
    
    
    
    Issuance of common stock in connection
with business acquisitions
    
    
    
    
    
    
    
    
    
    
    186,934Balance, end of year
    
    $
    259,353
    
    
    $
    250,465
    
    
    $
    247,132Treasury stockBalance, beginning of year
    
    $
    (1,093
    )
    
    $
    (804
    )
    
    $
    (82
    )Treasury stock purchased
    
    
    (887
    )
    
    
    
    
    
    
    Treasury stock received from escrow settlement
    
    
    (813
    )
    
    
    
    
    
    
    Treasury stock received to satisfy
accrued liabilities
    
    
    (1,951
    )
    
    
    (289
    )
    
    
    (722
    )Balance, end of year
    
    $
    (4,744
    )
    
    $
    (1,093
    )
    
    $
    (804
    )Retained earnings (deficit)Balance, beginning of year
    
    $
    (101,655
    )
    
    $
    28,512
    
    
    $
    11,484Net income (loss)
    
    
    (87,626
    )
    
    
    (130,167
    )
    
    
    17,028Balance, end of year
    
    $
    (189,281
    )
    
    $
    (101,655
    )
    
    $
    28,512Accumulated other comprehensive income (loss)Balance, beginning of year
    
    $
    (1,235
    )
    
    $
    12,808
    
    
    $
    Foreign currency translation adjustment
    
    
    6,783
    
    
    
    (14,043
    )
    
    
    12,808Balance, end of year
    
    $
    5,548
    
    
    $
    (1,235
    )
    
    $
    12,808Stockholders Equity
    
    $
    70,909
    
    
    $
    146,513
    
    
    $
    287,679Comprehensive income (loss)Net income (loss)
    
    $
    (87,626
    )
    
    $
    (130,167
    )
    
    $
    17,028Other comprehensive income (loss)Foreign currency translation adjustment
    
    
    6,783
    
    
    
    (14,043
    )
    
    
    12,808Comprehensive income (loss)
    
    $
    (80,843
    )
    
    $
    (144,210
    )
    
    $
    29,836
 Number of SharesCommon stockBalance, beginning of year
    
    
    31,099
    
    
    
    30,502
    
    
    
    21,428Issuance of common stock in connection
with business acquisitions
    
    
    
    
    
    
    
    
    
    
    8,001Common stock issued related to stock option
warrant & restricted stock unit exercises
    
    
    1,706
    
    
    
    597
    
    
    
    1,073Balance, end of year
    
    
    32,805
    
    
    
    31,099
    
    
    
    30,502
 The accompanying notes are an integral part of these consolidated statements.
 F-8




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##### Table of Contents



MIVA, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year ended December 31,2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    (87,626
    )
    
    $
    (130,167
    )
    
    $
    17,028Adjustments to reconcile net income (loss) to net cash
provided by operating activitiesProvision for (recoveries of) doubtful accounts
    
    
    (187
    )
    
    
    (519
    )
    
    
    658Depreciation and amortization
    
    
    12,855
    
    
    
    13,383
    
    
    
    9,094European business tax reimbursements
    
    
    (784
    )
    
    
    
    
    
    
    Impairment loss on goodwill and other assets
    
    
    63,680
    
    
    
    123,188
    
    
    
    1,140Equity based compensation
    
    
    7,407
    
    
    
    1,149
    
    
    
    Tax benefit of stock option exercises
    
    
    
    
    
    
    284
    
    
    
    4,005Deferred income tax expense
    
    
    757
    
    
    
    (591
    )
    
    
    1,944Loss (gain) on sale of assets
    
    
    12
    
    
    
    (387
    )
    
    
    24Changes in operating assets and liabilitiesAccounts receivable
    
    
    3,200
    
    
    
    2,306
    
    
    
    (4,328
    )Prepaid expenses and other current assets
    
    
    (292
    )
    
    
    231
    
    
    
    2,557Income taxes receivable
    
    
    5,492
    
    
    
    (5,567
    )
    
    
    (856
    )Other assets
    
    
    71
    
    
    
    (131
    )
    
    
    (514
    )Deferred revenue
    
    
    (468
    )
    
    
    (1,964
    )
    
    
    1,080Accounts payable, accrued expenses and other liabilities
    
    
    (6,430
    )
    
    
    464
    
    
    
    (12,903
    )Net Cash Provided by (used in) Operating Activities
    
    
    (2,313
    )
    
    
    1,679
    
    
    
    18,929Cash Flows from Investing ActivitiesNote receivable
    
    
    
    
    
    
    
    
    
    
    2,054Proceeds from the sale of assets
    
    
    3
    
    
    
    582
    
    
    
    Purchase of short-term investments
    
    
    (97,745
    )
    
    
    (51,051
    )
    
    
    (75,843
    )Proceeds from sale of short-term investments
    
    
    97,745
    
    
    
    76,055
    
    
    
    87,952Purchase of businesses, net of cash acquired
    
    
    (2,795
    )
    
    
    (7,827
    )
    
    
    (20,343
    )Purchase of capital items including internally developed software
    
    
    (6,742
    )
    
    
    (7,653
    )
    
    
    (7,546
    )Net Cash Provided by (used in) Investing Activities
    
    
    (9,534
    )
    
    
    10,106
    
    
    
    (13,726
    )Cash Flows from Financing ActivitiesPayments made on capital leases and notes payable
    
    
    
    
    
    
    (413
    )
    
    
    (2,110
    )Payments made on software license obligation
    
    
    (1,400
    )
    
    
    (3,500
    )
    
    
    Purchases of treasury stock
    
    
    (887
    )
    
    
    
    
    
    
    Proceeds received from exercise of stock options and warrants
    
    
    2,354
    
    
    
    1,900
    
    
    
    3,310Net Cash Provided by (used in) Financing Activities
    
    
    67
    
    
    
    (2,013
    )
    
    
    1,200Effect of Foreign Currency Exchange Rates
    
    
    2,932
    
    
    
    (556
    )
    
    
    720(Decrease) / Increase in Cash and Cash Equivalents
    
    
    (8,848
    )
    
    
    9,216
    
    
    
    7,123Cash and Cash Equivalents, Beginning of Year
    
    
    38,436
    
    
    
    29,220
    
    
    
    22,097Cash and Cash Equivalents, End of Year
    
    $
    29,588
    
    
    $
    38,436
    
    
    $
    29,220Supplemental Disclosures of Cash Flow Information:Interest paid
    
    $
    304
    
    
    $
    92
    
    
    $
    82Income taxes paid
    
    $
    2,049
    
    
    $
    485
    
    
    $
    3,950Supplemental Schedule of Noncash Investing and Financing Activities:Treasury stock received to satisfy tax withholding liabilities
    
    $
    (1,951
    )
    
    $
    (289
    )
    
    $
    (722
    )Debt incurred for purchase of software license
    
    $
    
    
    
    $
    
    
    
    $
    5,979Common stock issued for business acquisitions and mergers
    
    $
    
    
    
    $
    
    
    
    $
    186,943Liabilities incurred for business acquisitions
    
    $
    
    
    
    $
    1,667
    
    
    $
    1,128
 The accompanying notes are an integral part of these consolidated statements.
 F-9




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##### Table of Contents



MIVA, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  NATURE OF BUSINESS
    MIVA Media
  MIVA Direct
  MIVA Small Business
  F-10




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##### Table of Contents



NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Use of Estimates
  Revenue Recognition
    F-11




---



##### Table of Contents



Cost of Services
  Cash and Cash Equivalents and Short-term Investments
  Allowance for Doubtful Accounts
  Concentration of Credit Risk
  Capitalized Software
   F-12




---



##### Table of Contents



Fair Value of Financial Instruments
   Advertising Costs
  Income Taxes
 Accounting for Income Taxes
 Property and Equipment
  Goodwill and Other Long-Lived Assets
  F-13




---



##### Table of Contents



Foreign Currency Translation
  F-14




---



##### Table of Contents



Operating Leases
  New Accounting Pronouncements
  Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 Fair Value Measurements
 F-15




---



##### Table of Contents



Employers Accounting for Defined Benefit
Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R)
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115,
 NOTE C
 IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLES
 Goodwill and Other Intangible Assets
  F-16




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##### Table of Contents



F-17




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##### Table of Contents



NOTE D
 CHANGES IN COMPANY EXECUTIVES
     F-18




---



##### Table of Contents



NOTE E
 ACCOUNTING FOR SHARE-BASED COMPENSATION
      F-19




---



##### Table of Contents



Accounting for Stock Issued to Employees, Share-Based Payment,
    F-20




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##### Table of Contents



For the year ended December 31,2005
    
    
    2004Net income (loss), as reported
    
    $
    (130,167
    )
    
    $
    17,028Add: 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
    )
    
    
    (8,014
    )Pro forma net income (loss)
    
    $
    (142,061
    )
    
    $
    9,014Earnings (loss) per share:Basic  as reported
    
    $
    (4.23
    )
    
    $
    0.65Basic  pro forma
    
    $
    (4.62
    )
    
    $
    0.34Diluted  as reported
    
    $
    (4.23
    )
    
    $
    0.60Diluted  pro forma
    
    $
    (4.62
    )
    
    $
    0.32
  Weighted-AverageExerciseOptions
    
    
    PriceOptions outstanding at December 31, 2003
    
    
    3,807
    
    
    $
    4.57Granted
    
    
    2,227
    
    
    
    15.15Exercised
    
    
    (1,115
    )
    
    
    3.21Forfeited
    
    
    (120
    )
    
    
    14.77Expired
    
    
    (6
    )
    
    
    5.76Options outstanding at December 31, 2004
    
    
    4,793
    
    
    
    9.56Granted
    
    
    2,119
    
    
    
    7.87Exercised
    
    
    (313
    )
    
    
    3.55Forfeited
    
    
    (1,607
    )
    
    
    14.49Expired
    
    
    (397
    )
    
    
    14.99Options outstanding at December 31, 2005
    
    
    4,595
    
    
    
    6.98Granted
    
    
    1,240
    
    
    
    4.67Exercised
    
    
    (824
    )
    
    
    1.56Forfeited
    
    
    (771
    )
    
    
    5.13Expired
    
    
    (271
    )
    
    
    12.55Options outstanding at December 31, 2006
    
    
    3,969
    
    
    $
    7.36
 F-21




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##### Table of Contents



WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$1.00 - $3.00
    
    
    638
    
    
    
    5.1
    
    
    $
    1.49
    
    
    
    508
    
    
    $
    1.15$3.01 - $6.00
    
    
    2,460
    
    
    
    7.7
    
    
    
    4.72
    
    
    
    1,082
    
    
    
    4.52$6.01 - $14.00
    
    
    135
    
    
    
    7.3
    
    
    
    10.08
    
    
    
    94
    
    
    
    10.14$14.01 - $27.72
    
    
    736
    
    
    
    7.4
    
    
    
    20.52
    
    
    
    711
    
    
    
    20.773,969
    
    
    
    7.3
    
    
    $
    7.36
    
    
    
    2,395
    
    
    $
    8.85
   For the Year Ended December 31,2006
    
    2005
    
    2004New stock options granted
    
    
    1,240
    
    
    
    2,119
    
    
    
    2,227Expense recognized with new stock options
    
    $
    1,454
    
    
    $
    35
    
    
    $
    
  For the year ended December 31,2006
    
    2005
    
    2004Volatility
    
    
    85.5
    %
    
    
    91.1
    %
    
    
    56.7
    %Risk-free rate
    
    
    4.6
    %
    
    
    3.9
    %
    
    
    3.9
    %Expected life
    
    
    4.9
    Years
    
    
    7.1
    Years
    
    
    8.0
    Years
 F-22




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##### Table of Contents



Weighted-AverageExerciseWarrants
    
    
    PriceBalance, December 31, 2003
    
    
    295
    
    
    $
    3.36Granted
    
    
    
    
    
    
    Exercised
    
    
    (12
    )
    
    
    2.50Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance, December 31, 2004
    
    
    283
    
    
    
    3.36Granted
    
    
    
    
    
    
    Exercised
    
    
    (188
    )
    
    
    4.50Forfeited
    
    
    
    
    
    
    Expired
    
    
    (5
    )
    
    
    5.50Balance, December 31, 2005
    
    
    90
    
    
    
    1.00Granted
    
    
    
    
    
    
    Exercised
    
    
    (90
    )
    
    
    1.00Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance, December 31, 2006
    
    
    
    
    
    $
    
  RestrictedStock UnitsBalance, December 31, 2004
    
    
    Granted
    
    
    1,050Vested
    
    
    (102
    )Forfeited
    
    
    (15
    )Expired
    
    
    Balance, December 31, 2005
    
    
    933Granted
    
    
    350Vested
    
    
    (748
    )Forfeited
    
    
    (111
    )Expired
    
    
    Balance, December 31, 2006
    
    
    424
 F-23




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##### Table of Contents



NOTE F  PROPERTY AND EQUIPMENT
  For the Year Ended December 31,
    
    
    Estimated2006
    
    
    2005
    
    
    Useful LifeTechnical equipment
    
    $
    21,379
    
    
    $
    16,081
    
    
    
    3
    yearsFurniture
    
    
    2,444
    
    
    
    2,276
    
    
    
    5
    yearsLeasehold improvements
    
    
    1,047
    
    
    
    860
    
    
    
    10
    yearsCapitalized software
    
    
    10,258
    
    
    
    9,289
    
    
    
    1 to 5
    yearsLess
    
    
    35,128
    
    
    
    28,506Accumulated Depreciation & Amortization
    
    
    (19,682
    )
    
    
    (11,487
    )$
    15,446
    
    
    $
    17,019
  NOTE G  ACCRUED EXPENSES
  December 31,2006
    
    
    2005Revenue-sharing agreements
    
    $
    5,658
    
    
    $
    3,004Accrued compensation
    
    
    4,000
    
    
    
    2,566Professional fees
    
    
    1,273
    
    
    
    2,277Operating expenses
    
    
    2,262
    
    
    
    2,065Earnout and acquisition related
    
    
    
    
    
    
    2,794Value added tax payable
    
    
    103
    
    
    
    308Other taxes payable
    
    
    259
    
    
    
    3,938Other
    
    
    2,044
    
    
    
    2,271$
    15,599
    
    
    $
    19,223
 F-24




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##### Table of Contents



NOTE H  INTANGIBLE ASSETS
  Gross
    
    
    
    
    
    
    Net
    
    
    WeightedCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Average UsefulAmount
    
    
    Amortization
    
    
    Amount
    
    
    Economic Life(Years)Vendor agreements
    
    $
    2,707
    
    
    $
    (1,003
    )
    
    $
    1,704
    
    
    
    4Developed technology
    
    
    8,776
    
    
    
    (4,245
    )
    
    
    4,531
    
    
    
    5Customer relationships
    
    
    100
    
    
    
    (100
    )
    
    
    
    
    
    
    1Other definite-lived intangibles
    
    
    961
    
    
    
    (528
    )
    
    
    433
    
    
    
    5Indefinite-lived intellectual property
    
    
    1,134
    
    
    
    
    
    
    
    1,134
    
    
    IndefiniteGoodwill
    
    
    28,566
    
    
    
    
    
    
    
    28,566
    
    
    Indefinite$
    42,244
    
    
    $
    (5,876
    )
    
    $
    36,368
  Gross
    
    
    
    
    
    
    Net
    
    
    WeightedCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Average UsefulAmount
    
    
    Amortization
    
    
    Amount
    
    
    Economic Life(Years)Vendor agreements
    
    $
    18,416
    
    
    $
    (4,545
    )
    
    $
    13,871
    
    
    
    6Developed technology
    
    
    9,347
    
    
    
    (2,416
    )
    
    
    6,931
    
    
    
    5Customer relationships
    
    
    1,776
    
    
    
    (938
    )
    
    
    838
    
    
    
    5Other definite-lived intangibles
    
    
    912
    
    
    
    (419
    )
    
    
    493
    
    
    
    7Indefinite-lived intellectual property
    
    
    1,038
    
    
    
    
    
    
    
    1,038
    
    
    IndefiniteGoodwill
    
    
    75,659
    
    
    
    
    
    
    
    75,659
    
    
    Indefinite$
    107,148
    
    
    $
    (8,318
    )
    
    $
    98,830
   F-25




---



##### Table of Contents



Performance
    
    
    MerchantMarketing
    
    
    Services
    
    
    TotalBalance as of January 1, 2005Goodwill recorded as result of acquisition
    
    $
    197,881
    
    
    $
    3,302
    
    
    $
    201,183Additional purchase price consideration
due pursuant to earnouts
    
    
    8,441
    
    
    
    360
    
    
    
    8,801Impairment Charge
    
    
    (116,555
    )
    
    
    (3,662
    )
    
    
    (120,217
    )Income tax adjustments
    
    
    (2,479
    )
    
    
    
    
    
    
    (2,479
    )Foreign currency translation adjustments
    
    
    (11,629
    )
    
    
    
    
    
    
    (11,629
    )Balance as of January 1, 2006
    
    $
    75,659
    
    
    $
    
    
    
    $
    75,659Goodwill impairment
    
    
    (50,625
    )
    
    
    
    
    
    
    (50,625
    )Income tax adjustments
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Foreign currency translation adjustments
    
    
    3,598
    
    
    
    
    
    
    
    3,598Balance as of December 31, 2006
    
    $
    28,566
    
    
    $
    
    
    
    $
    28,566
    Fiscal Years:2007
    
    $
    2,4462008
    
    
    2,4462009
    
    
    9802010
    
    
    4462011
    
    
    221Thereafter
    
    
    128$
    6,667
 F-26




---



##### Table of Contents



NOTE I
 PER SHARE DATA
   For the Year Ended December 31,2006
    
    2005
    
    2004Weighted-average number of common
shares outstanding-basic
    
    
    31,433
    
    
    
    30,782
    
    
    
    26,318Dilution from stock options, warrants,
and restricted stock units
    
    
    
    
    
    
    
    
    
    
    2,200Weighted-average number of common
shares and potential common shares
outstanding  diluted
    
    
    31,433
    
    
    
    30,782
    
    
    
    28,518
 NOTE J
 LITIGATION
 Cisneros Litigation
 in pari delicto
 F-27




---



##### Table of Contents



Lanes Gifts and Collectibles Litigation
    F-28




---



##### Table of Contents



Shareholder Class Action Lawsuits
     Derivative Stockholder Litigation
   F-29




---



##### Table of Contents



Payday Advance Plus, Inc .
   Overture Litigation
  Other Litigation
   NOTE K  DEBT
 Bank Debt
  F-30




---



##### Table of Contents



Seller Notes Payable
  Software License Agreement
 TM
  December 31,2006
    
    
    2005Obligation to Screensavers.com
    
    $
    
    
    
    $
    50Obligation to FAST Software  net of discount
of $40 and $249, respectively
    
    
    1,360
    
    
    
    2,550Total long-term debt
    
    $
    1,360
    
    
    $
    2,600Less current
portion  net of discount of $40 and $209, respectively
    
    
    (1,360
    )
    
    
    (1,240
    )Long-term debt
    
    $
    
    
    
    $
    1,360
  NOTE L
 COMMITMENTS AND CONTINGENCIES
   F-31




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##### Table of Contents



GuaranteedDistributionOperating
    
    
    Partner
    
    
    RoyaltyLeases
    
    
    Payments
    
    
    Agreement2007
    
    $
    2,738
    
    
    $
    621
    
    
    $
    8002008
    
    
    2,672
    
    
    
    
    
    
    
    8002009
    
    
    2,578
    
    
    
    
    
    
    
    8002010
    
    
    2,660
    
    
    
    
    
    
    
    6002011
    
    
    1,941
    
    
    
    
    
    
    
    Thereafter
    
    
    3,178
    
    
    
    
    
    
    
    $
    15,767
    
    
    $
    621
    
    
    $
    3,000
    F-32




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##### Table of Contents



NOTE M
 SEGMENT INFORMATION
   Performance
    
    MerchantMarketing
    
    Services
    
    TotalYear ended December 31, 2006Revenue
    
    $
    170,798
    
    
    $
    1,797
    
    
    $
    172,595Operating loss
    
    
    (87,739
    )
    
    
    (1,664
    )
    
    
    (89,403
    )Interest income
    
    
    852
    
    
    
    
    
    
    
    852Interest expense
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Depreciation and amortization
    
    
    12,818
    
    
    
    37
    
    
    
    12,855Patent litigation settlement
    
    
    
    
    
    
    
    
    
    
    Income tax expense (benefit)
    
    
    (1,789
    )
    
    
    986
    
    
    
    (803
    )Impairment loss on goodwill & other assets
    
    
    63,680
    
    
    
    
    
    
    
    63,680Net loss
    
    
    (84,975
    )
    
    
    (2,651
    )
    
    
    (87,626
    )Total assets
    
    
    106,100
    
    
    
    202
    
    
    
    106,302
 Performance
    
    MerchantMarketing
    
    Services
    
    TotalYear ended December 31, 2005Revenue
    
    $
    190,772
    
    
    $
    3,844
    
    
    $
    194,616Operating loss
    
    
    (125,390
    )
    
    
    (5,672
    )
    
    
    (131,062
    )Interest income
    
    
    868
    
    
    
    
    
    
    
    868Interest expense
    
    
    (406
    )
    
    
    (4
    )
    
    
    (410
    )Depreciation and amortization
    
    
    12,966
    
    
    
    417
    
    
    
    13,383Patent litigation settlement
    
    
    8,000
    
    
    
    
    
    
    
    8,000Income tax expense (benefit)
    
    
    (20
    )
    
    
    (536
    )
    
    
    (556
    )Impairment loss on goodwill & other assets
    
    
    117,055
    
    
    
    6,133
    
    
    
    123,188Net loss
    
    
    (125,028
    )
    
    
    (5,139
    )
    
    
    (130,167
    )Total assets
    
    
    188,717
    
    
    
    2,075
    
    
    
    190,792
 F-33




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##### Table of Contents



Performance
    
    MerchantMarketing
    
    Services
    
    TotalYear ended December 31, 2004Revenue
    
    
    167,304
    
    
    
    2,166
    
    
    
    169,470Operating income (loss)
    
    
    29,168
    
    
    
    (2,265
    )
    
    
    26,903Interest income
    
    
    620
    
    
    
    
    
    
    
    620Interest expense
    
    
    (125
    )
    
    
    (1
    )
    
    
    (126
    )Depreciation and amortization
    
    
    8,636
    
    
    
    458
    
    
    
    9,094Income tax expense (benefit)
    
    
    11,047
    
    
    
    (357
    )
    
    
    10,690Impairment loss on goodwill & other assets
    
    
    
    
    
    
    1,140
    
    
    
    1,140Net income
    
    
    18,937
    
    
    
    (1,909
    )
    
    
    17,028Total assets
    
    
    332,842
    
    
    
    8,362
    
    
    
    341,204
  Long-LivedRevenues
    
    
    AssetsYear ended December 31, 2006United States
    
    $
    105,114
    
    
    $
    34,520United Kingdom
    
    
    34,254
    
    
    
    18,154Other International
    
    
    33,227
    
    
    
    221Total
    
    $
    172,595
    
    
    $
    52,895Year ended December 31, 2005United States
    
    $
    93,934
    
    
    $
    38,314United Kingdom
    
    
    60,080
    
    
    
    77,312Other International
    
    
    40,602
    
    
    
    1,282Total
    
    $
    194,616
    
    
    $
    116,908Year ended December 31, 2004United States
    
    $
    112,172
    
    
    $
    42,556United Kingdom
    
    
    38,924
    
    
    
    210,272Other International
    
    
    18,374
    
    
    
    380Total
    
    $
    169,470
    
    
    $
    253,208
  NOTE N  RELATED PARTY TRANSACTIONS
  F-34




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##### Table of Contents



NOTE O  INCOME TAXES
  For the Year Ended December 31,2006
    
    
    2005
    
    
    2004Current:United States federal
    
    $
    (375
    )
    
    $
    (4,778
    )
    
    $
    6,167State
    
    
    480
    
    
    
    89
    
    
    
    922Foreign
    
    
    (1,665
    )
    
    
    4,724
    
    
    
    1,657(1,560
    )
    
    
    35
    
    
    
    8,746Deferred:United States federal and state
    
    
    4,482
    
    
    
    (550
    )
    
    
    1,138Foreign
    
    
    (3,725
    )
    
    
    (41
    )
    
    
    806757
    
    
    
    (591
    )
    
    
    1,944$
    (803
    )
    
    $
    (556
    )
    
    $
    10,690
  For the Year Ended December 31,2006
    
    
    2005
    
    
    2004United States
    
    $
    (13,689
    )
    
    $
    (21,201
    )
    
    $
    21,877Foreign
    
    
    (74,740
    )
    
    
    (109,522
    )
    
    
    5,841$
    (88,429
    )
    
    $
    (130,723
    )
    
    $
    27,718
 F-35




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##### Table of Contents



For the Year Ended December 31,2006
    
    
    2005
    
    
    2004Tax (benefit) using statutory United States
federal tax rate
    
    $
    (30,066
    )
    
    $
    (45,753
    )
    
    $
    9,701Effect of state income taxes
    
    
    480
    
    
    
    (89
    )
    
    
    922Write-down of non-deductible costs in excess
of net assets of acquired companies
    
    
    15,489
    
    
    
    42,551
    
    
    
    433Foreign tax rate differential
    
    
    2,901
    
    
    
    2,268
    
    
    
    (293
    )Transaction costs
    
    
    
    
    
    
    
    
    
    
    (570
    )Deferred tax asset valuation allowances
    
    
    9,112
    
    
    
    
    
    
    
    (94
    )Other
    
    
    1,281
    
    
    
    467
    
    
    
    591$
    (803
    )
    
    $
    (556
    )
    
    $
    10,690
    F-36




---



##### Table of Contents



December 31,2006
    
    
    2005Deferred tax assets, short-termAccounts receivable allowances
    
    $
    72
    
    
    $
    191Accruals
    
    
    23
    
    
    
    827Valuation allowance
    
    
    (95
    )Net operating losses
    
    
    60
    
    
    
    122Total
    
    $
    60
    
    
    $
    1,140Deferred tax assets, long-termFixed Assets
    
    
    353
    
    
    
    Intangibles
    
    
    198
    
    
    
    235Accruals
    
    
    1,056
    
    
    
    Net operating losses
    
    
    21,099
    
    
    
    18,837Valuation allowance
    
    
    (18,230
    )
    
    
    (9,189
    )Total
    
    $
    4,476
    
    
    $
    9,883Deferred tax liabilitiesCapitalized software
    
    
    (2,664
    )
    
    
    (3,257
    )Fixed assets
    
    
    
    
    
    
    (254
    )Intangibles
    
    
    (1,783
    )
    
    
    (6,323
    )Other
    
    
    (29
    )
    
    
    (132
    )Total
    
    $
    (4,476
    )
    
    $
    (9,966
    )Net deferred tax assets
    
    $
    60
    
    
    $
    1,057
    F-37




---



##### Table of Contents



NOTE Q
 QUARTERLY FINANCIAL SUMMARY (unaudited)
 Three Months Ended2006
    
    March 31
    
    June 30 (c)
    
    September 30
    
    December 31(in thousands, except per share data)Statements of operationsRevenues
    
    $
    44,412
    
    
    $
    41,422
    
    
    $
    43,258
    
    
    
    43,503Gross profit
    
    
    22,980
    
    
    
    20,009
    
    
    
    20,208
    
    
    
    20,233Net loss
    
    
    (3,820
    )
    
    
    (72,981
    )
    
    
    (4,587
    )
    
    
    (6,238
    )Net loss per shareBasic
    
    $
    (0.12
    )
    
    $
    (2.29
    )
    
    $
    (0.15
    )
    
    $
    (0.20
    )Diluted
    
    
    (0.12
    )
    
    
    (2.29
    )
    
    
    (0.15
    )
    
    $
    (0.20
    )Three Months Ended2005
    
    March 31
    
    June 30 (a)
    
    September 30 (b)
    
    December 31(in thousands, except per share data)Statements of operationsRevenues
    
    $
    58,188
    
    
    $
    48,790
    
    
    $
    44,687
    
    
    $
    42,951Gross profit
    
    
    26,947
    
    
    
    22,929
    
    
    
    21,885
    
    
    
    21,549Gain on sale of business
    
    
    
    
    
    
    
    
    
    
    631
    
    
    
    Net income (loss)
    
    
    3,201
    
    
    
    (125,234
    )
    
    
    (3,472
    )
    
    
    (4,662
    )Net income per shareBasic
    
    $
    0.10
    
    
    $
    (4.08
    )
    
    $
    (0.11
    )
    
    $
    (0.15
    )Diluted
    
    
    0.10
    
    
    
    (4.08
    )
    
    
    (0.11
    )
    
    
    (0.15
    )
 
 (a)
    
    Includes impairment charges related to goodwill and other intangible assets at MIVA Media Europe, MIVA Small
Business and MIVA Direct of $118.9 million. Also includes one-time payment of $8.0 million pursuant to the
settlement agreement with Yahoo!(b)
    
    Includes non-recurring revenue of $1.5 million 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 MIVA Small
Business.(c)
    
    Includes impairment charge related to goodwill and other
intangible assets at MIVA Media Europe of $63.7 million. NOTE R
 EMPLOYEE BENEFIT PLAN
  F-38




---



##### Table of Contents



NOTE S
 DISPOSALS
  NOTE T
 OTHER MATTERS
  NOTE U
 SUBSEQUENT EVENTS
     F-39




---



##### Table of Contents



Valuation and Qualifying Accounts
 Balance atthe
    
    
    
    
    
    Charges toBeginning
    
    Charges to
    
    Other
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    of Period
    
    Earnings
    
    Accounts
    
    Acquisitions
    
    Deductions
    
    End of PeriodAllowance for doubtful accounts:Year Ended December 31, 2006
    
    $
    1,904
    
    
    $
    (187
    )
    
    $
    166
    (1)
    
    $
    
    
    
    $
    (584
    )(2)
    
    $
    1,299Year Ended December 31, 2005
    
    $
    3,095
    
    
    $
    (514
    )
    
    $
    (293
    )(1)
    
    $
    
    
    
    $
    (384
    )(2)
    
    $
    1,904Year Ended December 31, 2004
    
    $
    223
    
    
    $
    658
    
    
    $
    235
    (1)
    
    $
    2,194
    (3)
    
    $
    (215
    )(2)
    
    $
    3,095Income tax valuation allowance:Year Ended December 31, 2006
    
    $
    9,188
    
    
    $
    9,112
    
    
    $
    858
    (1)
    
    $
    
    
    
    $
    (833
    )(4)
    
    $
    18,325Year Ended December 31, 2005
    
    $
    10,487
    
    
    $
    103
    
    
    $
    (1,402
    )(1)
    
    $
    
    
    
    $
    
    
    
    $
    9,188Year Ended December 31, 2004
    
    $
    
    
    
    $
    (94
    )
    
    $
    1,199
    (1)
    
    $
    9,382
    (3)
    
    $
    
    
    
    $
    10,487
 
 (1)
    
    Change due to foreign currency translation, which is included in other comprehensive income(2)
    
    Write-off fully reserved accounts receivable(3)
    
    Includes amount from merger with MIVA Media Europe completed in 2004(4)
    
    Acquired valuation allowance credited to goodwill F-40