10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2006
OR
q	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 0-27065

APTIMUS, INC.

(Exact name of registrant as specified in its charter)

WASHINGTON	91-1809146
(State of other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

100 Spear Street, Suite 1115

San Francisco, CA 94105

(Address of principal executive offices and zip code)

(415) 896-2123

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o

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

The number of shares of the registrant's Common Stock outstanding as of November 1, 2006 was 6,552,633.

APTIMUS, INC.

INDEX TO THE FORM 10-Q

For the quarterly period ended September 30, 2006

		Page
Part I -	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005	2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 4.	CONTROLS AND PROCEDURES	22
Part II -	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	24
SIGNATURES		26

PART I — FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

APTIMUS, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

	September 30, 2006			December 31, 2005
ASSETS
Cash and cash equivalents	$	5,961		$	4,349
Accounts receivable, net		3,704			2,498
Prepaid expenses and other assets		197			140
Marketable securities		-			6,091
Total current assets		9,862			13,078
Fixed assets, net		901			690
Goodwill		3,028			-
Intangible assets, net		2,672			20
Deposits		158			39
Total assets	$	16,621		$	13,827
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	1,894		$	1,016
Accrued and other liabilities		1,097			325
Current portion of notes payable		2,763			-
Total current liabilities		5,754			1,341
Shareholders' equity
Common stock, no par value; 100,000 shares authorized, 6,553 and 6,528 issued and outstanding at September 30, 2006 and December 31, 2005, respectively		69,328			69,223
Additional paid-in capital		3,462			2,850
Accumulated deficit		(61,923	)		(59,587	)
Total shareholders' equity		10,867			12,486
Total liabilities and shareholders’ equity	$	16,621		$	13,827

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

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APTIMUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

		Three months ended September 30,						Nine months ended September 30,
		2006			2005			2006			2005
Revenues	$	4,608		$	3,879		$	10,753		$	12,214
Operating expenses:
Cost of revenues		2,538			1,986			5,508			5,488
Sales and marketing		1,797			1,016			4,418			2,476
Connectivity and network costs		275			186			714			606
Research and development		230			169			639			494
General and administrative		641			492			1,712			1,508
Depreciation and amortization		147			101			348			251
Loss (gain) on disposal of long-term		—			—			1			—
Total operating expenses		5,628			3,950			13,340			10,823
Operating income (loss)		(1,020	)		(71	)		(2,587	)		1,391
Interest income		61			81			275			160
Interest expense		(24	)		—			(24	)		—
Gain on warrant liability		—			—			—			89
Net income (loss)	$	(983	)	$	10		$	(2,336	)	$	1,640
Earnings (loss) per share:
Basic	$	(0.15	)	$	0.00		$	(0.36	)	$	0.26
Diluted	$	(0.15	)	$	0.00		$	(0.36	)	$	0.21
Weighted average shares outstanding:
Basic		6,541			6,469			6,536			6,299
Diluted		6,541			7,663			6,536			7,962

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

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APTIMUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Nine Months Ended September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(2,336	)	$	1,640
Adjustments to reconcile net loss to net cash provide by (used in) operating activities
Depreciation and amortization		348			251
Bad debt expense		32			80
Loss on disposal of long-term assets		1			—
Stock-based compensation		612			—
(Gain) on warrant liability		—			(89	)
Amortization of discount on short-term investments		(244	)		(16	)
Changes in operating assets and liabilities:
Accounts receivable		(1,238	)		39
Prepaid expenses and other assets		(176	)		(58	)
Accounts payable		878			(886	)
Accrued and other liabilities		772			195
Net cash provided by (used in) operating activities		(1,351	)		1,156
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(512	)		(345	)
Payments for intangible assets		(5,728	)		(9	)
Acquisition of business		—			(150	)
Purchase of short-term investments		(17,315	)		(2,999	)
Sale of short-term investments		23,650			—
Net cash used in investing activities		95			(3,503	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit		2,763			—
Issuance of common stock, net		105			6,263
Costs of issuance of common stock		—			(267	)
Net cash provided by financing activities		2,868			5,996
Net increase in cash and cash equivalents		1,612			3,649
Cash and cash equivalents at beginning of period		4,349			3,610
Cash and cash equivalents at end of period	$	5,961		$	7,259

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

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APTIMUS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.DESCRIPTION OF BUSINESS

We are a results-based advertising network that distributes advertisements for direct marketing advertisers across a network of third-party web sites. In 2005 and prior years, we also distributed advertisements for direct marketing advertisers across company-owned and licensed email lists. Advertisers pay us only for the results that we deliver through one of four pricing models - (i) cost per click, (ii) cost per lead, (iii) cost per acquisition or (iv) cost per impression. We then share a portion of the amounts we bill to our advertiser clients with publishers and email list owners on whose web properties and email lists we distribute the advertisements. In addition, we occasionally pay web site owners either a fixed fee for each completed user transaction or a fee for each impression of an advertisement served on the web site.

At the core of the Aptimus Network is a database configuration and software platform used in conjunction with a direct marketing approach for which we have filed a non-provisional business method patent application called Dynamic Revenue Optimization™ (DRO). DRO determines through computer-based logic, on a real-time basis, which advertisements in our system, using the yield of both response history and value, should be reflected for prominent promotion on each individual web site placement and in each email sent to consumers. The outcome of this approach is that we generate superior user response and revenue potential for that specific web site or email placement and a targeted result for our advertiser clients.

On August 17, 2006, the Company acquired substantially all of the assets and certain liabilities of High Voltage Interactive, Inc. (HVI), an Internet marketing and lead generation firm, for $6.0 million cash. HVI is an online marketing firm specializing in recruitment and enrollment solutions for the higher education marketplace. The HVI network manages a targeted network of publishers and affiliates focused on career and education.

The results of operations of HVI have been included in the accompanying condensed consolidated financial statements from the date of the acquisition. See Note 7 for additional details of the transaction.

2.SIGNIFICANT ACCOUNTING POLICIES

a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Aptimus and its wholly owned subsidiaries High Voltage Interactive, LLC and Neighbornet, LLC. All significant inter-company accounts and transactions have been eliminated in consolidation.

b) Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary to present fairly the financial information set forth therein. Certain information and note disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006. The interim financial information included herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for any subsequent quarter or the entire year ending December 31, 2006.

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c) Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Significant accounting policies and estimates underlying the accompanying financial statements include:

· revenue recognition;

· allowance for doubtful accounts;

· lives and recoverability of equipment;

· deferred tax asset reserves;

· stock-based compensation;

· business combinations.

It is reasonably possible that the estimates we make may change in the future.

d) Revenue Recognition

The Company currently derives revenue primarily from providing response-based advertising programs through a network of websites.

Revenue earned for lead generation through the Aptimus network is based on a fee per lead and is recognized when the lead information is delivered to the client. Revenue earned for e-mail mailings can be based on a fee per lead, a percentage of revenue earned from the mailing, or a cost per thousand e-mails delivered. Revenue from e-mail mailings delivered on a cost per thousand basis is recognized when the e-mail is delivered. Revenue from e-mail mailings sent on a fee per lead or a percentage of revenue earned from the mailing basis is recognized when amounts are determinable, generally when the customer receives the leads. . Reference to e-mail revenues herein is for use when comparing historical periods as effective December 2005, Aptimus has indefinitely suspended its e-mail marketing efforts.

Revenues generated through network publishers and opt-in email list owners are recorded on a gross basis in accordance with Emerging Issues Task Force consensus 99-19 (EITF consensus 99-19). Fees paid to network publishers and opt-in email list owners related to these revenues are shown as Publisher fees on the Statement of Operations. Aptimus shares a portion of the amounts it bills its advertiser clients with the third-party website owners or “publishers” and email list owners on whose web properties and email lists Aptimus distributes the advertisements. While this “revenue share” approach is Aptimus’ primary payment model, it will as an alternative occasionally pay website owners either a fixed fee for each completed user transaction or a fee for each impression of an advertisement served on the website. Email based campaigns that are sent to Company owned lists do not have publisher fees associated with them.

The Company has evaluated the guidance provided by EITF consensus 99-19 as it relates to determining whether revenue should be recorded gross or net for the payments made to network publishers and opt-in email list owners and have determined the recording of revenues gross is appropriate based upon the following factors:

· Aptimus acts as a principal in these transactions;

· Aptimus and its customer are the only companies identified in the signed contracts;

· Aptimus and its customer are the parties who determine pricing for the services;

· Aptimus is solely responsible to the client for fulfillment of the contract;

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· Aptimus bears the risk of loss related to collections

· Aptimus determines how the offer will be presented across the network; and

· Amounts earned are based on leads or emails delivered and are not based on amounts paid to publishers.

e) Concentrations of credit risk

Concentrations of credit risk with respect to accounts receivable exist due to the large number of Internet based companies that we do business with. This risk is mitigated due to the wide variety of customers to which Aptimus provides services, as well as the customer’s dispersion across many different geographic areasin the quarters ended September 30, 2006 and 2005 our ten largest clients accounted for 48.7% and 60.0% of our revenues, respectively. During the quarter ended September 30, 2006 the Vendare Group (Emarketmakers) accounted for 10.5% of our revenues. No other client accounted for more than 10% of our revenues. During the quarter ended September 30, 2005 Prospective Direct accounted for 10.8% of our revenues, Adteractive accounted for 10.7% of our revenues and no other client accounted for more than 10% of our revenues. For the nine months ended September 30, 2006 and 2005 our ten largest clients accounted for 51.6% and 49.5% of our revenues, respectively. During the nine months ended September 30, 2006 the Vendare Group (Emarketmakers) accounted for 11.1% of our revenues. No other client accounted for more than 10% of our revenues. During the nine months ended September 30, 2005 Adteractive accounted for 12.2% of our revenues and no other client accounted for more than 10% of our revenues. As of September 30, 2006, no customers accounted for more than 10.0% of outstanding accounts receivable.

The Company maintains an allowance for doubtful accounts receivable based upon its historical experience and the expected collectibility of all accounts receivable. For the quarters ended September 30, 2006 and 2005, user leads from our top five largest website publishers accounted for 42.2% and 49.9% of our total revenues, respectively. For the quarter ended September 30, 2006, user leads from the top two publishers accounting for 18.7% and 7.8% of revenues, respectively. For the quarter ended September 30, 2005, user leads from the top two publishers accounting for 13.6% and 13.1% of revenues, respectively. For the nine months ended September 30, 2006 and 2005, user leads from our top five largest website publishers accounted for 50.2% and 49.5% of our total revenues, respectively. For the nine months ended September 30, 2006, user leads from the top two publishers accounting for 23.2% and 9.4% of revenues, respectively. For the nine months ended September 30, 2005, user leads from the top two publishers accounting for 10.6% and 8.2% of revenues, respectively.

3.STOCK-BASED COMPENSATION

a) Stock Option Plans

Effective June 30, 1997, Aptimus approved the 1997 Stock Option Plan (the 1997 Plan) to provide for the granting of stock options for up to 2.4 million shares to employees, directors and consultants of Aptimus to acquire ownership in Aptimus and provide them with incentives for their service. As of September 30, 2006, under the terms of the 1997 Plan, 38,856 shares of common stock remain unissued and not subject to outstanding options and have been reserved for issuance to plan participants.

Effective June 12, 2001, the shareholders approved the 2001 Stock Plan (the 2001 Plan) to provide for the granting of stock options and restricted stock for up to 2.4 million shares to employees, directors and consultants of Aptimus to provide them with incentives for their service. At the Company’s 2005 Annual Meeting of Shareholders held on June 8, 2006, the shareholders approved modification of the 2001 Stock Plan to allow the grant of stock appreciation rights. As of September 30, 2006, under the terms of the 2001 Plan, 510,267 shares of common stock remain unissued and not subject to outstanding options and have been reserved for issuance to plan participants.

The Board of Directors of Aptimus, which determines the terms and conditions of the options or restricted stock shares granted, including exercise price, number of shares granted and the vesting period of such shares, administers the Plans. The maximum term of options is ten years from the date of grant. The options are generally granted at the estimated fair value of the underlying stock, as determined by the closing market price, on the date of grant and are generally granted with a vesting period of from one to four years. Shares used to settle options issued under the Plan are issued from the Company’s authorized but unissued shares.

On December 22, 2005 the Board of Directors approved the acceleration of vesting on the unvested portion of certain "out-of-the money" non-qualified stock options previously awarded to employees, officers and directors with option exercise prices greater than $13.97 to be effective as of December 31, 2005. The Company's directors, executive officers, and certain senior-level managers, prior to the acceleration effective date, entered into a Resale Restriction Agreement that imposes restrictions on the sale of any shares received through the exercise of accelerated options until the earlier of the original vesting dates set forth in the option or the individual holder’s termination of employment or Board service, as the case may be. The accelerated options represented approximately 23% of the total of all outstanding Company options. The Board of Directors' decision to accelerate the vesting of these options was in anticipation of compensation expense to be recorded subsequent to the applicable effective date of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” ("SFAS 123(R)"). SFAS 123(R) requires companies to recognize the grant-date fair value of stock options issued to employees as an expense in the income statement and, as of the applicable effective date, will require the Company to recognize the compensation costs related to share-based payment transactions, including stock options. In addition, the Board of Directors considered that because these options had exercise prices in excess of the current market value, they were not fully achieving their original objectives of incentive compensation, employee retention and goal alignment. The acceleration of the vesting of these options resulted in approximately $3.0 million of additional pro-forma stock-based employee compensation expense as determined under the fair value based method for the year ended December 31, 2005.

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Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations, as permitted by Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). No stock-based employee compensation cost was recognized in the Statement of Operations for the three months and nine months ended September 30, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006 the Company adopted the fair value recognition provisions of FASB Statement No. 123(R) Share-Based Payment, (SFAS 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in the three months and nine months ended September 30, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The compensation cost for share-based payments granted subsequent to January 1, 2006 are expensed using a straight-line attribution methodology as permitted by SFAS 123(R). The compensation cost for share-based payments granted prior to January 1, 2006 are expensed using the accelerated attribution methodology of FASB Interpretation No. 28 (FIN 28) as previously included in the Company’s pro forma disclosures. Results for prior periods have not been restated.

In conjunction with the acquisition of High Voltage Interactive, Inc., the Company issued 200,000 restricted shares of common stock to certain key employees of the acquired company. The restriction on the shares lapses in three annual increments measured from the closing date under the condition that the specific key employees remain with the Company during the three year period. 115,000 of Shares were issued in reliance upon the exemptions from registration provided by Rule 506 of Regulation D and Section 4(2) under the Securities Act for sales to accredited investors, as that term is defined in Rule 501(a) of Regulation D, and 85,000 of the Shares were issued pursuant to the Company’s 2001 Stock Plan and corresponding Registration Statement on Form S-8. The company will recognize compensation expense over the three year vesting terms of the restricted stock grants under the guidelines of SFAS 123R.

The fair value of each option grant under the plans was estimated on the date of grant using the Black Scholes Merton option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Expected volatilities are based on the historical volatility of Aptimus common stock. The expected term of options granted is represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the yield for U.S. Treasury Constant Maturities for the applicable grant date and expected term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. Compensation expense is only recognized for those options expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations. Prior to the adoption of SFAS 123(R), the effect of forfeitures on the pro-forma expense amounts was recognized as the forfeitures occurred.

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A summary of option activity and stock options outstanding under the Plans is presented below:

	Shares (in thousands)			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2005		1,697		$	5.67
Options granted		546			5.07
Options exercised		(9	)		4.08
Options forfeited		(25	)		10.70
Outstanding, September 30, 2006		2,209			5.47		6.87	$	8,962
Exercisable September 30, 2006		1,596		$	2.67		6.40	$	11,172

The aggregate intrinsic value in the table above is, before applicable income taxes, based on the Company’s closing stock price of $7.00 on the last business day of the period ended September 30, 2006, which would have been received by the optionees had all options been exercised on that date. As of September 30, 2006, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $3.9 million, which is expected to be recognized over a weighted average period of approximately 3.5 years. During the nine months ended September 30, 2006, the intrinsic value of stock options exercised was $18,000. During the nine months ended September 30, 2006, the total fair value of options vested was $198,000.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s net loss for the three months ended September 30, 2006 is $251,000 lower and $612,000 lower for the nine months ended September 30, 2006 than if it had continued to account for share-based compensation under APB 25. The nine months ended September 30, 2006 includes $153,000 of stock-based compensation that was the result of the March 9, 2006 re-pricing of 364,275 outstanding stock options that had an original exercise price between $14.43 and $17.59 per share. These options were re-priced to change the exercise price of these shares to $7.00 per share. This re-pricing resulted in stock-based compensation expense of $153,000 in the nine months ended September 30, 2006.

The impact of adopting SFAS 123(R) on basic and diluted loss per share for the three and nine months ended September 30, 2006 was $(0.04) and $(0.10), respectively. Share based compensation included in the statement of operation is as follows:

	Three months ended  September 30, 2006		Nine months ended September 30, 2006
Sales and marketing	$	224	$	547
Connectivity and network		9		21
Research and development		11		23
General and administrative		7		21
Total Stock-based compensation	$	251	$	612

The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option pricing formula and amortized to expense over the options’ vesting periods, using the accelerated attribution methodology of FIN 28 (in thousands, except per share data):

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	Three months ended September 30, 2005			Nine months ended September 30, 2005
Net income (loss), as reported	$	10		$	1,640
Add: Total stock-based employee compensation expense, included in the determination of net income as reported, net of related tax effects		—			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(695	)		(1,373	)
Pro forma net income (loss)	$	(685	)	$	267
Earnings per share:
Basic - as reported	$	0.00		$	0.26
Basic - pro forma	$	(0.11	)	$	0.04
Diluted - as reported	$	0.00		$	0.21
Diluted - pro forma	$	(0.11	)	$	0.03

b) Employee Stock Purchase Plan

The Company adopted the ESPP in April 2000. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for a detailed description of the ESPP. There were 15,620 and 7,171 shares issued for the ESPP periods that ended in the nine months ended September 30, 2006 and 2005, respectively.

4.NET EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share represents net income (loss) available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share represents net income (loss) available to common shareholders divided by the weighted average number of shares outstanding, including the potentially dilutive impact of common stock options, warrants and convertible notes payable, using the treasury stock method.

The following table sets forth the computation of the numerators and denominators in the basic and diluted earnings (loss) per share calculations for the periods indicated and the common stock equivalent securities as of the end of the period that are not included in the diluted net loss per share calculation as their effect on earnings (loss) per share is anti-dilutive (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006			2005
Numerator:
Net income (loss) (A)	$	(983	)	$	10	$	2,336		$	1,640
Denominator:
Weighted average outstanding shares of common stock (B)		6,541			6,469		6,536			6,299
Weighted average dilutive effect of options to purchase common stock		-			1,086		-			1,554
Weighted average dilutive effect of warrants to purchase common stock		-			108		-			109
Weighted average common stock and common stock equivalents (C)		6,541			7,663		6,536			7,962
Earnings (loss) per share:
Basic (A/B)	$	(0.15	)	$	0.00	$	(0.36	)	$	0.26
Diluted (A/C)	$	(0.15	)	$	0.00	$	(0.36	)	$	0.21
Antidilutive securities excluded consist of the following:
Options to purchase common stock		309			59		2,124			20
Warrants to purchase common stock		91			91		167			70
		400			150		2,291			90

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5. CONTINGENCIES

Litigation

The Company may be subject to various claims and pending or threatened lawsuits in the normal course of business. Management believes that the outcome of any such lawsuits would not have a materially adverse effect on the Company’s financial position, results of operations or cash flows.

Change in Control Agreement

In December 2002, the Board of Directors approved a Change in Control Agreement. Under the terms of this agreement, key members of management are to receive a severance package ranging between eight and twelve months salary in the event of a change in control of the Company and termination of the employee.

Guarantees and Indemnifications

The following is a summary of our agreements that we have determined are within the scope of Interpretation No. 45, or FIN 45, which are separately grandfathered because the guarantees were in effect prior to December 31, 2002. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2006.

As permitted under Washington law and our by-laws and certificate of incorporation, Aptimus has agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The term of the indemnification period is the applicable statute of limitations for indemnifiable claims. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, Aptimus has a directors’ and officers’ insurance policy that may enable us to recover a portion of any future amounts paid. Assuming the applicability of coverage and the willingness of the insurer to assume coverage and subject to certain retention, loss limits and other policy provisions, we believe the estimated fair value of this indemnification obligation is not material. However, no assurances can be given that the insurers will not attempt to dispute the validity, applicability or amount of coverage, which attempts may result in expensive and time-consuming litigation against the insurers.

Aptimus’ standard advertising client and distribution publisher contracts include standard cross indemnification language that requires, among other things, that we indemnify the client or publisher, as the case may be, for certain claims and damages asserted by third-parties that arise out of Aptimus’ breach of the contract. In the past, Aptimus has not been subject to any claims for such losses and has thus not incurred any material costs in defending or settling claims related to these indemnification obligations. Accordingly, we believe the estimated fair value of these obligations is not material.

Pursuant to these agreements, Aptimus may indemnify the other party for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims, which may include, claims of intellectual property infringement, breach of contract and intentional acts in the performance of the contract. The term of these indemnification obligations is generally limited to the term of the contract at issue. In addition, Aptimus limits the maximum potential amount of future payments we could be required to make under these indemnification obligations to the consideration paid during a limited period of time under the applicable contract, but in some infrequent cases the obligation may not be so limited. In addition, our standard policy is to disclaim most warranties, including any implied or statutory warranties such as warranties of merchantability, fitness for a particular purpose, quality and non-infringement, as well as any liability with respect to incidental, indirect, consequential, special, exemplary, punitive or similar damages. In some states, such disclaimers may not be enforceable. If necessary, the Company would provide for the estimated cost of service warranties based on specific warranty claims and claim history. Aptimus has not been subject to any claims for such losses and has not incurred any costs in defending or settling claims related to these indemnification obligations. Accordingly, we believe the estimated fair value of these agreements is not material.

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6.LINE OF CREDIT

In August 2006, the Company obtained a $5.0 million line-of-credit from a commercial bank, with a term of one year, which is renewable at the Company's option, and is secured by the Company's assets. The company used $2.8 million of the line to purchase of High Voltage Interactive, Inc. The available line of credit is based on eligible accounts receivables (excludes over 90 day old AR) and is for a 1 year term. The amount available under the line at September 30, 2006 was $2.8 million. Advances on the line bear interest, on the outstanding daily balance thereof, at a variable rate equal to :(i) one quarter of one percent (0.25%) above the Prime Rate if Company’s total cash maintained at the bank is less than $2.0 million, (ii) the Prime Rate if the Company’s total cash maintained at the bank is at least $2.0 million but less than $5.0 million and (iii) one quarter of one percent (0.25%) below the Prime Rate if the Company’s total cash maintained at the bank is greater than $5.0 million. At September 30, 2006 the prime rate of 8.25 percent was charged on the outstanding balance. At September 30, 2006 there was $2.8 million available and outstanding under the line-of-credit.

7.ACQUISITION

Effective August 17, 2006, the Company acquired substantially all of the assets and certain enumerated liabilities of High Voltage Interactive, Inc. (HVI), an Internet marketing and lead generation firm for $6.0 million cash. The Company believes the acquisition will create a full-service offering to help acquire, retain and extend relationships with customers.

The acquisition was accounted for under the purchase method of accounting. The results of operations of HVI have been included in the accompanying condensed consolidated financial statements from the dated of the acquisition. In connection with the acquisition, the Company paid $6.0 million in cash and incurred negligible transaction related expenses, for a total initial purchase price of $6.0 million.

As of June 30, 2006, the purchase price allocation associated with this acquisition is preliminary and subject to finalization. The preliminary purchase price allocation is as follows (in thousands):

Goodwill	$	3,028
Trade name		1,100
Customer relationships		1,600
Net book value of acquired assets and liabilities which approximate fair value		272
Total preliminary purchase price	$	6,000

In conjunction with the acquisition, the Company issued 200,000 shares of restricted common stock to certain key employees of the acquired company. The restriction on the shares lapses in respect to specified amounts in three annual increments measured from the closing date conditioned on the retention of the specific key employees to whom the shares were issued. The Company is accounting for the restricted common stock as share-based payments as described in Note 3.

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The unaudited pro forma combined historical results of operations, as if High Voltage Interactive had been acquired on January 1, 2005 are as follows:

	Three months ended September 30,						Nine months ended September 30,
	2006			2005			2006			2005
Revenues	$	4,608		$	5,715		$	16,519		$	17,746
Net income (loss)	$	(983	)	$	(33	)	$	(2,169	)	$	1,795
Earnings (loss) per share:
Basic	$	(0.15	)	$	(0.01	)	$	(0.33	)	$	0.28
Diluted	$	(0.15	)	$	(0.01	)	$	(0.33	)	$	0.24
Weighted average shares outstanding:
Basic		6,541			6,469			6,536			6,299
Diluted		6,541			6,469			6,536			7,962

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ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Certain statements in this filing constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can often be identified by terminology such as may, will, should, expect, plan, intend, expect, anticipate, believe, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Aptimus, Inc. (“Aptimus”, “we”, “us” or the “Company”), or developments in the Company’s industry, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include, without limitation, fluctuation of the Company’s operating results, the ability to compete successfully, the ability of the Company to maintain current client and distribution publisher relationships and attract new ones, and the sufficiency of remaining cash and short-term investments to fund ongoing operations and the risk factors set forth in the Company’s 10-K for the fiscal year ended December 31, 2005.

Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements or other future events. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of forward-looking statements. We are under no duty to update any of our forward-looking statements after the date of this filing. You should not place undue reliance on forward-looking statements.

OVERVIEW

We are a results-based advertising network that distributes advertisements for direct marketing advertisers across a network of third-party web sites. For advertisers, the Aptimus Network offers an Internet-based distribution channel to present their advertisements to users on web sites. Advertisers pay us only for the results that we deliver. We then share a portion of the amounts we bill our advertiser clients with the third-party web site owners or “publishers” on whose web properties we distribute the advertisements.

At the core of the Aptimus Network is a database configuration and software platform and direct marketing approach for which we have filed a non-provisional business method patent application called Dynamic Revenue Optimization™.

High Voltage Interactive, is an online marketing firm specializing in recruitment and enrollment solutions for the higher education marketplace. High Voltage focuses in the education category and they manage marketing solutions and lead generation programs for education clients. The High Voltage network manages a targeted network of publishers and affiliates focused on career and education.

Acquisition and Comparability of Operations

Our results of operations for the three and nine months ended September 30, 2006 include the results of High Voltage Interactive (HVI) from the date of acquisition (August 17, 2006) through September 30, 2006. The results of HVI must be factored into any comparison of our 2006 results of operations to 2005 results. See Note 6 of our condensed consolidated financial statements for pro forma financial statements as if HVI had been acquired on January 1, 2005.

Focus in current quarter

A continued key focus of ours has been expanding both the number of publishers and the number of offers in our network. In addition, we are repeatedly looking to increase the quality of leads delivered, measured by resultant end value for our advertising clients. To this end, we have added a number of employees to both our sales and business development teams over the last year. Our Business Development employees job is to focus exclusively on adding new publishers to our network and expanding our relationships with current publishers. Our Sales team’s focus is to add new and compelling Client offers into the Aptimus network. Our lead volumes remain concentrated among a limited number of top performing publishers. While our goal is to expand the number of publishers and reduce the concentration of revenue from any one publisher, we anticipate that a limited number of publishers collectively will continue to account for a significant portion of our lead volume for the foreseeable future.

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In late 2005, we indefinitely suspended our email operations, which had been in decline in recent years. While this business was historically high margin and contributed nearly 9% and 18% of the company’s revenues in 2005 and 2004, respectively, increasing resistance from ISPs and resulting deliverability challenges made growth and stability in this area uncertain. Marketplace trends also indicated further challenges ahead for the email business as a whole. We thus elected to suspend our email marketing activities indefinitely to focus on more stable and predictable network-based offer distribution solutions that we believe best serve our clients’ needs.

The key factors impacting revenues in the current quarter when compared to the previous years quarter were the discontinuation of our email marketing business in the fourth quarter of last year and annual decreases in impression volumes from some of our more promotionally oriented publishers. Moving forward, Aptimus has chosen to focus its energies on the significant top 100 publishers and as we grow that base of large publishers which tend to have a higher quality of lead for our Clients. Also, because we are publisher concentrated at this stage, our impression volumes are more closely tied to the seasonality of the individual publishers. Also impacting our second quarter revenues was mandate to focus on lead quality delivered to our clients. We have spent considerable amount of time and energy improving the quality of leads through improved validations and working with larger publishers which we feel will improve our clients satisfaction.

Concentrations

Given the importance of transacting consumers to our business, a key focus of our business development efforts has been to expand the number of publishers participating in our network. Because we remain at an early stage in the focused development of our distribution network, our lead volumes are concentrated among a limited number of top performing publishers. For the quarters ended September 30, 2006 and 2005, user leads from our top five largest website publishers accounted for 42.2% and 49.9% of our total revenues, respectively. For the quarter ended September 30, 2006, user leads from the top two publishers accounting for 26.5% and 13.6% of revenues, respectively. For the quarter ended September 30, 2005, user leads from the top two publishers accounting for 18.7% and 7.8% of revenues, respectively. For the nine months ended September 30, 2006 and 2005, user leads from our top five largest website publishers accounted for 50.2% and 34.9% of our total revenues, respectively. For the nine months ended September 30, 2006, user leads from the top two publishers accounting for 23.2% and 9.4% of revenues, respectively. For the nine months ended September 30, 2005, user leads from the top two publishers accounting for 32.6% and 8.2% of revenues, respectively. The concentration of revenue among our five largest website publishers will decrease over time as a result of our continued focus to expand the number of publishers in our network. While our goal is to expand the number of publishers and reduce the concentration of revenue from any one publisher, we anticipate that a limited number of publishers collectively will continue to account for a significant portion of our lead volume for the foreseeable future.

In the quarters ended September 30, 2006 and 2005 our ten largest clients accounted for 48.7% and 60.0% of our revenues, respectively. During the quarter ended September 30, 2006 and the Vendare Group(Emarketmakers) accounted for 10.5 of our revenues. No other client accounted for more than 10% of our revenues. During the quarter ended September 30, 2005 Prospective Direct, Inc. accounted for 10.8% of our revenues, Adteractive accounted for 10.7% of our revenues and no other client accounted for more than 10% of our revenues. For the nine months ended September 30, 2006 and 2005 our ten largest clients accounted for 51.6% and 49.5% of our revenues, respectively. During the nine months ended September 30, 2006 The Vendare Group (Emarketmakers) accounted for 11.1% of our revenues. No other client accounted for more than 10% of our revenues. During the nine months ended September 30, 2005 Adteractive accounted for 12.2% of our revenues and no other client accounted for more than 10% of our revenues. The percentage of revenue represented by our ten largest clients when compared to the same quarter of 2005 has decreased due to the acquisition of High Voltage Interactive which increased our revenues and client base. We expect our revenues in the immediate future to be similarly concentrated at the third quarter 2006 levels and to be composed of a similar mix of large and small advertiser clients.

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Other information

In 2005, we initiated a focused drive to improve lead quality and customer conversion for our advertising clients. To this end, we terminated relationships with publishers with lower quality traffic and added or enhanced a number of automated data validation processes that screen in real time the lead data a user submits before that lead is passed on to our advertisers. We also directed considerable energy in the year toward building distribution relationships with name brand and high quality web sites. Going forward, to support enhanced lead quality and attract new and larger advertisers and budgets, Aptimus will continue to expand our technology and validation capabilities, add innovative product solutions, as well as develop focused marketing strategies around specific targeted verticals such as our newly updated www.euniversitydegree.com and High Voltage’s www.searchforclasses.com education site. We will also continue pursuing distribution relationships with name brand and high quality publishers. Finally, we plan to hire seasoned sales professionals and support staff to target the primary education, finance, technology and other industry verticals.

On March 9, 2006, the Company’s board of directors repriced the strike price of certain option grants issued to certain employees and directors in 2005, including Rob Wrubel, Director and President, Bob Bejan, Director, senior members of the Company’s sales and business development groups, and other employees. The original strike price of the grants that were affected by the repricing ranged from $14.45 to $17.50. The new strike price is $7.00. A total of 31 individuals representing 364,275 option shares were affected by the repricing. This repricing of 364,275 stock option grants resulted in stock based compensation of $153,000 in the three months ended March 31, 2006 period. No future expense will be incurred as a result of repricing these options as the full repricing cost was fully incurred in the three months ended March 31, 2006 period. Under paragraph 51 of 123R and illustration 12(a), paragraph A149-A150 of FAS 123R states that - a modification of the exercise price of the options will result in recognition of additional expense in the period the grant is modified. The Incremental cost was measured as the excess, if any, of the fair value of the modified award determined in accordance with this Statement over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. In addition, the board of directors authorized the grant of 70,000 option shares to Mr. Wrubel, and the grant of an additional 65,000 to certain other senior members of the Company’s sales and business development groups. Each of these grants has a strike price of $4.58 and vest over a four-year period from the date of grant.

RESULTS OF OPERATIONS

Revenues

We derive our revenues primarily from response-based advertising contracts. Leads are obtained through promoting our clients’ offers across our Network of web site publishers and our own syndicated web pages and included opt-in email lists in 2005. Revenues generated through network publishers and opt-in email list owners are recorded on a gross basis in accordance with EITF consensus 99-19. Fees paid to network publishers and opt-in email list owners related to these revenues are shown as Cost of revenues on the Statement of Operations.

Revenues and revenue information are summarized in the following tables:

(In thousands, except percentages)	2006		2005		Percentage Change
Three months ended September 30,	$	4,608	$	3,879		18.8	%
Nine months ended September 30,	$	10,753	$	12,214		(12.0	)%

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	Three months ending September 30,
(Page impressions in thousands)	2006			2005			Percentage Change
Core placement CPM	$	221.54		$	247.61			(11	)%
Core placement page impressions		10,944			12,041			(9	)%
Percentage of revenue from core placements		64.7	%		76.7	%		(16	)%
Other placement CPM	$	25.30		$	15.06			68	%
Other placement page impressions		52,344			39,596			32	%
Percentage of revenue from other placements		35.3	%		15.4	%		129	%
Percentage of revenue from email & other programs		0.0	%		7.9	%		(100	)%

Core impressions were 10.9 million for the three months ended September 30, 2006, which is a decrease of 9% from the 12.0 million core impressions generated in the three months ended September 30, 2005. The impression decrease year over year primarily reflects the termination of the publisher relationships that were very promotionally oriented. Core placement average Revenues per thousand impressions (CPM), was $222 during the three months ended September 30, 2006, decreasing 11% from the $248 average in the comparable period of 2005. The decrease in CPM is also due to terminating the promotionally oriented publishers which generated more response and yielded a higher CPM, however the resultant quality of the leads from the promotionally oriented sites was not at the level required by our clients. Core CPMs are expected to stay in this current quarters range for the foreseeable future, while there continue to be many publisher and advertiser factors which could impact the average.

Other or non-core impressions, which include a variety of other ad media types, such as login and download placements, interstitial ads, and other formats, were 52.3 million in the three months ended September 30, 2006 up 32 % when compared to 39.6 million in the three months ended September 30, 2005. Revenues per thousand impressions for these other types of impressions was $25 in the three months ended September 30, 2006 which is up 68% from the $15 average CPM in the previous year quarter. Other impressions involve a mix of many different formats, as well as different publishers, and thus have less predictable average revenues per impression, though as Rob mentioned, our increasing focus and expansion of these other types of placements will likely increase our impression volumes and revenues in this area over the coming quarters. As we continue to expand our tests with new media types in these important but less responsive locations, it is possible that the average RPMs for Other Impressions could decline. It is expected, however, that the RPM‘s for this category will remain in the $20 - $25 range.

Revenue from email programs in the current quarter has decreased to $0 compared to the third quarter of 2005 as we discontinued our email activities in December 2005. We expect revenues from email programs for the foreseeable future to be zero.

Cost of revenue

Costs of revenues consist of fees owed to network distribution publishers and in 2005 and earlier included opt-in email list owners based on revenue generating activities created in conjunction with these publishers.

Cost of revenue is summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	2,538		55.1	%	$	1,986		51.2	%		27.8	%
Nine months ended September 30,	$	5,508		51.2	%	$	5,488		44.9	%		0.4	%

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Cost of revenue, or the fees earned by the company’s network publishers for the three months ended September 30, 2006 was $2.5 million, or 55% of revenues compared to $2.0 million or 51% of revenues for the third quarter of 2005. There are 2 main areas that were drivers of the increase in cost of revenues. First factor was the acquisition of High Voltage. Their current cost of revenue percentage is closer to 65%. So, the revenue we recognized during the quarter from their network caused our overall cost of revenue average to increase. Secondly, the total revenue increased by 19% and therefore the cost of revenues increased. It is expected that our cost of revenues will trend in the 55% to 60% range over the foreseeable next couple of quarters.

Cost of revenue percentage for the nine months ended September 30, 2006 increased from 44.9% in the comparable period last year to 51.2% this year. This is a 14.0% percentage increase change is cost. Offsetting this percentage increase, in dollars, is the 12% reduction in revenues from the nine months ended September 30, 2005. The net effect was just a 0.4% increase in cost of revenue dollars.

In addition, the increase as a percentage of revenue is a result of both the decrease in email revenues, that historically provided a lower cost of revenue, and an increase in the publisher fee payout percentage being paid to our publishers due to typically higher publisher payment % for the High Voltage Interactive business acquired on August 17, 2006 and the higher payout percentage required under the AOL publisher contract. Publisher fees are expected to normalize at around 55% of revenues in the foreseeable future.

Sales and Marketing

Sales and marketing expenses consist primarily of marketing and operational personnel costs, bad debts, and outside sales costs.

Sales and marketing expenses are summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	1,797		39.0	%	$	1,016		26.2	%		76.9	%
Nine months ended September 30,	$	4,418		41.1	%	$	2,476		20.3	%		78.4	%

The increase in sales and marketing expenses for the three and nine months ended September 30, 2006 as compared to the three and nine months ended September 30, 2005 was a result of the acquisition of High Voltage and including one-half of a quarter of their expenses and increases in labor costs and stock-based compensation charges. For the nine months ended September 30, 2006, the increase in sales and marketing expenses are similar to those for the three months ended September 30, 2006. Labor costs have increased primarily as a result of hiring additional employees since the second quarter of 2006. The EasyJoin process, which was targeted at smaller publishers, was launched in August 2004 and promotion of the program continued through July 2005 when the company’s focus was shifted to larger publishers. Stock-based compensation charges are a result of adoption of SFAS 123(R), the re-pricing of options on March 9, 2006 and the grant of new options to employees. It is expected that sales and marketing expenses will increase in future quarters as we continue to increase sales and the related commissions thereon, along with the hiring of additional employees and additional stock-based compensation required to be expensed in accordance with SFAS 123(R).

Connectivity and Network Costs

Connectivity and network costs consist of expenses associated with the maintenance and usage of our network as well as email delivery costs. Such costs include email delivery costs, Internet connection charges, hosting facility costs and personnel costs.

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Connectivity and network costs are summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	275		6.0	%	$	186		4.8	%		47.8	%
Nine months ended September 30,	$	714		6.6	%	$	606		5.0	%		17.8	%

Connectivity and network costs increased for the three and nine months ended September 30, 2006 as compared to the corresponding periods in 2005 primarily due to two factors. The purchase of High Voltage on August 17, 2006 and inclusion of one-half of a quarter of their expenses resulted in increased connectivity and network costs as their business platform is currently on separate systems and thus we incurred incremental costs in this area. Secondly, during the three months ended September 30, 2006 we successfully implemented a new fully redundant back up system for our network servers which resulted in increased network costs.

Research and Development

Research and development expenses primarily consist of personnel costs related to maintaining and enhancing the features, content and functionality of our Web sites, network and related systems.

Research and development expenses are summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	230		5.0	%	$	169		4.4	%		36.1	%
Nine months ended September 30,	$	639		5.9	%	$	494		4.0	%		29.4	%

The increase in research and development expenses for the three and nine months ended September 30, 2006 compared to the corresponding periods in 2005 was primarily due to increases in labor costs, including amounts for stock-based compensation. In addition, the purchase of High Voltage resulted in increased costs in this category as High Voltage has research and development costs for the High Voltage network. The increase in labor costs is a result of annual pay increases and the recognition of stock-based compensation amounts. Research and development expense in the remaining quarters of 2006 are expected to be slightly higher than amounts recorded in the current quarter as a result of a full quarter of High Voltage costs as well as planned annual pay increases and corresponding additional stock-based compensation amounts.

General and Administrative

General and administrative expenses primarily consist of management, financial and administrative personnel expenses and related costs, business taxes and professional service fees.

General and administrative expenses are summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	641		13.9	%	$	492		12.7	%		30.3	%
Nine months ended September 30,	$	1,712		15.9	%	$	1,508		12.3	%		13.5	%

General and administrative expense for the three and nine months ended September 30, 2006 increased when compared to the corresponding periods in 2005. The increase is attributable to additional accounting staff brought on board to handle the additional human resource needs as the company has substantially increased its headcount. The company also incurred one-half of a quarter of High Voltage’s General and Administrative costs. In addition, the company has incurred increased legal fees as part of its acquisition strategy. General and administrative expenses for the fourth quarter of 2006 is expected to be approximately 25% higher than the current quarter as the Company will have a full quarter of additional costs and headcount recently brought on hired in connection with the High Voltage Interactive acquisition. In addition, the company will incur approximately $125,000 in audit compliance fees in conjunction with the High Voltage acquisition.

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Depreciation and Amortization

Depreciation and amortization expenses consist of depreciation on leased and owned computer equipment, software, office equipment and furniture and amortization on acquired intangible assets, intellectual property and purchased email lists.

Depreciation and amortization expenses are summarized in the following table:

(In thousands, except percentages)	2006		% of revenue			2005		% of revenue			Percentage Change
Three months ended September 30,	$	147		3.2	%	$	101		2.6	%		45.5	%
Nine months ended September 30,	$	348		3.2	%	$	251		2.1	%		38.6	%

The increases in depreciation and amortization for the three and nine months ended September 30, 2006 compared to the corresponding period of the prior year is primarily due to the acquisition of High Voltage Interactive on August 17, 2006. The Company is amortizing $2.7 million of the purchase price over a period of 8 to 15 years. In addition, the new computer equipment purchased for the new redundant backup system resulted in additional depreciation expenses. Depreciation and amortization is expected to be approximately $50,000 higher in future quarters compared to the current quarter as a result of a full quarter of amortization versus only having one-half of a quarters amortization expenses in the third quarter.

Interest Income

Interest income results from earnings on our available cash reserves and short-term investments. Interest income totaled $275,000 and $61,000 in the nine months and three months ended September 30, 2006, respectively compared to $160,000 and $81,000 in the respective periods of 2005. The increase in interest income is primarily a result of increased cash being invested resulting from the receipt of approximately six million dollars from a private equity financing that was closed in March of 2005. Additionally there has been an increase in the average interest rate received over the comparable periods. Interest income in future quarters is expected to be lower to amounts earned in the current quarter as the company used $3.25 million of cash towards the purchase of High Voltage and will therefore have less cash invested. Interest expense will increase in the coming quarters as the company has borrowed $2.75 million off of a Line of Credit and used the proceeds to pay for the remaining balance of the $6.0 million purchase price.

Income Taxes

No current or deferred federal income tax expense or benefit has been provided for any of the periods presented as we have incurred net tax losses from inception through the quarter ended September 30, 2006. Aptimus has provided full valuation allowances on the related net deferred tax assets because of the uncertainty regarding their realizability.

LIQUIDITY AND CAPITAL RESOURCES

Since we began operating as an independent company in July 1997, we have financed our operations primarily through the issuance of equity securities. Net proceeds from the issuance of stock through September 30, 2006 totaled $73.3 million. As of September 30, 2006, we had approximately $6.0 million in cash and cash equivalents, and working capital of $4.1 million.

In August 2006, the Company obtained a $5.0 million line-of-credit from a commercial bank, with a term of one year, which is renewable at the Company's option, and is secured by the Company's assets. The company used $2.8 million of the line to purchase of High Voltage Interactive, Inc. The available line of credit is based on eligible accounts receivables (excludes over 90 day old AR) and is for a 1 year term. The amount available under the line at September 30, 2006 was $2.8 million. Advances on the line bear interest, on the outstanding daily balance thereof, at a variable rate equal to :(i) one quarter of one percent (0.25%) above the Prime Rate if Company’s total cash maintained at the bank is less than $2.0 million, (ii) the Prime Rate if the Company’s total cash maintained at the bank is at least $2.0 million but less than $5.0 million and (iii) one quarter of one percent (0.25%) below the Prime Rate if the Company’s total cash maintained at the bank is greater than $5.0 million. At September 30, 2006 the prime rate of 8.25 percent was charged on the outstanding balance. At September 30, 2006 there was $2.8 million available and outstanding under the line-of-credit.

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Net cash provided by (used in) operating activities was $(1.3) million and $1.2 million for the nine months ended September 30, 2006 and 2005, respectively. Cash used in operations during the nine months ended September 30, 2006 and 2005 consisted of:

	Nine months ended September 30,
	2006			2005
Cash received from customers	$	9,547		$	12,254
Cash paid to employees and vendors		(11,056	)		(11,258	)
Interest received		158			160
Net cash provided by (used in) operations	$	(1,351	)	$	1,156

Net cash provided by (used in) investing activities was $95,000 and ($3.5) million in the nine months ended September 30, 2006 and 2005, respectively. In the nine months ended September 30, 2006, $512,000 was used for the purchase of additional computer equipment and software and $17.3 million was used for the purchase of short-term investments offset by proceeds of $23.7 million from the maturity of short-term investments. In the nine months ended September 30, 2005, $345,000 was used for the purchase of additional computer hardware and software and $150,000 was used for the purchase of the intangible assets of Neighbornet.

Net cash provided by financing activities was $2.9 million and $6.0 million in the nine months ended September 30, 2006 and 2005, respectively. In the nine months ended September 30, 2006, net cash provided by financing activities resulted from $105,000 of proceeds from the issuance of common stock and $2.8 million funding from a line of credit. In the nine months ended September 30, 2005, net cash provided by financing activities resulted from $6.27 million of net proceeds from the issuance of common stock, offset by $270,000 of costs related to issuing the common stock.

We believe our current cash and cash equivalents and short-term investments will be sufficient to meet our anticipated needs for working capital and capital expenditures for the foreseeable future. This is based on the balance of cash, cash equivalents and short-term investments at September 30, 2006. We currently anticipate spending an additional $150,000 on capital expenditures in 2006 in order to continue the expansion and improvements to our network infrastructure. Should our goal of returning to positive cash flow in early 2007 not be met, we may need to raise additional capital to meet our long-term operating requirements.

Our cash requirements depend on several factors, including the rate of market acceptance of our services and the extent to which we use cash for acquisitions and strategic investments. However, unanticipated expenses, poor financial results or opportunities requiring financial commitments could give rise to earlier financing requirements. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders would be reduced, and these securities might have rights, preferences or privileges senior to those of our common stock. Additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of business opportunities, develop or enhance services or products or otherwise respond to competitive pressures would be significantly limited, and we might need to significantly restrict our operations.

OFF-BALANCE SHEET ARRANGEMENTS

No off-balance sheet arrangements existed as of September 30, 2006.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 to the financial statements included in Item 8 of the Annual Report on Form 10-K, filed with the SEC on March 16, 2006. We believe those areas subject to the greatest level of uncertainty are the allowance for doubtful accounts, the valuation allowance on deferred tax assets, stock-based compensation and depreciation of fixed and intangible assets. In addition to those areas subject to the greatest level of uncertainty revenue recognition is also considered a critical accounting policy.

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Stock-based Compensation

Aptimus accounts for Stock-based compensation in accordance with the fair value recognition provisions of SFAS 123(R). The Company uses the Black Scholes Merton option valuation model, which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them “expected term”, the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate and consequently, the related amount recognized on the consolidated statements of earning. An increase in the estimated fair values used would result in additional Stock-based compensation being included in the applicable line item of the statement of operations and an increase in additional paid-in capital.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s net loss for the three months ended September 30, 2006 is $251,000 lower and $612,000 lower for the nine months ended September 30, 2006 than if it had continued to account for share-based compensation under APB 25. The nine months ended September 30, 2006 includes $153,000 of stock-based compensation that was the result of the March 9, 2006 re-pricing of 364,275 outstanding stock options that had an original exercise price between $14.43 and $17.59 per share. These options were re-priced to change the exercise price of these shares to $7.00 per share. This re-pricing resulted in stock-based compensation expense of $153,000 in the nine months ended September 30, 2006. Stock-based compensation included in the statement of operation is as follows:

	Three months ended September 30, 2006		Nine months  ended September 30, 2006
Sales and marketing	$	224	$	547
Connectivity and network		9		21
Research and development		11		23
General and administrative		7		21
Total Stock-based compensation	$	251	$	612

Accounting for Acquisitions

Significant judgment is required to estimate the fair value of intangible assets at the date of acquisition, including estimating future cash flows from the acquired business, determining appropriate discount rates, asset lives, and other assumptions. Our process to determine the fair value of the customer relationships and developed technology includes the use of estimates including: revenue estimates for customers acquired through the acquisition based on an assumed customer attrition rate; estimated costs willing to be incurred to purchase the capabilities gained through the developed technology; and appropriate discount rates based on the particular business’s weighted average cost of capital. Our estimates of an entity’s growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our routine long-range planning process.

Accounting for Goodwill

Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. We perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. Our impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill related to the reporting unit. To determine the fair value, our review process uses the income method and is based on a discounted future cash flow approach that uses estimates including the following for the reporting units: revenue based on assumed market segment growth rates; estimated costs; and appropriate discount rates based on the particular business’s weighted average cost of capital. Our estimates of market segment growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our routine long-range planning process. In addition to being used in our goodwill impairment analysis, the same estimates are used in the planning for both our long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis by comparison to available and comparable market data. We will perform our next annual review during the fourth quarter of 2006. We may incur charges for the impairment of goodwill in the future if a business segment fails to achieve our assumed revenue growth rates or assumed operating margin

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RECENT ACCOUNTING PRONOUNCEMENTS

In November 2005, the FASB issued Staff Position (“FSP”) FAS123(R)-3, Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards. This FSP requires an entity to follow either the transition guidance for the additional-paid-in-capital pool as prescribed in SFAS No. 123(R), Share-Based Payment, or the alternative transition method as described in the FSP. An entity that adopts SFAS No. 123(R) using the modified prospective application may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS No. 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. We continue to evaluate the impact that the adoption of this FSP could have on our financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of the Company’s cash equivalents and marketable securities are at fixed interest rates and therefore the fair value of these instruments is affected by changes in market interest rates. As of September 30, 2006, however, the Company’s cash equivalents mature within three months from the date of purchase and all of the marketable securities mature within three months of September 30, 2006. As of September 30, 2006, the Company believes the reported amounts of cash equivalents to be reasonable approximations of their fair values. As a result, the Company believes that the market risk and interest risk arising from its holding of financial instruments is minimal.

ITEM 4.CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

As of the date hereof, there is no material litigation pending against the Company. From time to time, the Company may be a party to litigation and claims incident to the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

(a)Sales of Unregistered Securities

As part of the transaction with High Voltage Interactive described in Item 1, Note 7 above, the company has issued 200,000 restricted shares (“Shares”) of common stock at a price per share of $7.32, which is the closing sale price of the common stock on the August 17, 2006 closing date. The restriction on the Shares lapses in respect to specified amounts in three annual increments measured from the closing date conditioned on the retention of the specific key employees of High Voltage to whom the Shares were issued. 115,000 of Shares were issued in reliance upon the exemptions from registration provided by Rule 506 of Regulation D and Section 4(2) under the Securities Act for sales to accredited investors, as that term is defined in Rule 501(a) of Regulation D, and 85,000 of the Shares were issued pursuant to the Company’s 2001 Stock Plan and corresponding Registration Statement on Form S-8.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.OTHER INFORMATION

None.

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ITEM 6.EXHIBITS AND REPORTS

EXHIBITS INDEX

Exhibit Number	Description
3.1*	Second Amended and Restated Articles of Incorporation of registrant.
3.1.1(2)	Articles of Amendment filed September 16, 2000.
3.1.2(6)	Articles of Amendment filed March 29, 2002.
3.2*	Amended and Restated Bylaws of registrant.
4.1*	Specimen Stock Certificate.
4.3(3)	Rights Agreement dated as of March 12, 2002 between registrant and Mellon Investor Services LLC, as rights agent.
10.1*(7)	Form of Indemnification Agreement between the registrant and each of its directors.
10.2*(7)	1997 Stock Option Plan, as amended.
10.3*(7)	Form of Stock Option Agreement.
10.4(1)(7)	Aptimus, Inc. 2001 Stock Plan.
10.4.1(2)(7)	Form of Stock Option Agreement.
10.4.2(2)(7)	Form of Restricted Stock Agreement (for grants).
10.4.3(2)(7)	Form of Restricted Stock Agreement (for rights to purchase).
10.5(4)(7)	Change in Control Agreement, dated as of December 6, 2002, by and between registrant and Timothy C. Choate
10.6(4)(7)	Form of Change in Control Agreement, dated as of December 6, 2002, by and between registrant and each of certain executive managers of registrant
10.7(5)	Form of Convertible Note Purchase Agreement, dated as of July 1, 2003, by and between the Company and certain investors.
10.8(5)	Form of Convertible Secured Promissory Note, dated July 2003, executed by and between the Company and payable to the order of certain investors.
10.9(5)	Form of Common Stock Warrant, dated July 2003, by and between the Company and certain investors.
10.10(5)	Form of Security Agreement, dated as of July 1, 2003, by and between the Company and certain investors.
10.11(5)	Form of Registration Rights Agreement, dated as of July 1, 2003, by and between the Company and certain investors.
10.12(11)	Agreement of Lease, dated as of November 18, 2003, by and between 100 Spear Street Owner’s Corp. and the Company.
10.13(9)	Agreement of Lease, dated as of April 29, 2004, by and between Sixth and Virginia Properties and the Company.
10.14(8)	Stock Purchase Agreement, dated as of December 4, 2003, by and between the Company and certain investors.
10.15(10)	Stock Purchase Agreement, dated as of March 25, 2005, by and between the Company and certain investors.
10.16(10)	Form of Common Stock Warrant, dated March 25 2005, by and between the Company and certain investors and service providers.
10.17(7)	Form of Stock Resale Restriction Agreement, dated as of December 23, 2005, by and between registrant and each of certain executive managers and key employees of registrant.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certification of the Chief Executive Officer
32.2	Section 1350 Certification of the Chief Financial Officer

__________

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*	Incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 333-81151).
(1)	Incorporated by reference to the Company’s Proxy Statement on Schedule 14A, dated May 17, 2001.
(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, dated November 14, 2001.
(3)	Incorporated by reference to the Company’s Current Report on Form 8-K, dated March 12, 2002.
(4)	Incorporated by reference to the Company’s Annual Report on Form 10-K, dated March 28, 2003.
(5)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, dated August 14, 2003.
(6)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, dated May 15, 2002.
(7)	Management compensation plan or agreement.
(8)	Incorporated by reference to the Company’s Annual Report on Form 10-K, dated March 30, 2004
(9)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, dated May 17, 2004.
(10)	Incorporated by reference to the Company’s Registration Statement on Form S-3 (No. 333-124403), dated April 28, 2005.
(11)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, dated May 13, 2005.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

APTIMUS, INC.

Date: November 9, 2006 /s/ John A. Wade Name: John A. Wade Title: Chief Financial Officer, authorized officer and principal financial officer

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EX-31.1

Exhibit 31.1

I, Rob Wrubel, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Aptimus, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2006

/s/ Rob Wrubel

Rob Wrubel

Chief Executive Officer

EX-31.2

Exhibit 31.2

I, John A. Wade, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Aptimus, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2006

/s/ John A. Wade

John A. Wade

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. ss. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Aptimus, Inc. (the “Company”) on Form 10-Q for the nine months ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rob Wrubel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Rob Wrubel

Rob Wrubel

Chief Executive Officer

November 9, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. ss. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Aptimus, Inc. (the “Company”) on Form 10-Q for the nine months ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Wade, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John A. Wade

John A. Wade

Chief Financial Officer

November 9, 2006