##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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FORM 10-K

|                                         |  |                                                                                              
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------
|þ                                        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.    
|                                        
|For the Year Ended December 31,
    2003
|                                        
|Commission file
    number 333-99939    
|                                        
|OR                                      
|                                        
|o                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



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ZIFF DAVIS HOLDINGS INC.

(Exact name of Registrant as Specified in Its
Charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 36-4335050                          
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

28 East 28th Street

New York, New York 10016


(Address of Principal Executive Offices and
Zip Code)




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(212) 503-3500

(Registrants Telephone
Number, Including Area Code)


Shares registered pursuant to
Section 12(b) of the
Act:None

Shares registered pursuant to
Section 12(g) of the
Act:None



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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 þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
references in Part III of this Form 10-K or any
amendment to this
Form 10-K.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of
1934).     Yes o          No þ

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practical date:

As of March 30, 2004, 2,312,928 shares
of common stock, par value, $0.001 per share, were
outstanding. The issuers common stock is not publicly
traded.

DOCUMENTS INCORPORATED BY REFERENCE

None



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ZIFF DAVIS HOLDINGS INC.

Index to Form 10-K for the Year Ended
December 31, 2003

|                                                   |  |                                                                                                                       |     |      |     | 
|-------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|                                                   |  |                                                                                                                       |     | Page
|                                                   |  |                                                                                                                       |     |     
|PART I                                            
|Item 1.                                            |  | Business                                                                                                              |     |      | 2   | 
|Item 2.                                            |  | Properties                                                                                                            |     |      | 17  | 
|Item 3.                                            |  | Legal Proceedings                                                                                                     |     |      | 17  | 
|Item 4.                                            |  | Submission of Matters to a
    Vote of Security Holders                                                               |     |      | 18  | 
|PART II                                           
|Item 5.                                            |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchasers
    of Equity Securities |     |      | 18  | 
|Item 6.                                            |  | Selected Financial Data                                                                                               |     |      | 18  | 
|Item 7.                                            |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                             |     |      | 20  | 
|Item 7A.                                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                        |     |      | 36  | 
|Item 8.                                            |  | Financial Statements and
    Supplementary Data                                                                       |     |      | 37  | 
|Item 9.                                            |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                              |     |      | 87  | 
|Item 9A.                                           |  | Controls and Procedures                                                                                               |     |      | 87  | 
|PART III                                          
|Item 10.                                           |  | Directors and Executive
    Officers of the Registrant                                                                |     |      | 88  | 
|Item 11.                                           |  | Executive Compensation                                                                                                |     |      | 92  | 
|Item 12.                                           |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters                |     |      | 95  | 
|Item 13.                                           |  | Certain Relationships and
    Related Transactions                                                                    |     |      | 97  | 
|Item 14.                                           |  | Principal Accountant Fees
    and Services                                                                            |     |      | 100 | 
|PART IV                                           
|Item 15.                                           |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                   |     |      | 101 | 
|SIGNATURES                                         |  |                                                                                                                       | 105 |     
|OFFER LETTER                                      
|EXECUTIVE AGREEMENT                               
|EXECUTIVE AGREEMENT                               
|OFFER LETTER                                      
|EXECUTIVE AGREEMENT                               
|EXECUTIVE AGREEMENT                               
|EXECUTIVE AGREEMENT                               
|EXECUTIVE AGREEMENT                               
|STATEMENT OF COMPUTATION OF RATIO OF FIXED CHARGES
|STATEMENT OF COMPUTATION OF RATIO OF EARNINGS     
|CODE OF ETHICS                                    
|CERTIFICATION OF CEO                              
|CERTIFICATION OF CFO                              
|CERTIFICATION OF CEO                              
|CERTIFICATION OF CFO                              



1



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##### Table of Contents






PART I

Important Note:Please see the sections entitled Forward-Looking
Statements and Certain Risk Factors appearing
below in Item 1.






|        |         
|------- | --------
|ITEM 1. | BUSINESS

References to we, us,
our, Ziff Davis and the
Company refer to Ziff Davis Holdings Inc. and its
subsidiaries. In those situations where it is important to
distinguish between Ziff Davis Holdings Inc. and Ziff Davis
Media Inc., we use the term Ziff Davis Holdings to
refer to Ziff Davis Holdings Inc. and the term Ziff Davis
Media to refer to Ziff Davis Media Inc.

Background and Organization

We are a leading integrated media company focused
on the technology, videogame and consumer lifestyle markets. We
are an information services provider of technology media
including publications, websites, conferences, events,
eSeminars, eNewsletters, custom publishing, list rental,
research and market intelligence. Ziff Davis Holdings is
majority owned by various investment funds managed by Willis
Stein & Partners Management III, L.L.C.
(Willis Stein or controlling
stockholders), a private equity investment firm. Ziff
Davis Holdings is a holding company which indirectly owns 100%
of Ziff Davis Media. Ziff Davis Holdings does not conduct any
business, but rather all operations are conducted by Ziff Davis
Media and its direct and indirect subsidiaries. Ziff Davis
Holdings has no material assets other than its investment in the
capital stock of Ziff Davis Media. Ziff Davis Holdings was
incorporated in the state of Delaware and was formed to acquire
certain publishing assets (Ziff-Davis Publishing,
ZDP or Predecessor) from Ziff-Davis
Inc., an unrelated company. Our major operating subsidiaries are
Ziff Davis Publishing Inc., Ziff Davis Development Inc.
(LaunchCo) and Ziff Davis Internet Inc.
(InternetCo). In January 2002, we changed our fiscal
year-end from March 31 to December 31, effective
December 31, 2001.

We had no operations prior to April 5, 2000,
when we completed the acquisition of ZDP for $780.0 million
plus expenses. This acquisition was accounted for under the
purchase method of accounting and was funded
by: (1) issuing preferred and common stock for
$353.7 million in proceeds; (2) executing a
$405.0 million senior credit facility of which
$355.0 million was borrowed at closing; and
(3) issuing a bridge loan totaling $175.0 million in
proceeds. Fees and expenses, including debt issuance costs
associated with the acquisition, which totaled approximately
$30.0 million, were paid with the equity and debt proceeds.
On July 18, 2000, we issued $250.0 million
12% senior subordinated notes due 2010 (the
12% Notes). The proceeds from the offering of
the 12% Notes were used to repay the bridge loan and
approximately $59.7 million of the senior credit facility.
In addition, proceeds from the offering of the 12% Notes
were used to pay approximately $8.5 million of expenses
associated with the offering and approximately $6.8 million
of accrued interest.

In August 2002, we completed a financial
restructuring, including an exchange of most of our
12% Notes for new compounding notes and equity as well as
the amendment and restatement of our senior credit facility.
(See Management Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and
Capital Resources  Financial Restructuring and
Note 13 to our audited Consolidated Financial Statements.)

Our operations are classified into two reportable
segments, Established Businesses and Developing Businesses. The
Established Businesses segment is primarily comprised of the
Ziff Davis Publishing Inc. subsidiary which includes the
publishing assets that were acquired when we were formed in
April 2000 and are collectively referred to and defined under
our Amended and Restated Senior Credit Facility (the
Senior Credit Facility) as the Restricted
Subsidiaries. This segment is engaged in publishing and
licensing magazines and providing editorial content about
technology, videogames and the Internet. This segment also
licenses its content and brands in 44 countries and
20 languages worldwide.

The Developing Businesses segment is comprised of
the LaunchCo and InternetCo subsidiaries, which are collectively
referred to and defined under our Senior Credit Facility as the
Unrestricted Subsidiaries.

2



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##### Table of Contents



This segment is focused on developing new
businesses, including: (1) publications, which consist
of Baseline, CIO Insight, and now Sync, our new
consumer lifestyle magazine; (2) Internet-related
properties leveraging our editorial content, expertise and
relationships with our audience and advertisers in our
Established Businesses segment; and (3) events, including
those developed by our new Event Marketing Group, which is
building targeted events for the business and consumer
technology communities. (See Note 23 to our Consolidated
Financial Statements for more information regarding our
operating segments.)


Strategy

The principal focus of our business strategy
continues to be our consistent and disciplined practice of
investing in our core assets and brands, with an emphasis on
organic growth initiatives to create new business opportunities
with new and existing customers. Our strategy is designed to
drive future revenue growth and increase asset and shareholder
value and includes the following initiatives:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capitalize on New Revenue Opportunities from
    Existing Products and
    Services We intend to
    continue leveraging the strength of our magazine, Internet
    and event products, as well as our circulation base to expand
    and transition our business platform in the following manner:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Utilize Publishing and Technology Expertise to
    Evolve Product Content.As technology
    continues to evolve, we will continue to transition our
    publications, events and branded/ enthusiast websites to ensure
    that our properties remain among the most influential and
    relevant to the audiences and advertiser communities we serve.                                                                                                                                                                                                                   
|
| |  | Broaden Composition of Advertiser
    Base.Because technology has become
    more mainstream, our readership has broadened to include a more
    diverse group of IT and business professionals, videogame
    enthusiasts and consumers. We believe the future growth and
    segmentation of this audience will be even more attractive to
    prospective customers going forward. We intend to continue new
    business development by aggressively pursuing advertising sales
    and event opportunities with companies targeting these diverse
    market segments.
|
| |  | Increase Advertising and Subscriber
    Cross-Selling Opportunities.We will
    continue to utilize our long-standing and strong relationships
    with key advertisers for each of our publications to cross-sell
    new advertising programs and provide integrated marketing
    solutions to these customers. In addition, we will continue to
    utilize our extensive subscriber database of individuals to
    maximize circulation and cross-selling opportunities among our
    titles.                                                                         



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop Ancillary Revenue
    Opportunities We will use
    our corporate, magazine, Internet and event brand names,
    established market presence and existing subscriber base to
    extend our brands into new products and services including
    custom publishing and research. Specifically, our Integrated
    Media Group identifies and customizes editorial solutions that
    highlight customer product benefits and corporate messages for
    technology and non-technology companies. We believe these
    activities increase product awareness and sales leads for our
    customers as well as generate additional advertising and other
    revenue for the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Selectively Expand Our Portfolio of
    Publications, Internet Properties and
    Events Our management team
    has significant experience in launching and acquiring new
    magazines and media businesses. In January 2003 we debuted
    GMR,which increased its target circulation from 225,000
    to 425,000 in its first nine months. This growth reflects its
    strong acceptance among advertisers and readers. We also
    unveiled 1up.comin October 2003 as our new online
    destination for videogame enthusiasts and, according to internal
    server logs, unique visitors and page views have risen 200%
    since its launch. In addition, we launched Business 4Site in
    November 2003, a new strategic event that will debut in June
    2004 at the Century Plaza Hotel in Los Angeles; and in
    December 2003 we launched our new consumer event, DigitalLife,
    which will debut in October 2004 at the Jacob K. Javits
    Convention Center in New York City. Finally, we announced
    in January 2004 the launch of Syncmagazine, which will
    debut in the summer of 2004 with a target circulation of
    200,000. We believe that improvement in the current business
    environment along with rapid advances in technology, the
    consumer electronics marketplace and the online advertising
    sector may create further opportunities to launch additional new
    brands. As a result, we plan to continue to develop new
    publications, websites and events, and evaluate opportunities to
    expand our portfolio.

3



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Optimize Circulation and Production
    Strategies We intend to
    continue to be at the forefront of key industry circulation and
    production initiatives. We will pursue strategies such as
    Internet marketing, business partnership development, enhanced
    vendor relationships and the use of new technology in an effort
    to achieve further operational and financial efficiencies in the
    production and circulation areas.

General

We are a leading integrated media company serving
the technology, videogame and consumer lifestyle markets and one
of the largest technology magazine publishers in the United
States as measured by revenue. In 2003, we had an estimated
18.6% share of gross advertising revenue in the technology
magazine industry based on data compiled by IMS/ The Auditor
(Toronto, Canada) (IMS). Our current
U.S. titles have a combined circulation of approximately
3.7 million and our U.S. based brands reach over
22 million people per month at work, home and play based on
syndicated research and managements estimates. Our
audiences also cover the full spectrum of readership, from
corporate technology buyers and users to consumer enthusiasts,
influencers and gamers.

We distinguish ourself through our comprehensive
labs-based evaluations, trusted buying advice, recognized
industry experts, and thought-provoking news, reviews, opinions
and insights. We publish 9 industry-leading technology,
videogame and consumer lifestyle magazines including
PC Magazine, eWEEK, Baseline, CIO Insight, Electronic
Gaming Monthly, Official U.S. Playstation Magazine,
Computer Gaming World, Xbox Nation and GMR.
PC Magazineand eWEEKwere the number one and
number six ranked technology magazines, respectively, in the
United States in 2003 as measured by advertising pages from the
Publishers Information Bureau. Our videogame publications led
the market in 2003 with an estimated 36.0% market share based on
IMSs gross advertising revenue data. Additionally, we
launched a new consumer lifestyle publication, Sync,
which will debut in the summer of 2004.

Our readers are well-educated, influential buyers
of technology and other products and decision-makers in their
professional fields and households, which makes them attractive
to a wide range of advertisers. For example, the 4,190,000
estimated business influencers (professionals who are involved
in purchasing technology for their businesses) who read PC
Magazineeach spend an estimated average of $339,457 on
technology products and services according to Millward Brown
Intelliquest CIMS, v10 Business Study released in 2003.
Similarly, in December 2003, the average information technology
budget for corporate business readers of eWEEKwas
approximately $46.4 million, according to our subscriber
qualification surveys. Lastly, according to internal readership
surveys, the average Ziff Davis Game Group reader purchases
two games per month and influences approximately
five other people regarding which games to buy.

We extend the power of our brands online through
magazine companion sites, as well as original technology and
videogame enthusiast websites. These include pcmag.com,
eweek.com, extremetech.comand 1up.com. We
also produce highly targeted business-to-business and consumer
technology events. Furthermore, we export the power of our
brands internationally, licensing our content to publications in
44 countries that are produced in 20 languages.

4



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##### Table of Contents



Established Businesses Segment

Our current portfolio of established business
titles can be divided into the following two
categories: (1) technology publications and
(2) videogame publications. The following table sets forth
information regarding these titles:

|                                       |  |       |      |           |  |                  |    |             |  |           |                   |  |  |  |            |  |  |  |           |  
|-------------------------------------- |  | ----- | ---- | --------- |  | ---------------- | -- | ----------- |  | --------- | ----------------- |  |  |  | ---------- |  |  |  | --------- | -
|                                       |  | First |      | Frequency |  |                  |    |             |  |          
|Magazine Title                         |  | Issue |      | Per Year  |  | Primary Audience |    | Circulation |  | Rate Base
|                                       |  |       |      |           |  |                  |    |             |  |          
|Technology Publications                |  |       |      |           |  |                  |    |             |  |           |                   |  |  |  |            |  |  |  |           |  
|PC Magazine                            |  |       | 1981 |           |  |                  | 22 |             |  |           | Consumer/Business |  |  |  | Paid       |  |  |  | 1,050,000 |  
|eWEEK                                  |  |       | 1983 |           |  |                  | 51 |             |  |           | Business          |  |  |  | Controlled |  |  |  | 400,000   |  
|                                      
|Videogame Publications                 |  |       |      |           |  |                  |    |             |  |           |                   |  |  |  |            |  |  |  |           |  
|Computer Gaming World                  |  |       | 1981 |           |  |                  | 12 |             |  |           | Consumer          |  |  |  | Paid       |  |  |  | 277,000   | *
|Electronic Gaming Monthly              |  |       | 1988 |           |  |                  | 12 |             |  |           | Consumer          |  |  |  | Paid       |  |  |  | 600,000   |  
|Official U.S. PlayStation
    Magazine |  |       | 1997 |           |  |                  | 12 |             |  |           | Consumer          |  |  |  | Paid       |  |  |  | 350,000   | *
|Xbox Nation                            |  |       | 2001 |           |  |                  | 6  |             |  |           | Consumer          |  |  |  | Paid       |  |  |  | 34,000    | *
|GMR                                    |  |       | 2003 |           |  |                  | 12 |             |  |           | Consumer          |  |  |  | Paid       |  |  |  | 425,000   | *



---



|  |                                                                        
|- | -----------------------------------------------------------------------
|* | Target circulation; no rate base is claimed for
    these publications.



| |                        
| | -----------------------
| | Technology Publications

Our titles in this category provide
authoritative, independent guidance to consumer and business
influencers and business professionals that are considered by
their readers as a primary resource for purchasing decisions and
business solutions.

PC Magazineis one
of the largest technology publications in the world, delivering
the most authoritative, comprehensive lab-based reviews and
trusted recommendations for buyers of technology products and
services. PC Magazinepublishes 22 times a year in
print (plus occasional special issues)with a paid circulation of
more than 1.0 million. PC Magazinehad a recent
U.S. readership of nearly 5.8 million readers (MRI
Fall 2003), and we believe more than 50% of U.S. adults
recognize the PC Magazinebrand and this recognition is
more than 80% among individuals involved in the purchase of
computer-related products and services. Reaching highly engaged
technology influencers, PC Magazinedifferentiates itself
through unique and extensive product reviews based on its
exclusive benchmark testing performed in the PC Magazine
Labs, supplemented by its First Looks section
covering emerging technologies and products and opinionated
columns from its renowned technology authorities.

eWEEKis one of the
largest controlled-circulation publications in the United
States, reaching over 400,000 enterprise technology buyers who
are evaluating and purchasing technology solutions for their
companies. Controlled-circulation publications are distributed
directly to qualified professionals for no charge and generate
revenue principally from the sale of advertising. In order to
qualify for a free subscription, eWEEK subscribers must
be involved in one or more stages of the IT decision-making
process within an enterprise and be active in the specification,
recommendation, purchase or approval of multiple technologies,
services and business applications. These qualifications are
audited by BPA International. The criteria we use to
qualify subscribers for this magazine are some of the highest
standards in the industry. eWEEK differentiates itself by
delivering to its readers breaking news, technology evaluations
and strategic analyses of the technologies, platforms and trends
that impact enterprise-wide computing. We believe this makes
eWEEKextremely attractive to advertisers selling
products and services to IT professionals and senior business
readers evaluating and implementing enterprise technology
solutions.



| |                       
| | ----------------------
| | Videogame Publications

Electronic Gaming Monthly,
Official U.S. PlayStation Magazine, Computer Gaming
World, GMR, Xbox Nation, Pocket
Games and Game Guides. These paid publications are
positioned to capitalize on the large and

5



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##### Table of Contents



growing enthusiast market for videogames.
According to PricewaterhouseCoopers, the global videogame market
is estimated to be $23.8 billion in 2003 and is forecasted
to grow to $35.8 billion in 2007. Because readers of these
magazines are principally 18-to-34 year-old males,
these publications offer advertisers access to a highly focused,
difficult-to-reach readership with attractive demographics and
spending patterns. For the year ended December 31, 2003, we
were the leader in the United States in this growing segment
based on three major categories: IMSs gross
advertising revenue data (36.0% share); total circulation
data (37.7% share); and newsstand circulation data
(43.3% share). In 2003, 21.7% of our videogame magazine
circulation occurred at the newsstand compared with 17.2% for
our audited competitors. On average, our videogame publications
sell nearly 420,000 copies at the newsstand per issue. In
January 2003, we launched GMR, a monthly videogame
publication that is a combined effort with Electronics Boutique,
a leading specialty retailer of electronic games. GMRdelivers unique information about videogames as they are
literally hitting the store shelves, making it one of the most
relevant game-buying guides today.


Developing Businesses Segment

We are developing new publications and businesses
through LaunchCo and developing Internet-related properties
leveraging our editorial content, expertise and relationships in
technology through InternetCo. During the second half of 2003,
we introduced several new technology, videogame and consumer
lifestyle brands into our product portfolio.



| |         
| | --------
| | LaunchCo

The following table sets forth information
regarding titles within LaunchCo:

|               |  |       |      |           |  |                  |    |             |  |           |          |  |  |  |            |  |  |  |         |  
|-------------- |  | ----- | ---- | --------- |  | ---------------- | -- | ----------- |  | --------- | -------- |  |  |  | ---------- |  |  |  | ------- | -
|               |  | First |      | Frequency |  |                  |    |             |  |          
|Magazine Title |  | Issue |      | Per Year  |  | Primary Audience |    | Circulation |  | Rate Base
|               |  |       |      |           |  |                  |    |             |  |          
|CIO Insight    |  |       | 2001 |           |  |                  | 12 |             |  |           | Business |  |  |  | Controlled |  |  |  | 50,000  |  
|Baseline       |  |       | 2001 |           |  |                  | 12 |             |  |           | Business |  |  |  | Controlled |  |  |  | 125,000 |  
|Sync           |  |       | 2004 |           |  |                  | 4  |             |  |           | Consumer |  |  |  | Paid       |  |  |  | 200,000 | *



---



|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|* | All information for Sync is based on the
    estimated launch of its first issue in the summer of 2004.

CIO Insightis a
50,000 subscriber, controlled-circulation strategic business
journal for todays senior IT decision makers. Its
mission is to provide IT executives with cutting-edge
strategies, management techniques and technology perspectives.
Each month, CIO Insightprovides an IT business
source that senior-level technology executives can depend on for
strategic business thinking and proprietary research. Writers
are either proven experts in their fields or journalists who are
well-versed in technology and management issues. In order to
qualify for a free subscription, CIO Insightsubscribers
must be senior IT executives actively charged with setting
their companys IT business goals, direction and
strategy. These senior IT executives must also have personal
purchase authority for IT within their organizations or have
personal budgets in certain IT categories.

Baselineis a
125,000 subscriber, controlled-circulation magazine that is
a guide to selecting and managing the deployment of leading-edge
information systems for senior IT project leaders. Through case
studies, news stories, company dossiers and financial tools, the
publication provides technology leaders and business executives
with a detailed look at how their peers are implementing
strategic information technology projects and systems. The
success, or failure, of each implementation is measured by the
companys actual progress against baseline
expectations of financial returns and technology deliverables.
In its first two years of publication, Baseline received
a Jesse H. Neal National Business Journalism, Award for its
excellent editorial coverage of business and technology issues.
In order to qualify for a free subscription, Baselinesubscribers must be actively involved in setting goals,
evaluating or managing a companys IT investment, or
planning major IT projects or upgrades in the next
12 months. The subscriber must have a director-level title
or higher, have a minimum personal budget authority of $50,000
and an organizational spending minimum of $100,000.

6



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##### Table of Contents



Syncis our new
consumer lifestyle magazine and our entrance into the growing
consumer electronics market. According to the Consumer
Electronics Association, this market is estimated to be nearly
$100 billion in sales in 2004. Syncis designed to
give readers a stylish, exciting look at how consumers can use
digital products in the context of everyday life.
Syncs first issue will debut during the summer of
2004 and will publish four issues throughout the year. Syncwill launch with a target circulation of 200,000, consisting
primarily of affluent readers, ages 25  44. The
launch of Syncalso coincides with the launch of our new
consumer technology event, DigitalLife.

In September 2003, we launched the Ziff Davis
Event Marketing Group, a new business unit that will develop and
build focused events for the business and consumer technology
communities. Leveraging the editorial content and the highly
qualified subscriber base of our market-leading publications,
the new Ziff Davis Event Marketing Group will develop
comprehensive and ground-breaking community events. These events
will provide technology marketers with the best portfolio of
integrated marketing solutions to attract new customers,
accelerate the customer buying process and achieve more
efficient use of their marketing dollars.

In November 2003, the Ziff Davis Event Marketing
Group announced the launch of Business 4Site, a new strategic
event designed to meet the changing information needs of
business technology decision makers. Business 4Site will
kick off June 2004 at the Century Plaza Hotel in
Los Angeles followed by a subsequent event in November 2004
at the New York Hilton in New York City. In December
2003, the Ziff Davis Event Marketing Group also announced the
launch of DigitalLife, a new four-day special event that brings
together the latest in digital technology for the home, work and
play. DigitalLife will debut October 2004 at the Jacob K. Javits
Convention Center in New York City. The event is expected
to attract consumers and technology enthusiasts, all eager to
experience the next generation in digital technology products.



| |           
| | ----------
| | InternetCo

InternetCo produces online destinations for IT
and business professionals, technology enthusiasts and gamers.
Its portfolio of products are grounded in a tradition of
lab-based reviews, advice and commentary from leading experts,
and in-depth analysis and reporting. InternetCo products and
services consist of Internet advertising, eSeminars,
eNewsletters, sales lead-generation programs, integrated
eCommerce opportunities, e-mail direct marketing, sponsorships
and custom site development.

InternetCo currently operates nine websites,
primarily consisting of companion sites for our well-known
magazine brands such as PC Magazine and eWeek. The
pcmag.comsite is the premier online destination for
technology buyers making decisions for their business and
personal technology needs and builds on PC
Magazines original content, adding interactive
features such as Tech Shop, which connects buyers and sellers in
real time. The eweek.com site provides the first source
for breaking news, vendor analysis/ roadmaps and critical
examination of IT project deployments to help senior IT
buyers build and mange their enterprise infrastructure. The
cioinsight.comsite meets the needs of high-level IT
corporate executives with expert analysis, primary research and
CIO roundtable discussions. Lastly, the baselinemag.comsite reaches senior IT and corporate project managers online
with case studies and tools to help drive project value
assessment and implementation.

In addition to the companion websites for our
publications, InternetCo operates enthusiast websites such as
extremetech.com, which targets hardcore
technologists  i.e., IT professionals and
computer enthusiasts who are truly passionate about technology.
This site features extensive reviews, technical resources and
interactive discussions about the components and core
technologies behind the leading products. In October 2003,
1up.com was launched as our new online destination for
videogame enthusiasts and provides in-depth content,
up-to-the-minute news, multiple game reviews, tips and tricks
and live forums with industry celebrities covering all game
platforms. Unlike other competing videogame sites,
1up.com incorporates the unique editorial features from
the Ziff Davis Game Groups industry leading publications.
In addition to videogames, the website also offers social
networking, discussion groups, consumer news and lifestyle
coverage of movies, music and gadgets.

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InternetCo also produces eSeminars, which
connects IT experts, buyers and sellers in online interactive
groups to explore the latest issues in technology. We held
90 eSeminar events in 2003 with 1,300 average
registrants per event. Furthermore, InternetCo
produces 29 opt-in eNewsletters, as well as whitepapers and
other targeted business-to-business sites.

The following February 2004 monthly page
view and unique visitor statistics show the relative scale of
our Internet properties:

|                          |  |            |            |                 |  |  |           |   
|------------------------- |  | ---------- | ---------- | --------------- |  |  | --------- | --
|Website Address           |  | Page Views |            | Unique Visitors
|                          |  |            |            |                
|www.pcmag.com             |  |            | 20,364,000 |                 |  |  | 3,000,000 |   
|www.eweek.com             |  |            | 5,229,000  |                 |  |  | 1,505,000 |   
|www.cioinsight.com        |  |            | 212,000    |                 |  |  | 59,000    |   
|www.baselinemag.com       |  |            | 306,000    |                 |  |  | 84,000    |   
|www.extremetech.com       |  |            | 6,331,000  |                 |  |  | 856,000   |   
|www.1up.com               |  |            | 10,348,000 |                 |  |  | 992,000   |   
|Other targeted B2B sites* |  |            | 485,000    |                 |  |  | 237,000   |   
|                          |  |            |            |                 |  |  |           |   
|Total                     |  |            | 43,275,000 |                 |  |  | 6,733,000 | **
|                          |  |            |            |                 |  |  |           |   



---



|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|* | Includes miscellaneous sites such as eSeminars,
    Microsoft Watch and Ziff Davis Channelzone.



|   |                                                                 
|-- | ----------------------------------------------------------------
|** | Unadjusted for duplication of unique visitors
    between sites.

Revenue

Our principal sources of revenue for the year
ended December 31, 2003 are advertising (68.4% of total
revenue), circulation (20.6%) and other ancillary sources of
revenue (11.0%). Circulation comprises both subscriptions
(11.1%) and newsstand sales (9.5%). We record revenue net of
agency commissions, estimated subscription cancellations and
newsstand returns.

Advertising.Advertising rates and rate structures vary among our
publications and Internet properties and are based on, among
other things, the circulation or audience of the particular
property, the readership demographics, the scheduled frequency
and the size and placement of the advertisement in the
publication or website. Our advertising revenue is influenced by
a number of external factors, including the volume of new
technology product introductions, the amount and allocation of
marketing expenditures by our advertising clients and the extent
to which our customers elect to advertise using print and online
media.

Subscriptions.Generally, we sell subscriptions to our publications either
directly by our circulation staff or by independent subscription
direct marketing companies or agents. We receive approximately
9.7% of the total price of subscriptions sold through agents. In
addition to agents, we have historically sold subscriptions
using a variety of techniques including direct reply
subscription cards, direct mail and the Internet.

Newsstand.We sold
approximately 5.5 million single copies of magazines for
the year ended December 31, 2003. Generally we receive
approximately 47.5% of the cover price of an individual magazine
sold through the newsstand with the balance of the cover price
going to the magazines distributor, wholesaler and
retailer.

Other Revenue
Sources.We also derive revenue from a
variety of ancillary activities, including mailing list rentals,
custom conferences and events, royalty and license agreements
and eNewsletters.

Operating Costs

The principal components of our production costs
are raw materials, printing and distribution, which represented
23.9%, 38.3% and 37.8%, respectively, of our publishing
production expenses for the year ended December 31, 2003.
Our principal raw material is paper. Paper supply and prices are
subject to volatility and may be significantly affected by many
factors, including market and economic conditions.

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We outsource the printing process, including the
majority of our pre-press and paper buying operations, for all
of our publications. To facilitate efficient and timely printing
of our publications, we have established long-term contractual
relationships with certain printing companies, including
R.R. Donnelley and Brown Printing Company. For the year
ended December 31, 2003, approximately 39.7% of our total
production costs were for printing services and paper supplied
by or through R.R. Donnelley.

Our other principal operating costs are selling,
general and administrative expenses. Included in these costs are
compensation expenses (salaries, commissions and incentives),
benefits, editorial costs and circulation, marketing and
promotion expenses.

Circulation

Our publications include paid-circulation
magazines, which generate revenue from advertising, newsstand
sales and subscriptions, and controlled-circulation
publications, which in our case are distributed to qualified
IT professionals and generate revenue principally from the
sale of advertising. Our controlled-circulation publications
offer technology content that appeals to a professional audience
in need of technology information and enterprise IT solutions,
specifically in the areas of news, lab testing reviews,
analysis, opinion and case studies. Our paid-circulation
publications offer consumer and business-oriented content that
appeals to a broader audience interested in technology products
and services, the Internet and/or videogame hardware and
software. As of December 31, 2003, we published six
domestic paid-circulation publications and three domestic
controlled-circulation publications.

Our paid-circulation publications are distributed
to subscribers and are also available for sale at newsstands and
other retail outlets. We have an agreement with Warner
Publishing Services to manage our newsstand and retail
distribution. Warner Publishing Services in turn has agreements
with magazine wholesalers to arrange for national and regional
placements of our publications and to manage billing and
collection of amounts due from the magazine retailers. Our paid
subscribers receive their publications through the
U.S. Postal Service and via Zinio Systems Inc. for digital
delivery. We also have an agreement with Kable Fulfillment
Services to manage our subscription billing, collection and
processing, which includes providing mailing labels for each of
the paid publications. Our controlled-circulation publications
are distributed free of charge to individuals who meet
demographic standards we established in an effort to make the
publication attractive to advertisers. The qualified subscribers
of our controlled-circulation publications receive these
publications via the U.S. Postal Service and also via Zinio
Systems Inc. for digital delivery. In addition, we have an
agreement with Omeda Communications to manage our list and
mailing labels for each of the controlled publications.

In the year ended December 31, 2003,
Circulation Managementmagazine awarded eWEEKand
BaselineCirculation Excellence Awards, recognizing
outstanding achievement, innovation and strategic performance in
circulation marketing and management.

Customers

The size and composition of our readership offers
advertisers concentrated and efficient exposure to their
critical target audiences. As a result, our top advertisers,
including Microsoft, International Business Machines,
Hewlett Packard and Dell Computer, have consistently advertised
in our publications. Importantly, as technology and videogames
have become more mainstream and appeal to broader demographics,
our publications are becoming increasingly more appealing to a
larger range of advertisers who are interested in marketing
lifestyle and other general consumer products to this reader
audience.

We had over 600 advertising customers in 2003
according to internal records and an average paid circulation of
over 3.1 million individuals according to the figures filed
with the Audit Bureau of Circulation for the six months ended
December 31, 2003. No single advertiser comprised more than
6.7% of our advertising revenue or 4.6% of total revenue for the
year ended December 31, 2003. Our top ten advertisers
accounted for 41.4% of our advertising revenue and 28.3% of our
total revenue for the year ended December 31, 2003.

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Competition

The magazine publishing industry is highly
competitive. We compete with several much larger international
companies that operate in many markets and have broad product
offerings in publishing and trade shows and conferences. We
compete for readers and advertisers in the general publishing
marketplace, which is fragmented. According to SRDS Media, there
are about 6,900 domestic trade magazine titles. We also
compete for advertising and circulation revenue principally with
publishers of other technology magazines and Internet sites with
similar editorial content to ours. We believe our core
competitive set includes approximately 20 print publishing
and Internet companies. The technology magazine industry has
traditionally been dominated by a small number of large
publishers. In 2003, the three largest technology-publishing
companies, Ziff Davis Holdings, International Data Group
and CMP Media, accounted for 66.2% of total technology
magazine gross advertising revenue and 69.2% of total technology
advertising pages according to IMS.

Our publications generally compete on the basis
of:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | editorial quality;                                                        
|
| |  | quantity and quality of circulation;                                      
|
| |  | the strength of complementary products serving
    the same niche;        
|
| |  | the effectiveness of sales, research efforts and
    customer service; and
|
| |  | advertising rates.                                                        

We believe that we compete successfully with
other technology and videogame publications based on our
market-leading positions within the technology and videogame
magazine sectors, the nature and quality of our magazines
editorial content and the attractive demographics of our
readers. In addition, our magazines also compete for advertising
revenue with general-interest consumer and business magazines
and other forms of media, including broadcast and cable
television, radio, newspapers, direct marketing and other
electronic media. In competing with general-interest consumer
and business magazines and other forms of media, we rely on our
ability to reach a targeted segment of the population in an
efficient, cost-effective manner.

Certain License Agreements and Service
Contracts

Agreements with CNET Networks and
ZDNet.On January 19, 2001, we
amended a pre-existing content license agreement with ZDNet and
its parent, CNET Networks Inc. (CNET), such that,
beginning on March 1, 2001, ZDNets previously granted
license to display certain of our magazine content online became
non-exclusive and on March 1, 2002, all of ZDNets
license rights to content from our magazines was terminated. The
term of the content license agreement was subsequently extended
until April 30, 2002, without any further payments required
from ZDNet. In addition, ZDNets right and obligation to
maintain websites for our publications terminated and we
obtained the right to host these websites starting April 1,
2001. As consideration for amending the license agreement, ZDNet
paid us a royalty termination fee of $4.5 million in two
installments, of which $2.2 million and $2.3 million
were paid on March 1, 2001 and 2002, respectively.

Under the previous five-year license agreement
with ZDNet, we were providing the editorial content of our
publications existing as of April 4, 2000 to ZDNet, and
ZDNet maintained websites for those publications. This agreement
did not cover any new publications acquired or developed by us
after the date of the acquisition of ZDP to which we retained
all rights in every medium, and it specifically allowed us, in
certain circumstances, to transact e-commerce independently of
ZDNet for all publications. We have a perpetual, royalty-free
license from ZDNet to use the trademark ZD in print.
ZDNet continues to use the trademark ZD online and
may use certain derivations of the trademark ZD in
print.

In connection with the closing of the acquisition
of ZDP, we entered into a services agreement with ZDI. Under
this agreement, we provided distribution, circulation and
production services to ZDI for its Computer Shoppermagazine, and ZDI paid us our costs in relation to the
performance of these services plus an

10



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additional $5.0 million annually in fees. On
January 19, 2001, we agreed with ZDI to terminate this
services agreement and we entered into a new agreement effective
March 1, 2001 with CNET which contained substantially
similar terms, except that CNET was not required to pay us any
annual fee and was only required to reimburse us for our
out-of-pocket expenses incurred in connection with producing and
distributing Computer Shopper. On March 1, 2001,
CNET paid us a $2.0 million non-refundable fee in
connection with the termination of the original Computer
Shopperservices agreement. We entered into a new agreement
with CNET as of March 1, 2003, which will continue through
December 31, 2005 (unless terminated earlier by either
party), pursuant to which we will be paid a fixed monthly fee
plus reimbursement of certain direct expenses in connection with
circulation services we provide for Computer Shopper.


Other Agreements.We
have been granted an exclusive license until June 30, 2004
to use certain trademarks owned by Sony Computer Entertainment
America Inc. in connection with the publishing of the magazine
Official U.S. PlayStation Magazinein the United
States and Canada. The parties are currently in discussion
concerning a potential renewal of the exclusive license, but we
cannot be assured that we will continue to publish Official
U.S. PlayStation Magazinein the United States and
Canada beyond June 30, 2004.

We have also been granted a license to use
certain trademarks owned by Microsoft Corporation in connection
with the publishing of Xbox Nationmagazine both in print
and online. The term of our right to use these trademarks
expires on October 31, 2005.

We also have a license to use certain trademarks
and copyrighted content owned by Electronics Boutique of
America, Inc., in connection with our publication of GMR. The
term of our right to use these interests expires on
December 31, 2005, subject to early termination by either
party.

Lastly, we license various of our trademarks and
copyrighted content to third parties, including publishers of
foreign editions of our magazines and other foreign magazines.
Our brands and content currently appear in 44 countries and
20 languages worldwide.

Trademarks and Intellectual Property
Rights

We have developed strong brand awareness for our
principal publications and services. Accordingly, we consider
our trademarks, copyrights, trade secrets and similar
intellectual property critical to our success and rely on
trademark, copyright and trade secrets laws, as well as
licensing and confidentiality agreements, to protect our
intellectual property rights. We generally register our material
trademarks in the U.S. and in certain other key countries in
which these trademarks are used. Effective trademark, copyright
and trade secret protection may not be available in every
country where our publications and services are available.

We may be subject to claims by third parties of
alleged infringement of trademarks, copyrights, patents and
other intellectual property rights, from time to time in the
ordinary course of business. We do not believe there are any
such legal proceedings or claims that are likely to have,
individually or in the aggregate, a material adverse affect on
our business, financial condition or results of operations.

Employees

As of December 31, 2003, we had a total of
approximately 460 employees, all based in the U.S. None of
our employees are represented by a labor union. We believe that
our relations with our employees are good.

Forward-Looking Statements

All statements in this Form 10-K that are
not statements of historical fact are forward-looking
statements, as that term is used in Section 27A of
the Securities Act of 1933, as amended and Section 21E of
the Securities Exchange Act of 1934, as amended. Examples of
forward-looking statements include: projections of earnings,
revenue, financing needs or other financial items; statements of
the plans and objectives of management for future operations;
statements concerning proposed new products and services; and
any statements of assumptions underlying any of the foregoing.
In some cases, you can identify forward-looking statements by
the use of words such as may, will,
expects, should, believes,
plans,

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anticipates, estimates,
predicts, projects, should,
potential or continue, and any other
words of similar meaning.


Any or all of our forward-looking statements in
this Form 10-K and in any other public statements we make
may turn out to be materially wrong. They can be affected by
inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Many factors mentioned in this
Form 10-K will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially. Forward-looking
statements herein speak only as of the date of filing of this
Form 10-K. We undertake no obligation to publicly update
any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related
subjects in our reports to the Securities and Exchange
Commission (SEC).

Statements regarding our future financial
performance or results of operations, including expected revenue
growth; future paper, postage, printing or other expenses;
future operating margins; licensing or contract renewals;
anticipated capital spending; our ability to obtain funding and
other future or expected performance are subject to risk
factors, some of which are discussed immediately below under
Certain Risk Factors.

Certain Risk Factors

Below we provide a cautionary discussion of
certain risks, uncertainties and possibly inaccurate assumptions
relevant to our businesses. These are certain factors that we
think could cause our actual results to differ materially from
expected and historical results. Other factors besides those
listed here could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation
Reform Act of 1995. In addition to other information in this
Form 10-K, you should carefully evaluate the following risk
factors:



| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We require a significant amount of cash to
    service our indebtedness, which could make it difficult for us
    to satisfy our obligations with respect to our long-term debt
    and preferred stock and which reduces the cash available to
    finance our growth.

We have a significant amount of indebtedness. As
of December 31, 2003, we have approximately
$309.0 million of outstanding debt, $739.6 million of
redeemable preferred stock (which was classified as debt
beginning January 1, 2004) and approximately
$863.4 million of stockholders deficit. Our earnings
were insufficient to cover fixed charges plus preferred
dividends for the year ended December 31, 2003 by
$46.3 million.

Our substantial indebtedness could continue to:



| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to dedicate a substantial portion of
    our cash flow from operations to payments on our indebtedness,
    thereby reducing the availability of our cash flow to fund our
    operations;        
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and the publishing industry
    generally;                                                                                
|
| |  | place us at a competitive disadvantage compared
    to our competitors that have less debt;                                                                                                                  
|
| |  | limit, along with the financial and other
    restrictive covenants in our indebtedness, among other things,
    our ability to borrow additional funds, make acquisitions or
    invest in new products; and
|
| |  | if we fail to comply with those covenants,
    trigger an event of default under the agreements governing our
    indebtedness that, if not cured or waived, could have a material
    adverse effect on us. 

Our ability to service our indebtedness will
depend on our future performance, which will be affected by
prevailing economic conditions and financial, business and other
factors. Certain of these factors are beyond our control. We
believe that, based upon current levels of operations, we will
be able to meet our debt service obligations for 2004 when due.
The scheduled maturities for our principal indebtedness for
2004, 2005 and 2006 are approximately $8.6 million (plus an
obligation to pay an excess cash flow payment
currently

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estimated to be $6.8 million),
$17.3 million and $86.5 million, respectively. If we
cannot generate sufficient cash flow from operations to service
our indebtedness and to meet our other obligations and
commitments, we might be required to refinance our debt or to
dispose of assets to obtain funds for such purposes. There is no
assurance that refinancings or asset dispositions could be
achieved on a timely basis or on satisfactory terms, if at all,
or would be permitted by the terms of the indentures governing
our senior subordinated compounding notes due 2009 (the
Compounding Notes), the 12% Notes, or by our
Senior Credit Facility agreement. In the event that we were
unable to refinance our Senior Credit Facility or raise funds
through asset sales, sales of equity or otherwise, our ability
to pay the principal of, and interest on, the amounts borrowed
under the Senior Credit Facility, 12% Notes and Compounding
Notes, or to make any payment on the accrued dividends on our
preferred stock, would be impaired.




| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Ziff Davis Holdings does not receive
    loans, advances or dividends from its subsidiaries, Ziff Davis
    Holdings may be unable to redeem or pay accrued dividends on its
    preferred stock.

Ziff Davis Holdings is a holding company with no
assets other than its ownership of the capital stock of a
holding company that owns the capital stock of Ziff Davis Media.
Accordingly, Ziff Davis Holdings ability to perform its
obligations to the holders of its preferred stock depends upon
the operating cash flow of Ziff Davis Media and its direct and
indirect subsidiaries and their payments to Ziff Davis Holdings
in the form of loans, dividends or otherwise. Ziff Davis Media
is restricted from making any payments to Ziff Davis Holdings
before such time as its obligations under the Compounding Notes
and the Senior Credit Facility are satisfied. In addition, the
making of loans, advances or other payments by Ziff Davis Media
to Ziff Davis Holdings may be subject to regulatory and
contractual restrictions. Subsidiary payments are also
contingent upon earnings and various business and other
considerations. If Ziff Davis Holdings is unable to obtain
payments from Ziff Davis Media or its direct and indirect
subsidiaries, Ziff Davis Holdings may be unable to redeem its
preferred stock upon mandatory redemption on March 31, 2010
(or upon an earlier change in control, in certain circumstances
with respect to certain classes of our preferred stock), or pay
any cash dividends accruing on its preferred stock. In addition,
Ziff Davis Holdings will be unable to pay any cash dividends on
certain classes of preferred stock unless it has first paid in
full all accrued dividends on classes that have liquidation
preference.



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Our controlling stockholder may have
    interests that conflict with the interests of other
    investors.

A majority of the equity securities of Ziff Davis
Holdings are held by Willis Stein and its equity co-investors.
Through their controlling interest in us and pursuant to the
terms of an investor rights agreement among certain of Ziff
Davis Holdings stockholders (Investor Rights
Agreement), Willis Stein has the ability to control our
operations and policies. Circumstances may occur in which the
interests of Willis Stein and its affiliates, as controlling
stockholders, could be in conflict with the interests of other
investors. In addition, our equity investors may have an
interest in pursuing acquisitions, divestitures or other
transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to
holders of our debt.



| |                                                             
| | ------------------------------------------------------------
| | We may not be able to finance a change of
    control offer.

Under the terms of the indenture governing the
Compounding Notes and under the terms of the series E redeemable
preferred stock (the Series E Preferred Stock)
as set forth in the certificate of incorporation of Ziff Davis
Holdings, we will be required to offer to repurchase all the
Compounding Notes for a price equal to 101% of the principal
amount, plus interest that has accrued but has not been paid as
of the repurchase date, and to offer to redeem all the
Series E Preferred Stock, if a change of control (as
defined in the indenture governing the Compounding Notes or in
the certificate of incorporation of Ziff Davis Holdings,
respectively) occurs. However, it is possible that we will not
have sufficient funds at the time of the change of control to
make the required repurchases, or that we will not have
sufficient funds to pay our other debts. In addition, our Senior
Credit Facility may prohibit us from repurchasing the
Compounding Notes and/or redeeming the Series E Preferred
Stock after a change in control until we have repaid in full our
debt under such credit facilities. If we fail to repurchase the
Compounding Notes upon a change in control, we will be in default

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under the indenture governing the Compounding
Notes and our Senior Credit Facility. Any future debt that we
incur may also contain restrictions on repurchases in the event
of a change in control or similar event. These repurchase
restrictions may delay or make it harder for others to obtain
control over us.




| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Stockholders proportional equity
    interest in Ziff Davis Holdings could be reduced in the
    future.

The Series E Preferred Stock offers limited
preemptive rights on issuances by Ziff Davis Holdings that are
senior to such shares and a right to approve the issuance of
shares junior to the series D redeemable preferred stock
(Series D Preferred Stock) but senior to or on
par with the Series E Preferred Stock. However, these
rights are subject to certain limitations, which may result in
the dilution of your equity interest in Ziff Davis Holdings. We
may offer and sell additional shares of capital stock in the
future, including capital stock issued under our Amended and
Restated 2002 Employee Stock Option Plan (2002 Stock
Option Plan). In connection with our financial
restructuring, we issued approximately 38.6 million common
stock warrants to Willis Stein, each entitling Willis Stein to
obtain upon exercise one share of the common stock of Ziff Davis
Holdings at an exercise price of $0.001 per share, and
approximately 5.2 million common stock warrants to the
tendering holders of our 12% Notes (of which approximately
1.4 million common stock warrants were issued to Willis
Stein as a tendering holder), each giving such holders the right
to acquire upon exercise one share of the common stock of Ziff
Davis Holdings at an exercise price of $0.001 per share.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Non-compliance with our debt facilities
    could accelerate our obligations.

Our Senior Credit Facility and the Compounding
Notes indenture contain restrictive and information covenants
and a breach of any of these restrictive covenants under the
Senior Credit Facility or our inability to comply with the
amended financial ratios would result in an event of default
under our Senior Credit Facility. If such default occurs, the
lenders under our Senior Credit Facility may elect to declare
all outstanding borrowings, together with accrued and unpaid
interest and other fees, to be immediately due and payable.
Further, they may require us to use all of our available cash to
partially repay such borrowings and could prevent us from making
debt service payments on the Compounding Notes, which would
result in an event of default under the indenture governing the
Compounding Notes. Our Senior Credit Facility lenders also have
the right in such circumstances to terminate any commitments
they have to provide further financing, including those under
the revolving portion of our Senior Credit Facility. Finally,
our Senior Credit Facility lenders could foreclose on our assets.



| |                                                                        
| | -----------------------------------------------------------------------
| | We cannot assure you that our business
    strategy will be successful.

Our ability to implement our business strategy is
subject to a number of risks and uncertainties. Among other
things, we cannot assure you that we will be successful in:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | capitalizing on new revenue opportunities from
    existing products and services;         
|
| |  | developing ancillary revenue opportunities;                                                
|
| |  | selectively expanding our portfolio of
    publications, Internet properties and events; or
|
| |  | optimizing circulation and production strategies.                                          

In addition, our ability to pursue our business
strategy may be limited by liquidity constraints and the
restrictive covenants contained in our Senior Credit Facility
and the indenture governing the Compounding Notes. Accordingly,
the implementation of our business strategy may be adversely
affected.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on advertising as a principal
    source of revenue, which decreases during economic cycle
    downturns and fluctuates due to seasonal buying.

We expect that advertising revenue will continue
to be the principal source of our revenue in the foreseeable
future. Most of our advertising contracts are either short-term
contracts and/or can be terminated by the advertiser at any time
with little notice. We cannot assure you that we will be able to
retain current advertisers or obtain new advertising contracts.
Advertising revenue for the magazine industry is cyclical and

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dependent upon general economic conditions.
Advertising revenue for the technology magazine industry has
decreased significantly over the last 36 months due to the
downturn in the general U.S. economy and the technology
sector. The technology sector has declined as technology capital
spending has slowed dramatically which has led to further
industry consolidation and reduction of advertising budgets. If
the general economic and technology sector downturn continues,
our advertisers may continue to reduce their advertising budgets
and any material decline in these revenues would have a material
adverse effect on our business, results of operations and
financial condition. In addition, factors such as competitive
pricing pressures and delays in new product launches may affect
technology product advertisers. We cannot assure you that
advertisers will maintain or increase current levels of
advertising in special-interest magazines.




| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the U.S. economy worsens, we may
    have to implement further cost saving efforts to achieve the
    benefits we expect, which could result in further restructuring
    charges and materially impact our business.

In 2001 and 2002, we experienced a significant
decline in revenue and earnings, primarily due to weak economic
conditions, which were exacerbated by the terrorist attacks of
September 11, 2001. We took a number of steps designed to
improve our profits and margins despite decreased revenue. We
restructured a number of our businesses and support departments
and reduced overhead infrastructure by consolidating and closing
several offices and outsourcing certain corporate functions. As
a result, we recorded special restructuring and writedown
charges to our operations of $277.5 million in 2001 and
$128.2 million during 2002 related to these operating and
financial restructuring decisions. If the U.S. economy
worsens, our revenue would likely decline further. Because of
our fixed cost structure, decreases in our revenue cause
disproportionately greater decreases in our earnings.
Accordingly, if revenue declines beyond our expectations, we
will be forced to take additional cost-saving steps that could
result in additional restructuring charges and materially
adversely affect our business.



| |                                                             
| | ------------------------------------------------------------
| | We may not be able to protect our
    intellectual property.

We rely on copyright and trademark rights to
protect our publishing products. Effective trademark and
copyright protection may be unavailable or limited, or we may
not have applied for such protection in the United States or
abroad. In addition, we have been, and may in the future be,
notified of claims that our publishing products may infringe
trademarks, copyrights, patents and/or other intellectual
property rights of others. Such claims, including any related
litigation, could result in significant expense to us and
adversely affect our cash flow, whether or not such litigation
is resolved in our favor.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Our business might suffer if we fail to
    retain our senior management or to recruit and retain key
    personnel.

Our business is managed by a small group of key
executive officers. The loss of services of one or more of these
senior executives could adversely affect our ability to
effectively manage our overall operations or successfully
execute current or future business strategies. The employment
contracts we have with some of our top executives expire as of
December 31, 2004, and we have not yet commenced formal
discussions to extend these agreements. In addition, our success
depends on our continued ability to recruit and retain highly
skilled, knowledgeable and sophisticated editorial, sales and
technical personnel. Competition for these key executives and
personnel is intense. We cannot assure you of our ongoing
ability to attract and retain such qualified employees.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | New product launches or acquired products
    may reduce our earnings or generate losses.

Our future success will depend in part on our
ability to continue offering new products and services that
successfully gain market acceptance by addressing the needs of
our current and future customers. Our efforts to introduce new
or integrate acquired products may not be successful or
profitable. The process of internally researching and
developing, launching, gaining acceptance and establishing
profitability for a new product or service, or assimilating and
marketing an acquired product, is both risky and costly. New
products generally incur initial operating losses.

15



---



##### Table of Contents



Costs related to the development of new products
and services are generally expensed as incurred and,
accordingly, our profitability from year to year may be
adversely affected by the number and timing of new product
launches.



| |                                                                     
| | --------------------------------------------------------------------
| | We face significant competition for
    advertising and circulation.

We face significant competition from a number of
technology publishers, some of which may have greater financial
and other resources than we have, which may enhance their
ability to compete in the technology publishing market. We
principally compete for advertising and circulation revenue with
publishers of other technology publications. We also face broad
competition from media companies that produce general-interest
magazines and newspapers. Competition for advertising revenue is
primarily based on advertising rates, the nature and scope of
readership, reader response to advertisers products and
services and the effectiveness of sales teams. Other competitive
factors in publishing include product positioning, editorial
quality, circulation, price and customer service, which impact
readership audience, circulation revenues and, ultimately,
advertising revenues. Because our industry is relatively easy to
enter, we anticipate that additional competitors, some of whom
have greater resources than we do, may enter these markets and
intensify competition. We announced effective January 2004 a
reduction in the rate base of PC Magazineto 1,050,000 as
did our primary competitor, PC World, when it reduced its
rate base to 1,025,000 effective January 2004. Although reduced
circulation lowers our production and distribution expenses, it
could also have a negative impact on our revenues that
potentially equals or exceeds the production and distribution
cost savings.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our principal vendors are consolidating and
    this may adversely affect our business and
    operations.

We rely on our principal vendors and their
ability or willingness to sell goods and services to us at
favorable prices and other terms. Many factors outside our
control may harm these relationships and the ability and
willingness of these vendors to sell these goods and services to
us on such terms. Our principal vendors include paper suppliers,
printers, subscription fulfillment houses and national newsstand
wholesalers, distributors and retailers. Each of these
industries is currently experiencing consolidation among its
principal participants. Such consolidation may result in all or
any of the following, which could adversely affect our results
of operations:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | decreased competition, which may lead to
    increased prices;        
|
| |  | interruptions and delays in services provided by
    such vendors; and
|
| |  | greater dependence on certain vendors.                                



| |                                                                             
| | ----------------------------------------------------------------------------
| | We may be adversely affected by
    fluctuations in paper and postage costs.

Our principal raw material is paper. Paper prices
have fluctuated over the past several years. We generally enter
into contracts for the purchase of paper that adjust the price
on a quarterly basis. We have not entered, and do not currently
plan to enter, into long-term forward price or option contracts
for paper. Accordingly, significant increases in paper prices
could adversely affect our future results of operations.

Postage for magazine distribution is also one of
our significant expenses. We primarily use the U.S. Postal
Service to distribute magazine subscriptions. We may not be able
to recover, in whole or in part, paper or postage cost
increases. Postal rates increased 9.9% in January 2001, 2.6% in
July 2001 and 9.9% in June 2002. Each of these price increases
has had a significant adverse effect on our cash flow, and any
further significant cost increases will also have an adverse
effect on our cash flow.

We may be adversely affected by a continued
weakening of newsstand sales.

The magazine industry has seen a weakening of
newsstand sales during the past few years. A continuation of
this decline could adversely affect our financial condition and
results of operations by reducing our circulation revenue and
thereby causing us to either incur higher circulation expense to
maintain our guaranteed rate bases, or to reduce our rate bases
which could then cause further negative impacts to our revenue.

16



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##### Table of Contents








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Properties

Our principal properties and the approximate
square feet occupied by us (excluding excess space vacated or
sublet to others) are currently as follows:

|                                  |  |            |      |             |  |  |         | 
|--------------------------------- |  | ---------- | ---- | ----------- |  |  | ------- | 
|                                  |  | Lease      |      | Approximate
|                                  |  | Expiration |      | Square Feet
|                                  |  |            |      |            
|New York, New York (Headquarters) |  |            | 2019 |             |  |  | 144,000 | 
|San Francisco, California         |  |            | 2010 |             |  |  | 35,000  | 
|Woburn, Massachusetts             |  |            | 2004 |             |  |  | 11,000  | 

Properties other than those listed above include
smaller sales and/or general offices in Chicago, Illinois
and Atlanta, Georgia, under leases expiring through 2007. We do
not own real property and we lease all of our offices from third
parties. We believe our facilities are in good operating
condition and are suitable and adequate for our current
operations.

In connection with prior years cost
reduction programs, we undertook a real estate consolidation and
relocation project designed to reduce our total real estate
costs and square feet leased. In 2001, we closed eight
facilities covering approximately 60,000 square feet with
lease terms expiring through 2006. Two of the facilities
covering approximately 24,000 square feet have been
subleased. We also subleased approximately 194,000 square
feet of our New York headquarters with sublease terms
expiring in 2019. In 2002, we closed three more facilities
covering approximately 125,000 square feet with terms
expiring in 2010 and vacated approximately 60,000 square
feet in our New York headquarters, which runs through 2019.
In 2003, we entered into a sublease agreement for the vacated
space in our New York headquarters that will also expire in
2019. We are currently in the process of attempting to negotiate
subleases or lease terminations relating to the remaining closed
facilities and excess leased space. We cannot assure you,
however, that we will successfully negotiate and execute these
additional subleases or lease terminations, or comment as to the
terms on which we could do so.






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

On October 17, 2001, the former Publisher of
The Net Economyinitiated a lawsuit in the Supreme Court
of the State of New York, Nassau County, alleging breach of
contract, fraudulent inducement and various other claims arising
out of the termination of his employment. We made a motion to
dismiss in December 2001, which was subsequently denied as
against Ziff Davis Media and granted as against defendants Alan
Perlman and Willis Stein. In June 2003, the Appellate Division
modified the lower courts order to grant defendants
motion to dismiss plaintiffs claim for punitive damages
and otherwise affirmed the lower courts order. We believe
we have meritorious defenses to the claims raised and intend to
continue vigorously defending this lawsuit. We cannot assure
you, however, that we will prevail in this matter or comment as
to the amount of monetary damages, if any, that the plaintiff
could be awarded were the plaintiff to prevail.

Ziff Davis Media was a defendant, along with
numerous other magazine publishing companies, in In Re
Magazineantitrust litigation, a consolidation of
approximately 25 separate class action price fixing
lawsuits that were commenced beginning on July 19, 2000,
alleging a conspiracy among the magazine publishers to inflate
subscription prices by agreeing not to offer subscriptions at
more than a 50% discount off list price. The Court in February
2004 approved a settlement agreement, which does not impose any
payment obligations upon the defendants and the action was
dismissed.

In March 2002, Ziff Davis France
(ZDF) and other unrelated parties were sued by a
freelance author alleging that certain publication of his works
infringed his rights, which case was dismissed pursuant to a
settlement agreement in July 2003.

We are also subject to various claims and legal
proceedings that arise in the ordinary course of business.
However, we do not expect any of these claims or legal
proceedings, either individually or in the aggregate, to have a
material adverse effect on our financial condition, results of
operations or liquidity.

17



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##### Table of Contents








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

Not applicable.




PART II






|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY,
    RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY
    SECURITIES

There is no public trading market for Ziff Davis
Holdings common stock. There are approximately 37 holders
of record of Ziff Davis Holdings common stock.

Ziff Davis Holdings did not pay cash dividends on
its common stock and currently intends to retain any future
earnings to finance operations, debt service and business
expansion. Therefore, the payment of any cash dividends on the
common stock is unlikely in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of
the Board of Directors of Ziff Davis Holdings and subject to
terms of the Senior Credit Facility, the indenture governing the
Compounding Notes and Ziff Davis Holdings certificate of
incorporation and will be dependent upon our earnings, capital
requirements, financial condition and such other factors deemed
relevant by the Board of Directors.






|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

The following table presents the selected
historical financial information of Ziff Davis Holdings. The
selected financial information as of December 31, 2003,
2002, and 2001, March 31, 2001, and for the years ended
December 31, 2003, and 2002 and the nine month period ended
December 31, 2001, and the fiscal year ended March 31,
2001, were derived from the audited consolidated financial
statements and the related notes of Ziff Davis Holdings, which
appear in Item 8 in this Form 10-K. The selected
financial information as of April 4, 2000, and
December 31, 1999, and for the period January 1 to
April 4, 2000, and for each of the two years in the period
ended December 31, 1999, were derived from the audited
carve-out financial statements and the related notes of ZDP.
Certain of the selected historical financial information may not
be comparable due to differing accounting bases resulting from
changes in ownership. On April 5, 2000, ZDP was purchased
by Ziff Davis Holdings. Accordingly, we have separated the
periods of different ownership in the table below.

18



---



##### Table of Contents



The following selected historical financial and
operating information of Ziff Davis Holdings should be read in
conjunction with Business, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements and
related notes of Ziff Davis Holdings, which appear in this
Form 10-K.

ZIFF DAVIS HOLDINGS INC.

SELECTED FINANCIAL DATA


|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |           |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------ | -------- | ------------ | - | ----------- | -------- | ------------- | - | ------------- | -------- | ------------- | - | - | ------- | -------- | - | - | ------- | ------- | - | - | -------- | --------- | -
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |              
|                                                                           |                                                                                | Year Ended   |          | Nine Months  |   | Fiscal Year |          |               |   |              
|                                                                           |                                                                                | December 31, |          | Ended        |   | Ended       |          | Period        |   | Year Ended   
|                                                                           |                                                                                |              |          | December 31, |   | March 31,   |          | January 1, to |   | December 31, 
|                                                                           |                                                                                | 2003         |          | 2002         |   | 2001(2)     |          | 2001(2)       |   | April 4, 2000 |          | 1999         
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |              
|(in thousands of dollars)                                                  |                                                                                |              |          |              |   |             |          |               |   | (Predecessor) |          | (Predecessor)
|Statement of Operations Data(1):                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Revenue, net                                                               |                                                                                | $            | 194,107  |              |   | $           | 209,037  |               |   | $             | 215,859  |               |   | $ | 430,925 |          |   | $ | 128,941 |         |   | $ | 535,709  |          
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Operating expenses:                                                        |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|                                                                           | Cost of production                                                             |              |          | 60,622       |   |             |          | 75,835        |   |               |          | 81,726        |   |   |         | 139,284  |   |   |         | 38,733  |   |   |          | 158,040   |  
|                                                                           | Selling, general and administrative expenses                                   |              |          | 98,973       |   |             |          | 125,171       |   |               |          | 164,351       |   |   |         | 244,990  |   |   |         | 76,009  |   |   |          | 278,602   |  
|                                                                           | Depreciation and amortization of property,
    equipment and intangible assets |              |          | 25,901       |   |             |          | 37,770        |   |               |          | 62,636        |   |   |         | 66,098   |   |   |         | 12,066  |   |   |          | 82,477    |  
|                                                                           | Year 2000 remediation expense                                                  |              |          |             |   |             |          |              |   |               |          |              |   |   |         |         |   |   |         |        |   |   |          | 3,027     |  
|                                                                           | Restructuring charges, net(3)                                                  |              |          | (6,238       | ) |             |          | 48,950        |   |               |          | 37,412        |   |   |         |         |   |   |         |        |   |   |          |          |  
|                                                                           | Write-down of intangible assets(4)                                             |              |          |             |   |             |          | 79,241        |   |               |          | 240,077       |   |   |         |         |   |   |         |        |   |   |          | 778,760   |  
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|                                                                           | Total operating expenses                                                       |              |          | 179,258      |   |             |          | 366,967       |   |               |          | 586,202       |   |   |         | 450,372  |   |   |         | 126,808 |   |   |          | 1,300,906 |  
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Income (loss) from operations                                              |                                                                                | $            | 14,849   |              |   | $           | (157,930 | )             |   | $             | (370,343 | )             |   | $ | (19,447 | )        |   | $ | 2,133   |         |   | $ | (765,197 | )        
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Net (loss) income                                                          |                                                                                | $            | (1,909   | )            |   | $           | (196,840 | )             |   | $             | (415,424 | )             |   | $ | (76,028 | )        |   | $ | 304     |         |   | $ | (583,034 | )        
|                                                                           |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Cash Flows and Other Data(1):                                              |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Cash Flows:                                                                |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|                                                                           | Operating                                                                      |              | $        | 8,535        |   |             | $        | (48,002       | ) |               | $        | (65,138       | ) |   | $       | 35,272   |   |   | $       | 15,241  |   |   | $        | 91,429    |  
|                                                                           | Investing                                                                      |              |          | 2,411        |   |             |          | (1,013        | ) |               |          | (8,704        | ) |   |         | (802,546 | ) |   |         | (2,608  | ) |   |          | (16,338   | )
|                                                                           | Financing                                                                      |              |          | (4,928       | ) |             |          | 70,349        |   |               |          | 68,287        |   |   |         | 790,785  |   |   |         | (10,488 | ) |   |          | (78,913   | )
|Capital expenditures                                                       |                                                                                |              | 2,518    |              |   |             | 2,567    |               |   |               | 23,336   |               |   |   | 33,655  |          |   |   | 1,792   |         |   |   | 10,840   |          
|Ratio of earnings to combined fixed charges and
    preferred dividends(5) |                                                                                |              |         |              |   |             |         |               |   |               |         |               |   |   |        |          |   |   | 3.5     | x       |   |   |         |          
|Ratio of earnings to fixed charges(6)                                      |                                                                                |              | 1.6      | x            |   |             |         |               |   |               |         |               |   |   |        |          |   |   | 3.5     | x       |   |   |         |          
|Balance Sheet Data(1) (At End of
    Period):                              |                                                                                |              |          |              |   |             |          |               |   |               |          |               |   |   |         |          |   |   |         |         |   |   |          |          
|Cash and cash equivalents                                                  |                                                                                | $            | 47,308   |              |   | $           | 41,290   |               |   | $             | 19,956   |               |   | $ | 25,511  |          |   | $ | 4,632   |         |   | $ | 2,487    |          
|Total assets                                                               |                                                                                |              | 376,908  |              |   |             | 394,412  |               |   |               | 515,295  |               |   |   | 853,302 |          |   |   | 915,306 |         |   |   | 931,248  |          
|Total debt                                                                 |                                                                                |              | 309,031  |              |   |             | 301,266  |               |   |               | 429,201  |               |   |   | 459,167 |          |   |   |        |         |   |   |         |          
|Redeemable preferred stock                                                 |                                                                                |              | 739,602  |              |   |             | 673,577  |               |   |               | 515,987  |               |   |   | 375,585 |          |   |   |        |         |   |   |         |          
|Division equity(7)                                                         |                                                                                |              |         |              |   |             |         |               |   |               |         |               |   |   |        |          |   |   | 816,545 |         |   |   | 826,725  |          
|Total stockholders deficit                                                |                                                                                | $            | (863,351 | )            |   | $           | (796,763 | )             |   | $             | (555,314 | )             |   | $ | (96,645 | )        |   | $ |        |         |   | $ |         |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The financial information presented is for Ziff
    Davis Holdings. See Note 20 to our Consolidated Financial
    Statements for condensed consolidating financial information for
    Ziff Davis Media and our subsidiary guarantors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2) | As of January 1, 2002, Ziff Davis Holdings
    adopted the Emerging Issues Task Force Nos. 01-9 and 00-25,
    which required the netting of product placement and distribution
    costs against reported revenue. Amounts prior to January 1,
    2002, have been reclassified to reflect the current year
    adoption of this accounting pronouncement.                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) | The restructuring charges incurred in 2001 and
    2002 were primarily related to the closure of magazines. They
    include the write-off of intangible assets, severance costs and
    costs to exit certain activities, such as facilities closure
    costs. The credit incurred in 2003 represents a reversal of a
    portion of the prior years accruals primarily relating to
    adjustments to our estimated future real estate lease costs
    after excess vacant space was sublet.                                                                                                                                                                                                                                                              
|(4) | Reflects an adjustment by the seller in 1999 to
    write-down the intangible assets to reflect the
    $780.0 million acquisition price of the publishing assets
    of ZDI. In 2001 and 2002, the adjustment reflects asset
    impairment charges primarily related to the closure of magazines.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | For purposes of the computations, earnings
    consist of income (loss) before income taxes and equity in
    income (loss) from joint ventures, plus fixed charges. Fixed
    charges are defined as interest expense plus one-third of gross
    rent expense, which is deemed to be representative of interest.
    Preferred dividends consist of dividends payable on redeemable
    preferred stock. For the years ended December 31, 2003 and
    2002, the nine months ended December 31, 2001, the fiscal
    year ended March 31, 2001 and the year ended
    December 31, 1999, our earnings were insufficient to cover
    combined fixed charges and preferred dividends by $46,262;
    $207,678; $411,642; $58,267; and $761,197, respectively.
|(6) | For purposes of the computations, earnings
    consist of income (loss) before income taxes and equity in
    income (loss) from joint ventures, plus fixed charges. Fixed
    charges are defined as interest expense plus one-third of gross
    rent expense, which is deemed to be representative of interest.
    For the year ended December 31, 2002, the nine months ended
    December 31, 2001, the fiscal year ended March 31,
    2001, and the year ended December 31, 1999, our earnings
    were insufficient by $157,930; $370,218; $15,847; and $761,197,
    respectively.                                                                                                                                                                  
|(7) | Division equity is presented because prior to the
    closing of the ZDP acquisition we were a division of ZDI and
    were not a separate legal entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

19



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our
financial condition and results of operations should be read in
conjunction with our consolidated financial statements,
including the notes to those statements, which are included in
Item 8 of this Form 10-K and in conjunction with the
sections of Item 1 of this Form 10-K titled
Forward-Looking Statements and Certain Risk
Factors. Historical results and percentage relationships
set forth in the audited consolidated financial statements,
including trends that might appear, should not be taken as
indicative of results of future operations.

Overview

We are a leading integrated media company focused
on the technology, videogame and consumer lifestyle markets. We
are an information services provider of technology media
including publications, websites, conferences, events,
eSeminars, eNewsletters, custom publishing, list rental,
research and market intelligence. Ziff Davis Holdings is
majority owned by various investment funds managed by Willis
Stein, a private equity investment firm. Ziff Davis Holdings is
a holding company that indirectly owns 100% of Ziff Davis Media.
Ziff Davis Holdings does not conduct any business, but rather
all operations are conducted by Ziff Davis Media and its direct
and indirect subsidiaries. Ziff Davis Holdings has no material
assets other than its investment in the capital stock of Ziff
Davis Media. Ziff Davis Holdings was incorporated in the state
of Delaware and was formed to acquire certain publishing assets
(Ziff-Davis Publishing, ZDP or
Predecessor) from Ziff-Davis Inc., an unrelated
company. Our major operating subsidiaries are Ziff Davis
Publishing Inc., Ziff Davis Development Inc.
(LaunchCo) and Ziff Davis Internet Inc.
(InternetCo). In January 2002, we changed our fiscal
year-end from March 31 to December 31, effective
December 31, 2001.

Our operations are classified into two reportable
segments, Established Businesses and Developing Businesses. The
Established Businesses segment is primarily comprised of the
Ziff Davis Publishing Inc. subsidiary which includes the
publishing assets that were acquired when we formed in April
2000 and are collectively referred to and defined under our
Senior Credit Facility as the Restricted
Subsidiaries. This segment is engaged in publishing and
licensing magazines and providing editorial content about
technology, videogames and the Internet. This segment also
licenses its content and brands in 44 countries and
20 languages worldwide.

The Developing Businesses segment is comprised of
the LaunchCo and InternetCo subsidiaries, which are collectively
referred to and defined under our Senior Credit Facility as the
Unrestricted Subsidiaries. This segment is focused
on developing new businesses, including: (1) publications,
which consist of Baseline, CIO Insightand now
Sync, our new consumer lifestyle magazine; (2)
Internet-related properties leveraging our editorial content,
expertise and relationships with our audience and advertisers in
our Established Businesses segment; and (3) events,
including those developed by our new Event Marketing Group,
which is building targeted events for the business and consumer
technology communities. Where appropriate in our discussion
below, we have separately identified amounts associated with the
Restricted Subsidiaries and Unrestricted Subsidiaries when
comparing amounts to prior year periods. For further segment
information, see Note 23 to our audited consolidated
financial statements included herein.

Ziff Davis Holdings financial statements as
of December 31, 2003 and 2002, and for the years then ended
and as of December 31, 2001, and for the nine months then
ended are prepared on a consolidated basis and include the
accounts of Ziff Davis Holdings and its subsidiaries.

Technology Sector and Economic
Trends

Our revenue and profitability are influenced by a
number of external factors, including the volume of new
technology product introductions; the amount and allocation of
marketing expenditures by our clients; the extent to which
sellers elect to advertise using print and online media; changes
in paper prices and postage rates; and competition among
computer technology marketers including print publishers and
providers of other technology information services. Accordingly,
we may experience fluctuations in revenue and profitability from
period to period. Many of our large customers concentrate their
advertising expenditures around major

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new product or service launches. Marketing
expenditures by technology companies can also be affected by
factors generally impacting the technology industry, including
pricing pressures and temporary surpluses of inventory.


Our revenue and profitability are also influenced
by internal factors such as product mix and the timing and
frequency of our new product launches. New publications
generally require several years to achieve profitability and
upon achieving initial profitability, often have lower operating
margins than more established publications. Accordingly, our
total revenue and profitability from year to year may be
affected by the number and timing of new product launches. If we
conclude that a new publication or service will not achieve
certain milestones with regard to revenue, profitability and
cash flow within a reasonable period of time, management may
discontinue such publication or service or merge it into another
existing publication or service.

Recent years economic trends in the United
States have had a significant negative impact on our business.
These trends include a general decline in all advertising
spending, consolidation among our technology and videogame
advertisers and a significant decrease in core technology
advertising spending. In response to this decline, we undertook
a cost reduction and restructuring program in 2001, which
continued into 2002, and as a result of which we have
discontinued unprofitable publications, consolidated operations
and reduced our workforce. In August 2002, we also completed a
comprehensive financial restructuring (see Liquidity and
Capital Resources  Financial Restructuring and
Note 13 to the Consolidated Financial Statements).

Results of Operations  Year Ended
December 31, 2003 Compared to Year Ended December 31,
2002

The table below presents results for the year
ended December 31, 2003 and compares this to the results
for the year ended December 31, 2002.

|                              |                                                             |                         |         |         |   |   |          |          |  
|----------------------------- | ----------------------------------------------------------- | ----------------------- | ------- | ------- | - | - | -------- | -------- | -
|                              |                                                             |                        
|                              |                                                             | Year Ended December 31,
|                              |                                                             |                        
|                              |                                                             | 2003                    |         | 2002   
|(in thousands of dollars)     |                                                             |                         |         |        
|Revenue, net                  |                                                             | $                       | 194,107 |         |   | $ | 209,037  |         
|                              |                                                             |                         |         |         |   |   |          |         
|Operating expenses:           |                                                             |                         |         |         |   |   |          |         
|                              | Cost of production                                          |                         |         | 60,622  |   |   |          | 75,835   |  
|                              | Selling, general and administrative expenses                |                         |         | 98,973  |   |   |          | 125,171  |  
|                              | Depreciation and amortization of property and
    equipment |                         |         | 10,793  |   |   |          | 18,851   |  
|                              | Amortization of intangible assets                           |                         |         | 15,108  |   |   |          | 18,919   |  
|                              | Restructuring charges, net                                  |                         |         | (6,238  | ) |   |          | 48,950   |  
|                              | Write-down of intangible assets                             |                         |         |        |   |   |          | 79,241   |  
|                              |                                                             |                         |         |         |   |   |          |         
|                              | Total operating expenses                                    |                         |         | 179,258 |   |   |          | 366,967  |  
|                              |                                                             |                         |         |         |   |   |          |         
|Income (loss) from operations |                                                             |                         | 14,849  |         |   |   | (157,930 | )       
|Gain on sale of assets, net   |                                                             |                         | 2,609   |         |   |   | 634      |         
|Interest expense, net         |                                                             |                         | (19,142 | )       |   |   | (39,286  | )       
|                              |                                                             |                         |         |         |   |   |          |         
|                              | Loss before income taxes                                    |                         |         | (1,684  | ) |   |          | (196,582 | )
|Income tax provision          |                                                             |                         | 225     |         |   |   | 258      |         
|                              |                                                             |                         |         |         |   |   |          |         
|                              | Net loss                                                    |                         | $       | (1,909  | ) |   | $        | (196,840 | )
|                              |                                                             |                         |         |         |   |   |          |         



| |             
| | ------------
| | Revenue, net

Revenue was $194.1 million for the year
ended December 31, 2003, compared to $209.0 million in
the comparable prior year period, a decrease of
$14.9 million, or 7.1%. Excluding discontinued publications
and a business sold in 2002 (Yahoo! Internet Life, Ziff Davis
SMART BUSINESS, The Net Economy and eTESTING LABS, Inc.),
revenue increased $3.9 million, or 2.1%.

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Revenue from the Restricted Subsidiaries was
$162.1 million compared to $183.3 in the comparable prior
year period, a decrease of $21.2 million, or 11.6%.
Excluding discontinued publications within the Restricted
Subsidiaries (Yahoo! Internet Lifeand Ziff Davis
SMART BUSINESS), revenue was down $8.1 million, or
4.8%, from $170.2 million. The $8.1 million decrease
in revenue from continuing publications was largely due to an
advertising revenue decline of $11.3 million related to
continued softness in the business-to-business enterprise
technology capital spending and advertising marketplaces causing
a decline in our enterprise technology magazine advertising
pages and our average revenue per page. We also continued to see
some shifting of marketing budgets towards advertising on our
publication-affiliated websites and these advertising dollars
are captured in the Unrestricted Subsidiaries. In addition,
there was a decrease in videogame advertising pages due to fewer
new game releases and hit games during the year.
However, this decrease was partially offset by an increase in
the average revenue per page for both our consumer technology
and our videogame publications. Total paid advertising pages for
continuing publications in the Restricted Subsidiaries decreased
by 9.5% for the year ended December 31, 2003. Circulation
revenue for the continuing businesses in the Restricted
Subsidiaries decreased $1.8 million or 4.3%, to
$40.0 million, primarily due to decreased newsstand revenue
for our videogame publications. Other revenue related to the
Restricted Subsidiaries continuing businesses increased
$5.0 million, or 48.2%, due to increased list rental,
custom conferences and events and insert revenues.

Revenue from the Unrestricted Subsidiaries was
$32.0 million for the year ended December 31, 2003,
compared to $25.7 million in the comparable prior year
period, a $6.3 million or 24.5% increase. Excluding the
discontinued publication and a business sold within the
Unrestricted Subsidiaries (The Net Economyand
eTESTING LABS, Inc.), revenue was $20.0 million
in 2002, representing an increase of $12.0 million or 60.0%
from the prior year period. The increase primarily relates to
increased advertising revenue for our Internet operations and
increased advertising and event revenue for Baselineand
CIO Insight.Total paid advertising pages for the
continuing businesses within the Unrestricted Subsidiaries
increased by 3.3% for the year ended December 31, 2003.



| |                   
| | ------------------
| | Cost of production

Cost of production was $60.6 million for the
year ended December 31, 2003, compared to
$75.8 million for the comparable prior year period, a
$15.2 million or 20.1% decrease. Excluding discontinued
publications and a business sold in 2002, cost of production
decreased $8.2 million, or 11.9%.

Cost of production related to the Restricted
Subsidiaries decreased $12.5 million, or 17.8% from
$70.4 million in 2002 to $57.9 million for the year
ended December 31, 2003. Excluding discontinued
publications within the Restricted Subsidiaries, cost of
production decreased 8.8% from $63.5 million to
$57.9 million. The decrease primarily relates to
manufacturing, paper and distribution cost savings achieved
through implementation of a number of new production and
distribution initiatives across all of our publications and the
impact of more favorable third-party supplier contracts. As a
result, cost of production for continuing businesses in the
Restricted Subsidiaries as a percentage of revenue decreased
from 37.3% to 35.7% for the years ended December 31, 2002
and 2003, respectively.

Cost of production related to the Unrestricted
Subsidiaries was $2.7 million for the year ended
December 31, 2003 compared to $5.4 million for the
comparable prior year period. Excluding $0.5 million of
cost for the discontinued publication and a business sold within
the Unrestricted Subsidiaries for the year ended
December 31, 2002, cost of production for the year ended
December 31, 2003 decreased 44.9%, or $2.2 million,
from $4.9 million. The decrease is primarily due to
significantly reduced Internet infrastructure and operating
costs resulting from our cost management initiatives and the
impact of more favorable third-party supplier contracts. As a
result of both the cost reductions and revenue growth, cost of
production for continuing businesses in the Unrestricted
Subsidiaries as a percentage of revenue decreased from 24.5% to
8.4% for the years ended December 31, 2002 and 2003,
respectively.

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Selling, general and administrative
expenses

Selling, general and administrative expenses for
the year ended December 31, 2003 were $99.0 million,
compared to $125.2 million for the year ended
December 31, 2002, a $26.2 million or 20.9% decrease.
Excluding discontinued publications and a business sold in 2002,
selling, general and administrative expenses decreased
$4.9 million or 4.7%.

Selling, general and administrative expenses
related to the Restricted Subsidiaries decreased
$17.2 million, or 21.9%, from $78.6 million to
$61.4 million. Excluding $12.2 million of expenses
from discontinued publications within the Restricted
Subsidiaries for the year ended December 31, 2002, selling,
general and administrative expenses decreased $5.0 million
or 7.5% from $66.4 million. The decrease was primarily due
to the workforce, facilities and other cost savings achieved as
a result of cost management initiatives, our ability to reduce
our bad debt expense from prior year levels and other year-end
adjustments. As a result, selling, general and administrative
expenses for continuing businesses in the Restricted
Subsidiaries as a percentage of revenue decreased from 39.0% to
37.9% for the years ended December 31, 2002 and 2003,
respectively.

Selling, general and administrative expenses
related to the Unrestricted Subsidiaries decreased
$9.0 million, or 19.4%, from $46.5 million to
$37.5 million for the years ended December 31, 2002
and 2003, respectively. Excluding $9.1 million of expenses
related to the discontinued publication and a business sold
within the Unrestricted Subsidiaries for the year ended
December 31, 2002, selling, general and administrative
expenses increased $0.1 million or 0.3% from
$37.4 million. The increase was primarily due to
incremental costs associated with our new business initiatives:
Sync, 1up.comand the Event Marketing Group, but also
included increased Internet audience production costs and higher
Baselineand CIO Insightevent costs due to higher
sales volume in these areas. As a result, selling, general and
administrative expenses for continuing businesses in the
Unrestricted Subsidiaries as a percentage of revenue decreased
from 187.0% to 117.2% for the years ended December 31, 2002
and 2003, respectively.



| |                              
| | -----------------------------
| | Depreciation and amortization

Depreciation and amortization expenses were
$25.9 million and $37.8 million for the years ended
December 31, 2003 and 2002, respectively. The decrease is
principally attributable to lower depreciation and amortization
expense resulting from the write-off of finite-lived intangible
assets and certain fixed assets as part of our 2002 cost
reduction and restructuring program.



| |                           
| | --------------------------
| | Restructuring charges, net

For the year ended December 31, 2003, we
reversed a portion of the prior years accrued
restructuring balance and recognized a credit of
$6.2 million to Restructuring charges, net in our
Consolidated Statement of Operations. This credit primarily
related to real estate lease costs and reflected our recent
sublet of excess space in our New York headquarters for an
amount higher than originally estimated. As of December 31,
2003, there were $23.4 million of accrued restructuring
charges included in our Consolidated Balance Sheet under the
Accrued expenses and other current liabilities and Accrued
expenses  long-term captions. The remaining accrued
balance primarily relates to future real estate lease costs for
vacated facilities. We anticipate making cash payments in 2004
of approximately $9.4 million with the remainder being paid
through 2019 due to the long-term nature of related real estate
lease agreements.

We incurred a total pre-tax charge of
$128.2 million for the cost reduction and restructuring
program for the year ended December 31, 2002,
$79.2 million of which was recorded as a write-down of
intangible assets and the remainder as Restructuring charges,
net in our Consolidated Statement of Operations. The total
charge of $128.2 million is comprised of non-cash asset
impairment costs of $85.2 million, employee severance costs
of $8.1 million and costs to exit certain activities of
$34.9 million. These costs primarily relate to:
(1) the discontinuation of Yahoo! Internet Life, Ziff
Davis SMART BUSINESS and The Net Economy;
(2) the write-down of certain intangible assets; and
(3) the further consolidation of our real estate facilities.

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| |                            
| | ---------------------------
| | Gain on sale of assets, net

In September 2003, we sold an international
trademark to an unrelated third-party for approximately
$5.0 million and realized a gain on sale of
$2.5 million. We also received a final contingent payment
of the 2002 sale of our eTESTING LABS, Inc.
subsidiary that was recognized as a gain of $0.1 million.
In July 2002, we sold our eTESTING LABS, Inc.
subsidiary for approximately $1.6 million in net proceeds,
realizing a gain of approximately $0.6 million.



| |                      
| | ---------------------
| | Interest expense, net

Interest expense was $19.1 million for the
year ended December 31, 2003, compared to
$39.3 million for the year ended December 31, 2002.
Our weighted average debt outstanding was approximately
$306.8 million and $390.9 million, and our weighted
average interest rate was 8.81% and 10.35%, for the years ended
December 31, 2003 and 2002, respectively.

The decline in interest expense is a reflection
of the full year benefit from our financial restructuring, which
was completed in August 2002. As a result, we reduced our
outstanding debt balance by $147.4 million and our Senior
Credit Facility was amended such that we are now paying market
interest rates. Interest expense for the year ended
December 31, 2003, included the following non-cash items:
(1) $2.1 million of amortization of debt issuance
costs; (2) $1.9 million related to long-term real
estate leases recorded in prior year periods at their net
present value and (3) $1.3 million of net interest
expense related to the Compounding Notes. Of the
$39.3 million of interest in 2002, $2.5 million and
$0.5 million was non-cash in nature related to amortization
of debt issuance costs and the Compounding Notes, respectively.



| |             
| | ------------
| | Income taxes

The income tax provision of $0.2 million for
the year ended December 31, 2003, and the income tax
provision of $0.3 million for the year ended
December 31, 2002, represent effective rates of negative
13.4% and negative 0.1%, respectively. The negative effective
rates result from foreign withholding taxes on our international
licensing revenue as well as certain minimum state and local
taxes, despite the consolidated entity having a pre-tax loss.



| |         
| | --------
| | Net loss

Net loss of $1.9 million for the year ended
December 31, 2003, represents an improvement of
$194.9 million compared to net loss of $196.8 million
for the year ended December 31, 2002. The improvement is
primarily due to the absence in 2003 of a write-down of
intangible assets, the impact of our cost reduction and
financial restructuring program and the development and revenue
growth of our businesses in the Unrestricted Subsidiaries.

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##### Table of Contents



Results of Operations  Year Ended
December 31, 2002 Compared to Pro forma Year Ended
December 31, 2001

The table below presents unaudited pro forma
results for the full year ended December 31, 2001 by adding
our nine-month transitional period ended December 31, 2001
with the three-month period ended March 31, 2001 and
compares this to the results for the year ended
December 31, 2002.

|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |          |  
|------------------------------------------- | ----------------------------------------------------------- | ------------ | -------- | -------------- | - | ------------ | -------- | ------------ | - | - | ------- | ------- | - | - | -------- | -------- | -
|                                            |                                                             |              |          |               
|                                            |                                                             |              |          | Full Year 2001
|                                            |                                                             |              |          |               
|                                            |                                                             |              |          | Nine Months    |   | Three Months |          | Pro forma   
|                                            |                                                             | Year Ended   |          | Ended          |   | Ended        |          | Year Ended  
|                                            |                                                             | December 31, |          | December 31,   |   | March 31,    |          | December 31,
|                                            |                                                             | 2002         |          | 2001           |   | 2001         |          | 2001        
|                                            |                                                             |              |          |                |   |              |          |             
|(in thousands of dollars)                   |                                                             |              |          |                |   | (unaudited)  |          | (unaudited) 
|Revenue, net                                |                                                             | $            | 209,037  |                |   | $            | 215,859  |              |   | $ | 84,226  |         |   | $ | 300,085  |         
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|Operating expenses:                         |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|                                            | Cost of production                                          |              |          | 75,835         |   |              |          | 81,726       |   |   |         | 32,886  |   |   |          | 114,612  |  
|                                            | Selling, general and administrative expenses                |              |          | 125,171        |   |              |          | 164,351      |   |   |         | 65,609  |   |   |          | 229,960  |  
|                                            | Depreciation and amortization of property and
    equipment |              |          | 18,851         |   |              |          | 20,870       |   |   |         | 5,338   |   |   |          | 26,208   |  
|                                            | Amortization of intangible assets                           |              |          | 18,919         |   |              |          | 41,766       |   |   |         | 13,600  |   |   |          | 55,366   |  
|                                            | Restructuring charges, net                                  |              |          | 48,950         |   |              |          | 37,412       |   |   |         |        |   |   |          | 37,412   |  
|                                            | Write-down of intangible assets                             |              |          | 79,241         |   |              |          | 240,077      |   |   |         |        |   |   |          | 240,077  |  
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|                                            | Total operating expenses                                    |              |          | 366,967        |   |              |          | 586,202      |   |   |         | 117,433 |   |   |          | 703,635  |  
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|Loss from operations                        |                                                             |              | (157,930 | )              |   |              | (370,343 | )            |   |   | (33,207 | )       |   |   | (403,550 | )       
|Equity in (loss) income from joint ventures |                                                             |              |         |                |   |              | (192     | )            |   |   | 356     |         |   |   | 164      |         
|Loss on sale of joint venture               |                                                             |              |         |                |   |              | (7,802   | )            |   |   |        |         |   |   | (7,802   | )       
|Gain on sale of subsidiary                  |                                                             |              | 634      |                |   |              |         |              |   |   |        |         |   |   |         |         
|Interest expense, net                       |                                                             |              | (39,286  | )              |   |              | (36,833  | )            |   |   | (12,208 | )       |   |   | (49,041  | )       
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|                                            | Loss before income taxes                                    |              |          | (196,582       | ) |              |          | (415,170     | ) |   |         | (45,059 | ) |   |          | (460,229 | )
|Income tax provision                        |                                                             |              | 258      |                |   |              | 254      |              |   |   | 144     |         |   |   | 398      |         
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         
|                                            | Net loss                                                    |              | $        | (196,840       | ) |              | $        | (415,424     | ) |   | $       | (45,203 | ) |   | $        | (460,627 | )
|                                            |                                                             |              |          |                |   |              |          |              |   |   |         |         |   |   |          |         



| |             
| | ------------
| | Revenue, net

Revenue was $209.0 million for the year
ended December 31, 2002, compared to $300.1 million in
the comparable prior year period, a decrease of
$91.1 million, or 30.4%.

Revenue from the Restricted Subsidiaries was
$183.3 million compared to $277.8 in the comparable prior
year period, a decrease of $94.5 million, or 34.0%.
Excluding the discontinued publications within the Restricted
Subsidiaries (FamilyPC, Smart Partner, Yahoo! Internet Life,
Ziff Davis SMART BUSINESSand Interactive Week),
revenue was down $28.1 million or 14.2% from
$198.3 million. Discontinued publications accounted for
$13.1 million of revenue for the year ended
December 31, 2002 and $79.5 million for the same
period in 2001. The $28.1 million decrease in revenue from
continuing publications was largely due to an advertising
revenue decline of $21.2 million related to a significant
decrease in advertising pages and average revenue per page for
our technology publications, partially offset by strong gains in
ad pages and average revenue per page for our videogame
publications. Circulation revenue for the continuing businesses
in the Restricted Subsidiaries increased $0.4 million, or
0.9%, to $41.9 million, primarily due to increased
newsstand revenue for our videogame publications. Other revenue
related to the Restricted Subsidiaries continuing
businesses decreased $7.2 million, or 40.8%, primarily
driven by decreased royalty revenue resulting from the
termination of our content license agreement with ZDNet.

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Revenue from the Unrestricted Subsidiaries was
$25.7 million for the year ended December 31, 2002,
compared to $22.3 million in the comparable prior year
period, a $3.4 million or 15.3% increase. Excluding the
discontinued publications and websites within the Unrestricted
Subsidiaries (Expedia Travelsand The Net
Economy), revenue was $20.0 million in 2002 and
$5.8 million in 2001, an increase of $14.2 million.
The increase in revenue from continuing businesses primarily
relates to: (1) increased advertising revenue from new
publications (CIO Insightand Baseline); and
(2) growing revenue from our Internet properties which was
nearly zero in the prior year period.



| |                   
| | ------------------
| | Cost of production

Cost of production was $75.8 million for the
year ended December 31, 2002, compared to
$114.6 million for the comparable prior year period, a
$38.8 million or 33.9% decrease.

Cost of production related to the Restricted
Subsidiaries decreased $34.1 million, or 32.6% from
$104.5 million in 2001 to $70.4 million for the year
ended December 31, 2002. Excluding discontinued
publications within the Restricted Subsidiaries, cost of
production decreased 8.9% from $69.7 million to
$63.5 million. This decrease was primarily due to a decline
in total pages produced in our magazine portfolio together with
reduced paper prices and was partially offset by an increase in
postage rates. In July 2001, the Governor of the
U.S. Postal Service approved a 2.6% increase in postage
rates and this was followed by a 9.9% increase in June 2002.
Excluding discontinued publications, cost of production as a
percentage of revenue increased to 37.3% from 35.2% of revenue
for the year ended December 31, 2002 versus 2001. This
increase is primarily attributable to the revenue decline
described above.

Cost of production related to the Unrestricted
Subsidiaries was $5.4 million compared to
$10.1 million in the prior year period. The cost decrease
was due to the closure of Expedia Travels, The Net Economyand certain websites, partially offset by increased costs at
CIO Insight, Baselineand our Internet properties, which
were in their early development stages during the prior year
period.



| |                                                 
| | ------------------------------------------------
| | Selling, general and administrative
    expenses

Selling, general and administrative expenses for
the year ended December 31, 2002, were $125.2 million,
compared to $230.0 million for the year ended
December 31, 2001, a $104.8 million or 45.6% decrease.

Selling, general and administrative expenses
related to the Restricted Subsidiaries decreased
$67.6 million, or 46.2% from $146.2 million to
$78.6 million. Excluding discontinued publications within
the Restricted Subsidiaries, selling, general and administrative
expenses decreased $14.5 million, or 17.9% from
$81.0 million to $66.5 million. This decrease was
primarily related to our cost reduction program and cost savings
realized in circulation acquisition, editorial, marketing and
sales as well as bad debt expense. Excluding discontinued
publications, selling, general and administrative expenses as a
percentage of revenue decreased from 40.8% for the year ended
December 31, 2001 to 39.1% for the year ended
December 31, 2002, primarily related to our cost control
efforts.

Selling, general and administrative expenses
related to the Unrestricted Subsidiaries were $46.5 million
and $83.7 million for the years ended December 31,
2002 and 2001, respectively. Excluding discontinued publications
and websites within the Unrestricted Subsidiaries, selling,
general and administrative expenses were $37.4 million, a
decrease of $5.9 million or 13.6% from $43.3 million
for the year ended December 31, 2001. The decrease in
selling, general and administrative expenses primarily resulted
from our cost reduction program and the impact of lower Internet
content and audience development costs in 2002 compared to 2001,
when our Internet properties were in their start-up phase.



| |                              
| | -----------------------------
| | Depreciation and amortization

Depreciation and amortization expenses were
$37.8 million and $81.6 million for the years ended
December 31, 2002 and 2001, respectively. The decrease is
principally attributable to lower depreciation and amortization
expense resulting from the write-off of goodwill, intangible
assets and certain fixed assets as part

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of our cost reduction and restructuring program.
Also, in accordance with a new accounting pronouncement,
effective January 1, 2002, we no longer amortize goodwill
or indefinite-lived intangible assets.




| |                                                                  
| | -----------------------------------------------------------------
| | Restructuring charges, net and writedown of
    intangible assets

Our cost reduction and restructuring program
continued in 2002. We incurred a total pre-tax charge of
$128.2 million for this restructuring program for the year
ended December 31, 2002, $79.2 million of which was
recorded as a write-down of intangible assets and the remainder
as Restructuring charges, net in our Consolidated Statement of
Operations. The total charge of $128.2 million was
comprised of non-cash asset impairment costs of
$85.2 million, employee severance costs of
$8.1 million and costs to exit certain activities of
$34.9 million. These costs primarily related to:
(1) the discontinuation of Yahoo! Internet Life, Ziff
Davis SMART BUSINESSand The Net Economy;
(2) the write-down of certain intangible assets; and
(3) the further consolidation of our real estate
facilities. As of December 31, 2002, we had approximately
$38.2 million of accrued restructuring costs remaining on
the Consolidated Balance Sheet.

In 2001 we incurred a total pre-tax charge of
$277.5 million, $240.1 million of which was recorded
as a write-down of intangible assets and the remainder as a
restructuring charge in our Consolidated Statement of Operations
for the year ended December 31, 2001. The total charge was
comprised of non-cash asset impairment costs of
$251.6 million, employee severance costs of
$13.0 million and costs to exit certain activities of
$12.9 million. These costs primarily related to:
(1) the closure of Family PC, Expedia Travelsand
Smart Partnermagazines and related websites;
(2) the consolidation of Interactive Weekinto
eWEEK; (3) the restructuring of our sales,
marketing, editorial and overhead functions across all
platforms; (4) the closure of Zcast.tv, a website; and
(5) the consolidation of our real estate facilities.



| |                                                
| | -----------------------------------------------
| | Equity in (loss) income from joint
    ventures

In October 2001, we sold our 50% ownership
interest in Mac Publishing LLC. Proceeds from the sale were
$4.1 million resulting in a non-cash loss of
$7.8 million. Accordingly, we had no income or loss from
joint ventures in 2002.



| |                           
| | --------------------------
| | Gain on sale of subsidiary

In July 2002, we sold our eTESTING
LABS, Inc. subsidiary for approximately
$1.6 million in net proceeds realizing a gain of
approximately $0.6 million.



| |                      
| | ---------------------
| | Interest expense, net

Interest expense was $39.3 million for the
year ended December 31, 2002 compared to $49.0 million
for the year ended December 31, 2001. Our weighted average
debt outstanding was approximately $390.9 million and
$450.0 million, and our weighted average interest rate was
10.35% and 10.48% for the years ended December 31, 2002 and
2001, respectively.

The decline in interest expense is primarily due
to the financial restructuring which we completed in August
2002. As a result, we reduced our outstanding debt balance by
$147.4 million and our Senior Credit Facility was amended
such that we were able to resume paying market interest rates.
Of the $39.3 million in interest in 2002, $2.5 million
and $0.5 million was non-cash in nature related to
amortization of debt issuance costs and the new Compounding
Notes, respectively. In 2001, $2.2 million was non-cash in
nature related to the amortization of debt issuance costs.



| |             
| | ------------
| | Income taxes

The income tax provision of $0.3 million for
the year ended December 31, 2002 and the income tax
provision of $0.4 million for the year ended
December 31, 2001 represent effective rates of negative
0.1% for both years. The negative effective rate results from
foreign withholding tax on our international licensing revenue
as well as certain minimum state and local taxes despite the
consolidated entity having a pre-tax loss.

27



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| |         
| | --------
| | Net loss

As a result of the factors describe above, we
incurred a net loss of $196.8 million for the year ended
December 31, 2002, reflecting an improvement of
$263.8 million, compared to a net loss of
$460.6 million for the year ended December 31, 2001.
The improvement is primarily due to the year-to-year decrease in
the write-down of intangible assets and the impact of our cost
reduction and financial restructuring program.

Results of Operations  Nine Months
Ended December 31, 2001 Compared to Nine Months Ended
December 31, 2000

The table below presents results for the nine
month transition period ended December 31, 2001 and for the
comparable nine month period ended December 31, 2000.

|                                            |                                                             |                   |          |             |   |   |         |         |  
|------------------------------------------- | ----------------------------------------------------------- | ----------------- | -------- | ----------- | - | - | ------- | ------- | -
|                                            |                                                             |                  
|                                            |                                                             | Nine Months Ended
|                                            |                                                             | December 31,     
|                                            |                                                             |                  
|(in thousands of dollars)                   |                                                             | 2001              |          | 2000       
|                                            |                                                             |                   |          |            
|                                            |                                                             |                   |          | (unaudited)
|Revenue, net                                |                                                             | $                 | 215,859  |             |   | $ | 346,699 |        
|                                            |                                                             |                   |          |             |   |   |         |        
|Operating expenses:                         |                                                             |                   |          |             |   |   |         |        
|                                            | Cost of production                                          |                   |          | 81,726      |   |   |         | 106,398 |  
|                                            | Selling, general and administrative expenses                |                   |          | 164,351     |   |   |         | 179,381 |  
|                                            | Depreciation and amortization of property and
    equipment |                   |          | 20,870      |   |   |         | 11,261  |  
|                                            | Amortization of intangible assets                           |                   |          | 41,766      |   |   |         | 35,899  |  
|                                            | Restructuring charge, net                                   |                   |          | 37,412      |   |   |         |        |  
|                                            | Write-down of intangible assets                             |                   |          | 240,077     |   |   |         |        |  
|                                            |                                                             |                   |          |             |   |   |         |        
|                                            | Total operating expenses                                    |                   |          | 586,202     |   |   |         | 332,939 |  
|                                            |                                                             |                   |          |             |   |   |         |        
|(Loss) income from operations               |                                                             |                   | (370,343 | )           |   |   | 13,760  |        
|Equity in (loss) income from joint ventures |                                                             |                   | (192     | )           |   |   | 983     |        
|Loss on sale of joint venture               |                                                             |                   | (7,802   | )           |   |   |        |        
|Interest expense, net                       |                                                             |                   | (36,833  | )           |   |   | (44,807 | )      
|                                            |                                                             |                   |          |             |   |   |         |        
|                                            | Loss before income taxes                                    |                   |          | (415,170    | ) |   |         | (30,064 | )
|Income tax provision                        |                                                             |                   | 254      |             |   |   | 761     |        
|                                            |                                                             |                   |          |             |   |   |         |        
|                                            | Net loss                                                    |                   | $        | (415,424    | ) |   | $       | (30,825 | )
|                                            |                                                             |                   |          |             |   |   |         |        



| |             
| | ------------
| | Revenue, net

Revenue was $215.9 million for the nine
months ended December 31, 2001, compared to
$346.7 million in the comparable prior year period, a
decrease of $130.8 million, or 37.7%.

Revenue from the Restricted Subsidiaries was
$197.2 million compared to $340.1 in the comparable prior
year period, a decrease of $142.9 million, or 42.0%.
Excluding discontinued publications within the Restricted
Subsidiaries (Family PC, Smart Partnerand Interactive
Week), revenue was down $91.4 million or 34.4% from
$265.8 million. Discontinued publications accounted for
$22.8 million of revenue for the nine months ended
December 31, 2001 and $74.3 million of the comparable
prior year period. The $91.4 million decrease in revenue
from continuing publications was largely due to an advertising
revenue decline of $69.4 million, primarily related to a
decrease in ad pages of 36.4%. Circulation revenue for the
continuing businesses in the Restricted Subsidiaries decreased
$17.0 million, or 31.9%, to $36.3 million. This
decline relates to a 25.6% decrease in newsstand revenue and a
35.6% decline in subscription revenue compared to the same prior
year period. Both newsstand and subscription revenue were
dramatically impacted by negative economic conditions. Other
revenue related to the Restricted Subsidiaries continuing
businesses was down $5.1 million, or 28.4%, primarily
driven by decreased royalty revenue resulting from the
termination of our license agreement with ZDNet.

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Revenue from the Unrestricted Subsidiaries was
$18.6 million for the nine months ended December 31,
2001 compared to $6.6 million in the comparable prior year
period. The increase primarily relates to: (1) increased
advertising revenue from new magazine publications (The Net
Economy, CIO Insightand Baseline); and
(2) revenue from our Internet properties which was nearly
zero in the prior year period. This growth in revenue was
partially offset by the closure of Expedia Travelsmagazine in October 2001.

Cost of production

Cost of production was $81.7 million for the
nine months ended December 31, 2001, compared to
$106.4 million for the comparable prior year period, a
$24.7 million or 23.2% decrease.

Cost of production related to the Restricted
Subsidiaries decreased $27.2 million, or 26.6% from
$102.1 million to $74.9 million for the nine months
ended December 31, 2001 and 2000, respectively. Excluding
discontinued publications within the Restricted Subsidiaries,
cost of production decreased 21.3% to $64.3 million from
$81.7 million for the nine months ended December 31,
2001 and 2000, respectively. This decrease was primarily due to
a decline in total pages produced in our magazine portfolio and
paper prices, partially offset by an increase in postage rates.
In January 2001, the Governor of the U.S. Postal Service
approved a 9.9% increase in postage rates for calendar year
2001. In addition, a further 2.6% increase in postage rates
became effective July 2001. Excluding discontinued publications,
cost of production as a percentage of revenue increased from
30.0% to 35.3% of revenue for the nine months ended
December 31, 2000 and 2001, respectively. This increase is
primarily attributable to the decline in revenue described above.

Cost of production related to the Unrestricted
Subsidiaries was $6.8 million compared to $4.3 million
for the nine months ended December 31, 2001 and 2000,
respectively. The cost increase was primarily related to new
magazine publications (The Net Economy, CIO Insight and
Baseline) and our new Internet properties, which were in
their early development stages during the prior year period.

Selling, general and administrative
expenses

Selling, general and administrative expenses for
the nine months ended December 31, 2001, were
$164.4 million compared to $179.4 million for the nine
months ended December 31, 2000.

Selling, general and administrative expenses
related to the Restricted Subsidiaries decreased
$46.6 million, or 30.6% from $152.3 million to
$105.7 million for the nine months ended December 31,
2001 and 2000, respectively. Excluding discontinued publications
within the Restricted Subsidiaries, selling, general and
administrative expenses decreased $29.8 million or 25.9%
from $115.0 million to $85.2 million for the nine
months ended December 31, 2001 and 2000, respectively. This
decrease was primarily related to cost reductions realized in
circulation acquisition, editorial, marketing and sales as well
as bad debt expense. Excluding discontinued publications,
selling, general and administrative expenses as a percentage of
revenue increased from 43.3% for the nine months ended
December 31, 2000, to 48.9% for the nine months ended
December 31, 2001. This increase primarily related to the
revenue decline described above.

Selling, general and administrative expenses
related to the Unrestricted Subsidiaries were $58.6 million
and $27.1 million for the nine months ended
December 31, 2001 and 2000, respectively. The increase
primarily related to the newly launched magazine publications
and Internet properties which were in their early development
stages during the prior year period.

Depreciation and amortization

Depreciation and amortization expenses were
$62.6 million and $47.2 million for the nine months
ended December 31, 2001 and 2000, respectively. The
increase is principally attributable to higher depreciation
expense for capital spending in the second half of the prior
fiscal year for computer hardware and software related to the
startup of our Internet properties.

As part of the cost reduction and restructuring
program, we also wrote-off a net book value of
$219.8 million of goodwill and intangible assets and
$30.8 million of fixed assets during the nine months ended
December 31, 2001.

29



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Restructuring charges, net and write-down
of intangible assets

Economic and technology sector trends in the
United States had a significant negative impact on our business
in 2001. These trends included consolidation among our
advertisers and a general decline in advertising spending. In
response to this decline, we began a restructuring program in
the quarter ended June 30, 2001, under which we started to
eliminate unprofitable operations, consolidate facilities and
reduce our workforce in order to decrease excess operating costs.

We incurred a total pre-tax charge of
$277.5 million for this restructuring program for the nine
months ended December 31, 2001, $240.1 million of
which was recorded as a write-down of intangible assets and the
remainder as Restructuring charges, net in our Consolidated
Statement of Operations. The total charge of $277.5 million
is comprised of non-cash asset impairment costs of
$251.6 million, employee severance costs of
$13.0 million and costs to exit certain activities of
$12.9 million. These costs primarily relate to:
(1) the closure of Family PC, Expedia Travelsand
Smart Partnermagazines and related websites;
(2) the consolidation of Interactive Weekinto
eWEEK; (3) the restructuring of our sales,
marketing, editorial and overhead functions across all
platforms; (4) the closure of Zcast.tv, a website; and (5)
the consolidation of our real estate facilities. Due to the
timing of decisions made in regard to these plans,
$1.1 million of the charge was recorded during the quarter
ended June 30, 2001, $24.4 million was recorded during
the quarter ended September 30, 2001 and the remainder was
recorded during the quarter ended December 31, 2001. As of
December 31, 2001, we had approximately $17.6 million
of accrued restructuring costs remaining on the Consolidated
Balance Sheet. The remaining accrued expenditures primarily
related to facilities consolidation expenses, employee severance
costs and financial restructuring plan costs, and we made
approximately $11.0 million of cash payments related to
those accruals in 2002.

Equity in (loss) income from joint ventures
and loss on sale of joint venture

Our equity in (loss) income from joint ventures
decreased $1.2 million from income of $1.0 million in
the nine months ended December 31, 2000 to a loss of
$0.2 million in the nine months ended December 31,
2001, primarily due to a decrease in income from Mac Publishing
LLC. In October 2001, we sold our 50% ownership interest in Mac
Publishing LLC. Proceeds from the sale were $4.1 million
resulting in a non-cash loss of $7.8 million.

Interest expense, net

Interest expense was $36.8 million for the
nine months ended December 31, 2001, compared to
$44.8 million for the nine months ended December 31,
2000. Our weighted average debt outstanding was approximately
$441.1 million and $545.5 million, and our weighted
average interest rate was 10.35% and 11.16% for the nine months
ended December 31, 2001 and 2000, respectively.



| |             
| | ------------
| | Income taxes

The income tax provision of $0.3 million for
the nine months ended December 31, 2001, and the income tax
provision of $0.8 million in the nine months ended
December 31, 2000 represent effective rates of negative
0.1% and negative 2.5%, respectively. The negative effective
rate results from foreign withholding tax on our international
licensing revenue as well as certain minimum state and local
taxes despite the consolidated entity having a nine-month
pre-tax loss.



| |         
| | --------
| | Net loss

As a result of the factors described above, we
incurred a net loss of $415.4 million for the nine months
ended December 31, 2001, compared to a net loss of
$30.8 million for the nine months ended December 31,
2000.

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Liquidity and Capital Resources

Total cash at December 31, 2003 was
$47.3 million. We have historically relied upon cash flow
from operating activities, borrowings under our Senior Credit
Facility and additional investments from our equity sponsors to
finance our operations.

Under our Senior Credit Facility, we have
Restricted and Unrestricted Subsidiaries. As described above,
the Unrestricted Subsidiaries are our Developing Businesses
represented by LaunchCo and InternetCo. The Restricted
Subsidiaries represent our Established Businesses and are
generally comprised of businesses that were acquired from ZDI in
April 2000. The Senior Credit Facility and the indenture
governing the Compounding Notes place restrictions on funding
provided by the Restricted Subsidiaries to the Unrestricted
Subsidiaries and generally require them to be funded through
separate and distinct sources. The Unrestricted Subsidiaries
have historically been funded primarily by equity contributions
and loans from the Restricted Subsidiaries. At December 31,
2003, $17.4 million of our cash balance is available to
fund the Unrestricted Subsidiaries.

As of December 31, 2003, we were in
compliance with all of our debt covenants. Total indebtedness at
December 31, 2003 was $309.0 million and consisted of
$181.0 million of outstanding principal under the term loan
portion of the Senior Credit Facility, $8.2 million of
outstanding principal under the revolving portion of the Senior
Credit Facility, $107.5 million under the Compounding Notes
and $12.3 million under the 12% Notes.

Borrowings under the Senior Credit Facility bore
interest rates ranging from 5.42% to 5.92% as of
December 31, 2003. At December 31, 2003, no additional
borrowing was available under the revolving portion of our
Senior Credit Facility. Interest on the Senior Credit Facility
is payable monthly in cash. Interest of $0.7 million on the
12% Notes is payable on January 15 and July 15 of each
year. No cash payments of interest or principal are required on
the Compounding Notes until February 2007.



| |                        
| | -----------------------
| | Financial Restructuring

In order to address certain liquidity and debt
compliance issues, we initiated a financial restructuring plan
in 2001, which was completed on August 12, 2002. As part of
the restructuring, we exchanged a combination of cash,
Compounding Notes, Series E Preferred Stock and warrants to
purchase Ziff Davis Holdings common stock for most of our
existing 12% Notes. In addition, we amended and restated
our Senior Credit Facility.

Key terms of the financial restructuring were as
follows: (1) we received an equity contribution of
$80.0 million from Willis Stein in exchange for the
issuance of Series D Preferred Stock with an aggregate
liquidation preference of $80.0 million, as well as
approximately 38.6 million warrants, each representing the
right to purchase one share of our common stock at an exercise
price of $0.001 per share; (2) accredited investors
holding approximately 95.1% in aggregate principal amount of our
12% Notes tendered their notes and received an aggregate of
approximately $21.2 million in cash and $90.3 million
in aggregate principal amount of Compounding Notes. These
holders also received an aggregate of approximately
$28.5 million in liquidation preference of Series E
Preferred Stock and warrants for the purchase of approximately
5.2 million shares of our common stock in exchange for
their 12% Notes; and (3) we amended and restated our
Senior Credit Facility providing for, among other terms:
(a) waiver of all existing defaults, (b) deferral of
principal payments for eight quarters, (c) removal of the
obligation to pay the default interest rate on the outstanding
principal, and (d) mandatory use of a portion of excess
cash flows, as defined, to repay amounts owed under the Senior
Credit Facility.

The financial restructuring was accounted for in
accordance with the troubled debt restructuring provisions of
SFAS 15. Accordingly, no gain was recognized on the
exchange, but rather the value of the Compounding Notes as
reported on our balance sheet increased by an amount deemed to
be accrued interest. After completing the financial
restructuring, our total debt was reduced by approximately
$147.4 million.

Our commitments under the amended Senior Credit
Facility are subject to quarterly principal payments, commencing
September 30, 2004, with the final payment due on
March 31, 2007. The aggregate principal

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payments under the Senior Credit Facility are
approximately $15.4 million in 2004, $17.3 million in
2005, $86.5 million in 2006 and a final payment of
$70.0 million in 2007. We are also required to make an
excess cash flow payment, as defined in our Senior
Credit Facility, on or before April 14, 2004. This
represents a mandatory repayment of our loans under the Senior
Credit Facility, which we estimate will be approximately
$6.8 million. This amount, along with our scheduled
principal payments of approximately $8.6 million in 2004,
has been classified as Current portion of long-term debt on our
Consolidated Balance Sheet as of December 31, 2003.


As a result of our financial restructuring and
cost reduction program, we believe our cash on hand, coupled
with future cash generated from operations will be sufficient to
meet our liquidity, working capital and capital spending needs
for 2004. We believe that, based upon current levels of
operations, we will be able to meet our debt service obligations
for 2004 when due. We also believe that our Senior Credit
Facility and the Compounding Notes indenture contain achievable
restrictive and information covenants which we will also be able
to meet in 2004. Significant assumptions and risks apply to this
belief, including, among other things, that we will continue to
be successful in implementing our business strategy and that
there will be no material adverse developments in our business,
liquidity or capital requirements. See
Business  Certain Risk Factors.



| |                                                                      
| | ---------------------------------------------------------------------
| | Sources and Uses of Cash  Years
    Ended December 31, 2003 and 2002

Details for the changes in cash and cash
equivalents during the years ended December 31, 2003 and
2002 are discussed below:

Operating
Activities.Cash provided/(used) by
operating activities was $8.5 million for the year ended
December 31, 2003, compared to $(48.0) million for
year ended December 31, 2002, an improvement of
$56.5 million. This change was primarily attributable to
higher net income resulting from significantly reduced operating
costs, lower cash interest payments and decreased cash
restructuring payments.

Investing
Activities.Cash provided/(used) by
investing activities was $2.4 million and
$(1.0) million for the years ended December 31, 2003
and 2002, respectively. These amounts represent capital
expenditures of $2.5 million for the year ended
December 31, 2003 and $2.6 million for the year ended
December 31, 2002. This was offset by net proceeds from the
sale of assets of $4.9 million and $1.6 million for
the years ended December 31, 2003 and 2002, respectively.
The $4.9 million of net proceeds in 2003 related to the
sale of an international trademark to an unrelated third-party.

Financing
Activities.Cash provided/(used) by
financing activities was $(4.9) million for the year ended
December 31, 2003 compared to $70.3 million for the
year ended December 31, 2002. The 2003 outflow related to
an unscheduled principal payment of $4.9 million of our
Senior Credit Facility related to the proceeds from the sale of
the international trademark. The 2002 inflow primarily relates
to net proceeds from our financial restructuring including
$77.6 million from the issuance of new preferred stock.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Sources and Uses of Cash  Year
    Ended December 31, 2002 and Proforma Year Ended December
    2001

Details for the changes in cash and cash
equivalents during the year ended December 31, 2002 and pro
forma year ended December 31, 2001 are discussed below:

Operating
Activities.Cash used by operating
activities was $48.0 million for the year ended
December 31, 2002, compared to $76.1 million for the
pro forma year ended December 31, 2001, an improvement of
$28.1 million or 36.9%. This change was primarily due to
significantly reduced operating costs and lower cash interest
payments resulting from our cost reduction and financial
restructuring efforts.

Investing
Activities.Cash used by investing
activities was $1.0 million for the year ended
December 31, 2002, compared to $22.9 million for the
pro forma year ended December 31, 2001. The 2002 spending
represented capital spending of $2.6 million net of
$1.6 million of net proceeds from the sale of our
eTESTING LABS Inc. subsidiary. In 2001, approximately
$38.0 million of capital spending (primarily related to
developing Internet properties) was partially offset by proceeds
from the sale of our International operations and joint ventures.

32



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##### Table of Contents



Financing
Activities.Cash provided by financing
activities was $70.3 million for the year ended
December 31, 2002, compared to $16.7 million for the
pro forma year ended December 31, 2001. The 2002 inflow
includes $77.6 million from the issuance of preferred stock
and $14.9 million of net borrowings under the Senior Credit
Facility. These increases in cash were partially offset by
$21.2 million paid to holders of the 12% Notes as part
of the financial restructuring as well as $1.0 million of
debt issuance costs paid in 2002. In 2001, we received
approximately $99.0 million from the issuance of preferred
stock, partially offset by net repayments of our Senior Credit
Facility and debt issuance costs, totaling approximately
$82.3 million.

Contractual Obligations and
Commitments

As of December 31, 2003, we had long-term
debt and preferred stock obligations totaling
$309.0 million and $739.6 million, respectively. The
long-term debt obligations include amounts outstanding under the
Senior Credit Facility, Compounding Notes and 12% Notes.
Such obligations were incurred to obtain proceeds for general
corporate purposes, finance acquisitions and refinance other
debt obligations. Our obligations with respect to these debt
instruments can be found in the agreements which govern them
which were filed as Exhibits 4.3, 4.4, and 10.9 to our
Registration Statement on Form S-4 dated October 9,
2002.

The following table sets forth our contractual
obligations at December 31, 2003:

|                                           |  |                              |           |           |  |             |        |            |  |            |         |  |  |   |         |  |  |   |         | 
|------------------------------------------ |  | ---------------------------- | --------- | --------- |  | ----------- | ------ | ---------- |  | ---------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                           |  |                             
|                                           |  | Balance at December 31, 2003
|                                           |  |                             
|                                           |  |                              |           | Less Than |  | One to      |        | Three to   |  | After     
|(in thousands of dollars)                  |  | Total                        |           | One Year  |  | Three Years |        | Five Years |  | Five Years
|                                           |  |                              |           |           |  |             |        |            |  |           
|Long-term debt                             |  | $                            | 309,031   |           |  | $           | 15,429 |            |  | $          | 173,759 |  |  | $ | 107,563 |  |  | $ | 12,280  | 
|Preferred stock                            |  |                              | 739,602   |           |  |             |       |            |  |            |        |  |  |   |        |  |  |   | 739,602 | 
|Non-cancelable operating lease obligations |  |                              | 89,170    |           |  |             | 11,163 |            |  |            | 18,351  |  |  |   | 12,010  |  |  |   | 47,646  | 
|                                           |  |                              |           |           |  |             |        |            |  |            |         |  |  |   |         |  |  |   |         | 
|                                           |  | $                            | 1,137,803 |           |  | $           | 20,129 |            |  | $          | 198,573 |  |  | $ | 119,573 |  |  | $ | 799,528 | 
|                                           |  |                              |           |           |  |             |        |            |  |            |         |  |  |   |         |  |  |   |         | 

The caption Non-cancelable operating lease
obligations in the above table includes our real estate
operating lease obligations net of existing subleases at
December 31, 2003. However, the lease obligation amounts
have not been reduced for estimated future sublease income
related to vacated facilities that were not subleased as of
December 31, 2003.

In connection with our commercial agreements, we
often provide indemnifications of varying scope and terms to
customers, business partners and other parties with respect to
certain matters, including, but not limited to, losses arising
out of our breach of such agreements and out of intellectual
property infringement claims made by third parties. In addition,
we have entered into indemnification agreements with certain of
our directors and officers that will require us, among other
things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or
officers. We maintain director and officer insurance, which may
cover certain liabilities arising from our obligation to
indemnify our directors and officers in certain circumstances.
The indemnification provided by us to our officers and directors
does not have a stipulated maximum, therefore we are not able to
develop a reasonable estimate of the maximum liabilities. To
date, we have not incurred material costs as a result of such
obligations and have not accrued any liabilities related to such
indemnification obligations in our financial statements.

Lastly, certain legal proceedings described in
Item 3 of this Form 10-K are potential contingencies,
which could also affect our liquidity in future periods.

Off-Balance-Sheet Arrangements

At December 31, 2003, we did not have any
relationships with variable interest (otherwise known as
special purpose) entities that have been established
for the purpose of facilitating off-balance-sheet debt.

In the ordinary course of business, we have
indemnification obligations with respect to letters of credit
primarily used as security against non-performance in relation
to certain of our non-cancelable operating lease obligations.
The outstanding letters of credit approximated $1.8 million
at December 31, 2003, and are not recorded on the
Consolidated Balance Sheet as of December 31, 2003.

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We enter into certain incentive agreements, from
time to time, with executives and senior management that include
earn-out payments that are calculated based on the achievement
of future revenue and other financial thresholds. Several of
these agreements currently exist with measurement dates
beginning with the close of our 2006 fiscal year. As of
December 31, 2003, we cannot provide a reasonable estimate
of the likelihood and amount we would be required to pay to
fulfill these commitments. Based on this, we have not accrued
any liabilities in relation to these incentive obligations as of
December 31, 2003.

Cyclicality

Revenue from print advertising accounted for
approximately 60.2% of our total revenue for the year ended
December 31, 2003. Cyclicality in advertising expenditures
generally, or with respect to magazine-based advertising
specifically, could therefore have a material effect on our
business, financial condition and operating results with respect
to prior periods.

Seasonality

Historically, our business has been seasonal and
we have earned a significant portion of our annual revenue in
the fourth calendar quarter. This is largely due to the general
increase in advertising revenue in the fourth quarter as a
result of increased consumer buying activity during the holiday
season. Other factors affecting the seasonality of our business
are customer budgetary spending patterns, new product
introductions and general economic trends. Quarterly results may
also be affected by variations in the number of magazines sold
in any quarter, timing and termination of existing contractual
agreements, costs incurred in connection with internal growth,
changes in our mix of customers, fluctuation in the costs of raw
materials and other general economic conditions. Accordingly,
our operating results in any particular quarter may not be
indicative of the results that can be expected for any future
quarter or for the entire year. We also cannot assure that our
fourth quarter revenue will be higher than revenue for our other
quarters.

Critical Accounting Policies and
Estimates

In December 2001, the Securities and Exchange
Commission (SEC) issued disclosure guidance for
critical accounting policies. The SEC defines
critical accounting policies as those that require
application of managements most difficult, subjective or
complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.

The preparation of our financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses
and related disclosures of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates, including those
related to allowances for doubtful accounts, reserves for sales
returns and allowances, reserves for severance, closures and
restructuring-related costs and the recoverability of long-lived
assets, including the excess of purchase price over net assets
acquired. We base our estimates on historical experience and on
various assumptions that we believe are reasonable under the
circumstances. These form the basis of our judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ
materially from these estimates which would affect our reported
results of operations. We believe the following is a description
of the critical accounting policies and estimates used in the
preparation of our consolidated financial statements.

Allowances for doubtful accounts are estimated
losses resulting from our customers failure to make
required payments. We continually monitor collections from
customers and provide for estimated credit losses. We
aggressively pursue collection efforts on these overdue accounts
and upon collection reverse the write-off in future periods. If
future payments by our customers were to differ from our
estimates, we may need to increase or decrease our allowances
for doubtful accounts.

Reserves for sales returns and allowances are
primarily related to our newsstand sales, and to a lesser
extent, subscription sales in which subscribers are billed. We
estimate and maintain these reserves based primarily on our
distributors historical return practices, our
subscribers historical collection rates and our actual
return experience. If actual sales returns and allowances differ
from the estimated returns and allowances rates used, we may
need to increase or decrease our reserve for sales returns and
allowances.

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Reserves for restructuring-related costs,
including severance, magazine and facilities closures, are
estimated costs resulting from managements plans and
actions to consolidate operations and eliminate headcount to
reduce total operating costs. If the future payments of these
costs were to differ from our estimates, we may need to increase
or decrease our reserves. We recorded restructuring charges or
(credits) related to our 2001 and 2002 cost reduction and
restructuring programs of approximately $(6.2) million,
$50.0 million and $37.4 million for the years ended
December 31, 2003 and 2002, and the nine months ended
December 31, 2001, respectively.

We periodically evaluate the recoverability of
our long-lived assets, including property and equipment,
goodwill and identifiable intangible assets, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable or in connection with our annual financial
review process. Our evaluations include analyses based on the
cash flows generated by the underlying assets and profitability
information, including estimated future operating results,
trends or other determinants of fair value. If the fair value of
the asset determined by these evaluations is less than its
carrying amount, an impairment charge is recognized for the
difference. Future adverse changes in market conditions or
continuing poor operating results of certain businesses may also
indicate an inability to recover the carrying value of the
assets, thereby possibly requiring an impairment evaluation and
charge. For the year ended December 31, 2002, we recognized
a goodwill impairment charge of approximately
$25.0 million, an impairment of our indefinite-lived
intangible assets of approximately $16.9 million and
wrote-off a net book value of approximately $6.0 million of
fixed assets in connection with an assessment of the
recoverability of such long-lived assets and our cost reduction
and restructuring program.

Effect of Recently Issued Accounting
Standards

In November 2002, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 45 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45).
FIN 45 requires that a liability be recognized at fair
value at the inception of certain guarantees for the obligations
undertaken by the guarantor. FIN 45 also requires
additional disclosures for certain guarantee contracts. The
disclosure provisions of FIN 45 are effective for financial
statements ending after December 15, 2002, while the
recognition and initial measurement provisions are applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 had no
material impact on our financial statements.

In January 2003, the FASB issued Interpretation
No. 46 Consolidation of Variable Interest
Entities (FIN 46). FIN 46
provides guidance on the identification of variable interest
entities, and the assessment of a companys interests in a
variable interest entity to determine whether consolidation is
appropriate. FIN 46 requires the consolidation of a
variable interest entity by the primary beneficiary if the
entity does not effectively disperse risks among the parties
involved. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and is effective
for periods beginning after June 15, 2003, for existing
variable interest entities. As we have no material exposures to
variable interest entities or other off-balance-sheet
arrangements, the effects of adopting FIN 46 were not
material to our results of operations or financial condition.

In May 2003, the FASB issued Statement
No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity(SFAS 150). SFAS 150
establishes standards for how an issuer classifies and measures
certain financial instruments that have characteristics of both
liabilities and equity. It requires than an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances). The FASB has directed that the
effective date of SFAS 150 be deferred for certain
nonpublic entities with mandatorily redeemable financial
instruments until fiscal periods beginning after
December 31, 2003. We believe that under SFAS 150, we
are defined as a nonpublic entity and have outstanding preferred
stock that is considered mandatorily redeemable. Therefore,
effective January 1, 2004, we will record the accrued
dividends on the mandatorily redeemable preferred stock as
interest expense and

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classify the mandatorily redeemable preferred
stock as a long-term liability on the balance sheet. The
adoption of this statement increases our total liabilities by
$739.6 million as of January 1, 2004, and will
increase our consolidated interest expense by approximately
$74.9 million in 2004. This will have no impact on our debt
covenants or our ability to service our debt payments in 2004.







|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

Interest Rate Risk

In connection with our Senior Credit Facility, we
entered into an interest rate swap agreement on
September 27, 2000, for the notional amount of
$25.0 million and a maturity date of October 11, 2003.
Under this swap agreement, we received a floating rate of
interest based on three-month London Inter-Bank Offering Rate
(LIBOR), which resets quarterly, and paid a fixed
rate of interest each quarter for the term of the agreement. The
interest rate swap agreement ended on October 11, 2003 and
was not renewed.

Due to the Senior Credit Facility having a
floating interest rate based on LIBOR, but our Compounding Notes
and 12% Notes having fixed rates, only $119.8 million or 38.8%
of our total debt is effectively set at a fixed rate of interest
as of December 31, 2003. Accordingly a 1.00% fluctuation in
market interest rates would cause a $1.9 million
fluctuation in interest expense.

Inflation and Fluctuations in Paper Prices and
Postage Costs

We continually assess the impact of inflation and
changes in paper and postage prices as these costs represent a
significant portion of our cost of production. In 2001 and 2002,
paper prices declined significantly and have remained
essentially unchanged throughout 2003. In addition, during 2001
we outsourced the majority of our paper buying to our printers.
As a result, we hold significantly lower levels of inventory and
have generally been able to purchase paper at or below market
prices at the time of use. However, there can be no assurance
that these trends will continue or that we can recover future
paper price increases.

Postage rates increased 5.0% in January 1999,
9.9% in January 2001, 2.6% in July 2001 and most recently 9.9%
in July 2002. Due to new legislation in 2003, the Postmaster
General has announced that postage rates will not increase again
until 2006.

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|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

|                                                                                                                                                                       |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                                       |  | Page
|                                                                                                                                                                       |  |     
|Report of Independent Accountants                                                                                                                                      |  |      | 38 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and December 31, 2002                                                                                          |  |      | 39 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2003 and 2002 and for the nine
    months ended December 31, 2001                           |  |      | 40 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003 and 2002 and for the nine
    months ended December 31, 2001                           |  |      | 41 | 
|Consolidated Statements of Changes in
    Stockholders Deficit for the years ended December 31,
    2003 and 2002 and for the nine months ended December 31,
    2001 |  |      | 42 | 
|Notes to Consolidated Financial Statements                                                                                                                             |  |      | 43 | 

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Ziff Davis Holdings Inc.


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, cash flows and stockholders equity present
fairly, in all material respects, the financial position of Ziff
Davis Holdings Inc. and its subsidiaries (the Company) at
December 31, 2003 and 2002, and the results of their
operations and cash flows for the years ended December 31,
2003 and 2002 and for the nine months ended December 31,
2001, respectively, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.
Accordingly, the Company ceased amortizing goodwill and
indefinite-lived intangible assets.

/s/ PRICEWATERHOUSECOOPERS LLP




PricewaterhouseCoopers LLP


New York, New York

March 9, 2004


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ZIFF DAVIS HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share
data)


|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |          |          |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                    |                                                                                                                                      |                                            
|                                                    |                                                                                                                                      | December 31,                               
|                                                    |                                                                                                                                      |                                            
|                                                    |                                                                                                                                      | 2003                                        |         | 2002    
|                                                    |                                                                                                                                      |                                             |         |         
|ASSETS                                             
|Current assets:                                     |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    | Cash and cash equivalents                                                                                                            |                                             | $       | 47,308   |          |   | $       | 41,290   |         
|                                                    | Accounts receivable, net                                                                                                             |                                             |         | 32,836   |          |   |         | 30,596   |         
|                                                    | Inventories                                                                                                                          |                                             |         | 321      |          |   |         | 334      |         
|                                                    | Prepaid expenses and other current assets                                                                                            |                                             |         | 7,010    |          |   |         | 7,465    |         
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total current assets                        |         |          | 87,475   |   |         |          | 79,685   |  
|Property and equipment, net                         |                                                                                                                                      |                                             | 15,206  |          |          |   | 23,481  |         
|Intangible assets, net                              |                                                                                                                                      |                                             | 220,544 |          |          |   | 238,036 |         
|Goodwill, net                                       |                                                                                                                                      |                                             | 38,139  |          |          |   | 38,340  |         
|Other assets, net                                   |                                                                                                                                      |                                             | 15,544  |          |          |   | 14,870  |         
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total assets                                |         | $        | 376,908  |   |         | $        | 394,412  |  
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                   
|LIABILITIES AND STOCKHOLDERS
    DEFICIT          
|Current liabilities:                                |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    | Accounts payable                                                                                                                     |                                             | $       | 13,938   |          |   | $       | 11,466   |         
|                                                    | Accrued expenses and other current liabilities                                                                                       |                                             |         | 31,706   |          |   |         | 35,281   |         
|                                                    | Current portion of long-term debt                                                                                                    |                                             |         | 15,766   |          |   |         |         |         
|                                                    | Unexpired subscriptions and deferred revenue, net                                                                                    |                                             |         | 25,170   |          |   |         | 29,542   |         
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total current liabilities                   |         |          | 86,580   |   |         |          | 76,289   |  
|Long-term debt                                      |                                                                                                                                      |                                             | 293,265 |          |          |   | 301,266 |         
|Accrued interest  compounding notes                |                                                                                                                                      |                                             | 89,532  |          |          |   | 100,909 |         
|Accrued expenses  long-term                        |                                                                                                                                      |                                             | 14,027  |          |          |   | 23,196  |         
|Other non-current liabilities                       |                                                                                                                                      |                                             | 17,253  |          |          |   | 15,938  |         
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total liabilities                           |         |          | 500,657  |   |         |          | 517,598  |  
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|Commitments and contingencies (Notes 18 and
    19) |                                                                                                                                      |                                             |         |          |          |   |         |         
|Redeemable preferred stock                          |                                                                                                                                      |                                             | 739,602 |          |          |   | 673,577 |         
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|Stockholders deficit:                              |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    | Common stock  $0.001 par value,
    100,000,000 shares authorized, 2,312,928 and 2,334,748
    issued and outstanding, respectively |                                             |         | 17,343   |          |   |         | 17,901   |         
|                                                    | Stock subscription loans                                                                                                             |                                             |         | (14      | )        |   |         | (572     | )       
|                                                    | Additional paid-in capital                                                                                                           |                                             |         | 8,468    |          |   |         | 8,468    |         
|                                                    | Accumulated deficit                                                                                                                  |                                             |         | (889,148 | )        |   |         | (821,214 | )       
|                                                    | Accumulated other comprehensive loss                                                                                                 |                                             |         |         |          |   |         | (1,346   | )       
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total stockholders deficit                 |         |          | (863,351 | ) |         |          | (796,763 | )
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         
|                                                    |                                                                                                                                      | Total liabilities and stockholders deficit |         | $        | 376,908  |   |         | $        | 394,412  |  
|                                                    |                                                                                                                                      |                                             |         |          |          |   |         |         

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

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ZIFF DAVIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(dollars in thousands)


|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |          |  
|--------------------------------- | ----------------------------------------------------------- | ------------ | ------- | ------------ | - | ------------ | -------- | -------- | - | - | -------- | -------- | -
|                                  |                                                             |              |         |              |   | Nine Months 
|                                  |                                                             | Year Ended   |         | Year Ended   |   | Ended       
|                                  |                                                             | December 31, |         | December 31, |   | December 31,
|                                  |                                                             | 2003         |         | 2002         |   | 2001        
|                                  |                                                             |              |         |              |   |             
|Revenue, net                      |                                                             | $            | 194,107 |              |   | $            | 209,037  |          |   | $ | 215,859  |         
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         
|Operating expenses:               |                                                             |              |         |              |   |              |          |          |   |   |          |         
|                                  | Cost of production                                          |              |         | 60,622       |   |              |          | 75,835   |   |   |          | 81,726   |  
|                                  | Selling, general and administrative expenses                |              |         | 98,973       |   |              |          | 125,171  |   |   |          | 164,351  |  
|                                  | Depreciation and amortization of property and
    equipment |              |         | 10,793       |   |              |          | 18,851   |   |   |          | 20,870   |  
|                                  | Amortization of intangible assets                           |              |         | 15,108       |   |              |          | 18,919   |   |   |          | 41,766   |  
|                                  | Restructuring charges, net                                  |              |         | (6,238       | ) |              |          | 48,950   |   |   |          | 37,412   |  
|                                  | Write-down of intangible assets                             |              |         |             |   |              |          | 79,241   |   |   |          | 240,077  |  
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         
|                                  | Total operating expenses                                    |              |         | 179,258      |   |              |          | 366,967  |   |   |          | 586,202  |  
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         
|Income (loss) from operations     |                                                             |              | 14,849  |              |   |              | (157,930 | )        |   |   | (370,343 | )       
|Equity in loss from joint venture |                                                             |              |        |              |   |              |         |          |   |   | (192     | )       
|Loss on sale of joint venture     |                                                             |              |        |              |   |              |         |          |   |   | (7,802   | )       
|Gain on sale of assets, net       |                                                             |              | 2,609   |              |   |              | 634      |          |   |   |         |         
|Interest expense, net             |                                                             |              | (19,142 | )            |   |              | (39,286  | )        |   |   | (36,833  | )       
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         
|                                  | Loss before income taxes                                    |              |         | (1,684       | ) |              |          | (196,582 | ) |   |          | (415,170 | )
|Income tax provision              |                                                             |              | 225     |              |   |              | 258      |          |   |   | 254      |         
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         
|                                  | Net loss                                                    |              | $       | (1,909       | ) |              | $        | (196,840 | ) |   | $        | (415,424 | )
|                                  |                                                             |              |         |              |   |              |          |          |   |   |          |         

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

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ZIFF DAVIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(dollars in thousands)


|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |         |  
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | ------------ | ------ | ------------ | - | ------------ | -------- | -------- | - | - | -------- | ------- | -
|                                                                                           |                                                                   |              |        |              |   | Nine Months 
|                                                                                           |                                                                   | Year Ended   |        | Year Ended   |   | Ended       
|                                                                                           |                                                                   | December 31, |        | December 31, |   | December 31,
|                                                                                           |                                                                   | 2003         |        | 2002         |   | 2001        
|                                                                                           |                                                                   |              |        |              |   |             
|Cash flows from operating activities:                                                      |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Net loss                                                                                   |                                                                   | $            | (1,909 | )            |   | $            | (196,840 | )        |   | $ | (415,424 | )      
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Depreciation and amortization                                     |              |        | 25,901       |   |              |          | 37,770   |   |   |          | 62,636  |  
|                                                                                           | Equity in loss from joint venture                                 |              |        |             |   |              |          |         |   |   |          | 192     |  
|                                                                                           | Loss on sale of joint venture                                     |              |        |             |   |              |          |         |   |   |          | 7,802   |  
|                                                                                           | Provision for doubtful accounts                                   |              |        | 557          |   |              |          | 1,331    |   |   |          | 1,645   |  
|                                                                                           | Non-cash rent (income) expense                                    |              |        | (1,617       | ) |              |          | 2,452    |   |   |          | 2,404   |  
|                                                                                           | Non-cash interest expense on compounding notes,
    net           |              |        | 1,316        |   |              |          | 459      |   |   |          |        |  
|                                                                                           | Amortization of debt issuance costs                               |              |        | 2,158        |   |              |          | 2,473    |   |   |          | 1,666   |  
|                                                                                           | Gain on sale of assets                                            |              |        | (2,609       | ) |              |          | (634     | ) |   |          |        |  
|                                                                                           | Non-cash restructuring charges                                    |              |        | (6,238       | ) |              |          | 5,974    |   |   |          | 11,570  |  
|                                                                                           | Write-down of intangible assets                                   |              |        |             |   |              |          | 79,241   |   |   |          | 240,077 |  
|Changes in operating assets and liabilities:                                               |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Accounts receivable                                               |              |        | (2,797       | ) |              |          | 12,354   |   |   |          | 5,828   |  
|                                                                                           | Inventories                                                       |              |        | 13           |   |              |          | 26       |   |   |          | 742     |  
|                                                                                           | Accounts payable and accrued expenses                             |              |        | (3,328       | ) |              |          | 6,371    |   |   |          | 14,266  |  
|                                                                                           | Unexpired subscriptions and deferred revenue, net                 |              |        | (4,697       | ) |              |          | (1,327   | ) |   |          | (10,967 | )
|                                                                                           | Prepaid expenses and other, net                                   |              |        | 1,785        |   |              |          | 2,348    |   |   |          | 12,425  |  
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Net cash provided (used) by operating
    activities                                       |                                                                   |              | 8,535  |              |   |              | (48,002  | )        |   |   | (65,138  | )      
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Cash flows from investing activities:                                                      |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Capital expenditures                                              |              |        | (2,518       | ) |              |          | (2,567   | ) |   |          | (23,336 | )
|                                                                                           | Distributions from joint venture                                  |              |        |             |   |              |          |         |   |   |          | 125     |  
|                                                                                           | Net proceeds from sale of assets                                  |              |        | 4,929        |   |              |          | 1,554    |   |   |          | 4,051   |  
|                                                                                           | Net proceeds from sale of international operations                |              |        |             |   |              |          |         |   |   |          | 10,500  |  
|                                                                                           | Acquisitions and investments, net of cash acquired                |              |        |             |   |              |          |         |   |   |          | (44     | )
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Net cash provided (used) by investing
    activities                                       |                                                                   |              | 2,411  |              |   |              | (1,013   | )        |   |   | (8,704   | )      
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Cash flows from financing activities:                                                      |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Proceeds from issuance of preferred and common
    stock          |              |        |             |   |              |          | 77,631   |   |   |          | 98,957  |  
|                                                                                           | Net borrowings under senior credit facilities                     |              |        |             |   |              |          | 21,000   |   |   |          | 10,000  |  
|                                                                                           | Repayment of borrowings under senior credit
    facilities        |              |        | (4,928       | ) |              |          | (6,085   | ) |   |          | (39,966 | )
|                                                                                           | Debt issuance costs                                               |              |        |             |   |              |          | (1,039   | ) |   |          | (704    | )
|                                                                                           | Payments to 12% Note holders in connection
    with restructuring |              |        |             |   |              |          | (21,158  | ) |   |          |        |  
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Net cash provided (used) by financing
    activities                                       |                                                                   |              | (4,928 | )            |   |              | 70,349   |          |   |   | 68,287   |        
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Net increase (decrease) in cash and cash
    equivalents                                   |                                                                   |              | 6,018  |              |   |              | 21,334   |          |   |   | (5,555   | )      
|Cash and cash equivalents at beginning of period                                           |                                                                   |              | 41,290 |              |   |              | 19,956   |          |   |   | 25,511   |        
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Cash and cash equivalents at end of period                                                 |                                                                   | $            | 47,308 |              |   | $            | 41,290   |          |   | $ | 19,956   |        
|                                                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|Cash paid during the period for:                                                           |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Interest                                                          |              | $      | 14,444       |   |              | $        | 33,701   |   |   | $        | 30,988  |  
|                                                                                           | Income taxes                                                      |              |        | 33           |   |              |          | 90       |   |   |          | 50      |  
|Supplemental non-cash financing activities in
    connection with financial restructuring: |                                                                   |              |        |              |   |              |          |          |   |   |          |        
|                                                                                           | Issuance of preferred stock                                       |              |        |             |   |              |          | 35,895   |   |   |          |        |  
|                                                                                           | Issuance of compounding notes                                     |              |        |             |   |              |          | (90,334  | ) |   |          |        |  
|                                                                                           | Accrued interest  compounding notes                              |              |        |             |   |              |          | (104,986 | ) |   |          |        |  
|                                                                                           | Conversion of 12% Notes                                           |              |        |             |   |              |          | 233,163  |   |   |          |        |  
|                                                                                           | Write-off of debt issuance costs                                  |              |        |             |   |              |          | (1,948   | ) |   |          |        |  

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

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS DEFICIT

(dollars in thousands)


|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |          |  
|---------------------------- | ----------------------------------------------------------- | ------------ | ---------- | ------------ | - | ---------- | ------ | ----------- | - | ------------- | ------ | ------------- |  | ------------- | ----- | ----- |  | - | -------- | -------- | - | - | ------ | ------ | - | - | -------- | -------- | - | - | -------- | -------- | -
|                             |                                                             |              |            |              |   |            |        |             |   | Accumulated   |        |               |  |              
|                             |                                                             | Common Stock |            | Stock        |   | Additional |        |             |   | Other         |        | Total         |  |              
|                             |                                                             |              |            | Subscription |   | Paid-in    |        | Accumulated |   | Comprehensive |        | Stockholders |  | Comprehensive
|                             |                                                             | Shares       |            | Amount       |   | Loans      |        | Capital     |   | Deficit       |        | Loss          |  | Deficit       |       | Loss 
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |      
|Balance at March 31, 2001    |                                                             |              | 76,220,688 |              |   | $          | 19,055 |             |   | $             | (1,480 | )             |  | $             | 3,468 |       |  | $ | (117,688 | )        |   | $ |       |        |   | $ | (96,645  | )        |   |   |          |         
|                             | Cancellation of shareholder loans                           |              |            | (1,224,903   | ) |            |        | (309        | ) |               |        | 309           |  |               |       |      |  |   |          |         |   |   |        |       |   |   |          |         |   |   |          |          |  
|                             | Repurchase of employee stock                                |              |            | (10,000      | ) |            |        | (3          | ) |               |        |              |  |               |       |      |  |   |          |         |   |   |        |       |   |   |          | (3       | ) |   |          |          |  
|                             | Repayment of stockholder loans                              |              |            |             |   |            |        |            |   |               |        | 7             |  |               |       |      |  |   |          |         |   |   |        |       |   |   |          | 7        |   |   |          |          |  
|                             | Cumulative effect of adoption of accounting
    principle   |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          |         |   |   |        | (1,187 | ) |   |          | (1,187   | ) |   | $        | (1,187   | )
|                             | Change in fair value of interest rate swap                  |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          |         |   |   |        | (613   | ) |   |          | (613     | ) |   |          | (613     | )
|                             | Dividends payable on preferred stock                        |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (41,449  | ) |   |        |       |   |   |          | (41,449  | ) |   |          |          |  
|                             | Net loss                                                    |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (415,424 | ) |   |        |       |   |   |          | (415,424 | ) |   |          | (415,424 | )
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         
|Balance at December 31, 2001 |                                                             |              | 74,985,785 |              |   | $          | 18,743 |             |   | $             | (1,164 | )             |  | $             | 3,468 |       |  | $ | (574,561 | )        |   | $ | (1,800 | )      |   | $ | (555,314 | )        |   | $ | (417,224 | )       
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         
|                             | Reverse stock split                                         |              |            | (72,486,259  | ) |            |        |            |   |               |        |              |  |               |       |      |  |   |          |         |   |   |        |       |   |   |          |         |   |   |          |          |  
|                             | Cancellation of shareholder loans                           |              |            | (164,778     | ) |            |        | (842        | ) |               |        | 592           |  |               |       | 250   |  |   |          |         |   |   |        |       |   |   |          |         |   |   |          |          |  
|                             | Change in fair value of interest rate swap                  |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          |         |   |   |        | 454    |   |   |          | 454      |   |   | $        | 454      |  
|                             | Return of preferred stock in settlement with
    former CEO |              |            |             |   |            |        |            |   |               |        |              |  |               |       | 4,750 |  |   |          |         |   |   |        |       |   |   |          | 4,750    |   |   |          |          |  
|                             | Dividends payable on preferred stock                        |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (49,813  | ) |   |        |       |   |   |          | (49,813  | ) |   |          |          |  
|                             | Net loss                                                    |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (196,840 | ) |   |        |       |   |   |          | (196,840 | ) |   |          | (196,840 | )
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         
|Balance at December 31, 2002 |                                                             |              | 2,334,748  |              |   | $          | 17,901 |             |   | $             | (572   | )             |  | $             | 8,468 |       |  | $ | (821,214 | )        |   | $ | (1,346 | )      |   | $ | (796,763 | )        |   | $ | (196,386 | )       
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         
|                             | Cancellation of shareholder loans                           |              |            | (21,820      | ) |            |        | (558        | ) |               |        | 558           |  |               |       |      |  |   |          |         |   |   |        |       |   |   |          |         |   |   |          |          |  
|                             | Change in fair value of interest rate swap                  |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          |          |   |   |        | 1,346  |   |   |          | 1,346    |   |   | $        | 1,346    |  
|                             | Dividends payable on preferred stock                        |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (66,025  | ) |   |        |       |   |   |          | (66,025  | ) |   |          |          |  
|                             | Net loss                                                    |              |            |             |   |            |        |            |   |               |        |              |  |               |       |      |  |   |          | (1,909   | ) |   |        |       |   |   |          | (1,909   | ) |   |          | (1,909   | )
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         
|Balance at December 31, 2003 |                                                             |              | 2,312,928  |              |   | $          | 17,343 |             |   | $             | (14    | )             |  | $             | 8,468 |       |  | $ | (889,148 | )        |   | $ |       |        |   | $ | (863,351 | )        |   | $ | (563     | )       
|                             |                                                             |              |            |              |   |            |        |             |   |               |        |               |  |               |       |       |  |   |          |          |   |   |        |        |   |   |          |          |   |   |          |         

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

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(dollars in thousands, except per share
data)


NOTE 1  ORGANIZATION AND BASIS
OF PRESENTATION



| |                                          
| | -----------------------------------------
| | Formation of Ziff Davis Holdings
    Inc.

Ziff Davis Holdings Inc. (Ziff Davis
Holdings or, collectively with its subsidiaries, the
Company) is majority owned by various investment
funds managed by Willis Stein & Partners
Management III, L.L.C. (Willis Stein or
controlling stockholders), a private equity
investment firm. Ziff Davis Holdings is a holding company which
indirectly owns 100% of Ziff Davis Media Inc. (Ziff Davis
Media). Ziff Davis Holdings does not conduct any business,
but rather all operations are conducted by Ziff Davis Media and
its direct and indirect subsidiaries. Ziff Davis Holdings has no
material assets other than its investment in the capital stock
of Ziff Davis Media.

The Company is a leading integrated media company
focused on the technology, videogame and consumer lifestyle
markets. The Company is an information services provider of
technology media including publications, websites, conferences,
events, eSeminars, eNewsletters, custom publishing, list rental,
research and market intelligence. Ziff Davis Holdings was
incorporated in the state of Delaware and was formed to acquire
certain publishing assets (Ziff-Davis Publishing,
ZDP or Predecessor) from Ziff-Davis
Inc., an unrelated company. The Companys major operating
subsidiaries are Ziff Davis Publishing Inc., Ziff Davis
Development Inc. (LaunchCo) and Ziff Davis Internet
Inc. (InternetCo). In January 2002, the Company
changed its fiscal year-end from March 31 to
December 31, effective December 31, 2001. The
accompanying financial statements include a nine-month
transition period ended December 31, 2001.

The Company had no operations prior to
April 5, 2000 when it completed the acquisition of ZDP for
$780,000 plus expenses (see Note 3). This acquisition was
accounted for under the purchase method of accounting and was
funded by: (1) issuing preferred and common stock for
$353,700 in proceeds; (2) executing a $405,000 senior
credit facility of which $355,000 was borrowed at closing; and
(3) issuing a bridge loan totaling $175,000 in proceeds.
Fees and expenses, including debt issuance costs associated with
the acquisition of ZDP, which totaled approximately $30,000,
were paid with the equity and debt proceeds. On July 18,
2000, the Company issued $250,000 of 12% Senior
Subordinated Notes due 2010 (the 12% Notes).
The proceeds from the offering were used to repay the bridge
loan and approximately $59,700 of the senior credit facility. In
addition, proceeds from the offering of the 12% Notes were used
to pay approximately $8,500 of expenses associated with the
offering and approximately $6,800 of accrued interest.

In connection with the acquisition of ZDP, the
Company determined that ZDPs wholly-owned international
operations (excluding international licensing operations and
international joint ventures) did not meet its long-term
strategic objectives. As a result, the operations were sold on
August 4, 2000 (see Note 3).

During 2002, the Company restructured certain
debt obligations in connection with its financial restructuring
(see Note 13).



| |           
| | ----------
| | Operations

The Companys operations are classified into
two reportable segments, Established Businesses and Developing
Businesses. The Established Businesses segment is primarily
comprised of the Ziff Davis Publishing Inc. subsidiary which
includes the publishing assets that were acquired when the
Company was formed in April 2000 and are collectively referred
to and defined under the Companys Amended and Restated
Senior Credit Facility (the Senior Credit Facility)
as the Restricted Subsidiaries. This segment is
engaged in publishing and licensing magazines and providing
editorial content about technology, videogames and the Internet.
This segment also licenses its content and brands in 44
countries and 20 languages worldwide.

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 1  ORGANIZATION AND BASIS
OF PRESENTATION (continued)


The Developing Businesses segment is comprised of
the LaunchCo and InternetCo subsidiaries, which are collectively
referred to and defined under the Companys Senior Credit
Facility as the Unrestricted Subsidiaries. This
segment is focused on developing new businesses, including:
(1) publications, which consist of Baseline, CIO
Insight, and now Sync,the Companys new
consumer lifestyle magazine; (2) Internet-related
properties leveraging the Companys editorial content,
expertise and relationships with the Companys audience and
advertisers in its Established Businesses segment; and
(3) events, including those developed by the Companys
new Event Marketing Group which is building targeted events for
the business and consumer technology communities. (See
Note 23 for further segment information).

NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Principles of consolidation

The financial statements of the Company as of
December 31, 2003 and 2002, and for the years ended
December 31, 2003 and 2002, and the nine months ended
December 31, 2001 are prepared on a consolidated basis and
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. Investments in companies in which
ownership interests are greater than 20 percent and in
which the Company has the ability to exercise significant
influence, but not control, over the operating and financial
policies of such companies are accounted for under the equity
method.

Cash and cash equivalents

The Company considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents.

Concentration of credit risk

The Company places its temporary cash investments
with high credit quality financial institutions. At times, such
investments may be in excess of federally insured limits. The
Company has not experienced losses in such accounts.

The Companys advertisers primarily include
customers who represent a variety of technology companies in the
United States and some overseas countries. The Company extends
credit to its customers and historically has not experienced
significant losses relating to receivables from individual
customers or groups of customers. No one customer accounted for
more than 4.6% of total revenue for the years ended
December 31, 2003 and 2002, and the nine months ended
December 31, 2001.

Inventories

Inventories, which consist of paper, are stated
at the lower of cost or market. Cost is determined on a
first-in, first-out basis. The company does not carry any
significant paper inventory as it has outsourced its paper
buying function to its printer suppliers. The inventories amount
reflected on the Consolidated Balance Sheet is primarily related
to the production of eWEEK.



| |                       
| | ----------------------
| | Property and equipment

Property and equipment have been recorded at cost
or their estimated fair value at the date of acquisition.
Depreciation is computed using the straight-line method over the
estimated useful lives of the acquired assets, ranging from 2 to
20 years. Leasehold improvements are amortized using the
straight-line method over the

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)


service life of the improvement or the life of
the related lease, whichever is shorter. Maintenance and repair
costs are charged to expense as incurred.



| |                     
| | --------------------
| | Capitalized software

In accordance with AICPA SOP 98-1
Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, the Company capitalizes
certain costs incurred for the development of internal use
software. Capitalized costs include direct labor and related
overhead for software produced by the Company and the cost of
software purchased from third parties. These costs are included
in property, plant and equipment in the accompanying
Consolidated Balance Sheet. Costs incurred in connection with
business process re-engineering are expensed as incurred. The
Company capitalized approximately $1,700, $1,400 and $14,000 of
internal use software costs, principally in connection with its
Internet properties, during the years ended December 31,
2003 and 2002 and the nine months ended December 31, 2001,
respectively. Approximately $1,000 and $2,700 of unamortized
software costs remained at December 31, 2003 and 2002,
respectively. As part of the Companys cost reduction and
restructuring program further described in Note 10, a
write-off of $1,238 and $20,282 of capitalized software was
recorded in the year ended December 31, 2002 and the nine
months ended December 31, 2001, respectively.



| |                  
| | -----------------
| | Intangible assets

Intangible assets consist principally of
advertising lists, subscriber lists, trademarks and trade names
and goodwill. Amortization of the definite-lived assets is
computed on a straight-line basis over estimated useful lives,
ranging from 2 to 20 years.

Goodwill represents the excess purchase price
over the fair value of identifiable net assets of businesses
acquired. Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standard (SFAS)
No. 142, Goodwill and Other Intangible
Assets. In accordance with the provisions of
SFAS No. 142, the Company ceased amortization of
goodwill and indefinite-lived intangible assets totaling
$154,000 (see Note 8). The Company reviews the
recoverability of goodwill and indefinite-lived intangible
assets annually and also performs such tests if any event occurs
or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value. The
Company compares the estimated fair values of reporting units
with their respective net book values. Fair value is generally
determined based on estimate future cash flows of the related
assets. If the fair value of a reporting unit equals or exceeds
its carrying amount, the goodwill and indefinite-lived
intangible assets of the reporting unit is not considered
impaired. If the carrying amount of the reporting unit exceeds
its fair value, the goodwill and indefinite-lived intangible
assets impairment loss is measured as the excess of the carrying
value of goodwill over its implied fair value. The Company
recognized a goodwill impairment charge of $0 and $25,025 and an
impairment of its indefinite-lived intangible assets of $0 and
$16,934 for the years ended December 31, 2003 and 2002,
respectively. See Notes 8 and 10 for further information
about intangible assets and related impairment charges.



| |                                    
| | -----------------------------------
| | Impairment of long-lived
    assets

In accordance with the provisions of
SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, the Company reviews
long-lived assets, including definite-lived intangible assets,
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Impairment losses for assets to be held and used are recognized
in operating results in the event that the undiscounted expected
future cash flows to be generated by the related asset are less
than the carrying value of the asset. If undiscounted expected
future cash flows are not sufficient to support the recorded
value

45



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)


of the assets, an impairment loss is recognized
for the difference between fair value and the carrying value to
reduce the intangible assets to their estimated recoverable
value. Fair value is determined using quoted market prices in an
active market (if available). If quoted market prices are not
available, management estimates the fair market value using the
best information available including prices for similar assets
and the results of established valuation techniques. The Company
wrote-off fixed assets, including capitalized software described
above, and intangible assets and goodwill during the year ended
December 31, 2002, and the nine months ended
December 31, 2001 as part of its cost reduction and
restructuring program (see Notes 6, 8 and 10).



| |                    
| | -------------------
| | Debt issuance costs

The cost to issue debt is recorded in other
assets and amortized to interest expense over the term of the
related debt using the effective-interest rate method. At
December 31, 2003 and 2002, the Consolidated Balance Sheet
included $12,712 and $14,870 in net debt issuance costs,
respectively, within Other assets, net. The Company wrote-off
approximately $1,948 of debt issuance costs for the year end
December 31, 2002 in connection with its financial
restructuring and amortized $2,158, $2,473 and $1,666 for the
years ended December 31, 2003 and 2002 and the nine months
ended December 31, 2001, respectively.



| |             
| | ------------
| | Revenue, net

Advertising revenue for the Companys
magazine publications, less agency commissions, is recognized as
income in the month that the related publications are sent to
subscribers or become available for sale at newsstands.
Circulation revenue consists of both subscription and single
copy newsstand sales. Subscription revenue (which is net of
agency fees), less estimated cancellations, is deferred when
paid and then recognized as income in the month that the related
publications are sent to subscribers. Newsstand sales, less
estimated returns, are recognized in the month that the related
publications become available for sale at newsstands. The
Company also derives revenue from Internet advertising, royalty
agreements, list rentals, custom conferences and other sources.
These other revenues are recognized over the terms of related
agreements or when services are provided.



| |                             
| | ----------------------------
| | Operating costs and expenses

Cost of production includes the direct costs of
producing magazines, which are primarily paper, manufacturing,
distribution and fulfillment expenses. It also includes the
direct costs of the Companys Internet operations, such as
telecommunication and hosting fees.

Selling, general and administrative costs include
compensation, editorial, product development, advertising and
subscriber acquisition costs, sales and marketing and other
general and administrative costs. Editorial and product
development costs, including pre-publication expenses, are
expensed as incurred. Product development costs include the cost
of artwork, graphics, prepress, plates and photography for new
products.

The Company accounts for advertising expense in
accordance with SOP 93-7, Accounting for
Advertising Costs, which generally requires that
advertising costs be expensed either as incurred or the first
time the advertising takes place, except for the cost of certain
direct-response advertising programs. Direct-response
advertising consists primarily of publication subscription
renewal mailings and magazine advertisements which include order
coupons for the Companys publications and other
subscription promotions. The capitalized cost of the
advertising, if any, is amortized over the 12-month period
following the advertising campaign. At December 31, 2003
and 2002 there were no capitalized advertising costs.
Approximately $0, $0

46



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)


and $4,900 of deferred advertising costs were
expensed for the years ended December 31, 2003 and 2002,
and the nine months ended December 31, 2001.



| |                         
| | ------------------------
| | Stock-based compensation

SFAS No. 123, Accounting for
Stock-based Compensation,requires that companies with
stock-based compensation plans either recognize compensation
expense based on the fair value of options granted or continue
to apply the existing accounting rules and disclose pro forma
net income and earnings per share assuming the fair value method
had been applied. The Company has chosen to continue applying
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employers and related interpretations in accounting
for its plans (see Note 17).



| |                                               
| | ----------------------------------------------
| | Equity in income (loss) from joint
    venture

Equity in income (loss) from joint ventures
include the Companys equity share of income or loss from
its investments in joint ventures.



| |                   
| | ------------------
| | Comprehensive loss

Comprehensive loss, which is reported on the
accompanying Consolidated Statement of Changes in
Stockholders Deficit as a component of Accumulated other
comprehensive loss, consists of net income (loss) and other
gains and losses affecting stockholders equity
(deficit) that, under generally accepted accounting
principles, are excluded from net income (loss). The only such
change is the change in certain derivative financial instruments
as detailed in the Consolidated Statement of Changes in
Stockholders Deficit.



| |             
| | ------------
| | Income taxes

Income taxes are based upon income for financial
reporting purposes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. A valuation allowance is
provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to
realize their benefit, or that future deductibility is uncertain
(see Note 11).



| |                    
| | -------------------
| | Interest rate swaps

The Company utilized an interest rate swap to
reduce the impact of fluctuating interest rates on its variable
rate debt and interest expense. Under its interest rate swap
agreement, the Company agreed with the counter parties to
exchange, at quarterly intervals, the difference between the
Companys fixed pay rate and the counter parties
variable pay rate based on three-month London Inter-Bank
Offering Rate (LIBOR). The Companys interest
rate swap agreement ended on October 31, 2003 and was not
renewed.

The fair value of the interest rate swap was
estimated by obtaining a quote from a broker, which represented
the amount that the Company would pay if the agreement were
terminated at the balance sheet date. The fair value indicated
that the termination of the interest rate swap agreement would
have resulted in a loss of $0 and $1,346 at December 31,
2003 and 2002, respectively. This amount is recorded on the
Consolidated Balance Sheet in Accumulated other comprehensive
loss.

47



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| |                                        
| | ---------------------------------------
| | Fair value of financial
    investments

The Companys financial instruments recorded
on the Consolidated Balance Sheet include cash and cash
equivalents, accounts receivable, accounts payable, preferred
stock, interest rate swap agreements and debt. Because of their
short maturity, the carrying amount of cash and cash
equivalents, accounts receivable and accounts payable
approximate fair value. Fair value of long-term bank debt is
based on rates available to the Company for debt with similar
terms and maturities. Fair value of public debt is based on
quoted market prices, where available, or quoted market prices
of comparable instruments. Fair value of the interest swap
agreement is based on the estimated settlement cost at the end
of the reporting period (see Note 25).



| |                 
| | ----------------
| | Use of estimates

The preparation of financial statements requires
the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses
and related disclosures of contingent liabilities. On an ongoing
basis, the Company evaluates its estimates, including those
related to allowances for doubtful accounts, reserves for sales
returns and allowances, reserves for severance, closures and
restructuring related costs and the recoverability of long-lived
assets, including the excess of purchase price over net assets
acquired. The Company bases its estimates on historical
experience and on various other assumptions that the Company
believes are reasonable under the circumstances. These form the
basis of the Companys judgments about the carrying values
of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these
estimates which would effect the Companys reported results
of operations. The Company believes the following is a
description of the policies related to recording estimates used
in the preparation of its consolidated financial statements.

Allowances for doubtful accounts are estimated
losses resulting from its customers failure to make
required payments. The Company continually monitors collections
from customers and provides for estimated credit losses. The
Company aggressively pursues collection efforts on these overdue
accounts and upon collection reverses the allowance in future
periods. If future payments by the Companys customers were
to differ from its estimates, the Company may need to increase
or decrease the Companys allowances for doubtful accounts.

Reserves for sales returns and allowances are
primarily related to the Companys newsstand sales, and to
a lesser extent, subscription sales in which subscribers are
billed. The Company estimates and maintains these reserves based
primarily on the distributors historical return practices,
our subscribers historical collection rates and the
Companys actual return experience. If actual sales returns
and allowances differ from the estimated returns and allowances
rates used, the Company may need to increase or decrease the
reserve for sales returns and allowances.

Reserves for restructuring related costs
including severance, magazine and facilities closures are
estimated costs resulting from managements plans and
actions to consolidate operations and eliminate headcount to
reduce total operating costs. If the future payments of these
costs were to differ from its estimates, the Company may need to
increase or decrease its reserves. The Company recorded
restructuring charges or (credits) related to its 2001 and
2002 cost reduction and restructuring programs of $(6,238),
$49,950 and $37,412 for the years ended December 31, 2003
and 2002, and the nine months ended December 31, 2001,
respectively.

The Company periodically evaluates the
recoverability of its long-lived assets, including property and
equipment, goodwill and intangible assets, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable or in connection with its annual financial
review process. The Companys evaluations include analyses
based on the cash flows generated by the underlying assets and

48



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 2  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)


profitability information, including estimated
future operating results, trends or other determinants of fair
value. If the fair value of the asset determined by these
evaluations is less than its carrying amount, an impairment
charge is recognized for the difference. Future adverse changes
in market conditions or continuing poor operating results of
certain businesses may also indicate an inability to recover the
carrying value of the assets, thereby possibly requiring an
impairment evaluation and charge.



| |                                     
| | ------------------------------------
| | Recent accounting
    pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45).
FIN 45 requires that a liability be recognized at fair
value at the inception of certain guarantees for the obligations
undertaken by the guarantor. FIN 45 also requires
additional disclosures for certain guarantee contractors. The
disclosure provisions of FIN 45 are effective for financial
statements ending after December 15, 2002, while the
recognition and initial measurement provisions are applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 had no
material impact on the Companys financial statements.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46). FIN 46
provides guidance on the identification of variable interest
entities, and the assessment of a companys interests in a
variable interest entity to determine whether consolidation is
appropriate. FIN 46 requires the consolidation of a
variable interest entity by the primary beneficiary if the
entity does not effectively disperse risks among the parties
involved. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and is effective
for periods beginning after June 15, 2003 for existing
variable interest entities. As the Company has no material
exposures to variable interest entities or other
off-balance-sheet arrangements, the effects of adopting
FIN 46 were not material to its results of operations or
financial condition.

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150
establishes standards for how an issuer classifies and measures
certain financial instruments that have characteristics of both
liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances). The FASB has directed that the
effective date of SFAS 150 be deferred for certain
nonpublic entities with mandatorily redeemable financial
instruments until fiscal periods beginning after
December 31, 2003. The Company believes that under
SFAS 150 it is defined as a nonpublic entity and has
outstanding preferred stock that is considered mandatorily
redeemable. Therefore, effective January 1, 2004, the
Company will record the accrued dividends on the mandatorily
redeemable preferred stock as interest expense and classify the
mandatorily redeemable preferred stock as a long term liability
on the Consolidated Balance Sheet. The adoption of this
statement increases the Companys total liabilities by
$739,602 as of January 1, 2004 and will increase the
Companys consolidated interest expense by approximately
$74,900 in 2004. This will have no impact on the Companys
debt covenants or its ability to service its debt payments in
2004.



| |                  
| | -----------------
| | Reclassifications

Certain amounts have been reclassified, where
appropriate, to conform to the current financial statement
presentation.

49



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 3  ACQUISITIONS AND
DISPOSITIONS



| |                                    
| | -----------------------------------
| | Sale of International
    Trademark

In September 2003, the Company sold an
international trademark to an unrelated third-party generating
net proceeds of $4,929. The Company realized a gain of $2,544
related to the sale.



| |                        
| | -----------------------
| | eTESTING LABS Inc. Sale

On July 15, 2002, the Company sold its
subsidiary, eTESTING LABSInc. to Lionbridge
Technologies, Inc. (Lionbridge) for
approximately $2,250. The Company further agreed to license its
proprietary benchmark software to Lionbridge for its commercial
testing purposes and also entered into a two-year agreement with
them for reciprocal software development, testing and marketing
services. The Company realized a gain on sale of
approximately $65 and $634 for the years ended
December 31, 2003 and 2002, respectively. In accordance
with the terms of the Senior Credit Facility, 50% of the net
proceeds from the sale was used to repay amounts owed under the
Senior Credit Facility.



| |                   
| | ------------------
| | Acquisition of ZDP

The acquisition of ZDP was accounted for using
the purchase method of accounting. The assets and liabilities of
ZDP acquired by the Company on April 5, 2000, have been
recorded at estimated fair value as of the acquisition date with
the excess of purchase price over net assets acquired being
allocated to intangible assets, including goodwill (see
Note 8).

Summary pro forma financial information for the
nine months ended December 31, 2000 would not differ
materially from actual results, as the acquisition of ZDP was
completed near the beginning of the Companys fiscal year
and therefore, is not presented.



| |                                     
| | ------------------------------------
| | Sale of International
    Operations

In connection with the acquisition of ZDP in
April 2000, the Company determined that ZDPs wholly-owned
international operations (excluding international licensing
operations and international joint ventures) did not meet its
long-term strategic objectives and initiated a plan to sell
these operations. As a result, the operations were sold on
August 4, 2000. The net assets related to these operations
were recorded as assets held for sale at the estimated net
proceeds from the sale, as adjusted for estimated cash flows
from these operations and an allocation of interest expense for
the estimated holding period of $1,256. The net proceeds from
this sale were $38,767. The remaining net assets and liabilities
related to these operations have been recorded in the
Consolidated Balance Sheet as Other non-current liabilities. As
of December 31, 2003, the balance was $5,072 and represents
contingent tax liabilities for the Companys former
European operations.

NOTE 4  ACCOUNTS RECEIVABLE,
NET

Accounts receivable, net consist of the following:

|                                                               |  |              |         |      |  |   |         |  
|-------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                               |  |             
|                                                               |  | December 31,
|                                                               |  |             
|                                                               |  | 2003         |         | 2002
|                                                               |  |              |         |     
|Accounts receivable                                            |  | $            | 53,926  |      |  | $ | 55,522  |  
|Allowance for doubtful accounts, returns and
    cancellations |  |              | (21,090 | )    |  |   | (24,926 | )
|                                                               |  |              |         |      |  |   |         |  
|                                                               |  | $            | 32,836  |      |  | $ | 30,596  |  
|                                                               |  |              |         |      |  |   |         |  

50



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 5  PREPAID EXPENSES AND OTHER
CURRENT ASSETS

Prepaid expenses and other current assets consist
of the following:

|                               |  |              |       |      |  |   |       | 
|------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | 
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2003         |       | 2002
|                               |  |              |       |     
|Deferred expenses and deposits |  | $            | 6,358 |      |  | $ | 5,829 | 
|Production expenses            |  |              | 223   |      |  |   | 1,205 | 
|Other                          |  |              | 429   |      |  |   | 431   | 
|                               |  |              |       |      |  |   |       | 
|                               |  | $            | 7,010 |      |  | $ | 7,465 | 
|                               |  |              |       |      |  |   |       | 

Deferred expenses and deposits primarily
represent prepaid postage and other deferred expenses related to
future issues of our publications or future conferences and
events. Production expenses represent prepaid manufacturing and
distribution expenses related to future issues of our
publications.

NOTE 6  PROPERTY AND EQUIPMENT,
NET

Property and equipment, net consist of the
following:

|                                          |  |              |         |      |  |   |         |  
|----------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                          |  |             
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2003         |         | 2002
|                                          |  |              |         |     
|Computers and equipment                   |  | $            | 34,102  |      |  | $ | 32,582  |  
|Capitalized computer software             |  |              | 8,499   |      |  |   | 8,181   |  
|Leasehold improvements                    |  |              | 18,992  |      |  |   | 18,545  |  
|Furniture and fixtures                    |  |              | 6,295   |      |  |   | 6,062   |  
|                                          |  |              |         |      |  |   |         |  
|                                          |  |              | 67,888  |      |  |   | 65,370  |  
|Accumulated depreciation and amortization |  |              | (52,682 | )    |  |   | (41,889 | )
|                                          |  |              |         |      |  |   |         |  
|                                          |  | $            | 15,206  |      |  | $ | 23,481  |  
|                                          |  |              |         |      |  |   |         |  

In connection with the facilities consolidation
portion of the 2002 cost reduction and restructuring program and
an assessment of recoverability of fixed assets, the Company
wrote-off a net book value of $5,974 for fixed assets consisting
of capitalized computer software ($1,238), leasehold
improvements ($4,443) and furniture and fixtures ($293) during
the year ended December 31, 2002 (see Note 10).

NOTE 7  EQUITY
INVESTMENTS

In October 2001, the Company sold its 50%
ownership interest in Mac Publishing LLC to International Data
Group for net proceeds of $4,051. The Company realized a pre-tax
loss of $7,802 as a result of this sale.

The Companys equity in income (loss) from
joint ventures was $0, $0 and ($192) in the years ended
December 31, 2003 and 2002, and the nine months ended
December 31, 2001, respectively.

NOTE 8  INTANGIBLE ASSETS,
NET

Intangible assets primarily relate to the
acquisition of ZDP. The acquisition was accounted for under the
purchase method of accounting. As such, the purchase price of
this acquisition was allocated to tangible and identifiable
intangible assets with the remaining amount being allocated to
goodwill. Advertising lists and subscriber lists were recorded
at estimated fair value as determined by an income approach.
Trademarks/trade names were recorded at estimated fair value
using a relief from royalty approach.

51



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 8  INTANGIBLE ASSETS, NET
(continued)

Definite-lived intangible assets are being
amortized using the straight-line method over estimated useful
lives, ranging from 2 to 20 years. In determining the
estimated useful lives, the Company considered its competitive
position in the markets in which it operates, the historical
attrition rates of advertisers and subscribers, legal and
contractual obligations, and other factors.

Recoverability of goodwill and intangible assets
is assessed both on an annual basis or on an interim basis if
events or circumstances change that would likely reduce the fair
value of related assets below their carrying values. During 2003
the Company recorded no impairment of its intangible assets.
During 2002, the Company recorded impairments of $79,241 related
primarily to trademarks/trade names, advertiser lists and
goodwill related to the closures of Ziff Davis SMART BUSINESSand Yahoo! Internet Lifeand the impairment of
certain other intangible assets. Lastly, in connection with the
restructuring program initiated during the nine months ended
December 31, 2001 (see Note 10), the Company wrote-off
a net book value of $219,795 of assets consisting of advertiser
lists ($104,556), tradenames ($84,979), and subscriber lists and
other intangible assets ($30,260), all of which principally
related to the closure of certain magazines.

In September 2003, the Company benefited
from the sale of an international trademark to an unrelated
third party and this asset had a gross book value of $2,669 and
accumulated amortization of $284.

As of December 31, 2003 and
December 31, 2002, the Companys intangible assets and
related accumulated amortization, primarily all of which are
attributable to the Established Businesses segment, consisted of
the following:

|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |         | 
|------------------------------ | ----------------------------------- | ----------------------- | ------- | ----------------------- |  | --- | ------- | ------- | - | ------------ | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                               |                                     |                         |         |                        
|                               |                                     | As of December 31, 2003 |         | As of December 31, 2002
|                               |                                     |                         |         |                        
|                               |                                     |                         |         | Accumulated             |  |     |         |         |   | Accumulated  |         |        
|                               |                                     | Gross                   |         | Amortization            |  | Net |         | Gross   |   | Amortization |         | Net    
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |        
|Amortized intangible assets:   |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|                               | Advertising lists                   |                         | $       | 183,729                 |  |     | $       | (46,318 | ) |              | $       | 137,411 |  |   | $       | 183,729 |  |   | $       | (33,672 | ) |   | $       | 150,057 | 
|                               | Trademark/trade names               |                         |         | 14,300                  |  |     |         | (2,707  | ) |              |         | 11,593  |  |   |         | 14,300  |  |   |         | (1,983  | ) |   |         | 12,317  | 
|                               | Subscriber lists                    |                         |         | 11,600                  |  |     |         | (11,600 | ) |              |         |        |  |   |         | 11,600  |  |   |         | (9,862  | ) |   |         | 1,738   | 
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|                               | Total amortized intangible assets   |                         |         | 209,629                 |  |     |         | (60,625 | ) |              |         | 149,004 |  |   |         | 209,629 |  |   |         | (45,517 | ) |   |         | 164,112 | 
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|Unamortized intangible assets: |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|                               | Trademark/trade names               |                         |         | 78,443                  |  |     |         | (6,903  | ) |              |         | 71,540  |  |   |         | 81,058  |  |   |         | (7,134  | ) |   |         | 73,924  | 
|                               | Goodwill                            |                         |         | 45,406                  |  |     |         | (7,267  | ) |              |         | 38,139  |  |   |         | 45,746  |  |   |         | (7,406  | ) |   |         | 38,340  | 
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|                               | Total unamortized intangible assets |                         |         | 123,849                 |  |     |         | (14,170 | ) |              |         | 109,679 |  |   |         | 126,804 |  |   |         | (14,540 | ) |   |         | 112,264 | 
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        
|Total intangible assets        |                                     | $                       | 333,478 |                         |  | $   | (74,795 | )       |   | $            | 258,683 |         |  | $ | 336,433 |         |  | $ | (60,057 | )       |   | $ | 276,376 |        
|                               |                                     |                         |         |                         |  |     |         |         |   |              |         |         |  |   |         |         |  |   |         |         |   |   |         |        

During the years ended December 31, 2003 and
2002, a reversal of unused purchase accounting reserves resulted
in a $201 and $735 net book value reduction of goodwill,
respectively.

52



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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 8  INTANGIBLE ASSETS, NET
(continued)

Based on the current amounts of intangible assets
subject to amortization, the estimated amortization expense for
each of the next 5 years ending December 31, are as
follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|     |  |  
|2004 |  | $ | 13,369 | 
|2005 |  |   | 13,369 | 
|2006 |  |   | 13,369 | 
|2007 |  |   | 13,369 | 
|2008 |  |   | 13,369 | 

The following table presents the impact of
SFAS No. 142 on net loss had the standard been in
effect for the nine months ended December 31, 2001:

|                       |                                                         |              |          |       | 
|---------------------- | ------------------------------------------------------- | ------------ | -------- | ----- | 
|                       |                                                         | Nine Months 
|                       |                                                         | Ended       
|                       |                                                         | December 31,
|                       |                                                         | 2001        
|                       |                                                         |             
|Net loss  as reported |                                                         | $            | (415,424 | )    
|Adjustments:           |                                                         |              |          |      
|                       | Amortization of goodwill                                |              |          | 4,610 | 
|                       | Amortization of acquired trademarks and trade
    names |              |          | 4,098 | 
|                       |                                                         |              |          |      
|                       | Net adjustments                                         |              |          | 8,708 | 
|                       |                                                         |              |          |      
|Net loss  adjusted    |                                                         | $            | (406,716 | )    
|                       |                                                         |              |          |      

NOTE 9  ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES

Accrued expenses and other current liabilities
consist of the following:

|                                         |                                                |              |        |        |  |   |        |        | 
|---------------------------------------- | ---------------------------------------------- | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                                         |                                                |             
|                                         |                                                | December 31,
|                                         |                                                |             
|                                         |                                                | 2003         |        | 2002  
|                                         |                                                |              |        |       
|Accrued operating and production costs   |                                                | $            | 10,116 |        |  | $ | 9,184  |       
|Accrued restructuring costs  short-term |                                                |              | 9,365  |        |  |   | 15,017 |       
|Accrued interest                         |                                                |              | 1,040  |        |  |   | 1,352  |       
|Payroll and related employee benefits    |                                                |              | 8,731  |        |  |   | 6,512  |       
|Other taxes payable                      |                                                |              | 942    |        |  |   | 319    |       
|Other                                    |                                                |              | 1,512  |        |  |   | 2,897  |       
|                                         |                                                |              |        |        |  |   |        |       
|                                         | Accrued expenses and other current liabilities |              |        | 31,706 |  |   |        | 35,281 | 
|Accrued restructuring costs  long-term  |                                                |              | 14,027 |        |  |   | 23,196 |       
|                                         |                                                |              |        |        |  |   |        |       
|                                         |                                                | $            | 45,733 |        |  | $ | 58,477 |       
|                                         |                                                |              |        |        |  |   |        |       



|          |                                                                                   
|--------- | ----------------------------------------------------------------------------------
|NOTE 10  | COST REDUCTION AND RESTRUCTURING PROGRAM,
    ASSET IMPAIRMENT AND RELATED CHARGES

During 2002 and 2001, the Company implemented a
comprehensive cost reduction and restructuring program. This
program included the 2002 sale of The Net Economyand
eTESTING LABS, Inc. and the closure of Ziff Davis
SMART BUSINESSandYahoo! Internet Life. Further,
during the nine months ended December 31, 2001, this
program included the closure of Family PC, Expedia
Travels, Smart Partnerand the

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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 10  COST REDUCTION AND
RESTRUCTURING PROGRAM, ASSET IMPAIRMENT AND RELATED CHARGES
(continued)

consolidation of Interactive Weekinto
eWEEK. The program was designed to eliminate unprofitable
operations, consolidate facilities and reduce the Companys
workforce in order to decrease excess operating costs. As a
result of this restructuring, the Company incurred a total
pre-tax charge of $128,191 and $277,489 for the year ended
December 31, 2002 and the nine months ended
December 31, 2001, respectively. These charges are reported
in the Consolidated Statement of Operations for 2002 and 2001 as
a $79,241 and $240,077 write-down of intangible assets,
respectively, and a $48,950 and $37,412 net restructuring
charge, respectively, and are comprised of the following:

|                                     |  |              |         |              |  |   |         | 
|------------------------------------ |  | ------------ | ------- | ------------ |  | - | ------- | 
|                                     |  |              |         | Nine Months 
|                                     |  | Year Ended   |         | Ended       
|                                     |  | December 31, |         | December 31,
|                                     |  | 2002         |         | 2001        
|                                     |  |              |         |             
|Intangible asset impairment costs(a) |  | $            | 79,241  |              |  | $ | 240,077 | 
|Fixed asset impairment costs(a)      |  |              | 5,974   |              |  |   | 11,570  | 
|Employee severance costs(b)          |  |              | 8,137   |              |  |   | 12,947  | 
|Costs to exit certain activities(c)  |  |              | 34,839  |              |  |   | 12,895  | 
|                                     |  |              |         |              |  |   |         | 
|                                     |  | $            | 128,191 |              |  | $ | 277,489 | 
|                                     |  |              |         |              |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Intangible asset impairment and fixed asset
    impairment costs are non-cash write-offs of fixed assets and
    intangible assets, primarily subscriber lists, tradenames,
    goodwill, capitalized software and leasehold improvements
    associated with discontinued publications and other businesses.
    These impairments are included in Writedown of intangible assets
    in the Consolidated Statements of Operations.
|   
|(b) | Employee severance costs relate to severance
    benefits and other related costs.                                                                                                                                                                                                                                                                                                                                                  
|   
|(c) | Costs to exit certain activities relate to the
    termination of contracts, closure or consolidation of offices
    and other related costs associated with the closure of
    publications and other businesses.                                                                                                                                                                                                                  

The accrued restructuring costs balance of
$23,392 at December 31, 2003 is included on the
Consolidated Balance Sheet in Accrued expenses and other current
liabilities and Accrued expenses  long-term. The
remaining accrued balance primarily relates to future real
estate lease costs. During the year ended December 31,
2003, the Company made $12,398 of payments primarily related to
real estate leases for vacant space. The Company anticipates
making approximately $9,400 in cash payments related to this
accrual in 2004, with the remainder being paid through 2019 due
to the long-term nature of related real estate lease agreements.
During the year ended December 31, 2003, the Company also
recorded an adjustment of $6,238 to Restructuring charges, net
in the Consolidated Statements of Operations relating to the
reversal of a portion of the prior years accruals. This
adjustment primarily related to real estate lease costs and
reflected the Companys recent sublet of excess space in
its New York headquarters for an amount higher than
originally estimated.

54



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




|          |                                                                                               
|--------- | ----------------------------------------------------------------------------------------------
|NOTE 10  | COST REDUCTION AND RESTRUCTURING PROGRAM,
    ASSET IMPAIRMENT AND RELATED CHARGES (continued)

The following tables summarize the activity with
respect to the accrued restructuring charge balances from
March 31, 2001 through December 31, 2003:

|                                                                    |  |           |   |                                                      |  |          |         |                |  |              |        |   |  |   |          |   |  |   |        | 
|------------------------------------------------------------------- |  | --------- | - | ---------------------------------------------------- |  | -------- | ------- | -------------- |  | ------------ | ------ | - |  | - | -------- | - |  | - | ------ | 
|                                                                    |  |           |   |                                                     
|                                                                    |  |           |   | Activity for the Nine Months Ended December 31, 2001
|                                                                    |  |           |   |                                                     
|                                                                    |  | Balance   |   |                                                      |  | Applied  |         | Balance       
|                                                                    |  | March 31, |   | Expenses/                                            |  |          |         | Against        |  | December 31,
|                                                                    |  | 2001      |   | Adjustments                                          |  | Payments |         | Related Assets |  | 2001        
|                                                                    |  |           |   |                                                      |  |          |         |                |  |             
|Employee severance costs                                            |  | $         |  |                                                      |  | $        | 12,947  |                |  | $            | (7,121 | ) |  | $ |         |   |  | $ | 5,826  | 
|Write-down of intangible assets                                     |  |           |  |                                                      |  |          | 240,077 |                |  |              |       |   |  |   | (240,077 | ) |  |   |       | 
|Financial restructuring, facility consolidation
    and other costs |  |           |  |                                                      |  |          | 24,465  |                |  |              | (1,101 | ) |  |   | (11,570  | ) |  |   | 11,794 | 
|                                                                    |  |           |   |                                                      |  |          |         |                |  |              |        |   |  |   |          |   |  |   |        | 
|Total                                                               |  | $         |  |                                                      |  | $        | 277,489 |                |  | $            | (8,222 | ) |  | $ | (251,647 | ) |  | $ | 17,620 | 
|                                                                    |  |           |   |                                                      |  |          |         |                |  |              |        |   |  |   |          |   |  |   |        | 

|                                                                    |  |              |        |                                               |  |          |         |                |  |              |         |   |  |   |         |   |  |   |        | 
|------------------------------------------------------------------- |  | ------------ | ------ | --------------------------------------------- |  | -------- | ------- | -------------- |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------ | 
|                                                                    |  |              |        |                                              
|                                                                    |  |              |        | Activity for the Year Ended December 31, 2002
|                                                                    |  |              |        |                                              
|                                                                    |  | Balance      |        |                                               |  | Applied  |         | Balance       
|                                                                    |  | December 31, |        | Expenses/                                     |  |          |         | Against        |  | December 31,
|                                                                    |  | 2001         |        | Adjustments                                   |  | Payments |         | Related Assets |  | 2002        
|                                                                    |  |              |        |                                               |  |          |         |                |  |             
|Employee severance costs                                            |  | $            | 5,826  |                                               |  | $        | 8,137   |                |  | $            | (10,047 | ) |  | $ |        |   |  | $ | 3,916  | 
|Write-down of intangible assets                                     |  |              |       |                                               |  |          | 79,241  |                |  |              |        |   |  |   | (79,241 | ) |  |   |       | 
|Financial restructuring, facility consolidation
    and other costs |  |              | 11,794 |                                               |  |          | 40,813  |                |  |              | (12,336 | ) |  |   | (5,974  | ) |  |   | 34,297 | 
|                                                                    |  |              |        |                                               |  |          |         |                |  |              |         |   |  |   |         |   |  |   |        | 
|Total                                                               |  | $            | 17,620 |                                               |  | $        | 128,191 |                |  | $            | (22,383 | ) |  | $ | (85,215 | ) |  | $ | 38,213 | 
|                                                                    |  |              |        |                                               |  |          |         |                |  |              |         |   |  |   |         |   |  |   |        | 

|                                                                    |  |              |        |                                               |  |          |        |           |  |              |         |   |  |   |       |  |  |   |        | 
|------------------------------------------------------------------- |  | ------------ | ------ | --------------------------------------------- |  | -------- | ------ | --------- |  | ------------ | ------- | - |  | - | ----- |  |  | - | ------ | 
|                                                                    |  |              |        |                                              
|                                                                    |  |              |        | Activity for the Year Ended December 31, 2003
|                                                                    |  |              |        |                                              
|                                                                    |  |              |        |                                               |  | Applied  |        |          
|                                                                    |  | Balance      |        |                                               |  | Against  |        | Balance  
|                                                                    |  | December 31, |        | Expenses/                                     |  |          |        | Related   |  | December 31,
|                                                                    |  | 2002         |        | Adjustments                                   |  | Payments |        | Liability |  | 2003        
|                                                                    |  |              |        |                                               |  |          |        |           |  |             
|Employee severance costs                                            |  | $            | 3,916  |                                               |  | $        | (485   | )         |  | $            | (1,457  | ) |  | $ |      |  |  | $ | 1,974  | 
|Write-down of intangible assets                                     |  |              |       |                                               |  |          |        |           |  |              |        |   |  |   |      |  |  |   |       | 
|Financial restructuring, facility consolidation
    and other costs |  |              | 34,297 |                                               |  |          | (3,815 | )         |  |              | (10,941 | ) |  |   | 1,877 |  |  |   | 21,418 | 
|                                                                    |  |              |        |                                               |  |          |        |           |  |              |         |   |  |   |       |  |  |   |        | 
|Total                                                               |  | $            | 38,213 |                                               |  | $        | (4,300 | )         |  | $            | (12,398 | ) |  | $ | 1,877 |  |  | $ | 23,392 | 
|                                                                    |  |              |        |                                               |  |          |        |           |  |              |         |   |  |   |       |  |  |   |        | 

NOTE 11  INCOME TAXES

The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred
tax assets and liabilities are computed based on the differences
between the financial statement and income tax bases of assets
and liabilities using the effective tax rates.
SFAS No. 109 requires that the net deferred tax asset
be reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion
or all of the net deferred tax asset will not be realized. Due
to the Companys negative earnings in recent years, a
valuation allowance equal to the net deferred tax asset has been
established.

Loss before income taxes is all attributable to
the United States.

55



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 11  INCOME TAXES
(continued)


Components of the provision for income taxes are
as follows:

|                           |          |                 |   |              |     |              |   |     |     |  |   |     |     | 
|-------------------------- | -------- | --------------- | - | ------------ | --- | ------------ | - | --- | --- |  | - | --- | --- | 
|                           |          |                 |   |              |     | Nine Months 
|                           |          | Year Ended      |   | Year Ended   |     | Ended       
|                           |          | December 31,    |   | December 31, |     | December 31,
|                           |          | 2003            |   | 2002         |     | 2001        
|                           |          |                 |   |              |     |             
|U.S. federal income taxes: |          |                 |   |              |     |              |   |     |     |  |   |    
|                           | Current  |                 | $ |             |     |              | $ |    |     |  | $ |    |    
|                           | Deferred |                 |   |             |     |              |   |    |     |  |   |    |    
|State and local taxes:     |          |                 |   |              |     |              |   |     |     |  |   |    
|                           | Current  |                 |   | 30           |     |              |   | 61  |     |  |   | 56  |    
|                           | Deferred |                 |   |             |     |              |   |    |     |  |   |    |    
|Foreign income taxes:      |          |                 |  |              |     |              |   |     |     |  |   |    
|                           | Current  |                 |   | 195          |     |              |   | 197 |     |  |   | 198 |    
|                           |          |                 |   |              |     |              |   |     |     |  |   |    
|                           |          | Total provision |   | $            | 225 |              |   | $   | 258 |  |   | $   | 254 | 
|                           |          |                 |   |              |     |              |   |     |     |  |   |    

A reconciliation of the U.S. federal
statutory tax rate to the Companys effective tax rate on
loss before income taxes is as follows:

|                           |                                                    |              |       |              |   |              |      |       |   |  |      |       |  
|-------------------------- | -------------------------------------------------- | ------------ | ----- | ------------ | - | ------------ | ---- | ----- | - |  | ---- | ----- | -
|                           |                                                    |              |       |              |   | Nine Months 
|                           |                                                    | Year Ended   |       | Year Ended   |   | Ended       
|                           |                                                    | December 31, |       | December 31, |   | December 31,
|                           |                                                    | 2003         |       | 2002         |   | 2001        
|                           |                                                    |              |       |              |   |             
|Federal statutory tax rate |                                                    |              | 35.0  | %            |   |              | 35.0 | %     |   |  | 35.0 | %    
|                           | State and local taxes (net of federal tax benefit) |              |       | (1.1         | ) |              |      | (0.1  | ) |  |      | (0.1  | )
|                           | Permanent differences                              |              |       | (8.9         | ) |              |      | (0.2  | ) |  |      | (0.1  | )
|                           | Valuation allowance                                |              |       | (26.8        | ) |              |      | (34.8 | ) |  |      | (34.9 | )
|                           | Foreign operations                                 |              |       | (11.6        | ) |              |      | (0.1  | ) |  |      |      |  
|                           | Other                                              |              |       |             |   |              |      | 0.1   |   |  |      |      |  
|                           |                                                    |              |       |              |   |              |      |       |   |  |      |      
|Effective tax rate         |                                                    |              | (13.4 | )%           |   |              | (0.1 | )%    |   |  | (0.1 | )%   
|                           |                                                    |              |       |              |   |              |      |       |   |  |      |      

56



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 11  INCOME TAXES
(continued)


Following is a summary of the components of the
deferred tax accounts at December 31, 2003 and 2002:

|                                                   |                                            |                                 |          |         |         |   |          |         |         | 
|-------------------------------------------------- | ------------------------------------------ | ------------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                   |                                            |                                
|                                                   |                                            | December 31,                   
|                                                   |                                            |                                
|                                                   |                                            | 2003                            |          | 2002   
|                                                   |                                            |                                 |          |        
|Current deferred tax assets and (liabilities):     |                                            |                                 |          |         |         |   |          |        
|                                                   | Allowance for doubtful accounts            |                                 | $        | 909     |         |   | $        | 1,477   |        
|                                                   | Prepaid expenses                           |                                 |          | (191    | )       |   |          | (577    | )      
|                                                   | Other                                      |                                 |          |        |         |   |          | 61      |        
|                                                   |                                            |                                 |          |         |         |   |          |        
|                                                   |                                            | Current deferred net tax assets |          |         | 718     |   |          |         | 961     | 
|                                                   |                                            |                                 |          |         |         |   |          |        
|Non-current deferred tax assets and (liabilities): |                                            |                                 |          |         |         |   |          |        
|                                                   | Basis difference in intangible assets      |                                 |          | 110,993 |         |   |          | 129,047 |        
|                                                   | Basis difference in property and equipment |                                 |          | 1,477   |         |   |          | 3,156   |        
|                                                   | Start-up costs capitalized                 |                                 |          | 3,149   |         |   |          | 4,949   |        
|                                                   | Deferred rent                              |                                 |          | 2,560   |         |   |          | 1,557   |        
|                                                   | Other                                      |                                 |          | 124     |         |   |          | 420     |        
|                                                   | Net operating loss and other carryforwards |                                 |          | 153,894 |         |   |          | 139,329 |        
|                                                   |                                            |                                 |          |         |         |   |          |        
|                                                   |                                            | Non-current deferred tax assets |          |         | 272,197 |   |          |         | 278,458 | 
|                                                   |                                            |                                 |          |         |         |   |          |        
|Gross deferred tax assets                          |                                            |                                 | 272,915  |         |         |   | 279,419  |        
|Valuation allowance                                |                                            |                                 | (272,915 | )       |         |   | (279,419 | )      
|                                                   |                                            |                                 |          |         |         |   |          |        
|Net deferred tax assets                            |                                            | $                               |         |         |         | $ |         |        
|                                                   |                                            |                                 |          |         |         |   |          |        

The Companys total deferred tax assets were
$273,106 and $279,996 at December 31, 2003 and 2002,
respectively. Total deferred tax liabilities were $191 and $577
at December 31, 2003 and 2002, respectively. Furthermore,
in order to properly reflect the Companys deferred tax
assets, each year reflects the inclusion of the state deferred
tax asset computed at an effective state income tax rate of 11.5%

The Companys provision for foreign taxes
relates to withholding taxes paid on royalty income remitted
from foreign intangible asset licensees.

At December 31, 2003, the Company had
aggregate net operating loss carryforwards for Federal and state
income tax purposes of approximately $286,608 which will be
available to reduce future taxable income. The net operating
loss carryforwards will expire between March 31, 2021 and
December 31, 2023 for Federal income tax purposes and
between March 31, 2006 and December 31, 2023 for state
income tax purposes.

NOTE 12  DEBT



| |        
| | -------
| | General

As of December 31, 2003, total indebtedness
was $309,031 and consisted of $180,988 of outstanding principal
under the term loan portion of the Senior Credit Facility,
$8,200 of outstanding principal under the revolving credit
portion of the Senior Credit Facility, $12,280 of 12% Notes
and $107,563 of senior subordinated compounding notes due 2009
(the Compounding Notes). In August 2002, the Company
restructured its debt agreements (see Note 13) and at
December 31, 2003, the Company was in compliance with all
of the restrictive and information covenants related to these
debt agreements.

57



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 12  DEBT (continued)




| |                       
| | ----------------------
| | Senior Credit Facility

The Senior Credit Facility is collateralized by a
first priority security interest in substantially all of the
Companys existing and future tangible and intangible
assets. The Senior Credit Facility requires the Company to meet
certain financial tests, including a maximum total leverage
ratio and a maximum senior leverage ratio, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio and a
maximum capital expenditure amount. The Senior Credit Facility
contains certain restrictive covenants, including restrictions
on: (1) indebtedness, liens and guarantees;
(2) mergers, consolidations and certain types of
acquisitions and asset sales; and (3) dividends and stock
repurchases.

At December 31, 2003, no further borrowings
are available under the Senior Credit Facility and existing
borrowings bore interest at rates ranging from 5.42% to 5.92%.
In October 2003, the Company made an unscheduled principal
payment of $4,928 of the Senior Credit Facility in relation to
proceeds from the sale of an international trademark to an
unrelated third-party in September 2003.

The Company is required to make an excess
cash flow payment, as defined in our Senior Credit
Facility, on or before April 14, 2004. This represents a
mandatory repayment of our loans under the Senior Credit
Facility, which the Company estimates will be approximately
$6,800. This amount, along with the Companys scheduled
principal payments of $8,629 in 2004, has been classified as
Current portion of long-term debt on the Consolidated Balance
Sheet as of December 31, 2003.

In connection with the Senior Credit Facility,
the Company entered into an interest rate swap agreement on
September 27, 2000 for the notional amount of $25,000 and a
maturity date of October 11, 2003. Under this swap
agreement, the Company received a floating interest rate based
on the three-month LIBOR, which reset quarterly, and paid a
fixed rate of interest each quarter for the term of the
agreement. This swap was accounted for as a cash flow hedge and
any change in the fair market value of the swap was recognized
as other comprehensive income or loss within Accumulated other
comprehensive loss in the Companys Consolidated Balance
Sheet and Consolidated Statement of Stockholders Deficit.
The mark-to-market adjustment for the year ended
December 31, 2003 was an unrealized gain of $1,346. The
interest rate swap agreement ended on October 11, 2003 and
was not renewed.



| |                  
| | -----------------
| | Compounding Notes

As described in Note 13, the Company issued
$90,334 of the Compounding Notes in August 2002 in connection
with a financial restructuring. The Compounding Notes accrue
interest in semi-annual periods at rates of 12.0% to 14.0%. For
the first four years, interest may be paid, at the
Companys option and subject to certain restrictions under
the Senior Credit Facility, either in cash or by compounding
such interest on the Compounding Notes. For all payments of
interest after August 12, 2006, interest shall be payable
in cash at a rate of 12.0% per annum. During the years
ended December 31, 2003 and 2002, the Company compounded
interest in the amount of $12,693 and $4,536, respectively. This
compounding interest, net of the repayment of the Senior Credit
Facility mentioned above, accounts for the change in Long-term
debt on the Consolidated Balance Sheet between December 31,
2002 and 2003.

The issuance of the Compounding Notes are being
accounted for in accordance with the provisions of
SFAS No. 15. Accordingly, a liability representing
accrued interest on the Compounding Notes was recorded at the
date of issuance. This liability represents the difference in
estimated cash payments under the new debt agreements as
compared to the previous debt agreements. This balance is
included within long-term liabilities in the Companys
Consolidated Balance Sheet as Accrued interest 
compounding notes in the amount of $89,532 and $100,909 at
December 31, 2003 and 2002, respectively. It is being
amortized as a reduction of

58



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 12  DEBT (continued)


interest expense over the remaining term of the
Compounding Notes. During the years ended December 31, 2003
and 2002, the Company amortized $11,377 and $4,077,
respectively, against interest expense.



| |          
| | ---------
| | 12% Notes

On July 18, 2000, the Company issued
$250,000 of the 12% Notes. Interest is paid semi-annually and
the outstanding principal, which was reduced to $12,280 as part
of the financial restructuring (See Note 13), is payable on
July 15, 2010. The 12% Notes are unsecured and
subordinated to all existing and future senior indebtedness. All
existing and future domestic subsidiaries currently guarantee or
will guarantee the 12% Notes.



| |           
| | ----------
| | Maturities

Borrowings under the revolving portion of the
Senior Credit Facility are due September 30, 2006 and may
be repaid and reborrowed prior to maturity. Borrowings under the
term loan portion of the Senior Credit Facility are payable in
varying quarterly installments beginning September 2004 through
March 2007.

The scheduled annual maturities of the Senior
Credit Facility, 12% Notes and Compounding Notes at
December 31, 2003 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 15,429  | 
|2005       |  |   | 17,258  | 
|2006       |  |   | 86,478  | 
|2007       |  |   | 70,023  | 
|2008       |  |   |        | 
|Thereafter |  |   | 119,843 | 
|           |  |   |         | 
|           |  | $ | 309,031 | 
|           |  |   |         | 

NOTE 13  FINANCIAL
RESTRUCTURING

In order to address certain liquidity and debt
compliance issues, the Company initiated a financial
restructuring in 2001, which was completed on August 12,
2002. As part of the restructuring, the Company exchanged a
combination of cash, Compounding Notes, preferred stock and
warrants to purchase Ziff Davis Holdings common stock for most
of the existing 12% Notes (collectively, the Exchange
Offer). In addition, the Company amended and restated its
Senior Credit Facility and received an equity contribution from
Willis Stein.

Key terms of the financial restructuring were as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company received an equity contribution of
    $80,000 from Willis Stein in exchange for the issuance of a new
    series D redeemable preferred stock (the Series D
    Preferred Stock) with an aggregate liquidation preference
    of approximately $80,000 as well as approximately
    38.6 million warrants, each representing the right to
    purchase one share of the common stock of Ziff Davis Holdings at
    an exercise price of $0.001 per share. The contribution was
    comprised of $10,100 of cash received during the quarter ended
    June 30, 2002, approximately $62,531 of cash received in
    August 2002, and approximately $7,369 in liquidation preference
    of Series D Preferred Stock issued by Ziff Davis Holdings
    in lieu of a cash payment which otherwise would have been owed
    to Willis Stein by Ziff Davis Media with respect to the
    12% Notes held by Willis Stein.

59



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 13  FINANCIAL
RESTRUCTURING (continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accredited investors representing approximately
    95.1% in aggregate principal amount of the Companys
    12% Notes who tendered their notes received an aggregate of
    approximately $21,158 in cash and $90,334 in aggregate principal
    amount of Compounding Notes. These holders also received an
    aggregate of approximately $28,526 in liquidation preference of
    a new series of preferred stock (Series E Preferred
    Stock) and warrants for the purchase of approximately
    5.2 million shares of common stock of Ziff Davis Holdings
    in exchange for their 12% Notes.                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Compounding Notes accrue interest in
    semi-annual periods, commencing on February 15 and
    August 15 of each year, with the first period starting on
    February 15, 2003. For the first four years, interest
    accrues at rates ranging from 12% to 14% and may be paid, at the
    Companys option and subject to certain restrictions under
    the Senior Credit Facility, either in cash or by compounding
    such interest on the Compounding Notes. For all payments of
    interest accruing after August 12, 2006, interest shall be
    payable in cash at a rate of 12% per annum.                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Series E Preferred Stock accrues
    dividends at a rate of 10% per annum and is subject to
    mandatory redemption on the earlier of March 31, 2010 or
    the date of a change in control. Dividends will only be paid in
    cash if declared for payment by the Companys Board of
    Directors. In addition, so long as any Series D Preferred
    Stock remains outstanding, and without the prior written consent
    of Willis Stein, together with the holder or holders of a
    majority of the outstanding shares of Series D Preferred
    Stock, Ziff Davis Holdings will not be permitted directly or
    indirectly to pay or declare any cash dividend or make any
    distribution to the holders of Series E Preferred Stock
    (see Note 14), and the Senior Credit Facility and the
    indenture governing the Compounding Notes each restricts the
    payment of dividends to holders of capital stock of Ziff Davis
    Holdings.
|
| |  | Interest due to holders of the $12,280 principal
    amount of the 12% Notes not tendered previously due on
    July 15, 2002, was funded on August 14, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company amended and restated its Senior
    Credit Facility providing for, among other terms:
    (1) waiver of all existing defaults; (2) deferral of
    principal payments for eight quarters; (3) removal of the
    obligation to pay the default interest rate on the outstanding
    principal; and (4) mandatory use of a portion of excess
    cash flows, as defined, to repay amounts owed under the Senior
    Credit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

The financial restructuring was accounted for in
accordance with the troubled debt restructuring provisions of
SFAS 15. Accordingly, no gain was recognized on the
exchange, but rather the value of the Compounding Notes
increased by an amount representing accrued interest (see
Note 12).

As a result of the financial restructuring and
cost reduction program, the Company believes its cash on hand,
coupled with future cash generated from operations will be
sufficient to meet its liquidity, working capital and capital
spending needs for 2004. The Company believes that, based upon
current levels of operations it will be able to meet its debt
service obligations for 2004 when due. The Company also believes
that its Senior Credit Facility and Compounding Notes indenture
contain achievable restrictive and information covenants which
it will be able to meet in 2004. Significant assumptions and
risks apply to this belief, including, among other things, that
the Company will continue to be successful in implementing its
business strategy and that there will be no material adverse
developments in its business, liquidity or capital requirements.
(See Business  Certain Risk Factors).

60



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 14  CAPITAL
STRUCTURE

The Company is authorized to issue
100,680,000 shares of capital stock and the Companys
balances at December 31, 2003 consist of:



| |                           
| | --------------------------
| | Redeemable Preferred Stock

Series A Redeemable Preferred
Stock The Company is
authorized to issue 400,000 shares of series A redeemable
preferred stock, $0.01 par value per share, (the
Series A Preferred Stock). At December 31,
2003 and 2002 there were approximately 329,128 shares
issued and outstanding. Prior to March 6, 2002, dividends
on the Series A Preferred Stock accrued at a rate of
12% per annum. Commencing on March 6, 2002, dividends
on the Series A Preferred Stock have accrued at a rate of
6.5% per annum. Each share of Series A Preferred Stock
has that number of votes equal to $1,000 per share, plus
all accrued and unpaid dividends, divided by$7.50. The
Series A Preferred Stock has a liquidation preference of
$1,000 per share, plus all accrued and unpaid dividends and
a scheduled mandatory redemption date of March 31, 2010. In
the event of an initial public offering of the Companys
common stock, holders of the Series A Preferred Stock may
require the Company, upon written notice, to redeem all or any
portion of the outstanding shares of Series A Preferred
Stock (plus all accrued and unpaid dividends thereon) at a price
of $1,000 per share or convert all or any portion (as
specified by such holders) of the outstanding shares of
Series A Preferred Stock (plus all accrued and unpaid
dividends thereon) into a number of shares of common stock equal
to $1,000 per share of Series A Preferred Stock
divided bythe price per share of common stock received
by the Company in the initial public offering.

Series B Redeemable Preferred
Stock The Company is
authorized to issue 142,500 shares of series B
redeemable preferred stock, $0.01 par value per share, (the
Series B Preferred Stock). At December 31,
2003 and 2002 there were approximately 98,286 shares issued
and outstanding. Prior to March 6, 2002, dividends on the
Series B Preferred Stock accrued at a rate of
12.632% per annum. Commencing on March 6, 2002,
dividends on the Series B Preferred Stock have accrued at a
rate of 10.85% per annum. Each share of Series B
Preferred Stock has that number of votes equal to
$1,000 per share, plus all accrued and unpaid dividends,
divided by$7.50. The Series B Preferred Stock has a
liquidation preference of $1,000 per share, plus all
accrued and unpaid dividends and a scheduled mandatory
redemption date of March 31, 2010. In the event of an
initial public offering of the Companys common stock,
holders of the Series B Preferred Stock may require the
Company, upon written notice, to redeem all or any portion of
the outstanding shares of Series B Preferred Stock (plus
all accrued and unpaid dividends thereon) at a price of
$1,000 per share or convert all or any portion (as
specified by such holders) of the outstanding shares of
Series B Preferred Stock (plus all accrued and unpaid
dividends thereon) into a number of shares of common stock equal
to $1,000 per share of Series B Preferred Stock
divided bythe price per share of common stock received
by the Company in the initial public offering.

Series C Convertible Preferred
Stock The Company is
authorized to issue 7,500 shares of series C
convertible preferred stock, $0.01 par value per share,
(the Series C Preferred Stock). At
December 31, 2003 and 2002 there were approximately
5,173 shares issued and outstanding. The Series C
Preferred Stock shall not be entitled to receive any regularly
scheduled dividend, however, holders would be entitled to
dividends in the amount which would have been paid with respect
to the common stock issuable upon conversion of the
Series C Preferred Stock, in the event cash dividends be
paid upon the Companys common stock. Each share of
Series C Preferred Stock has that number of votes equal to
$1,000 per share, plus all accrued and unpaid dividends,
divided bythe conversion price of the Series C
Preferred Stock (which currently is $0.60 but which may be
adjusted from time to time to account for stock splits,
subdivisions and other similar events). The Series C
Preferred Stock is convertible by the holders thereof at any
time into shares of common stock. The number of shares of common
stock obtained per share of Series C Preferred

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 14  CAPITAL STRUCTURE
(continued)


Stock will be determined by dividing $1,000, plus
all accrued and unpaid dividends, by the conversion price, which
currently is $0.60, but which may be adjusted from time to time
to account for stock splits, subdivisions and other similar
events. The Series C Preferred Stock has a liquidation
preference of $1,000 per share, plus all accrued and unpaid
dividends and a scheduled mandatory redemption date of
March 31, 2010. In the event of an initial public offering
of the Companys common stock, holders of the Series C
Preferred Stock may require the Company, upon written notice, to
redeem all or any portion of the outstanding shares of
Series C Preferred Stock (plus all accrued and unpaid
dividends thereon) at a price of $1,000 per share or
convert all or any portion (as specified by such holders) of the
outstanding shares of Series C Preferred Stock (plus all
accrued and unpaid dividends thereon) into a number of shares of
common stock equal to $1,000 per share of Series C
Preferred Stock divided bythe price per share of common
stock received by the Company in the initial public offering.

Series D Redeemable Preferred
Stock The Company is
authorized to issue 100,000 shares of Series D
Preferred Stock. At December 31, 2003 and 2002 there were
approximately 80,207 shares issued and outstanding.
Dividends on the Series D Preferred Stock accrue at a rate
of 22.0% per annum. Each share of Series D Preferred
Stock has that number of votes equal to $1,000 per share,
plus all accrued and unpaid dividends, divided by$7.50.
The Series D Preferred Stock has a liquidation preference
of $1,000 per share, plus all accrued and unpaid dividends
and a scheduled mandatory redemption date on the earlier of
(1) March 31, 2010 or (2) the date of the
consummation of a change of control of the Company at a price
per share of Series D Preferred Stock equal to $1,000, plus
all accrued and unpaid dividends thereon. In the event of an
initial public offering of the Companys common stock,
holders of the Series D Preferred Stock may require the
Company, upon written notice, to redeem all or any portion of
the outstanding shares of Series D Preferred Stock (plus
all accrued and unpaid dividends thereon) at a price of
$1,000 per share or convert all or any portion (as
specified by such holders) of the outstanding shares of
Series D Preferred Stock (plus all accrued and unpaid
dividends thereon) into a number of shares of common stock equal
to $1,000 per share of Series D Preferred Stock
divided bythe price per share of common stock received
by the Company in the initial public offering.

Series E Redeemable Preferred
Stock The Company is
authorized to issue 30,000 shares of Series E
Preferred Stock. At December 31, 2003 and 2002 there were
approximately 28,526 shares issued and outstanding,
respectively. Dividends on the Series E Preferred Stock
accrue at a rate of 10% per annum. Such dividends will be
payable in cash only if declared for payment by the
Companys Board of Directors. Each share of Series E
Preferred Stock has that number of votes equal to
$1,000 per share, plus all accrued and unpaid dividends
thereon, divided by$7.50. The Series E Preferred
Stock has a liquidation preference of $1,000 per share,
plus all accrued and unpaid dividends thereon and a scheduled
mandatory redemption date on the earlier of
(1) March 31, 2010 or (2) the date of the
consummation of a change of control of the Company at a price
per Series E Preferred Share equal to $1,000, plus all
accrued and unpaid dividends thereon. In the event of an initial
public offering of the Companys common stock, holders of
the Series E Preferred Stock may require the Company, upon
written notice, to redeem all or any portion of the outstanding
shares of Series E Preferred Stock (plus all accrued and
unpaid dividends thereon) at a price of $1,000 per share or
convert all or any portion (as specified by such holders) of the
outstanding shares of series E preferred stock (plus all accrued
and unpaid dividends thereon) into a number of shares of common
stock equal to $1,000 per share of Series E Preferred
Stock divided bythe price per share of common stock
received by the Company in the initial public offering.

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 14  CAPITAL STRUCTURE
(continued)


The following table presents cumulative activity
for each of the preferred stock accounts:

|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |       |         |        |  |   |        |        |  |   |        |       |  |   |         |        |  
|---------------------------- | ------------------------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------ | - | - | ----- | ----- | - | ----- | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ----- |  | - | ------- | ------ | -
|                             |                                                   |                        |         |         |   |  
|                             |                                                   | Preferred Stock Series |         |         |   |  
|                             |                                                   |                        |         |         |   |  
|                             |                                                   | A                      |         | B       |   | C |         | D      |   | E |       | Loans |   | Total
|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |      
|Balance at March 31, 2001    |                                                   | $                      | 379,290 |         |   | $ |        |        |   | $ |      |       |   | $     |        |        |  | $ |       |        |  | $ | (3,705 | )     |  | $ | 375,585 |       
|                             | Issued                                            |                        |         | 20,000  |   |   |         | 75,050 |   |   |       | 3,950 |   |       |         |       |  |   |        |       |  |   |        |      |  |   |         | 99,000 |  
|                             | Converted                                         |                        |         | (20,458 | ) |   |         | 19,435 |   |   |       | 1,023 |   |       |         |       |  |   |        |       |  |   |        |      |  |   |         |       |  
|                             | Redeemed                                          |                        |         | (47     | ) |   |         |       |   |   |       |      |   |       |         |       |  |   |        |       |  |   |        |      |  |   |         | (47    | )
|                             | Dividends payable                                 |                        |         | 35,783  |   |   |         | 5,666  |   |   |       |      |   |       |         |       |  |   |        |       |  |   |        |      |  |   |         | 41,449 |  
|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |       |         |        |  |   |        |        |  |   |        |       |  |   |         |       
|Balance at December 31, 2001 |                                                   | $                      | 414,568 |         |   | $ | 100,151 |        |   | $ | 4,973 |       |   | $     |        |        |  | $ |       |        |  | $ | (3,705 | )     |  | $ | 515,987 |       
|                             | Issued                                            |                        |         |        |   |   |         | 13,395 |   |   |       | 705   |   |       |         |       |  |   |        |       |  |   |        |      |  |   |         | 14,100 |  
|                             | Issued in connection with financial restructuring |                        |         |        |   |   |         |       |   |   |       |      |   |       |         | 69,901 |  |   |        | 28,526 |  |   |        |      |  |   |         | 98,427 |  
|                             | Converted                                         |                        |         |        |   |   |         | (9,799 | ) |   |       | (505  | ) |       |         | 10,304 |  |   |        |       |  |   |        |      |  |   |         |       |  
|                             | Dividends payable                                 |                        |         | 29,183  |   |   |         | 12,570 |   |   |       |      |   |       |         | 6,948  |  |   |        | 1,112  |  |   |        |      |  |   |         | 49,813 |  
|                             | Return of former CEO shares                       |                        |         | (8,455  | ) |   |         |       |   |   |       |      |   |       |         |       |  |   |        |       |  |   |        | 3,705 |  |   |         | (4,750 | )
|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |       |         |        |  |   |        |        |  |   |        |       |  |   |         |       
|Balance at December 31, 2002 |                                                   | $                      | 435,296 |         |   | $ | 116,317 |        |   | $ | 5,173 |       |   | $     | 87,153  |        |  | $ | 29,638 |        |  | $ |       |       |  | $ | 673,577 |       
|                             | Dividends payable                                 |                        |         | 28,992  |   |   |         | 13,143 |   |   |       |      |   |       |         | 20,813 |  |   |        | 3,077  |  |   |        |      |  |   |         | 66,025 |  
|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |       |         |        |  |   |        |        |  |   |        |       |  |   |         |       
|Balance at December 31, 2003 |                                                   | $                      | 464,288 |         |   | $ | 129,460 |        |   | $ | 5,173 |       |   | $     | 107,966 |        |  | $ | 32,715 |        |  | $ |       |       |  | $ | 739,602 |       
|                             |                                                   |                        |         |         |   |   |         |        |   |   |       |       |   |       |         |        |  |   |        |        |  |   |        |       |  |   |         |       



| |             
| | ------------
| | Common Stock

Ziff Davis Holdings is authorized to issue
100,000,000 shares of common stock, $0.001 par value
per share, of which approximately 2,313,000 shares and
2,335,000 shares were issued and outstanding at
December 31, 2003 and 2002, respectively. In connection
with the consummation of the financial restructuring in August
2002 (see Note 13), Ziff Davis Holdings completed a reverse
stock split of its common stock, pursuant to which Ziff Davis
Holdings exchanged one new share for every 30 shares of its
then outstanding common stock. Each outstanding share of common
stock is entitled to one vote on all matters submitted to a vote
of stockholders.



| |                                              
| | ---------------------------------------------
| | Restrictions on Transfer of Capital
    Stock

There is an Investor Rights Agreement that
restricts the transfer of certain shares of Ziff Davis
Holdings capital stock by the parties thereto. The parties
to the Investor Rights Agreement have granted Ziff Davis
Holdings a right of first refusal with respect to its stock,
which, if not exercised by Ziff Davis Holdings, may be exercised
by Willis Stein and certain other of Ziff Davis Holdings
stockholders. Each holder of shares generally has the right to
participate in any transfer of shares by Willis Stein, with
certain exceptions. In addition, Ziff Davis Holdings has agreed
not to issue new equity securities (or securities with equity
features) without giving Willis Stein and certain other of Ziff
Davis Holdings stockholders an opportunity to purchase
their pro rata share of the new securities on substantially the
same terms, with certain exceptions. Each of Ziff Davis
Holdings existing stockholders (other than the holders of
Series E Preferred Stock or common stock obtained pursuant
to the exercise of warrants) has agreed to consent to a sale of
Ziff Davis Holdings or the assets of Ziff Davis Holdings if
Willis Stein votes to approve the sale.

63



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 14  CAPITAL STRUCTURE
(continued)




| |                      
| | ---------------------
| | Common Stock Warrants

In connection with the financial restructuring,
the Company issued approximately 43,800,000 warrants each
representing the right to purchase one share of Ziff Davis
Holdings common stock at an exercise price of $0.001. The
warrants may be exercised on any date from and after
August 12, 2002 and prior to and including August 12,
2012. Warrants may be exercised by the payment of the exercise
price either in cash, other equity securities of Ziff Davis
Media or in a cashless exercise, by tendering other
warrants.



| |                       
| | ----------------------
| | Liquidation Preference

The preferred stock described above ranks behind
the debt obligations of the Company and ahead of the common
stockholders in terms of liquidation preference. Among the
preferred stock, the Series D Preferred Stock is ranked
first, the Series E Preferred Stock is ranked second, the
Series B and C Preferred Stock are ranked third and the
Series A Preferred Stock is ranked fourth.

NOTE 15  CONTRACTS WITH
ZDI

In connection with and prior to the acquisition
of ZDP, the Company entered into certain agreements with ZDI
pertaining to ZDNet, ZDIs Internet division and
Computer Shopper magazine.

Prior to the acquisition, ZDP charged ZDNet an
annual fee for the use of the editorial content of its
publications. The annual fee, which was recorded as revenue, was
equal to 5% of the first $100,000 of ZDNets revenue for
the year, 4% of the next $50,000 of revenue and 3% of any
incremental revenue over $150,000 for that year.

As a result of the acquisition of ZDP, the
royalty agreement was contractually formalized into a three-year
exclusive license agreement with ZDNet and its parent CNET
Networks Inc. (CNET) with an additional two years on
a non-exclusive basis. After the third year, the contract began
a two-year transition period in which fees would be reduced and
ZDNets exclusive right to the Companys content would
be eliminated. The ZDNet agreement applied only to those
publications existing at the date of the acquisition of ZDP.
This agreement did not cover any new publications acquired or
developed by the Company (such as CIO Insightor
Baseline), to which the Company retained all the rights
in every medium and it specifically allowed the Company, in
certain circumstances, to transact e-commerce independently of
ZDNet.

On January 19, 2001, the Company amended the
content license agreement to provide that beginning on
March 1, 2001, ZDNets content license became
non-exclusive and on March 1, 2002, all of ZDNets
license rights to content from the Companys magazines
would be terminated. The term of the content license agreement
was subsequently extended until April 30, 2002, without any
further payments required from ZDNet. In addition, ZDNets
right and obligation to maintain websites for the Companys
publications terminated and the Company obtained the right to
host these websites starting April 1, 2001. As
consideration for amending the license agreement, ZDNet paid the
Company a royalty termination fee of $4,500, of which $2,200 and
$2,300 was paid on March 1, 2001 and 2002, respectively.
The Company recognized the termination fee pro rata over the
contract term.



| |                                        
| | ---------------------------------------
| | Computer Shopper Services
    Agreement

Under this agreement, the Company provided
distribution, circulation and production services to ZDI for its
Computer Shoppermagazine, and ZDI paid the Company its
costs in relation to the performance of these services, plus an
additional $5,000 annually in fees. On January 19, 2001,
the Company agreed with ZDI to terminate the services agreement
and enter into a new two year agreement with CNET effective
March 1,

64



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 15  CONTRACTS WITH ZDI
(continued)

2001. The new two year agreement contained
substantially similar terms, except that CNET was not required
to pay the Company any annual fee and was only required to
reimburse the Company for out-of-pocket expenses incurred in
connection with producing and distributing Computer
Shopper. On March 1, 2001, CNET paid the Company a
$2,000 non-refundable fee in connection with the termination of
the original Computer Shopperservices agreement. The
Company recognized the termination fee pro rata over the initial
contract term. The Company and CNET entered into a new agreement
as of March 1, 2003, which will continue through
December 31, 2005 (unless terminated earlier by either
party), pursuant to which the Company will be paid a fixed
monthly fee plus reimbursement of certain direct expenses in
connection with circulation services for Computer Shopper.

NOTE 16  EARNINGS PER
SHARE

Earnings per share have been omitted on the basis
that there are no public common shareholders.

NOTE 17  EMPLOYEE BENEFIT
PLANS



| |            
| | -----------
| | 401(k) Plan

The Company has established a tax-qualified
401(k) employee savings and profit sharing plan, for all of its
employees who meet the 401(k) plans eligibility
requirement. The 401(k) plan is intended to qualify under
Section 401 of the Internal Revenue Code so that
contributions by employees and income earned on the 401(k) plan
contributions are not taxable to the employees until withdrawn
from the 401(k) plan. Employees may make contributions to the
plan, which are partially matched by the Company; both employee
and Company contributions are subject to certain limitations.
The Company may also make additional discretionary
profit-sharing contributions to the 401(k) plan. The Company did
not make any discretionary profit-sharing contributions for the
years ended December 31, 2003 and 2002, and the nine months
ended December 31, 2001.



| |                   
| | ------------------
| | Stock Option Plans

In the fiscal year ended March 31, 2001, the
Companys Board of Directors adopted the 2001 Ziff Davis
Holdings Inc. Employee Stock Option Plan (the 2001 Stock
Option Plan) which provides for the issuance of
non-qualified stock options to purchase shares of Ziff Davis
Holdings common stock to eligible employees, directors,
officers, consultants and advisors (each a
participant). Under the terms of the 2001 Stock
Option Plan, options to purchase 2,630,000 shares
(87,667 shares after the 1:30 stock split) of Ziff Davis
Holdings common stock were reserved for issuance under
this Plan. The option price per share of common stock was fixed
at fair value by the Board of Directors and set forth in the
option agreement entered into with any participant. Generally,
options granted have a term of ten years from the date of grant,
and vest in increments of 20% per year over a five year
period on the anniversary date of the grant. There were no
options granted under the 2001 Stock Option Plan in the years
ended December 31, 2003 and 2002 and nine months ended
December 31, 2001.

In the fiscal year ended December 31, 2002,
the Companys Board of Directors adopted the 2002 Ziff
Davis Holdings Employee Stock Option Plan (the 2002 Stock
Option Plan), which provides for the issuance of
non-qualified stock options to purchase shares of certain
classes of Ziff Davis Holdings capital stock to eligible
employees, directors, officers, consultants and advisors.
Pursuant to the 2002 Stock Option Plan, as amended and restated
in March 2003, the Company may issue options to purchase shares
of Ziff Davis Holdings capital stock, the following number of
which are reserved for issuance under the plan:
9,619,171 shares of common stock; 58,081 shares of
Series A Preferred Stock; 17,344 shares of
Series B

65



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 17  EMPLOYEE BENEFIT
PLANS (continued)

Preferred Stock; and 14,117 shares of
Series D Preferred Stock. The option price per share for
any participant shall be determined by the Companys
compensation committee at the time of grant and generally shall
equal, with respect to options to purchase the Series B
Preferred Stock and the Series D Preferred Stock granted
after June 2003, $1,000 plus the per share dividends that have
accrued on such stock from and after August 12, 2002.
Generally, options granted pursuant to the 2002 Stock Option
Plan will have a term of ten years from the date of grant
(unless terminated earlier) and vest in increments of
20% per year over a five year period on the anniversary of
the date of grant. The options shall be subject to certain
restrictions on exercisability and shall be subject to
repurchase by the Company in certain circumstances.

In addition, in the event the Company pays any
dividend on any one or more classes of capital stock subject to
outstanding options granted pursuant to the 2002 Stock Option
Plan, the exercise price with respect to such options to
purchase shares of such classes of capital stock will be reduced
by the applicable per share amount of such dividend (with any
excess per share amount of the dividend paid to the optionee
with respect to any shares of the option that are vested at the
time of the dividend). Also, in the event the Company redeems or
otherwise acquires any shares of the Companys capital
stock originally issued to Willis Stein, each optionee of
outstanding options granted pursuant to the 2002 Stock Option
Plan shall be paid the applicable per share spread value as
defined with respect to (and the option shall terminate with
respect to) the lesser of: (1) the number of shares of such
class of stock that would have been issuable to such optionee
had the option been fully vested and exercisable, multiplied by
the percentage of shares of such class redeemed or otherwise
acquired; and (2) the number of shares the optionee would
be entitled to purchase if the vested portion of the option at
the time of such event was exercisable. In the event that
(a) a payment to the optionee pursuant to the preceding two
sentences is less than the payment that would have been made had
the option been fully vested at the time of the dividend or
redemption (such amount the Unvested Deficit) and
(b) within ninety days of such dividend or redemption,
(1) a sale of the Company is consummated or (2) an
agreement to sell the Company is executed and the sale pursuant
to such agreement is consummated within 180 days, the
optionee has rights to obtain additional payment up to the
Unvested Deficit.

During 2003, the Companys Board of
Directors or compensation committee thereof authorized the
Companys officers to execute and deliver option agreements
with respect to an aggregate number of 10,652 shares of
Series D Preferred Stock; 13,089 shares of
Series B Preferred Stock; 43,814 shares of
Series A Preferred Stock; and 6,975,000 shares of
Common Stock. In connection with such authorization, the Company
prepared and distributed form option agreements not executed by
the Company to most of the authorized optionees. The Company has
received signatures on such agreements from approximately
one-half of such authorized optionees but has not executed any
such agreements. Consequently, no options were deemed issued and
outstanding at December 31, 2003 with respect to such
authorized grants. The Company anticipates that during 2004 it
will require the authorized optionees who have not returned
signed agreements to do so or forfeit their ability to receive
such options, and after such deadline the Company will execute
all signed option agreements received from the authorized
optionees and issue such options.

66



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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 17  EMPLOYEE BENEFIT
PLANS (continued)


A summary of the status of the Companys
2001 Stock Option Plan as of December 31, 2003, 2002 and
2001, and changes during the two fiscal years and nine months
then ended, respectively, is presented below:

|                             |                             |                  |           |                  |   |   |      |      | 
|---------------------------- | --------------------------- | ---------------- | --------- | ---------------- | - | - | ---- | ---- | 
|                             |                             |                  |           | Weighted Average
|                             |                             | Number of Shares |           | Price Per Share 
|                             |                             |                  |           |                 
|Balance at March 31, 2001    |                             |                  | 2,201,864 |                  |   | $ | 0.25 |     
|                             | Options granted             |                  |           |                 |   |   |      |     | 
|                             | Options exercised           |                  |           |                 |   |   |      |     | 
|                             | Options cancelled/forfeited |                  |           | (819,798         | ) |   |      | 0.25 | 
|                             |                             |                  |           |                  |   |   |      |     
|Balance at December 31, 2001 |                             |                  | 1,382,066 |                  |   |   | 0.25 |     
|                             | Reverse stock split         |                  |           | (1,335,997       | ) |   |      | 0.25 | 
|                             | Options granted             |                  |           |                 |   |   |      |     | 
|                             | Options exercised           |                  |           |                 |   |   |      |     | 
|                             | Options cancelled/forfeited |                  |           | (19,114          | ) |   |      | 7.50 | 
|                             |                             |                  |           |                  |   |   |      |     
|Balance at December 31, 2002 |                             |                  | 26,955    |                  |   |   | 7.50 |     
|                             | Options granted             |                  |           |                 |   |   |      |     | 
|                             | Options exercised           |                  |           |                 |   |   |      |     | 
|                             | Options cancelled/forfeited |                  |           | (5,459           | ) |   |      | 7.50 | 
|                             |                             |                  |           |                  |   |   |      |     
|Balance at December 31, 2003 |                             |                  | 21,496    |                  |   | $ | 7.50 |     
|                             |                             |                  |           |                  |   |   |      |     

No options were exercisable at December 31,
2003, 2002 and 2001 or at March 31, 2001.

As permitted by SFAS No. 123, the
Company has chosen to account for employee stock options under
APB No. 25 and related interpretations. Under APB
No. 25, because the exercise price of the Companys
employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized with respect to options issued pursuant to the 2001
Stock Option Plan. The Company believes that options issued
pursuant to the 2002 Stock Option Plan will be deemed variable
price options, the value of which will be recorded as an expense
once these options are executed and issued.

If the Company had accounted for employee stock
options under the fair value based method, pro forma net loss
for the years ended December 31, 2003 and 2002, and the
nine months ended December 31, 2001 would have increased by
approximately $2, $0 and $0, respectively. As the Company has no
public equity, fair value of the options was calculated under
the minimum value method utilizing a risk-free interest rate of
4.62% and an expected option life of 5 years for the year
ended March 31, 2001.

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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 18  OPERATING LEASE
COMMITMENTS

The Company is obligated under a number of
operating leases which expire at various dates through 2019. As
of December 31, 2003, future minimum rental commitments
under non-cancelable operating leases (net of sublease proceeds)
for future fiscal years are as follows:

|           |  |              |         |          |  |             |         |  |  |   |        | 
|---------- |  | ------------ | ------- | -------- |  | ----------- | ------- |  |  | - | ------ | 
|           |  | Gross Rental |         | Sublease |  | Net Rental 
|           |  | Commitments  |         | Income   |  | Commitments
|           |  |              |         |          |  |            
|2004       |  | $            | 19,000  |          |  | $           | 7,837   |  |  | $ | 11,163 | 
|2005       |  |              | 14,166  |          |  |             | 8,376   |  |  |   | 5,790  | 
|2006       |  |              | 14,705  |          |  |             | 8,367   |  |  |   | 6,338  | 
|2007       |  |              | 14,221  |          |  |             | 7,998   |  |  |   | 6,223  | 
|2008       |  |              | 14,177  |          |  |             | 8,059   |  |  |   | 6,118  | 
|Thereafter |  |              | 149,307 |          |  |             | 95,769  |  |  |   | 53,538 | 
|           |  |              |         |          |  |             |         |  |  |   |        | 
|           |  | $            | 225,576 |          |  | $           | 136,406 |  |  | $ | 89,170 | 
|           |  |              |         |          |  |             |         |  |  |   |        | 

The Companys rent expense for subleased
facilities amounted to approximately $11,207, $10,622 and
$11,584 for the years ended December 31, 2003 and 2002, and
the nine months ended December 31, 2001, respectively.
Sublease income for these facilities amounted to approximately
$7,542, $6,924 and $2,977 for the years ended December 31,
2003 and 2002, and the nine months ended December 31, 2001,
respectively.

NOTE 19  CONTINGENCIES



| |                  
| | -----------------
| | Legal Proceedings

On October 17, 2001, the former Publisher of
The Net Economyinitiated a lawsuit in the Supreme Court
of the State of New York, Nassau County, alleging breach of
contract, fraudulent inducement, and various other claims
arising out of the termination of his employment. The Company
made a motion to dismiss in December 2001, which was
subsequently denied as against Ziff Davis Media and granted as
against defendants Alan Perlman and Willis Stein. In June 2003,
the Appellate Division modified the lower courts order to
grant defendants motion to dismiss plaintiffs claim
for punitive damages and otherwise affirmed the lower
courts order. The Company believes it has meritorious
defenses to the claims raised and intends to continue vigorously
defending this lawsuit. The Company cannot assure you, however,
that it will prevail in this matter or comment as to the amount
of monetary damages, if any, that the plaintiff could be awarded
were the plaintiff to prevail.

Ziff Davis Media was a defendant, along with
numerous other magazine publishing companies, in In Re
Magazineantitrust litigation, a consolidation of
approximately 25 separate class action price fixing lawsuits
that were commenced beginning on July 19, 2000, alleging a
conspiracy among the magazine publishers to inflate subscription
prices by agreeing not to offer subscriptions at more than a 50%
discount off list price. The Court in February 2004 approved a
settlement agreement which does not impose any payment
obligations upon the defendants and the action was dismissed.

In March 2002, Ziff Davis France
(ZDF) and other unrelated parties were sued by a
freelance author alleging that certain publication of his works
infringed his rights, which case was dismissed pursuant to a
settlement agreement in July 2003.

The Company is also subject to various claims and
legal proceedings that arise in the ordinary course of business.
However, it does not expect any of these claims or legal
proceedings, either individually or in the aggregate, to have a
material adverse effect on its financial condition, results of
operations or liquidity.

68



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION

Guarantor Financial
Information

Ziff Davis Holdings and Ziff Davis Media are
holding companies and their only assets are the ownership of the
capital stock of their subsidiaries and cash balances. All of
the Companys consolidated subsidiaries have guaranteed
Ziff Davis Medias debt on a full, unconditional, joint and
several basis. There are no restrictions which limit the ability
of the Companys subsidiaries to transfer funds to Ziff
Davis Media in the form of cash dividends, loans or advances. No
separate financial information for Ziff Davis Media has been
provided herein because Ziff Davis Holdings financial
information is materially the same as Ziff Davis Medias
financial information as a result of the fact that:
(1) Ziff Davis Holdings does not itself conduct any
business but rather all of its operations are conducted by Ziff
Davis Media and its direct and indirect subsidiaries;
(2) Ziff Davis Holdings has no material assets other than
its equity interest in Ziff Davis Media; and (3) Ziff Davis
Holdings has unconditionally guaranteed the 12% Notes and
the Compounding Notes.

The following tables present combining financial
data detailing Ziff Davis Holdings, Ziff Davis Media, the
guarantor subsidiaries and related elimination entries.

69



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |          |          |  
|-------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | -------- | ---------- | -------- | ---------- | ------- | ------------ | -------- | ----- | ------- | -------- | ------- | - | -------- | ---------- | -------- | - | ------- | -------- | -------- | -
|                                                   |                                                   |                                                         
|                                                   |                                                   | At December 31, 2003                                    
|                                                   |                                                   |                                                         
|                                                   |                                                   | Ziff Davis                                               |          | Ziff Davis |          |           
|                                                   |                                                   | Holdings Inc.                                            |          | Media Inc. |          | Guarantors |         | Eliminations |          | Total
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |      
|ASSETS                                             |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|Current assets:                                    |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   | Cash and cash equivalents                         |                                                          | $        |           |          |            | $       |             |          |       | $       | 47,308   |         |   | $        |           |          |   | $       | 47,308   |         
|                                                   | Accounts receivable, net                          |                                                          |          |           |          |            |         |             |          |       |         | 32,836   |         |   |          |           |          |   |         | 32,836   |         
|                                                   | Inventories                                       |                                                          |          |           |          |            |         |             |          |       |         | 321      |         |   |          |           |          |   |         | 321      |         
|                                                   | Prepaid expenses and other current assets         |                                                          |          |           |          |            |         |             |          |       |         | 7,010    |         |   |          |           |          |   |         | 7,010    |         
|                                                   | Due from (to) affiliates                          |                                                          |          | 1          |          |            |         | (151,939     | )        |       |         | 151,938  |         |   |          |           |          |   |         |         |         
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total current assets                                     |          |            | 1        |            |         |              | (151,939 | )     |         |          | 239,413 |   |          |            |         |   |         |          | 87,475   |  
|Property and equipment, net                        |                                                   |                                                          |         |            |          |            |        |              |          |       | 15,206  |          |         |   |         |            |          |   | 15,206  |         
|Investments in subsidiaries, equity method         |                                                   |                                                          | (123,750 | )          |          |            | (71,876 | )            |          |       |        |          |         |   | 195,626  |            |          |   |        |         
|Intangible assets, net                             |                                                   |                                                          |         |            |          |            |        |              |          |       | 220,544 |          |         |   |         |            |          |   | 220,544 |         
|Goodwill, net                                      |                                                   |                                                          |         |            |          |            |        |              |          |       | 38,139  |          |         |   |         |            |          |   | 38,139  |         
|Note receivable  affiliate                        |                                                   |                                                          |         |            |          |            | 486,100 |              |          |       |        |          |         |   | (486,100 | )          |          |   |        |         
|Other assets, net                                  |                                                   |                                                          |         |            |          |            | 12,712  |              |          |       | 2,832   |          |         |   |         |            |          |   | 15,544  |         
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total assets                                             |          | $          | (123,749 | )          |         | $            | 274,997  |       |         | $        | 516,134 |   |          | $          | (290,474 | ) |         | $        | 376,908  |  
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                  
|LIABILITIES AND STOCKHOLDERS (DEFICIT)
    EQUITY |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|Current liabilities:                               |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   | Accounts payable                                  |                                                          | $        |           |          |            | $       |             |          |       | $       | 13,938   |         |   | $        |           |          |   | $       | 13,938   |         
|                                                   | Accrued expenses and other current liabilities    |                                                          |          |           |          |            |         | 1,040        |          |       |         | 30,666   |         |   |          |           |          |   |         | 31,706   |         
|                                                   | Current portion of long-term debt                 |                                                          |          |           |          |            |         | 15,766       |          |       |         |         |         |   |          |           |          |   |         | 15,766   |         
|                                                   | Unexpired subscriptions and deferred revenue, net |                                                          |          |           |          |            |         |             |          |       |         | 25,170   |         |   |          |           |          |   |         | 25,170   |         
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total current liabilities                                |          |            |         |            |         |              | 16,806   |       |         |          | 69,774  |   |          |            |         |   |         |          | 86,580   |  
|Long-term debt                                     |                                                   |                                                          |         |            |          |            | 293,265 |              |          |       |        |          |         |   |         |            |          |   | 293,265 |         
|Accrued interest  compounding notes               |                                                   |                                                          |         |            |          |            | 89,532  |              |          |       |        |          |         |   |         |            |          |   | 89,532  |         
|Note payable  affiliate                           |                                                   |                                                          |         |            |          |            |        |              |          |       | 486,100 |          |         |   | (486,100 | )          |          |   |        |         
|Accrued expenses  long-term                       |                                                   |                                                          |         |            |          |            |        |              |          |       | 14,027  |          |         |   |         |            |          |   | 14,027  |         
|Other non-current liabilities                      |                                                   |                                                          |         |            |          |            |        |              |          |       | 17,253  |          |         |   |         |            |          |   | 17,253  |         
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total liabilities                                        |          |            |         |            |         |              | 399,603  |       |         |          | 587,154 |   |          |            | (486,100 | ) |         |          | 500,657  |  
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|Redeemable preferred stock                         |                                                   |                                                          | 739,602  |            |          |            |        |              |          |       |        |          |         |   |         |            |          |   | 739,602 |         
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|Stockholders (deficit) equity:                    |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   | Preferred stock                                   |                                                          |          |           |          |            |         |             |          |       |         | 1,234    |         |   |          | (1,234     | )        |   |         |         |         
|                                                   | Common stock                                      |                                                          |          | 17,343     |          |            |         |             |          |       |         | 28       |         |   |          | (28        | )        |   |         | 17,343   |         
|                                                   | Stock subscription loans                          |                                                          |          | (14        | )        |            |         |             |          |       |         |         |         |   |          |           |          |   |         | (14      | )       
|                                                   | Additional paid-in capital                        |                                                          |          | 8,468      |          |            |         | 566,631      |          |       |         | 632,378  |         |   |          | (1,199,009 | )        |   |         | 8,468    |         
|                                                   | Accumulated (deficit) equity                      |                                                          |          | (889,148   | )        |            |         | (691,237     | )        |       |         | (704,660 | )       |   |          | 1,395,897  |          |   |         | (889,148 | )       
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total stockholders deficit                              |          |            | (863,351 | )          |         |              | (124,606 | )     |         |          | (71,020 | ) |          |            | 195,626  |   |         |          | (863,351 | )
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         
|                                                   |                                                   | Total liabilities and stockholders
    (deficit) equity |          | $          | (123,749 | )          |         | $            | 274,997  |       |         | $        | 516,134 |   |          | $          | (290,474 | ) |         | $        | 376,908  |  
|                                                   |                                                   |                                                          |          |            |          |            |         |              |          |       |         |          |         |   |          |            |          |   |         |         

70



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |          |          |  
|-------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | -------- | ---------- | -------- | ---------- | -------- | ------------ | -------- | ----- | ------- | -------- | -------- | - | -------- | ---------- | -------- | - | ------- | -------- | -------- | -
|                                                   |                                                   |                                                         
|                                                   |                                                   | At December 31, 2002                                    
|                                                   |                                                   |                                                         
|                                                   |                                                   | Ziff Davis                                               |          | Ziff Davis |          |           
|                                                   |                                                   | Holdings Inc.                                            |          | Media Inc. |          | Guarantors |          | Eliminations |          | Total
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |      
|ASSETS                                             |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|Current assets:                                    |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   | Cash and cash equivalents                         |                                                          | $        | 1          |          |            | $        | 28,267       |          |       | $       | 13,022   |          |   | $        |           |          |   | $       | 41,290   |         
|                                                   | Accounts receivable, net                          |                                                          |          |           |          |            |          |             |          |       |         | 30,596   |          |   |          |           |          |   |         | 30,596   |         
|                                                   | Inventories                                       |                                                          |          |           |          |            |          |             |          |       |         | 334      |          |   |          |           |          |   |         | 334      |         
|                                                   | Prepaid expenses and other current assets         |                                                          |          |           |          |            |          |             |          |       |         | 7,465    |          |   |          |           |          |   |         | 7,465    |         
|                                                   | Due (to) from affiliates                          |                                                          |          |           |          |            |          | (144,718     | )        |       |         | 144,718  |          |   |          |           |          |   |         |         |         
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total current assets                                     |          |            | 1        |            |          |              | (116,451 | )     |         |          | 196,135  |   |          |            |         |   |         |          | 79,685   |  
|Property and equipment, net                        |                                                   |                                                          |         |            |          |            |         |              |          |       | 23,481  |          |          |   |         |            |          |   | 23,481  |         
|Investments in subsidiaries, equity method         |                                                   |                                                          | (121,841 | )          |          |            | (121,960 | )            |          |       |        |          |          |   | 243,801  |            |          |   |        |         
|Intangible assets, net                             |                                                   |                                                          |         |            |          |            |         |              |          |       | 238,036 |          |          |   |         |            |          |   | 238,036 |         
|Goodwill, net                                      |                                                   |                                                          |         |            |          |            |         |              |          |       | 38,340  |          |          |   |         |            |          |   | 38,340  |         
|Note receivable  affiliate                        |                                                   |                                                          |         |            |          |            | 503,025  |              |          |       |        |          |          |   | (503,025 | )          |          |   |        |         
|Other assets, net                                  |                                                   |                                                          |         |            |          |            | 14,870   |              |          |       |        |          |          |   |         |            |          |   | 14,870  |         
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total assets                                             |          | $          | (121,840 | )          |          | $            | 279,484  |       |         | $        | 495,992  |   |          | $          | (259,224 | ) |         | $        | 394,412  |  
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                  
|LIABILITIES AND STOCKHOLDERS
    (DEFICIT) EQUITY |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|Current liabilities:                               |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   | Accounts payable                                  |                                                          | $        |           |          |            | $        |             |          |       | $       | 11,466   |          |   | $        |           |          |   | $       | 11,466   |         
|                                                   | Accrued expenses and other current liabilities    |                                                          |          |           |          |            |          | 1,352        |          |       |         | 33,929   |          |   |          |           |          |   |         | 35,281   |         
|                                                   | Unexpired subscriptions and deferred revenue, net |                                                          |          |           |          |            |          |             |          |       |         | 29,542   |          |   |          |           |          |   |         | 29,542   |         
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total current liabilities                                |          |            |         |            |          |              | 1,352    |       |         |          | 74,937   |   |          |            |         |   |         |          | 76,289   |  
|Long-term debt                                     |                                                   |                                                          |         |            |          |            | 301,266  |              |          |       |        |          |          |   |         |            |          |   | 301,266 |         
|Accrued interest  compounding notes               |                                                   |                                                          |         |            |          |            | 100,909  |              |          |       |        |          |          |   |         |            |          |   | 100,909 |         
|Note payable  affiliate                           |                                                   |                                                          |         |            |          |            |         |              |          |       | 503,025 |          |          |   | (503,025 | )          |          |   |        |         
|Accrued expenses  long-term                       |                                                   |                                                          |         |            |          |            |         |              |          |       | 23,196  |          |          |   |         |            |          |   | 23,196  |         
|Other non-current liabilities                      |                                                   |                                                          |         |            |          |            |         |              |          |       | 15,938  |          |          |   |         |            |          |   | 15,938  |         
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total liabilities                                        |          |            |         |            |          |              | 403,527  |       |         |          | 617,096  |   |          |            | (503,025 | ) |         |          | 517,598  |  
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|Redeemable preferred stock                         |                                                   |                                                          | 673,577  |            |          |            |         |              |          |       |        |          |          |   |         |            |          |   | 673,577 |         
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|Stockholders (deficit) equity:                    |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   | Preferred stock                                   |                                                          |          |           |          |            |          |             |          |       |         | 1,234    |          |   |          | (1,234     | )        |   |         |         |         
|                                                   | Common stock                                      |                                                          |          | 17,901     |          |            |          |             |          |       |         | 28       |          |   |          | (28        | )        |   |         | 17,901   |         
|                                                   | Stock subscription loans                          |                                                          |          | (572       | )        |            |          |             |          |       |         |         |          |   |          |           |          |   |         | (572     | )       
|                                                   | Additional paid-in capital                        |                                                          |          | 8,468      |          |            |          | 566,631      |          |       |         | 537,565  |          |   |          | (1,104,196 | )        |   |         | 8,468    |         
|                                                   | Accumulated (deficit) equity                      |                                                          |          | (821,214   | )        |            |          | (689,328     | )        |       |         | (659,931 | )        |   |          | 1,349,259  |          |   |         | (821,214 | )       
|                                                   | Accumulated other comprehensive loss              |                                                          |          |           |          |            |          | (1,346       | )        |       |         |         |          |   |          |           |          |   |         | (1,346   | )       
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total stockholders (deficit) equity                     |          |            | (795,417 | )          |          |              | (124,043 | )     |         |          | (121,104 | ) |          |            | 243,801  |   |         |          | (796,763 | )
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         
|                                                   |                                                   | Total liabilities and stockholders
    (deficit) equity |          | $          | (121,840 | )          |          | $            | 279,484  |       |         | $        | 495,992  |   |          | $          | (259,224 | ) |         | $        | 394,412  |  
|                                                   |                                                   |                                                          |          |            |          |            |          |              |          |       |         |          |          |   |          |            |          |   |         |         

71



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |         |  
|----------------------------------------- | ----------------------------------------------------------- | ---------------------------- | ------ | ---------- | - | ---------- | ------- | ------------ | - | ----- | ------- | ------- | - | - | ------ | ------ |  | - | ------- | ------- | -
|                                          |                                                             |                             
|                                          |                                                             | Year Ended December 31, 2003
|                                          |                                                             |                             
|                                          |                                                             | Ziff Davis                   |        | Ziff Davis |   |           
|                                          |                                                             | Holdings Inc.                |        | Media Inc. |   | Guarantors |         | Eliminations |   | Total
|                                          |                                                             |                              |        |            |   |            |         |              |   |      
|Revenue, net                              |                                                             | $                            |       |            |   | $          |        |              |   | $     | 194,107 |         |   | $ |       |        |  | $ | 194,107 |        
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|Operating expenses:                       |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|                                          | Cost of production                                          |                              |        |           |   |            |         |             |   |       |         | 60,622  |   |   |        |       |  |   |         | 60,622  |  
|                                          | Selling, general and administrative expenses                |                              |        |           |   |            |         |             |   |       |         | 98,973  |   |   |        |       |  |   |         | 98,973  |  
|                                          | Depreciation and amortization of property and
    equipment |                              |        |           |   |            |         |             |   |       |         | 10,793  |   |   |        |       |  |   |         | 10,793  |  
|                                          | Amortization of intangible assets                           |                              |        |           |   |            |         |             |   |       |         | 15,108  |   |   |        |       |  |   |         | 15,108  |  
|                                          | Restructuring charges, net                                  |                              |        |           |   |            |         |             |   |       |         | (6,238  | ) |   |        |       |  |   |         | (6,238  | )
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|                                          | Total operating expenses                                    |                              |        |           |   |            |         |             |   |       |         | 179,258 |   |   |        |       |  |   |         | 179,258 |  
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|Income from operations                    |                                                             |                              |       |            |   |            |        |              |   |       | 14,849  |         |   |   |       |        |  |   | 14,849  |        
|Equity in (loss) income from subsidiaries |                                                             |                              | (1,909 | )          |   |            | (44,729 | )            |   |       |        |         |   |   | 46,638 |        |  |   |        |        
|Gain on sale of assets, net               |                                                             |                              |       |            |   |            | 2,544   |              |   |       | 65      |         |   |   |       |        |  |   | 2,609   |        
|Intercompany interest income (expense)    |                                                             |                              |       |            |   |            | 59,757  |              |   |       | (59,757 | )       |   |   |       |        |  |   |        |        
|Interest (expense) income, net            |                                                             |                              |        |            |   |            | (19,481 | )            |   |       | 339     |         |   |   |       |        |  |   | (19,142 | )      
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|                                          | (Loss) income before income taxes                           |                              |        | (1,909     | ) |            |         | (1,909       | ) |       |         | (44,504 | ) |   |        | 46,638 |  |   |         | (1,684  | )
|Income tax provision                      |                                                             |                              |       |            |   |            |        |              |   |       | 225     |         |   |   |       |        |  |   | 225     |        
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        
|                                          | Net (loss) income                                           |                              | $      | (1,909     | ) |            | $       | (1,909       | ) |       | $       | (44,729 | ) |   | $      | 46,638 |  |   | $       | (1,909  | )
|                                          |                                                             |                              |        |            |   |            |         |              |   |       |         |         |   |   |        |        |  |   |         |        

|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |          |  
|----------------------------------------- | ----------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ---------- | -------- | ------------ | - | ----- | -------- | -------- | - | - | ------- | ------- |  | - | -------- | -------- | -
|                                          |                                                             |                             
|                                          |                                                             | Year Ended December 31, 2002
|                                          |                                                             |                             
|                                          |                                                             | Ziff Davis                   |          | Ziff Davis |   |           
|                                          |                                                             | Holdings Inc.                |          | Media Inc. |   | Guarantors |          | Eliminations |   | Total
|                                          |                                                             |                              |          |            |   |            |          |              |   |      
|Revenue, net                              |                                                             | $                            |         |            |   | $          |         |              |   | $     | 209,037  |          |   | $ |        |         |  | $ | 209,037  |         
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|Operating expenses:                       |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Cost of production                                          |                              |          |           |   |            |          |             |   |       |          | 75,835   |   |   |         |        |  |   |          | 75,835   |  
|                                          | Selling, general and administrative expenses                |                              |          |           |   |            |          |             |   |       |          | 125,171  |   |   |         |        |  |   |          | 125,171  |  
|                                          | Depreciation and amortization of property and
    equipment |                              |          |           |   |            |          |             |   |       |          | 18,851   |   |   |         |        |  |   |          | 18,851   |  
|                                          | Amortization of intangible assets                           |                              |          |           |   |            |          |             |   |       |          | 18,919   |   |   |         |        |  |   |          | 18,919   |  
|                                          | Restructuring charges, net                                  |                              |          |           |   |            |          |             |   |       |          | 48,950   |   |   |         |        |  |   |          | 48,950   |  
|                                          | Write-down of intangible assets                             |                              |          |           |   |            |          |             |   |       |          | 79,241   |   |   |         |        |  |   |          | 79,241   |  
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Total operating expenses                                    |                              |          |           |   |            |          |             |   |       |          | 366,967  |   |   |         |        |  |   |          | 366,967  |  
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|Loss from operations                      |                                                             |                              |         |            |   |            |         |              |   |       | (157,930 | )        |   |   |        |         |  |   | (157,930 | )       
|Equity in (loss) income from subsidiaries |                                                             |                              | (196,844 | )          |   |            | (218,963 | )            |   |       |         |          |   |   | 415,807 |         |  |   |         |         
|Gain on sale of assets, net               |                                                             |                              |         |            |   |            |         |              |   |       | 634      |          |   |   |        |         |  |   | 634      |         
|Intercompany interest income (expense)    |                                                             |                              |         |            |   |            | 61,473   |              |   |       | (61,473  | )        |   |   |        |         |  |   |         |         
|Interest income (expense), net            |                                                             |                              | 4        |            |   |            | (39,331  | )            |   |       | 41       |          |   |   |        |         |  |   | (39,286  | )       
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | (Loss) income before income taxes                           |                              |          | (196,840   | ) |            |          | (196,821     | ) |       |          | (218,728 | ) |   |         | 415,807 |  |   |          | (196,582 | )
|Income tax provision                      |                                                             |                              |         |            |   |            | 23       |              |   |       | 235      |          |   |   |        |         |  |   | 258      |         
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Net (loss) income                                           |                              | $        | (196,840   | ) |            | $        | (196,844     | ) |       | $        | (218,963 | ) |   | $       | 415,807 |  |   | $        | (196,840 | )
|                                          |                                                             |                              |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         

72



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |          |  
|----------------------------------------- | ----------------------------------------------------------- | ----------------------------------- | -------- | ---------- | - | ---------- | -------- | ------------ | - | ----- | -------- | -------- | - | - | ------- | ------- |  | - | -------- | -------- | -
|                                          |                                                             |                                    
|                                          |                                                             | Nine Months Ended December 31, 2001
|                                          |                                                             |                                    
|                                          |                                                             | Ziff Davis                          |          | Ziff Davis |   |           
|                                          |                                                             | Holdings Inc.                       |          | Media Inc. |   | Guarantors |          | Eliminations |   | Total
|                                          |                                                             |                                     |          |            |   |            |          |              |   |      
|Revenue, net                              |                                                             | $                                   |         |            |   | $          |         |              |   | $     | 215,859  |          |   | $ |        |         |  | $ | 215,859  |         
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|Operating expenses:                       |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Cost of production                                          |                                     |          |           |   |            |          |             |   |       |          | 81,726   |   |   |         |        |  |   |          | 81,726   |  
|                                          | Selling, general and administrative expenses                |                                     |          |           |   |            |          | 1            |   |       |          | 164,350  |   |   |         |        |  |   |          | 164,351  |  
|                                          | Depreciation and amortization of property and
    equipment |                                     |          |           |   |            |          |             |   |       |          | 20,870   |   |   |         |        |  |   |          | 20,870   |  
|                                          | Amortization of intangible assets                           |                                     |          |           |   |            |          |             |   |       |          | 41,766   |   |   |         |        |  |   |          | 41,766   |  
|                                          | Restructuring charges, net                                  |                                     |          |           |   |            |          |             |   |       |          | 37,412   |   |   |         |        |  |   |          | 37,412   |  
|                                          | Write-down of intangible assets                             |                                     |          |           |   |            |          |             |   |       |          | 240,077  |   |   |         |        |  |   |          | 240,077  |  
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Total operating expenses                                    |                                     |          |           |   |            |          | 1            |   |       |          | 586,201  |   |   |         |        |  |   |          | 586,202  |  
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|Loss from operations                      |                                                             |                                     |         |            |   |            | (1       | )            |   |       | (370,342 | )        |   |   |        |         |  |   | (370,343 | )       
|Equity in loss from joint ventures        |                                                             |                                     |         |            |   |            |         |              |   |       | (192     | )        |   |   |        |         |  |   | (192     | )       
|Equity in (loss) income from subsidiaries |                                                             |                                     | (415,693 | )          |   |            | (427,419 | )            |   |       |         |          |   |   | 843,112 |         |  |   |         |         
|Loss on sale of joint venture             |                                                             |                                     |         |            |   |            |         |              |   |       | (7,802   | )        |   |   |        |         |  |   | (7,802   | )       
|Intercompany interest income (expense)    |                                                             |                                     |         |            |   |            | 47,439   |              |   |       | (47,439  | )        |   |   |        |         |  |   |         |         
|Interest income (expense), net            |                                                             |                                     | 22       |            |   |            | (37,285  | )            |   |       | 430      |          |   |   |        |         |  |   | (36,833  | )       
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | (Loss) income before income taxes                           |                                     |          | (415,671   | ) |            |          | (417,266     | ) |       |          | (425,345 | ) |   |         | 843,112 |  |   |          | (415,170 | )
|Income tax provision (benefit)            |                                                             |                                     | (247     | )          |   |            | (1,573   | )            |   |       | 2,074    |          |   |   |        |         |  |   | 254      |         
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         
|                                          | Net (loss) income                                           |                                     | $        | (415,424   | ) |            | $        | (415,693     | ) |       | $        | (427,419 | ) |   | $       | 843,112 |  |   | $        | (415,424 | )
|                                          |                                                             |                                     |          |            |   |            |          |              |   |       |          |          |   |   |         |         |  |   |          |         

73



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)

|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |        |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------------------- | ------ | ---------- | - | ---------- | ------- | ------------ | - | ----- | ------- | ------- | - | - | ------- | ------- | - | - | ------ | ------ | -
|                                                                                           |                                                               |                             
|                                                                                           |                                                               | Year Ended December 31, 2003
|                                                                                           |                                                               |                             
|                                                                                           |                                                               | Ziff Davis                   |        | Ziff Davis |   |           
|                                                                                           |                                                               | Holdings Inc.                |        | Media Inc. |   | Guarantors |         | Eliminations |   | Total
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |      
|Cash flows from operating activities:                                                      |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Net (loss) income                                                                          |                                                               | $                            | (1,909 | )          |   | $          | (1,909  | )            |   | $     | (44,729 | )       |   | $ | 46,638  |         |   | $ | (1,909 | )     
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|                                                                                           | Depreciation and amortization                                 |                              |        |           |   |            |         |             |   |       |         | 25,901  |   |   |         |        |   |   |        | 25,901 |  
|                                                                                           | Provision for doubtful accounts                               |                              |        |           |   |            |         |             |   |       |         | 557     |   |   |         |        |   |   |        | 557    |  
|                                                                                           | Non-cash rent income                                          |                              |        |           |   |            |         |             |   |       |         | (1,617  | ) |   |         |        |   |   |        | (1,617 | )
|                                                                                           | Non-cash interest expense on compounding notes,
    net       |                              |        |           |   |            |         | 1,316        |   |       |         |        |   |   |         |        |   |   |        | 1,316  |  
|                                                                                           | Amortization of debt issuance costs                           |                              |        |           |   |            |         | 2,158        |   |       |         |        |   |   |         |        |   |   |        | 2,158  |  
|                                                                                           | Gain on sale of assets                                        |                              |        |           |   |            |         |             |   |       |         | (2,609  | ) |   |         |        |   |   |        | (2,609 | )
|                                                                                           | Non-cash restructuring charges                                |                              |        |           |   |            |         |             |   |       |         | (6,238  | ) |   |         |        |   |   |        | (6,238 | )
|                                                                                           | Equity in loss (income) of subsidiaries                       |                              |        | 1,909      |   |            |         | 44,729       |   |       |         |        |   |   |         | (46,638 | ) |   |        |       |  
|Changes in operating assets and liabilities:                                               |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|                                                                                           | Accounts receivable                                           |                              |        |           |   |            |         |             |   |       |         | (2,797  | ) |   |         |        |   |   |        | (2,797 | )
|                                                                                           | Inventories                                                   |                              |        |           |   |            |         |             |   |       |         | 13      |   |   |         |        |   |   |        | 13     |  
|                                                                                           | Accounts payable and accrued expenses                         |                              |        |           |   |            |         | (312         | ) |       |         | (3,016  | ) |   |         |        |   |   |        | (3,328 | )
|                                                                                           | Unexpired subscriptions and deferred revenue, net             |                              |        |           |   |            |         |             |   |       |         | (4,697  | ) |   |         |        |   |   |        | (4,697 | )
|                                                                                           | Due (to) from affiliate                                       |                              |        | (1         | ) |            |         | (859         | ) |       |         | 860     |   |   |         |        |   |   |        |       |  
|                                                                                           | Prepaid expenses and other, net                               |                              |        |           |   |            |         | 1,346        |   |       |         | 439     |   |   |         |        |   |   |        | 1,785  |  
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Net cash (used) provided by operating activities                                           |                                                               |                              | (1     | )          |   |            | 46,469  |              |   |       | (37,933 | )       |   |   |        |         |   |   | 8,535  |       
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Cash flows from investing activities:                                                      |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|                                                                                           | Capital expenditures                                          |                              |        |           |   |            |         |             |   |       |         | (2,518  | ) |   |         |        |   |   |        | (2,518 | )
|                                                                                           | Net proceeds from sale of assets                              |                              |        |           |   |            |         |             |   |       |         | 4,929   |   |   |         |        |   |   |        | 4,929  |  
|                                                                                           | Investments in subsidiaries                                   |                              |        |           |   |            |         | (86,733      | ) |       |         |        |   |   |         | 86,733  |   |   |        |       |  
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Net cash (used) provided by investing activities                                           |                                                               |                              |       |            |   |            | (86,733 | )            |   |       | 2,411   |         |   |   | 86,733  |         |   |   | 2,411  |       
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Cash flows from financing activities:                                                      |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|                                                                                           | Proceeds from capital contributions                           |                              |        |           |   |            |         |             |   |       |         | 86,733  |   |   |         | (86,733 | ) |   |        |       |  
|                                                                                           | Repayment of borrowings under senior credit
    facilities    |                              |        |           |   |            |         | (4,928       | ) |       |         |        |   |   |         |        |   |   |        | (4,928 | )
|                                                                                           | Proceeds from collection of intercompany notes
    receivable |                              |        |           |   |            |         | 16,925       |   |       |         |        |   |   |         | (16,925 | ) |   |        |       |  
|                                                                                           | Repayment of intercompany notes payable                       |                              |        |           |   |            |         |             |   |       |         | (16,925 | ) |   |         | 16,925  |   |   |        |       |  
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Net cash provided (used) by financing
    activities                                       |                                                               |                              |       |            |   |            | 11,997  |              |   |       | 69,808  |         |   |   | (86,733 | )       |   |   | (4,928 | )     
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Net (decrease) increase in cash and cash
    equivalents                                   |                                                               |                              | (1     | )          |   |            | (28,267 | )            |   |       | 34,286  |         |   |   |        |         |   |   | 6,018  |       
|Cash and cash equivalents at beginning of period                                           |                                                               |                              | 1      |            |   |            | 28,267  |              |   |       | 13,022  |         |   |   |        |         |   |   | 41,290 |       
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       
|Cash and cash equivalents at end of period                                                 |                                                               | $                            |       |            |   | $          |        |              |   | $     | 47,308  |         |   | $ |        |         |   | $ | 47,308 |       
|                                                                                           |                                                               |                              |        |            |   |            |         |              |   |       |         |         |   |   |         |         |   |   |        |       

74



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)

|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |         |  
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ---------- | -------- | ------------ | - | ----- | -------- | ------- | - | - | -------- | -------- | - | - | -------- | ------- | -
|                                                                                           |                                                                   |                             
|                                                                                           |                                                                   | Year Ended December 31, 2002
|                                                                                           |                                                                   |                             
|                                                                                           |                                                                   | Ziff Davis                   |          | Ziff Davis |   |           
|                                                                                           |                                                                   | Holdings Inc.                |          | Media Inc. |   | Guarantors |          | Eliminations |   | Total
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |      
|Cash flows from operating activities:                                                      |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net (loss) income                                                                          |                                                                   | $                            | (196,840 | )          |   | $          | (196,844 | )            |   | $     | (218,963 | )       |   | $ | 415,807  |          |   | $ | (196,840 | )      
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Depreciation and amortization                                     |                              |          |           |   |            |          |             |   |       |          | 37,770  |   |   |          |         |   |   |          | 37,770  |  
|                                                                                           | Provision for doubtful accounts                                   |                              |          |           |   |            |          |             |   |       |          | 1,331   |   |   |          |         |   |   |          | 1,331   |  
|                                                                                           | Non-cash rent expense                                             |                              |          |           |   |            |          |             |   |       |          | 2,452   |   |   |          |         |   |   |          | 2,452   |  
|                                                                                           | Non-cash interest expense on compounding notes,
    net           |                              |          |           |   |            |          | 459          |   |       |          |        |   |   |          |         |   |   |          | 459     |  
|                                                                                           | Amortization of debt issuance costs                               |                              |          |           |   |            |          | 2,473        |   |       |          |        |   |   |          |         |   |   |          | 2,473   |  
|                                                                                           | Gain on sale of asset                                             |                              |          |           |   |            |          |             |   |       |          | (634    | ) |   |          |         |   |   |          | (634    | )
|                                                                                           | Non-cash restructuring charges                                    |                              |          |           |   |            |          |             |   |       |          | 5,974   |   |   |          |         |   |   |          | 5,974   |  
|                                                                                           | Write-down of intangible assets                                   |                              |          |           |   |            |          |             |   |       |          | 79,241  |   |   |          |         |   |   |          | 79,241  |  
|                                                                                           | Equity in loss (income) of subsidiaries                           |                              |          | 196,844    |   |            |          | 218,963      |   |       |          |        |   |   |          | (415,807 | ) |   |          |        |  
|Changes in operating assets and liabilities:                                               |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Accounts receivable                                               |                              |          |           |   |            |          |             |   |       |          | 12,354  |   |   |          |         |   |   |          | 12,354  |  
|                                                                                           | Inventories                                                       |                              |          |           |   |            |          |             |   |       |          | 26      |   |   |          |         |   |   |          | 26      |  
|                                                                                           | Accounts payable and accrued expenses                             |                              |          |           |   |            |          | (14,601      | ) |       |          | 20,972  |   |   |          |         |   |   |          | 6,371   |  
|                                                                                           | Unexpired subscriptions and deferred revenue, net                 |                              |          |           |   |            |          |             |   |       |          | (1,327  | ) |   |          |         |   |   |          | (1,327  | )
|                                                                                           | Due from (to) affiliate                                           |                              |          | 34,896     |   |            |          | (17,235      | ) |       |          | (17,661 | ) |   |          |         |   |   |          |        |  
|                                                                                           | Prepaid expenses and other, net                                   |                              |          |           |   |            |          | 454          |   |       |          | 1,894   |   |   |          |         |   |   |          | 2,348   |  
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash provided (used) by operating
    activities                                       |                                                                   |                              | 34,900   |            |   |            | (6,331   | )            |   |       | (76,571  | )       |   |   |         |          |   |   | (48,002  | )      
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash flows from investing activities:                                                      |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Capital expenditures                                              |                              |          |           |   |            |          |             |   |       |          | (2,567  | ) |   |          |         |   |   |          | (2,567  | )
|                                                                                           | Net proceeds from sale of assets                                  |                              |          |           |   |            |          |             |   |       |          | 1,554   |   |   |          |         |   |   |          | 1,554   |  
|                                                                                           | Investments in subsidiaries                                       |                              |          | (112,931   | ) |            |          | (101,929     | ) |       |          |        |   |   |          | 214,860  |   |   |          |        |  
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash (used) provided by investing activities                                           |                                                                   |                              | (112,931 | )          |   |            | (101,929 | )            |   |       | (1,013   | )       |   |   | 214,860  |          |   |   | (1,013   | )      
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash flows from financing activities:                                                      |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Proceeds from issuance of preferred stock                         |                              |          | 77,631     |   |            |          |             |   |       |          |        |   |   |          |         |   |   |          | 77,631  |  
|                                                                                           | Proceeds from capital contributions                               |                              |          |           |   |            |          | 112,931      |   |       |          | 101,929 |   |   |          | (214,860 | ) |   |          |        |  
|                                                                                           | Net borrowings under senior credit facilities                     |                              |          |           |   |            |          | 21,000       |   |       |          |        |   |   |          |         |   |   |          | 21,000  |  
|                                                                                           | Repayment of borrowings under senior credit
    facilities        |                              |          |           |   |            |          | (6,085       | ) |       |          |        |   |   |          |         |   |   |          | (6,085  | )
|                                                                                           | Proceeds from collection of intercompany notes
    receivable     |                              |          |           |   |            |          | 14,425       |   |       |          |        |   |   |          | (14,425  | ) |   |          |        |  
|                                                                                           | Repayment of intercompany notes payable                           |                              |          |            |   |            |          |             |   |       |          | (14,425 | ) |   |          | 14,425   |   |   |          |        |  
|                                                                                           | Debt issuance costs                                               |                              |          |           |   |            |          | (1,039       | ) |       |          |        |   |   |          |         |   |   |          | (1,039  | )
|                                                                                           | Payments to 12% Note holders in connection
    with restructuring |                              |          |           |   |            |          | (21,158      | ) |       |          |        |   |   |          |         |   |   |          | (21,158 | )
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash provided (used) by financing activities                                           |                                                                   |                              | 77,631   |            |   |            | 120,074  |              |   |       | 87,504   |         |   |   | (214,860 | )        |   |   | 70,349   |        
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net (decrease) increase in cash and cash
    equivalents                                   |                                                                   |                              | (400     | )          |   |            | 11,814   |              |   |       | 9,920    |         |   |   |         |          |   |   | 21,334   |        
|Cash and cash equivalents at beginning of period                                           |                                                                   |                              | 401      |            |   |            | 16,453   |              |   |       | 3,102    |         |   |   |         |          |   |   | 19,956   |        
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash and cash equivalents at end of period                                                 |                                                                   | $                            | 1        |            |   | $          | 28,267   |              |   | $     | 13,022   |         |   | $ |         |          |   | $ | 41,290   |        
|                                                                                           |                                                                   |                              |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        

75



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)

|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |         |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ----------------------------------- | -------- | ---------- | - | ---------- | -------- | ------------ | - | ----- | -------- | ------- | - | - | -------- | -------- | - | - | -------- | ------- | -
|                                                                                           |                                                               |                                    
|                                                                                           |                                                               | Nine Months Ended December 31, 2001
|                                                                                           |                                                               |                                    
|                                                                                           |                                                               | Ziff Davis                          |          | Ziff Davis |   |           
|                                                                                           |                                                               | Holdings Inc.(1)                    |          | Media Inc. |   | Guarantors |          | Eliminations |   | Total
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |      
|Cash flows from operating activities:                                                      |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net (loss) income                                                                          |                                                               | $                                   | (415,424 | )          |   | $          | (415,693 | )            |   | $     | (427,419 | )       |   | $ | 843,112  |          |   | $ | (415,424 | )      
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Depreciation and amortization                                 |                                     |          |           |   |            |          |             |   |       |          | 62,636  |   |   |          |         |   |   |          | 62,636  |  
|                                                                                           | Equity in loss from joint ventures                            |                                     |          |           |   |            |          |             |   |       |          | 192     |   |   |          |         |   |   |          | 192     |  
|                                                                                           | Loss on sale of joint venture                                 |                                     |          |           |   |            |          |             |   |       |          | 7,802   |   |   |          |         |   |   |          | 7,802   |  
|                                                                                           | Provision for doubtful accounts                               |                                     |          |           |   |            |          |             |   |       |          | 1,645   |   |   |          |         |   |   |          | 1,645   |  
|                                                                                           | Non-cash rent expense                                         |                                     |          |           |   |            |          | 700          |   |       |          | 1,704   |   |   |          |         |   |   |          | 2,404   |  
|                                                                                           | Amortization of debt issuance costs                           |                                     |          |           |   |            |          | 1,666        |   |       |          |        |   |   |          |         |   |   |          | 1,666   |  
|                                                                                           | Non-cash restructuring charges                                |                                     |          |           |   |            |          |             |   |       |          | 11,570  |   |   |          |         |   |   |          | 11,570  |  
|                                                                                           | Write-down of intangible assets                               |                                     |          |           |   |            |          |             |   |       |          | 240,077 |   |   |          |         |   |   |          | 240,077 |  
|                                                                                           | Equity in loss of subsidiaries                                |                                     |          | 415,693    |   |            |          | 427,419      |   |       |          |        |   |   |          | (843,112 | ) |   |          |        |  
|Changes in operating assets and liabilities:                                               |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Accounts receivable                                           |                                     |          |           |   |            |          |             |   |       |          | 5,828   |   |   |          |         |   |   |          | 5,828   |  
|                                                                                           | Inventories                                                   |                                     |          |           |   |            |          |             |   |       |          | 742     |   |   |          |         |   |   |          | 742     |  
|                                                                                           | Accounts payable and accrued expenses                         |                                     |          |           |   |            |          | 6,044        |   |       |          | 8,222   |   |   |          |         |   |   |          | 14,266  |  
|                                                                                           | Unexpired subscriptions and deferred revenue, net             |                                     |          |           |   |            |          |             |   |       |          | (10,967 | ) |   |          |         |   |   |          | (10,967 | )
|                                                                                           | Due (to) from affiliate                                       |                                     |          | (247       | ) |            |          | 39,891       |   |       |          | (39,290 | ) |   |          |         |   |   |          | 354     |  
|                                                                                           | Prepaid expenses and other, net                               |                                     |          |           |   |            |          | (1,800       | ) |       |          | 13,871  |   |   |          |         |   |   |          | 12,071  |  
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash provided (used) by operating
    activities                                       |                                                               |                                     | 22       |            |   |            | 58,227   |              |   |       | (123,387 | )       |   |   |         |          |   |   | (65,138  | )      
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash flows from investing activities:                                                      |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Capital expenditures                                          |                                     |          |           |   |            |          |             |   |       |          | (23,336 | ) |   |          |         |   |   |          | (23,336 | )
|                                                                                           | Distributions from joint venture                              |                                     |          |           |   |            |          |             |   |       |          | 125     |   |   |          |         |   |   |          | 125     |  
|                                                                                           | Net proceeds from sale of joint venture                       |                                     |          |           |   |            |          |             |   |       |          | 4,051   |   |   |          |         |   |   |          | 4,051   |  
|                                                                                           | Net proceeds from sale of international operations            |                                     |          |           |   |            |          |             |   |       |          | 10,500  |   |   |          |         |   |   |          | 10,500  |  
|                                                                                           | Investments in subsidiaries                                   |                                     |          | (99,200    | ) |            |          | (120,396     | ) |       |          |        |   |   |          | 219,596  |   |   |          |        |  
|                                                                                           | Acquisitions and investments, net of cash acquired            |                                     |          |           |   |            |          |             |   |       |          | (44     | ) |   |          |         |   |   |          | (44     | )
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash (used) provided by investing activities                                           |                                                               |                                     | (99,200  | )          |   |            | (120,396 | )            |   |       | (8,704   | )       |   |   | 219,596  |          |   |   | (8,704   | )      
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash flows from financing activities:                                                      |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|                                                                                           | Proceeds from issuance of common stock                        |                                     |          | 4          |   |            |          |             |   |       |          |        |   |   |          |         |   |   |          | 4       |  
|                                                                                           | Proceeds from issuance of preferred stock                     |                                     |          | 98,953     |   |            |          |             |   |       |          |        |   |   |          |         |   |   |          | 98,953  |  
|                                                                                           | Proceeds from capital contributions                           |                                     |          |           |   |            |          | 101,700      |   |       |          | 117,896 |   |   |          | (219,596 | ) |   |          |        |  
|                                                                                           | Net borrowings under senior credit facilities                 |                                     |          |           |   |            |          | 10,000       |   |       |          |        |   |   |          |         |   |   |          | 10,000  |  
|                                                                                           | Repayment of borrowings under senior credit
    facilities    |                                     |          |           |   |            |          | (39,966      | ) |       |          |        |   |   |          |         |   |   |          | (39,966 | )
|                                                                                           | Proceeds from collection of intercompany notes
    receivable |                                     |          |           |   |            |          | 5,703        |   |       |          |        |   |   |          | (5,703   | ) |   |          |        |  
|                                                                                           | Repayment of intercompany notes payable                       |                                     |          |           |   |            |          |             |   |       |          | (5,703  | ) |   |          | 5,703    |   |   |          |        |  
|                                                                                           | Debt issuance costs                                           |                                     |          |           |   |            |          | (704         | ) |       |          |        |   |   |          |         |   |   |          | (704    | )
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net cash provided (used) by financing activities                                           |                                                               |                                     | 98,957   |            |   |            | 76,733   |              |   |       | 112,193  |         |   |   | (219,596 | )        |   |   | 68,287   |        
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Net (decrease) increase in cash and cash
    equivalents                                   |                                                               |                                     | (221     | )          |   |            | 14,564   |              |   |       | (19,898  | )       |   |   |         |          |   |   | (5,555   | )      
|Cash and cash equivalents at beginning of period                                           |                                                               |                                     | 622      |            |   |            | 1,889    |              |   |       | 23,000   |         |   |   |         |          |   |   | 25,511   |        
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        
|Cash and cash equivalents at end of period                                                 |                                                               | $                                   | 401      |            |   | $          | 16,453   |              |   | $     | 3,102    |         |   | $ |         |          |   | $ | 19,956   |        
|                                                                                           |                                                               |                                     |          |            |   |            |          |              |   |       |          |         |   |   |          |          |   |   |          |        

76



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


Restricted and Unrestricted Subsidiaries
Financial Data

Ziff Davis Media is the borrower and Ziff Davis
Holdings and Ziff Davis Medias consolidated
subsidiaries are all guarantors under the Companys debt
agreements on a full, unconditional, joint and several basis.
Under the Senior Credit Facility, the Company is required to
exclude the results of operations of the Unrestricted
Subsidiaries and separately report the combining financial
statements of the Restricted and Unrestricted Subsidiaries, as
defined in these agreements. Reflected below are combining
balance sheets and statements of operations for the Company
detailing the Restricted and Unrestricted Subsidiaries.

|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |          |          |  
|-------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | ------- | -------------- | -------- | ------------ | ------- | ------------ | ------- | ----- | --- | -------- | ------ | - | -------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                   |                                                   |                                                         
|                                                   |                                                   | At December 31, 2003                                    
|                                                   |                                                   |                                                         
|                                                   |                                                   |                                                          |         | Ziff Davis     |          |             
|                                                   |                                                   |                                                          |         | Media Inc. and |          |             
|                                                   |                                                   | Ziff Davis                                               |         | Restricted     |          | Unrestricted |         |             
|                                                   |                                                   | Holdings Inc.(1)                                         |         | Subsidiaries   |          | Subsidiaries |         | Eliminations |         | Total
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |      
|ASSETS                                             |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|Current assets:                                    |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   | Cash and cash equivalents                         |                                                          | $       |               |          |              | $       | 47,308       |         |       | $   |         |        |   | $        |         |          |   | $       | 47,308   |         
|                                                   | Accounts receivable, net                          |                                                          |         |               |          |              |         | 25,095       |         |       |     | 7,741    |        |   |          |         |          |   |         | 32,836   |         
|                                                   | Inventories                                       |                                                          |         |               |          |              |         | 321          |         |       |     |         |        |   |          |         |          |   |         | 321      |         
|                                                   | Prepaid expenses and other current assets         |                                                          |         |               |          |              |         | 6,701        |         |       |     | 309      |        |   |          |         |          |   |         | 7,010    |         
|                                                   | Due from (to) affiliates                          |                                                          |         | 1              |          |              |         | 7,949        |         |       |     | (7,950   | )      |   |          |         |          |   |         |         |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total current assets                                     |         |                | 1        |              |         |              | 87,374  |       |     |          | 100    |   |          |          |         |   |         |          | 87,475   |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|Property and equipment, net                        |                                                   |                                                          |        |                |          |              | 14,779  |              |         |       | 427 |          |        |   |         |          |          |   | 15,206  |         
|Investments in subsidiaries, cost method           |                                                   |                                                          | 564,131 |                |          |              | 164,400 |              |         |       |    |          |        |   | (728,531 | )        |          |   |        |         
|Intangible assets, net                             |                                                   |                                                          |        |                |          |              | 220,544 |              |         |       |    |          |        |   |         |          |          |   | 220,544 |         
|Goodwill, net                                      |                                                   |                                                          |        |                |          |              | 38,139  |              |         |       |    |          |        |   |         |          |          |   | 38,139  |         
|Other assets, net                                  |                                                   |                                                          |        |                |          |              | 15,544  |              |         |       |    |          |        |   |         |          |          |   | 15,544  |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total assets                                             |         | $              | 564,132  |              |         | $            | 540,780 |       |     | $        | 527    |   |          | $        | (728,531 | ) |         | $        | 376,908  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                  
|LIABILITIES AND STOCKHOLDERS
    (DEFICIT) EQUITY |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|Current liabilities:                               |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   | Accounts payable                                  |                                                          | $       |               |          |              | $       | 13,151       |         |       | $   | 787      |        |   | $        |         |          |   | $       | 13,938   |         
|                                                   | Accrued expenses and other current liabilities    |                                                          |         |               |          |              |         | 28,188       |         |       |     | 3,518    |        |   |          |         |          |   |         | 31,706   |         
|                                                   | Current portion of long-term debt                 |                                                          |         |               |          |              |         | 15,766       |         |       |     |         |        |   |          |         |          |   |         | 15,766   |         
|                                                   | Unexpired subscriptions and deferred revenue, net |                                                          |         |               |          |              |         | 24,437       |         |       |     | 733      |        |   |          |         |          |   |         | 25,170   |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total current liabilities                                |         |                |         |              |         |              | 81,542  |       |     |          | 5,038  |   |          |          |         |   |         |          | 86,580   |  
|Long-term debt                                     |                                                   |                                                          |        |                |          |              | 293,265 |              |         |       |    |          |        |   |         |          |          |   | 293,265 |         
|Accrued interest  compounding notes               |                                                   |                                                          |        |                |          |              | 89,532  |              |         |       |    |          |        |   |         |          |          |   | 89,532  |         
|Accrued expenses  long-term                       |                                                   |                                                          |        |                |          |              | 14,027  |              |         |       |    |          |        |   |         |          |          |   | 14,027  |         
|Other non-current liabilities                      |                                                   |                                                          |        |                |          |              | 17,253  |              |         |       |    |          |        |   |         |          |          |   | 17,253  |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total liabilities                                        |         |                |         |              |         |              | 495,619 |       |     |          | 5,038  |   |          |          |         |   |         |          | 500,657  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|Redeemable preferred stock                         |                                                   |                                                          | 739,602 |                |          |              |        |              |         |       |    |          |        |   |         |          |          |   | 739,602 |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|Stockholders (deficit) equity:                    |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   | Preferred stock                                   |                                                          |         |               |          |              |         |             |         |       |     | 1,234    |        |   |          | (1,234   | )        |   |         |         |         
|                                                   | Common stock                                      |                                                          |         | 17,343         |          |              |         |             |         |       |     | 28       |        |   |          | (28      | )        |   |         | 17,343   |         
|                                                   | Stock subscription loans                          |                                                          |         | (14            | )        |              |         |             |         |       |     |         |        |   |          |         |          |   |         | (14      | )       
|                                                   | Additional paid-in capital                        |                                                          |         | 8,468          |          |              |         | 564,131      |         |       |     | 163,138  |        |   |          | (727,269 | )        |   |         | 8,468    |         
|                                                   | Accumulated deficit                               |                                                          |         | (201,267       | )        |              |         | (518,970     | )       |       |     | (168,911 | )      |   |          |         |          |   |         | (889,148 | )       
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total stockholders (deficit) equity                     |         |                | (175,470 | )            |         |              | 45,161  |       |     |          | (4,511 | ) |          |          | (728,531 | ) |         |          | (863,351 | )
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total liabilities and stockholders equity
    (deficit) |         | $              | 564,132  |              |         | $            | 540,780 |       |     | $        | 527    |   |          | $        | (728,531 | ) |         | $        | 376,908  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |     |          |        |   |          |          |          |   |         |         



---



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts related to Ziff Davis
    Intermediate Holdings Inc., which is a wholly-owned subsidiary
    of Ziff Davis Holdings and the direct 100% stockholder of Ziff
    Davis Media.

77



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |          |          |  
|-------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | ------- | -------------- | -------- | ------------ | ------- | ------------ | ------- | ----- | ----- | -------- | ------ | - | -------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                   |                                                   |                                                         
|                                                   |                                                   | At December 31, 2002                                    
|                                                   |                                                   |                                                         
|                                                   |                                                   |                                                          |         | Ziff Davis     |          |             
|                                                   |                                                   |                                                          |         | Media Inc. and |          |             
|                                                   |                                                   | Ziff Davis                                               |         | Restricted     |          | Unrestricted |         |             
|                                                   |                                                   | Holdings Inc.(1)                                         |         | Subsidiaries   |          | Subsidiaries |         | Eliminations |         | Total
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |      
|ASSETS                                             |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|Current assets:                                    |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   | Cash and cash equivalents                         |                                                          | $       | 1              |          |              | $       | 41,287       |         |       | $     | 2        |        |   | $        |         |          |   | $       | 41,290   |         
|                                                   | Accounts receivable, net                          |                                                          |         |               |          |              |         | 26,645       |         |       |       | 3,951    |        |   |          |         |          |   |         | 30,596   |         
|                                                   | Inventories                                       |                                                          |         |               |          |              |         | 334          |         |       |       |         |        |   |          |         |          |   |         | 334      |         
|                                                   | Prepaid expenses and other current assets         |                                                          |         |               |          |              |         | 6,811        |         |       |       | 654      |        |   |          |         |          |   |         | 7,465    |         
|                                                   | Due from (to) affiliates                          |                                                          |         |               |          |              |         | 7,950        |         |       |       | (7,950   | )      |   |          |         |          |   |         |         |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total current assets                                     |         |                | 1        |              |         |              | 83,027  |       |       |          | (3,343 | ) |          |          |         |   |         |          | 79,685   |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|Property and equipment, net                        |                                                   |                                                          |        |                |          |              | 20,604  |              |         |       | 2,877 |          |        |   |         |          |          |   | 23,481  |         
|Investments in subsidiaries, cost method           |                                                   |                                                          | 564,131 |                |          |              | 154,221 |              |         |       |      |          |        |   | (718,352 | )        |          |   |        |         
|Intangible assets, net                             |                                                   |                                                          |        |                |          |              | 238,036 |              |         |       |      |          |        |   |         |          |          |   | 238,036 |         
|Goodwill, net                                      |                                                   |                                                          |        |                |          |              | 38,340  |              |         |       |      |          |        |   |         |          |          |   | 38,340  |         
|Other assets, net                                  |                                                   |                                                          |        |                |          |              | 14,870  |              |         |       |      |          |        |   |         |          |          |   | 14,870  |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total assets                                             |         | $              | 564,132  |              |         | $            | 549,098 |       |       | $        | (466   | ) |          | $        | (718,352 | ) |         | $        | 394,412  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                  
|LIABILITIES AND STOCKHOLDERS
    (DEFICIT) EQUITY |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|Current liabilities:                               |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   | Accounts payable                                  |                                                          | $       |               |          |              | $       | 10,266       |         |       | $     | 1,200    |        |   | $        |         |          |   | $       | 11,466   |         
|                                                   | Accrued expenses and other current liabilities    |                                                          |         |               |          |              |         | 32,985       |         |       |       | 2,296    |        |   |          |         |          |   |         | 35,281   |         
|                                                   | Unexpired subscriptions and deferred revenue, net |                                                          |         |               |          |              |         | 29,481       |         |       |       | 61       |        |   |          |         |          |   |         | 29,542   |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total current liabilities                                |         |                |         |              |         |              | 72,732  |       |       |          | 3,557  |   |          |          |         |   |         |          | 76,289   |  
|Long-term debt                                     |                                                   |                                                          |        |                |          |              | 301,266 |              |         |       |      |          |        |   |         |          |          |   | 301,266 |         
|Accrued interest  compounding notes               |                                                   |                                                          |        |                |          |              | 100,909 |              |         |       |      |          |        |   |         |          |          |   | 100,909 |         
|Accrued expenses  long-term                       |                                                   |                                                          |        |                |          |              | 23,196  |              |         |       |      |          |        |   |         |          |          |   | 23,196  |         
|Other non-current liabilities                      |                                                   |                                                          |        |                |          |              | 15,938  |              |         |       |      |          |        |   |         |          |          |   | 15,938  |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total liabilities                                        |         |                |         |              |         |              | 514,041 |       |       |          | 3,557  |   |          |          |         |   |         |          | 517,598  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|Redeemable preferred stock                         |                                                   |                                                          | 673,577 |                |          |              |        |              |         |       |      |          |        |   |         |          |          |   | 673,577 |         
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|Stockholders (deficit) equity:                    |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   | Preferred stock                                   |                                                          |         |               |          |              |         |             |         |       |       | 1,234    |        |   |          | (1,234   | )        |   |         |         |         
|                                                   | Common stock                                      |                                                          |         | 17,901         |          |              |         |             |         |       |       | 28       |        |   |          | (28      | )        |   |         | 17,901   |         
|                                                   | Stock subscription loans                          |                                                          |         | (572           | )        |              |         |             |         |       |       |         |        |   |          |         |          |   |         | (572     | )       
|                                                   | Additional paid-in capital                        |                                                          |         | 8,468          |          |              |         | 564,131      |         |       |       | 152,959  |        |   |          | (717,090 | )        |   |         | 8,468    |         
|                                                   | Accumulated deficit                               |                                                          |         | (135,242       | )        |              |         | (527,728     | )       |       |       | (158,244 | )      |   |          |         |          |   |         | (821,214 | )       
|                                                   | Accumulated other comprehensive loss              |                                                          |         |               |          |              |         | (1,346       | )       |       |       |         |        |   |          |         |          |   |         | (1,346   | )       
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total stockholders (deficit) equity                     |         |                | (109,445 | )            |         |              | 35,057  |       |       |          | (4,023 | ) |          |          | (718,352 | ) |         |          | (796,763 | )
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         
|                                                   |                                                   | Total liabilities and stockholders
    (deficit) equity |         | $              | 564,132  |              |         | $            | 549,098 |       |       | $        | (466   | ) |          | $        | (718,352 | ) |         | $        | 394,412  |  
|                                                   |                                                   |                                                          |         |                |          |              |         |              |         |       |       |          |        |   |          |          |          |   |         |         



---



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts related to Ziff Davis
    Intermediate Holdings Inc., which is a wholly-owned subsidiary
    of Ziff Davis Holdings and the direct 100% stockholder of Ziff
    Davis Media.

78



---



##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |        |         | 
|----------------------------- | ----------------------------------------------------------- | ---------------------------- | - | -------------- | - | ------------ | ------- | ------ | ------- | - | ------- | ------- | ------ | - | ------- | ------ | ------- | 
|                              |                                                             |                             
|                              |                                                             | Year Ended December 31, 2003
|                              |                                                             |                             
|                              |                                                             |                              |   | Ziff Davis     |   |             
|                              |                                                             |                              |   | Media Inc. and |   |             
|                              |                                                             | Ziff Davis                   |   | Restricted     |   | Unrestricted |         |       
|                              |                                                             | Holdings Inc.(1)             |   | Subsidiaries   |   | Subsidiaries |         | Total 
|                              |                                                             |                              |   |                |   |              |         |       
|Revenue, net                  |                                                             | $                            |  |                |   | $            | 162,121 |        |         | $ | 31,986  |         |        | $ | 194,107 |       
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|Operating expenses:           |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|                              | Cost of production                                          |                              |   |               |   |              |         | 57,950 |         |   |         | 2,672   |        |   |         | 60,622 |        
|                              | Selling, general and administrative expenses                |                              |   |               |   |              |         | 61,447 |         |   |         | 37,526  |        |   |         | 98,973 |        
|                              | Depreciation and amortization of property and
    equipment |                              |   |               |   |              |         | 8,273  |         |   |         | 2,520   |        |   |         | 10,793 |        
|                              | Amortization of intangible assets                           |                              |   |               |   |              |         | 15,108 |         |   |         |        |        |   |         | 15,108 |        
|                              | Restructuring charges, net                                  |                              |   |               |   |              |         | (6,238 | )       |   |         |        |        |   |         | (6,238 | )      
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|                              |                                                             | Total operating expenses     |   |                |  |              |         |        | 136,540 |   |         |         | 42,718 |   |         |        | 179,258 | 
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|Income (loss) from operations |                                                             |                              |  |                |   |              | 25,581  |        |         |   | (10,732 | )       |        |   | 14,849  |       
|Gain on sale of assets, net   |                                                             |                              |  |                |   |              | 2,544   |        |         |   | 65      |         |        |   | 2,609   |       
|Interest expense, net         |                                                             |                              |   |                |   |              | (19,142 | )      |         |   |        |         |        |   | (19,142 | )     
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|                              | Income (loss) before income taxes                           |                              |   |                |   |              |         | 8,983  |         |   |         | (10,667 | )      |   |         | (1,684 | )      
|Income tax provision          |                                                             |                              |  |                |   |              | 225     |        |         |   |        |         |        |   | 225     |       
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       
|                              | Net income (loss)                                           |                              | $ |                |   |              | $       | 8,758  |         |   | $       | (10,667 | )      |   | $       | (1,909 | )      
|                              |                                                             |                              |   |                |   |              |         |        |         |   |         |         |        |   |         |       

|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |          |         | 
|------------------------------ | ----------------------------------------------------------- | ---------------------------- | - | -------------- | - | ------------ | -------- | -------- | ------- | - | ------- | ------- | ------ | - | -------- | -------- | ------- | 
|                               |                                                             |                             
|                               |                                                             | Year Ended December 31, 2002
|                               |                                                             |                             
|                               |                                                             |                              |   | Ziff Davis     |   |             
|                               |                                                             |                              |   | Media Inc. and |   |             
|                               |                                                             | Ziff Davis                   |   | Restricted     |   | Unrestricted |          |         
|                               |                                                             | Holdings Inc.(1)             |   | Subsidiaries   |   | Subsidiaries |          | Total   
|                               |                                                             |                              |   |                |   |              |          |         
|Revenue, net                   |                                                             | $                            |  |                |   | $            | 183,347  |          |         | $ | 25,690  |         |        | $ | 209,037  |         
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|Operating expenses:            |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|                               | Cost of production                                          |                              |   |               |   |              |          | 70,442   |         |   |         | 5,393   |        |   |          | 75,835   |        
|                               | Selling, general and administrative expenses                |                              |   |               |   |              |          | 78,647   |         |   |         | 46,524  |        |   |          | 125,171  |        
|                               | Depreciation and amortization of property and
    equipment |                              |   |               |   |              |          | 15,215   |         |   |         | 3,636   |        |   |          | 18,851   |        
|                               | Amortization of intangible assets                           |                              |   |               |   |              |          | 18,919   |         |   |         |        |        |   |          | 18,919   |        
|                               | Restructuring charges, net                                  |                              |   |               |   |              |          | 47,985   |         |   |         | 965     |        |   |          | 48,950   |        
|                               | Write-down of intangible assets                             |                              |   |               |   |              |          | 79,163   |         |   |         | 78      |        |   |          | 79,241   |        
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|                               |                                                             | Total operating expenses     |   |                |  |              |          |          | 310,371 |   |         |         | 56,596 |   |          |          | 366,967 | 
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|Loss from operations           |                                                             |                              |  |                |   |              | (127,024 | )        |         |   | (30,906 | )       |        |   | (157,930 | )       
|Gain on sale of assets, net    |                                                             |                              |  |                |   |              |         |          |         |   | 634     |         |        |   | 634      |         
|Interest income (expense), net |                                                             |                              | 4 |                |   |              | (39,290  | )        |         |   |        |         |        |   | (39,286  | )       
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|                               | Income (loss) before income taxes                           |                              |   | 4              |   |              |          | (166,314 | )       |   |         | (30,272 | )      |   |          | (196,582 | )      
|Income tax provision           |                                                             |                              |  |                |   |              | 258      |          |         |   |        |         |        |   | 258      |         
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         
|                               | Net income (loss)                                           |                              | $ | 4              |   |              | $        | (166,572 | )       |   | $       | (30,272 | )      |   | $        | (196,840 | )      
|                               |                                                             |                              |   |                |   |              |          |          |         |   |         |         |        |   |          |         



---



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts related to Ziff Davis
    Intermediate Holdings Inc., which is a wholly-owned subsidiary
    of Ziff Davis Holdings and the direct 100% stockholder of Ziff
    Davis Media.

79



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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




NOTE 20  GUARANTOR AND OTHER
FINANCIAL INFORMATION (continued)


|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |          |  
|---------------------------------- | ----------------------------------------------------------- | ----------------------------------- | ---- | -------------- |  | ------------ | -------- | -------- | - | - | ------- | ------- | - | - | -------- | -------- | -
|                                   |                                                             |                                    
|                                   |                                                             | Nine Months Ended December 31, 2001
|                                   |                                                             |                                    
|                                   |                                                             |                                     |      | Ziff Davis     |  |             
|                                   |                                                             |                                     |      | Media Inc. and |  |             
|                                   |                                                             | Ziff Davis                          |      | Restricted     |  | Unrestricted |          |         
|                                   |                                                             | Holdings Inc.(1)                    |      | Subsidiaries   |  | Subsidiaries |          | Total   
|                                   |                                                             |                                     |      |                |  |              |          |         
|Revenue, net                       |                                                             | $                                   |     |                |  | $            | 197,239  |          |   | $ | 18,620  |         |   | $ | 215,859  |         
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|Operating expenses:                |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|                                   | Cost of production                                          |                                     |      |               |  |              |          | 74,947   |   |   |         | 6,779   |   |   |          | 81,726   |  
|                                   | Selling, general and administrative expenses                |                                     |      |               |  |              |          | 105,741  |   |   |         | 58,610  |   |   |          | 164,351  |  
|                                   | Depreciation and amortization of property and
    equipment |                                     |      |               |  |              |          | 12,626   |   |   |         | 8,244   |   |   |          | 20,870   |  
|                                   | Amortization of intangible assets                           |                                     |      |               |  |              |          | 41,766   |   |   |         |        |   |   |          | 41,766   |  
|                                   | Restructuring charges, net                                  |                                     |      |               |  |              |          | 34,077   |   |   |         | 3,335   |   |   |          | 37,412   |  
|                                   | Write-down of intangible assets                             |                                     |      |               |  |              |          | 219,795  |   |   |         | 20,282  |   |   |          | 240,077  |  
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|                                   | Total operating expenses                                    |                                     |      |               |  |              |          | 488,952  |   |   |         | 97,250  |   |   |          | 586,202  |  
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|Loss from operations               |                                                             |                                     |     |                |  |              | (291,713 | )        |   |   | (78,630 | )       |   |   | (370,343 | )       
|Equity in loss from joint ventures |                                                             |                                     |     |                |  |              | (192     | )        |   |   |        |         |   |   | (192     | )       
|Loss on sale of joint venture      |                                                             |                                     |     |                |  |              | (7,802   | )        |   |   |        |         |   |   | (7,802   | )       
|Interest income (expense), net     |                                                             |                                     | 22   |                |  |              | (36,855  | )        |   |   |        |         |   |   | (36,833  | )       
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|                                   | Income (loss) before income taxes                           |                                     |      | 22             |  |              |          | (336,562 | ) |   |         | (78,630 | ) |   |          | (415,170 | )
|Income tax (benefit) provision     |                                                             |                                     | (247 | )              |  |              | 1,341    |          |   |   | (840    | )       |   |   | 254      |         
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         
|                                   | Net income (loss)                                           |                                     | $    | 269            |  |              | $        | (337,903 | ) |   | $       | (77,790 | ) |   | $        | (415,424 | )
|                                   |                                                             |                                     |      |                |  |              |          |          |   |   |         |         |   |   |          |         



---



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts related to Ziff Davis
    Intermediate Holdings Inc., which is a wholly-owned subsidiary
    of Ziff Davis Holdings and the direct 100% stockholder of Ziff
    Davis Media.

80



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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)




|          |                           
|--------- | --------------------------
|NOTE 21  | RELATED PARTY TRANSACTIONS

Investment funds affiliated with Willis Stein are
also shareholders of USApubs Inc. (USApubs), a
marketer of magazine subscriptions and other services. The
Company sells subscriptions to its publications both directly
and through independent subscription marketing companies
including USApubs. For the years ended December 31, 2003
and 2002 and the nine months ended December 31, 2001, the
Company paid approximately $1,289, $2,500 and $2,900 in fees,
respectively, to USApubs and had accounts payable to USApubs of
approximately $47 and $60 at December 31, 2003 and 2002,
respectively.

The Company reimburses travel and other
out-of-pocket expenses of its directors and staff, including the
directors from Willis Stein. The Company also reimbursed Willis
Stein for travel and other out-of-pocket expenses related to Avy
Stein serving as interim CEO for a portion of 2001. During the
years ended December 31, 2003 and 2002 and the nine months
ended December 31, 2001, the Company paid approximately
$100, $89 and $700 of such director reimbursement expenses,
respectively, and had a related prepaid asset of $54 on the
Consolidated Balance Sheet at December 31, 2003.

NOTE 22  TRANSITION PERIOD
COMPARATIVE DATA

The following tables present certain financial
information of the Company for the nine months ended
December 31, 2001 and 2000.

Consolidated Statements of
Operations

|                                            |                                                             |                          |          |             |         |   |         |         |         | 
|------------------------------------------- | ----------------------------------------------------------- | ------------------------ | -------- | ----------- | ------- | - | ------- | ------- | ------- | 
|                                            |                                                             |                         
|                                            |                                                             | Nine Months Ended       
|                                            |                                                             | December 31,            
|                                            |                                                             |                         
|                                            |                                                             | 2001                     |          | 2000       
|                                            |                                                             |                          |          |            
|                                            |                                                             |                          |          | (Unaudited)
|Revenue, net                                |                                                             | $                        | 215,859  |             |         | $ | 346,699 |        
|                                            |                                                             |                          |          |             |         |   |         |        
|Operating expenses:                         |                                                             |                          |          |             |         |   |         |        
|                                            | Cost of production                                          |                          |          | 81,726      |         |   |         | 106,398 |        
|                                            | Selling, general and administrative expenses                |                          |          | 164,351     |         |   |         | 179,381 |        
|                                            | Depreciation and amortization of property and
    equipment |                          |          | 20,870      |         |   |         | 11,261  |        
|                                            | Amortization of intangible assets                           |                          |          | 41,766      |         |   |         | 35,899  |        
|                                            | Restructuring charges, net                                  |                          |          | 37,412      |         |   |         |        |        
|                                            | Write-down of intangible assets                             |                          |          | 240,077     |         |   |         |        |        
|                                            |                                                             |                          |          |             |         |   |         |        
|                                            |                                                             | Total operating expenses |          |             | 586,202 |   |         |         | 332,939 | 
|                                            |                                                             |                          |          |             |         |   |         |        
|(Loss) income from operations               |                                                             |                          | (370,343 | )           |         |   | 13,760  |        
|Equity in (loss) income from joint ventures |                                                             |                          | (192     | )           |         |   | 983     |        
|Loss on sale of joint venture               |                                                             |                          | (7,802   | )           |         |   |        |        
|Interest expense, net                       |                                                             |                          | (36,833  | )           |         |   | (44,807 | )      
|                                            |                                                             |                          |          |             |         |   |         |        
|                                            | Loss before income taxes                                    |                          |          | (415,170    | )       |   |         | (30,064 | )      
|Income tax provision                        |                                                             |                          | 254      |             |         |   | 761     |        
|                                            |                                                             |                          |          |             |         |   |         |        
|                                            | Net loss                                                    |                          | $        | (415,424    | )       |   | $       | (30,825 | )      
|                                            |                                                             |                          |          |             |         |   |         |        

81



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 22  TRANSITION PERIOD
COMPARATIVE DATA (continued)

Consolidated Statements of Cash
Flows

|                                                                                           |                                                             |                   |          |             |   |   |          |          |  
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | ----------------- | -------- | ----------- | - | - | -------- | -------- | -
|                                                                                           |                                                             |                  
|                                                                                           |                                                             | Nine Months Ended
|                                                                                           |                                                             | December 31,     
|                                                                                           |                                                             |                  
|                                                                                           |                                                             | 2001              |          | 2000       
|                                                                                           |                                                             |                   |          |            
|                                                                                           |                                                             |                   |          | (unaudited)
|Cash flows from operating activities:                                                      |                                                             |                   |          |             |   |   |          |         
|Net loss                                                                                   |                                                             | $                 | (415,424 | )           |   | $ | (30,825  | )       
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                             |                   |          |             |   |   |          |         
|                                                                                           | Depreciation and amortization                               |                   |          | 62,636      |   |   |          | 47,160   |  
|                                                                                           | Equity in loss (income) from joint ventures                 |                   |          | 192         |   |   |          | (983     | )
|                                                                                           | Loss on sale of joint venture                               |                   |          | 7,802       |   |   |          |         |  
|                                                                                           | Provision for doubtful accounts                             |                   |          | 1,645       |   |   |          | 3,457    |  
|                                                                                           | Non-cash rent expense                                       |                   |          | 2,404       |   |   |          | 1,497    |  
|                                                                                           | Amortization of debt issuance costs                         |                   |          | 1,666       |   |   |          | 1,569    |  
|                                                                                           | Non-cash restructuring charges                              |                   |          | 11,570      |   |   |          |         |  
|                                                                                           | Write-down of intangible assets                             |                   |          | 240,077     |   |   |          |         |  
|Changes in working capital:                                                                |                                                             |                   |          |             |   |   |          |         
|                                                                                           | Accounts receivable                                         |                   |          | 5,828       |   |   |          | (1,668   | )
|                                                                                           | Inventories                                                 |                   |          | 742         |   |   |          | 8,474    |  
|                                                                                           | Accounts payable and accrued expenses                       |                   |          | 14,266      |   |   |          | 31,327   |  
|                                                                                           | Unexpired subscriptions and deferred revenue, net           |                   |          | (10,967     | ) |   |          | (9,320   | )
|                                                                                           | Prepaid expenses and other, net                             |                   |          | 12,425      |   |   |          | (6,811   | )
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Net cash provided (used) by operating
    activities                                       |                                                             |                   | (65,138  | )           |   |   | 43,877   |         
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Cash flows from investing activities:                                                      |                                                             |                   |          |             |   |   |          |         
|                                                                                           | Capital expenditures                                        |                   |          | (23,336     | ) |   |          | (18,945  | )
|                                                                                           | Distributions from joint venture                            |                   |          | 125         |   |   |          | 3,100    |  
|                                                                                           | Net proceeds from sale of joint venture                     |                   |          | 4,051       |   |   |          |         |  
|                                                                                           | Net proceeds from sale of international operations          |                   |          | 10,500      |   |   |          | 28,484   |  
|                                                                                           | Acquisitions and investments, net of cash acquired          |                   |          | (44         | ) |   |          | (275     | )
|                                                                                           | Acquisition of ZDP, net of cash acquired                    |                   |          |            |   |   |          | (798,328 | )
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Net cash used by investing activities                                                      |                                                             |                   | (8,704   | )           |   |   | (785,964 | )       
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Cash flows from financing activities:                                                      |                                                             |                   |          |             |   |   |          |         
|                                                                                           | Proceeds from issuance of common stock                      |                   |          | 4           |   |   |          | 19,043   |  
|                                                                                           | Proceeds from issuance of preferred stock                   |                   |          | 98,953      |   |   |          | 333,925  |  
|                                                                                           | Proceeds from long-term borrowings                          |                   |          |            |   |   |          | 605,000  |  
|                                                                                           | Net borrowings under senior credit facilities               |                   |          | 10,000      |   |   |          |         |  
|                                                                                           | Repayment of borrowings under senior credit
    facilities  |                   |          | (39,966     | ) |   |          | (94,710  | )
|                                                                                           | Proceeds from issuance of senior secured notes              |                   |          |            |   |   |          | 125,000  |  
|                                                                                           | Repayment of borrowings under senior secured notes          |                   |          |            |   |   |          | (125,000 | )
|                                                                                           | Proceeds from issuance of senior subordinated
    notes     |                   |          |            |   |   |          | 175,000  |  
|                                                                                           | Repayment of borrowings under senior subordinated
    notes |                   |          |            |   |   |          | (175,000 | )
|                                                                                           | Debt issuance costs                                         |                   |          | (704        | ) |   |          | (20,915  | )
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Net cash provided by financing activities                                                  |                                                             |                   | 68,287   |             |   |   | 842,343  |         
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Net increase (decrease) in cash and cash
    equivalents                                   |                                                             |                   | (5,555   | )           |   |   | 100,256  |         
|Cash and cash equivalents, beginning of period                                             |                                                             |                   | 25,511   |             |   |   | 2,000    |         
|                                                                                           |                                                             |                   |          |             |   |   |          |         
|Cash and cash equivalents, end of period                                                   |                                                             | $                 | 19,956   |             |   | $ | 102,256  |         
|                                                                                           |                                                             |                   |          |             |   |   |          |         

82



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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 23  SEGMENT
INFORMATION

Segment information is presented in accordance
with SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. This standard is
based on a management approach that designates the internal
organization that is used by management for making operating
decisions and assessing performance as the sources of the
Companys reportable segments. Operating segments are
defined as components of an enterprise about which financial
information is available that is evaluated on a regular basis by
the chief operating decision-maker, or decision-making groups,
in deciding how to allocate resources to an individual segment
and in assessing performance of the segment.

The Company has two reportable segments as
detailed below.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Established
    Businesses primarily
    comprised of the Ziff Davis Publishing Inc. subsidiary which
    includes the publishing assets that were acquired when the
    Company was formed in April 2000 and are collectively referred
    to and defined under the Senior Credit Facility as the
    Restricted Subsidiaries. This segment is engaged in
    publishing and licensing magazines and providing editorial
    content about technology, videogames and the Internet. This
    segment also licenses its content and brands in 44 countries and
    20 languages worldwide.                                                                                                                                                                                                    
|
| |  | Developing
    Businesses comprised of
    the LaunchCo and InternetCo subsidiaries, which are collectively
    referred to and defined under the Senior Credit Facility as the
    Unrestricted Subsidiaries. This segment is focused
    on developing new businesses, including: (1) publications,
    which consist of Baseline, CIO Insight, and now
    Sync, the Companys new consumer lifestyle magazine;
    (2) Internet-related properties which leverage editorial
    content, expertise and relationships with the audience and
    advertisers in the Established Businesses segment; and
    (3) events, including those developed by the Companys
    new Event Marketing Group which is building targeted events for
    the business and consumer technology communities.

The reportable segments are aligned with the
reporting requirements set forth in the Companys Senior
Credit Facility and indenture agreements which mandate certain
restrictions on the source of funding provided to the
Restricted Subsidiaries and Unrestricted
Subsidiaries, as defined in those debt agreements. As
such, Management is required to make decisions regarding the
allocation of resource and assessment of performance based on
the bank reporting requirements.

The Company evaluates the performance of its
segments and allocates resources to them based on earnings
before interest, taxes, depreciation, amortization,
restructuring and certain other non-cash charges
(EBITDA). Management believes that segment EBITDA is
an appropriate measure of evaluating the operational performance
of the Companys segments. However, this measure should be
considered in addition to, not as a substitute for, income
(loss) from operations or other measures of financial
performance prepared in accordance with generally accepted
accounting principles. Any inter-segment revenues included in
segment data are not material.

83



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##### Table of Contents



ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 23  SEGMENT INFORMATION
(continued)

The following presents information about the
reported segments for the periods ending:

|              |                        |                         |   |              |         |             |   |         |         |   |   |         |         |  
|------------- | ---------------------- | ----------------------- | - | ------------ | ------- | ----------- | - | ------- | ------- | - | - | ------- | ------- | -
|              |                        |                         |   |              |         | Nine Months
|              |                        |                         |   | Ended       
|              |                        | Year Ended December 31, |   | December 31,
|              |                        |                         |   |             
|              |                        | 2003                    |   | 2002         |         | 2001       
|              |                        |                         |   |              |         |            
|Revenue, net: |                        |                         |   |              |         |             |   |         |         |   |   |        
|              | Established Businesses |                         | $ | 162,121      |         |             | $ | 183,347 |         |   | $ | 197,239 |        
|              | Developing Businesses  |                         |   | 31,986       |         |             |   | 25,690  |         |   |   | 18,620  |        
|              |                        |                         |   |              |         |             |   |         |         |   |   |        
|              |                        | Total                   |   | $            | 194,107 |             |   | $       | 209,037 |   |   | $       | 215,859 |  
|              |                        |                         |   |              |         |             |   |         |         |   |   |        
|EBITDA:       |                        |                         |   |              |         |             |   |         |         |   |   |        
|              | Established Businesses |                         | $ | 42,724       |         |             | $ | (7,753  | )       |   | $ | (7,161  | )      
|              | Developing Businesses  |                         |   | (8,212       | )       |             |   | (27,192 | )       |   |   | (49,091 | )      
|              |                        |                         |   |              |         |             |   |         |         |   |   |        
|              |                        | Total                   |   | $            | 34,512  |             |   | $       | (34,945 | ) |   | $       | (56,252 | )
|              |                        |                         |   |              |         |             |   |         |         |   |   |        

|              |                        |              |   |         |         |  |   |         |         | 
|------------- | ---------------------- | ------------ | - | ------- | ------- |  | - | ------- | ------- | 
|              |                        |             
|              |                        | December 31,
|              |                        |             
|              |                        | 2003         |   | 2002   
|              |                        |              |   |        
|Total Assets: |                        |              |   |         |         |  |   |        
|              | Established Businesses |              | $ | 376,381 |         |  | $ | 394,878 |        
|              | Developing Businesses  |              |   | 527     |         |  |   | (466    | )      
|              |                        |              |   |         |         |  |   |        
|              |                        | Total        |   | $       | 376,908 |  |   | $       | 394,412 | 
|              |                        |              |   |         |         |  |   |        

|                                                                               |                          |                                  |   |              |         |      |   |          |         |   |   |          |          |  
|------------------------------------------------------------------------------ | ------------------------ | -------------------------------- | - | ------------ | ------- | ---- | - | -------- | ------- | - | - | -------- | -------- | -
|                                                                               |                          |                                  |   | Nine Months 
|                                                                               |                          | Year Ended December 31,          |   | Ended       
|                                                                               |                          |                                  |   | December 31,
|                                                                               |                          | 2003                             |   | 2002         |         | 2001
|                                                                               |                          |                                  |   |              |         |     
|Reconciliation of segment EBITDA to
    consolidated loss before income taxes: |                          |                                  |   |              |         |      |   |          |         |   |   |         
|                                                                               | Total segment EBITDA     |                                  | $ | 34,512       |         |      | $ | (34,945  | )       |   | $ | (56,252  | )       
|                                                                               |                          | Depreciation and amortization    |   |              | (25,901 | )    |   |          | (37,770 | ) |   |          | (62,636  | )
|                                                                               |                          | Restructuring charges  non cash |   |              | 6,238   |      |   |          | (5,974  | ) |   |          | (11,570  | )
|                                                                               |                          | Write-down of intangible assets  |   |              |        |      |   |          | (79,241 | ) |   |          | (240,077 | )
|                                                                               |                          | Loss on sale of joint venture    |   |              |        |      |   |          |        |   |   |          | (7,802   | )
|                                                                               |                          | Gain on sale of assets, net      |   |              | 2,609   |      |   |          | 634     |   |   |          |         |  
|                                                                               |                          | Interest expense, net            |   |              | (19,142 | )    |   |          | (39,286 | ) |   |          | (36,833  | )
|                                                                               |                          |                                  |   |              |         |      |   |          |         |   |   |         
|                                                                               | Loss before income taxes |                                  | $ | (1,684       | )       |      | $ | (196,582 | )       |   | $ | (415,170 | )       
|                                                                               |                          |                                  |   |              |         |      |   |          |         |   |   |         

Equity in income (loss) of investees for the
Established Businesses segment included in EBITDA for the years
ended December 31, 2003 and 2002, and the nine months ended
December 31, 2001, was $0, $0 and $(192), respectively.

At December 31, 2003 and 2002, all of the
Companys long-lived assets were based in the United States.

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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 23  SEGMENT INFORMATION
(continued)

The following presents information about the
Companys components of revenue for the periods ending:

|                   |  |                         |         |              |  |      |         |  |  |   |         | 
|------------------ |  | ----------------------- | ------- | ------------ |  | ---- | ------- |  |  | - | ------- | 
|                   |  |                         |         | Nine Months 
|                   |  | Year Ended December 31, |         | Ended       
|                   |  |                         |         | December 31,
|                   |  | 2003                    |         | 2002         |  | 2001
|                   |  |                         |         |              |  |     
|Advertising        |  | $                       | 132,865 |              |  | $    | 146,007 |  |  | $ | 157,201 | 
|Circulation        |  |                         | 40,042  |              |  |      | 45,224  |  |  |   | 37,030  | 
|Other              |  |                         | 21,200  |              |  |      | 17,806  |  |  |   | 21,628  | 
|                   |  |                         |         |              |  |      |         |  |  |   |         | 
|Total Revenue, net |  | $                       | 194,107 |              |  | $    | 209,037 |  |  | $ | 215,859 | 
|                   |  |                         |         |              |  |      |         |  |  |   |         | 

No one customer accounted for more than 4.6% of
total revenue for the years ended December 31, 2003 and
2002, and the nine months ended December 31, 2001.

NOTE 24  QUARTERLY FINANCIAL DATA
(UNAUDITED)

The following is summarized quarterly financial
data for the years ended December 31, 2003 and 2002, and
the nine months ended December 31, 2001, for Ziff Davis
Holdings:

|                        |  |                               |         |          |  |               |        |              |  |   |        |   |  |   |        | 
|----------------------- |  | ----------------------------- | ------- | -------- |  | ------------- | ------ | ------------ |  | - | ------ | - |  | - | ------ | 
|                        |  |                              
|                        |  | 2003 Quarterly Periods Ending
|                        |  |                              
|                        |  | March 31,                     |         | June 30, |  | September 30, |        | December 31,
|                        |  |                               |         |          |  |               |        |             
|Revenue, net            |  | $                             | 42,091  |          |  | $             | 47,116 |              |  | $ | 45,209 |   |  | $ | 59,691 | 
|Operating (loss) income |  |                               | (5,530  | )        |  |               | 2,610  |              |  |   | 1,197  |   |  |   | 16,572 | 
|Net (loss) income       |  |                               | (10,726 | )        |  |               | (2,342 | )            |  |   | (1,205 | ) |  |   | 12,364 | 

|               |  |                               |         |          |  |               |         |              |  |   |         |   |  |   |         |  
|-------------- |  | ----------------------------- | ------- | -------- |  | ------------- | ------- | ------------ |  | - | ------- | - |  | - | ------- | -
|               |  |                              
|               |  | 2002 Quarterly Periods Ending
|               |  |                              
|               |  | March 31,                     |         | June 30, |  | September 30, |         | December 31,
|               |  |                               |         |          |  |               |         |             
|Revenue, net   |  | $                             | 54,149  |          |  | $             | 56,794  |              |  | $ | 41,795  |   |  | $ | 56,299  |  
|Operating loss |  |                               | (16,235 | )        |  |               | (32,399 | )            |  |   | (21,290 | ) |  |   | (88,006 | )
|Net loss       |  |                               | (29,283 | )        |  |               | (45,719 | )            |  |   | (29,067 | ) |  |   | (92,771 | )

|               |  |   |         |                               |  |               |         |              |  |   |          |   |  |  |  | 
|-------------- |  | - | ------- | ----------------------------- |  | ------------- | ------- | ------------ |  | - | -------- | - |  |  |  | 
|               |  |   |         |                              
|               |  |   |         | 2001 Quarterly Periods Ending
|               |  |   |         |                              
|               |  |   |         | June 30,                      |  | September 30, |         | December 31,
|               |  |   |         |                               |  |               |         |             
|Revenue, net   |  | $ | 81,925  |                               |  | $             | 62,670  |              |  | $ | 71,264   |  
|Operating loss |  |   | (36,366 | )                             |  |               | (58,206 | )            |  |   | (275,771 | )
|Net loss       |  |   | (49,338 | )                             |  |               | (70,468 | )            |  |   | (295,618 | )

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ZIFF DAVIS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(dollars in thousands, except per share
data)


NOTE 25  FAIR VALUE OF FINANCIAL
INSTRUMENTS

The Companys accounting policies with
respect to financial instruments are discussed in Note 2.

The carrying amounts and fair values of Ziff
Davis Holdings significant balance sheet financial
instruments are as follows:

|                         |  |                   |         |                   |  |          |         |            |  |   |         |  |  |   |         | 
|------------------------ |  | ----------------- | ------- | ----------------- |  | -------- | ------- | ---------- |  | - | ------- |  |  | - | ------- | 
|                         |  |                   |         |                  
|                         |  | December 31, 2003 |         | December 31, 2002
|                         |  |                   |         |                  
|                         |  | Carrying          |         |                   |  | Carrying |         |           
|                         |  | Amount            |         | Fair Value        |  | Amount   |         | Fair Value
|                         |  |                   |         |                   |  |          |         |           
|Cash and equivalents     |  | $                 | 47,308  |                   |  | $        | 47,308  |            |  | $ | 41,290  |  |  | $ | 41,290  | 
|Accounts receivable, net |  |                   | 32,836  |                   |  |          | 32,836  |            |  |   | 30,596  |  |  |   | 30,596  | 
|Accounts payable         |  |                   | 13,938  |                   |  |          | 13,938  |            |  |   | 11,466  |  |  |   | 11,466  | 
|Senior credit facility   |  |                   | 189,188 |                   |  |          | 189,188 |            |  |   | 194,116 |  |  |   | 194,116 | 
|Compounding notes        |  |                   | 107,563 |                   |  |          | 102,185 |            |  |   | 94,871  |  |  |   | 41,373  | 
|12% notes                |  |                   | 12,280  |                   |  |          | 11,789  |            |  |   | 12,280  |  |  |   | 5,526   | 
|Preferred stock          |  |                   | 739,602 |                   |  |          | 91,962  |            |  |   | 673,577 |  |  |   |        | 



| |                    
| | -------------------
| | Interest Rate Swaps

The Company utilized an interest rate swap to
reduce the impact on interest expense of fluctuating interest
rates on its variable rate debt. Under the Companys
interest rate swap agreement, the Company agreed with the
counter parties to exchange, at quarterly intervals, the
difference between the Companys fixed pay rate and the
counter parties variable pay rate on three-month LIBOR.
The interest rate swap agreement ended on October 11, 2003,
and was not renewed.

The fair value of the interest rate swap was
estimated by obtaining a quote from a broker, which represented
the amount that the Company would pay if the agreement were
terminated at the balance sheet date. The fair value indicated
that the termination of the interest rate swap agreement would
have resulted in a loss of $0 and $1,346 at December 31,
2003 and 2002, respectively. This amount is recorded on the
Consolidated Balance Sheet in Accumulated other comprehensive
loss.



| |                          
| | -------------------------
| | Standby Letters of Credit

The Company is contingently liable for
performance under letters of credit totaling approximately
$1,800 primarily related to security for real estate leases.
Management does not believe it is practicable to estimate the
fair value of these financial instruments and does not expect
any material losses from their resolution since performance is
not likely to be required.

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.





|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

a) Evaluation of disclosure controls and
procedures. Our Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of our disclosure
controls and procedures as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of
December 31, 2003 (the Evaluation Date). Based
on this evaluation, such officers have concluded that, as of the
Evaluation Date, our disclosure controls and procedures were
adequate and designed to ensure that material information
relating to the Company and its consolidated subsidiaries would
be made known to them by others within those entities.

b) Changes in internal controls.
There were no significant changes in our internal controls or,
to our knowledge, in other factors that could significantly
affect our disclosure controls and procedures subsequent to the
Evaluation Date.

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PART III






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT

Directors and Executive Officers

Ziff Davis Holdings is party to an Investor
Rights Agreement with all of the current holders of
Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock
of Ziff Davis Holdings. The Investor Rights Agreement provides
that the parties thereto will vote their shares such that Ziff
Davis Holdings Board of Directors will be established at
seven directors or such other number designated by Willis Stein.
The agreement provides that the parties thereto will vote their
shares such that the Board of Directors will consist of:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ziff Davis Holdings Chief Executive Officer;                                                                                                
|
| |  | one person designated by DLJ Merchant Banking
    Partners II, L.P., who currently is David M.
    Wittels; and                              
|
| |  | four persons designated by Willis Stein, who
    currently are Avy H. Stein, John R. Willis,
    Daniel H. Blumenthal and Bradley J. Shisler.

The Board of Directors currently consists of
eight directors, including the six above-mentioned directors;
Bart W. Catalane, who was appointed pursuant to an agreement
with our Chief Executive Officer; and one independent, outside
director, who is currently Douglas B. Fox.

The following table contains information with
respect to the executive officers and directors of Ziff Davis
Holdings and Ziff Davis Media:

|                     |  |     |    |          |  |                                                                              
|-------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Robert F. Callahan   |  |     | 52 |          |  | Chairman of the Board of Directors, Chief
    Executive Officer and President
|Bart W. Catalane     |  |     | 47 |          |  | Chief Operating Officer and Director                                         
|Derek Irwin          |  |     | 39 |          |  | Chief Financial Officer                                                      
|Thomas McGrade       |  |     | 46 |          |  | Senior Executive Vice President                                              
|Gregory Barton       |  |     | 42 |          |  | Executive Vice President, General Counsel and
    Secretary                  
|Michael J. Miller    |  |     | 45 |          |  | Executive Vice President, Editorial Director                                 
|Timothy J. Castelli  |  |     | 36 |          |  | Senior Vice President, Publisher, PC Magazine
    Group                      
|Dale Strang          |  |     | 44 |          |  | Senior Vice President, Ziff Davis Games Group                                
|Sloan Seymour        |  |     | 41 |          |  | Senior Vice President, Enterprise Group                                      
|Chris Dobbrow        |  |     | 48 |          |  | Senior Vice President  Corporate Sales
    and Publisher of eWEEK           
|Jason Young          |  |     | 34 |          |  | Senior Vice President  General Manager
    of Ziff Davis Internet Group     
|Jasmine Alexander    |  |     | 41 |          |  | Senior Vice President, Technology and Sales
    Operations                   
|Larry Green          |  |     | 49 |          |  | Senior Vice President, Business Development and
    Worldwide Licensing      
|Charles Mast         |  |     | 42 |          |  | Senior Vice President, Circulation                                           
|Paul OReilly        |  |     | 49 |          |  | Vice President, Ziff Davis Event Marketing Group                             
|Beth Repeta          |  |     | 37 |          |  | Vice President of Human Resources                                            
|John R. Willis       |  |     | 53 |          |  | Director                                                                     
|Avy H. Stein         |  |     | 48 |          |  | Director                                                                     
|Daniel H. Blumenthal |  |     | 40 |          |  | Director                                                                     
|Bradley J. Shisler   |  |     | 33 |          |  | Director                                                                     
|David M. Wittels     |  |     | 39 |          |  | Director                                                                     
|Douglas B. Fox       |  |     | 56 |          |  | Director                                                                     

Robert F. Callahanjoined the Company in October 2001 as
Chairman, Chief Executive Officer and President. Prior to
joining Ziff Davis Holdings and Ziff Davis Media,
Mr. Callahan spent twenty years at Capital Cities/ ABC and
The Walt Disney Company. He spent ten years each in broadcast
and publishing

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businesses. Mr. Callahan was most recently
President of the ABC Broadcast Group where he managed the ABC
Television Network including: ABC News, ABC Sports, ABC
Primetime, ABC Daytime, ABC sales, marketing and financial
operations; the 10 ABC-owned TV stations; the 54 ABC-owned
radio stations and the ABC Radio Networks. Before moving into
radio and television, Mr. Callahan was Senior Vice
President, overseeing primarily business-to-business
publications at Capital Cities Fairchild Publications
division. Mr. Callahan began his career in planning and
account management at Young & Rubicam, McCann Erickson
and Wells, Rich, Greene.


Bart W. Catalaneis
the Chief Operating Officer and a Director. Mr. Catalane
joined the Company in November 2001 as Chief Operating Officer,
as Chief Financial Officer and as a Director. From June 1999
until he joined Ziff Davis Holdings and Ziff Davis Media,
Mr. Catalane was Senior Vice President and Chief Financial
Officer of TMP Worldwide Inc. From February 1996 to May 1999,
Mr. Catalane held the Executive Vice President and Chief
Financial Officer positions for the ABC Radio and then the ABC
Broadcasting Division, units of The Walt Disney Company. Prior
to that, Mr. Catalane held the Senior Vice President and
Chief Financial Officer position at ABC Radio Networks from 1989
to 1996. Mr. Catalane started his career as a staff auditor
at Coopers & Lybrand in New York.

Derek Irwinwas
promoted to Chief Financial Officer as of December 2003.
Mr. Irwin joined the Company in December 2002 as Senior
Vice President, Finance. From December 1999 until he joined the
Company, Mr. Irwin held various senior financial positions
with TMP Worldwide Inc. Mr. Irwin was most recently Chief
Financial Officer, TMP Advertising & Communications,
Americas, and he also previously held the CFO positions for
TMPs Executive Search and eResourcing divisions in the
Americas and for its Worldwide Executive Search Division. From
1992 to 1999, Mr. Irwin also held various senior financial
positions for the American League and National League of
Professional Baseball Clubs and was the Vice President, Finance
from 1997 to 1999. Mr. Irwin began his career as a staff
auditor at the international professional services firm
Ernst & Young and has been a Certified Public
Accountant in New York since 1991.

Thomas McGradehas
been Senior Executive Vice President of Ziff Davis Media and
Ziff Davis Publishing Inc. since April 2000. From 1997 to April
2000, Mr. McGrade held the position of Executive Vice
President and General Manager of ZDI. His previous positions
have included Vice President and Assistant to the Chairman of
ZDI from 1995 to 1996, and business manager of Ziff Davis
Publishing from 1993 to 1994. Mr. McGrade also spent seven
years at Doubleday/ Dell Publishing from 1980 to 1987, where he
held several business and finance positions.

Gregory Bartonhas
been Executive Vice President, General Counsel and Secretary
since November 2002. From September 1998 to November 2002,
Mr. Barton held various positions (most recently President,
CFO and General Counsel) of Index Development
Partners, Inc., a public company based in New York
City that published financial magazines and websites. From May
1995 to August 1998, Mr. Barton was employed by Alliance
Semiconductor Corporation, a public company based in
Santa Clara, California, that is a worldwide supplier of
integrated circuits, where he served as General Counsel and,
from September 1996 to August 1998, Vice President, Corporate
and Legal Affairs. Mr. Barton began his career at Gibson,
Dunn & Crutcher, where he was an Associate in the
Corporations and Litigation Departments.

Michael J. Millerhas been Editor-in-Chief, PC
Magazine, Executive Vice President and Editorial Director
since the acquisition of ZDP. Mr. Miller was Editorial
Director for ZDI from 1997 to April 2000. From 1991 to 1997,
Mr. Miller was Editor-in-Chief of PC Magazine. Prior
to that time, Mr. Miller was Editor-in-Chief of
InfoWorld, which he joined as executive editor in 1985
after serving as the West Coast Bureau Chief for Popular
Computingand senior editor for Building
Design & Construction.

Timothy J. Castelliis the Senior Vice President,
Publisher of PC Magazine. From 1996 to 2002 he has held
several management positions at PC Magazineincluding
Vice President and Publisher, National Associate Publisher, West
Coast Associate Publisher and Northern California Advertising
Director. Since joining Ziff Davis in 1992 through 1995,
Mr. Castelli has held several sales positions including
District Sales Manager Midwest, District Sales Manager New
England, Account Executive and Account Executive

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Classified. Mr. Castelli also spent three
years at CompuDoc, an interactive advertising agency, where he
held several account management positions from 1989 to 1992.


Dale Stranghas been
Senior Vice President, Ziff Davis Games Group since December
2001 and Vice President since the acquisition of ZDP.
Mr. Strang held similar positions at ZDI since March 1999.
Since joining ZDI in June 1996, Mr. Strang served in
several positions, including Group Publisher of Electronic
Gaming Monthly, GameNow(formerly Expert Gamer) and
Official U.S. PlayStation Magazineand Publisher of
Computer Gaming World. From 1991 to 1996, Mr. Strang
held the position of President-Publisher of the Active Media
Inc. division of International Data Group.

Sloan Seymourwas
named Senior Vice President of Ziff Davis Medias
Enterprise Group in April 2003. Prior to April 2003,
Mr. Seymour was the launch publisher of Baselinemagazine. Mr. Seymour began his career at our
predecessor company, Ziff-Davis Inc., in 1986. In addition to
launching Baseline, he created Ziff Davis
face-to-face events and eSeminars businesses. He began his
career with PC Magazineand has also worked as the Vice
President and Publisher of eWEEK.

Chris Dobbrowhas
been Senior Vice President, Corporate Sales of Ziff Davis Media
and Publisher of eWEEKsince July 2003. Mr. Dobbrow
served as the CEO of Red Herring Communications from April 2001
to May 2002. Prior to this position, Mr. Dobbrow was Senior
Vice President of Global Platform Sales at RealNames from July
2000 to December 2001. Mr. Dobbrow began his career at our
predecessor company, Ziff-Davis Inc., where he has held a
variety of positions from 1986 to May 2000 including CEO of
SmartPlanet and Executive Vice President of Ziff-Davis
Publishing, overseeing PC Magazine.

Jason Younghas been
Senior Vice President and General Manager of Ziff Davis Internet
since February 2002 and Vice President of Sales of Ziff Davis
Internet since May 2001. From April 2000 to May 2001,
Mr. Young was Vice President of Ad Sales and Business
Development at TheStreet.com. Prior to that, from 1990,
Mr. Young held a variety of roles with ZDI including
Publisher of Windows Pro, National Ad Director for
Windows Sources, Corporate Sales Director and Ad Director
of ZDNet.

Jasmine Alexanderhas been Senior Vice President,
Technology and Sales Operations since February 2002. She has
more than 15 years of technology and operations experience
in media and entertainment industries. Prior to joining Ziff
Davis Media, Ms. Alexander was Vice President of Operations
at OpenGlobe in 2001. From August 2000 to July 2001,
Ms. Alexander served as Chief Technical Officer at
Musicplex.com. Prior to that, Ms. Alexander was Vice
President, Product Management and Development for CarParts.com,
directing the companys online strategies in 1999.
Ms. Alexander was also Vice President, IT at
Americast, where she started the companys IT department
from 1996 to 1999. From 1985 to 1996, Ms. Alexander held
various positions at ABC, including Programmer/ Analyst,
Manager, Director of IT at the Wilkes Barre Times Leader,
a daily newspaper, and Vice President, IT with the ABC
Radio Networks.

Larry Greenhas been
Senior Vice President of Business Development and Worldwide
Licensing of Ziff Davis Media since July 2003. Prior to joining
the Company, Mr. Green spent 10 years as a strategy
consultant developing growth strategies for many leading
entertainment and media companies in both the U.S. and overseas.
From 1999 to 2001, Mr. Green was a Partner at the Boston
Consulting Group, a Managing Director at PricewaterhouseCoopers
and a co-founder of Partners for Strategic Development. Prior to
strategy consulting, he launched and was the Managing Director
of ABC Radio International, part of Capital Cities/ ABC from
1990 to 1993. From 1982 to 1986, Mr. Green held several
senior positions at Citibank in the international treasury area
and from 1979 to 1982 he was a Project Analyst at CBS Records
International.

Charles Masthas
been Senior Vice President, Circulation, since the acquisition
of ZDP. From December 1988 to April 2000, Mr. Mast was Vice
President of Circulation at ZDI. Mr. Mast held a variety of
positions within the Circulation Department of ZDI from 1985 to
1988, including Assistant Business Manager, Direct Mail Manager,
New Business Director and Subscription Director.

Paul OReillyhas been Vice President, Ziff Davis
Event Marketing Group since the executive team of TM Media Inc.
joined the Company in September 2003. Mr. OReilly has
held a number of senior positions in the events industry,
including CFO of Blenheim USA, Inc. from 1992 to 1995 and
CEO and co-founder of Kingbird Media Group, a company formed in
1998 to produce conferences and custom events for major IT

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vendors. Kingbird was later acquired by CMP
Media, where Mr. OReilly was part of the management
team until 2001, when he co-founded TaylorMcKnight LLC, a
specialist event-marketing company. Prior to 1992,
Mr. OReilly was an executive with KPMG in London.


Beth Repetahas been
the Vice President of Human Resources of Ziff Davis Media since
January 2002 and held the position of Human Resources Manager
from April 2000 to January 2002. Ms. Repeta is responsible
for overseeing recruiting, employee relations, compensation,
benefits and facilities. Ms. Repeta held a variety of Human
Resources positions at ZDI from June 1991 to April 2000,
including Director of Employee Relations and Human Resources
Manager. Prior to 1991, Ms. Repeta was an analyst with
PriceWaterhouse.

John R. Willishas
been a Director since April 2001. Mr. Willis is a Managing
Director of Willis Stein. Prior to the formation of Willis Stein
in 1994, Mr. Willis served as President and a Director of
Continental Illinois Venture Capital Corporation
(CIVC), a venture capital investment firm, from 1989
to 1994. In 1988, he founded Continental Mezzanine Investment
Group and was its manager through 1990. From 1974 until 1988,
Mr. Willis held various management positions at Continental
Bank. He currently serves as a Director of several companies,
including Aavid Thermal Technologies, Inc.,
Roundys, Inc. and other Willis Stein portfolio
companies.

Avy H. Steinhas
been a Director since the acquisition of ZDP. Mr. Stein is
a Managing Director of Willis Stein. Prior to the formation of
Willis Stein in 1994, Mr. Stein served as a Managing
Director of CIVC from 1989 to 1994. From 1984 to 1985,
Mr. Stein was President of Cook Energy Corporation and Vice
President of Corporate Planning and Legal Affairs at Cook
International, Inc. From 1980 through 1983, Mr. Stein
was an attorney with Kirkland & Ellis. Mr. Stein
has also served as a special consultant for mergers and
acquisitions to the Chief Executive Officer of NL
Industries, Inc. and as the Chief Executive Officer of
Regent Corporation. Mr. Stein currently serves as a
Director of several companies, including
Roundys, Inc. and other Willis Stein portfolio
companies.

Daniel H. Blumenthalhas been a Director since the
acquisition of ZDP. Mr. Blumenthal is a Managing Director
of Willis Stein. Prior to the formation of Willis Stein in 1994,
Mr. Blumenthal served as Vice President of CIVC from 1993
to 1994. From 1988 to 1993 he was a corporate tax attorney with
Latham & Watkins. Mr. Blumenthal currently serves
as a Director of several companies, including Aavid Thermal
Technologies, Inc. and other Willis Stein portfolio
companies.

Bradley J. Shislerhas been a Director since July 2003.
Mr. Shisler is a Principal of Willis Stein.
Mr. Shisler re-joined Willis Stein in 2000 after graduating
from the Kellogg Graduate School of Management at Northwestern
University. From 1996 to 1998, Mr. Shisler served as an
Associate at Willis Stein. Prior to Willis Stein,
Mr. Shisler, worked in the corporate finance group at
Simmons & Company International, a specialized
investment banking firm, and as an engineer at Stone &
Webster Engineering Corporation. He currently serves as a
Director of several other Willis Stein portfolio companies.

David M. Wittelshas
been a Director of Ziff Davis Holdings since May 2000.
Mr. Wittels is a Managing Director of Credit Suisse First
Boston (CSFB) in the Merchant Banking Group, based
in New York. Mr. Wittels joined CSFB in November 2000
when the firm merged with Donaldson, Lufkin & Jenrette
and has served in various capacities with DLJ Merchant Banking
and its successors for the past five years. Mr. Wittels is
Chairman of the Board of AKI Inc. and a member of the board of
directors of Advanstar Communications Inc., Advanstar Inc.,
Jostens Inc., Jostens Holding Corp., Mueller Group, Inc.
and Mueller Holdings (N.A.), Inc.

Douglas B. Foxhas
been a Director of Ziff Davis Holdings since September 2003.
Mr. Fox is a Management Consultant and private investor. He
is currently Chief Executive Officer of Renaissance Brands Ltd.,
an advisory service to senior management focused on strategy and
marketing. Mr. Fox served as a Senior Vice President of
Marketing and Strategy at Compaq Computer Company from 2000 to
2001. Mr. Fox served as Chief Marketing Officer and Senior
Vice President of Marketing at International Paper Inc. from
1997 to 2000. From 1994 to 1996, he served as President of
Landmark Communications Inc, a private multimedia firm. Prior to
1994, Mr. Fox served as President and Chief Operating
Officer at Newsday in New York.

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Mr. Fox currently serves on the Board of
Directors of Advanstar Communications Inc., Arcade Marketing
Inc., Bowne & Co., Bowne Global Services and Oreck
Corporation.






|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain
information concerning the compensation earned during the years
ended December 31, 2003 and 2002 and the nine months ended
December 31, 2001 by Ziff Davis Medias Chief
Executive Officer (CEO) and the four most highly
compensated executive officers other than the CEO of Ziff Davis
Media:

|                            |                                                                                        |                                                     |      |          |      |              |                |               |         |               |           |                |         |    |         |         |        |    
|--------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------- | ---- | -------- | ---- | ------------ | -------------- | ------------- | ------- | ------------- | --------- | -------------- | ------- | -- | ------- | ------- | ------ | ---
|                            |                                                                                        |                                                    
|                            |                                                                                        | Annual Compensation                                
|                            |                                                                                        |                                                    
|                            |                                                                                        | Fiscal                                              |      |          |      | Other Annual
|Name and Principal Position |                                                                                        | Year                                                |      | Salary   |      | Bonus        |                | Compensation 
|                            |                                                                                        |                                                     |      |          |      |              |                |              
|                            |                                                                                        |                                                    
|                            |                                                                                        | (in dollars)                                       
|Robert F. Callahan          |                                                                                        |                                                     | 2003 |          |      |              | 1,000,000      |               |         |               | 1,000,000 |                |         |    | 100,000 | (1)    
|                            | Chairman, Chief Executive Officer and                                                  |                                                     |      | 2002     |      |              |                | 1,000,000     |         |               |           | 500,000        |         |    |         | 125,000 | (1)   
|                            |                                                                                        | President of Ziff Davis Holdings,                   |      |          | STUB | (2)          |                |               | 250,000 |               |           |                | 250,000 |    |         |         | 10,000 | (1)
|                            |                                                                                        | Ziff Davis Media and Ziff Davis
    Publishing Inc. |      |          |      |              |                |               |         |               |           |                |         |    |         |         |        |    
|Bart W. Catalane            |                                                                                        |                                                     | 2003 |          |      |              | 500,000        |               |         |               | 500,000   |                |         |    |        |        
|                            | Chief Operating Officer of Ziff Davis Holdings,
    Ziff Davis Media and               |                                                     |      | 2002STUB | (2)  |              |                | 500,00051,282 |         |               |           | 250,000200,000 | (3)     |    |         |       |       
|                            |                                                                                        | Ziff Davis Publishing Inc.                          |      |          |      |              |                |               |         |               |           |                |         |    |         |         |        |    
|Jason Young                 |                                                                                        |                                                     | 2003 |          |      |              | 250,000        |               |         |               | 378,156   |                |         |    |        |        
|                            | Senior Vice President  General Manager
    of Ziff Davis Internet Group               |                                                     |      | 2002STUB | (2)  |              | 250,000155,288 |               |         | 169,17075,000 |           |                |         |  |        
|Thomas McGrade              |                                                                                        |                                                     | 2003 |          |      |              | 350,000        |               |         |               | 275,000   |                |         |    |        |        
|                            | Senior Executive Vice President of Ziff Davis
    Media and Ziff Davis Publishing Inc. |                                                     |      | 2002STUB | (2)  |              | 350,000242,321 |               |         | 175,00046,875 |           |                |         |  |        
|Sloan Seymour               |                                                                                        |                                                     | 2003 |          |      |              | 285,042        |               |         |               | 316,328   |                |         |    |        |        
|                            | Senior Vice President, Enterprise Group                                                |                                                     |      | 2002     |      |              |                | 250,750       |         |               |           | 184,816        |         |    |         |        |       
|                            |                                                                                        |                                                     | STUB | (2)      |      |              | 198,508        |               |         |               | 196,741   |                |         |    |        |        



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Allowance, without need for accounting, for
    reimbursement of expenses in addition to expenses eligible for
    reimbursement under our existing policies.
|   
|(2) | STUB represents the transition period of
    April 1 through December 31, 2001.                                                                              
|   
|(3) | Initial sign-on bonus.                                                                                                                                       

Stock Option/SAR Grants in Last Fiscal
Year.

We did not grant any stock options or stock
appreciation rights (SARs) during the year ended
December 31, 2003 (see Note 17 to our Consolidated
Financial Statements).

Stock Option/SAR Exercised in Last Fiscal
Year.

Our named executive officers did not exercise or
hold any unexercised stock options or SARs as of
December 31, 2003 (see Note 17 to our Consolidated
Financial Statements).

Executive Agreements

Mr. Callahan.As of October 1, 2001, Ziff Davis Holdings and Ziff Davis
Publishing Inc. entered into an executive agreement with
Mr. Callahan, which was amended and restated in its
entirety as of April 30, 2002. This agreement provides,
among other things, that he serves as Chairman, Chief Executive
Officer and President of Ziff Davis Holdings, Ziff Davis Media
and Ziff Davis Publishing Inc. during a term expiring on
December 31, 2004. Pursuant to this agreement, his base
salary is $1.0 million per year, subject to annual cost

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of living adjustments, and he is eligible to
receive an annual bonus of $1.0 million, payable if certain
targeted annual operating goals are met.
Mr. Callahans executive agreement provides for
severance payments upon termination of his employment by Ziff
Davis Media without cause or his resignation for good reason (as
such terms are defined in the agreement) conditioned upon
Mr. Callahan delivering a general release in favor of Ziff
Davis Holdings and its affiliates. The severance provisions
provide that Mr. Callahan will receive his annual base
salary for twelve to eighteen months after the termination date
and a bonus. The length of the severance period and the amount
of the bonus is dependent on the timing of the termination and
the financial performance of Ziff Davis Media. In addition,
Mr. Callahans executive agreement provided for the
granting, concurrently with the consummation of our financial
restructuring, of options to Mr. Callahan to purchase
equity securities issued by Ziff Davis Holdings in such amounts
as are determined by the Board of Directors or compensation
committee of Ziff Davis Holdings. Such options have yet to be
granted (see Note 17 to our Consolidated Financial
Statements).


Mr. Catalane.As of November 26, 2001, Ziff Davis Holdings and Ziff Davis
Publishing Inc. entered into an executive agreement with
Mr. Catalane, which was amended and restated in its
entirety as of April 30, 2002. This agreement provides,
among other things, that he serves as the Chief Operating
Officer of Ziff Davis Holdings, Ziff Davis Media and Ziff Davis
Publishing Inc. during a term expiring on December 31,
2004. Pursuant to this agreement, his base salary began at
$500,000 per year but has since been increased to $600,000
and is subject to annual cost of living adjustments.
Mr. Catalane is eligible to receive an annual bonus of
$500,000, payable if certain targeted annual operating goals are
met. Mr. Catalanes executive agreement provides for
severance payments upon termination of his employment by Ziff
Davis Media without cause or his resignation for good reason (as
such terms are defined in the agreement) conditioned upon
Mr. Catalane delivering a general release in favor of Ziff
Davis Holdings and its affiliates. The severance provisions
provide that Mr. Catalane will receive his annual base
salary for twelve to eighteen months after the termination date
and a bonus. The length of the severance period and the amount
of the bonus is dependent on the timing of the termination and
the financial performance of Ziff Davis Media. In addition,
Mr. Catalanes executive agreement provided for the
granting, concurrently with the consummation of our financial
restructuring, of options to Mr. Catalane to purchase
equity securities issued by Ziff Davis Holdings in such amounts
as are determined by the Board of Directors or compensation
committee of Ziff Davis Holdings. Such options have yet to be
granted (see Note 17 to our Consolidated Financial
Statements).

Mr. Young.Ziff
Davis Media entered into an executive agreement with
Mr. Young as of June 1, 2003. This agreement provides,
among other things, that he serves as the Senior Vice
President  General Manager of Ziff Davis Internet
during a term expiring on June 30, 2006. Pursuant to this
agreement, his base salary is $250,000 per year, subject to
annual cost of living adjustments, and he is eligible to receive
an annual bonus, payable if certain targeted annual operating
goals are met. Mr. Youngs executive agreement
provides for severance payments upon termination of his
employment without cause or his resignation for good reason (as
such terms are defined in the agreement) conditioned upon
Mr. Young delivering a general release in favor of Ziff
Davis Holdings and its affiliates. The severance provisions
provide Mr. Young will receive his annual base salary for
twelve months after the termination date and a portion of the
bonus paid to him during the preceding fiscal year related to
specified lines of business (as defined).

Mr. McGrade.In
connection with the acquisition of ZDP in April 2000, Ziff Davis
Holdings and Ziff Davis Publishing Inc. entered into an
executive agreement with Mr. McGrade. The agreement
provides, among other things, that he serves as Senior Executive
Vice President of Ziff Davis Publishing Inc. during a term
ending on April 5, 2005. Pursuant to this agreement, his
base salary is $350,000 per year, subject to annual cost of
living adjustments, and he is eligible to receive an annual
bonus of $250,000, payable at the discretion of Ziff Davis
Holdings Board of Directors. Mr. McGrades
executive agreement provides for severance payments upon
termination of his employment by Ziff Davis Media without cause
(as such term is defined in the agreement) conditioned upon
Mr. McGrade delivering a general release in favor of Ziff
Davis Holdings and its affiliates. The severance provisions
provide Mr. McGrade will receive his annual base salary
until the one-year anniversary of the termination of his
employment.

Mr. Seymour.As
of August 1, 2003, Ziff Davis Media entered into an
executive agreement with Mr. Seymour. This agreement
provides, among other things, that he serves as the Senior Vice
President,

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Enterprise Group and Publisher of Baselineduring a term expiring on July 31, 2008. Pursuant to
this agreement, his base salary is $300,000 per year,
subject to annual cost of living adjustments, and he is eligible
to receive an annual bonus, payable if certain targeted annual
operating goals are met. Mr. Seymours executive
agreement provides for severance payments upon termination of
his employment with cause or his resignation for good reason (as
such terms are defined in the agreement) conditioned upon
Mr. Seymour delivering a general release in favor of Ziff
Davis Holdings and its affiliates. The severance provisions
provide Mr. Seymour will receive his annual base salary for
twelve months after the termination date.


Equity Incentive Plans

Following our formation, we implemented an equity
incentive program. The program provides for the issuance of, or
the grant of options to purchase, restricted common stock to
certain of our employees, directors and officers. Under the
program, Ziff Davis Holdings reserved approximately
87,700 shares (as adjusted for a subsequent reverse stock
split) of its fully diluted common equity, and LaunchCo and
InternetCo also reserved certain shares of their common equity,
for employees, directors and officers. In connection with the
issuance of, or the grant of options to acquire, these equity
interests, the participants in the program are entitled to
customary drag-along restrictions in the event of a sale of the
entity in which they hold equity interests. We also have the
option to repurchase the participants option shares if
his/her employment terminates for any reason, including upon
his/her death, disability or resignation.

2002 Stock Option Plan

Upon the consummation of our financial
restructuring, the Board of Directors established a new
management incentive plan pursuant to which Ziff Davis Holdings
will grant participants options to purchase its common stock,
Series A Preferred Stock, Series B Preferred Stock and
Series D Preferred Stock. We also entered into arrangements
with the holders of Series D Preferred Stock to protect the
holders of Series E Preferred Stock from dilution resulting
from issuances of Series D Preferred Stock upon exercise of
these options by management participants while the Series E
Preferred Stock remains outstanding. See Certain
Relationships and Related Party Transactions 
Distribution and Payment Arrangements. The 2002 Stock
Option Plan provides for the grant of options to purchase up to
9,619,171 shares of common stock, 58,081 shares of
Series A Preferred Stock, 17,344 shares of
Series B Preferred Stock, and 14,117 shares of
Series D Preferred Stock.

All options granted pursuant to the 2002 Stock
Option Plan will be subject to vesting and exercisability
limitations. Ziff Davis Holdings will retain the right to
repurchase participants capital stock upon termination of
employment. Each participant is subject to customary drag-along
restrictions. No options were granted under the 2002 Stock
Option Plan during 2003 (see Note 17 to the Companys
Consolidated Financial Statements).

Board Practices

The members of Ziff Davis Holdings and Ziff
Davis Medias Boards of Directors are each elected annually
at the ordinary general meeting of shareholders of such
corporation. Each director is elected to serve until the next
annual meeting of stockholders or until a successor is duly
elected and qualified or until his or her earlier death,
resignation or removal. Certain of the current directors were
elected pursuant to the terms of an Investor Rights Agreement.
See Certain Relationships and Related
Transactions  Investor Rights Agreement. There
is no family relationship between any of our executive officers
or directors.

We reimburse members of the Board of Directors
for any out-of-pocket expenses incurred by them in connection
with services provided in such capacity. Douglas B. Fox serves
as our audit committee chairman and receives compensation of
$50,000 per annum plus reimbursement of expenses.

We have adopted a code of ethics applicable to
our directors, officers (including our principal executive
officer and principal financial officer) and employees, known as
the Code of Ethics. The Code of Ethics is included herein as
Exhibit 14.1. In the event that we amend or waive any of
the provisions of the Code of

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Ethics applicable to our principal executive
officer and principal financial officer, we intend to disclose
the same on the Companys website at www.ziffdavis.com.


The Boards of Directors of Ziff Davis Holdings
and Ziff Davis Media each may appoint or designate one or more
committees, each committee to consist of one or more of the
directors of such company, which to the extent provided in such
resolution or the by-laws will have and may exercise the powers
of the Board of Directors in the management and affairs of such
company except as otherwise limited by law. We currently have an
audit committee and a compensation committee. The audit
committee consists of Mr. Fox, who chairs the committee,
Mr. Blumenthal and Mr. Shisler. The Companys
board members have determined that Mr. Fox is an audit
committee financial expert as defined in Item 401 of
Regulation S-K and is independent according to
the listing rules of the New York Stock Exchange. The
compensation committee consists of Messrs. Callahan, Catalane,
Stein and Blumenthal.

Our executive officers are appointed by their
respective Boards of Directors for an indefinite term. The
President may appoint other officers to serve for such terms as
he or she deems desirable. Any officer may be removed by the
Board of Directors whenever in its judgment the best interests
of the corporation would be served thereby, but such removal
must be without prejudice to the contract rights, if any, of the
person so removed.






|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The table below lists information about the
beneficial ownership of Ziff Davis Holdings capital stock,
as of December 31, 2003, by each person whom we know to own
beneficially more than 5% of any class of Ziff Davis
Holdings stock, by each of Ziff Davis Holdings
directors, by the executive officers named in the Summary
Compensation table and by all of our directors and executive
officers as a group. Ziff Davis Holdings has six classes of
capital stock authorized for issuance: Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred
Stock and common stock. There are 400,000 shares of
Series A Preferred Stock authorized for issuance, 329,127.5
of which are issued and outstanding; 142,500 shares of
Series B Preferred Stock authorized for issuance, 98,285.6
of which are issued and outstanding; 7,500 shares of
Series C Preferred Stock authorized for issuance, 5,172.9
of which are issued and outstanding; 100,000 shares of
Series D Preferred Stock authorized for issuance, 80,207.3
of which are issued and outstanding; 30,000 shares of
Series E Preferred Stock authorized for issuance, 28,526.4
of which are issued and outstanding; and 100,000,000 shares
of Ziff Davis Holdings Inc.s common stock authorized for
issuance, of which approximately 2,300,000 shares are issued and
outstanding (excluding approximately 8,600,000 shares
issuable upon conversion of the Series C Preferred Stock
and excluding approximately 43,800,000 shares issuable upon
the exercise of certain warrants to purchase common stock).
Willis Stein owns 100% of the Series B Preferred Stock, the
Series C Preferred Stock and Series D Preferred stock,
respectively. In the event of an initial public offering of Ziff
Davis Holdings common stock, Willis Stein and the other
holders of each series of Ziff Davis Holdings preferred
stock may elect to convert their shares of preferred stock to
shares of Ziff Davis Holdings common stock. Unless
otherwise noted, the address of each director and executive
officer is c/o Ziff Davis Media Inc., 28 East 28th Street,
New York, New York 10016.

Ziff Davis Media is authorized to issue a total
of 1,000 shares of common stock, par value $0.01 per
share. There are 1,000 shares of common stock issued and
outstanding. All of Ziff Davis Medias outstanding

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capital stock is owned by Ziff Davis Holdings.
The following table sets forth beneficial ownership of Ziff
Davis Holdings capital stock as of December 31, 2003:


|                                                                 |  |                         |           |             |  |           |       |             |  |           |          |             |  |  |       |   |  |  |            |  |  |  |       |  
|---------------------------------------------------------------- |  | ----------------------- | --------- | ----------- |  | --------- | ----- | ----------- |  | --------- | -------- | ----------- |  |  | ----- | - |  |  | ---------- |  |  |  | ----- | -
|                                                                 |  |                        
|                                                                 |  | Beneficial Ownership(1)
|                                                                 |  |                        
|                                                                 |  |                         |           | Percent of  |  |           |       | Percent of  |  |          
|                                                                 |  | Shares of               |           | Outstanding |  | Shares of |       | Outstanding |  |           |          | Percent of 
|                                                                 |  | Series A                |           | Series A    |  | Series E  |       | Series E    |  | Shares of |          | Outstanding
|                                                                 |  | Preferred               |           | Preferred   |  | Preferred |       | Preferred   |  | Common    |          | Common     
|                                                                 |  | Stock                   |           | Stock       |  | Stock     |       | Stock       |  | Stock     |          | Stock      
|                                                                 |  |                         |           |             |  |           |       |             |  |           |          |            
|Willis Stein Entities(2)                                         |  |                         | 281,627.5 |             |  |           | 85.57 | %           |  |           | 8,088.6  |             |  |  | 28.35 | % |  |  | 50,652,817 |  |  |  | 99.35 | %
|DLJ Entities(4)                                                  |  |                         | 47,500.0  |             |  |           | 14.43 |             |  |           |         |             |  |  |      |   |  |  | 333,333    |  |  |  | 14.41 |  
|MacKay Shields LLP(5)                                            |  |                         |          |             |  |           |      |             |  |           | 10,540.5 |             |  |  | 36.95 |   |  |  | 1,933,272  |  |  |  | 45.53 |  
|Robert F. Callahan                                               |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|Bart W. Catalane                                                 |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|Jason Young                                                      |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|Thomas McGrade                                                   |  |                         | 142.5     |             |  |           | *     |             |  |           |         |             |  |  |      |   |  |  | 1,000      |  |  |  | *     |  
|Sloan Seymour                                                    |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|John R. Willis(2)                                                |  |                         | 281,627.5 |             |  |           | 85.57 |             |  |           | 8,088.6  |             |  |  | 28.35 |   |  |  | 50,652,817 |  |  |  | 99.35 |  
|Avy H. Stein(2)                                                  |  |                         | 281,627.5 |             |  |           | 85.57 |             |  |           | 8,088.6  |             |  |  | 28.35 |   |  |  | 50,652,817 |  |  |  | 99.35 |  
|Daniel H. Blumenthal(2)                                          |  |                         | 281,627.5 |             |  |           | 85.57 |             |  |           | 8,088.6  |             |  |  | 28.35 |   |  |  | 50,652,817 |  |  |  | 99.35 |  
|Bradley J. Shisler(3)                                            |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|David M. Wittels(4)                                              |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|Douglas B. Fox                                                   |  |                         |          |             |  |           |      |             |  |           |         |             |  |  |      |   |  |  |           |  |  |  |      |  
|All directors and executive officers as a group
    (22 persons) |  |                         | 281,627.5 |             |  |           | 85.57 | %           |  |           | 8,088.6  |             |  |  | 28.35 | % |  |  | 50,652,817 |  |  |  | 99.35 | %



---



| |   |                                             
| | - | --------------------------------------------
| | * | Less than 1% of outstanding series of stock.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Beneficial ownership generally means
    voting or investment power with respect to a security or the
    right to acquire such power within 60 days. Unless
    otherwise indicated, we believe that each holder has sole voting
    and investment power with regard to the equity interests listed
    as beneficially owned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes 213,750 shares of Series A
    Preferred Stock (64.9%), 8,088.6 shares of Series E
    Preferred Stock (28.4%) and 50.2 million shares of common
    stock (including approximately 8.6 million shares issuable
    upon conversion of Series C Preferred Stock and
    approximately 40.1 million shares issuable upon the
    exercise of warrants to purchase common stock) held by Willis
    Stein & Partners II, L.P., Willis Stein &
    Partners III, L.P., Willis Stein & Partners Dutch,
    L.P., Willis Stein & Partners Dutch III-A, L.P.,
    Willis Stein & Partners Dutch III-B, L.P., and
    Willis Stein & Partners III-C, L.P. (collectively,
    the Willis Stein Entities). Also includes
    67,877.5 shares of Series A Preferred Stock and
    479,595 shares of common stock held by the stockholders
    executing the Investor Rights Agreement (other than the DLJ
    Entities). Such stockholders have agreed pursuant to the terms
    of the Investor Rights Agreement to vote their shares as
    directed by the Willis Stein Entities in certain matters as
    described more fully in Item 13 hereof and in the Investor
    Rights Agreement. As a result of the foregoing, the Willis Stein
    Entities may be deemed to have beneficial ownership with respect
    to the shares held by the stockholders executing the Investor
    Rights Agreement (other than the DLJ Entities). The Willis Stein
    Entities disclaim beneficial ownership of such shares held by
    such stockholders. Messrs. John R. Willis, Avy H. Stein and
    Daniel H. Blumenthal are Managing Directors of each of the
    ultimate general partners of the Willis Stein Entities, and, as
    a result, may be deemed to have beneficial ownership with
    respect to the shares held by and deemed to be beneficially
    owned by the Willis Stein Entities. Each disclaims beneficial
    ownership of such shares held by and deemed to be beneficially
    owned by such funds. The address for Willis Stein and
    Messrs. Willis, Stein and Blumenthal is One North Wacker
    Drive, Suite 4800, Chicago, Illinois 60606.
|   
|(3) | The address for Mr. Shisler is One North
    Wacker Drive, Suite 4800, Chicago, Illinois 60606.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Includes shares held by DLJ Diversified Partners,
    L.P., DLJ Diversified Partners-A, L.P., DLJ EAB Partners, L.P.,
    DLJ ESC II L.P., DLJ First Esc L.P., DLJ Merchant Banking
    Partners II-A, L.P., DLJ Offshore Partners II, CV. and
    DLJMB Funding II, Inc., which are private equity
    investment funds affiliated with DLJ Merchant Banking, Inc.
    Mr. Wittels is a Managing Director of CSFB.
    Mr. Wittels disclaims beneficial ownership of the shares
    held by the investment funds associated with DLJ Merchant
    Banking, Inc. The address for DLJ Merchant
    Banking, Inc. and Mr. Wittels is Eleven Madison
    Avenue, New York, New York 10010.
|   
|(5) | Based on the most recent information available to
    the Company, includes 10,540.5 shares of Series E
    Preferred Stock of Ziff Davis Holdings and 1,933,272 shares
    issuable upon the exercise of warrants to purchase shares of
    common stock of Ziff Davis Holdings held by MacKay Shields LLP
    as investment manager on behalf of its managed funds for which
    it has discretionary authority. The address for MacKay Shields
    LLP is 9 West 57th Street, 33rd Floor, New York,
    New York 10019.                                                                                                                                                             

Equity Compensation Plans

The following table sets forth information
regarding securities authorized for issuance under Ziff Davis
Holdings equity compensation plans:

|                                                               |  |                         |        |                           |  |                           |      |  |  |  |           |  
|-------------------------------------------------------------- |  | ----------------------- | ------ | ------------------------- |  | ------------------------- | ---- |  |  |  | --------- | -
|                                                               |  |                         |        |                           |  | (c)                      
|                                                               |  |                         |        |                           |  | Number of Securities     
|                                                               |  | (a)                     |        | (b)                       |  | Remaining Available for  
|                                                               |  | Number of Securities to |        | Weighted-Average Exercise |  | Future Issuance under    
|                                                               |  | be Issued upon Exercise |        | Price of Outstanding      |  | Equity Compensation Plans
|                                                               |  | of Outstanding Options, |        | Options, Warrants and     |  | (Excluding Securities    
|                                                               |  | Warrants and Rights     |        | Rights                    |  | Reflected in Column(a))  
|                                                               |  |                         |        |                           |  |                          
|Plan category:                                                 |  |                         |        |                           |  |                           |      |  |  |  |           |  
|Equity compensation plans approved by security
    holders     |  |                         |       |                           |  |                           |     |  |  |  |          |  
|Equity compensation plans not approved by
    security holders |  |                         | 21,496 |                           |  | $                         | 7.50 |  |  |  | 9,708,713 | *
|                                                               |  |                         |        |                           |  |                           |      |  |  |  |           |  
|Total                                                          |  |                         | 21,496 |                           |  | $                         | 7.50 |  |  |  | 9,708,713 |  
|                                                               |  |                         |        |                           |  |                           |      |  |  |  |           |  



---



|  |                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Comprised of 9,619,171 shares of common
    stock, 58,081 shares of Series A Preferred Stock,
    17,344 shares of Series B Preferred Stock and
    14,117 shares of Series D Preferred Stock.






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

Investor Rights Agreement

Ziff Davis Holdings is party to an Investor
Rights Agreement dated as of April 5, 2000, with certain of
the stockholders of Ziff Davis Holdings, including the holders
of all of the outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock. As a result, a majority of Ziff
Davis Holdings outstanding capital stock is subject to the
terms of the Investor Rights Agreement. The Investor Rights
Agreement provides that Ziff Davis Holdings Board of
Directors will be established at seven directors or such other
number designated by Willis Stein. The agreement provides that
parties thereto shall vote their shares such that the Board of
Directors will consist of:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ziff Davis Holdings Chief Executive Officer;                                                                                                
|
| |  | one person designated by DLJ Merchant Banking
    Partners II, L.P., who currently is David M.
    Wittels; and                              
|
| |  | four persons designated by Willis Stein, who
    currently are Avy H. Stein, John R. Willis, Daniel H. Blumenthal
    and Bradley J. Shisler.

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The Board of Directors currently consists of
eight directors including the six above-mentioned directors;
Bart W. Catalane, who was appointed pursuant to an
agreement with our Chief Executive Officer; and Douglas B. Fox,
an independent, outside director.

The stockholders executing the Investor Rights
Agreement, other than DLJ Merchant Banking, have agreed to vote
their shares as directed by Willis Stein in matters relating to
any amendment of Ziff Davis Holdings certificate of
incorporation, any merger or other business combination, any
sale by Ziff Davis Holdings of substantially all of the assets
of Ziff Davis Holdings or any liquidation of Ziff Davis
Holdings. Willis Stein may also control the circumstances under
which a public offering of Ziff Davis Holdings equity
securities may take place. References in this section to
DLJ Merchant Banking refer to DLJ Merchant Banking
Partners II, L.P. and its affiliates that are holders of
Ziff Davis Holdings stock.

The Investor Rights Agreement generally restricts
the transfer of shares of Ziff Davis Holdings capital
stock. The parties to the Investor Rights Agreement have granted
Ziff Davis Holdings a right of first refusal with respect to its
stock, which, if not exercised by Ziff Davis Holdings, may be
exercised by Willis Stein and certain other of Ziff Davis
Holdings stockholders. Each other party to the Investor
Rights Agreement generally has the right to participate in any
transfer of shares by Willis Stein, with certain exceptions. In
addition, Ziff Davis Holdings has agreed not to issue new equity
securities (or securities with equity features) without giving
Willis Stein and certain other of Ziff Davis Holdings
stockholders an opportunity to purchase their pro rata share of
the new securities on substantially the same terms, with certain
exceptions. Each of the parties to the Investor Rights Agreement
has agreed to consent to a sale of Ziff Davis Holdings or the
assets of Ziff Davis Holdings if Willis Stein votes to approve
the sale.

The Investor Rights Agreement also provides that
Willis Stein may request at any time that all or any portion of
its common stock be registered with the SEC. If Willis Stein no
longer owns at least 50% of the common stock specified in the
Investor Rights Agreement, DLJ Merchant Banking may also make
one such request. In the event that Willis Stein or DLJ Merchant
Banking makes such a request for registration, the other parties
to the Investor Rights Agreement that hold common stock will be
entitled to participate in the registration. Ziff Davis Holdings
has also granted the parties to the Investor Rights Agreement
piggyback registration rights with respect to
registrations by it, and Ziff Davis Holdings has agreed to pay
all expenses relating to any such registrations.

Subscription Services

Investment funds affiliated with Willis Stein are
shareholders of USApubs Inc. (USApubs), a marketer
of magazine subscriptions and other services. We sell
subscriptions to our publications both directly and through
independent subscription-marketing companies, including USApubs.
For the year ended December 31, 2003, we paid approximately
$1.3 million in fees to USApubs and had accounts payable to
USApubs of approximately $47,000 at December 31, 2003. In
managements opinion, our transactions with USApubs are
representative of arms-length transactions.

Willis Stein

We reimburse travel and other out-of-pocket
expenses of Ziff Davis Holdings directors and staff,
including the directors from Willis Stein. For the year ended
December 31, 2003, we paid approximately $100,000 of such
expenses, of which approximately $54,000 was recorded as a
prepaid asset at December 31, 2003. Additionally, as fully
described in Note 13 of our Consolidated Financial
Statements, Willis Stein was involved in our financial
restructuring including through: (1) the purchase of
Series D Preferred Stock; (2) the exchange of its
12% Notes; and (3) the amendment and restatement of
our Senior Credit Facility agreement.

Distribution and Payment
Arrangements

The Series D Preferred Stock has a
preference over the Series E Preferred Stock upon any
liquidation of Ziff Davis Holdings, and Ziff Davis Holdings may
not redeem, purchase or otherwise acquire any Series E
Preferred Stock and may not directly or indirectly pay or
declare any dividend or make any distribution upon

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any Series E Preferred Stock as long as any
Series D Preferred Stock remains outstanding. As such, any
additional issuance of Series D Preferred Stock adversely
impacts the ability of the holders of the Series E
Preferred Stock to receive cash payment in the event of a
liquidation or redemption.


Under the 2002 Stock Option Plan, Ziff Davis
Holdings may issue to executives and other key personnel options
to purchase, among other things, up to an aggregate of
14,117 shares of its Series D Preferred Stock. In
order to reduce the adverse impact of the issuance of
Series D Preferred Stock pursuant to the 2002 Stock Option
Plan, Ziff Davis Holdings and Willis Stein have entered into
arrangements such that Willis Stein has placed into escrow up to
14,117 shares of Series D Preferred Stock, and has
agreed to retain in escrow at all times not less than the number
of shares of Series D Preferred Stock that were issued,
plus the number of shares of Series D Preferred Stock
issuable upon exercise of options issued, pursuant to the 2002
Stock Option Plan. In the event that any key executive person
exercises his or her option to acquire any Series D
Preferred Stock under the 2002 Stock Option Plan, Ziff Davis
Holdings will place the proceeds obtained in connection
therewith into a separate interest-bearing escrow account for
the benefit of Willis Stein. In the event that any payment is
made to the holders of Series E Preferred Stock pursuant to
a liquidation, dissolution or winding up of Ziff Davis Holdings,
any portion of the escrow account allocable to such option
exercise proceeds shall be paid to Willis Stein. If Ziff Davis
Holdings makes any payment or distribution to the holders of
Series D Preferred Stock or redeems, repurchases or
otherwise acquires any Series D Preferred Stock or any
third party acquires the escrowed shares, and if Willis Stein is
required to place proceeds of any such transaction into the
escrow account to satisfy its obligations under these
arrangements or any escrowed shares are not entitled to
participate in any such transaction, a portion of the escrow
account allocable to option exercise proceeds placed in the
escrow account will be paid to Willis Stein if such amounts do
not exceed the proceeds of such a transaction.

Willis Stein has agreed that it is not entitled
to receive any distributions or payments from Ziff Davis
Holdings on the shares held in escrow until the earliest of:
(1) such time as of which all of the outstanding shares of
Series E Preferred Stock have been redeemed, repurchased or
otherwise acquired by Ziff Davis Holdings, or have been
converted into common stock of Ziff Davis Holdings; or
(2) such time as of which all of the outstanding shares of
Series E Preferred Stock have been acquired or transferred
to a third party or third parties in connection with a
transaction in which a person or group of persons (other than
Willis Stein) acquires the power to elect a majority of Ziff
Davis Holdings Board of Directors.

Indemnification of Directors and
Officers

Article VIII of each of Ziff Davis
Holdings and Ziff Davis Medias certificates of
incorporation provides that to the fullest extent permitted by
the General Corporation Law of the State of Delaware, Ziff Davis
Holdings and Ziff Davis Medias directors shall not
be liable to Ziff Davis Holdings or Ziff Davis Media,
respectively, or their respective stockholders for monetary
damages for a breach of their fiduciary duties as directors.

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|         |                                           
|-------- | ------------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND
    SERVICES

The accounting firm of PricewaterhouseCoopers
(PwC) served as our independent public accountants
for the years ended December 31, 2003; and
December 31, 2002. In addition to rendering audit services
during those two years, PwC performed various non-audit services
for us.

Audit and Other Fees for the Past Two
Fiscal Years

The following table sets forth the aggregate fees
billed to us for services rendered by PwC for the 2003 and 2002
fiscal years. Certain amounts for 2002 have been reclassified to
conform to the 2003 presentation:

|                      |  |      |         |      |  |   |         | 
|--------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                      |  | 2003 |         | 2002
|                      |  |      |         |     
|Audit fees(1)         |  | $    | 255,000 |      |  | $ | 434,800 | 
|Audit-related fees(2) |  |      | 21,500  |      |  |   | 57,000  | 
|Tax fees(3)           |  |      | 195,906 |      |  |   | 195,174 | 
|All other fees(4)     |  |      | 10,000  |      |  |   | 20,395  | 
|                      |  |      |         |      |  |   |         | 
|Total                 |  | $    | 482,406 |      |  | $ | 707,369 | 
|                      |  |      |         |      |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees consist of the audit of our annual
    financial statements, the review of quarterly financial
    statements, as well as work generally only the independent
    auditor can reasonably be expected to provide, such as statutory
    audits and financial audits of subsidiaries, services associated
    with SEC registration statements filed in connection with
    securities offerings (i.e., comfort letters and consents), and
    financial accounting and reporting consultations.                                        
|   
|(2) | Audit-related fees consist principally of audits
    of employee benefit plans, assurance and related services that
    are reasonably related to the performance of the audit or review
    of financial statements, attestations by PwC that are not
    required by statute or regulation and consulting on financial
    accounting and reporting standards.                                                                                                                                                                                 
|   
|(3) | Tax fees consist principally of assistance with
    tax compliance, tax advice and tax planning. Tax compliance
    includes preparation of original and amended tax returns for
    Ziff Davis Holdings and its consolidated subsidiaries; refund
    claims; and payment planning. Tax advice and tax planning
    includes assistance with tax audits and appeals, tax work
    stemming from Audit-Related items, tax work relating
    to employee benefit plans and requests for rulings or technical
    advice from taxing authorities.
|   
|(4) | All other fees consisted principally of amounts
    paid for consulting services related to a legal matter that was
    settled during 2003.                                                                                                                                                                                                                                                                                                                                                                                                     

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
    REPORTS ON FORM 8-K

(a) The following exhibits are filed as part
of this Form 10-K or incorporated by reference herein:

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|No.     |      | Description
|        |      |            
|        | 2.1  |             |  | Purchase Agreement dated December 6, 1999
    among WS-ZP Acquisition, Inc., ZD Inc. and
    ZD Holdings (Europe) Ltd. Previously filed in connection
    with Ziff Davis Medias Registration Statement on
    Form S-4 (No. 333-48014) dated October 16, 2000
    as Exhibit 2.1.*                                                                                                                                                        
|        | 3.1  |             |  | Certificate of Incorporation for Ziff Davis Media
    Inc. Previously filed in connection with Ziff Davis Medias
    Registration Statement on Form S-4 (No. 333-48014)
    dated October 16, 2000 as Exhibit 3.1.*                                                                                                                                                                                                                        
|        | 3.2  |             |  | Fifth Amended and Restated Certificate of
    Incorporation for Ziff Davis Holdings Inc.*                                                                                                                                                                                                                                                                                                                                                   
|        | 3.3  |             |  | Certificate of Incorporation for Ziff Davis
    Publishing Holdings Inc. Previously filed in connection with
    Ziff Davis Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 3.2.*                                                                                                                                                                                                      
|        | 3.4  |             |  | Certificate of Incorporation for Ziff Davis
    Internet Inc. Previously filed in connection with Ziff Davis
    Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 3.3.*                                                                                                                                                                                                                 
|        | 3.5  |             |  | Certificate of Incorporation for Ziff Davis
    Development Inc. Previously filed in connection with Ziff Davis
    Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 3.4.*                                                                                                                                                                                                              
|        | 3.6  |             |  | Certificate of Incorporation for Ziff Davis
    Publishing Inc. Previously filed in connection with Ziff Davis
    Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 3.5.*                                                                                                                                                                                                               
|        | 3.7  |             |  | By-laws for Ziff Davis Media Inc. Previously
    filed in connection with Ziff Davis Medias Registration
    Statement on Form S-4 (No. 333-48014) dated
    October 16, 2000 as Exhibit 3.7.*                                                                                                                                                                                                                                             
|        | 3.8  |             |  | By-laws for Ziff Davis Holdings Inc.*                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 3.9  |             |  | By-laws for Ziff Davis Publishing Holdings Inc.
    Previously filed in connection with Ziff Davis Medias
    Registration Statement on Form S-4 (No. 333-48014)
    dated October 16, 2000 as Exhibit 3.8.*                                                                                                                                                                                                                               
|        | 3.10 |             |  | By-laws for Ziff Davis Internet Inc. Previously
    filed in connection with Ziff Davis Medias Registration
    Statement on Form S-4 (No. 333-48014) dated
    October 16, 2000 as Exhibit 3.9.*                                                                                                                                                                                                                                          
|        | 3.11 |             |  | By-laws for Ziff Davis Development Inc.
    Previously filed in connection with Ziff Davis Medias
    Registration Statement on Form S-4 (No. 333-48014)
    dated October 16, 2000 as Exhibit 3.10.*                                                                                                                                                                                                                                      
|        | 3.12 |             |  | By-laws for Ziff Davis Publishing Inc. Previously
    filed in connection with Ziff Davis Medias Registration
    Statement on Form S-4 (No. 333-48014) dated
    October 16, 2000 as Exhibit 3.11.*                                                                                                                                                                                                                                       
|        | 3.13 |             |  | Certificate of Incorporation of Ziff Davis
    Intermediate Holdings Inc.*                                                                                                                                                                                                                                                                                                                                                                  
|        | 3.14 |             |  | By-laws of Ziff Davis Intermediate Holdings Inc.*                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1  |             |  | Indenture, dated August 12, 2002, by and
    between Ziff Davis Media Inc., the guarantors thereunder and
    Deutsche Bank Trust Company Americas.*                                                                                                                                                                                                                                                                                        
|        | 4.2  |             |  | Registration Rights Agreement, dated
    August 12, 2002, by and among Ziff Davis Holdings Inc. and
    Ziff Davis Media Inc.*                                                                                                                                                                                                                                                                                                              
|        | 4.3  |             |  | Indenture, dated July 21, 2000 by and
    between Ziff Davis Media Inc., the guarantors thereunder and
    Bankers Trust Company. Previously filed on April 30, 2002
    in connection with Ziff Davis Medias Registration
    Statement on Form S-4 dated January 24, 2001.
    Previously filed in connection with Ziff Davis Medias
    Registration Statement on Form S-4, (No. 333-48014)
    dated October 16, 2000 as Exhibit 4.1.*

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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 4.4   |             |  | First Supplemental Indenture, dated as of
    August 12, 2002 by and between Ziff Davis Media, the
    guarantors thereunder and Deutsche Bank Trust Company Americas,
    supplementing that certain indenture, dated July 21, 2000,
    by and between Ziff Davis Media Inc., the guarantors thereunder
    and Bankers Trust Company.*                                                                                                                                                                                                                                                                    
|        | 4.5   |             |  | Investor Rights Agreement, dated April 5,
    2000, by and among Ziff Davis Holdings Inc., Willis
    Stein & Partners II, L.P., Willis Stein &
    Partners Dutch II, L.P., Willis Stein &
    Partners III, L.P. (and other partnerships sharing a common
    general partner therewith), the investors listed on the Schedule
    of Co-Investors, certain executive employees of Ziff Davis
    Holdings Inc., and certain other stockholders listed on the
    Schedule of New Stockholders. Previously filed on March 20,
    2002 in connection with Ziff Davis Medias Form 10-K
    as Exhibit 9.1.*
|        | 4.6   |             |  | Amendment No. 1 to Investor Rights
    Agreement, dated August 12, 2002, by and among Ziff Davis
    Holdings Inc., Willis Stein & Partners II, L.P.,
    Willis Stein & Partners Dutch II, L.P., Willis
    Stein & Partners III, L.P. (and other partnerships
    sharing a common general partner therewith), the investors
    listed on the Schedule of Co-Investors, certain executive
    employees of Ziff Davis Holdings Inc., and certain other
    stockholders listed on the Schedule of New Stockholders.*                                                                                      
|        | 4.7   |             |  | Supplemental Indenture, dated as of
    September 18, 2002, by and among Ziff Davis Media Inc.,
    Ziff Davis Holdings Inc., and Deutsche Bank Trust Company
    Americas, supplementing the indenture, dated as of
    August 12, 2002, by and between Ziff Davis Media Inc., the
    guarantors thereunder and Deutsche Bank Trust Company Americas.*                                                                                                                                                                                                                                                     
|        | 4.8   |             |  | Second Supplemental Indenture, dated as of
    September 18, 2002, by and among Ziff Davis Media Inc.,
    Ziff Davis Holdings Inc. and Deutsche Bank Trust Company
    Americas, supplementing the indenture, dated as of July 21,
    2000, by and between Ziff Davis Media Inc., the guarantors
    thereunder and Deutsche Bank Trust Company Americas (f/k/a
    Bankers Trust Company).*                                                                                                                                                                                                               
|        | 4.9   |             |  | Form of Global Series E-1 Preferred Stock
    Certificate.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.1  |             |  | Series D Preferred Stock Purchase Agreement,
    dated August 12, 2002, by and between Ziff Davis Holdings
    Inc., and the purchasers thereunder.*                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.2  |             |  | Stock Purchase Agreement, dated as of
    April 30, 2002, by and among Ziff Davis Holdings Inc. and
    the purchasers thereunder.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.3  |             |  | Stock Purchase Agreement, dated as of
    May 31, 2002, by and among Ziff Davis Holdings Inc. and the
    purchasers thereunder.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.4  |             |  | Stock Purchase Agreement, dated as of
    June 28, 2002, by and among Ziff Davis Holdings Inc. and
    the purchasers thereunder.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.5  |             |  | Stock Purchase Agreement, dated as of
    August 8, 2002, by and among Ziff Davis Holdings Inc. and
    the purchasers thereunder.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.6  |             |  | Warrant Agreement, dated August 12, 2002, by
    and among Ziff Davis Holdings Inc. and Willis Stein &
    Partners II, L.P.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.7  |             |  | Warrant Agreement, dated August 12, 2002, by
    and among Ziff Davis Holdings Inc. and Deutsche Bank Trust
    Company Americas.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.8  |             |  | Distribution and Payment Agreement, dated
    August 12, 2002, by and between Ziff Davis Holdings Inc.
    and Willis Stein & Partners II, L.P.*                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.9  |             |  | Amended and Restated Credit Agreement, dated as
    of August 12, 2002, by and between Ziff Davis Media Inc.,
    CIBC World Markets Corp., Bankers Trust Company, Fleet National
    Bank, Canadian Imperial Bank of Commerce and other credit
    parties.*                                                                                                                                                                                                                                                                                                                                                
|        | 10.10 |             |  | 2002 Ziff Davis Holdings Inc. Amended and
    Restated Employee Stock Option Plan*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.11 |             |  | License Agreement, dated April 5, 2000 with
    ZD Inc. Previously filed in connection with Ziff Davis
    Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 10.2.*                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.12 |             |  | License Agreement, dated April 5, 2000 with
    ZD Inc. (ZD logo). Previously filed in connection with Ziff
    Davis Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 10.3.*                                                                                                                                                                                                                                                                                                                                                                            

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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.13 |             |  | License Agreement, dated April 5, 2000 with
    ZD Inc. (Interactive). Previously filed in connection with Ziff
    Davis Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 10.4.*                                                                                                                                                                                                
|        | 10.14 |             |  | Executive Agreement by and between Ziff Davis
    Holdings Inc. and Mr. Thomas McGrade, dated as of April 5,
    2000. Previously filed in connection with Ziff Davis
    Medias Registration Statement on Form S-4
    (No. 333-48014) dated October 16, 2000 as
    Exhibit 10.7.*                                                                                                                                               
|        | 10.15 |             |  | Amendment to License Agreement, dated
    January 19, 2001 with ZDNet, Inc. Previously filed in
    connection with Ziff Davis Medias Amendment No. 1 to
    Registration Statement on Form S-4 (No. 333-48014) dated
    January 24, 2001 as Exhibit 10.10.*                                                                                                                                                                       
|        | 10.16 |             |  | Amended and Restated Executive Agreement by and
    between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and
    Mr. Robert F. Callahan, dated as of October 1,
    2001. Previously filed on August 14, 2002 in connection
    with Ziff Davis Medias Form 10-Q as
    Exhibit 10.1.*                                                                                                                                     
|        | 10.17 |             |  | Amended and Restated Executive Agreement by and
    between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and
    Mr. Bart Catalane, dated as of November 26, 2001.
    Previously filed on August 14, 2002 in connection with Ziff
    Davis Medias Form 10-Q as Exhibit 10.2.*                                                                                                                                            
|        | 10.18 |             |  | Employment Agreement by and between Ziff Davis
    Publishing Inc. and Mr. Michael Miller, dated as of
    December 6, 2001. Previously filed on April 30, 2002
    in connection with Ziff Davis Medias Form 10-K as
    Exhibit 10.17.*                                                                                                                                                                                          
|        | 10.19 |             |  | Stock Purchase Agreement by and among Ziff Davis
    Holdings Inc. and the stock purchasers thereunder, dated
    May 20, 2001. Previously filed in connection with Ziff
    Davis Medias Form 10-Q as Exhibit 10.2 for the
    quarter ended September 30, 2001.*                                                                                                                                                                  
|        | 10.20 |             |  | Stock Purchase Agreement by and among Ziff Davis
    Holdings Inc. and the stock purchasers thereunder, dated
    July 13, 2001. Previously filed in connection with Ziff
    Davis Medias Form 10-Q as Exhibit 10.3 for the
    quarter ended September 30, 2001.*                                                                                                                                                                 
|        | 10.21 |             |  | Stock Purchase Agreement by and among Ziff Davis
    Holdings Inc. and the stock purchasers thereunder, dated
    August 30, 2001. Previously filed in connection with Ziff
    Davis Medias Form 10-Q as Exhibit 10.4 for the
    quarter ended September 30, 2001.*                                                                                                                                                               
|        | 10.22 |             |  | Sale and Purchase Agreement relating to certain
    Print-Based Publishing Assets in the UK, Germany and France,
    dated June 20, 2000 with VNU N.V., View
    Group B.V., VNU Business Publications Limited, VNU Holding
    Deutschland GMBH, VNU Business Publications France S.A.
    Previously filed in connection with Ziff Davis Medias
    Registration Statement on Form S-4 dated October 16,
    2000 as Exhibit 2.2.*
|        | 10.23 |             |  | Stock Purchase Agreement, dated as of
    July 3, 2002, by and among Ziff Davis Media Inc., Ziff
    Davis Development Inc. and Lionbridge Technologies, Inc.*                                                                                                                                                                                                                                                                       
|        | 10.24 |             |  | Amendment No. 1 to Amended and Restated
    Credit Agreement, dated as of September 17, 2002, by and
    between Ziff Davis Media Inc., CIBC World Markets, Inc.,
    Bankers Trust Company, Fleet National Bank, Canadian Imperial
    Bank of Commerce and other credit parties.*                                                                                                                                                  
|        | 10.25 |             |  | Amendment No. 1 to Stock Purchase Agreement,
    dated as of August 12, 2002 by and among Ziff Davis
    Holdings, Inc., Willis Stein & Partners
    Dutch III-B, L.P. and Willis Stein &
    Partners III-C, L.P. (relating to Stock Purchase Agreement,
    dated as of April 30, 2002).*                                                                                                                                          
|        | 10.26 |             |  | Amendment No. 1 to Stock Purchase Agreement,
    dated as of August 12, 2002 by and among Ziff Davis
    Holdings, Inc., Willis Stein & Partners
    Dutch III-B, L.P. and Willis Stein &
    Partners III-C, L.P. (relating to Stock Purchase Agreement,
    dated as of May 31, 2002).*                                                                                                                                            
|        | 10.27 |             |  | Amendment No. 1 to Stock Purchase Agreement,
    dated as of August 12, 2002 by and among Ziff Davis
    Holdings, Inc., Willis Stein & Partners
    Dutch III-B, L.P. and Willis Stein &
    Partners III-C, L.P. (relating to Stock Purchase Agreement,
    dated as of June 28, 2002).*                                                                                                                                           
|        | 10.28 |             |  | Amendment No. 1 to Stock Purchase Agreement,
    dated as of August 12, 2002 by and among Ziff Davis
    Holdings, Inc., Willis Stein & Partners
    Dutch III-B, L.P. and Willis Stein &
    Partners III-C, L.P. (relating to Stock Purchase Agreement,
    dated as of August 8, 2002).*                                                                                                                                          
|        | 10.29 |             |  | Executive Agreement by and between Ziff Davis
    Holdings Inc., Ziff Davis Publishing Inc. and Mr. Gregory
    Barton, dated as of October 23, 2002.*                                                                                                                                                                                                                                                                              

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|        |       |             |  |                                                                                                                          
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.30 |             |  | Offer Letter by and between Ziff Davis Media Inc.
    and Mr. Derek Irwin, dated as of November 15,
    2002.**         
|        | 10.31 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Ms. Jasmine Alexander, dated as of
    March 1, 2003.**
|        | 10.32 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Mr. Jason Young, dated as of June 1,
    2003.**       
|        | 10.33 |             |  | Offer Letter by and between Ziff Davis Media Inc.
    and Mr. Larry Green, dated as of June 30, 2003.**                 
|        | 10.34 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Mr. Chris Dobbrow, dated as of June 25,
    2003.**    
|        | 10.35 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Mr. Timothy Castelli, dated as of
    August 1, 2003.**
|        | 10.36 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Mr. Dale Strang, dated as of August 1,
    2003.**     
|        | 10.37 |             |  | Executive Agreement by and between Ziff Davis
    Media Inc. and Mr. Sloan Seymour, dated as of
    August 1, 2003.**   
|        | 12.1  |             |  | Statement of computation of ratio of earnings to
    fixed charges.**                                                    
|        | 12.2  |             |  | Statement of computation of ratio of earnings to
    combined fixed charges and preferred dividends.**                   
|        | 14.1  |             |  | Code of Ethics.**                                                                                                        
|        | 21.1  |             |  | Subsidiaries of Registrants.*                                                                                            
|        | 31.1  |             |  | Certification of our Chief Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**            
|        | 31.2  |             |  | Certification of our Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**            
|        | 32.1  |             |  | Certification of our Chief Executive Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    **       
|        | 32.2  |             |  | Certification of our Chief Financial Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**            



---



|   |                  
|-- | -----------------
|*  | Previously filed.
|  
|** | Filed herewith.  



|  |                                          
|- | -----------------------------------------
| | Denotes compensation plan or arrangement.

(b) Reports on Form 8-K.

On October 29, 2003, the Company filed a
Form 8-K related to its issuance of a press release
describing its financial results for the quarter ended
September 30, 2003.

104



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on it
behalf by the undersigned, thereunto duly authorized on the 30th
day of March 2004.



| |                         
| | ------------------------
| | ZIFF DAVIS HOLDINGS INC.



| |     |                
| | --- | ---------------
| | By: | /s/ DEREK IRWIN

| |                  
| | -----------------
| |                  
| | Name: Derek Irwin

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Financial Officer

| |                               
| | ------------------------------
| | (Principal Accounting Officer)

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities.

|                                             |  |                                                                                            
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------
|Signatures                                   |  | Title                                                                                      
|                                             |  |                                                                                            
|/s/ ROBERT F. CALLAHANRobert F. Callahan     |  | Chairman, Chief Executive Officer, President and
    Director (Principal Executive Officer)
|                                            
|/s/ BART W. CATALANEBart W. Catalane         |  | Chief Operating Officer and Director                                                       
|                                            
|/s/ JOHN R. WILLISJohn R. Willis             |  | Director                                                                                   
|                                            
|/s/ AVY H. STEINAvy H. Stein                 |  | Director                                                                                   
|                                            
|/s/ DANIEL H. BLUMENTHALDaniel H. Blumenthal |  | Director                                                                                   
|                                            
|/s/ BRADLEY J. SHISLERBradley J. Shisler     |  | Director                                                                                   
|                                            
|/s/ DAVID M. WITTELSDavid M. Wittels         |  | Director                                                                                   
|                                            
|/s/ DOUGLAS B. FOXDouglas B. Fox             |  | Director                                                                                   

Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.

None.

105