ZIFF DAVIS INC, 10-Q, 1999-05-17

ZIFF DAVIS INC
10-Q, 1999-05-17
PERIODICALS: PUBLISHING OR PUBLISHING & PRINTING

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

----------------

FORM 10-Q

----------------

(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 1-9676

ZIFF-DAVIS INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 13-3987754
(State or other jurisdiction (I.R.S. Employer Identification No.)

of incorporation or organization)

28 East 28th Street, New York, 10016
New York
(Address of principal executive (Zip Code)
offices)

Registrants telephone number, including area code: (212) 503-3500

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

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date.

As of May 11, 1999, there were 103,168,131 shares outstanding of the
registrant's Ziff-Davis Inc. --ZD Common Stock, par value $0.01 per share, and
12,100,000 shares outstanding of the registrant's Ziff-Davis Inc.--ZDNet Common
Stock, par value $0.01 per share.
<PAGE>

ZIFF-DAVIS INC.

INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Ziff-Davis Inc.
Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and
December 31, 1998...................................................... 1
Consolidated Statements of Operations (Unaudited) for the three months
ended March 31, 1999
and 1998............................................................... 2
Consolidated Statements of Comprehensive Income (Unaudited) for the
three months ended March 31, 1999 and 1998............................. 3
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 1999 and 1998.......................................... 4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
for the three months ended March 31, 1999.............................. 5
Notes to unaudited consolidated financial statements.................... 6
ZD
Combined Balance Sheets as of March 31, 1999 (Unaudited) and December
31, 1998............................................................... 12
Combined Statements of Operations (Unaudited) for the three months ended
March 31, 1999
and 1998............................................................... 13
Combined Statements of Comprehensive Income (Unaudited) for the three
months ended March 31, 1999 and 1998................................... 14
Combined Statements of Cash Flows (Unaudited) for the three months ended
March 31, 1999
and 1998............................................................... 15
Combined Statement of Changes in Division Equity (Unaudited) for the
three months ended
March 31, 1999......................................................... 16
Notes to unaudited combined financial statements........................ 17
ZDNet
Combined Balance Sheets as of March 31, 1999 (Unaudited) and December
31, 1998............................................................... 23
Combined Statements of Operations (Unaudited) for the three months ended
March 31, 1999
and 1998............................................................... 24
Combined Statements of Comprehensive Income (Unaudited) for the three
months ended March 31, 1999 and 1998................................... 25
Combined Statements of Cash Flows (Unaudited) for the three months ended
March 31, 1999
and 1998............................................................... 26
Combined Statement of Changes in Division Equity (Unaudited) for the
three months ended
March 31, 1999......................................................... 27
Notes to unaudited combined financial statements........................ 28
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Ziff-Davis Inc........................................................... 32
ZD....................................................................... 38
ZDNet.................................................................... 44
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 48
PART II. OTHER INFORMATION
Item 1.Legal Proceedings.................................................. 49
Item 2.Changes in Securities and Use of Proceeds.......................... 50
Item 3.Defaults Upon Senior Securities.................................... 50
Item 4.Submission of Matters to a Vote of Security Holders................ 50
Item 5.Other Information.................................................. 51
Item 6.Exhibits and Reports on Form 8-K................................... 51
SIGNATURES................................................................ 52
</TABLE>
<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZIFF-DAVIS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 38,013 $ 32,566
Accounts receivable, net............................. 206,724 227,325
Inventories.......................................... 12,864 15,551
Prepaid expenses and other current assets............ 41,356 34,543
Due from affiliates.................................. 881 53,984
Deferred taxes....................................... 22,262 22,262
---------- ----------
Total current assets............................... 322,100 386,231
Securities available for sale......................... 11,470 --
Property and equipment, net........................... 105,789 91,189
Intangible assets, net................................ 2,950,261 2,907,043
Other assets.......................................... 66,163 49,340
---------- ----------
Total assets....................................... $3,455,783 $3,433,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 41,618 $ 74,397
Accrued expenses..................................... 93,745 97,319
Unearned income, net................................. 197,848 152,081
Due to affiliates and management..................... 2,664 4,618
Current portion of notes payable to affiliates....... 6,923 7,692
Other current liabilities............................ 23,501 14,591
---------- ----------
Total current liabilities.......................... 366,299 350,698
Notes payable to affiliates........................... 69,231 70,192
Notes payable, net of unamortized discount............ 1,432,668 1,469,130
Deferred taxes........................................ 147,321 165,082
Due to management..................................... 5,400 5,400
Other liabilities..................................... 14,875 19,690
---------- ----------
Total liabilities.................................. 2,035,794 2,080,192
---------- ----------
Commitments and contingencies (Note 7)
Minority Interest..................................... 44,395 1,013
---------- ----------
Stockholders' equity:
Preferred stock(1)................................... -- --
Common stock(2)...................................... 1,031 1,000
Additional paid-in capital........................... 1,629,690 1,571,681
Accumulated deficit.................................. (235,013) (197,238)
Deferred compensation................................ (20,552) (22,024)
Unrealized gain on securities available for sale..... 3,086 --
Cumulative translation adjustment.................... (2,648) (821)
---------- ----------
Total stockholders' equity......................... 1,375,594 1,352,598
---------- ----------
Total liabilities and stockholders' equity......... $3,455,783 $3,433,803
========== ==========
</TABLE>
- --------
(1) March 31, 1999 and December 31, 1998: par value $0.01 per share, 10,000,000
shares authorized, no shares issued and outstanding;
(2) March 31, 1999: par value $0.01 per share, 210,000,000 shares authorized,
103,113,791 shares issued and outstanding; December 31, 1998: par value
$0.01 per share 120,000,000 shares authorized, 100,000,000 shares issued
and outstanding.

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

1
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue, net:
Publishing...................................... $ 174,989 $ 191,245
Events.......................................... 18,474 27,121
Internet........................................ 18,561 9,688
Television...................................... 2,086 --
------------ ------------
214,110 228,054
Cost of production................................ 59,855 70,310
Selling, general and administrative expenses...... 141,745 144,176
Stock-based compensation.......................... 1,472 63
Depreciation and amortization of property and
equipment........................................ 8,543 7,029
Amortization of intangible assets................. 31,871 30,446
------------ ------------
Loss from operations.............................. (29,376) (23,970)
Interest expense, net............................. (32,372) (45,939)
Other non-operating income, net................... 1,264 1,497
Minority interest in losses of subsidiaries....... 3,473 125
------------ ------------
Loss before income taxes.......................... (57,011) (68,287)
Income tax benefit................................ (19,236) (63,166)
------------ ------------
Net loss.......................................... $ (37,775) $ (5,121)
============ ============
Net loss per common share......................... $ (0.37) $ (0.05)
Weighted average common shares outstanding........ 101,015,813 100,000,000
</TABLE>

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

2
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months
ended
March 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Net loss .................................................... $(37,775) $(5,121)
Other comprehensive income, net of tax:
Foreign currency translation adjustments................... (1,827) 359
Unrealized gain on securities available for sale........... 3,086 --
-------- -------
Comprehensive income......................................... $(36,516) $(4,762)
======== =======
</TABLE>

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

3
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three Months
Ended
March 31,
-----------------
<S> <C> <C>
1999 1998
-------- -------
Cash flows from operating activities:
Net loss................................................... $(37,775) $(5,121)
Adjustments to reconcile net loss to net cash provided by
operating
activities:
Depreciation and amortization............................ 40,414 37,475
Amortization of debt issuance costs and discount......... 709 --
Stock-based compensation................................. 1,472 63
Income from equity investments........................... (465) (1,385)
Deferred tax benefit..................................... (19,905) (63,166)
Minority interest........................................ (3,473) --
Changes in operating assets and liabilities:
Accounts receivable.................................... 22,848 16,728
Inventories............................................ 2,687 (1,376)
Accounts payable and accrued expenses.................. (34,729) (16,835)
Unearned income........................................ 39,506 39,796
Due to/from affiliates and management.................. 2,679 18,114
Other, net............................................. (4,574) 8,933
-------- -------
Net cash provided by operating activities.................. 9,394 33,226
-------- -------
Cash flows from investing activities:
Capital expenditures..................................... (36,531) (5,115)
Investments and other.................................... (1,250) (1,117)
Acquisitions, net of cash acquired....................... (32,800) --
-------- -------
Net cash used by investing activities...................... (70,581) (6,232)
-------- -------
Cash flows from financing activities:
Proceeds from sale of common stock....................... 50,864 --
Proceeds from sale of interest in ZDTV................... 54,000 --
Repayments of credit facility............................ (72,000) --
Borrowings under credit facility......................... 35,500 --
Principal payments on notes payable to affiliates........ (1,730) (41,679)
Advance from majority shareholder........................ -- 20,377
Contributed capital...................................... -- 278
-------- -------
Net cash provided (used) by financing activities........... 66,634 (21,024)
-------- -------
Net increase in cash and cash equivalents.................. 5,447 5,970
Cash and cash equivalents at beginning of period........... 32,566 30,301
-------- -------
Cash and cash equivalents at end of period................. $ 38,013 $36,271
======== =======
Supplemental cash flow information:
Cash paid for income taxes............................... $ -- $ 642
Cash paid for interest................................... $ 20,696 $42,679
</TABLE>

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

4
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Unrealized
gain on
Common Stock Additional Retained securities Cumulative Total
------------------ paid-in earnings Deferred available translation stockholders'
Shares Amount capital (deficit) compensation for sale adjustment equity
----------- ------ ---------- ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... 100,000,000 $1,000 $1,571,681 $ (197,238) $ (22,024) $ -- $ (821) $1,352,598
Issuance of common
stock.................. 3,030,303 30 49,970 50,000
Sale of minority
interest in
subsidiary............. 7,176 7,176
Compensation earned on
stock options.......... 1,472 1,472
Sale of shares under
employee stock purchase
plan................... 75,628 1 782 783
Stock options
exercised.............. 7,860 -- 81 81
Unrealized gain on
securities available
for sale, net.......... 3,086 3,086
Net loss................ (37,775) (37,775)
Foreign currency
translation
adjustment............. (1,827) (1,827)
----------- ------ ---------- ---------- --------- ------ -------- ----------
Balance at March 31,
1999 (unaudited)....... 103,113,791 $1,031 $1,629,690 $ (235,013) $ (20,552) $3,086 $ (2,648) $1,375,594
=========== ====== ========== ========== ========= ====== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

5
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. The Company and Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the consolidated financial position of Ziff-Davis Inc. at March
31, 1999 and the results of its consolidated operations and cash flows for the
three months ended March 31, 1999 and 1998 have been included. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999.

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of SOFTBANK
Corp. ("MAC Assets"). As such, financial statements for periods prior to May 4,
1998 have been prepared on a combined basis while the financial statements for
the periods after May 4, 1998 have been prepared on a consolidated basis.

The results of the MAC Assets which were acquired in two tranches on October
31, 1997 and May 4, 1998, have been included in Ziff-Davis Inc.'s financial
statements from the time of their acquisition by MAC Inc. ("MAC") on February
29, 1996. These results have been included in a manner similar to a pooling of
interests, as the MAC Assets and predecessor companies of Ziff-Davis Inc. were
under common control at the time the MAC Assets were acquired by Ziff-Davis
Inc.

Ziff-Davis Inc. operates in four business segments: (1) publishing, (2)
events, (3) Internet and (4) television.

Publishing

The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and market
research about the computer industry. The publishing segment's principal
operations are in the U.S. and Europe, although it also licenses or syndicates
its editorial content to over 50 publications distributed worldwide.

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer industry. The events
segment's principal operations are in the U.S. and to a lesser extent in Europe
and Asia.

Internet

The Internet segment is engaged in providing technology related information
to Internet users worldwide. The Internet segment's principal operations are in
the U.S. and to a lesser extent in Europe.

6
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for the
computer technology and the Internet industries. The television segment's
principal operations are in the U.S. although it licenses or syndicates
programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

Reclassifications

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

2. Reorganization and Initial Public Offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary SOFTBANK
Holdings Inc. ("SBH"), completed a reorganization whereby the common stock of
the predecessor companies to Ziff-Davis Inc. was contributed to Ziff-Davis Inc.
in exchange for 73,619,335 shares of Ziff-Davis Inc.'s common stock. Concurrent
with the reorganization, Ziff-Davis Inc. (1) completed an initial public
offering of 25,800,000 common shares at an initial public offering price of
$15.50 per share, (2) issued $250,000,000 of 8 1/2% subordinated notes due
2008, (3) entered into a $1,350,000,000 credit facility with a group of banks
under which $1,250,000,000 was borrowed and (4) converted $908,673,000 of
intercompany indebtedness to equity. In addition, Ziff-Davis Inc. received
approximately $9,107,000 of fixed assets from Kingston Technology Company
("Kingston"), a related party, in exchange for 580,645 shares of Ziff-Davis
Inc.'s common stock and $107,000 in cash. These assets were subsequently leased
back to Kingston. Total shares of common stock issued to Softbank were
74,200,000. The transactions described above are hereafter referred to as the
"Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of the MAC Assets for $370,000,000 and repay intercompany
indebtedness.

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting on March 30,
1999, to authorize the issuance of a new series of common stock, to be
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division
("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock") which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet. The businesses represented
by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock, at $19 per share, including 1,500,000
shares issued in conjunction with the underwriters exercising their

7
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

option to purchase additional shares to cover over-allotments. Net proceeds of
approximately $198.4 million were received on April 6, 1999 and were used to
repay indebtedness under the revolving credit agreement.

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $4,215,000 reduction of interest expense and the tax effect of this
adjustment at a statutory rate of 41.0%:

<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
----------------------
(dollars in thousands)
<S> <C>
Revenue, net........................................ $214,110
Loss from operations................................ (29,376)
Interest expense, net............................... (28,157)
Loss before taxes................................... (52,796)
Income tax benefit.................................. 17,508
Net loss............................................ (35,288)
</TABLE>

Pro forma loss per share is not shown since subsequent to the ZDNet offering
Ziff-Davis Inc. will report earnings for each class of stock in its related
financial statements (i.e. ZD or ZDNet). The pro forma data is not necessarily
indicative of actual results had the transaction occurred on January 1, 1999.
Further, pro forma results are not meant to represent future financial results.

4. Acquisition of ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC ("ZDTV") from MAC
Holdings (America) Inc., a related party, for a purchase price of approximately
$81,400,000. Ziff-Davis Inc. paid approximately $32,800,000 of the purchase
price in cash (settled on February 5, 1999) and paid the remainder by applying
approximately $48,600,000 in advances owed to it by MAC Holdings (America) Inc.
Ziff-Davis Inc. also agreed to be responsible for the funding of ZDTV during
the period in 1999 prior to the purchase which will be accounted for as
additional purchase price; such funding amounted to approximately $4,200,000.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, purchased a one-third interest in ZDTV for $54,000,000 in cash.

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the sale of a one-third interest in ZDTV to Vulcan
Programming Inc. had been consummated on January 1, 1999. Adjustments for ZDTV
transactions include the operating results of ZDTV, amortization of the
purchase price of ZDTV, Vulcan Programming Inc.'s one-third interest in the
losses of ZDTV and the tax effects of these items. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results.

<TABLE>
<CAPTION>
Adjustments
Ziff- for
Davis acquisition
Inc. of ZDTV Pro Forma
-------- ----------- ---------
(dollars in thousands except
per share amounts)
<S> <C> <C> <C>
Revenue................................... $214,110 $ 316 $214,426
Loss from operations...................... (29,376) (2,546) (31,922)
Net loss.................................. (37,775) (1,006) (38,781)
Pro forma basic loss per share............ $ (0.38)
</TABLE>

8
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

5. Investments

On February 19, 1999 Ziff-Davis Inc. acquired warrants to purchase 2,005,400
shares of Series E preferred stock of BuyDirect.com Inc. ("Series E shares") at
a exercise price of $1.65. On March 25, 1999, Ziff-Davis Inc. exercised its
warrants and received 1,510,020 Series E shares in a cashless exercise by
exchanging 495,380 warrants in lieu of payment of the exercise price. On March
30, 1999, BuyDirect.com Inc. was acquired by Beyond.com. Corporation and these
Series E shares were converted to 438,057 shares of Beyond.com Corporation and
at March 31, 1999 are reflected in the balance sheet as Available for Sale
Securities.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants at February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair value
of the warrants was determined to be $6,240,000.

6. Income Taxes

Income taxes are provided based on Ziff-Davis Inc.'s projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35%
due to certain items which are not deductible for income tax purposes,
primarily losses of the MAC Assets prior to their purchase by Ziff-Davis Inc.,
and non deductible goodwill amortization, and the effect of state and local
taxes. The tax benefit recorded for the three months ended March 31, 1999 has
been reflected as a reduction of the deferred tax liability as it is
anticipated that the benefit will be realizable in future periods.

7. Contingencies

Ziff-Davis Inc. is subject to various claims and legal proceedings arising
in the normal course of business.

Class action and derivative litigations

Following a decline in the price per share of Ziff-Davis Inc.'s common stock
in October 1998, eight securities class action suits were filed against Ziff-
Davis Inc. and certain of its directors and officers in the United States
District Court for the Southern District of New York.

The complaints alleged that defendants violated Sections 11, 12(a) (2) and
15 of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock on April 29, 1998
(the "IPO"). More particularly, the complaints alleged that the registration
statement contained false and misleading statements and failed to disclose
facts that could have indicated an impending decline in Ziff-Davis Inc.'s
revenue. The complaints sought on behalf of a class of purchasers of Ziff-Davis
Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on March 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933.
Ziff-Davis Inc. has until May 20, 1999 to respond to the consolidated amended
complaint.

9
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

directors and demand the nullification of the repricing and an injunction
against exercise by the directors of any repriced option. Plaintiffs filed an
amended complaint on February 17, 1999 (which is substantially similar to the
original complaints, except that the amended complaint also addresses the
granting of "new options" at an allegedly "reduced exercise price") and the
actions have been consolidated. Answers to the amended complaint on behalf of
both Ziff-Davis Inc. and its directors were filed on April 12, 1999.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleged, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the other
defendants, all of the claims against them other than a breach of contract
claim which is solely against SBH, were dismissed on February 26, 1999. On
April 1, 1999, plaintiffs filed a notice of appeal of the dismissal.

Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate its ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.

8. Segment Information

Ziff-Davis Inc. operates in four reportable business segments: (1)
publishing, (2) events, (3) Internet and (4) television. All material inter-
segment revenue has been eliminated. The following table presents information
about each of the reported segments:

<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.................................................... $174,989 $191,245
Events........................................................ 18,474 27,121
Internet...................................................... 18,561 9,688
Television.................................................... 2,086 --
-------- --------
Total....................................................... $214,110 $228,054
======== ========
</TABLE>

10
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1999 1998
---------- ------------
(dollars in thousands)
<S> <C> <C>
EBITDA:
Publishing........................................... $ 26,215 $ 27,360
Events............................................... (7,197) (7,660)
Internet............................................. 1,946 (4,510)
Television........................................... (4,739) --
---------- ----------
Total.............................................. $ 16,225 $ 15,190
========== ==========
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing........................................... $2,030,947 $2,192,099
Events............................................... 1,148,089 1,144,018
Internet............................................. 105,489 97,686
Television........................................... 171,258 --
---------- ----------
Total.............................................. $3,455,783 $3,433,803
========== ==========

A reconciliation of EBITDA to Loss before income taxes is below:

<CAPTION>
Three months ended
March 31,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Total segment EBITDA................................. $ 16,225 $ 15,190
Depreciation and amortization of property and
equipment........................................... (8,543) (7,029)
Amortization of intangible assets.................... (31,871) (30,446)
Stock-based compensation............................. (1,472) (63)
Minority interest in ZDTV's non-EBITDA losses........ 1,022 --
Interest expense, net................................ (32,372) (45,939)
---------- ----------
Loss before income taxes............................. $ (57,011) $ (68,287)
========== ==========
</TABLE>

9. Subsequent Event

On April 7, 1999, Ziff-Davis Inc. closed on the acquisition of the remaining
30% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet stock valued at approximately $11,400,000, based on the initial public
offering price. This acquisition will be accounted for under the purchase
method of accounting.

11
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 37,778 $ 32,274
Accounts receivable, net............................. 189,412 208,593
Inventories.......................................... 12,864 15,551
Prepaid expenses and other current assets............ 40,706 34,278
Due from affiliates.................................. 881 53,984
Deferred taxes....................................... 21,483 21,483
---------- ----------
Total current assets............................... 303,124 366,163
Property and equipment, net............................ 99,831 85,571
Retained interest in ZDNet............................. 90,961 89,547
Intangible assets, net................................. 2,888,564 2,844,317
Other assets........................................... 61,163 44,340
---------- ----------
Total assets....................................... $3,443,643 $3,429,938
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable..................................... $ 39,147 $ 71,844
Accrued expenses..................................... 90,351 93,824
Unearned income, net................................. 190,081 151,003
Due to affiliates and management..................... 2,664 4,618
Current portion of notes payable to affiliates....... 6,923 7,692
Other current liabilities............................ 23,501 14,591
---------- ----------
Total current liabilities.......................... 352,667 343,572
Notes payable to affiliates............................ 69,231 70,192
Notes payable, net of unamortized discount............. 1,432,668 1,469,130
Deferred taxes......................................... 149,709 169,356
Due to management...................................... 5,400 5,400
Other liabilities...................................... 14,875 18,677
---------- ----------
Total liabilities.................................. 2,024,550 2,076,327
---------- ----------
Commitments and contingencies (Note 6)
Minority interest...................................... 43,499 1,013
Division equity........................................ 1,375,594 1,352,598
---------- ----------
Total liabilities and division equity.............. $3,443,643 $3,429,938
========== ==========
</TABLE>

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

12
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue, net:
Publishing...................................... $ 174,989 $ 191,245
Events.......................................... 18,474 27,121
Television...................................... 2,086 --
------------ ------------
195,549 218,366
Cost of production................................ 57,193 69,047
Selling, general and administrative expenses...... 127,675 131,116
Stock-based compensation.......................... 636 63
Depreciation and amortization of property and
equipment........................................ 8,011 6,680
Amortization of intangible assets................. 30,849 29,068
------------ ------------
Loss from operations.............................. (28,815) (17,608)
Interest expense, net............................. (32,372) (45,939)
Loss related to retained interest in ZDNet........ (186) (6,009)
Other non-operating income, net................... 1,264 1,497
Minority interest in losses of subsidiaries....... 3,356 --
------------ ------------
Loss before income taxes.......................... (56,753) (68,059)
Income tax benefit................................ (18,978) (62,938)
------------ ------------
Net loss.......................................... $ (37,775) $ (5,121)
============ ============
Proforma net loss per share....................... $ (0.37) $ (0.05)
Proforma weighted average shares outstanding...... 101,015,813 100,000,000
</TABLE>

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

13
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three Months
Ended
March 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Net loss..................................................... $(37,775) $(5,121)
Other comprehensive income, net of tax
Foreign currency translation adjustments................... (1,827) 359
Appreciation in equity of retained interest in ZDNet....... 3,922 --
-------- -------
Comprehensive income......................................... $(35,680) $(4,762)
======== =======
</TABLE>

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

14
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOW
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three Months
Ended
March 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(37,775) $ (5,121)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 38,860 35,748
Amortization of debt discount........................... 709 --
Loss from retained interest in ZDNet.................... 186 6,009
Income from equity investments.......................... (465) (1,385)
Deferred tax benefit.................................... (19,647) (62,938)
Stock-based compensation................................ 636 252
Minority interest....................................... (3,356) --
Changes in operating assets and liabilities:
Accounts receivable................................... 21,428 15,807
Inventories........................................... 2,687 (1,376)
Accounts payable and accrued expenses................. (34,546) (19,113)
Unearned income....................................... 39,057 39,466
Due to affiliates and management...................... 2,679 18,114
Other, net............................................ (4,597) 8,915
-------- --------
Net cash provided by operating activities................. 5,856 34,378
-------- --------
Cash flows from investing activities:
Capital expenditures.................................... (35,659) (4,412)
Capital contributions to ZDNet.......................... -- (1,994)
Investments and other................................... (1,250) (1,117)
Acquisitions, net of cash acquired...................... (32,800) --
-------- --------
Net cash used by investing activities..................... (69,709) (7,523)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock...................... 50,864 --
Proceeds from sale of interest in ZDTV.................. 54,000 --
Repayments of credit facility........................... (72,000) --
Borrowings under credit facility........................ 35,500 --
Payments of notes payable to affiliates................. (1,730) (41,679)
Return of capital from ZDNet............................ 2,723
Advance from majority shareholder....................... -- 20,377
Contributed capital..................................... -- 278
-------- --------
Net cash provided (used) by financing activities.......... 69,357 (21,024)
-------- --------
Net increase in cash and cash equivalents................. 5,504 5,831
Cash and cash equivalents at beginning of period.......... 32,274 30,273
-------- --------
Cash and cash equivalents at end of period................ $ 37,778 $ 36,104
======== ========
Supplemental cash flow information:
Cash paid for income taxes.............................. $ -- $ 642
Cash paid for interest.................................. $ 20,696 $ 42,679
</TABLE>

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

15
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Retained Cumulative Total
Division earnings Deferred translation division
capital (deficit) compensation adjustment equity
---------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $1,559,336 $(197,238) $(8,679) $ (821) $1,352,598
Issuance of common
stock.................. 50,000 50,000
Sale of minority
interest in
subsidiary............. 7,176 7,176
Compensation earned on
stock options.......... 636 636
Sale of shares under
employee stock purchase
plan................... 783 783
Stock options
exercised.............. 81 81
Appreciation in equity
of retained interest in
ZDNet.................. 3,922 3,922
Net loss................ (37,775) (37,775)
Foreign currency
translation
adjustment............. (1,827) (1,827)
---------- --------- ------- ------- ----------
Balance at March 31,
1999 (unaudited)....... $1,621,298 $(235,013) $(8,043) $(2,648) $1,375,594
========== ========= ======= ======= ==========
</TABLE>

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

16
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
combined financial position of ZD at March 31, 1999 and the results of its
combined operations and cash flows for the three months ended March 31, 1999
and 1998 have been included. Operating results for the periods presented are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.

Formation of Ziff-Davis Inc.

ZD is the division of Ziff-Davis Inc. focused on the business of print
publishing, tradeshows and conferences, television, market research and
education. ZDNet is the Internet business division of Ziff-Davis Inc. ZD holds
a retained interest in ZDNet of approximately 83.9% (see Note 3).

ZD operates in three business segments: (1) publishing, (2) events, and (3)
television.

Publishing

Events

17
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for the
computer technology and the Internet industries. The television segment's
principal operations are in the U.S although it licenses or syndicates
programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

Reclassifications

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

2. Reorganization, and Initial Public Offering

3. ZDNet Stock

18
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

re-classified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock") which is
intended to reflect the performance of Ziff-Davis Inc.'s other businesses and a
retained interest in ZDNet (i.e., Ziff-Davis Inc.'s interest in ZDNet excluding
the interest intended to be represented by outstanding shares of ZDNet Stock)
(collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares at $19 per share, including 1,500,000 shares issued in
conjunction with the underwriters exercising their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering, and
attributed to ZD 10,000,000 of the sold shares in respect of its retained
interest in ZDNet, in a manner analogous to a secondary offering. ZD received
net proceeds of approximately $172.5 million and ZDNet received net proceeds of
approximately $25.9 million. The ZDNet net proceeds were loaned to ZD as an
intercompany loan which will bear interest at the rate at which funding is
available to Ziff-Davis Inc. After giving effect to the ZDNet Stock offering,
there were 11,500,000 shares of ZDNet Stock outstanding and another 60,000,000
notional shares of ZDNet Stock intended to represent ZD's retained interest in
ZDNet, which was approximately 83.9%.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued with these practices until the ZDNet
Stock was issued. Accordingly no interest expense or income to or from ZD has
been reflected in the financial statements of ZDNet for any period prior to the
date on which the ZDNet Stock was issued.

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $3,666,000 reduction of interest expense and the tax effect of this
adjustment a statutory tax rate of 41.0%. The pro forma data is not necessarily
indicative of actual results had the transaction occurred on January 1, 1999.
Further, pro forma results are not meant to represent future financial results.

<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
----------------------
(dollars in thousands)
<S> <C>
Revenue, net...................................... $ 195,549
Loss from operations.............................. (28,815)
Interest expense, net............................. (28,706)
Loss before taxes................................. (53,087)
Income tax benefit................................ 17,475
Net loss.......................................... (35,612)
Pro forma basic loss per share.................... $ (0.35)
Pro forma weighted average common shares
outstanding....................................... 101,015,813
</TABLE>

4. Acquisition of ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC ("ZDTV") from MAC Holdings
(America) Inc., a related party, for a purchase price of approximately
$81,400,000. ZD paid approximately $32,800,000 of the purchase price in cash
(settled on February 5, 1999) and paid the remainder by applying approximately
$48,600,000 in advances owed to it by MAC Holdings (America) Inc. ZD also
agreed to be responsible for the funding of ZDTV during the period in 1999
prior to the purchase which will be accounted for as additional purchase price;
such funding amounted to approximately $4,200,000.

On February 5, 1999 Vulcan Programming Inc., an entity owned by Paul G.
Allen, purchased a one-third interest in ZDTV for $54,000,000 in cash.

19
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the sale of a one-third interest in ZDTV to Vulcan
Programming had been consummated on January 1, 1999. Adjustments for ZDTV
transactions include the operating results of ZDTV, amortization of the
purchase price of ZDTV, Vulcan Programming's one-third interest in the losses
of ZDTV and the tax effects of these items. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results.

<TABLE>
<CAPTION>
Adjustments
for
acquisition
ZD of ZDTV Pro Forma
-------- ----------- ---------
(dollars in thousands except
per share amounts)
<S> <C> <C> <C>
Revenue..................................... $195,549 $ 316 $195,865
Loss from operations........................ (28,815) (2,546) (31,361)
Net loss.................................... (37,775) (1,006) (38,781)
Pro forma basic loss per share.............. $ (0.38)
</TABLE>

5. Income Taxes

Income taxes are provided based on ZD's projected annual effective tax rate
which differs from the U.S. federal statutory rate of 35% due to certain items
which are not deductible for income tax purposes, primarily losses of the MAC
Assets prior to their purchase by ZD and non deductible goodwill amortization,
and the effect of state and local taxes. The tax benefit recorded for the three
months ended March 31, 1999 has been reflected as a reduction of the deferred
tax liability as it is anticipated that the benefit will be realizable in
future periods.

6. Contingencies

ZD and Ziff-Davis Inc. are subject to various claims and legal proceedings
arising in the normal course of business.

Class action and derivative litigations

20
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly "reduced
exercise price") and the actions have been consolidated. Answers to the amended
complaint on behalf of both Ziff-Davis Inc. and its directors were filed on
April 12, 1999.

Other legal proceedings

21
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

7. Segment Information

ZD operates in three reportable business segments: (1) publishing, (2)
events and (3) television. All material inter-segment revenue has been
eliminated. The following table presents information about each of the reported
segments:

<TABLE>
<CAPTION>
Three months ending
March 31,
------------------------
1999 1998
---------- ------------
(dollars in thousands)
<S> <C> <C>
Revenue:
Publishing........................................... $ 174,989 $ 191,245
Events............................................... 18,474 27,121
Television........................................... 2,086 --
---------- ----------
Total.............................................. $ 195,549 $ 218,366
========== ==========
<CAPTION>
Three months ending
March 31,
------------------------
1999 1998
---------- ------------
(dollars in thousands)
<S> <C> <C>
EBITDA:
Publishing........................................... $ 28,161 $ 22,850
Events............................................... (7,197) (7,660)
Television........................................... (4,739) --
---------- ----------
Total.............................................. $ 16,225 $ 15,190
========== ==========
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing........................................... $2,124,296 $2,285,920
Events............................................... 1,148,089 1,144,018
Television........................................... 171,258 --
---------- ----------
Total.............................................. $3,443,643 $3,429,938
========== ==========

A reconciliation of EBITDA to Loss before income taxes is below:
<CAPTION>
Three months ended
March 31,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Total segment EBITDA................................. $ 16,225 $ 15,190
Depreciation and amortization of property and
equipment........................................... (8,011) (6,680)
Amortization of intangible assets.................... (30,849) (29,068)
Stock-based compensation............................. (636) (63)
Retained interest in ZDNet's non-EBITDA losses....... (2,132) (1,499)
Minority interest in ZDTV's non-EBITDA losses........ 1,022 --
Interest expense, net................................ (32,372) (45,939)
---------- ----------
Loss before income taxes............................. $ (56,753) $ (68,059)
========== ==========
</TABLE>

22
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

The accompanying notes are an integral part of the combined financial
statements.

23
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS--(Continued)
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue, net......................................... $ 18,561 $ 9,688
Cost of operations:
Production and content............................. 7,760 6,492
Selling, general and administrative expenses....... 8,972 7,831
Stock-based compensation........................... 836 --
Depreciation and amortization of property and
equipment......................................... 532 349
Amortization of intangible assets.................. 1,022 1,378
----------- -----------
Loss from operations................................. (561) (6,362)
Minority interest.................................... (117) (125)
----------- -----------
Loss before income taxes............................. (444) (6,237)
Income tax benefit................................... (258) (228)
----------- -----------
Net loss............................................. $ (186) $ (6,009)
=========== ===========
Proforma net loss per share.......................... $ (0.00) $ (0.08)
Proforma weighted average shares outstanding......... 71,500,000 71,500,000
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

24
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months Ended
March 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Net loss................................................ $ (186) $ (6,009)
Other comprehensive income, net of tax:
Foreign currency translation adjustments.............. 401 (14)
Unrealized gain on securities available for sale...... 3,086 --
-------- ---------
Comprehensive income.................................... $ 3,301 $ (6,023)
======== =========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

25
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (186) $ (6,009)
Adjustments to reconcile net loss to net cash provided
by (used) in operating activities:
Depreciation and amortization of property and
equipment............................................ 532 349
Amortization of intangible assets..................... 1,022 1,378
Minority interest..................................... (117) (125)
Deferred tax benefit.................................. (258) (228)
Stock-based compensation.............................. 836 --
Changes in operating assets and liabilities:
Accounts receivable................................. 1,420 921
Other current assets................................ (388) 1
Accounts payable and accrued expenses............... (183) 2,278
Unearned income..................................... 449 330
Other, net.......................................... 411 (47)
--------- ---------
Net cash provided by (used) in operating activities..... 3,538 (1,152)
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................. (872) (703)
--------- ---------
Net cash used in investing activities................... (872) (703)
--------- ---------
Cash flows from financing activities:
Capital contributions from ZD......................... -- 1,994
Return of capital to ZD............................... (2,723) --
--------- ---------
Net cash (used) in provided by financing activities..... (2,723) 1,994
--------- ---------
Net (decrease) increase in cash and cash equivalents.... (57) 139
Cash and cash equivalents at beginning of period........ 292 28
--------- ---------
Cash and cash equivalents at end of period.............. $ 235 $ 167
========= =========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

26
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Unrealized gain Cumulative Total
Division Deferred Accumulated on securities translation division
capital compensation deficit available for sale adjustment equity
-------- ------------ ----------- ------------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $148,975 $(13,345) $(46,047) $ -- $(36) $89,547
Return of capital to
parent................. (2,723) (2,723)
Stock-based
compensation........... 836 836
Unrealized gain on
securities available
for sale, net.......... 3,086 3,086
Net loss................ (186) (186)
Foreign exchange
translation
adjustment............. 401 401
-------- -------- -------- ------ ---- -------
Balance at March 31,
1999 (unaudited)....... $146,252 $(12,509) $(46,233) $3,086 $365 $90,961
======== ======== ======== ====== ==== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

27
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
combined financial position of ZDNet at March 31, 1999 and the results of its
combined operations and cash flows for the three months ended March 31, 1999
and 1998 have been included. Operating results for the periods presented are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of Softbank
("MAC Assets").

ZDNet is the Internet business division of Ziff-Davis Inc. ZD is the
division of Ziff-Davis Inc. focused on the business of print publishing, trade
shows and conferences, television, market research and education. ZD holds a
retained interest in ZDNet of approximately 83.9% (see Note 3).

Acquisition of GameSpot, Inc.

In January 1997, SOFTBANK Holdings Inc., ("SBH") an affiliate of Ziff-Davis
Inc. acquired 70% of GameSpot, Inc. ("GameSpot", formerly SpotMedia
Communications, Inc.) for approximately $3,000,000. Funds for this acquisition
were provided by Ziff-Davis Inc. to SBH. As part of the initial public offering
and reorganization that was completed on May 4, 1998 (described below), the 70%
interest in GameSpot was contributed to ZDNet. Because GameSpot and Ziff-Davis
Inc. were under common control at the time of the transaction, the GameSpot
acquisition has been accounted for in a manner similar to a pooling of
interests and GameSpot's results have been included in ZDNet's results since
the time of common ownership (January 1997).

Reclassifications

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

2. Reorganization and initial public offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary,
SOFTBANK Holdings Inc. completed a reorganization whereby the common stock of
predecessor companies to Ziff-Davis Inc. contributed to Ziff-Davis Inc. in
exchange for 73,619,355 shares of Ziff-Davis Inc.'s common stock. Concurrent
with the reorganization, Ziff-Davis Inc. (1) completed an initial public
offering of 25,800,000 common shares at an initial public offering purchase
price of $15.50 per share, (2) issued $250,000,000 of 8 1/2% subordinated notes
due 2008, (3) entered into a $1,350,000,000 credit facility with a group of
banks under which $1,250,000,000 was borrowed and (4) converted $908,673,000 of
intercompany indebtedness to equity. In addition, Ziff-Davis Inc. received
approximately $9,107,000 of fixed assets from Kingston Technology Company
("Kingston"), a related party, in exchange for 580,645 shares of Ziff-Davis
Inc.'s common stock and $107,000 in cash. These

28
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

assets have been subsequently leased back to Kingston. Total shares of common
stock issued to Softbank were 74,200,000. The transactions described above are
herein referred to as the "Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of certain assets from MAC for $370,000,000, and repay
intercompany indebtedness. The ZDNet business was a portion of the MAC Assets
acquired at that time.

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock, to
be designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), intended
to reflect the performance of Ziff-Davis Inc.'s Internet business division
("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock") which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet (i.e., Ziff-Davis Inc.'s
retained interest in ZDNet excluding the interest intended to be represented by
outstanding shares of ZDNet Stock)(collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares at $19 per share including 1,500,000 shares issued in
conjunction with the underwriters exercising their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering and
received net proceeds of approximately $25.9 million. The full amount of the
net proceeds was loaned to ZD as an intercompany loan which will bear interest
at the rate at which funding is available to Ziff-Davis Inc. After giving
effect to the ZDNet Stock offering, there were 11,500,000 shares of ZDNet Stock
outstanding and another 60,000,000 notional shares of ZDNet Stock intended to
represent ZD's retained interest in ZDNet, which was approximately 83.9%.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued these practices until the ZDNet Stock
was issued. Accordingly, no interest expense or income to or from ZD has been
reflected in the financial statements of ZDNet for any period prior to the date
on which the ZDNet stock was issued.

The following summary pro forma information has been prepared as if the
ZDNet Stock offering had been consummated on January 1, 1999. The pro forma
adjustments include the recognition of $550,000 of interest income from ZD and
the tax effect of this adjustment at a statutory tax rate of 41.0%. The pro
forma data is not necessarily indicative of actual results had the transaction
occurred on January 1, 1999. Further pro forma results are not meant to
represent future financial results.

<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
----------------------
(dollars in thousands)
<S> <C>
Revenue, net...................................... $ 18,561
Loss from operations.............................. (561)
Interest income................................... 550
Income before taxes............................... 106
Provision income tax benefit...................... (33)
Net income........................................ 138
Proforma income per share......................... $ 0.00
Proforma weighted average number of shares
outstanding...................................... 71,500,000
</TABLE>

29
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

4. Investments

On February 19, 1999 ZDNet acquired warrants to purchase 2,005,400 shares of
Series E preferred stock of BuyDirect.com Inc. ("Series E shares") at a
exercise price $1.65. On March 25, 1999, ZDNet exercised its warrants and
received 1,510,020 Series E shares in a cashless exercise by exchanging 495,380
warrants in lieu of payment of the exercise price. On March 30, 1999,
BuyDirect.com Inc. was acquired by Beyond.com Corporation and these Series E
shares were converted to 438,057 shares of Beyond.com Corporation and at March
31, 1999 are reflected in the balance sheet as Available for Sale Securities.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants on February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair value
of the warrants was determined to be $6,240,000.

5. Income Taxes

Income taxes are provided based on ZDNet's projected annual effective tax
rate which differs from the U.S. federal statutory rate of 35% due to certain
items which are not deductible for income tax purposes, primarily non
deductible goodwill amortization, and the effect of state and local taxes. In
addition, tax benefits attributable to losses in foreign jurisdictions and
certain U.S. losses are subject to the establishment of a valuation allowance
inasmuch as such loss carryforwards are not expected to be utilized in the
future. The tax benefit recorded for the three months ended March 31, 1999 has
been reflected as a non-current deferred tax assets as it is anticipated that
such benefit will reverse in future periods when ZDNet generates taxable
income.

6. Contingencies

ZDNet and Ziff-Davis Inc. are subject to various legal proceedings arising
in the normal course of business.

Class action and derivative litigations

The complaints alleged that defendants violated Sections 11, 12(a) (2) and
15 of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of the Ziff-Davis Inc.'s common stock on April
29, 1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, recission and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

30
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Other legal proceedings

7. Subsequent Events

On April 7, 1999, ZDNet closed on the acquisition of the remaining 30%
interest in GameSpot Inc. in exchange for 600,000 newly issued shares of ZDNet
Stock valued at approximately $11,400,000, based on the initial public offering
price. This acquisition will be accounted for under the purchase method of
accounting.

31
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

ZIFF-DAVIS INC.

Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998. Prior to that date, the
predecessors of Ziff-Davis Inc. were wholly owned indirect subsidiaries of
SOFTBANK Corp. (together with its non-Ziff-Davis Inc. affiliates, "Softbank")
or assets owned by MAC Inc., an affiliate of SOFTBANK Corp. ("MAC Assets"). As
such, financial statements for periods prior to May 4, 1998 have been prepared
on a combined basis while the financial statements for the periods after May 4,
1998 have been prepared on a consolidated basis.

Ziff-Davis Inc.'s 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 clients, the extent to
which sellers elect to advertise using print and online media or participate in
industry events, and competition among computer technology marketers.
Accordingly, Ziff-Davis Inc. may experience fluctuations in revenue from period
to period.

Historically, Ziff-Davis Inc.'s business has been seasonal, earning a
significant portion of its revenue in the second and fourth quarters. In
addition, the shift in timing of a tradeshow or conference may result in
material differences in comparison to prior periods.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock, to
be designated as Ziff-Davis Inc. --ZDNet Common Stock ("ZDNet Stock"), intended
to reflect the performance of Ziff-Davis Inc.'s Internet business division,
ZDNet. When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock") which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet. The businesses represented
by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock, including 1,500,000 shares issued in
conjunction with the underwriters exercising their option to purchase
additional shares to cover over-allotments. Net proceeds of approximately
$198.4 million were received on April 6, 1999.

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC from MAC Holdings
(America) Inc., a related party, at a purchase price of approximately
$81,400,000. Ziff-Davis Inc. paid approximately $32,800,000 of the purchase
price in cash (settled on February 5, 1999) and paid the remainder by applying
approximately $48,600,000 in advances owed to it by MAC Holdings (America) Inc.
Ziff-Davis Inc. also agreed to be responsible for the funding of ZDTV during
the period in 1999 prior to the purchase which will be accounted for as
additional purchase price. Such funding amounted to approximately $4,200,000.

32
<PAGE>

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, purchased a one-third interest in ZDTV for $54 million in cash.

As a result of the acquisition, Ziff-Davis Inc. recorded an increase in
intangible assets of $76.1 million which will be amortized over 10 years.
ZDTV's cash requirements are currently expected to be approximately $50 million
for 1999. The $54 million invested in ZDTV by Vulcan Programming Inc. will be
used to fund ZDTV and thereafter cash requirements will be funded by the
members or by third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for $50
million in cash.

GameSpot

On April 7, 1999, Ziff-Davis Inc. closed on the acquisition of the remaining
30% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet Stock valued at approximately $11,400,000, based on the initial public
offering price. This acquisition will be accounted for under the purchase
method of accounting.

Presentation of Financial Information

Ziff-Davis Inc. is comprised of certain operations which were acquired at
various times and completed a reorganization in May 1998. See Notes 1 and 2 to
the Consolidated Financial Statements included in Ziff-Davis Inc.'s Annual
Report on Form 10-K (File No. 001-14055).

Results of Operations

Comparison of the three months ended March 31, 1999 and 1998

Revenue

Revenue for the first quarter of 1999 was $214.1 million compared to $228.1
million for the first quarter of 1998, a decrease of $14.0 million or 6.1%,
primarily the result of the absence of revenue from publications discontinued
in October 1998 and the shift of two events which occurred in the first quarter
of 1998 to the second quarter of 1999. Revenue by segment is summarized in the
following table:

Revenue from the publishing segment decreased by $16.3 million or 8.5 %,
from $191.2 million in the first quarter of 1998 to $175.0 million in the first
quarter of 1999. Excluding the effect of the three magazines that were closed
in October 1998 as part of a restructuring, publishing segment revenue
decreased by $6.9 million or 3.8%. Revenue from consumer publications increased
42% but was more than offset by a revenue decline from business publications.
Margin pressure on computer equipment manufacturers, industry and product
delays, and a focus on Year 2000 transition are contributing to reduced demand
for advertising in Ziff-Davis Inc.'s business magazines.

33
<PAGE>

Revenue from the events segment decreased by $8.6 million or 31.9% from
$27.1 million in the first quarter of 1998 to $18.5 million in the first
quarter of 1999. The primary reason for the decrease was the shift of two
events from first quarter of 1998 to the second quarter of 1999, partially
offset by the shifting of an event from the second quarter in 1998 to the first
quarter in 1999. Excluding the shifting of events, revenue increased by $1.7
million or 14.0%, primarily the result of the successful launch of IT for Wall
Street during the first quarter of 1999.

Revenue from the Internet segment increased by $8.9 million or 91.6% for the
first quarter of 1999 from $9.7 million to $18.6 million in the first quarter
of 1999. Revenue from advertising accounted for 91.0% of total revenue for 1999
compared to 78.7% for the same period in 1998. The increase in revenue was
attributed to an increase in volume as both the numbers of advertisers and the
average monthly revenue per advertiser increased. Subscription-based fees and
services continue to decline and were $1.7 million for the three months ended
March 31, 1999 compared to $2.1 million for the same period in 1998.

Revenue from the television segment was $2.1 million for 1999. The
television segment was acquired on February 4, 1999 when Ziff-Davis Inc.
purchased ZDTV from MAC Holdings (America) Inc. for an aggregate purchase price
of $81.4 million. (See Note 4 in the Ziff-Davis Inc. Unaudited Consolidated
Financial Statements.)

Cost of production

The cost of production decreased by $10.4 million or 14.9% from $70.3
million in the first quarter of 1998 to $59.9 million in the first quarter of
1999. The decline was consistent with the decreases in revenue attributed to
the discontinuation of three magazines in October 1998 and the shift of the
timing of certain events. These cost reductions were partially offset by
production costs incurred from the addition of the IT for Wall Street event and
the acquisition of ZDTV.

Selling, general and administrative expenses

Selling, general and administrative expenses were $141.7 million for the
first quarter of 1999 compared to $144.2 million in the first quarter of 1998,
representing a decrease of $2.5 million or 1.7%. The decrease was primarily a
result of cost cutting initiatives identified in the restructuring action taken
during the fourth quarter of 1998 partially offset by an increase related to
the acquisition of ZDTV.

Stock-based compensation

Stock based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-based
compensation increased by $1.4 million from $0.1 million in the first quarter
of 1998 to $1.5 million for the first quarter of 1999. The increase was a
result of the issuance of certain options of ZDNet stock and the conversion of
SOFTBANK Corp. stock options to Ziff-Davis Inc. stock options in December 1998,
both of which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $40.4 million for the first
quarter of 1999 compared to $37.5 million for the first quarter of 1998, an
increase of $2.9 million or 7.7%. The primary reason for the increase was
depreciation and amortization of assets associated with the acquisition of
ZDTV.

Interest expense, net

Net interest expense declined by $13.6 million or 29.5% to $32.4 million for
the first quarter of 1999 from $45.9 million for the first quarter of 1998.
This was primarily due to a significant reduction in Ziff-Davis Inc.'s
outstanding debt through the reorganization and initial public offering in May
1998.

34
<PAGE>

Other non-operating income, net

Other non-operating income primarily reflects Ziff-Davis Inc.'s equity share
of earnings and losses from joint ventures and fees earned from management of
events not produced by Ziff-Davis. Income of $1.3 million for the quarter ended
March 31, 1999 was $0.2 million less than the income for the same period in
1998 of $1.5 million.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of Ziff-Davis Inc.'s
subsidiaries increased $3.4 million from $0.1 million to $3.5 million. This
increase is primarily due to the sale of a one-third interest in ZDTV in
February 1999, creating a minority interest in the losses of ZDTV.

Income taxes

The consolidated tax benefit for the first quarter of 1999 was $19.2 million
compared to $63.2 million in the first quarter of 1998. The difference is due
to a significantly lower projected annual effective tax rate for 1999 as
compared to 1998. Income taxes are provided based on Ziff-Davis Inc.'s
projected annual effective tax rate which differs from the U.S. federal
statutory rate of 35% due to certain items which are not deductible for income
tax purposes, primarily losses of the MAC Assets prior to their purchase by
Ziff-Davis Inc. and non deductible goodwill amortization, and the effect of
state and local taxes. The deferred tax benefit for the three months ended
March 31, 1999 has been reflected as a reduction of the long-term deferred tax
liability.

Net loss

As a result of the factors discussed above, the net loss increased from $5.1
million for the three months ended March 31, 1998 to $37.8 million for the
three months ended March 31, 1999.

EBITDA

EBITDA for the first quarter of 1999 was $16.2 million compared to $15.2
million for the first quarter of 1998, an increase of $1.0 million or 6.8%.
While EBITDA in the publishing and events segments was relatively flat, the
increase in EBITDA reflects significant improvement at ZDNet, partially offset
by the inclusion of ZDTV losses.

Liquidity and Capital Resources

At March 31, 1999, Ziff-Davis Inc.'s total outstanding debt was $1,509.7
million, excluding unamortized discount, and consisted of $76.2 million due to
Softbank, $250 million in notes and $1,183.5 million under the credit facility.

Cash and cash equivalents were $38.0 million at March 31, 1999 compared to
$32.6 million at December 31, 1998. The increase was due to the factors
discussed below.

35
<PAGE>

Cash provided by operations was $9.4 million for the three months ended
March 31, 1999 compared to $33.2 million for the first quarter of 1998. This
change was primarily due to a lower decline in working capital in the quarter
compared to the 1998 period. First quarter working capital activity generally
reflects collections on the seasonally high fourth quarter of the proceeding
year.

Cash used by investing activities was $70.6 million for the first quarter of
1999 compared to $6.2 million in the first quarter of 1998. The increase
reflects higher capital spending of $31.7 million primarily due to one-time
spending on relocation of the New York operations. The remainder of the
increase primarily relates to the acquisition of ZDTV for $32.8 million, net of
cash acquired.

Cash provided by financing activities was $66.6 million for the three months
ended March 31, 1999 compared to a use of $21.0 million for the three months
ended March 31, 1998. During the first quarter of 1999, Ziff-Davis Inc.
received proceeds of $54.0 million from Vulcan Programming Inc. for the sale of
a one-third interest in ZDTV and sold approximately 3 million shares of common
stock to Vulcan Ventures Inc. for $50.0 million. Ziff-Davis Inc. also repaid
approximately $38.2 million of indebtedness during the first quarter of 1999.
Financing activities in 1998 primarily represent funding excess cash to
Softbank to repay intercompany obligations prior to Ziff-Davis Inc.'s initial
public offering.

Upon completion of the offering of the ZDNet Stock, Ziff-Davis Inc. received
net proceeds of approximately $198.4 million on April 6, 1999. These proceeds
were used to repay indebtedness under Ziff-Davis Inc.'s revolving credit
agreement.

Ziff-Davis Inc. believes, based on its current level of operations and
anticipated growth, that its ability to generate cash, together with cash on
hand and available lines of credit, will be sufficient to make required
payments of principal and interest on its indebtedness and to fund anticipated
capital expenditures and working capital requirements. However, actual capital
expenditures may change, particularly as a result of any acquisitions Ziff-
Davis Inc. may pursue. The ability of Ziff-Davis Inc. to meet its debt service
obligations and reduce its total debt will depend on its future performance.

Restructuring

In October 1998, Ziff-Davis Inc. announced a restructuring program with the
intent of significantly reducing its cost base. As a result, a charge of $52.2
million was recorded in the fourth quarter of 1998. The charge included asset
impairment costs ($37.9 million), employee termination costs ($8.6 million) and
costs to exit activities ($5.7 million). At March 31, 1999, $3.8 million
related to this restructuring remains in Accrued Expenses. These costs
primarily represent severance payments and payments for leases of vacant office
space.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc. began a review of its computer systems and
software to identify systems and software which might malfunction due to
misidentification of the Year 2000. Ziff-Davis Inc. is using both internal and
external resources to identify, test, correct and reprogram systems and
software for Year 2000 readiness.

At December 31, 1998, Ziff-Davis Inc. was in the research and validation
phase of its Year 2000 project for information technology, or IT, systems and
non-IT systems. This phase consists of research and validation of all
infrastructure, hardware and software, including platform, wide-area network
and local-area network components. Research for non-IT systems includes
identifying systems that include embedded technology, such as micro-
controllers, which are not yet Year 2000 compliant.

36
<PAGE>

phase by September 1, 1999. Contingency plans will be developed for any systems
or platforms that are known to be non-compliant as of September 1, 1999.

Some of Ziff-Davis Inc. computer systems and databases, including its
subscription fulfillment and payroll systems, are managed by third parties
under contractual arrangements. Ziff-Davis Inc. is not currently aware of any
Year 2000 compliance problems related to those third parties. Ziff-Davis Inc.
has requested those third parties with which Ziff-Davis Inc. has material
relationships in the first quarter of 1999 to advise it as to whether such
third parties anticipate difficulties in addressing Year 2000 compliance
problems, and if so, the nature of such difficulties. Such inquiries are
substantially complete and no material matters have been identified.

In addition, Ziff-Davis Inc. will develop contingency plans during the
second half of 1999 in order to compensate for any disruption or downtime that
could result from a Year 2000 compliance problem. Ziff-Davis plans to replace
IT and non-IT systems that it determines are not Year 2000 compliant prior to
October 1, 1999 in order to minimize any risk of a Year 2000 compliance
problem.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The costs to address
Year 2000 issues which have been included in the general and administrative
expenses of Ziff-Davis Inc. have not been tracked separately and are therefore
not determinable. However, management believes these expenses have been
substitutive rather than incremental to the recurring level of general and
administrative expenses. Total capitalized costs incurred in the replacement of
systems in connection with Ziff-Davis Inc.'s Year 2000 readiness efforts as of
December 31, 1997 and 1998 were $1,692,000 and $3,837,000, respectively. Ziff-
Davis Inc. estimates that it will incur an additional $3,815,000 during 1999
related to its Year 2000 readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems by the beginning of the fourth quarter of 1999. Ziff-Davis Inc.'s
estimate of its most reasonably likely "worst case scenario" would be the
failure of its internal applications and systems that process and store certain
information and data. Ziff-Davis Inc. would resolve the failure of such
applications and systems one by one, and management of Ziff-Davis Inc. does not
believe that the impact on its critical systems would be material. However, if
Ziff-Davis Inc. or any of its subscribers, advertisers, licensors, vendors or
other third parties on whom it relies experiences a Year 2000 compliance
problem, this could have a material adverse effect on Ziff-Davis Inc.'s profit
and liquidity.

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contain forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those discussed under the caption "Risk Factors" in the Prospectus
dated March 30, 1999 contained in the Ziff-Davis Inc.'s Registration Statement
on Form S-1 (File No. 333-69447).

37
<PAGE>

ZD
(A Division of Ziff-Davis Inc.)

Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

ZD is the division of Ziff-Davis Inc. which focuses on the businesses of
print publishing, trade shows and conferences, market research, education and
television, and holds a retained interest in ZDNet, Ziff-Davis Inc.'s Internet
business.

ZD's 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 clients, the extent to which
sellers elect to advertise using print and online media or participate in
industry events, and competition among computer technology marketers.
Accordingly, ZD may experience fluctuations in revenue from period to period.

Historically, ZD's business has been seasonal, earning a significant portion
of its revenue in the second and fourth quarters. In addition, the shift in
timing of a tradeshow or conference may result in material differences in
comparison to prior periods.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock, to
be designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), intended
to reflect the performance of Ziff-Davis Inc.'s Internet business division,
ZDNet. When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was reclassified as Ziff-Davis Inc.--ZD Common Stock ("ZD
Stock") which is intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a retained interest in ZDNet. The businesses represented by ZD
Stock are referred to as "ZD".

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet stock, including 1,500,000 shares issued in
conjunction with the underwriters exercising their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering and
attributed to ZD 10,000,000 of the sold shares in respect of its retained
interest in ZDNet, in a manner analogous to a secondary offering. ZD received
net proceeds of approximately $172.5 million and ZDNet received net proceeds of
approximately $25.9 million. The ZDNet net proceeds were loaned to ZD as an
intercompany loan which will bear interest at the rate at which funding is
available to Ziff-Davis Inc. After giving effect to the ZDNet Stock offering,
there were 11,500,000 shares of ZDNet Stock outstanding and another 60,000,000
notional shares of ZDNet Stock intended to represent ZD's retained interest in
ZDNet, which was approximately 83.9%.

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC from MAC Holdings (America)
Inc., a related party, at a purchase price of approximately $81,400,000. ZD
paid approximately $32,800,000 of the purchase price in cash (settled on
February 5, 1999) and paid the remainder by applying approximately $48,600,000
in advances

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<PAGE>

owed to it by MAC Holdings (America) Inc. ZD also agreed to be responsible for
the funding of ZDTV during the period in 1999 prior to the purchase which will
be accounted for as additional purchase price. Such funding amounted to
approximately $4,200,000.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, purchased a one-third interest in ZDTV for $54 million in cash.

As result of the acquisition, ZD recorded an increase in intangible assets
of $76.1 million which will be amortized over 10 years. ZDTV's cash
requirements are currently expected to be approximately $50 million for 1999.
The $54 million invested in ZDTV by Vulcan Programming Inc. will be used to
fund ZDTV and thereafter cash requirements will be funded by the members or by
third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of ZD common stock for $50 million in cash.

Presentation of Financial Information

ZD is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Notes 1 and 2 to ZD's Combined
Financial Statements included in Ziff-Davis Inc.'s Annual Report on Form 10-K
(File No. 001-14055).

Results of Operations

Comparison of the three months ended March 31, 1999 and 1998 (unaudited)

Revenue

Revenue for the first quarter of 1999 was $195.5 million compared to $218.4
million for the first quarter of 1998, a decrease of $22.9 million or 10.5%,
primarily the result of the absence of revenue from publications discontinued
in October 1998 and the shift of two events which occurred in the first quarter
of 1998 to the second quarter of 1999. Revenue by segment is summarized in the
following table:

<TABLE>
<CAPTION>
Three months
ending March 31,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.................................................... $174,989 $191,245
Events........................................................ 18,474 27,121
Television.................................................... 2,086 --
-------- --------
Total....................................................... $195,549 $218,366
======== ========
</TABLE>

Revenue from the events segment decreased by $8.6 million or 31.9% from
$27.1 million in the first quarter of 1998 to $18.5 million in the first
quarter of 1999. The primary reason for the decrease was the shift of two
events from first quarter of 1998 to the second quarter of 1999, partially
offset by the shifting of an event from the second quarter in 1998 to the first
quarter in 1999. Excluding the shifting of events revenue increased by $1.7
million or 14.0%, primarily the result of the successful launch of IT for Wall
Street, during the first quarter of 1999.

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<PAGE>

Revenue from the television segment was $2.1 million for 1999. The
television segment was acquired on February 4, 1999 when ZD purchased ZDTV from
MAC Holdings (America) Inc. for an aggregate purchase price of $81.4 million.
(See Note 4 in the ZD Unaudited Consolidated Financial Statements.)

Cost of production

The cost of production decreased by $11.8 million or 17.1% from $69.0
million in the first quarter of 1998 to $57.2 million in the first quarter of
1999. The decline was consistent with the decreases in revenue attributed to
the discontinuation of three magazines in December 1998 and the shift of timing
of certain events. These cost reductions were partially offset by production
costs incurred from the addition of the IT for Wall Street event and the
acquisition of ZDTV.

Selling, general and administrative expenses

Selling, general and administrative expenses were $127.7 million for the
first quarter of 1999 compared to $131.1 million in the first quarter of 1998,
representing a decrease of $3.4 million or 2.6%. The decrease was primarily a
result of cost cutting initiatives identified in the restructuring action taken
during the fourth quarter of 1998, partly offset by an increase related to the
acquisition of ZDTV.

Stock-based compensation

Stock based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-based
compensation increased by $0.5 million from $0.1 million in the first quarter
of 1998 to $0.6 million for the first quarter of 1999. The increase was a
result of the issuance of certain options of ZDNet stock and the conversion of
SOFTBANK Corp. stock options to ZD stock options in December 1998, both of
which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $38.9 million for the first
quarter of 1999 compared to $35.7 million for the first quarter of 1998, an
increase of $3.2 million or 9.0%. The primary reason for the increase was
depreciation and amortization of assets associated with the acquisition of ZDTV
(as discussed above).

Interest expense, net

Net interest expense declined by $13.6 million or 29.5% to $32.4 million for
the first quarter of 1999 from $45.9 million for the first quarter of 1998.
This was primarily due to a significant reduction in ZD's outstanding debt
through the reorganization and initial public offering in May 1998.

Loss related to retained interest in ZDNet

The loss related to the retained interest in ZDNet decreased by $5.8 million
from $6.0 million in the first quarter of 1998 to $0.2 million in the first
quarter of 1999. The decrease is due primarily to significant increase in the
performance of the ZDNet business. See "ZDNet--Management's Discussion and
Analysis of Financial Condition and Results of Operations". Ziff-Davis Inc.
completed an initial public offering of the ZDNet stock on April 6, 1999. As a
result of the ZDNet Stock offering, ZD's retained interest in ZDNet decreased
from 100% to approximately 83.9%.

Other non-operating income, net

Other non-operating income primarily reflects ZD's equity share of earnings
and losses from joint ventures and fees earned from management of events not
produced by ZD. Income of $1.3 million for the quarter ended March 31, 1999 was
$0.2 million less than the income for the same period in 1998 of $1.5 million.

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<PAGE>

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of ZD's subsidiaries increased
$3.5 million from a zero balance in 1998. This increase is due to the sale of a
one-third interest in ZDTV in February 1999, creating a minority interest in
the losses of ZDTV.

Income taxes

The tax benefit for the first quarter of 1999 was $19.0 million compared to
$62.9 million in the first quarter of 1998. The difference is due to a
significantly lower projected annual effective tax rate for 1999 as compared to
1998. Income taxes are provided based on ZD's projected annual effective tax
rate which differs from the U.S. federal statutory rate of 35% due to certain
items which are not deductible for income tax purposes, primarily losses of the
MAC Assets prior to their purchase by ZD and non deductible goodwill
amortization, and the effect of state and local taxes. The deferred tax benefit
for the three months ended March 31, 1999 has been reflected as a reduction of
the long-term deferred tax liability.

Net loss

As a result of the factors discussed above, the net loss increased from $5.1
million for the three months ended March 31, 1998 to $37.8 million for the
three months ended March 31, 1999.

EBITDA

EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation expense.
EBITDA as reported for ZD includes its 67% interest in the EBITDA of ZDTV and
its 100% retained interest in the EBITDA of ZDNet. After the ZDNet Stock
offering, EBITDA will reflect the EBITDA of ZDNet at ZD's retained interest
percentage (83.9% immediately following the offering).

EBITDA for the first quarter of 1999 was $16.2 million compared to $15.2
million for the first quarter of 1998, an increase of $0.8 million or 5%. While
EBITDA in the publishing and events segments was relatively flat, the increase
in EBITDA reflects significant improvement at ZDNet partially offset by the
inclusion of ZDTV losses.

Liquidity and Capital Resources

At March 31, 1999, ZD's total outstanding debt was $1,509.7 million,
excluding unamortized discount, and consisted of $76.2 million due to Softbank,
$250 million in notes and $1,183.5 million under the credit facility.

Cash and cash equivalents were $37.8 million at March 31, 1999 compared to
$32.3 million at December 31, 1998. The increase was due to the factors
discussed below:

Cash provided by operations was $5.9 million for the three months ended
March 31, 1999 compared to $34.4 million for the first quarter of 1998. This
change was primarily due to a lower decline in working capital in the quarter
compared to the 1998 period. First quarter working capital activity generally
reflects collections on the seasonally high fourth quarter of the preceding
year.

Cash used by investing activities was $69.7 million for the first quarter of
1999 compared to $7.5 million in the first quarter of 1998. The increase
reflects higher capital spending of $35.6 million primarily due to one time
spending on relocation of the New York operations. The remainder of the
increase primarily relates to the acquisition of ZDTV for $32.8 million, net of
cash acquired.

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<PAGE>

Cash provided by financing activities was $69.4 million for the three months
ended March 31, 1999 compared to a use of $21.0 million for the three months
ended March 31, 1998. During the first quarter of 1999, ZD received proceeds of
$54.0 million from Vulcan Programming Inc. for the sale of a one-third interest
in ZDTV and sold approximately 3 million shares of common stock to Vulcan
Ventures Inc. for $50.0 million. ZD also repaid approximately $38.2 million of
indebtedness during the first quarter of 1999. Financing activities in 1998
primarily represent funding excess cash to Softbank to repay intercompany
obligations prior to ZD's initial public offering. ZD also received a return of
capital of approximately $2.7 million from ZDNet. This was due to the better
performance by the ZDNet business.

Upon completion of the offering of the ZDNet Stock, ZD received net proceeds
of approximately $172.5 million plus an additional $25.9 million advance from
ZDNet, on April 6, 1999. These proceeds were used to repay indebtedness under
ZD's revolving credit agreement. The advance from ZDNet is interest bearing at
the rate at which funding is available to Ziff-Davis Inc.

ZD believes, based on its current level of operations and anticipated
growth, that ZD's ability to generate cash, together with cash on hand and
available lines of credit, will be sufficient to make required payments of
principal and interest on ZD's indebtedness and to fund anticipated capital
expenditures and working capital requirements. However, actual capital
expenditures may change, particularly as a result of any acquisitions ZD may
pursue. The ability of ZD to meet its debt service obligations and reduce its
total debt will depend on the future performance of ZD.

Restructuring

In October 1998, ZD announced a restructuring program with the intent of
significantly reducing its cost base. As a result, a charge of $52.2 million
was recorded in the fourth quarter of 1998. The charge included asset
impairment costs ($37.9 million), employee termination costs ($8.6 million) and
costs to exit activities ($5.7 million). At March 31, 1999, $3.8 million
related to this restructuring remains in Accrued Expenses. These costs
primarily represent severance payments and payments for leases of vacant office
space.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc., including the businesses comprising ZD, began
a review of its computer systems and software to identify systems and software
which might malfunction due to misidentification of the Year 2000. Ziff-Davis
Inc. is using both internal and external resources to identify, test, correct
and reprogram systems and software for Year 2000 readiness.

Ziff-Davis Inc. has identified critical systems and applications that will
either be validated for compliance through formal documentation, through
vendors or through testing. During the first quarter of 1999, Ziff-Davis Inc.
entered the testing phase of its infrastructure, hardware, software and
databases and plans to complete such phase by September 1, 1999. Contingency
plans will be developed for any systems or platforms that are known to be non-
compliant as of September 1, 1999.

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<PAGE>

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contain forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those under the caption "Risk Factors" in the Prospectus dated March
30, 1999 contained in Ziff-Davis Inc.'s Registration Statement on Form S-1
(File No. 33-69447).

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<PAGE>

ZDNet
(A Division of Ziff-Davis Inc.)

Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

ZDNet's objective is to be the leading online content site focused on
technology products and services for users and the preferred online platform
for advertisers and merchants. ZDNet's Web sites are designed to capitalize on
the market opportunities created by the increasing importance of technology,
the emergence of the Internet as a mass medium and the appealing demographics
of technology-oriented Web users. ZDNet focuses on content, community and
commerce, enabling users to research topics of interest, interact with other
users, download software and evaluate and purchase a wide range of products and
services at a single destination. Ziff-Davis Inc. was among the first content
providers to focus its efforts on the Internet, launching its zdnet.com service
in the fall of 1994.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting on March 30,
1999, to authorize the issuance of a new series of common stock, to be
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), intended to
reflect the performance of Ziff-Davis Inc.'s online business division, ZDNet.
When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s existing
common stock was reclassified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock")
which is intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a retained interest in ZDNet.

Prior to the ZDNet Stock offering, ZD held a 100% Retained Interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock, including 1,500,000 shares issued in
conjunction with the underwriters' exercising their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering and
attributed to ZD 10,000,000 of the sold shares in respect of its retained
interest in ZDNet, in a manner analogous to a secondary offering. ZD received
net proceeds of approximately $172.5 million and ZDNet received net proceeds of
approximately $25.9 million. The ZDNet net proceeds were loaned to ZD as an
intercompany loan which will bear interest at the rate at which funding is
currently available to Ziff-Davis Inc. After giving effect to the ZDNet Stock
offering, there were 11,500,000 shares of ZDNet Stock outstanding and another
60,000,000 notional shares of ZDNet Stock intended to be represented by ZD's
retained interest in ZDNet, which was approximately 83.9%.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet, which was accounted for as division equity contributions or a
return of capital. Ziff-Davis Inc. continued with these practices until the
ZDNet Stock was issued. Accordingly no interest expense or income to or from ZD
has been reflected in the financial statements of ZDNet for any period prior to
the date on which the ZDNet Stock was issued.

Acquisition of Gamespot

On April 7, 1999, ZDNet closed on the acquisition of the remaining 30%
interest in GameSpot Inc. in exchange for 600,000 newly issued shares of ZDNet
stock valued at approximately $11,400,000, based on the initial public offering
price. This acquisition will be accounted for under the purchase method of
accounting. In connection with the acquisition of the remaining 30% of GameSpot
Inc., goodwill amortization will increase by approximately $1.0 million in
1999.

Presentation of Financial Information

ZDNet is comprised of certain operations which were acquired at various
times and completed a reorganization in May 1998. See Note 1 to ZDNet's
combined financial statements included in Ziff-Davis Inc.'s report on Form 8-K,
dated April 2, 1999 (File No. 001-14055).

44
<PAGE>

Results of Operations

Comparison of the three months ended March 31, 1999 and 1998

Revenue

Revenue for the first quarter of 1999 increased by $8.9 million or 91.6%
from $9.7 million in 1998 to $18.6 million in 1999. Revenue from advertising
accounted for 91.0% of total revenue for 1999 compared to 78.7% for the same
period in 1998.

Revenue from advertising increased 121.5% to $16.9 million for the three
months ended March 31, 1999 from $7.6 million for the three months ended March
31, 1998. The increase in advertising revenue was attributed to an increase in
volume as both the number of advertisers and the average monthly revenue per
advertiser increased. Subscription-based fees and services continue to decline
and were $1.7 million for the three months ended March 31, 1999 compared to
$2.1 million for the same period in 1998. These results reflect the continuing
shift from a subscription based business model to an advertising based model.

Cost of operations

Production and content. Production and content expenses were $7.8 million or
41.8% of revenue for the quarter ended March 31, 1999 compared to $6.5 million
or 67.0% of revenue in 1998. The absolute dollar increase was due to an
increase in ZD's revenue-based royalty charge to ZDNet, as well as an increase
in production costs to support higher user traffic. The cost of production and
content decreased as a percentage of sales due to economies of scale and
revenue growth significantly exceeding the growth of the cost base. Royalty
payments to ZD were $0.9 million and $0.5 million in the 1999 and 1998 periods,
respectively.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $9.0 million or 48.3% of revenue for 1999 compared
to $7.8 million or 80.9% of revenue in 1998. The absolute dollar increase was
due to additional personnel and advertising costs required to support and
strengthen the growth of ZDNet. Sales and marketing costs were $6.7 million or
35.2% of revenue in 1999 compared to $5.2 million or 53.7% in 1998. The
increase is due to the hiring of sales staff and other expenses incurred to
increase traffic to the ZDNet Web sites. Included in the selling, general and
administrative costs was an allocation from Ziff-Davis Inc. relating to certain
selling, general and administrative services and shared services provided on a
centralized basis which for the respective periods amounted to $1.3 million in
1999 and $0.9 million in 1998.

Administrative and overhead costs were $2.3 million or 12.1% of revenue for
1999 compared to $2.6 million or 27.2% of revenue for 1998. Included in the
administrative and overhead costs is an allocation of the cost of certain Ziff-
Davis Inc. services provided on a centralized basis amounting to $0.2 million
in each of 1999 and 1998.

Stock-based compensation. As a result of the grant of certain stock options
in December of 1998, ZDNet incurred a deferred compensation charge of $13.3
million. This non-cash charge will be recognized ratably over the vesting
period of the underlying options. The charge on a quarterly basis is $0.8
million. This charge did not exist in 1998 because the options were granted in
December 1998 and vesting begins in December 1999.

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<PAGE>

Depreciation. Depreciation expense was $0.5 million for the three months
ended March 31, 1999 compared to $0.3 million for the three months ended March
31, 1998. The increase related primarily to increased capital expenditures made
by ZDNet for equipment necessary to expand its network and infrastructure in
order to support its continued growth.

Amortization of intangible assets. Amortization was $1.0 million for the
three months ended March 31, 1999 compared to $1.4 million for the three months
ended March 31, 1998. The decrease in amortization is a result of certain
intangible assets becoming fully amortized as of March 1, 1998. ZDNet's
amortization expense will increase in future quarters due to the acquisition of
the remaining interest in GameSpot Inc. which was completed in April 1999.

Minority interest. The minority interest of $0.1 million in each of 1999 and
1998 represents the losses attributed to the holders of the minority interest
in GameSpot Inc. The remaining minority interest was acquired in April 1999.

Income taxes. ZDNet recorded an income tax benefit of $0.3 million in 1999
and $0.2 million in 1998. The effective tax rate for ZDNet is approximately
58.1% for 1999. Income taxes are provided based on ZDNet's projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35%
due to certain items which are not deductible for income tax purposes,
primarily non deductible goodwill amortization, and the effect of state and
local taxes.

Net loss. As a result of the items described above, ZDNet's net loss
improved from $6.0 million in 1998 to $0.2 million in 1999.

EBITDA

EBITDA for the three months ended March 31, 1999 was $1.9 million compared
to an EBITDA loss of $4.5 million for the three months ended March 31, 1998.
The improvement was due primarily to higher revenue, offset to some extent by
higher production and content and selling, general and administrative expenses.

Liquidity and Capital Resources

Historically, the cash needs for ZDNet, excluding the cash needs of ZDNet's
foreign operations and operations that are not wholly owned, were funded by ZD
and accounted for as a capital contribution (i.e. as an increase in ZDNet's
division equity and ZD's retained interest in ZDNet). Accordingly, no interest
expense has been reflected in the financial statements of ZDNet. After the
completion of the ZDNet Stock offering, Ziff-Davis Inc. will account for all
cash transfers between ZD and ZDNet, other than transfers in return of assets
or services rendered or transfers in respect of ZD's retained interest that
correspond to dividends paid on ZDNet stock, as inter-group revolving credit
advances. ZDNet received net proceeds of $25.9 million from the initial public
offering of the ZDNet Stock, which were loaned to ZD as an interest bearing
advance. These advances will bear interest at the rate at which Ziff-Davis Inc.
could borrow such funds on a revolving credit basis as the board of directors
determines in its sole discretion. Funding for ZDNet's future cash needs will
be provided by ZD through a reduction of the interest bearing advance and to
the extent necessary, as a revolving credit advance bearing interest.

Sources and uses of cash

Cash and cash equivalents were $0.2 million at March 31, 1999 compared to
$0.3 million at December 31, 1998. The decrease was due to the factors
discussed below.

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<PAGE>

Cash provided by operations was approximately $3.5 million for the first
quarter of 1999 compared to a use of $1.1 million for the first quarter of
1998. The improvement was due primarily to a reduction in net loss from $6.0
million in 1998 to $0.2 million in 1999.

Cash used by investing activities was $0.9 million in 1999 compared to $0.7
million in 1998. This increase is a result of ZDNet's continued investment in
capital equipment necessary to support the increasing levels of user traffic.

Cash used by financing in 1999 was $2.7 million compared to cash provided by
financing of $1.9 million in 1998. As a result of decreased losses, ZDNet did
not require the same level of funding from ZD in 1999 as was required in 1998.
In addition, ZDNet generated enough cash flow to provide a return of capital of
approximately $2.7 million to ZD during the quarter ended March 31, 1999.
Subsequent to March 31, 1999, all inter-group advances will be treated as
revolving credit advances and will bear interest, as described above.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc., including the businesses comprising ZDNet,
began a review of its computer systems and software to identify systems and
software which might malfunction due to misidentification of the Year 2000.
Ziff-Davis Inc. is using both internal and external resources to identify,
test, correct and reprogram systems and software for Year 2000 readiness.

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<PAGE>

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those under the caption "Risk Factors" in the Prospectus dated March
30, 1999 contained in Ziff-Davis Inc.'s Registration Statement on Form S-1
(File No. 333-69447).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Ziff-Davis Inc.'s credit facility exposes it to market risk with respect to
changes in interest rates. Ziff-Davis Inc. manages this risk through the use of
interest rate swap agreements. Through the use of swap agreements, Ziff-Davis
Inc. has effectively established a fixed interest rate for $550 million of the
outstanding credit facility. Based on the $1,183 million outstanding under the
credit facility as of March 31, 1999, if the LIBOR rate were to increase by 1%,
Ziff-Davis Inc. would incur, after giving effect to the swap agreements, an
additional $11.8 million of annual interest expense.

These swap agreements are viewed by Ziff-Davis Inc. as risk management tools
and are not used for trading or speculative purposes. The notional amount of
$550 million does not represent a real amount exchanged by the parties, and
therefore, is not a measure of Ziff-Davis Inc.'s exposure through its use of
swap agreements. The fair values of these swap agreements were estimated by
obtaining quotes from brokers which represented the amounts that Ziff-Davis
Inc. would pay if the agreements were terminated at the balance sheet date.
While it is not Ziff-Davis Inc.'s intention to terminate these swap agreements,
these fair values indicated that the termination of the swap agreements would
have resulted in a loss of approximately $6.0 million. By nature, swap
agreements involve credit risk, due to the possible nonperformance by
counterparties. To mitigate this risk, Ziff-Davis Inc. enters into swap
agreements with major financial institutions and diversifies the counterparties
used as a means to limit counterparty exposure and concentration of risk.

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<PAGE>

PART II--OTHER INFORMATION

ITEM 1. Legal proceedings

ZD, ZDNet and Ziff-Davis Inc. are subject to various legal proceedings
arising in the normal course of business.

Class action and derivative litigations

The complaints alleged that defendants violated Sections 11, 12(a) (2) and
15 of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of the Ziff-Davis Inc.'s common stock on April
29, 1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, recission and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleged, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the other
defendants, all of the claims against the defendants other than a breach of
contract claim which is solely against SBH, were dismissed on February 26,
1999. On April 1, 1999, plaintiffs filed a notice of appeal of the dismissal.

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<PAGE>

ITEM 2. Changes in Securities and Use of Proceeds

(a) On March 31, 1999 Ziff-Davis Inc. filed its amended and restated
certificate of incorporation with the Delaware Secretary of State, which (i)
increased the number of authorized shares of common stock from 120 million to
210 million, (ii) authorized the board of directors to issue common stock in
two series--ZD Stock and ZDNet Stock and (iii) authorized the reclassification
of each outstanding share of existing Ziff-Davis Inc. common stock into a share
of ZD Stock upon the issuance of ZDNet Stock. On April 6, 1999, Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock (1,500,000 shares in a manner analogous
to a primary offering by ZDNet and 10,000,000 shares in a manner analogous to a
secondary offering by ZD) and re-classified each share of existing Ziff-Davis
Inc. common stock into a share of ZD Stock.

More detailed information with respect to (i) the re-classification of Ziff-
Davis Inc. common stock into ZD Stock and (ii) the provisions of the amended
and restated charter, including the rights of holders of Ziff-Davis Inc. common
stock (re-classified as ZD Stock) is contained in Ziff-Davis Inc.'s Definitive
Proxy Statement on Schedule 14A (File No. 001-14055) under the headings
"Summary Comparison of Terms of Existing Common Stock with Terms of ZD Stock
and ZDNet Stock" and "Description of ZD Stock and ZDNet Stock", and is
incorporated in this Item 2 by reference.

(b) On March 4, 1999, Ziff-Davis Inc. sold 3,030,303 shares of common stock
to Vulcan Ventures Inc. ("Vulcan") for an aggregate offering price of
$50,000,000, pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act").

Vulcan has represented that it is an "accredited investor" within the
meaning of Rule 501 of the Securities Act, and by reason of its business and
financial experience Vulcan has represented that it has such knowledge,
sophistication and experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the shares of ZD
Stock and is able to bear the economic risk of such investment. Vulcan has
represented that it purchased the shares of its own account for investment
purposes and not with a view to distribution. Vulcan has represented that it
will not offer, sell or deliver at any time, directly or indirectly, the shares
unless the shares are offered and sold under the applicable exemptions of the
Securities Act.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Submission of Matters to a Vote of Security Holders

On March 30, 1999, Ziff-Davis Inc. held a Special Meeting of stockholders to
vote on the following proposals:

<TABLE>
<C> <S>
Proposal 1. Proposal to amend and restate Ziff-Davis Inc.'s amended and
restated certificate of incorporation to (i) increase the number
of authorized shares of common stock from 120 million to 210
million, (ii) authorize the board of directors to issue common
stock in two series--ZD Stock and ZDNet Stock and (iii) re-
classify each outstanding share of existing common stock into a
share of ZD Stock.
Proposal 2. Proposal to amend Ziff-Davis Inc.'s 1998 Incentive Compensation
Plan (the "Incentive Plan")
Proposal 3. Proposal to amend Ziff-Davis Inc.'s 1998 Employee Stock Purchase
Plan (the "Stock Purchase Plan")
Proposal 4. Proposal to amend Ziff-Davis Inc.'s 1998 Non-Employee Directors'
Stock Option Plan (the "Non-Employee Directors' Plan" and
together with the Incentive Plan and the Stock Purchase Plan,
the "Plans")
</TABLE>

50
<PAGE>

The Plans were amended (1) to permit grants of awards under each such plan
with respect to either series of common stock of Ziff-Davis Inc., (2) to
increase the number of shares authorized for issuance, (3) solely with respect
to the Incentive Plan, to provide that shares issuable thereunder may be
supplied from outstanding shares of ZD Stock held by Ziff-Davis Inc.'s
majority stockholder and, solely for calendar year 1998, to increase the
number of shares in respect of which options to acquire shares of common stock
of Ziff-Davis Inc. may be granted to any single participant and (4) solely
with respect to the Non-Employee Directors' Plan, to permit discretionary
grants of additional options from time to time.

The following is a compilation of the votes cast for, against or abstained
for each of the proposals above:

<TABLE>
<CAPTION>
Votes
-----------------------------------------
For Against Abstained Total
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Proposal 1......................... 79,216,181 103,808 41,540 79,361,529
Proposal 2......................... 77,281,865 1,861,205 218,459 79,361,529
Proposal 3......................... 78,926,270 220,992 214,267 79,361,529
Proposal 4......................... 78,860,796 274,600 226,133 79,361,529
</TABLE>

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K

a) Exhibits

<TABLE>
<C> <S>
27.1 Financial Data Schedule (EDGAR filing only)
99.1 Ziff-Davis Inc.'s Definitive Proxy Statement on Schedule 14A, dated
March 12, 1999 (incorporated by reference to Ziff-Davis Inc.'s
Definitive Proxy Statement on Schedule 14A, File No. 001-14055)
</TABLE>

b) Reports on Form 8-K

On February 19, 1999, Ziff-Davis Inc. filed a Form 8-K to report the
February 4, 1999 acquisition of ZDTV from MAC Holdings (America) Inc. for
$81.4 million. Ziff-Davis Inc. filed the required Form 8-K/A with the
audited financial statements of ZDTV on April 20, 1999.

51
<PAGE>

SIGNATURES

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

Ziff-Davis Inc.

By: /s/ Timothy C. O'Brien
----------------------------------
Timothy C. O'Brien
Chief Financial Officer, Director
(On behalf of the Registrant and
as Principal Financial Officer)
Date: May 17, 1999

By: /s/ Mark D. Moyer
----------------------------------
Mark D. Moyer
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
Date: May 17, 1999

52
<PAGE>

EXHIBIT INDEX

<TABLE>
<C> <S>
27.1 Financial Data Schedule (EDGAR filing only)

99.1 Ziff-Davis Inc.'s Definitive Proxy Statement on Schedule 14A, dated March
12, 1999 (incorporated by reference to Ziff-Davis Inc.'s Definitive Proxy
Statement on Schedule 14A, File No. 001-14055)
</TABLE>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ZIFF DAVIS INC.'S 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 38,013 32,566
<SECURITIES> 0 0
<RECEIVABLES> 307,630 312,706
<ALLOWANCES> (100,906) (85,381)
<INVENTORY> 12,864 15,551
<CURRENT-ASSETS> 322,100 386,231
<PP&E> 194,048 170,905
<DEPRECIATION> (88,259) (79,716)
<TOTAL-ASSETS> 3,455,783 3,433,803
<CURRENT-LIABILITIES> 366,299 350,698
<BONDS> 0 0
0 0
0 0
<COMMON> 1,031 1,000
<OTHER-SE> 1,374,563 1,351,598
<TOTAL-LIABILITY-AND-EQUITY> 3,455,783 3,433,803
<SALES> 214,110 228,054
<TOTAL-REVENUES> 214,110 228,054
<CGS> 59,855 70,310
<TOTAL-COSTS> 243,486 261,024
<OTHER-EXPENSES> (4,737) (1,622)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,372 45,939
<INCOME-PRETAX> (57,011) (68,287)
<INCOME-TAX> (19,236) (63,166)
<INCOME-CONTINUING> (37,775) (5,121)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (37,775) (5,121)
<EPS-PRIMARY> (0.37) (0.05)
<EPS-DILUTED> 0 0

</TABLE>