Back to GetFilings.com



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________

Commission File Number 1-9728

J NET ENTERPRISES, INC.
_________________________________________________________________
Exact name of registrant as specified in its charter

Nevada 88-0169922
_________________________________ ________________
State or other jurisdiction of
incorporation or Organization I.R.S. Employer
Identification No.

4020 Lake Creek Drive, #100, Wilson, Wyoming 83014
_____________________________________________ ________
Address of principal executive offices Zip Code

Registrant's telephone number, including area code: (307) 739-8603
______________

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

Securities registered pursuant to Section 12(g) of the Act:

Name of each exchange
Title of each class on which registered
________________________________________________ _____________________
Common Stock - Par value $.01 per share, which OTCBB
includes certain preferred stock purchase rights

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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: x
_____

As of September 27, 2002, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $4,902,000.

As of September 27, 2002, there were 8,524,541 shares of the Registrant's
common stock outstanding.

PART I

ITEM 1. BUSINESS

J Net Enterprises, Inc. ("J Net" or the "Company") is a holding company
with concentrated investments in enterprise software applications ("E-
Commerce Operations") and technology infrastructure companies (the
"Technology-Related Businesses").

E-Commerce Operations are conducted through IW Holdings, Inc. ("IWH"),
a wholly-owned subsidiary of the Company and successor to the business
formerly conducted by InterWorld Corporation ("InterWorld").
InterWorld is a separate publicly traded entity in which J Net owns
95.3% of the outstanding equity securities. As a result of events in
April and May 2002, which are more fully described below, IWH became
the owner of the intellectual property and other assets of InterWorld.
Unless specifically stated otherwise, IWH is intended to describe the
E-Commerce Operations of the Company. References to InterWorld are
specific to that entity, which remains a consolidated subsidiary of J
Net, but is presently inactive.

J Net also holds minority investments in other technology companies
including, but not limited to, systems development and software
companies. These investments are held directly by the Company, or by J
Net Ventures I, LLC (the "Fund" or "Ventures I"), a fund owned and
managed by the Company. As a result of changes in market conditions
with respect to Technology-Related Businesses and the significance of
the E-Commerce Operations, J Net has significantly curtailed its
minority investment strategy conducted through Ventures I and
concentrated its efforts and financial resources on its E-Commerce
Operations.

The Company is actively seeking potential acquisitions and expansion
opportunities. We will devote management and other resources to these
efforts and may incur expenses in connection with such activities. The
Company anticipates that, as it continues to engage in such activities,
it will periodically incur expenses that may have a material effect on
the Company's operating income.

Although the Company is exploring expansion and acquisition
opportunities, there can be no assurance that such opportunities will
be available on terms acceptable to J Net or that, if undertaken, they
will be successful.

Recent Events
From June 2001 through March 2002, J Net was a senior secured creditor
of InterWorld under the terms of a secured promissory note (the
"Secured Note") and maintained a secured first priority claim on the
assets, including intellectual property, of InterWorld. Advances under
the Secured Note were made by J Net at its sole discretion. As of
March 31, 2002, such advances totaled $17.2 million, excluding
interest. In February 2002, the Company and InterWorld entered into a
Strategic Partnership Agreement with Titan Ventures L.P. ("Titan").
Under this agreement, Titan received an exclusive right to market
InterWorld products in the Americas, and upon the achievement of
certain milestones, earn-in to a percentage of InterWorld's equity (or
a successor entity's equity). Concurrent with the execution of the
Strategic Partnership Agreement with Titan, InterWorld and J Net
entered into an Acknowledgment of Default and Assignment of Payments
Agreement (the "Default Agreement"). In addition to InterWorld
acknowledging its default under the Secured Note, the Default Agreement
assigned all proceeds received by InterWorld to J Net, including
proceeds derived from revenues created from the Strategic Partnership
Agreement with Titan.

In April 2002, the management of J Net concluded that based on
InterWorld's cash flows and existing assets, InterWorld was
unable to pay its obligations under the Secured Note. As a result, J Net
notified InterWorld of its intent to begin foreclosure proceedings. On
May 3, 2002, J Net and InterWorld finalized foreclosure proceedings. Such
actions resulted in the employees, contracts and other assets, including
intellectual property and the agreement with Titan, being transferred to
IWH in full satisfaction of the amounts owed under the Secured Note.
There remains approximately $2.3 million of unsecured creditor liabilities
in InterWorld, which are separate and distinct from J Net.
Although these liabilities are included in the consolidated financial
statements, J Net is not legally responsible for InterWorld's unsecured
obligations. Management believes that these liabilities ultimately will
be settled at amounts which are substantially less than their respective
face values.

In April 2002, the Company was notified by the New York Stock Exchange
("NYSE") that the NYSE was initiating steps to delist shares of the common
stock, par value $.01 per share (the "Common Stock") of J Net. On May 8,
2002 the NYSE formally delisted shares of Common Stock of J Net from its
exchange. J Net's Common Stock is now quoted on the over-the-counter
bulletin board ("OTCBB") and trades under the symbol "JNEI".

In May 2002, the Company commenced a voluntary repurchase offer to the
holders of its $27.75 million subordinated promissory notes (the "Notes").
Such offer was made at the face amount of the Notes, but excluded
approximately $.6 million of unpaid interest which had accrued since March
31, 2002, the last interest payment date. In June 2002, all holders of
the Notes agreed to accept the voluntary offer. The repayment of the
Notes occurred in July 2002.

E-Commerce Operations
IWH, as the successor to InterWorld, is a provider of integrated
enterprise commerce software solutions. Its products include software
that addresses distributed order management, customer relationship
management, supplier relationship management, sales channel management and
business intelligence for companies in the retail, manufacturing,
distribution, telecommunications and transportation industries.

IWH's applications, components and tools are based on its Process-
Centric(tm) architecture, which enables medium and large-sized companies
to maximize returns on investments ("ROI") in information technology by
allowing them to quickly implement and to rapidly adapt to changing market
conditions without the need for programmers.

IWH's open software solutions are designed to assist its clients to
increase customer profitability, efficiency and satisfaction by allowing a
business to enhance selling opportunities, manage complex sales channels,
orchestrate sophisticated marketing campaigns, leverage and integrate
disparate technology systems, capture and rapidly respond to critical
business intelligence and facilitate complex business process interactions
among its customers, vendors and partners.

Additionally, the software solutions are designed to help companies:

Get to market quickly with e-business initiatives by offering over 600
ready-to-deploy e-business processes, which can save companies thousands
of hours of costly development work.

Automate customer relationship management and sales and support
processes, which enable companies to continuously update and improve
these processes across multiple channels, including the World Wide Web,
point-of-sale, call center, and wireless marketplaces.

Achieve lower total-cost-of-ownership with the Process Centric(tm)
approach, which is easily adaptable and designed to facilitate dynamic
business and technology changes. These solutions also reduce the need
for proprietary development through support of industry standards such
as XML, CIF, BizTalk and Rosetta Net.

Improve profitability and deepen understanding of their business by
utilizing IWH's sophisticated business intelligence application. The
software facilitates enterprise-wide collaboration enabling companies to
quickly and simply gather and act on business intelligence, without the
need for technical support.

Facilitate enterprise integration through pre-built software adaptors
that easily connect multiple back-office systems, sales channels,
digital marketplaces and business trading partners. In addition, IWH's
enterprise integration capabilities enable a company to continue to use
existing legacy systems, rather than forcing a company to buy or build
new systems from scratch.

The focus on ROI is particularly important in today's economic climate as
capital, once readily available to build an entirely new application, is
now limited. Increasingly, companies are demanding that their suppliers
and vendors offer them the option to do business online. Given the high
costs associated with information technology, companies need to ensure
that their investments will lead to enhanced profitability. To drive
profitability, companies must not only understand buying trends of their
customers, they must also be in a position to act on these trends.
Further, companies must be able to collaborate on an enterprise-wide basis
as well as with their customers and suppliers to sustain growth and remain
competitive.

In September 2001, the E-Commerce Operations completed its new Commerce
Exchange 5.0 version ("Version 5.0") of its software product. Version 5.0
runs on an industry standard J2EE application server. This move to an
industry standard application server further strengthens IWH's position in
the market by providing faster ROI through easier deployment, deeper
interoperability, and lower total cost of ownership. IWH has also made
supporting and upgrading current customers easier by making this latest
release backward compatible with prior releases. In addition to Version
5.0, IWH formed a strategic alliance with Titan to market its products,
along with existing, previously established resellers.

Significant customers of E-Commerce Operations include, among others,
Verizon, Burlington Coat Factory, Marks & Spencer, IKON Office Solutions,
Oki Data Americas, and Walt Disney Internet Group.

Technology-Related Businesses
Unconsolidated minority investments in other technology companies include,
but are not limited to, systems development and software companies. The
investments are held directly by the Company or by Ventures I. As a
result of weak market conditions with respect to Technology-Related
Businesses and the significance of Management's efforts with E-Commerce
Operations, J Net significantly reduced its emphasis of the minority
investment strategy in 2001. Evaluation of investment opportunities
continues, but the process is very selective due to continued weakness in
the technology community. No minority investments have been made since
July 2001.

Between March 2000 and July 2001, the Company invested approximately $58
million in eleven companies, including its initial $20 million purchase of
InterWorld Convertible Preferred Stock. As of June 30, 2002, four of
these companies continue to operate; Tellme Networks, eStara, Inc.,
Strategic Data Corporation and certain investments contained in the
Meister Brothers Investment portfolio. However, based on Management's
periodic analysis of its investment portfolio, only two of these
investments continue to have value ascribed to them: eStara, Inc. and
Tellme Networks, Inc. The following table sets forth the activity for
each of the investments from inception through June 30, 2002 (dollars in
thousands):




Balance at Equity Value at
June 30, income Goodwill Impairments June 30,
Investments 1999 Additions (loss) amortization and sales Other 2002
___________ __________ _________ ______ ____________ ___________ ___________ _________


Digital
Boardwalk,
LLC $ - $ 4,767 $ (497) $ (19) $ (4,501) $ 250 (a) $ -
Meister
Brothers
Investments,
LLC - 2,554 - - (40) (2,514)(b) -
CyberBills,
Inc. - 3,186 - - (2,986) (200)(c) -
Carta, Inc. - 4,000 - - (4,000) - -
TechTrader,
Inc. - 8,563 (3,346) (407) (4,810) - -
Alistia, Inc. - 2,480 (2,000) (11) (469) - -
Strategic Data
Corporation - 1,100 - - (1,100) - -
eStara, Inc. - 4,003 - - (3,578) - 425
Jasmine
Networks, Inc. - 5,000 - - (5,000) - -
Tellme
Networks, Inc. - 2,000 - - - - 2,000
InterWorld
Corporation(d) - 20,340 (20,340) - - - -
Other - 5 - - - (5)(e) -
____ _______ ________ _____ ________ _______ ________
Total $ - $57,998 $(26,183) $(437) $(26,484) $(2,469) $ 2,425
==== ======= ======== ====== ======== ======= ========


(a) Represents a loan made to Digital Boardwalk,
which was written off to expense when the Company
sold its interest for a loss of $4,501 in 2001.
(b) J Net owned a 1% controlling interest in Meister
Brothers Investments, LLC. The minority interest
was eliminated upon impairment in 2001.
(c) Uncollected proceeds from sale of investment as
of June 30, 2001. Funds were received in 2002.
(d) InterWorld became a consolidated subsidiary of J Net
in May 2002.
(e) Abandoned deal screening costs written off to general
and administrative expenses.

Industry Background
Advances in technology and the increasing use of the Internet as a tool
for communications, information sharing and the conduct of commerce is the
basis for the investment strategy used by J Net. Despite the recent
reductions in capital and information technology spending, projections by
many research firms indicate growth in technology products and services.

The Company, along with other peers involved in Technology-Related
Businesses, has been exposed to significant changes in market valuations.
The Nasdaq Composite Index, a measure used by The Nasdaq Stock Market, a
United States stock exchange which trades securities of many publicly
traded technology companies, declined more than 75% between June 2000 and
June 2002. Other technology-related indexes have experienced significant
declines also. The Amex Internet Index declined by 61% during the
Company's fiscal year 2001 and experienced an additional decline of over
50% in fiscal 2002. The Philadelphia Semiconductor index also declined
by more than 35% for each of the Company's 2001 and 2002 fiscal years.
Such declines are indicative of the financial and operational difficulties
experienced within the Company's E-Commerce Operations and the impairments
in the Technology-Related Business segment.

Competition
There is intense competition in the e-commerce software industry in which
the Company operates and competition is expected to intensify in the
future. In addition to competing against in-house development efforts of
companies entering e-commerce initiatives, there are several application
vendors and developers in the Internet-based marketplace. Current
competitors include Art Technology Group, Blue Martini, Broadvision, IBM,
Microsoft, Oracle, i2 Technologies and Siebel systems. It is expected
that other competitors will enter the market.

The Company believes that IWH can compete on the basis of product
performance, client service, rapid go-live deployment and price. Other
competitive factors including, but not limited to, new products or
continued deferral of information technology spending by prospective
customers could have adverse effects on future results of operations or
financial condition of the Company and its competitors.

Intellectual Property Rights
The Company and its subsidiaries rely on a combination of trade secret,
nondisclosure and other contractual arrangements, and copyright and
trademark laws, to protect proprietary rights. Where possible we will
enter into confidentiality agreements with our employees, and will
generally require that consultants and clients enter into such agreements
and limit access to and distribution of proprietary information. It
cannot be assured that the steps taken by the Company in this regard will
be adequate to deter misappropriation of proprietary information or
that unauthorized use will be detected and the appropriate steps will be
taken to enforce intellectual property rights.

IWH currently owns one U.S. patent relating to its product architecture
and technology. While the patent is believed to be valid, it may be
challenged, invalidated or circumvented. Moreover, the rights granted
under any patent issued to the Company, its subsidiaries or investees
under licensing agreements may not provide competitive advantages. Due to
the rapid pace of technological innovation for e-business solutions, the
ability to establish and maintain a position of technology leadership in
the industry is dependent more on the skills of development personnel
than upon the legal protections for existing technologies.

Agreements with employees, consultants and others who participate in the
development of IWH software or products developed by the companies in
which J Net holds an investment, may be breached and there may not be
adequate remedies for any breach. In addition, trade secrets may
otherwise become known to, or independently developed by competitors.
Furthermore, efforts to protect proprietary technology may fail to prevent
the development and design by others of products or technology similar to
or competitive with those developed by J Net's Technology-Related
Businesses.

Employees
As of June 30, 2002, the Company employed 29 persons of which 20 were
involved with the E-Commerce Operations business segment. Certain
administrative support functions are consolidated for both business
segments to reduce costs. None of the Company's employees are covered by
collective bargaining agreements and the Company believes it has
satisfactory employee relations.

The Company began a restructuring process in September 2001 which resulted
in significant reductions in its workforce. Between September 2001 and
December 2001, when the restructuring efforts were essentially completed,
the total number of employees declined from approximately 270 employees to
its existing count of 29 employees.

Regulation and Licensing Requirements of Discontinued Operations
As a condition to the sale of the assets associated with the discontinued
operations, the Company was required to maintain licenses in the state of
Nevada in order to conduct gaming machine route operations (the "Route
Operations") and obtain approvals from various state of Nevada agencies in
order to sell the stock of the subsidiaries conducting the Route
Operations. All such approvals were obtained prior to November 22, 2000,
the effective date of the sale of the Route Operations.

Specific information regarding the regulations that were relevant to the
Company's discontinued operations can be obtained by referring to the
Company's Form 10-K's for prior fiscal years.

ITEM 2. PROPERTIES

J Net's corporate headquarters are currently located in Wilson, Wyoming
under a month-to-month lease. J Net also conducts certain corporate
affairs in offices in Plano, Texas with approximately 3,000 square feet
under a lease which expires in 2003.

The Company is the primary party to a lease in New York, New York with
approximately 8,500 square feet under a lease, which expires in 2010. In
January 2002, a sublease agreement was executed with an unrelated third
party. While the Company remains responsible under terms of the original
lease, the subtenant has assumed those responsibilities and is performing
its obligation under the sublease agreement. Proceeds from the sublease
more than offset costs in the primary lease, including profit sharing with
the landlord.

The Company's subsidiary, IWH, has its principal offices in New York, New
York and leases approximately 4,000 square feet of office space on a
month-to-month lease.

J Net owns land and improvements in Wellington, Florida, which are held
for sale. The property was acquired as a result of foreclosure actions
taken on a loan, which was held by the Company.

ITEM 3. LEGAL PROCEEDINGS

As of June 30, 2002, J Net did not have any litigation, pending or
threatened, or other claims filed against the Company. However,
InterWorld is subject to two claims.

On March 8, 2001, as amended on May 29, 2001, InterWorld received notice
that the Securities and Exchange Commission (the "Commission") had
commenced a formal order directing a private investigation by the
Commission with respect to whether InterWorld engaged in violations of
Federal Securities Laws as it relates to InterWorld's financial
statements, as well as its accounting practices and policies. Also under
review by the Commission is certain trading activity in InterWorld stock.
All the above events are related to periods prior to the Company's common
stock ownership in InterWorld. The investigation is confidential and the
Commission has advised that the investigation should not be construed as
an indication by the Commission, or its staff, that any violation of law
has occurred nor should the investigation be construed as an adverse
reflection on any person, entity or security.

The investigation is ongoing and InterWorld is fully cooperating with the
Commission.

PBS Realty ("PBS"), a real estate broker conducting business in New York
City, filed a $1.2 million claim against InterWorld in April 2002. The
claim alleges that PBS is owed commissions by InterWorld for services
related to PBS's attempts to sublease office space previously occupied by
InterWorld at 395 Hudson Street in New York City. InterWorld is
vigorously contesting the claim and InterWorld management does not believe
any liability exists at this time. J Net was not a party to the brokerage
agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

J Net's Common Stock was listed on the NYSE under the trading symbol "J".
In April 2002, the Company was notified by the NYSE that the NYSE was
initiating steps to delist the Common Stock of J Net. On May 8, 2002, the
NYSE formally delisted the shares of Common Stock of J Net from its
exchange. J Net's Common Stock is now quoted on the OTCBB and trades
under the symbol "JNEI". The following table sets forth the range of
prices for shares of the Common Stock for the fiscal quarters indicated.
No cash dividends were paid during those fiscal quarters. Future payment
of quarterly cash dividends, if any, is subject to periodic review and
reconsideration by J Net's Board of Directors (the "Board").

J NET COMMON STOCK
_________________________________________________________________________
High Low
_________________________________________________________________________
Fiscal 2002
First Quarter $ 4.55 $ 2.85
Second Quarter 4.00 1.95
Third Quarter 2.76 1.55
Fourth Quarter (April 1, 2002 - May 8, 2002) 2.23 .70
Fourth Quarter (May 8, 2002 - June 28, 2002) 1.00 .57
_________________________________________________________________________
Fiscal 2001
First Quarter $12.88 $ 8.94
Second Quarter 9.50 4.81
Third Quarter 6.98 4.56
Fourth Quarter 5.10 3.20
_________________________________________________________________________

As of September 23, 2002 there were 1,196 holders of record of J Net's
Common Stock. The number of holders of record of J Net's Common Stock on
September 23, 2002 was computed by a count of record holders.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data includes consolidated operating
results of InterWorld since May 2001. Discontinued operations represent
the Route Operations, which were J Net's only business segment until
February 2000, when the Company changed its business strategy.



Years Ended June 30,
_________________________________________________________
2002 2001 2000 1999 1998
________ ________ __________ _________ ______

(Dollars and shares in thousands, except per share data)
OPERATING DATA

Income (loss) from
continuing operations(a) $(25,236) $(61,449) $ 6,295(b) $ (978) $ (194)
_____________________________________________________________________________________________
Income from discontinued
operations $ - $ 12,754(c) $ 346 $ 5,581 $ 7,407
_____________________________________________________________________________________________
Net income (loss)(a) $(25,236) $(48,695) $ 6,641 $ 4,603 $ 7,213
_____________________________________________________________________________________________
Basic earnings (loss) per share
from continuing operations $ (2.96) $ (6.95) $ .73 $ (.11) $ (.02)
_____________________________________________________________________________________________
Diluted earnings (loss) per share
from continuing operations $ (2.96) $ (6.95) $ .71 $ (.11) $ (.02)
_____________________________________________________________________________________________
Average common shares outstanding -
Basic 8,525 8,839 8,674 8,641 8,991
_____________________________________________________________________________________________
Average common shares - Diluted 8,525 8,839 8,987 8,641 8,991
_____________________________________________________________________________________________
BALANCE SHEET DATA
(at end of period):
Cash and cash equivalents $ 6,674 $ 24,272 $ 60,090 $44,137 $46,775
_____________________________________________________________________________________________
Short-term investments $ 29,590 $ 27,381 $ - $ 7,292 $ -
_____________________________________________________________________________________________
Total assets $ 46,843 $ 77,413 $104,735 $77,721 $72,506
_____________________________________________________________________________________________
Long-term debt, including current
portion $ 27,750(d) $ 27,750 $ 12,750 $ - $ -
_____________________________________________________________________________________________
Stockholders' equity $ 13,267 $ 38,486 $ 87,910 $74,614 $70,871
_____________________________________________________________________________________________


(a) For May and June 2001, the final two months of fiscal 2001, the E-
Commerce Operations business segment accounted for 100% of Company's
revenues. For the 1998 through February 2000 periods presented
above, Route Operations, which was J Net's only business
segment during these periods, generated 100% of the revenues. The
Company's Technology-Related Businesses segment began operating in
March 2000 and has not generated any operating revenues since
inception. The losses from continuing operations in 2002 represent
a $16.8 million loss from the E-Commerce Operations and $8.4
million from the Technology-Related Businesses segment. The loss
from continuing operations in 2001 was due primarily to impairment
of investments and losses on sales of certain investments of $24.3
million, equity method losses of $26.1 million (including $20.3
million attributable to InterWorld), and $5.8 million of
consolidated losses from InterWorld for May and June of 2001.

(b) Includes a net fee earned of $11.1 million from a terminated merger.

(c) Represents an after-tax gain of $13 million from sale of the Route
Operations less a $.3 after tax operating loss.

(d) The long-term debt was repaid in its entirety in July 2002.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward-looking Statements; Risks and Uncertainties
Certain information included in this Annual Report on Form 10-K and other
materials filed or to be filed by the Company with the Securities and
Exchange Commission contains statements that may be considered forward-
looking. All statements other than statements of historical information
provided herein may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans",
"expects", "should", and similar expressions are intended to identify
forward-looking statements. In addition, from time to time, the Company
may release or publish forward-looking statements relating to such matters
as anticipated financial performance, business prospects, technological
developments and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements.
In order to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.

The risks and uncertainties that may affect operations, performance and
results of the Company include, but are not limited to, the ability to
increase sales of its e-commerce software products, attract new clients,
maintain existing clients in the face of new competition and control
costs. In other investment or partnering activities, the Company must
identify and successfully acquire interests in systems development or
other technology-based companies and grow such businesses. The ability of
entities in which the Company has invested to raise additional capital on
terms which are acceptable to the Company, or other investors, is critical
in the ongoing success of such companies and obtaining additional capital
in markets which are performing poorly may be difficult to obtain.

The Company is actively seeking potential acquisitions and expansion
opportunities. Such activities may require use of Management's resources
and expenses. The Company anticipates that as it engages in such
activities, it will periodically incur expenses that may have a material
affect on the Company's operating income.

Although the Company is exploring expansion and acquisition opportunities,
there can be no assurance that such opportunities will be available on
terms acceptable to J Net or that, if undertaken, they will be successful.

Overview and Recent Events
J Net is a holding company with concentrated investments in e-commerce
software operations. The E-Commerce Operations are conducted through IWH,
as the successor entity to InterWorld. A description of the events and
transactions involving InterWorld are more fully described below. J Net
uses a fiscal year, which ends on June 30 of each calendar year. Unless
the context indicates otherwise, references to "2002", "2001" and "2000"
indicate the fiscal years ended June 30, 2002, 2001 and 2000,
respectively.

J Net also holds minority investments in other technology companies
including, but not limited to, systems development and software companies.
These investments are held directly by the Company, or Ventures I. As a
result of changes in market conditions with respect to Technology-Related
Businesses and the significance of the E-Commerce Operations, J Net has
significantly curtailed its minority investment strategy conducted through
Ventures I and concentrated its efforts and financial resources on its E-
Commerce Operations.

In May 2001, the Company became the majority shareholder of InterWorld.
Immediately following the acquisition, Management began evaluating several
strategic alternatives for InterWorld and actively sought financial
partners to assist with making InterWorld profitable. During this
process, J Net funded InterWorld operations in the form the Secured Note.
InterWorld, along with most other companies involved in technology and e-
commerce, experienced significant declines in sales of its products during
this period. The declines were amplified by the September 11, 2001
terrorist attacks on New York City and Washington, D.C., reduced
information technology spending by the industry, and the overall economic
downturn.

In February 2002, J Net and InterWorld entered into a Strategic
Partnership Agreement with Titan. Under this agreement, Titan received an
exclusive right to market InterWorld's products in the Americas. Upon the
achievement of certain milestones, Titan earns a right to a percentage of
InterWorld's equity (or a successor entity's equity). Proceeds from the
sale of InterWorld products are shared between Titan and InterWorld.
Costs of the marketing efforts are borne entirely by Titan. Concurrent
with the execution of the Strategic Partnership Agreement, J Net and
InterWorld entered into the Default Agreement which assigned proceeds from
InterWorld's operations, including those derived from Titan's activities,
to J Net as partial repayment of advances to InterWorld under the Secured
Note. To date, no sales have been closed under the Strategic Partnership
Agreement.

In April 2002, the Management of J Net concluded that InterWorld's ability
to repay its debt of approximately $17.2 million was impaired. As a
result, J Net notified InterWorld of its intent to begin foreclosure
proceedings.

On May 3, 2002, J Net and InterWorld finalized the foreclosure process.
Such actions resulted in the employees, contracts and other assets,
including intellectual property and the agreement with Titan being
transferred to IWH, a newly formed J Net subsidiary, in full satisfaction
of the debt. The E-Commerce Operations of the Company are now conducted
solely through IWH.

In addition to the evaluation of the alternatives for InterWorld, the
Company's management implemented a number of steps in 2002 to improve its
financial position, refine its cost structure and refocus business
strategies. A summary of significant actions which have occurred during
2002 include:

(1) Restructuring at InterWorld. In response to the continued economic
slowdown, sluggish e-commerce sales, the September 11, 2001 terrorist
attacks in New York City and Washington, D.C. and completion of
software enhancement projects, the workforce was reduced from
approximately 240 employees at June 30, 2001 to 20 employees at June
30, 2002. These 20 employees were transferred to IWH when J Net
completed its foreclosure proceedings against InterWorld. Management
believes this staff level is adequate to service the existing client
base and create expansion as opportunities arise. The staff level is
subject to further increases or decreases depending on the success of
Titan and foreign resellers to market InterWorld's products and
overall market conditions.

Additionally, InterWorld negotiated a release from all lease
obligations at its 395 Hudson Street office in New York City,
including forgiveness of certain past due expenses. In January 2002,
InterWorld relocated its offices to less expensive facilities under a
short term lease commitment.

In November and December 2001, InterWorld also ceased conducting
business operations in Australia and the United Kingdom. The
existing customers are currently serviced from the United States.

In Japan, InterWorld's subsidiary operations were sold to the local
reseller agent in exchange for a 40% royalty on any future licensing
sales. Primary support will be provided by the Japanese reseller at
no cost to InterWorld. Technical support will be provided from the
United States.

As a result of the foregoing actions, monthly operating expenses at
IWH have been reduced to approximately $.3 million per month.
Receipts from existing customers for product maintenance and support
are very close to break-even for continued operations.

(2) Restructuring at J Net. During the fiscal year ended June 30, 2002,
the Company also reduced its operating costs. Staff at J Net's New
York City office were terminated and in January 2002 a sublease
agreement at the 680 5th Avenue location was executed. While J Net
remains obligated under the original terms of its lease, the sublease
eliminated cash outflows associated with the lease. The sublease
transaction resulted in the Company writing off certain unrecoverable
leasehold improvements and certain severance payments as a one-time
charge reported as a restructuring expense.

The climate in the technology markets been sluggish and business
investment has declined for the past two years. Estimates for the
recovery of many of the businesses with which the Company is involved
with vary widely. The Company is continuing to monitor its
activities closely given the economic environment and may take
further steps to control costs depending on the success of the Titan
Strategic Partnership, the improvement (or deterioration) of the e-
commerce software market, or other external economic factors.

In April 2002, the Company was notified by the NYSE that the NYSE was
initiating steps to delist the Common Stock of J Net. On May 8, 2002, the
NYSE formally delisted the shares of Common Stock of J Net from its
exchange. J Net's Common Stock is now quoted on the OTCBB and trades
under the symbol "JNEI".

In May 2002, the Company announced that it would extend a voluntary
repurchase offer to the holders of its $27.75 million Notes. In June
2002, the offers were accepted by all of such holders and the Notes were
paid off in July 2002.

Critical Accounting Policies

General
The policies outlined below are critical to the Company's operations and
the understanding of the results of operations. The impact of these
policies on operations is discussed throughout Management's Discussion and
Analysis of Financial Condition and Results of Operations where such
policies affect the reported and expected financial results. For a
detailed discussion on the application of these and other accounting
policies, refer to Note 1 in the Notes to the Consolidated Financial
Statements contained in this Annual Report on Form 10-K. Note that
preparation of this Annual Report on Form 10-K requires the Company to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenue and expenses during the reporting period.
Actual results may differ from those estimates.

Consolidation
The accompanying consolidated financial statements include the accounts of
J Net, its wholly-owned subsidiaries and 100% of InterWorld. The Company
owns 95.3% of the equity securities of InterWorld. Because the minority
shareholders of InterWorld hold a deficit position, no minority interest
is included.

Investments in Technology-Related Businesses
The various interests that the Company acquires in Technology-Related
Businesses are accounted for under one of three methods: consolidation,
equity or cost. The applicable accounting method is generally determined
based on the Company's voting interest and its ability to influence or
control the Technology-Related Businesses.

For the periods beginning November 2000 through April 2001, J Net owned
$20 million of mandatorily redeemable preferred stock of InterWorld (the
"Preferred Stock"). The Preferred Stock voted on an "as-if" converted
basis with common stock, which represented approximately 10% voting
rights. J Net used the equity method of accounting during the time it
owned only the Preferred Stock. In May 2001, when the redemption of the
Preferred Stock became due, J Net exchanged the Preferred Stock for common
stock in lieu of cash. As a result of this redemption, J Net became a
95.3% owner of the equity securities and began using the consolidation
method for InterWorld.

Revenue recognition
The Company follows AICPA Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by SOP 98-4, further amended by SOP
98-9, and Staff Accounting Bulletin 101. These pronouncements provide
guidance on when revenue should be recognized and in what amounts as well
as what portion of licensing transactions should be deferred.

Revenue under multiple element arrangements is allocated to each element
using the "residual method", in accordance with Statement of Position No.
98-9, "Modification of SOP 97-2 with Respect to Certain Transactions"
("SOP 98-9"). Under the residual method, the arrangement fee is
recognized as follows: (a) the total fair value of the undelivered
elements, as indicated by vendor-specific objective evidence, is deferred
and (b) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to
the delivered elements. Software license agreements generally include two
elements: the software license and post-contract customer support. The
Company has established sufficient vendor-specific objective evidence for
the value of maintenance and post-contract customer support services based
on the price when these elements are sold separately and/or when stated
renewal rates for maintenance and post-contract customer support services
are included in the agreement, and the actual renewal rate achieved.

Product licenses
Revenue from the licensing of software products is recognized upon
shipment to the customer, pursuant to an executed software licensing
agreement when no significant vendor obligations exist and collection is
probable. If acceptance by the customer is required, revenue is
recognized upon customer acceptance. Amounts received from customers in
advance of product shipment or customer acceptance are classified as
deposits from customers. Other licensing arrangements such as reseller
agreements typically provide for license fees payable to the Company based
on a percentage of the list price for the software products. The license
revenues are generally recognized when shipment by the reseller occurs, or
when collection is probable.

Contracts for product licenses where professional services require
significant production, modification or customization are recognized on a
percentage of completion basis.

Services revenue
Revenue from professional services, such as custom development and
installation and integration support is recognized as the services are
rendered.

Revenue from maintenance and post-contract customer support services, such
as telephone support and product enhancements is recognized ratably over
the period of the agreement under which the services are provided,
typically one year. Recognition of revenue is deferred until advance
payments from customers are received for maintenance and support.

Deferred revenue consists principally of billings in advance for services
and support not yet provided and uncollected billings to customers for
maintenance and post contract support.

Impairments
The Financial Accounting Standards Board ("FASB") issued a statement
on asset impairment ("SFAS 144") that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The
FASB's new rules on asset impairment supercede FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", and provide a single accounting model for long-
lived assets to be disposed of.

Although retaining many of the fundamental recognition and measurement
provisions of Statement 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale.
This distinction is important because assets held-for-sale are stated at
the lower of their fair values or carrying amounts and depreciation is no
longer recognized.

The Company adopted SFAS 144 on July 1, 2002 as required and does not
anticipate its application to have a significant impact on the results of
operations as compared with practices in place today.

Capital Resources and Liquidity

Liquidity
The Company's sources of funds in 2002 were generated from IWH and
InterWorld revenues, interest from cash deposits and Mariner Investments,
L.P. ("Mariner") earnings. In 2001 and 2000, the sources of cash were
derived from the proceeds from the issuance of Notes, proceeds from the
sale of the Route Operations and InterWorld's operating revenues.

Since 2000, when the Company changed its business strategy, the Company
has used approximately $39 million in operations and made approximately
$64 million in cash investments in Technology-Related Businesses and
notes, including its initial $20 million investment in InterWorld
Preferred Stock. As a result of the restructuring efforts initiated in
the first half of 2002, the cash required to fund operations has been
reduced to approximately $.3 million per month compared to $3 million per
month immediately following J Net's acquisition of InterWorld in May 2001.
Future revenue increases are dependent on the success of Titan's marketing
efforts, sales from other resellers in Europe and Japan, and overall
improvements in the market for e-commerce technology products.

As of June 30, 2002, the Company had $36.3 million in cash and marketable
securities. In July 2002, a total of $27.3 million was used to complete
payments to the holders of the Notes pursuant to the voluntary repurchase
offer made by the Company in May 2002. As a result of this subsequent
event, the remaining cash and securities total approximately $9 million.
In 2003, the Company expects to receive proceeds from the sale of assets
of approximately $5 million and receive income tax refunds of
approximately $1 million. Therefore, available liquidity will reach
approximately $15 million, which the Company believes is adequate to fund
existing operations and allow time for the marketing efforts from Titan to
increase cash flows from operations. These funds also provide resources
for the Company to find a new business, if it is successful in its efforts
to identify and consummate a transaction with a possible target business.

As of June 30, 2002, the total accounts payable and accrued liabilities
include approximately $2.3 million attributable to unsecured creditors of
InterWorld. While these liabilities are included as part of the
consolidated group, these liabilities remain separate and distinct to
InterWorld and J Net is not legally liable to settle the debts.
Management has actively been negotiating with many of the significant
unsecured creditors to settle aged claims. Between January 2002 and June
2002, approximately $1.0 million of liabilities were settled for
approximately $.3 million. Although there can be no assurances,
management believes the remaining obligations will be settled at amounts
substantially less then their respective face values.

As of June 30, 2002, the Company has commitments under existing employment
contracts of approximately $.6 million. There are also office lease
commitments of approximately $69 thousand in the Company's Plano, Texas
office and future minimum lease payments of $3.9 million on office space
in New York, New York. The office commitment in New York has been
subleased and future minimum receipts under that sublease, net of profit
sharing with the landlord total $4.6 million.

The Company raised $26.5 million through the issuance of Convertible
Subordinated Notes (the "Notes") between June 2000 and October 2000, net
of $1.2 million loaned for the purchases of the Notes. In September 2001,
$1.0 million of the loans were paid as part of the termination agreements
with former employees. In May 2002, the Company initiated a voluntary
repurchase program to the holders of the Notes. The terms of the offer
were at face value of each Note, but excluded any interest which had
accrued on the Notes since March 2002, the last interest payment date. In
July 2002, $27.3 million was paid to discharge the Notes. The payments
represented the face value of the Notes less the $.4 million remaining
loans due to the Company.

In November 2000, the Company completed the sale of its Route Operations,
which resulted in receiving net proceeds of $36.9 million.

On January 4, 2001, the Board of Directors authorized the repurchase of up
to 1,000,000 shares of Common Stock. Repurchases under this program
through June 30, 2002, were 370,305 shares for an aggregate cost of $1.8
million. In addition, 80,000 shares, with an aggregate cost of $.4
million, were repurchased in 2001 under a separate, now terminated,
program.

Cash Flows
In 2002, J Net used $16.5 million in operations. Approximately $14.2
million was used to fund InterWorld. As a result of the Company's
restructuring efforts during the first half of 2002, the monthly cash use
has been reduced from approximately $3 million per month in September 2001
to approximately $.3 million per month in June 2002. Assuming revenue
targets are achieved by Titan by December 2002, cash flow from operations
will be break even to slightly positive.

Cash used in investing activities in 2002 was a net of $1.1 million, most
of which was attributable to a $1.3 million remaining obligation to
eStara. In 2001, the Company reduced its focus on making minority-
interest based investments and concentrated its growth efforts on the E-
Commerce Operations. While the Company continues to evaluate potential
investments, the process remains selective.

Results of Operations

2002 compared to 2001

The results of operations for 2002 and 2001 vary significantly due, in
large part, to differences in accounting methods which were used for
InterWorld during 2001. In 2002, the results of InterWorld operations are
consolidated for the entire year. In 2001, J Net accounted for
InterWorld using the equity method of accounting for the first ten months
and the consolidation method of accounting for the last two months. The
following discussion of results of operations includes comparisons of the
historical operating results under accounting principles generally
accepted in the United States. In certain cases, Management believes
analysis between years on a pro forma basis will assist users of these
consolidated financial statements in understanding changes between these
years more thoroughly. When pro forma comparisons are used, they are
emphasized in separate sentences or paragraphs, which follow the analysis
of historical results of operations.

Total revenues
Total revenues for 2002 were $5.8 million compared to $2.2 million in
2001. The 2001 revenues included May and June 2001 only. On a pro forma
basis, total revenues declined to $5.8 million in 2002 from $30.6 million
in 2001. The pro forma decline includes reductions in all components of
revenues. Throughout 2002, the market conditions were weak for e-commerce
products, which contributed to the reduced license sales and related
professional services. Reductions in post production maintenance support
was due primarily to cancellations of support contracts and weakening
financial condition of many "dot com" clients.

Total cost of revenues
Total cost of revenues, all of which are attributable to the E-Commerce
business segment, were $2.9 million for 2002 and $.9 million for 2001. As
with revenues, the costs include only the final two months of 2001. These
costs include third party royalty payments from license sales and third
party implementation costs, both of which are variable in nature. Because
license sales have decreased, the related cost of sales have also
declined.

On a pro forma basis, the 2002 cost of revenues were $2.9 million compared
to $21.3 million in 2001, an average cost per month of $.2 million and
$1.8 million for 2002 and 2001, respectively. The reductions are due
primarily to the reductions in workforce and lower contractor costs in
2002.

Operating expenses
Operating expenses consist of personnel costs associated with development
of the Company's e-commerce products, marketing costs and general and
administrative expenses ("G & A"). In addition, costs attributable to
impairment of assets, restructuring and gains from settlements with
unsecured creditors are included. In 2002, total operating costs were
$29.1 million compared to $47.8 million in 2001. The following table
presents the significant operating cost components and their change from
the previous fiscal year (dollars in thousands).

Favorable/(Unfavorable)
2002 2001 change from prior year
_______ _______ _______________________
Research, development,
marketing and
administrative $20,693 $22,379 $ 1,686
Impairment of assets 2,703 24,281 21,578
Restructuring and unusual
Charges 6,362 1,140 (5,222)
Gains from settlements with
Unsecured creditors (669) - 669
_______ _______ _______
Total operating expenses $29,089 $47,800 $18,711
======= ======= =======

G & A costs for 2001 include the consolidated results of InterWorld for
May and June 2001 and $8.6 million of expenses associated with a loan to
Michael Donahue, then the Vice Chairman and Chief Executive Officer of
InterWorld. Excluding the Donahue expense, the G & A for 2001 would have
been $13.8 million, of which $7.1 million represented InterWorld G & A
for May and June 2001. Normal recurring G & A costs for the three months
ended June 30, 2002 have averaged approximately $.5 million per month,
which represents a decrease of over 70% from the 2002 annual average. The
decreases are primarily due to the reductions in workforce.

Impairments of assets in 2002 consisted of a $2.2 million impairment
against the Company's investment in eStara, Inc. and a $.5 million
reduction in the carrying cost of assets held for sale. The eStara
impairment provision is based on the valuation contained in eStara's
recent bridge loan. The Company has elected not to participate in the
bridge loan and is therefore carrying its investment in eStara based on
this recent valuation. The reduction in carrying value of the assets held
for sale is due to the combination of reduced value of InterWorld common
stock received as part of the acquisition of the assets and higher
operating costs associated with an extended holding period of the asset.

The following table presents the investment activities for the remaining
Technology-Related Businesses for 2002 (dollars in thousands):



Balance at Equity Value at
June 30, income Goodwill Impairments June 30,
Investments 2001 Additions (loss) amortization and sales Other 2002
___________ __________ _________ ______ ____________ ___________ ___________ _________


eStara, Inc. $1,290 $1,338 $ - $ - $(2,203) $ - $ 425
Tellme Networks,
Inc. 2,000 - - - - - 2,000
______ ______ ____ ____ _______ ____ ______
Total $3,290 $1,338 $ - $ - $(2,203) $ - $2,425
====== ====== ==== ==== ======= ==== ======



In 2001, impairments, which also include losses from sales of the Company's
investments were $24.3 million. The following table sets forth the activity
for each investment in 2001 dollars in thousands).



Balance at Equity Value at
June 30, income Goodwill Impairments June 30,
Investments 2001 Additions (loss) amortization and sales Other 2002
___________ __________ _________ ______ ____________ ___________ ___________ _________



Digital
Boardwalk,
LLC $ 4,888 $ - $ (627) $ (10) $ (4,501) $ 250(a) $ -
Meister
Brothers
Investments,
LLC 2,554 - - - (40) (2,514)(b) -
CyberBills,
Inc. 3,186 - - - (2,986) (200)(c) -
Carta, Inc. 4,000 - - - (4,000) - -
TechTrader, Inc. 8,410 27 (3,247) (380) (4,810) - -
Alistia, Inc. 1,905 480 (1,907) (9) (469) - -
Strategic Data
Corporation 850 250 - - (1,100) - -
eStara, Inc. - 2,665 - - (1,375) - 1,290
Jasmine Networks,
Inc. - 5,000 - - (5,000) - -
Tellme Networks,
Inc. - 2,000 - - - - 2,000
InterWorld
Corporation(d) - 20,340 (20,340) - - - -
Other - 5 - - - (5)(e) -
_______ _______ ________ _____ ________ _______ ______
Total $25,793 $30,767 $(26,121) $(399) $(24,281) $(2,469) $3,290
======= ======= ======== ===== ======== ======= ======



(a) Represents a loan made to Digital Boardwalk,
which was written off to expense when the Company
sold its interest for a loss of $4,501.

(b) J Net owned a 1% controlling interest in Meister
Brothers Investments, LLC. The minority interest
was eliminated upon impairment in 2001.

(c) Uncollected proceeds from sale of investment as of
June 30, 2001.

(d) InterWorld became a consolidated subsidiary of J Net
in May 2001. Equity loss includes the period from
November 2000 through April 2001.

(e) Abandoned deal screening costs written off to general
and administrative expenses.

During the first half of 2002, the Company initiated a series of actions
designed to lower its operating costs. Such actions were due to the
combination of significant ongoing losses at InterWorld, persistent
sluggishness in the market for e-commerce products, and the reduced focus
on J Net's minority interest investment strategy. These restructuring
efforts included significant staff reductions in the U.S., closing of
foreign offices of InterWorld, the sale of the Japanese operations to the
local reseller, and the closing and relocation of office leases. The
total restructuring costs included severance costs of $1.8 million, $1.6
million in contract settlements and $3 million of leasehold abandonments
in 2002. In 2001, severance costs of $1.1 million were incurred as a
result of the Company's sale of its Route Operations.

The foreclosure against InterWorld by J Net and subsequent transfer of
assets to IWH left InterWorld insolvent. Immediately following the
foreclosure, InterWorld had approximately $3.3 million of unsecured
creditor liabilities. Management attempted to settle certain significant
liabilities to facilitate the transfer of intellectual property and retain
ongoing business relationships. This process resulted in approximately
$1.0 million of liabilities being settled for $.3 million, resulting in a
$.7 million gain on such settlements in 2002.

Other income (expenses)
Other income of $1.2 million, consisting of interest and other income of
$3.5 million offset by interest expense of $2.3 million, was recognized in
2002 compared to a loss of $26.5 million in 2001. The significant
components of this $27.7 million favorable change included $26.1 million
of losses from investments accounted for using the equity method of
accounting in 2001 and $3.9 million non cash amortization of original debt
discount of the Company's Notes in 2001. The $26.1 million of equity
method losses included $20.3 million attributable to InterWorld for the
November 2000 to April 2001 period prior to J Net acquiring a controlling
interest in May 2001. Partially offsetting these 2001 expenses was
reduced interest and other income of approximately $2.0 million. A
detailed breakdown of the equity loss can be located on the table
containing activity of the Company's investments provided in the operating
expense section.

Income taxes
Income taxes for 2002 are a net provision of $.2 million. Such provision
is the result of a reduction in the amount of estimated income tax refunds
to be collected from carry-backs of 2002 operating losses caused by the
alternative minimum tax.

While the Company has incurred losses in 2001 and 2002, the available
carrybacks are limited by Section 382 of the IRS regulations and separate
return loss limitations for E-Commerce operations. Therefore, the
available carry-backs are limited to losses incurred in the Technology-
elated Businesses segment.

In 2001, the Company recognized a net tax benefit of $4.9 million
consisting of $11.6 million of benefits due to losses from continuing
operations offset by a $6.7 million tax liability from the sale of Route
Operations.

Net loss from continuing operations
The net loss from continuing operations for 2002 was $25.2 million
compared to $61.4 million in 2001. The significant components of the
$36.2 million reduced loss include increased gross profit of $1.6 million,
reduced asset impairments of $21.5 million, lower G & A of $1.8 million,
and a $27.7 million improvement in other expenses. Partially offsetting
those favorable items were restructuring costs and vendor settlement gains
of $4.6 million and a net reduction in income tax benefits of $11.8
million.

Discontinued operations
In November 2000, the Company completed the sale of its Route Operations
and recognized a gain of $13.0 million after a tax provision of $6.7
million. Operating results for July 2001 through November 2001, the
period when the Company owned the Route Operations, were a $.2 million
loss, net of taxes. Financial results from the Route Operations were
restated and reported as discontinued operations beginning in 2000.

Net loss
The net loss for 2002 was $25.2 million compared to $48.7 million in 2001.
The variance between periods includes the components described in the net
loss from continuing operations for 2002 and 2001. Additionally, the loss
from continuing operations for 2001 of $61.4 million was reduced by $12.7
million of net gains from discontinued operations.

2001 compared to 2000

The results of operations for 2001 and 2000 also differ significantly. In
2000, the Company initiated its change in business strategy from gaming
operations to technology-related investments. Consequently, there were no
operating revenues or cost of revenues in 2000. In 2001, the Company made
its initial investment in InterWorld and used the equity method of
accounting from November 2000 to April 2001. In May 2001, when J Net
acquired a controlling interest in InterWorld, the consolidation method of
accounting was applied. Therefore, 2001 results of operations for
InterWorld include consolidated results for May and June 2001 and equity
losses for the period of November 2000 to April 2001. Equity method
losses of InterWorld in 2001 are included in other income (expense)
caption.

Revenues, net
Revenues for 2001 totaled $2.2 million and were due entirely to
InterWorld's sales of licenses, product maintenance fees and professional
services for the May 2001 through June 2001 period. There were no
revenues from continuing operations for 2000.

Costs of revenues
Costs of revenues, all of which were attributable to InterWorld's
operations for May and June 2001 totaled $.9 million. As with revenues,
there were no costs of revenues for the fiscal year ending June 30, 2000.

Operating expenses
Total operating expenses for the twelve months ended June 30, 2001 were
$47.8 million compared with $6.8 million for 2000, an increase of $41
million. Significant components of the increase were due primarily to
impairments and losses from investments in Technology-Related Businesses
of $24.3 million, and $13 million increased G & A expenses which included
$7.1 million of InterWorld G & A and $8.6 million of expenses related to
foreclosure actions taken on a loan to InterWorld's former Chief Executive
Officer. The following table sets forth the components of the impairments
and losses in 2001 (dollars in thousands):




Equity Equity
income income
(loss) (loss)
for year for year Carrying
Original ended ended Impairments value as
Acquisition June 30, June 30, Goodwill and losses on of June
Investments Cost 2000 2001 Amortization sale in 2001 Other 30, 2001
_____________________ ____________ _____ _______ ____________ _____________ _______ ________


Jasmine Networks,
Inc. $ 5,000 $ - $ - $ - $ (5,000) $ - $ -
TechTrader, Inc. 8,563 (99) (3,247) (407) (4,810) - -
Digital Boardwalk,
LLC 5,017 130 (627) (19) (4,501) - -
Carta, Inc. 4,000 - - - (4,000) - -
CyberBills, Inc 3,186 - - - (2,986) (200) (a) -
eStara, Inc. 2,665 - - - (1,375) - 1,290
Strategic Data
Corporation 1,100 - - - (1,100) - -
Alistia, Inc. 2,480 (93) (1,907) (11) (469) - -
Meister Brothers
Investments, LLC 40 - - - (40) - -
InterWorld
Corporation (b) 20,340 - (20,340) - - - -
Tellme Networks,
Inc. 2,000 - - - - - 2,000
_______ _____ ________ _____ ________ _____ ______
Total $54,391 $ (62) $(26,121) $(437) $(24,281) $(200) $3,290
======= ===== ======== ===== ======== ===== ======


(a) Uncollected proceeds from sale of investment, included in other
current assets as of June 30, 2001.

(b) InterWorld became a consolidated subsidiary of the Company in May
2001.

Expenses of $8.6 million for 2001, which were reported as a
component of G & A, are the result of foreclosure actions taken by the
Company on a loan to Michael J. Donahue, the former Chief Executive
Officer and Vice Chairman of InterWorld. The Company acquired the loan
from Salomon Smith Barney in October 2000 for face value of $12.4 million
in cash. Interest on the loan accrued at 8% per annum and 85,408 post-
split shares of InterWorld common stock owned by Mr. Donahue, and a
negative pledge of other assets secured the loan. Interest payments were
due quarterly beginning in December 2000. On the date the loan was
purchased by the Company, the value of the InterWorld stock
collateralizing the loan was approximately $13.6 million. The Company
also entered into a separate agreement with Mr. Donahue which allowed J
Net to participate in profits from the sale of the stock with Mr. Donahue.
InterWorld's stock price, along with other stock prices in the technology
space, continued to decline throughout 2000 and 2001. Such declines in
the InterWorld stock price necessitated the Company to take more
definitive actions on the negative pledge on the other assets.

In April 2001, amendments to the loan were executed whereby the Company
modified the existing negative pledge and secured additional collateral in
the form of real property owned by Mr. Donahue. As of June 29, 2001, the
loan, together with accrued interest totaled $13.2 million. Due to the
financial condition of Mr. Donahue, the Company executed a series of
agreements on June 29, 2001 which foreclosed on the real property assets
securing the loan. In addition, the 85,408 post-split shares of InterWorld
common stock securing the loan were transferred to the Company. The net
realizable value of the real property, net of selling costs and other
obligations, was estimated to be $5.5 million.

The agreements entered into on June 29, 2001 also provided for the Company
to loan Mr. Donahue up to $.8 million. The Company believed this
obligation would be funded and that Mr. Donahue would likely not be able
to repay it. Therefore, the obligation was accrued as an additional
expense in general and administrative expenses along with the foreclosure
actions. In 2002, Mr. Donahue released the Company from this obligation
and the accrual was reversed.

The operating and general and administrative costs totaled $22.4 million
in 2001 compared with $3.9 million in 2000, an increase of $18.4 million.
The primary causes of the increase are due to costs attributable to the
acquisition of InterWorld, the aforementioned loss on the loan
to Mr. Donahue, and higher costs from J Net activities, which
are the result of higher personnel costs, facilities expenses, and legal
fees incurred in connection with a terminated rights offering for
InterWorld. Other costs, classified as restructuring and unusual charges,
included severance payments of $1.1 million in 2001 and $2.8 million in
2000 to former executive officers of the Company.

Other income (expense)
For the twelve months ended June 30, 2001, other expenses were $26.5
million compared with other income of $15.5 million for the twelve months
ended June 30, 2000. The following table compares the significant
components of the $42.0 million change between 2001 and 2000 (dollars in
thousands):
June 30,
__________________ Favorable (unfavorable)
2001 2000 change from prior year
________ ________ ______________________

Other income (expense)
Interest and other
income $ 5,524 $ 2,068 $ 3,456
Equity losses in
technology-related
businesses (26,121) (62) (26,059)
Interest expense (5,889) - (5,889)
Net fee from terminated
merger - 11,116 (11,116)
Gain on sale of short-term
investments - 2,361 (2,361)
________ ________ ________
$(26,486) $ 15,483 $(41,969)
======== ======== ========

The increased interest income is due primarily to higher returns generated
from the Company's investment in marketable securities in Mariner.
Interest income in 2001 also includes $.8 million of interest accrued
under the loan to Michael J. Donahue.

Equity losses for 2001 include InterWorld losses for the November 2000 to
May 2001 period of $20.3 million, Tech Trader, Inc. losses of $3.2 million
and Alistia and Digital Boardwalk, LLC losses totaling $1.9 million and
$.6 million, respectively. The 2001 equity losses do not include an
additional $5.8 million loss from InterWorld for May and June 2001, which
is included in the consolidated operating results of the Company. Equity
losses for 2000 were not material since the majority of the investments
occurred late in the fourth quarter of 2000. All investments accounted
for using the equity method of accounting were either sold or abandoned as
of June 30, 2001, except for InterWorld which became a consolidated
subsidiary of the Company beginning in May 2001.

Interest expenses in 2001 are attributable to the Notes. Interest on the
Notes, which were issued between June 28, 2000 and October 2, 2000,
includes non-cash discount amortization of $3.9 million. The cash
interest cost for 2001 was $2.1 million. As of June 30, 2001, there was
no unamortized discount remaining on the Notes.

The net fee from terminated merger and gain from sale of short-term
investments in 2000 were due to a notice dated August 16, 1999 from
Players, an unaffiliated entity, containing terms of a merger offer from
another unrelated entity. As a result of such notice, the Company
received a break-up fee of $13.5 million. Previously capitalized costs of
$2.4 million associated with the Company's merger activities were expensed
resulting in a net gain of $11.1 million. The Players securities held by
the Company were also sold for a gain of $2.4 million.

Federal income tax
The effective tax rate on loss from continuing operations for 2001 was
15.8% compared to a 28% tax rate for 2000. The differences between the
statutory rate and effective rate for 2001 is due primarily to a valuation
allowance for deferred tax assets and non-deductible debt discount
amortization. The difference in rates for 2000 is due to tax benefits
from tax-exempt interest income.

Net income (loss) from continuing operations
The net loss from continuing operations in 2001 was $61.4 million while
2000 had net income of $6.3 million. The primary causes of the $67.7
million variance are due to the equity losses, interest expenses,
consolidated InterWorld losses, and operating cost increases in 2001
combined with the reduced other income items created by the non-recurring
merger termination fees and gains from the sale of investments in 2000.

Income (loss) from discontinued operations, net of tax
On November 22, 2000, the Route Operations were sold for a pre-tax gain of
$19.7 million. Losses before income tax benefit from the discontinued
operations for the July 1, 2000 to November 22, 2000 period were $.3
million. Income taxes associated with the sale and related operations
were $6.6 million. For 2000, the Route Operations had income after taxes
of $.3 million.

Net income (loss)
The net loss for 2001 was $48.7 million compared with net income for 2000
of $6.6 million. The variance is attributable to the items discussed
above in continuing operations, with such losses being partially offset by
the gain realized from the sale of Route Operations in 2001.

Recently issued accounting standards
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 addresses the initial recognition and measurement
of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial measurement and recognition of
intangible assets acquired outside of a business combination, whether
acquired with a group of other assets or acquired individually, and the
accounting and reporting for goodwill and other intangibles subsequent to
their acquisition. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to
impairment test on an annual basis at a minimum. The Company will adopt
SFAS 141 and SFAS 142 beginning July 1, 2002. As of June 30, 2002, the
Company had no goodwill or other intangible assets due to previous
impairments or losses incurred on investments where goodwill had been
recorded. The Company expects that the adoption will have no material
impact on future financial statements.

The FASB issued a Statement on Asset Impairment ("SFAS 144") that is
applicable to financial statements issued for fiscal years beginning after
December 15, 2001. The FASB's new rules on asset impairment supercede
ASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", and provide a single
accounting model for long-lived assets to be disposed of.

Although retaining many of the fundamental recognition and measurement
provisions of Statement 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale.
This distinction is important because assets held-for-sale are stated at
the lower of their fair values or carrying amounts and depreciation is no
longer recognized.

The Company adopted SFAS 144 on July 1, 2002 and does not anticipate its
application to have a significant impact on the results of operations as
compared with practices in place today.

In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement 13, and Technical Corrections" ("SFAS 145"). For most
companies, SFAS 145 will require gains and losses from the extinguishment
of debt to be classified as a component of income or loss from continuing
operations. Prior to the issuance of SFAS 145, early debt extinguishments
were required to be recognized as extraordinary items. SFAS 145 amended
other previously issued statements and made numerous technical
corrections. With the exception of the accounting treatment for
extinguishments of debts, those other modifications are not expected to
impact the consolidated financial statements of the Company. SFAS 145 is
effective for fiscal years beginning after May 15, 2002. However, early
adoption of the provisions of SFAS 145 is encouraged. The Company has
applied such provisions in the accompanying consolidated financial
statements for its fiscal year ended June 30, 2002.

The FASB recently issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 nullifies the Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity". SFAS 146 requires that a
liability associated with an exit or disposal activity be recognized when
the liability is incurred while EITF Issue No. 94-3 recognized such
liabilities at such time that an entity committed to an exit plan. The
provisions of SFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002 with early application encouraged.

Factors which may affect future results
The Company's financial and management resources have been concentrated on
its E-Commerce Operations. For the past two years, the technology-related
markets have experienced significant declines in sales, market value, and
available capital resources to develop new products. In addition, the
technology-related environment is extremely competitive. The combination
of the above factors involves a number of risks and uncertainties. Even
with the significant reductions to its cost structure, the Company's
operations will require an increase in sales of e-commerce products to
avoid further cost reductions. Increases in sales are dependent on
several factors including (1) successful closed deals from its alliance
with Titan, (2) an increase in information technology spending by
businesses, (3) continued solvency of existing customers, (4) availability
of capital, (5) an increase in the use of the Internet by businesses and
individuals, (6) preservation of existing patents and trademarks, and (7)
the Company's ability to build and deliver products ahead of its
competitors. There is no assurance that any of the events will occur, or
be sustainable if they do occur.

Pending or threatened litigation
As of June 30, 2002, J Net did not have any litigation pending or
threatened, or other claims filed against the Company. However,
InterWorld is subject to two claims.

On March 8, 2001, as amended on May 29, 2001, InterWorld received notice
that the Commission had commenced a formal order directing a private
investigation by the Commission with respect to whether InterWorld engaged
in violations of Federal Securities Laws as it relates to InterWorld's
financial statements, as well as its accounting practices and policies.
Also under review by the Commission is certain trading activity in
InterWorld stock. All the above events are related to periods prior to
the Company's common stock ownership in InterWorld.

The investigation is confidential and the Commission has advised that the
investigation should not be construed as an indication by the Commission
or its staff that any violation of law has occurred nor should the
investigation be construed as an adverse reflection on any person, entity
or security.

The investigation is ongoing and InterWorld is fully cooperating with the
Commission.

PBS Realty ("PBS"), a real estate broker conducting business in New York
City, filed a $1.2 million claim against InterWorld in April 2002. The
claim alleges that PBS is owed commissions by InterWorld for services
related to PBS's attempts to sublease office space previously occupied by
InterWorld at 395 Hudson Street in New York City. InterWorld is
vigorously contesting the claim and InterWorld management does not believe
a liability exists at this time. J Net was not a party to the brokerage
agreement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company generally is exposed to market risk from adverse changes in
interest rates and interest income is affected by changes in the general
level of U.S. interest rates. Changes in U.S. interest rates could affect
interest earned on the Company's cash equivalents, debt instruments and
money market funds. A majority of the interest earning instruments earn a
fixed rate of interest over short periods (7-35 days). In July 2002, $23
million of the marketable securities in Mariner were liquidated to
repurchase the Company's Notes. Based upon the invested cash balances at
July 31, 2002, a 10% drop in interest rates would reduce pretax interest
income by less than $20 thousand per year. Therefore, the Company does
not anticipate that exposure to interest rate market risk will have a
material impact on the Company.

The Company's value of investments at Mariner as of June 30, 2002 was
$29.6 million and $6.6 million in July 2002. Mariner's performance has
historically generated above-average returns relative to hedge fund
industry benchmarks. However, such returns cannot be assured in the
future.

In June 2000 through October 2000, the Company raised $26.5 million
through the issuance of the Notes. The principal amount of the Notes were
payable on March 31, 2007 and bore interest at 8% per annum, payable on a
quarterly basis. For financial statement purposes, the Notes were deemed
to have been beneficially converted as the conversion feature was in-the-
money at the commitment date. The Company calculated the beneficial
conversion feature as the difference between the fair value of the Common
Stock at the commitment date and the initial conversion price, multiplied
by the number of shares into which the debt is convertible. Approximately
$3.9 million of the proceeds from issuance of the Notes, equal to the
intrinsic value, was recorded as debt discount and allocated to additional
paid-in capital. The Notes were repurchased in July 2002 at face value,
but excluded any unpaid interest accrued since March 31, 2002, the last
interest payment date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data required by this Item 8
are set forth as indicated in Item 14(a)(1)(2).

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Registrant

At the annual meeting on December 6, 2000, four directors were elected to
serve and hold office (subject to J Net's By-Laws) until the next annual
meeting of stockholders and until a respective successor is elected and
qualified. In June 2001, Eugene Freedman was appointed as an additional
independent director.

The directors of J Net (none of whom has a family relationship with one
another) are as follows:

Name Age Position
_______________________ ___ _____________________

Allan R. Tessler 66 Chairman of the Board
Alan J. Hirschfield 66 Vice Chairman
Eugene M. Freedman 70 Director
David R. Markin 71 Director
Robert L. McDonald, Sr. 82 Director

Allan R. Tessler has served as Chief Executive Officer and Chairman of the
Board since March 2000 and May 1994, respectively, and has been a director
of J Net since 1980. Mr. Tessler also served as Secretary of J Net from
1980 through August 1993. He has been Chairman and Chief Executive
Officer of International Financial Group, Inc., an international merchant
banking firm, since 1987. He was Co-Chairman and Co-Chief Executive
Officer of Interactive Data Corporation (formerly Data Broadcasting
Corporation), a securities market data supplier, from June 1992 through
February 2000. Mr. Tessler was Chairman of the Board of Enhance Financial
Services, Inc., an insurance holding company from 1986 through 2001, and
was Chairman of the Board of Great Dane Holdings Inc., a diversified
holding company, from 1987 through December 1996. He is also a director
of The Limited, Inc. and Interactive Data Corporation. Mr. Tessler has
been a director of InterWorld Corporation since November 2000 and Chairman
of the Board of InterWorld since February 2001.

Alan J. Hirschfield has been a director of J Net since January 2000. Mr.
Hirschfield was Co-Chairman of the Board and Co-Chief Executive Officer of
Interactive Data Corporation (formerly Data Broadcasting Corporation), a
securities market data supplier, from June 1992 to 1999. Prior to
becoming Co-Chief Executive Officer in June 1992, Mr. Hirschfield served
as managing director of Schroder Wertheim & Co. Inc. and as a consultant
to the entertainment and media industry. He formerly served as Chief
Executive Officer of Twentieth Century Fox Film Corp. and Columbia
Pictures Inc. from 1980 to 1985 and 1973 to 1978, respectively. Mr.
Hirschfield currently serves on the boards of Cantel Industries, Inc.,
Carmike Cinemas, Chyron Corporation and Interactive Data Corporation.

Eugene M. Freedman became a Director of J Net in June 2001. Mr. Freedman
is a Senior Advisor and Director of Monitor Clipper Partners, Inc., a
private equity firm, and Senior Advisor of Monitor Company Group Limited
Partnership, an international business strategy and consulting firm, which
he joined in 1995. He was a Managing Director and President of Monitor
Clipper Partners from its formation in 1997 until the end of 1999. Until
October 1994 and for many prior years, Mr. Freedman was a senior partner
of Coopers & Lybrand, where he served as Chairman and Chief Executive
Officer of Coopers & Lybrand LLP, U.S. and as Chairman of Coopers &
Lybrand International. Mr. Freedman is a Director of The Limited, Inc.,
Pathmark Stores, Inc., e-Studio Live, Inc. and Outcome Sciences, Inc.

David R. Markin has been a director of J Net since 1980. Mr. Markin has
been Chairman of the Board, Chief Executive Officer and President of
Checker Motors Corporation ("Checker"), an automobile parts manufacturer
and taxicab fleet operator since 1970. Mr. Markin was President and Chief
Executive Officer of Great Dane Holdings Inc. from 1989 through December
1996. Mr. Markin is presently President of Checker Holdings Corp. IV, the
parent company of Checker.

Robert L. McDonald, Sr. has been a director of J Net since 1980. Mr.
McDonald is a senior partner in the law firm of McDonald Carano Wilson
McCune Bergin Frankovich & Hicks LLP, counsel to J Net. Mr. McDonald is a
principal stockholder, executive officer and a director of Little Bonanza,
Inc., the corporate operator of the Bonanza Casino located in Reno,
Nevada.

Executive Officers and Significant Employees of the Registrant

Year Became an
Name Age Position Executive Officer/
Significant Employee
___________________ ___ __________________________ ____________________

Allan R. Tessler 66 Chief Executive Officer 2000
and Chairman of the Board

Mark W. Hobbs 46 President and Chief
Operating Officer 2000

Steven L. Korby 56 Executive Vice President and
Chief Financial Officer 2000

Mark E. Wilson 43 Vice President and Controller 2000

Allan R. Tessler's biography is set forth above.

Mark W. Hobbs joined J Net as President and Chief Operating Officer in
June 2000. From 1995 through his appointment to J Net, Mr. Hobbs was a
partner in Mariner Investment Group, a private money management and hedge
fund operation that had approximately $500,000,000 under management.
Prior to Mariner, Mr. Hobbs was involved in private investing and
financial consulting from 1991 to 1995. From 1982 to 1991, Mr. Hobbs was
President of Rosewood Financial, Inc., a private investment management
company. Mr. Hobbs has been a director of InterWorld since February 2001.

Steven L. Korby was appointed Executive Vice President and Chief Financial
Officer in June 2000. From April 1999 through his appointment with J Net,
Mr. Korby was engaged in a private investment and consulting business.
From February 1998 through March 1999, Mr. Korby was Executive Vice
President and Chief Financial Officer of The Cerplex Group, Inc., a
provider of repair and logistics services, and spare parts sourcing and
service management for manufacturers of computer, communications and
electronic office equipment. From 1995 through 1997, Mr. Korby was
Executive Vice President and Chief Financial Officer of Greyhound Lines,
Inc., a nationwide intercity bus company. Prior to that and from 1983,
Mr. Korby was Executive Vice President and Chief Financial Officer of
Neodata Services, Inc. and its predecessors, a direct marketing services
company. In addition to his role at J Net, Mr. Korby was appointed
Executive Vice President, Chief Financial Officer and Treasurer of
InterWorld in February 2001.

Mark E. Wilson was appointed Vice President and Controller in September
2000. From 1997 through his appointment with J Net, Mr. Wilson served as
the United States and Latin American Manager of Finance and Corporate
Development for Repsol-YPF, an international integrated energy company.
From 1993 to 1997, Mr. Wilson served as a Manger in Coopers & Lybrand's
utility industry practice. Prior to 1993, Mr. Wilson served as Corporate
Controller for Snyder Oil Corporation and held various positions with
progressive increases in responsibility with Diamond Shamrock Corporation.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
for those persons who were (i) the Chief Executive Officer, (ii) the other
most highly paid executive officers, and (3) significant employees whose
total annual salary and bonus exceeded $100,000 (collectively, the "Named
Executives and Significant Employees") for service provided for the fiscal
years ended June 30, 2002, 2001 and 2000.



SUMMARY COMPENSATION TABLE
________________________________________________________________________
Annual Compensation Long-Term Compensation
_________________________________________________ ______________________
Awards Payouts
______ _______
Other Annual Stock Option
Name and Fiscal Compensation Awards LTIP All Other
Principal Position(1) Year Salary Bonus (2) (in shares)(3) Payout Compensation
_____________________ ______ ________ ________ ____________ ______________ ______ _____________

Allan R. Tessler 2002 $ - $ - $50,000(4) 27,500 $ - $ -
Chief Executive
Officer and Chairman 2001 $ - $ - $50,000(4) 27,500 $ - $ -
of the Board 2000 $ - $ - $50,000(4) 57,500 $ - $102,496(5)

Mark W. Hobbs(7) 2002 $300,000 $ - $ - - $ - $ -
President and Chief 2001 $300,000 $ - $ - - $ - $ -
Operating Officer 2000 $ 9,091 $ - $ - 300,000 $ - $ -

Steven L. Korby(8) 2002 $250,000 $ - $ - - $ - $ -
Executive Vice
President 2001 $250,000 $ - $ - - $ - $ -
and Chief Financial
Officer 2000 $ 7,576 $ - $ - 200,000 $ - $ -

Michael Donahue(6) 2002 $291,667 $ - $ - - $ - $ 57,000
Former Chief
Executive Officer 2001 $ 83,333 $ - $ - - $ - $ -
and Vice Chairman 2000 $ - $ - $ - - $ - $ -
of the Board -
InterWorld

Mark E. Wilson(9) 2002 $150,000 $22,500 $ - - $ - $ -
Vice President and 2001 $105,379 $ - $ - 40,000 $ - $ -
Controller 2000 $ - $ - $ - - $ - $ -


(1) Reflects the primary capacity served during 2002, except where
otherwise noted.

(2) The Named Executives and Significant Employees each received certain
perquisites, the aggregate value of which did not exceed, as to any
Named Executive in any of the last three fiscal years, the lesser of
$50,000 or 10% of such Named Executive's annual salary and bonus.

(3) Represents the number of shares subject to options granted during the
respective fiscal year.

(4) Includes fees earned by Mr. Tessler for services on the Board of
Directors. Mr. Tessler, who has served as Chief Executive Officer
since March 2000, did not receive a salary or bonus during 2002, 2001
or 2000.

(5) Includes value of 6,935 shares received via exercise of options,
having a value on the date of exercise of $99,688. Also includes
$2,808 for group life insurance premiums paid by Jackpot for the
benefit of Mr. Tessler.

(6) Mr. Donahue's 2001 compensation covers May 2001 through June
2001, the period from which InterWorld became a consolidated
subsidiary of the Company. Compensation for 2002 includes July
2001 through March 2002 when Mr. Donahue resigned his position. All
other compensation includes consulting fees paid to Mr. Donahue
beginning in April 2002 for services rendered as a part time
consultant.

(7) Mr. Hobbs was appointed President and Chief Operating Officer on June
21, 2000.

(8) Mr. Korby was appointed Executive Vice President and Chief Financial
Officer on June 21, 2000. Mr. Korby also serves as Executive Vice
President and Chief Financial Officer of InterWorld Corporation, a
subsidiary of the Company. He has held such position since February
2001. Mr. Korby's salary, benefits and other costs related to
services performed are billed to InterWorld on a time spent basis.
Salary billed to InterWorld for the fiscal year ended June 30, 2001
was approximately $104,000. Because InterWorld is a consolidated
subsidiary, the $104,000 billed from J Net to InterWorld is not
presented as a reduction to Mr. Korby's salary.

(9) Mr. Wilson was appointed Controller on September 11, 2000.

Option Grants
The following table summarizes information concerning individual grants of
options, including the potential realizable dollar value of grants of
options made during the fiscal year ended June 30, 2002, to each Named
Executive and Significant Employees, assuming that the market value of the
underlying security appreciates in value, from the date of grant to the
end of the option term, at the assumed rates indicated in the following
table.




FISCAL 2002 OPTION GRANTS
_________________________

Individual Grants Option Term(1)
_______________________________________________________ __________________
Number of Percent of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal Year(2) ($/Share) Date 5% ($) 10%($)
___________________ ___________ ________________ _________ __________ ______ _______


Allan R. Tessler(3) 27,500 20% $.65 6-30-07 $4,939 $10,913



(1) The dollar amounts under these columns are the result of calculations
at annualized appreciation rates of 5% and 10%, respectively, which
were established by rules promulgated by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation, if any, of J Net's Common Stock price.

(2) Total options granted include options to purchase an aggregate of
137,500 shares of Common Stock granted to the Board of Directors.

(3) As a member of the Board of Directors on June 30, 2002, Mr. Tessler
was automatically granted an option to purchase 27,500 shares of
Common Stock on such date. Pursuant to the 1992 Incentive and Non-
qualified Stock Option Plan, the exercise price for each June 30
automatic grant will be the fair market value of the Common Stock on
the following September 30. For purposes of computing the potential
realizable value of stock price appreciation for Mr. Tessler's option
grant, an exercise price of $.65, representing the fair market value
of the Common Stock on September 27, 2002 was used.

Option Exercises and Fiscal Year-End Values
The following table summarizes information with respect to the exercise of
options to purchase Common Stock of J Net during the last fiscal year by
each of the Named Executives and the value of unexercised options held by
each of them as of the end of fiscal 2002. None of the Named Executives
exercised any options during fiscal 2002.




AGGREGATED OPTION EXERCISES IN FISCAL 2002
AND FISCAL YEAR-END OPTION VALUES

Number of Shares
Underlying Unexercised Value of Unexercised
Shares Value Options at Fiscal In-the-Money Options at
Acquired on Realized Year-End (#) Fiscal Year-End ($)
Exercise ($) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
___________ ________ _________________________ ___________________________


Allan R. Tessler - - 140,000/ 27,500 $0 / $0
Mark W. Hobbs - - 200,000/100,000 $0 / $0
Steven L. Korby - - 133,333/ 66,667 $0 / $0
Mark E. Wilson - - 13,334/ 26,666 $0 / $0




(1) Based on the closing price of $.80 for J Net's Common Stock on the
OTCBB on June 28, 2002.

Director Compensation
Directors who are not salaried employees of the Company receive annual
fees of $32,000. In addition, a director who serves as a member of the
Compensation Committee and/or Audit Committee is entitled to receive
$10,800 and $7,200, respectively, per year. For the fiscal year ended
June 30, 2002, Messrs. Freedman, Markin and Hirschfield each received
aggregate fees of $50,000 and Mr. McDonald received $42,800. Mr. Tessler,
who serves as Chairman of the Board and Chief Executive Officer of the
Company, receives $50,000 per year as fees. Mr. Tessler receives no
salary from the Company for his services as Chief Executive Officer.

The 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan")
provides that each individual who is a member of the Board of Directors on
June 30 of any year, including any future director on any such date, will
automatically be granted a nonqualified option to purchase 27,500 shares
of Common Stock on each such June 30. The exercise price for each June 30
grant will be 100% of the fair market value of the Common Stock on the
following September 30. Each option granted to a director will become
exercisable after September 30 of each year and expire five years from the
date of grant. On June 30, 2002 options to purchase an aggregate of
137,500 shares of Common Stock (27,500 each to Messrs. Tessler,
Hirschfield, Freedman, Markin and McDonald) were automatically granted
pursuant to the terms of the 1992 Plan. The exercise price will be
determined on September 30, 2002.

Employment Agreements
On September 1, 2000 the Company entered into an employment agreement with
Mr. Hobbs. Pursuant to the employment agreement, Mr. Hobbs is employed as
President. The employment term commenced as of June 21, 2000 and will
expire on June 21, 2003. Mr. Hobbs receives an annual base salary of
$300,000. Mr. Hobbs' employment agreement entitles him to participate in
an incentive bonus plan payable by the Company on such terms and
conditions as determined by the Board or the Compensation Committee, in
any event, not to exceed 50% of his base salary. In addition, Mr. Hobbs
was granted a non-qualified option to purchase up to 300,000 shares of the
Company's Common Stock. The option has an exercise price of $13.125 per
share and shall vest as follows: 100,000 shares on June 21, 2001; 100,000
shares on June 21, 2002 and 100,000 shares on June 21, 2003. In addition,
the option will vest immediately if the Company terminates Mr. Hobbs'
employment without cause or if Mr. Hobbs terminates his employment for
good reason. Mr. Hobbs' employment may be terminated for cause, without
cause, by voluntary resignation, death or disability. If Mr. Hobbs'
employment is terminated by the Company without cause, he shall be
entitled to payment of all base salary earned but unpaid, any accrued but
unused vacation pay, all expenses not yet reimbursed and all other
benefits earned, accrued and owing (including any incentive bonus earned
for the applicable fiscal year), plus equal monthly payments in an amount
equal to his monthly rate of base salary plus the amount of any incentive
bonus paid to him the prior fiscal year (if no bonus was paid for such
prior fiscal year, 50% of base salary shall be deemed to be the incentive
bonus paid for purposes of this calculation), annualized, divided by
twelve, for a period the greater of twelve months or the remaining term of
his employment with the Company. If he terminates his employment for good
reason, such amount will be paid in one lump sum. Pursuant to Mr. Hobbs'
agreement, he received the right to buy $2 million of the Company's Notes
and to have the Company loan him $1 million to do so. Mr. Hobbs did not
exercise his right to borrow such funds. As of June 30, 2002, Mr. Hobbs
was beneficial owner of $2 million of the Company's Notes under a separate
agreement with an unrelated party and no loan exists between the Company
and Mr. Hobbs. In July 2002, the Notes were redeemed by the Company
pursuant to a voluntary repurchase program.

Steven L. Korby, Executive Vice President and Chief Financial Officer, is
employed pursuant to an employment agreement that was entered into on
October 1, 2000. The employment term commenced as of June 21, 2000 and
will expire on June 21, 2003. Mr. Korby receives an annual base salary of
$250,000. Mr. Korby's employment agreement entitles him to participate in
an incentive bonus plan payable by the Company on such terms and
conditions as determined by the Board or the Compensation Committee, in
any event, not to exceed 50% of his base salary. In addition, Mr. Korby
was granted a non-qualified option to purchase up to 200,000 shares of the
Company's Common Stock. The option has an exercise price of $13.125 per
share and shall vest as follows: 66,666 shares on June 21, 2001; 66,667
shares on June 21, 2002 and 66,667 shares on June 21, 2003. In addition,
the option will vest immediately if the Company terminates Mr. Korby's
employment without cause or if Mr. Korby terminates his employment for
good reason. Mr. Korby's employment may be terminated for cause, without
cause, by voluntary resignation, death or disability. If Mr. Korby's
employment is terminated by the Company without cause, he shall be
entitled to payment of all base salary earned but unpaid, any accrued but
unused vacation pay, all expenses not yet reimbursed and all other
benefits earned, accrued and owing (including any incentive bonus earned
for the applicable fiscal year), plus equal monthly payments in an amount
equal to his monthly rate of base salary plus the amount of any incentive
bonus paid to him the prior fiscal year, annualized (if no bonus was paid
for such prior fiscal year, 50% of base salary shall be deemed to be the
incentive bonus paid for purposes of this calculation), divided by twelve,
for a period the greater of twelve months or the remaining term of his
employment with the Company. If he terminates his employment for good
reason, such amount will be paid in one lump sum. Pursuant to Mr. Korby's
agreement, he received the right to buy $500,000 of the Company's Notes
and to have the Company loan him $250,000 to do so. Such right was
exercised by Mr. Korby in September 2000. In July 2002, the Notes were
redeemed by the Company pursuant to a voluntary repurchase program. Mr.
Korby's loan, plus accrued interest thereon, was deducted from the face
value of his Note when the repurchase occurred.

Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of three non-employee directors.
Currently the members of the Compensation Committee are Messrs. Freedman,
Hirschfield, Markin and McDonald. See Item 13, Certain Relationships and
Related Transactions, for a description of transactions and agreements in
which members of the Compensation Committee and their associates were
involved. None of the executive officers of J Net serves as a director of
another corporation in a case where an executive officer of such other
corporation serves as a director of J Net.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of September 15, 2002, certain
information regarding the shares of Common Stock beneficially owned by (i)
each beneficial holder of more than five percent of the outstanding shares
of Common Stock ("Beneficial Holder"), (ii) each director, (iii) each
Named Executive, (iv) each significant employee, and (v) all directors and
executive officers of J Net as a group.

OWNERSHIP OF J NET COMMON STOCK
________________________________________________________________________
Amount and Nature
Name of Beneficial Holder, of Beneficial
Director, Named Executive Ownership of Percent
or Identity of Group Common Stock (1) of Class (1)
________________________________________________________________________
Beneficial Holders:
__________________

Gabelli Funds, Inc. (2) 1,277,600 14.99%
Dimensional Fund Advisors (3) 584,178 6.85%
Highfields Capital Management (4) 497,931 5.84%
Bedford Oaks Advisors LLC (5) 491,000 5.76%
Enterprise Group of Funds (6) 475,500 5.58%
David R. Markin 487,820 5.57%
Allan R. Tessler 478,557 5.52%
Alan J. Hirschfield 440,000 5.05%

Directors other than Messrs. Markin, Tessler and Hirschfield
____________________________________________________________

Robert L. McDonald, Sr. 343,984 3.92%
Eugene M. Freedman 55,000 *

Named Executives other than Mr. Tessler
_______________________________________

Mark W. Hobbs 208,000 2.38%
Steven L. Korby 133,333 1.54%

Significant Employees
_____________________

Mark E. Wilson 26,666 *

All directors and executive
officers as a group (10 persons) 2,173,361 22.27%
____________________________________________________________________
* less than one percent

(1) Includes shares of Common Stock which may be acquired upon the
exercise of vested options held by the following: Mr. Markin
(240,000), Mr. Tessler (167,500), Mr. Hirschfield (182,500), Mr.
McDonald (240,000), Mr. Freedman (27,500), Mr. Hobbs (200,000), Mr.
Korby (133,333) and Mr. Wilson (26,666) and all directors, executive
officers and significant employees as a group (1,217,499). Excludes
shares of Common Stock which may be acquired upon the exercise of
unvested options held by the following: Mr. Markin (77,500), Mr.
Tessler (27,500), Mr. Hirschfield (77,500), Mr. McDonald (77,500),
Mr. Freedman (27,500), Mr. Hobbs (100,000), Mr. Korby (66,667) and
Mr. Wilson (13,334) and all directors, executive officers and
significant employees as a group (467,501). The nature of the
beneficial ownership for all the shares is sole voting and investment
power.

(2) Based solely upon a Schedule 13D/A filed by Gabelli Funds on July 11,
2002.

(3) Based solely upon a Schedule 13G/A filed by Dimensional Fund Advisors
on February 12, 2002.

(4) Based solely upon a Schedule 13G/A filed by Highfields Capital
Management on February 14, 2002.

(5) Based solely upon a Schedule 13G/A filed by Bedford Oak Advisors on
February 12, 2002.

(6) Based solely upon a Schedule 13G filed by Enterprise Group of Funds
on February 13, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Robert L. McDonald, Sr., a director of J Net, is a senior partner in the
law firm of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP
("McDonald Carano"), counsel to J Net. In addition, A. J. Hicks, a
partner in McDonald Carano is the Secretary of J Net. For the fiscal year
ended June 30, 2002, the amount of fees paid by the Company to McDonald
Carano, based on representation provided by McDonald Carano to the
Company, did not exceed 5% of the gross revenues of such firm for its last
full fiscal year. The Company believes that the fees for the services
provided by McDonald Carano were at least as favorable to the Company as
the fees for such services from unaffiliated third parties.

In June 2000, the Company issued $6,250,000 of Notes to Messrs. Tessler,
Markin, and Hirschfield, directors of the Company, or to entities
controlled by these individuals or their adult children. In addition,
officers and employees of the Company purchased $3,750,000 of Notes
between June 2000 and October 2000. The principal amount of the Notes
were payable on March 31, 2007 and bore interest at 8% per annum, payable
on a quarterly basis. Such terms were identical to Notes issued to
unrelated parties. All such Notes were repurchased pursuant to a
voluntary repurchase offer in July 2002.

In connection with the purchase of $500,000 of Notes, the Company lent Mr.
Korby $250,000 pursuant to a secured promissory which bore interest at 8%
per annum. The loan was secured by the Note as collateral. In July 2002,
when the Notes were repurchased by the Company pursuant to a voluntary
repurchase, the loan, together with accrued interest thereon, was deducted
from the payment to Mr. Korby.

Mr. Hobbs was a beneficial owner of $2,000,000 of Notes pursuant to an
agreement with Mariner LLC, an unrelated entity that purchased $4,000,000
of Notes in October 2000. Under the arrangement, Mr. Hobbs obtained full
economic benefit with respect to $1,000,000 of the Notes, including
interest thereon and potential upside conversion to common stock and the
sale thereof. With respect to the additional $1,000,000, Mr. Hobbs
obtained potential upside upon conversion to common stock and the sale
thereof. Mr. Hobbs was at risk in the event of default on the two million
dollar original purchase price and had pledged his limited partnership
interests in Mariner GP, LP as collateral against such default. The Note,
in which Mr. Hobbs was a beneficial owner, was repurchased in July 2002
pursuant to a voluntary repurchase plan.

Mr. Tessler, Chairman and Chief Executive Officer of the Company, owns
approximately 15% of J Net Venture Partners LLC (the "Manager"), the
managing member of Venture I. The Manager is to be paid a fee from
Venture I equal to 20% of the profits, if any, of Venture I after the
accumulation of a preferred return to the investors of Venture I.
Following the accumulation of a 35% internal rate of return, the 20%
increases to 35%. The Company, which is obligated to advance certain
expenses of the Manager will never own less than 51% of the Manager. There
were no profits in Venture I during the twelve months ended June 30, 2002
and accordingly, no profits were paid to Mr. Tessler.

Michael Donahue served as Vice Chairman and Chief Executive Officer of
InterWorld until March 2002, when he voluntarily resigned his position.
Mr. Donahue continues to serve as a part time consultant to IWH.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) and (2) Consolidated Financial Statements and Schedules

For a list of the consolidated financial statements and consolidated
financial statement schedules filed as a part of this annual report on
Form 10-K, see "Index to Financial Statements, Supplementary Data and
Financial Statement Schedules" on page F-1.

(a) (3) The exhibits filed and incorporated by reference are listed in
the index of Exhibits required by Item 601 of Regulation S-K at Item (c)
below.

(b) Reports on Form 8-K

J Net filed two reports on Form 8-K, dated May 3, 2002 and May 13,
2002, respectively.

The form filed on May 3, 2002 disclosed in Item 5 that the Company had
received notice from the New York Stock Exchange that its common
shares would be suspended from trading effective May 8, 2002.

The form filed on May 13, 2002 disclosed in Item 5 that J Net
foreclosed on its secured promissory note with InterWorld Corporation.

(c) Exhibits

3.1 Articles of Incorporation of the Registrant, as amended (J)
3.2 By-laws of the Registrant, as amended (A)
4.1 Stockholder Rights Agreement dated as of July 11, 1994 between
the Registrant and Continental Stock Transfer & Trust Company,
as Rights Agent (D)
10.1 Indemnification Agreement (Sample) (B)
10.2 1992 Incentive and Non-qualified Stock Option Plan (C)(U)
10.3 Employment Agreement with Don R. Kornstein (E)(U)
10.4 License agreement with American Drug Stores, Inc. (F)
10.5 License agreement with American Drug Stores, Inc. (F)
10.6 License agreement with Lucky Stores, Inc. (F)
10.7 License agreement with Kmart Corporation (G)
10.8 License agreement with Albertson's, Inc. (G)
10.9 License agreement with Rite Aid Corporation (H)
10.10 License agreement with Rite Aid Corporation (H)
10.11 Settlement Agreement with Albertson's, Inc. (J)
10.12 First Amendment to Settlement Agreement with Albertson's, Inc.
(J)
10.13 First Amendment to License Agreement between Cardivan Company
and Rite Aid Corporation (K)
10.14 First Amendment to License Agreement between Corral Coin, Inc.
and Rite Aid Corporation (K)
10.15 Termination and Consulting Agreement between the Registrant and
Don R. Kornstein (K)(U)
10.16 Call Agreement dated as of March 1, 2000 among Keith A. Meister,
Todd A. Meister and the Registrant (K)
10.17 Put Agreement dated as of March 1, 2000, among Keith A. Meister,
Todd A. Meister and the Registrant (K)
10.18 Employment Agreement between the Registrant and George Congdon
(U)
10.19 Employment Agreement between the Registrant and Robert Torkar
(U)
10.20 Stock Purchase Agreement between E-T-T, Inc. and the Registrant
(L)
10.21 J Net Ventures I, LLC Operating Agreement (L)
10.22 Subscription Agreement and Investment Representation (Sample)
(L)
10.23 Convertible Subordinated Note (Sample) (L)
10.24 Registration Rights Agreement (Sample) (L)
10.25 Employment Agreement between Registrant and Mark W. Hobbs (M)(U)
10.26 Employment Agreement between Registrant and Steven L. Korby
(M)(U)
10.27 Securities Purchase Agreement dated October 12, 2000 by and
among Jackpot Enterprises, Inc. and InterWorld Corporation (N)
10.28 Loan Assumption and Forbearance Agreement dated October 12, 2000
by and between Michael Donahue and Jackpot Enterprises, Inc. (N)
10.29 Call/Profit Participation Agreement dated October 12, 2000 by
and between Michael Donahue and Jackpot Enterprises, Inc. (N)
10.30 Modification letter dated October 30, 2000 to Stock Purchase
Agreement between E-T-T, Inc. and the Registrant (M)
10.31 Stock Purchase Agreement by and between InterWorld Corporation
and J Net Enterprises, Inc. dated January 25, 2001 (O)
10.32 Stand-By Purchase Agreement dated January 25, 2001 (O)
10.33 Amended and Restated Loan Assumption and Forbearance Agreement
dated April 4, 2001 by and between Michael Donahue and J Net
Ventures I, LLC (P)
10.34 Termination of Amended and Restated Loan Assumption and
Forbearance Agreement dated June 29, 2001 by and among Michael
Donahue, Excalibur Polo Farm, LLC, Ginny Bond Donahue and J Net
Ventures I, LLC (Q)
10.35 Promissory Note by and between InterWorld Corporation and J Net
Enterprises, Inc. dated June 30, 2001 (Q)
10.36 Security Agreement by and between InterWorld Corporation and J
Net Enterprises, Inc. dated June 30, 2001 (Q)
10.37 Assignment of Intellectual Property dated May 3, 2002 by and
among J Net Enterprises, Inc., InterWorld Corporation and IW
Holdings, Inc. (R)
10.38 InterWorld Master Alliance Agreement (S)
10.39 Acknowledgement of Default Assignment of Payments Agreement (S)
21.1 List of Registrant's subsidiaries (T)
23.1 Consent of Ernst & Young LLP (T)
23.2 Consent of Deloitte & Touche LLP (T)
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
SS 1350, Section 906 of the Sarbanes-Oxley Act of 2002. (T)
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
SS 1350, Section 906 of the Sarbanes-Oxley Act of 2002 (T)
99.3 Certification of Chief Executive Officer pursuant to 18 U.S.C.
SS 1350, Section 302 of the Sarbanes-Oxley Act of 2002. (T)
99.4 Certification of Chief Financial Officer pursuant to 18 U.S.C.
SS 1350, Section 302 of the Sarbanes-Oxley Act of 2002. (T)

(A) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1989.
(B) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1991.
(C) Incorporated by reference to Registrant's 1992 Proxy
Statement.
(D) Incorporated by reference to Registrant's Form 8-A dated
July 12, 1994.
(E) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended September 30, 1994.
(F) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1997.
(G) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1998.
(H) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended March 31, 1999.
(I) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1999.
(J) Incorporated by reference to Registrant's Form 10-Q for
the quarter ended December 31, 1999.
(K) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended March 31, 2000.
(L) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended June 30, 2000.
(M) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended September 30, 2000.
(N) Incorporated by reference to Registrant's Form 8-K filed
October 25, 2000.
(O) Incorporated by reference to Registrant's Form 8-K filed
February 2, 2001.
(P) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended March 31, 2001.
(Q) Incorporated by reference to Registrant's Annual Report on
From 10-K for the year ended June 30, 2001.
(R) Incorporated by reference to Registrant's Form 8-K filed
May 13, 2002.
(S) Incorporated by reference to Registrant's Form 10-Q for the
quarter ended March 31, 2002.
(T) Included herein.
(U) Management contract or compensatory arrangement which is
separately identified in accordance with Item 14(a)(3) of
Form 10-K.

(d) Schedules

For a list of the financial statement schedules filed as a part of this
annual report on Form 10-K, see "Index to Financial Statements,
Supplementary Data and Financial Statement Schedules" on page F-1.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 30, 2002 J NET ENTERPRISES, INC.
(Registrant)

By: /s/ Allan R. Tessler
__________________________
Allan R. Tessler
Chief Executive Officer

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

Signature Title Date
_____________________________ ________________________ ___________________

/s/ Allan R. Tessler Chief Executive Officer
____________________ and Chairman of the
Allan R. Tessler Board September 30, 2002

/s/ Steven L. Korby Executive Vice President
____________________ and Chief Financial
Steven L. Korby Officer(Principal
Financial Officer) September 30, 2002

/s/ Eugene M. Freedman Director September 30, 2002
______________________
Eugene M. Freedman

/s/ Alan J. Hirschfield Director September 30, 2002
_______________________
Alan J. Hirschfield

/s/ David R. Markin Director September 30, 2002
___________________
David R. Markin

/s/ Robert L. McDonald, Sr. Director September 30, 2002
__________________________
Robert L. McDonald, Sr.

J NET ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA
AND FINANCIAL STATEMENT SCHEDULES
[ITEMS 8 AND 14(a)]
(1) FINANCIAL STATEMENTS:

Reports of Independent Auditors

Consolidated Balance Sheets June 30, 2002 and 2001

Consolidated Statements of Operations
Years Ended June 30, 2002, 2001 and 2000

Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2002, 2001 and 2000

Consolidated Statements of Cash Flows
Years Ended June 30, 2002, 2001 and 2000

Notes to Consolidated Financial Statements

(2) SUPPLEMENTARY DATA:

Quarterly Financial Information (Unaudited)
Years Ended June 30, 2002 and 2001

(3) FINANCIAL STATEMENT SCHEDULES

Valuation and Qualifying Accounts

Certain financial statement schedules are omitted because the required
information is provided in the Consolidated Financial Statements or the
notes thereto.

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.

Report of Independent Auditors

We have audited the accompanying consolidated balance sheets of J Net
Enterprises, Inc. and subsidiaries (the "Company") as of June 30, 2002 and
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of J Net
Enterprises, Inc. and subsidiaries at June 30, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.


/s/ Ernst & Young LLP


New York, New York
September 9, 2002

The Board of Directors and Stockholders of
J Net Enterprises, Inc., formerly Jackpot Enterprises, Inc.:

We have audited the accompanying consolidated statements of
income, stockholders' equity, and cash flows of J Net
Enterprises, Inc. and subsidiaries, formerly Jackpot
Enterprises, Inc. (the "Company") for the year ended
June 30, 2000. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
referred to above of J Net Enterprises, Inc. present
fairly, in all material respects, the results of its
operations and its cash flows for the year ended June 30,
2000, in conformity with accounting principles generally
accepted in the United States of America.

Deloitte & Touche LLP
Las Vegas, Nevada

September 25, 2000


J NET ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 2002 AND 2001
(Dollars in thousands)


ASSETS 2002 2001
______ ________ ________

Current assets:
Cash and cash equivalents $ 6,674 $ 24,272
Short-term investments 29,590 27,381
Accounts receivable, net of $109
and $0 allowance 213 1,532
Current portion of notes receivable -
related parties 288 1,288
Note receivable 132 -
Federal income taxes receivable 983 6,538
Assets held for sale 4,950 5,450
Prepaid expenses 351 927
Other current assets 293 629
________ ________
Total current assets 43,474 68,017
________ ________

Investments in technology-related
businesses 2,425 3,290

Property and equipment, net of
accumulated depreciation 180 4,010

Deferred income taxes - 885

Other non-current assets 764 1,211
________ ________

Total assets $ 46,843 $ 77,413
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 4,095 $ 7,699
Current portion of convertible
subordinated notes - repurchased in
July 2002 27,750 -
Deferred revenue and customer deposits 1,306 3,122
________ ________
Total current liabilities 33,151 10,821
________ ________

Convertible subordinated notes - 27,750
Deferred rent 213 356
Other non-current liabilities 212 -

Commitments and contingencies (Note 14)

Stockholders' equity:
Preferred stock - authorized
1,000,000 shares of $1 par value;
none issued
Common stock - authorized
60,000,000 shares of $.01 par
value; 10,233,470 shares issued 102 102
Additional paid-in capital 75,250 75,250
Accumulated deficit (46,031) (20,795)
Less 1,708,927 and 1,708,918 shares of
common stock in treasury for each
period, at cost (16,054) (16,054)
Accumulated other comprehensive income
(loss) - (17)
________ ________
Total stockholders' equity 13,267 38,486
________ ________
Total liabilities and stockholders'
equity $ 46,843 $ 77,413
======== ========

See Notes to Consolidated Financial Statements.

J NET ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
(Dollars in thousands, except per share data)

2002 2001 2000
________ ________ ________
Revenues, net:
Product licenses $ 1,343 $ 7 $ -
Maintenance 3,292 809 -
Services 1,180 1,340 -
________ ________ _______
Total revenues, net 5,815 2,156 -
________ ________ _______

Cost of revenues:
Product licenses 400 430 -
Maintenance 343 119 -
Services 2,169 328 -
________ ________ _______
Total cost of revenues 2,912 877 -
________ ________ _______
Gross profit 2,903 1,279 -

Operating expenses:
Research and development 5,125 2,264 -
Sales 5,981 2,142 -
Marketing alliances 1,616 1,085 -
General and administrative
(including stock based
compensation of $0, $190
and $0 for the years ended
June 30, 2002, 2001 and 2000,
respectively) 7,971 16,888 3,935
Loss on disposal and impairments
of assets 2,703 24,281 -
Restructuring and unusual charges 6,362 1,140 2,835
Gains from settlements with
unsecured creditors (669) - -
________ ________ _______
Total operating expenses 29,089 47,800 6,770
________ ________ _______

Operating loss from continuing
operations (26,186) (46,521) (6,770)
________ ________ _______

Other income (expense):
Net fee from terminated merger - - 11,116
Gain on sale of short-term
investments - - 2,361
Interest and other income 3,485 5,524 2,068
Interest expense (2,299) (5,889) -
Equity losses in technology-related
businesses - (26,121) (62)
________ ________ _______
Total other income (expense) 1,186 (26,486) 15,483

Income (loss) from continuing
operations before income tax (25,000) (73,007) 8,713
________ ________ _______
Provision (benefit) for Federal
income tax 236 (11,558) 2,418
________ ________ _______
Income (loss) from continuing
operations net of tax (25,236) (61,449) 6,295
________ ________ _______

Income (loss) from discontinued
operations net of taxes of $0,
$(99) and $177 for the years
ended June 30, 2002, 2001 and
2000, respectively - (250) 346

Gain on sale of discontinued
operations, net of taxes of
$6,711 - 13,004 -
________ ________ _______
Discontinued operations, net of tax - 12,754 346
________ ________ _______
Net income (loss) (25,236) (48,695) 6,641

Other comprehensive income
(loss):
Cumulative translation
adjustment 17 (17) -
________ ________ _______

Comprehensive income (loss) $(25,219) $(48,712) $ 6,641
======== ======== ========

Basic earnings (loss) per share:
Income (loss) from continuing
operations $ (2.96) $ (6.95) $ .73
Income from discontinued
operations - 1.44 .04
________ ________ ________

Basic income (loss) per share $ (2.96) $ (5.51) $ .77
======== ======== ========

Dilutive earnings (loss) per share
Income (loss) from continuing
operations $ (2.96) $ (6.95) $ .71
Income from discontinued
operations - 1.44 .04
________ ________ ________
Dilutive income (loss) per share $ (2.96) $ (5.51) $ .75
======== ======== ========

See Notes to Consolidated Financial Statements.



J NET ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
(Dollars and shares in thousands)

Accumulated
Common Stock Additional Retained Treasury Stock Other
_______________ Paid-In Earnings _________________ Comprehensive
Shares Amount Capital (Deficit) Shares Amount Income (loss) Totals
______ ______ _________ _________ _______ _______ _______________ _______


Balance June 30,
1999 9,860 $ 99 $66,465 $21,069 (1,244) $(13,776) $757 $74,614
Comprehensive
income:
Income from
continuing
operations 6,295 6,295
Income from
discontinued
operations,
net of tax 346 346
Other
comprehensive
income:
Unrealized
gain on
available-
for-sale
securities,
net of tax
and
reclass-
ification
adjustment
(See Note 1 and
disclosure below) (757) (757)
_______
Total comprehensive
income 5,884
Tax benefit from
stock options 83 83
Issuance of shares
on exercise
of stock options 28 295 295
Repurchases of common
stock (15) (1) (1)
Issuance of shares for
investments in
technology-related
businesses 325 3 4,233 4,236
Issuance of shares for
cancellation of stock
options 20 299 299

Amount allocated to
additional paid-in
capital in
connection
with the issuance
of the 8%
convertible
subordinated
notes
(see Note 2) 2,500 2,500
Balance June 30,
2000 10,233 $102 $73,875 $27,710 (1,259) $(13,777) $ - $87,910
______ ____ _______ _______ ______ ________ _____ _______

Comprehensive
income (loss):
Income (loss)
from
continuing
operations (61,449) (61,449)
Cumulative
translation
adjustment (17) (17)
Income from
discontinued
operations,
net of tax 12,754 12,754
_______
Total
Comprehensive
loss (48,712)
Amortization of
employee stock
options 190 190
Repurchases of
common stock (450) (2,277) (2,277)
Amount allocated
to additional
paid-in capital
in connection
with the
issuance of the
8% convertible
subordinated
notes
(See Note 2) 1,375 1,375
______ ____ _______ _______ ______ ________ _____ _______
Balance June 30,
2001 10,233 $102 $75,250 $(20,795) (1,709) $(16,054) $(17) $38,486
Comprehensive income
(loss):
Net loss (25,236) (25,236)
Cumulative
translation
adjustment 17 17
________
Total
Comprehensive
loss (25,219)
______ ____ _______ _______ ______ ________ _____ _______

Balance June 30,
2002 10,233 $102 $75,250 $(46,031) (1,709) $(16,054) $ - $13,267
====== ==== ======= ======== ===== ======== ===== =======

For fiscal 2000:
Disclosure of reclassification amount:
Unrealized gain for the year ended
June 30, 2000 $ 777
Less reclassification adjustment for
gain included in net income (1,534)
________
Unrealized gain on available-for-sale
securities, net of tax $ (757)
========

See Notes to Consolidated Financial Statements.



J NET ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
(Dollars in thousands)

2002 2001 2000
________ _______ _______
Operating activities:
Net income (loss) $(25,236) $(48,695) $ 6,641
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Equity in loss of technology-related
businesses - 26,121 62
Loss on disposal and impairments of assets 5,962 24,281 -
Bad debt expenses and losses on loans 109 8,582 -
Amortization of original issue
debt discount - 3,875 -
Amortization of stock-based compensation - 190 -
Depreciation 551 814 38
Deferred income taxes 885 (1,263) (71)
Gain on sale of short-term investments - - (2,361)
(Income) loss from discontinued
operations, net of ($99) and $177
of tax for years ended June 30,
2001 and 2000, respectively - 250 (346)
Gain on sale of route operations, net of
$6,711 tax - (13,004) -
Net fee from terminated merger - - (11,116)
Changes in operating assets/liabilities:
Federal income taxes receivable 5,555 (13,150) -
Accounts receivable 1,210 2,280 -
Marketable securities (2,209) (1,937) -
Prepaid expenses and other
current assets 905 (955) (15)
Notes receivable, related parties 1,000 (288) -
Other non-current assets 289 (278) (474)
Accounts payable and other current
liabilities (3,604) (981) 171
Deferred revenue and customer deposits (1,816) (610) -
Deferred rent and other (126) (8) -
_________ ________ _______
Net cash used in continuing
operations (16,525) (14,776) (7,471)
Net cash provided by discontinued
operations - 1,435 8,389
_________ ________ _______
Net cash provided by (used in)
operating activities (16,525) (13,341) 918

Investing activities:
Investments in technology-related
businesses (1,338) (30,767) (19,099)
Investment in notes receivable (125) (12,490) -
Proceeds from sale of assets 260 - -
Purchase of property and equipment (82) (2,507) (11)
Security deposits received 212 - -
Investment in marketable securities - (25,444) -
Break-up fee from terminated merger - - 13,500
Proceeds from sale of short-term
investments - - 8,488
Cash of InterWorld at acquisition - 4,378 -
Proceeds from sale of discontinued
operations - 36,905 -
Increase in lease acquisition costs
and noncurrent assets - - (1,669)
_________ ________ _______
Net cash provided by (used in)
investing activities -
continuing operations (1,073) (29,925) 1,209
_________ ________ _______
Net cash used in discontinued
operations - (2,525) (1,001)
Net cash provided by (used in)
investing activities (1,073) (32,450) 208

Financing activities:
Proceeds from convertible
subordinated notes - 12,250 14,250
Proceeds from issuance of common stock - - 594
Repurchases of common stock - (2,277) (1)
Other - - (16)
_________ ________ _______
Net cash provided by (used in)
financing activities - 9,973 14,827
_________ ________ _______
Net increase (decrease) in cash and cash
equivalents (17,598) (35,818) 15,953
Cash and cash equivalents at beginning
of period 24,272 60,090 44,137
_________ ________ _______

Cash and cash equivalents at end of period $ 6,674 $ 24,272 $60,090
========= ======== =======

Supplemental disclosures of cash flow data:
Cash paid during the year for:
Federal income tax $ - $ 2,300 $ 2,650
Interest paid $ 1,667 $ 1,976 $ -
Non-cash investing and financing
activities:
Value of notes receivable discharged
in exchange for common stock $ 1,024 $ - $ -
Debt discount on convertible
subordinated notes $ - $ 1,375 $ 2,500
Minority interest in subsidiary $ - $ (2,514) $ 2,514
Note receivable - related parties $ - $ 250 $ 1,000
Property received in foreclosure on
loans $ - $ 5,450 $ -
Tax benefit from exercise of stock
options $ - $ - $ 83
Issuance of common stock for
investments in technology-related
businesses $ - $ - $ 4,236


See Notes to Consolidated Financial Statements

J NET ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Significant Accounting Policies And Business
Business:
J Net Enterprises, Inc. ("J Net" or the "Company") is a holding company
with concentrated investments in enterprise software applications ("E-
Commerce Operations") and technology infrastructure companies (the
"Technology-Related Businesses").

E-Commerce Operations are conducted through IW Holdings, Inc. ("IWH"), a
wholly-owned subsidiary of the Company and successor entity of InterWorld
Corporation ("InterWorld"). InterWorld is a separate publicly traded
entity in which J Net owns 95.3% of the outstanding equity securities. As
a result of events in April and May 2002, which are more fully described
below, IWH became the owner of the intellectual property and other assets
of InterWorld. Unless specifically stated otherwise, IWH is intended to
describe the E-Commerce Operations of the Company. References to
InterWorld are specific to that entity, which remains a consolidated
subsidiary of J Net, but is presently inactive.

From June 2001 through March 2002, J Net was a senior secured creditor of
InterWorld under terms of a secured promissory note (the "Secured Note")
and held a security interest on the assets, including intellectual
property, of InterWorld. Advances under the Secured Note were made by J
Net at its sole discretion. As of March 31, 2002, such advances totaled
$17.2 million, excluding interest. Concurrent with the execution of the
Strategic Partnership Agreement with Titan, InterWorld and J Net entered
into an Acknowledgment of Default and Assignment of Payments Agreement
(the "Default Agreement"). In addition to InterWorld acknowledging its
default under the Secured Note between InterWorld and J Net, the Default
Agreement assigned all proceeds received by InterWorld to be directed to J
Net, including proceeds derived from revenues created from the Strategic
Partnership Agreement with Titan.

In April 2002, the Company was notified by the New York Stock Exchange
("NYSE") that the NYSE was initiating steps to delist shares of the common
stock, par value $.01 per share (the "Common Stock") of J Net. On May 8,
2002 the NYSE formally delisted shares of Common Stock of J Net from its
exchange. J Net's Common Stock is now quoted on the over-the-counter
bulletin board ("OTCBB") and trades under the symbol "JNEI".

J Net also holds minority investments in other technology companies
including, but not limited to, systems development and software companies.
These investments are held directly by the Company, or by J Net Ventures
I, LLC (the "Fund" or "Ventures I"), a fund owned and managed by the
Company. As a result of changes in market conditions with respect to
Technology-Related Businesses and the significance of the E-Commerce
Operations, J Net has significantly curtailed its minority investment
strategy conducted through Ventures I and concentrated its efforts and
financial resources on its E-Commerce operations.

Products:
E-Commerce Operations products include software that addresses distributed
order management, customer relationship management, supplier relationship
management, sales channel management, and business intelligence. Existing
customers cover a wide range of industries including retail,
manufacturing, distribution, telecommunications and transportation. IWH's
software products run on the industry standard J2EE server.

Marketing:
Beginning in February 2002, marketing of IWH's products are conducted
through a Strategic Partnership Agreement with Titan Ventures, L.P.
("Titan"). Under this agreement, Titan has an exclusive right to market
IWH's products in the Americas and upon the achievement of certain
milestones, earns a right to a percentage of IWH's equity. Proceeds from
the sale of products are shared between Titan and the Company. Costs of
the marketing efforts are borne entirely by Titan.

Business segments:
The Company has two reportable business segments: E-Commerce Operations
and Technology-Related Businesses. Prior to May 2001, the Company
operated in only one segment, the Technology-Related Businesses. The
Technology-Related Businesses include the effect of transactions and
operations of the Company's non-consolidated investments. All
intersegment activity has been eliminated. Accordingly, segment results
reported exclude the effect of transactions between the Company and its
subsidiary. Assets are the owned assets used by each operating segment.

Principles of consolidation and basis of presentation:
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions are eliminated. The Company's fiscal year ends on June 30.
Unless the context indicates otherwise, references to "2002", "2001" and
"2000" are for the fiscal years ended June 30, 2002, 2001 and 2000,
respectively.

Reclassifications:
Certain reclassifications have been made to prior year financial
statements to conform to the current year presentation.

Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
accompanying consolidated financial statements and notes. Actual results
could differ from those estimates.

Cash equivalents:
Cash equivalents are liquid investments comprised primarily of debt
instruments and money market accounts with maturities of three months or
less when acquired. Cash equivalents are stated at cost which
approximates fair value due to their short maturity.

Short-term investments:
In October and November 2000 and January 2001, the Company invested a
total of $25.4 million in Mariner Partners, L.P. ("Mariner"), a private
investment fund. Mariner employs a multi-strategy approach, emphasizing
market neutral and event driven styles, to opportunistically seek,
identify, and capitalize on investment opportunities across the financial
markets. J Net can withdraw all or a portion of its investment upon 45
days prior written notice. The Company classifies those securities as
short-term investments and records changes in the value of the accounts in
the item captioned interest and other income in the accompanying
Consolidated Statement of Operations.

Fair value of financial instruments:
The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses
approximates fair value due to their short maturities. The unregistered
convertible subordinated notes (see Note 2) are not traded in the open
market and a market price is not available. Based on the repurchase of
the Notes in July 2002, the carrying value approximated fair value.

The consolidated balance sheet as of June 30, 2002 contains approximately
$2.3 million of unsecured creditor liabilities for InterWorld, which are
legally separate and distinct from J Net. As a result of J Net's
foreclosure on its Secured Note with InterWorld and the transfer of
assets, contracts, intellectual property and employees to IWH, InterWorld
does not have financial resources to pay the face value of these
obligations. Management of J Net has been actively negotiating with the
significant creditors to settle certain liabilities since the foreclosure
on the Secured Note. Between April 2002 and June 2002, liabilities with a
face value of $1.0 million have been settled for approximately $.3
million. Management expects, but cannot provide assurance, that the
remaining obligations will be settled at substantially less than their
face value.

Financial instruments with concentration of credit risk:
The financial instruments that potentially subject J Net to concentrations
of credit risk consist principally of cash and cash equivalents. J Net
maintains cash and certain cash equivalents with financial institutions in
amounts which, at times, may be in excess of the FDIC insurance limits. J
Net's cash equivalents are invested in several high-grade securities which
limit J Net's exposure to concentrations of credit risk.

The Company owns short-term investments which are managed by Mariner.
While Mariner has consistently generated above average returns relative to
hedge fund industry benchmarks, such returns are subject to fluctuation in
the future.

Investments in Technology-Related Businesses:
The various interests that the Company acquires in Technology-Related
Businesses are accounted for under one of three methods: consolidation,
equity or cost. The applicable accounting method is generally determined
based on the Company's voting interest and its ability to influence or
control the Technology-Related Businesses.

Accounting for equity method investments:
When the Company uses the equity method to account for its investments in
Technology-Related Businesses it uses the procedures outlined in the
"Summary of Proceedings of the FASB Emerging Issues Task Force" issue
number 98-13 ("EITF 98-13"), which covers accounting by equity method
investors for investee losses when the investor has loans to and
investments in other securities of the investee. EITF 98-13 generally
defined other investments in the investee to include preferred stock, debt
securities and loans. The conclusions of the task force also prescribes
the order in which equity method losses shall be recognized as the
seniority of the other investments (that is, priority in liquidation).

In 2001, the Company used the equity method to account for its investments
in InterWorld (up to May 2001, when the consolidation method was applied),
Alistia, Inc., Digital Boardwalk, LLC and TechTrader, Inc. All of the
investments were in the form of preferred stock. When common
stockholders' equity is a deficit, equity losses are recognized in
accordance with the company's proportionate ownership percentages in
preferred stock. The applicable percentage of equity losses recognized in
2001 was 100% for InterWorld, 39.8% for Alistia, Inc., 100% for Digital
Boardwalk, Inc., and 42.1% for TechTrader, Inc. As a result of the
business combination with InterWorld, the consolidation method was applied
beginning May 1, 2001.

There were no equity method investments remaining after the fiscal year
ended June 30, 2001.

For the period from November 2000 through April 2001, J Net owned $20
million of mandatorily redeemable preferred stock of InterWorld (the
"Preferred Stock"). The Preferred Stock voted on an "as-if" converted
basis with common stock, which represented approximately 10% voting
rights. J Net used the equity method of accounting during the time it
owned the Preferred Stock. In May 2001, when the redemption of the
Preferred Stock became due, J Net exchanged the Preferred Stock for common
stock in lieu of cash. As a result of this redemption, J Net became a
95.3% owner of the equity securities and began using the consolidation
method for InterWorld. The results of IWH, the successor entity to
InterWorld's operations after the Company's foreclosure on its Secured
Note with InterWorld in May 2002, are also consolidated with operating
results of J Net.

Investments in debt and equity securities:
The Company accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair
values and for all investments in debt securities, and requires such
securities be classified as either held to maturity, trading, or
available-for-sale. Management determines the appropriate classification
of its investments in securities at the time of purchase and reevaluates
such classification at each balance sheet date. SFAS 115 requires that
available-for-sale securities be carried at fair value with unrealized
gains and losses, net of tax, reported as a separate component of
stockholders' equity. Unrealized gains and losses for available-for-sale
securities are recorded as comprehensive income (loss) and are excluded
from earnings. Realized gains from sales of available-for-sale securities
in 2000 were $2.4 million. There were no realized gains from sales of
investment securities in 2002 or 2001.

Stock-based compensation:
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") for stock options
while disclosing pro forma net earnings (loss) and net earnings (loss) per
share as if the fair value method had been applied in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") and Emerging Issues Task Force
Issue 96-18, "Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling Goods or
Services". On July 1, 2000, the Company also adopted provisions contained
in the Financial Accounting Standard Board of the American Institute of
Certified Public Accountants ("AICPA") Interpretation 44 ("FIN 44"), which
provided clarification on the application of APB 25.

Accounting for Derivative Instruments and Hedging Activities:
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by
Statements of Financial Accounting Standards No. 137 and No. 138 in June
1999 and June 2000, respectively, require that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position. This statement also defines and allows companies to apply hedge
accounting to its designated derivatives under certain instances. It also
requires that all derivatives be marked to market on an ongoing basis.
This applies whether the derivatives are stand-alone instruments, such as
warrants or interest rate swaps, or embedded derivatives, such as call
options contained in convertible debt investments. Along with the
derivatives, in the case of qualifying hedges, the underlying hedged items
are also to be marked to market. These market value adjustments are to be
included either in the income statement or other comprehensive income,
depending on the nature of the hedged transaction. The fair value of
financial instruments is generally determined by reference to market
values resulting from trading on a national securities exchange or in an
over the counter market. In cases where derivatives relate to financial
instruments of non public companies, or where quoted market prices are
otherwise not available, such as for derivative financial instruments,
fair value is based on estimates using present value or other valuation
techniques.

As a result of the Company's abandonment of its investment in TechTrader,
Inc. in 2001, a warrant previously classified as an asset was expensed and
reported as an impairment in the amount of $1.5 million.

The Company did not have any derivative instruments at June 30, 2002.

Property and equipment:
Leasehold improvements and other property and equipment are recorded at
cost and are depreciated on a straight line basis over the shorter of
estimated useful life of the asset or lease terms, as applicable, as
follows: 2 to 7 years for equipment and 3 to 10 years for leasehold
improvements. Property sold or retired is eliminated from the accounts in
the period of disposition.

Assets held for sale:
Assets which will be sold rather than used are recorded at their estimated
fair value less estimated cost to sell. As of June 30, 2002, the Company
holds 40 acres of land with building improvements in the village of
Wellington, Florida. The property was received as a result of a
foreclosure on a loan to Michael Donahue, the former Vice Chairman and
Chief Executive Officer of InterWorld. The property is not core to J
Net's business and is currently listed for sale. The carrying value of
$5.0 million is net of carrying and sales costs. During the year ended
June 30, 2002, the carrying value of this asset was reduced by $.3 million
to reflect higher operating costs due to the extended holding period of
the property.

Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires that deferred tax assets and liabilities arising
from temporary differences between book and tax bases will be recognized
using enacted rates at the time such temporary differences reverse. In
the case of deferred tax assets, SFAS 109 requires a reduction in deferred
tax assets if it is more likely than not that some portion or all of the
deferred tax will not be realized.

As of June 30, 2002, the Company is carrying a $1.0 million receivable,
which represents an estimate of tax refunds resulting from the carry-back
of operating losses incurred during 2002. There are accumulated deferred
tax assets of $17.9 million, which are offset by a valuation allowance
pursuant to SFAS 109. Such losses are limited by certain IRS regulations.
While management continues to take actions required to turn the Company
profitable, the ability to generate income at levels sufficient to realize
the accumulated deferred benefits is not determinable at this time.

Revenue recognition:
The Company follows AICPA Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by SOP 98-4, further amended by SOP
98-9, and Staff Accounting Bulletin 101. These pronouncements provide
guidance on when revenue should be recognized and in what amounts as well
as what portion of licensing transactions should be deferred. The
adoption of these pronouncements did not have a material impact on
results.

Revenue under multiple element arrangements is allocated to each element
using the "residual method", in accordance with Statement of Position No.
98-9, "Modification of SOP 97-2 with Respect to Certain Transactions"
("SOP 98-9"). Under the residual method, the arrangement fee is recognized
as follows: (a) the total fair value of the undelivered elements, as
indicated by vendor-specific objective evidence, is deferred and (b) the
difference between the total arrangement fee and the amount deferred for
the undelivered elements is recognized as revenue related to the delivered
elements. Software license agreements generally include two elements: the
software license and post-contract customer support. The Company has
established sufficient vendor-specific objective evidence for the value of
maintenance and post-contract customer support services based on the price
when these elements are sold separately and/or when stated renewal rates
for maintenance and post-contract customer support services are included
in the agreement, and the actual renewal rate achieved.

Product licenses:
Revenue from the licensing of software products is recognized upon
shipment to the customer, pursuant to an executed software licensing
agreement when no significant vendor obligations exist and collection is
probable. If acceptance by the customer is required, revenue is
recognized upon customer acceptance. Amounts received from customers in
advance of product shipment or customer acceptance are classified as
deposits from customers. Other licensing arrangements such as reseller
agreements, typically provide for license fees payable to the Company
based on a percentage of the list price for the software products. The
license revenues are generally recognized when shipment by the reseller
occurs, or when collection is probable.

Contracts for product licenses where professional services require
significant production, modification or customization are recognized on a
percentage of completion basis.

Services revenue:
Revenue from professional services, such as custom development and
installation and integration support is recognized as the services are
rendered.

Maintenance revenue:
Revenue from maintenance and post-contract customer support services, such
as telephone support and product enhancements is recognized ratably over
the period of the agreement under which the services are provided,
typically one year. Recognition of revenue is deferred until advance
payments from customers is received for maintenance and support.

Deferred revenue consists principally of billings in advance for services
and support not yet provided and uncollected billings to customers for
maintenance and post contract support.

Recently issued accounting standards:
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 addresses the initial recognition and measurement
of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial measurement and recognition of
intangible assets acquired outside of a business combination, whether
acquired with a group of other assets or acquired individually, and the
accounting and reporting for goodwill and other intangibles subsequent to
their acquisition. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to
impairment test on an annual basis at a minimum. The Company will adopt
SFAS 141 and SFAS 142 beginning July 1, 2002. As of June 30, 2002, the
Company had no goodwill or other intangible assets due to previous
impairments or losses incurred on investments where goodwill had been
recorded. The Company expects that the adoption will not have a material
impact on future financial statements.

The FASB issued a Statement on Asset Impairment ("SFAS 144") that is
applicable to financial statements issued for fiscal years beginning after
December 15, 2001. The FASB's new rules on asset impairment supercede
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", and provide a single
accounting model for long-lived assets to be disposed of.

Although retaining many of the fundamental recognition and measurement
provisions of Statement 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale.
This distinction is important because assets held-for-sale are stated at
the lower of their fair values or carrying amounts and depreciation is no
longer recognized.

The Company will adopt SFAS 144 on July 1, 2002 and does not anticipate
its application to have a significant impact on the results of operations
as compared with practices in place today.

In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement 13, and Technical Corrections ("SFAS 145"). For most
companies, SFAS 145 will require gains and losses from the extinguishment
of debt to be classified as a component of income or loss from continuing
operations. Prior to the issuance of SFAS 145, early debt extinguishments
were required to be recognized as extraordinary items. SFAS 145 amended
other previously issued statements and made numerous technical
corrections. With the exception of the accounting treatment for
extinguishments of debts, those other modifications are not expected to
impact the consolidated financial statements of the Company. SFAS 145 is
effective for fiscal years beginning after May 15, 2002. However, early
adoption of the provisions of SFAS 145 is encouraged. Accordingly, the
Company has applied such provisions in the accompanying consolidated
financial statements for its fiscal year ended June 30, 2002.

The FASB recently issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 nullifies the Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity". SFAS 146 requires that a
liability associated with an exit or disposal activity be recognized when
the liability is incurred while EITF Issue No. 94-3 recognized such
liabilities at such time that an entity committed to an exit plan. The
provisions of SFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002 with early application encouraged.

Note 2 - Convertible Subordinated Notes
In fiscal years 2000 and 2001 the Company completed an offering of $27.75
million of unregistered Convertible Subordinated Notes (the "Notes") to a
group of private investors. Investors included officers and directors of
the Company or entities controlled by such directors and certain employees
(see Note 10).

The principal amount of the Notes was payable on March 31, 2007 and bore
interest at 8% per annum, payable on a quarterly basis. At the option of
the holder of a Note, a Note was convertible into the Company's common
stock at any time after June 1, 2001. The number of shares of common
stock to be received by a Note holder upon conversion was determined by
dividing the principal amount of the Note by the conversion price in
effect at the time of the conversion, which was initially $10.75. The
conversion price was subject to adjustment in the event of any
subdivision, combination, or reclassification of outstanding shares of the
Company's common stock.

For financial statement purposes, a substantial portion of the Notes were
deemed to have been in-the-money at the commitment date. The Company
calculated the beneficial conversion feature as the difference between the
fair value of the common stock at the commitment date and the initial
conversion price, multiplied by the number of shares into which the debt
is convertible. For the fiscal year ending June 30, 2000 approximately
$2.5 million of the proceeds from issuance of the Notes was recorded as
debt discount and allocated to additional paid-in capital. Additional
Notes issued during the fiscal year ended June 30, 2001 resulted in
additional discount of $1.4 million. Because the earliest date available
for the holders to convert the Notes to common stock was June 1, 2001, the
entire debt discount was amortized to interest expense during the fiscal
year ended June 30, 2001.

In May 2002, a special committee of the Board of Directors (the
"Committee"), consisting solely of directors who did not hold any direct
or indirect financial interest in the Notes was formed to investigate the
possibility of repurchasing the Notes. After evaluating, among other
things, the risk profile associated with the Company's cash investment
strategy and the reduced yield that would result from a more conservative
program, the Committee determined that redeeming the Notes would be in the
best interest of the Company. As a result of the Committee's decision,
the Company extended a voluntary repurchase offer to the holders of the
Notes. The offer was made at the face value of each Note, but excluded
accrued interest since March 31, 2002, the last interest payment date.

In June 2002, all of the existing holders of the Notes agreed to accept
the terms of the voluntary repurchase offer. In July 2002, cash payments
of $27.3 million, representing the face value of the Notes less
recoupments of loans made to an officer and a former employee which were
secured by the Notes, were executed. Funds to pay the obligation were
derived by liquidating a substantial portion of the Company's short-term
investments.

Following is an unaudited condensed consolidated pro forma balance sheet
as of June 30, 2002 reflecting the repurchase of the Notes in July 2002
(dollars in thousands):

Historical Repurchase Pro forma
__________ __________ _________
Assets
Cash and short term investments $36,264 $(27,330) $ 8,934
Notes receivable 420 (420) -
Other current assets 6,790 - 6,790
_______ ________ _______
Total current assets 43,474 (27,750) 15,724
Investments and noncurrent assets 3,369 - 3,369
_______ ________ _______
Total Assets $46,843 $(27,750) $19,093
======= ======== =======

Liabilities and stockholders'
equity
Convertible subordinated notes 27,750 (27,750) -
Other current liabilities 5,401 (553) 4,848
Other noncurrent liabilities 425 - 425
Total stockholders' equity 13,267 553 13,820
_______ ________ _______
Total liabilities and
stockholders' equity $46,843 $(27,750) $19,093
======= ======== =======

Note 3 - Investments In Technology-Related Businesses
Beginning in fiscal 2000, the Company changed its primary business focus
to an investment manager and investor/incubator in technology-related
companies. Between January 2000 and November 2000, J Net made investments
in eleven companies, including its initial investment in InterWorld.

As of June 30, 2002, four of these investments continue operations; Tellme
Networks, Inc., eStara, Inc., Strategic Data, Inc. and certain companies
contained in Meister Brothers Investment portfolios represent minority
investments where the cost method of accounting is used. The Company's
management is ascribing value to investments in eStara and Tellme only.
The other investments have been written off.

The following tables set forth the acquisition cost for each of the
Company's investments and the activity and disposition of each investment
for each fiscal year (dollars in thousands):




Fiscal Year Ended June 30, 2000
Value at
Balance at Equity Goodwill Impairments June 30,
Investment June 30, 1999 Additions income (loss) amortization and sales Other 2000
___________________ _____________ _________ _____________ ____________ ___________ _____ _________


Digital Boardwalk,
LLC $ - $ 4,767 $130 $ (9) $ - $ - $ 4,888
Meister Brothers
Investments, LLC - 2,554 - - - - 2,554
CyberBills, Inc. - 3,186 - - - - 3,186
Carta, Inc. - 4,000 - - - - 4,000
TechTrader, Inc. - 8,536 (99) (27) - - 8,410
Alistia, Inc. - 2,000 (93) (2) - - 1,905
Strategic Data
Corporation - 850 - - - - 850
___ _______ ____ ____ ___ ___ _______
Total $ - $25,893 $(62) $(38) $ - $ - $25,793
=== ======= ==== ==== === === =======



Fiscal Year Ended June 30, 2001
Value at
Balance at Equity Goodwill Impairments June 30,
Investment June 30, 1999 Additions income (loss) amortization and sales Other 2000
___________________ _____________ _________ _____________ ____________ ___________ _______ _________


Digital Boardwalk,
LLC $ 4,888 $ - $ (627) $ (10) $ (4,501) $ 250 (a) $ -
Meister Brothers
Investments, LLC 2,554 - - - (40) (2,514)(b) -
CyberBills, Inc. 3,186 - - - (2,986) (200)(c) -
Carta, Inc. 4,000 - - - (4,000) - -
TechTrader, Inc. 8,410 27 (3,247) (380) (4,810) - -
Alistia, Inc. 1,905 480 (1,907) (9) (469) - -
Strategic Data
Corporation 850 250 - - (1,100) - -
eStara, Inc. - 2,665 - - (1,375) - 1,290
Jasmine Networks, Inc. - 5,000 - - (5,000) - -
Tellme Networks, Inc. - 2,000 - - - - 2,000
InterWorld
Corporation(d) - 20,340 (20,340) - - - -
Other - 5 - - - (5)(e) -
_______ _______ ________ _____ ________ _______ ______
Total $25,793 $30,767 $(26,121) $(399) $(24,281) $(2,469) $3,290
======= ======= ======== ===== ======== ======= ======

(a) Represents a loan made to Digital Boardwalk which was written off
to expense when the Company sold its interest for a loss of $4,501.

(b) J Net owned a 1% controlling interest in the Meister Brothers
portfolio. The minority interest was eliminated upon impairment
in 2001.

(c) Uncollected proceeds from sale of investment as of June 30, 2001.

(d) InterWorld became a consolidated subsidiary of J Net in May 2002.
Equity loss includes the periods of November 2000 through May 2001.

(e) Abandoned deal screening costs written off to general and
administrative expenses.

Fiscal Year Ended June 30, 2002
Value at
Balance at Equity Goodwill Impairments June 30,
Investment June 30, 1999 Additions income (loss) amortization and sales Other 2000
___________________ _____________ _________ _____________ ____________ ___________ _______ _________


eStara, Inc. $1,290 $1,338 $ - $ - $(2,203) $ - $ 425
Tellme Networks, Inc. 2,000 - - - - - 2,000
______ ______ ___ ___ _______ ___ ______
Total $3,290 $1,338 $ - $ - $(2,203) $ - $2,425
====== ====== ==== === ======= === ======

Active investments with carrying value as of June 30, 2002:
Tellme Networks, Inc. ("Tellme") is a non public company that provides
voice technology which delivers information from the Internet over the
phone. The technology enables users through voice-recognition and speech
synthesis to utilize any telephone to access the Internet and listen to
online information. J Net uses the cost method of accounting for its
investment in Tellme.

eStara, Inc. ("eStara") is a non public development stage company that
provides voice communication technology that enables on line customers to
talk with e-commerce businesses over the Internet. The Company uses the
cost method of accounting to account for its investment in eStara.

J Net funded $2.7 million of a $4.0 million commitment in September 2000.
The remaining $1.3 million commitment was funded in July 2001 under
revised terms which included a reduced valuation. As a result of the
reduced valuation, a $1.4 million impairment was charged in 2001.

In June 2002, eStara completed negotiations with a group of investors to
provide a $2 million bridge loan until an additional financing round can
be obtained. J Net has elected not to participate in its proportionate
share of the loan, which will result in its ownership percentage in eStara
to become diluted. The Company recorded an additional $2.2 million
impairment in 2002 against its investment in eStara based on the valuation
terms contained in the bridge loan.

Investments sold, abandoned or impaired during fiscal 2001:
Jasmine Networks, Inc. ("Jasmine"). The Company invested $5 million as
part of an $80 million Series C financing in August 2000. As of June 30,
2001, Jasmine was actively engaged in negotiations to sell a division of
its company to a third party at a value which would represent a discount
to the original investment. In addition, other events which transpired in
August and September 2001, including the loss of a significant customer
and the terrorist attacks in New York and Washington D.C., resulted in J
Net recording an impairment for its entire investment of $5 million for
fiscal year 2001. Jasmine ceased conducting business operations in
February 2002. The Company used the cost method to account for its
investment in Jasmine.

Strategic Data Corporation ("Strategic Data"). The Company invested $.2
million and $.9 million in Strategic Data Corporation in May 2001 and May
2000, respectively. The investment was accounted for under the cost
method. Management's analysis of Strategic Data's business model, which
relies on Internet advertising, resulted in an impairment of the full $1.1
million investment as of June 30, 2001. Strategic Data continues to
conduct operations and has recently obtained additional financing. J Net
did not participate in a recent financing offering.

Meister Brothers Investments, LLC ("MBI"). On March 1, 2000, the Company
acquired a 1% membership interest in and became the managing member of MBI
for $40 thousand pursuant to an agreement between MBI, the Company, Keith
Meister ("KM") and Todd Meister ("TM"). KM and TM each own 49.5% of the
membership interests in MBI and were Co-Presidents of the Manager of the
Fund until September 2001. As managing member, the Company has complete
authority and responsibility for the operations and management of MBI and
its ownership interests. Through its ownership interests, MBI owns a
portfolio of investments (the "Portfolio") in development stage
Technology-Related Businesses. Such investments are accounted for under
the cost method. As of June 30, 2002, certain companies within the
portfolio continue operating. J Net has not contributed additional funds
and the investment was fully impaired in 2001.

On March 1, 2000 in connection with the agreement described above, KM, TM
and the Company entered into a combination of Put and Call Agreements.
Pursuant to the terms of the Call Agreement, KM and TM granted an option
to the Company to purchase from KM and TM, and KM and TM were each
obligated to sell to the Company, upon proper exercise, under such option
(the "Call Option") all of their membership interests in MBI. Upon
exercise of the Call Option by the Company, KM and TM were to receive no
less than 312,500 and no more than 500,000 shares of the Company's common
stock, as calculated by a predetermined formula in the Call Agreement.
The Call Option could be exercised by the Company at any time after March
1, 2002 and expired on March 1, 2004. Pursuant to the terms of the Put
Agreement, the Company granted an option to each of KM and TM to sell to
the Company and the Company would be obligated to purchase from each of KM
and TM, upon proper exercise, under such option (the "Put Option") any or
all of the membership interests in MBI held by each of them in exchange
for a number of common shares of the Company, as calculated by a
predetermined formula in the Put Option. Upon exercise of the Put Option
by KM and TM, KM and TM would receive no less than 275,938 and no more
than 441,501 shares of the Company's common stock, as calculated by a
predetermined formula in the Put Agreement. The Put Option could be
exercised at any time after the first to occur of (i) September 1, 2001 or
(ii) the date the Portfolio Value, as defined in the Put Option, is fixed
at $4 million, but in no event would the Put Option become exercisable any
earlier than March 1, 2001. The Put Option expires on March 1, 2004.

Prior to the execution of the agreements described above, KM, TM and the
Company mutually agreed that the estimated Portfolio value was $2.5
million. Based upon such value, the minimum number of shares to be
received by KM and TM was determined by using a $9.06 per share value of J
Net's common stock, which was the average closing price for the 30 days
prior to the parties' mutual agreement of the estimated Portfolio value.

If neither the Put Option nor the Call Option was exercised, KM and TM
would have a further option to purchase, or cause MBI to purchase, the
Company's interest in MBI at its fair market value as determined by
appraisal. Such option was exercisable on or after April 1, 2004 and
expired April 30, 2004.

Based upon the Company's control over MBI as described above, the Company
consolidated MBI in its June 30, 2001 balance sheet and reflected the
interest of MBI owned by KM and TM as a minority interest.

On September 28, 2001, the Company completed the purchase of the remaining
99% of MBI that the Company did not already own. The purchase was
executed pursuant to a series of agreements relating to the termination of
the employment of KM and TM, a cancellation of the Put Option and
corresponding Call Option and the repurchase of the shares issuable under
the Put Option. As a result, the Company paid an aggregate of $1.6
million of consideration. A portion of such consideration equal to $1
million was used to repay a loan from the Company to KM and TM to purchase
a portion of the Company's Notes. Because the entire MBI portfolio had
been impaired in 2001 and the September 28, 2001 agreements superceded the
original Put Option, the entire $1.6 million of consideration was expensed
as restructuring and unusual charges upon completion of the transaction.

CyberBills, Inc. ("CyberBills"). In March 2000, the Company purchased
3,385,106 shares of Series C Preferred Stock of CyberBills, a non public
development stage company at a cost of $3.2 million. The Company's share
of the total investment was approximately 11% of the total Series C
placement. The cost method of accounting was used to account for the
investment in CyberBills.

In May 2001, the management of CyberBills entered into an asset purchase
agreement with an unrelated party to sell the assets for $15 million. The
closing of the sale occurred on June 20, 2001. After payment of creditors
and estimated reserves for transaction and other transition expenses, the
Series C shareholders are expected to receive a distribution of
approximately $2 million, or approximately $.2 million net to the Company.
An initial payment was received in January 2002. A second distribution
will occur when final escrowed funds set aside for undisclosed liabilities
are released by the buyer. There is no assurance this second payment will
occur. The loss on the investment, net of proceeds was reported as a $2.9
million loss on disposal and impairments in the Consolidated Statement of
Operations in 2001.

Digital Boardwalk, LLC ("Digital"). The Company's investment in Digital,
an e-services company was sold in April 2001. Losses from the operations
and sale during the time the Company held the investment were
approximately $5 million, which included the Company's initial investment
of $3 million in cash and $1.7 million in J Net common stock in March
2000, and a $.3 million working capital loan made during 2001. Prior to
its disposal, the Company used the equity method to account for the
investment in Digital.

Alistia, Inc. ("Alistia"). On May 18, 2000, J Net purchased a 39.8%
ownership interest in Series A Preferred Stock ("Series A Stock") of
Alistia, a non public development stage company for $2 million in cash.
The Series A Preferred Stockholders are entitled to vote along with the
common stockholders based on the number of common stock in which the
Series A Stock could be converted. On an as-converted basis, the Company
had a 19.95% voting interest in the initial investment. In addition, a
member of J Net's board of directors is a member of Alistia's five member
board. As a result of the voting percentage and board representation, the
Company used the equity method of accounting.

On May 8, 2001, the Company participated in a second round financing in
Alistia, Inc., of Redeemable Preferred Stock (the "Series B Stock"). In
June 2001, Alistia notified its Board of Directors and investors that the
performance targets specified in the Series B Stock would not be attained
thereby nullifying any further funding obligation. J Net recorded an
impairment of its remaining investment in Alistia of $.5 million in
addition to $1.9 million of equity method losses in 2001. Alistia ceased
conducting operations in the first quarter of calendar 2002.

TechTrader, Inc. ("TechTrader"). In June 2000, the Company purchased
42.1% of the Series B Preferred Stock and a warrant to acquire 827,796
shares of common stock in Tech Trader, a development stage non public
company. The aggregate purchase price totaled $8.5 million consisting of
$6 million in cash and $2.5 million in the Company's common stock (178,571
shares). The Company used the equity method to account for the investment
in TechTrader.

In June 2001, the Company deemed the enterprise value of Tech Trader to be
worthless and wrote off the full value of its investment. Tech Trader
ceased conducting business operations in the fourth quarter of 2001.

Carta, Inc. ("Carta"). The management of Carta ceased operations in
February 2001 and the Company's investment of $4 million was written off
in 2001. The Company used the cost method of accounting for Carta.

Note 4 - IW Holdings, Inc. (IWH)
The Company's E-commerce Operations are conducted through IWH, a wholly-
owned subsidiary which owns the intellectual property and assets
previously owned by InterWorld. J Net owns 95.3% of the equity securities
of InterWorld, which it acquired through a series of transactions
described below.

On October 12, 2000, J Net and InterWorld entered into a definitive
Securities Purchase Agreement (the "Securities Purchase Agreement").
Pursuant to the terms of the Securities Purchase Agreement, J Net
purchased $20 million in aggregate principal amount of Series A Preferred
Stock of InterWorld (the "Preferred Stock") on November 10, 2000. Each
share of the Preferred Stock was initially convertible into shares of
Common Stock of InterWorld (the "Common Stock") at a conversion price of
$6.25 per share (the "Conversion Price"), subject to adjustment on the six
month anniversary of the date of issue, to 90% of the average daily
closing price of Common Stock for such six-month period, but in no event
less than $2.00 per share. Furthermore, as of April 12, 2001, J Net, at
its sole discretion, had the option to require InterWorld to redeem the
Preferred Stock for cash at 150% of the purchase price plus accrued
dividends, provided that such right would expire if InterWorld consummated
a change of control transaction with J Net on or prior to such date.

In connection with the issuance of the Preferred Stock, InterWorld issued
to J Net warrants to purchase additional shares of Common Stock at an
exercise price of $7.25 per share, subject to adjustment, exercisable at
any time until October 12, 2005, equal to 19.99% of the current
outstanding shares of Common Stock less the amount of shares issuable upon
the conversion of the Preferred Stock. The Company determined these
warrants were a derivative security as defined by SFAS 133, as amended.
Because there was no public market for these warrants, the value of the
warrants was determined using the Black-Scholes methodology. As a result
of subsequent transactions described below, the warrants were canceled.
Therefore, no accounting for these warrants using SFAS 133 was required.

Pursuant to the Securities Purchase Agreement, J Net appointed two of its
board members to InterWorld's Board of Directors. Based on the Company's
representation on the Board of Directors and the Company's ability to
otherwise influence direction of InterWorld's activities, the Company
adopted the equity method to account for its initial investment in
InterWorld.

On January 25, 2001, J Net and InterWorld entered into a Stock Purchase
Agreement and a Stand-By Purchase Agreement (collectively, the
"Agreements"). Pursuant to the Agreements, J Net was to exchange all of
its InterWorld Preferred Stock and the related warrants for 46,153,846
newly issued shares of InterWorld Common Stock. In connection with such
exchange, J Net had agreed to suspend its option to require InterWorld to
redeem its Preferred Stock, provided such exchange was approved by
InterWorld's shareholders. In addition, pursuant to the Agreements,
InterWorld had agreed to offer for sale to all holders of InterWorld
Common Stock up to $20 million of newly-issued InterWorld Common Stock at
a price per share of $.65. If such holders did not purchase all of the
new issuance, the Company had agreed to purchase the difference between
$20 million and the amount purchased by other InterWorld shareholders (the
"Stand-By Commitment"). The Agreements also provided J Net with an option
to purchase an additional $20 million of InterWorld Common Stock (the
"Over Allotment Option"). A portion of the Over Allotment Option would
have been exercisable at a price per share of $.65 and a portion would
have been exercisable at a price per share equal to 90% of the volume-
weighted average trading price of InterWorld Common Stock for the 10
trading day period prior to the time of exercise. The portions
exercisable at each price would have depended on the number of shares
purchased pursuant to the Stand-By Commitment, as described in the
Agreements. The transactions described in the Agreements were subject to
numerous conditions, including obtaining various InterWorld shareholder
approvals and the making of various regulatory filings, as described in
the Agreements. On February 7, 2001, Mark W. Hobbs, J Net's President and
Chief Operating Officer, was appointed to InterWorld's Board of Directors

On April 19, 2001, the Company announced that there were several factors
which precluded the consummation of the transactions contemplated by the
Agreements. As a result, J Net and InterWorld announced that the
agreements had been terminated. In addition, it was disclosed that
Nasdaq, the securities exchange where InterWorld was then traded, had
notified InterWorld that unless certain conditions were satisfied,
InterWorld's stock would be delisted. Such delisting was effective May 4,
2001.

As a result of the cancellation of the Agreements, J Net announced it
would require InterWorld to redeem its Preferred Stock in accordance with
its terms. Those provisions entitled J Net to receive a cash payment or
to convert the Preferred Stock into Common Stock at a fixed discount of
the then market price. On May 4, 2001, InterWorld issued Common Stock
equal to 67.5% of its total issued and authorized Common Shares as partial
settlement to its mandatory redemption obligation.

At the close of business on May 21, 2001, InterWorld announced completion
of a one for fifty reverse stock split. In conjunction with this reverse
stock split, InterWorld completed the redemption of the Preferred Stock
with the terms of the mandatory redemption provision. Subsequent to the
reverse stock split, InterWorld had 10,779,033 shares of Common Stock of
which J Net owned 10,191,813 or 94.6% of the total outstanding shares.

On June 29, 2001, in a transaction related to a loan foreclosure with
Michael J. Donahue, the Company received an additional 85,408 shares of
InterWorld common stock. At the close of this transaction, J Net owned
95.3% of the issued and outstanding shares of InterWorld.

From November 2000 until April 2001, the period in which J Net held the
Preferred Stock, the equity method of accounting was used to account for
the investment in InterWorld. Beginning in May 2001 the consolidation
method of accounting was adopted to reflect J Net's step acquisition of
InterWorld resulting from the exchange of the Preferred Stock for
InterWorld common stock. Due to InterWorld's significant deficit at the
acquisition date, no minority interests were accounted for.

In June 2001, J Net and InterWorld entered into a secured credit facility
in the form of a promissory note. Advances made by J Net to InterWorld
were secured by all of the assets of InterWorld, including its
intellectual property. Such advances were made solely at the discretion
of J Net and there was no obligation to continue funding or to fund the
full amount of the credit facility.

Between June 2001 and March 2002, J Net advanced $17.2 million, excluding
interest, to InterWorld pursuant to the secured credit facility.

In May 2002, J Net foreclosed on its secured note and IWH became the owner
of intellectual property and assets of the E-Commerce Operations.

Since J Net acquired its controlling interest in InterWorld, Management
has taken significant steps to reduce costs. In June 2001, when funding
to InterWorld under the promissory note began, the E-Commerce Operations
required approximately $3 million per month to fund operations. J Net
immediately began restructuring the operations and reduced the monthly
cash requirement to approximately $1.2 million per month by November 2001.
Even with these initial reductions, the market for e-commerce software
products continued to be weak and additional steps were taken, which
included terminating business operations in foreign countries, additional
staff reductions, and relocation of office space. By January 2002, the
required funding had been reduced to approximately $.4 million per month.

In February 2002, a Strategic Partnership Agreement with Titan Ventures,
Inc. was executed (see Note 1) and marketing costs were virtually
eliminated. While the aforementioned actions brought IWH to near break-
even on a cash basis, their ability to continue operating at loss levels
remains uncertain. As of August 31, 2002, no sales transactions had been
completed by Titan.

Note 5 - Pro forma information (unaudited)
Set forth in the following table is certain unaudited pro forma financial
information for the years ended June 30, 2002, 2001 and 2000. This
information has been prepared assuming that J Net's acquisition of
InterWorld was consummated on July 1, 1999. No cost savings have been
assumed in the pro forma tables.

The pro forma consolidated statement of operations for the years ended
June 30, 2001 and June 30, 2000 are unaudited and were derived by
adjusting the historical consolidated financial statements of J Net and
InterWorld for those reporting periods. The historical consolidated
financial statements of InterWorld have been restated to accommodate the
June 30 fiscal year used by J Net. The June 30, 2002 pro forma
information includes the unaudited actual results of operations since J
Net began consolidating InterWorld in May 2001 and IWH beginning in May
2002. The pro forma statements of operations are for information purposes
only and they should not be interpreted to be indicative of the Company's
consolidated results of operations had the transaction actually occurred
on the assumed date and should not be used to project results for any
future date or period.

Twelve months ended June 30,
_________________________________
2002 2001 2000
________ _________ ________
(dollars in thousands)

Total revenues $ 5,815 $ 30,561 $ 58,303
Cost of revenues 2,912 21,328 24,208
________ _________ ________
Gross profit 2,903 9,233 34,095
Total operating expenses 29,089 107,778 76,346
________ _________ ________
Loss from continuing operations (26,186) (98,545) (42,251)
Other income (expense) 1,186 (5,678) 16,949
________ _________ ________
Net loss before taxes (25,000) (104,223) (25,302)
Income tax expense (benefit) 236 (11,558) 2,374
________ _________ ________
Net loss $(25,236) $ (92,665) $(27,676)
======== ========= ========

Basic loss per share $ (2.96) $ (10.48) $ (3.19)
======== ========= ========

Note 6 - Assets held for sale
On October 12, 2000 J Net entered into a Loan Assumption and Forbearance
Agreement with Michael J. Donahue, the former Vice Chairman and Chief
Executive Officer of InterWorld, pursuant to which J Net purchased from
Salomon Smith Barney ("SSB") a loan from SSB to Mr. Donahue in the amount
of $12.4 million. The loan was secured by 85,408 post-split shares of
InterWorld Common Stock and other assets owned by Mr. Donahue. The loan
was due in October 2003, subject to an acceleration in October 2001 if
InterWorld did not effect a merger transaction with J Net, and accrued
interest payable at 8% per annum. In connection therewith, J Net entered
into a Call/Participation Agreement with Mr. Donahue whereby he agreed
that J Net would share in the profit on a portion of the stock securing
the loan once certain conditions, including the repayment of the loan,
were met. Mr. Donahue had sole power to vote and dispose of the shares,
although he was required to vote the shares in favor of a merger of
InterWorld and J Net and consult with J Net on other matters put before
InterWorld's shareholders for a vote thereon. The loan agreement
contained certain events of default beyond non-payment, the most
significant of which included failure by Mr. Donahue to vote the stock in
favor of a merger between InterWorld and J Net and any time that the
closing price of the stock pledged as collateral fell below $2.00 per
share for more than 10 days.

On the date the loan was purchased by the Company, the value of the
InterWorld stock collateralizing the loan was approximately $13.6 million.
The Company also entered into a separate agreement with Mr. Donahue which
allowed J Net to participate in profits from the sale of the stock with
Mr. Donahue. InterWorld's stock price, along with other stock prices in
the technology space, continued to decline throughout 2000 and 2001. Such
declines in the InterWorld stock price necessitated the Company to take
more definitive actions and obtain a negative pledge on the other assets.

On April 4, 2001, the Company entered into an Amended and Restated Loan
Assumption and Forbearance Agreement (the "Amended Agreement") with Mr.
Donahue. The Amended Agreement replaced the Loan and Forbearance
Agreement (the "Original Agreement") dated October 12, 2000. The
significant components in the Amended Agreement added Excalibur Polo Farm
("Excalibur") as a debtor, changed interest payment terms, revised certain
collateral provisions and changed events allowing acceleration. The
amended loan was secured by 85,408 post-split shares of InterWorld common
stock and the assets of Excalibur.

The loan was due on October 11, 2003, subject to acceleration to October
11, 2001, if on or before July 31, 2001, InterWorld did not commence with
the rights offering contemplated by the Stock Purchase and Standby
Purchase Agreements dated January 25, 2001. J Net elected not to enforce
its rights relating to any other defaults at the time. The loan accrued
interest at 8% per annum and called for payment of accrued interest at the
end of each calendar quarter. Principal payments of $.5 million
commencing December 31, 2001 were also due each quarter.

The Call/Participation Agreement contained in the original agreement
whereby J Net would share in the profit on a portion of the stock securing
the loan once certain conditions, including the repayment of the loan,
remained intact in the Amended Agreement. This agreement was deemed to
have no value.

On June 29, 2001, the loan, together with accrued interest totaled $13.2
million. Due to the financial condition of Mr. Donahue, the Company
executed a series of agreements which foreclosed on the real property
assets securing the loan. In addition, the 85,408 post-split shares of
InterWorld common stock securing the loan were transferred to the Company.
The net realizable value of the real property, net of selling costs and
other obligations, was estimated to be $5.5 million on the date of the
foreclosure.

The agreements entered into on June 29, 2001 also provided for the Company
to loan Mr. Donahue up to $.8 million.

During fiscal 2002, the Company reduced its carrying value of Excalibur by
$.5 million to $5 million. The impairment was recorded as a direct
reduction to the assets held for sale caption on the consolidated balance
sheet and an impairment of assets in the consolidated statement of
operations. Such adjustment reflected the decline in the market value of
the 85,408 shares of InterWorld stock and increased operating costs due to
an extended holding period for the asset. The Company continues to
actively market the property.

In June 2002, Michael J. Donahue executed an agreement which released J
Net from its obligation to loan Mr. Donahue up to $.8 million pursuant to
the June 29, 2001 agreement. The obligation was accrued and reported as
a component of general and administrative expenses in 2001 and was
reversed in 2002.

Note 7 - Accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following (dollars in
thousands):

June 30,
____________________
2002 2001
______ ______

Trade accounts payable $2,491 $3,410
Accrued professional fees 178 1,804
Accrued employee benefits 358 1,183
Accrued interest payable 553 -
Accrued obligation - Donahue loan - 800
Accrued royalty payments - 141
Other 515 361
______ ______
Totals $4,095 $7,699
====== ======

As of June 30, 2002, the total accounts payable and accrued liabilities
include $2.3 million attributable to unsecured creditors of InterWorld
Corporation. Although there can be no assurances, Management believes
these obligations will be settled and reduced to amounts less then their
face value.

In July 2002, when the Company repurchased its Notes pursuant to a
voluntary repurchase offer, the accrued interest obligation was forgiven.
The liability was reversed in July 2002.

Note 8 - Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss)
from continuing operations by the weighted average number of shares
outstanding during each period. Diluted earnings or loss per share in
2000 is computed by dividing net income from continuing operations by the
weighted average number of common and common equivalent shares outstanding
during the period. Since both 2002 and 2001 had losses from continuing
operations, the assumed exercise of options and warrants has been excluded
in diluted loss per share pursuant to accounting principles generally
accepted in the United States.

The following is the amount of income (loss) and number of shares used in
the basic and diluted earnings (loss) per share computations for
continuing operations (dollars and shares in thousands, except per share
data):
2002 2001 2000
________ ________ _______

Basic earnings (loss) per share
from continuing operations:
Earnings (loss):
Income (loss) available to
common stockholders $(25,236) $(61,449) $ 6,295
======== ======== =======

Shares:
Weighted average number of
common shares outstanding 8,525 8,839 8,674
======== ======== =======

Basic earnings (loss) per share
from continuing operations $ (2.96) $ (6.95) $ .73
======== ======== =======

Diluted earnings (loss) per share:
Earnings (loss):
Income (loss) available to common
stockholders $(25,236) $(61,449) $ 6,295
Effect of dilutive securities - - 63
________ ________ _______
Income (loss), as adjusted $(25,236) $(61,449) $ 6,358
======== ======== =======

Shares:
Weighted average number of common
shares outstanding 8,525 8,839 8,674
Common shares issuable upon assumed
exercise of dilutive stock options - - 1,516
Less common shares assumed to be
repurchased by application of the
treasury stock method to the
proceeds using the average market
price for the period - - (1,404)
Common shares issuable upon assumed
conversion of 8% convertible
subordinated notes - - 109
Common shares issuable upon assumed
exercise of put option - - 92
________ ________ _______

Weighted average number of common
shares and common share equivalents
outstanding 8,525 8,839 8,987
======== ======== =======

Diluted earnings (loss) per share from
continuing operations $ (2.96) $ (6.95) $ .71
======== ======== =======

Note 9 - Stockholders' Equity
Rights plan:
In June 1994, the Board approved a Stockholder Rights Plan. On July 11,
1994, J Net declared a dividend distribution of one Preferred Stock
purchase right (the "Rights") payable on each outstanding share of common
stock, as of July 15, 1994. The Rights become exercisable only in the
event, with certain exceptions, an acquiring party accumulates 15% or more
of J Net's voting stock, or if a party announces an offer to acquire 30%
or more of J Net's voting stock. Each Right will entitle the holder to
purchase one-hundredth of a share of a Series A Junior Preferred Stock at
a price of $30. In addition, upon the occurrence of certain events,
holders of the Rights will be entitled to purchase either J Net's
Preferred Stock or shares in an "acquiring entity" at half of market
value. The Rights, which expire on July 15, 2004, may be redeemed by J
Net at $.01 per Right prior to the close of business on the tenth day
after a public announcement that beneficial ownership of 15% or more of J
Net's shares of voting stock has been accumulated by a single acquiror or
a group (with certain exceptions), under circumstances set forth in the
Rights Agreement. As of June 30, 2002 and 2001, 150,000 shares of
unissued Series A Junior Preferred Stock were authorized and reserved for
issuance upon exercise of the Rights. The issuance of the Rights had no
effect on dilutive earnings per share in 2002, 2001 and 2000.

On May 21, 2001, the Gabelli Group filed with the Securities and Exchange
Commission an Amendment to Schedule 13D indicating that the Gabelli Group
had purchased additional shares of issued and outstanding capital stock of
the Company and, therefore, beneficially owned an aggregate of 16.2% of
the issued and outstanding capital stock of the Company.

On May 30, 2001, Section 3 of the Rights Plan Agreement dated as of July
11, 1994 between J Net Enterprises, Inc. and Continental Stock Transfer &
Trust Company was amended to provide that the Amendment to the Schedule
13D would not constitute a public announcement that would trigger the
Rights Plan.

The Board of Directors of J Net also resolved that the Gabelli Group would
be permitted to purchase up to 19.9% of the issued and outstanding capital
stock of the Company and the public announcement, which may include the
filing of one or more amendments to the Schedule 13D, would not trigger
the Rights under Section 3 of the Rights Plan Agreement.

On July 11, 2002, the Gabelli Group filed an Amendment to Schedule 13D
indicating that the group had reduced their stake in the Company to 14.99%
of the issued and outstanding stock of J Net.

Stock option plans:
On January 12, 1993, J Net's stockholders approved the 1992 Incentive and
Non-qualified Stock Option Plan (the "1992 Plan"). On August 17, 1994,
the Board adopted certain amendments (the "Amendments") to the 1992 Plan
which were approved by J Net's stockholders on January 10, 1995. The
Amendments increased the number of shares of J Net's common stock (the
Common Stock") authorized for issuance pursuant to the 1992 Plan from
1,045,000 to 2,545,000. The 1992 Plan provides that each individual who
is a member of the Board on June 30 of any year, including any future
director on any such date, will automatically be granted nonqualified
stock options to purchase 27,500 shares of Common Stock on each such June
30. The option price for each June 30 grant will be 100% of the fair
market value of the Common Stock on the following September 30. Each
option granted to a director will become exercisable after September 30 of
each year, and expire five years from the date of grant. Under the 1992
Plan, options granted to J Net's directors to purchase an aggregate of
577,500 shares of Common Stock were outstanding, of which 440,000 were
exercisable at June 30, 2002. The 1992 Plan terminates on the earlier of
(i) the date all shares subject to the 1992 Plan have been issued upon the
exercise of options granted under such plans, or (ii) September 30, 2002,
or on such earlier date as the Board may determine. Any option
outstanding at the termination date remains outstanding until it has
either expired or has been exercised.

On January 31, 2000, a new director was added to the Company's Board of
Directors. In connection with the appointment, such director was granted
a nonqualified stock option to purchase 27,500 shares of common stock. On
May 1, 2000, pursuant to the terms of the grant, the exercise price was
vested at $10.63 per share, the fair market value of the stock on that
date. The option expires five years from the date of grant. Also, on
January 31, 2000, nonqualified stock options to purchase an aggregate of
450,000 shares of common stock were granted to three directors (150,000
each) at an exercise price of $10.13 per share, the fair market value on
the date of grant. The option granted to each director will vest in
thirds on each of the first, second and third anniversaries of the date of
grant. As of June 30, 2002, an aggregate of 300,000 of the January 31,
2000 grant were exercisable.

On June 28, 2001, an additional independent director was added to the
Company's Board of Directors. This new director received the automatic
grant of 27,500 shares pursuant to the 1992 Plan on that date, along with
the other directors, bringing the total June 28, 2001 grant to 137,500
shares. The options expire five years from the date of grant and are
exercisable at $4.00 per share, the fair market value of the Company's
stock on September 30, 2001.

On February 21, 2002, a non-employee consultant was granted 25,000 options
for services rendered to the Company in its negotiations with Titan. The
option allows the consultant to purchase shares of the Company at $2 per
share, the fair market value of the stock on the date of grant, and
remains in effect for three years from the date of the grant. The option
vests immediately only if a business combination between Titan and
InterWorld, or a successor entity to InterWorld occurs. Otherwise, the
option becomes null and void. Because of the indeterminate nature of a
possible business combination with Titan, no expenses were recorded when
the option was granted.

Changes in options outstanding under the 1992 stock option plan are
summarized below (shares in thousands):



2002 2001 2000
_____________________ _____________________ _____________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
______ _________ ______ ________ ______ ________

Fixed options:
Outstanding at beginning
of year 2,253 $9.33 2,132 $ 9.47 1,422 $ 9.79
Granted 25 2.00 94 9.42 757 10.25
Exercised - - - - (48) 12.31
Cancelled (1,045) 9.66 (110) 10.00 (109) 9.88
Automatic grant
to directors - - 137 4.00 110 9.50
______ _____ _____ ______ _____ ______
Outstanding at
end of year 1,233 $8.43 2,253 9.33 2,132 9.47
====== ===== ===== ====== ===== ======

Options exercisable
at year-end 1,016 9.26 1,636 9.79 1,292 9.76
Weighted average fair
value of options granted
during the year $ 1.10 $ 4.17 $ 4.12


The following table summarizes information about the 1992 Plan stock options
outstanding at June 30, 2002:

Options Outstanding Options Exercisable
_______________________________________________________ __________________________
Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6/30/02 Life Price at 6/30/02 Price
________________ ____________ ____________ _________ ____________ _________

$ 2.00 - $10.00 531 2.99 years $ 6.12 500 $ 7.69
$10.01 - $12.63 702 5.73 years $10.64 516 $10.77



Other nonqualified stock options:
On September 14, 1999, nonqualified stock options to purchase an aggregate
of 120,000 shares of common stock were granted to the Company's Board of
Directors (30,000 each to four directors) at an exercise price of $9.00
per share, the fair market value on the date of grant. The option granted
to each director vested 50% on each of the first and second anniversaries
of the date of grant. Such options expire ten years from date of grant.

On January 31, 2000, nonqualified stock options to purchase an aggregate
of 150,000 shares of common stock were granted to the Co-Presidents of the
Fund (75,000 each) at an exercise price of $10.13 per share, the fair
market value on the date of grant. Such options were to vest in thirds on
each of the first, second and third anniversaries of the date of grant.
In September 2001, the Co-Presidents terminated their employment with the
Company. The options expired as a result of the termination.

On June 21, 2000, nonqualified stock options to purchase an aggregate of
500,000 shares of common stock were granted to the President and Chief
Operating Officer and the Executive Vice President and Chief Financial
Officer at an exercise price of $13.13 per share, the fair market value on
the date of the grant. The options will vest in thirds on each of the
first, second and third anniversaries of the date of grant and expire ten
years from the date of the grant. As of June 30, 2002, options
exercisable were 333,334.

There were no nonqualified options granted during fiscal 2001 or 2002.

Changes in nonqualified options outstanding under the nonqualified stock
option plan is summarized below (shares in thousands):




2002 2001 2000
_____________________ _____________________ _____________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
______ _________ ______ ________ ______ ________


Fixed options:
Outstanding at
beginning of year 640 $12.22 640 $12.22 221 $ 9.19
Granted - - - - 640 12.22
Exercised - - - - - -
Cancelled (30) 9.00 - - (221) 9.19
___ ______ ___ ______ ____ ______
Outstanding at end of year 610 $12.38 640 $12.22 640 $12.22
=== ====== === ====== === ======
Options exercisable at
year-end 443 12.10 237 11.90 - -
Weighted average fair
value of options
granted during the year - $ - - $ - - $ 4.89


The following table summarizes information about nonqualified stock options
outstanding at June 30, 2002 (shares in thousands):


Options Outstanding Options Exercisable
_______________________________________________________ _________________________
Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6/30/02 Life Price at 6/30/02 Price
________________ ____________ ____________ _________ ____________ ________

$9.00 per share 110 7.21 years $ 9.00 110 $ 9.00
$13.13 per share 500 7.98 years $13.13 333 $13.13



Shares reserved for issuance:
Shares of Common Stock were reserved for the exercise of the following (in
thousands):

June 30,
_________________
2002 2001
_____ _____
Stock option plans:
Outstanding 1,233 2,253
Available for grant 1,218 198
Other nonqualified stock options 610 640
_____ _____
Totals 3,061 3,091
===== =====

Accounting for stock-based compensation:
The following table discloses pro forma amounts for net income (loss) and
basic and dilutive earnings (loss) per share for 2002, 2001 and 2000
assuming compensation cost for employee and director stock options had
been determined using the fair value-based method prescribed by SFAS 123.
The pro forma results may not be representative of the effects of options
on net income in future years. On July 1, 2000, the Company adopted the
revised provisions outlined in Financial Accounting Standards Board
Interpretation No. 44 ("FIN 44"). There was no impact from adoption of
these revised practices. The table also discloses the weighted average
assumptions used in estimating the fair value of each option grant on the
date of grant using the Black-Scholes option pricing model, and the
estimated weighted average fair value of the options granted. The model
assumes no expected future dividend payments on the Company's Common Stock
for the options granted in 2002, 2001 and 2000 (dollars in thousands,
except per share data):

2002 2001 2000
________ _______ ______

Net income (loss):
As reported $(25,236) $(48,695) $6,641
Pro forma $(25,358) $(49,342) $5,507

Basic earnings (loss) per share:
As reported $ (2.96) $ (5.51) $ .77
Pro forma $ (2.97) $ (5.58) $ .63

Diluted earnings (loss) per share:
As reported $ (2.96) $ (5.51) $ .75
Pro forma $ (2.97) $ (5.58) $ .62

Weighted average assumptions:
Expected stock price volatility 95.0% 60.0% 50.0%
Risk-free interest rate 3.3% 5.8% 6.4%
Expected option lives (in years) 3.0 3.0 3.0
Estimated fair value of options
granted $ 1.10 $ 4.19 $ 4.35

Defined contribution plan:
Employees may participate in a defined contribution plan which qualifies
under Section 401(k) of the Internal Revenue Code. Participants may
contribute up to 15% of their gross wages, not to exceed annual
limitations set by the Internal Revenue Service regulations. The Company
does not contribute or match employee contributions.

Note 10 - Related Party Transactions
One director of J Net is a partner of a law firm that performed legal
services for the Company totaling approximately $14,000 in 2002 and
approximately $.1 million and $.2 million in 2001 and 2000, respectively.
Three directors, entities controlled by those directors, or adult children
of those directors have invested $7 million in the Notes described in Note
2. As of June 30, 2001, officers and employees invested, either directly
or indirectly, $5.8 million in the Notes. As a result of the terminations
of the Co-Managers of Ventures I (see Note 3) and other employee
terminations, the amount of Notes held either directly or indirectly by
officers and employees was $2.5 million on June 30, 2002. All of the
Notes, including Notes held by unrelated third parties were repurchased
pursuant to a voluntary repurchase program in July 2002.

As of June 30, 2001, Notes held by officers or employees had a face value
of $3.3 million and the Company loaned $1.3 million to facilitate the
purchase of those Notes. On September 28, 2001, pursuant to agreements
with the former employees discussed in Note 3, $1 million of the loans,
plus accrued interest was collected. The remaining $.3 million was
collected in July 2002 when the Notes were repurchased as part of the
voluntary repurchase offer (see Note 2).

The Company and InterWorld entered into a secured credit agreement which
allowed InterWorld to draw up to a total of $20 million in cash from J
Net, at the Company's discretion. The advances were secured by the assets
of InterWorld including intellectual property. Advances totaled $17.2
million between June 2001 and April 2002. In May 2002, J Net completed
foreclosure actions against InterWorld and the assets, intellectual
property and employees were transferred to IWH (see Note 4).

The Company foreclosed on assets securing a loan to Michael J. Donahue,
Vice Chairman and Chief Executive Officer of InterWorld on June 29, 2001
as described in Note 6. The assets received in the foreclosure are
presently for sale and have an estimated net realizable value of $5
million.

The agreements entered into on June 29, 2001 also provided for the Company
to loan Mr. Donahue up to $.8 million. In June 2002, Mr. Donahue released
the Company from this obligation.

In March 2002, Michael Donahue resigned his position as Vice Chairman and
Chief Executive Officer of InterWorld. Mr. Donahue continues to perform
part time consulting services for IWH. Payments to Mr. Donahue for
consulting services were $57,000 for the fiscal year ended June 30, 2002

Note 11 - Federal Income Tax
The components of Federal income tax expense (benefit) are as follows
(dollars in thousands):
2002 2001 2000
_____ ________ ______
Federal:
Current expense (benefit) $(649) $ (979) $1,641
Deferred expense (benefit) 885 (10,579) 777
_____ ________ ______

Federal income tax expense
(benefit) on income (loss)
from continuing operations 236 (11,558) 2,418
Federal income tax expense of
discontinued operations - 6,612 177
_____ ________ ______
Total Federal income tax
expense (benefit) $ 236 $ (4,946) $ 2,595
===== ======== ======

A reconciliation of the Federal statutory income tax rate to the effective
income tax rate based on income (loss) from continuing operations before
income tax follows:

2002 2001 2000
_____ ________ ______

Statutory rate (35.0)% (35.0)% 35.0%
Increase (decrease) in tax
resulting from:
Surtax exemption 1.0 1.0 (1.0)
Amortization of debt discount - 5.3 -
Valuation allowance 34.6 12.8 -
Tax-exempt interest - - (7.6)
Other (.5) .1 1.4
_____ ________ ______
Effective rate .1% (15.8)% 27.8%
===== ====== =====

The tax items comprising J Net's net deferred tax asset (liability) as of
June 30, 2002 and 2001 are as follows (dollars in thousands):

2002 2001
________ _______

Equity method losses and impairments $ 8,403 $10,238
Net operating losses 7,076 -
Capital loss carryforwards 1,740 -
Leasehold improvement impairments 692 -
Impairments of assets held for sale 170 -
Depreciation (128) -
Accruals and other 3 (37)
________ ________
Total 17,956 10,201
Less valuation allowance (17,956) (9,316)
________ ________
Net deferred tax asset $ - $ 885
======== ========
Note 12 - Operating Segments
The Company has two reportable segments: E-Commerce Operations and
Technology-Related Businesses. Prior to May 2001, the Company operated
only in one segment, Technology-Related Businesses. The Technology-
Related Businesses include the effect of transactions and operations of
the Company's non-consolidated investments, including InterWorld prior to
the acquisition of a majority of its outstanding common stock in May 2001.
E-Commerce Operations include the results of IWH and its predecessor,
InterWorld. All significant intersegment activity has been eliminated.
Accordingly, segment results reported exclude the effect of transactions
between the Company and its subsidiary. Assets are the owned assets used
by each operating segment.

Year Ended Year Ended
June 30, 2002 June 30, 2001
_____________ _____________

(Dollars in thousands)

Loss from continuing operations:
_______________________________

E-Commerce Operations $(16,855) $ (5,814)
Technology-Related Businesses (8,381) (55,635)
________ ________
Loss from continuing operations $(25,236) $(61,449)
======== ========

E-Commerce Results of Operations:
________________________________

Revenue $ 5,815 $ 2,156
Cost of sales 2,912 877
________ ________
Gross margin 2,903 1,279

Operating Expenses
Research and development 5,125 2,264
Sales 5,981 2,142
Marketing alliances 1,616 1,085
General and administrative and
bad debt 4,814 1,595
Restructuring, settlement gains
and unusual charges 1,273 -
________ ________

Total operating expenses 18,809 7,086

Other expense, net (949) (7)
________ ________
Loss from E-Commerce Operations $(16,855) $ (5,814)
======== ========

Technology-Related Businesses:
General and administrative $ 3,157 $ 15,293
Loss on disposal and impairment
of technology-related businesses 2,703 24,281
Restructuring and unusual charges 4,420 1,140
________ ________
Total operating expenses 10,280 40,714
________ ________
Interest income 4,434 5,512
Interest expense (2,299) (5,870)
Equity losses in technology-
related businesses - (26,121)
________ ________
Loss from continuing operations
before income tax (8,145) (67,193)
Income tax provision 236 (11,558)
________ ________
Loss from technology-related
Businesses $ (8,381) $(55,635)
======== ========

Year Ended Year Ended
June 30, 2002 June 30, 2001
_____________ _____________
Total assets
E-Commerce $ 632 $ 2,879
Technology-related businesses 46,211 74,534
_______ ________
Total $46,843 $ 77,413
======= ========

Note 13 - Other Events
Terminated mergers:
On August 16, 1999, J Net received a notice from Players International,
Inc. ("Players") terminating an Agreement and Plan of Merger dated
February 8, 1999 (the "Players Agreement") between the Company and
Players. Such notice contained the terms of a merger offer for Players
from Harrah's Entertainment, Inc. On August 19, 1999, pursuant to the
terms of the Players Agreement, J Net received a break-up fee of $13.5
million. As a result of the termination of the Players Agreement,
capitalized costs of $2.4 million incurred in connection with the proposed
acquisition of Players were expensed resulting in a net break-up fee of
$11.1 million. During 2000, J Net sold 1,014,400 shares of Players common
stock for $8.5 million ($8.37 per share). As a result of the sale of such
shares, which were purchased on March 10, 1999 at a cost of $6.1 million
($6.04 per share), J Net realized a gain of $2.4 million.

Termination and Consulting Agreement:
On February 29, 2000, the Company and Don R. Kornstein, President, Chief
Executive Officer and Director, entered into a Termination and Consulting
Agreement (the "Termination Agreement"). Pursuant to the terms of the
Termination Agreement, Mr. Kornstein and the Company mutually agreed that
his employment and position on the Board of Directors terminated on
February 29, 2000. On March 10, 2000, pursuant to the terms of Mr.
Kornstein's employment agreement and the Termination Agreement, the
Company paid $2.9 million to Mr. Kornstein for severance and accrued
vacation costs. Of such amount, $2.8 million was expensed in 2000, and is
included in the line captioned restructuring and unusual charges in the
accompanying Consolidated Statements of Operations.

In November 2000, upon completion of the sale of the Route Operations,
severance payments totaling $1.1 million and accrued bonuses were paid to
two former officers of the Company pursuant to employment agreements. The
costs of the severances are included in the line captioned restructuring
and unusual charges in the accompanying 2001 Consolidated Statements of
Operations.

Note 14 - Commitments And Contingencies
Employment agreements:
J Net entered into employment agreements with Mark W. Hobbs, President and
Chief Operating Officer, and Steven L. Korby, Executive Vice President and
Chief Financial Officer on October 1, 2000. Such agreements expire on
June 21, 2003. The aggregate commitment for future salaries at June 30,
2002, excluding bonuses, under the employment agreements is approximately
$.6 million.

Legal matters:
J Net is not a party to any legal matters that could have a material
impact on its operations as of June 30, 2002. However, InterWorld is
subject to two claims.

On March 8, 2001, as amended on May 29, 2001, InterWorld received notice
that the Securities and Exchange Commission (the "Commission") commenced a
formal order directing a private investigation by the Commission with
respect to whether InterWorld engaged in violations of Federal Securities
Laws as it relates to InterWorld's financial statements, as well as its
accounting practices and policies. Also under review by the Commission is
certain trading in InterWorld stock. All the above events are related to
periods prior to the Company's common stock ownership in InterWorld.

The investigation is confidential and the Commission has advised that the
investigation should not be construed as an indication by the Commission
or its staff that any violation of law has occurred nor should the
investigation be construed as an adverse reflection on any person, entity
or security.

The investigation is ongoing and InterWorld is fully cooperating with the
Commission.

PBS Realty ("PBS"), a real estate broker conducting business in New York
City filed a $1.2 million claim against InterWorld Corporation, a
subsidiary of the Company, in April 2002. The claim alleges that PBS is
owed commissions by InterWorld for services related to PBS's attempts to
sublease office space previously occupied by InterWorld at 395 Hudson
Street in New York City. InterWorld is vigorously contesting the claim
and InterWorld management does not believe a liability exists at this
time. J Net was not a party to the brokerage agreement and no claim has
been asserted by PBS.

Leases:
J Net has a noncancellable office lease in New York, New York. Future
minimum payments under such lease total $3.9 million at June 30, 2002,
payable as follows: $.4 million in 2003 and 2004; $.5 million in 2005 and
2006 and $1.8 million thereafter. J Net also has a noncancellable office
lease in Plano, Texas. Future minimum payments under such lease, which
expires in February 2003, is $69,000 at June 30, 2002. In January 2002, J
Net entered into a sublease agreement for its office lease in New York.
The Company remains responsible for its obligations under the original
lease. Future minimum receipts from the tenant under the sublease, net of
profit sharing with the landlord, are $4.6 million. Total rent payments
by the Technology-Related Businesses segment were $.6 million in 2002, $.7
million in 2001 and $.1 million in 2000. Rent receipts under the sublease
through June 30, 2002, net of profit sharing expenses with the primary
landlord were $.2 million. Rental payments for e-commerce operations in
2002 totaled $1.0 million and $.5 million for May and June 2001.

In December 2001, InterWorld negotiated a release from all of its
obligations under lease obligations at its offices in New York City,
including certain past due expenses. The release included office space
subleased to UGO, a related party. The release, together with forgiveness
of the past due expenses, relieved InterWorld of approximately $50 million
in gross lease obligations. InterWorld now leases office space on a
month-to-month basis in New York City at a cost of approximately $18,000
per month.

Significant customers and contracts:
During 2002, approximately 49% of consolidated revenues were derived from
four customers. Renewals of post production maintenance support from
these customers is an important source of operating funds. In addition,
new sales are required to achieve profitability and reduce the reliance
and associated risks of lost revenues from these significant customers.
As of August 31, 2002, there were no sales closed under the Strategic
Alliance Agreement with Titan.

Note 15 - Discontinued Operations
Definitive agreement:
On July 8, 2000, the Company entered into a definitive agreement to sell
its Route Operations for $45 million in cash. In October 2000, the sales
price was reduced to $38 million. The sale, which was subject to closing
conditions and regulatory and other approvals, was completed in November
2000 and is reported as discontinued operations. In accordance with
accounting principles applicable to discontinued operations, previously
reported financial statements have been reclassified to reflect the Route
Operations as discontinued.

Litigation settlement:
In August 1998, Albertson's, Inc. ("Albertson's", a retail chain in which
J Net conducts gaming operations) and American Stores Company ("American
Stores") entered into a merger agreement that provided for the acquisition
of American Stores by Albertson's. Approximately 51% and 57% of revenues
generated by discontinued operations for 2000 and 1999, respectively, were
generated at the locations of those two entities. The merger of
Albertson's and American Stores was completed on June 23, 1999. As a
condition to avoiding and/or settling legal proceedings against the merger
by the Federal Trade Commission and the Attorneys General of California,
Nevada and New Mexico, Albertson's agreed to divest certain of its stores,
including 19 stores in southern Nevada, fifteen of which were J Net
locations. In late September and early October 1999, Albertson's sold
those locations to Raley's, Inc. ("Raley's").

On August 30, 1999, J Net commenced litigation in United States District
Court for the District of Nevada against Albertson's and Raley's to
enforce its rights to remain in the fifteen locations under its agreement
with Albertson's. On September 14, 1999, J Net obtained a preliminary
injunction to prevent Albertson's and Raley's from interfering with its
right to occupy the subject premises and conduct gaming operations.
Albertson's and Raley's appealed the injunction and made motions for
summary judgment.

In connection with Raley's acquisition of the locations, United Coin
Machine Company ("United Coin"), the gaming machine route operator for
Raley's northern Nevada stores, filed applications with the Nevada Gaming
Control Board to operate the gaming machines at the fifteen stores. On
September 23, 1999, United Coin commenced an action in Nevada state court
against J Net, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot
route operator at the four other Albertson's southern Nevada locations
seeking declaratory and injunctive relief and money damages.

Settlement agreement with Albertson's:
On January 26, 2000, J Net entered into a Settlement Agreement and Release
(the "Settlement Agreement") with Albertson's, Raley's, Anchor and United
Coin. Pursuant to the terms of the Settlement Agreement, the parties
agreed to dismiss with prejudice all litigation pending among them and to
the takeover of gaming operations by United Coin of the 19 stores in
southern Nevada, effective February 1, 2000. Of the 19 stores in southern
Nevada operated by Raley's, J Net had operated 246 gaming machines at 15
locations pursuant to its long-term agreement with Albertson's. J Net
believed it was in its best interest to settle the case and thereby
preserve and solidify its long-term relationship with Albertson's, its
largest customer, pursuant to the terms of an amendment to its agreement
with Albertson's, which it had theretofore arranged and which is described
below in this note. It was also important to J Net to avoid further
litigation and fully resolve all claims among and between the parties.
All costs incurred in connection with the litigation and settlement,
including legal and settlement costs aggregating approximately $1 million,
were recorded in fiscal 2000, and are included in the line captioned
income from discontinued operations in the accompanying Consolidated
Statements of Operations.

The Rite Aid dispute:
On December 8, 1999, certain Gaming Machine Route Operations subsidiaries
of J Net commenced litigation in the United States District Court for the
District of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit
was an action for rescission of two license agreements between those
subsidiaries and Rite Aid and for damages based upon Rite Aid's alleged
fraud. Operations of said subsidiaries under said agreements resulted in
an operating loss of approximately $3.4 million in 2000.

On March 27, 2000, J Net entered into amendments to the two license
agreements with Rite Aid. Based on the number of existing locations at
which J Net operated gaming machines, license fees payable to Rite Aid
were reduced by approximately $2.5 million annually over the
remaining term of the amended agreements. The amendments were subject to
approvals from the Nevada State Gaming Control Board (the "Nevada Board")
were received in October 2000.

Selected financial data - discontinued operations:
The following are the summary operating results of the discontinued
operations. The results for fiscal 2001 represent the period of July 1,
2000 to November 22, 2000, the effective time of the sale (dollars in
thousands):

2001 2000
________ ________

Revenues $ 28,120 $ 86,949
Costs and expenses (28,484) (86,563)
________ ________
Operating income (364) 386
Other income 15 137
________ ________
Income before income tax (349) 523
Provision (benefit) for income tax (99) 177
________ ________
Income from discontinued operations,
net of tax $ (250) $ 346
======== ========

The following are the net assets of the discontinued operations sold on
November 22, 2000 (dollars in thousands):

November 22, 2000
Assets:
Cash $ 3,500
Prepaid expenses 819
Other current assets 2,223
Deferred income tax -
Property and equipment at cost, net 10,803
Lease acquisition costs and
other intangible assets, net 5,279
_______
Total assets $22,624
=======

Liabilities:
Accounts payable and other current
Liabilities 1,490
Deferred rent 3,945
_______
Total liabilities 5,435
_______
Net assets of discontinued operations $17,189
=======

Note 16 - Restructuring charges
Fiscal years ended June 30, 2001 and 2000 included severance payments of
$1.1 million and $2.8 million, respectively. Such payments were
attributable to the Discontinued Operations and the Company's change in
business direction from gaming to technology-related business.

Beginning with its 2002 fiscal year, the Company began a restructuring
process in both its E-Commerce Operations and Technology-Related
Businesses. Between July 1, 2001 and December 31, 2001, the number of
employees was reduced from a total of approximately 270 employees to 29
employees. In addition to reductions in workforce, office space was
either subleased or relocated. The costs for such restructuring includes
$1.8 million of severance, $1.6 million in contract settlements and
cancellations and $2.9 million of non-cash charges associated with the
abandonment of leasehold improvements at certain office locations.

In November and December 2001, InterWorld ceased conducting business
operations in Australia and the United Kingdom. The existing customers
are serviced from the United States.

In November 2001, InterWorld's Japan subsidiary operations were sold to
the local reseller agent in exchange for a 40% royalty on any future
licensing sales. Primary support will be provided by Japan at no cost to
InterWorld. Technical support is provided by the United States.

J NET ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
YEARS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands, except per share data)
(Unaudited)

Summarized quarterly financial information for 2002 and 2001 follows:

Quarter
__________________________________

First Second Third Fourth
________ ________ _______ _______
2002
Revenues $ 2,825 $ 1,215 $ 630 $ 1,145
Gross profit 1,409 (47) 574 967
Operating loss from continuing
operations (14,351) (8,154) (1,738) (1,943)
Net loss (14,200) (7,994) (1,320) (1,722)

Basic earnings (loss) per share:
Net loss (1.67) (.94) (.15) (.20)

Dilutive earnings (loss) per share:
Net loss (1.67) (.94) (.15) (.20)

Quarter
__________________________________

First Second Third Fourth
________ ________ _______ _______
2001
Revenues $ - $ - $ - $ 2,156
Gross profit from continuing
operations - - - 1,279
Operating loss from continuing
operations (1,270) (11,232) (11,337) (22,682)
Income (loss) from continuing
operations (2,567) (10,078) (22,771) (26,033)
Income (loss) from discontinued
operations 132 12,507 137 (22)
Net income (loss) (2,435) 2,429 (22,634) (26,055)

Basic earnings (loss) per share:
Income (loss) from continuing
operations (.29) (1.12) (2.57) (3.05)
Income from discontinued
operations .02 1.39 .02 -
Net income (loss) (.27) .27 (2.55) (3.05)

Dilutive earnings (loss) per share:
Income (loss) from continuing
operations (.29) (1.12) (2.57) (3.05)
Income from discontinued
operations .02 1.39 .02 -
Net income (.27) .27 (2.55) (3.05)


J NET ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)

Twelve Months Twelve Months Twelve Months
Ended Ended Ended
June 30, 2002 June 30, 2001 June 30, 2000
_____________ ______________ ______________

Allowance for doubtful
accounts-
Balance at beginning
of period $ - $ - $ -
Charged to expense (109) - -
_____ ___ ___
Balance at end of
period $(109) $ - $ -
===== === ===