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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file number 333-99939

ZIFF DAVIS HOLDINGS INC.

28 East 28th Street

(212) 503-3500

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

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

          As of November 3, 2004, 2,311,443 shares of common stock, par value $0.001 per share, were outstanding. The issuer’s outstanding common stock is not publicly traded.

ZIFF DAVIS HOLDINGS INC.

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PART I — FINANCIAL INFORMATION

ZIFF DAVIS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

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

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ZIFF DAVIS HOLDINGS INC.

(dollars in thousands)

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

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ZIFF DAVIS HOLDINGS INC.

(dollars in thousands)

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

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ZIFF DAVIS HOLDINGS INC.

(dollars in thousands)

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

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ZIFF DAVIS HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

NOTE 1 — THE COMPANY AND BASIS OF PRESENTATION

Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the consolidated financial position of Ziff Davis Holdings Inc. at September 30, 2004 and December 31, 2003 and the results of its consolidated operations for the three and nine months ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 2004 and 2003 and changes in stockholders’ deficit from December 31, 2003 to September 30, 2004 have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information refer to Ziff Davis Holdings Inc.’s audited consolidated financial statements, including the notes to those statements, that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Formation of Ziff Davis Holdings Inc.

      The Company is a leading integrated media company focused on the technology, videogame and consumer lifestyle markets. The Company is an information services provider of technology media including publications, websites, conferences, events, eSeminars, eNewsletters, custom publishing, list rentals, research and market intelligence. Ziff Davis Holdings Inc. (“Ziff Davis Holdings” or, collectively with its subsidiaries, the “Company”) is majority owned by various investment funds managed by Willis Stein & Partners Management III, L.L.C., a private equity investment firm. Ziff Davis Holdings is a holding company which indirectly owns 100% of Ziff Davis Media Inc. (“Ziff Davis Media”). Ziff Davis Holdings does not conduct any business, but rather all operations are conducted by Ziff Davis Media and its direct and indirect subsidiaries. Ziff Davis Holdings has no material assets other than its investment in the capital stock of Ziff Davis Media. Ziff Davis Holdings was incorporated in the state of Delaware and was formed to acquire certain publishing assets from Ziff-Davis Inc., an unrelated company. The Company’s major subsidiaries are Ziff Davis Publishing Inc., Ziff Davis Development Inc. and Ziff Davis Internet Inc.

Operations

      Effective July 1, 2004, the Company now reports and manages its business along the following operating segments: the Consumer Tech Group, the Enterprise Group and the Game Group.

      The Consumer Tech Group is principally comprised of two of the Company’s magazine publications, PC Magazine and Sync; a number of consumer-focused websites, including pcmag.com and extremetech.com; and the Company’s new consumer electronics event, DigitalLife.

      The Enterprise Group is comprised of several businesses in the magazine, Internet, event, research and marketing tools areas. The three magazine publications in this segment are eWEEK, CIO Insight and Baseline. The Internet properties in this segment are primarily those affiliated with the Company’s magazine brands, including eweek.com, cioinsight.com, and baselinemag.com, but also include over 20 weekly eNewsletters and the eSeminars^TM area, which produces sponsored interactive webcasts. This segment also includes the Company’s Custom Conference Group, which creates and manages several hundred face-to-face events for marketing clients per year; Baseline Business Information Services, a research and marketing tools unit launched in 2003; and Contract Publishing, which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

      The Game Group is focused on the videogame market and is principally comprised of five magazine publications (Electronic Gaming Monthly, Computer Gaming World, Official U.S. PlayStation Magazine, Xbox Nation and GMR) and 1UP.com, the online destination for gaming enthusiasts, which was launched in October 2003.

      For additional information on the Company’s operating segments, see Note 8.

Principles of Consolidation

      The financial statements of the Company as of September 30, 2004 and December 31, 2003 and for the three and nine months ended September 30, 2004 and 2003 are prepared on a consolidated basis and include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Stock-based Compensation

      In the fiscal year ended March 31, 2001, the Company’s Board of Directors adopted the 2001 Ziff Davis Holdings Inc. Employee Stock Option Plan (the “2001 Stock Option Plan”). Statement of Financial Accounting Standard (“SFAS”) No. 123 “Accounting for Stock-Based Compensation” requires that companies with stock-based compensation plans either recognize compensation expense based on the fair value of the options granted or continue to apply the existing accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. The Company has chosen to continue applying Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for the 2001 Stock Option Plan. The table below details pro forma net loss as if the compensation cost for the Company’s 2001 Stock Option Plan was determined on the fair value basis at the respective grant dates and recognized over the vesting period (adjusted for forfeitures).

      Pursuant to the Company’s Amended and Restated 2002 Employee Stock Option Plan (the “2002 Stock Option Plan”), during 2003, the Company’s Board of Directors authorized the Company’s officers to execute and deliver option agreements with respect to an aggregate number of 10,652 shares of Series D Preferred Stock; 13,089 shares of Series B Preferred Stock; 43,544 shares of Series A Preferred Stock; and 6,975,000 shares of Common Stock. During the second quarter of 2004, the Company executed the options agreements and issued the options referred to above.

      The options granted under the 2002 Stock Option plan are variable awards and contain certain cash settlement features as described in the Company’s most recent filing on Form 10-K. They are not exercisable until the earlier of a sale of the Company or 30 days following an initial public offering (as defined in the 2002 Stock Option Plan), or the seventh anniversary of the option grant date. Options generally vest over a five year period, however, vesting accelerates upon a sale of the Company. As of September 30, 2004, the following

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

options were vested: 8,638 of the Series D options, 10,665 of the Series B options, 35,432 of the Series A options and 5,418,435 of the common stock options. Due to the nature of the rights granted to the option holders and the debt classification of the underlying securities in the case of the options on the preferred stock, the Company accounts for the option grants under the 2002 Stock Option Plan using a fair value methodology. The Company utilizes the Black-Scholes option pricing model to calculate the value of the stock options when granted. The value of the options are remeasured at each reporting period and any changes in the value are recorded as compensation expense in that period relative to the vested portion of the outstanding options. There were no changes in value during the three months ended September 30, 2004. The Company recognized compensation expense of $83 and $1,367 within Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations during the three months ended September 30, 2004 and June 30, 2004, respectively, related to these options.

Recent Accounting Pronouncements

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance on the identification of variable interest entities and the assessment of a company’s interests in a variable interest entity to determine whether consolidation is appropriate. FIN 46 requires the consolidation of a variable interest entity by the primary beneficiary if the entity does not effectively disperse risks among the parties involved. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and is effective for periods beginning after June 15, 2003 for existing variable interest entities. In December 2003, the FASB issued Interpretation 46 R, “Consolidation of Variable Interest Entities (revised December 2003)”, (“FIN 46 R”) which further clarified the provisions of FIN 46 and delayed the effective date for applying provisions of FIN 46 until the end of the first quarter of 2004 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003. As the Company has no material exposures to variable interest entities or other off-balance sheet arrangements, the effects of adopting FIN 46 and FIN 46 R were not material to its results of operations or financial condition.

      In May 2003, the FASB issued Statement No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments that have characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Company believes that under SFAS 150, it is defined as a nonpublic entity and has outstanding preferred stock that is considered mandatorily redeemable. Therefore, effective January 1, 2004, the Company began classifying the accrued dividends on the mandatorily redeemable preferred stock (“Redeemable Preferred Stock”) as interest expense and classified the Redeemable Preferred Stock as a long-term liability on the Condensed Consolidated Balance Sheet. The adoption of this statement increased the Company’s total liabilities by $794,809 as of September 30, 2004 and increased the Company’s consolidated interest expense by $55,207 for the nine months ended September 30, 2004. This has no impact on the Company’s cash flow, its Senior Credit Facility financial covenants or its ability to service its debt payments under the Senior Credit Facility.

Reclassifications

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

      As of September 30, 2004 and December 31, 2003, the Company’s intangible assets and related accumulated amortization consisted of the following:

      The Company modified certain estimated useful lives related to trade names and advertiser lists during the first quarter of 2004. The impact of these changes was to increase amortization by $0.5 million in the aggregate.

      Amortization expense associated with intangible assets at September 30, 2004 is estimated to be $3,806 for the last quarter of 2004 and approximately $15,225 for each year beginning in 2005 through 2009.

      During 2002 and 2001, the Company implemented a comprehensive cost reduction and restructuring program, which included closing or selling unprofitable operations, consolidating facilities and reducing the Company’s workforce in order to decrease excess operating costs. The Company incurred $48,950 and $37,412 of Restructuring charges, net in its Condensed Consolidated Statements of Operations for the year ended December 31, 2002 and the nine months ended December 31, 2001, respectively.

      As of September 30, 2004, there was $17,793 of accrued restructuring charges included on the Balance Sheet in Accrued expenses and other current liabilities and Accrued expenses — long term. The remaining accrued expenditures primarily related to facilities consolidation expenses. During the three and nine months ended September 30, 2004, the Company made $2,033 and $7,691 of payments, respectively, primarily related to real estate leases for vacant space. The Company anticipates making further payments in 2004 of approximately $1,500, with the remaining accrued balance being paid through 2019 due to the long-term nature of related real estate lease agreements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

      The following table summarizes the activity with respect to the accrued restructuring charge balances for the nine months ended September 30, 2004:

      The $2,092 adjustment to the accrual was due primarily to interest on the net present value of restructured leases.

      As of September 30, 2004, the Company was in compliance with all of its debt covenants, and total indebtedness was $309,109, consisting of the following:

	•	$178,464 under the Senior Credit Facility, including $8,200 outstanding under the revolving portion of the Senior Credit Facility,
	•	$12,280 of 12% Senior Subordinated Notes due 2010 (the “12% Notes”) and
	•	$118,365 of Senior Subordinated Compounding Notes due 2009 (the “Compounding Notes”).

      At September 30, 2004, there was approximately $1,000 borrowing capacity available under the Senior Credit Facility and existing borrowings bore interest at rates ranging from 5.98% to 6.48%.

      The Company made a scheduled principal repayment on September 30, 2004 on the Senior Credit Facility of $4,324. The Company was also required to make an “excess cash flow” payment, as defined in its Senior Credit Facility, of $6,400 on April 14, 2004. This represented a mandatory repayment of its loans under the Senior Credit Facility. The Company is required to make an “excess cash flow” payment on or before April 15, 2005. This amount, currently estimated at approximately $5,600, along with the Company’s scheduled principal repayments of $17,295 payable within one year, has been classified as Current portion of long-term debt on the Condensed Consolidated Balance Sheet as of September 30, 2004.

      In connection with the Senior Credit Facility, the Company entered into an interest rate swap agreement on September 27, 2000 for the notional amount of $25,000 and a maturity date of October 11, 2003. Under this swap agreement, the Company received a floating rate of interest based on the three-month LIBOR, which reset quarterly, and paid a fixed rate of interest each quarter for the term of the agreement. This swap was accounted for as a cash flow hedge and any change in the fair market value of the swap was recognized as other comprehensive income or loss within Accumulated other comprehensive loss in the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Stockholders’ Deficit. The mark-to-market adjustment for the three and nine months ended September 30, 2003 was an unrealized gain of $342 and $975, respectively. The interest rate swap agreement ended on October 11, 2003 and was not renewed.

      The Compounding Notes, issued in August 2002, accrue interest in semi-annual periods at rates of 12.0% to 14.0%. For the first four years, interest may be paid, at the Company’s option and subject to certain

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

restrictions under the Senior Credit Facility, either in cash or by compounding such interest on the Compounding Notes. During the three and nine months ended September 30, 2004, the Company compounded interest in the amount of $3,811 and $10,802, respectively. The compounded interest, partially offset by the $4,324 principal repayment and the $6,400 “excess cash flow” payment, accounts for the change in total debt from $309,031 at December 31, 2003 to $309,109 at September 30, 2004.

      The issuance of the Compounding Notes is being accounted for in accordance with the provisions of SFAS No. 15, and, accordingly, a liability representing accrued interest on the Compounding Notes was recorded at the date of issuance. This liability represents the difference in estimated cash payments under the new note agreements as compared to the previous note agreements. The September 30, 2004 balance of $79,843 is included within long-term liabilities in the Company’s Condensed Consolidated Balance Sheet as Accrued interest — compounding notes and is being amortized as a reduction of interest expense over the remaining term of the Compounding Notes. During the three and nine months ended September 30, 2004, the Company amortized $3,418 and $9,689 as a reduction of interest expense, respectively.

      At the end of the second quarter, the Company completed an amendment to its Senior Credit Facility effective July 1, 2004 which eliminates the distinction between the Restricted and Unrestricted Subsidiaries (as defined in the Company’s Senior Credit Facility) and prospectively allows the Company to be viewed in its entirety for purposes of financial covenant compliance. As a result, the Company’s operating performance and financial covenant calculations are now based on total Company results instead of results for the Restricted Subsidiaries only, and the financial covenant targets have been reset to reflect this change. The amendment also provides the Company with the added flexibility to make certain strategic investments and acquisitions.

      The Company believes that its cash on hand, coupled with future cash generated from operations, will be sufficient to meet its liquidity, working capital and capital spending needs for 2004. The Company believes that, based upon current levels of operations, it will be able to meet its debt service obligations for 2004 when due. The Company also believes that its Senior Credit Facility and the Compounding Notes indenture contain achievable restrictive and financial covenants which it will also be able to meet in 2004.

NOTE 5 — MANDATORILY REDEEMABLE PREFERRED STOCK

      The following table details activity in the Redeemable Preferred Stock account for the nine months ended September 30, 2004:

      As previously discussed, the Company, effective January 1, 2004, has recorded the accrued dividends on the Redeemable Preferred Stock as interest expense and classified the Redeemable Preferred Stock as a long-term liability on the Condensed Consolidated Balance Sheet pursuant to SFAS 150. Because the carrying value of the Redeemable Preferred Stock reflected on the Company’s December 31, 2003 balance sheet equaled the amount of the liquidation value of the Redeemable Preferred Stock, there was not a cumulative effect of an accounting change related to the adoption of SFAS 150.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

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

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

Guarantor Financial Information

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(dollars in thousands, except per share data)

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