Approximately $31.7 million of recoverable taxes were refunded to CNET in the second quarter of 2002. This refund in part related to the utilization of net operating losses that were recorded as current deferred tax assets as of December 31, 2001. Additionally, an income tax benefit of $20.3 million was recorded in 2002 primarily due to the realization of deferred tax assets in 2002, which were considered not to be recoverable at December 31, 2001.

We recorded a net loss of $360.6 million or $2.60 per diluted share for the year ended December 31, 2002, compared to a net loss of $2.0 billion or $14.52 per diluted share for the year ended December 31, 2001. The decrease in the current year period's net loss as compared to the same period of the prior year resulted primarily from the cessation of amortization of goodwill upon the adoption of SFAS 142 in 2002, the greater realized loss on the impairment of assets, goodwill and of our privately held investments in prior year, and the realized loss on the impairment of our marketable equity investments in prior year.

Revenues were $285.8 million and $264.0 million for 2001 and 2000, respectively. The increase in revenues of $21.8 million from 2000 to 2001 was primarily attributable to our acquisition of ZDNet on October 17, 2000. We recorded the financial results related to ZDNet beginning on the date of acquisition, thereby recording twelve months of revenues related to ZDNet in 2001 as compared to less than three months in 2000. Despite the addition of ZDNet, our revenues were negatively impacted by the general downturn in the economy experienced during 2001.

A portion of our revenues were received in the form of securities of our customers. Revenues in the form of securities from our customers amounted to approximately $4.7 million and $19.6 million during 2001 and 2000, respectively. Also during 2001 and 2000, approximately $18.4 million and $16.7 million, respectively, of our revenues were derived from barter transactions whereby we delivered advertisements on our Internet network in exchange for services of other companies, primarily advertisements on their Internet sites. These revenues and marketing expenses were recognized at the fair value of the advertisements received and delivered, and the corresponding revenues and marketing expenses were recognized when the advertisements were delivered.

Online revenues were $241.2 million and $254.6 million for 2001 and 2000, respectively. Online revenues accounted for 84% and 96% of total revenues for 2001 and 2000, respectively. Online revenues for 2001 included ZDNet for the entire year in 2001 as compared to 2000, in which less than three months of ZDNet revenues are included. Our revenues were negatively impacted by the general downturn in the economy experienced during 2001 and with technology advertisers in particular. During 2001, we averaged approximately 319,000 leads per day from our shopping services, an increase of 26% over 253,000 leads per day in 2000.

Publishing revenues were $44.6 million in 2001 compared to $9.4 million in 2000. Publishing revenues accounted for 16% and 4% of total revenues for 2001 and 2000, respectively. The increase in publishing revenues of $35.2 million over prior year was primarily due to the inclusion of a full year of ZDNet print publications revenues for 2001 as compared to less than three months in 2000, as well as expansion of operations in China during 2001.

For the year ended December 31, 2001 as compared to the same period of the prior year, revenues decreased for U.S. Media while they increased for International Media and Channel Services. The decrease in revenues for U.S. Media was related to the downturn in the economy, and primarily in the technology industry. The International properties were acquired through the ZDNet acquisition in October 2000. Therefore, the increase in revenues for International Media was due to a full year of revenue reflected in 2001, whereas less than three months was included in 2000. The increase in revenues for Channel Services in 2001 versus 2000 was due to more license fees earned in 2001. At the end of 2001, Channel Services had 170 licenses as compared to 140 licenses at the end of 2000.

For the year ended December 31, 2001, all three business segments increased operating costs as compared to the same period of the prior year. U.S. Media expenses were higher due to the ZDNet acquisition in the last quarter of 2000, as well as the TechRepublic acquisition in 2001. As mentioned above, less than three months of operations were reflected in 2000 for International Media as compared to a full year in 2001 thereby resulting in an increase in expenses in 2001. Channel Services expenses were higher due to the need to increase staff and technical consultants to support a larger operation reflecting growth in the sale of licenses during 2001. Additionally, staff had been brought on at the end of 2000 in order to plan for the launch of a CNET Internet site in Europe. However, with the acquisition of ZDNet, these positions became redundant and were eliminated late in the latter part of 2001.

Cost of revenues was $178.1 million and $86.7 million or 62% and 33% of revenues for 2001 and 2000, respectively. The increase in cost of revenues of $91.4 million from 2000 to 2001 was primarily attributable to the acquisitions of ZDNet and mySimon in 2000 and TechRepublic in 2001, representing increases in personnel and personnel related costs for the production and delivery of our Internet services and our print publications. Approximately $8.7 million of integration costs were included in cost of revenues for the year ended December 31, 2001.

Sales and marketing expenses were $129.5 million and $107.3 million for 2001 and 2000, respectively. Sales and marketing expenses represented 45% and 41% of total revenues in 2001 and 2000, respectively. The increase in sales and marketing expenses of $22.2 million from 2000 to 2001 related primarily to increases in personnel and related expenses, including ZDNet, mySimon and TechRepublic costs from the dates of their acquisition. Approximately $2.0 million of integration costs were included in sales and marketing for the year ended December 30, 2001.

General and administrative expenses were $67.3 million and $31.0 million for 2001 and 2000, respectively. General and administrative costs represented 24% and 12% of total revenues for 2001 and 2000, respectively. The increase in general and administrative expenses of $36.3 million related primarily to approximately $32.3 million of integration costs for the year ended December 31, 2001. Approximately $21.3 million of these integration costs resulted from a lease abandonment charge, and the remainder primarily related to costs of the integration of ZDNet and our reduction in workforce.

Total depreciation expense was $24.4 million and $15.4 million for 2001 and 2000, respectively. The increase in depreciation expenses of $9.0 from 2000 to 2001 related primarily to capital additions of $48.3 million and an increase in fixed assets due to acquisitions.

Amortization of goodwill and intangibles relates to the goodwill and intangibles we record for companies we have acquired for which we use the purchase method of accounting. Goodwill and intangibles amortization expenses were $678.6 million and $340.4 million for 2001 and 2000, respectively. The increase in 2001 over 2000 was primarily due to the full year impact of the amortization of goodwill associated with the ZDNet acquisition, which occurred in October 2000.

Due to the significant decline in our stock price once trading reopened after the events of September 11^th, the overall continued decline in market values of businesses in the media industry, and the continued further decline in the overall markets, we believed that there was an indication that the carrying value of our goodwill might not be recoverable. At the end of the third quarter of 2001, we evaluated whether an impairment had occurred by comparing the carrying value of these assets to undiscounted (and without interest charges) future cash flows. This recoverability analysis indicated that there had been an impairment to our enterprise-wide goodwill. Therefore, a charge of $1.1 billion was taken during the third quarter of 2001 to adjust the carrying value of these assets to their fair value.

We realized gains on sales of investments of $9.5 million and $134.9 million for 2001 and 2000, respectively. We realized losses on sale of investments of $8.6 million and $13.6 million in 2001 and 2000, respectively. The decrease in gains on sales of investments was primarily due to significant decrease in share prices of our public investments and the public markets as a whole.

We realized losses on impairment of investments of $175.3 million and $399.1 million in 2001 and 2000, respectively. In 2001, the realized losses related primarily to a general decrease in carrying value of our private investments. In 2000, the realized losses on sales and impairment of investments related primarily to realizing losses related to the impairment of several of our investments, the majority of which related to our holdings of NBC Internet, Inc. (NBCi).

Interest income is derived from our cash and cash equivalents and investments in marketable debt securities. Interest income was $11.9 million and $20.4 million for 2001 and 2000, respectively. Interest income decreased due to lower balances of marketable debt securities held in 2001 as compared to 2000, as well as to lower interest rates.

Interest expense is primarily incurred on our 5% Convertible Subordinated Notes. Interest expense was $15.6 million and $18.0 million for 2001 and 2000, respectively. The decrease related to the early repayment of our TRACES obligations in 2001.

In conjunction with the accelerated repayment of our TRACES obligations in the third quarter of 2001, we recorded a loss of $10.6 million consisting of $9.0 million of early interest payment and a write-off of $1.6 million of capitalized debt issue costs.

In 2001 and 2000, our loss before income taxes was $2.1 billion and $593.6 million, respectively, against which we recorded a benefit for income taxes of $69.0 million and $109.6 million, respectively.

Effective tax rates for the years ended December 31, 2001 and 2000 were 3.35% and 18.46%, respectively. The income tax benefit recorded in 2001 and 2000 was lower than the statutory rates due to $1.8 billion and $340.4 million, respectively, of impairment of goodwill and nondeductible amortization of goodwill and other intangible assets, for which no tax benefit was recognized. The effective rate for 2001 was also reduced from the 2000 effective rate due to the increase in the valuation allowance. This increase was primarily related to losses on privately held investments for which there was sufficient uncertainty as to whether we would receive a tax benefit in the future.

At December 31, 2001, we had net operating losses of $194.8 million, which will begin to expire in 2011. Approximately $116.0 million was related to federal net operating losses from the ZDNet acquisition, which took place in 2000, and are subject to limitations on their utilization due to the change in ownership. Additional federal net operating losses of $52.1 million were generated in 2001 primarily related to losses on investments. The federal net operating losses generated in 2001 will be used to offset prior years' taxable income. Also included in the $194.8 million of net operating losses were cumulative foreign net operating losses of $26.7 million.

We recorded a net loss of $2.0 billion or $14.52 per share and $484.0 million or $5.18 per share for 2001 and 2000, respectively. Our net loss increased from 2000 to 2001 by $1.5 billion. This increase was primarily due to a charge related to goodwill impairment of $1.1 billion, an increase in goodwill amortization of $338.2 million, as well as increased costs due to integration of our business of approximately $43.0 million.

As of December 31, 2002, we had cash and cash equivalents of $47.2 million compared to $93.4 million on December 31, 2001. In addition, on December 31, 2002 we had investments in short-term and long-term marketable debt securities of $79.8 million, as well as restricted cash of $18.1 million compared to $123.5 million in short-term and long-term marketable debt securities and restricted cash of $16.3 million at December 31, 2001. Net cash used in operating activities of $37.5 million for the year ended December 31, 2002 included a net loss of $360.6 million offset by a charge for asset impairment of $290.5 million, losses on sales and impairment of investments of $12.8 million, and depreciation and amortization totaling $60.4 million. Also included in net cash used in operating activities for the year ended December 31, 2002 is a payment of $8.0 million to the landlord of our headquarters in San Francisco. This payment was paid in connection with a lease amendment entered into effective August 1, 2002, whereby the rent on the lease was reduced by an aggregate amount of $45.1 million over the remaining term of the lease in exchange for this $8.0 million payment and the posting of a $2.0 million letter of credit for three years.

Net cash used by operating activities of $27.8 million for the year ended December 31, 2001 included a net loss of $2.0 billion offset by an asset impairment charge of $1.1 billion, losses on sales and impairment of investments of $174.2 million, and depreciation and amortization of $704.9 million. Net cash used in operating activities of $95.7 million in 2000 was primarily due to our net loss of $484.0 million, offset by depreciation and amortization of $371.1 million and losses on the sale or impairment of marketable securities and private investments.

Net cash provided by investing activities in 2002 of $23.6 million was primarily due to $51.4 million of proceeds from the sale of marketable debt securities, net of purchases, offset by a use of $19.0 million for capital expenditures and $8.8 million for acquisitions. Net cash used in investing activities in 2001 was $37.0 million and included capital expenditures of approximately $48.3 million. In addition, we used approximately $20.8 million for acquisitions and investments in privately held companies and had proceeds of $29.1 million from the sale of marketable equity securities. Net cash provided by investing activities in 2000 of $117.4 million was due to proceeds from sales of marketable debt and equity securities of $408.0 million and cash provided from acquisitions of $26.9 million less purchases of marketable debt and equity securities of $191.3 million, investments in privately held companies of $76.5 million, and capital expenditures of $49.7 million.

We expect capital expenditures to be approximately $12.0 million in 2003, of which approximately $2.0 million is anticipated to be spent on the completion of our development of a standardized, global technology platform. In 2002, our capital expenditures totaled $19.0 million with $5.9 million spent on our standardized technology platform project. Our capital expenditures in 2001 were $48.3 million, including $9.0 million spent on our technology platform project.

We made several small strategic acquisitions during 2002. In the second quarter of 2002, we acquired intellectual property and other assets of Upgradebase.com, Inc., a provider of content specifications for memory and memory upgrades, as well as other computer products and peripherals, Vendorbase.com, Inc., a provider of information covering remarketed IT products, and Smartshop.com, Inc., a provider of online comparison shopping infrastructure. In the third quarter of 2002, we acquired intellectual property and certain other assets of NewMediary, which operates an IT white paper directory; WAAG Technologies, a Japanese IT consulting company, and Silicon.com located in the UK, which operates web sites providing industry news, analysis and employment recruitment services targeted toward European IT professionals. The aggregate cash purchase price for these acquisitions was $8.8 million.

Cash used by financing activities in 2002 was $33.0 million. Financing activities in 2002 included the repayment of $59.2 million principal amount of notes for $36.7 million. Debt repayments were offset in part by proceeds of $4.0 million from employee stock plan purchases and the exercise of options. Cash flows provided by financing activities in 2001 of $9.5 million were primarily related to the exercise of options. Cash flows provided by financing activities in 2000 of $74.0 million were primarily related to net proceeds from the issuance of derivative instruments which related to the NBCi TRACES offering in February 2000, proceeds from the exercise of options and warrants and the purchase of treasury stock.

As of December 31, 2002, we had obligations outstanding under notes payable totaling $117.9 million. Notes payable included $113.7 million of 5% Convertible Subordinated Notes, due March 2006. Such obligations were incurred to obtain proceeds for general corporate purchases, to finance acquisitions and marketing expenditures. CNET's obligations with respect to the 5% Convertible Subordinated Notes due 2006 can be found in the indenture for such notes filed as Exhibit 10.40 to CNET's Annual Report on 10-K for the year ended December 31, 1998. As discussed above, during 2002, we paid $36.7 million to repurchase $59.2 million principal amount of our 5% Convertible Subordinated Notes. In addition at December 31, 2002, we had capital lease obligations outstanding of $0.5 million related to the purchase of equipment.

The following summarizes our contractual obligations at December 31, 2002, and the effect such obligations are expected to have on our liquidity and cash flow in future periods:

     (000s)                                                 LESS THAN                  AFTER
      December 31, 2002                         TOTAL        1 YEAR     1 - 3 YEARS   3 YEARS
                                             ------------  -----------  ------------ ---------
      Long-term debt                        $      117.9  $       0.2  $      114.0 $     3.7
      Non-cancellable operating
       lease obligations                           218.0         24.5          56.8     136.7
      Capital lease obligations                      0.5          0.3           0.2        --
                                             ------------  -----------  ------------ ---------
                                            $      336.4  $      25.0  $      171.0 $   140.4
                                             ============  ===========  ============ =========

The caption Non-cancelable operating lease obligations in the above table not only includes our rent obligations on all our occupied properties, but also includes our liability under our abandoned leases. The operating lease obligations presented above have not been reduced for the difference between the expected cash outflows from our lease obligations and the expected cash inflows from sublease income related to these vacated properties.

We believe that existing funds will be sufficient to meet our anticipated cash needs to cover operating losses and for working capital fluctuations and for capital expenditures for the next 12 months. Management intends to consider using cash to optimize our capital structure, which could include the repurchase, from time to time, of a portion of our outstanding debt securities or equity securities. Any such repurchases or exchanges may be made in the open market, or in privately negotiated transactions or otherwise. Any purchases of common stock in the open market will be conducted in accordance with Rule 10b-18. Depending upon a variety of circumstances, the amount involved may be material. We do not anticipate the need for additional funding in the foreseeable future. However, any acquisitions completed in the future that would require cash funding may affect our liquidity and funding needs. Although we have not presently identified alternate or additional sources of long-term capital, if our cash needs were to change, or if we are unable to generate sufficient cash flow from operations to repay our 5% Convertible Subordinated Notes by 2006 when they are due, we will need to raise additional capital through debt or equity offerings in the public or private markets. Our ability to raise such additional capital will depend on market conditions at that time.

The following items are contingencies, which may affect our liquidity in future periods.

In August 1999, the Simon Property Group (SPG) filed a trademark infringement suit in federal district court in Indianapolis against mySimon, Inc., a subsidiary of CNET acquired on February 29, 2000. SPG alleged that the mySimon trademark infringed SPG's "Simon" trademark. On August 31, 2000, following a trial on the subject, the jury found in favor of SPG and awarded damages against mySimon in the amount of $11.5 million in compensatory damages, $5.3 million for corrective advertising, and $10.0 million in punitive damages. On September 25, 2000, the court entered an order establishing an escrow for royalties pending final resolution of the litigation where mySimon pays into escrow 2% of its gross cash receipts each month.

On January 24, 2001, the judge eliminated the $11.5 million compensatory damages award, reduced the $10.0 million punitive damages award to the statutory minimum of $50,000, and offered SPG the opportunity to accept ten dollars (a remittitur) for damages attributable to corrective advertising in exchange for immediate entry of judgment for the entire case in lieu of a re-trial on the subject of corrective advertising. On February 14, 2001, SPG filed its election to seek a retrial on the issue of corrective advertising in lieu of the ten-dollar remittur. The re- trial has been taken off calendar pending a ruling from the court on whether the re-trial should be dismissed. Under Indiana law, the amount of punitive damages is capped at the greater of three times compensatory damages or $50,000. Accordingly, it is not possible to determine the amount of punitive damages, if any, that may be payable until the issue of damages for corrective advertising has been resolved. It is not possible to predict the amount of damages attributable to corrective advertising that could be awarded in a re-trial, however, if the determination is adverse to us, the amounts could be material to our results of operations and financial condition.

On December 7, 2001, mySimon filed a motion for a new trial based on newly discovered evidence it believes SPG should have produced prior to the August 2000 trial. The parties have submitted briefs on this issue and are awaiting the judge's decision. (Also see Item 3 - - "Legal Proceedings").

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, investments, goodwill and intangible assets, lease abandonment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

We recognize revenues once the following criteria are met:

• Persuasive evidence of an arrangement exists
• Delivery of our obligation to our customer has occurred
• The price to be charged to the buyer is fixed or determinable
• Collectibility of the fees to be charged is reasonably assured

We have several revenue streams. For each revenue stream, evidence of the arrangement, delivery and pricing may be different. For all revenue streams, we determine that collectibility is reasonably assured through a standardized credit review to determine each customer's credit worthiness.

We recognize revenues from the sale of our interactive messaging and banner advertisements on our online network in the period in which the advertisements are delivered. The arrangements are evidenced either by insertion order or contract that stipulate the types of advertising to be delivered and pricing. Our customers are billed based on a discounted list price with no amounts subject to refund. When recognizing revenues, the discounts granted are applied to each type of advertisement purchased based on the relative fair value of each element.

We refer to the fees charged to merchants based on the number of users who click on an advertisement or text link to visit websites of our merchant partners as "leads". For leads, the arrangement is evidenced by a contract that stipulates the lead fee. The fee becomes fixed and determinable upon delivery of the lead. These revenues are recognized in the period in which the leads are delivered to the merchant, and are therefore not subject to refund.

In certain arrangements, we sell interactive messaging, banner advertising, and leads programs to customers as part of a bundled arrangement. For these arrangements, we allocate revenue to each deliverable based on the relative fair value of each deliverable. Revenue is recognized in these arrangements as we deliver on our obligation.

Advertising revenues from our print and custom print publications are recognized in the month that the related publications are sent to subscribers or become available at newsstands. Newsstand revenue from our print publications is recognized when the publications are delivered to the newsstand at which time a reserve is recorded against the value of the publications delivered based on the number of magazines that we expect to be returned. To ensure these reserves are adequate, we review the sell-through history of the publications on a monthly basis.

Revenues for subscriptions to our Internet sites, print publications, product database and procurement services are recognized on a straight-line basis over the term of the subscription. Upon execution of a contract, billing and commencement of the services, we record deferred revenue for the fee charged. This deferred revenue is recognized on a straight-line basis over the period of the arrangement. The amounts under contract are not refundable after the customer has used the service.

We trade advertising on our Internet sites in exchange for advertisements on the Internet sites of other companies, referred to as "barter revenue". These revenues are recognized in the period in which the advertisements are delivered based on the fair market value of the services delivered. We determine the fair market value of the service delivered based upon amounts charged for similar services in non-barter deals within the previous six-month period.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our allowances on periodic assessment of our customer's liquidity and financial condition through credit rating agencies reports, financial statement reviews and historical collection trends. If the financial condition of our customers were to deteriorate and thereby result in an inability to make payments, additional allowances would be required.

In July 2001, the FASB issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2002 and specifies criteria for recognizing intangible assets acquired in a business combination. The implementation of SFAS 141 has not had a material impact on our consolidated financial position, liquidity or results of operations. Effective January 1, 2002 under SFAS 142, goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead are to be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives. Although the provisions of SFAS 142 were not effective in their entirety until January 1, 2002, the goodwill acquired in business combinations which occurred after June 30, 2001 fell under the condition of SFAS 142 requiring no amortization of goodwill arising from transactions completed after June 30, 2001. Therefore, goodwill arising from any such transactions have not been amortized.

As part of the transition provisions of SFAS 142, we were required to review for impairment all previously recognized intangible assets that have been determined to have indefinite useful lives. For the purposes of the SFAS 142 review, we have identified our reporting units as follows: U.S. Media (excluding Computer Shopper), Computer Shopper, Channel Services, Asia and Europe. We completed this transition impairment testing during the second quarter of 2002. In no instance did the carrying amount of a reporting unit exceed its fair value as of January 1, 2002, and therefore, we determined that there was no impairment resulting from these transitions tests. We performed the transition impairment tests by comparing the carrying amount of each reporting unit's net assets, including goodwill, to the fair value of each reporting unit having goodwill.

We have performed our annual evaluation of goodwill and intangible assets impairment as of August 31, 2002. The fair value of our reporting units was determined using a combination of the income and the market valuation approaches. Other intangible assets were valued using a combination of the income and cost approaches. In the application of the income, market and cost valuation approaches, we were required to make estimates of future operating trends and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates, including as a result of changes in the economy, the business in which we operate, and/or our own relative performance. The results of this annual impairment test indicated the carrying value of goodwill and other intangible assets for the U.S. Media reporting unit exceeded their implied fair values and an impairment charge of $238.8 million for goodwill and of $40.5 million for intangible assets of that reporting unit was recorded in the third quarter of 2002.

Goodwill and intangible assets of a reporting unit are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of its goodwill or intangible assets may not be recoverable. Impairment of reporting unit goodwill is evaluated based on a comparison of the reporting unit's carrying value to the implied fair value of the reporting unit. Conditions that indicate that impairment of goodwill should be evaluated include a sustained decrease in our market value or an adverse change in business climate. On an ongoing basis, we will review goodwill for impairment on at least an annual basis with a valuation date of August 31 having been established as the date on which this annual review will take place.

In 2001, we completed an evaluation of our real estate requirements taking into account the workforce reductions that had occurred, the completion of our new facility in San Francisco, and redundant facilities elsewhere within the U.S and internationally. This evaluation resulted in the consolidation or abandonment of several leased facilities. Due to the decline in the commercial real estate markets in these locations, it was expected that the abandoned leased facilities would be vacant for several quarters, and once they were subleased, it would be at rates below current contractual requirements. We recorded a charge related to the abandonment, based on the difference between the expected cash outflows and the expected cash inflows related to these vacated properties. We periodically review such factors as further declines in the commercial real estate markets, our ability to terminate leases, or requirement to abandon additional properties, and based on these reviews, we will adjust our leasehold abandonment reserve, as necessary. The amounts we will ultimately realize could be materially different from the amounts assumed in arriving at our estimate of the costs of the lease abandonment.

We evaluate whether a liability must be recorded for contingencies based on whether a liability is probable and estimable. Our most significant contingencies are related to our ongoing mySimon litigation (as described in Item 3 - "Legal Proceedings") and our lease guarantee for office space in New York City (as described in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations", Liquidity and Capital Resources). If the financial condition of any of the sublessees or the primary lessee were to deteriorate and thereby result in an inability to make their lease payments, we would be required to make additional lease payments under the guarantee. In regards to the ongoing mySimon litigation, it is not possible to predict the amount of damages attributable to corrective advertising that could be awarded in a re-trial; however, if the determination is adverse to us, the amounts could be material to our results of operations and financial condition.

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt" wherein the FASB determined that gains and losses from debt extinguishments were to be recorded as extraordinary items. The provisions of SFAS 145 are effective for fiscal years beginning after May 31, 2002, with earlier adoption encouraged. During the second quarter of 2002, CNET adopted SFAS 145 and as such is no longer presenting gain or loss associated with debt extinguishment as an extraordinary item. See Note (1) to the financial statements for the year ended December 31, 2002 in Item 8.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement supercedes Emerging Issues Task Force (EITF) Issue 94- 3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. Under SFAS 146, the FASB has concluded that an entity's commitment to a plan does not necessarily create a present obligation to others that meets the definition of a liability. The provisions of SFAS 146 are effective for exit and disposal activities initiated after December 31, 2002. We do not believe the adoption of SFAS 146 will have a material effect on our operation results or financial position.

In November 2002, the FASB issued a Consensus, which clarified certain issues within EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The Consensus addresses how to allocate the revenue in an arrangement involving multiple deliverables into separate units of accounting consistent with the identified separate earnings processes of each deliverable for revenue recognition purposes. The Issue also addresses how each element in a bundled sales arrangement should be measured and allocated to the separate units of accounting in the arrangement. The Consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2002. We do not expect the implementation of this Consensus to have a material effect on our financial statements.

In November 2002, the FASB issued FASB Interpretation (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", an Interpretation of SFAS 5, 57 and 107 and a rescission of FIN 34. The Interpretation expands the disclosure requirements for most guarantees. FIN 45 also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. We have expanded our disclosure relating to our lease guarantee accordingly. We have expanded our disclosure relating to its lease guarantee accordingly. We have currently evaluating other aspects of FIN 45 to determine its impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which amends SFAS 123, "Accounting for Stock-Based Compensation". SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation, regardless of which accounting method is used to account for stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. CNET has adopted the disclosure requirements of SFAS 148.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin 51, "Consolidated Financial Statements". FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. FIN 46 expands disclosure if an enterprise consolidates a variable interest entity, and the Interpretation requires disclosure for those companies that hold significant variable interests in a variable interest entity but are not required to consolidate that interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities obtained after that date. FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which a company holds a variable interest that it acquired before February 1, 2003. Disclosure required by FIN 46 must be included in all financial statements issued after January 31, 2003. We are currently analyzing FIN 46 to determine its impact on our consolidated financial statements.

Our disclosure and analysis in this report contains "forward-looking statements". Forward-looking statements are any statements about our future that are not statements of historical fact. Examples of forward-looking statements include projections of earnings, revenues or other financial items, statements of the plans and objectives of management for future operations, statements concerning proposed new products or services, statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, you can identify these statements by the use of words such as "may", "will", "expects", "should", "believes", "predicts", "plans", "anticipates", "estimates", "potential", "continue" or the negative of these terms, or any other words of similar meaning.

These statements are only predictions. Any or all of our forward-looking statements in this report and in any of our other public statements may turn out to be wrong. They can be effected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, some of which are outlined below under "Risk Factors". Many risk factors mentioned in the discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual events or results may differ materially from the outcomes we predict.

These forward-looking statements are made only as of the date of this report, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q and 8-K reports to the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Our revenues have decreased in 2002 compared to the past two fiscal years. There can be no assurance that our revenues will grow in the future or that they will not decrease further. Some of the factors that might contribute to decreased revenue or that might impede our revenue growth in the future include:

• continued or worsening weakness in corporate and consumer spending for technology, resulting in a decrease in technology marketing, which is the primary source of our revenues
• the loss of advertisers and other marketing customers for various reasons
• loss of advertising and other marketing opportunities to competitors, especially as other media companies increase their offerings of information and shopping services in the fields of technology, computing and the Internet
• inability to attract customers to our newer businesses
• failure of users to adopt our newer paid offerings such as GameSpot Complete and Upload Paid Services
• worsening of general economic conditions, as well as economic conditions specific to advertising, the Internet and Internet media
• disruption of our operations due to technical difficulties, system downtime, Internet brownouts or denial of service or other similar attacks
• disruption to our operations, employees, partners, customers and facilities caused by international or domestic terrorist attacks or armed conflict

Any decrease in our revenues or any failure to meet our revenue guidance could materially adversely affect our business, operating results and financial condition.

We have generated an operating loss in six of the past seven years and have generated a net loss in five of the past seven years. For the year ended December 31, 2002, we recognized a net loss of $360.6 million and have an accumulated deficit of $2.5 billion at December 31, 2002. We expect to incur a net loss in fiscal year 2003 and may incur additional losses in the future.

One of the reasons that we have generated losses in the past two years is that we have been unable to adjust spending in a timely manner to compensate for revenue shortfalls. Depending on the nature and timing of capital expenditures and other costs, the expansion of our operations and the introduction of new sites and services, we may continue to be unable to adjust spending in a timely manner to compensate for revenue shortfalls. Any significant shortfall in revenues in relation to planned expenditures could materially reduce our operating results and could adversely affect our financial condition.

The market for Internet content and services is intensely competitive and rapidly evolving. It is not difficult to enter this market and current and new competitors can launch new Internet sites at relatively low cost. We derive our revenue primarily from marketing, for which we compete with various media including newspapers, radio, magazines and various Internet sites that offer consumers information similar to that which we provide. Existing online, print, television and radio media companies have expanded their content in the field of technology, computing and consumer electronics. In addition, the number of companies providing online comparison shopping, one of the primary components of our revenues, has increased. We cannot assure you that we will compete successfully with current or future competitors. Moreover, increased competition could result in price reductions, reduced margins or loss of market share, any of which could have a material adverse effect on our future revenue and profits. If we do not compete successfully for new users and advertisers, our financial results may be materially and adversely affected.

In 2002, we undertook to simplify and streamline our businesses through workforce reductions and business closures that resulted in integration, realignment and severance costs of approximately $12.4 million. If we reduce our workforce or business operations further or take other steps to simplify our business and reduce our operating costs, we could experience additional restructuring and severance costs in amounts that could be material. These costs could cause our operating results for the quarter in which the actions occur to be lower than our forecasted results.

In 2001, we performed an evaluation of our domestic and international real estate requirements. This evaluation resulted in the consolidation or abandonment of several leased facilities. In connection with these abandoned leases, we had established an accrual for lease abandonment. The balance for this accrual was $14.7 million at December 31, 2001. An additional $4.6 million was added to the accrual in 2002 when certain assumptions regarding the timing of subleasing were modified and as further consolidation of the U.S. facilities took place. Cash expenditure reductions to this accrual have been $9.5 million. At December 31, 2002, a balance of $9.8 million remained in this accrual. If we are unable to either negotiate reduced payment arrangements or find suitable sublessees, we could experience liabilities under those leases in excess of our remaining accrual. The total undiscounted liability under those leases assuming that the spaces cannot be sublet is approximately $19.6 million.

Our future success depends upon our ability to deliver original and compelling content and services that attract and retain users. The successful development and production of content and services is subject to numerous uncertainties, including the ability to:

• anticipate and successfully respond to rapidly changing consumer tastes and preferences
• fund new program development
• attract and retain qualified editors, producers, writers, and technical personnel
• successfully anticipate the increased acceptance of methods other than personal computers to access the Internet

We cannot assure you that our content and services will be attractive to a sufficient number of users to generate revenues consistent with our estimates or sufficient to sustain operations. In addition, we cannot assure you that we will develop any new content or services in a timely or cost-effective manner. If we are unable to develop content and services that allow us to attract, retain and expand a loyal user base that is attractive to advertisers and sellers of technology products, we will be unable to generate revenue.

We have started to charge users to access certain content and services that have previously been free. GameSpot Complete is one recent example where we charge subscribers a fee to access portions of the GameSpot Internet site. Another example is Upload Paid Services, in which developers of software must pay a fee to list their products on our Download.com site. We cannot offer any assurances that users will continue to pay for content services that have previously been free. In addition, we may not be able to grow this business successfully if we cannot create new products and services that our users will be willing to pay us a fee to receive. Our inability to maintain or grow our paid offerings may adversely affect our financial condition.

We rely on the cooperation of owners and operators of other Internet sites with whom we have syndication and other arrangements to generate traffic for our Internet sites. Our ability to maintain these relationships will continue to be critical to the success of our Internet operations. If we are unable to develop and maintain satisfactory relationships with such third parties on acceptable commercial terms, or if our competitors are better able to capitalize on these relationships, our financial condition and operating results could be materially and adversely affected.

Our revenues are derived in large part from the sale of advertising and other fees, such as lead fees, from sellers of technology products on the Internet. We expect that we will continue to derive a significant portion of our revenue from these services. Most of our advertising contracts are subject to termination by the customer at any time on thirty-days prior written notice. We may have difficulty in obtaining performance from advertisers who have longer-term contracts should they fail to honor their contracts.

We earn fees when users visit the sites of our merchant partners to view products that are listed on our commerce Internet sites. There are currently many other businesses that offer similar services. It is very easy for new businesses to begin operations in this space. In addition, users may prefer to contact merchants directly rather than return to our commerce Internet sites to make future purchases. If we are unable to continue to attract users to our shopping services or to maintain the fees we charge merchants for sending users to their sites, then our financial condition may be adversely affected. Most of our agreements with merchants under which lead fees are earned are terminable by either party on ten to thirty days notice.

A relatively small number of advertisers contribute a significant percentage of our revenue. Our top one hundred advertisers contributed approximately 75% of our U.S. revenue in 2002. These advertising clients may not continue to use our services to the same extent, or at all, in the future. Gateway, Inc. accounted for 12% of our revenue in 2002, and there can be no assurances that we will either maintain this relationship with Gateway or successfully develop replacement relationships with other advertisers in the event that Gateway does not remain a customer. A significant reduction in advertising by one or more of our largest advertisers could have a material adverse effect on our financial performance and condition.

We believe that advertising sales on the Internet, as well as in traditional media fluctuate significantly with economic cycles and during any calendar year, with spending being weighted towards the end of the year. Advertising expenditures represent the largest single component of our revenue. Fluctuations in advertising expenditures generally, or with respect to Internet-based advertising specifically, could have a material adverse effect on our business, prospects and financial condition. We may also experience fluctuations during the calendar year in connection with our lead-based shopping services, which are weighted towards the end of the year and which may reflect trends in the retail industry.

Our success depends to a large extent on the continued services of our senior management team. Our success is also dependent on our ability to identify, attract, retain and motivate other highly skilled officers, key employees and personnel in a very competitive job environment. We do not have employment agreements with any of our executive officers and do not maintain "key person" life insurance policies on any of our officers or other employees.

In order to achieve improvements in our long-term operating margins, we have undertaken a significant capital project to unify the data, information, ad delivery and commerce platforms throughout our Internet network. The cost of successfully completing this project may exceed our expectation. In addition, the new platforms may not perform as expected, which could prevent us from reaching our long-term operating margin targets.

From time to time, we may consider new business opportunities and ventures, including acquisitions, in a broad range of areas. Any decision by us to pursue a significant business expansion or new business opportunity would be accompanied by risks, including, among others:

• the investment of a substantial amount of capital, which could have a material adverse effect on our financial condition and our ability to implement our existing business strategy
• the issuance of additional equity interests, which would be dilutive to current stockholders
• the additional, substantial burdens on our management personnel and financial and operational systems
• the difficulty of assimilating the operations, technology and personnel of the combined companies
• the potential disruption of our ongoing business
• the possible inability to retain key technical and managerial personnel
• additional expenses associated with amortization of purchased intangible assets
• additional operating losses and expenses associated with the activities and expansion of acquired businesses
• the possible impairment of relationships with existing employees and advertising customers
• the potential undisclosed liabilities associated with acquired businesses

We cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with any transaction intended to expand our business or that this type of transaction will be profitable.

There are certain risks inherent in doing business in international markets, such as the following:

• weak economic conditions in foreign markets, especially in the technology sector
• uncertainty of product acceptance by different cultures
• unforeseen changes in regulatory requirements
• difficulties in staffing and managing multinational operations
• currency exchange-rate fluctuations
• difficulties in finding appropriate foreign licensees or joint venture partners
• potential adverse tax consequences

There is a risk that such factors will have an adverse effect on our ability to successfully operate internationally and on our profits and liquidity.

It is possible that new laws and regulations in the U.S. and elsewhere will be adopted covering issues affecting our business, including:

• privacy
• copyrights, trademarks and domain names
• obscene or indecent communications
• pricing, characteristics and quality of Internet products and services
• the ability of children to access our services
• taxation of Internet usage and transactions

Increased government regulation, or the application of existing laws to online activities, could:

• decrease the growth of the Internet
• reduce our revenues
• increase our operating expenses
• expose us to significant liabilities

Any of these occurrences could have a material adverse effect on our profits and liquidity.

We cannot be sure what effect any future material noncompliance by us with these laws and regulations or any material changes in these laws and regulations could have on our business.

Our ability to attract and maintain relationships with users, advertisers, merchants and strategic partners will depend on the satisfactory performance, reliability and availability of our Internet channels and network infrastructure. Our Internet advertising revenues relate directly to the number of advertisements and other marketing opportunities delivered to our users. System interruptions or delays that result in the unavailability of Internet channels or slower response times for users would reduce the number of advertisements and sales leads delivered to such users and reduce the attractiveness of our Internet channels to users, strategic partners and advertisers or reduce the number of impressions delivered and thereby reduce revenue. On two occasions in 2002, we were obligated to suspend operation of significant portions of our sites as a result of moving our data centers. We will continue to suffer future interruptions from time to time whether due to natural disasters, telecommunications failures, other system failures, maintenance, viruses, hacking or other events. System interruptions or slower response times could have a material adverse effect on our revenues and financial condition.

A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions or malfunctions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of security breaches or to alleviate problems caused by breaches in security. For example, so-called "spiders" have and can be used in efforts to copy our databases, including our database of technology products and prices.

Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet, particularly as a means of conducting commercial transactions. Our activities and the activities of third party contractors involve the storage and transmission of proprietary information, such as computer software or credit card numbers. Accordingly, security breaches could expose us to a risk of loss or litigation and possible liability. We cannot assure you that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements.

As a publisher and a distributor of content through the Internet and print publications, we may face potential liability for:

• defamation
• negligence
• copyright, patent or trademark infringement
• other claims based on the nature and content of the materials published or distributed

These types of claims have been brought, sometimes successfully, against online services and publishers of print publications. In addition, we could be exposed to liability in connection with material indexed or offered on our Internet sites or for information collected from and about our users. For example, our Download.com directory includes listings for file-sharing software that may be subject to challenge under copyright laws. Although we do not believe that our listing of any such software should expose us to liability, it is possible that such a claim may be successfully brought.

There has been a recent increase in the granting and attempted enforcement of business process patents that cover practices that may be widely employed in the Internet industry. If we are found to violate any such patent, and we are unable to enter into a license agreement on reasonable terms, our ability to offer services could be materially and adversely affected. We cannot assure you that third parties or users will not bring claims against us relating to proprietary rights or use of personal information. We do not have insurance for patent infringement.

Our insurance may not cover potential claims of defamation, negligence and similar claims, and it may or may not apply to a particular claim or be adequate to reimburse us for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our financial condition.

As further described in Item 3 - "Legal Proceedings", we are a party to a trademark infringement suit filed against mySimon, Inc., a subsidiary of CNET. There is a possibility that we may be liable for damages as a result of this lawsuit; however, the extent of potential damages is unknown. While we believe that our losses will be covered by insurance, our results of operations and financial condition may be materially and adversely impacted by a loss or an adverse settlement. In addition, in conjunction with the ZDNet acquisition, we assumed guarantee of the obligations of Ziff Davis Media Inc. under a New York City office lease for a total of 399,773 square feet. In connection with that guarantee, we also have a letter of credit for $15.2 million outstanding as a security deposit. This lease expires in 2019. The average cost per square foot is approximately thirty dollars over the remaining term of the lease. We currently occupy 49,140 square feet of the office space covered under this lease. Ziff Davis Media Inc. currently occupies 206,176 square feet of this space. There are two additional sublessees, The Bank of New York and Softbank, who collectively occupy a total of 144,457 square feet. As of December 31, 2002, the total minimum lease payments remaining until the end of the lease term were $187.5 million, excluding the amounts attributable to our sublease. If the financial condition of any of the sublessees or the primary lessee were to deteriorate and thereby result in an inability to make their lease payments, we would be required to make additional lease payments under the guarantee, which would adversely impact our results of operations and financial condition.

At December 31, 2002 we had approximately $113.7 million outstanding of 5% Convertible Subordinated Notes due 2006. We may incur substantial additional debt in the future. The level of our indebtedness, among other things, could:

• make it difficult for us to make payments on our debt as described below
• make it difficult for us to obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions or general corporate purposes
• limit our flexibility in planning for or reacting to changes in our business
• reduce funds available for use in our operations
• impair our ability to incur additional debt because of financial and other restrictive covenants
• make us more vulnerable in the event of a downturn in our business or an increase in interest rates

If we experience a decline in revenues due to any of the factors described in this Risk Factors section or otherwise, we could have difficulty paying interest and principal amounts due on our indebtedness. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our indebtedness, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and could cause defaults under our other indebtedness. Any default under our indebtedness could have a material adverse effect on our financial condition. If we do not achieve and sustain positive net income, we could have difficulty repaying or refinancing our outstanding debt.

The trading price of our common stock is subject to wide fluctuations, which are a result of a number of events and factors, including:

• quarterly variations in operating results
• announcements of innovations requiring significant expenditures
• new products, strategic developments or business combinations by us or our competitors
• changes in our financial estimates or that of securities analysts
• changes in recommendations of securities analysts
• the operating and securities price performance of other companies that investors may deem comparable to us
• news reports, including those relating to trends in the Internet
• other events or factors

In addition, the stock market in general, and the market prices for Internet- related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock. These fluctuations may make it more difficult to use stock as currency to make acquisitions that might otherwise be advantageous, or to use stock options as a means to attract and retain employees.

Any shortfall in revenue or earnings compared to our or analysts' or investors' expectations could cause, and has in the past caused an immediate and significant decline in the trading price of our common stock. In addition, we may not learn of such shortfalls or delays until late in the fiscal quarter, which could result in an even more immediate and greater decline in the trading price of our common stock.

We have a substantial number of shares of common stock subject to stock options, and our notes may be converted into shares of our common stock. In addition, as of December 31, 2002, we have over 260 million shares of authorized but unissued shares of our common stock that are available for future sale. As of December 31, 2002, we also had 11,059,153 options available to grant under our employee stock option plans. We cannot predict the effect, if any, that future sales of shares of our common stock, or the availability of shares of our common stock for future sale, will have on the market price of our common stock. In addition, Softbank, which owns approximately 5.5% of our outstanding common stock, has a right, pursuant to registration rights granted under the stockholder agreement, to require us to register for public sale our common stock owned by Softbank. Sales of substantial amounts of our common stock, including shares issued in connection with acquisitions, upon the exercise of stock options or warrants or the conversion of debt securities, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

Some provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy contest or change of control. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the current market price for our common stock. Among other things, our certificate of incorporation and bylaws:

• authorize our board of directors to issue preferred stock with the terms of each series to be fixed by our board of directors
• divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year
• permit directors to be removed only for cause
• specify advance notice requirements for stockholder proposals and director nominations

In addition, with some exceptions, the Delaware General Corporation Law restricts or delays mergers and other business combinations between us and any stockholder that acquires 15% or more of our voting stock.

Forty-three percent of our outstanding common stock is held by seven stockholders. Shelby W. Bonnie, our chairman and chief executive officer, holds 9.4% of our outstanding common stock. The concentration of ownership of our common stock may delay, prevent or deter a change in control, could deprive other stockholders of an opportunity to receive a premium for their common stock as part of a sale of CNET or its assets and may adversely affect the market price of our common stock. Also, these stockholders can exert significant control over actions requiring the approval of a majority of the voting stock, including amendments to our charter. Commercial and other transactions between us, on the one hand, and the directors, officers and major stockholders of CNET and their affiliates, on the other, create potential for, or could result in, conflicting interests.

In July 2001, the Financial Accounting Standards Board changed accounting rules regarding the accounting for goodwill. Changes to these rules may have a significant impact on our reported financial results. The new FASB standards relating to accounting for goodwill could make our acquisition-related charges less predictable in any given reporting period. Statement of Accounting Standards No. 142, "Goodwill and Other Intangible Assets", establishes a new standard for accounting for goodwill acquired in a business combination. It continues to require recognition of goodwill as an asset but does not permit amortization of goodwill as was required by Accounting Principles Board Opinion No. 17, "Intangible Assets". Under the new statement, goodwill is separately tested for impairment using a fair-value-based approach when an event occurs indicating the potential for impairment. The change from an amortization approach to an impairment approach will apply to previously recorded goodwill, as well as goodwill arising from acquisitions completed after the application of the new standard. Upon adoption of SFAS 142, our goodwill amortization charges ceased.

As part of the transition provisions of SFAS 142, we were required to review for impairment all previously recognized intangible assets that have been determined to have indefinite useful lives. In no instance did the carrying amount of a reporting unit exceed its fair value as of January 1, 2002, and therefore, we determined that there was no impairment resulting from these transitions tests. We performed our annual goodwill and intangible asset impairment test as of August 31, 2002. The fair value of our reporting units was determined using a combination of the income and the market valuation approaches. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate over its remaining life. Under the market approach, the value of the reporting unit is based on an analysis that compares the value of the reporting unit to values of publicly traded companies in similar lines of business. The results of this annual impairment test indicated the carrying value of goodwill for the U.S. Media reporting unit exceeded their implied fair values, and an impairment charge of $238.8 million for goodwill was recorded in 2002. In the application of these valuation approaches, we were required to make estimates of future operating trends and judgments on discount rates and other variables. Actual future results and other assumed variables could differ from these estimates, including as a result of changes in the economy, the business in which we operate, and/or own relative performance. It is possible that we will incur less frequent, but larger, impairment charges related to the goodwill already recorded as well as any goodwill arising out of future acquisitions. Accordingly, our future earnings may be subject to significant volatility, particularly on a period-to-period basis.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation", which is an amendment of SFAS 123, "Accounting for Stock-Based Compensation". SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This pronouncement, as well as, the FASB's commitment to bring about convergence of accounting standards with the International Accounting Standards Board, which is currently proposing new standards on stock-based payments, could indicate a movement by the FASB to make current voluntary reporting mandatory. Since we currently report stock-based compensation using the intrinsic-value method, should the FASB require companies to expense stock-based compensation based on fair-value measurements rather than allow voluntary reporting, this potential change could increase our future losses or reduce our future earnings..

We are exposed to the impact of interest rate changes and changes in the market values of our investments.

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest our excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers that, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

We have invested in equity instruments of privately held, information technology companies for business and strategic purposes. These investments are included in other long-term assets and are accounted for under the cost method, as we do not have the ability to exert significant influence over the investee or their operations. For these non-quoted investments, our policy is to regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the carrying values. We identify and record impairment losses on investments when events and circumstances indicate that such assets might be impaired.

Certain forecasted transactions and assets are exposed to foreign currency risk. Because we have operations overseas, the revenues and expenses associated with those operations are exposed to foreign currency risk. Any weakening of the U.S. dollar against the currencies in which those operations are conducted results in a decrease in our recorded revenues and an increase in our expenses. We monitor our foreign currency exposures regularly to assess our risk and to determine if we should hedge our currency positions.

We have audited the accompanying consolidated balance sheets of CNET Networks, Inc. and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 misstatements. 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 consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CNET Networks, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, effective July 1, 2001, CNET Networks, Inc. and subsidiaries adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The remaining provisions of SFAS No. 142 were adopted effective January 1, 2002.

/s/ KPMG LLP

San Francisco, California
January 29, 2003

The consolidated financial statements include the accounts of CNET Networks Inc. and its majority owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

For operations in countries where the functional currency is other than the U.S. dollar, revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders' equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.

CNET's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

Certain amounts in the financial statements and notes thereto have been reclassified to conform to current year classification.

The carrying value of CNET's cash and cash equivalents, marketable debt and equity securities, accounts receivable and accounts payable approximate their respective fair values. The carrying value of CNET's 5% Convertible Subordinated Notes is deemed to be their fair value since it is impracticable to estimate a fair value as there is no comparable debt available on the market. Although there were several repurchases of these notes during the last half of 2002, due to the variation in price at which the buy-backs were accomplished, CNET does not believe that the average price of these repurchases is indicative of the current fair value.

CNET invests its excess cash in debt instruments of the U.S. Government and its agencies and in high-quality corporate issuers. All highly liquid instruments with maturities of three months or less at the date of purchase are considered cash equivalents.

The restricted cash balance primarily relates to certain deposits in escrow held as collateral for letters of credit relating to security deposits on leased properties.

Investments in marketable debt securities with maturities greater than three months at the date of purchase and current maturities less than twelve months from the balance sheet date are considered current assets. Those with maturities greater than twelve months from the balance sheet date are considered non-current assets. Investments in publicly traded companies are considered investments in marketable equity securities and are classified as a current asset of CNET.

CNET's marketable debt and equity securities are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. Realized gains or losses and permanent declines in value, if any, on available-for-sale securities are reported in other income or expense as incurred.

CNET has invested in equity instruments of privately held, information technology companies for business and strategic purposes. The carrying value of these investments, which amounted to $11.7 million and $32.0 million at December 31, 2002 and 2001, respectively, are included in other assets in the non-current section of the balance sheet. These investments are accounted for under the cost method, as CNET does not have the ability to exert significant influence over the investee or their operations and is not required to provide any future funding to these companies. For these non-quoted investments, impairment is assessed routinely based, where possible, on the pricing of new rounds of financing for the individual company, cash resources, liquidity, and other subjective factors such as CNET's estimate of the strength of the underlying business and assets including technology and intangibles. If an impairment is believed to have occurred based on CNET's assessment of these factors, the investment is further evaluated. If it appears that there are no funding options for a company, and CNET's evaluation of their available cash resources results in a determination that they will not be able to sustain liquidity for a reasonable period of time, then the investment is fully impaired. If CNET's assessment determines that a privately held investment has sufficient liquidity, but that current rounds of financing for comparable companies are at amounts significantly less than in the past, the investment will be impaired to reflect current market conditions. However, the extent of any impairment is evaluated in conjunction with CNET's view of the subjective factors discussed above.

CNET recorded impairment losses on marketable equity securities of $154,000, $26.9 million and $393.4 million and on privately held investments of $15.4 million, $148.4 million and $5.7 million for the years ended December 31, 2002, 2001 and 2000, respectively. CNET recognized realized gains on sales of investments of $2.9 million, $9.5 million and $134.9 million in the years ended December 31, 2002, 2001 and 2000, respectively, and recognized realized losses on sales of investments of $123,000, $8.6 million and $13.6 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Declines in value of marketable equity securities are determined to be other- than-temporary when the securities have consistently traded below original cost for a nine-month period, and general market conditions or specific circumstances relating to a security indicate that the security will not recover its original cost. Once an other-than-temporary decline has been identified, the average market price over the preceding 90-calendar day period is compared to the current carrying value. The amount of loss, which is considered to be an other-than-temporary decline, is measured by comparing the cost basis to the higher of the 90-calendar day average and the current carrying value. A realized loss is recognized for the amount of the loss that is considered to be an other-than-temporary decline. This review and evaluation process is performed on an ongoing basis for all marketable equity securities owned by CNET.

Financial instruments potentially subjecting CNET to concentrations of credit risk consist primarily of cash, cash equivalents, investments and trade accounts receivable. CNET invests excess cash in low risk, liquid instruments. CNET's investments in marketable debt securities are generally investment grade securities. CNET's investments in privately held companies are concentrated in the information technology sector and as such are subject to fluctuations in fair value based on technology market factors. The majority of CNET's accounts receivable are derived from domestic sales to companies in the information technology sector. CNET closely monitors its outstanding receivable balances on an ongoing basis.

Revenues from one U.S. Media customer, Gateway Inc., approximated 12% of total revenues for the year ended December 31, 2002. Of these revenues from this one customer, approximately 69% were generated from the creation of custom print publications in U.S. Media. Approximately 12% of CNET's accounts receivable balance at December 31, 2002 related to Gateway Inc.

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The principal estimated useful lives are: buildings, 40 years; furniture and equipment, 3 to 7 years, website development costs, 5 years; and computer equipment and software, 3 years. Property and equipment recorded under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease terms or their estimated useful lives.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2001 and specifies criteria for recognizing intangible assets acquired in a business combination. The implementation of SFAS 141 has not had a material impact on CNET's consolidated financial position, liquidity or results of operations.

Effective January 1, 2002 under SFAS 142, goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead are to be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives. Although the provisions of SFAS 142 were not effective in their entirety until January 1, 2002, the goodwill acquired in business combinations which occurred after June 30, 2001 fell under the condition of SFAS 142 requiring no amortization of goodwill arising from transactions completed after June 30, 2001. Therefore, goodwill from any such transactions was not amortized.

Had the provisions of SFAS 142 been effective in 2001 and 2000, CNET's adjusted net loss and net loss per share would have been as follows:

(000's, except per share data)

                                           December 31,
                              -----------------------------------
                                  2002        2001        2000
                                ---------  -----------  ---------

Reported net loss              $(360,585) $(1,989,488) $(483,980)
Goodwill amortization                 --      626,711    329,609
                                ---------  -----------  ---------
  Adjusted net loss            $(360,585) $(1,362,777) $(154,371)
                                =========  ===========  =========

Basic and diluted loss per
  share - as reported          $   (2.60) $    (14.52) $   (5.18)
                                =========  ===========  =========
Basic and diluted loss per
  share - as adjusted          $   (2.60) $     (9.94) $   (1.65)
                                =========  ===========  =========

Goodwill and intangible assets of a reporting unit are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of its goodwill or intangible assets may not be recoverable. Impairment of reporting unit goodwill is evaluated based on a comparison of the reporting unit's carrying value to the implied fair value of that reporting unit. Conditions that indicate that impairment of goodwill should be evaluated include a sustained decrease in CNET's market value or an adverse change in business climate. (See Note 4.)

CNET accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment dates.

CNET recognizes revenues once the following criteria are met:

• Persuasive evidence of an arrangement exists
• Delivery of CNET's obligation to its customer has occurred
• The price to be charged to the buyer is fixed or determinable
• Collectibility of the fees to be charged is reasonably assured

CNET has several revenue streams. For each revenue stream, evidence of the arrangement, delivery and pricing may be different. For all revenue streams, CNET determines that collectibility is reasonably assured through a standardized credit review to determine each customer's credit worthiness.

CNET recognizes revenues from the sale of its interactive messaging and banner advertisements on its online network in the period in which the advertisements are delivered. The arrangements are evidenced either by insertion order or contract that stipulate the types of advertising to be delivered and pricing. CNET's customers are billed based on a discounted list price with no amounts subject to refund. When recognizing revenues, the discounts granted are applied to each type of advertisement purchased based on the relative fair value of each element.

CNET refers to the fees charged to merchants based on the number of users who click on an advertisement or text link to visit websites of CNET's merchant partners as "leads". For leads, the arrangement is evidenced by a contract that stipulates the lead fee. The fee becomes fixed and determinable upon delivery of the lead. These revenues are recognized in the period in which the leads are delivered to the merchant, and are not subject to refund.

In certain arrangements, CNET sells interactive messaging, banner advertising, and leads programs to customers as part of a bundled arrangement. For these arrangements, CNET allocates revenue to each deliverable based on the relative fair value of each deliverable. Revenue is recognized in these arrangements as CNET delivers on its obligation.

Advertising revenues from CNET's print and custom print publications are recognized in the month that the related publications are sent to subscribers or become available at newsstands. Newsstand revenue from print publications is recognized when the publications are delivered to the newsstand at which time a reserve is recorded against the value of the publications delivered based on the number of magazines that CNET expects to be returned. To ensure these reserves are adequate, CNET reviews the sell-through history of the publications on a monthly basis.

Revenues for subscriptions to CNET's Internet sites, print publications, product database and procurement services are recognized on a straight-line basis over the term of the subscription. Upon execution of a contract, billing and commencement of the services, CNET records deferred revenue for the fee charged. This deferred revenue is recognized on a straight-line basis over the period of the arrangement. The amounts under contract are not refundable after the customer has used the service.

CNET trades advertising on its Internet sites in exchange for advertisements on the Internet sites of other companies, referred to as "barter revenue". These revenues are recognized in the period in which the advertisements are delivered based on the fair market value of the services delivered. CNET determines the fair market value of the service delivered based upon amounts charged for similar services in non-barter deals within the previous six-month period. Barter revenues were approximately $11.6 million, $18.4 million and $16.7 million for the years ended December 31, 2002, 2001 and 2000, respectively.

In prior years, a portion of CNET's revenues was received in the form of securities of its customers. Revenues in the form of securities of CNET's customers amounted to $4.7 million and $19.6 million for the years ended December 31, 2001 and 2000, respectively. There were no such revenues in 2002.

CNET maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. CNET bases its allowances on periodic assessment of its customer's liquidity and financial condition through credit rating agencies reports, financial statement reviews and historical collection trends.

CNET accounts for its stock-based employee compensation plans using the intrinsic value method. As such, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeded the exercise price. The compensation expense is recorded over the vesting period of the grant.

CNET applies APB Opinion No. 25 in accounting for the its stock-based compensation plans and, accordingly, no compensation cost has been recognized for the plans in the financial statements because options are granted at the current market price. Had CNET determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, CNET's net loss and net loss per share would have been increased to the pro forma amounts indicated below:

                                            Year Ended December 31,
                                        (000s, except per share data)
                                       ----------------------------------
                                          2002         2001       2000
                                       -----------  ----------  ---------
Net loss
  As reported                         $  (360,585) $(1,989,488) $(483,980)
  Fair value based method
    compensation expense                  (36,735)     (53,920)   (60,482)
                                       -----------  -----------  ---------
  Proforma                            $  (397,320) $(2,043,408) $(544,462)
                                       ===========  ===========  =========
Basic and diluted net loss per share
  As reported                         $     (2.60) $    (14.52) $   (5.18)
  Proforma                            $     (2.86) $    (14.91) $   (5.83)

The effects of applying SFAS 123 in this pro forma disclosure is not indicative of the effects on reported results for future years. SFAS No. 123 does not apply to awards prior to 1995.

The weighted-average fair value of options granted in 2002, 2001, and 2000, was $2.71, $5.72 and $16.27, respectively.

The fair value of each option grant is estimated on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002, 2001, and 2000: no dividend yield, expected volatility of 105%, 99% and 96%, respectively, risk-free interest rate of 3.86%, 4.42% and 6%, respectively, and an expected life of five years for all years.

The cost of advertising is expensed as incurred. Such costs are included in selling and marketing expense and totaled approximately $17.6 million, $37.6 million and $65.8 million during the years ended December 31, 2002, 2001 and 2000, respectively.

In 1996, CNET adopted a 401(k) Profit Sharing Plan (the 401 (k) Plan) that is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan covers substantially all of CNET's employees, who may contribute up to 25% of their annual compensation, subject to a limitation of $11,000 in 2002. Employees vest immediately in their contributions and earnings thereon. The plan allows for company matching contributions which amount to 50% of the employee's contribution, up to 4%. Employees vest in CNET's contributions at 50% after one year of service and 100% after two years of service. For the years ended December 31, 2002, 2001 and 2000, CNET made matching contributions of $1.2 million, $1.4 million and $459,000 respectively.

In 2002, CNET adopted SFAS 144, "Accounting for the Impairment of Long- Lived Assets" which establishes an accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. Adoption of SFAS 144 has not had a material effect on CNET's financial position or results of operations.

CNET reviews its long-lived assets if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted (and without interest charges) future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In 2002, a charge of approximately $11.2 was taken reflecting the excess of carrying value over the proceeds from disposals of fixed assets (primarily fixed assets disposed of due to the migration to a new technology platform).

Basic net income (loss) per share is computed using the weighted average number of outstanding shares of common stock and diluted net income (loss) per share is computed using the weighted average number of outstanding shares of common stock and common stock equivalents during the period, to the extent that such common stock equivalents are not anti-dilutive. Common stock equivalents that are anti-dilutive are excluded from the computation of diluted net income (loss) per share.

The Emerging Issues Task Force (EITF) Issue No. 00-2, "Accounting for Web Site Development Costs" requires that costs incurred during the development of web site applications and infrastructure involving developing software to operate the web site, including graphics that effect the "look and feel" of the web page and all costs relating to software used to operate a web site should be accounted for under Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". However, if a plan exists or is being developed to market the software externally, the costs relating to the software should be accounted for pursuant to FASB Statement No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". In 2001, CNET commenced the development of a standard delivery platform for its Internet network, including our international sites. CNET believes this will help create a better product for users, a better marketing platform for advertisers and will result in internal cost and delivery efficiencies. Costs of approximately $14.9 million to date have been capitalized pursuant to SOP 98-1, including $5.9 million in 2002.

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt" wherein the FASB determined that gains and losses from debt extinguishments were to be recorded as extraordinary items. The provisions of SFAS 145 are effective for fiscal years beginning after May 31, 2002, with earlier adoption encouraged. During the second quarter of 2002, CNET early adopted SFAS 145 and as such is no longer presenting gain or loss associated with debt extinguishment as an extraordinary item.

In the last half of 2002, CNET repurchased $59.2 million principal amount of its 5% Convertible Subordinated Notes for $36.7 million. In connection with this repurchase, CNET recorded a gain (net of the write-off of $0.9 million of related capitalized debt issuance costs) of $21.6 million in other nonoperating income. In conjunction with the accelerated repayment of CNET's TRACES obligations in the third quarter of 2001, CNET recorded a loss of $10.6 million consisting of $9.0 million of early repayment interest penalty and a write-off of $1.6 million of capitalized debt issue costs. As CNET implemented SFAS 145 in the second quarter of 2002, the implementation resulted in a reclassification of the previously reported extraordinary item. In the year ended December 31, 2001 before reclassification of the extraordinary item to current year presentation, CNET's other expense was $2.8 million, net income before taxes and extraordinary loss was $2.0 billion and tax benefit was $64.7 million.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement supercedes Emerging Issues Task Force (EITF) Issue 94- 3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. Under SFAS 146, the FASB has concluded that an entity's commitment to a plan does not necessarily create a present obligation to others that meets the definition of a liability. The provisions of SFAS 146 are effective for exit and disposal activities initiated after December 31, 2002. CNET does not believe the adoption of SFAS 146 will have a material effect on CNET's results of operations or financial position.

In November 2002, the FASB issued a Consensus, which clarified certain issues within EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The Consensus addresses how to allocate the revenue in an arrangement involving multiple deliverables into separate units of accounting consistent with the identified separate earnings processes of each deliverable for revenue recognition purposes. The Issue also addresses how each element in a bundled sales arrangement should be measured and allocated to the separate units of accounting in the arrangement. The Consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2002. CNET does not expect the implementation of this Consensus to have a material effect on our financial statements.

In November 2002, the FASB issued FASB Interpretation (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", an interpretation of SFAS 5, 57 and 107. The Interpretation expands the disclosure requirements for most guarantees. FIN 45 also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. CNET has expanded its disclosure relating to its lease guarantee accordingly. CNET is currently evaluating other aspects of FIN 45 to determine its impact on CNET's consolidated financial statements.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which amends SFAS 123, "Accounting for Stock-Based Compensation". SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation, regardless of which accounting method is used to account for stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. CNET has adopted the disclosure requirements of SFAS 148.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin 51, "Consolidated Financial Statements". FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. FIN 46 expands disclosure if an enterprise consolidates a variable interest entity, and the Interpretation requires disclosure for those companies that hold significant variable interests in a variable interest entity but are not required to consolidate that interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities obtained after that date. FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which a company holds a variable interest that it acquired before February 1, 2003. Disclosure required by FIN 46 must be included in all financial statements issued after January 31, 2003. CNET is currently analyzing FIN 46 to determine its impact on CNET's consolidated financial statements.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets/(liabilities) are presented below:

                                        Year Ended December 31,
                                               (000s)
                                 ----------------------------------
                                    2002        2001        2000
                                 ----------  ----------  ----------
Net operating loss carryforward $   60,081  $   70,404  $   40,474
Properties and intangibles          76,525      59,302      14,232
Reserves and accruals (current)      7,618      10,263      (2,302)
(Unrealized gain) deferred loss
  from investments available
  for sale                          55,611      57,923      36,981
Gain on sale of marketable
  equity securities                     --          --     (41,637)
State taxes                            194         175      14,304
Stock based compensation                --          --      (5,515)
Other                                  111         110         627
                                 ----------  ----------  ----------
                                   200,140     198,177      57,164
Less valuation allowance          (200,140)   (179,942)    (50,077)
                                 ----------  ----------  ----------
                                $       --  $   18,235  $    7,087
                                 ==========  ==========  ==========

The net change in the valuation allowance for the years ended December 31, 2002 and 2001 was an increase of $20.2 million and $129.9 million, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Income tax expense has been recorded based on an estimated effective tax rate for the year ended December 31, 2002. The estimated effective tax rate has taken into account any change in the valuation allowance for deferred tax assets where the realization of various deferred tax assets is subject to uncertainty. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets and, accordingly, a full valuation allowance has been provided.

Approximately $31.7 million of recoverable taxes were refunded to CNET in 2002. This refund in part related to the utilization of net operating losses that were recorded as current deferred tax assets as of December 31, 2001. Additionally, an income tax benefit of $20.3 million was recorded in 2002 primarily due to the realization of deferred tax assets in 2002, which were considered not to be recoverable at December 31, 2001.

At December 31, 2002, CNET had net operating losses of $165.3 million. A total of $24.6 million of these losses generated in 2002 will be carried back to previous tax years. Of the remaining losses, approximately $107.0 million are related to federal net operating losses from the ZDNet acquisition, which took place in 2000. These losses are subject to limitations on their utilization due to the change in ownership and will begin to expire in 2011. Operating losses generated in 2002 were primarily related to amortization of intangible assets and losses from operations. Cumulative foreign net operating losses are approximately $45.9 million.

In 1994, the Board of Directors adopted the CNET Stock Option Plan, which was subsequently amended and restated, (the 1994 Plan) pursuant to which CNET's Board of Directors may grant stock options to officers and key employees. The 1994 Plan authorizes grants of options to purchase up to 11,000,000 shares of common stock. At December 31, 2002, 1,974,355 options were outstanding under the 1994 Plan. In 1997, the Board of Directors adopted the CNET 1997 Stock Option Plan (the 1997 Plan). The 1997 Plan authorizes grants of options to purchase up to 12,400,000 shares of common stock. At December 31, 2002, 5,012,911 options were outstanding under the 1997 Plan. In 2000, CNET's Board of Directors adopted the CNET 2000 Stock Incentive Plan (the 2000 Plan), which authorizes the grant of options to purchase up to 5,000,000 shares of common stock. At December 31, 2002, 1,092,538 options were outstanding under the 2000 Plan. In 2001, CNET's Board of Directors adopted the 2001 CNET Network, Inc. Stock Incentive Plan, which authorizes the grant of up to 7,500,000 shares of common stock. At December 31, 2002, 6,494,580 options were outstanding under the 2001 Plan. Each of the 1994, 1997 and 2000 Plans was approved by the stockholders of CNET. In addition, CNET assumed in 2000 the mySimon 1998 Amended and Restated Stock Plan, the Apollo Solutions, Inc. 2000 Stock Option Plan, the Ziff-Davis 1998 Incentive Compensation Plan, and in 2001 the TechRepublic, Inc. 1999 Stock Option Plan in connection with its acquisitions of mySimon, Apollo Solutions, Ziff-Davis and TechRepublic. Stock options for the 1994, 1997, 2000 and 2001 Plans are granted with an exercise price equal to the fair market value at the date of grant. All stock options have 10-year terms and generally vest and become fully exercisable four years from the date of grant.

A summary of the status of CNET's stock option plans as of December 31, 2002, 2001 and 2000, and changes during each of the years then ended is as follows:

                                                  Weighted
                                      Number      Average
                                        Of        Exercise
                                      Shares       Prices
                                   ------------  ----------
 Balance as of December 31, 1999    11,465,512  $    17.33
  Granted                           22,741,669       21.60
  Exercised                         (2,731,398)       7.31
  Canceled                          (1,343,550)      23.44
                                   ------------
 Balance as of December 31, 2000    30,132,233       20.86
  Granted                           13,793,636        7.54
  Exercised                         (1,960,818)       7.07
  Canceled                          (9,842,386)      23.18
                                   ------------
 Balance as of December 31, 2001    32,122,665       15.27
  Granted                            1,533,620        2.71
  Exercised                           (393,086)       7.66
  Canceled                         (16,371,573)      20.49
                                   ------------
 Balance as of December 31, 2002    16,891,626  $     9.25
                                   ============  ==========

As of December 31, 2002, 2001, and 2000, the number of options exercisable was 9,208,599, 13,499,284 and 12,537,710, respectively, and the weighted average exercise price of those options was $10.89, $18.06 and $17.83, respectively. As of December 31, 2002, there were 11,060,360 additional shares available for grant under the plans.

The following table summarizes information about stock options outstanding as of December 31, 2002:

                            Options Outstanding          Options Exercisable
                   ----------------------------------  ---------------------
                                Weighted
                     Number      Average    Weighted     Number      Weighted
                   Outstanding  Remaining    Average   Exercisable   Average
    Range of          As of     Contractual Exercise      As of      Exercise
  Exercise Prices   12/31/02      Life        Price     12/31/02      Price
  ---------------  -----------  ---------   ---------  -----------   -------
$  0.57  $  0.60        7,304        2.9  $     0.60        7,304  $   0.60
$  0.90  $  1.18      470,000        9.6  $     0.99       17,042  $   1.18
$  1.75  $  2.30      260,242        7.7  $     2.04      174,573  $   2.06
$  2.73  $  4.08    5,554,027        8.5  $     3.38    1,717,670  $   3.41
$  4.30  $  6.10    1,675,385        4.3  $     5.48    1,525,837  $   5.52
$  6.49  $  9.63    2,522,316        6.1  $     7.71    2,084,475  $   7.47
$  9.94  $ 14.63    4,078,938        7.9  $    11.11    1,925,914  $  11.23
$ 14.98  $ 22.13    1,233,607        6.5  $    18.64      894,519  $  18.47
$ 23.13  $ 34.63      689,341        6.9  $    26.64      516,723  $  26.92
$ 35.40  $ 52.36      146,783        3.0  $    42.92      138,921  $  42.69
$ 53.11  $ 68.97      253,683        6.4  $    58.60      205,621  $  58.32
                   -----------                         -----------
$  0.57  $ 68.97   16,891,626        7.3  $     9.25    9,208,599  $  10.89
                   ===========                         ===========

Under an option exchange program, a total of 8,690,250 options were surrendered and cancelled effective July 27, 2002. On January 28, 2003, 3,251,155 options were regranted at an exercise price of $2.535 under the terms of this option exchange program. See Note 9.

In July 1996, CNET adopted an Employee Stock Purchase Plan that covers substantially all employees, whereby participants may elect to purchase CNET's stock. The purchase price varies each quarter and is 85% of the lower of the closing price at the beginning of the quarter and the closing price at the end of the quarter for the first and third quarters of the year or the lower of the closing price at the beginning of the prior quarter and the closing price at the end of the current quarter for the second and fourth quarters of the year. Employee contributions consist of a percentage of their compensation. The maximum percentage of compensation that an employee may contribute to purchase CNET stock is 15%.

The following table sets forth the computation of net income (loss) per share:

                                                  Year Ended December 31,
                                               (000s except share and per share data)
                                             ---------------------------------------
                                                 2002         2001          2000
                                             ------------  -----------  ------------
Basic and Diluted Earnings Per Share

Loss available to common stockholders       $   (360,585)  $(1,989,488)  $   (483,980)
                                             ============   ===========   ============

Weighted average shares - basic and diluted  138,850,094   137,062,987     93,460,649
                                             ============  ============   ============

Basic and diluted loss per common share     $      (2.60) $     (14.52)  $      (5.18)
                                             ============  ============   ============

Basic and diluted net loss per share for the year ended December 31, 2002 does not include the effect of approximately 946,283 common shares related to options with an average exercise price of $3.36 and approximately 8,280 shares of unvested restricted stock with an average exercise price of $1.22, and approximately 3,040,242 common shares related to the 5% Convertible Subordinated Notes offering with an average exercise price of $37.41 because their effect is anti-dilutive. Basic and diluted net loss per share for the year ended December 31, 2001 does not include the effect of approximately 2,405,972 common shares related to options with an average exercise price of $6.97, approximately 189,336 shares of unvested restricted stock with an average exercise price of $1.22, and approximately 4,622,624 common shares related to the 5% Convertible Subordinated Notes offering with an average exercise price of $37.41 because their effect is anti-dilutive.

Basic and diluted net loss per share for the year ended December 31, 2000 does not include the effect of approximately 6,545,111 common shares related to options with an average exercise price of $16.79, approximately 544,628 shares of unvested restricted stock with an average exercise price of $1.21, and approximately 4,622,624 common shares related to the 5% Convertible Subordinated Notes offering with an average exercise price of $37.41 because their effect is anti- dilutive.

At the annual meeting of stockholders on June 12, 2002, CNET's stockholders approved the amendment of CNET's stock option plans to permit the exchange of options having a strike price in excess of $12.00 for a lesser number of new options to be granted at least six months and one day from cancellation of the surrendered options. The offer to participate in the exchange expired on July 26, 2002. All surrendered options were cancelled as of July 27, 2002. A total of 8,690,250 options were surrendered. On January 28, 2003, 3,251,155 options were regranted at an exercise price of $2.535. For those employees on leave of absence as of January 28, 2003, their potential regrants, which total 16,857 options if issued, will be effective on the date of their return to work at an exercise price to be set on the fifth of the month following their return.

The changes in the components of other comprehensive income (loss) for the years ended December 31, 2002, 2001, 2000 are as follows:

                                                           December 31,
                                                             (000s)
                                             ---------------------------------------
                                                 2002         2001          2000
                                             ------------  -----------  ------------
Unrealized holding gain (loss) from:
 Marketable equity securities               $        264  $   (64,682) $   (297,742)
 Marketable debt securities                          376           --            25
 Debt obligations                                     --           --        97,344
Deferred tax asset related to
  unrealized holding (gains) losses                 (250)      25,873       117,874
                                             ------------  -----------  ------------
                                                     390      (38,809)      (82,499)
Foreign currency translation gain (loss)          (1,412)     (11,852)       (1,038)
                                             ------------  -----------  ------------
                                            $     (1,022) $   (50,661) $    (83,537)
                                             ============  ===========  ============

The components of other comprehensive income were:

                                                  Year Ended December 31,
                                                             (000s)
                                             ---------------------------------------
                                                 2002         2001          2000
                                             ------------  -----------  ------------
Net loss                                    $   (360,585) $(1,989,488) $   (483,980)
                                             ============  ===========  ============
Other comprehensive income:
 Unrealized holding gains arising
  during the period, net of tax             $        946  $    13,416  $      8,772
 Unrealized holding losses arising
  during the period, net of tax                     (556)     (52,225)      (91,271)
 Foreign currency translation gain (loss)         (1,412)     (11,852)       (1,038)
                                             ------------  -----------  ------------
  Comprehensive loss                        $   (361,607) $(2,040,149) $   (567,517)
                                             ============  ===========  ============

(11) COMMITMENTS AND CONTINGENCIES

CNET has several non-cancelable operating leases primarily for general office facilities and equipment that expire over the next 17 years. Future minimum lease payments under these leases are as follows:

                                  Operating
                                    Leases
  YEAR ENDING DECEMBER 31,          (000s)
- --------------------------------  ----------
                            2003 $   24,495
                            2004     23,144
                            2005     19,196
                            2006     14,460
                            2007     13,806
                    Thereafter      122,872
                                  ----------
  Total minimum lease payments   $  217,973
                                  ==========

Minimum payments have not been reduced by minimum sublease rentals of $5.5 million due through August 2005 under noncancelable subleases. Sublease income from operating leases was $2.1 million for the year ended December 31, 2002, of which $1.9 million related to subleases for abandoned properties, and therefore was taken to the lease abandonment accrual. Rental expense from operating leases totaled $27.7 million (of which $7.9 million had previously been provided for in the lease abandonment accrual), $15.6 million and $8.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. Effective August 1, 2002, the lease for CNET's headquarters in San Francisco was amended whereby the rent on the lease was reduced by an aggregate amount of $45.1 million over the remaining term of the lease in exchange for an $8.0 million payment and the posting of a $2.0 million letter of credit for three years. The $8.0 million payment has been recorded as prepaid rent and is being recognized into lease expense over the remaining lease term.

CNET had $981,000 and $623,000 of computer equipment under capital leases at December 31, 2002 and 2001, respectively. Total accumulated amortization on these assets was $447,000 and $94,000 at December 31,2002 and 2001, respectively. Depreciation expense applicable to these capitalized leases was $377,000 and $94,000 for the years ended December 31, 2002 and 2001. CNET did not have any capital leases in 2000. At December 31, 2002, the current portion of the future payments under these leases of $330,000 is included in accrued liabilities, and the long-term portion of $213,000 is included in other non-current liabilities. Future minimum lease payments under these leases are as follows:

                                   Capital
                                    Leases
  YEAR ENDING DECEMBER 31,          (000s)
- --------------------------------  ----------
                       2003      $      330
                       2004             213
                                  ----------
 Total minimum lease payments    $      543
                                  ==========

In 2001, CNET performed an evaluation of its domestic and international real estate requirements. This evaluation resulted in the consolidation or abandonment of several leased facilities. In connection with these abandoned leases, CNET established an accrual for lease abandonment. The balance for this accrual was $14.7 million at December 31, 2001. An additional $4.6 million was added to the accrual in 2002 through general and administrative expenses, when certain assumptions regarding the timing of subleasing were modified and as further consolidation of the U.S. facilities took place. Cash expenditure reductions to this accrual in 2002 have been $9.5 million. During 2002, early terminations were negotiated for leases on five abandoned properties. The termination payments totaled $2.6 million, and are included in cash expenditure reductions for 2002. At December 31, 2002, a balance of $9.8 million remained in this accrual.

In conjunction with the ZDNet acquisition in 2000, CNET assumed a guarantee of the obligations of Ziff Davis Media Inc., an unaffiliated company, under a New York City office lease for a total of 399,773 square feet. In connection with that guarantee, we also have a letter of credit for $15.2 million outstanding as a security deposit. This letter of credit is collateralized by a deposit in escrow, which is included in restricted cash. As there is no present obligation to make any payments in connection with this guarantee, CNET has not recorded any liability for this guarantee in its financial statements. This lease expires in 2019. The annual average cost per square foot is approximately thirty dollars over the remaining term of the lease. Through a sublease from Ziff Davis Media Inc., CNET currently occupies 49,140 square feet of the office space covered under this lease. Ziff Davis Media Inc. currently occupies 206,176 square feet of this space. There are two additional subleasees, The Bank of New York and Softbank (a related party), who collectively occupy a total of 144,457 square feet. During the second quarter of 2002, Softbank subleased its 30,885 square feet to The Beanstalk Group. According to an August 12, 2002 Ziff Davis Media Inc. press release, Ziff Davis Media announced that the company had received approval from its bondholders and bank lenders for its out-of-court financial restructuring plan. Some of the details of its restructuring plan can be found at Ziff Davis Media's company website. As of December 31, 2002, the total lease payments remaining until the end of the lease term were $187.5 million, excluding the amounts attributable to our sublease. If the financial condition of any of the sublessees or the primary lessee were to deteriorate and thereby result in an inability to make their lease payments, CNET would be required to make their lease payments under the guarantee.

CNET's primary areas of measurement and decision-making include three principal business segments. Based upon the criteria established by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", CNET has determined that its business segments are U.S. Media, International Media and Channel Services. U.S. Media consists of an online network including Internet sites providing sources of technology information, as well as shopping services and a technology print publication providing technology news and information. International Media includes the delivery of online technology information and several technology print publications in non-U.S. markets. Channel Services includes a product database licensing business and an online technology marketplace for resellers, distributors and manufacturers.

Summarized information by segment as excerpted from the internal management reports is as follows:

(000's)                                    Year Ended December 31, 2002
                               ------------------------------------------------------------
                                             Inter-
                                  U.S.      national     Channel
                                  Media       Media     Services      Other        Total
                               ----------- ----------- ----------- ------------ -----------

   Revenues                   $   194,105 $    27,786 $    15,066 $         -- $   236,957
   Operating expenses             200,847      34,256      19,837      363,331     618,271
                               ----------- ----------- ----------- ------------ -----------
    Operating loss            $    (6,742)$    (6,470)$    (4,771)$   (363,331)$  (381,314)
                               =========== =========== =========== ============ ===========


                                           Year Ended December 31, 2001
                               ------------------------------------------------------------
                                             Inter-
                                  U.S.      national     Channel
                                  Media       Media     Services      Other        Total
                               ----------- ----------- ----------- ------------ -----------

   Revenues                   $   242,122 $    28,805 $    14,878 $         --     285,805
   Operating expenses             264,786      44,254      22,879    1,821,011   2,152,930
                               ----------- ----------- ----------- ------------ -----------
    Operating loss            $   (22,664)$   (15,449)$    (8,001)$ (1,821,011)$(1,867,125)
                               =========== =========== =========== ============ ===========


                                           Year Ended December 31, 2000
                               ------------------------------------------------------------
                                             Inter-
                                  U.S.      national     Channel
                                  Media       Media     Services      Other        Total
                               ----------- ----------- ----------- ------------ -----------

   Revenues                   $   245,777 $     6,483 $    11,759 $         --     264,019
   Operating expenses             212,613       5,648       6,768      355,848     580,877
                               ----------- ----------- ----------- ------------ -----------
    Operating income (loss)   $    33,164 $       835 $     4,991 $   (355,848)$  (316,858)
                               =========== =========== =========== ============ ===========

Since operating income (loss) before depreciation and amortization is the measure of operating performance that management uses for making decisions and allocating resources, certain operating costs are not allocated across segments. These unallocated operating costs, included in "Other" in the tables above, represent all costs related to the integration and realignment of CNET's business and all depreciation and amortization expenses, as well as asset impairment and disposal charges. For the year ended December 31, 2002, "Other" includes $12.4 million of integration and realignment expenses, depreciation and amortization expenses of $60.4 million and $290.5 million in asset impairment charges. The $12.4 million of integration and realignment expenses consisted of $4.4 million of lease abandonment expense (see Note 11) and $8.0 million of severance (relating to 220 employees) and other related integration expenses. This $8.0 million of expense was included in the statement of operations as $778,000 in cost of revenue, $339,000 in sales and marketing and $6.9 million in general and administrative expenses. All of the $8.0 million, except for $400,000, that was expensed in 2002 was paid out in 2002.

For the year ended December 31, 2001, "Other" includes $43.0 million of integration expenses, depreciation and amortization expenses of $703.0 million and $1.1 billion in asset impairment charges. The $43.0 million of integration expenses consisted of $21.3 million in lease abandonment charges, which were included in general and administrative expenses and $21.7 million of severance (relating to 457 employees) and other related integration expenses. This $21.7 million of expense was included in the statement of operations as $8.7 million in cost of revenue, $2.0 million in sales and marketing and $11.0 million in general and administrative expenses. All of the $21.7 million that was expensed in 2001 was paid out in 2001. For the year ended December 31, 2000, "Other" consists of depreciation and amortization expenses of $355.8 million.

Assets are not allocated to segments for internal reporting purposes. Segment operating income (loss) before depreciation and amortization should not be considered a substitute for operating income, cash flows or other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States of America.

CNET has wholly-owned operations in England, France, Germany, Switzerland, Singapore, Japan and Australia. These properties were primarily acquired through the ZDNet acquisition in October 2000. In addition, CNET has joint ventures in China and Korea, wherein CNET is a majority owner. Those joint ventures are consolidated and operate advertising, publishing and events businesses with aggregate assets of approximately $6.2 million. Any losses incurred by these companies will be funded by CNET.

Revenue is attributed to individual countries according to the international online property or print publication that generated the revenue. International revenues accounted for 17%, 14% and 4% of net revenues during the years ended December 31, 2002, 2001 and 2000, respectively. No single foreign country accounted for more than 10% of net revenues for the year ended December 31, 2002.

The following table sets forth net revenues and long-lived assets information for geographic areas:

         (000s)                           U.S.    International  Total
                                       -----------  --------- -----------
         2002
         Net revenues                 $   196,743  $  40,214 $   236,957
         Long-lived assets                119,582     18,347     137,929
         2001
         Net revenues                 $   244,755  $  41,050 $   285,805
         Long-lived assets                438,170     16,361     454,531
         2000
         Net revenues                 $   252,253  $  11,766 $   264,019
         Long-lived assets              2,150,339     12,438   2,162,777

Long-lived assets consist of property and equipment, intangible assets and goodwill.

In 2002, CNET paid Clear Channel Communications $1.2 million for the exclusive right to provide programming and sell advertising on a San Francisco, California radio station owned by Clear Channel. In January 2003, CNET and Clear Channel agreed to the early termination of the agreement. CNET will pay Clear Channel $600,000 as a termination payment. Randall Mays, a Director and Chief Financial Officer of Clear Channel, is a member of CNET's Board of Directors and serves as Chairman of its Audit Committee.

CNET and an affiliate of SOFTBANK Corp. were joint owners of a company that is the licensee and operator of CNET's ZDNet brand and online content in Japan. In March 2002, CNET sold its interest in the company to SOFTBANK and entered into a three-year royalty-bearing license by which CNET will continue to license the ZDNet brand and content to that company. In addition, CNET and SOFTBANK Media, an affiliate of SOFTBANK Corp., are joint owners of a company that is the licensee and operator of CNET's ZDNet brand and online content in Korea. In October 2002, CNET and SOFTBANK completed a restructuring of this company. As a part of this restructuring, SOFTBANK Media's ownership interest in the original Korean entity was exchanged for a 30.3 percent minority interest in the restructured Korean entity, CNET Networks Korea Co., Ltd., and CNET exchanged its ownership interest in the original Korean entity and $1.5 million in cash for a 63.0 percent interest in the restructured Korean entity. Neither transaction is material to CNET's financial results. Eric Hippeau, Managing Partner of SOFTBANK Capital Partners, a venture fund and affiliate of SOFTBANK, is a member of CNET's Board of Directors and serves on the Compensation Committee.

On December 13, 2002, CNET repurchased a portion of its 5% Convertible Subordinated Notes having a principal amount of $30.9 million for a purchase price of $20.1 million from an entity affiliated with BlueRidge Investors Limited Partnership. On December 15, 2002, CNET repurchased a portion of its 5% Convertible Subordinated Notes having a principal amount of $8.0 million for a purchase price of $5.2 million from an entity affiliated with East Peak Partners. Both Blue Ridge Investors Limited Partnership and East Peak Partners are 5% holders of CNET's common stock. Blue Ridge Investors Limited Partnership owns 10,200,000 shares, and East Peak Partners owns 7,263,868 shares. CNET made both repurchases through a registered broker-deal and neither 5% holder is affiliated with CNET other than through their respective ownership of CNET's common stock.

In August 1999, Simon Property Group (SPG) filed a trademark infringement suit in federal district court in Indianapolis against mySimon, Inc. (mySimon), a subsidiary of CNET acquired on February 29, 2000. SPG alleged that the mySimon trademark infringed SPG's "Simon" trademark. On August 31, 2000, following a trial on the subject, the jury found in favor of SPG and awarded damages against mySimon in the amount of $11.5 million in compensatory damages, $5.3 million for corrective advertising, and $10.0 million in punitive damages. On September 25, 2000, the court entered an order establishing an escrow for royalties pending final resolution of the litigation where mySimon pays into escrow 2% of its gross cash receipts each month.

On January 24, 2001, the judge eliminated the $11.5 million compensatory damages award, reduced the $10.0 million punitive damages award to the statutory minimum of $50,000, and offered SPG the opportunity to accept ten dollars (a remittitur) for damages attributable to corrective advertising in exchange for immediate entry of judgment for the entire case in lieu of a re-trial on the subject of corrective advertising. On February 14, 2001, SPG filed its election to seek a re-trial on the issue of corrective advertising in lieu of the ten-dollar remittitur. The re-trial has been taken off calendar pending a ruling from the court on whether the re-trial should be dismissed. Under Indiana law, the amount of punitive damages is capped at the greater of three times compensatory damages or $50,000. Accordingly, it is not possible to determine the amount of punitive damages, if any, that may be payable until the issue of damages for corrective advertising has been resolved. It is not possible to predict the amount of damages attributable to corrective advertising that could be awarded in a re-trial, however, if the determination is adverse to us, the amounts could be material to our results of operations and financial condition. Accordingly, no provision for ultimate settlement of these issues has been included in the accompanying consolidated financial statements.

The judge's January 24, 2001 order also provided that if the jury's verdict of trademark infringement is upheld on appeal, mySimon will be required to change its name and domain name. The judge's January 24, 2001 order states that when final judgment is entered he will stay the name change pending the completion of the appeal process. If the jury's verdict of infringement is upheld on appeal, mySimon will have 60 days to change its name after the appellate court rules and will be entitled to redirect traffic from www.mysimon.com to its new website for one year following the name change. mySimon plans to appeal the finding of trademark infringement once judgment is entered in the lower court. In 2001, SPG appealed the judge's order to the 7^th Circuit, requesting that mySimon change its name and domain name immediately, and that mySimon be limited to thirty days to redirect users to a new website. The 7^th Circuit dismissed SPG's appeal on March 13, 2002.

On December 7, 2001, mySimon filed a motion for a dismissal of the case or, alternatively a new trial based on newly discovered evidence it believes SPG should have produced prior to the August 2000 trial. The parties have submitted briefs on this issue and are awaiting the judge's decision.

On October 17, 2000, we acquired Ziff-Davis, Inc. (Ziff-Davis), which was a defendant in the following cases:

In December 2000 and February 2001, two groups of former employees of Ziff-Davis filed similar lawsuits in the United States District Court for the District of Massachusetts under the titles Beach et al v. Softbank Corp and Drebin and Lane v. Softbank Corp. The lawsuits name as defendants Softbank Corp, Softbank Holdings and Ziff-Davis, Inc. The complaints allege (a) violations of Section 10(b) and Section 20 of the Securities Exchange Act, (b) violations of state laws against fraud and negligent misrepresentation and (c) breach of fiduciary duty in connection with the exchange of the plaintiffs' options to purchase Softbank shares for options to purchase shares of Ziff-Davis in 1999, prior to CNET's acquisition of ZDNet. The complaints do not specify an amount of damages. Defendants' motion to dismiss was denied by the court in the second quarter of 2002, and discovery is now underway. Softbank America has agreed to indemnify CNET against these claims to the extent not covered by insurance.

In July 2001, three former employees of ZDNet filed a complaint against ZD, Inc., ZDNet, Inc., CNET Networks, Inc. and Dan Rosensweig in the Superior Court of the State of California for the City and County of San Francisco under the caption Rapport et al v. ZD, Inc. The remaining claims alleged that the defendants engaged in fraud and negligent misrepresentation in not disclosing to plaintiffs that ZDNet was in negotiations with CNET regarding a potential merger. In the fourth quarter of 2002, the parties settled this case for an amount that is not material to CNET.

Two shareholder class action lawsuits were filed in the United States District Court for the Southern District of New York on August 16, 2001 and September 26, 2001, against Ziff- Davis, Eric Hippeau and Timothy O'Brien, and investment banks that were the underwriters of the public offering of ZDNet series of Ziff-Davis stock (the ZDNet Offering). One of the complaints also names CNET as a defendant, as successor in liability to Ziff-Davis. The complaints are similar and allege violations of the Securities Act of 1933, and one of the complaints also alleges violations of the Securities Exchange Act of 1934. The complaints allege the receipt of excessive and undisclosed commissions by the underwriters in connection with the allocation of shares of common stock to certain investors in the ZDNet Offering and agreements by those investors to make additional purchases of stock in the aftermarket at pre-determined prices. Plaintiffs allege that the Prospectus for the ZDNet Offering was false and misleading and in violation of the securities laws because it did not disclose the arrangements. The action seeks damages in an unspecified amount. The action is being coordinated with over 300 nearly identical actions filed against other companies. No date has been set for any responses to the complaints. On February 19, 2003, the Court granted CNET's motion to dismiss the Section 10(b) claim with leave to replead, and denied the motion to dismiss the Section 11 claim. The issuers and their insurers have been engaged in settlement discussions with the plaintiffs. We believe we are entitled to indemnification from the underwriters, however we have not received confirmation of coverage to date.

During 2002, CNET offered to make a cash payment to the owner of one of its leased properties in San Francisco in exchange for the termination of its lease. The landlord rejected the offer, and CNET subsequently ceased rent payments on the property. In December 2002, the landlord sued CNET in San Francisco Superior Court for the collection of past due rent amounts together with damages related to the early termination of the lease due to CNET's failure to pay rent when due. The landlord is requesting damages in an amount, which represents two months of unpaid rent plus interest together with future rent through the expiration of the lease, along with other unquantified damages. CNET has included in its lease abandonment accrual the estimated costs related to this property. Discovery on the case has just commenced.

There are no other legal proceedings to which we are a party, other than ordinary routine litigation incidental to our business that is not expected to be material to our business or financial condition.

                                                         QUARTER ENDED
                                             (000s, EXCEPT PER SHARE DATA)
                                        --------------------------------------------------
                                          March        June        September     December
                                           31           30            30            31
                                        ---------    ---------    -----------    ---------
2002
Net Revenues                           $  55,652    $  57,238    $    56,266    $  67,801
Amortization of intangibles               12,059       12,186          8,917        1,493
Operating loss(1)(2)                     (33,296)     (35,111)      (300,495)     (12,412)
Income (loss) before income taxes(3)(4)  (40,034)     (37,127)      (307,203)       3,486
Net income (loss)                        (31,050)     (25,818)      (307,203)       3,486
Basic and diluted net
  income (loss ) per share             $   (0.22)   $   (0.19)   $     (2.21)   $    0.03


2001(5)
Net Revenues                           $  75,152    $  71,089    $    69,316    $  70,248
Amortization of
  goodwill and intangibles               205,460      206,794        206,262       60,086
Operating loss(8)                       (227,466)    (231,807)    (1,330,557)(7)  (77,295)
Loss before income taxes                (341,632)(6) (235,412)    (1,401,485)     (79,966)
Net loss                                (316,575)    (218,123)    (1,373,633)     (81,157)
Basic and diluted  net loss per share  $   (2.33)   $   (1.60)   $     (9.93)   $   (0.59)

Not applicable.

Incorporated by reference from the Proxy Statement, which will be filed pursuant to Regulation 14A (the "Proxy Statement"), under the caption "Information regarding Executive Officers and Directors Section 16(a) Beneficial Ownership Reporting Compliance."

Incorporated by reference from the Proxy Statement, under the caption "Executive Compensation," but specifically excluding the information under the captions "-- Performance Graph" and "-- Compensation Committee's Report on Executive Compensation."

Incorporated by reference from the Proxy Statement under the caption "Stock Ownership of Principal Stockholders and Management" and "Equity Compensation Plan Information."

Incorporated by reference from the Proxy Statement under the caption "Certain Relationships and Related Transactions."

1. Evaluation of disclosure controls and procedures. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures", as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as of a date (the Evaluation Date) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.
2. Changes in internal controls. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

The following reports on Form 8-K were filed during the quarter ended December 31, 2002:

1. Current Report on Form 8-K dated October 14, 2002, Item 5 - "Other Items", which reported CNET's financial results for the three and nine months ended September 30, 2002.
2. Current Report on Form 8-K dated November 4, 2002, Item 7 - "Financial Statements and Exhibits" and Item 9 - "Regulation FD Disclosure", which included the Certifications for the Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 of CNET's Chief Executive Officer and CNET's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
3. Current Report on Form 8-K dated December 13, 2002, Item 5 - "Other Items", which reported CNET's repurchase of a portion of its 5% Convertible Subordinated Notes during the period from November 13, 2002 through December 13, 2002.

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.