CNET NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004

(1) BASIS OF FINANCIAL STATEMENTS

BUSINESS AND BASIS OF PRESENTATION

CNET Networks, Inc. (“CNET”) is a leading global interactive media company informing and connecting buyers, users and sellers of personal technology, games and entertainment, and business technology products.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. These condensed financial statements should be read in conjunction with the audited consolidated financial statements included in CNET’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, which contains additional financial and operating information and information concerning the significant accounting policies followed by CNET.

The condensed consolidated results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the current year or any other future period.

CONCENTRATION OF CREDIT RISK

Revenues from one customer, Google, Inc., approximated 10% of total revenues for both the three and nine months ended September 30, 2004. In the fourth quarter of 2003, CNET selected Google as its primary partner for paid search results, thereby consolidating paid search opportunities that were previously spread among several providers. Approximately 5% of CNET’s accounts receivable balance at September 30, 2004 is due from Google, Inc.

No revenues from any one customer exceeded 10% of total revenues for the three months ended September 30, 2003. Revenues from Gateway Inc. approximated 11% of total revenues for the nine months ended September 30, 2003. Approximately 66% of the revenues from Gateway, Inc. for the nine months ended September 30, 2003 were generated from custom publishing contracts.

BARTER

CNET trades advertising on its Internet sites in exchange for marketing services of other companies, referred to as “barter revenue”. These revenues and marketing expenses 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 on amounts charged for similar services in non-barter deals within the previous nine-month period. For both of the three and nine months ended September 30, 2004 and 2003, approximately $2.9 million and $8.8 million of our revenues were derived from barter transactions.

INCOME TAXES

Income tax expense has been recorded based on an estimated effective tax rate for the year ended December 31, 2004. 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 against the gross deferred tax assets. During 2003, CNET was refunded approximately $8.6 million of recoverable taxes.

IMPAIRMENT OF GOODWILL, LONG-LIVED AND OTHER ASSETS

Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever 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.

During the first quarter of 2004, CNET recorded a charge of $3.5 million in depreciation expense related to buildings and fixed assets in Switzerland, which were written down to their estimated fair value. The operations in Switzerland, which were the headquarters of our Channel operations, were transitioned into our U.S. Media operations in the second quarter of 2004. As part of the transition, CNET will no longer require the land and building owned in Switzerland and is attempting to sell them. The land and building with a fair value of $5.8 million have been reclassified to assets held for sale and are included in other current assets.

CNET has invested in equity instruments of privately held, information technology companies for business and strategic purposes. The carrying value of these investments is 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, any changes in the estimated fair value, including any 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’s evaluation of certain of its private investments during the second quarter of 2004 determined that an impairment should be recorded. Accordingly, during the nine months ended September 30, 2004, a charge of $1.8 million was recorded to impair two investments. At September 30, 2004, other assets included private investments with a carrying value of $10.3 million.

Under Statement of Financial Accounting Standard (SFAS) 142, “Goodwill and Other Intangible Assets,” goodwill is 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.

Goodwill of a reporting unit is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of its goodwill 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. CNET reviews goodwill for impairment on at least an annual basis. CNET has established August 31 as the valuation date on which this annual review takes place.

CNET performed its annual evaluation of goodwill and intangible assets impairment as of August 31, 2004. The evaluation was prepared based on CNET’s current and projected performance for the identified reporting units. Based on this evaluation, CNET determined that the carrying value of goodwill and other intangible assets for all its reporting units did not exceed their implied fair values. If events or changes in circumstances indicate that the assumptions used in the evaluation should be changed, CNET will re-evaluate the implied fair values of the reporting units.

STOCK-BASED COMPENSATION

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 exceeds the exercise price. The compensation expense is recorded over the vesting period of the grant.

As allowed under SFAS 123, “Accounting for Stock Based Compensation”, CNET applies APB Opinion No. 25 in accounting for 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 income (loss) and net income (loss) per share would have been adjusted to the pro forma amounts indicated below:

SFAS No. 123 does not apply to awards prior to 1995. The weighted-average fair value of options granted in the three and nine months ended September 30, 2004 was $8.97 and $9.14, respectively. The weighted-average fair value of options granted in the three and nine months ended September 30, 2003 was $4.54 and $2.92, 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: