Ziff Davis (ZD) 8-K/A Financial Statements and Exhibits

EXHIBIT 99.2

Ziff Davis, Inc.

and Subsidiary

Consolidated Financial Statements

(Unaudited)

At September 30, 2012 and for the nine months ended September 30, 2012 and 2011

Contents

Financial Statements:
Consolidated Balance Sheets	1
Consolidated Statements of Operations	2
Consolidated Statements of Cash Flows	3
Notes to Consolidated Financial Statements	4 - 14

Ziff Davis, Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2012 and December 31, 2011

	(Unaudited)		(Audited)
	September 30,		December 31,
	2012		2011
ASSETS
Current Assets:
Cash and cash equivalents	$	4,437,853	$	3,308,054
Restricted cash		—		348,825
Accounts receivable, net		12,383,455		13,656,306
Escrow receivable		—		1,008,280
Deferred tax asset, current		418,000		505,000
Prepaid expenses and other current assets		499,235		340,808
Total current assets		17,738,543		19,167,273
Property and Equipment, net		6,002,491		6,219,754
Intangible Assets, net		18,434,415		19,865,996
Goodwill		20,058,906		19,862,495
Deferred Tax Asset		527,000		119,000
Security Deposits		860,755		609,335
Total assets	$	63,622,110	$	65,843,853
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	2,359,478	$	2,525,437
Accrued expenses and other current liabilities		4,129,613		5,327,783
Income tax payable		452,868		658,000
Deferred revenue		639,925		1,158,745
Total current liabilities		7,581,884		9,669,965
Deferred Tax Liability		933,000		622,000
Commitments and Contingencies
Shareholders’ Equity:
Series A redeemable preferred stock, par value
$0.01 per share; 3,000 shares authorized and 2.057 issued and
outstanding at September 30, 2012 and December 31, 2011, respectively		21		21
Common stock, par value $0.0001 per share; 54,000,000
shares authorized and 52,700,964 issued and outstanding
at September 30, 2012 and December 31, 2011, respectively		5,270		5,270
Additional paid-in capital		54,169,736		54,152,889
Retained earnings		932,199		1,393,708
Total shareholders’ equity		55,107,226		55,551,888
Total liabilities and shareholders' equity	$	63,622,110	$	65,843,853

See Notes to Consolidated Financial Statements.

1

Ziff Davis, Inc. and Subsidiary

Consolidated Statements of Operations

Nine Months Ended September 30, 2012 and 2011

	(unaudited)			(unaudited)
	2012			2011
Revenue	$	32,153,007		$	18,913,423
Cost of Revenue		8,739,765			2,872,047
Gross margin		23,413,242			16,041,376
Operating Expenses:
Editorial and production		6,138,063			4,664,087
Sales and marketing		6,098,252			3,723,342
General and administrative		5,772,485			3,763,069
Restructuring charges		582,682			846,909
Research and development		806,081			957,241
Depreciation and amortization		4,378,188			1,475,412
Total operating expenses		23,775,751			15,430,060
(Loss) income from operations		(362,509	)		611,316
Provision (benefit) for Income Taxes		99,000			(99,000	)
Net (loss) income	$	(461,509	)	$	710,316

See Notes to Consolidated Financial Statements.

2

Ziff Davis, Inc. and Subsidiary

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2012 and 2011

	(unaudited)			(unaudited)
	2012			2011
Cash Flows From Operating Activities:
Net (loss) income	$	(461,509	)	$	710,316
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		4,378,188			1,475,412
Bad debt		70,116			(241,152	)
Stock-based compensation		16,847			—
Deferred taxes		(10,000	)		199,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		1,444,174			(2,498,450	)
Decrease (ncrease) in escrow receivable		1,008,280			(1,008,280	)
Increase in prepaid expenses and other current assets		(158,427	)		(558,163	)
Decrease in security deposits		97,405			146,542
Decrease in accounts payable		(362,501	)		(1,818,360	)
(Decrease) increase in accrued expenses and other current liabilities		(1,198,170	)		2,487,096
Decrease in income taxes payable		(205,132	)		72,000
Decrease in deferred revenue		(518,820	)		(300,695	)
Net cash provided by (used in) operating activities		4,100,451			(1,334,734	)
Cash Flows From Investing Activities:
Purchase of property and equipment		(2,213,255	)		(487,222	)
Acquisitions, net of cash acquired (Note 3)		(757,397	)		(18,565,088	)
Cash used in investing activities		(2,970,652	)		(19,052,310	)
Cash Flows From Financing Activities:
Proceeds from issuance of preferred and common stock		—			20,728,383
Repurchase of common stock		—			(613	)
Repayment of note receivable arising from issuance of common stock		—			14,457
Net cash provided by financing activities		—			20,742,227
Net increase in cash and cash equivalents		1,129,799			355,183
Cash and Cash Equivalents:
Beginning		3,308,054			4,032,641
Ending	$	4,437,853		$	4,387,824
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	405,000		$	—

See Notes to Consolidated Financial Statements.

3

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 1.                 Organization

Ziff Davis, Inc. is a leading digital media company specializing in the technology market, reaching in-market buyers and influencers in both the consumer and business-to-business space every month. Ziff Davis sites, which feature trusted and comprehensive evaluations of the newest and hottest products, include PCMag.com, ExtremeTech.com, Geek.com, Toolbox.com and Computershopper.com. Ziff Davis B2B Focus, Inc. (“Ziff Davis B2B”) is a leading provider of online research to enterprise buyers and of high-quality leads to IT vendors. Ziff Davis also operates BuyerBase™, an advanced ad targeting platform focused on tech buyers, and LogicBuy.com, a leading provider of deals and discounts on tech products.

Note 2.                 Summary of Significant Accounting Policies

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Ziff Davis, Inc. and its wholly owned subsidiary, Ziff Davis B2B (collectively, the “Company”). All significant intercompany account balances and transactions have been eliminated.

Basis of Presentation: The consolidated financial statements of the Company have been prepared on the accrual basis of accounting. References to the unaudited nine months ended September 30, 2012 and 2011 herein are for the periods from January 1 to September 30, 2012 and 2011, respectively. A summary of the major accounting policies followed in the preparation of the accompanying financial statements, which conform to accounting principles generally accepted in the United States of America, is presented below.

Revenue Recognition: The Company generates revenue from a variety of types of business arrangements:

·   A significant portion of the Company’s revenue is generated from the sale of advertising campaigns that are targeted to its proprietary websites. Revenue for these advertising campaigns is recognized as earned either when an ad is placed for viewing by a visitor to the appropriate web page or when the customer "clicks through" on the ad, depending upon the terms with the individual advertiser.

·   Another significant source of revenue for the Company is through the generation of business leads for IT vendors through the Company’s business-to-business operations. Revenue for these lead-generation campaigns is recognized as earned when the Company delivers the qualified leads to the customer.

·   Additional revenue is generated by the Company through the license of certain assets to clients, for the clients’ use in their own promotional materials or otherwise. Such assets may include logos, editorial reviews, or other copyrighted material of the Company. Revenue under such license agreements is recognized when the assets are delivered to the client.

·   The Company also generates other types of revenue, including business listing fees, subscriptions to online publications, and from other sources.

For each type of revenue, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility of the resulting receivable is reasonably assured.

Cash and Cash Equivalents: The Company considers all short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company deposits its temporary cash with financial institutions and, at times, such balances may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.

Fair Value of Financial Instruments: Fair value of cash and cash equivalents, accounts receivable and accounts payable is estimated to approximate carrying values due to the short maturities of these financial instruments.

4

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 2.                 Summary of Significant Accounting Policies (Continued)

Allowance for Doubtful Accounts: The allowance for doubtful accounts is established through a provision for bad debt charged to expense. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on an evaluation of the collectibility of accounts receivable, overall accounts receivable quality, review of specific accounts receivable, and current economic conditions that may affect customers’ ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. Receivables are written off and charged against the allowance when management believes that collectibility is unlikely and the potential for recovery is considered remote. Recoveries of receivables previously written off are recorded when received.

Customer Concentrations: One customer represented approximately 10% and 14% of total accounts receivable at September 30, 2012 and 2011, respectively. One customer accounted for approximately 10% of revenue for each of the periods ended September 30, 2012 and 2011.

Property and Equipment: Property and equipment is stated at cost. Property and equipment acquired through acquisitions of businesses is initially recorded at fair value. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets (three to five years). The costs of maintenance and repairs that do not extend the useful lives of the assets are charged to operating expenses as incurred.

Internal Use Software and Website Development Costs: The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to internal use software. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized internal use software and website development costs are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss will be recognized if the carrying amount of the asset is not recoverable and exceeds its fair value. Amortization is calculated on the straight-line method over the estimated useful lives of the assets (generally three years). The Company capitalized internal use software and website development costs of approximately $1,675,000 and $607,000 in the nine months ended September 30, 2012 and 2011, respectively.

Intangible Assets Subject to Amortization: Intangible assets consist of certain trademarks, licensing agreements and domain names, which will be amortized over the estimated useful life of each, typically five years for licensing agreements and domain names and thirty years for trademarks. The Company reviews these assets for possible impairment whenever circumstances indicate the carrying value of the assets may not be recoverable. A loss is recognized in the consolidated statements of operations if it is determined that an impairment exists based on expected future undiscounted cash flows. The amount of the impairment is the excess of the carrying amount of the impaired asset over its fair value. There were no impairments and no impairment loss was recorded during the nine months ended September 30, 2012 and 2011.

Goodwill: The Company’s goodwill was recorded as the result of the Company’s inception (June 4, 2010) and subsequent business combinations. The Company has recorded these business combinations using the purchase method of accounting. The Company tests its recorded goodwill for impairment on an annual basis at December 31, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger an interim impairment test include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overallbusiness, and significant negative industry or economic trends. During the nine months ended September 30, 2012 and 2011, the Company determined that no impairment of goodwill existed because the estimated fair value of its reporting unit exceeded its carrying amount.

5

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 2.                 Summary of Significant Accounting Policies (Continued)

Advertising and Marketing: The Company expenses the costs of advertising and marketing as incurred. Advertising and marketing expense for the nine months ended September 30, 2012 and 2011 was approximately $326,000 and $483,000, respectively, and is included in sales and marketing expenses in the consolidated statements of operations.

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

Income Taxes: An asset and liability approach is used for financial accounting and reporting of deferred income taxes. Deferred income tax assets and liabilities are computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company adheres to the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Company recognizes interest and penalties, if any, in its provision for income taxes. Management evaluated the Company's tax position and concluded that the Company had taken no uncertain tax positions that require adjustments to the financial statements in order to comply with the provisions of this guidance. The tax years 2010, 2011 and 2012 are open and subject to audit by federal and state jurisdictions.

Stock-Based Compensation: Stock-based compensation represents the cost related to stock-based awards granted to employees in lieu of monetary payment. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognizes the cost as expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The expense is recorded in the consolidated statements of operations. The Company’s stock option plan is described in Note 10.

Recently Issued Accounting Pronouncement: In September 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount (“qualitative assessment”). In certain cases, this will allow an entity to forego the existing two-step goodwill impairment test. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

6

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 3.                 Acquisitions

Focus: On August 23, 2011, the Company acquired 100% of the equity of Focus Research, Inc. (“Focus”) through a wholly owned subsidiary, Ziff Davis B2B, for an aggregate purchase price of $19,655,363, net of a working capital adjustment of $290,533. The purchase consideration was cash paid at closing. Additionally, the Company’s escrow of $1,008,280 was returned as a result of the discovery of undisclosed liabilities that existed as of the transaction date. As of September 30, 2011, $1,008,280 was recorded as escrow receivable on the consolidated balance sheet. The amount was refunded to the Company in 2012. Ziff Davis B2B provides targeted enterprise-level leads to IT vendors through content syndication, phone-qualified leads and webinars.

The following table summarizes the estimated fair value of the assets acquired at the date of the acquisition:

Cash acquired	$	1,090,265
Working capital assets acquired, less cash		4,091,686
Property and equipment		676,065
Deferred tax asset		370,000
Intangible assets		11,200,000
Goodwill		4,959,620
Working capital liabilities assumed		(2,612,182	)
Deferred revenue		(120,101	)
	$	19,655,353

The intangible assets are comprised primarily of customer relationships and a member database as well as other intangibles; these intangible assets will be amortized using the straight-line method over their respective estimated lives, which range from one to ten years.

Toolbox: On December 31, 2011, the Company purchased substantially all the assets and assumed certain liabilities of Toolbox.com, LLC (“Toolbox”) for an aggregate purchase price of $2,115,591 in cash consideration. Toolbox operates toolbox.com, a leading website for IT professionals.

As a result of the acquisition of Toolbox on December 31, 2011, the Company agreed to continue to employ certain employees of Toolbox on a short-term basis during the beginning of 2012. The Company recorded an estimated severance liability associated with the termination of these employees on the date of the transaction of $682,000 which is included as a liability in the accounting for this business combination.

The following table summarizes the estimated fair value of the assets acquired at the date of the acquisition:

Working capital assets acquired	$	1,027,467
Property and equipment		101,359
Capitalized software		2,647,501
Goodwill		36,659
Working capital liabilities assumed		(1,015,395	)
Severance liability		(682,000	)
	$	2,115,591

The intangible assets are comprised primarily of proprietary, internally-developed software which has an estimated life of three years and will be amortized using the straight-line method.

7

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 3.                 Acquisitions (Continued)

Computer Shopper: On May 11, 2012, the Company purchased substantially all the assets and assumed certain liabilities of SX2 Media, LLC (“SX2”) for an aggregate purchase price of $757,397 in cash consideration. SX2 operates computershopper.com, a leading website for technology enthusiasts.

The following table summarizes the estimated fair value of the assets acquired at the date of the acquisition:

Net working capital assets acquired	$	44,897
Property and equipment		10,000
Intangible assets		506,089
Goodwill		196,411
	$	757,397

The intangible assets are comprised primarily of certain domain names that have a five year life and will be amortized using the straight line method.

Note 4.                 Accounts Receivable

Accounts receivable consist of the following as of September 30, 2012 and December 31, 2011:

	September			December
	2012			2011
Accounts receivable	$	12,664,230		$	14,007,197
Less allowance for doubtful accounts		(280,775	)		(350,891	)
	$	12,383,455		$	13,656,306

Note 5.                 Property and Equipment and Capitalized Development Costs

Property and equipment consists of the following as of September 30, 2012 and December 31, 2011:

	September			December
	2012			2011
Computer hardware and software, furniture and equipment	$	1,353,598		$	876,911
Capitalized internal use software costs		8,953,211			7,278,468
Leasehold improvements		117,546			84,217
		10,424,355			8,239,596
Less accumulated depreciation and amortization		(4,421,864	)		(2,019,842	)
Total property and equipment	$	6,002,491		$	6,219,754

Depreciation and amortization expense was $2,402,023 and $971,587 for the nine months ended September 30, 2012 and 2011, respectively.

8

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 6.                 Intangible Assets

As a result of various acquisitions, the Company obtained certain trademarks, licensing agreements and domain names. These assets are included in intangible assets and are being amortized over an estimated useful life of 30 years for the trade names and 5 to 15 years for the remaining intangibles.

Intangible assets consist of the following as of September 30, 2012 and December 31, 2011:

	September			December
	2012			2011
Intangible assets	$	21,713,424		$	21,168,839
Less accumulated amortization		(3,279,009	)		(1,302,843	)
	$	18,434,415		$	19,865,996

Amortization expense was $1,976,165 and $503,431 for the nine months ended September 30, 2012 and 2011, respectively. Future amortization expense for the Company is expected to be as follows:

Year ending December 31,
2012 (October - December)	$	640,836
2013		2,563,455
2014		2,517,325
2015		2,069,745
2016		1,396,385
2017		1,309,693
Thereafter		7,936,976
	$	18,434,415

Note 7.                 Income Taxes

The provision for income taxes for the nine months ended September 30, 2012 and 2011 consists of the following:

	2012			2011
Current:
Federal	$	23,000		$	—
State and local		86,000			72,000
		109,000			72,000
Deferred:
Federal		16,000			(138,000	)
State and local		(26,000	)		(33,000	)
		(10,000	)		(171,000	)
Income tax expense (benefit)	$	99,000		$	(99,000	)

9

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 7.                 Income Taxes (Continued)

Net deferred tax liabilities consist of the following components as of September 30, 2012 and December 31, 2011:

	September			December
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	6,373,000		$	6,593,000
Accrued expenses		418,000			505,000
Deferred tax liabilities:
Intangible assets		(2,512,000	)		(2,953,000	)
Property and equipment		(104,000	)		(291,000	)
Goodwill		(933,000	)		(622,000	)
Net deferred tax asset pre-valuation allowance		3,242,000			3,232,000
Less valuation allowance		(3,230,000	)		(3,230,000	)
Total net deferred tax asset	$	12,000		$	2,000

The Company has established a valuation allowance of $3,230,000 against future net operating loss carryforwards acquired in a previous acquisition. The timing and extent to which the Company can utilize future tax deductions in any year are limited by provisions of the Internal Revenue Code regarding changes in ownership of the corporation. At September 30, 2012, the Company has recorded a deferred tax liability of $933,000 related to the book/tax basis difference of goodwill.

At December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $16,128,000 that begin to expire in 2031 and net operating loss carryforwards for state and local income tax purposes of approximately $16,491,000 that begin to expire in 2031.

Note 8.                 Commitments and Contingencies

The Company operates its business in leased facilities in New York, NY, San Francisco, CA and Scottsdale, AZ under noncancelable operating leases that expire in December 2015, September 2013 and December 2014, respectively. Future minimum lease payments under the Company’s noncancelable operating leases as of September 30, 2012 are:

Year ending December 31,
2012 (October - December)	$	490,528
2013		1,572,654
2014		1,026,156
2015		1,029,305
2016		157,475
2017		13,385
	$	4,289,503

Rent expense was $1,545,778 and $911,211 for the nine months ended September 30, 2012 and 2011, respectively.

10

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 9.                 Shareholders’ Equity

Common Stock: The Company is authorized to issue 54,000,000 shares of common stock at a par value of $0.0001 per share, of which 52,700,964 shares were issued and outstanding at September 30, 2012 and 2011. In August 2011, the Company approved a 10,000-for-1 split of its common stock. All references to common stock have been retroactively adjusted to reflect this stock split.

Preferred Stock: The Company is authorized to issue 3,000 shares of Preferred Stock at a par value of $0.01 per share. During the nine months ended September 30, 2011, the Company issued 790 shares of Preferred Stock and 12,238,304 shares of common stock in exchange for net cash proceeds of approximately $21,000,000. As of September 30, 2012, 2,057 shares are issued and outstanding. The Preferred Stock has the following significant characteristics:

Dividends: Preferred Stock holders are entitled to receive dividends, when, as and if declared by the board of directors and out of funds legally available. Preferred Stock holders shall receive cumulative dividends at a rate of 6% per annum compounded annually.

Through September 30, 2012, no dividends have been declared or paid by the Company. As of September 30, 2012, cumulative dividends in arrears for Preferred Stock are approximately $5,927,000.

Liquidation Preference: In the event of any liquidation, dissolution or winding up of the affairs of the Company, as defined (a “Liquidation Event”), the holders of Preferred Stock shall receive an amount per share equal to $26,133.05, plus any accrued and unpaid dividends, before any amount shall be paid or distributed to the holders of common stock (the “Liquidation Value”).

Redemption: The Preferred Stock is subject to redemption by the shareholders at any time on or after June 4, 2017 (the “Redemption Date”). Subject to certain limitations, such redemption can be required upon written election of the holders of a majority of the outstanding shares of Preferred Stock at any time after the Redemption Date or upon the closing of the Company’s initial public offering, as defined, and shall be on a pro rata basis among the shares of Preferred Stock. The redemption amount for the Preferred Stock shall be equal to the Liquidation Value, which is $59,681,670 at September 30, 2012.

11

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 10.               Stock-Based Compensation

On June 4, 2010, the Company established the 2010 Stock Option and Grant Plan (the "Plan") that provides for the grant to officers, employees, directors or other key individuals of qualified or nonqualified stock options to purchase shares of the Company's common stock, restricted or unrestricted stock awards, or restricted stock units. As discussed in Note 2, the compensation costs for such awards are accounted for inaccordance with FASB Accounting Standards Codification (“ASC”) 718. Stock-based compensation cost is measured at the date of grant, based on the estimated fair value of the award using the Black-Scholes valuation model, and is recognized on a straight-line basis as expense over the requisite service period in the consolidated statements of operations.

During the nine months ended September 30, 2012, the Company issued options to purchase up to 80,000 shares of common stock to various employees. The exercise price for these options was deemed to be equal to the fair market value of the stock at the time of grant. There were no awards issued our outstanding as of September 30, 2011. The Company calculated the fair values of the options granted using the following weighted-average assumptions:

Expected volatility	50%
Expected term	6.0 years
Risk-free interest rate	0.69% - 0.90%
Expected dividend yield	0.0%
Weighted-average grant date fair value per share	$0.51

Since there is no public market for the Company’s common stock, the Company determined the volatility of the Company’s common stock utilizing a peer group of companies for a period equal to the expected life of the options. The expected life of the options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. The expected dividend yield is assumed to be zero, as the Company has not paid and does not anticipate paying cash dividends. The Company has estimated an annual forfeiture rate of 20%. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest.

12

Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 10.               Stock-Based Compensation (Continued)

A summary of the stock option activity under the Company’s stock option plan for the nine months ended September 30, 2012 is presented below:

	Options Outstanding			Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Terms in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2011		240,000		$	1.08		9.0	$	—
Granted		80,000			1.08		9.7		40,900
Exercised		—			—		—		—
Forfeited		(50,000	)		—		—		—
Cancelled		(10,000	)		—		—		—
Options outstanding at September 30, 2012		260,000		$	—		9.2	$	—
Options exercisable at September 30, 2012		—		$	—		—	$	—

In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

Note 11.               Fair Value of Financial Measurements

The Fair Value Measurements Topic of the FASB ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined under this guidance as assumptions market participants would use in pricing an asset or liability.

This guidance establishes three levels of the fair value hierarchy as follows:

Level 1:          Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The types of investments in Level 1 include available-for-sale securities traded on a national securities exchange. These securities are stated at the last reported sales price on the day of valuation.

Level 2:          Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, and fair value that is determined through the use of models or other valuation methodologies. Investments in this category generally include less liquid and restricted equity securities, certificates of deposit and certain over-the-counter derivatives. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement. The Company has no Level 2 investments.

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Ziff Davis, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 11.               Fair Value of Financial Measurements (Continued)

Level 3:          Inputs that are unobservable for the asset or liability and that include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation. Investments in this category generally include equity and debt positions in private companies. The Company has no Level 3 investments.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Company’s Level 1 investments consist of approximately $861,000 and $348,000 in certificates of deposit as of September 30, 2012 and 2011, respectively; all such amounts are included in security deposits on the consolidated balance sheets.

Note 12.                 Related Party Transactions

In each of the periods ended September 30, 2012 and 2011, the Company paid management fees of approximately $188,000 to its lead investor. These fees are included in general and administrative costs in the accompanying consolidated statements of operations.

Note 13.                 Subsequent Events

The Company has evaluated subsequent events through January 23, 2013, the date on which the consolidated financial statements were available to be issued.

In November 2012, the shareholders of the Company sold substantially all of the equity of the Company to j2 Global, Inc.

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