Edgar Filing: THEGLOBE COM INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO ______________

COMMISSION FILE NO. 0-25053

THEGLOBE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

STATE OF DELAWARE 14-1782422
---------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

110 EAST BROWARD BOULEVARD, SUITE 1400
FORT LAUDERDALE, FL. 33301
-------------------------------------------- --------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(954) 769 - 5900
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value (the "Common Stock"), as of May 5, 2004 was 132,192,849.

FORM 10-QSB

INDEX

PART I FINANCIAL INFORMATION

Page
----

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at March 31, 2004
(unaudited) and December 31, 2003 1

Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2004 and 2003 2

Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2004 and 2003 3

Notes to Unaudited Condensed Consolidated Financial Statements 4

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations or Plan of Operation 12

Item 3. Controls and Procedures 29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 30

Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities 30

Item 3. Defaults Upon Senior Securities 31

Item 4. Submission of Matters to a Vote of Security Holders 31

Item 5. Other Information 31

Item 6. Exhibits and Reports on Form 8-K 32

A. Exhibits B. Reports on Form 8-K

Signatures 33

PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

theglobe.com, inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, DECEMBER 31,
2004 2003
------------- -------------
(UNAUDITED)
ASSETS

Current assets:
Cash and cash equivalents ....................................... $ 26,416,501 $ 1,061,702
Marketable securities............................................ 42,864 267,970
Accounts receivable, net ........................................ 760,956 958,487
Inventory, net .................................................. 1,354,884 770,314
Prepaid and other current assets ................................ 1,282,425 1,397,962
------------- -------------
Total current assets ......................................... 29,857,630 4,456,435

Intangible assets ............................................... 206,402 199,020
Property and equipment, net ..................................... 2,496,778 2,416,383
Other assets .................................................... 92,445 100,240
------------- -------------

Total assets ................................................. $ 32,653,255 $ 7,172,078
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable ................................................ $ 1,244,662 $ 1,935,142
Accrued expenses and other current liabilities .................. 1,271,686 840,376
Deferred revenue ................................................ 229,259 176,591
Current portion of long-term debt and notes payable.............. 121,516 121,919
------------- -------------
Total current liabilities .................................... 2,867,123 3,074,028

Long-term debt ....................................................... 153,233 1,792,568
Other long-term liabilities .......................................... 111,098 124,943
------------- -------------

Total liabilities ............................................ 3,131,454 4,991,539
------------- -------------

Stockholders' equity:
Preferred stock, at liquidation value ........................... -- 500,000
Common stock .................................................... 132,690 50,246
Additional paid-in capital ...................................... 270,723,940 238,301,862
Common stock, 699,281 common shares, held in treasury, at cost .. (371,458) (371,458)
Accumulated other comprehensive income........................... -- 1,562
Accumulated deficit ............................................. (240,963,371) (236,301,673)
------------- -------------
Total stockholders' equity ................................... 29,521,801 2,180,539
------------- -------------
Total liabilities and stockholders' equity ................... $ 32,653,255 $ 7,172,078
============= =============

See accompanying notes to unaudited condensed consolidated financial statements.

theglobe.com, inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED
MARCH 31,
---------------------------------
2004 2003
-------------- -------------
UNAUDITED
---------------------------------

Net revenue:
Advertising ......................................... $ 381,386 $ 546,869
Magazine sales....................................... 393,739 692,952
Electronic commerce and other ....................... 242,774 418,529
Telephony services................................... 99,548 --
------------ ------------
Total net revenue .............................. 1,117,447 1,658,350

Operating expenses:
Cost of products and publications sold............... 630,940 847,238
Data communications, telecom and network operations.. 692,187 --
Sales and marketing ................................. 1,091,881 567,643
Product development ................................. 178,453 153,711
General and administrative .......................... 2,065,945 610,358
Depreciation......................................... 216,000 22,825
Amortization of intangibles.......................... 20,111 --
------------ ------------
Total operating expenses ................................ 4,895,517 2,201,775
------------ ------------
Loss from operations .................................... (3,778,070) (543,425)
------------ ------------

Other expense:
Interest expense, net ............................... (793,829) (3,322)
Other expense, net .................................. (89,799) (135,000)
------------ ------------
Other expense, net ...................................... (883,628) (138,322)
------------ ------------
Loss before income tax benefit .......................... (4,661,698) (681,747)
Income tax benefit ...................................... -- --
------------ ------------
Net loss ................................................ $ (4,661,698) $ (681,747)
============ ============
Basic and diluted net loss per common share ............. $ (0.07) $ (0.04)
============ ============
Weighted average basic and diluted shares outstanding.... 70,986,256 30,382,293
============ ============

See accompanying notes to unaudited condensed consolidated financial statements.

theglobe.com, inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,
-----------------------------
2004 2003
----------- -----------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... $(4,661,698) $ (681,747)
Adjustments to reconcile net loss to net cash and cash equivalents used in
operating activities:
Depreciation and amortization ................................................... 236,111 22,825
Provisions for uncollectible accounts receivable................................. 20,000 5,203
Provisions for excess and obsolete inventory..................................... (4,485) --
Non-cash interest expense ....................................................... 785,886 --
Reserve against amounts loaned to Internet venture .............................. 110,000 135,000
Contributed officer compensation ................................................ -- 50,000
Employee stock compensation...................................................... 150,533 --
Compensation related to non-employee stock options .............................. 294,796 --
Other, net....................................................................... 5,262 --

Changes in operating assets and liabilities, net of acquisition and
dispositions:
Inventory, net .................................................................. (580,085) 279
Accounts receivable, net ........................................................ 177,531 325,816
Prepaid and other current assets ................................................ 115,537 53,044
Accounts payable ................................................................ (690,480) (865,066)
Accrued expenses and other current liabilities .................................. 375,335 711,377
Deferred revenue ................................................................ 52,668 (1,920)
Other long-term liabilities...................................................... (14,840) --
----------- -----------

Net cash and cash equivalents used in operating activities .......................... (3,627,929) (245,189)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities, net ............................................. 225,070 --
Amounts loaned to Internet venture .............................................. (110,000) (135,000)
Purchases of property and equipment ............................................. (288,601) (20,664)
Patent costs incurred............................................................ (25,252) --
Other, net....................................................................... (3,500) --
----------- -----------

Net cash and cash equivalents used in investing activities .......................... (202,283) (155,664)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable ...................................................... 2,000,000 --
Proceeds from issuance of common stock, net...................................... 27,055,281 --
Proceeds from issuance of preferred stock, net................................... -- 500,000
Proceeds from exercise of common stock options .................................. 139,545 --
Payments on long-term debt, notes payable and capital lease obligations ......... (9,815) (32,381)
----------- -----------

Net cash and cash equivalents provided by financing activities ...................... 29,185,011 467,619
----------- -----------
Net change in cash and cash equivalents ....................................... 25,354,799 66,766

Cash and cash equivalents at beginning of period .................................... 1,061,702 725,422
----------- -----------
Cash and cash equivalents at end of period .......................................... $26,416,501 $ 792,188
=========== ===========

See accompanying notes to unaudited condensed consolidated financial statements.

THEGLOBE.COM, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of theglobe.com

theglobe.com, inc. (the "Company" or "theglobe") was incorporated on May 1, 1995
(inception) and commenced operations on that date. Originally, theglobe.com was
an online community with registered members and users in the United States and
abroad. That product gave users the freedom to personalize their online
experience by publishing their own content and by interacting with others having
similar interests. However, due to the deterioration of the online advertising
market, the Company was forced to restructure and ceased the operations of its
online community on August 15, 2001. The Company then sold most of its remaining
online and offline properties. On June 1, 2002, Chairman Michael S. Egan and
Director Edward A. Cespedes became Chief Executive Officer and President of the
Company, respectively.

The Company continues to operate its Computer Games print magazine and the
associated website Computer Games Online (www.cgonline.com), as well as the
games distribution business of Chips & Bits, Inc. (www.chipsbits.com). The
Company continues to actively explore a number of strategic alternatives for its
remaining online and offline game properties, including continuing its
operations and using its cash on hand, selling some or all of these properties
and/or entering into new or different lines of business.

On November 14, 2002, the Company acquired certain Voice over Internet Protocol
("VoIP") assets and is now aggressively pursuing opportunities related to this
acquisition under the brand name, "voiceglo". In exchange for the assets, the
Company issued warrants to acquire 1,750,000 shares of its Common Stock and an
additional 425,000 warrants as part of an earn-out structure upon the attainment
of certain performance targets. The earn-out performance targets were not
achieved and the 425,000 earn-out warrants expired on December 31, 2003.

On May 28, 2003, the Company acquired Direct Partner Telecom, Inc. ("DPT"), a
company engaged in VoIP telephony services in exchange for 1,375,000 shares of
the Company's Common Stock and the issuance of warrants to acquire 500,000
shares of the Company's Common Stock. The transaction included an earn-out
arrangement whereby the former shareholders of DPT may earn additional warrants
to acquire up to 2,750,000 shares of the Company's Common Stock at an exercise
price of $0.72 per share upon the attainment of certain performance targets by
DPT, or upon a change in control as defined, over approximately a three year
period following the date of acquisition. Effective March 31, 2004, 500,000 of
the earn-out warrants were forfeited as performance targets had not been
achieved for the first of the three year periods.

The Company acquired all of the physical assets and intellectual property of DPT
and originally planned to continue to operate the company as a subsidiary and
engage in the provision of VoIP services to other telephony businesses on a
wholesale transactional basis. In the first quarter of 2004, the Company decided
to suspend DPT's wholesale business and dedicate the DPT physical and
intellectual assets to its retail VoIP business, which is conducted under the
name "voiceglo". As a result, the Company wrote off the goodwill associated with
the purchase of DPT as of December 31, 2003, and intends to employ DPT's
physical assets in the build out of the VoIP network.

As of March 31, 2004, the Company's revenue sources were principally from the
sale of print advertising in its Computer Games magazine; the sale of its
Computer Games magazine through newsstands and subscriptions; and the sale of
video games and related products through Chips & Bits, Inc., its games
distribution business. Given their recent launch, the Company's voiceglo VoIP
products and services have yet to produce any significant revenue. Management's
intent, going forward, is to devote substantial monetary, management and human
resources to the Company's "voiceglo" VoIP business.

During the three months ended March 31, 2004, the Company issued debt and equity
securities for net proceeds of $29,055,281. As further discussed in Note 3, the
Company accounted for the issuance of the debt securities in accordance with
EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios," which resulted in the
recognition of interest expense of $687,000 at the respective date of the
securities issuance.

(b) Principles of Consolidation

The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries from their respective dates of
acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation.

The unaudited interim condensed consolidated financial statements of the Company
as of March 31, 2004 and for the three months ended March 31, 2004 and 2003
included herein have been prepared in accordance with the instructions for Form
10-QSB under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and note disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations relating to interim
condensed consolidated financial statements.

In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company at March 31, 2004 and the results of its operations for the three
months ended March 31, 2004 and 2003 and its cash flows for the three months
ended March 31, 2004 and 2003.

The results of operations for such periods are not necessarily indicative of
results expected for the full year or for any future period. These financial
statements should be read in conjunction with the audited financial statements
as of December 31, 2003, and for the two years then ended and related notes
included in the Company's Form 10-KSB filed with the Securities and Exchange
Commission.

(d) Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. These
estimates and assumptions relate to estimates of collectibility of accounts
receivable, the valuation of inventory, accruals and other factors. Actual
results could differ from those estimates.

(e) Cash and Cash Equivalents

Cash equivalents consist of money market funds and highly liquid short-term
investments with qualified financial institutions. The Company considers all
highly liquid securities with original maturities of three months or less to be
cash equivalents.

(f) Marketable Securities

The Company accounts for its investment in debt and equity securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." All such
investments are classified as available-for-sale as of March 31, 2004.
Available-for-sale securities are stated at market value, which approximates
fair value, and unrealized holding gains and losses are excluded from earnings
and included as a component of stockholders' equity until realized.

The following is a summary of available-for-sale securities:

March 31, 2004 December 31, 2003
------------------------- ---------------------------
Cost Fair Value Cost Fair Value
------------ ------------ ------------ ------------

Preferred Securities............... $ -- $ -- $ 225,000 $ 225,000
U.S. Treasury Bills................ 42,848 42,864 41,408 42,970
------------ ------------ ------------ ------------

Total........................ $ 42,848 $ 42,864 $ 266,408 $ 267,970
============ ============ ============ ============

During the three months ended March 31, 2004 and 2003, the Company had no
significant gross realized gains or losses on sales of available-for-sale
securities.

(g) Comprehensive Loss

The Company reports comprehensive income (loss) in accordance with SFAS No. 130,
"Reporting Comprehensive Income". Comprehensive loss is comprised of two
components: net loss and other comprehensive income or loss. Other comprehensive
income or loss includes items such as unrealized gains or losses on marketable
securities, etc. The Company had no other comprehensive income or loss in the
first quarter of 2004 and 2003, respectively.

(h) Inventory

Inventories, consisting primarily of products available for sale, are recorded
on a first in, first out basis and valued at the lower of cost or market value.
The Company's reserve for excess and obsolete inventory as of March 31, 2004 and
December 31, 2003 was approximately $102,000 and $109,000, respectively.

(i) Revenue Recognition

The Company's revenues were derived principally from the sale of print
advertisements under short-term contracts in our games information magazine
Computer Games; the sale of our games information magazine through newsstands
and subscriptions; the sale of video games and related products through our
games distribution business Chips & Bits, Inc.; and from the sale of VoIP
telephony services over the Internet.

Advertising revenues from the sale of print advertisements under short-term
contracts in the games information magazine are recognized at the on-sale date
of the magazine.

Newsstand sales of the games information magazine are recognized at the on-sale
date of the magazine, net of provisions for estimated returns. Subscriptions are
recorded as deferred revenue when initially received and recognized as income
ratably over the subscription term.

Sales of video games and related products from the online store are recognized
as revenue when the product is shipped to the customer. Amounts billed to
customers for shipping and handling charges are included in net revenue. The
Company provides an allowance for returns of merchandise sold through its online
store. The allowance for returns provided to date has not been significant.

VoIP telephony services revenue represents fees charged to customers for voice
services and is recognized based on minutes of customer usage or as services are
provided. The Company records payments received in advance for prepaid services
as deferred revenue until the related services are provided. Sales of peripheral
VoIP telephony equipment are recognized as revenue when the product is shipped
to the customer. Amounts billed to customers for shipping and handling charges
are included in net revenue.

(j) Concentration of Credit Risk

Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, marketable securities and
trade accounts receivable. The Company maintains its cash and cash equivalents
with various financial institutions and invests its funds among a diverse group
of issuers and instruments. The Company performs ongoing credit evaluations of
its customers' financial condition and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends and other information. Concentration of credit risk is limited due to the
Company's large number of customers.

For the three months ended March 31, 2004, there were no customers that
accounted for over 10% of consolidated net revenue.

(k) Net loss per share

Basic and diluted net loss per common share were computed by dividing net loss
applicable to common stockholders by the weighted average number of shares of
common stock outstanding for each period presented. Due to the Company's net
losses, the effect of potentially dilutive securities or common stock
equivalents that could be issued was excluded from the diluted net loss per
common share calculation due to the anti-dilutive effect. Such potentially
dilutive securities and common stock equivalents consisted of the following for
the periods ended March 31:

2004 2003
---------- ----------
Options to purchase common stock ............. 9,924,000 5,970,000
Common shares issuable upon conversion of
Series F Preferred Stock ................. -- 16,667,000
Common shares issuable upon conversion of
Warrants ................................. 26,504,000 10,885,000
---------- ----------
Total ........................................ 36,428,000 33,522,000
========== ==========

Net loss applicable to common stockholders was calculated as follows:

THREE MONTHS ENDED
MARCH 31,
-----------------------------
2004 2003
----------- -----------
Net loss ............................... $ (4,661,698) $ (681,747)
Beneficial conversion features of
preferred stock..................... -- (500,000)
------------ -----------
Net loss applicable to common
stockholders ..................... $ (4,661,698) $(1,181,747)
============ ===========

In March 2003, the Company issued $500,000 of Series F Preferred Stock
convertible into shares of the Company's Common Stock at a price of $0.03 per
share, as well as warrants to purchase approximately 3,333,000 shares of the
Company's Common Stock at an exercise price of $0.125 per share. As a result of
the preferential conversion discounts related to the issuance of the Series F
Preferred Stock and associated warrants, $500,000 was recorded as a dividend to
the preferred stockholders in March 2003, as the preferred shares were
immediately convertible into common shares.

(l) Reclassifications

Certain 2003 amounts were reclassified to conform to the 2004 presentation.

(2) OTHER ASSETS

On February 25, 2003, theglobe.com entered into a Loan and Purchase Option
Agreement with a development stage Internet related business venture pursuant to
which it agreed to fund, in the form of a loan, at the discretion of the
Company, the venture's operating expenses and obtained the option to acquire all
of the outstanding capital stock of the venture in exchange for, when and if
exercised, $40,000 in cash and the issuance of an aggregate of 2,000,000
unregistered restricted shares of theglobe.com's common stock (the "Option").
The Loan is secured by a lien on the assets of the venture. Effective April 14,
2004, the Loan and Purchase Option Agreement and promissory note were amended
extending the maturity date of the Loan to May 31, 2004. The Option is
exercisable at anytime on or before ten days after theglobe.com's receipt of
notice relating to the award of a certain contract currently being pursued by
the venture. In the event of the exercise of the Option, (i) the existing CEO
and CFO of the venture have agreed to enter into employment agreements whereby
each would agree to remain in the employ of the venture for a period of two
years following the closing of the Option in exchange for base compensation plus
participation in a bonus pool based upon the pre-tax income of the venture and
(ii) the 2,000,000 shares of theglobe.com Common Stock issued upon such exercise
will be entitled to certain "piggy-back" registration rights. If the Option is
not exercised, then theglobe.com has agreed, subject to certain exceptions, to
forgive repayment of $60,000 of the amount loaned. As of March 31, 2004,
$645,000 has been advanced to this venture. Due to the uncertainty of
collectibility of the Loan, as it is to a development stage business, the
Company has set up a reserve for all of the Loan except the $40,000 attributable
to the acquisition should the Company exercise the Option. Additions to the Loan
reserve of $110,000 and $135,000 were included in other expense in the
accompanying condensed statements of operations for the three months ended March
31, 2004 and 2003, respectively.

(3) CAPITAL TRANSACTIONS

On February 2, 2004, the Company's Chairman and Chief Executive Officer and his
spouse, entered into a Note Purchase Agreement with the Company pursuant to
which they acquired a demand convertible promissory note (the "Bridge Note") in
the aggregate principal amount of $2,000,000. The Bridge Note was convertible
into shares of the Company's Common Stock. The Bridge Note provided for interest
at the rate of ten percent per annum and was secured by a pledge of
substantially all of the assets of the Company. Such security interest was
shared with the holders of the Company's $1,750,000 Convertible Notes issued to
E&C Capital Partners and certain affiliates of our Chairman and Chief Executive
Officer. In addition, the Chairman and Chief Executive Officer and his spouse
were issued a warrant (the "Warrant") to acquire 204,082 shares of the Company's
Common Stock at an exercise price of $1.22 per share. The Warrant is exercisable
at any time on or before February 2, 2009. The exercise price of the Warrant,
together with the number of shares for which such Warrant is exercisable, is
subject to adjustment upon the occurrence of certain events.

An allocation of the proceeds received from the issuance of the Bridge Note was
made between the debt instrument and the Warrant by determining the pro rata
share of the proceeds for each by comparing the fair value of each security
issued to the total fair value. The fair value of the Warrant was determined
using the Black Scholes model. The fair value of the Bridge Note was determined
by measuring the fair value of the Common Shares on an "as-converted" basis. As
a result, $170,000 was allocated to the Warrant and recorded as a discount on
the debt issued and additional paid in capital. The value of the beneficial
conversion feature of the Bridge Note was calculated by comparing the fair value
of the underlying common shares of the Bridge Note on the date of issuance based
on the closing price of our Common Stock as reflected on the OTCBB to the
"effective" conversion price. This resulted in a beneficial conversion discount
of $517,000, which was recorded as interest expense in the accompanying
condensed consolidated statement of operations as the Bridge Note was
immediately convertible into common shares. In addition, the value allocated to
the Warrant and characterized as discount on the Bridge Note was recognized as
interest expense, as the Bridge Note was due on demand.

In March 2004, theglobe.com completed a private offering of 333,816 units (the
"Units") for a purchase price of $85 per Unit (the "Private Offering"). Each
Unit consisted of 100 shares of the Company's Common Stock, $0.001 par value
(the "Common Stock"), and warrants to acquire 50 shares of the Company's Common
Stock (the "Warrants"). The Warrants are exercisable for a period of five years
commencing 60 days after the initial closing at an initial exercise price of
$0.001 per share. The aggregate number of shares of Common Stock issued in the
Private Offering was 33,381,647 shares for an aggregate consideration of
$28,374,400, or approximately $0.57 per share assuming the exercise of the
16,690,824 Warrants.

The Private Offering was directed solely to investors who are sophisticated and
accredited within the meaning of applicable securities laws, most of whom were
not affiliates with the Company. The purpose of the Private Offering was to
raise funds for use primarily in the Company's developing voiceglo business,
including the deployment of networks, website development, marketing and capital
infrastructure expenditures and working capital. Proceeds may also be used in
connection with theglobe's other existing or future business operations.

Halpern Capital, Inc., acted as placement agent for the Private Offering, and
was paid a commission of $1.2 million and issued a warrant to acquire 1,000,000
shares of Common Stock at $0.001 per share.

The securities offered were not registered under the Securities Act of 1933 and
may not be offered or resold in the United States absent registration or an
applicable exemption from such registration requirements. Pursuant to the terms
of the Private Offering, the Company filed a registration statement relating to
the resale of the Securities on April 16, 2004 which became effective on May 11,
2004.

In connection with the Private Offering, Michael S. Egan, our Chairman, Chief
Executive Officer and principal stockholder, together with certain of his
affiliates, including E&C Capital Partners, converted the $2,000,000 Convertible
Bridge Note, $1,750,000 of Secured Convertible Notes and all of the Company's
outstanding shares of Series F Preferred Stock, and exercised (on a "cashless"
basis) all of the warrants issued in connection with the foregoing Secured
Convertible Notes and Series F Preferred Stock, together with certain warrants
issued to Dancing Bear Investments, an affiliate of Mr. Egan. As a result of
such conversions and exercises, the Company issued an aggregate of 48,775,909
additional shares of Common Stock.

Pursuant to the Company's Stockholder Rights Agreement (the "Agreement") dated
November 12, 1998, the Company's Board of Directors authorized and declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of the Company's then outstanding Common Stock and all new shares of
Common Stock issued, as defined by the Agreement. In general, each Right
entitles the holder the right to purchase one one-thousandth of a share of the
Company's Junior Participating Preferred Stock, subject to adjustment as defined
by the Agreement. The Rights were intended to have various anti-takeover
effects, including causing substantial dilution to any person or any group of
persons that attempts to acquire the Company on terms not approved by our Board
of Directors. In connection with the Agreement, on April 13, 2004, the Board of
Directors of the Company adopted a resolution amending the Certificate of
Designation of the Corporation increasing the number of shares of the Company's
Junior Participating Preferred Stock from 100,000 shares to 250,000 shares.

(4) STOCK OPTION PLANS

The Company has outstanding at March 31, 2004, 71,120 options which are subject
to variable accounting in accordance with FIN No. 44 as a result of a re-pricing
transaction in 2000. No compensation expense was recorded in connection with the
re-priced stock options during the three months ended March 31, 2004 and 2003.
Depending upon movements in the market value of the Company's common stock, this
accounting treatment may result in additional non-cash compensation charges in
future periods.

A total of 892,500 stock options were granted during the three months ended
March 31, 2004, including grants of 215,000 stock options to non-employees.
Compensation expense of approximately $295,000 was recognized during the three
months ended March 31, 2004 with respect to non-employee stock options.
Approximately $151,000 of compensation expense related to employee option grants
with below-market exercise prices was recorded during the three months ended
March 31 2004. A total of 286,500 stock options were exercised and a total of
625,110 stock options were cancelled during the three months ended March 31,
2004. No stock options were issued, while a total of 1,500 stock options were
cancelled during the three months ended March 31, 2003.

The Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2004: no dividend yield; an expected life of five
years; 160% expected volatility and 3.00% risk free interest rate.

In accordance with SFAS No. 123, the Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," to account for
stock-based awards granted to employees. The following table presents the
Company's pro forma net loss for the three months ended March 31, 2004, had the
Company determined compensation cost based on the fair value at the grant date
for all of its employee stock options issued under SFAS No. 123:

2004
-------------
Net loss:
As reported ......................... $ (4,661,698)
Pro forma ........................... (5,354,000)

Basic and diluted loss per common share:
As reported ......................... $ (0.07)
Pro forma ........................... (0.08)

(5) LITIGATION

On and after August 3, 2001 and as of the date of this filing, six putative
shareholder class action lawsuits were filed against the Company, certain of its
current and former officers and directors, and several investment banks that
were the underwriters of the Company's November 23, 1998 initial public offering
and its May 19, 1999 secondary offering. The lawsuits were filed in the United
States District Court for the Southern District of New York. The complaints
against the Company have been consolidated into a single action and a
Consolidated Amended Complaint, which is now the operative complaint, was filed
on April 19, 2002.

The lawsuit purports to be a class action filed on behalf of purchasers of the
stock of the Company during the period from November 12, 1998 through December
6, 2000. Plaintiffs allege that the underwriter defendants agreed to allocate
stock in the Company's initial public offering to certain investors in exchange
for excessive and undisclosed commissions 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 Company's initial public offering
was false and misleading and in violation of the securities laws because it did
not disclose these arrangements. The action seeks damages in an unspecified
amount.

The action is being coordinated with approximately 300 other nearly identical
actions filed against other companies. On July 15, 2002, the Company moved to
dismiss all claims against it and the Individual Defendants. On October 9, 2002,
the Court dismissed the Individual Defendants from the case without prejudice
based on stipulations of dismissal filed by the plaintiffs and the Individual
Defendants. On February 19, 2003, the Court denied the motion to dismiss the
complaint against the Company. The Company has approved a Memorandum of
Understanding ("MOU") and related agreements which set forth the terms of a
settlement between the Company, the plaintiff class and the vast majority of the
other approximately 300 issuer defendants. Among other provisions, the
settlement contemplated by the MOU provides for a release of the Company and the
individual defendants for the conduct alleged in the action to be wrongful. The
Company would agree to undertake certain responsibilities, including agreeing to
assign away, not assert, or release certain potential claims the Company may
have against its underwriters. It is anticipated that any potential financial
obligation of the Company to plaintiffs pursuant to the terms of the MOU and
related agreements will be covered by existing insurance. Therefore, the Company
does not expect that the settlement will involve any payment by the Company. The
MOU and related agreements are subject to a number of contingencies, including
the negotiation of a settlement agreement and its approval by the Court. We
cannot opine as to whether or when a settlement will occur or be finalized and,
consequently, are unable at this time to determine whether the outcome of the
litigation will have a material impact on our results of operations or financial
condition in any future period.

On July 3, 2003, an action was commenced against one of the Company's
subsidiaries, Direct Partner Telecom, Inc. ("DPT"). Global Communications
Consulting Corp. v. Michelle Nelson, Jason White, VLAN, Inc., Geoffrey Amend,
James Magruder, Direct Partner Telecom, Inc., et al. was filed in the Superior
Court of New Jersey, Monmouth County, and removed to the United States District
Court for the District of New Jersey on September 16, 2003. Plaintiff is the
former employer of Michelle Nelson, a consultant of DPT. Plaintiff alleges that
while Nelson was its employee, she provided plaintiff's confidential and
proprietary trade secret information, to among others, DPT and certain
employees, and diverted corporate opportunities from plaintiff to DPT and the
other named defendants. Plaintiff asserts claims against Nelson including breach
of fiduciary duty, breach of the duty of loyalty and tortious interference with
contract. Plaintiff also asserts claims against Nelson and DPT, among others,
for contractual interference, tortious interference with prospective economic
advantage and misappropriation of proprietary information and trade secrets.
Plaintiff seeks injunctive relief and damages in an unspecified amount,
including punitive damages.

The Answer to the Complaint, with counterclaims, was served on October 20, 2003,
denying plaintiff's allegations of improper and unlawful conduct in their
entirety. The parties reached an amicable resolution of this matter, including a
mutual release of all claims, which was filed with the Court in April 2004.

The Company is currently a party to certain other legal proceedings, claims,
disputes and litigation arising in the ordinary course of business, including
those noted above. The Company currently believes that the ultimate outcome of
these other proceedings, individually and in the aggregate, will not have a
material adverse affect on the Company's financial position, results of
operations or cash flows. However, because of the nature and inherent
uncertainties of litigation, should the outcome of these actions be unfavorable,
the Company's business, financial condition, results of operations and cash
flows could be materially and adversely affected.

(6) SEGMENTS AND GEOGRAPHIC INFORMATION

The Company applies the provisions of SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which establishes annual and interim
reporting standards for operating segments of a company. SFAS No. 131 requires
disclosures of selected segment-related financial information about products,
major customers and geographic areas. Effective with the May 2003 acquisition of
DPT, the Company is now organized in two operating segments for purposes of
making operating decisions and assessing performance: the computer games
division and the VoIP telephony services division. The computer games division
consists of the operations of the Company's Computer Games print magazine and
the associated website Computer Games Online (www.cgonline.com) and the
operations of Chips & Bits, Inc., its games distribution business. The VoIP
telephony services division is principally involved in the sale of
telecommunications services over the internet to consumers and other
telecommunications service providers.

The chief operating decision maker evaluates performance, makes operating
decisions and allocates resources based on financial data of each segment. Where
appropriate, the Company charges specific costs to each segment where they can
be identified. Certain items are maintained at the Company's corporate
headquarters ("Corporate") and are not presently allocated to the segments.
Corporate expenses primarily include personnel costs related to executives and
certain support staff and professional fees. Corporate assets principally
consist of cash, cash equivalents and marketable securities. There are no
intersegment sales. The accounting policies of the segments are the same as
those for the Company as a whole.

The following table presents financial information regarding the Company's
different segments:

THREE MONTHS ENDED
MARCH 31,
-----------------------------
2004 2003
----------- -----------
REVENUE:

Computer games and other........... $ 1,017,899 $ 1,658,350
VoIP telephony services ........... 99,548 --
----------- -----------
$ 1,117,447 $ 1,658,350
=========== ===========

INCOME (LOSS) FROM OPERATIONS:
Computer games and other........... $ (109,888) $ 19,409
VoIP telephony services ........... (2,128,367) (8,448)
Corporate expenses................. (1,539,815) (554,386)
----------- -----------
Loss from operations (3,778,070) (543,425)
Other expense, net (883,628) (138,322)
----------- -----------
Consolidated loss before income
tax benefit $(4,661,698) $ (681,747)
=========== ===========

DEPRECIATION AND AMORTIZATION:
Computer games and other........... $ 3,429 $ 22,105
VoIP telephony services ........... 226,770 179
Corporate expenses................. 5,912 541
----------- -----------
$ 236,111 $ 22,825
=========== ===========

MARCH 31, DECEMBER 31,
2004 2003
----------- -----------
IDENTIFIABLE ASSETS:
Computer games and other........... $ 1,827,307 $ 1,957,714
VoIP telephony services ........... 5,001,618 4,251,082
Corporate assets................... 25,824,330 963,282
----------- -----------
$32,653,255 $ 7,172,078
=========== ===========

(7) COMMITMENTS

As of March 31, 2004, the Company had approximately $20,000 in outstanding
standby letters of credit used to support the agreement with one of our
telecommunications carriers.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements can be
identified by the use of predictive, future-tense or forward-looking
terminology, such as "believes," "anticipates," "expects," "estimates," "plans,"
"may," "intends," "will," or similar terms. Investors are cautioned that any
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a result of
various factors described under "Risk Factors" and elsewhere in this report. The
following discussion should be read together in conjunction with the
accompanying unaudited condensed consolidated financial statements and related
notes thereto and the audited consolidated financial statements and notes to
those statements contained in the Annual Report on Form 10-KSB for the year
ended December 31, 2003.

OVERVIEW OR PLAN OF OPERATION

As of March 31, 2004, we managed two primary lines of business. One line
consists of our historical network of three wholly owned businesses, each of
which specializes in the games business by delivering games information and
selling games in the United States and abroad. These businesses are: our print
publication Computer Games Magazine; our Computer Games Online website
(www.cgonline.com), which is the online counterpart to Computer Games Magazine;
and our Chips & Bits, Inc. (www.chipsbits.com) games distribution company.
Management of the Company continues to actively explore a number of strategic
alternatives for its online and offline games properties, including continuing
to operate the properties, acquisition or development of complementary products,
or selling some or all of the games properties.

The second line of business, Voice over Internet Protocol ("VoIP") telephony
services, includes voiceglo Holdings, Inc., a wholly-owned subsidiary of
theglobe.com that offers VoIP web-based, home and business phone service. The
term "VoIP" refers to a category of hardware and software that enables people to
use the Internet to make phone calls. We entered the VoIP business by acquiring
certain software assets in November 2002 from an entrepreneur who is now
employed by us. Today those assets serve as the foundation of the products we
offer and market under the brand name, "voiceglo." The VoIP telephony services
division also includes Direct Partner Telecom, Inc. ("DPT"), an international
licensed telecommunications carrier which was engaged in the purchase and resale
of telecommunications services over the Internet. DPT was acquired on May 28,
2003. In the first quarter of 2004, we decided to suspend DPT's wholesale
business and dedicate the DPT physical and intellectual assets to our retail
VoIP business, "voiceglo".

At the current time, our revenues are derived principally from the sale of print
advertisements under short-term contracts in our games information magazine
Computer Games; through the sale of our games information magazine through
newsstands and subscriptions; and through the sale of video games and related
products through our games distribution business Chips & Bits, Inc. Given their
recent launch, our voiceglo VoIP products and services have yet to produce any
significant revenue.

OUR VOIP BUSINESS

During the third quarter of 2003, the Company launched its first suite of
consumer and business level VoIP services. These services allow consumers and
enterprises to communicate using VoIP technology for dramatically reduced
pricing compared to traditional telephony networks. The services also offer
traditional telephony features such as voicemail, caller ID, call forwarding,
and call waiting for no additional cost to the consumer, as well as incremental
services that are not currently supported by the public switched telephone
network ("PSTN") like the ability to use numbers remotely and voice to email
services.

The Company now offers two primary types of VoIP services, on a retail basis, to
individual consumers and small businesses:

o Browser-Based - a full functioning telephone that resides on the computer
desktop and also includes a web-based solution. The only system requirements are
a browser and an Internet connection. The Company is seeking a patent to protect
its position. The browser-based product is marketed under the name "GloPhone".

o SIP Based Soft Phone - a traditional phone line replacement service. Requires
a voiceglo adapter, a regular phone and an Internet connection. The service
works on broadband, dial-up and wi-fi Internet connections and can be used with
a USB phone directly over a user's computer if desired.

Our VoIP products are subject to continuing development by the Company and
management continues to evaluate its business plans for these proposed services.
As discussed further in the "Liquidity and Capital Resources" section below, we
expect to utilize substantial capital in fully launching and expanding our VoIP
operations. In addition, there are a number of significant risks to entry into,
and the conduct of business in, this market, including current and proposed
governmental regulation, potential taxation of services and many of the risks
detailed below under "Risk Factors."

RESULTS OF OPERATIONS

The nature of the businesses being conducted by us has significantly changed
from March 31, 2003 compared to March 31, 2004. As a result of our decision to
enter into the VoIP business we have incurred substantial expenditures without
corresponding revenue as we develop our VoIP product line and as we put into
place the infrastructure for our VoIP products. Consequently, and primarily as a
result of these factors, the results of operation for the quarter ended March
31, 2004 are not necessarily comparable to the quarter ended March 31, 2003.

THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2003

NET REVENUE. Net revenue totaled $1.1 million for the first quarter of 2004 as
compared to $1.7 million in the same quarter of the prior year. The $0.6 million
decline in total net revenue was primarily attributable to decreases in
advertising, magazine sales, and electronic commerce net revenue, partially
offset by net revenue generated by our VoIP telephony services division.

Advertising revenue from the sale of print advertisements in our games magazine
was $0.4 million, or 34%, of total net revenue for the three months ended March
31, 2004 versus $0.5 million, or 33%, of total net revenue for the three months
ended March 31, 2003. .

Net revenue attributable to the sale of our games information magazine was $0.4
million, or 35%, of total net revenue for the three months ended March 31, 2004,
as compared to $0.7 million, or 42%, of total net revenue in the same quarter of
the prior year. The decline in net revenue from the sale of our games magazine
as compared to the previous year was primarily the result of a decrease in the
circulation base of our games magazine. As rates for print advertising charged
to advertisers are driven largely by the circulation of the publication, the
decline in the circulation base of our games magazine has also contributed to
the decrease in our advertising revenue.

Electronic commerce and other net revenue is principally comprised of sales of
video games and related products through Chips & Bits, Inc. Sales through the
online store accounted for $0.2 million, or 22%, of total net revenue for the
first quarter of 2004 as compared to $0.4 million, or 25%, of total net revenue
for the same period of 2003. The $0.2 million decrease was primarily the result
of advances in and releases of console and online games, which traditionally
have less sales loyalty to our online store, coupled with the continued decline
in the number of major PC game releases, on which our online store relies for
the majority of sales. In addition, an increasing number of major retailers have
increased the selection of video games offered by both their traditional "bricks
and mortar" locations and their online commerce sites resulting in increased
competition.

Net revenue from telephony services totaled $0.1 million for the three months
ended March 31, 2004. During the first quarter of 2004, the Company focused its
efforts on the promotion of its recently released browser-based GloPhone
product. In particular, we initiated several promotional campaigns for our
"free" GloPhone product as a means of educating consumers to gain greater
customer acceptance of our VoIP products. We believe that as customers become
more familiar with our VoIP technology, demand for our revenue generating
products will increase.

COST OF PRODUCTS AND PUBLICATIONS SOLD. Cost of products and publications sold
related to our games division consists primarily of printing costs of our games
magazine, Internet connection charges, personnel costs, maintenance costs of
website equipment and the costs of merchandise sold and shipping fees in
connection with our online store. Cost of products and publications sold by our
games division totaled approximately $0.6 million and $0.8 million in the first
quarter of 2004 and 2003, respectively. The gross margin of our games division
approximated 42% for the three months ended March 31, 2004 as compared to 49%
for the same quarter of the prior year. Approximately 7% of the total cost of
products sold for the first quarter of 2004 consisted of customer equipment and
shipping costs related to the sale of our voiceglo VoIP service.

DATA COMMUNICATIONS, TELECOM AND NETWORK OPERATIONS. This expense category
relates entirely to the Company's entry into the VoIP business in 2003 and
includes termination and circuit costs related to our retail telephony services
business marketed under the voiceglo brand name. Personnel and consulting costs
incurred in support of the Company's Internet telecommunications network are
also included in this expense category. Data communications, telecom and network
operations expenses are expected to increase in the future as we further expand
our data communications network and expand our telecommunications carrier
relationships in order to support the Company's voiceglo product line.

SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries
and related expenses of sales and marketing personnel, commissions, advertising
and marketing costs, public relations expenses, promotional activities and
barter expenses. Sales and marketing expenses totaled $1.1 million in the first
quarter of 2004 as compared to $0.6 million in the first quarter of 2003. A
decline of $0.2 million in sales and marketing expenses incurred by our games
division was more than offset by $0.7 million of sales and marketing expenses of
the VoIP telephony services division. Sales and marketing expenses of the games
division represented approximately 34% of total net revenue attributable to the
games division's operations for both the first quarter of 2004 and 2003,
respectively. Advertising and promotions expenses, coupled with personnel costs
were the principal components of sales and marketing expenses of the VoIP
telephony services division during the first quarter of 2004.

PRODUCT DEVELOPMENT. Product development expenses include salaries and related
personnel costs; expenses incurred in connection with website development,
testing and upgrades; editorial and content costs; and costs incurred in the
development of our voiceglo branded products. Product development expenses were
$0.2 million in both the first quarters of 2004 and 2003.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of salaries and related personnel costs for general corporate
functions including finance, human resources and facilities, outside legal and
professional fees, directors and officers insurance, bad debt expenses and
general corporate overhead costs. General and administrative expenses were $2.1
million for the three months ended March 31, 2004, as compared to $0.6 million
for the same quarter of 2003. Increases in headcount and the resulting personnel
expenses, as well as other general and administrative expenses directly
attributable to our new line of business, VoIP telephony services, were the
principal factors contributing to the $1.5 million increase in total general and
administrative expenses. Other expense categories which increased as compared to
2003 largely as a result of our entrance into the VoIP business, included legal
fees, other professional fees and facilities costs.

DEPRECIATION. Depreciation expense totaled $0.2 million for the three months
ended March 31, 2004. The increase from the same quarter of the prior year
resulted principally from the investment in network infrastructure and
capitalized software costs of the VoIP telephony services division.

INTEREST EXPENSE, NET. On February 2, 2004, our Chairman and Chief Executive
Officer and his spouse, entered into a Note Purchase Agreement with the Company
pursuant to which they acquired a demand convertible promissory note (the
"Bridge Note") in the aggregate principal amount of $2,000,000. Non-cash
interest expense of $0.7 million was recorded in the first quarter of 2004
related to the beneficial conversion feature of the Bridge Note as the Bridge
Note was convertible into our Common Stock at a price below the fair market
value of our Common Stock (for accounting purposes), based on the closing price
of our Common Stock as reflected on the OTCBB on the issuance date of the Note.

OTHER INCOME (EXPENSE), NET. Other expense for the first quarters of 2004 and
2003 principally represents additional reserves against the amounts loaned by
the Company to a development stage Internet related business venture.

INCOME TAXES. No tax benefit was recorded for the three months ended March 31,
2004. Due to the uncertainty surrounding the timing or ultimate realization of
the benefits of our net operating loss carryforwards in future periods, we have
recorded a 100% valuation allowance against our otherwise recognizable deferred
tax assets. At December 31, 2003, the Company had net operating loss
carryforwards available for U.S. and foreign tax purposes of approximately $144
million. These carryforwards expire through 2023. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net operating losses and
tax credits in the event of an "ownership change" of a corporation. Due to the
change in our ownership interests in August 1997 and May 1999 and the Company's
recently completed private offering in March 2004 (together with the exercise
and conversion of various securities in connection with such private offering),
as defined in the Internal Revenue Code of 1986, as amended, the Company may
have substantially limited or eliminated the availability of its net operating
loss carryforwards. There can be no assurance that the Company will be able to
avail itself of any net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW ITEMS. As of March 31, 2004, we had approximately $26.4 million in
cash and cash equivalents as compared to $1.1 million as of December 31, 2003.
Net cash used in operating activities was $3.6 million and $0.2 million, for the
three months ended March 31, 2004 and 2003, respectively. The period-to-period
increase in net cash used in operating activities resulted primarily from the
increase in our net operating losses, partially offset by the favorable impact
of non-cash interest expense recorded in the first three months of 2004 as a
result of the beneficial conversion feature of the $2,000,000 Bridge Note issued
in February 2004, as well as other non-cash charges recorded in 2004.

Net cash of $0.2 million was used in investing activities during the first three
months of 2004. We incurred $0.3 million in capital expenditures during the
first three months of 2004, primarily within the VoIP telephony services
division. Additionally, in February 2003, we committed to fund operating
expenses of a development stage Internet venture at our discretion in the form
of a loan. During both the first quarters of 2004 and 2003, approximately $0.1
million of funds were advanced to the venture. Partially offsetting these uses
of funds in the first three months of 2004 were $0.2 million in proceeds from
the sale of marketable securities.

Net cash provided by financing activities was $29.2 million for the first three
months of 2004. As discussed below and in the Notes to the condensed
consolidated financial statements, the Company completed a private offering of
its Common Stock and warrants to acquire its Common Stock in March 2004
resulting in the issuance of approximately 33.4 million shares of Common Stock,
and warrants to acquire approximately 16.7 million shares of its Common Stock,
for gross proceeds of approximately $28.4 million. Offering costs included $1.2
million in cash commissions paid to the placement agent and approximately $0.1
million in legal and accounting fees. In addition, on February 2, 2004, the
Company issued a $2,000,000 Bridge Note which was subsequently converted into
our Common Stock in connection with the March 2004 private offering. Proceeds of
approximately $0.1 million were received from the exercise of stock options
during the first quarter of 2004. Cash provided by financing activities during
the three months ended March 31, 2003, resulted from the issuance of $0.5
million in Series F Convertible Preferred Stock.

CAPITAL TRANSACTIONS. As mentioned previously, on February 2, 2004, the
Company's Chairman and Chief Executive Officer and his spouse, entered into a
Note Purchase Agreement with the Company pursuant to which they acquired a
demand convertible promissory note in the aggregate principal amount of
$2,000,000. The Bridge Note was convertible into shares of the Company's Common
Stock. The Bridge Note provided for interest at the rate of ten percent per
annum and was secured by a pledge of substantially all of the assets of the
Company. Such security interest was shared with the holders of the Company's
$1,750,000 Convertible Notes issued to E&C Capital Partners and certain
affiliates of our Chairman and Chief Executive Officer. In addition, the
Chairman and Chief Executive Officer and his spouse were issued a warrant (the
"Warrant") to acquire 204,082 shares of the Company's Common Stock at an
exercise price of $1.22 per share. The Warrant is exercisable at any time on or
before February 2, 2009. The exercise price of the Warrant, together with the
number of shares for which such Warrant is exercisable, is subject to adjustment
upon the occurrence of certain events.

The purpose of the Private Offering was to raise funds for use primarily in the
Company's developing voiceglo business, including the deployment of networks,
website development, marketing and capital infrastructure expenditures and
working capital. Proceeds may also be used in connection with our other existing
or future business operations.

FUTURE CAPITAL NEEDS. In order to offer our VoIP services we have invested
substantial capital and made substantial commitments related to the development
of the voiceglo network and telephony handsets and related adapters. The
voiceglo network is comprised of switching hardware and software, servers,
billing and inventory systems, and telecommunication carrier services. We own
and operate VoIP switch equipment in Miami, Atlanta and New York, and
interconnect these switches utilizing a leased transport network through
numerous carrier agreements with third party providers. Through these carrier
relationships we are able to carry the traffic of our customers over the
Internet and interact with the PSTN. We generally enter into from one to five
year agreements with these carriers pursuant to which, in exchange for
allocating and dedicating availability on their networks, we undertake to
provide minimum usage of these networks. In general, the larger our commitment
the lower our per minute cost of usage of the network. Given the recent
introduction of our voiceglo service offerings, our minimum commitments under
these carrier agreements presently greatly exceed our actual usage.

Based upon our existing contractual commitments, we anticipate that our capital
needs for our network over the next twelve months will be substantially as
follows:

o Planned network hardware expenditures for switching and server equipment
are projected to be approximately $1.5 - $2.0 million;

o Planned network software expenditures are projected to be approximately
$300,000; and

o Planned carrier transport and interconnection services are projected to
be approximately $3.5 million.

We have entered into a contract with a supplier for telephony handsets related
to our VoIP services. Subject to the supplier's compliance with the terms of the
contract, we have committed to purchase additional equipment from this supplier
during 2004 totaling approximately $3.4 million. In addition, we anticipate
acquiring other non-network VoIP equipment of approximately $1.0 to $2.0
million.

As a result of the proceeds raised from our March 2004 private offering,
management does not presently anticipate that the Company will need to raise
additional funds within at least the next twelve months in order to implement
its business plans for its existing businesses. However, there can be no
assurance that the capital needs of the Company will not change, that we will
not enter into additional lines of business or that forecasted expenses will not
substantially exceed our expectations. In any of such events, we may be required
to raise additional capital. We currently have no access to credit facilities
with traditional third party lenders and there can be no assurance that we would
be able to raise any such capital. In addition, any financing that could be
obtained would likely significantly dilute existing stockholders.

The shares of our Common Stock were delisted from the NASDAQ national market in
April 2001 and are now traded in the over-the-counter market on what is commonly
referred to as the electronic bulletin board or OTCBB. The trading volume of our
shares has dramatically declined since the delisting. In addition, we are now
subject to a Rule promulgated by the Securities and Exchange Commission that, if
we fail to meet criteria set forth in such Rule, various practice requirements
are imposed on broker-dealers who sell securities governed by the Rule to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. Consequently, the Rule may have a
materially adverse effect on the ability of broker-dealers to sell the
securities, which may materially affect the ability of shareholders to sell the
securities in the secondary market. Consequently, it has also made it more
difficult for us to raise additional capital, although the Company has had some
success in offering its securities as consideration for the acquisition of
various business opportunities or assets. We will also incur additional costs
under state blue sky laws if we sell equity due to our delisting.

EFFECTS OF INFLATION

Due to relatively low levels of inflation in 2004 and 2003, inflation has not
had a significant effect on our results of operations since inception.

MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Our estimates, judgments and assumptions are continually
evaluated based on available information and experience. Because of the use of
estimates inherent in the financial reporting process, actual results could
differ from those estimates.

Certain of our accounting policies require higher degrees of judgment than
others in their application. These include revenue recognition, valuation of
customer receivables, impairment of intangible assets and income tax recognition
of deferred tax items. Our policies and related procedures for revenue
recognition, valuation of customer receivables, capitalization of computer
software costs and intangible assets are summarized below.

REVENUE RECOGNITION

The Company's revenues were derived principally from the sale of print
advertisements under short-term contracts in our games information magazine
Computer Games; through the sale of our games information magazine through
newsstands and subscriptions; from the sale of video games and related products
through our online store Chips & Bits; and from the sale of VoIP telephony
services. There is no certainty that events beyond anyone's control such as
economic downturns or significant decreases in the demand for our services and
products will not occur and accordingly, cause significant decreases in revenue.

The Company's games division participates in barter transactions. Barter revenue
and expenses are recorded at the fair market value of services provided or
received, whichever is more readily determinable in the circumstances. Revenue
from barter transactions is recognized as income when advertisements or other
products are delivered by the Company. Barter expense is recognized when the
Company's advertisements are run on other companies' web sites or in their
magazines, which typically occurs within one to six months from the period in
which the related barter revenue is recognized.

Advertising. Advertising revenues for the games information magazine are
recognized at the on-sale date of the magazine.

Magazine Sales. Newsstand sales of the games information magazine are recognized
at the on-sale date of the magazine, net of provisions for estimated returns.
Subscriptions are recorded as deferred revenue when initially received and
recognized as income ratably over the subscription term.

Electronic Commerce and Other. Sales from the online store are recognized as
revenue when the product is shipped to the customer. Amounts billed to customers
for shipping and handling charges are included in net revenue. The Company
provides an allowance for returns of merchandise sold through its online store.
The allowance provided to date has not been significant.

Telephony Services. VoIP telephony services revenue represents fees charged to
customers for voice services and is recognized based on minutes of customer
usage or as services are provided. The Company records payments received in
advance for prepaid services as deferred revenue until the related services are
provided. Sales of peripheral VoIP telephony equipment are recognized as revenue
when the product is shipped to the customer. Amounts billed to customers for
shipping and handling charges are included in net revenue.

VALUATION OF CUSTOMER RECEIVABLES

Provisions for the allowance for doubtful accounts are made based on historical
loss experience adjusted for specific credit risks. Measurement of such losses
requires consideration of the Company's historical loss experience, judgments
about customer credit risk, and the need to adjust for current economic
conditions.

CAPITALIZATION OF COMPUTER SOFTWARE COSTS

The Company capitalizes the cost of internal-use software which has a useful
life in excess of one year in accordance with Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Subsequent additions, modifications, or upgrades to internal-use
software are capitalized only to the extent that they allow the software to
perform a task it previously did not perform. Software maintenance and training
costs are expensed in the period in which they are incurred. Capitalized
computer software costs are amortized using the straight-line method over three
years.

INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
certain acquired intangible assets in a business combination be recognized as
assets separate from goodwill. SFAS No. 142 requires that goodwill and other
intangibles with indefinite lives should no longer be amortized, but rather
tested for impairment annually or on an interim basis if events or circumstances
indicate that the fair value of the asset has decreased below its carrying
value.

Our policy calls for the assessment of the potential impairment of goodwill and
other identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable or at least on an annual
basis. Some factors we consider important which could trigger an impairment
review include the following:

o Significant under-performance relative to historical, expected or projected
future operating results;

o Significant changes in the manner of our use of the acquired assets or the
strategy for our overall business; and

o Significant negative industry or economic trends.

When we determine that the carrying value of goodwill or other identified
intangibles may not be recoverable, we measure any impairment based on a
projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
model.

RISK FACTORS

In addition to the other information in this report, the following factors
should be carefully considered in evaluating our business and prospects.

RISKS RELATING TO OUR BUSINESS GENERALLY

WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES.

Since our inception, we have incurred net losses in each quarter, except the
fourth quarter of 2002 where we had net income of approximately $17,000. We
expect that we will continue to incur net losses for the foreseeable future. We
had net losses of approximately $11 million and $2.6 million for the years ended
December 31, 2003 and 2002, respectively, and approximately $4.7 million for the
first quarter of 2004. The principal causes of our losses are likely to continue
to be:

o costs resulting from the operation of our businesses;

o costs relating to entering new business lines;

o failure to generate sufficient revenue; and

o general and administrative expenses.

Although we have restructured our businesses, we still expect to continue to
incur losses as we develop our VoIP telephony services business and while we
explore a number of strategic alternatives for our online and offline games
properties, including continuing to operate the properties, acquisition or
development of additional businesses or complementary products, selling some or
all of the properties or other changes to our business.

OUR RECENT ACQUISITIONS, AS WELL AS POTENTIAL FUTURE ACQUISITIONS, JOINT
VENTURES OR STRATEGIC TRANSACTIONS ENTAIL NUMEROUS RISKS AND UNCERTAINTIES. WE
MAY ENTER ADDITIONAL LINES OF BUSINESS.

We have entered into a new business line, VoIP telephony services. In November
2002, we acquired certain VoIP assets from an entrepreneur in exchange for
1,750,000 warrants to purchase our common stock. On May 28, 2003, we acquired
Direct Partner Telecom, Inc. ("DPT"), an international licensed
telecommunications carrier engaged in the purchase and resale of
telecommunication services over the Internet. We may also enter into new or
different lines of business, as determined by management and our Board of
Directors. The acquisitions of VoIP assets and of DPT, as well as any future
acquisitions or joint ventures could result, and in some instances have resulted
(particularly as it pertains to DPT), in numerous risks and uncertainties,
including:

o potentially dilutive issuances of equity securities, which may be issued at
the time of the transaction or in the future if certain performance or other
criteria are met or not met, as the case may be. These securities may be freely
tradable in the public market or subject to registration rights which could
require us to publicly register a large amount of Common Stock, which could have
a material adverse effect on our stock price;

o diversion of management's attention and resources from our existing
businesses;

o significant write-offs if we determine that the business acquisition does not
fit or perform up to expectations;

o the incurrence of debt and contingent liabilities or impairment charges
related to goodwill and other intangible assets;

o difficulties in the assimilation of operations, personnel, technologies,
products and information systems of the acquired companies;

o the risks of entering a new or different line of business;

o regulatory and tax risks relating to the new or acquired business;

o the risks of entering geographic and business markets in which we have no or
limited prior experience; and

o the risk that the acquired business will not perform as expected.

WE DEPEND ON THE CONTINUED GROWTH IN THE USE AND COMMERCIAL VIABILITY OF THE
INTERNET.

Our VoIP telephony services business and games properties are substantially
dependent upon the continued growth in the general use of the Internet. Internet
and electronic commerce growth may be inhibited for a number of reasons,
including:

o inadequate network infrastructure;

o security and authentication concerns;

o inconsistent quality of service;

o inadequate availability of cost-effective, high-speed service; and

o inadequate bandwidth availability.

As web usage grows, the Internet infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. Websites have experienced interruptions in their service as a result of
outages and other delays occurring throughout the Internet network
infrastructure. If these outages or delays frequently occur in the future, web
usage, as well as usage of our services, could grow more slowly or decline.
Also, the Internet's commercial viability may be significantly hampered due to:

o delays in the development or adoption of new operating and technical standards
and performance improvements required to handle increased levels of activity;

o increased government regulation;

o potential governmental taxation of such services; and

o insufficient availability of telecommunications services which could result in
slower response times and adversely affect usage of the Internet.

WE MAY FACE INCREASED GOVERNMENT REGULATION, TAXATION AND LEGAL UNCERTAINTIES IN
OUR INDUSTRY, WHICH COULD HARM OUR BUSINESS.

There are an increasing number of federal, state, local and foreign laws and
regulations pertaining to the Internet and telecommunications. In addition, a
number of federal, state, local and foreign legislative and regulatory proposals
are under consideration. Laws or regulations may be adopted with respect to the
Internet relating to, among other things, fees and taxation of VoIP telephony
services, liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy and quality of products and
services. Changes in tax laws relating to electronic commerce could materially
affect our business, prospects and financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment and personal privacy is uncertain and
developing. Any new legislation or regulation, or the application or
interpretation of existing laws or regulations, may decrease the growth in the
use of the Internet or VoIP telephony services, may impose additional burdens on
electronic commerce or may alter how we do business. This could decrease the
demand for our existing or proposed services, increase our cost of doing
business, increase the costs of products sold through the Internet or otherwise
have a material adverse effect on our business, plans, prospects, results of
operations and financial condition.

Our ability to offer VoIP services outside the U.S. is also subject to the local
regulatory environment, which may be complicated and often uncertain. Regulatory
treatment of Internet telephony outside the United States varies from country to
country.

WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

We regard substantial elements of our websites and underlying technology, as
well as certain assets relating to our VoIP business and other opportunities we
are investigating, as proprietary and attempt to protect them by relying on
intellectual property laws and restrictions on disclosure. We also generally
enter into confidentiality agreements with our employees and consultants. In
connection with our license agreements with third parties, we generally seek to
control access to and distribution of our technology and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently. Thus, we cannot
assure you that the steps taken by us will prevent misappropriation or
infringement of our proprietary information, which could have an adverse effect
on our business. In addition, our competitors may independently develop similar
technology, duplicate our products, or design around our intellectual property
rights.

We pursue the registration of our trademarks in the United States and
internationally. We are also seeking patent protection for certain VoIP assets
which we acquired or which we have developed. However, effective intellectual
property protection may not be available in every country in which our services
are distributed or made available through the Internet. Policing unauthorized
use of our proprietary information is difficult. Legal standards relating to the
validity, enforceability and scope of protection of proprietary rights in
Internet-related businesses are also uncertain and still evolving. We cannot
assure you about the future viability or value of any of our proprietary rights.

Litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. However, we may not have sufficient funds or personnel to adequately
litigate or otherwise protect our rights. Furthermore, we cannot assure you that
our business activities will not infringe upon the proprietary rights of others,
or that other parties will not assert infringement claims against us, including
claims related to providing hyperlinks to websites operated by third parties or
providing advertising on a keyword basis that links a specific search term
entered by a user to the appearance of a particular advertisement. Moreover,
from time to time, third parties may assert claims of alleged infringement by us
of their intellectual property rights. Any litigation claims or counterclaims
could impair our business because they could:

o be time-consuming;

o result in significant costs;

o subject us to significant liability for damages;

o result in invalidation of our proprietary rights;

o divert management's attention;

o cause product release delays; or

o require us to redesign our products or require us to enter into royalty or
licensing agreements that may not be available on terms acceptable to us, or at
all.

We license from third parties various technologies incorporated into our sites.
We cannot assure you that these third-party technology licenses will continue to
be available to us on commercially reasonable terms. Additionally, we cannot
assure you that the third parties from which we license our technology will be
able to defend our proprietary rights successfully against claims of
infringement. As a result, our inability to obtain any of these technology
licenses could result in delays or reductions in the introduction of new
services or could adversely affect the performance of our existing services
until equivalent technology can be identified, licensed and integrated.

The regulation of domain names in the United States and in foreign countries may
change. Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names, any or all of which may dilute the strength of our names. We may not
acquire or maintain our domain names in all of the countries in which our
websites may be accessed, or for any or all of the top-level domain names that
may be introduced. The relationship between regulations governing domain names
and laws protecting proprietary rights is unclear. Therefore, we may not be able
to prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other proprietary rights.

WE MAY BE UNSUCCESSFUL IN ESTABLISHING AND MAINTAINING BRAND AWARENESS; BRAND
IDENTITY IS CRITICAL TO OUR COMPANY.

Our success in the Internet telephony market will depend on our ability to
create and maintain brand awareness for our product offerings. This may require
a significant amount of capital to allow us to market our products and establish
brand recognition and customer loyalty. Many of our competitors in the Internet
telephony services market are larger than us and have substantially greater
financial resources. Additionally, many of the companies offering VoIP services
have already established their brand identity within the marketplace. We can
offer no assurances that we will be successful in establishing awareness of our
brand allowing us to compete in the VoIP market.

If we fail to promote and maintain our various brands or our games properties'
brand values are diluted, our businesses, operating results, financial
condition, and our ability to attract buyers for the games properties could be
materially adversely affected. The importance of brand recognition will continue
to increase because low barriers of entry to the industries in which we operate
may result in an increased number of direct competitors. To promote our brands,
we may be required to continue to increase our financial commitment to creating
and maintaining brand awareness. We may not generate a corresponding increase in
revenue to justify these costs.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE.

Due to our significant change in operations, including the entry into a new line
of business, our historical quarterly operating results are not necessarily
reflective of future results. The factors that will cause our quarterly
operating results to fluctuate in the future include:

o acquisitions of new businesses or sales of our assets;

o declines in the number of sales or technical employees;

o the level of traffic on our websites;

o the overall demand for Internet telephony services, print advertising and
electronic commerce;

o the addition or loss of VoIP customers, advertisers on our games properties
and electronic commerce partners on our websites;

o overall usage and acceptance of the Internet;

o seasonal trends in advertising and electronic commerce sales and member usage
in our games businesses;

o other costs relating to the maintenance of our operations;

o the restructuring of our business;

o failure to generate significant revenues and profit margins from new products
and services; and

o competition from others providing services similar to those of ours.

OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT. OUR
INEXPERIENCE IN THE INTERNET TELEPHONY BUSINESS WILL MAKE FINANCIAL FORECASTING
EVEN MORE DIFFICULT.

We have a limited operating history for you to use in evaluating our prospects
and us. Our prospects should be considered in light of the risks encountered by
companies operating in new and rapidly evolving markets like ours. We may not
successfully address these risks. For example, we may not be able to:

o maintain levels of user traffic on our e-commerce websites;

o attract customers to our VoIP telephony service;

o maintain or increase sponsorship revenues for our games magazine;

o adapt to meet changes in our markets and competitive developments; and

o identify, attract, retain and motivate qualified personnel.

OUR MANAGEMENT TEAM IS INEXPERIENCED IN THE MANAGEMENT OF A PUBLIC COMPANY AND
IS SMALL FOR AN OPERATING COMPANY.

Our senior management team is few in number, and other than our Chairman,
President and Chief Financial Officer, have not had any previous experience
managing a public company. Only our Chairman has had experience managing a large
operating company. Accordingly, we cannot assure you that:

o our key employees will be able to work together effectively as a team;

o we will be able to retain the remaining members of our management team;

o we will be able to hire, train and manage our employee base;

o our systems, procedures or controls will be adequate to support our
operations; and

o our management will be able to achieve the rapid execution necessary to fully
exploit the market opportunity for our products and services.

WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.

Our future success also depends on our continuing ability to attract, retain and
motivate highly qualified technical expertise and managerial personnel necessary
to operate our businesses. We may need to give retention bonuses and stock
incentives to certain employees to keep them, which can be costly to us. We may
be unable to attract, assimilate or retain highly qualified technical and
managerial personnel in the future. Wages for managerial and technical employees
are increasing and are expected to continue to increase in the future. We have
from time to time in the past experienced, and could continue to experience in
the future if we need to hire any additional personnel, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications. In addition,
we may have difficulty attracting qualified employees due to our restructuring
in 2000 and 2001, financial position and scaling down of operations. Also, we
may have difficulty attracting qualified employees to work in the geographically
remote location in Vermont of Chips & Bits, Inc. and Strategy Plus, Inc. If we
were unable to attract and retain the technical and managerial personnel
necessary to support and grow our businesses, our businesses would likely be
materially and adversely affected.

OUR OFFICERS, INCLUDING OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND PRESIDENT
HAVE OTHER INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF INTEREST WITH
SOME OF OUR DIRECTORS; ALL OF OUR DIRECTORS ARE EMPLOYEES OR STOCKHOLDERS OF THE
COMPANY OR AFFILIATES OF OUR LARGEST STOCKHOLDER.

Because our Chairman and Chief Executive Officer, Mr. Michael Egan, is an
officer or director of other companies, we have to compete for his time. Mr.
Egan became our Chief Executive Officer effective June 1, 2002. Mr. Egan is also
the controlling investor of Dancing Bear Investments, Inc., an entity controlled
by Mr. Egan, which is our largest stockholder. Mr. Egan has not committed to
devote any specific percentage of his business time with us. Accordingly, we
compete with Dancing Bear Investments, Inc. and Mr. Egan's other related
entities for his time.

Our President and Director, Mr. Edward A. Cespedes, is also an officer or
director of other companies. Accordingly, we must compete for his time. Mr.
Cespedes is an officer or director of various privately held entities and is
also affiliated with Dancing Bear Investments.

Our Vice President of Finance and Director, Ms. Robin Lebowitz is also
affiliated with Dancing Bear Investments. She is also an officer or director of
other companies or entities controlled by Mr. Egan and Mr. Cespedes.

Due to the relationships with his related entities, Mr. Egan will have an
inherent conflict of interest in making any decision related to transactions
between the related entities and us. We intend to review related party
transactions in the future on a case-by-case basis.

WE RELY ON THIRD PARTY OUTSOURCED HOSTING FACILITIES OVER WHICH WE HAVE LIMITED
CONTROL.

Our principal servers are located in Florida and New York at third party
outsourced hosting facilities. Our operations depend on the ability to protect
our systems against damage from unexpected events, including fire, power loss,
water damage, telecommunications failures and vandalism. Any disruption in our
Internet access could have a material adverse effect on us. In addition,
computer viruses, electronic break-ins or other similar disruptive problems
could also materially adversely affect our businesses. Our reputation,
theglobe.com brand and the brands of our VoIP services business and game
properties could be materially and adversely affected by any problems
experienced by our sites or our supporting VoIP network. We may not have
insurance to adequately compensate us for any losses that may occur due to any
failures or interruptions in our systems. We do not presently have any secondary
off-site systems or a formal disaster recovery plan.

HACKERS MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY BREACHES
COULD HARM OUR BUSINESS.

Consumer and supplier confidence in our businesses depends on maintaining
relevant security features. Substantial or ongoing security breaches on our
systems or other Internet-based systems could significantly harm our business.
We incur substantial expenses protecting against and remedying security
breaches. Security breaches also could damage our reputation and expose us to a
risk of loss or litigation. Experienced programmers or "hackers" have
successfully penetrated our systems and we expect that these attempts will
continue to occur from time to time. Because a hacker who is able to penetrate
our network security could misappropriate proprietary information or cause
interruptions in our products and services, we may have to expend significant
capital and resources to protect against or to alleviate problems caused by
these hackers. Additionally, we may not have a timely remedy against a hacker
who is able to penetrate our network security. Such security breaches could
materially adversely affect our company. In addition, the transmission of
computer viruses resulting from hackers or otherwise could expose us to
significant liability. Our insurance may not be adequate to reimburse us for
losses caused by security breaches. We also face risks associated with security
breaches affecting third parties with whom we have relationships.

WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED
OVER THE INTERNET.

Users may access content on our websites or the websites of our distribution
partners or other third parties through website links or other means, and they
may download content and subsequently transmit this content to others over the
Internet. This could result in claims against us based on a variety of theories,
including defamation, obscenity, negligence, copyright infringement, trademark
infringement or the wrongful actions of third parties. Other theories may be
brought based on the nature, publication and distribution of our content or
based on errors or false or misleading information provided on our websites.
Claims have been brought against online services in the past and we have
received inquiries from third parties regarding these matters. The claims could
be material in the future.

WE MAY BE EXPOSED TO LIABILITY FOR PRODUCTS OR SERVICES SOLD OVER THE INTERNET,
INCLUDING PRODUCTS AND SERVICES SOLD BY OTHERS.

We enter into agreements with commerce partners and sponsors under whom we are
entitled to receive a share of any revenue from the purchase of goods and
services through direct links from our sites. We sell products directly to
consumers which may expose us to additional legal risks, regulations by local,
state, federal and foreign authorities and potential liabilities to consumers of
these products and services, even if we do not ourselves provide these products
or services. We cannot assure you that any indemnification that may be provided
to us in some of these agreements with these parties will be adequate. Even if
these claims do not result in our liability, we could incur significant costs in
investigating and defending against these claims. The imposition of potential
liability for information carried on or disseminated through our systems could
require us to implement measures to reduce our exposure to liability. Those
measures may require the expenditure of substantial resources and limit the
attractiveness of our services. Additionally, our insurance policies may not
cover all potential liabilities to which we are exposed.

WE ARE INVOLVED IN SECURITIES CLASS ACTION LITIGATION.

We are a party to the securities class action litigation described in Note 5 to
the Condensed Consolidated Financial Statements - "Litigation". The defense of
the litigation may increase our expenses and will occupy management's attention
and resources, and an adverse outcome in this litigation could materially
adversely affect us.

WE MAY HAVE TO TAKE ACTIONS TO AVOID REGISTRATION UNDER THE INVESTMENT COMPANY
ACT.

Under the Investment Company Act of 1940 (the "1940 Act"), a company meeting the
definition of an "investment company" is subject to various stringent legal
requirements on its operations. A company can become subject to the 1940 Act if,
among other reasons, it owns investment securities with a value exceeding 40
percent of the value of its total assets (excluding government securities and
cash items) on an unconsolidated basis, unless a particular exemption of safe
harbor applies. Although we are not currently subject to the 1940 Act, at some
point in the future the percentage of our assets which consist of investment
securities may exceed 40 percent of the value of its total assets on an
unconsolidated basis. Rule 3a-2 of the 1940 Act provides a temporary exemption
from registration under the 1940 Act, for up to one year, for companies that
have a bona fide intent to engage, as soon as reasonably possible, in business
other than investing, reinvesting, owning, holding or trading in securities
("transient investment companies"). If, due to future sales of our assets or
changes in the value of our existing assets, we become subject to the 1940 Act,
we intend to take all actions that would allow reliance on the one-year
exemption for "transient investment companies", including a resolution by the
Board of Directors that we have bona fide intent to engage, as soon as
reasonably possible, in business other than investing, reinvesting, owning,
holding or trading in securities. After the one-year period, we would be
required to comply with the 1940 Act unless our operations and assets result in
us no longer meeting the definition of Investment Company.

RISKS RELATING TO OUR VOICE OVER THE INTERNET BUSINESS

THE VOIP MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO
DEPEND ON NEW PRODUCT INTRODUCTIONS AND INNOVATIONS IN ORDER TO ESTABLISH,
MAINTAIN AND GROW OUR BUSINESS.

VoIP is an emerging market that is characterized by rapid changes in customer
requirements, frequent introductions of new and enhanced products, and
continuing and rapid technological advances. To enter and compete successfully
in this emerging market, we must continually design, develop, manufacture, and
sell new and enhanced VoIP products and services that provide increasingly
higher levels of performance and reliability at lower costs. These new and
enhanced products must take advantage of technological advancements and changes,
and respond to new customer requirements. Our success in designing, developing
and selling such products and services will depend on a variety of factors,
including:

o the identification of market demand for new products;

o access to sufficient capital to complete our development efforts;

o product and feature selection;

o timely implementation of product design and development;

o product performance;

o cost-effectiveness of products under development;

o securing effective manufacturing processes; and

o success of promotional efforts.

Additionally, we may also be required to collaborate with third parties to
develop our products and may not be able to do so on a timely and cost-effective
basis, if at all. If we are unable, due to resource constraints or technological
or other reasons, to develop and introduce new or enhanced products in a timely
manner or if such new or enhanced products do not achieve sufficient market
acceptance, our operating results will suffer and our business will not grow.

OUR ABILITY AND PLANS TO PROVIDE TELECOMMUNICATION SERVICES AT ATTRACTIVE RATES
ARISE IN LARGE PART FROM THE FACT VOIP SERVICES ARE NOT CURRENTLY SUBJECT TO THE
SAME REGULATION AS TRADITIONAL TELEPHONY.

Because their services are not currently regulated to the same extent as
traditional telephony, VoIP providers can currently avoid paying charges that
traditional telephone companies must pay. Many traditional telephone operators
are lobbying the Federal Communications Commission (FCC) and the states to
regulate VoIP on the same or similar basis as traditional telephone services.
The FCC and several states are examining this issue.

If the FCC or any state determines to regulate VoIP, they may impose surcharges,
taxes or additional regulations upon providers of Internet telephony. These
surcharges could include access charges payable to local exchange carriers to
carry and terminate traffic, contributions to the universal service fund or
other charges. Regulations requiring compliance with the Communications
Assistance for Law Enforcement Act, or provision of enhanced 911 services could
also place a significant financial burden on us. The imposition of any such
additional fees, charges, taxes, licenses and regulations on VoIP services could
materially increase our costs and may reduce or eliminate the competitive
pricing advantage we seek to enjoy.

THE INTERNET TELEPHONY BUSINESS IS HIGHLY COMPETITIVE AND ALSO COMPETES WITH
TRADITIONAL AND CELLULAR TELEPHONY PROVIDERS.

The long distance telephony market and the Internet telephony market are highly
competitive. There are several large and numerous small competitors, and we
expect to face continuing competition based on price and service offerings from
existing competitors and new market entrants in the future. The principal
competitive factors in our market include price, quality of service, breadth of
geographic presence, customer service, reliability, network size and capacity,
and the availability of enhanced communications services. Our competitors
include major and emerging telecommunications carriers in the U.S. and abroad.
Financial difficulties in the past several years of many telecommunications
providers are rapidly altering the number, identity and competitiveness of the
marketplace. Many of the competitors for our current and planned VoIP service
offerings have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we have. As
a result, certain of these competitors may be able to adopt more aggressive
pricing policies which could hinder our ability to market our voice services.

During the past several years, a number of companies have introduced services
that make Internet telephony or voice services over the Internet available to
businesses and consumers. All major telecommunications companies, including
entities like AT&T, Sprint and MCI, as well as ITXC, iBasis, Net2Phone and
deltathree.com either presently or potentially route traffic to destinations
worldwide and compete or can compete directly with us. Other Internet telephony
service providers focus on a retail customer base and compete with us. These
companies may offer the kinds of voice services we currently offer or intend to
offer in the future. In addition, companies currently in related markets have
begun to provide voice over the Internet services or adapt their products to
enable voice over the Internet services. These related companies may potentially
migrate into the Internet telephony market as direct competitors. A number of
cable operators have also begun to offer VoIP telephony services via cable
modems which provide access to the Internet. These companies, which tend to be
large entities with substantial resources, generally have large budgets
available for research and development, and therefore may further enhance the
quality and acceptance of the transmission of voice over the Internet. We also
compete with cellular telephony providers.

WE ARE UNABLE TO PREDICT THE VOLUME OF USAGE AND OUR CAPACITY NEEDS FOR OUR VOIP
BUSINESS; DISADVANTAGEOUS CONTRACTS WOULD REDUCE OUR OPERATING MARGINS.

We have entered into a number of, and may have to enter into additional,
long-term agreements (generally from one to five years) for leased
communications transmission capacity with various carriers. Many of these
agreements have minimum use requirements pursuant to which we are able to
negotiate lower overall per minute usage rates assuming the utilization of all
of such minutes. To the extent that we have overestimated (or in the future
overestimate) our call volume, we are obligated to pay for more transmission
capacity than we actually use, resulting in costs without corresponding revenue.
Given the recent introduction of our voiceglo VoIP service offerings, our
minimum commitments under existing carrier agreements presently greatly exceed
our actual usage. Conversely, in the future, if we underestimate our capacity
needs, we may be required to obtain additional transmission capacity through
more expensive means or such capacity may not be available. As a result, our
margins could be reduced and our business, financial condition and results of
operations could be materially and adversely affected.

PRICING PRESSURES AND INCREASING USE OF VOIP TECHNOLOGY MAY LESSEN OUR
COMPETITIVE PRICING ADVANTAGE.

One of the main competitive advantages of our current and planned VoIP service
offerings is the ability to provide discounted local and long distance telephony
services by taking advantage of cost savings achieved by carrying voice traffic
employing VoIP technology, as compared to carrying calls over traditional
networks. In recent years, the price of telephone service has fallen. The price
of telephone service may continue to fall for various reasons, including the
adoption of VoIP technology by other communications carriers. Many carriers have
adopted pricing plans such that the rates that they charge are not always
substantially higher than the rates that VoIP providers charge for similar
service. In addition, other providers of long distance services are offering
unlimited or nearly unlimited use of some of their services for increasingly
lower monthly rates.

IF WE DO NOT DEVELOP AND MAINTAIN SUCCESSFUL PARTNERSHIPS FOR VOIP PRODUCTS, WE
MAY NOT BE ABLE TO SUCCESSFULLY MARKET ANY OF OUR VOIP PRODUCTS.

We have entered into the VoIP market and our success is partly dependent on our
ability to forge marketing, engineering and carrier partnerships. VoIP
communication systems are extremely complex and no single company possesses all
the technology components needed to build a complete end to end solution. We
will likely need to enter into partnerships to augment our development programs
and to assist us in marketing complete solutions to our targeted customers. We
may not be able to develop such partnerships in the course of our operations and
product development. Even if we do establish the necessary partnerships, we may
not be able to adequately capitalize on these partnerships to aid in the success
of our business.

THE FAILURE OF VOIP NETWORKS TO MEET THE RELIABILITY AND QUALITY STANDARDS
REQUIRED FOR VOICE COMMUNICATIONS COULD RENDER OUR PRODUCTS OBSOLETE.

Circuit-switched telephony networks feature very high reliability, with a
guaranteed quality of service. In addition, such networks have imperceptible
delay and consistently satisfactory audio quality. Emerging VoIP networks will
not be a viable alternative to traditional circuit switched telephony unless
they can provide reliability and quality consistent with these standards.

ONLINE CREDIT CARD FRAUD CAN HARM OUR BUSINESS.

The sale of our products and services over the Internet exposes us to credit
card fraud risks. Many of our products and services, including our voiceglo VoIP
services, can be ordered or established (in the case of new voiceglo accounts)
over the Internet using a major credit card for payment. As is prevalent in
retail telecommunications and Internet services industries, we are exposed to
the risk that some of these credit card accounts are stolen or otherwise
fraudulently obtained. In general, we are not able to recover fraudulent credit
card charges from such accounts. In addition to the loss of revenue from such
fraudulent credit card use, we also remain liable to third parties whose
products or services are engaged by us (such as termination fees due
telecommunications providers) in connection with the services which we provide.
In addition, depending upon the level of credit card fraud we experience, we may
become ineligible to accept the credit cards of certain issuers. We are
currently authorized to accept Discover, together with Visa and MasterCard
(which are both covered by a single merchant agreement with us). Visa/MasterCard
constitutes the primary credit card used by our customers. The loss of
eligibility for acceptance of Visa/MasterCard could significantly and adversely
affect our business. We have recently updated our fraud controls and will
attempt to manage fraud risks through our internal controls and our monitoring
and blocking systems. If those efforts are not successful, fraud could cause our
revenue to decline significantly and our business, financial condition and
results of operations to be materially and adversely affected.

RISKS RELATING TO OUR HISTORICAL BUSINESS

THE MARKET SITUATION CONTINUES TO BE A CHALLENGE FOR CHIPS & BITS DUE TO
ADVANCES IN CONSOLE AND ONLINE GAMES, WHICH HAVE LOWER MARGINS AND TRADITIONALLY
LESS SALES LOYALTY TO CHIPS & BITS.

Our subsidiary, Chips & Bits, Inc. depends on major releases in the Personal
Computer (PC) market for the majority of sales and profits. The game industry's
focus on X-Box, Playstation and GameCube has dramatically reduced the number of
major PC releases, which resulted in significant declines in revenues and gross
margins for Chips & Bits. Gross margins for Chips & Bits were 24% and 23% for
the years ended December 31, 2003 and 2002, respectively. Because of the large
installed base of personal computers, these revenue and gross margin percentages
may fluctuate with changes in the PC game market. However, we are unable to
predict when, if ever, there will be a turnaround in the PC game market.

In addition, many companies involved in the games market may be acquired by,
receive investments from, or enter into commercial relationships with larger,
well-established and well-financed companies. As a result of this highly
fragmented and competitive market, consolidations and strategic ventures may
continue in the future.

WE HAVE HISTORICALLY RELIED SUBSTANTIALLY ON ONLINE AND PRINT ADVERTISING
REVENUES. THE ONLINE AND PRINT ADVERTISING MARKETS HAVE SIGNIFICANTLY DECLINED.

We historically derived a substantial portion of our revenues from the sale of
advertisements on our website and in our magazine Computer Games Magazine. Our
business model and revenues were highly dependent on the amount of traffic on
our websites, our ability to properly monetize website traffic and on the print
circulation of our Computer Games magazine. Print and online advertising have
dramatically decreased since the middle of 2000, and may continue to decline,
which could continue to have a material effect on us. Many advertisers have been
experiencing financial difficulties which could materially impact our revenues
and our ability to collect our receivables. For these reasons, we cannot assure
you that our current advertisers will continue to purchase advertisements from
our games properties.

WE MAY BE MATERIALLY ADVERSELY AFFECTED IF ELECTRONIC COMMERCE DOES NOT BECOME A
VIABLE SOURCE OF SIGNIFICANT REVENUES OR PROFITS.

In February 2000, we acquired Chips & Bits, Inc., a direct marketer of video
games and related products over the Internet. However, we have limited
experience in the sale of products online as compared to many of our competitors
and the development of relationships with manufacturers and suppliers of these
products. In addition, the closing of our community site and our small business
web-hosting site adversely affected our electronic commerce due to the loss of
traffic referred by those sites to the Chips & Bits website. We also face many
uncertainties, which may affect our ability to generate electronic commerce
revenues and profits, including:

o our ability to obtain new customers at a reasonable cost, retain existing
customers and encourage repeat purchases;

o the likelihood that both online and retail purchasing trends may rapidly
change;

o the level of product returns;

o merchandise shipping costs and delivery times;

o our ability to manage inventory levels;

o our ability to secure and maintain relationships with vendors; and

o the possibility that our vendors may sell their products through other sites.

If use of the Internet for electronic commerce does not continue to grow, our
business and financial condition would be materially and adversely affected.

INTENSE COMPETITION FOR ELECTRONIC COMMERCE REVENUES HAS RESULTED IN DOWNWARD
PRESSURE ON GROSS MARGINS.

Due to the ability of consumers to easily compare prices of similar products or
services on competing websites and consumers' potential preference for competing
website's user interface, gross margins for electronic commerce transactions,
which are narrower than for advertising businesses, may further narrow in the
future and, accordingly, our revenues and profits from electronic commerce
arrangements may be materially and adversely affected.

OUR ELECTRONIC COMMERCE BUSINESS MAY RESULT IN SIGNIFICANT LIABILITY CLAIMS
AGAINST US.

Consumers may sue us if any of the products that we sell are defective, fail to
perform properly or injure the user. Consumers are also increasingly seeking to
impose liability on game manufacturers and distributors based upon the content
of the games and the alleged affect of such content on behavior. Some of our
agreements with manufacturers contain provisions intended to limit our exposure
to liability claims. However, these limitations may not prevent all potential
claims. Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any claims, whether or
not successful, could seriously damage our reputation and our business.

RISKS RELATING TO OUR COMMON STOCK

THE VOLUME OF SHARES AVAILABLE FOR FUTURE SALE IN THE OPEN MARKET COULD DRIVE
DOWN THE PRICE OF OUR STOCK OR KEEP OUR STOCK PRICE FROM IMPROVING, EVEN IF OUR
FINANCIAL PERFORMANCE IMPROVES.

As of May 5, 2004, we had issued and outstanding approximately 132 million
shares, of which approximately 25 million shares were freely tradeable over the
public markets. There is limited trading volume in our shares and we are now
traded only in the over-the-counter market. On April 16, 2004, we filed a
registration statement relating to the potential resale of up to approximately
131 million of our shares (including approximately 27 million shares underlying
outstanding warrants to acquire our Common Stock). The registration statement
became effective on May 11, 2004. Sales of significant amounts of Common Stock
in the public market in the future, the perception that sales will occur or the
registration of additional shares pursuant to existing contractual obligations
could materially and adversely drive down the price of our stock. In addition,
such factors could adversely affect the ability of the market price of the
Common Stock to increase even if our business prospects were to improve.
Substantially all of our stockholders holding restricted securities, including
shares issuable upon the exercise of warrants to purchase our Common Stock, have
registration rights under various conditions. Also, we may issue additional
shares of our common stock or other equity instruments which may be convertible
into common stock at some future date, which could further adversely affect our
stock price.

In addition, as of May 5, 2004, there were outstanding options to purchase
approximately 9,875,000 shares of our Common Stock, which become eligible for
sale in the public market from time to time depending on vesting and the
expiration of lock-up agreements. The issuance of these securities is registered
under the Securities Act and consequently, subject to certain volume
restrictions as to options owned by executive officers, will be freely tradable.

OUR CHAIRMAN MAY CONTROL US.

Michael S. Egan, our Chairman and Chief Executive Officer, beneficially owns or
controls, directly or indirectly, approximately 59 million shares of our Common
Stock as of May 5, 2004, which in the aggregate represents approximately 43% of
the outstanding shares of our Common Stock (treating as outstanding for this
purpose the shares of Common Stock issuable upon exercise of the options owned
by Mr. Egan or his affiliates). Accordingly, Mr. Egan would likely be able to
exercise significant influence over, if not control, any stockholder vote.

DELISTING OF OUR COMMON STOCK MAKES IT MORE DIFFICULT FOR INVESTORS TO SELL
SHARES. THIS MAY POTENTIALLY LEAD TO FUTURE MARKET DECLINES.

The shares of our Common Stock were delisted from the NASDAQ national market in
April 2001 and are now traded in the over-the-counter market on what is commonly
referred to as the electronic bulletin board or "OTCBB". As a result, an
investor may find it more difficult to dispose of or obtain accurate quotations
as to the market value of the securities. The trading volume of our shares has
dramatically declined since the delisting. In addition, we are now subject to a
Rule promulgated by the Securities and Exchange Commission that, if we fail to
meet criteria set forth in such Rule, various practice requirements are imposed
on broker-dealers who sell securities governed by the Rule to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transactions
prior to sale. Consequently, the Rule may have a materially adverse effect on
the ability of broker-dealers to sell the securities, which may materially
affect the ability of stockholders to sell the securities in the secondary
market.

The delisting has made trading our shares more difficult for investors,
potentially leading to further declines in share price and making it less likely
our stock price will increase. It has also made it more difficult for us to
raise additional capital. We may also incur additional costs under state
blue-sky laws if we sell equity due to our delisting.

ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF
CONTROL.

Provisions of our charter, by-laws and stockholder rights plan and provisions of
applicable Delaware law may:

o have the effect of delaying, deferring or preventing a change in control of
our company;

o discourage bids of our Common Stock at a premium over the market price; or

o adversely affect the market price of, and the voting and other rights of the
holders of, our Common Stock.

Certain Delaware laws could have the effect of delaying, deterring or preventing
a change in control of our company. One of these laws prohibits us from engaging
in a business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder, unless various
conditions are met. In addition, provisions of our charter and by-laws, and the
significant amount of Common Stock held by our current and former executive
officers, directors and affiliates, could together have the effect of
discouraging potential takeover attempts or making it more difficult for
stockholders to change management. In addition, the employment contracts of our
Chairman, CEO and Vice President of Finance provide for substantial lump sum
payments ranging from 2 (for the Vice President) to 10 times (for each of the
Chairman and CEO) of their respective average combined salaries and bonuses
(together with the continuation of various benefits for extended periods) in the
event of their termination without cause or a termination by the executive for
"good reason", which is conclusively presumed in the event of a
"change-in-control" (as such terms are defined in such agreements).

OUR STOCK PRICE IS VOLATILE.

The trading price of our Common Stock has been volatile and may continue to be
volatile in response to various factors, including:

o the performance and public acceptance of our new product lines;

o entrance into new lines of business, including acquisitions of businesses;

o quarterly variations in our operating results;

o competitive announcements;

o sales of any of our remaining games properties;

o the operating and stock price performance of other companies that investors
may deem comparable to us; and

o news relating to trends in our markets.

The stock market has experienced significant price and volume fluctuations, and
the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Our stock is also more volatile due to the
limited trading volume.

ITEM 3. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure (1)
that information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's ("SEC") rules and forms, and (2)
that this information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost benefit relationship of possible controls and procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-14 as of March 31, 2004. Based on that evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that,
except as described below, our disclosure controls and procedures are effective
in alerting them in a timely manner to material information regarding us
(including our consolidated subsidiaries) that is required to be included in our
periodic reports to the SEC.

In March 2004, we experienced an increase in credit card chargebacks and refund
requests as a result of orders for our VoIP telephony services placed with
fraudulent credit card data even though the associated financial institution
approved payment of the transaction. We immediately began monitoring the credit
card transactions of our VoIP telephony services division more closely, and as a
result, were able to alert both cardholders and credit card issuers of
fraudulent transactions due to identity theft. Under current credit card
practices, we are liable for fraudulent credit card transactions on our website.
We determined that our internal controls for detection of the fraudulent charges
were inadequate, primarily due to certain weaknesses in our payment processing
software and other processes in place to detect credit card fraud. We have taken
the following steps to strengthen internal controls surrounding credit card
transactions of our VoIP telephony services operation:

o IDENTITY VERIFICATION. Our customer service representatives are
contacting the credit cardholder on each new subscription for our
VoIP telephony services. Once we successfully verify the billing
information and confirm the validity of the transaction, the
customer's service is activated and the credit card is billed.

o USAGE MONITORING. We monitor call activity on our VoIP network for
excessive or suspicious usage. Upon identification of excessive or
suspicious usage, we contact the customer on file to confirm the
validity of the subscription.

o FRAUD PREVENTION SOFTWARE. We are in the process of implementing
more robust electronic payment software which provides additional
credit card verification tools. The software provides fraud
screening developed and maintained in partnership with one of the
major credit card issuers. Additionally, the software provides
exception reporting of credit card transactions which, based on the
software's risk screening process, may be deemed to be potentially
fraudulent. Upon the successful implementation of this software and
a period of monitoring the results of the software's risk screening
process, we may revise our identity verification process to that of
a random sampling approach.

Except as noted above, there have been no significant changes in our internal
controls or in other factors that could significantly affect those controls that
occurred in, or subsequent to, the last fiscal quarter. We cannot assure you,
however, that our system of disclosure controls and procedures will always
achieve its stated goals under all future conditions, no matter how remote.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 4 - "Litigation" of the Financial Statements included in this Report.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

(a) Sales of Unregistered Securities

On February 2, 2004, Michael S. Egan (our Chairman and Chief Executive Officer)
and his wife, S. Jacqueline Egan, entered into a Note Purchase Agreement with
the Company pursuant to which they acquired a convertible promissory note (the
"Bridge Note") in the aggregate principal amount of $2,000,000. The Bridge Note
was convertible at anytime into shares of the Company's common stock at an
initial rate of $0.98 per share. The conversion rate was subject to adjustment
based upon the rate (effectively, $0.57 per share) at which the Company sold its
common stock in the subsequent March 2004 private offering (which is described
below). The Bridge Note was due on demand from the holder, and was secured by a
pledge of substantially all of the assets of the Company. Such security interest
was shared with the then holders of the Company's Secured Convertible Notes in
the principal amount of $1,750,000 issued on May 22, 2003 to various entities
affiliated with Michael S. Egan. The Bridge Notes bore interest at the rate of
ten (10) percent per annum.

In addition, the Egans were issued a warrant to acquire 204,082 shares of
theglobe.com common stock at an exercise price of $1.22 per share. The warrant
is exercisable at any time on or before February 2, 2009. The Egans are entitled
to certain demand and piggy-back registration rights in connection with their
investment. The exercise price of the warrant (together with the number of
shares for which such warrant is exercisable) is subject to adjustment upon the
occurrence of certain events.

On March 11, 2004, the Company completed a private offering of 329,916 units
(the "Units") for a purchase price of $85 per Unit (the "PIPE Offering"). Each
Unit consisted of 100 shares of the Company's common stock and warrants to
acquire 50 shares of the common stock (the "PIPE Warrants"). The PIPE Warrants
are exercisable for a period of five (5) years commencing May 4, 2004 at an
initial exercise price of $0.001 per share. The Company also granted an option
to one party to acquire an additional 3,900 Units on or before March 22, 2004 on
the same terms, which option was fully exercised. Assuming the exercise of the
PIPE Warrants, the aggregate number of shares of common stock issued in the PIPE
Offering was 50,072,471 shares for an aggregate consideration of $28,374,400, or
approximately $0.57 per share.

Halpern Capital, Inc., acted as placement agent for the PIPE offering, and was
paid a commission of $1.2 million and issued a warrant to acquire 1,000,000
shares of common stock at $0.001 per share.

Pursuant to the terms of the PIPE Offering the Company was contractually
obligated to file a registration statement relating to the resale of the
Securities on or about April 22, 2004 and to cause such registration statement
to become effective on or about July 6, 2004 (or 30 days earlier if such
registration statement is not reviewed by the SEC). In the event the Company was
late in any of its registration obligations, it could have been liable for
payment of a late fee of 5% of the amount raised in the PIPE Offering per month
(not to exceed 25% in the aggregate), unless such fee is waived under certain
conditions. The Company filed a registration statement relating to the resale of
the securities issued in the PIPE Offering on April 16, 2004 and such
registration statement became effective on May 11, 2004.

In connection with the PIPE Offering, Mr. Egan, our Chairman, Chief Executive
Officer and principal stockholder, together with certain of his affiliates and
other parties, converted the $2,000,000 Bridge Note, an aggregate of $1,750,000
of Secured Convertible Notes and all of the Company's outstanding shares of
Series F Preferred Stock, and exercised all of the warrants issued in connection
with the foregoing Secured Convertible Notes and Series F Preferred Stock,
together with certain warrants issued to Dancing Bear Investments (an affiliate
of Mr. Egan). As a result of such conversions and exercises, the Company issued
an aggregate of 48,775,909 shares of Common Stock.

Pursuant to an agreement with NeoPets, Inc., dated May 6, 2004, related to
advertising and marketing services, the Company may issue to NeoPets, Inc. up to
3,000,000 shares of common stock at various stages subject to meeting certain
business criteria as set forth in the agreement.

The foregoing private offerings were directed solely to a limited number of
investors who are sophisticated and who are accredited within the meaning of
applicable securities laws. The Company believes that such offers and sales were
exempt from registration pursuant to Sections 4(2) of the Securities Act of 1933
and Regulation D promulgated thereunder.

(b) Use of Proceeds from Sales of Registered Securities.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Certificate of Amendment Relating to the Designation Preferences and Rights
of the Junior Participating Preferred Stock. (1)

4.1 Form of Warrant dated March 5, 2004 to acquire securities of theglobe.com,
inc. (2)

10.1 Securities Purchase and Registration Agreement dated March 2, 2004 relating
to the purchase of Units of Common Stock and Warrants of theglobe.com, inc. (3)

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to our SB-2 Registration Statement filed on
April 16, 2004.

(2) Incorporated by reference to our Form 8-K filed on March 17, 2004.

(3) Incorporated by reference to our Form 10-KSB filed on March 30, 2004.

(b) Reports on Form 8-K.

Form 8-K related to an event dated February 2, 2004, relating to an Item 5
disclosure of the issuance of a $2,000,000 demand promissory note as the result
of a Note Purchase Agreement between the Company and Michael S. Egan and his
wife, S. Jacqueline Egan.

Form 8-K related to an event dated March 8, 2004, relating to an Item 5
disclosure of the completion of a private offering of Common Stock and warrants
for an aggregate consideration of approximately $28 million.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned thereto duly authorized.

theglobe.com, inc.

/s/ Michael S. Egan
-----------------------------------------
Michael S. Egan
Chief Executive Officer
(Principal Executive Officer)

May 14, 2004

/s/ Garrett Pettingell
-----------------------------------------
Garrett Pettingell
Chief Financial Officer
(Principal Financial Officer)

May 14, 2004

EXHIBIT INDEX