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 SEPTEMBER 30, 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 November 8, 2004 was 155,777,941.

FORM 10-QSB

INDEX

PART I FINANCIAL INFORMATION

Page
----
Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at September 30, 2004
(unaudited) and December 31, 2003 1

Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 2004 and 2003 2

Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2004 and 2003 3

Notes to Unaudited Condensed Consolidated Financial Statements 4

Item 2. Management's Discussion and Analysis or Plan of Operation 16

Item 3. Controls and Procedures 45

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 46

Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities 46

Item 3. Defaults Upon Senior Securities 47

Item 4. Submission of Matters to a Vote of Security Holders 47

Item 5. Other Information 47

Item 6. Exhibits 47

Signatures 49

PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

theglobe.com

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- -------------
(UNAUDITED)
ASSETS

Current assets:
Cash and cash equivalents ....................................... $ 10,197,940 $ 1,061,702
Marketable securities............................................ 42,782 267,970
Accounts receivable, net ........................................ 6,733,451 958,487
Inventory, net .................................................. 1,255,753 770,314
Prepaid expenses................................................. 1,456,522 550,930
Deposits on inventory purchases ................................. 298,700 820,675
Other current assets ............................................ 261,125 26,357
------------- -------------
Total current assets ......................................... 20,246,273 4,456,435

Goodwill ............................................................. 11,769,679 --
Intangible assets .................................................... 1,969,931 199,020
Property and equipment, net .......................................... 4,997,799 2,416,383
Other assets ......................................................... 16,443 100,240
------------- -------------

Total assets ................................................. $ 39,000,125 $ 7,172,078
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable ................................................ $ 5,270,877 $ 1,935,142
Accrued expenses and other current liabilities .................. 2,345,429 840,376
Deferred revenue ................................................ 288,501 176,591
Current portion of long-term debt and notes payable.............. 1,294,897 121,919
------------- -------------
Total current liabilities .................................... 9,199,704 3,074,028

Long-term debt ....................................................... 35,625 1,792,568
Other long-term liabilities .......................................... 106,443 124,943
------------- -------------

Total liabilities ............................................ 9,341,772 4,991,539
------------- -------------

Stockholders' equity:
Preferred stock, at liquidation value ........................... 17,500 500,000
Common stock .................................................... 156,478 50,246
Additional paid-in capital ...................................... 282,044,821 238,301,862
Treasury stock, 699,281 common shares, at cost .................. (371,458) (371,458)
Accumulated other comprehensive income........................... -- 1,562
Accumulated deficit ............................................. (252,188,988) (236,301,673)
------------- -------------
Total stockholders' equity ................................... 29,658,353 2,180,539
------------- -------------
Total liabilities and stockholders' equity ................... $ 39,000,125 $ 7,172,078
============= =============

See accompanying notes to unaudited condensed consolidated financial statements.

theglobe.com

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED
------------------------------- -------------------------------

Net revenue............................................. $ 4,075,676 $ 1,447,784 $ 5,757,903 $ 3,791,876
------------ ------------ ------------ ------------

Operating expenses:
Cost of revenue...................................... 5,128,736 1,360,643 8,622,162 3,086,185
Sales and marketing ................................. 2,071,145 493,429 4,793,376 915,751
Product development ................................. 360,478 200,582 726,662 576,641
General and administrative .......................... 2,154,236 1,635,029 5,800,636 3,133,740
Depreciation......................................... 428,680 61,012 921,030 113,730
Amortization of intangibles.......................... 55,901 25,624 98,244 31,874
------------ ------------ ------------ ------------
Total operating expenses ................................ 10,199,176 3,776,319 20,962,110 7,857,921
------------ ------------ ------------ ------------
Loss from operations .................................... (6,123,500) (2,328,535) (15,204,207) (4,066,045)
------------ ------------ ------------ ------------
Other income (expense), net:
Interest expense, net ............................... (7,060) (123,160) (809,183) (1,634,809)
Other income (expense), net ......................... 260,904 (65,919) 126,075 (255,878)
------------ ------------ ------------ ------------
Other income (expense), net ............................. 253,844 (189,079) (683,108) (1,890,687)
------------ ------------ ------------ ------------
Loss before income tax benefit .......................... (5,869,656) (2,517,614) (15,887,315) (5,956,732)
Income tax benefit ...................................... -- -- -- --
------------ ------------ ------------ ------------
Net loss ................................................ $ (5,869,656) $ (2,517,614) $(15,887,315) $ (5,956,732)
============ ============ ============ ============
Basic and diluted net loss per common share ............. $ (0.04) $ (0.23) $ (0.14) $ (0.40)
============ ============ ============ ============
Weighted average basic and diluted shares outstanding.... 143,514,000 43,797,000 116,546,000 35,116,000
============ ============ ============ ============

See accompanying notes to unaudited condensed consolidated financial statements.

theglobe.com

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2004 2003
------------- ------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... $(15,887,315) $ (5,956,732)
Adjustments to reconcile net loss to net cash and cash equivalents used in
operating activities:
Depreciation and amortization ................................................... 1,019,274 145,604
Provision for uncollectible accounts receivable.................................. 160,509 --
Provision for excess and obsolete inventory...................................... 629,515 49,331
Non-cash interest expense ....................................................... 735,416 1,620,588
Reserve against amounts loaned to Internet venture .............................. 365,250 335,000
Contingent commissions expenses.................................................. 103,667 --
Contributed officer compensation ................................................ -- 100,000
Employee stock compensation...................................................... 236,963 234,500
Compensation related to non-employee stock options .............................. 398,869 34,584
Non-cash favorable settlements of liabilities.................................... (352,455) (64,207)
Other, net....................................................................... 14,274 --

Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net......................................................... (292,886) 477,754
Inventory, net .................................................................. (1,114,954) (178,531)
Prepaid and other current assets ................................................ (417,989) (1,077,434)
Accounts payable ................................................................ (632,616) 28,678
Accrued expenses and other current liabilities .................................. 483,509 2,964
Deferred revenue ................................................................ (409,822) 4,680
----------- -----------

Net cash and cash equivalents used in operating activities .......................... (14,960,791) (4,243,221)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities, net ............................................. 225,070 (4,463,845)
Net cash acquired (paid) in acquisition of business............................. (2,389,520) 60,948
Amounts loaned to Internet venture .............................................. (325,250) (335,000)
Purchases of property and equipment ............................................. (2,255,687) (825,889)
Patent costs incurred............................................................ (80,983) --
Other, net....................................................................... (3,500) (7,000)
----------- -----------

Net cash and cash equivalents used in investing activities .......................... (4,829,870) (5,570,786)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable ...................................................... 2,000,000 1,750,000
Proceeds from issuance of common stock, net...................................... 26,972,745 --
Proceeds from issuance of preferred stock........................................ -- 9,140,692
Proceeds from exercise of common stock options .................................. 184,546 10,799
Proceeds from exercise of warrants............................................... 10,918 --
Payments on long-term debt and notes payable .................................... (121,599) (535,798)
Payments of other long-term liabilities.......................................... (119,711) --
----------- -----------

Net cash and cash equivalents provided by financing activities ...................... 28,926,899 10,365,693
----------- -----------
Net change in cash and cash equivalents ....................................... 9,136,238 551,686

Cash and cash equivalents at beginning of period .................................... 1,061,702 725,422
----------- -----------
Cash and cash equivalents at end of period .......................................... $10,197,940 $ 1,277,108
=========== ===========

See accompanying notes to unaudited condensed consolidated financial statements.

THEGLOBE.COM

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
computer 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 computer game businesses, including continuing
to operate the businesses, acquisition or development of complementary products
and/or selling some or all of the games businesses.

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 names, "voiceglo" and "GloPhone". 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
names "voiceglo" and "GloPhone". 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 retail VoIP network.

On September 1, 2004, the Company acquired SendTec, Inc. ("SendTec"), a direct
response marketing services and technology company. As more fully discussed in
Note 2, "Acquisition of SendTec" and Note 4, "Capital Transactions", the Company
paid $6.0 million in cash, excluding transaction costs, and issued debt and
equity securities valued at a total of approximately $12 million to purchase
SendTec.

As of September 30, 2004, the Company's revenue sources were derived principally
from the newly acquired operations of SendTec which comprises our marketing
services division, as well as from the operations of our games related
businesses. The Company's retail 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 retail
VoIP business.

(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 September 30, 2004 and for the three and nine months ended September 30,
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 September 30, 2004 and the results of its operations for the
three and nine months ended September 30, 2004 and 2003 and its cash flows for
the nine months ended September 30, 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 generally accepted in the United States 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, the valuations of fair values of options and warrants 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. Included in cash and cash equivalents in the accompanying
condensed consolidated balance sheet at September 30, 2004, is approximately
$63,000 of cash held in escrow for purposes of sweepstakes promotions being
conducted by the VoIP telephony division.

(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 December 31, 2003 and
September 30, 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:

September 30, 2004 December 31, 2003
------------------------- ---------------------------
Cost Fair Value Cost Fair Value
------------ ------------ ------------ ------------

Preferred Securities............... $ -- $ -- $ 225,000 $ 225,000
U.S. Treasury Bills................ 42,837 42,782 41,408 42,970
------------ ------------ ------------ ------------

Total........................ $ 42,837 $ 42,782 $ 266,408 $ 267,970
============ ============ ============ ============

During the nine months ended September 30, 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 income (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's comprehensive loss was
approximately $5.9 million and $2.6 million for the three months ended September
30, 2004 and 2003, respectively and approximately $15.9 million and $6.0 million
for the nine months ended September 30, 2004 and 2003, respectively.

(h) Inventory

Inventories 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 September 30, 2004 and December 31, 2003 was approximately $734,000 and
$109,000, respectively.

During the three months ended September 30, 2004, the Company recorded charges
to cost of revenue of its VoIP telephony services business related to excess
inventory writedowns totaling $600,000. The Company's reserve for excess and
obsolete inventory was increased by a corresponding amount as a result of the
writedown. The excess inventory writedown was based upon the Company's estimate
of future unit sales and selling prices of its telephony equipment inventory.
Such writedown related entirely to the Company's inventory of telephony handsets
and adjusted the carrying value of this inventory component down to net
realizable value based upon lower of cost or market accounting rules.

The Company manages its inventory levels based on internal forecasts of customer
demand for its products, which is difficult to predict and can fluctuate
substantially. In addition, the Company's inventories include high technology
items that are specialized in nature or subject to rapid obsolescence. If the
Company's demand forecast is greater than the actual customer demand for its
products, the Company may be required to record additional charges related to
increases in its inventory valuation reserves in future periods. The value of
inventories is also dependent on the Company's estimate of future average
selling prices, and, if projected average selling prices are over estimated, the
Company may be required to further adjust its inventory value to reflect the
lower of cost or market. Due to the large number of units in the Company's VoIP
telephony services division inventory, lower than forecasted sales or decreases
in average selling prices of the inventory of VoIP telephony services products
could result in significant future adjustments that could have a material impact
on the Company's financial position and results of operations. See also Note 8,
"Commitments," for discussion of the Company's commitment regarding our
obligation to purchase additional telephony handsets.

(i) Revenue Recognition

Computer Games Businesses
-------------------------

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

The Company uses outside agents to obtain new subscribers for its Computer Games
magazine, whereby the agents retain a percentage of the subscription proceeds as
their commission. Previously these commissions had been classified as sales and
marketing expense within the consolidated statements of operations. Effective
June 2004, the Company changed its method of accounting for these agency fees,
reporting them as a reduction of magazine sales subscription revenue. We believe
this alternative accounting method is a more commonly used industry practice and
is preferable under the circumstances. This reclassification had no impact on
net loss as previously reported by the Company. Net revenue in the accompanying
condensed consolidated statements of operations has been shown net of such
agency fees for all periods presented. These agency fees totaled approximately
$260,000 and $270,000 for the three months ended September 30, 2004 and 2003,
and $797,000 and $1,040,000 for the nine months ended September 30, 2004 and
2003, respectively. Newsstand sales of the games information magazine are
recognized at the on-sale date of the magazine, net of provisions for estimated
returns. Subscription revenue, which is net of agency fees, is deferred when
initially received and recognized as income ratably over the subscription term.

Sales of video games and related products from the Company's 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.

Marketing Services
------------------

All revenue is recognized on a gross basis. Gross revenue consists of the gross
value of billings to clients, including the recovery of costs incurred to
acquire online and offline media required to execute client campaigns.

Revenue from the distribution of Internet advertising is recognized when
Internet users visit and complete actions at an advertiser's website. Recorded
revenue is based upon reports generated by the Company's tracking software.

Revenue derived from the purchase and tracking of direct response media, such as
television commercials, is recognized when the associated media is aired.
Amounts received in advance of media airings are deferred and included in
deferred revenue in the accompanying condensed consolidated balance sheet.

Revenue generated from the production of direct response advertising programs,
such as infomercials, is recognized when the programs are complete and have been
delivered or are available for immediate and unconditional delivery. Production
activities generally take eight to twelve weeks and the Company usually collects
amounts in advance and at various points throughout the production process.
Amounts received from customers prior to completion of commercials are included
in deferred revenue and direct costs associated with the production of
commercials in process are deferred and included within other current assets in
the accompanying condensed consolidated balance sheet.

VoIP 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.

(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.

Revenue generated by two customers of SendTec since its acquisition date, or
September 1, 2004, represented approximately 46% of SendTec post-acquisition
revenue and approximately 27% of consolidated net revenue reported for the nine
months ended September 30, 2004. Additionally, amounts outstanding from these
two customers of SendTec represented approximately $2,539,000 or 44% of
SendTec's total accounts receivable as of September 30, 2004.

(k) Net Loss Per Share

During the three and nine months ended September 30, 2003, the Company issued
equity securities with common stock conversion features which were immediately
convertible into common stock. The Company accounted for the issuance of these
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 non-cash preferred dividends
totaling $8,120,000 at the respective dates of the securities' issuance. Net
loss applicable to common stockholders was calculated as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------ ------------ -------------

Net loss ............................... $ (5,869,656) $ (2,517,614) $(15,887,315) $ (5,956,732)
Beneficial conversion features of
preferred stock and warrants ....... -- (7,620,000) -- (8,120,000)
------------ ------------ ------------ -------------
Net loss applicable to common
stockholders ..................... $ (5,869,656) $(10,137,614) $(15,887,315) $(14,076,732)
============ ============ ============ =============

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 September 30:

2004 2003
---------- ----------

Options to purchase common stock ............. 15,224,000 9,185,000
Common shares issuable upon conversion of
Series H Preferred Stock ................. 17,500,000 --
Common shares issuable upon conversion of
Series F Preferred Stock ................. -- 16,667,000
Common shares issuable upon conversion of
Convertible Notes......................... -- 19,444,000
Common shares issuable upon conversion of
Warrants ................................. 20,713,000 23,227,000
---------- ----------
Total ........................................ 53,437,000 68,523,000
========== ==========

(l) Recent Accounting Pronouncements

On March 31, 2004, the Financial Accounting Standards Board ("FASB") issued its
Exposure Draft, "Share-Based Payment," which is a proposed amendment to SFAS No.
123, "Accounting for Stock-Based Compensation." The Exposure Draft would require
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. In
October 2004, the FASB concluded that the proposed standard would be effective
for public companies for interim or annual periods beginning after June 15,
2005. The Company does not intend to adopt a fair-value based method of
accounting for stock-based employee compensation until a final standard is
issued by the FASB that requires this accounting.

(m) Reclassifications

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

(2) ACQUISITION OF SENDTEC

On September 1, 2004, the Company acquired SendTec, a direct response marketing
services and technology company. In exchange for all of the issued and
outstanding shares of capital stock of SendTec the Company paid or will pay
consideration consisting of: (i) $6,000,000 in cash, excluding transaction
costs, (ii) the issuance of an aggregate of 17,500,000 shares of the Company's
Common Stock, (iii) the issuance of an aggregate of 175,000 shares of Series H
Automatically Converting Preferred Stock (which is convertible into 17,500,000
shares of the Company's Common Stock), and (iv) a subordinated promissory note
in the amount of $1 million. The Company also issued an aggregate of
approximately 4,000,000 replacement options to acquire the Company's Common
Stock for each of the issued and outstanding options to acquire SendTec held by
the former employees of SendTec.

The preliminary SendTec purchase price allocation was as follows:

Cash $ 3,610,000
Accounts receivable 5,534,000
Other current assets 194,000
Fixed assets 1,031,000
Non-compete agreements 1,800,000
Goodwill 11,770,000
Other assets 124,000
Assumed liabilities (5,665,000)
-----------
$ 18,398,000
===========

In addition, warrants to acquire shares of theglobe.com Common Stock will be
issued to SendTec shareholders when and if SendTec exceeds forecasted operating
income, as defined, of $10.125 million, for the year ending December 31, 2005.
The number of earn-out warrants may range from an aggregate of 250,000 to
2,500,000 (if actual operating income exceeds the forecast by at least 10%).
Because the number of warrants that will be earned is not yet determinable, no
consideration related to this contingency was included in the determination of
the SendTec purchase price.

As part of the SendTec acquisition transaction, certain executives of SendTec
entered into new employment agreements with SendTec. The employment agreements
each have a term of five years and automatically renew for an additional year at
expiration unless either party provides the requisite notice of non-renewal. The
agreements also contain certain noncompete provisions for periods as specified
by the agreements. The $1,800,000 value assigned to the non-compete agreements
is being amortized on a straight-line basis over 5 years. Annual amortization
expense of the non-compete agreements is estimated to be $120,000 in 2004;
$360,000 in 2005 through 2008; and $240,000 in 2009. The related accumulated
amortization as of September 30, 2004, was $30,000.

The following unaudited pro forma condensed consolidated results of operations
for the three and nine months ended September 30, 2004 and 2003 assumes the
acquisition of SendTec occurred as of January 1, 2003. The unaudited pro forma
information is not necessarily indicative of what the actual results of
operations of the combined company would have been had the acquisition occurred
on January 1, 2003, nor is it necessarily indicative of future results.

PRO FORMA RESULTS 2004 2003
------------ ------------
Three months ended September 30,

Revenue $ 9,904,000 $ 7,996,000
Net Loss (5,785,000) (1,753,000)

Basic and diluted net loss per common share $ (0.04) $ (0.21)

Nine months ended September 30,
Revenue $ 29,209,000 $ 20,178,000
Net Loss (14,242,000) (4,521,000)

Basic and diluted net loss per common share $ (0.12) $ (0.36)

(3) 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. 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 (the "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 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.

On September 30, 2004, the Loan and Purchase Option Agreement was amended so as
to reduce the aggregate consideration to be paid by the Company upon exercise of
the Option to 1,500,000 shares of the Company's Common Stock. Additionally,
effective November 1, 2004, the Loan and Purchase Option Agreement and related
promissory note were amended extending the maturity date to November 30, 2004.

As of September 30, 2004, advances to this venture totaled $860,250. Due to the
uncertainty of collectibility of the Loan, the Company has provided a reserve
equal to the full amount of the Loan. Additions to the Loan reserve of $365,250
and $335,000 were included in other expense in the accompanying consolidated
statements of operations for the nine months ended September 30, 2004 and 2003,
respectively.

(4) 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 Secured 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 "PIPE 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
PIPE 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. As of September 30, 2004, approximately 11,440,000 of the
Warrants remain outstanding.

The PIPE 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 PIPE Offering was to raise
funds for use primarily in the Company's developing VoIP 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,
including acquisitions.

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. As of September 30, 2004,
approximately 459,000 of these warrants remain outstanding.

The securities offered in the PIPE Offering 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 PIPE 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 PIPE 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 $1,750,000
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 consisting of a 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, under certain circumstances, 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.

In April 2004, the Company financed the purchase of approximately $165,000 of
computer software and related maintenance with payments of principal and
interest due quarterly through September 1, 2005.

On May 6, 2004, the Company entered into an agreement with an Internet-based
business which provides for the payment of commissions to the business based
upon the number of new customer leads and revenue generated from such customers.
The agreement also provides for the payment of certain cash and stock bonuses,
including the issuance of up to a maximum of 3,000,000 shares of the Company's
Common Stock, in the event that certain business objectives, mainly related to
the acquisition of a significant number of new customer leads, are achieved by
the business. The Company has not issued any shares of its Common Stock to-date
and has accrued an aggregate of approximately $104,000 on its balance sheet as
of September 30, 2004 in connection with the bonus consideration.

As discussed in Note 2, on September 1, 2004, the Company closed upon an
agreement and plan of merger dated August 31, 2004 pursuant to which the Company
acquired all of the issued and outstanding shares of capital stock of SendTec.
Pursuant to the terms of the Merger, in consideration for the acquisition of
SendTec, theglobe paid (or will pay) consideration consisting of: (i) $6,000,000
in cash, excluding transaction costs, (ii) the issuance of an aggregate of
17,500,000 shares of theglobe's common stock, (iii) the issuance of an aggregate
of 175,000 shares of Series H Automatically Converting Preferred Stock (which as
more fully described below, is convertible into 17,500,000 shares of theglobe's
common stock), and (iv) a subordinated promissory note in the amount of $1
million. In addition, warrants to acquire shares of the Company's Common Stock
would be issued to SendTec shareholders when and if SendTec exceeds forecasted
operating income, as defined, of $10.125 million, for the year ending December
31, 2005 (the "Earn-out Consideration"). The number of earn-out warrants would
range from an aggregate of 250,000 to 2,500,000 (if actual operating income
exceeds the forecast by at least 10%). If and to the extent the warrants are
earned, the exercise price of the performance warrants would be $0.27 per share
and they will be exercisable for a period of 5 years. The Note bears interest at
the rate of 4% per annum and matures in one lump sum of principal and interest
on September 1, 2005.

As part of the Merger, 100,000 shares of Series H Preferred Stock (convertible
into 10 million shares of common stock) (the "Escrow Shares") are being held in
escrow for potential recovery by us in the event of a breach of the Merger
Agreement by SendTec or its former shareholders. In general, the Escrow Shares,
together with the sums due under the Note, are the sole source of recourse
against the shareholders of SendTec in the event of breach of the Merger
Agreement and theglobe would not have recourse against the cash portion or other
shares of common stock or Series H Preferred Stock distributed to the SendTec
shareholders as part of the Merger Consideration. Assuming no claims are then
pending, the Escrow Shares will be distributed to SendTec shareholders after
expiration of one year from the date of closing.

Except as provided by law, the Series H Preferred Stock will vote with the
holders of common stock on all matters on an "as-converted" basis, other than
the Certificate of Amendment described below as to which it will not vote. The
Series H Preferred Stock will automatically convert into shares of theglobe's
common stock on a 1 for 100 basis at such time as theglobe files an amendment to
its certificate of incorporation with the Delaware Secretary of State's Office
to increase its authorized shares of common stock from 200,000,000 to at least
300,000,000. theglobe intends to seek shareholder authorization for an amendment
which will increase its authorized shares of Common Stock to 500,000,000 at its
annual meeting of stockholders scheduled to be held November 30, 2004 (the
"Certificate of Amendment"). Five of the former shareholders of SendTec (whom
collectively received approximately 82% of the shares of common stock issued in
the Merger), together with theglobe's Chairman, Michael Egan (together with
certain affiliates which he controls), have agreed to vote (or have granted
proxies to so vote) their shares of Common Stock in favor of the Certificate of
Amendment. After giving effect to the proxies from such former SendTec
shareholders, Mr. Egan controls the vote over approximately 69.25 million, or
44.5%, of theglobe's 156 million issued and outstanding shares of common stock.
The Certificate of Amendment will be approved if the holders of a majority of
the outstanding shares of common stock vote in its favor.

In the event that the Certificate of Amendment is not approved for any reason at
the annual meeting then on the 10th day following the failure to approve the
Certificate of Amendment, the remaining shares of Series H Preferred Stock will
automatically convert into whatever number of shares of Common Stock which
theglobe then has remaining available for issuance (after giving affect to
approximately 33.7 million shares reserved for issuance under previously
outstanding options and warrants), less up to 3 million additional shares as may
be designated by theglobe. After giving effect to the reservation of shares
underlying outstanding options and warrants to acquire shares of theglobe's
common stock (including options issued in connection with the Merger) and the
shares of common stock issued in the Merger, theglobe presently has issued and
outstanding (or reserved for issuance) approximately 197 million shares of
common stock, leaving a maximum of approximately 3 million shares (assuming no
further shares of common stock are issued prior to such date) which could be
further issued upon conversion of the Series H Preferred Stock absent the
increase in common stock contemplated by the Certificate of Amendment or other
arrangements satisfactory to the holders of any options or warrants to acquire
shares. With regard to any shares of Series H Preferred Stock which theglobe
does not automatically convert into shares of common stock, the holders of the
Series H Preferred Stock may thereafter convert such remaining Series H
Preferred Stock into a subordinated promissory note (a "Conversion Note") from
theglobe. If issued, the Conversion Note will be due in one lump sum on the
later of the first anniversary of its issuance or December 31, 2005 and will
bear interest at the rate of 4% per annum. The principal amount of the
Conversion Note would be equal to the product of (A) the number of shares of
theglobe's common stock that would have been issued upon conversion of the
shares of the Series H Preferred Stock that were not converted into common stock
and (B) the lesser of (i) the Fair Market Value, as defined, of theglobe's
common stock in the 20 trading days immediately prior to the conversion date and
(ii) $0.83. If none of the remaining shares of Series H Preferred Stock were
converted into common stock, the maximum principal amount of the Conversion Note
(based upon the maximum conversion rate of $0.83 per share) would be
approximately $14.5 million.

The Company agreed to file a registration statement relating to the resale of
the shares of common stock issued in the Merger and the shares of common stock
underlying the Series H Preferred Stock on or before January 29, 2005 and to
cause the effectiveness of such registration on or before September 1, 2005. The
Company also agreed to keep the registration statement effective until at least
the third anniversary of the Closing. Pursuant to the terms of the Merger, in
general, the common stock and Series H Preferred Stock (and the underlying
shares of common stock) issued in the Merger may not be sold or otherwise
transferred for a period of one (1) year without the prior written consent of
the Company.

theglobe also issued an aggregate of approximately 4.0 million replacement
options to acquire shares of theglobe's common stock for each of the issued and
outstanding options to acquire shares of SendTec held by the former employees of
SendTec. Of these replacement options, approximately 3.27 million have exercise
prices of $0.06 per share and approximately 700 thousand have exercise prices of
$0.27 per share. The terms of these replacement options were as negotiated
between representatives of theglobe and the Stock Option Committee for SendTec
2000 Amended and Restated Stock Option Plan. theglobe also agreed to grant an
aggregate of 250,000 options to other employees of SendTec and a consultant of
SendTec at an exercise price of $0.34 per share. Twenty-five percent of these
options vested immediately and the balance will vest in 3 equal annual
installments assuming the continued employment of the option holders. In
addition, theglobe also established a bonus option pool pursuant to which
various employees of SendTec could earn options to acquire an aggregate of
1,000,000 shares of theglobe's Common Stock at an exercise price of $0.27 per
share on terms substantially similar to the circumstances in which the Earn-out
Consideration may be earned.

involving Messr. Egan or Cespedes. After giving effect to the grant of the proxy
(and excluding outstanding options and warrants held by Mr. Egan), Mr. Egan has
voting power over approximately 69.25 million shares of theglobe representing
approximately 44.5% of the issued and outstanding voting securities of the
Company entitled to vote on the Certificate of Amendment. The SendTec executives
were also granted certain pre-emptive rights involving potential new issuances
of securities by theglobe, together with a co-sale right to participate in
certain qualifying sales of stock by Messrs. Egan, Cespedes and their
affiliates. Messrs. Egan, Cespedes and their affiliates were granted a right of
first refusal on certain sales (generally, in excess of 10 million shares) by
the SendTec executives, together with the right to "drag-along" the SendTec
executives with regard to certain major sales of their stock or a sale or merger
of theglobe.

(5) STOCK OPTION PLANS

The Company's Board of Directors adopted a new benefit plan entitled the 2004
Stock Incentive Plan (the "2004 Plan") on August 31, 2004. An aggregate of 7.5
million shares of the Company's Common Stock may be issued pursuant to the 2004
Plan. Employees, consultants, and prospective employees and consultants of
theglobe and its affiliates and non-employee directors of theglobe are eligible
for grants of non-qualified stock options, stock appreciation rights, restricted
stock awards, performance awards and other stock-based awards under the 2004
Plan.

The Company has outstanding at September 30, 2004, approximately 2,000 unvested
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 nine months
ended September 30, 2004. Approximately $42,000 of compensation expense was
recorded in connection with the re-priced stock options during the nine months
ended September 30, 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.

As discussed in Note 2, "Acquisition of SendTec," pursuant to the agreement and
plan of merger the Company issued an aggregate of 3,974,160 replacement options
to acquire shares of theglobe's Common Stock for each of the issued and
outstanding options to acquire shares of SendTec common stock held by employees
of SendTec. Of these replacement options, 3,273,663 have exercise prices of
$0.06 and 700,497 have exercise prices of $0.27 per share. The Company also
agreed to grant an aggregate of 225,000 options to employees of SendTec and
25,000 options to a consultant of SendTec at an exercise price of $0.34 per
share under similar terms as other stock option grants of theglobe. The Company
also intends to establish a bonus option pool pursuant to which various
employees of SendTec could earn options to acquire an aggregate of 1,000,000
shares of theglobe's Common Stock at an exercise price of $0.27 per share if
SendTec exceeds forecasted operating income, as defined, of $10.125 million, for
the year ending December 31, 2005. Due to the contingent nature of the 1,000,000
bonus pool stock options, no amounts have been recognized in the accompanying
condensed consolidated financial statements.

Excluding the aforementioned stock options issued in connection with the
acquisition of SendTec, a total of 1,745,000 stock options were granted during
the nine months ended September 30, 2004, including grants of 365,000 stock
options to non-employees. Compensation expense of approximately $399,000 was
recognized during the nine months ended September 30, 2004 with respect to
non-employee stock options, including those issued in connection with the
SendTec acquisition. Approximately $220,000 of compensation expense related to
employee option grants with below-market exercise prices was recorded during the
nine months ended September 30, 2004, including those issued in connection with
the SendTec acquisition. In addition, approximately $17,000 of stock
compensation expense was recorded during the first nine months of 2004 as a
result of the accelerated vesting of stock options issued to a terminated
employee. A total of 639,000 stock options were exercised and a total of
1,049,220 stock options were cancelled during the nine months ended September
30, 2004. During the first nine months of 2003, 3,417,450 of stock options were
issued, 202,500 stock options were exercised and 1,500 stock options were
cancelled.

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
three to 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 and nine months ended September 30,
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:

Three Months Nine Months
------------- -------------

Period ended September 30, 2004, Net loss:
As reported ........................... $ (5,869,656) $ (15,887,315)
Pro forma ............................. (6,118,000) (16,950,000)

Basic and diluted loss per common share:
As reported .......................... $ (0.04) $ (0.14)
Pro forma ............................ (0.04) (0.15)

Period ended September 30, 2003, Net loss:
As reported .......................... $ (2,517,614) $ (5,956,732)
Pro forma ............................ (2,650,000) (7,137,000)

Basic and diluted loss per common share:
As reported .......................... $ (0.23) $ (0.40)
Pro forma ............................ (0.23) (0.43)

(6) LITIGATION

On and after August 3, 2001 and as of the date of this filing, the Company is
aware that 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 initial public
offering. The lawsuits were filed in the United States District Court for the
Southern District of New York. The lawsuits purport to be class actions 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. On
December 5, 2001, an amended complaint was filed in one of the actions, alleging
the same conduct described above in connection with the Company's November 23,
1998 initial public offering and its May 19, 1999 secondary offering. A
Consolidated Amended Complaint, which is now the operative complaint, was filed
in the Southern District of New York on April 19, 2002. The action seeks damages
in an unspecified amount. On February 19, 2003, a motion to dismiss all claims
against the Company was denied by the Court. On October 13, 2004, the Court
certified a class in six of the approximately 300 other nearly identical actions
and noted that the decision is intended to provide strong guidance to all
parties regarding class certification in the remaining cases. Plaintiffs have
not yet moved to certify a class in theglobe.com case. The Company has approved
a settlement agreement and related agreement 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 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 its plaintiffs pursuant to the terms of the settlement agreement 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
settlement agreement has been submitted to the Court for approval. Approval by
the Court cannot be assured. We cannot opine as to whether or when a settlement
will occur or be finalized. Due to the inherent uncertainties of litigation, we
cannot accurately predict the ultimate outcome of the litigation. Any
unfavorable outcome of this litigation could have a material adverse impact on
our business, financial condition and results of operations.

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, an employee of theglobe and a former
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.

(7) 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 September 1, 2004
acquisition of SendTec, the Company is now organized into three operating
segments for purposes of making operating decisions and assessing performance:
the computer games division, the marketing services 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 marketing services division
consists of the operations of the Company's newly acquired subsidiary, SendTec.
The VoIP telephony services division is principally involved in the sale of
telecommunications services over the internet to consumers.

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 and cash equivalents. SendTec provides various marketing
services to the Company's VoIP telephony services division. Prior to the
acquisition of SendTec on September 1, 2004, there were 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------

NET REVENUE:
Computer games .................... $ 779,073 $ 1,166,968 $ 2,253,947 $ 3,314,156
Marketing services................. 3,369,709 -- 3,369,709 --
VoIP telephony services ........... 98,654 280,816 306,007 477,720
Intersegment eliminations.......... (171,760) -- (171,760) --
----------- ----------- ----------- -----------
$ 4,075,676 $ 1,447,784 $ 5,757,903 $ 3,791,876
=========== =========== =========== ===========

INCOME (LOSS) FROM OPERATIONS:
Computer games .................... $ (64,714) $ 100,407 $ (376,725) $ (2,229)
Marketing services................. 219,390 -- 219,390 --
VoIP telephony services ........... (5,501,761) (1,167,425) (12,268,015) (1,552,838)
Corporate expenses................. (776,415) (1,261,517) (2,778,857) (2,510,978)
----------- ----------- ----------- -----------
Loss from operations (6,123,500) (2,328,535) (15,204,207) (4,066,045)
Other income (expense), net 253,844 (189,079) (683,108) (1,890,687)
----------- ----------- ----------- -----------
Consolidated loss before income
tax benefit $(5,869,656) $ (2,517,614) $(15,887,315) $(5,956,732)
=========== =========== =========== ===========

DEPRECIATION AND AMORTIZATION:
Computer games .................... $ 1,358 $ 10,828 $ 6,146 $ 55,037
Marketing services................. 77,087 -- 77,087 --
VoIP telephony services ........... 397,062 72,412 913,461 85,930
Corporate expenses................. 9,074 3,396 22,580 4,637
----------- ----------- ----------- -----------
$ 484,581 $ 86,636 $ 1,019,274 $ 145,604
=========== =========== =========== ===========

SEPTEMBER 30, DECEMBER 31,
2004 2003
----------- -----------
IDENTIFIABLE ASSETS:
Computer games .................... $ 1,896,575 $ 1,957,714
Marketing services................. 21,933,110 --
VoIP telephony services ........... 6,395,994 4,251,082
Corporate assets................... 8,774,446 963,282
----------- -----------
$39,000,125 $ 7,172,078
=========== ===========

(8) COMMITMENTS

As of September 30, 2004, the Company had approximately $20,000 in outstanding
standby letters of credit used to support the agreement with one of our
telecommunications carriers.

The Company has entered into a contract with a supplier for telephony handsets
related to our VoIP services. The Company has committed to purchase
approximately $3.0 million in additional equipment from this supplier during
2004. Based upon current inventory levels and the Company's sales projections,
management does not presently intend to purchase additional quantities of these
handsets during 2004 and the foreseeable future. Because any loss associated
with the Company's commitment to purchase additional equipment from the
telephony handset supplier cannot at this time be reasonably estimated, no
charges related to this excess commitment have been recorded through September
30, 2004. Due to the large amount of the remaining contractual commitment,
significant charges related to the resolution of this excess purchase commitment
may be required in future periods.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

The following Management's Discussion and Analysis 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. Not
all forward-looking statements contain such terms. In addition, these
forward-looking statements include, but are not limited to, statements
regarding:

o implementing our business strategy;

o marketing and commercialization of our existing products and those products
under development;

o plans for future products and services and for enhancements of existing
products and services;

o potential governmental regulation and taxation;

o our intellectual property;

o our estimates of future revenue and profitability;

o our estimates or expectations of continued losses;

o our expectations regarding future expenses, including network and equipment
expenses for our developing VoIP business, research and development, sales and
marketing, and general and administrative expenses;

o difficulty or inability to raise additional financing, if needed, on terms
acceptable to us;

o our estimates regarding our capital requirements and our needs for additional
financing;

o attracting and retaining customers and employees;

o rapid technological changes in our industry and relevant markets;

o sources of revenue and anticipated revenue;

o plans for future acquisitions; and

o competition in our market.

These statements are only predictions. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. We
are not required to and do not intend to update any of the forward-looking
statements after the date of this Report or to conform these statements to
actual results. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Report might not occur. Actual results,
levels of activity, performance, achievements and events may vary significantly
from those implied by the forward-looking statements. A description of some of
the risks that could cause our results to vary appears 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 September 30, 2004, we managed three 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) computer games distribution
company. The Company continues to actively explore a number of strategic
alternatives for its online and offline computer games businesses, including
continuing to operate the businesses, acquisition or development of
complementary products, and/or selling some or all of the computer games
businesses.

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 names "voiceglo" and "GloPhone". 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.

We entered a third line of business, marketing services, on September 1, 2004,
with our acquisition of SendTec, Inc. ("SendTec"). SendTec is a direct response
marketing services and technology company. SendTec began performing marketing
and advertising services for our VoIP telephony services division in July 2004.
In addition to providing ongoing services to its outside customers, SendTec is
expected to continue to provide services to our VoIP telephony services division
in the future.

At the current time, our revenues are derived principally from the newly
acquired operations of SendTec, as well as from the operations of our games
related properties. Our VoIP products and services have yet to produce any
significant revenue.

OUR COMPUTER GAMES BUSINESS

Computer Games Magazine is a consumer print magazine for gamers. As a leading
consumer print publication for games, Computer Games magazine boasts: a
reputation for being a reliable, trusted and engaging games magazine; more
editorial, tips and hints than most other similar magazines; a knowledgeable
editorial staff providing increased editorial integrity and content; and
broad-based editorial coverage, appealing to a wide audience of gamers. In
Spring 2004, a new magazine, NowPlaying began to be delivered within Computer
Games magazine. NowPlaying covers movies, DVDs, television, music, games, comics
and anime, and is designed to fulfill the wider pop culture interests of our
current readers and to attract a more diverse group of advertisers: autos;
television; telecommunications and film to name a few.

Computer Games Online (www.cdmag.com) is the online counterpart to Computer
Games magazine. Computer Games Online is a source of free computer games news
and information for the sophisticated gamer, featuring news, reviews and
previews, along with a powerful Web-wide search engine. Features of Computer
Games Online include: game industry news; truthful, concise reviews; first
looks, tips and hints; multiple content links; thousands of archived files; and,
easy access to game buying.

Chips & Bits (www.chipsbits.com) is a games distribution business that attracts
customers in the United States and abroad. Chips & Bits covers all the major
game platforms available, including Macintosh, Window-based PCs, Sony
PlayStation, Sony PlayStation2, Microsoft's Xbox, Nintendo 64, Nintendo's
GameCube, Nintendo's Game Boy and Sega Dreamcast, among others.

OUR VOIP BUSINESS

During the third quarter of 2003, the Company launched its first suite of
consumer and business level retail 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",
works on broadband, dial-up and wi-fi Internet connections and can optionally be
used with peripheral equipment, such as a USB phone.

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

Beginning in 2004, we have focused our efforts on the promotion of our recently
released browser-based GloPhone product. In particular, we initiated several
promotional campaigns for our "free" GloPhone product as a means of promoting
brand awareness and 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.
During 2004, we have also entered into marketing and distributing partnership
agreements with a number of Internet-based businesses whereby our marketing
partners have agreed to market our products on their co-branded websites in
exchange for the payment of commissions. Commissions are payable to our
marketing partners when, as a result of accessing the partners' websites, a
customer signs up for either a "free" GloPhone product or a "paid" GloPhone
product, with significantly higher commission rates applicable to "paid"
products. We anticipate that during the remainder of 2004 and in 2005, we will
enter into similar marketing and distribution agreements with additional
Internet-based or traditional retail businesses.

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."

OUR MARKETING SERVICES BUSINESS

SendTec provides advertisers a complete offering of direct marketing services to
help them market their products and services both on the Internet ("online") and
through traditional media channels such as television, radio and print
advertising ("offline"). SendTec derives revenue from three divisions: DirectNet
Advertising, which provides digital marketing services; Creative South, which
provides creative, production and media buying services; and iFactz, which
provides software solutions for tracking online and offline results-based
advertising and marketing.

o DirectNet Advertising ("DNA") - DNA delivers results based interactive
marketing programs for advertisers through a network of online
distribution partners including websites, search engines and email
publishers. SendTec's proprietary software technology is used to track,
optimize and report results of marketing campaigns to advertising
clients and distribution partners. Pricing options for DNA's services
include cost-per-action ("CPA"), cost-per-click ("CPC") and
cost-per-thousand impressions ("CPM"), with most payments resulting from
CPA agreements.

o Creative South - Creative South provides online and offline agency
marketing services including creative development, campaign management,
creative production, post production, media planning and media buying
services. Most services provided by Creative South are priced on a
fee-per-project basis, where the client pays an agreed upon fixed fee
for a designated scope of work. Creative South also receives monthly
retainer fees from clients from service to such clients as their Agency
of Record.

o iFactz - iFactz is SendTec's Application Service Provider ("ASP")
technology that tracks and reports on a real time basis the online
responses generated from offline direct response advertising, such as
television, radio, print advertising and direct mail. iFactz'
Intelligent Sourcing (TM) is a patent-pending media technology that
informs the user where online customers come from, and what
corresponding activity they produced on the user's website. The iFactz
patent application was filed in November 2001 and the Company expects
the application to be reviewed in the first quarter of 2005. iFactz is
licensed to clients based on a monthly fixed license fee, with license
terms ranging from three months to one year.

RESULTS OF OPERATIONS

The nature of the businesses being conducted by us has significantly changed
from September 30, 2003 compared to September 30, 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. In addition,
we recently entered into a new business line, marketing services, as a result of
our acquisition of SendTec. SendTec's results are included in the Company's
consolidated operating results from its date of acquisition, September 1, 2004.
Consequently, and primarily as a result of these factors, the results of
operations for the three and nine months ended September 30, 2004 are not
necessarily comparable to the three and nine months ended September 30, 2003.

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2003

NET REVENUE. Net revenue totaled $4.1 million for the third quarter of 2004 as
compared to $1.4 million in the same quarter of the prior year. The increase of
approximately $2.7 million in total net revenue was primarily attributable to
revenue generated from date of acquisition by SendTec.

NET REVENUE BY BUSINESS SEGMENT:

2004 2003
----------- -----------

Computer games .................... $ 779,073 $ 1,166,968
Marketing services................. 3,369,709 --
VoIP telephony services ........... 98,654 280,816
Intersegment eliminations.......... (171,760) --
----------- -----------
$ 4,075,676 $ 1,447,784
=========== ===========

Net revenue of the computer games segment totaled $0.8 million for the third
quarter of 2004, a $0.4 million decrease compared to the $1.2 million reported
for the same quarter of 2003. Sales of video games and related products through
Chips & Bits, Inc. decreased $0.2 million in the 2004 third quarter as compared
to the same quarter of 2003. Advertising revenue from the sale of print
advertisements in our games magazine and revenue from newsstand and subscription
sales of our games magazine both declined by approximately $0.1 million in the
2004 third quarter as compared to the third quarter of the prior year. As
discussed in Note 1(i) of the Notes to Unaudited Condensed Consolidated
Financial Statements, we use outside agents to obtain new subscribers for our
Computer Games magazine, whereby the agents retain a percentage of the
subscription proceeds as their commission. Previously these commissions had been
classified as sales and marketing expense within the consolidated statements of
operations. Effective June 2004, we changed our method of accounting for these
agency fees, reporting them as a reduction of magazine sales subscription
revenue. We believe this alternative accounting method is a more commonly used
industry practice and is preferable under the circumstances. This
reclassification had no impact on our net loss as previously reported. Net
revenue as presented in the accompanying condensed consolidated statements of
operations is shown net of approximately $260,000 and $270,000 of agency fees
for the three months ended September 30, 2004 and 2003, respectively.

SendTec's DirectNet Advertising division, which provides online interactive
marketing services for its clients, generated approximately $2.4 million of the
$3.4 million of net revenue reported for the marketing services segment for the
third quarter of 2004. Substantially all of the $1.0 million remaining revenue
was generated by Creative South. SendTec also provided marketing services to our
VoIP telephony services business segment which resulted in the recording of
approximately $0.2 million of intersegment marketing services revenue during the
third quarter of 2004.

Net revenue from telephony services totaled $0.1 million for the three months
ended September 30, 2004 as compared to $0.3 million for the same period of the
prior year. As part of our strategy to enter the VoIP business, on May 28, 2003,
the Company acquired DPT, an international licensed telecommunications carrier
engaged in the purchase and resale of telecommunications services over the
Internet. Telephony services net revenue reported for the third quarter of 2003
was primarily attributable to DPT's operations and consisted of charges to
customers for international call completion based on the volume of minutes
utilized. As a result of management's decision during the first quarter of 2004
to suspend DPT's wholesale business and dedicate the DPT physical and
intellectual assets to its retail VoIP business, net revenue derived from the
wholesale business of DPT is not expected to represent a significant component
of telephony services net revenue in the near term. Telephony services net
revenue for the third quarter of 2004 consisted solely of revenue attributable
to the sale of our voiceglo and GloPhone branded retail products.

OPERATING EXPENSES BY BUSINESS SEGMENT:

Depreciation
Cost of Sales and Product General and and
Three months Revenue Marketing Development Administrative Amortization Total
----------- ----------- ----------- ------------- ----------- -----------

2004
Computer games ................ $ 492,934 $ 81,059 $ 107,736 $ 160,700 $ 1,358 $ 843,787
Marketing services............. 2,554,780 189,466 -- 328,986 77,087 3,150,319
VoIP telephony services ....... 2,081,022 1,972,380 252,742 897,209 397,062 5,600,415
Corporate expenses............. -- -- -- 767,341 9,074 776,415
Intersegment eliminations...... -- (171,760) -- -- -- (171,760)
----------- ----------- ----------- ------------- ----------- -----------
$ 5,128,736 $ 2,071,145 $ 360,478 $ 2,154,236 $ 484,581 $10,199,176
=========== =========== =========== ============= =========== ===========

2003
Computer games ................ $ 745,970 $ 128,941 $ 133,773 $ 47,049 $ 10,828 $ 1,066,561
Marketing services............. -- -- -- -- -- --
VoIP telephony services ....... 614,673 364,488 66,809 329,859 72,412 1,448,241
Corporate expenses............. -- -- -- 1,258,121 3,396 1,261,517
----------- ----------- ----------- ------------- ----------- -----------
$ 1,360,643 $ 493,429 $ 200,582 $ 1,635,029 $ 86,636 $ 3,776,319
=========== =========== =========== ============= =========== ===========

COST OF REVENUE. Cost of revenue totaled $5.1 million for the three months ended
September 30, 2004, as compared to $1.4 million for the three months ended
September 30, 2003. Approximately $2.6 million of the $3.7 million increase in
consolidated cost of revenue resulted from the inclusion of marketing services
cost of revenue incurred by SendTec from date of acquisition.

Cost of revenue related to our computer games business segment 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
revenue of our computer games segment totaled approximately $0.5 million in the
third quarter of 2004, a decrease of approximately $0.3 million from the same
quarter of the prior year due primarily to the revenue decreases discussed
above.

Cost of revenue related to our marketing services business segment consists of
fees paid to third party vendors for project related research, production and
post-production services and products. Additionally, cost of revenue includes
all third party vendor fees incurred to acquire advertising media, including the
actual cost of the media.

Cost of revenue of our VoIP telephony services business segment for the third
quarter of 2004 totaled $2.1 million and principally includes carrier transport
and circuit interconnection costs related to our retail products marketed under
the voiceglo and GloPhone brand names, as well as personnel and consulting costs
incurred in the support of the Company's Internet telecommunications network.
Additionally, during the third quarter of 2004, cost of revenue included charges
of $0.6 million related to writedowns of telephony equipment inventory (See Note
1(h) of the Condensed Consolidated Financial Statements). Cost of revenue of
$0.6 million reported for the VoIP telephony services business during the third
quarter of 2003 consisted principally of costs related to the wholesale
telephony services business marketed by DPT. Cost of revenue related to our VoIP
telephony services business segment is 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 retail VoIP 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 $2.1 million in the third
quarter of 2004 as compared to $0.5 million in the third quarter of 2003. The
$1.6 million increase in consolidated sales and marketing expenses was primarily
the result of the increase in this expense category incurred by our VoIP
telephony services segment. Increases in Internet and television advertising and
commissions expenses related to "free" GloPhone sign-ups, coupled with higher
personnel costs were the principal factors contributing to the increase in sales
and marketing expenses of the VoIP telephony services segment in the third
quarter of 2004 as compared to the third quarter of 2003. In addition,
approximately $0.2 million of sales and marketing expenses recognized by the
VoIP telephony services segment during the third quarter of 2004 were provided
by SendTec subsequent to its acquisition by the Company and represent the amount
reported as "intersegment eliminations" above.

PRODUCT DEVELOPMENT. Product development expenses include salaries and related
personnel costs; expenses incurred in connection with website development,
testing and upgrades of our computer games website; editorial and content costs;
and costs incurred in the development of our retail VoIP products. Product
development expenses were $0.4 million in third quarter of 2004 as compared to
$0.2 million in the same period of the prior year.

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,
information-technology consulting, outside legal and professional fees,
directors and officers insurance, bad debt expenses and general corporate
overhead costs. General and administrative expenses were $2.2 million for the
three months ended September 30, 2004, as compared to $1.6 million for the same
quarter of 2003. General and administrative expenses directly attributable to
our VoIP telephony services business segment rose $0.6 million as compared to
the third quarter of 2003, primarily as a result of higher
information-technology consulting and facilities costs. Corporate headquarters
general and administrative expenses decreased $0.5 million as compared to the
third quarter of the prior year primarily as a result of declines in
professional fees, stock compensation expense and direct salaries. Approximately
$0.3 million of the increase in total consolidated general and administrative
expenses resulted from expenses incurred from date of acquisition by SendTec.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense totaled
$0.5 million for the three months ended September 30, 2004. The increase from
the same quarter of the prior year resulted principally from investments related
to the development of our VoIP network and to a lesser extent to costs incurred
in the development of our VoIP telephony customer billing system.

OTHER INCOME (EXPENSE), NET. Other income, net of $0.3 million was recorded in
the third quarter of 2004. A favorable settlement of a previously disputed
vendor claim of approximately $0.4 million related to the computer games
business segment was partially offset by $0.1 million of additional reserves
against amounts loaned by the Company to a development stage Internet related
business venture (as more fully described in Note 3, "Other Assets," of the
Notes to Unaudited Condensed Consolidated Financial Statements).

INCOME TAXES. No tax benefit was recorded for the three months ended September
30, 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 $142
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, the Company's
private offering in March 2004 (together with the exercise and conversion of
various securities in connection with such private offering) and the issuance of
common stock in connection with the acquisition of SendTec on September 1, 2004,
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.

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2003

NET REVENUE. Net revenue totaled $5.8 million for the first nine months of 2004
as compared to $3.8 million in the same period of the prior year. The $2.0
million increase in consolidated net revenue was principally the result of the
$3.2 million in additional net revenue, net of intersegment eliminations,
resulting from the operations of SendTec, which was acquired on September 1,
2004. Partially offsetting this additional revenue were declines of $1.1 million
and $0.2 million in net revenue of our computer games and VoIP telephony
services business segments, respectively.

NET REVENUE BY BUSINESS SEGMENT:
2004 2003
----------- -----------

Computer games .................... $ 2,253,947 $ 3,314,156
Marketing services................. 3,369,709 --
VoIP telephony services ........... 306,007 477,720
Intersegment eliminations.......... (171,760) --
----------- -----------
$ 5,757,903 $ 3,791,876
=========== ===========

Decreases of $0.5 million in sales of games products by Chips and Bits, Inc.,
$0.4 million in print advertisements in our games magazine and $0.2 million in
sales of the games magazine, respectively, accounted for the decline in net
revenue experienced by our computer games segment. As discussed in the
comparison of the three months ended September 30, 2004 to the three months
ended September 30, 2003, we changed the classification of agency fees paid to
third parties as commissions for obtaining new subscribers to our Computer Games
magazine. Previously these commissions had been classified as sales and
marketing expense within the consolidated statements of operations. Effective
June 2004, we changed our method of accounting for these commissions, reporting
them as a reduction of magazine sales subscription revenue. We believe this
alternative accounting method is a more commonly used industry practice and is
preferable under the circumstances. This reclassification had no impact on our
net loss as previously reported. Net revenue in the accompanying condensed
consolidated statements of operations has been shown net of approximately
$797,000 and $1,040,000 of agency fees for the nine months ended September 30,
2004 and 2003, respectively.

SendTec's DirectNet Advertising division, which provides online interactive
marketing services for its clients, generated approximately $2.4 million of the
$3.4 million of net revenue reported for the marketing services segment for the
nine months ended September 30, 2004. Substantially all of the $1.0 million
remaining revenue was generated by Creative South. SendTec also provided
marketing services to our VoIP telephony services business segment which
resulted in the recording of approximately $0.2 million of intersegment
marketing services revenue during the current period.

Net revenue generated by our telephony services division totaled $0.3 million
for the first nine months of 2004 as compared to $0.5 million in the same period
of 2003. As discussed in the comparison of the three months ended September 30,
2004 to the three months ended September 30, 2003, telephony services net
revenue for the first nine months of 2003 was primarily attributable to the
operation of DPT's wholesale business. During the first quarter of 2004,
management decided to suspend the wholesale business of DPT and dedicate DPT's
physical and intellectual assets to the Company's retail VoIP business.
Telephony services net revenue for the first nine months of 2004 consisted
solely of revenue attributable to sale of our voiceglo and GloPhone branded
retail products.

OPERATING EXPENSES BY BUSINESS SEGMENT:

Depreciation
Cost of Sales and Product General and and
Nine months Revenue Marketing Development Administrative Amortization Total
----------- ----------- ----------- ------------- ----------- -----------

2004
Computer games ................ $ 1,598,833 $ 252,214 $ 341,645 $ 431,834 $ 6,146 $ 2,630,672
Marketing services............. 2,554,780 189,466 -- 328,986 77,087 3,150,319
VoIP telephony services ....... 4,468,549 4,523,456 385,017 2,283,539 913,461 12,574,022
Corporate expenses............. -- -- -- 2,756,277 22,580 2,778,857
Intersegment eliminations...... -- (171,760) -- -- -- (171,760)
----------- ----------- ----------- ------------- ----------- -----------
$ 8,622,162 $ 4,793,376 $ 726,662 $ 5,800,636 $ 1,019,274 $20,962,110
=========== =========== =========== ============= =========== ===========
2003
Computer games ................ $ 2,277,270 $ 415,699 $ 411,918 $ 156,461 $ 55,037 $ 3,316,385
Marketing services............. -- -- -- -- -- --
VoIP telephony services ....... 808,915 500,052 164,723 470,938 85,930 2,030,558
Corporate expenses............. -- -- -- 2,506,341 4,637 2,510,978
----------- ----------- ----------- ------------- ----------- -----------
$ 3,086,185 $ 915,751 $ 576,641 $ 3,133,740 $ 145,604 $ 7,857,921
=========== =========== =========== ============= =========== ===========

COST OF REVENUE. Cost of revenue totaled $8.6 million for the nine months ended
September 30, 2004, an increase of $5.5 million from the $3.1 million reported
for the nine months ended September 30, 2003. An increase of $3.7 million in
costs incurred by our VoIP telephony services business segment, as well as the
inclusion of marketing services cost of revenue related to the operations of
SendTec from date of acquisition totaling approximately $2.6 million,
represented the most significant factors contributing to the period to period
increase.

As stated in the comparison of the three months ended September 30, 2004 to the
three months ended September 30, 2003, cost of revenue related to our marketing
services business segment consists of fees paid to third party vendors for
project related research, production and post-production services and products
and advertising media, including the actual cost of the media. Cost of revenue
related to our VoIP telephony services business segment principally includes
carrier transport and circuit interconnection costs, as well as personnel and
consulting costs incurred in support of our Internet telecommunications network.
Cost of revenue related to our computer games business segment 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.

During the nine months ended September 30, 2004, cost of revenue of our VoIP
telephony services business segment totaled $4.5 million and represented costs
related to our retail telephony services business marketed under the voiceglo
and GloPhone brand names, while the $0.8 million in costs reported for the same
period of the prior year principally represented costs related to our wholesale
telephony services business, which was suspended at the beginning of 2004.
During the nine months ended September 30, 2004, cost of revenue included
charges of $0.6 million related to the writedown of excess telephony equipment
inventory (See Note 1(h) of the Condensed Consolidated Financial Statements).
Cost of revenue related to our VoIP telephony services business segment is
expected to increase in the future as we further expand our data communications
network and expand our telecommunication carrier relationships in order to
support the Company's retail VoIP product line.

SALES AND MARKETING. Sales and marketing expenses totaled $4.8 million for the
first nine months of 2004 versus $0.9 million for the first nine months of 2003.
An increase of $4.0 million in sales and marketing expenses of the VoIP
telephony services division as compared to the first nine months of 2003
primarily resulted from increases in Internet and television advertising and
commissions expenses related to "free" GloPhone sign-ups, coupled with higher
personnel costs. The $0.2 million decline in sales and marketing expenses of the
computer games business segment as compared to the first nine months of 2003 was
offset by the $0.2 million of sales and marketing expenses incurred by SendTec
subsequent to its acquisition by the Company on September 1, 2004. Approximately
$0.2 million of intersegment sales and marketing expenses were recognized by the
VoIP telephony services segment during the first nine months of 2004. These
expenses relate to services which were provided by SendTec subsequent to its
acquisition by the Company and have been eliminated in consolidation.

PRODUCT DEVELOPMENT. Product development expenses totaled $0.7 million for the
first nine months of 2004 as compared to $0.6 million for the first nine months
of 2003. Product development expenses of the VoIP telephony services segment for
the nine months ended September 30, 2004 increased $0.2 million from the same
period of the prior year.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $5.8
million for the first nine months of 2004 increased $2.7 million from the $3.1
million reported for the same period of 2003. Increases in personnel expenses
and other general and administrative expenses directly attributable to our VoIP
telephony services division were principally responsible for the increase in
this expense category as compared to the first nine months of 2003. Other
expense categories which increased as compared to 2003 largely as a result of
the Company's entrance into the VoIP business included legal fees,
information-technology consulting, other professional fees and facilities costs.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense totaled
$1.0 million for the nine months ended September 30, 2004. The $0.9 million
increase from the same period of the prior year resulted principally from
investments related to the development of our VoIP network and to a lesser
extent to costs incurred in the development of our VoIP telephony customer
billing system.

OTHER INCOME (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 (for accounting purposes) of our Common Stock, based on the closing price
of our Common Stock as reflected on the OTCBB on the issuance date of the Note.
Non-cash interest expense of approximately $1.6 million was recorded during the
first nine months of 2003 related to the beneficial conversion features of the
$1,750,000 Secured Convertible Notes and warrant issued on May 22, 2003.

INCOME TAXES. As was the case in the third quarter of 2004, no tax benefit was
recorded for the first nine months of 2004 as we recorded a 100% valuation
allowance against our otherwise recognizable deferred tax assets due to the
uncertainty surrounding the timing or ultimate realization of the benefits of
our net operating loss carryforwards in future periods.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW ITEMS. As of September 30, 2004, we had approximately $10.2 million in
cash and cash equivalents as compared to $1.1 million as of December 31, 2003.
Net cash used in operating activities was $15.0 million and $4.2 million, for
the nine months ended September 30, 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 as we seek to expand our
VoIP business.

Net cash of $4.8 million was used in investing activities during the first nine
months of 2004. As more fully described in the following "Capital Transactions"
section of this Management's Discussion and Analysis or Plan of Operation and
Note 2, "Acquisition of SendTec," in the accompanying condensed consolidated
financial statements, in connection with its acquisition of SendTec on September
1, 2004, the Company paid cash consideration of approximately $6.0 million,
excluding transaction costs. As of the date of acquisition, SendTec held
approximately $3.6 million of cash. Thus, the Company used a net amount of
approximately $2.4 million of cash to acquire SendTec. Additionally, the Company
incurred costs totaling $2.3 million and $0.8 million for capital expenditures
related primarily to the development of its VoIP telephony network and to a
lesser extent to the development of its VoIP telephony customer billing system
during the nine months ended September 30, 2004 and September 30, 2003,
respectively. We also loaned approximately $0.3 million to a development stage
Internet related business venture during each of the first nine month periods of
2004 and 2003, respectively (see Note 3, "Other Assets" in the accompanying
condensed consolidated financial statements). Additionally, during the third
quarter of 2003, the Company invested a net of $4.5 million in marketable
securities related to proceeds received in connection with the issuance of its
Series G Preferred Stock in July 2003.

Net cash provided by financing activities was $28.9 million for the first nine
months of 2004. As discussed below and in the Notes to the Unaudited 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 33,381,647 shares of Common Stock, and warrants to
acquire 16,690,824 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 $0.2 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 $0.2
million were received from the exercise of stock options and warrants during the
first nine months of 2004. Cash provided by financing activities during the nine
months ended September 30, 2003, included proceeds of $8.6 million, net of
offering costs, from the issuance of Series G Preferred Stock and the associated
warrants in July 2003 and proceeds from the issuance of $0.5 million in Series F
Convertible Preferred Stock and $1.75 million of Secured Convertible Notes
during the first half of 2003.

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
Secured 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.

In March 2004, theglobe.com completed a private offering of 333,816 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, $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
PIPE Offering was 33,381,647 shares for an aggregate consideration of $28.4
million, or approximately $0.57 per share assuming the exercise of the
16,690,824 Warrants. As of September 30, 2004, approximately 11,440,000 of the
Warrants remain outstanding.

The purpose of the PIPE 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, including acquisitions.

On September 1, 2004, the Company closed upon an agreement and plan of merger
dated August 31, 2004 pursuant to which the Company acquired all of the issued
and outstanding shares of capital stock of SendTec. Pursuant to the terms of the
Merger, in consideration for the acquisition of SendTec, theglobe paid (or will
pay) consideration consisting of: (i) $6,000,000 in cash, excluding transaction
costs, (ii) the issuance of an aggregate of 17,500,000 shares of theglobe's
common stock, (iii) the issuance of an aggregate of 175,000 shares of Series H
Automatically Converting Preferred Stock (which as more fully described below,
is convertible into 17,500,000 shares of theglobe's common stock), and (iv) a
subordinated promissory note in the amount of $1 million. In addition, warrants
to acquire shares of the Company's Common Stock would be issued to SendTec
shareholders when and if SendTec exceeds forecasted operating income, as
defined, of $10.125 million, for the year ending December 31, 2005 (the
"Earn-out Consideration"). The number of earn-out warrants would range from an
aggregate of 250,000 to 2,500,000 (if actual operating income exceeds the
forecast by at least 10%). If and to the extent the warrants are earned, the
exercise price of the performance warrants would be $0.27 per share and they
will be exercisable for a period of 5 years. The Note bears interest at the rate
of 4% per annum and matures in one lump sum of principal and interest on
September 1, 2005.

stock. The Certificate of Amendment will be approved if the holders of a
majority of the outstanding shares of common stock vote in its favor.

theglobe also issued an aggregate of approximately 4.0 million replacement
options to acquire shares of theglobe's common stock for each of the issued and
outstanding options to acquire shares of SendTec held by the former employees of
SendTec. Of these replacement options, approximately 3.27 million have exercise
prices of $0.06 per share and approximately 700 thousand have exercise prices of
$0.27 per share. The terms of these replacement options were as negotiated
between representatives of theglobe and the Stock Option Committee for SendTec
2000 Amended and Restated Stock Option Plan. theglobe also agreed to grant an
aggregate of 250,000 options to other employees and a consultant of SendTec at
an exercise price of $0.34 per share. Twenty-five percent of these options
vested immediately and the balance will vest in 3 equal annual installments
assuming the continued employment of the option holders. In addition, theglobe
also established a bonus option pool pursuant to which various employees of
SendTec could earn options to acquire an aggregate of 1,000,000 shares of
theglobe's Common Stock at an exercise price of $0.27 per share on terms
substantially similar to the circumstances in which the Earn-out Consideration
may be earned.

In connection with the Merger, the SendTec executives (whom collectively
received approximately 82% of the shares of common stock and Preferred Stock
issued in the Merger), theglobe and Messrs. Michael Egan and Edward Cespedes,
our Chairman and Chief Executive Officer and President, respectively
(individually and on behalf of certain affiliated entities) entered into a
Stockholders' Agreement. Pursuant to the terms of the Stockholders' Agreement,
the SendTec executives granted an irrevocable proxy to vote their shares to E&C
Capital Partners LLLP, an affiliate of Mr. Egan on all matters (including the
election of directors) other than with respect to certain potential affiliated
transactions involving Messr. Egan or Cespedes. After giving effect to the grant
of the proxy (and excluding outstanding options and warrants held by Mr. Egan),
Mr. Egan has voting power over approximately 69.25 million shares of theglobe
representing approximately 44.5% of the issued and outstanding voting securities
of the Company entitled to vote on the Certificate of Amendment. The SendTec
executives were also granted certain pre-emptive rights involving potential new
issuances of securities by theglobe, together with a co-sale right to
participate in certain qualifying sales of stock by Messrs. Egan, Cespedes and
their affiliates. Messrs. Egan, Cespedes and their affiliates were granted a
right of first refusal on certain sales (generally, in excess of 10 million
shares) by the SendTec executives, together with the right to "drag-along" the
SendTec executives with regard to certain major sales of their stock or a sale
or merger of theglobe.

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 VoIP network and to the purchase of telephony equipment to be offered for
sale to our retail customers. The VoIP network is comprised of switching
hardware and software, servers, billing and inventory systems, and
telecommunication carrier services. We own and operate VoIP switch equipment
located in leased data center facilities in Miami, New York, Atlanta and Boston,
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 one year agreements
with these data centers and carriers, with the term of several agreements
extending to three or five years.

Based upon our existing contractual commitments, minimum amounts payable over
the next twelve months for network data center and carrier circuit
interconnection service expenses, exclusive of regulatory taxes, fees and
charges, are approximately $2.5 million. In addition, certain of our carrier
agreements also contain minimum one year usage requirements pursuant to which we
were able to negotiate lower overall per minute usage rates assuming the
utilization of all such minutes. Our minimum usage commitments under such
agreements presently greatly exceed our current actual usage and obligate the
Company, beginning in the fourth quarter of 2004, to pay approximately $1.9
million, exclusive of regulatory taxes, fees and charges, to these carriers over
the next twelve months. We are currently negotiating to eliminate or
significantly reduce our existing minimum usage commitments. If the Company is
not successful in eliminating or significantly reducing the minimum usage
requirements, its liquidity and financial condition could be materially and
adversely impacted.

We have entered into a contract with a supplier for telephony handsets related
to our VoIP services and have committed to purchase additional equipment from
this supplier totaling approximately $3.0 million during the remainder of 2004.
Based upon current inventory levels and our sales projections, we do not
presently intend to purchase additional quantities of these handsets during 2004
or the foreseeable future. Because any loss associated with the Company's
commitment to purchase additional equipment from the telephony handset supplier
cannot at this time be reasonably estimated, no charges related to this excess
commitment have been recorded through September 30, 2004. Due to the large
amount of the remaining contractual commitment, significant charges related to
the resolution of this excess purchase commitment may be required in future
periods. An unfavorable resolution to the settlement of the remaining
contractual commitment could have a material adverse effect on the Company's
liquidity and financial condition. During the third quarter of 2004, we recorded
charges totaling $600,000 related to the writedown of excess telephony handset
inventory (See Note 1(h) of Condensed Consolidated Financial Statements). After
giving effect to such writedown, at September 30, 2004, total telephony
inventory and cash deposits towards the purchase of telephony inventory, net of
related excess and obsolete inventory reserves, totaled $1.4 million, of which
approximately $0.5 million related to the value assigned to on-hand inventories
of these handsets. In the event that we are not able to sell our telephony
equipment in sufficient quantities and at sufficient prices, further charges
related to write-downs in the value of our telephony inventory assets may be
required in future periods.

Based upon our current business plan, we plan to further develop and improve our
VoIP network. Additionally, we expect to add increased functionality and
scalability to our existing telephony customer billing system. The timing and
amount of our future network and billing system capital expenditures will be
heavily dependent on the rate of growth of our VoIP telephony customer base and
revenue levels and on the availability of cash resources. Based upon cash
sufficiency, we anticipate spending approximately $2.0 - $2.5 million for
hardware and software switching and server equipment to further develop our VoIP
network and $0.6 - $1.0 million to improve and expand our billing system over
the next twelve months. Although we plan to expand both our marketing services
and games businesses in future periods, no significant capital expenditures are
expected to be required to accommodate the growth of these business segments
during the next twelve months.

We also anticipate that we will incur substantial costs in the marketing of our
retail VoIP products and services over the next twelve months. Various internet
and television advertising programs and marketing partnership arrangements are
committed to or otherwise planned by the Company during the remainder of 2004
and in 2005. Because our retail VoIP business is in the early stage of
development, we are not able to estimate the effectiveness of our planned
advertising programs or our future customer and revenue levels with reasonable
accuracy. Our acquisition of SendTec, which was completed on September 1, 2004,
is expected to improve our ability to market our retail VoIP products and
otherwise monetize our VoIP customer base. However, the benefits to be derived
from SendTec's advertising expertise in increasing our future VoIP customer and
revenue levels cannot be accurately projected at this time. Additionally, our
liquidity is further dependent upon SendTec's ability to continue to generate
sufficient cash flow from its traditional lines of business. Our liquidity and
capital resources can also be significantly impacted in the event that the
automatic conversion of the Series H Preferred Stock does not occur. (See the
"Capital Transactions" section for a more complete discussion of the Series H
Preferred Stock automatic conversion and "Risk Factors - Our Liquidity May
Permanently Decrease as a Result of the SendTec Acquisition").

As a result of the foregoing, there can be no assurance that cash on hand and
cash flow generated internally by the Company will be adequate to fund the
operation of its businesses and the implementation of its current VoIP business
plan over the next twelve months. Additionally, during the next twelve months,
there can be no assurance that the capital needs of the Company will not change
or that we will not enter into additional lines of business in addition to the
SendTec acquisition. In any of such events, we may be required to make
significant changes to our current business plans, including the implementation
of company-wide cost reduction and/or asset sales programs. We have recently
engaged certain financial advisors to assist the Company in raising capital or
entering into other business relationships with certain strategic investors. 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 connection with a strategic investor or any other transaction. 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 may 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, valuation of inventories, capitalization of computer
software costs, and impairment of intangible assets. Our accounting policies and
procedures related to these areas 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; from the sale of direct response
marketing services by our recently acquired wholly-owned subsidiary, SendTec 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.

Computer Games Businesses
-------------------------

Advertising revenues for 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. Subscription
revenue, which is net of agency fees, is deferred 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 provided to date has not been significant.

Marketing Services
------------------

Revenue derived from the purchase and tracking of direct response media, such as
television commercials, is recognized when the associated media is aired.
Amounts received in advance of media airings are deferred as customer advances
until the associated media is aired.

Revenue generated from the production of direct response advertising programs,
such as infomercials, is recognized when the programs are complete and have been
delivered or are available for immediate and unconditional delivery. Production
activities generally take eight to twelve weeks and the Company usually collects
amounts in advance and at various points throughout the production process.
Amounts received from customers prior to completion of commercials are reported
as deferred revenue and direct costs associated with the production of
commercials in process are deferred and reported as deferred production costs
until the associated project is complete.

VoIP Telephony Services
-----------------------

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.

VALUATION OF INVENTORIES

Inventories are recorded on a first-in, first-out basis and valued at the lower
of cost or market value. We generally manage our inventory levels based on
internal forecasts of customer demand for our products, which is difficult to
predict and can fluctuate substantially. Our inventories include high technology
items that are specialized in nature or subject to rapid obsolescence. If our
demand forecast is greater than our actual demand for our products, we may be
required to record charges related to increases in our inventory valuation
reserves. The value of our inventory is also dependent on our estimate of future
average selling prices, and, if our projected average selling prices are over
estimated, we may be required to adjust our inventory value to reflect the lower
of cost or market. Due to the large number of units in our VoIP telephony
services division inventory, lower than forecasted sales or decreases in average
selling prices of our inventory of VoIP telephony services products could result
in significant adjustments and have a material impact on our financial position
and results of operations.

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 the
expected useful life, or 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 $15.9 million for
the first nine months 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 selling, 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, while we
integrate our recently acquired SendTec business and while we explore a number
of strategic alternatives for our online and offline computer games businesses,
including continuing to operate the businesses, acquisition or development of
additional businesses or complementary products or selling some or all of the
businesses.

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

We have entered into new business lines, VoIP telephony services and marketing
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 then engaged in the purchase and resale of
telecommunication services over the Internet. On September 1, 2004, we acquired
SendTec, Inc. ("SendTec"), a direct response marketing services and technology
company. We may also enter into new or different lines of business, as
determined by management and our Board of Directors. Our acquisitions, 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 our 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;

o the risk that the acquired business will not perform as expected; and

o material decreases in short-term or long-term liquidity.

OUR LIQUIDITY MAY PERMANENTLY DECREASE AS A RESULT OF THE SENDTEC ACQUISITION.

As part of the consideration for the SendTec acquisition, we paid $6.0 million
in cash, excluding transaction costs, and issued a subordinated promissory note
for $1.0 million, due one year after the closing, to the SendTec shareholders.
As a result of the acquisition, our liquidity is dependent upon the sufficiency
of the cash acquired from SendTec in the acquisition, of approximately $3.6
million, plus cash flow anticipated to be generated internally by SendTec
subsequent to the acquisition. If cash flow generated by SendTec, on a
short-term and long-term basis, does not meet our expectations, our liquidity
may permanently decrease and our financial condition may be adversely affected.
In addition, the Preferred Stock issued as part of the Merger may under certain
limited circumstances be converted by the holders thereof into a promissory note
due in one lump sum on the later of the first anniversary of the date of
issuance and December 31, 2005. In such limited circumstances, the Preferred
Stock may be converted into a promissory note based upon the then Fair Market
Value, as defined, of our Common Stock (but not greater than $0.83 per share).
If all remaining Preferred Stock were so converted at the maximum conversion
rate, the maximum principal amount of the Note would be $14.5 million. Our
liquidity would be adversely affected by any such conversion and we would likely
need to raise significant capital. Our financial condition may also be adversely
affected.

OUR NET OPERATING LOSS CARRY FORWARDS MAY BE FURTHER LIMITED DUE TO THE SENDTEC
ACQUISITION.

As of December 31, 2003, we had net operating loss carryforwards available for
U.S. and foreign tax purposes of approximately $142 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, we may have substantially limited or
eliminated the availability of our net operating loss carryforwards. The
ownership change related to the shares of our common stock issued in connection
with the SendTec acquisition may have a further negative impact upon our ability
to utilize our net operating loss carryforwards. There can be no assurance that
we will be able to utilize any net operating loss carryforwards in the future.

WE COULD BE ADVERSELY AFFECTED BY AN IMPAIRMENT OF A SIGNIFICANT AMOUNT OF
GOODWILL AND/OR INTANGIBLE ASSETS ON OUR BALANCE SHEET.

Our acquisition of SendTec has resulted in the recording of a significant amount
of goodwill and/or intangible assets on our balance sheet. The goodwill was
recorded because the fair value of the net assets acquired was less than the
purchase price. We may not realize the full value of the goodwill and/or
intangible assets. As such, we evaluate on a regular basis whether events and
circumstances indicate that some or all of the carrying value of goodwill and/or
intangible assets are no longer recoverable, in which case we would write off
the unrecoverable portion as a charge to our earnings.

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

Our marketing services business, VoIP telephony services business and computer
games businesses 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 inadequate quality and availability of cost-effective, high-speed service;

o general economic and business downturns; and

o catastrophic events, including war and terrorism.

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 have been and may continue to 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 and direct response marketing
businesses 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 and
direct response marketing 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 computer games
businesses' brand values are diluted, our businesses, operating results,
financial condition, and our ability to attract buyers for the computer games
businesses 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 new lines
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 changes 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 and Internet
advertising and electronic commerce;

o the addition or loss of VoIP customers, clients of our marketing services
business, advertisers on our computer games businesses 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 computer games and marketing services 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 or increase levels of user traffic on our e-commerce websites;

o attract customers to our VoIP telephony service;

o adequately forecast anticipated customer purchase and usage of our retail VoIP
products;

o maintain or increase sponsorship revenues for our computer games magazine;

o maintain or increase direct response marketing services revenue;

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.

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. The
loss of the services of members of our management team or other key personnel
could harm our business. Our future success depends to a significant extent on
the continued service of key management, client service, product development,
sales and technical personnel. We do not maintain key person life insurance on
any of our executive officers and do not intend to purchase any in the future.
Although we generally enter into non-competition agreements with our employees,
our business could be harmed if one or more of our officers or key employees
decided to join a competitor or otherwise compete with 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. 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 primarily 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 6 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.

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 REDUCE OUR OPERATING MARGINS AND MAY
ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL CONDITION.

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. Certain of these
agreements contain minimum one year usage requirements pursuant to which we were
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. Our minimum usage commitments under existing carrier
agreements presently greatly exceed our current actual usage and obligate the
Company, beginning in the fourth quarter of 2004, to pay approximately $1.9
million, exclusive of regulatory taxes, fees and charges over the next twelve
months. We are currently negotiating to eliminate or significantly reduce our
existing minimum usage commitments. If the Company is not successful in
eliminating or significantly reducing such commitments, its liquidity and
financial condition could be materially and adversely impacted. 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.

We have also entered into a contract with a supplier to purchase a minimum
number of telephony handsets, and may enter into similar arrangements with other
suppliers for other equipment related to our VoIP services. In general, we can
achieve better per unit pricing for such equipment if we enter into larger
commitments. To the extent we overestimate our needs for and enter into binding
agreements to purchase such equipment, we may be obligated to buy more of such
equipment than we can reasonably use in our business in the foreseeable future,
if at all. We have recorded charges totaling $0.6 million related to excess
telephony handset inventory during the third quarter of 2004. In the event that
we are not able to sell our telephony equipment in sufficient quantities and at
sufficient prices, further write-downs in the value of our telephony inventory
assets may be required in future periods. Additionally, we are obligated to
purchase telephony handsets totaling approximately $3.0 million during the
remainder of 2004. Based upon current inventory levels and our sales
projections, we do not presently intend to purchase these additional telephony
handsets during 2004 or in the foreseeable future. Because any loss associated
with the Company's commitment to purchase additional equipment from the
telephony handset supplier cannot at this time be reasonable estimated, no
charges related to this excess commitment have been recorded through September
30, 2004. Due to the large amount of the remaining contractual commitment,
significant charges related to the resolution of the excess handset purchase
commitment may be required in future periods. An unfavorable resolution to the
settlement of the remaining contractual commitment could have a material adverse
effect on the Company's liquidity and financial condition.

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 VoIP
services, can be ordered or established (in the case of new 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 VoIP 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 RELATED TO OUR MARKETING SERVICES BUSINESS

ANY DECREASE IN DEMAND FOR OUR ONLINE MARKETING SERVICES COULD SUBSTANTIALLY
REDUCE OUR REVENUES.

A substantial portion of our revenue is derived from Internet advertising. We
expect that online advertising will continue to account for a substantial
portion of our revenue in the future. However, our revenue from Internet
advertising may decrease in the future for a number of reasons, including the
following:

o the rate at which Internet users click on advertisements or take action in
response to an advertisement has always been low and could decline as the volume
of Internet advertising increases;

o Internet users can install software programs that allow them to prevent
advertisements from appearing on their screens or block the receipt of emails;

o advertisers may prefer an alternative Internet advertising format, product or
service which we might not offer at that time; and

o we may be unable to make the transition to new Internet advertising formats
preferred by advertisers.

IF OUR PRICING MODELS ARE NOT ACCEPTED BY OUR ADVERTISER CLIENTS, WE COULD LOSE
CLIENTS AND OUR REVENUE COULD DECLINE.

Most of our services are offered to advertisers based on cost-per-action or
cost-per-click pricing models, under which advertisers only pay us if we provide
the results they specify. These results-based pricing models differ from the
fixed-rate pricing model used by many Internet advertising companies, under
which the fee is based on the number of times the advertisement is shown without
regard to effectiveness. Our ability to generate significant revenue from
advertisers will depend, in part, on our ability to demonstrate the
effectiveness of our primary pricing models to advertisers, who may be more
accustomed to a fixed-rate pricing model.

Furthermore, intense competition among websites and other Internet advertising
providers has led to the development of a number of alternative pricing models
for Internet advertising. The proliferation of multiple pricing alternatives may
confuse advertisers and make it more difficult for them to differentiate among
these alternatives. In addition, it is possible that new pricing models may be
developed and gain widespread acceptance that are not compatible with our
business model or our technology. These alternatives, and the likelihood that
additional pricing models will be introduced, make it difficult for us to
project the levels of advertising revenue or the margins that we, or the
Internet advertising industry in general, will realize in the future. If
advertisers do not understand the benefits of our pricing models, then the
market for our services may decline or develop more slowly than we expect, which
may limit our ability to grow our revenue or cause our revenue to decline.

WE DEPEND ON A LIMITED NUMBER OF CLIENTS FOR A SIGNIFICANT PERCENTAGE OF OUR
REVENUE, AND THE LOSS OF ONE OR MORE OF THESE ADVERTISERS COULD CAUSE OUR
REVENUE TO DECLINE.

The results of SendTec's operations have been included in our consolidated
results since date of acquisition, or September 1, 2004. During the month ended
September 30, 2004, two customers of SendTec accounted for approximately 46% of
SendTec's total revenue. We believe that a limited number of clients will
continue to be the source of a substantial portion of our revenue for the
foreseeable future. Key factors in maintaining our relationships with these
clients include our performance on individual campaigns, the strength of our
professional reputation and the relationships of our key executives with client
personnel. To the extent that our performance does not meet client expectations,
or our reputation or relationships with one or more major clients are impaired,
our revenues could decline and our operating results could be adversely
affected.

ANY LIMITATION ON OUR USE OF DATA DERIVED FROM OUR CLIENTS' ADVERTISING
CAMPAIGNS COULD SIGNIFICANTLY DIMINISH THE VALUE OF OUR SERVICES AND CAUSE US TO
LOSE CLIENTS AND REVENUE.

When an individual visits our clients' websites, we use technologies, including
cookies and web beacons, to collect information such as the user's IP address,
advertisements delivered by us that have been viewed by the user and responses
by the user to such advertisements. We aggregate and analyze this information to
determine the placement of advertisements across our affiliate network of
advertising space. Although the data we collect from campaigns of different
clients, once aggregated, are not identifiable, our clients might decide not to
allow us to collect some or all of this data or might limit our use of this
data. Any limitation on our ability to use such data could make it more
difficult for us to deliver online marketing programs that meet client demands.

In addition, although our contracts generally permit us to aggregate data from
advertising campaigns, our clients might nonetheless request that we discontinue
using data obtained from their campaigns that have already been aggregated with
other clients' campaign data. It would be difficult, if not impossible, to
comply with these requests, and such requests could result in significant
expenditures of resources. Interruptions, failures or defects in our data
collection, mining and storage systems, as well as privacy concerns regarding
the collection of user data, could also limit our ability to aggregate and
analyze data from our clients' advertising campaigns. If that happens, we may
lose clients and our revenue may decline.

IF THE MARKET FOR INTERNET ADVERTISING FAILS TO CONTINUE TO DEVELOP, OUR REVENUE
AND OUR OPERATING RESULTS COULD BE HARMED.

Our future success is highly dependent on the continued use and growth of the
Internet as an advertising medium. The Internet advertising market is relatively
new and rapidly evolving, and it uses different measurements than traditional
media to gauge its effectiveness. As a result, demand for and market acceptance
of Internet advertising services is uncertain. Many of our current or potential
advertiser clients have little or no experience using the Internet for
advertising purposes and have allocated only limited portions of their
advertising budgets to the Internet. The adoption of Internet advertising,
particularly by those entities that have historically relied upon traditional
media for advertising, requires the acceptance of a new way of conducting
business, exchanging information, measuring success and evaluating new
advertising products and services. Such clients may find Internet advertising to
be less effective for promoting their products and services than traditional
advertising media. We cannot assure you that the market for Internet advertising
will continue to grow or become sustainable. If the market for Internet
advertising fails to continue to develop or develops more slowly than we expect,
our revenue and business could be harmed.

WE DEPEND ON ONLINE PUBLISHERS FOR ADVERTISING SPACE TO DELIVER OUR CLIENTS'
ADVERTISING CAMPAIGNS, AND ANY DECLINE IN THE SUPPLY OF ADVERTISING SPACE
AVAILABLE THROUGH OUR NETWORK COULD CAUSE OUR REVENUE TO DECLINE.

The websites, search engines and email publishers that sell or venture their
advertising space to or with us are not bound by long-term contracts that ensure
us a consistent supply of advertising space, which we refer to as our inventory.
We generate a significant portion of our revenue from the advertising inventory
provided by a limited number of publishers. In most instances, publishers can
change the amount of inventory they make available to us at any time, as well as
the price at which they make it available. In addition, publishers may place
significant restrictions on our use of our advertising inventory. These
restrictions may prohibit advertisements from specific advertisers or specific
industries, or restrict the use of certain creative content or format. If a
publisher decides not to make inventory available to us, or decides to increase
the price, or places significant restrictions on the use of such inventory, we
may not be able to replace this with inventory from other publishers that
satisfy our requirements in a timely and cost-effective manner. If this happens,
our revenue could decline or our cost of acquiring inventory may increase.

OUR GROWTH MAY BE LIMITED IF WE ARE UNABLE TO OBTAIN SUFFICIENT ADVERTISING
INVENTORY THAT MEETS OUR PRICING AND QUALITY REQUIREMENTS.

Our growth depends on our ability to effectively manage and expand the volume of
our inventory of advertising space. To attract new advertisers, we must increase
our supply of inventory that meets our performance and pricing requirements. Our
ability to purchase or venture sufficient quantities of suitable advertising
inventory will depend on various factors, some of which are beyond our control.
These factors include:

o our ability to offer publishers a competitive price for our inventory;

o our ability to estimate the quality of the available inventory; and

o our ability to efficiently manage our existing advertising inventory.

In addition, the number of competing Internet advertising networks that purchase
advertising inventory from websites, search engine and email publishers
continues to increase. We cannot assure you that we will be able to purchase or
venture advertising inventory that meets our performance, price and quality
requirements, and if we cannot do so, our ability to generate revenue could be
limited.

ANY LIMITATION ON OUR ABILITY TO POST ADVERTISEMENTS THROUGHOUT OUR NETWORK OF
ADVERTISING SPACE COULD HARM OUR BUSINESS.

We execute advertising programs for clients primarily by posting advertisements,
which we refer to as ad delivery, on our affiliate network of advertising space.
Our business could suffer from a variety of factors that could limit or reduce
our ability to post advertisements across our affiliate network, including:

o technological changes that render the delivery of our advertisements obsolete
or incompatible with the operating systems of consumers and/or the systems of
online publishers;

o lawsuits or injunctions based on claims that our ad delivery methodologies
violate the proprietary rights of other parties; and

o interruptions, failures or defects in our ad delivery and tracking systems.

CONSOLIDATION OF ONLINE PUBLISHERS MAY IMPAIR OUR ABILITY TO PROVIDE MARKETING
SERVICES, ACQUIRE ADVERTISING INVENTORY AT FAVORABLE RATES AND COLLECT CAMPAIGN
DATA.

The consolidation of Internet advertising networks, web portals, search engines
and other online publishers could eventually lead to a concentration of
desirable advertising inventory on a very small number of networks and large
websites. Such concentration could:

o increase our costs if these publishers use their greater bargaining power to
increase rates for advertising inventory; and

o impair our ability to provide marketing services if these publishers prevent
us from distributing our clients' advertising campaigns on their websites or if
they adopt ad delivery systems that are not compatible with our ad delivery
methodologies.

OUR BUSINESS COULD BE HARMED IF THE USE OF TRACKING TECHNOLOGY IS RESTRICTED OR
BECOMES SUBJECT TO NEW REGULATION.

In conjunction with the delivery of advertisements to websites, we typically
place small files of information, commonly known as cookies, on an Internet
user's hard drive, generally without the user's knowledge or consent. Cookie
information is passed to us through an Internet user's browser software. We use
cookies to collect information regarding the advertisements we deliver to
Internet users and their interaction with these advertisements. We use this
information to identify Internet users who have received our advertisements in
the past and to monitor and prevent potentially fraudulent activity. In
addition, our technology uses this information to monitor the performance of
ongoing advertising campaigns and plan future campaigns.

Some Internet commentators and privacy advocates have proposed limiting or
eliminating the use of cookies and other Internet tracking technologies, and
legislation has been introduced in some jurisdictions to regulate Internet
tracking technologies. The European Union has already adopted a directive
requiring that when cookies are used, the user must be informed and offered an
opportunity to opt-out of the cookies' use. If there is a further reduction or
limitation in the use of Internet tracking technologies such as cookies:

o we may have to replace or re-engineer our tracking technology, which could
require significant amounts of our time and resources, may not be completed in
time to avoid losing clients or advertising inventory, and may not be
commercially or technically feasible;

o we may have to develop or acquire other technology to prevent fraud; and

o we may become subject to costly and time-consuming litigation or
investigations due to our use of cookie technology or other technologies
designed to collect Internet usage information.

Any one or more of these occurrences could result in increased costs, require us
to change our business practices or divert management's attention.

IF WE OR OUR ADVERTISER OR PUBLISHER CLIENTS FAIL TO COMPLY WITH REGULATIONS
GOVERNING CONSUMER PRIVACY, WE COULD FACE SUBSTANTIAL COSTS AND OUR BUSINESS
COULD BE HARMED.

Our collection, maintenance and sharing of information regarding Internet users
could result in lawsuits or government inquiries. These actions may include
those related to U.S. federal and state legislation or European Union directives
limiting the ability of companies like ours to collect, receive and use
information regarding Internet users. Litigation and regulatory inquiries are
often expensive and time-consuming and their outcome is uncertain. Any
involvement by us in any of these matters could require us to:

o spend significant amounts on legal defense;

o divert the attention of senior management from other aspects of our business;

o defer or cancel new product launches as a result of these claims or
proceedings; and

o make changes to our present and planned products or services.

Further, we cannot assure you that our advertiser and publisher clients are
currently in compliance, or will remain in compliance, with their own privacy
policies, regulations governing consumer privacy or other applicable legal
requirements. We may be held liable if our clients use our technology or the
data we collect on their behalf in a manner that is not in compliance with
applicable laws or regulations or their own stated privacy standards.

WE MAY BE LIABLE FOR CONTENT IN THE ADVERTISEMENTS WE DELIVER FOR OUR CLIENTS.

We may be liable to third parties for content in the advertisements we deliver
if the artwork, text or other content involved violates copyrights, trademarks
or other intellectual property rights of third parties or if the content is
defamatory. Although we generally receive warranties from our advertisers that
they have the right to use any copyrights, trademarks or other intellectual
property included in an advertisement and are normally indemnified by the
advertisers, a third party may still file a claim against us. Any claims by
third parties against us could be time-consuming, could result in costly
litigation and adverse judgments and could require us to change our business.

MISAPPROPRIATION OF CONFIDENTIAL INFORMATION HELD BY US COULD CAUSE US TO LOSE
CLIENTS OR INCUR LIABILITY.

We retain highly confidential information on behalf of our clients in our
systems and databases. Although we maintain security features in our systems,
our operations may be susceptible to hacker interception, break-ins and other
disruptions. These disruptions may jeopardize the security of information stored
in and transmitted through our systems. If confidential information is
compromised, we could be subject to lawsuits by the affected clients or Internet
users, which could damage our reputation among our current and potential
clients, require significant expenditures of capital and other resources and
cause us to lose business and revenues.

WE FACE INTENSE AND GROWING COMPETITION, WHICH COULD RESULT IN PRICE REDUCTIONS,
REDUCED OPERATING MARGINS AND LOSS OF MARKET SHARE.

The direct response advertising market is highly competitive. If we fail to
compete effectively against other advertising service companies, we could lose
clients or advertising inventory and our revenues could decline. We expect
competition to continue to increase because there are no significant barriers to
entry.

Many current and potential competitors have advantages over us, such as longer
operating histories, greater name recognition, larger client bases, greater
access to advertising space on high-traffic websites and significantly greater
financial, technical and marketing resources. In addition, existing or future
competitors may develop or offer services that provide significant performance,
price, creative or other advantages over those offered by us.

Current and potential competitors may establish cooperative relationships among
themselves or with third parties to increase the ability of their products and
services to address the needs of our clients and prospective clients. As a
result, it is possible that new competitors may emerge and rapidly acquire
significant market share.

If we fail to compete successfully, we could have difficulties attracting and
retaining advertising clients or advertising inventory, which may decrease our
revenues and adversely affect our operating results. Increased competition may
also result in price reductions and reduced operating income.

WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CLIENTS.

Our clients typically hire us on a project-by-project basis or on an annual
contractual relationship. Moreover, our clients generally have the right to
terminate their relationships with us without penalty and with relatively short
or no notice. Once a project is completed we cannot be

assured that a client will engage us for further services. From time to time,
highly successful engagements have ended because our client was acquired and the
new owners decided not to retain us. A client that generates substantial revenue
for us in one period may not be a substantial source of revenue in a subsequent
period. We expect a relatively high level of client concentration to continue,
but not necessarily involve the same clients from period to period. The
termination of our business relationships with any of our significant clients,
or a material reduction in the use of our services by any of our significant
clients, could adversely affect our future financial performance.

IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR EXPENSES COULD INCREASE AND OUR
MANAGEMENT'S TIME AND ATTENTION COULD BE DIVERTED.

As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving Internet advertising market. Our business,
results of operations and financial condition will be substantially harmed if we
are unable to manage our expanding operations effectively. We plan to continue
to expand the sales and marketing, customer support and research and development
organizations. Growth may place a significant strain on our management systems
and resources. We will likely need to continue to improve our financial and
managerial controls and our reporting systems and procedures. In addition, we
will need to expand, train and manage our work force. Our failure to manage our
growth effectively could increase our expenses and divert management's time and
attention.

IF WE FAIL TO ESTABLISH, MAINTAIN AND EXPAND OUR TECHNOLOGY BUSINESS AND
MARKETING ALLIANCES AND PARTNERSHIPS, OUR ABILITY TO GROW OUR MARKETING SERVICES
BUSINESS COULD BE LIMITED.

In order to grow our technology business, we must generate, retain and
strengthen successful business and marketing alliances with advertising
agencies.

We depend, and expect to continue to depend, on our business and marketing
alliances, which are companies with which we have written or oral agreements to
work together to provide services to our clients and to refer business from
their clients and customers to us. If companies with which we have business and
marketing alliances do not refer their clients and customers to us to perform
their online campaign and message management, our revenue and results of
operations would be severely harmed.

RISKS RELATING TO OUR COMPUTER GAMES 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. Because of the large installed base of personal
computers, 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 are 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 market
volumes may decline in the future, which could have a material adverse 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 computer games businesses.

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 November 8, 2004, we had issued and outstanding approximately 156 million
shares, of which approximately 31.3 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 November 8, 2004, there were outstanding options to purchase
approximately 15,600,000 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 shares upon exercise of these
options is registered under the Securities Act and consequently, subject to
certain volume restrictions as to shares issuable to executive officers, will be
freely tradable.

As part of the acquisition of SendTec, we issued 17.5 million shares of our
Common Stock, together with Preferred Stock convertible into an additional 17.5
million shares of Common Stock. We are contractually obligated to cause the
registration for resale of these shares on or before September 1, 2005. Upon
registration all such shares will be eligible for resale over the open market.

OUR CHAIRMAN MAY CONTROL US.

After giving effect to the proxies to vote both the shares of Common Stock and
Series H Preferred Stock granted by five of the former shareholders of SendTec,
Michael S. Egan, our Chairman and Chief Executive Officer, beneficially owns or
controls, directly or indirectly, approximately 87.6 million shares of our
Common Stock as of November 8, 2004, which in the aggregate represents
approximately 49.4% 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 and warrants owned by Mr. Egan or his affiliates). Accordingly,
Mr. Egan will 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 AND MAY DECLINE.

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 quarterly variations in our operating results;

o competitive announcements;

o sales of any of our remaining computer games businesses;

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

o news relating to trends in our markets; and

o entrance into new lines of business and acquisitions of businesses, including
our recent SendTec acquisition.

In addition, with regard to our acquisition of SendTec the trading price of our
Common Stock may decline if:

o integration of theglobe.com and SendTec is unsuccessful or is delayed;

o the combined company does not achieve the perceived benefits of the
acquisition as rapidly or to the extent anticipated by investors;

o the effect of the acquisition on the combined company's financial results or
condition is not consistent with the expectations of financial investors; or

o the dilution in shareholder ownership related to the issuance of shares of
theglobe.com's Common Stock in connection with the acquisition is perceived
negatively by investors.

The market price of our Common Stock could also declines as a result of
unforeseen factors related to the acquisition.

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 September 30, 2004. Based on that evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that 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.

Our management, with the participation of our Chief Executive Officer and our
Chief Financial Officer, have evaluated any change in our internal control over
financial reporting that occurred during the nine months ended September 30,
2004 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting, and have determined there to be
no reportable changes except as described below.

Beginning 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
websites. 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 operation:

o Identity Verification. In March 2004, our customer service representatives
began contacting the credit cardholder on each new subscription for our VoIP
telephony service. Once we successfully verify the billing information and
confirm the validity of the transaction, the customer's service is activated and
credit card is billed.

o Usage Monitoring. In March 2004, we began to 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. In May 2004, we implemented a more robust
electronic payment processing 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.

During early May 2004, in the course of resolving the aforementioned credit card
fraud issues, the Company temporarily suspended one operation of a key control
process. During the period when such control was not functioning access to the
PSTN was not properly limited, thereby resulting in excessive costs being
incurred by the Company. Subsequently, in the latter part of May 2004 we
corrected this control deficiency by reinstalling this key control operation.

In September 2004 an enhancement was added to our fraud prevention software
which automatically evaluates registration transactions in real time to
determine whether to accept, reject or hold for further manual review. The
implementation of this rules-based enhancement is expected to improve the
effectiveness and efficiency of our fraud screening process.

We continue to review the effectiveness of both our manual and automated fraud
screening processes in an effort to further reduce the occurrence of fraud
within our VoIP network.

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 end of our last fiscal quarter. We cannot
assure you, however, that our system of controls and procedures will always
achieve its stated goals under all future conditions.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 6 - "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 September 1, 2004, theglobe closed upon an Agreement and Plan of Merger dated
August 31, 2004 (the "Merger Agreement"), pursuant to which the Company acquired
all of the issued and outstanding shares of capital stock of SendTec, Inc.
("SendTec"). Pursuant to the terms of the merger, in consideration for the
acquisition of SendTec, theglobe paid or will pay consideration consisting of:
(i) $6,000,000 in cash, (ii) the issuance of an aggregate of 17,500,000 shares
of theglobe's common stock (the "Common Shares"), (iii) the issuance of an
aggregate of 175,000 shares of Series H Automatically Converting Preferred Stock
(which as more fully described below, is convertible into 17,500,000 shares of
theglobe's common stock) (the "Preferred Stock"), and (iv) a subordinated
promissory note in the amount of $1 million (the "Note") (collectively, the
"Initial Merger Consideration"). In addition, warrants to acquire shares of
common stock would be issued to SendTec shareholders when and if SendTec exceeds
forecasted operating income, as defined, of $10.125 million (the "Income
Target"), for the year ending December 31, 2005 (the "Earn-out Consideration"
and collectively with the Initial Merger Consideration, the "Merger
Consideration"). The number of Earn-out Warrants would range from an aggregate
of 250,000 to 2,500,000 (if actual operating income exceeds the forecast by at
least 10%). If and to the extent the warrants are earned, the exercise price of
the performance warrants would be $0.27 per share and they will be exercisable
for a period of 5 years. The Note bears interest at the rate of 4% per annum and
matures in one lump sum of principal and interest on September 1, 2005.

The Merger Consideration was distributed pro rata to the shareholders of SendTec
in accordance with their respective ownership interests.

As part of the Merger, 100,000 shares of Preferred Stock (convertible into 10
million shares of common stock) (the "Escrow Shares") are being held in escrow
for potential recovery by theglobe in the event of a breach of the Merger
Agreement by SendTec or its shareholders. In general, the Escrow Shares,
together with the sums due under the Note, would be the sole source of recourse
against the shareholders of SendTec in the event of a breach of the Merger
Agreement and theglobe would not have recourse against the cash portion or other
shares of common stock or Preferred Stock distributed to the SendTec
shareholders as part of the Merger Consideration. Assuming no claims are then
pending, the Escrow Shares would be distributed to SendTec shareholders after
expiration of one year from the date of closing.

Except as provided by law, the Preferred Stock will vote with the holders of
common stock on all matters on an "as-converted" basis, other than the Capital
Amendment described below as to which it will not vote. The Preferred Stock will
automatically convert into shares of theglobe's common stock on a 1 for 100
basis at such time as theglobe files an amendment to its certificate of
incorporation with the Delaware Secretary of State's Office to increase its
authorized shares of common stock from 200,000,000 to at least 300,000,000 (the
"Capital Amendment"). theglobe intends to seek shareholder authorization for an
amendment which will increase its authorized shares of Common Stock to
500,000,000 at its annual meeting of stockholders scheduled to be held November
30, 2004. Five of the former shareholders of SendTec (whom collectively received
approximately 82% of the shares of common stock issued in the Merger, together
with theglobe's Chairman, Michael Egan (together with certain affiliates which
he controls), have agreed to vote (or have granted proxies to so vote) their
shares of Common Stock in favor of the Capital Amendment. Together with such
former SendTec shareholders and Mr. Egan control the vote over approximately
69.25 million of theglobe's 156 million issued and outstanding shares of common
stock. The Capital Amendment will be approved if the holders of a majority of
the outstanding shares of common stock vote in its favor.

In the event that the Capital Amendment is not approved for any reason at the
annual meeting then on the 10th day following the failure to approve the Capital
Amendment, the remaining shares of Preferred Stock will automatically convert
into whatever number of shares of Common Stock which theglobe then has remaining
available for issuance (after giving affect to approximately 33.7 million shares
reserved for issuance under previously outstanding options and warrants), less
up to 3 million additional shares as may be designated by theglobe. After giving
effect to the reservation of shares underlying outstanding options and warrants
to acquire shares of theglobe's common stock (including options issued in
connection with the Merger) and the shares of common stock issued in the Merger,
theglobe presently has issued and outstanding (or reserved for issuance)
approximately 197 million shares of common stock, leaving a maximum of
approximately 3 million shares (assuming no further shares of common stock are
issued prior to such date) which could be further issued upon conversion of the
Preferred Stock absent the increase in common stock contemplated by the Capital
Amendment or other arrangements satisfactory to the holders of any options or
warrants to acquire shares. With regard to any shares of Preferred Stock which
theglobe does not automatically convert into shares of common stock, the holders
of the Preferred Stock may thereafter convert such remaining Preferred Stock
into a subordinated promissory note (a "Conversion Note") from theglobe. If
issued, the Conversion Note will be due in one lump sum on the later of the
first anniversary of its issuance or December 31, 2005 and will bear interest at
the rate of 4% per annum. The principal amount of the Conversion Note would be
equal to the product of (A) the number of shares of theglobe's common stock that
would have been issued upon conversion of the shares of the Preferred Stock that
were not converted into common stock and (B) the lesser of (i) the Fair Market
Value, as defined, of theglobe's common stock in the 20 trading days immediately
prior to the conversion date and (ii) $0.83. If none of the remaining shares of

Preferred Stock were converted into common stock, the maximum principal amount
of the Conversion Note (based upon the maximum conversion rate of $0.83 per
share) would be approximately $14.5 million.

The Company has agreed to file a registration statement relating to the resale
of the shares of common stock issued in the Merger and the shares of common
stock underlying the Preferred Stock on or before January 29, 2005 and to cause
the effectiveness of such registration on or before September 1, 2005. The
Company also agreed to keep the registration effective until at least the third
anniversary of the Closing. Pursuant to the terms of the Merger, in general, the
common stock and Preferred Stock (and the underlying shares of common stock)
issued in the Merger may not be sold or otherwise transferred for a period of
one (1) year without the prior written consent of the Company.

The Merger Securities issued or issuable in the SendTec Acquisition were
directed solely to the approximately 35 shareholders of SendTec. The Company
believes that the SendTec shareholders were, either alone or with their
representatives in the merger, sophisticated and further that substantially all
of the SendTec shareholders were accredited, within the meaning of such terms
under applicable securities laws. Consequently, the Company believes that such
offers and sales of the Merger Securities were exempt from registration pursuant
to Sections 4(2) of the Securities Act of 1933 and Rule 506 of 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

3.1 Certificate of Amendment Relating to the Designation Preferences and Rights
of the Series H Automatically Converting Preferred Stock. (1)

4.1 Form of Warrant relating to potential issuance of Earn-out Consideration.
(1)

10.1 Agreement and Plan of Merger dated August 31, 2004 by and between
theglobe.com, inc., SendTec Acquisition Corporation and SendTec, Inc., among
others. (1)

10.2 Employment Agreement dated September 1, 2004 by and between SendTec, Inc.
and Paul Soltoff. (1)

10.3 Stockholders' Agreement dated September 1, 2004 by and between theglobe.com
and certain named stockholders. (18)

10.4 theglobe.com 2004 Stock Option Plan. (4)

10.5 Promissory Note dated September 1, 2004. (1)

10.6 Form of Potential Conversion Note relating to Series H Preferred Stock. (1)

10.7 Indemnification Agreement dated September 17, 2004 between theglobe.com,
inc. and Paul Soltoff. (2)

18.1 Independent Accountant Preferability Letter. (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 Form 8-K dated September 7, 2004, relating
to Items 1.01 and 2.01 disclosure of the August 31, 2004, entry into and the
September 1, 2004 closing upon an Agreement and Plan of Merger pursuant to which
theglobe.com acquired all of the issued and outstanding shares of capital stock
of SendTec, Inc.

(2) Incorporated by reference to our Form 8-K/A dated September 21, 2004, which
amended a previously filed Form 8-K dated September 7, 2004, relating to an Item
1.01 disclosure of the Indemnification Agreement dated September 17, 2004,
between theglobe.com and Paul Soltoff, a member of the Board of Directors of
theglobe.com and an Item 9.01 disclosure of the financial statements of the
acquired business of SendTec, Inc. and the related pro forma financial
information.

(3) Incorporated by reference to our Form 10-QSB for the quarterly period ended
June 30, 2004, as filed on August 13, 2004.

(4) Incorporated by reference to our Form S-8 as filed on October 13, 2004.

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.

November 12, 2004

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

/s/ Albert J. Detz
----------------------------------
Albert J. Detz
Chief Financial Officer
(Principal Financial Officer)

EXHIBIT INDEX

3.1 Certificate of Amendment Relating to the Designation Preferences and Rights
of the Series H Automatically Converting Preferred Stock. (1)

4.1 Form of Warrant relating to potential issuance of Earn-out Consideration.
(1)

10.1 Agreement and Plan of Merger dated August 31, 2004 by and between
theglobe.com, inc., SendTec Acquisition Corporation and SendTec, Inc., among
others. (1)

10.2 Employment Agreement dated September 1, 2004 by and between SendTec, Inc.
and Paul Soltoff. (1)

10.3 Stockholders' Agreement dated September 1, 2004 by and between theglobe.com
and certain named stockholders. (18)

10.4 theglobe.com 2004 Stock Option Plan. (4)

10.5 Promissory Note dated September 1, 2004. (1)

10.6 Form of Potential Conversion Note relating to Series H Preferred Stock. (1)

10.7 Indemnification Agreement dated September 17, 2004 between theglobe.com,
inc. and Paul Soltoff. (2)

18.1 Independent Accountant Preferability Letter. (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.

--------------------

(3) Incorporated by reference to our Form 10-QSB for the quarterly period ended
June 30, 2004, as filed on August 13, 2004.

(4) Incorporated by reference to our Form S-8 as filed on October 13, 2004.