THEGLOBE COM INC, 10-Q, 2000-08-14

THEGLOBE COM INC
10-Q, 2000-08-14
ADVERTISING

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2000

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] 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.)

120 BROADWAY
NEW YORK, NEW YORK 10271
--------------------------------------- ---------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 894-3600

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 August 7, 2000 was 31,040,874.
<PAGE>

THEGLOBE.COM, INC.

FORM 10-Q

INDEX

PART I FINANCIAL INFORMATION

Page
----

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2000
(unaudited) and December 31, 1999 1

Unaudited Condensed Consolidated Statements of
Operations for the three and six months ended June 30,
2000 and 1999 2

Unaudited Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2000 and 1999 3

Notes to Unaudited Condensed Consolidated Financial
Statements 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10

Item 3. Qualitative and Quantitative Disclosures about Market Risk 28

PART II. OTHER INFORMATION

Item 1. Legal Proceedings II-1

Item 2. Changes in Securities and Use of Proceeds II-1

Item 3. Defaults Upon Senior Securities II-1

Item 4. Submission of Matters to a Vote of Security Holders II-1

Item 5. Other Information II-1

Item 6. Exhibits and Reports on Form 8-K II-1

A. Exhibits
B. Reports on Form 8-K

Signatures II-2
<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THEGLOBE.COM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2000 1999
----------------- -----------------
(unaudited) (note 1)
ASSETS
Current assets:
<S> <C> <C>

Cash and cash equivalents.............................. $ 19,655,484 $ 36,585,998
Short-term investments................................. 12,638,891 19,288,627
Accounts receivable, net............................... 5,651,924 4,219,716
Prepaid and other current assets....................... 1,742,298 1,446,187
----------------- -----------------

Total current assets................................. 39,688,597 61,540,528

Goodwill and other intangible assets, net................ 52,104,372 63,462,251
Property and equipment, net.............................. 9,197,942 9,464,291
Restricted investments................................... 5,163,975 3,657,497
Other assets............................................. 6,499,778 718,750
----------------- -----------------

Total assets............................................. $ 112,654,664 $ 138,843,317
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY.................
Current liabilities:
Accounts payable....................................... $ 3,168,064 $ 2,722,017
Accrued expenses....................................... 2,826,893 2,439,369
Accrued compensation................................... 1,143,306 1,610,445
Deferred revenue....................................... 889,380 565,919
Current portion of long-term debt and current installments
of capital lease obligations ........................ 2,051,167 1,956,982
----------------- -----------------

Total current liabilities............................ 10,078,810 9,294,732

Long-term debt and capital lease obligations, excluding
current installments.................................. 1,348,718 2,200,895
Deferred rent............................................ 495,245 438,263

Stockholders' equity:
Common stock........................................... 31,024 27,771
Additional paid-in capital............................. 220,207,999 197,307,293
Deferred compensation.................................. (209,283) (269,307)

Accumulated other comprehensive loss................... (38,924) (109,462)
Accumulated deficit.................................... (119,258,925) (70,046,868)
----------------- -----------------
Total stockholders' equity........................... 100,731,891 126,909,427
----------------- -----------------
Commitments and contingencies............................

Total liabilities and stockholders' equity........... $ 112,654,664 $ 138,843,317
================= =================

See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>

<PAGE>

theglobe.com, inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------- -----------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>

Revenues:
Advertising.............................. $ 6,118,872 $ 3,974,183 $ 10,733,914 7,052,203
Electronic commerce and other............ 2,258,603 155,834 4,622,746 269,618
----------------- ----------------- ------------------ --------------

Total revenues................... 8,377,475 4,130,017 15,356,660 7,321,821

Cost of revenues......................... 4,683,143 1,753,958 9,091,141 2,950,308
----------------- ----------------- ------------------ --------------

Gross profit.................... 3,694,332 2,376,059 6,265,519 4,371,513

Operating expenses:
Sales and marketing.................... 7,917,997 3,481,616 13,515,095 5,668,534
Product development.................... 2,824,048 2,805,981 5,791,795 4,919,787
General and administrative............. 3,527,250 2,992,649 6,738,293 5,746,680
Restructuring and impairment charges... 15,583,110 -- 15,583,110 --
Amortization of goodwill
and intangible assets................ 6,980,614 6,408,765 14,604,784 7,769,543
----------------- ----------------- ------------------ -------------

Total operating expenses...... 36,833,019 15,689,011 56,233,077 24,104,544
----------------- ----------------- ------------------ --------------

Loss from operations............ (33,138,687) (13,312,952) (49,967,558) (19,733,031)

Interest and other income, net........... 455,952 313,553 875,998 509,179
----------------- ----------------- ------------------ -------------

Loss before provision
for income taxes.......... (32,682,735) (12,999,399) (49,091,560) (19,223,852)

Provision for income taxes........... 50,269 107,076 120,439 152,965
----------------- ----------------- ------------------ -------------

Net loss.................... $ (32,733,004) $ (13,106,475) $ (49,211,999) $ (19,376,817)
================= ================= ================== =============

Basic and diluted net loss
per share.......................... $ (1.07) $ (0.54) $ (1.66) $ (0.85)
================= ================= ================== =============

Weighted average basic and
diluted shares outstanding......... 30,633,713 24,421,000 29,719,121 22,764,751
================= ================= ================== =============

See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>

<PAGE>

THEGLOBE.COM, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended
June 30,
-------------------------------------------
2000 1999
-------------------------------------------
(unaudited)
<S> <C> <C>

Cash flows from operating activities:

Net loss................................................ $ (49,211,999) $ (19,376,816)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........................ 16,531,536 8,674,559
Deferred compensation................................ 60,024 64,607
Amortization of debt discount........................ - 65,505
Loss on sale of short-term securities................ 108,929 -
Deferred rent........................................ 56,982 381,282
Repricing of options................................. 16,923 -
Non-cash restructuring and impairment charges........ 14,493,057 -
Non-cash marketing expenses.......................... 1,075,222 -
Changes in operating assets and liabilities, net
of effect of acquisitions:

Accounts receivable, net............................. (460,512) (554,210)
Prepaid and other current assets..................... 90,313 170,800
Accounts payable..................................... (1,471,449) (364,044)
Accrued expenses..................................... 332,637 (631,549)
Accrued compensation................................. (737,856) 121,279
Deferred revenue..................................... (14,369) (121,125)
----------------- ---------------

Net cash used in operating activities.................... (19,130,562) (11,569,712)
----------------- ---------------
...............................................

Cash flows from investing activities:

Purchases of short-term securities...................... (12,471,800) (10,796,291)
Proceeds from sale and maturities of short-term 19,121,536 10,783,388
securities............................................
Purchases of property and equipment..................... (2,071,257) (3,410,242)
Cash paid for acquisitions, net of cash acquired........ (263,707) 691,320
Payments of security deposits, net...................... (1,506,478) (1,825,509)
----------------- ---------------

Net cash provided by (used) in investing activities...... 2,808,294 (4,557,334)
----------------- ---------------

Cash flows from financing activities:

Payments under capital lease obligations................ (894,271) (599,702)
Payments of long-term debt.............................. (56,321) (10,037)
Proceeds from exercise of common stock
options and warrants................................... 317,086 336,699

Net proceeds from issuance of common stock.............. 53,993 65,013,435
----------------- ---------------

Net cash (used in) provided by financing activities...... (579,513) 64,740,395
----------------- ---------------

Net change in cash and cash equivalents.................. (16,901,781) 48,613,349

Effect of exchange rate changes on cash and cash (28,733) (8,679)
equivalents............................................

Cash and cash equivalents at beginning of period......... 36,585,998 29,250,572
----------------- ---------------

Cash and cash equivalents at end of period............... $ 19,655,484 $ 77,855,242
================= ===============

Supplemental disclosure of noncash transactions:

Equipment acquired under capital leases............... $ 64,739 $ 1,632,801
================= ===============

See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
THEGLOBE.COM, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of the theglobe.com

theglobe.com, inc. (the "Company" or "theglobe") was incorporated on
May 1, 1995 (inception) and commenced operations on that date. theglobe.com
is an online property with registered members and users in the United
States and abroad. theglobe's users are able to personalize their online
experience by publishing their own content and interacting with others
having similar interests. The Company's primary revenue source is the sale
of advertising on its online properties, which includes the development and
sale of sponsorship placements within its web sites. Additional revenues
are generated through the sale of video games and related products through
its online store, the sale of advertising in its games information
magazine, the sale of its games information magazine through newsstands and
subscriptions and electronic commerce revenue shares.

The Company's business is characterized by rapid technological change,
new product development and evolving industry standards. Inherent in the
Company's business are various risks and uncertainties, including its
limited operating history, unproven business model and the limited history
of commerce and advertising on the Internet. The Company's success may
depend, in part, upon the emergence of the Internet as a communications
medium, prospective product development efforts and the acceptance of the
Company's community solutions by the marketplace.

(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 (see Note 5). All significant intercompany balances
and transactions have been eliminated in consolidation.

The unaudited interim condensed consolidated financial statements of
the Company as of June 30, 2000 and for the three and six months ended June
30, 2000 and 1999 included herein have been prepared in accordance with the
instructions for Form 10-Q 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 June 30, 2000, the results
of its operations for three and six months ended June 30, 2000 and 1999 and
its cash flows for the six months ended June 30, 2000 and 1999.

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, 1999, and for the three years then
ended and related notes included in the Company's 10-K filed with the
Securities and Exchange Commission. Certain reclassifications have been
made to the 1999 financial statements to conform to the 2000 presentation.

(d) Use of Estimates

The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.

(e) Cash and Cash Equivalents

The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash equivalents
were $17.0 million at June 30, 2000 and $30.2 million at December 31, 1999
and consisted of government securities.

(f) Short-term Investments

The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
establishes the accounting and reporting requirements for all debt
securities and for investments in equity securities that have readily
determinable fair market value. All short-term marketable securities must
be classified as one of the following: held-to-maturity, available-for-sale
or trading securities. The Company's short-term investments consist of both
held-to-maturity and available-for-sale securities. The Company's
held-to-maturity securities are carried at amortized cost in the statement
of financial position. The amortization of the discount or premium that
arises at acquisition is included in earnings. The Company's
available-for-sale securities are carried at fair value, with unrealized
gains and losses reported as Accumulated Other Comprehensive Loss within
stockholders' equity. Unrealized gains and losses are computed on the basis
of the specific identification method. Realized gains, realized losses and
declines in value judged to be other-than-temporary, are included in
interest income (expense). The cost of available-for-sale securities sold
are based on the specific-identification method and interest earned is
included in earnings.

The Company's short-term investments were comprised of the following
at June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
2000 1999
--------------- ------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>

Available-for-sale securities.................. $ -- $ 2,889
Held-to-maturity securities.................... 12,639 16,400
--------- --------
Short-term investments.................. $ 12,639 $ 19,289
========= ========
</TABLE>

At December 31, 1999, the fair value of the Company's
available-for-sale securities approximated cost and unrealized gains and
losses were not material.

(g) Restricted Investments

Restricted investments includes security deposits held in Certificates
of Deposit and other interest bearing accounts as collateral for certain
capital equipment and office space leases and escrow payments held as
collateral in connection with certain distribution agreements. In first
quarter 2000, the Company placed into escrow approximately $1.5 million as
collateral in connection with a distribution agreement.

(h) Goodwill and Intangible Assets

Goodwill and intangible assets primarily relates to the Company's
acquisitions accounted for under the purchase method of accounting, or its
purchase of intangible assets. Under the purchase method of accounting, the
excess of the purchase price over the identifiable net tangible assets of
the acquired entity is recorded as identified intangible assets and
goodwill. Goodwill and intangible assets is stated at cost, net of
accumulated amortization, and is being amortized under the straight-line
method over a period of 2 to 3 years, the expected periods of benefit (3
years for goodwill). As of June 30, 2000, accumulated amortization was
$25.2 million.

(i) Comprehensive Loss

The Company's comprehensive loss was approximately $32.8 million and
$13.1 million for the three months ended June 30, 2000 and 1999,
respectively and $49.1 million and $19.4 million, respectively, for the six
months ended June 30, 2000 and 1999. The Company's other comprehensive loss
item as of June 30, 2000 was approximately $39,000 loss related to its
foreign currency translation adjustment. The other comprehensive loss items
as of December 31, 1999 were approximately $108,000 of the Company's net
unrealized losses on its short-term available for sale investments and a
$1,000 loss related to the Company's foreign currency translation
adjustment. The decrease in accumulated other comprehensive loss as of June
30, 2000 was mainly attributable to the sale of the Company's short-term
investments.

(j) Revenue Recognition

ADVERTISING

The Company's revenues are derived principally from the sale of online
advertisements under short-term contracts. To date, the duration of the
Company's online advertising commitments has generally averaged from one to
three months. Online advertising revenues are recognized ratably in the
period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include the guarantee
of a minimum number of "impressions", defined as the number of times that
an advertisement appears in pages viewed by the users of the Company's
online properties. Payments received from advertisers prior to displaying
their advertisements on the Company's sites are recorded as deferred
revenues and are recognized as revenue ratably when the advertisement is
displayed. To the extent minimum guaranteed impressions levels are not met,
the Company defers recognition of the corresponding revenues until
guaranteed levels are achieved. The Company's online advertising revenue
includes the development and sale of sponsorship placements within its web
sites. Development fees related to the sale of sponsorship placements on
the Company's web sites are deferred and recognized ratably as revenue over
the term of the contract. The Company also derives revenue through the sale
of advertisements in its games information magazine, which was acquired in
February 2000. Advertising revenues for the games information magazine are
recognized at the on-sale date. Advertising revenue accounted for 73% and
70%, and 96% and 96% of total revenues for three and six months ended June
30, 2000 and 1999, respectively.

The Company trades advertisements on its web properties in exchange
for advertisements on the Internet sites of other companies. Barter
revenues and expenses are recorded at the fair market value of services
provided or received, whichever is more readily determinable in the
circumstances. Revenue from barter transactions is recognized as income
when advertisements are delivered on the Company's web properties. Barter
expense is recognized when the Company's advertisements are run on other
companies' web sites, which typically occurs in the same period in which
barter revenue is recognized. Barter revenues and expenses represented 6%
and 4% for the three and six months ended June 30, 2000, and 9% and 7% of
total revenues for the three and six months ended June 30, 1999
respectively.

ELECTRONIC COMMERCE AND OTHER

The Company derives other revenues from the sale of video games and
related products through its online store, the sale of its games
information magazine through newsstands and subscriptions and electronic
commerce revenue shares. Sales from the online store are recognized as
revenue when the product is shipped to the customer. Freight out costs are
included in net sales and have not been significant to date. The Company
provides an allowance for merchandise sold through its online store. The
allowance provided to date has not been significant. Newsstand sales of the
games information magazine are recognized at the on-sale date, net of
provisions for estimated returns. Subscriptions are recorded as deferred
revenue when initially received and recognized as income pro ratably over
the subscription term. Revenues from the Company's share of the proceeds
from its e-commerce partners' sales are recognized upon notification from
its partners of sales attributable to the Company's sites. Sales through
the online store accounted for 18% and 24%, respectively, of total revenues
for the three and six months ended June 30, 2000, and 4% and 4% (see Note
3) for the three and six months ended June 30, 1999, respectively. Other
revenues were comprised of sales of the Company's games information
magazine through newsstands and subscriptions. The Company acquired its
games information magazine in February 2000. To date, revenues from the
Company's electronic commerce revenue share agreements have been
immaterial.

(k) Concentration of Credit Risk

Financial instruments which subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable. The Company invests its cash and
cash equivalents and short-term investments among a diverse group of
issuers and instruments. The Company performs periodic evaluations of these
investments and the relative credit standings of the institutions with
which it invests. At certain times, the Company's cash balances with any
one financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.

The Company's customers are primarily concentrated in the United
States. 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; to date, such losses have been within
management's expectations.

For the three and six months ended June 30, 2000 and 1999, there were
no customers that accounted for over 10% of revenues generated by the
Company. The Company had no customers that represented more than 10% of
accounts receivable at June 30, 2000 and one customer that represented more
than 10% of accounts receivable at December 31, 1999.

(l) Net Loss Per Common Share

Diluted net loss per common share has not been presented separately,
as the outstanding stock options, warrants and contingent stock purchase
warrants are anti-dilutive for each of the periods presented.

Diluted net loss per common share for the three and six months ended
June 30, 2000 and 1999 does not include the effects of (1) options to
purchase 4,234,864 and 4,553,988 shares of Common Stock, respectively, and
(2) warrants to purchase 4,011,534 and 4,011,534 shares of Common Stock,
respectively.

(m) Segment Reporting

During 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
annual and interim reporting standards for operating segments of a company.
SFAS 131 requires disclosures of selected segment-related financial
information about products, major customers and geographic areas. The
Company is organized in a single operating segment for purposes of making
operating decisions and assessing performance. The chief operating decision
maker evaluates performance, makes operating decisions and allocates
resources based on financial data consistent with the presentation in the
accompanying condensed consolidated financial statements.

The Company's revenues have been earned primarily from customers in
the United States. In addition, all significant operations and assets are
based in the United States.

(n) Recent Accounting Pronouncements

The Company adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 138, effective July
1, 2000, and determined that SFAS No. 133. This statement is not required
to be applied retroactively to financial statements of prior periods. The
company has not yet analyzed the impact of this pronouncement on its
consolidated financial statements.

FASB Interpretation No 44, "Accounting for Certain Transactions
Involving Stock Compensation" ("FIN NO. 44") provides guidance for applying
APB Opinion No 25. "Accounting for Stock Issued to Employees". With certain
exceptions, FIN No. 44 applies prospectively to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status on or after July 1, 2000. The Company applied FIN
No. 44 to account for its cancellation and reissuance of options and the
impact on its results of operations for the six months ended June 30, 2000
was a charge of approximately $17,000. The Company cannot estimate the
impact of FIN No. 44 on its future results of operations as the charge is
dependent on the future market price of the Company's common stock, which
cannot be predicted with any degree of certainty.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which
summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company will be required to adopt the accounting provisions of SAB No. 101,
no later than the fourth quarter of 2000. The Company does not believe that
the implementation of SAB No. 101 will have a significant effect on its
results of operations.

(o) Reclassifications

Certain reclassifications have been made to prior year's condensed
consolidated financial statements to conform to the current year's
presentation.

(2) STOCK OPTION REPRICING

On May 31, 2000, the Company offered to substantially all of its
employees, excluding executive officers and the Board of Directors, the
right to cancel certain outstanding stock options and receive new options
with an exercise price at the current fair market value of the stock.
Options to purchase a total of approximately 1.1 million shares,
approximately 20% of outstanding options, were canceled and approximately
856,000 new options were granted at an exercise price of $1.594, which was
based on the closing price of the Company's common stock on May 31, 2000.
The new options vest at the same rate that they would have vested under
previous option plans. As described above in note 1(n) the Company is
accounting for these repriced stock options using variable accounting. The
total compensation charge for the three months ended June 30, 2000 was
approximately $17,000.

(3) RESTRUCTURING AND IMPAIRMENT CHARGES

In April 2000, the Company's Board of Directors approved a plan to
close the Company's electronic commerce operations in Seattle, Washington.
The closure of the Seattle operations was the result of the Company's
realignment of its electronic commerce operations to focus on the direct
sale of video games and related products and partnerships with third
parties who are interested in reaching the Company's audiences. The total
restructuring and impairment charge of $15.6 million was comprised of the
write-off of goodwill and purchased intangibles of $12.8 million, asset
writedowns of $1.6 million, severance costs of $0.6 million, and other
costs of $0.6 million. The cash and non-cash elements of the restructuring
and impairment charge approximates $1.1 million and $14.5 million,
respectively. As of June 30, 2000, the amount remaining in the
restructuring accrual is $0.7 million of which $0.4 million is expected to
be paid out by December 31, 2000 and the remaining $0.3 million will be
paid out periodically through August 2002.

(4) SPORTSLINE.COM, INC. DISTRIBUTION AGREEMENT

In February 2000, the Company entered into a strategic two-year
partnership with Sportsline.com, Inc. ("Sportsline"), whereby the Company
will exclusively develop and operate community solutions on the Sportsline
web site ("Sportsline Agreement"). Under the terms of the Sportsline
Agreement, Sportsline received $5.0 million, paid in the Company's Common
Stock. The total shares of Common Stock issued in connection with the
Sportsline Agreement were 699,281 at $7.15 per share. The Company recorded
the initial $5.0 million payment in Other Assets and is amortizing the
amount under the straight-line method over the two year contractual term of
the Sportsline Agreement. The contractual term of the Sportsline Agreement
commenced upon Sportsline's launch of the Company's community solutions on
its web site in April 2000. Sportsline can potentially receive additional
compensation in either stock or cash, based upon the achievement of certain
performance goals throughout the term of the Sportsline Agreement.
Additionally, the Company receives the exclusive right to sell advertising,
sponsorships and non-sports related e-commerce within the Sportsline
community area.

(5) ACQUISITION OF CHIPS & BITS, INC. AND STRATEGY PLUS, INC.

On February 24, 2000, CB Acquisition Corp. ("CB Merger Sub"), a
Vermont corporation and a wholly-owned subsidiary of theglobe was merged
with and into Chips & Bits, Inc., a Vermont corporation ("Chips & Bits"),
with Chips & Bits as the surviving corporation (the "CB Merger"). Also on
February 24, 2000, SP Acquisition Corp. ("SP Merger Sub"), a Vermont
corporation and a wholly-owned subsidiary of theglobe, was merged with and
into Strategy Plus, Inc., a Vermont corporation ("Strategy Plus"), with
Strategy Plus as the surviving corporation (together with the CB Merger,
the "Mergers"). The Mergers were effected pursuant to an Agreement and Plan
of Merger dated as of January 13, 2000 by and among theglobe, CB Merger
Sub, SP Merger Sub, Chips & Bits, Strategy Plus, Yale Brozen and Christina
Brozen (the "Merger Agreement"). As a result of the Mergers, both Chips &
Bits and Strategy Plus became wholly-owned subsidiaries of theglobe.

The consideration paid by the Company consisted of 1,903,977 shares of
the Company's Common Stock, valued at $14.9 million. The Company also
incurred acquisition costs of approximately $0.6 million. An additional
payment of $1.3 million in newly issued shares of Common Stock is
contingent upon the attainment of certain performance targets by Chips &
Bits and Strategy Plus during the 2000 fiscal year.

This transaction was accounted for under the purchase method of
accounting. The aggregate purchase price of these transactions was $15.5
million. The Company has preliminarily allocated $0.6 million to the net
tangible assets of Chips & Bits and $0.8 million to the net tangible
liabilities of Strategy Plus. The historical carrying amounts of the net
tangible assets acquired and liabilities assumed by the Company
approximated their fair market value on the date of acquisition. The
purchase price in excess of the fair market value of the net tangible
assets acquired and liabilities assumed by the Company amounted to $15.7
million and has been preliminarily allocated to goodwill. The goodwill
amount is being amortized under the straight-line method over an estimated
useful life of 3 years, the expected period of benefit.

The following unaudited pro forma consolidated financial information
gives effect to the above described acquisitions, and the acquisitions of
shop.theglobe.com and Attitude Network, Ltd., acquired in February and
April of 1999, respectively, as if they had occurred at the beginning of
the respective periods by consolidating the results of operations of the
Company, shop.theglobe.com, Attitude Network, Ltd., Chips & Bits and
Strategy Plus for the three and six months ended June 30, 2000 and 1999.

Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -----------------------
2000 1999 2000 1999
(in thousands, except per share data)
<S> <C> <C> <C> <C>

Revenue......................................................... $ 8,377 $ 6,941 $17,055 $13,591
Net loss........................................................ (32,733) (14,622) (50,533) (29,661)
Basic and diluted net loss per share............................ $ (1.07) $ (0.55) $ (1.67) $ (1.16)
Weighted average basic and diluted shares outstanding........... 30,634 26,481 30,294 25,643

(6) PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

June 30, December 31,
2000 1999
----------------- -----------------
(unaudited)

Computer equipment and software, including assets under
capital leases of $5,640 and $5,830, respectively............... $ 10,998 $ 9,613
Furniture and fixtures, including assets under capital leases of
$42 and $42, respectively....................................... 1,611 1,159
Leasehold improvements............................................ 2,094 2,025
----------------- -----------------

14,703 12,797
Less accumulated depreciation and amortization, including amounts
related to assets under capital leases of $2,559 and $1,828,
respectively.................................................... 5,505 3,333
----------------- -----------------

Total.................................................... $ 9,198 $ 9,464
================= =================
</TABLE>

(7) COMMITMENTS AND CONTINGENCIES

(a) Litigation

From time to time the Company has been named in claims arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.

(b) Contingent Stock Issuances

The Company, from time to time, has entered into purchase and/or
distribution agreements which require the payment of additional cash and/or
the issuance of additional Common Stock upon the occurrence of specified
future events. The Company intends to satisfy any potential payments under
these agreements through the issuance of Common Stock. At June 30, 2000,
the Company has recorded approximately $2.45 million in Other Assets and
Additional Paid-in-Capital in connection with these agreements. To date,
these payments have been calculated using the fair market value of the
Company's Common Stock at June 30, 2000. This amount will be amortized over
the remaining contractual terms of the agreements and will be adjusted
accordingly at each interim balance sheet date for fluctuations in the fair
market value of the Company's Common Stock and/or achievement of certain
performance goals as defined in the agreements.

(8) SUBSEQUENT EVENT

(a) Employment Agreement

On July 14, 2000, the Company entered into an Employment Agreement
with Charles M. Peck (the "Peck Employment Agreement"). Pursuant to the
terms of the Peck Employment Agreement, Mr. Peck will be employed as the
Chief Executive Officer of the Company. The Peck Employment Agreement
provides for an annual base salary of not less than $325,000 per year with
eligibility to receive annual increases in base salary as determined by the
Board of Directors of the Company. Mr. Peck may receive an annual bonus of
up to 50% of his then-current base salary if the Company attains certain
financial targets for the next two calendar years; provided however, Mr.
Peck will receive a guaranteed annual cash bonus of $25,000 for the next
two calendar years. Mr. Peck was granted options to purchase 1,250,000
shares of common stock of the Company. The options were granted at an
exercise price of $1.94 per share which was the closing price of the stock
on July 14, 2000, the date of the execution of the Peck Employment
Agreement ("Grant Date"). With respect to 1,000,000 of such options, 30,000
vested on the Grant Date; 60,000 will vest on the three-month anniversary
of the Grant Date 75,000 will vest on the six-month anniversary of the
Grant Date; and 59,643 will vest on each subsequent three-month period
during the term of the Peck Employment Agreement. With respect to 250,000
of such options, 100% shall vest upon the earlier of the tenth anniversary
of the Grant Date or earlier if the price per share of the Company's stock
reaches a certain level or if there is a change of control of the Company
at a certain price per share.

The Peck Employment Agreement is for a term expiring on July 13, 2004,
subject to earlier termination as provided in the Peck Employment
Agreement. The Peck Employment Agreement provides that, in the event of
termination by the Company without Cause (as defined in the Peck Employment
Agreement), Mr. Peck will be entitled to receive from the Company salary
continuation through the one year period following the termination date,
and if such termination occurs prior to July 14, 2001 (the first year
anniversary of the Peck Employment Agreement), $50,000 (less the amount of
the guaranteed annual bonus theretofore paid or theretofore payable and
unpaid). In addition, termination without Cause automatically triggers the
vesting of a portion of the options held by Mr. Peck that have not yet
vested.

<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

OVERVIEW

We are one of the world's leading online properties specializing in
bringing people together around shared topics of interest. We deliver
"community" through four different streams: our flagship web site,
theglobe.com, featuring our best-of-breed community products-globeClubs and
uPublish!, both of which enable our users to personalize their online
experience by interacting with other users around similar interests;
distribution of our customized community solutions to strategic partners
who desire to include community in their Web properties; small businesses
looking to add "community" to their web sites; and a leading games
information network. Our games information network includes HappyPuppy,
GamesDomain, KidsDomain, ConsoleDomain, Chips & Bits, Inc. and Strategy
Plus, Inc. Since our inception in May 1995, significant developments to
core infrastructure capabilities, products and services, and strategic
partnerships and acquisitions have enabled us to experience tremendous
growth in our user base, reach and revenues.

Our primary revenue source is the sale of online advertising, which
includes the development and sale of promotional sponsorship placements
within our web sites, with additional revenues generated through the sale
of advertisements in our games information magazine, the sale of video
games and related products through our online store, the sale of our games
information magazine through newsstands and subscriptions and electronic
commerce revenue shares.

In November 1998, we completed an initial public offering of
approximately 7.0 million shares of our Common Stock. The initial offering
price was $4.50 per share which resulted in net proceeds of $27.3 million,
after underwriting discounts of $2.0 million and offering costs of $2.0
million.

In April 1999, we acquired Attitude Networks, Ltd., a provider of
online games information content whose web sites include Happy Puppy, Games
Domain and Kids Domain, three leading web sites serving game enthusiasts.
The aggregate purchase price amounted to $46.8 million and was comprised,
in part, of approximately 1.6 million shares of newly issued Common Stock.

In May 1999, we completed a secondary public offering of 3.5 million
shares of Common Stock at an offering price of $20.00 per share. Net
proceeds amounted to $65.0 million, after underwriting discounts of $3.5
million and offering costs of $1.5 million.

In December 1999, we acquired the web hosting assets of Webjump.com, a
web hosting property that primarily focuses on small businesses. The total
purchase price for this transaction was $13.0 million and was primarily
comprised of 1.1 million shares of newly issued Common Stock. An additional
$12.5 million, payable in newly issued shares of Common Stock, is
contingent upon the attainment of certain performance targets on or before
November 2000.

In February 2000, we acquired Chips & Bits, Inc. and Strategy Plus,
Inc., providers of online and offline entertainment content focused towards
game enthusiasts. The total purchase price for this transaction was
approximately $15.5 million and was comprised, in part, of 1.9 million
newly issued shares of Common Stock. An additional $1.3 million, payable in
newly issued shares of Common Stock, is contingent on the attainment of
certain performance targets by Chips & Bits, Inc. and Strategy Plus, Inc.
during the 2000 fiscal year.

RESULTS OF OPERATIONS

Revenues. To date, our primary revenue source has been the sale of
advertisements on our online properties, which includes the development and
sale of sponsorship placements within our web sites. We earn revenue on
sponsorship contracts for fees relating to the design, coordination, and
integration of the customer's content and links. Additionally, we derive
advertising revenue through the sale of advertisements in our games
information magazine which we acquired in February 2000. We sell a variety
of online advertising packages to clients, including banner advertisements,
event sponsorships, and targeted and direct response advertisements. Our
online advertising revenues are derived principally from short-term
advertising arrangements, averaging one to three months. We generally
guarantee a minimum number of impressions, defined as the number of times
that an advertisement appears in pages viewed by the users of our online
properties, for a fixed fee. In addition to advertising revenues, we derive
other revenues through the sale of video games and related products through
our online store, the sale of our games information magazine through
newsstands and subscriptions and electronic commerce revenue shares.

Revenues increased to $8.4 million and $15.4 million for the three and
six months ended June 30, 2000, respectively, as compared with $4.1 million
and $7.3 million for the three and six months ended June 30, 2000.
Advertising revenues for the three and six months ended June 30, 2000 were
$6.1 million and $10.7 million, respectively, which represented 73% and 70%
respectively of total revenues. Advertising revenues for the three and six
months ended June 30, 1999 were $4.0 million and $7.1 million,
respectively, which represented 96% and 96%, respectively, of total
revenues. The growth in advertising revenues is primarily attributable to
an increase in the number of advertisers, an increase in the average
commitment per advertiser, an increase in the traffic on our web sites, and
increased advertising revenue associated with our games magazine. We
anticipate that advertising revenues will continue to account for a
substantial share of our total revenues for the foreseeable future. Sales
of merchandise through our online store accounted for 18% and 24% of total
revenues for the three and six months ended June 30, 2000, respectively, as
compared with 4% and 4% for the three and six months ended June 30, 1999.
The increase in electronic commerce revenue is attributable to increased
sales from our online store. In order to realign our e-commerce operations
to focus on video games and related products, the Company elected in April
2000 to shut down its electronic commerce operations in Seattle Washington
(see Note 3 of the notes to the condensed consolidated financial
statements). Other revenues were comprised of sales of our games
information magazine through newsstands and subscriptions. We acquired our
games information magazine in February 2000. Barter revenues represented 6%
and 4% of total revenues for the three and six months ended June 30, 2000,
respectively, and 9% and 7% of total revenues for the three and six months
ended June 30, 1999, respectively.

Cost of Revenues. Cost of revenues consists primarily of Internet
connection charges, staff and related costs of operations personnel,
depreciation and maintenance costs of web site equipment and the costs of
merchandise sold and shipping fees in connection with our online store.
Gross margins were 44% and 41% for the three and six months ended June 30,
2000, respectively, as compared with 58% and 60% for the three and six
months ended June 30, 1999, respectively. The period-to-period decrease in
the gross margins was primarily attributable to a higher mix of electronic
commerce and print advertising sales in our games information magazine,
both of which traditionally result in lower gross margins than online
advertising revenues. The absolute dollar increase in cost of revenues was
due to additional costs of merchandise attributed to increased sales
through our online store, an increase in Internet connection costs to
support the increase in web site traffic, an increase in depreciation
expense related to increased equipment costs and personnel costs required
to support the expansion of our sites and services. We expect cost of
revenues to continue to increase in absolute dollars as additional
connectivity and staffing costs will be required to support our future
growth and we continue to increase our electronic commerce sales.

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,
coupons and other promotional activities and barter expense. Sales and
marketing expense was $7.9 million and $13.5 million for the three and six
months ended June 30, 2000 as compared with $3.5 million and $5.7 million
for the three and six months ended June 30, 1999. The period-to-period
increase in sales and marketing expense was attributable to increased
salary and related personnel costs to support our revenue growth, increased
advertising costs, which included costs associated with our television
advertising campaign and promotional expenses required to implement our
branding, marketing and distribution strategy. We expect sales and
marketing costs to increase in absolute dollars due to increased staffing
costs necessary to support our growth and continued branding and marketing
efforts.

Product Development. Product development expenses include salaries and
related personnel costs, expenses incurred in connection with the
development of, testing of and upgrades to our web sites and community
management tools and editorial and content costs. Product development
expenses were $2.8 million and $5.8 million for the three and six months
ended June 30, 2000 as compared to $2.8 million and $4.9 million for the
three and six months ended June 30, 1999. The period-to-period increase for
the six months ended June 30, 2000 as compared with the six months ended
June 30, 1999 was primarily attributable to additional personnel costs
required to support the web sites of shop.theglobe.com, acquired in
February 1999, Attitude Network, Ltd., acquired in April 1999, and Chips &
Bits, Inc. and Strategy Plus, Inc., acquired in February, 2000, and to
enhance their content and features. Expenses for the three months ended
June 30, 2000 as compared with the three months ended June 30, 1999 have
remained relatively constant. The Company elected to shut down
shop.theglobe.com, its e-commerce operations in Seattle, Washington, in
order to focus its e-commerce operations on video games and related
products (see Note 3 of notes to condensed consolidated financial
statements). We intend to continue recruiting and hiring experienced
product development personnel who will maintain and upgrade our community
management tools.

General and Administrative Expenses. General and administrative
expenses consist primarily of salaries and related personnel costs for
general corporate functions including finance, human resources, legal and
facilities, outside legal and professional fees, bad debt expenses and
general corporate overhead costs. General and administrative expenses were
$3.5 million and $6.7 million for the three and six months ended June 30,
2000 as compared with $3.0 million and $5.7 million for the three and six
months ended June 30, 1999. The period-to-period increase was primarily
attributable to increased salaries and personnel costs associated with
building our basic infrastructure and an increase in the absolute dollar
amount of provisions for bad debts. The increase in salaries reflects the
highly competitive nature of hiring in the new media industry. We expect to
incur additional general and administrative expenses as we hire additional
personnel and incur additional costs related to the growth of the business.

Restructuring and Impairment Charge. Restructuring and impairment
charge of $15.6 for the three and six months ended June 30, 2000 consists
of expenses related to closing our electronic commerce operations in
Seattle, Washington. The closure of the Seattle operation is the result of
a realignment of our electronic commerce operations to focus on the direct
sale of video games and related products and partnership with third parties
who are interested in reaching our audience. The total restructuring and
impairment charge of $15.6 million was comprised of the write-off of
goodwill and purchased intangibles of $12.8 million, asset writedowns of
$1.6 million, severance costs of $0.6 million, and other costs of $0.6
million.

Amortization of Goodwill and Intangible Assets. Amortization expense
was $7.0 million and $14.6 million for the three and six months ended June
30, 2000 as compared with $6.4 million and $7.8 million for the three and
six months ended June 30, 1999. The period-to-period increase in
amortization expense was primarily attributable to the acquisitions of
Attitude Network, Ltd. in April 1999 and Chips & Bits, Inc. and Strategy
Plus, Inc. in February 2000 and the purchase of the web hosting assets of
Webjump.com in December 1999. The Company recorded goodwill and intangible
assets of $47.0 million, $15.7 million and $13.0 million, respectively, in
connection with these transactions. The total gross amount of goodwill and
purchased intangibles as of June 30, 2000 was $77.5 million and is being
amortized over the expected periods of benefit ranging from two to three
years (three years for goodwill).

Interest and other income, net. Interest and other income, net
primarily includes interest income from our cash and cash equivalents and
short-term investments, interest expense related to our capital lease
obligations and realized gains and losses from the sale of short-term
investments. The year-to-year increase in interest and other income, net
was primarily attributable to increased interest income earned on increased
cash and cash equivalents and short-term investments resulting from the net
proceeds of our secondary public offering of Common Stock. The increased
interest income was partially offset by increased interest expenses related
to the assumption of additional capital lease obligations and realized
losses on the sale of short-term investments in the first quarter of 2000.

Income Taxes. Income taxes were $50,000 and $120,000 for three and six
months ended June 30, 2000 as compared with $107,000 and $153,000 for the
three and six months ended June 30, 1999. Income taxes were based solely on
state and local taxes on business and investment capital. Our effective tax
rate differs from the statutory federal income tax rate, primarily as a
result of the uncertainty regarding our ability to utilize our net
operating loss carryforwards. Due to the uncertainty surrounding the timing
or realization of the benefits of our net operating loss carryforwards in
future tax returns, we have placed a 100% valuation allowance against our
otherwise recognizable deferred tax assets. At December 31, 1999, the
Company had net operating loss carryforwards available for U.S. and foreign
tax purposes of $69.5 million and $1.0 million, respectively. These
carryforwards expire through 2019. 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 the third quarter of 1997 and May
1999, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), future utilization of our net operating loss carryforwards prior
to the change of ownership will be subject to certain limitations or annual
restrictions.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2000, we had approximately $19.7 million in cash and
cash equivalents and approximately $12.6 million in short-term investments.
Net cash used in operating activities was $19.1 million for the six months
ended June 30, 2000 as compared to $11.6 million for the six months ended
June 30, 1999. The increase in net cash used in operating activities
resulted primarily from an increase in our net operating losses, exclusive
of depreciation expense and amortization expense related to our
acquisitions and non-cash restructuring and non-cash marketing expenses.
The increase was also attributable to decreases in accounts payable and
accrued compensation. These amounts were offset by increases in accrued
expenses.

Net cash provided by investing activities was $2.8 million for the six
months ended June 30, 2000 as compared to $4.6 million net cash used for
the six months ended June 30, 1999. The decrease in net cash used in
investing activities is primarily attributable to an increase in the
proceeds received from the sale of short-term investments, as well as, a
decrease in purchases of property and equipment. These amounts were offset
by increases in the purchases of short-term securities and the cash paid
for acquisitions, net of cash acquired.

Net cash used in financing activities was approximately $0.6 million
for the six months ended June 30, 2000 as compared to cash provided of
$64.7 million for the six months ended June 30, 1999. The cash provided
from financing activities during the six months ended June 30, 1999 was
primarily attributable to $65.0 million of proceeds from our secondary
offering in May 1999.

As of June 30, 2000, we have $0.7 million of commitments related to
the closing of our Seattle electronic commerce operations. We currently
have no material cash commitments other than those under our capital and
operating lease agreements. We expect to meet our lease obligations with
our cash and cash equivalents and short-term investments. As described
in Note 7(b), we have entered into purchase and/or distribution
agreements which require the payment of additional cash and/or the
issuance of additional Common Stock upon the occurrence of specified
future events. We intend to satisfy any potential payments under
these agreements through the issuance of Common Stock.

Our capital requirements depend on numerous factors, including market
acceptance of our services, the capital required to maintain our web sites,
the resources we devote to marketing and selling our services and our brand
promotions and other factors. We have experienced a substantial increase in
our capital expenditures and lease arrangements since our inception
consistent with the growth in our operations and staffing. Additionally, we
continue to evaluate possible investments in businesses, products and
technologies, some of which may be material. Since our inception, we have
incurred significant operating losses and we believe we will continue to
incur operating losses for the foreseeable future. We expect that we will
continue to experience negative operating cash flows for the foreseeable
future as a result of our operating losses. We believe that our current
cash and cash equivalents and short-term investments will be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for our existing business for the next 12 months. We may need
to raise additional funds during 2000 to obtain or operate any acquired
businesses or joint venture arrangements. We cannot assure you that
additional financing will be available on terms favorable to us, or at all.
See "Risk Factors -- We may need to raise additional funds, including
through the issuance of debt."

EFFECTS OF INFLATION

Due to relatively low levels of inflation in 2000 and 1999 inflation
has not had a significant effect on our results of operations since
inception.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Company adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 138, effective July
1, 2000, and determined that SFAS No. 133. This statement is not required
to be applied retroactively to financial statements of prior periods. The
Company has not yet analyzed the impact of this pronouncement of its
consolidated financial statements.

RISK FACTORS

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

OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.

theglobe was founded in May 1995. Accordingly, we have a limited
operating history for you to use in evaluating us and our prospects. Our
prospects should be considered in light of the risks encountered by
companies in the early stages of development, particularly companies
operating in new and rapidly evolving markets like the Internet. We may not
successfully address these risks. For example, we may not be able to:

o maintain or increase levels of user and member traffic on our web
sites;

o maintain or increase the percentage of our advertising inventory
sold;

o maintain or increase both CPM levels and sponsorship revenues;

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

o integrate or successfully develop recent acquisitions;

o develop or acquire content for our services;

o identify, attract, retain and motivate qualified personnel;

o enter into distribution agreements for our products and services;
and

o raise sufficient capital to sustain future operations.

REVENUE GROWTH IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROWTH.

We achieved significant revenue growth during 1998, 1999 and the first
and second quarters of 2000. Our limited operating history makes prediction
of future revenue growth difficult. Additionally, in an effort to realign
our electronic commerce operations to focus on video games and related
products, we elected to shut down our e-commerce operations in Seattle,
Washington. This could materially and adversely impact our revenue growth.
Accurate predictions of future revenue growth are also difficult because of
the rapid changes in our markets. Accordingly, investors should not rely on
past revenue growth rates as a prediction of future revenue growth.

WE ANTICIPATE INCREASED OPERATING EXPENSES AND EXPECT TO CONTINUE TO
INCUR LOSSES.

We have incurred net losses since our inception and we expect that we
will continue to incur net losses for the foreseeable future. We had net
losses of approximately $49.2 million for the six months ended June 30,
2000 and $49.6 million, $16.0 million, $3.6 million and $0.8 million for
the years ended December 31, 1999, 1998, 1997 and 1996, respectively. As of
June 30, 2000, we had an accumulated deficit of approximately $119.3
million. The principal causes of our losses are likely to continue to be:

o costs resulting from development and enhancement of our services;

o amortization expense related to our acquisitions;

o sales and marketing expenses necessary to maintain revenue growth
and develop brand identity;

o growth of our sales force;

o expansion of our business facilities and systems infrastructure;

o failure to generate sufficient revenue to compensate for
increased costs; and

o general and administrative expenses;

We will need to generate significantly increased revenues to achieve
profitability, particularly if we are unable to adjust our expenses in
light of any earnings shortfall. We cannot assure you that we will ever
achieve or sustain profitability.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON.

Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter
to quarter in the future. As a result, quarter to quarter comparisons of
our revenues and operating results may not be meaningful. In addition, due
to our limited operating history and our new and unproven business model,
we cannot accurately predict our future revenues or results of operations.
It is likely that in one or more future quarters, our operating results
will fall below the expectation of securities analysts and investors. If
this occurs, the trading price of our Common Stock would almost certainly
be materially and adversely affected. The factors which will cause our
quarterly operating results to fluctuate include:

o the level of traffic on our web sites;

o the overall demand for Internet advertising and electronic
commerce;

o the addition or loss of advertisers and electronic commerce
partners on our web sites;

o overall usage and acceptance of the Internet;

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

o capital expenditures and other costs relating to the expansion of
our operations;

o the incurrence of costs relating to acquisitions;

o realignment of certain business operations, such as closing our
e-commerce operations in Seattle, Washington;

o the timing and profitability of acquisitions, joint ventures and
strategic alliances;

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

o failure to enter into distribution agreements for our products
and services; and

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

We derive a substantial portion of our revenues from the sale of
advertising under short-term contracts. These contracts average one to
three months in length. As a result, our quarterly revenues and operating
results are, to a significant extent, dependent on advertising revenues
from contracts entered into within the quarter, and on our ability to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters. If the Internet transitions from an emerging to a more developed
form of media, these same patterns may develop in Internet advertising
sales. Internet advertising expenditures may also develop a different
seasonality pattern. Traffic levels on our sites and the Internet have
typically declined during the summer and year-end vacation and holiday
periods.

In addition to selling advertising, an increasing portion of our
revenues may be generated from electronic commerce through our Chips &
Bits, Inc. subsidiary. We also have existing electronic commerce
arrangements with third parties for the sale of merchandise on our
electronic commerce site which are terminable upon short notice. As a
result, our revenues from electronic commerce may fluctuate significantly
from period to period depending on the level of demand for products
featured on our site and overall competition in the marketplace.

WE EXPECT SIGNIFICANT STOCK BASED COMPENSATION CHARGES RELATED TO
REPRICED OPTIONS.

In light of the decline in our stock price at the time and in an
effort to retain our employee base, in May 2000, we offered to reprice
options held by all employees, other than directors and executive officers.
Options to purchase a total of approximately 1.1 million shares,
representing approximately 20% of outstanding options, were canceled and
approximately 856,000 new options were granted at an exercise price of
$1.594, which was based on the closing price of the Company's common stock
on May 31, 2000. The new options vest at the same rate that they would have
vested under previous option plans.

In March 2000, Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25"
("Interpretation"). Among other issues, this Interpretation clarifies (a)
the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms
of a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. As a
result under the Interpretation, stock options repriced after December 15,
1998 are subject to variable plan accounting treatment. This guidance
requires the Company to remeasure compensation cost for outstanding
repriced options each reporting period based on changes in the market value
of the underlying common stock. Depending upon movements in the market
value of the Company's common stock, this accounting treatment may result
in significant non cash compensation charges in future periods.

WE DEPEND ON OUR MEMBERS FOR CONTENT AND PROMOTION.

We depend substantially upon member involvement for content and
word-of-mouth promotion. Particularly, we depend upon the voluntary efforts
of some highly motivated members who are most active in developing content
to attract other Internet users to our sites. This member involvement
reduces the need for us to spend funds on content development and site
promotion. However, we cannot assure you that these members will continue
to effectively generate significant content or promote our sites. Our
business may be materially and adversely affected if our most highly active
members become dissatisfied with our services or our focus on the
commercialization of those services or for any other reason stop generating
content that effectively promotes our sites.

OUR BUSINESS MODEL IS NEW AND UNPROVEN.

Our business model is new and relatively unproven. This model depends
upon our ability to obtain more than one type of revenue source by using
our community platform or games information properties ("Games Network").
To be successful, we must, among other things, develop and market products
and services that achieve broad market acceptance by our users, advertisers
and electronic commerce vendors. We must continue to develop electronic
commerce revenue streams by marketing products directly to users and having
users purchase products through our electronic commerce site. We cannot
assure you that any Internet community, including our site, will achieve
broad market acceptance and will be able to generate significant electronic
commerce revenues. We also cannot assure you that our business model will
be successful, that it will sustain revenue growth or that it will be
profitable.

Additionally, the market for our products and services is new, rapidly
developing and characterized by an increasing number of market entrants. As
is typical of most new and rapidly evolving markets, demand and market
acceptance for recently introduced products and services are highly
uncertain and risky. Moreover, because this market is new and rapidly
evolving, we cannot predict our future growth rate, if any. If this market
fails to develop, develops slower than expected or becomes saturated with
competitors, or if our products and services do not achieve or sustain
market acceptance, our business would be materially and adversely affected.

OUR ACQUISITIONS OR JOINT VENTURES ENTAIL NUMEROUS RISKS AND
UNCERTAINTIES.

As part of our business strategy, we review acquisition prospects or
joint ventures that we expect to complement our existing business, increase
our traffic, augment the distribution of our community, enhance our
technological capabilities or increase our electronic commerce revenues. On
February 1, 1999, we acquired shop.theglobe.com, formerly known as Azazz,
to develop electronic commerce retailing on our site. In April 2000, we
closed these electronic commerce operations in Seattle, Washington. (See
Note 3 in condensed consolidated financial statements and Management's
Discussion and Analysis on Financial Condition and Results of Operations).
On April 9, 1999, we acquired Attitude Network, Ltd. to add two leading
game enthusiast web sites to our entertainment theme. On November 20, 1999,
we acquired the web hosting assets of Webjump.com to expand our home page
hosting services. On February 24, 2000, we acquired Chips & Bits, Inc., an
electronic commerce retailer that focuses primarily on game enthusiasts and
Strategy Plus, Inc., an offline media property that publishes a monthly
games magazine. We consider and evaluate, from time to time, potential
business combinations, either involving potential investments in our Common
Stock or other business combinations, joint ventures alliances or business
development arrangements, or our acquisition of other companies. If
consummated, any such transaction could result in a change of control of
our company or could otherwise be material to our business or to your
investment in our Common Stock. We are currently in discussions or
negotiations for various transactions of these types, some of which may be
material, but we have not reached any binding agreements. These
transactions may or may not be consummated. Our future acquisitions or
joint ventures could result 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
tests are met or not met, as the case may be. These securities may
be freely tradable in the public market or subject to registration
rights which could require us to publicly register a large amount
of Common Stock, which could have a material adverse effect on our
stock price;

o large and immediate write-offs;

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 amortization
expenses 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 diversion of management's attention from other business
concerns;

o the risks of entering geographic and business markets in which we
have no or limited prior experience such as electronic commerce
retailing;

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

o risks associated with international expansion.

WE MAY BE UNSUCCESSFUL IN DEVELOPING BRAND AWARENESS; BRAND IDENTITY
IS CRITICAL TO US.

We believe that establishing and maintaining awareness of
"theglobe.com" brand name, and the brand name of our wholly owned
subsidiaries, is critical to attracting and expanding our member base, the
traffic on our web sites and our advertising and electronic commerce
relationships. If we fail to promote and maintain our brand or our brand
value is diluted, our business, operating results and financial condition
could be materially adversely affected. The importance of brand recognition
will increase because low barriers to entry continue to result in an
increased number of web sites. To promote our brand, 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 revenues
to justify these costs. Additionally, if members, other Internet users,
advertisers and customers do not perceive our community experience or Games
Network to be of high quality, or if we introduce new services or enter
into new business ventures that are not favorably received by these
parties, the value of our brand could be materially diluted.

WE RELY SUBSTANTIALLY ON ONLINE ADVERTISING REVENUES.

We derive a substantial portion of our revenues from the sale of
advertisements on our web sites. We expect to continue to do so for the
foreseeable future. Our business model and revenues are highly dependent on
the amount of traffic on our sites and our ability to properly monetize
this traffic. The level of traffic on our sites determines the amount of
online advertising inventory we can sell. Our ability to generate
significant online advertising revenues depends, in part, on our ability to
create new advertising programs without diluting the perceived value of our
existing programs. Our ability to generate online advertising revenues will
also depend, in part, on the following:

o advertisers' acceptance of the Internet as an attractive and
sustainable medium;

o advertisers' willingness to pay for advertising on the Internet
at current rates;

o the development of a large base of users of our products and
services;

o our level of traffic;

o the effective development of web site content that attracts users
having demographic characteristics attractive to advertisers; and

o price competition among web sites.

We cannot assure you that the market for Internet advertising will
continue to emerge or become sustainable. If the Internet advertising
market develops slower than we expect, our business performance would be
materially adversely affected. To date, substantially all our online
advertising contracts have been for terms averaging one to three months in
length, with relatively few longer term advertising contracts.
Additionally, our online advertising customers may object to the placement
of their advertisements on some members' personal homepages, the content of
which they deem to be undesirable. Moreover, measurements of site visitors
may not be accurate or trusted by our advertising customers. There are no
uniformly accepted standards for the measurement of visitors to a web site,
and there exists no one accurate measurement for any given Internet visitor
metric. Indeed, different website traffic measurement firms will tend to
arrive at different numbers for the same metric. For any of the foregoing
reasons, we cannot assure you that our current advertisers will continue to
purchase advertisements on our sites. We also compete with traditional
advertising media, including television, radio, cable and print, for a
share of advertisers' total advertising budgets. This results in
significant pricing pressures on our advertising rates, which could have a
material adverse effect on us.

A significant portion of our revenues are derived from Internet
companies that are early stage entities. These entities are dependant on
additional financing in order to survive. For companies such as these, the
risk of default on outstanding indebtedness to us may be higher than we
anticipate.

WE RELY ON THIRD PARTIES OVER WHOM WE HAVE LIMITED CONTROL TO MANAGE
THE PLACEMENT OF ADVERTISING ON OUR WEBSITES.

The process of managing advertising within large, high-traffic web
sites such as ours is an increasingly important and complex task. We
license our advertising management system from DoubleClick, Inc. under an
agreement expiring in April 2001. DoubleClick may terminate the agreement
upon 30 days' notice if (1) we breach the agreement or (2) DoubleClick
reasonably determines that we have used their advertising management system
in a manner that could damage their technology or which reflects
unfavorably on DoubleClick's reputation. No assurance can be given that
DoubleClick would not terminate the agreement. Any termination and
replacement of DoubleClick's service could disrupt our ability to manage
our advertising operations. Additionally, we have entered into a contract
with Engage Technologies, Inc. for the license of proprietary software to
manage the placement of advertisements on our web sites. This software has
been implemented and our relationship under the contract has not yet been
material. There can be no assurance that this software will effectively
manage and measure the placement of advertisements on our web sites and
that errors will not occur. For example, Doubleclick informed us in June
1999 that its report of the numbers of unique visitors to the theglobe web
site was not accurate. We cannot assure you that there will be no
miscalculations of such or other measurements in the future. Any
miscalculations or other problems with reporting these measurements could
have a material adverse effect on our business, financial condition or
stock price.

To the extent that we encounter system failures or material
difficulties in the operation of our advertising management systems, we may:

o be unable to deliver banner advertisements and sponsorships
through our sites; and

o be required to provide additional impressions to our advertisers
after the contract term.

Our obligations to provide additional impressions would displace
saleable advertising inventory. This would reduce revenues and could have a
material adverse effect on us.

WE DEPEND SUBSTANTIALLY ON OUR KEY PERSONNEL.

Our performance is substantially dependent on the continued service of
our senior management and key technical personnel, all of whom have only
worked together for a short time. In particular, our success depends on the
continued efforts of our senior management team, especially our founders,
our Chief Executive Officer, our President and Chief Operating Officer and
our Chief Financial Officer. We do not carry key person life insurance on
any of our personnel. The loss of the services of any of our executive
officers or other key employees could have a material adverse effect on our
business.

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 and managerial personnel.
Competition for employees in our industry is intense. 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 we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Furthermore, there is no
guarantee that our stock option plan will be considered attractive by
industry standards, particularly in light of the recent trading levels of
our Common Stock. If we are unable to attract and retain the technical and
managerial personnel necessary to support the growth of our business, our
business would likely be materially and adversely affected.

WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH; OUR MANAGEMENT TEAM IS
INEXPERIENCED IN THE MANAGEMENT OF A LARGE PUBLIC COMPANY.

Our recent growth has placed significant strains on our resources. To
manage our future growth, we must continue to implement and improve our
operational systems and expand and train our employee base. We hired a new
Chief Executive Officer in August 2000, who has not had previous experience
of managing a public company. Some of our key employees were hired during
1998, including our President and Chief Operating Officer, who joined us in
August 1998 and our Chief Financial Officer, who joined us in July 1998.
Furthermore, the members of our current senior management, other than the
Chairman, have not had any previous experience managing a public company or
a large operating company. Accordingly, we cannot assure you that:

o we will be able to effectively manage the expansion of our
operations;

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

o we will be able to hire, train and manage our growing 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.

Our inability to manage growth effectively could have a material
adverse effect on our business.

OUR CHAIRMAN HAS OTHER INTERESTS AND TIME COMMITMENTS; WE HAVE
CONFLICTS OF INTEREST WITH SOME OF OUR DIRECTORS.

Because our Chairman, Mr. Michael Egan, is an officer of other
companies, we will have to compete for his time. Mr. Egan serves as the
Chairman of our board of directors and as an executive officer with primary
responsibility for day-to-day strategic planning and financing
arrangements. 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. Mr.
Egan is also Chairman of ANC Rental Corporation, a spin-off of the car
rental business of AutoNation, Inc.

We currently have revenue agreements with entities controlled by Mr.
Egan and by H. Wayne Huizenga, one of our directors. These agreements were
not the result of arm's-length negotiations, but we believe that the terms
of these agreements are on comparable terms as if they were entered into
with unaffiliated third parties. The revenues recognized from such
agreements represented less than 1% of total revenues for the six months
ended June 30, 2000 and less than 4% and 3% of total revenues for the years
ended December 31, 1999 and 1998. Due to their relationships with their
related entities, Messrs. Egan and Huizenga will have an inherent conflict
of interest in making any decision related to transactions between their
related entities and us. We intend to review related party transactions in
the future on a case-by-case basis.

WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER
CHANGES.

The markets in which we compete are characterized by:

o rapidly changing technology;

o evolving industry standards;

o frequent new service and product announcements, introductions and
enhancements;

o changing consumer demands; and

o evolving regulatory oversight.

We may not be able to keep up with these rapid changes. In addition,
these market characteristics are heightened by the emerging nature of the
Internet and the apparent need of companies from varying industries to
offer Internet-based products and services. As a result, our future success
depends on our ability to adapt to rapidly changing technologies and
standards. We will also need to continually improve the performance,
features and reliability of our services in response to competitive
services and product offerings and the evolving demands of the marketplace.
In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could
require us to incur substantial expenditures to modify our services or
infrastructure and could fundamentally affect the nature of our business.

WE HAVE CAPACITY CONSTRAINT AND SYSTEM DEVELOPMENT RISKS.

A key element of our strategy is to generate a high volume of user
traffic. Our ability to attract advertisers and to achieve market
acceptance of our products and services and our reputation depend
significantly upon the performance of our network infrastructure, including
our servers, hardware and software. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
a decrease in responsiveness of our web sites could result in reduced
traffic and reduced revenue, and could impair our reputation. Our web sites
must accommodate a high volume of traffic and deliver frequently updated
information. Our web sites have in the past and may in the future
experience slower response times for a variety of reasons, including system
failures and an increase in the volume of user traffic on our web sites.
Accordingly, we face risks related to our ability to accommodate our
expected customer levels while maintaining superior performance. In
addition, slower response time may damage our reputation and result in
fewer users at our sites or users spending less time at our sites. This
would decrease the amount of inventory available for sale to advertisers.
Accordingly, any failure of our servers and networking systems to handle
current or higher volumes of traffic at sufficient response times would
have a material adverse effect on our business.

In the fourth quarter of 1998 and the first quarter of 1999, we moved
our principal servers to the New York Teleport facility in Staten Island,
New York under a lease with Telehouse International Corporation of America.
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 web sites. Our reputation,
theglobe.com brand and the brands of our subsidiaries could be materially
and adversely affected by any problems to our sites. Our insurance policies
may not 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.

In addition, our users depend on Internet service providers, online
service providers and other web site operators for access to our web sites.
Many of them have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet infrastructure may not be
able to support continued growth in its use. Furthermore, we depend on
hardware suppliers for prompt delivery, installation and service of
equipment used to deliver our products and services. Any of these problems
could materially adversely affect our business.

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

Consumer and supplier confidence in our web sites 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 policies carry low coverage limits,
which 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.

COMPETITION FOR MEMBERS, USERS AND ADVERTISERS, AS WELL AS COMPETITION
IN THE ELECTRONIC COMMERCE MARKET IS INTENSE AND IS EXPECTED TO
INCREASE SIGNIFICANTLY.

The market for members, users and Internet advertising among web sites
is new and rapidly evolving. Competition for members, users and
advertisers, as well as competition in the electronic commerce market, is
intense and is expected to increase significantly. Barriers to entry are
relatively insubstantial and we believe we will face competitive pressures
from many additional companies both in the United States and abroad.
Accordingly, pricing pressure on advertising rates will increase in the
future which could have a material adverse effect on us. All types of web
sites compete for users. Competitor web sites include community sites and
games information networks, as well as "gateway" or "portal" sites and
various other types of web sites. We believe that the principal competitive
factors in attracting users to a site are:

o functionality of the web site;

o brand recognition;

o member affinity and loyalty;

o broad demographic focus;

o open access for visitors;

o critical mass of users, particularly for community-type sites;

o attractiveness of content and services to users; and

o pricing and customer service for electronic commerce sales.

We compete for users, advertisers and electronic commerce marketers
with the following types of companies:

o other online community web sites, such as GeoCities, which was
acquired by Yahoo!, Tripod and AngelFire, subsidiaries of Lycos,
Xoom.com which was acquired by NBC, Homestead.com and
Homepage.com;

o search engines and other Internet "portal" companies, such as
Excite@Home, Lycos, Yahoo! and Disney Interactive Group;

o other community club providers, such as eGroups, which was
acquired by Yahoo!, Topica and TalkCity;

o online content web sites, such as CNET, ESPN.com and ZDNet.com;

o publishers and distributors of television, radio and print, such
as CBS, NBC and CNN/Time Warner;

o general purpose consumer online services, such as America Online
and Microsoft Network;

o web sites maintained by Internet service providers, such as AT&T
WorldNet and EarthLink;

o electronic commerce web sites, such as Amazon.com, Etoys and
CDNow; and

o other web sites serving game enthusiasts, including Ziff Davis'
Gamespot and CNET's Gamecenter.

Many of our competitors, including other community sites, have
developed or may develop Internet navigation services and have or are
attempting to become "gateway" or "portal" sites through which users may
enter the web. In the event these companies are successful in their efforts
to become "portal" sites, we could lose a substantial portion of our user
traffic. Furthermore, many non-community sites have been developing
community aspects in their sites.

Many of our existing and potential competitors, including companies
operating web directories and search engines, and traditional media
companies, have the following advantages:

o longer operating histories in the Internet market;

o greater name recognition;

o larger customer bases; and

o significantly greater financial, technical and marketing
resources

In addition, providers of Internet tools and services, including
community-type sites, may be acquired by, receive investments from, or
enter into other commercial relationships with larger, well-established and
well-financed companies, such as Microsoft and America Online. For example,
Excite merged with @Home, America Online acquired Netscape, Xoom.com and
Snap.com completed a transaction in which NBC merged some of its online
assets with these entities to form NBCi, and Yahoo! acquired GeoCities and
eGroups. In addition, there has been other significant consolidation in the
industry. This consolidation may continue in the future. We could face
increased competition in the future from traditional media companies,
including cable, newspaper, magazine, television and radio companies. A
number of these large traditional media companies, including Walt Disney
Co., CBS and NBC, have been active in Internet related activities. Those
competitors may be able to undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive advertising pricing
policies and make more attractive offers to potential employees,
distribution partners, electronic commerce companies, advertisers,
third-party content providers and acquisition targets. Furthermore, our
existing and potential competitors may develop sites that are equal or
superior in quality to, or that achieve greater market acceptance than, our
sites. We cannot assure you that advertisers may not perceive our
competitors' sites as more desirable than ours.

To compete with other web sites, we have developed and will continue
to develop and introduce new features and functions, such as increased
capabilities for user personalization and interactivity. We also have
developed and will continue to introduce new products and services, such as
"community tools" and new content targeted for specific user groups with
particular demographic and geographic characteristics. These improvements
will require us to spend significant funds and may require the development
or licensing of increasingly complex technologies. Enhancements of or
improvements to our web sites may contain undetected programming errors
that require significant design modifications, resulting in a loss of
customer confidence and user support and a decrease in the value of our
brand name. Our failure to effectively develop and produce new features,
functions, products and services could affect our ability to compete with
other web sites. This could have a material adverse effect on us.

Web browsers offered by Netscape and Microsoft also increasingly
incorporate prominent search buttons that direct traffic to services that
compete with ours. These features could make it more difficult for Internet
users to find and use our products and services. In the future, Netscape,
Microsoft and other browser suppliers may also more tightly integrate
products and services similar to ours into their browsers or their
browsers' pre-set home page. Additionally, entities that sponsor or
maintain high-traffic web sites or that provide an initial point of entry
for Internet viewers, such as the Regional Bell Operating Companies, cable
companies or Internet service providers, such as Microsoft and America
Online, offer and can be expected to consider further development,
acquisition or licensing of Internet search and navigation functions that
compete with us. These competitors could also take actions that make it
more difficult for viewers to find and use our products and services.

Additionally, the electronic commerce market is new and rapidly
evolving, and we expect competition among electronic commerce merchants to
increase significantly. Because the Internet allows consumers to easily
compare prices of similar products or services on competing web sites and
there are low barriers to entry for potential competitors, gross margins
for electronic commerce transactions may narrow in the future. Many of the
products that we sell on our web site may be sold by the maker of the
product directly or by other web sites. Competition among Internet
retailers, our electronic commerce partners and product makers may have a
material adverse effect on our ability to generate revenues through
electronic commerce transactions or from these electronic commerce
partners.

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

Our market is relatively new and rapidly evolving. Our business is
substantially dependent upon the continued rapid growth in the use of the
Internet and electronic commerce on the Internet becoming more widespread.
Commercial use of the Internet is relatively new. Web usage may be
inhibited for a number of reasons, including:

o inadequate network infrastructure;

o security and authentication concerns with respect to transmission
over the Internet of confidential information, including credit
card numbers, or other personal information;

o ease of access;

o inconsistent quality of service;

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

o bandwidth availability.

If the Internet develops as a commercial medium more slowly than we
expect, it will materially adversely affect our business. Additionally, if
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. Web sites 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 web sites, 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; and

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

WE MAY BE MATERIALLY ADVERSELY AFFECTED IF ELECTRONIC COMMERCE DOES
NOT BECOME A VIABLE SOURCE OF SIGNIFICANT REVENUES OR PROFITS FOR THE
COMPANY. IN ADDITION, OUR ELECTRONIC COMMERCE BUSINESS MAY RESULT IN
SIGNIFICANT LIABILITY CLAIMS AGAINST US.

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 our
competitors and the development of relationships with manufacturers and
suppliers of these products. 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;

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

o intense competition for electronic commerce revenues, resulting
in downward pressure on gross margins.

In April 2000, we elected to shut down our e-commerce operations in
Seattle, Washington in order to focus our e-commerce operations on video
games and related products (see Note 3 to the condensed consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations). Accordingly, we cannot assure you
that electronic commerce transactions will provide a significant or
sustainable source of revenues or profits. Additionally, due to the ability
of consumers to easily compare prices of similar products or services on
competing web sites, 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. If use of
the Internet for electronic commerce does not continue to grow, our
business and financial condition would be materially and adversely
affected.

Additionally, consumers may sue us if any of the products that we sell
are defective, fail to perform properly or injure the user. 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.

INTERNET ADVERTISING MAY NOT PROVE AS EFFECTIVE AS TRADITIONAL MEDIA.

The Internet advertising market is new and rapidly evolving. We cannot
yet gauge its effectiveness as compared to traditional advertising media.
Many of our current or potential advertising partners have little or no
experience using the Internet for advertising purposes and they have
allocated only a limited portion of their advertising budgets to Internet
advertising. The adoption of Internet advertising, particularly by those
entities that have historically relied upon traditional media, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally
relied upon other advertising media may be reluctant to advertise on the
Internet or find it less effective.

No standards have been widely accepted to measure the effectiveness of
Internet advertising or to measure the demographics of our user base.
Additionally, no standards have been widely accepted to measure the number
of members, unique users, page views or impressions related to a particular
site. We cannot assure you that any standards will become available in the
future, that standards will accurately measure our users or the full range
of user activity on our sites or that measurement services will accurately
report our user activity based on their standards. If standards do not
develop, advertisers may not advertise on the Internet. In addition, we
depend on third parties to provide these measurement services. These
measurements are often based on sampling techniques or other imprecise
measures and may materially differ from each other and from our estimates.
We cannot assure you that advertisers will accept our or other parties'
measurements. The rejection by advertisers of these measurements could have
a material adverse effect on our business and financial condition.

The sale of Internet advertising is subject to intense competition
that has resulted in a wide variety of pricing models, rate quotes and
advertising services. For example, advertising rates may be based on the
number of user requests for additional information made by clicking on the
advertisement, known as "click throughs," or on the number of times an
advertisement is displayed to a user, known as "impressions." Our contracts
with advertisers typically guarantee the advertiser a minimum number of
impressions. To the extent that minimum impression levels are not achieved
for any reason, including the failure to obtain the expected traffic, our
contracts with advertisers may require us to provide additional impressions
after the contract term, which may adversely affect the availability of our
advertising inventory. In addition, certain long-term contracts with
advertisers may be canceled if response rates or sales generated from our
site are less than advertisers expectations. This could have a material
adverse effect on us.

Our revenues could be materially adversely affected if we are unable
to adapt to other pricing models for Internet advertising if they are
adopted. It is difficult to predict which, if any, pricing models for
Internet advertising will emerge as the industry standard. This makes it
difficult to project our future advertising rates and revenues.
Additionally, it is possible that Internet access providers may, in the
future, act to block or limit various types of advertising or direct
solicitations, whether at their own behest or at the request of users.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability
of Internet advertising. In addition, concerns regarding the privacy of
user data on the Web may reduce the amount of user data collected in the
future, thus reducing our ability to provide targeted advertisements. This
may, in turn, put downward pressure on cost per thousand impressions
("CPM").

WE DEPEND ON THIRD PARTIES TO INCREASE TRAFFIC ON OUR SITES AND TO
PROVIDE SOFTWARE AND PRODUCTS.

We are dependent on various web sites that provide direct links to our
sites. These web sites may not attract significant numbers of users and we
may not receive a significant number of additional users from these
relationships. We also enter into agreements with advertisers, electronic
commerce marketers or other third-party web sites that require us to
exclusively feature these parties in particular areas or on particular
pages of our sites. These exclusivity agreements may limit our ability to
enter into other relationships. Our agreements with third party sites do
not require future minimum commitments to use our services or provide
access to our sites and may be terminated at the convenience of the other
party. Moreover, we do not have agreements with a majority of the web sites
that provide links to our site. These sites may terminate their links at
any time. Many companies we may pursue for strategic relationships offer
competing services. As a result, these competitors may be reluctant to
enter into strategic relationships with us. Our business could be
materially adversely affected if we do not establish and maintain strategic
relationships on commercially reasonable terms or if any of our strategic
relationships do not result in increased traffic on our web sites.

Additionally, we cannot assure you that we will be able to maintain
relationships with third parties that supply us with software or products
that are crucial to our success, or that these software or products will be
able to sustain any third-party claims or rights against their use.
Furthermore, we cannot assure you that the software, services or products
of those companies that provide access or links to our services or products
will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful service or product offerings or the
generation of significant revenues for us.

WE MAY NEED TO RAISE ADDITIONAL FUNDS, INCLUDING, BUT NOT LIMITED TO,
THE ISSUANCE OF DEBT.

Our capital requirements depend on numerous factors, including market
acceptance of our services, the capital required to maintain our web sites,
the resources we devote to marketing and selling our services and our brand
promotions and other factors. We have experienced a substantial increase in
our capital expenditures and lease arrangements since our inception
consistent with the growth in our operations and staffing. Additionally, we
will continue to evaluate possible investments in businesses, products and
technologies, some of which may be material. Since our inception, we have
incurred significant operating losses and we believe we will continue to
incur operating losses for the foreseeable future. We expect that we will
continue to experience negative operating cash flows for the foreseeable
future as a result of our operating losses. We believe that our cash and
cash equivalents and short-term investments at June 30, 2000 will be
sufficient to meet our anticipated cash need for working capital and
capital expenditures for our existing business for the next 12 months.
However, we may need to raise additional funds earlier in order to:

o fund our anticipated expansion;

o develop new or enhanced services or products;

o respond to competitive pressures;

o acquire complementary products, businesses or technologies; and

o enter into joint ventures.

If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders
will be reduced. Stockholders may experience extreme dilution due to our
current stock price and these securities may have rights senior to those of
the holders of our Common Stock. We do not have any contractual
restrictions on our ability to incur debt. Any indebtedness could contain
covenants which restrict our operations. We cannot assure you that
additional financing will be available on terms favorable to us, or at all.
If adequate funds are not available or are not available on acceptable
terms, our business could be materially adversely effected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

We regard substantial elements of our web sites and underlying
technology 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 a material 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. In addition, we have filed a number of patent applications
with the United States Patent Office. 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. 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 web sites 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 or our members of their intellectual property
rights. Any litigation claims or counterclaims could impair our business
because they could:

o be time-consuming;

o result in costly litigation;

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. As we continue to introduce new services that incorporate new
technologies, we may be required to license additional technology from
others. 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.

We have registered several Internet domain names including
"theglobe.com", "globeclubs.com", "tglo.com," "azazz.com,"
"happypuppy.com," "realmx.com," "kidsdomain.com," "gamesdomain.com,"
"webjump.com" and"cdmag.com." 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 web sites
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 FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES IN
OUR INDUSTRY.

There are an increasing number of federal, state, local and foreign
laws and regulations pertaining to the Internet. In addition, a number of
federal, state, local and foreign legislative and regulatory proposals are
under consideration. Laws or regulations may be adopted with respect to the
Internet relating to 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 effect our business 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, may impose
additional burdens on electronic commerce or may alter how we do business.
This could decrease the demand for our 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, results of
operations and financial condition.

There are certain various issues being discussed by the accounting
profession and the Securities and Exchange Commission that would affect
Internet companies accounting policies with regards to revenue recognition,
barter transactions, impression guarantees as they relate to advertising
contracts, coupon and promotional expenses and customer acquisition costs.
While these discussions remain in the preliminary stages as of now, we
cannot predict the impact that certain proposed changes would have on our
results of operations, our financial condition or our stock price.

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

Users may access content on our web sites or the web sites of our
distribution partners or other third parties through web site 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, 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 web sites. 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 could also be exposed to liability for third party content
posted by members on their personal web pages, their email clubs or by
users in our chat rooms or on our bulletin boards.

Additionally, we offer e-mail service, which a third party provides.
The e-mail service may expose us to potential liabilities or claims
resulting from unsolicited e-mail, lost or misdirected messages, fraudulent
use of e-mail or delays in e-mail service. We also enter into agreements
with commerce partners and sponsors under which 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 MAY HAVE TROUBLE EXPANDING INTERNATIONALLY.

A part of our strategy is to expand into foreign markets. In April
1999, we acquired Attitude Network, Ltd., which operates Games Domain.com,
Kids Domain.com and Console Domain.com through a wholly-owned U.K.
subsidiary. We had not previously operated internationally. Additionally,
we may not be completely familiar with U.K. law and its ramifications on
our business. There can be no assurance that the Internet or our community
model will become widely accepted for advertising, electronic commerce or
our Games Network in any international markets. To expand overseas we
intend to seek to acquire additional web sites and enter into relationships
with foreign business partners. This strategy contains risks, including:

o we may experience difficulty in managing international operations
because of distance, as well as language and cultural
differences;

o we or our future foreign business associates may not be able to
successfully market and operate our services in foreign markets;

o because of substantial anticipated competition, it will be
necessary to implement our business strategy quickly in
international markets to obtain a significant share of the
market; and

o we do not have the content or services necessary to substantially
expand our operations in many foreign markets.

We will unlikely be able to significantly penetrate these markets
unless we gain the relevant content, either through partnerships, other
business arrangements or possibly acquisitions with content-providers in
these markets. There are also risks inherent in doing business on an
international level, including:

o unexpected changes in regulatory requirements;

o trade barriers;

o difficulties in staffing and managing foreign operations;

o fluctuations in currency exchange rates and the introduction of
the euro;

o longer payment cycles in general;

o problems in collecting accounts receivable;

o difficulty in enforcing contracts;

o political and economic instability;

o seasonal reductions in business activity in certain other parts
of the world; and

o potentially adverse tax consequences.

VARIOUS STOCKHOLDERS, INDIVIDUALLY OR IN THE AGGREGATE, MAY CONTROL US.

Michael S. Egan, our Chairman, beneficially owns or controls, directly
or indirectly, 9,844,606 shares of our Common Stock which in the aggregate
represents approximately 28% of the outstanding shares of our Common Stock.
Todd V. Krizelman and Stephan J. Paternot, together, beneficially own 12%
of the outstanding shares of Common Stock. Accordingly, Mr. Egan would
likely be able to exercise significant influence in any stockholder vote,
particularly if Messrs. Krizelman and Paternot support his position.

Messrs. Egan, Krizelman, Paternot and Edward A. Cespedes and Rosalie
V. Arthur, each of whom is a director of our company, have entered into a
stockholders' agreement with us. As a result of the stockholders'
agreement, Mr. Egan has agreed to vote for up to two nominees of Messrs.
Krizelman and Paternot to the board of directors and Messrs. Krizelman and
Paternot have agreed to vote for the nominees of Mr. Egan to the board,
which will be up to five directors. Consequently, Messrs. Egan, Krizelman
and Paternot will likely be able to elect a majority of our directors.
Additionally, each party other than Mr. Egan has granted an irrevocable
proxy with respect to all matters subject to a stockholder vote to Dancing
Bear Investments, Inc., an entity controlled by Mr. Egan, for any shares
held by that party received upon the exercise of outstanding warrants for
400,000 shares of our Common Stock. The stockholders' agreement also
provides for tag-along and drag-along rights in connection with any private
sale of these securities.

OUR STOCK PRICE IS VOLATILE.

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

o quarterly variations in our operating results;

o competitive announcements;

o changes in financial estimates by securities analysts;

o failure to meet analysts estimates;

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

o news relating to trends in our markets.

The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against a company. Litigation, if instituted, whether or not successful,
could result in substantial costs and a diversion of management's attention
and resources, which would have a material adverse effect on our business.

THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD
DEPRESS OUR STOCK PRICE.

Sales of significant amounts of Common Stock in the public market in
the future, the perception that sales will occur or the registration of
such shares could materially and adversely affect the market price of the
Common Stock or our future ability to raise capital through an offering of
our equity securities. We currently have approximately 20 million shares of
Common Stock that are freely tradable. Approximately 8,218,450 shares of
Common Stock are held by our "affiliates," within the meaning of the
Securities Act of 1933, and are currently eligible for sale in the public
market subject to volume limitation. On May 2, 2000, we filed a
registration statement on Form S-3 to register for sale the 1,104,972
shares of Common Stock held by Infonent.com, Inc., issued in connection
with our acquisition of the web hosting assets of Webjump.com. In addition,
any of the 1,104,972 shares that are not sold pursuant to this registration
statement on or before August 18, 2000 will be eligible for sale, subject
to volume limitation, in November 2000. Further, since Infonent.com, Inc.
is currently in bankruptcy, it may be eligible to sell all or a portion of
the shares not sold in connection with this registration statement pursuant
to exemptions from the securities law afforded to it under bankruptcy laws.
In connection with our distribution agreement with Sportsline.com, Inc.,
699,281 shares will become eligible for sale in the public market, subject
to volume limitations, in February 2001. We may issue additional shares in
connection with this agreement based upon certain performance and stock
price metrics.

There are outstanding options to purchase 5,609,864 shares of Common
Stock which become eligible for sale in the public market from time to time
depending on vesting and the expiration of lock-up agreements. The issuance
of these securities are registered under the Securities Act. In addition,
there are outstanding warrants to purchase up to 4,011,534 shares of our
Common Stock upon exercise. Substantially all of our stockholders holding
restricted securities, including shares issuable upon the exercise of
warrants to purchase our Common Stock, are entitled to registration rights
under various conditions.

THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN A LOWER PRICE FOR
OUR COMMON STOCK.

The shares of our Common Stock are currently listed on the Nasdaq
national market. Due to the recent decline in the price of our Common
Stock, our Common Stock could be suspended or delisted from the Nasdaq due
to their minimum trading requirements, particularly if our stock price
falls below $1.00 per share or certain financial tests are not met. If the
shares of our Common Stock were to be suspended or delisted from the Nasdaq
system, it would be much more difficult to dispose of our Common Stock or
obtain accurate quotations as to the price of our securities.

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.

We must follow Delaware laws that 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 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.

WE DO NOT EXPECT TO PAY CASH DIVIDENDS.

We do not anticipate paying any cash dividends in the foreseeable
future.

<PAGE>

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Collection Risks. Our accounts receivables are subject, in the normal
course of business, to collection risks. Although we regularly assess these
risks and have policies and business practices to mitigate the adverse
effects of collection risks, significant losses may result due to the
non-payment of receivables by our advertisers.

Interest Rate Risk. Our return on our investments in cash and cash
equivalents and short-term investments is subject to interest rate risks.
We regularly assess these risks and have established policies and business
practices to manage the market risk of our short-term securities.

Foreign Currency Risk. We transact business in the United Kingdom.
Accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. The effect of foreign currency exchange rate
fluctuations for 1999 and the first and second quarter of 2000 was not
material. We do not use derivative financial instruments to limit our
foreign currency risk exposure.

<PAGE>

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 7 - "Commitments and Contingencies" in Part I, Item 1, "Condensed
Consolidated Financial Statements."

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

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

On November 13, 1998, we completed our initial public offering of
approximately 7.0 million shares of Common Stock at a price of $4.50 per
share (File No. 333-59751). We received net proceeds of $27.3 million, net
of $2.0 million in underwriting discounts and $2.0 million in offering
costs. On May 19, 1999, we completed our secondary public offering of 3.5
million shares of Common Stock at a price of $20.00 per share (File No.
333-76153). We received net proceeds of $65.0 million, net of $3.5 million
in underwriting discounts and $1.5 million in offering costs. None of the
expenses incurred in our initial or secondary public offerings were direct
or indirect payments to our directors, officers, general partners or their
associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates. As of June 30, 2000, the net
proceeds received from our public offerings have been used for networking
infrastructure and the functionality of our web sites and for general
corporate purposes, which include working capital, advertising costs, the
leasing of new office facilities, the expansion of our sales and marketing
capabilities, our advertising campaign and our brand name promotions. We
have also used a portion of such net proceeds for the acquisition of
complementary businesses, assets, services and technology. None of the
general corporate expenses incurred were direct or indirect payments to our
directors, officers, general partners or their associates, to persons
owning ten percent or more of any class of our equity securities or to our
affiliates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

Exhibit Number Description
-------------- -----------

10.1 Employment agreement by and between
theglobe.com, inc. and Charles Peck.

10.2 Employment agreement by and between
theglobe.com, inc. and Todd Krizelman.

10.3 Employment agreement by and between
theglobe.com, inc. and Stephan Paternot.

10.4 Consulting agreement by and between
theglobe.com, inc. and Edward Cespedes.

10.5 Stock Option Agmt (Peck)

10.6 Stock Option Agmt

27.1 Financial Data Schedule

(b) Reports on Form 8-K.

On May 5, 2000, we filed a Form 8-K under Item 5 announcing our
financial results for the first quarter of 2000.

SIGNATURES

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

theglobe.com, inc.

/s/ Francis T. Joyce
--------------------

Francis T. Joyce

Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)

August 14, 2000