<PAGE>

     As filed with the Securities and Exchange Commission on August 14, 2001

                       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, 2001

                                       or

|_|   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 6, 2001 was 31,081,574.
<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, 2001 (unaudited)
        and December 31, 2000                                               1

      Unaudited Condensed Consolidated Statements of  Operations for the
      three and six months ended June 30, 2001 and 2000                     2

      Unaudited Condensed Consolidated Statements of Cash Flows for the
       six months ended June 30, 2001 and 2000                              3

      Notes to Unaudited Condensed Consolidated Financial Statements        4

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations                                               13

Item 3. Qualitative and Quantitative Disclosures about Market Risk          33

                           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                                              II-2

Signatures                                                                  II-2
<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               theglobe.com, inc.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        June 30        December 31,
                                                                         2001              2000
                                                                     -------------     -------------
                                                                      (unaudited)
 <S>                                                                 <C>               <C>
      ASSETS
 Current Assets:
   Cash and cash equivalents ....................................    $   1,458,590     $  13,349,554
   Short-term investments .......................................        3,054,888         2,996,250
   Accounts receivable, net .....................................        3,135,229         4,316,973
   Prepaid and other current assets .............................        1,693,080         2,439,382
                                                                     -------------     -------------

     Total current assets .......................................        9,341,787        23,102,159

 Restricted investments .........................................        1,469,730         3,485,007
 Property and equipment, net ....................................        4,874,255         7,975,967
 Goodwill and other intangible assets, net ......................       11,030,988        19,967,910
                                                                     -------------     -------------

     Total assets ...............................................    $  26,716,760     $  54,531,043
                                                                     =============     =============

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current Liabilities:
   Accounts payable .............................................    $   1,230,639     $   2,677,679
   Accrued expenses .............................................        1,493,500         2,540,289
   Accrued compensation .........................................          413,337         1,670,088
   Deferred revenue .............................................          256,395           729,027
   Current portion of long-term debt and current installments
     of capital lease obligations ...............................          711,482         1,917,077
                                                                     -------------     -------------

     Total current liabilities ..................................        4,105,353         9,534,160

 Long-term debt and capital lease obligations, excluding
    current installments ........................................           85,953           498,337
 Deferred rent ..................................................          609,209           552,227

 Stockholders' Equity:
   Common stock .................................................           31,082            31,080
   Common stock held in treasury, at cost .......................         (371,458)         (371,458)
   Additional paid-in capital ...................................      218,255,565       218,254,968
   Accumulated other comprehensive loss .........................          (82,752)          (55,682)
   Accumulated deficit ..........................................     (195,916,192)     (173,912,589)
                                                                     -------------     -------------

     Total stockholders' equity .................................       21,916,245        43,946,319
                                                                     -------------     -------------
   Commitments and contingencies

Total liabilities and stockholders' equity ......................    $  26,716,760     $  54,531,043
                                                                     =============     =============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                  Three Months Ended                  Six Months Ended
                                                        June 30,                           June 30,
                                              -----------------------------     -----------------------------
                                                  2001             2000             2001             2000
                                              ------------     ------------     ------------     ------------
                                                       (unaudited)                       (unaudited)
<S>                                           <C>              <C>              <C>              <C>
Revenues:
Advertising ..............................    $  1,764,506     $  6,118,872     $  4,088,473     $ 10,733,914
Electronic commerce and other ............       2,783,300        2,258,603        5,206,509        4,622,746
                                              ------------     ------------     ------------     ------------

        Total revenues ...................       4,547,806        8,377,475        9,294,982       15,356,660

Cost of revenues .........................       3,713,263        4,683,143        7,392,007        9,091,141
                                              ------------     ------------     ------------     ------------

        Gross profit .....................         834,543        3,694,332        1,902,975        6,265,519

Operating expenses:
  Sales and marketing ....................       3,233,229        7,917,997        7,027,324       13,515,095
  Product development ....................       1,114,195        2,824,048        2,914,119        5,791,795
  General and administrative .............       1,934,241        3,527,250        4,017,665        6,738,293
  Restructuring and impairment charges ...       5,060,993       15,583,110        5,060,993       15,583,110
  Amortization of goodwill
    and intangible assets ................       2,840,098        6,980,614        5,683,195       14,604,784
                                              ------------     ------------     ------------     ------------

         Total operating expenses ........      14,182,756       36,833,019       24,703,296       56,233,077
                                              ------------     ------------     ------------     ------------

        Loss from operations .............     (13,348,213)     (33,138,687)     (22,800,293)     (49,967,558)

Interest and other income, net ...........         722,769          455,952          819,251          875,998
                                              ------------     ------------     ------------     ------------
        Loss before provision
          for income taxes ...............     (12,625,444)     (32,682,735)     (21,981,070)     (49,091,560)

Provision for income taxes ...............         (79,180)          50,269           22,533          120,439
                                              ------------     ------------     ------------     ------------

        Net loss .........................    $(12,546,264)    $(32,733,004)    $(22,003,603)    $(49,211,999)
                                              ============     ============     ============     ============
Basic and diluted net loss
  per share ..............................    $       0.41)    $      (1.07)    $      (0.72)    $      (1.66)
                                              ============     ============     ============     ============
Weighted average basic and
  diluted shares outstanding .............      30,382,036       30,633,713       30,382,036       29,719,121
                                              ============     ============     ============     ============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       2
<PAGE>

                               theglobe.com, inc.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30,
                                                                      -----------------------------
                                                                          2001             2000
                                                                      -----------------------------
                                                                              (unaudited)
<S>                                                                   <C>              <C>
Cash flows from operating activities:
 Net loss ........................................................    $ (22,003,603)   $(49,211,999)
   Adjustments to reconcile net loss to net cash used in
   operating activities:
   Depreciation and amortization .................................       7,993,018       16,531,536
   Deferred Compensation .........................................              --           60,024
Loss on sale of property and equipment ...........................           2,307               --
Loss on sale of short-term securities ............................              --          108,929
Deferred rent ....................................................          56,982           56,982
Repricing of Options .............................................              --           16,923
Non-cash restructuring and impairment charges ....................       4,537,383       14,493,057
Non-cash marketing expenses ......................................              --        1,075,222

Changes in operating assets and liabilities, net of effect of
   acquisitions:
   Accounts receivable, net ......................................       1,181,744         (460,512)
Prepaid and other current assets .................................         746,302           90,313
   Accounts payable ..............................................      (1,447,040)      (1,471,449)
   Accrued expenses ..............................................      (1,046,789)         332,637
   Accrued compensation ..........................................      (1,256,751)        (737,856)
   Deferred revenue ..............................................        (472,632)         (14,369)
                                                                      ------------     ------------
Net cash used in operating activities ............................      11,769,079)     (19,130,562)
                                                                      ------------     ------------

Cash flows from investing activities:
 Purchases of short-term securities ..............................         (58,638)     (12,471,800)
 Proceeds from sale and maturities of short-term securities ......              --       19,121,536
Proceeds from sale of property and equipment .....................           6,615               --
Purchases of property and equipment ..............................        (440,689)      (2,071,257)
 Cash paid for acquisitions, net of cash acquired ................              --         (263,707)
 Receipt (payments) of security deposits, net ....................       2,015,277       (1,506,478)
                                                                      ------------     ------------
Net cash provided  in investing activities .......................       1,522,565        2,808,294
                                                                      ------------     ------------
Cash flows from financing activities:
Payments under capital lease obligations .........................      (1,617,979)        (894,271)
 Payments of long-term debt ......................................              --          (56,321)
 Proceeds from exercise of common stock options and warrants .....              --          317,086
Net proceeds from issuance of common stock .......................             599           53,993
                                                                      ------------     ------------

Net cash used in financing activities ............................      (1,617,380)        (579,513)
                                                                      ------------     ------------

Net change in cash and cash equivalents ..........................     (11,863,894)     (16,901,781)

Effect of exchange rate changes on cash and cash equivalents .....         (27,070)         (28,733)

Cash and cash equivalents at beginning of period .................      13,349,554       36,585,998
                                                                      ------------     ------------
Cash and cash equivalents at end of period .......................    $  1,458,590     $ 19,655,484
                                                                      ============     ============
Supplemental disclosure of noncash transactions:
 Equipment acquired under capital leases .........................    $         --     $     64,739
                                                                      ============     ============
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       3
<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 revenue sources include the sale of advertising on its
online properties and the development and sale of sponsorship placements within
its websites. 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
(representing the Company's share of the proceeds from its e-commerce partners'
sales). See Note 6 - Subsequent Events for additional information regarding
cost-reductions and restructuring initiatives made in August 2001, affecting the
Company's online properties.

      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.

      (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 4). All significant intercompany balances and transactions
have been eliminated in consolidation.

      (c) Unaudited Interim Condensed Consolidated Financial Information

      The unaudited interim condensed consolidated financial statements of the
Company as of June 30, 2001 and for the three and six months ended June 30, 2001
and 2000 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, 2001 and the results of its operations for three and
six months ended June 30, 2001 and 2000 and its cash flows for six months ended
June 30, 2001 and 2000.

      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, 2000, and for the three years then ended and related notes
included in the Company's 10-K filed with the Securities and Exchange
Commission.

      (d) Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. These estimates and assumptions relate to estimates of collectibility of
accounts receivable, the valuation of inventory, the realization of goodwill and
other intangible assets, accruals and other factors. 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
$0 at June 30, 2001 and $11.4 million of government securities at December 31,
2000.

      (f) Short-term Investments


                                       4
<PAGE>

      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 held-to-maturity 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 in 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, 2001 and December 31, 2000:

                                                 June 30,    December 31,
                                                   2001          2000
                                               ------------  ------------

      Held-to-maturity securities .........    $  3,054,888  $  2,996,250
                                               ------------  ------------

      (g) Restricted Investments

      Restricted investments consists of a certificate of deposit which secure
the company's contingent liability under a standby letter of credit of $1.4
million at June 30, 2001. The letter of credit relates to the Company's
office-space lease. ( See Item 2, No. 6.)

      (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 are stated at cost, net of accumulated
amortization, and are being amortized using the straight-line method over the
expected period of benefit ranging from 2 to 3 years (3 years for goodwill).

      (i) Comprehensive Loss

      The Company's comprehensive loss was approximately $12.5 million and $32.8
million for the three months ended June 30, 2001 and 2000, respectively, and
$22.0 million and $49.2, million, respectively, for the six months ended June
30, 2001 and 2000. The Company's other comprehensive loss as of June 30, 2001
and December 31, 2000 consisted of approximately $83,000 and $56,000 of losses.
The June 30, 2001 other comprehensive loss represents $102,000 of foreign
currency translation adjustments and $19,000 of unrealized gains on short-term
marketable securities. The other comprehensive loss as of December 31, 2000 is
related to the Company's foreign currency translation adjustment.

      (j) Revenue Recognition

      Advertising

      The Company's revenues have been derived principally from the sale of
online and print advertisements under short-term contracts, video games and
related products, and the publishing of a games information magazine. To date,
the duration of the Company's 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, for a
fixed fee. 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 from the Company's online properties for the three and
six months ended June 30, 2001 and 2000, respectively, was $1.1 million and $2.3
million, and $5.3 million and $9.5 million, respectively. Advertising revenue
from the Company's games magazine for


                                       5
<PAGE>

the three and six months ended June 30, 2001 and 2000, respectively was $0.7
million and $1.8 million, and $0.8 million and $1.2 million, respectively.
Advertising revenue accounted for 38% and 44%, and 73% and 70% of total revenues
for three and six months ended June 30, 2001 and 2000, respectively. See Note 6
- Subsequent Events for additional information regarding cost-reductions and
restructuring initiatives affecting the Company's online properties.

      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 2% and 2% of total revenues for the three and six months
ended June 30, 2001 and 6% and 4% of total revenues for the three and six months
ended June 30, 2000.

      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 33% and 28% of total revenues for the three and
six months ended June 30, 2001 and 18% and 24% of total revenues for the three
and six months ended June 30, 2000. Sales of the Company's games information
magazine through newsstands and subscriptions accounted for 29% and 28%, and 9%
and 6% of total revenue for the three and six months ended June 30, 2001 and
June 30, 2000 respectively. 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, trade accounts receivable and restricted investments. 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. Concentration of credit risk is limited due to the Company's large
number of customers, however the Company's online advertising client base has
been until recently concentrated among dedicated internet companies.

      For the three and six months ended June 30, 2001 and 2000, 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
as of June 30, 2001.

      (l) Net loss per share

      Diluted net loss per 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 share for the three and six months ended June 30,
2001 and 2000 does not include the effects of (1) options to purchase 3,472,292
and 4,234,864 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.


                                       6
<PAGE>

      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

            In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued and, as amended by SFAS 137, was adopted by us on January 1, 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The Company's adoption of this statement in the first
quarter of 2001, did not have a significant impact on the Company's historical
financial statements as derivative instruments or hedging activities are not
currently used.

      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 there has been no impact on its
results of operations for the year ended December 31, 2000. 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. 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.

      In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. SFAS No.
141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."

      The Company is required to adopt the provisions of SFAS No. 141
immediately and SFAS No. 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful life
that are acquired in a purchase business combination completed after June 30,
2001 will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill
and intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized prior to the adoption of SFAS No. 142.

      SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

      In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS No. 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

      As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $7.0 million, all of which will be subject to the
transition provisions of SFAS Nos. 141 and 142. Amortization expense related to
goodwill was $27.2 and $5.7 million for the year ended December 31, 2000 and the
six months ended June 30, 2001, respectively. Because of the extensive effort
needed to comply with


                                       7
<PAGE>

adopting SFAS Nos. 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Company's financial statements at the
date of this report, including whether any transitional impairment losses will
be required to be recognized as the cumulative effect of a change in accounting
principle.

(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 equal to the then 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 per share, 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 in accordance with FIN No. 44. In addition, as a
result of options which were granted within six months of the cancellations, an
additional 244,000 options also require variable accounting in accordance with
FIN No. 44. For the year ended December 31, 2000 and the three and six months
ended June 30, 2001, there has been no compensation charge relating to the
repricing. 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.

(3) RESTRUCTURING AND IMPAIRMENT CHARGES

For the three and six months ended June 30, 2001 and 2000, the Company recorded
restructuring and impairment charges of $5.1 million and $15.6 million,
respectively.

In the second quarter of 2001, the Company announced additional cost-reduction
initiatives. These initiatives included the elimination of 59 positions, or 31%
of the Company's workforce. The severance benefits of $469,610 were paid in the
second quarter of 2001. Additionally, the Company closed its San Francisco
office in May 2001 and an additional $54,000 security deposit was relinquished
as settlement to terminate the remaining lease obligation.

In the second quarter of 2001, the Company recorded impairment charges of $4.5
million as a result of management's ongoing business review and impairment
analysis performed under its existing policy regarding impairment of long-lived
assets.

Where impairment indicators were identified, management determined the amount of
the impairment charge by comparing the carrying values of goodwill and other
long-lived assets to their fair values. Management determines fair value based
on a market approach, which includes analysis of market price multiples of
companies engaged in lines of business similar to the company. As a result,
during management's quarterly review of the value and periods of amortization of
both goodwill and other long-lived assets, it was determined that the carrying
value of goodwill and certain other tangible and intangible assets were not
fully recoverable.

In 1999, the Company completed acquisitions of Attitude Network, Ltd and the web
hosting assets of Webjump.com ("Web-based properties"). The Company also
acquired tangible assets such as server and computer equipment principally
during the years 1999 and 2000. These tangible assets were used for serving and
hosting the various websites of the Company. The Company's revaluation of
goodwill and intangible assets related to its Web-based properties and the
tangible assets was triggered by the continued and prolonged decline in Internet
advertising throughout 2000 and 2001, which significantly impacted current
projected advertising revenue generated from these web based properties and
tangible assets and has resulted in declines in operating and financial metrics
over the past several quarters, in comparison to the metrics forecasted at the
time of their respective acquisitions.

It was determined that the fair value of goodwill and intangible assets related
to its web-based properties and the tangible assets were less than the recorded
amount. Therefore, impairment charges of $3.2 million and $1.3 million,
respectively, were recorded. The methodology used to test for and measure the
amount of the impairment charge related to the intangible assets was based on
the same methodology as used during the initial acquisition valuation of these
web-based properties. The impairment related to the tangible assets was based on
the estimated net realizable value of these assets. The impairment factors
evaluated by management may change in subsequent periods, given that the
Company's business operates in a highly volatile business environment. This
could result in material impairment charges in the future.

As of June 30, 2001, after giving effect to the fourth quarter of 2000 and
second quarter of 2001 impairment charges, the total remaining amount of
goodwill and other intangible assets, net, is $2.1 million for Attitude Networks
which was acquired in April 1999, zero for Webjump which was acquired in
December 1999 and $8.9 million for Chips and Bits and Startegy Plus which was
acquired in February 2000.

As of June 30, 2001, the amount remaining in the Factorymall.com restructuring
accrual recorded in the second quarter of 2000 is $0.3 million, primarily
related to severance and lease obligations, which will be paid out periodically
through August 2002. The total restructuring accrual of


                                       8
<PAGE>

$0.3 million is included within accrued expenses. The severance payment
obligations associated with the Company's fourth quarter of 2000 restructuring
initiatives has been fully paid as of June 30, 2001.

See Note 6 - Subsequent Events for additional information regarding
cost-reductions and restructuring initiatives affecting the Company's online
properties during the third quarter of 2001.

      (4) 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 was contingent upon the
attainment of certain performance targets by Chips & Bits and Strategy Plus
during the 2000 fiscal year. See note 5 (b) regarding the settlement of this
contingent obligation. This contingency was resolved without any impact on the
Company.

      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 allocated $1.1 million to the net tangible assets of
Chips & Bits and $1.6 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 $16.0 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 remaining amount of
goodwill and other intangibles, net is $8.9 million as of June 30, 2001. Chips &
Bits and Strategy Plus's results of operations are included in the condensed
consolidated statement of operations from February 24, 2000.

      The following unaudited pro forma consolidated financial information gives
effect to the above described acquisition, as if the acquisition had occurred at
January 1, 2000 by consolidating the results of operations of the Company, Chips
& Bits and Strategy Plus for the three and six months ended June 30, 2000.

<TABLE>
<CAPTION>
                                                              Three Months Ended          Six Months Ended
                                                                    June 30                   June 30
                                                             ---------------------     ----------------------
                                                               2001         2000         2001         2000
                                                             ---------------------     ----------------------
                                                                  (in thousands, except per share data)
<S>                                                          <C>          <C>          <C>          <C>
Revenue .................................................    $  4,548     $  8,377     $  9,295     $ 17,055
Net loss ................................................    $(12,546)    $(32,733)    $(22,004)    $(50,533)
Basic and diluted net loss per share ....................    $  (0.41)    $  (1.07)    $  (0.72)    $  (1.67)
Weighted average basic and diluted shares outstanding ...      30,382       30,634       30,382       30,294
</TABLE>

      (5) COMMITMENTS AND CONTINGENCIES

      (a) Litigation

      On June 20, 2000, Infonent.com, Inc. filed a Complaint and a motion for a
preliminary injunction to enjoin the Company from invoking its contractual right
to terminate the registration statement for Infonent.com, Inc.'s shares in the
Company. In an order entered July 18, 2000, the U.S. Bankruptcy Court for the
Northern District of California (San Jose Division) granted Infonent.com, Inc.'s
motion to the extent of barring the Company from terminating the registration
statement for a period of 45 days, commencing on July 3, 2000. On October 26,
2000, the Securities and Exchange Commission declared effective the Company's
amended registration statement which terminated the registration statement
relating to Infonent.com's shares in the Company.

            On February 14, 2001, Mohammed Poonja, Chapter 11 Trustee for the
estate of Infonent.com, Inc. (the "Trustee"), served an Amended Complaint on the
Company and Jump Acquisition, LLC ("Jump"). The Company has not, as of April 2,
2001, responded to the


                                       9
<PAGE>

Amended Complaint. The Amended Complaint asserts claims for violation of the
automatic stay provision, 11 U.S.C. ss. 362, as a result of the Company's
exercise of its contractual right to terminate the registration statement for
Infonent.com, Inc.'s shares in the Company pursuant to a November 30, 1999
Registration Rights Agreement between the Company and Infonent.com, Inc.; breach
of contract for the Company's and Jump's alleged failure to make certain
earn-out payments to Infonent.com, Inc. in connection with a November 30, 1999
purchase agreement (the "Agreement"); breach of the implied covenant of good
faith and fair dealing in connection with the Agreement; fraud; negligence; and
breach of contract and breach of the implied covenant of good faith and fair
dealing for its alleged delay in registering newly-issued shares of the
Company's common stock in connection with the Registration Rights Agreement. The
Amended Complaint seeks $9,524,859 in damages, plus interest, compensatory
damages on the automatic stay cause of action, costs and disbursements of the
action, and attorneys' fees. The Company filed an Answer on May 2, 2001 denying
the allegations made in the Amended Complaint. The Trustee has withdrawn its
claim for violation of the Automatic Stay by the Company. The Company and the
Trustee have agreed to transfer venue to Federal Court in New York, New York. In
August 2001, the Company has reached a settlement in principle with the trustee
for Infonent.com for $175,000, and expects to receive the settlement papers
shortly.

            On August 3, 2001, three identical class action complaints alleging
violations of the federal securities laws were filed in the United States
District Court for the Southern District of New York naming theglobe.com, inc.,
certain of its officers and directors, and Bear Stearns & Co., the underwriter
of the company's initial public offering, as defendants. The complaints allege,
among other things, that the underwriters of the company's initial public
offering violated the securities laws by failing to disclose certain alleged
compensation arrangements (such as undisclosed commissions or stock
stabilization practices) in the offering's registration statement. theglobe.com,
inc. and certain of its officers and directors are named in the complaints
pursuant to Section 11 of the Securities Act of 1933. Similar complaints have
allegedly been filed against more than 100 other issuers that have had initial
public offerings since 1998. The company anticipates that the actions described
above, and any additional related complaints that may be filed, will be
consolidated into a single action. We intend to defend these actions vigorously.
However, due to the inherent uncertainties of litigation, we cannot accurately
predict the ultimate outcome of the litigation. Any unfavorable outcome of this
litigation could have an adverse impact on our business, financial condition and
results of operations.

      From time to time the Company has been named in other 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

            In connection with the acquisition of the web hosting assets of
Webjump.com in December 1999, an additional payment of $1.25 million, payable in
newly issued shares of common stock, was contingent based upon the attainment of
certain performance targets measured as of November 30, 2000. Management
determined that such targets were not achieved as of the measurement date,
however, on February 14, 2001, the former shareholder group filed a lawsuit
against the Company claiming that they are entitled to $9.5 million related to
the above mentioned targets. See Note 5 (a) above for additional information.

      In connection with the acquisition of Chips & Bits, Inc. and Strategy
Plus, Inc. in February 2000, an additional payment of $1.25 million, payable in
newly issued shares of Common Stock, was contingent on the attainment of certain
performance targets by Chips & Bits, Inc. and Strategy Plus, Inc. During August
2001, the Company settled the contingency resulting in no additional
consideration being paid to the former shareholders.

      (6) SUBSEQUENT EVENTS

      On August 3, 2001, the Company announced additional cost-reduction and
      restructuring initiatives aimed at significantly reducing liabilities to
      preserve working capital. The Company is closing its community business at
      www.theglobe.com, and its small-business web-hosting property
      www.webjump.com (and the associated hosting facility), effective August
      15, 2001 as well as significantly scaling down its online games
      operations. These actions have resulted in the elimination of 60
      positions, or 49 % of the Company's workforce.

            Effective August 2, 2001, the Company terminated its existing lease
            obligation at its 120 Broadway location and will be relocating its
            remaining corporate staff to a new location in New York City with a
            short-term lease. The Company's letter of credit of $1.4 million
            will be released net of any assessments 30 days after the execution
            of the termination agreement.

      As a result of the aforementioned items, the Company will incur additional
      restructuring charges in the third quarter of 2001. These charges include
      employee severance costs of approximately $1.1 million required to be
      given under the WARN Act and employee contracts, as well as additional
      impairment charges associated with the Company's leasehold improvements
      and other equipment at its 120 Broadway location which are expected to
      range between $ 4.0 million and $4.3 million.

In addition, the Company has received and accepted an offer in August 2001 for
the sale of its Games Domain UK property, part of Attitude Network acquired in
April, 1999., which is contingent upon successful due diligence by the acquirer.


                                       10
<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 consolidated financial
statements and notes to those statements included elsewhere in this report.

RECENT DEVELOPMENTS

            On August 3, we announced additional cost-reduction and
restructuring initiatives aimed at significantly reducing liabilities to
preserve working capital. Due to the significant and prolonged decline in the
Internet advertising sector we elected to close our community business at
www.theglobe.com and our small-business web-hosting property www.webjump.com
(and the associated hosting facility), effective August 15, 2001 as well as
significantly scaling down online games operations. In addition, we have decided
to seek buyers for our games properties. This strategy has resulted in shifting
our business strategy from operating as a going concern to trying to sell our
game properties. We may be unable to sell our games properties quickly, if at
all, which would result in continued depletion of our cash position since our
games business currently operates at a cash loss. The games properties may also
lose some of their value while we try to sell them as we will not have full
corporate support for these businesses. These actions have resulted in the
elimination of 60 positions, or 49% of our workforce.

  Effective August 2, 2001, we terminated our existing lease obligation at our
120 Broadway location and will be relocating its remaining corporate staff to a
new location in New York City with a short-term lease. The Company's letter of
credit of $1.4 million will be released net of any assessments 30 days after the
execution of the termination agreement.

  As a result of the aforementioned items, we will incur additional
restructuring charges in the third quarter of 2001.  These charges include
employee severance costs of approximately $1.1 million required to be given
under the WARN Act and employee contracts, as well as additional impairment
charges associated with leasehold improvements and other equipment at our 120
Broadway location which are expected to range between $ 4.0 million and $4.3
million.

  In addition, we have received and accepted an offer in August 2001 for the
sale of its Games Domain UK property, part of Attitude Network acquired in
April, 1999,  which  is contingent upon successful due diligence by the
acquirer.

OVERVIEW

            As of June 30, 2001, we were a network of nine wholly-owned
properties (eight of which are online properties and one of which is an offline
property) focused on delivering community and/or games information to our
registered members in the United States and abroad. Each of these nine
properties specializes in bringing people together around shared topics of
interest. We deliver community through: (1) our leading games information
network, games.theglobe.com, which consists of six online properties:
HappyPuppy.com, KidsDomain.com, Computer Games Online (cdmag.com), Chips & Bits
(chipsbits.com), GamesDomain.com, and ConsoleDomain.com, as well as our offline
property Computer Games Magazine; (2) our flagship website, theglobe.com, which
features our community tools globeclubs and uPublish!, both of which enable
users to personalize their online experience by interacting with other users
around similar interests; (3) distribution of our community tools and services
and/or our games information content to other Web properties; and, (4) providing
web hosting services to the small business sector (businesses and professional
webmasters).

            Our revenues consist of 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. 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 (representing our share of the proceeds from
our e-commerce partners' sales).

            During 1998, revenues and operating expenses increased significantly
as we placed a greater emphasis on building our advertising revenues,
sponsorship revenues and memberships by expanding our sales force and promoting
theglobe brand.

            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 websites included Happy Puppy, Games
Domain and Kids Domain, three leading websites 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, was contingent
based upon the attainment of


                                       11
<PAGE>

certain performance targets measured as of November 30, 2000. Management
determined that such targets were not achieved as of the measurement date,
however, on February 14, 2001 the former shareholder group filed a law suit
against us claiming that they are entitled to $9.5 million related to the above
mentioned targets. See Part I - Item 5 - Legal and Note 5 (a) to our interim
condensed consolidated financial statements for additional information.

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
$15.3 million and was comprised, in part, of 1.9 million newly issued shares of
Common Stock. An additional $1.25 million, payable in newly issued shares of
Common Stock, was contingent on the attainment of certain performance targets by
Chips & Bits, Inc. and Strategy Plus, Inc. During August 2001, the Company
settled the contingency resulting in no additional consideration being paid to
the former shareholders.

      RESULTS OF OPERATIONS

      Revenues. Our revenue consists 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 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 decreased to $4.5 million and $ 9.3 million for the three and six
months ended June 30, 2001 as compared with $8.4 million and $15.4 million for
the three and six months ended June 30, 2000. Advertising revenues for the three
and six months ended June 30, 2001 were $1.8 million and $4.1 million,
respectively, which represented 39% and 44% of total revenues. 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% of total revenues.
The decrease in advertising revenues was primarily attributable to an
industry-wide decrease in the on-line advertising market which is expected to
continue through the balance of 2001. This decline was partially offset by
growth in advertising revenues due to our games magazine which was acquired in
February, 2000. Advertising revenue from our online properties for the three and
six months ended June 30, 2001 and 2000, respectively, was $1.1 million and $2.3
million, and $5.3 million and $9.5 million, respectively. Advertising revenue
from our games magazine for the three and six months ended June 30, 2001 and
2000, respectively was $0.7 million and $1.8 million, and $0.8 million and $1.2
million, respectively. Sales of merchandise through our online store accounted
for $1.5 million or 33% and $2.6 million or 28%, and $1.5 million or 18% and
$3.7 million or 24% of total revenues for the three and six months ended June
30, 2001 and 2000, respectively. In order to realign our e-commerce operations
to focus on video games and related products, the Company shut down its
electronic commerce operations in Seattle Washington in April 2000. Sales of our
games information magazine through newsstands and subscriptions accounted for
$1.3 million or 29% and $2.6 million or 28%, and $0.8 million or 9% and $0.9
million or 6% of total revenues for the three and six months ended June 30 2001
and 2000 respectively. We acquired our games information magazine in February
2000. Price increases and significant increases in circulation account for the
year over year increase as well as the strategy to diversify revenues with less
dependency on advertising revenues.

      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, printing costs of our
games magazine and the costs of merchandise sold and shipping fees in connection
with our online store. Gross margins were 18% and 20%, and 44% and 41% for the
three and six months ended June 30, 2001 and 2000, respectively. The
period-to-period decrease in the gross margins was primarily attributable to a
higher concentration 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.

      Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related expenses of sales and marketing personnel, commissions,
advertising and marketing costs, public relations expenses, promotional
activities and barter expense. Sales and marketing expense was $3.2 million and
$7.0 million for the three and six months ended June 30, 2001 as compared with
$7.9 million and $13.5 million for the three and six months ended June 30, 2000.
The period-to-period decrease in sales and marketing expense was attributable to
reduced personnel costs and decreased advertising costs. The Company is reducing
its marketing and advertising costs in absolute dollars, but sustained its
investment in its nation-wide sales force.

      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 decreased to $1.1
million and $2.9 million for the three and six months ended June 30, 2001 as
compared to $$2.8 and $5.8 million for the three and six months ended June 30,
2000. The period-to-period decrease was related to our restructuring and cost
containment initiatives.


                                       12
<PAGE>

      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 $1.9 and $4.0 million for the
three and six months ended June 30, 2001 as compared with $3.5 and $6.7 million
for the three and six months ended June 30, 2000. The period-to-period decrease
was primarily attributable to decreased salaries and personnel costs as a result
of our continued restructuring of the business.

Restructuring and Impairment Charges. For the three and six months ended June
30, 2001 and 2000, we recorded restructuring and impairment charges of $5.1
million and $15.6 million, respectively.

In the second quarter of 2001, restructuring charges consist of elimination of
59 positions, or 31% of the Company's workforce. As a result, severance benefits
of $469,610 were paid in the second quarter of 2001. Additionally, we closed our
San Francisco office in May 2001 and an additional $54,000 security deposit was
relinquished as settlement to terminate the remaining lease obligation.

In the second quarter of 2001, we recorded impairment charges of $4.5 million as
a result of management's ongoing business review and impairment analysis
performed under its existing policy regarding impairment of long-lived assets.
We had recorded an initial impairment charge of $19.6 million in fourth quarter
of 2000. This compares to $15.6 million for the three and six months ended June
30, 2000 related to the closing of our electronic commerce operations in
Seattle, Washington. The closure of the Seattle operations was the result of a
realignment of our electronic commerce operations to focus on the direct sale of
games.

The Company's management performs on-going business reviews and, based on
quantitative and qualitative measures, assesses the need to record impairment
losses on long-lived assets used in operations when impairment indicators are
present. Where impairment indicators were identified, management determined the
amount of the impairment charge by comparing the carrying values of goodwill and
other long-lived assets to their fair values. Management determines fair value
based on a market approach, which includes analysis of market price multiples of
companies engaged in lines of business similar to the company. The market price
multiples are selected and applied to the company based on the relative
performance, future prospects and risk profile of the company in comparison to
the guideline companies. As a result, during management's quarterly review of
the value and periods of amortization of both goodwill and other long-lived
assets, it was determined that the carrying value of goodwill and certain other
intangible assets were not fully recoverable.

In 1999, we completed acquisitions of Attitude Network, Ltd and the web hosting
assets of Webjump.com ("Web-based properties"). We also acquired tangible assets
such as server and computer equipment principally during the years 1999 and
2000. These tangible assets are used for serving and hosting the various
websites of the Company. Our revaluation of goodwill and intangible assets
related to the Web-based properties and the tangible assets was triggered by the
continued and prolonged decline in Internet advertising throughout 2000 and
2001, which significantly impacted current projected advertising revenue
generated from these web based properties and tangible assets and has resulted
in declines in operating and financial metrics over the past several quarters,
in comparison to the metrics forecasted at the time of their respective
acquisitions.

It was determined that the fair value of goodwill and intangible assets related
to the web-based properties and the tangible assets were less than the recorded
amount. Therefore, impairment charges of $3.2 million and $1.3 million,
respectively, were recorded. The methodology used to test for and measure the
amount of the impairment charge related to the intangible assets was based on
the same methodology we used during our initial acquisition valuation of the
web-based properties Attitude and Webjump in 1999. The impairment related to the
tangible assets was based on the estimated fair value of these assets. The
impairment factors evaluated by management may change in subsequent periods,
given that our business operates in a highly volatile business environment. This
could result in material impairment charge in the future.

      Amortization of Goodwill and Intangible Assets. Amortization expense was
$2.8 million and $5.7 million for the three and six months ended June 30, 2001
as compared with $7.0 million and $14.6 million for the three and six months
ended June 30 2000. The period-to-period decrease in amortization expense was
primarily attributable to the write down of goodwill and intangibles assets
which occurred in the fourth quarter of 2000. The gross amount of goodwill and
purchased intangibles as of June 30, 2001 is being amortized over the expected
period of benefit ranging from two to three years (three years for goodwill).
Refer to Recent Accounting Announcements, Part I - 1 n.

      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 quarter
over quarter increase in interest and other income, net was primarily
attributable to recognition of interest income and net proceeds from the
liquidation of collateral deposits for buyouts of capitalized leases.

      Income Taxes. Income taxes were approximately a credit of ($79,000) and
expense of $23,000 for the three and six months ended June 30, 2001 as compared
with the $50,000 expense and $120,000 for the three and six months ended June
30, 2000. 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


                                       13
<PAGE>

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, 2000, the Company had net
operating loss carry forwards available for U.S. and foreign tax purposes of
$105.2 million. These carryforwards expire through 2020. 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, 2001, we had approximately $1.5 million in cash and cash
equivalents and approximately $3.1 million in short-term investments. Net cash
used in operating activities was $11.8 million for the six months ended June 30,
2001 as compared to $19.1million for the six months ended June 30, 2000. The
decrease in net cash used in operating activities resulted primarily from a
decrease in our net operating losses, exclusive of depreciation expense and
amortization expense related to our acquisitions and non-cash charges. The
decrease was also attributable to a reduction in accounts receivable and prepaid
expenses, offset by a reduction in accounts payable and accrued expenses.

      Net cash provided in investing activities was $1. 5 million for the six
months ended June 30, 2001 as compared to $2.8 million for the six months ended
June 30, 2000. The decrease in net cash provided in investing activities is
primarily attributable to a decrease in the proceeds received from the sale of
short-term investments, decrease in purchases of property and equipment as well
as the receipt of security deposits used to buy out certain capital lease
obligations.

      Net cash used in financing activities was approximately $1.6 million for
the six months ended June 30, 2001 as compared to $0.6 million for the six
months ended June 30, 2000. The increase in net cash used in financing
activities was primarily attributable to the buyout of capital lease obligations
using the collateral from the associated security deposits.

      As of June 30, 2001, we had obligations amounting to $0.8 million in
connection with equipment purchased under capital leases. These obligations are
payable at various intervals between 2001 and 2003. We expect to meet our
current capital lease obligations with our cash, cash equivalents, short-term
investments, and security deposits.

      As of June 30, 2001, the amount remaining in the Factorymall.com
restructuring accrual is $0.3 million, primarily related to severance and lease
obligations, which will be paid out periodically through August 2002.

      Our capital requirements depend on numerous factors, including market
acceptance of our services, the capital required to maintain our websites, 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. We have received a report from our
independent accountants, relating to our December 31, 2000 audited financial
statements containing an explanatory paragraph stating that our recurring losses
from operations since inception and requirement for additional financing raises
substantial doubt about our ability to continue as a going concern. Under
generally accepted auditing standards, the Company's auditors have concluded
that they are unable to rely on these increased revenues in evaluating the
achievability of management's plan to continue as a going concern. In addition
to the revenue plan, management is currently exploring a number of strategic
alternatives and is also continuing to identify and implement internal actions
to improve the Company's liquidity. These alternatives may include selling
assets or Internet properties which could result in significant changes in our
business plan.

      As of June 30, 2001, our sole source of liquidity consisted of $4.5
million of cash and cash equivalents and short-term investments. We currently do
not have access to any other sources of funding, including debt and equity
financing facilities. As of June 30, 2001, our principal commitments consisted
of our operating obligations, amounts outstanding under operating and capital
leases as well as long-term debt. We believe that our current cash may not be
sufficient to meet our anticipated operating cash needs through January 1, 2002
or for the next twelve months commencing July 1, 2001. The Company has limited
operating capital and no current access to credit facilities. The Company's
continued operations therefore will depend on its ability to keep costs down,
sell assets or raise additional funds through bank borrowings or equity or debt
financing which financing is very unlikely.

      EFFECTS OF INFLATION

      Due to relatively low levels of inflation in 2000, 1999, 1998 and 1997,
inflation has not had a significant effect on our results of operations since
inception.

      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS


                                       14
<PAGE>

      In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued and, as amended by SFAS 137, was adopted by us on January 1, 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The Company's adoption of this statement in the first
quarter of 2001, did not have a significant impact on the Company's historical
financial statements as derivative instruments or hedging activities are not
currently used.

      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 there has been no impact on its
results of operations for the year ended December 31, 2000. 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. However, depending upon
movements in the market value, this accounting treatment may result in
significant non-cash compensation charges in the future.

            In July 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."

      The Company is required to adopt the provisions of SFAS No. 141
immediately and SFAS No. 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful life
that are acquired in a purchase business combination completed after June 30,
2001 will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill
and intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized prior to the adoption of SFAS No. 142.

      SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

            In connection with the transitional goodwill impairment evaluation,
SFAS No. 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS No. 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

            As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $7.0 million, all of which will be subject to the
transition provisions of SFAS Nos. 141 and 142. Amortization expense related to
goodwill was $27.2 million and $5.7 million for the year ended December 31, 2000
and the six months ended June 30, 2001, respectively. Because of the extensive
effort needed to comply with adopting SFAS Nos. 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.


                                       15
<PAGE>

                                  RISK FACTORS

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

      WE ARE CLOSING OUR COMMUNITY SITE AND SMALL BUSINESS WEB-HOSTING PROPERTY
AND INTEND TO SELL OUR GAMES PROPERTIES. WE MAY NOT BE ABLE TO SELL THESE
PROPERTIES FOR ANY SIGNIFICANT VALUE.

      Due to the significant and prolonged decline in the Internet advertising
sector, the Company has elected to close its community web site at
www.theglobe.com and its small business web-hosting property at www.webjump.com.
In addition, the Company has decided to seek buyers for its games properties in
order to reduce its cash burn and preserve working capital. This strategy has
resulted in the Company shifting its business strategy from operating as a going
concern to trying to sell its game properties. The Company may be unable to sell
its games properties quickly if at all which would result in continued depletion
of its cash position since the games business currently operates at a cash loss.
The games properties may also lose some of their value while we try to sell them
as we will not have full corporate support for these businesses. In addition,
the "theglobe.com" and "WebJump.com" brands are likely to lose significant value
once the web sites www.theglobe.com and www.webjump.com are taken offline as of
August 15, 2001. In addition, the closing of our community site and our small
business web-hosting site may adversely affect our electronic commerce due to
the inability of those web sites after their closure to refer traffic to the
Chips & Bits web site. The closing of these two web sites will negatively affect
our ability to promote our continuing games business. In addition, there is no
assurance that we will be able to sell all or any of the games business quickly,
if at all, or at any significant price, or that there will be any return to our
equity holders.

WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN IF WE ARE UNABLE TO SELL OUR
GAMES BUSINESS.

      We may not be able to operate the remaining business in the event that we
cannot sell our assets or enter into another arrangement. At this point there
are minimal prospects for a meaningful return on investment.

      DELISTING OF OUR COMMON STOCK.

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

      The recent delisting could make trading our shares more difficult for
investors, potentially leading to further declines in share price. It may also
make it more difficult for us to raise additional capital. We will also incur
additional costs under state blue sky laws if we sell equity due to our
delisting.

      REVENUE GROWTH IN PRIOR PERIODS IS NOT INDICATIVE OF FUTURE GROWTH; THE
COMPANY IS RESTRUCTURING AND PLANS TO SEEK TO SELL ITS REMAINING PROPERTIES
WHICH WILL MATERIALLY NEGATIVELY AFFECT OUR REVENUES; WE HAVE RECEIVED A REPORT
FROM OUR INDEPENDENT AUDITORS THAT RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.


                                       16
<PAGE>

      Although we achieved significant total revenue growth during 1999 and
2000, our online advertising revenue decreased in 2000 due to the softness in
the advertising market, which is expected to continue. Overall, our revenues
decreased period to period in the first and second quarter of 2001. Commencing
in the third quarter 2000, our online advertising revenues decreased by $2.5
million compared to second quarter 2000, and decreased an additional $0.2
million in the fourth quarter of 2000. Additionally, in April 2000, we elected
to shut down our e-commerce operations in Seattle, Washington in an effort to
realign our electronic commerce operations to focus on video games and related
products. This negatively impacted our projected revenue growth from e-commerce.
On August 3, 2001, we elected to shut down our community operations and small
business web-hosting. We also are seeking buyers for the game properties which
may materially affect revenues for our games business since a number of
advertisers could choose not to do business with us during the phase-down
period. We also dramatically reduced the number of employees, including almost
the entire sales staff, which will have a dramatic negative impact on our
revenues going forward. Accurate predictions of revenue are also difficult
because we are seeking to sell our remaining assets. Accordingly, investors
should not rely on past revenues as a prediction of future revenues. In
addition, we have received a report from our independent accountants containing
an explanatory paragraph stating that we suffered recurring losses from
operations since inception that raises substantial doubt about our ability to
continue as a going concern.

      WE EXPECT TO CONTINUE TO INCUR LOSSES.

      We have incurred net losses in each quarter since our inception and we
expect that we will continue to incur net losses for the foreseeable future. We
had net losses of approximately $103.9 million, $49.6 million, $16.0 million,
$3.6 million and $0.8 million for the years ended December 31, 2000, 1999, 1998,
1997 and 1996, respectively. As of June 30, 2001, we had an accumulated deficit
of approximately $195.9 million. The principal causes of our losses are likely
to continue to be:

      o     costs resulting from the operation of our services;
      o     amortization expense related to our acquisitions;
      o     costs resulting from the write down of good will;
      o     costs resulting from the restructuring and closure of our community
            sites;
      o     failure to generate sufficient revenue; and
      o     general and administrative expenses.

      Although we have restructured our business, we still expect to continue to
incur losses while we seek to sell our remaining assets.

      OUR FINANCIAL PERFORMANCE AND SUBSEQUENT REDUCTIONS OF THE WORKFORCE MAY
AFFECT THE MORALE AND PERFORMANCE OF OUR REMAINING PERSONNEL AND ABILITY TO
ENTER INTO NEW BUSINESS RELATIONSHIPS OR SELL OUR ASSETS.

      We have incurred significant net losses since our inception. In an effort
to reduce our cash expenses, we began to implement certain restructuring
initiatives and cost reductions. In October 2000, we reduced our workforce by 26
employees. In April 2001, we further reduced our workforce by 59 employees. On
August 3, 2001, we further reduced our work by 60 employees. We have also left
positions unfilled when certain employees have left the Company. In addition,
recent trading levels of our common stock have basically eliminated the value of
the stock options granted to employees pursuant to our stock option plan. As a
result of these factors, our remaining personnel may seek employment with
larger, more stable companies or companies they perceive to have better
prospects. Our failure to retain qualified employees to fulfill our needs could
halt our ability to operate our games business and have a material adverse
affect on our business.

      In addition, the publicity we receive, in connection with our financial
performance and measures to remedy it, may negatively affect our reputation and
our business partners and other market participants perception of the Company.
If we are unable to maintain the existing and develop new business relationships
our revenues and collections could suffer materially. In addition, the
announcement that we are closing our community web sites and are looking for
buyers for our games properties could have a material adverse effect on our
ability to retain the employees necessary to operate the games business and
generate revenues and subsequently collect them.



                                       17
<PAGE>

      WE HAVE HISTORICALLY RELIED SUBSTANTIALLY ON ONLINE ADVERTISING REVENUES.
THE ONLINE ADVERTISING MARKET HAS SIGNIFICANTLY DECLINED OVER THE PAST SEVERAL
QUARTERS. IN ADDITION, WE HAVE DRAMATICALLY REDUCED OUR SALES FORCE.

      We derive a substantial portion of our revenues from the sale of
advertisements on our web sites and in our magazine Computer Games Magazine. Our
business model and revenues are highly dependent on the amount of traffic on our
sites and our ability to properly monetize this traffic. Due to the August 3,
2001 restructuring, we now have only two sales people and will have tremendous
difficulty maintaining revenues and monetizing traffic to our games properties.
The level of traffic on our sites determines the amount of online advertising
inventory we can sell and the price for which we can sell our games business.
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. Due to the reduction in headcount, we
will be unable to create new advertising programs going forward. Online
advertising has dramatically decreased since the middle of 2000 and has
continued to decline into the first and second quarters of 2001, which could
have a material effect on the Company. Many online advertisers have been
experiencing financial difficulties which could materially impact our revenues
and our ability to collect our receivables. Due to our announcement regarding
our closing of our community business, it may become even more difficult to
collect receivables. 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 which has resulted in decreasing
      pricing.

      The development of the Internet advertising market has slowed dramatically
during the last year and if it continues to slow down, our business performance
would continue to 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. In
addition, the online advertising market may not recover from its current
downturn, which could have a material adverse effect on the Company.

      A significant portion of our revenues is derived from Internet companies
that are early stage entities. These entities may be dependent on additional
financing in order to survive. In addition, such companies may conduct less
online advertising in the future, which could have a material adverse effect on
the Company. These companies have been spending significantly less on online
advertising. For companies such as these, the risk of default on outstanding
indebtedness to us may be higher than we anticipate.

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

      The market for users and Internet advertising among web sites is new and
rapidly evolving. Competition for 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 continue to 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 other 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:


                                       18
<PAGE>

o     functionality of the web site;
o     brand recognition;
o     affinity and loyalty;
o     broad demographic focus;
o     open access for visitors;
o     critical mass of users;
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     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 AOL Time Warner;
o     electronic commerce web sites, such as Amazon.com; and
o     other web sites serving game enthusiasts, including Ziff Davis' Gamespot
      and CNET's Gamecenter.

      Many of our existing and potential competitors 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, 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 have been active in Internet related activities
including the games space. 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.

      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 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 continue to be 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.

      OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON.


                                       19
<PAGE>

      Due to our significant change in operations, our historical quarterly
operating results are not reflective of future results. We have not achieved
past expectations and it is likely that in one or more future quarters, our
operating results will fall below the expectation of 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 in the future include:

o     sales of our assets;
o     the decline in the number of sales employees;
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     other costs relating to the maintenance of our operations;
o     the incurrence of costs relating to acquisitions;
o     the restructuring of our business;
o     the timing and profitability of acquisitions,;
o     failure to generate significant revenues and profit margins from new
      products and services;
o     financial performance of other internet companies who advertise on our
      site; and
o     competition from others providing services similar to those of ours.

      We have historically derived 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. A
slowdown in the advertising market can happen quickly and lasts an unknown
amount of time. The advertising market has not yet recovered from the current
slowdown. 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. Revenues from our
games magazine are subject to the same seasonality trends as traditional media.

      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.

      OUR BUSINESS MODEL IS UNPROVEN.

      Our business model is unproven. This model depends upon our ability to
obtain revenues by using our games information properties ("Games Network")
without any other source of revenue. 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 e-commerce business 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 relatively 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. If this market fails to develop, develops slower than expected or


                                       20
<PAGE>

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.

      In the fourth quarter of 2000, we announced the reduction of our workforce
by 26 employees. In the second quarter of 2001, we announced the reduction of
our workforce by 59 employees. On August 3, 2001, we announced the reduction of
our workforce by 60 employees. These reductions included certain employees at
the management level. As a result of this reduction, we may experience
inefficiencies and a decrease in productivity throughout our business. This may
have a material effect on our operating results.

      OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.

    We have never operated solely as a games network. Accordingly, we have a
limited operating history for you to use in evaluating our prospects and us. Our
prospects should be considered in light of the risks encountered by companies
operating in new and rapidly evolving markets like ours. We may not successfully
address these risks. For example, we may not be able to:

      o     maintain levels of user traffic on our 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     develop or acquire content for our services; and
      o     identify, attract, retain and motivate qualified personnel;

      OUR ACQUISITIONS, JOINT VENTURES OR STRATEGIC TRANSACTIONS ENTAIL NUMEROUS
RISKS AND UNCERTAINTIES.

      On February 24, 2000, we acquired Chips & Bits, Inc., an electronic
commerce retailer that focuses primarily on game enthusiasts' and Strategy Plus,
Inc., media property that publishes a monthly games magazine and a game
enthusiast web site. We are considering and evaluating, from time to time,
potential business combinations or sales of our remaining assets. 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. In addition, as part of the sale of our games business, we
could obtain stock of another company or be the surviving company in a merger.
These transactions may or may not be consummated. If such a transaction is not
consummated, it is unclear how long we will continue to be able to operate. 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 risks of entering geographic and business markets in which we have no
      or limited prior experience; and
o     the risk that the acquired business will not perform as expected.

      WE MAY BE UNSUCCESSFUL IN ESTABLISHING AND MAINTAINING BRAND AWARENESS;
BRAND IDENTITY IS CRITICAL TO US AND OUR ABILITY TO SELL OUR REMAINING ASSETS.

      We believe that establishing and maintaining awareness of the brand name
of our wholly owned subsidiaries, including the brand names of all our games
properties ("Chips & Bits", "Strategy Plus", "HappyPuppy.com", "KidsDomain.com",
"GamesDomain.com", "ConsoleDomain.com", and "CGonline.com") is critical to
attracting and expanding our member base, the traffic on our web sites and our
advertising and electronic commerce relationships. The closure of the community
web site at www.theglobe.com, the Company's flagship web site, will adversely
affect the public's perception of the Company. If we fail to


                                       21
<PAGE>

promote and maintain our brand or our brand value is diluted, our continuing
games business, operating results and financial condition could be materially
adversely affected. The importance of brand recognition will increase because
low barriers to entry may 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 Internet users,
advertisers and customers do not perceive our Games Network to be of high
quality, the value of our brand could be materially diluted.

      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 2002. 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 might displace saleable
advertising inventory. This could reduce revenues and could have a material
adverse effect on us.

      WE HAVE DRAMATICALLY REDUCED OUR PERSONNEL, INCLUDING PERSONNEL THAT WE
HAVE HISTORICALLY PLACED SUBSTANTIAL DEPENDENCE ON.

      Our performance is substantially dependent on the continued service of our
senior management and key technical personnel. In particular, our success has
depended on the continued efforts of our senior management team, especially our
Chief Executive Officer, our President and Chief Operating Officer, our Chief
Financial Officer, our Vice President of Legal & Business Affairs and our Chief
Technology Officer. Our President and Chief Operating Officer, Chief Financial
Officer and Chief Technology Officer will no longer be with the Company after
August 2001 which will make operation of the Company more difficult. In
addition, the dramatic reduction in the number of personnel after the latest
restructuring will make operating the Company more difficult. We do not carry
key person life insurance on any of our personnel.

      WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.

      Our future success also depends on our continuing ability to attract,
retain and motivate highly qualified technical expertise and managerial
personnel necessary to operate our remaining business. Our seeking to sell the
games properties may also encourage existing employees to seek employment at
another company. If this were to occur, it could have a material effect on our
efforts to sell the games properties. We may need to give retention bonuses to
certain employees to keep them which can be costly to the Company. 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, we will not be able to
effectively offer stock options due to the delisting of the common stock, low
trading volume and cash position of the Company. In addition, we have


                                       22
<PAGE>

difficulty attracting qualified employees due to the Company's restructuring,
financial position and scaling down of operations. Also, we may have difficulty
attracting qualified employees to work in the geographically remote location in
Vermont of Chips & Bits, Inc. and Strategy Plus, Inc., the Company's two
subsidiaries that will contain most of the employees after August 2001. 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.

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

      We hired a new Chief Executive Officer in August 2000, who has not had
previous experience managing a public company. Furthermore, the remaining
members of our 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     our key employees will be able to work together effectively as a team;
o     we will be able to retain the remaining members of our management team;
o     we will be able to hire, train and manage our employee base;
o     our systems, procedures or controls will be adequate to support our
      operations; and
o     our management will be able to achieve the rapid execution necessary to
      fully exploit the market opportunity for our products and services.

      In addition, the Chief Executive Officer will be the only member of
executive management with significant financial experience after August 2001.

      OUR CHAIRMAN HAS OTHER INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS
OF INTEREST WITH SOME OF OUR DIRECTORS; OUR BOARD HAS DECREASED FROM NINE TO
FIVE MEMBERS.

      Because our Chairman, Mr. Michael Egan, is an officer of other companies,
we have to compete for his time. Mr. Egan serves as the Chairman of our board of
directors and as an executive officer of other entities 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 and Chief Executive
Officer of ANC Rental Corporation, a spin-off of the car rental business of
AutoNation, Inc.

      We have revenue agreements with entities controlled by Mr. Egan and by H.
Wayne Huizenga, one of our former 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%, 4% and 3% of total revenues for the years ended
December 31, 2000, 1999 and 1998, respectively. 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.

      Due to certain time constraints, three members of our Board did not stand
for reelection. In addition, Stephan Paternot, the Co-Vice Chairman and one of
the founders of the Company, has resigned from the Board due to other
commitments. The charter of the Company was amended at the annual meeting of
shareholders in June 2001 to allow between 5 and 9 directors to serve on the
Board of Directors. We may determine to further reduce the size of the Board due
to the change in the operations of the 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


                                       23
<PAGE>

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.

      Our principal servers are located at New York Teleport facility in Staten
Island, New York under a lease with Telehouse International Corporation of
America which is expiring at the end of August 2001. 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. However, we plan to transition from the New York Teleport facility to
an independent third party hosting service in August 2001. Any disruption in our
Internet access due to the transition or otherwise 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 and
game properties 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.

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

      Our market is relatively new and rapidly evolving. Our remaining business
is substantially dependent upon the continued rapid growth in the use of the
Internet, PC and console games and electronic commerce on the Internet becoming
more widespread. Web usage and electronic commerce growth 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;


                                       24
<PAGE>

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 many of our competitors
and the development of relationships with manufacturers and suppliers of these
products. In addition, the closing of our community site and our small business
web-hosting site may adversely affect our electronic commerce due to the
inability of those web sites after their closure to refer traffic to the Chips &
Bits web site. 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 and
consumers' potential preference for competing web site's user interface, gross
margins for electronic commerce transactions which are narrower than for
advertising businesses may further narrow in the future and, accordingly, our
revenues and profits from electronic commerce arrangements may be materially and
adversely affected. 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.


                                       25
<PAGE>

      The value of our remaining business will be significantly dependent on its
ability to generate advertising revenues. The Internet advertising market is
relatively 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 limited 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," on the number of times an advertisement is displayed to a
user, known as "impressions," or on the number of times a user completes an
action at an advertiser's web site after clicking through, known as "cost per
action." 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. Online advertisers are increasingly demanding "cost per click" and
"cost per action" advertising campaigns, which require many more page views to
achieve an equal revenue, which significantly effects our revenues. If online
advertisers continue to demand those "cost per action" deals, it could
negatively impact our business.

      Our revenues and the value of the assets we are seeking to sell 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. Online advertising pricing has been declining. 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 utilize arrangements with 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. In addition, some companies with which we do business may suffer
financial difficulties that could limit their ability to pay the Company monies
owed. 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.
We may enter into arrangements to increase our traffic which may not be
successful. 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


                                       26
<PAGE>

majority of the web sites that provide links to our site. These sites may
terminate their links at any time which would result in a decrease in the
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 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 adversely 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. However, we may not have sufficient funds or personnel to adequately
litigate or otherwise protect our rights. Furthermore, we cannot assure you that
our business activities will not infringe upon the proprietary rights of others,
or that other parties will not assert infringement claims against us, including
claims related to providing hyperlinks to 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. 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.


                                       27
<PAGE>

      We have registered several Internet domain names including "theglobe.com",
"globeclubs.com", "tglo.com," "azazz.com," "happypuppy.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 financial statements.

      WE ARE INVOLVED IN A SECURITIES CLASS ACTION LITIGATION AND ARE AT RISK OF
ADDITIONAL SIMILAR LITIGATION.

      We are a party to the securities class action litigation described in Part
I, Item 1, Number 5(a) - "Legal Proceedings" of this report. The defense of the
litigation described in Part II, Item 1 may increase our expenses and will
occupy the senior staff's attention and resources, and an adverse outcome in
this litigation could adversely affect the business. In addition, we may in the
future be the target of other securities class action or similar litigation.

      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
infringement, trademark infringement or the wrongful actions of third parties.
Other theories may be brought based on the nature, publication and distribution
of our content or based on errors or false or misleading information provided on
our 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 have offered e-mail service to our members, which a third
party has provided. Due to the closing of the community site, we will no longer
offer this service as of August 15, 2001. The use of the e-mail service until
that time 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


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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 OPERATING THE INTERNATIONAL COMPONENTS OF OUR
BUSINESS.

A part of our historical strategy has been 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. We are
now in discussions to sell our U.K. subsidiary but have no assurances that we
will consummate any transaction.

      There are certain 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, all of whom are directors of our company other than Paternot, `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:


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      o     sales of any of our games properties;
      o     shut down of our community web site and small business web-hosting
            web site;
      o     the loss of a significant number of our employees;
      o     quarterly variations in our operating results;
      o     Decreased trading volume;
      o     competitive announcements;
      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 KEEP
OUR STOCK PRICE FROM IMPROVING.

      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 ability of the market price of the
Common Stock to increase even if our business prospects were to improve. We
currently have approximately 22 million shares of Common Stock that are freely
tradable. Approximately 8,158,450 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.
Additionally, we may issue additional shares of our common stock, which could
further adversely effect our stock price.

      There are outstanding options to purchase 5,114,803 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.

      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.


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      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 assesses 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 he first six months of 2001was not material. We do not use
derivative financial instruments to limit our foreign currency risk exposure.


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                           PART II - OTHER INFORMATION

      ITEM 1. LEGAL PROCEEDINGS

      See Note 5 - "Commitments and Contingencies" in Part I, Item 1, "Condensed
Consolidated Financial Statements."

      ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

      (a) Sales of Unregistered Securities

      None.

      (b) 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,
2001 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
--------------        -----------

3.1                   Certificate of Amendment to the Fourth Amended
                      and Restated Certificate of Incorporation

      (b) Reports on Form 8-K.

      None


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                                   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/ Stephanie Hauge
                            ------------------------------

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

August 14, 2001


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