**UNITED
      STATES**


**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 September 30, 2006





OR





**o**
            **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.
                EMPLOYERINCORPORATION
                OR ORGANIZATION)
            
            IDENTIFICATION
                NO.)




110
      EAST
      BROWARD BOULEVARD, SUITE 1400


FORT
      LAUDERDALE, FL. 33301


(ADDRESS
      OF PRINCIPAL EXECUTIVE OFFICES)





(954)
      769 - 5900


(Registrant's
      telephone number, including area code)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. x Yes o No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      one):





Large
                accelerated filero
            
            Accelerated
                filero
            
            Non-accelerated
                filerx




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





The
      number of shares outstanding of the Registrant's Common Stock, $.001 par value
      (the "Common Stock") as of November 6, 2006 was 174,757,565.







**THEGLOBE.COM,
      INC.**


**FORM
      10-Q**





TABLE
      OF
      CONTENTS





PART
                I:
            
            FINANCIAL
                INFORMATIONItem
                1.
            
            Condensed
                Consolidated Financial StatementsCondensed
                Consolidated Balance Sheets at September 30, 2006 (unaudited) and
                December
                31, 2005
            
            3Unaudited
                Condensed Consolidated Statements of Operations for the three and
                nine
                months ended September 30, 2006 and 2005
            
            4Unaudited
                Condensed Consolidated Statements of Cash Flows for the nine months
                ended
                September 30, 2006 and 2005
            
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            6Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            17Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            31Item
                4.
            
            Controls
                and Procedures
            
            31PART
                II:
            
            OTHER
                INFORMATIONItem
                1.
            
            Legal
                Proceedings
            
            31Item
                1A.
            
            Risk
                Factors
            
            31Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            46Item
                3.
            
            Defaults
                Upon Senior Securities
            
            46Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            46Item
                5.
            
            Other
                Information
            
            46Item
                6.
            
            Exhibits
            
            46SIGNATURES
            
            47


2





**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**THEGLOBE.COM,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





SEPTEMBER
                30,
              2006
            
            DECEMBER
                31,
              2005(UNAUDITED)ASSETSCurrent
                Assets:Cash
                and cash equivalents
            
            $
            6,902,606
            
            $
            16,480,660Restricted
                cash
            
            
            250,000
            
            
            1,031,764Accounts
                receivable, less allowance for doubtful accounts of approximately
                $20,000
                and $128,000, respectively
            
            
            471,586
            
            
            452,398Inventory,
                less reserves of approximately $381,000 and $434,000,
                respectively
            
            
            49,325
            
            
            66,271Prepaid
                expenses
            
            
            690,356
            
            
            1,022,771Other
                current assets
            
            
            149,429
            
            
            146,889Total
                current assets
            
            
            8,513,302
            
            
            19,200,753Property
                and equipment, net
            
            
            482,771
            
            
            1,455,653Intangible
                assets
            
            
            566,336
            
            
            715,035Other
                assets
            
            
            40,000
            
            
            40,000Total
                assets
            
            $
            9,602,409
            
            $
            21,411,441LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                Liabilities:Accounts
                payable
            
            $
            2,674,369
            
            $
            2,564,988Accrued
                expenses and other current liabilities
            
            
            1,870,115
            
            
            2,177,815Income
                taxes payable
            
            
            —
            
            
            806,406Deferred
                revenue
            
            
            956,576
            
            
            985,981Notes
                payable and current portion of long-term debt
            
            
            3,400,000
            
            
            3,428,447Total
                current liabilities
            
            
            8,901,060
            
            
            9,963,637Long-term
                liabilities
            
            
            230,407
            
            
            173,003Total
                liabilities
            
            
            9,131,467
            
            
            10,136,640Stockholders'
                Equity:Common
                stock, $0.001 par value; 500,000,000 shares authorized; 174,722,565
                and
                174,373,091 shares issued at September 30, 2006 and December 31,
                2005,
                respectively
            
            
            174,723
            
            
            174,373Additional
                paid-in capital
            
            
            289,216,357
            
            
            288,740,889Escrow
                shares
            
            
            (750,000
            )
            
            (750,000
            )Accumulated
                deficit
            
            
            (288,170,138
            )
            
            (276,890,461
            )Total
                stockholders' equity
            
            
            470,942
            
            
            11,274,801Total
                liabilities and stockholders' equity
            
            $
            9,602,409
            
            $
            21,411,441




See
      notes
      to unaudited condensed consolidated financial statements.




3





**THEGLOBE.COM,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,2006
            
            2005
            
            2006
            
            2005(UNAUDITED)Net
                Revenue
            
            $
            909,938
            
            $
            409,258
            
            $
            2,440,868
            
            $
            1,689,418Operating
                Expenses:Cost
                of revenue
            
            
            653,229
            
            
            2,213,574
            
            
            3,714,516
            
            
            6,379,145Sales
                and marketing
            
            
            1,013,596
            
            
            481,573
            
            
            2,450,141
            
            
            1,722,058Product
                development
            
            
            331,561
            
            
            356,409
            
            
            1,090,443
            
            
            1,010,666General
                and administrative
            
            
            1,508,810
            
            
            2,321,295
            
            
            5,601,159
            
            
            5,734,072Depreciation
            
            
            193,175
            
            
            299,225
            
            
            736,845
            
            
            882,396Intangible
                asset amortization
            
            
            39,512
            
            
            28,200
            
            
            148,699
            
            
            47,0003,739,883
            
            
            5,700,276
            
            
            13,741,803
            
            
            15,775,337Operating
                Loss from Continuing Operations
            
            
            (2,829,945
            )
            
            (5,291,018
            )
            
            (11,300,935
            )
            
            (14,085,919
            )Other
                Income (Expense), net:Interest
                income (expense), net
            
            
            2,205
            
            
            (1,102,234
            )
            
            126,933
            
            
            (4,156,840
            )Other
                income (expense), net
            
            
            (327
            )
            
            (3,157
            )
            
            18,638
            
            
            (281,994
            )1,878
            
            
            (1,105,391
            )
            
            145,571
            
            
            (4,438,834
            )Loss
                from Continuing OperationsBefore
                Income Tax
            
            
            (2,828,067
            )
            
            (6,396,409
            )
            
            (11,155,364
            )
            
            (18,524,753
            )Income
                Tax Provision (Benefit)
            
            
            124,313
            
            
            (388,547
            )
            
            124,313
            
            
            (1,038,497
            )Loss
                from Continuing Operations
            
            
            (2,952,380
            )
            
            (6,007,862
            )
            
            (11,279,677
            )
            
            (17,486,256
            )Discontinued
                Operations:Income
                from operations
            
            
            —
            
            
            1,009,026
            
            
            —
            
            
            2,734,154Tax
                provision
            
            
            —
            
            
            372,971
            
            
            —
            
            
            1,038,497Income
                from Discontinued Operations
            
            
            —
            
            
            636,055
            
            
            —
            
            
            1,695,657Net
                Loss
            
            $
            (2,952,380
            )
            $
            (5,371,807
            )
            $
            (11,279,677
            )
            $
            (15,790,599
            )Earnings
                (Loss) Per Share -Basic
                and Diluted:Continuing
                Operations
            
            $
            (0.02
            )
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.10
            )Discontinued
                Operations
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            0.01Net
                Loss
            
            $
            (0.02
            )
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.09
            )Weighted
                Average Common Shares Outstanding
            
            
            174,723,000
            
            
            192,210,000
            
            
            174,680,000
            
            
            182,577,000





See
      notes
      to unaudited condensed consolidated financial statements.




4





**THEGLOBE.COM,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**





Nine
                Months Ended September 30,2006
            
            2005(UNAUDITED)Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (11,279,677
            )
            $
            (15,790,599
            )(Income)
                from discontinued operations
            
            
            —
            
            
            (1,695,657
            )Net
                loss from continuing operations
            
            
            (11,279,677
            )
            
            (17,486,256
            )Adjustments
                to reconcile net loss from continuingoperations
                to net cash flows from operating activities:Depreciation
                and amortization
            
            
            885,544
            
            
            929,396Provision
                for uncollectible accounts receivable
            
            
            17,076
            
            
            100,000Provision
                for excess and obsolete inventory
            
            
            —
            
            
            95,054Employee
                stock compensation
            
            
            349,406
            
            
            48,987Compensation
                related to non-employee stock options
            
            
            107,992
            
            
            143,351Loss
                on sale of property and equipment
            
            
            130,424
            
            
            —Gain
                on sale of Now Playing magazine
            
            
            (130,000
            )
            
            —Non-cash
                interest expense
            
            
            —
            
            
            4,000,000Reserve
                against amounts loaned to Tralliance prior to acquisition
            
            
            —
            
            
            280,000Other,
                net
            
            
            (128,797
            )
            
            (128,120
            )Changes
                in operating assets and liabilities, net:Accounts
                receivable, net
            
            
            (36,264
            )
            
            485,933Inventory,
                net
            
            
            16,946
            
            
            307,140Prepaid
                and other current assets
            
            
            329,875
            
            
            213,859Accounts
                payable
            
            
            260,541
            
            
            1,659,943Accrued
                expenses and other current liabilities
            
            
            (307,700
            )
            
            395,062Income
                taxes payable
            
            
            (806,406
            )
            
            —Deferred
                revenue
            
            
            27,999
            
            
            (50,713
            )Net
                cash flows from operating activities of continuing
                operations
            
            
            (10,563,041
            )
            
            (9,006,364
            )Net
                cash flows from operating activities of discontinued
                operations
            
            
            —
            
            
            1,152,597Net
                cash flows from operating activities
            
            
            (10,563,041
            )
            
            (7,853,767
            )Cash
                Flows from Investing Activities:Proceeds
                from sales and maturities of marketable securities
            
            
            —
            
            
            42,736Purchases
                of property and equipment
            
            
            (52,605
            )
            
            (257,682
            )Net
                cash released from escrow
            
            
            781,764
            
            
            61,883Proceeds
                from sale of property and equipment
            
            
            137,626
            
            
            —Proceeds
                from sale of Now Playing magazine
            
            
            130,000
            
            
            —Net
                cash acquired in acquisition of Tralliance
            
            
            —
            
            
            14,450Amounts
                loaned to Tralliance prior to acquisition
            
            
            —
            
            
            (280,000
            )Other,
                net
            
            
            —
            
            
            (40,000
            )Net
                cash flows from investing activities of continuing
                operations
            
            
            996,785
            
            
            (458,613
            )Purchases
                of property and equipment by discontinued operations
            
            
            —
            
            
            (171,431
            )Net
                cash flows from investing activities
            
            
            996,785
            
            
            (630,044
            )Cash
                Flows from Financing Activities:Borrowings
                on notes payable
            
            
            —
            
            
            4,000,000Payments
                on notes payable and long-term debt
            
            
            (30,218
            )
            
            (277,608
            )Proceeds
                from exercise of common stock options and warrants
            
            
            18,420
            
            
            42,717Net
                cash flows from financing activities
            
            
            (11,798
            )
            
            3,765,109Net
                Decrease in Cash and Cash Equivalents
            
            
            (9,578,054
            )
            
            (4,718,702
            )Cash
                and Cash Equivalents, at beginning of period
            
            
            16,480,660
            
            
            6,734,793Cash
                and Cash Equivalents, at end of period
            
            $
            6,902,606
            
            $
            2,016,091




See
      notes
      to unaudited condensed consolidated financial statements.





5




**THEGLOBE.COM,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**





(1)
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





DESCRIPTION
      OF THEGLOBE.COM





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





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





On
      May
      28, 2003, the Company acquired Direct Partner Telecom, Inc. ("DPT"), a company
      engaged in VoIP telephony services in exchange for 1,375,000 shares of the
      Company's Common Stock and the issuance of warrants to acquire 500,000 shares
      of
      the Company's Common Stock. The Company acquired all of the physical assets
      and
      intellectual property of DPT and originally planned to continue to operate
      the
      company as a subsidiary and engage in the provision of VoIP services to other
      telephony businesses on a wholesale transactional basis. In the first quarter
      of
      2004, the Company decided to suspend DPT's wholesale business and dedicate
      the
      DPT physical and intellectual assets to its retail VoIP business. The Company
      has since employed DPT's physical assets in the build out of its VoIP
      network.





On
      September 1, 2004, the Company acquired SendTec, Inc. ("SendTec"), a direct
      response marketing services and technology company for a total purchase price
      of
      approximately $18.4 million. As more fully discussed in Note 3, "Discontinued
      Operations - SendTec Inc.,” on October 31, 2005, the Company completed the sale
      of all of the business and substantially all of the net assets of SendTec for
      approximately $39.9 million in cash, subject to the finalization of certain
      net
      working capital adjustments. Effective March 31, 2006, $318,750 in cash was
      released to the purchaser from funds held in escrow in settlement of such net
      working capital adjustments.





As
      more
      fully discussed in Note 4, “Acquisition of Tralliance Corporation,” on May 9,
      2005, the Company exercised its option to acquire Tralliance Corporation
      (“Tralliance”), a company which had recently entered into an agreement to become
      the registry for the “.travel” top-level Internet domain. The Company issued
      2,000,000 shares of its Common Stock, warrants to acquire 475,000 shares of
      its
      Common Stock and paid $40,000 in cash to acquire Tralliance.





As
      of
      September 30, 2006, sources of the Company's revenue from continuing operations
      were derived principally from the operations of its games related businesses
      and
      its Internet services business conducted by Tralliance. The Company's retail
      VoIP products and services have yet to produce any significant
      revenue.





PRINCIPLES
      OF CONSOLIDATION





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





UNAUDITED
      INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION





The
      unaudited interim condensed consolidated financial statements of the Company
      as
      of September 30, 2006 and for the three and nine months ended September 30,
      2006
      and 2005 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.




6




In
      the
      opinion of management, the accompanying unaudited interim condensed consolidated
      financial statements reflect all adjustments, consisting only of normal
      recurring adjustments, necessary to present fairly the financial position of
      the
      Company at September 30, 2006 and the results of its operations and its cash
      flows for the three and nine months ended September 30, 2006 and 2005. The
      results of operations and cash flows for such periods are not necessarily
      indicative of results expected for the full year or for any future
      period.





USE
      OF
      ESTIMATES





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





CASH
      AND
      CASH EQUIVALENTS





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





RESTRICTED
      CASH





Restricted
      cash in the accompanying condensed consolidated balance sheet at September
      30,
      2006, consisted of $250,000 of cash held in escrow in connection with the
      October 31, 2005 sale of the SendTec business (see Note 3, “Discontinued
      Operations - SendTec, Inc.” for further discussion).





COMPREHENSIVE
      INCOME (LOSS)





The
      Company reports comprehensive income (loss) in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 130, "Reporting Comprehensive
      Income." Comprehensive income (loss) generally represents all changes in
      stockholders' equity during the year except those resulting from investments
      by,
      or distributions to, stockholders. The Company's comprehensive loss was
      approximately $11.3 million and $15.8 million for the nine months ended
      September 30, 2006 and 2005, respectively, which approximated the Company's
      reported net loss.





INVENTORY





Inventories
      are recorded on a first-in, first-out basis and valued at the lower of cost
      or
      market value. The Company's reserve for excess and obsolete inventory as of
      September 30, 2006 and December 31, 2005, was approximately $381,000 and
      $434,000, respectively.





The
      Company manages its inventory levels based on internal forecasts of customer
      demand for its products, which is difficult to predict and can fluctuate
      substantially. In addition, the Company's inventories include high technology
      items that are specialized in nature or subject to rapid obsolescence. If the
      Company's demand forecast is greater than the actual customer demand for its
      products, the Company may be required to record additional charges related
      to
      increases in its inventory valuation reserves in future periods. The value
      of
      inventories is also dependent on the Company's estimate of future average
      selling prices, and, if projected average selling prices are over estimated,
      the
      Company may be required to further adjust its inventory value to reflect the
      lower of cost or market.





CONCENTRATION
      OF CREDIT RISK





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





Concentration
      of credit risk in the Company's Internet services and VoIP telephony services
      divisions is generally limited as payments for registrations and services are
      normally received in advance. **** A single
      customer **** of
      the
      computer games division represented an aggregate of approximately $62,000,
      or
      13%, of net consolidated accounts receivable as of September 30,
      2006.





7




REVENUE
      RECOGNITION





***Continuing
      Operations***





**COMPUTER
      GAMES BUSINESSES**





Advertising
      revenue from the sale of print advertisements under short-term contracts in
      the
      Company's magazine publications are recognized at the on-sale date of the
      magazines.





Newsstand
      sales of the Company's magazine publications are recognized at the on-sale
      date
      of the magazines, net of provisions for estimated returns. Subscription revenue,
      which is net of agency fees, is deferred when initially received and recognized
      as income ratably over the subscription term.





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





**INTERNET
      SERVICES**





Internet
      services revenue consists of registration fees for Internet domain
      registrations, which generally have terms of one year, but may be up to ten
      years. Such registration fees are reported net of transaction fees paid to
      an
      unrelated third party which serves as the registry operator for the Company.
      Payments of registration fees are deferred when initially received and
      recognized as revenue on a straight-line basis over the registrations’
terms.





**VOIP
      TELEPHONY SERVICES**





VoIP
      telephony services revenue represents fees charged to customers for voice
      services and is recognized based on minutes of customer usage or as services
      are
      provided. The Company records payments received in advance for prepaid services
      as deferred revenue until the related services are provided.





***Discontinued
      Operations***





**MARKETING
      SERVICES**





Revenue
      from the distribution of Internet advertising was recognized when Internet
      users
      visited and completed actions at an advertiser's website. Revenue consisted
      of
      the gross value of billings to clients, including the recovery of costs incurred
      to acquire online media required to execute client campaigns. Recorded revenue
      was based upon reports generated by the Company's tracking
      software.





Revenue
      derived from the purchase and tracking of direct response media, such as
      television and radio commercials, was recognized on a net basis when the
      associated media was aired. In many cases, the amount the Company billed to
      clients significantly exceeded the amount of revenue that was earned due to
      the
      existence of various "pass-through" charges such as the cost of the television
      and radio media. Amounts received in advance of media airings were
      deferred.





Revenue
      generated from the production of direct response advertising programs, such
      as
      infomercials, was recognized on the completed contract method when such programs
      were complete and available for airing. Production activities generally ranged
      from eight to twelve weeks and the Company usually collected amounts in advance
      and at various points throughout the production process. Amounts received from
      customers prior to completion of commercials were included in deferred revenue
      and direct costs associated with the production of commercials in process were
      deferred.




NET
      LOSS
      PER SHARE





The
      Company reports net loss per common share in accordance with SFAS No. 128,
      "Computation of Earnings Per Share." In accordance with SFAS 128 and the
      Securities and Exchange Commission (“SEC’) Staff Accounting Bulletin No. 98,
      basic earnings per share is computed using the weighted average number of common
      shares outstanding during the period. Common equivalent shares consist of the
      incremental common shares issuable upon the conversion of convertible preferred
      stock and convertible notes (using the if-converted method), if any, and the
      shares issuable upon the exercise of stock options and warrants (using the
      treasury stock method). Common equivalent shares are excluded from the
      calculation if their effect is anti-dilutive or if a loss from continuing
      operations is reported.




8





Due
      to
      the Company's net losses from continuing operations, the effect of potentially
      dilutive securities or common stock equivalents that could be issued was
      excluded from the diluted net loss per common share calculation due to the
      anti-dilutive effect. Such potentially dilutive securities and common stock
      equivalents consisted of the following for the periods ended September 30:




2006
            
            2005Options
                to purchase common stock
            
            
            20,049,000
            
            
            19,570,000Common
                shares issuable upon exercise of warrants
            
            
            6,911,000
            
            
            11,492,000Common
                shares issuable upon conversion of Convertible Notes
            
            
            68,000,000
            
            
            68,000,000Total
            
            
            94,960,000
            
            
            99,062,000





RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements.” This standard defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosure about fair value measurements.
      SFAS
      No. 157 applies to other accounting standards that require or permit fair value
      measurements. Accordingly, this statement does not require any new fair value
      measurement. This statement is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. We are
      currently evaluating the requirements of SFAS No. 157 and have not determined
      the impact on our consolidated financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how
      the effects of prior year uncorrected misstatements should be considered when
      quantifying misstatements in current year financial statements. SAB No. 108
      requires companies to quantify misstatements using a balance sheet and income
      statement approach and to evaluate whether either approach results in
      quantifying an error that is material in light of relevant quantitative and
      qualitative factors. SAB No. 108 permits existing public companies to initially
      apply its provisions either by (i) restating prior financial statements as
      if
      the “dual approach” had always been used or (ii) recording the cumulative effect
      of initially applying the “dual approach” as adjustments to the carrying value
      of assets and liabilities as of January 1, 2006 with an offsetting adjustment
      recorded to the opening balance of retained earnings. Use of the “cumulative
      effect” transition method requires detailed disclosure of the nature and amount
      of each individual error being corrected through the cumulative adjustment
      and
      how and when it arose. We are currently evaluating the impact of adopting SAB
      No. 108 but we do not expect that it will have a material effect on our
      consolidated financial statements.





In
      June
      2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty
      in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for
      Income Taxes,” which clarifies accounting for and disclosure of uncertainty in
      tax positions. FIN No. 48 prescribes a recognition threshold and measurement
      attribute for the financial recognition and measurement of a tax position taken
      or expected to be taken in a tax return. The interpretation is effective for
      fiscal years beginning after December 15, 2006. We are currently evaluating
      the
      impact of adopting FIN No. 48 on our consolidated financial
      statements.





In
      November 2005, the FASB issued final FASB Staff Position (“FSP”) FAS No. 123R-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
      Payment Awards.” The FSP provides an alternative method of calculating excess
      tax benefits from the method defined in SFAS No. 123R for share-based payments.
      A one-time election to adopt the transition method in this FSP is available
      to
      those entities adopting SFAS No. 123R using either the modified retrospective
      or
      modified prospective method. Up to one year from the initial adoption of SFAS
      No. 123R or the effective date of the FSP is provided to make this one-time
      election. However, until an entity makes its election, it must follow the
      guidance in SFAS No. 123R. The FSP is effective upon initial adoption of SFAS
      No. 123R and became effective for the Company in the first quarter of 2006.
      We
      are currently evaluating the allowable methods for calculating excess tax
      benefits and have not yet determined whether we will make a one-time election
      to
      adopt the transition method described in this FSP, nor the expected impact
      on
      our financial position or results of operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error
      Corrections, a Replacement of Accounting Principles Board (“APB”) Opinion No. 20
      and FASB Statement No. 3.” SFAS No. 154 applies to all voluntary changes in
      accounting principles and requires retrospective application to prior periods’
financial statements of changes in accounting principles. This statement also
      requires that a change in depreciation, amortization or depletion method for
      long-lived, non-financial assets be accounted for as a change in accounting
      estimate effected by a change in accounting principle. SFAS No. 154 carries
      forward without change the guidance contained in APB Opinion No. 20 for
      reporting the correction of an error in previously issued financial statements
      and a change in accounting estimate. This statement is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005. The adoption of this standard did not have a material impact on the
      Company’s financial condition, results of operations or liquidity.





In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
      statement is a revision of SFAS No. 123, "Accounting for Stock-Based
      Compensation", supersedes APB Opinion No. 25, "Accounting for Stock Issued
      to
      Employees" and amends SFAS No. 95, “Statement of Cash Flows.” The statement
      eliminates the alternative to use the intrinsic value method of accounting
      that
      was provided in SFAS No. 123, which generally resulted in no compensation
      expense recorded in the financial statements related to the issuance of equity
      awards to employees. The statement also requires that the cost resulting from
      all share-based payment transactions be recognized in the financial statements.
      It establishes fair value as the measurement objective in accounting for
      share-based payment arrangements and generally requires all companies to apply
      a
      fair-value-based measurement method in accounting for share-based payment
      transactions with employees. In March 2005, the Securities and Exchange
      Commission (the “SEC”) issued Staff Accounting Bulletin 107 which describes the
      SEC staff’s expectations in determining the assumptions that underlie the fair
      value estimates and discusses the interaction of SFAS No. 123R with existing
      guidance. The Company has adopted SFAS No. 123R effective January 1, 2006,
      using
      the modified prospective application method in accordance with the statement.
      This application requires the Company to record compensation expense for all
      awards granted after the adoption date and for the unvested portion of awards
      that are outstanding at the date of adoption. The Company expects that the
      adoption of SFAS No. 123R will result in charges to operating expense of
      continuing operations of approximately $194,000, $77,000 and $19,000, in the
      years ended December 31, 2006, 2007 and 2008, related to the unvested portion
      of
      outstanding employee stock options at December 31, 2005.





9




RECLASSIFICATIONS





Certain
      2005 amounts have been reclassified to conform to the 2006 presentation. In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets”, the operations of SendTec have been accounted for in
      accordance with the provisions of SFAS No. 144 and the 2005 results of SendTec’s
      operations have been included in income from discontinued
      operations.





(2)
      BASIS
      OF PRESENTATION





The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America on a going concern basis, which contemplates the realization of assets
      and the satisfaction of liabilities in the normal course of business.
      Accordingly, the condensed consolidated financial statements do not include
      any
      adjustments relating to the recoverability of assets and classification of
      liabilities that might be necessary should the Company be unable to continue
      as
      a going concern. However, the Company has incurred net losses in the nine months
      ended September 30, 2006 and in each fiscal year since its inception and has
      an
      accumulated deficit of $288,170,138 as of September 30, 2006.





As
      more
      fully discussed in Note 6, “Litigation,” the Company is a defendant in a lawsuit
      filed by MySpace, Inc. on June 1, 2006, as well as other litigation.
      Additionally, the Company is currently a party to certain other claims and
      disputes arising in the ordinary course of business. Although uncertain at
      the
      present time, the legal costs of defending and settling such lawsuits,
      outstanding claims and disputes could be material and could utilize a
      significant portion of our cash resources and adversely affect our financial
      condition.





Based
      upon the Company’s present cash resources and cash flow projections, management
      believes the Company has sufficient liquidity to operate as a going concern
      through at least the first quarter of 2007. In order to assure the
      Company's financial viability beyond the first quarter of 2007, management
      believes the Company must raise additional capital, successfully implement
      its
      existing and future business plans and successfully resolve the legal
      proceedings, claims and disputes discussed in the paragraph above. The Company’s
      business plans may include the sale, abandonment or disposal of certain
      businesses or components of businesses, including the sale of certain
      technologies or other long-lived assets. There can be no assurance that the
      Company will be successful in taking any of the above actions. The
      aforementioned uncertainties regarding the future direction and financial
      performance of the Company create substantial doubt that the Company will be
      able to continue as a going concern beyond the first quarter of
      2007.




(3)
      DISCONTINUED OPERATIONS - SENDTEC, INC.





On
      August
      10, 2005, the Company entered into an Asset Purchase Agreement with
      RelationServe Media, Inc. ("RelationServe") whereby the Company agreed to sell
      all of the business and substantially all of the net assets of its SendTec
      marketing services subsidiary to RelationServe for $37,500,000 in cash, subject
      to certain net working capital adjustments. On August 23, 2005, the Company
      entered into Amendment No. 1 to the Asset Purchase Agreement with RelationServe
      (the “1st Amendment” and together with the original Asset Purchase Agreement,
      the “Purchase Agreement”). On October 31, 2005, the Company completed the asset
      sale. Including preliminary adjustments to the purchase price, related to excess
      working capital of SendTec as of the date of sale, the Company received an
      aggregate of approximately $39,900,000 in cash pursuant to the Purchase
      Agreement.





In
      accordance with the terms of an escrow agreement established as a source to
      secure the Company’s indemnification obligations under the Purchase Agreement,
      $1,000,000 of the purchase price and an aggregate of 2,272,727 shares of
      theglobe’s unregistered Common Stock (valued at $750,000 pursuant to the terms
      of the Purchase Agreement based upon the average closing price of the stock
      in
      the 10 day period preceding the closing of the sale) were placed into escrow
      as
      of the date of sale. On March 31, 2006, a partial release of $750,000 of the
      escrowed cash was made to the Company pursuant to the terms of the escrow
      agreement, less $318,750 of cash due to RelationServe in final settlement of
      the
      purchase price net working capital adjustments.




10





Results
      of operations for SendTec have been reported separately as “Discontinued
      Operations” in the accompanying condensed consolidated statements of operations
      for the three and nine months ended September 30, 2005. Summarized financial
      information for the Discontinued Operations of SendTec was as follows:




Periods
                Ended September 30, 2005
            
            Three
                Months
            
            Nine
                MonthsNet
                revenue, net of intercompany eliminations
            
            $
            10,752,616
            
            $
            28,897,502Income
                from operations
            
            $
            1,009,026
            
            $
            2,734,154Provision
                for income taxes
            
            
            372,971
            
            
            1,038,497Income
                from discontinued operations, net of tax
            
            $
            636,055
            
            $
            1,695,657




(4)
      ACQUISITION OF TRALLIANCE CORPORATION





On
      February 25, 2003, the Company entered into a Loan and Purchase Option
      Agreement, as amended, with Tralliance, an Internet related business venture,
      pursuant to which it agreed to fund, in the form of a loan, at the discretion
      of
      the Company, Tralliance's operating expenses and obtained the option to acquire
      all of the outstanding capital stock of Tralliance in exchange for, when and
      if
      exercised, $40,000 in cash and the issuance of an aggregate of 2,000,000
      unregistered restricted shares of the Company's Common Stock (the "Option").
      The
      Loan was secured by a lien on the assets of the venture. On May 5, 2005,
      Tralliance and the Internet Corporation for Assigned Names and Numbers ("ICANN")
      entered into an agreement designating Tralliance as the registry for the
      ".travel" top-level domain. On May 9, 2005, the Company exercised its option
      to
      acquire all of the outstanding capital stock of Tralliance. The purchase price
      consisted of the issuance of 2,000,000 shares of the Company’s Common Stock,
      warrants to acquire 475,000 shares of the Company’s Common Stock and $40,000 in
      cash. The warrants are exercisable for a period of five years at an exercise
      price of $0.11 per share. As part of the transaction, 10,000 shares of the
      Company’s Common Stock were also issued to a third party in payment of a
      finder's fee resulting from the acquisition. The Common Stock issued as a result
      of the acquisition of Tralliance is entitled to certain "piggy-back"
      registration rights. In addition, as part of the transaction, the Company agreed
      to pay approximately $154,000 in outstanding liabilities of Tralliance
      immediately after the closing of the acquisition.




The
      Tralliance purchase price allocation was as follows:




Cash
            
            $
            54,000Other
                current assets
            
            
            6,000Intangible
                assets
            
            
            790,000Assumed
                liabilities
            
            
            (370,000
            )Deferred
                tax liability
            
            
            (226,000
            )$
            254,000




Upon
      acquisition, the then existing CEO and CFO of Tralliance (the “Executives”)
      entered into employment agreements, which include certain non-compete
      provisions, whereby each would agree to remain in the employ of Tralliance
      for a
      period of two years in exchange for annual base compensation totaling $200,000
      to each officer. In addition, the Executives participate in an annual bonus
      pool
      based upon the pre-tax income of the venture for a period of approximately
      five
      years beginning May 1, 2005.





The
      value
      assigned to the intangible assets acquired is being amortized on a straight-line
      basis over a five year estimated useful life. Annual amortization expense of
      the
      intangible assets is estimated to be: $188,211 in 2006; $158,047 for each of
      2007 through 2009 and $52,683 in 2010. The related accumulated amortization
      as
      of September 30, 2006 and December 31, 2005 was $223,900 and $75,201,
      respectively. Amortization expense totaled $39,512 and $148,699 for the three
      and nine months ended September 30, 2006, respectively.





Advances
      to Tralliance totaled $1,281,500 prior to its acquisition by the Company. Due
      to
      the uncertainty of the ultimate collectibility of the Loan, the Company had
      historically provided a reserve equal to the full amount of the funds advanced
      to Tralliance. For the nine months ended September 30, 2005, additions to the
      reserve of $280,000 were included in other expense in the accompanying condensed
      consolidated statement of operations.





The
      following pro forma condensed consolidated results of operations for the nine
      months ended September 30, 2005 assumes the acquisition of Tralliance occurred
      as of January 1, 2005. The pro forma information is not necessarily indicative
      of what the actual results of operations of the combined company would have
      been
      had the acquisition occurred on January 1, 2005, nor is it necessarily
      indicative of future results.





11




PRO
                FORMA RESULTS:
            
            Nine
                MonthsPeriod
                ended September 30, 2005Net
                revenue
            
            $
            1,689,000Net
                loss
            
            
            (15,855,000
            )Basic
                and diluted net loss per common share
            
            $
            (0.09
            )




(5)
      STOCK
      OPTION PLANS





We
      have
      several stock option plans under which nonqualified stock options may be granted
      to officers, directors, other employees, consultants and advisors of the
      Company. In general, options granted under the Company’s stock option plans
      expire after a ten-year period and generally vest no later than three years
      from
      the date of grant. Incentive options granted to stockholders who own greater
      than 10% of the total combined voting power of all classes of stock of the
      Company must be issued at 110% of the fair market value of the stock on the
      date
      the options are granted. As of September 30, 2006, there were approximately
      2,971,000 shares available for grant under the Company’s stock option
      plans.





A
      total
      of 6,030,000 stock options were granted during the nine months ended September
      30, 2006, which included the issuance of 550,000 stock options which will vest
      only upon achievement of certain performance targets. The weighted-average
      fair
      value of stock options granted during the first nine months of 2006, excluding
      the stock options granted which vest upon the achievement of performance targets
      was $0.15. During the nine months ended September 30, 2005, a total of 5,819,750
      stock options were issued with a weighted-average fair value of
      $0.10.





Stock
      option exercises during the nine months ended September 30, 2006 and 2005,
      resulted in cash inflows to the Company of $18,420 and $31,880, respectively.
      The corresponding intrinsic value as of exercise date of the 349,474 and 677,169
      stock options exercised during the nine months ended September 30, 2006 and
      2005, was $119,628 and $77,245, respectively.




Stock
      option activity during the nine months ended September 30, 2006 was as follows:




Total
                Options
            
            Weighted
              Average
                Exercise PriceOutstanding
                at January 1, 2006
            
            
            15,373,103
            
            $
            0.46Granted
            
            
            6,030,000
            
            
            0.17Exercised
            
            
            (349,474
            )
            
            0.05Canceled
            
            
            (1,005,009
            )
            
            0.73Outstanding
                at September 30, 2006
            
            
            20,048,620
            
            $
            0.36Options
                exercisable at September 30, 2006
            
            
            14,548,486
            
            $
            0.43





The
      weighted-average remaining contractual terms of stock options outstanding and
      stock options exercisable at September 30, 2006 were 7.7 years and 7.2 years,
      respectively. The aggregate intrinsic value of both options outstanding and
      stock options exercisable at September 30, 2006 was approximately
      $294,000.





In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
      statement is a revision of SFAS No. 123, "Accounting for Stock-Based
      Compensation", supersedes Accounting Principles Board ("APB") Opinion No. 25,
      "Accounting for Stock Issued to Employees" and amends SFAS No. 95, “Statement of
      Cash Flows.” The statement eliminates the alternative to use the intrinsic value
      method of accounting that was provided in SFAS No. 123, which generally resulted
      in no compensation expense recorded in the financial statements related to
      the
      issuance of equity awards to employees. The statement also requires that the
      cost resulting from all share-based payment transactions be recognized in the
      financial statements. It establishes fair value as the measurement objective
      in
      accounting for share-based payment arrangements and generally requires all
      companies to apply a fair-value-based measurement method in accounting for
      share-based payment transactions with employees. The Company adopted SFAS No.
      123R effective January 1, 2006, using the modified prospective
      application method in accordance with the statement. This application requires
      the Company to record compensation expense for all awards granted to employees
      and directors after the adoption date and for the unvested portion of awards
      that are outstanding at the date of adoption. The Company’s condensed
      consolidated financial statements as of and for the three and nine months ended
      September 30, 2006, reflect the impact of SFAS No. 123R. In accordance with
      the
      modified prospective application method, the Company’s condensed consolidated
      financial statements for prior periods have not been restated to reflect and
      do
      not include the impact of SFAS No. 123R.




12





Prior
      to
      January 1, 2006, the Company had historically followed SFAS No. 123, "Accounting
      for Stock-Based Compensation," which permitted entities to continue to apply
      the
      provisions of Accounting Principles Board Opinion No. 25 ("APB 25") and provide
      pro forma net earnings (loss) disclosures for employee stock option grants
      as if
      the fair-value-based method defined in SFAS No. 123 had been applied. Under
      this
      method, compensation expense was recorded on the date of grant only if the
      then
      current market price of the underlying stock exceeded the exercise price. The
      following table presents the Company's pro forma net loss for the three and
      nine
      months ended September 30, 2005, had the Company determined compensation cost
      based on the fair value at the grant date for all of its employee stock options
      issued under SFAS No. 123:





Three
                Months
            
            Nine
                MonthsPeriods
                Ended September 30, 2005Net
                loss - as reported
            
            $
            (5,371,807
            )
            $
            (15,790,599
            )Add:
                Stock-based employee compensationincluded
                in net loss as reported
            
            
            126,331
            
            
            494,201Deduct:
                Total stock-based employeecompensation
                expense determined underfair
                value method for all awards
            
            
            (352,524
            )
            
            (1,187,602
            )Net
                loss - pro forma
            
            $
            (5,598,000
            )
            $
            (16,484,000
            )Basic
                net loss per share - as reported
            
            $
            (0.03
            )
            $
            (0.09
            )Basic
                net loss per share - pro forma
            
            $
            (0.03
            )
            $
            (0.09
            )




Stock
      compensation cost is recognized on a straight-line basis over the vesting
      period. Stock compensation expense totaling $457,398 was charged to continuing
      operations during the nine months ended September 30, 2006, including $107,992
      of expense resulting from the vesting of non-employee stock options and
      approximately $5,619 from the accelerated vesting of stock options issued to
      terminated employees. A total of $343,787 of the total stock compensation
      expense charged to continuing operations for the first nine months of 2006
      resulted from the adoption of SFAS No. 123R. During the nine months ended
      September 30, 2005, stock compensation expense of $192,338 charged to continuing
      operations included $143,351 of expense related to non-employee stock options
      and $48,987 of expense related primarily to the accelerated vesting of stock
      options issued to a terminated employee.





Stock
      compensation expense totaling $117,544 and $446,854 for the three and nine
      months ended September 30, 2005, respectively, was charged to income from the
      discontinued operations of the Company’s SendTec subsidiary. The expense
      resulted primarily from the deferred compensation attributable to the issuance
      of stock options in the Company’s acquisition of SendTec.





At
      September 30, 2006, there was approximately $656,000 of unrecognized
      compensation expense related to unvested stock options, excluding the 550,000
      options which vest on the achievement of certain performance targets, which
      is
      expected to be recognized over a weighted-average period of 1.3
      years.





The
      Company estimates the fair value of each stock option at the grant date by
      using
      the Black Scholes option-pricing model with the following weighted-average
      assumptions used for grants in 2006: no dividend yield; an expected life of
      approximately three to six years; **** 115
      -
      150% expected volatility and a risk free interest rate of 4.00 -
      5.00%. **** The
      risk
      free interest rate is based on the U.S. Treasury yield in effect at the time
      of
      grant; the expected life is based on historical and expected exercise behavior;
      and expected volatility is based on the historical volatility of the Company’s
      stock price, over a time period that is consistent with the expected life of
      the
      option.





(6)
      LITIGATION





On
      and
      after August 3, 2001 and as of the date of this filing, the Company is aware
      that six putative shareholder class action lawsuits were filed against the
      Company, certain of its current and former officers and directors (the
“Individual Defendants”), and several investment banks that were the
      underwriters of the Company's initial public offering. The lawsuits were filed
      in the United States District Court for the Southern District of New
      York.





The
      lawsuits purport to be class actions filed on behalf of purchasers of the stock
      of the Company during the period from November 12, 1998 through December 6,
      2000. Plaintiffs allege that the underwriter defendants agreed to allocate
      stock
      in the Company's initial public offering to certain investors in exchange for
      excessive and undisclosed commissions and agreements by those investors to
      make
      additional purchases of stock in the aftermarket at pre-determined prices.
      Plaintiffs allege that the Prospectus for the Company's initial public offering
      was false and misleading and in violation of the securities laws because it
      did
      not disclose these arrangements. On December 5, 2001, an amended complaint
      was
      filed in one of the actions, alleging the same conduct described above in
      connection with the Company's November 23, 1998 initial public offering and
      its
      May 19, 1999 secondary offering. A Consolidated Amended Complaint, which is
      now
      the operative complaint, was filed in the Southern District of New York on
      April
      19, 2002. The action seeks damages in an unspecified amount. On February 19,
      2003, a motion to dismiss all claims against the Company was denied by the
      Court. On October 13, 2004, the Court certified a class in six of the
      approximately 300 other nearly identical actions and noted that the decision
      is
      intended to provide strong guidance to all parties regarding class certification
      in the remaining cases. The Underwriter Defendants sought leave to appeal the
      class certification decision and the Second Circuit has accepted the appeal.
      Plaintiffs have not yet moved to certify a class in theglobe.com
      case.





13





The
      Company has approved a settlement agreement and related agreements which set
      forth the terms of a settlement between the Company, the Individual Defendants,
      the plaintiff class and the vast majority of the other approximately 300 issuer
      defendants. Among other provisions, the settlement provides for a release of
      the
      Company and the Individual Defendants for the conduct alleged in the action
      to
      be wrongful. The Company would agree to undertake certain responsibilities,
      including agreeing to assign away, not assert, or release certain potential
      claims the Company may have against its underwriters. The settlement agreement
      also provides a guaranteed recovery of $1 billion to plaintiffs for the cases
      relating to all of the approximately 300 issuers. To the extent that the
      underwriter defendants settle all of the cases for at least $1 billion, no
      payment will be required under the issuers’ settlement agreement. To the extent
      that the underwriter defendants settle for less than $1 billion, the issuers
      are
      required to make up the difference. On April 20, 2006, JPMorgan Chase and the
      plaintiffs reached a preliminary agreement for a settlement for $425 million.
      The JPMorgan Chase settlement has not yet been approved by the Court. However,
      if it is finally approved, then the maximum amount that the issuers’ insurers
      will be potentially liable for is $575 million. It is anticipated that any
      potential financial obligation of the Company to plaintiffs pursuant to the
      terms of the settlement agreement and related agreements will be covered by
      existing insurance. The Company currently is not aware of any material
      limitations on the expected recovery of any potential financial obligation
      to
      plaintiffs from its insurance carriers. Its carriers are solvent, and the
      company is not aware of any uncertainties as to the legal sufficiency of an
      insurance claim with respect to any recovery by plaintiffs. Therefore, we do
      not
      expect that the settlement will involve any payment by the Company. If material
      limitations on the expected recovery of any potential financial obligation
      to
      the plaintiffs from the Company's insurance carriers should arise, the Company's
      maximum financial obligation to plaintiffs pursuant to the settlement agreement
      would be less than $3.4 million. However, if the JPMorgan Chase settlement
      is
      finally approved, the Company’s maximum financial obligation to the plaintiffs
      will be less than $2 million. On February 15, 2005, the Court granted
      preliminary approval of the settlement agreement, subject to certain
      modifications consistent with its opinion. Those modifications have been made.
      On March 20, 2006, the Underwriter Defendants submitted objections to the
      settlement to the Court. The Court held a hearing regarding these and other
      objections to the settlement at a fairness hearing on April 24, 2006, but it
      has
      not yet issued a ruling. There is no assurance that the court will grant final
      approval to the settlement. If the settlement agreement is not approved and
      the
      Company is found liable, we are unable to estimate or predict the potential
      damages that might be awarded, whether such damages would be greater than the
      Company’s insurance coverage, and whether such damages would have a material
      impact on our results of operations or financial condition in any future
      period.




On
      October 4, 2005, Sprint Communications Company, L.P. (“Sprint”) filed a
      Complaint in the United States District Court for the District of Kansas against
      theglobe, theglobe’s subsidiary, tglo.com (formerly known as voiceglo Holdings,
      Inc. or “voiceglo”), and Vonage Holdings Corp. (“Vonage”). On October 12, 2005,
      Sprint filed a First Amended Complaint naming Vonage America, Inc. (“Vonage
      America”) as an additional defendant. Neither theglobe nor voiceglo has any
      affiliation with Vonage or Vonage America. Sprint alleged that theglobe and
      voiceglo had made unauthorized use of “inventions” described and claimed in
      seven patents held by Sprint. Sprint sought monetary and injunctive relief
      for
      this alleged infringement. On November 21, 2005, theglobe and voiceglo filed
      an
      Answer to Sprint’s First Amended Complaint, denying infringement and interposing
      affirmative defenses, including that each of the asserted patents were invalid.
      voiceglo counterclaimed against Sprint for a declaratory judgment of
      non-infringement and invalidity. On January 18, 2006, the court issued a
      Scheduling Order which called for, among other things, discovery to be completed
      by December 29, 2006, and for trial to commence August 7, 2007. On August 22,
      2006, the Company, together with its subsidiary, and Sprint entered into a
      settlement agreement (the “Settlement”) which resolved the pending patent
      infringement lawsuit. As part of the Settlement, the Company and its subsidiary
      agreed to enter into a non-exclusive license under certain of Sprint’s
      patents.





On
      June
      1, 2006, MySpace, Inc. (“MySpace”), a Delaware corporation, filed a lawsuit in
      the United States District Court for the Central District of California against
      theglobe.com, inc. (the “Company”). We were served with the lawsuit on June 6,
      2006. MySpace alleges that the Company sent unsolicited and unauthorized
      commercial email messages to MySpace members using MySpace user accounts
      improperly established by the Company, that the user accounts were used in
      a
      false and misleading fashion and that the Company's alleged activities
      constituted violations of the CAN-SPAM Act, the Lanham Act and California
      Business & Professions Code § 17529.5, as well as trademark infringement,
      false advertising, breach of contract, breach of the covenant of good faith
      and
      fair dealing, and unfair competition. MySpace seeks monetary penalties, damages
      and injunctive relief for these alleged violations. It asserts entitlement
      to
      recover "a minimum of" $62.3 million of damages, in addition to three times
      the
      amount of MySpace's actual damages and/or disgorgement of the Company's
      purported profits from alleged violations of the Lanham Act, punitive damages
      and attorneys’ fees. On July 24, 2006, the Company filed its Answer to the
      Complaint, denying liability for each claim and asserting various affirmative
      defenses. The parties are conducting discovery and both sides contemplate filing
      motions that may be dispositive of one or more claims in the action. Trial
      is
      currently anticipated to occur in mid 2007.





It
      is not
      possible to predict the outcome of this litigation nor any reasonable estimate
      of the possible range of any loss or damage to the Company. An adverse outcome
      could materially and adversely affect our results of operations and financial
      position and may utilize a significant portion of our cash
      resources.





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




14





(7)
      SEGMENTS AND GEOGRAPHIC INFORMATION





The
      Company applies the provisions of SFAS No. 131, "Disclosures About Segments
      of
      an Enterprise and Related Information," which establishes annual and interim
      reporting standards for operating segments of a company. SFAS No. 131 requires
      disclosures of selected segment-related financial information about products,
      major customers and geographic areas. Effective with the May 9, 2005 acquisition
      of Tralliance, the Company was organized in four operating segments for purposes
      of making operating decisions and assessing performance: the computer games
      division, the Internet services division, the VoIP telephony services division
      and the marketing services division. The computer games division currently
      consists of the operations of the Company's two gaming magazine publications
      and
      the associated websites and the operations of Chips & Bits, Inc., its games
      distribution business. The Internet services division consists of the operations
      of Tralliance. The VoIP telephony services division is principally involved
      in
      the development of communications and other web-based services over the Internet
      for use by consumers. The marketing services division consisted of the
      discontinued operations of the Company's subsidiary, SendTec which was sold
      effective October 31, 2005 and has been excluded from the segment data presented
      below.





The
      chief
      operating decision maker evaluates performance, makes operating decisions and
      allocates resources based on financial data of each segment. Where appropriate,
      the Company charges specific costs to each segment where they can be identified.
      Certain items are maintained at the Company's corporate headquarters
      ("Corporate") and are not presently allocated to the segments. Corporate
      expenses primarily include personnel costs related to executives and certain
      support staff and professional fees. Corporate assets principally consist of
      cash and cash equivalents. Subsequent to its acquisition on September 1, 2004,
      SendTec provided various intersegment marketing services to the Company's VoIP
      telephony services division. Prior to the acquisition of SendTec, there were
      no
      intersegment transactions. The accounting policies of the segments are the
      same
      as those for the Company as a whole.





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




Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,2006
            
            2005
            
            2006
            
            2005NET
                REVENUE FROM CONTINUING OPERATIONS:Computer
                games
            
            $
            517,604
            
            $
            360,917
            
            $
            1,344,441
            
            $
            1,477,692Internet
                services
            
            
            385,755
            
            
            —
            
            
            1,062,042
            
            
            —VoIP
                telephony services
            
            
            6,579
            
            
            48,341
            
            
            34,385
            
            
            211,726$
            909,938
            
            $
            409,258
            
            $
            2,440,868
            
            $
            1,689,418




OPERATING
                LOSS FROM CONTINUING OPERATIONS:Computer
                games
            
            $
            (139,975
            )
            $
            (716,105
            )
            $
            (627,827
            )
            $
            (1,694,843
            )Internet
                services
            
            
            (1,064,999
            )
            
            (431,990
            )
            
            (2,547,116
            )
            
            (645,564
            )VoIP
                telephony services
            
            
            (912,240
            )
            
            (3,064,272
            )
            
            (5,945,701
            )
            
            (9,191,989
            )Corporate
                expenses
            
            
            (712,731
            )
            
            (1,078,651
            )
            
            (2,180,291
            )
            
            (2,553,523
            )Operating
                loss from continuing operations
            
            
            (2,829,945
            )
            
            (5,291,018
            )
            
            (11,300,935
            )
            
            (14,085,919
            )Other
                income (expense), net
            
            
            1,878
            
            
            (1,105,391
            )
            
            145,571
            
            
            (4,438,834
            )Loss
                from continuing operations before income tax
            
            $
            (2,828,067
            )
            $
            (6,396,409
            )
            $
            (11,155,364
            )
            $
            (18,524,753
            )DEPRECIATION
                AND AMORTIZATION OF CONTINUING OPERATIONS:Computer
                games
            
            $
            6,987
            
            $
            7,723
            
            $
            20,961
            
            $
            23,161Internet
                services
            
            
            51,141
            
            
            30,668
            
            
            178,899
            
            
            49,468VoIP
                telephony services
            
            
            167,217
            
            
            280,584
            
            
            661,517
            
            
            829,160Corporate
                expenses
            
            
            7,342
            
            
            8,450
            
            
            24,167
            
            
            27,607$
            232,687
            
            $
            327,425
            
            $
            885,544
            
            $
            929,396





15




September
                30,
              2006
            
            December
                31,
              2005IDENTIFIABLE
                ASSETS:Computer
                games
            
            $
            535,821
            
            $
            637,417Internet
                services
            
            
            845,194
            
            
            1,161,344VoIP
                telephony services
            
            
            503,613
            
            
            1,817,809Corporate
                assets*
            
            
            7,717,781
            
            
            17,794,871$
            9,602,409
            
            $
            21,411,441




*
            Corporate
                assets include cash held at subsidiaries for purposes of the presentation
                above.




Net
      revenue of approximately $108,000 attributable to a single customer of the
      computer games business segment represented in excess of 10% of consolidated
      net
      revenue for the third quarter of 2006.


16





**ITEM
              2.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**





**FORWARD
      LOOKING STATEMENTS**





This
      Form
      10-Q contains forward-looking statements within the meaning of the federal
      securities laws that relate to future events or our future financial
      performance. In some cases, you can identify forward-looking statements by
      terminology, such as "may," "will," "should," "could," "expect," "plan,"
      "anticipate," "believe," "estimate," "project," "predict," "intend," "potential"
      or "continue" or the negative of such terms or other comparable terminology,
      although not all forward-looking statements contain such terms. In addition,
      these forward-looking statements include, but are not limited to, statements
      regarding:





●
            implementing
                our business plans;





●
            marketing
                and commercialization of our existing products and services, as well
                as
                those products and services under
                development;





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





●
            our
                ability to implement cost-reduction
                programs;





●
            potential
                governmental regulation and
                taxation;





●
            the
                outcome of pending litigation;





●
            our
                intellectual property;





●
            our
                estimates of future revenue and
                profitability;





●
            our
                estimates or expectations of continued
                losses;





●
            our
                expectations regarding future expenses, including cost of revenue,
                product
                development, sales and marketing, and general and administrative
                expenses;





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





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





●
            attracting
                and retaining customers and
                employees;





●
            rapid
                technological changes in our industry and relevant
                markets;





●
            sources
                of revenue and anticipated revenue;





●
            plans
                for future acquisitions and entering new lines of
                business;





●
            plans
                for divestitures or spin-offs of certain businesses or
                assets;





●
            competition
                in our market; and





●
            our
                ability to continue to operate as a going
                concern.





These
      statements are only predictions. Although we believe that the expectations
      reflected in these forward-looking statements are reasonable, we cannot
      guarantee future results, levels of activity, performance or achievements.
      We
      are not required to and do not intend to update any of the forward-looking
      statements after the date of this Form 10-Q or to conform these statements
      to
      actual results. In light of these risks, uncertainties and assumptions, the
      forward-looking events discussed in this Form 10-Q might not occur. Actual
      results, levels of activity, performance, achievements and events may vary
      significantly from those implied by the forward-looking statements. A
      description of risks that could cause our results to vary appears under "Risk
      Factors" and elsewhere in this Form 10-Q. The following discussion should be
      read together in conjunction with the accompanying unaudited condensed
      consolidated financial statements and related notes thereto and the audited
      consolidated financial statements and notes to those statements contained in
      the
      Annual Report on Form 10-K for the year ended December 31, 2005.





17





**OVERVIEW**





As
      of
      September 30, 2006, theglobe.com, inc. (the "Company" or "theglobe") managed
      three primary lines of business. One line of business consists of our historical
      network of three wholly-owned operations, each of which specializes in the
      games
      business by delivering games information and selling games in the United States
      and abroad. These operations are: our print publications business, which
      currently consists of two gaming magazines; our online website business, which
      consists of the online counterparts to our magazine publications; and our games
      distribution company. The second line of business consists of our Internet
      services business, Tralliance Corporation (“Tralliance”), a company which is the
      registry for the “.travel” top-level Internet domain. We acquired Tralliance on
      May 9, 2005. Our third line of business, Voice over Internet Protocol ("VoIP")
      telephony services, includes tglo.com, inc. (formerly known as voiceglo
      Holdings, Inc.), a wholly-owned subsidiary of theglobe that offers VoIP-based
      phone services. The term VoIP refers to a category of hardware and software
      that
      enables people to use the Internet to make phone calls.




We
      sold
      the business and substantially all of the net assets of our marketing services
      technology business, SendTec, Inc. (“SendTec”) on October 31, 2005. The results
      of operations of SendTec have been reflected as “discontinued operations” within
      our condensed consolidated financial statements for the 2005
      periods.





As
      of
      September 30, 2006, sources of our revenue from continuing operations were
      derived principally from the operations of our computer games related businesses
      and our Internet services business. Our VoIP products and services have yet
      to
      produce any significant revenue.





**BASIS
      OF PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**





We
      received a report from our independent accountants, relating to our December
      31,
      2005 audited financial statements, containing a paragraph stating that our
      recurring losses from operations and our accumulated deficit subject the Company
      to certain liquidity and profitability considerations. The Company continues
      to
      incur substantial consolidated net losses and management believes the Company
      will continue to be unprofitable and use cash in its operations for the
      foreseeable future. Based upon the Company’s present cash resources and cash
      flow projections, management believes that the Company has sufficient liquidity
      to operate as a going concern through at least the first quarter of 2007. See
      “Future and Critical Need for Capital” section of this Management’s Discussion
      and Analysis of Financial Condition and Results of Operations for further
      details.





Our
      condensed consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      on
      a going concern basis, which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business. Accordingly,
      our
      condensed consolidated financial statements do not include any adjustments
      relating to the recoverability of assets and classification of liabilities
      that
      might be necessary should we be unable to continue as a going
      concern.




**DESCRIPTION
      OF BUSINESS---CONTINUING OPERATIONS**





**OUR
      COMPUTER GAMES BUSINESS**





In
      February 2000, the Company entered the computer games business by acquiring
      Computer Games Magazine, its associated website, CGOnline, and Chips & Bits,
      Inc. (“Chips & Bits”), a games distribution business.





Computer
      Games Magazine is a consumer print magazine for personal computer (“PC”) gamers.
      As a leading consumer print publication specializing in PC games, Computer
      Games
      Magazine boasts: a reputation for being a reliable, trusted, and engaging games
      magazine; more editorial, tips and hints than most other similar magazines;
      a
      knowledgeable editorial staff providing increased editorial integrity and
      content; and broad-based editorial coverage.





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





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





The
      premiere issue of our new quarterly print publication, Massive Magazine, was
      released in September 2006. Massive Magazine is dedicated solely to “massively
      multiplayer online” games (“MMO games”) and includes features on the culture of
      MMO games, focusing on players, guilds and communities. The editorial staff
      of
      Computer Games Magazine produces the content for the new magazine keeping the
      same style and credibility which has been associated with the Computer Games
      Magazine publication. The new magazine is also accompanied by a complementary
      website (www.massive-magazine.com).




18





**OUR
      INTERNET SERVICES BUSINESS**





Tralliance
      was incorporated in 2002 to develop products and services to enhance online
      commerce between consumers and the travel and tourism industries, including
      administration of the “.travel” top-level domain. In February 2003, theglobe
      entered into a Loan and Purchase Option Agreement, as amended, with Tralliance
      in which theglobe agreed to fund, in the form of a loan, at the discretion
      of
      theglobe, Tralliance’s operating expenses and obtained the option to acquire all
      of the outstanding capital stock of Tralliance. On May 5, 2005, the Internet
      Corporation for Assigned Names and Numbers (“ICANN”) and Tralliance entered into
      a contract whereby Tralliance was designated as the exclusive registry for
      the
“.travel” top-level domain for an initial period of ten years. Renewal of the
      ICANN contract beyond the initial ten year term is conditioned upon the
      negotiation of renewal terms reasonably acceptable to ICANN. Additionally,
      we
      have agreed to engage in good faith negotiations at regular intervals throughout
      the term of our contract (at least once every three years) regarding possible
      changes to the provisions of the contract, including changes in the fees and
      payments that we are required to make to ICANN. In the event that we materially
      and fundamentally breach the contract and fail to cure such breach within thirty
      days of notice, ICANN has the right to immediately terminate our contract.
      Effective May 9, 2005, theglobe exercised its option to purchase
      Tralliance.




The
      establishment of the “.travel” top-level domain enables businesses,
      organizations, governmental agencies and other enterprises that operate within
      the travel and tourism industry to establish a unique Internet domain name
      from
      which to communicate and conduct commerce. An Internet domain name is made
      up of
      a top-level domain and a second-level domain. For example, in the domain name
      “companyX.travel”, “companyX” is the second-level domain and “.travel” is the
      top-level domain. As the registry for the “.travel” top-level domain, Tralliance
      is responsible for maintaining the master database of all second-level “.travel”
domain names and their corresponding Internet Protocol (“IP”)
      addresses.





To
      facilitate the “.travel” domain name registration process, Tralliance has
      entered into contracts with a number of registrars. These registrars act as
      intermediaries between Tralliance and customers (referred to as registrants)
      seeking to register “.travel” domain names. The registrars handle the billing
      and collection of registration fees, customer service and technical management
      of the registration database. Registrants can register “.travel” domain names
      for terms of one year (minimum) up to 10 years (maximum). The registrars retain
      a portion of the registration fee collected by them as their compensation and
      remit the remainder, presently $80 per domain name per year, of the registration
      fee to Tralliance.





In
      order
      to register a “.travel” domain name, a registrant must first be verified as
      being eligible (“authenticated”) by virtue of being a valid participant in the
      travel industry. Additionally, eligibility data is required to be updated and
      reviewed annually, subsequent to initial registration. Once authenticated,
      a
      registrant is only permitted to register “.travel” domain names that are
      associated with the registrant’s business or organization. Tralliance has
      entered into contracts with a number of travel associations or other independent
      organizations (“authentication providers”) whereby, in consideration for the
      payment of fixed and/or variable fees, all required authentication procedures
      are performed by such authentication providers. Tralliance has also outsourced
      various other registry operations, database maintenance and policy formulation
      functions to certain other independent businesses or organizations in
      consideration for the payment of certain fixed and/or variable
      fees.





In
      launching the “.travel” top-level domain registry, Tralliance adopted a phased
      approach consisting of three distinct stages. During the third quarter of 2005,
      Tralliance implemented phase one, which consisted of a pre-authentication of
      a
      limited group of potential registrants. During the fourth quarter of 2005,
      Tralliance implemented phase two, which involved the registration of the limited
      group of registrants who had been pre-authenticated. It was during this limited
      registration phase that Tralliance initially began collecting registration
      fees
      from its “.travel” registrars. In January 2006, Tralliance commenced the final
      phase of its launch, which culminated in live “.travel” registry
      operations.





During
      the first quarter of 2006, Tralliance also began to offer consumers access
      to
      the beta version of the “.travel” directory (the “Directory”). The Directory is
      a global online resource of travel data designed to precisely match the travel
      products and services of authenticated “.travel” registrants with consumers on a
      worldwide basis. Users can access the Directory via the Tralliance website,
      or
      by typing www.directory.travel into
      their web browser. All authenticated “.travel” registrants are offered the
      opportunity to include their specific travel profiles and products in the
      Directory, free of charge. It is anticipated that the Directory will become
      more
      useful to consumers over time, as additional travel businesses and organizations
      become “.travel” registrants and load their travel profiles into the
      Directory.





On
      August
      15, 2006, the Company introduced its online search portal dedicated to the
      travel industry, www.search.travel .
      The
      search engine was developed by Tralliance to benefit both consumers at large
      and
“.travel” domain name registrants, as the search engine delivers qualified
      search results from the entire World Wide Web, giving priority to destinations
      and businesses that are authenticated “.travel” registrants. During August, the
      Company launched a national television campaign to promote the new search engine
      and website. The Company has begun marketing the www.search.travel website
      to potential advertisers interested in targeting the travel consumer and plans
      to seek additional net revenue through the sale of advertising sponsorships.




19




**OUR
      VOIP TELEPHONY BUSINESS**





During
      the third quarter of 2003, the Company launched its first suite of consumer
      and
      business level VoIP services. The Company launched its browser-based VoIP
      product during the first quarter of 2004. These services allowed consumers
      and
      enterprises to communicate using VoIP technology for dramatically reduced
      pricing compared to traditional telephony networks. The services also offered
      traditional telephony features such as voicemail, caller ID, call forwarding,
      and call waiting for no additional cost to the consumer, as well as incremental
      services that were not supported by the public switched telephone network
      ("PSTN") like the ability to use numbers remotely and voicemail to email
      services. In the fourth quarter of 2004, the Company announced an "instant
      messenger" or "IM" related application which enabled users to chat via voice
      or
      text across multiple platforms using their preferred instant messenger service.
      During the second quarter of 2005, the Company released a number of new VoIP
      products and features which allowed users to communicate via mobile phones,
      traditional land line phones and/or computers. During the fourth quarter of
      2005, the Company launched its new tglo.com website ( www.tglo.com ).





The
      Company’s retail VoIP service plans had included both “peer-to-peer” plans, for
      which subscribers were able to place calls free of charge over the Internet
      to
      other subscribers’ Internet connections, and “paid” plans which involved
      interconnection with the PSTN and for which subscribers were charged certain
      fixed and/or variable service charges.





During
      2003 through 2005, the Company attempted to market and distribute its VoIP
      retail products through various direct and indirect sales channels including
      Internet advertising, structured customer referral programs, network marketing,
      television infomercials and partnerships with third party national retailers.
      None of the marketing and sales programs implemented during these years were
      successful in generating a significant number of “paid” plan customers or
      revenue. The Company’s marketing efforts during this period of time achieved
      only limited successes in developing a “peer-to-peer” subscriber base of free
      service plan users.





During
      2006, the Company re-focused its efforts on VoIP product development, as well
      as
      the design and development of complementary interactive, web-based features.
      During the second quarter of 2006, the Company discontinued offering service
      to
      its small existing “paid” plan customer base and completed the implementation of
      a plan to significantly reduce the excess capacity and operating costs of its
      VoIP network. At the present time, the Company has revised its VoIP product
      marketing strategy and intends to pursue the licensing of its various VoIP
      and
      communications software to business enterprises rather than marketing its “paid”
products directly to consumers. The Company also intends to continue to explore
      methods of monetizing its “peer-to-peer”, or free service plan, customer base.
      We currently derive no revenue from our existing VoIP subscriber base.





**DESCRIPTION
      OF BUSINESS---DISCONTINUED OPERATIONS**





**DISCONTINUED
      OPERATIONS OF OUR MARKETING SERVICES BUSINESS**





As
      a
      result of our sale of the business and substantially all of the net assets
      of
      SendTec, our former marketing services technology business, on October 31,
      2005,
      the results of operations of SendTec have been reported separately as
“Discontinued Operations” for the three and nine months ended September 30,
      2005.





On
      September 1, 2004, the Company acquired SendTec, a direct response marketing
      services and technology company. SendTec provided clients a complete offering
      of
      direct marketing products and services to help their clients market their
      products both on the Internet (“online”) and through traditional media channels
      such as television, radio and print advertising (“offline”). SendTec was
      organized into two primary product line divisions: the DirectNet Advertising
      Division, which provided digital marketing services; and the Creative South
      Division, which provided creative production and media buying services.
      Additionally, its proprietary iFactz technology provided software tracking
      solutions that benefited both the DirectNet Advertising and Creative South
      businesses.





**RESULTS
      OF OPERATIONS**





The
      nature of our business has significantly changed from 2005 to 2006. As discussed
      above, we completed the sale of substantially all of the net assets and the
      business of SendTec, our former marketing services technology business on
      October 31, 2005. Also, on May 9, 2005, the Company entered into another line
      of
      business, Internet services, when it exercised its option to acquire Tralliance,
      a company which had recently been designated as the registry for the ".travel"
      top-level Internet domain. The results of Tralliance have been included in
      the
      Company's consolidated operating results from its date of acquisition.
      Primarily, as a result of the acquisition of Tralliance and the sale of SendTec,
      our results of operations for the three and nine months ended September 30,
      2006, are not necessarily comparable to our results of operations for the three
      and nine months ended September 30, 2005.





20





**THREE
      MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO**


**THE
      THREE MONTHS ENDED SEPTEMBER 30, 2005**





**CONTINUING
      OPERATIONS**





NET
      REVENUE. Net revenue totaled $910 thousand for the three months ended September
      30, 2006 as compared to $409 thousand for the three months ended September
      30,
      2005, an increase of approximately $501 thousand, or 122%, from the prior year
      period.




**NET
      REVENUE BY BUSINESS SEGMENT:**





Three
                months ended September 30,
            
            2006
            
            2005Computer
                games
            
            $
            517,604
            
            $
            360,917Internet
                services
            
            
            385,755
            
            
            —VoIP
                telephony services
            
            
            6,579
            
            
            48,341$
            909,938
            
            $
            409,258




Advertising
      revenue from the sale of print advertisements in the magazines published by
      our
      computer games business increased $150 thousand, or 60%, in the third quarter
      of
      2006 as compared to the same quarter of the prior year. Net revenue attributable
      to subscription and newsstand sales of our magazines increased approximately
      $12
      thousand, or 18%, as compared to the third quarter of 2005. Both increases
      resulted principally from the additional revenue generated from the first issue
      of Massive Magazine, our new multi-player gaming magazine publication which
      was
      released in September 2006. Sales of electronic games and related products
      through Chips & Bits, Inc., our Internet-based retail distribution
      subsidiary, decreased approximately $5 thousand, or 10%, in the 2006 third
      quarter as compared to the third quarter of 2005.





Our
      Internet services business, Tralliance, contributed $386 thousand in net revenue
      during the third quarter of 2006. Tralliance, which was acquired in May 2005,
      began collecting fees for Internet domain name registrations in October 2005.
      Net revenue attributable to domain name registrations is recognized as revenue
      on a straight-line basis over the term of the registrations.





VoIP
      telephony services net revenue decreased $42 thousand in the third quarter
      of
      2006 as compared to the same quarter of the prior year due principally to the
      Company’s decision to discontinue the marketing of its retail consumer VoIP
      telephony products.





**OPERATING
      EXPENSES BY BUSINESS SEGMENT:**




Three
                months ended:
            
            Cost
                of
              Revenue
            
            Sales
                and
              Marketing
            
            Product
              Development
            
            General
                and
              Administrative
            
            Depreciation
              and
              Amortization
            
            TotalSeptember
                30, 2006Computer
                games
            
            $
            298,071
            
            $
            121,160
            
            $
            110,612
            
            $
            120,749
            
            $
            6,987
            
            $
            657,579Internet
                services
            
            
            118,057
            
            
            883,995
            
            
            —
            
            
            397,561
            
            
            51,141
            
            
            1,450,754VoIP
                telephony services
            
            
            237,101
            
            
            8,441
            
            
            220,949
            
            
            285,111
            
            
            167,217
            
            
            918,819Corporate
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            705,389
            
            
            7,342
            
            
            712,731$
            653,229
            
            $
            1,013,596
            
            $
            331,561
            
            $
            1,508,810
            
            $
            232,687
            
            $
            3,739,883





Cost
                of
              Revenue
            
            Sales
                and
              Marketing
            
            Product
              Development
            
            General
                and
              Administrative
            
            Depreciation
              and
              Amortization
            
            TotalSeptember
                30, 2005Computer
                games
            
            $
            502,345
            
            $
            97,140
            
            $
            178,366
            
            $
            291,448
            
            $
            7,723
            
            $
            1,077,022Internet
                services
            
            
            —
            
            
            87,143
            
            
            —
            
            
            314,179
            
            
            30,668
            
            
            431,990VoIP
                telephony services
            
            
            1,711,229
            
            
            297,290
            
            
            178,043
            
            
            645,467
            
            
            280,584
            
            
            3,112,613Corporate
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            1,070,201
            
            
            8,450
            
            
            1,078,651$
            2,213,574
            
            $
            481,573
            
            $
            356,409
            
            $
            2,321,295
            
            $
            327,425
            
            $
            5,700,276





COST
      OF
      REVENUE. Cost of revenue totaled $653 thousand for the three months ended
      September 30, 2006, a decline of $1.6 million, or 70%, from the $2.2 million
      reported for the three months ended September 30, 2005.




21





Cost
      of
      revenue related to our computer games business segment consists primarily of
      printing and delivery costs of our games magazines, Internet connection charges,
      personnel costs, maintenance cost of website equipment and the costs of
      merchandise sold and shipping fees in connection with our online store. **** Cost
      of
      revenue of the computer games business segment declined $204 thousand, or 41%,
      in comparison to the third quarter of 2005 principally as a result of lower
      printing, paper and freight costs associated with the production of our Computer
      Games Magazine publication. We have reduced the total number of copies printed
      for each issue and also published one less issue of Computer Games Magazine
      in
      2006 as compared to 2005. The additional cost of revenue related to the
      publishing of our initial issue of Massive Magazine during the third quarter
      of
      2006 was almost entirely offset by the elimination of costs associated with
      the
      publication of Now Playing Magazine, which was sold in January of
      2006.




Cost
      of
      revenue of our Internet services division consists primarily of fees paid to
      third party service providers which provide outsourced services, including
      verification of registration eligibility, maintenance of the “.travel” directory
      of consumer-oriented registrant travel data, as well as other services. Fees
      for
      some of these services vary based on transaction levels. Fees incurred for
      outsourced services are generally deferred and amortized to cost of revenue
      over
      the term of the related domain name registration.





Cost
      of
      revenue of our VoIP telephony services business segment is principally comprised
      of network data center, carrier transport and circuit interconnection costs,
      as
      well as personnel and consulting costs incurred in support of our Internet
      telecommunications network. VoIP telephony services cost of revenue decreased
      $1.5 million, or 86%, as compared to the third quarter of 2005, primarily as
      a
      result of declines of $910 thousand, or 92%, in network data center and carrier
      costs; $377 thousand, or 97%, in purchased software costs incurred in support
      of
      our network; and $101 thousand, or 53%, in direct costs of employees supporting
      our Internet telecommunications network. The Company discontinued the
      capitalization of software development costs in its VoIP telephony business
      as
      of December 31, 2004 and is charging such costs to operations as they are
      incurred. During 2006, we developed a plan to reconfigure, phase-out and
      eliminate certain components of our VoIP network. The implementation of this
      plan, which was completed during the second quarter of 2006, along with other
      VoIP cost reductions made during 2005 and 2006, have significantly reduced
      VoIP
      telephony services cost of revenue in the third quarter of 2006 compared to
      the
      prior year.




SALES
      AND
      MARKETING. Sales and marketing expenses consist primarily of salaries and
      related expenses of sales and marketing personnel, commissions, consulting,
      advertising and marketing costs, public relations expenses and promotional
      activities. Sales and marketing expenses totaled $1.0 million for the three
      months ended September 30, 2006 versus $482 thousand for the same period in
      2005. Tralliance, our new Internet services business, incurred $884 thousand
      of
      sales and marketing expenses during the 2006 third quarter, including $309
      thousand in Internet and television advertising costs related to its new web
      portal and search engine, www.search.travel ,
      which
      was introduced in mid-August. During the third quarter of 2006, Tralliance
      also
      engaged several outside parties to promote its registry operations and www.search.travel website
      internationally, which resulted in the recognition of $173 thousand in
      consulting expenses. The remaining $402 thousand of sales and marketing expenses
      incurred by Tralliance during the 2006 third quarter consisted primarily of
      personnel costs and public relations expenses. **** Sales
      and marketing expenses of the VoIP telephony services business segment declined
      $289 thousand, or 97%, as compared to the third quarter of 2005. During 2005,
      the Company reevaluated its existing VoIP telephony services business plan
      and
      began the process of terminating and/or modifying certain of its existing
      product offerings and marketing programs. During 2006, the Company re-focused
      its efforts on the further expansion of its “peer-to-peer”, or free service
      plan, customer base. As a result, the VoIP telephony services business segment
      has significantly reduced its sales and marketing spending and we presently
      intend to continue to limit its sales and marketing spending during the
      remainder of 2006. Additionally, in-house personnel which had previously
      concentrated on marketing our VoIP telephony services products were reassigned
      to Tralliance during the first quarter of 2006.





PRODUCT
      DEVELOPMENT. Product development expenses include salaries and related personnel
      costs; expenses incurred in connection with website development, testing and
      upgrades; editorial and content costs; and costs incurred in the development
      of
      our VoIP telephony products. Product development expenses totaled $332 thousand
      in the third quarter of 2006 as compared to $356 thousand in the third quarter
      of 2005.




GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
      primarily of salaries and other personnel costs related to management, finance
      and accounting functions, facilities, outside legal and professional fees,
      information-technology consulting, directors and officers insurance, bad debt
      expenses and general corporate overhead costs. General and administrative
      expenses totaled approximately $1.5 million in the third quarter of 2006 as
      compared to $2.3 million for the same quarter of the prior year, a decline
      of
      $812 thousand, or 35%. The $360 thousand decline in general and administrative
      expenses of our VoIP telephony services division as compared to the third
      quarter of 2005 was primarily due to lower consulting costs, including those
      related to the development of its VoIP services billing system. The Company
      discontinued the capitalization of software development costs in its VoIP
      telephony business as of December 31, 2004 and is charging such costs to
      operations as they are incurred. General and administrative expenses of our
      corporate office decreased $365 thousand as compared to the third quarter of
      2005 primarily as a result of lower professional fees. During the third quarter
      of 2005, the Company’s Board of Directors authorized the sale of the Company’s
      SendTec marketing services business. Professional fees incurred in connection
      with the sale were included in general and administrative expenses of the
      corporate division until the completion of the sale, which occurred on October
      31, 2005. A decline of $171 thousand in general and administrative expenses
      of
      our games division as compared to the 2005 third quarter resulted principally
      from a lower provision for bad debts. An increase of $83 thousand in general
      and
      administrative expenses of our Internet services segment was reported as
      compared to the 2005 third quarter.




22





As
      discussed in Note 5, “Stock Option Plans,” of the Notes to Condensed
      Consolidated Financial Statements, we adopted Statement of Financial Accounting
      Standards No. 123R (“SFAS No. 123R”) effective January 1, 2006 using the
      modified prospective application method. SFAS No. 123R generally requires all
      companies to apply a fair-value-based measurement method in accounting for
      share-based payment transactions with employees and to recognize the related
      cost in its financial statements. As a result, general and administrative
      expenses of the corporate division for the third quarter of 2006 included
      approximately $169 thousand of additional stock compensation expense recognized
      in accordance with the requirements of SFAS No. 123R. Prior to January 1, 2006,
      we accounted for employee stock options pursuant to Accounting Principles Board
      Opinion No. 25 and financial results in the accompanying condensed consolidated
      financial statements for prior periods have not been restated to give effect
      to
      the provisions of SFAS No. 123R. At September 30, 2006, there was approximately
      $656,000 of unrecognized compensation expense related to unvested stock options,
      which is expected to be recognized over a weighted-average period of 1.3
      years.





DEPRECIATION
      AND AMORTIZATION. Depreciation and amortization expense totaled $233 thousand
      for the three months ended September 30, 2006 as compared to $327 thousand
      for
      the three months ended September 30, 2005. A decline of $113 thousand in
      depreciation and amortization of our VoIP telephony services division as
      compared to the third quarter of 2005 was partially offset by a $20 thousand
      increase in this expense category reported by our Internet services
      business.





OTHER
      INCOME (EXPENSE), NET. Net interest expense of $1.1 million reported for the
      third quarter of 2005 included $1.0 million of non-cash interest expense related
      to the beneficial conversion features of the $1.0 million in secured demand
      convertible promissory notes acquired by entities controlled by our Chairman
      and
      Chief Executive Officer during the 2005 third quarter.




INCOME
      TAXES. The tax provision of $124 thousand recorded during the third quarter
      of
      2006 principally resulted from additional state income taxes due upon the
      finalization of the Company’s 2005 consolidated tax returns. No tax benefit was
      recorded for the loss incurred during the third quarter of 2006 as we recorded
      a
      100% valuation allowance against our otherwise recognizable deferred tax assets
      due to the uncertainty surrounding the timing or ultimate realization of the
      benefits of our net operating loss carryforwards in future periods. As of
      December 31, 2005, the Company had net operating loss carryforwards which may
      be
      available for U.S. tax purposes of approximately $147 million. These
      carryforwards expire through 2025. 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 various
      significant changes in our ownership interests, as defined in the Internal
      Revenue Code of 1986, as amended, we have substantially limited the availability
      of our net operating loss carryforwards. There can be no assurance that we
      will
      be able to utilize any net operating loss carryforwards in the future. During
      the third quarter of 2005, an income tax benefit of approximately $389 thousand
      was recognized for continuing operations which served to offset the income
      tax
      provision of $373 thousand recorded for discontinued operations.





**DISCONTINUED
      OPERATIONS**





Income
      from discontinued operations, net of income taxes totaled $636 thousand in
      the
      third quarter of 2005. As a result of the Company’s October 2005 sale of its
      SendTec marketing services business, the results of SendTec’s operations have
      been reported as discontinued operations in the accompanying condensed
      consolidated statement of operations for the three months ended September 30,
      2005.





**NINE
      MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO**


**THE
      NINE MONTHS ENDED SEPTEMBER 30, 2005**





**CONTINUING
      OPERATIONS**





NET
      REVENUE. Net revenue totaled $2.4 million for the nine months ended September
      30, 2006 as compared to $1.7 million for the nine months ended September 30,
      2005, an increase of approximately $751 thousand, or 44%, from the prior year
      period.




**NET
      REVENUE BY BUSINESS SEGMENT:**





Nine
                months ended September 30,
            
            2006
            
            2005Computer
                games
            
            $
            1,344,441
            
            $
            1,477,692Internet
                services
            
            
            1,062,042
            
            
            —VoIP
                telephony services
            
            
            34,385
            
            
            211,726$
            2,440,868
            
            $
            1,689,418




Advertising
      revenue from the sale of print advertisements in the magazines published by
      our
      computer games business declined $24 thousand, or 2%, in the first nine months
      of 2006 as compared to the same period of the prior year. Magazine sales,
      through subscriptions and newsstands, decreased $15 thousand, or 6%, in the
      first nine months of 2006 as compared to the same period in 2005. These
      advertising and magazine sales net revenue declines reflect the impact of lower
      Computer Games Magazine advertising revenue levels in 2006 compared to 2005,
      the
      elimination of revenue associated with the publication of Now Playing Magazine,
      which was sold in January 2006, and incremental revenue generated from the
      first
      issue of Massive Magazine, which was published in September 2006. Sales of
      electronic games and related products through Chips & Bits, our
      Internet-based retail distribution subsidiary, decreased $94 thousand, or 47%,
      in the first nine months of 2006 as compared to the first nine months of
      2005.




23





Our
      Internet services business, Tralliance, contributed $1.1 million in net revenue
      during the first nine months of 2006. Tralliance, which was acquired in May
      2005, began collecting fees for Internet domain name registrations in October
      2005. Net revenue attributable to domain name registrations is recognized as
      revenue on a straight-line basis over the term of the
      registrations.





VoIP
      telephony services net revenue decreased $177 thousand in the first nine months
      of 2006 as compared to the same period of the prior year due principally to
      the
      Company’s decision to discontinue the marketing of its retail consumer VoIP
      telephony products.




**OPERATING
      EXPENSES BY BUSINESS SEGMENT:**




Nine
                months ended:
            
            Cost
                of
              Revenue
            
            Sales
                and
              Marketing
            
            Product
              Development
            
            General
                and
              Administrative
            
            Depreciation
              and
              Amortization
            
            TotalSeptember
                30, 2006Computer
                games
            
            $
            807,582
            
            $
            400,634
            
            $
            371,780
            
            $
            371,311
            
            $
            20,961
            
            $
            1,972,268Internet
                services
            
            
            373,999
            
            
            1,818,326
            
            
            —
            
            
            1,237,934
            
            
            178,899
            
            
            3,609,158VoIP
                telephony services
            
            
            2,532,935
            
            
            231,181
            
            
            718,663
            
            
            1,835,790
            
            
            661,517
            
            
            5,980,086Corporate
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            2,156,124
            
            
            24,167
            
            
            2,180,291$
            3,714,516
            
            $
            2,450,141
            
            $
            1,090,443
            
            $
            5,601,159
            
            $
            885,544
            
            $
            13,741,803





Cost
                of
              Revenue
            
            Sales
                and
              Marketing
            
            Product
              Development
            
            General
                and
              Administrative
            
            Depreciation
              and
              Amortization
            
            TotalSeptember
                30, 2005Computer
                games
            
            $
            1,717,730
            
            $
            318,342
            
            $
            497,493
            
            $
            615,809
            
            $
            23,161
            
            $
            3,172,535Internet
                services
            
            
            —
            
            
            96,381
            
            
            —
            
            
            499,715
            
            
            49,468
            
            
            645,564VoIP
                telephony services
            
            
            4,661,415
            
            
            1,307,335
            
            
            513,173
            
            
            2,092,632
            
            
            829,160
            
            
            9,403,715Corporate
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            2,525,916
            
            
            27,607
            
            
            2,553,523$
            6,379,145
            
            $
            1,722,058
            
            $
            1,010,666
            
            $
            5,734,072
            
            $
            929,396
            
            $
            15,775,337





COST
      OF
      REVENUE. Cost of revenue totaled $3.7 million for the nine months ended
      September 30, 2006, a decline of $2.7 million, or 42%, from the $6.4 million
      reported for the nine months ended September 30, 2005.





Cost
      of
      revenue related to our computer games business segment declined $910 thousand,
      or 53%, as compared to the first nine months of 2005. Approximately 70% of
      the
      total decrease in cost of revenue of our computer games business segment as
      compared to the prior year-to-date period resulted principally from lower
      printing, paper and freight costs associated with the production of our Computer
      Games Magazine publication. We have reduced the total number of copies printed
      for each issue and also published one less issue of Computer Games Magazine
      in
      2006 as compared to 2005. The remaining decrease in cost of revenue in 2006
      as
      compared to 2005 resulted primarily from the elimination of costs associated
      with the publication of Now Playing magazine, which was sold in January 2006,
      partially offset by additional costs incurred in the publication of Massive
      Magazine, which premiered in September 2006.




Cost
      of
      revenue of our Internet services division, totaling $374 thousand for the nine
      months ended September 30, 2006, consists primarily of fees paid to third party
      service providers which provide outsourced services, including verification
      of
      registration eligibility, maintenance of the “.travel” directory of
      consumer-oriented registrant travel data, as well as other services. Fees for
      some of these services vary based on transaction levels. Fees incurred for
      outsourced services are generally deferred and amortized to cost of revenue
      over
      the term of the related domain name registration.





As
      previously described in the comparison of the three months ended September
      30,
      2006 to the three months ended September 30, 2005, during 2006 we placed
      significant emphasis on the reduction of excess capacity of our VoIP network,
      which included the renegotiation, non-renewal and/or termination of certain
      network agreements, as well as network personnel cost reductions. These efforts,
      as well as steps taken during the latter half of 2005 to reduce network support
      costs, resulted in the $2.1 million decrease in cost of revenue of our VoIP
      telephony services business segment as compared to the first nine months of
      2005. Network data center and carrier costs decreased $1.2 million, or 39%,
      and
      direct costs of employees supporting our Internet telecommunications network
      declined $485 thousand, or 57%, in comparison to the first nine months of 2005.
      Additionally, costs related to the purchase of network software declined $341
      thousand from the same period of the prior year. The Company discontinued the
      capitalization of software development costs in its VoIP telephony business
      as
      of December 31, 2004 and is charging such costs to operations as they are
      incurred.




24




SALES
      AND
      MARKETING. Sales and marketing expenses totaled $2.5 million for the nine months
      ended September 30, 2006 versus $1.7 million for the same period in 2005, an
      increase of $728 thousand, or 42%. Tralliance, our new Internet services
      business, incurred $1.8 million of sales and marketing expenses during the
      first
      nine months of 2006, consisting primarily of advertising, public relations,
      personnel, promotional and trade show costs incurred in launching the “.travel”
top-level domain registry and the www.search.travel website
      and search engine. Sales and marketing expenses of the VoIP telephony services
      business segment decreased $1.1 million, or 82%, from the first nine months
      of
      2005. During the first quarter of 2005, the Company reevaluated its existing
      VoIP telephony services business plan and began the process of terminating
      and/or modifying certain of its existing product offerings and marketing
      programs. During 2006, the Company re-focused its efforts on the further
      expansion of its “peer-to-peer”, or free service plan, customer base. As a
      result, the VoIP telephony services business segment has significantly reduced
      its sales and marketing spending and presently intends to continue to limit
      its
      sales and marketing spending during the remainder of 2006. Additionally,
      in-house personnel which had previously concentrated on marketing our VoIP
      telephony services products were reassigned to Tralliance during the first
      quarter of 2006.




PRODUCT
      DEVELOPMENT. Product development expenses totaled $1.1 million in the first
      nine
      months of 2006 as compared to $1.0 million in the first nine months of 2005.
      An
      increase of $205 thousand in product development expenses of our VoIP telephony
      services business segment was partially offset by a $126 thousand decrease
      in
      product development expense of our computer games businesses in comparison
      to
      the first nine months of 2005.




GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $5.6
      million in the nine months ended September 30, 2006, a decline of $133 thousand
      as compared to the $5.7 million reported for the same period of the prior year.
      General and administrative expenses of our Internet services business,
      Tralliance, increased $738 thousand as compared to the first nine months of
      2005. Tralliance was acquired on May 9, 2005, and the consolidated results
      of
      operations for the first nine months of 2005 include the operating results
      of
      Tralliance only since its date of acquisition versus the inclusion of a full
      nine months of expenses during the 2006 period. Personnel costs and
      travel-related expenses involved in increasing awareness of the “.travel”
top-level domain incurred by Tralliance represented approximately 36% and 30%
      of
      the total general and administrative costs of the Internet services segment
      during the first nine months of 2006 and 2005, respectively. Although a decrease
      of $257 thousand in general and administrative expenses of the VoIP telephony
      services business segment was reported as compared to the first nine months
      of
      2005, legal expenses of the segment actually rose $728 thousand as compared
      to
      the prior year-to-date period. See Note 6, “Litigation,” of the Notes to
      Condensed Consolidated Financial Statements, for discussion of legal claims
      involving our VoIP telephony services division. Excluding legal expenses,
      general and administrative expenses of the VoIP telephony services division
      decreased approximately $985 thousand, or 51%, as compared to the first nine
      months of 2005, primarily due to lower information technology consulting costs.
      General and administrative expenses of the Corporate division declined $370
      thousand, or 15%, as compared to the first nine months of 2005, due primarily
      to
      lower professional fees. As mentioned in the comparison of the results of
      operations for the third quarter of 2006 versus the third quarter of the prior
      year, during the third quarter of 2005, the Company’s Board of Directors
      authorized the sale of the Company’s SendTec marketing services business.
      Professional fees incurred in connection with the sale were included in general
      and administrative expenses of the corporate division until the completion
      of
      the sale on October 31, 2005. A decrease of $244 thousand in general and
      administrative expenses of our games businesses was also reported as compared
      to
      the 2005 year-to-date period.





As
      discussed in Note 5, “Stock Option Plans,” of the Notes to Condensed
      Consolidated Financial Statements, we adopted Statement of Financial Accounting
      Standards No. 123R (“SFAS No. 123R”) effective January 1, 2006 using the
      modified prospective application method. SFAS No. 123R generally requires all
      companies to apply a fair-value-based measurement method in accounting for
      share-based payment transactions with employees and to recognize the related
      cost in its financial statements. As a result, general and administrative
      expenses of the corporate division for the first nine months of 2006 included
      approximately $344 thousand of additional stock compensation expense recognized
      in accordance with the requirements of SFAS No. 123R. Prior to January 1, 2006,
      we accounted for employee stock options pursuant to Accounting Principles Board
      Opinion No. 25 and financial results in the accompanying condensed consolidated
      financial statements for prior periods have not been restated to give effect
      to
      the provisions of SFAS No. 123R. At September 30, 2006, there was approximately
      $656,000 of unrecognized compensation expense related to unvested stock options,
      which is expected to be recognized over a weighted-average period of 1.3
      years.





DEPRECIATION
      AND AMORTIZATION. Depreciation and amortization expense totaled $886 thousand
      for the nine months ended September 30, 2006 as compared to $929 thousand for
      the nine months ended September 30, 2005. The decline in this expense category
      as compared to the same period of 2005 resulted principally from the $168
      thousand decrease in depreciation and amortization expense of the VoIP telephony
      services business segment, partially offset by an increase of $129 thousand
      in
      depreciation and intangible asset amortization expenses incurred by our Internet
      services business.





OTHER
      INCOME (EXPENSE), NET. Other income, net, totaled $146 thousand for the first
      nine months of 2006 and included: $127 thousand of net interest income earned
      on
      invested funds; a $130 thousand net gain on the sale of our Now Playing Magazine
      publication and associated website; and a $130 thousand net loss on the sale
      of
      certain VoIP property and equipment. Total other expense, net, of $4.4
      million was reported for the first nine months of 2005, which included $4.0
      million in non-cash interest expense related to the beneficial conversion
      features of the $4,000,000 secured demand convertible promissory notes issued
      by
      the Company to entities controlled by its Chairman and Chief Executive Officer
      and $280 thousand in reserves against amounts loaned by the Company to
      Tralliance prior to its acquisition.




25




INCOME
      TAXES. The tax provision of $124 thousand recorded during the first nine months
      of 2006 principally resulted from additional state income taxes due upon the
      finalization of the Company’s 2005 consolidated tax returns. No
      tax
      benefit was recorded for the loss incurred during the first nine months of
      2006
      as we recorded a 100% valuation allowance against our otherwise recognizable
      deferred tax assets due to the uncertainty surrounding the timing or ultimate
      realization of the benefits of our net operating loss carryforwards in future
      periods. As
      of
      December 31, 2005, the Company had net operating loss carryforwards which may
      be
      available for U.S. tax purposes of approximately $147 million. These
      carryforwards expire through 2025. 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 various
      significant changes in our ownership interests, as defined in the Internal
      Revenue Code of 1986, as amended, we have substantially limited the availability
      of our net operating loss carryforwards. There can be no assurance that we
      will
      be able to utilize any net operating loss carryforwards in the future. During
      the first nine months of 2005, an income tax benefit of approximately $1.0
      million was recognized for continuing operations which served to offset the
      income tax provision of $1.0 million recorded for discontinued
      operations.





**DISCONTINUED
      OPERATIONS**





Income
      from discontinued operations, net of income taxes totaled $1.7 million in the
      first nine months of 2005. As a result of the Company’s October 2005 sale of its
      SendTec marketing services business, the results of SendTec’s operations have
      been reported as discontinued operations in the accompanying condensed
      consolidated statement of operations for the nine months ended September 30,
      2005.





**LIQUIDITY
      AND CAPITAL RESOURCES**


**CASH
      FLOW ITEMS**





As
      of
      September 30, 2006, we had approximately $6.9 million in cash and cash
      equivalents as compared to $16.5 million as of December 31, 2005. Cash and
      cash
      equivalents are exclusive of the $250 thousand and $1.0 million in restricted
      cash maintained by the Company in various escrow accounts as of September 30,
      2006 and December 31, 2005, respectively. Net cash flows used in operating
      activities of continuing operations totaled $10.6 million and $9.0 million,
      for
      the nine months ended September 30, 2006 and 2005, respectively, or an increase
      of approximately $1.6 million. The decline in net losses from continuing
      operations as compared to the first nine months of 2005 was more than offset
      by
      unfavorable changes in non-cash adjustments and working capital including:
      the
      reduction in non-cash interest expense as compared to the prior year period;
      the
      Company’s payment of its 2005 income tax liabilities in the current year period;
      and an unfavorable accounts payable change as compared to the first nine months
      of 2005. A total of $1.2 million in net cash flows were provided by the
      discontinued operations of SendTec during the first nine months of 2005. The
      business and substantially all of the net assets of SendTec were sold by the
      Company on October 31, 2005.





Net
      cash
      flows of $997 thousand were provided by investing activities of continuing
      operations during the first nine months of 2006. As a result of the October
      2005
      sale of the SendTec business, we were required to place $1.0 million of cash
      in
      an escrow account to secure our indemnification obligations. On March 31, 2006,
      pursuant to the related escrow agreement, $750 thousand of the escrow funds
      were
      released to the Company. The remaining $32 thousand in escrow funds released
      during the first nine months of 2006 represented funds which had been held
      in
      escrow in connection with sweepstakes promotions conducted by the VoIP telephony
      services division. In addition, during the first nine months of 2006, we
      received proceeds of $138 thousand and $130 thousand from the sales of certain
      VoIP property and equipment and our Now Playing magazine publication and
      website, respectively. During the first nine months of 2005, we used a total
      of
      $459 thousand in investing activities of continuing operations, including $258
      thousand of capital expenditures and $280 thousand of loans to Tralliance prior
      to its acquisition by the Company. A total of $171 thousand in net cash flows
      were used during the first nine months of 2005 for capital expenditures related
      to the discontinued operations of SendTec.





Financing
      activities used net cash flows of $12 thousand during the first nine months
      of
      2006. Net cash flows provided by financing activities during the first nine
      months of 2005 totaled $3.8 million. We received proceeds from the issuance
      of
      $4.0 million in convertible notes and paid $278 thousand of debt outstanding
      during the first nine months of 2005.




**FUTURE
      AND CRITICAL NEED FOR CAPITAL**





As
      of
      November 6, 2006, the Company’s total cash and cash equivalents balance was
      approximately $6.5 million, inclusive of $250 thousand held in escrow to secure
      the Company’s indemnification obligations related to the sale of the SendTec
      business. The Company continues to incur substantial consolidated net losses
      and
      management believes that the Company will continue to be unprofitable and use
      cash in its operations for the near-term future.




26




We
      presently believe that the Company’s current net cash and cash equivalents
      balance will provide sufficient liquidity to enable the Company to operate
      its
      businesses on a going concern basis through at least the first quarter of 2007.
      However, in order to ensure the Company's financial viability beyond
      the first quarter of 2007, we believe that we must raise capital and
      successfully implement a strategic business plan focused principally on
      expanding our Tralliance Internet services business segment while continuing
      to
      reduce, if not eliminate, the operating losses currently generated by our VoIP
      telephony and computer games business segments. Our strategic business plan
      may
      include the sale, abandonment or disposal of certain businesses or components
      of
      businesses, including the sale of certain technologies or other long-lived
      assets. The amount of capital required to be raised by the Company will be
      dependent upon the Company’s performance in executing its current and future
      business plans, as measured principally by the time period needed to begin
      generating positive internal consolidated cash flow. The Company currently
      has
      no access to credit facilities with traditional third party lenders and has
      historically relied on borrowings from related parties to meet short-term
      liquidity needs. As of the date of this report, $3.4 million of convertible
      notes, due on demand, are outstanding to related parties. There can be no
      assurance that the Company will be able to raise additional capital or obtain
      short-term financing from any sources, including related parties, in the future.
      In addition, any financing that could be obtained would likely significantly
      dilute existing shareholders.





Tralliance,
      the Company’s Internet services business, began collecting fees related to its
“.travel” registry business in October 2005. In August 2006, we introduced our
      online search portal dedicated to the travel industry, www.search.travel ,
      and
      launched a national television campaign to promote the new search engine and
      website. During the third quarter of 2006, we also expanded Tralliance’s
      domestic and international sales and marketing infrastructure, principally
      by
      entering into a number of arrangements with third party consultants and
      travel-related organizations, and plan to further increase Tralliance’s sales
      and marketing resources in the future. At this time, our primary objective
      is to
      quickly and substantially increase Tralliance’s revenue levels. In this regard,
      we are focused on accelerating the rate of new “.travel” domain name
      registrations, both in the U.S. and in international markets, in order to
      generate current revenue and to also provide a base for future registration
      renewal revenue. Additionally, we are focused on generating sponsorship and
      search advertising revenue streams from our newly established www.search.travel search
      engine and website. Management presently believes that its success in quickly
      and substantially increasing Tralliance’s revenue levels will be a critical
      factor in the Company’s ability to continue as a going concern.





In
      order
      to offer our VoIP services, we have invested substantial time, capital and
      other
      resources on the development of our VoIP network. Our inability to generate
      any
      significant telephony revenue and the fixed costs of operating our VoIP network
      has resulted in the Company incurring substantial losses during the past several
      years. In an effort to reduce the excess capacity of our VoIP network and to
      decrease the Company’s net losses, we developed a plan to reconfigure, phase-out
      and eliminate certain components of our VoIP network. The implementation of
      this
      plan, which involved the renegotiation, non-renewal and/or termination of
      certain network agreements, was completed during the second quarter of 2006
      and
      has reduced minimum amounts payable for network data center and carrier circuit
      interconnection service expenses during the next twelve months, exclusive of
      regulatory taxes, fees and charges, to approximately $450 thousand at September
      30, 2006 (down from $1.1 million at December 31, 2005). The implementation of
      this plan, along with other VoIP cost reductions made during 2005 and 2006,
      has
      significantly reduced total VoIP operating expenses incurred during the third
      quarter of 2006 compared to prior periods. Management is also in the process
      of
      taking certain other actions that will further reduce total VoIP operating
      costs
      in future periods. Additionally, we are currently pursuing the licensing of
      our
      VoIP communications technology and are also exploring other methods of
      generating VoIP revenue through various advertising programs. At the present
      time, management does not intend to invest significant funds in the further
      development of its VoIP communication technology and believes that it must
      quickly implement any and all changes required to bring the operating results
      of
      its VoIP telephony services segment to a break-even level.





During
      2005, the Company’s computer games business recognized certain incremental
      losses in connection with attempts to broaden and expand its business beyond
      games and into other areas of the entertainment industry. In developing its
      2006
      business plan, the Company decided to abort its diversification efforts and
      to
      refocus its strategy back to operating and improving its traditional games-based
      businesses. In this regard, the computer games division has recently completed
      the implementation of a number of revenue enhancement and cost-reduction
      programs geared mainly toward achieving profitability and positioning its
      computer games businesses for future growth. These initiatives include the
      introduction of Massive Magazine, a new quarterly magazine publication, and
      a
      related website, dedicated to the rapidly growing “massively multiplayer online”
game market. The first issue of the magazine was released in September 2006.
      In
      order to minimize the expenses associated with the new publication, the Company
      is utilizing its existing editorial staff to produce content for both its
      Computer Games Magazine and the new magazine publication.





As
      more
      fully discussed in Note 6, “Litigation,” in the Notes to the Condensed
      Consolidated Financial Statements, the Company is a defendant in various legal
      matters, including a lawsuit filed by MySpace, Inc. on June 1, 2006.
      Additionally, the Company is currently a party to certain other claims and
      disputes arising in the ordinary course of business. Although uncertain at
      the
      present time, the legal costs of defending and settling such lawsuits,
      outstanding claims and disputes could be material and could utilize a
      significant portion of our cash resources and adversely affect our financial
      condition. Such litigation may also make it more difficult for us to raise
      additional capital.





As
      discussed earlier, we believe that our longer term viability will be determined
      mainly by our ability to raise additional capital, successfully execute our
      existing and future business plans and to successfully resolve the legal
      proceedings, claims and disputes discussed in the paragraph above. There can
      be
      no assurance that we will be successful in taking any of the above actions.
      The
      aforementioned uncertainties regarding the future direction and financial
      performance of the Company create substantial doubt that the Company will be
      able to continue as a going concern beyond the end of the first quarter of
      2007.




27




The
      shares of our Common Stock were delisted from the NASDAQ national market in
      April 2001 and are now traded in the over-the-counter market on what is commonly
      referred to as the electronic bulletin board or OTCBB. Since the trading price
      of our Common Stock is less than $5.00 per share, trading in our Common Stock
      may also become subject to the requirements of Rule 15g-9 of the Exchange Act
      if
      our net tangible assets should fall below $2.0 million. Under Rule 15g-9,
      brokers who recommend penny stocks to persons who are not established customers
      and accredited investors, as defined in the Exchange Act, must satisfy special
      sales practice requirements, including requirements that they make an
      individualized written suitability determination for the purchaser; and receive
      the purchaser's written consent prior to the transaction. The Securities
      Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
      disclosures in connection with any trades involving a penny stock, including
      the
      delivery, prior to any penny stock transaction, of a disclosure schedule
      explaining the penny stock market and the risks associated with that market.
      Such requirements may severely limit the market liquidity of our Common Stock
      and the ability of purchasers of our equity securities to sell their securities
      in the secondary market. We may also incur additional costs under state blue
      sky
      laws if we sell equity due to our delisting.





**EFFECTS
      OF INFLATION**





Due
      to
      relatively low levels of inflation in 2006 and 2005, inflation has not had
      a
      significant effect on our results of operations since
      inception.





**MANAGEMENT'S
      DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES**





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





Certain
      of our accounting policies require higher degrees of judgment than others in
      their application. These include revenue recognition, valuation of customer
      receivables, valuation of inventories, valuation of goodwill, intangible assets
      and other long-lived assets and capitalization of computer software costs.
      Our
      accounting policies and procedures related to these areas are summarized
      below.





**REVENUE
      RECOGNITION**





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





**COMPUTER
      GAMES BUSINESSES**





Advertising
      revenue for the Company's magazine publications is recognized at the on-sale
      date of the magazines.





Newsstand
      sales of the Company's magazine publications are recognized at the on-sale
      date
      of the magazines, net of provisions for estimated returns. Subscription revenue,
      which is net of agency fees, is deferred when initially received and recognized
      as income ratably over the subscription term.





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





**INTERNET
      SERVICES**





Internet
      services net revenue consists of registration fees for Internet domain
      registrations, which generally have terms of one year, but may be up to ten
      years. Such registration fees are reported net of transaction fees paid to
      an
      unrelated third party which serves as the registry operator for the Company.
      Net
      registration fee revenue is recognized on a straight-line basis over the term
      of
      the registration.




28




**VOIP
      TELEPHONY SERVICES**





VoIP
      telephony services revenue represents fees charged to customers for voice
      services and is recognized based on minutes of customer usage or as services
      are
      provided. The Company records payments received in advance for prepaid services
      as deferred revenue until the related services are provided.





**VALUATION
      OF CUSTOMER RECEIVABLES**





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





**VALUATION
      OF INVENTORIES**





Inventories
      are recorded on a first-in, first-out basis and valued at the lower of cost
      or
      market value. We generally manage our inventory levels based on internal
      forecasts of customer demand for our products, which is difficult to predict
      and
      can fluctuate substantially. Our inventories include high technology items
      that
      are specialized in nature or subject to rapid obsolescence. If our demand
      forecast is greater than the actual customer demand for our products, we may
      be
      required to record charges related to increases in our inventory valuation
      reserves. The value of our inventory is also dependent on our estimate of future
      average selling prices, and, if our projected average selling prices are over
      estimated, we may be required to adjust our inventory value to reflect the
      lower
      of cost or market.





**GOODWILL
      AND INTANGIBLE ASSETS**





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





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





●
            significant
                under-performance relative to historical, expected or projected future
                operating results;





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





●
            significant
                negative industry or economic
                trends.





When
      we
      determine that the carrying value of goodwill or other identified intangibles
      with indefinite lives may not be recoverable, we measure any impairment based
      on
      a projected discounted cash flow method.





**LONG-LIVED
      ASSETS**





Historically,
      the Company's long-lived assets, other than goodwill, have primarily consisted
      of property and equipment, capitalized costs of internal-use software, values
      attributable to covenants not to compete, acquired technology and patent
      costs.





Long-lived
      assets held and used by the Company and intangible assets with determinable
      lives are reviewed for impairment whenever events or circumstances indicate
      that
      the carrying amount of assets may not be recoverable in accordance with SFAS
      No.
      144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We
      evaluate recoverability of assets to be held and used by comparing the carrying
      amount of the assets, or the appropriate grouping of assets, to an estimate
      of
      undiscounted future cash flows to be generated by the assets, or asset group.
      If
      such assets are considered to be impaired, the impairment to be recognized
      is
      measured as the amount by which the carrying amount of the assets exceeds the
      fair value of the assets. Fair values are based on quoted market values, if
      available. If quoted market prices are not available, the estimate of fair
      value
      may be based on the discounted value of the estimated future cash flows
      attributable to the assets, or other valuation techniques deemed reasonable
      in
      the circumstances.




29




**CAPITALIZATION
      OF COMPUTER SOFTWARE COSTS**





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





**IMPACT
      OF RECENTLY ISSUED ACCOUNTING STANDARDS**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles and expands disclosure about fair
      value
      measurements. SFAS No. 157 applies to other accounting standards that require
      or
      permit fair value measurements. Accordingly, this statement does not require
      any
      new fair value measurement. This statement is effective for fiscal years
      beginning after November 15, 2007 and interim periods within those fiscal years.
      We are currently evaluating the requirements of SFAS No. 157 and have not
      determined the impact on our consolidated financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how
      the effects of prior year uncorrected misstatements should be considered when
      quantifying misstatements in current year financial statements. SAB No. 108
      requires companies to quantify misstatements using a balance sheet and income
      statement approach and to evaluate whether either approach results in
      quantifying an error that is material in light of relevant quantitative and
      qualitative factors. SAB No. 108 permits existing public companies to initially
      apply its provisions either by (i) restating prior financial statements as
      if
      the “dual approach” had always been used or (ii) recording the cumulative effect
      of initially applying the “dual approach” as adjustments to the carrying value
      of assets and liabilities as of January 1, 2006 with an offsetting adjustment
      recorded to the opening balance of retained earnings. Use of the “cumulative
      effect” transition method requires detailed disclosure of the nature and amount
      of each individual error being corrected through the cumulative adjustment
      and
      how and when it arose. We are currently evaluating the impact of adopting SAB
      No. 108 but we do not expect that it will have a material effect on our
      consolidated financial statements.





In
      June
      2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty
      in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for
      Income Taxes,” which clarifies accounting for and disclosure of uncertainty in
      tax positions. FIN No. 48 prescribes a recognition threshold and measurement
      attribute for the financial recognition and measurement of a tax position taken
      or expected to be taken in a tax return. The interpretation is effective for
      fiscal years beginning after December 15, 2006. We are currently evaluating
      the
      impact of adopting FIN No. 48 on our consolidated financial
      statements.





In
      November 2005, the FASB issued final FASB Staff Position (“FSP”) FAS No. 123R-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
      Payment Awards.” The FSP provides an alternative method of calculating excess
      tax benefits from the method defined in SFAS No. 123R for share-based payments.
      A one-time election to adopt the transition method in this FSP is available
      to
      those entities adopting SFAS No. 123R using either the modified retrospective
      or
      modified prospective method. Up to one year from the initial adoption of SFAS
      No. 123R or the effective date of the FSP is provided to make this one-time
      election. However, until an entity makes its election, it must follow the
      guidance in SFAS No. 123R. The FSP is effective upon initial adoption of SFAS
      No. 123R and became effective for the Company in the first quarter of 2006.
      We
      are currently evaluating the allowable methods for calculating excess tax
      benefits and have not yet determined whether we will make a one-time election
      to
      adopt the transition method described in this FSP, nor the expected impact
      on
      our financial position or results of operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error
      Corrections, a Replacement of Accounting Principles Board (“APB”) Opinion No. 20
      and FASB Statement No. 3.” SFAS No. 154 applies to all voluntary changes in
      accounting principles and requires retrospective application to prior periods’
financial statements of changes in accounting principles. This statement also
      requires that a change in depreciation, amortization or depletion method for
      long-lived, non-financial assets be accounted for as a change in accounting
      estimate effected by a change in accounting principle. SFAS No. 154 carries
      forward without change the guidance contained in APB Opinion No. 20 for
      reporting the correction of an error in previously issued financial statements
      and a change in accounting estimate. This statement is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005. The adoption of this standard did not have a material impact on the
      Company’s financial condition, results of operations or liquidity.





In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
      statement is a revision of SFAS No. 123, "Accounting for Stock-Based
      Compensation", supersedes APB Opinion No. 25, "Accounting for Stock Issued
      to
      Employees" and amends SFAS No. 95, “Statement of Cash Flows.” The statement
      eliminates the alternative to use the intrinsic value method of accounting
      that
      was provided in SFAS No. 123, which generally resulted in no compensation
      expense recorded in the financial statements related to the issuance of equity
      awards to employees. The statement also requires that the cost resulting from
      all share-based payment transactions be recognized in the financial statements.
      It establishes fair value as the measurement objective in accounting for
      share-based payment arrangements and generally requires all companies to apply
      a
      fair-value-based measurement method in accounting for share-based payment
      transactions with employees. In March 2005, the Securities and Exchange
      Commission (the “SEC”) issued Staff Accounting Bulletin 107 which describes the
      SEC staff’s expectations in determining the assumptions that underlie the fair
      value estimates and discusses the interaction of SFAS No. 123R with existing
      guidance. The Company has adopted SFAS No. 123R effective January 1, 2006,
      using
      the modified prospective application method in accordance with the statement.
      This application requires the Company to record compensation expense for all
      awards granted after the adoption date and for the unvested portion of awards
      that are outstanding at the date of adoption. The Company expects that the
      adoption of SFAS No. 123R will result in charges to operating expense of
      continuing operations of approximately $194,000, $77,000 and $19,000, in the
      years ended December 31, 2006, 2007 and 2008, related to the unvested portion
      of
      outstanding employee stock options at December 31, 2005.




30




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Interest
      Rate Risk. Interest rate risk refers to fluctuations in the value of a security
      resulting from changes in the general level of interest rates. Investments
      that
      we classify as cash and cash equivalents have original maturities of three
      months or less and therefore, are not affected in any material respect by
      changes in market interest rates. At September 30, 2006 **,** debt
      outstanding was composed of $3.4 million of fixed rate instruments due on demand
      with an aggregate average interest rate of 10.00%.





Foreign
      Currency Risk. We transact business in U.S. dollars. Foreign currency exchange
      rate fluctuations do not have a material effect on our results of
      operations.





**ITEM
      4. CONTROLS AND PROCEDURES**





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





Our
      Chief
      Executive Officer and Chief Financial Officer have evaluated the effectiveness
      of our disclosure controls and procedures as of September 30, 2006. Based on
      that evaluation, our Chief Executive Officer and our Chief Financial Officer
      have concluded that our disclosure controls and procedures are effective in
      alerting them in a timely manner to material information regarding us (including
      our consolidated subsidiaries) that is required to be included in our periodic
      reports to the SEC.





Our
      management, with the participation of our Chief Executive Officer and our Chief
      Financial Officer, have evaluated any change in our internal control over
      financial reporting that occurred during the quarter ended September 30, 2006
      that has materially affected, or is reasonably likely to materially affect,
      our
      internal control over financial reporting, and have determined there to be
      no
      reportable changes.




**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





See
      Note
      6, "Litigation," of the Financial Statements included in this
      Report.





**ITEM
      1A. RISK FACTORS**





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





**RISKS
      RELATING TO OUR BUSINESS GENERALLY**





**WE
      MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.**





We
      received a report from our independent accountants, relating to our December
      31,
      2005 audited financial statements, containing a paragraph stating that our
      recurring losses from operations and our accumulated deficit subject the Company
      to certain liquidity and profitability considerations. The Company continues
      to
      incur substantial consolidated net losses and management believes the Company
      will continue to be unprofitable and use cash in its operations for the
      near-term future. Based upon the Company’s present cash resources and cash flow
      projections, management believes that the Company has sufficient liquidity
      to
      operate as a going concern through at least the first quarter of
      2007.




31





As
      more
      fully discussed in Note 6, “Litigation,” the Company is a defendant in a number
      of lawsuits, including a lawsuit filed by MySpace, Inc. on June 1, 2006.
      Additionally, the Company is currently a party to certain other claims and
      disputes arising in the ordinary course of business. Although uncertain at
      the
      present time, the legal costs of defending and settling such lawsuits,
      outstanding claims and disputes could be material and could utilize a
      significant portion of our cash resources and adversely affect our financial
      condition.





In
      order
      to assure the Company's financial viability beyond the first quarter
      of 2007, we believe we must raise additional capital, successfully implement
      our
      existing and future business plans and successfully resolve the legal
      proceedings, claims and disputes discussed in the paragraph above. Our business
      plans may include the sale, abandonment or disposal of certain businesses or
      components of businesses, including the sale of certain technologies or other
      long-lived assets. There can be no assurance that the Company will be successful
      in taking any of the above actions. The aforementioned uncertainties regarding
      the future direction and financial performance of the Company create substantial
      doubt that the Company will be able to continue as a going concern beyond the
      first quarter of 2007 (see the “Future and Critical Need for Capital” section of
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations for further details).





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





Since
      our
      inception, we have incurred net losses each year and we expect that we will
      continue to incur net losses for the foreseeable future. We had losses from
      continuing operations, net of applicable income tax benefits, of approximately
      $13.3 million, $24.9 million and $11.0 million for the years ended December
      31,
      2005, 2004 and 2003, respectively. We incurred a net loss from continuing
      operations of approximately $11.3 million for the nine months ended September
      30, 2006. **** The
      principal causes of our losses are likely to continue to be:





●
            costs
                resulting from the operation of our
                businesses;





●
            costs
                relating to entering new business
                lines;





●
            failure
                to generate sufficient revenue; and




●
            selling,
                general and administrative
                expenses.





Although
      we have restructured our businesses, we still expect to continue to incur losses
      as we attempt to improve the performance and operating results of our Internet
      services, VoIP telephony services and computer games businesses and while we
      explore a number of strategic alternatives for our businesses, including
      continuing to operate the businesses; selling, abandoning and/or otherwise
      disposing of certain businesses or assets. At the present time, none of our
      business lines operate at a profit.





**WE
      ARE A PARTY TO LITIGATION MATTERS THAT MAY SUBJECT US TO SIGNIFICANT LIABILITY
      AND BE TIME CONSUMING AND EXPENSIVE.**





We
      are
      currently a party to litigation. At this time we cannot reasonably estimate
      the
      range of any loss or damages resulting from any of the pending lawsuits due
      to
      uncertainty regarding the ultimate outcome. The defense of any litigation may
      be
      expensive and divert management's attention from day-to-day operations. An
      adverse outcome in any litigation could materially and adversely affect our
      results of operations and financial position and may utilize a significant
      portion of our cash resources. See Note 6, “Litigation,” in the Notes to the
      Condensed Consolidated Financial Statements for further details regarding the
      lawsuits.





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





During
      our recent past, we have entered into a number of new business lines through
      acquisitions. We may also enter into new or different lines of business, as
      determined by management and our Board of Directors. Our acquisitions, as well
      as any future acquisitions or joint ventures could result, and in some instances
      have resulted in numerous risks and uncertainties, including:





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





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





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





●
            the
                incurrence of debt and contingent liabilities or impairment charges
                related to goodwill and other long-lived
                assets;




32




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





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





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





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





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





**OUR
      NET OPERATING LOSS CARRYFORWARDS MAY BE SUBSTANTIALLY
      LIMITED.**





As
      of
      December 31, 2005, we had net operating loss carryforwards which may be
      potentially available for U.S. tax purposes of approximately $147 million.
      These
      carryforwards expire through 2025. 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 various
      significant changes in our ownership interests, as defined in the Internal
      Revenue Code of 1986, as amended, we have substantially limited the availability
      of our net operating loss carryforwards. There can be no assurance that we
      will
      be able to utilize any net operating loss carryforwards in the
      future.





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





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





●
            inadequate
                network infrastructure;





●
            security
                and authentication concerns;





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





●
            general
                economic and business downturns;
                and





●
            catastrophic
                events, including war and
                terrorism.




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





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





●
            increased
                government regulation;





●
            potential
                governmental taxation of such services;
                and





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





**WE
      MAY FACE INCREASED GOVERNMENT REGULATION, TAXATION AND LEGAL UNCERTAINTIES
      IN
      OUR INDUSTRY, BOTH DOMESTICALLY AND INTERNATIONALLY, WHICH COULD NEGATIVELY
      IMPACT OUR FINANCIAL CONDITION AND/OR OUR RESULTS OF
      OPERATIONS.**





There
      are
      an increasing number of federal, state, local and foreign laws and regulations
      pertaining to the Internet and telecommunications. In addition, a number of
      federal, state, local and foreign legislative and regulatory proposals are
      under
      consideration. Laws and regulations have been and will likely continue to be
      adopted with respect to the Internet relating to, among other things, fees
      and
      taxation of VoIP telephony services, liability for information retrieved from
      or
      transmitted over the Internet, online content regulation, user privacy, data
      protection, pricing, content, copyrights, distribution, electronic contracts
      and
      other communications, consumer protection, public safety issues like enhanced
      911 emergency service ("E911"), the Communications Assistance for Law
      Enforcement Act of 1994, the provision of online payment services, broadband
      residential Internet access and the characteristics and quality of products
      and
      services.




33





Changes
      in tax laws relating to electronic commerce could materially affect our
      business, prospects and financial condition. One or more states or foreign
      countries may seek to impose sales or other tax collection obligations on
      out-of-jurisdiction companies that engage in electronic commerce. A successful
      assertion by one or more states or foreign countries that we should collect
      sales or other taxes on services could result in substantial tax liabilities
      for
      past sales, decrease our ability to compete with traditional telephony, and
      otherwise harm our business.





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. It is not clear how existing laws governing issues such as property
      ownership, sales and other taxes, libel, and personal privacy apply to the
      Internet and electronic commerce. Any new legislation or regulation, or the
      application or interpretation of existing laws or regulations, may decrease
      the
      growth in the use of the Internet or VoIP telephony services, may impose
      additional burdens on electronic commerce or may alter how we do business.
      This
      could decrease the demand for our existing or proposed services, increase our
      cost of doing business, increase the costs of products sold through the Internet
      or otherwise have a material adverse effect on our business, plans, prospects,
      results of operations and financial condition.





**WE
      RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.**





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





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





Litigation
      may be necessary in the future to enforce our intellectual property rights
      or to
      determine the validity and scope of the proprietary rights of others. However,
      we may not have sufficient funds or personnel to adequately litigate or
      otherwise protect our rights. Furthermore, we cannot assure you that our
      business activities and product offerings will not infringe upon the proprietary
      rights of others, or that other parties will not assert infringement claims
      against us, including claims related to providing hyperlinks to websites
      operated by third parties, sending unsolicited email messages 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 have asserted and may in the future assert claims of alleged
      infringement by us of their intellectual property rights. In June 2006, MySpace,
      Inc., (“MySpace”), filed a lawsuit alleging, among other things, that we sent
      unsolicited and unauthorized email messages to MySpace members and that our
      alleged activities were in violation of various federal and state laws and
      regulations and that we infringed upon MySpace’s trademarks. See Note 6,
“Litigation,” in the Notes to the Condensed Consolidated Financial Statements
      for further details regarding the lawsuit.   Any litigation claims or
      counterclaims could impair our business because they could:





●
            be
                time-consuming;





●
            result
                in significant costs;





●
            subject
                us to significant liability for
                damages;




●
            result
                in invalidation of our proprietary
                rights;





●
            divert
                management's attention;





●
            cause
                product release delays; or





●
            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.




34





We
      license from third parties various technologies incorporated into our products,
      networks and 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 products and services or could adversely affect the
      performance of our existing products and services until equivalent technology
      can be identified, licensed and integrated.





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





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





Our
      success in the markets in which we operate will depend on our ability to create
      and maintain brand awareness for our product offerings. This has in some cases
      required, and may continue to require, a significant amount of capital to allow
      us to market our products and establish brand recognition and customer loyalty.
      Many of our competitors are larger than us and have substantially greater
      financial resources.





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





**OUR
      QUARTERLY OPERATING RESULTS FLUCTUATE.**





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





●
            the
                outcome and costs related to defending and settling outstanding
                litigation, claims and disputes;





●
            acquisitions
                of new businesses or sales of our businesses or
                assets;





●
            changes
                in the number of sales or technical
                employees;





●
            the
                level of traffic on our websites;





●
            the
                overall demand for Internet travel services, Internet communications
                services, print and Internet advertising and electronic
                commerce;





●
            the
                addition or loss of advertising clients of our computer games businesses,
                subscribers to our magazines, “.travel” domain name registrants, VoIP
                customers and electronic commerce partners on our
                websites;




●
            overall
                usage and acceptance of the
                Internet;




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





●
            costs
                relating to the implementation or cessation of marketing plans for
                our
                various lines of business;





●
            other
                costs relating to the maintenance of our
                operations;





●
            the
                restructuring of our business;




35




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





●
            competition
                from others providing services similar to
                ours.





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





We
      have a
      limited operating history for you to use in evaluating our prospects and us,
      particularly as it pertains to our Internet and VoIP services businesses. 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:





●
            maintain
                or increase levels of user traffic on our e-commerce
                websites;





●
            generate
                and maintain adequate levels of “.travel” domain name
                registrations;





●
            generate
                and maintain adequatewww.search.traveladvertising revenue;





●
            monetize
                our VoIP communications technology;





●
            maintain
                or increase magazine advertising and subscription
                revenue;





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





●
            identify,
                attract, retain and motivate qualified
                personnel.





**OUR
      MANAGEMENT TEAM IS INEXPERIENCED IN THE MANAGEMENT OF A LARGE OPERATING
      COMPANY.**





Only
      our
      Chairman has had experience managing a large operating company. Accordingly,
      we
      cannot assure you that:





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





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





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





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





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




**WE
      DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL
      PERSONNEL.**





Our
      future success also depends on our continuing ability to attract, retain and
      motivate highly qualified technical expertise and managerial personnel necessary
      to operate our businesses. We may need to give retention bonuses and stock
      incentives to certain employees to keep them, which can be costly to us. The
      loss of the services of members of our management team or other key personnel
      could harm our business. Our future success depends to a significant extent
      on
      the continued service of key management, client service, product development,
      sales and technical personnel. We do not maintain key person life insurance
      on
      any of our executive officers and do not intend to purchase any in the future.
      Although we generally enter into non-competition agreements with our key
      employees, our business could be harmed if one or more of our officers or key
      employees decided to join a competitor or otherwise compete with
      us.




We
      may be
      unable to attract, assimilate or retain highly qualified technical and
      managerial personnel in the future. Wages for managerial and technical employees
      are increasing and are expected to continue to increase in the future. We have
      from time to time in the past experienced, and could continue to experience
      in
      the future if we need to hire any additional personnel, difficulty in hiring
      and
      retaining highly skilled employees with appropriate qualifications. If we were
      unable to attract and retain the technical and managerial personnel necessary
      to
      support and grow our businesses, our businesses would likely be materially
      and
      adversely affected.





36




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





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





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





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





Due
      to
      the relationships with his related entities, Mr. Egan will have an inherent
      conflict of interest in making any decision related to transactions between
      the
      related entities and us, including investment in our securities. Furthermore,
      the Company's Board of Directors presently is comprised entirely of individuals
      which are employees of theglobe, and therefore are not "independent." We intend
      to review related party transactions in the future on a case-by-case
      basis.





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





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





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





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




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





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




37





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





We
      enter
      into agreements with commerce partners and sponsors under which, in some cases,
      we are entitled to receive a share of 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 NOT BE ABLE TO IMPLEMENT SECTION 404 OF THE SARBANES-OXLEY ACT ON A TIMELY
      BASIS.**





The
      Securities and Exchange Commission (the “SEC”), as directed by Section 404 of
      The Sarbanes-Oxley Act, adopted rules generally requiring each public company
      to
      include a report of management on the company's internal controls over financial
      reporting in its annual report on Form 10-K that contains an assessment by
      management of the effectiveness of the company's internal controls over
      financial reporting. In addition, the company's independent registered public
      accounting firm must attest to and report on management's assessment of the
      effectiveness of the company's internal controls over financial reporting.
      This
      requirement will first apply to our annual report on Form 10-K for the fiscal
      year ending December 31, 2007.





We
      have
      not yet developed a Section 404 implementation plan. We have in the past
      discovered, and may in the future discover, areas of our internal controls
      that
      need improvement. How companies should be implementing these new requirements
      including internal control reforms to comply with Section 404's requirements,
      and how independent auditors will apply these requirements and test companies'
      internal controls, is still reasonably uncertain.




We
      expect
      that we will need to hire and/or engage additional personnel and incur
      incremental costs in order to complete the work required by Section 404. There
      can be no assurance that we will be able to complete a Section 404 plan on
      a
      timely basis. The Company's liquidity position in 2006 and 2007 may also impact
      our ability to adequately fund our Section 404 efforts.





Even
      if
      we timely complete a Section 404 plan, we may not be able to conclude that
      our
      internal controls over financial reporting are effective, or in the event that
      we conclude that our internal controls are effective, our independent
      accountants may disagree with our assessment and may issue a report that is
      qualified. This could subject the Company to regulatory scrutiny and a loss
      of
      public confidence in our internal controls. In addition, any failure to
      implement required new or improved controls, or difficulties encountered in
      their implementation, could harm the Company's operating results or cause the
      Company to fail to meet its reporting obligations.





**RISKS
      RELATING TO OUR VOIP TELEPHONY BUSINESS**





**WE
      ARE UNABLE TO PREDICT THE VOLUME OF USAGE AND OUR CAPACITY NEEDS FOR OUR VOIP
      BUSINESS; INSUFFICIENT REVENUE LEVELS AND DISADVANTAGEOUS CONTRACTS HAVE REDUCED
      OUR OPERATING MARGINS AND MAY CONTINUE TO ADVERSELY AFFECT OUR LIQUIDITY AND
      FINANCIAL CONDITION.**





We
      entered into a number of agreements (generally for initial terms of one year,
      with the terms of several agreements extending beyond one year) for leased
      communications transmission capacity and data center facilities with various
      carriers and other third parties. In the second quarter of 2006, we completed
      the implementation of a plan to reconfigure, phase-out and eliminate certain
      components of our VoIP network. Although the implementation of this plan, which
      involved the renegotiation, non-renewal and/or termination of certain network
      agreements, has significantly reduced the ongoing costs of operating our VoIP
      network, the minimum amounts payable under these agreements and the underlying
      current capacity of our VoIP network still exceeds our current VoIP telephony
      business revenue forecasts. If we are not able to generate sufficient levels
      of
      VoIP telephony revenue, or alternatively further reduce our VoIP network and
      operating costs in future periods, our liquidity and financial condition could
      be materially and adversely impacted. (See the “Liquidity and Capital Resources”
section of Management’s Discussion and Analysis of Financial Condition and
      Results of Operations for further details).





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





In
      the
      United States, the Federal Communications Commission (the "FCC") has so far
      declined to make a general conclusion that all forms of VoIP services constitute
      telecommunications services (rather than information services). Because their
      services are not currently regulated to the same extent as telecommunications
      services, some VoIP providers, such as the Company, can currently avoid paying
      certain charges and incurring certain costs and expenses that traditional
      telephone companies must pay and incur. Many traditional telephone operators
      are
      lobbying the FCC and the states to regulate VoIP on the same or similar basis
      as
      traditional telephone services. The FCC and several states are examining this
      issue.




38





If
      providers of VoIP services, such as the Company, become subject to additional
      regulation by the FCC or any state regulatory agencies, the cost of complying
      with such additional regulation would likely increase the costs of providing
      such services. In addition, the FCC or any such state agencies may impose new
      surcharges, taxes, fees and/or other charges upon providers or users of VoIP
      services. Such charges could include, among others, access charges payable to
      local exchange carriers to carry and terminate traffic, contributions to the
      Universal Service Fund or other charges. Such new charges would likely increase
      our cost of VoIP operations and, to the extent that any or all of them are
      passed along to our VoIP customers, they could adversely affect our revenues
      from our VoIP services. Accordingly, more aggressive state and/or federal
      regulation of Internet telephony providers and VoIP services may adversely
      affect our VoIP business operations, and ultimately our financial condition,
      operating results and future prospects.





**RECENT
      REGULATORY ENACTMENTS BY THE FCC REQUIRE INTERCONNECTED VOIP PROVIDERS TO
      PROVIDE ENHANCED EMERGENCY 911 DIALING CAPABILITIES, TO COMPLY WITH THE
      REQUIREMENTS OF THE COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT OF 1994,
      AND TO CONTRIBUTE TO THE UNIVERSAL SERVICES FUND. WHILE WE ARE NOT AN
      INTERCONNECTED VOIP PROVIDER, THE FCC HAS ASKED FOR PUBLIC COMMENT AS TO WHETHER
      CERTAIN OF THESE REQUIREMENTS SHOULD APPLY TO VOIP PROVIDERS OTHER THAN
      INTERCONNECTED VOIP PROVIDERS. IF WE BECOME SUBJECT TO THESE REQUIREMENTS,
      IT
      WILL RESULT IN INCREASED COSTS AND RISKS ASSOCIATED WITH OUR DELIVERY OF VOIP
      SERVICES.**





Interconnected
      VoIP service is currently subject to certain FCC regulations for which VoIP
      services which are not “interconnected” are not subject. "Interconnected VoIP
      Service" is defined as a VoIP service that: (1) enables real-time, two-way
      voice
      communications; (2) requires a broadband connection from the user’s location;
      (3) requires Internet protocol-compatible customer premises equipment; and
      (4)
      generally permits users to receive calls that originate on the public switched
      telephone network and to terminate calls to the public switched telephone
      network (“PSTN”). During the second quarter of 2006, we discontinued offering
      service to all of our Interconnected VoIP Service subscribers in anticipation
      of
      the release of a new VoIP product offering resulting from our most recent
      development efforts. The new VoIP product offering will include certain features
      and functionality, including “peer-to-peer” calling, available to all
      subscribers at no charge. The new service will allow outbound dialing to the
      PSTN only, for which subscribers will be charged and, therefore, does not
      constitute an "Interconnected VoIP Service." Accordingly, it is not subject
      to
      the E911 Order, the Communications Assistance for Law Enforcement Act of 1994
      (“CALEA”) Order, or the Universal Service Fund (“USF”) Order. However, we cannot
      predict whether in the future the FCC or any state or other regulatory agencies
      will expand the scope of their regulations, or implement new ones, so as to
      include VoIP services other than Interconnected VoIP Service within the scope
      of
      such regulations. If it is necessary to suspend our VoIP services for a material
      period of time while formulating a technological solution to comply with new
      regulatory requirements, such action could materially adversely affect our
      overall financial condition and/or results of operations.





**OUR
      ABILITY TO OFFER VOIP SERVICES OUTSIDE THE U.S. IS ALSO SUBJECT TO THE LOCAL
      REGULATORY ENVIRONMENT, WHICH MAY BE COMPLICATED AND OFTEN
      UNCERTAIN.**





Although
      the use of private IP networks to provide voice services over the Internet
      is
      currently permitted by United States federal law and largely unregulated within
      the United States, several foreign governments have adopted laws and/or
      regulations that could restrict or prohibit the provision of voice
      communications services over the Internet or private IP networks. Some
      countries, including those in which the governments prohibit or limit
      competition for traditional voice telephony services, generally do not permit
      Internet telephony services or strictly limit the terms under which those
      services may be provided. Still other countries regulate Internet telephony
      services like traditional voice telephony services, requiring Internet telephony
      companies to make various telecommunications service contributions and pay
      other
      taxes.





The
      European Union has, for example, adopted a directive that imposes restrictions
      on the collection and use of personal data. The directive could, among other
      things, affect U.S. companies that collect or transmit information over the
      Internet from individuals in European Union member states, and will impose
      restrictions that are more stringent than current Internet privacy standards
      in
      the U.S. In particular, companies with offices located in European Union
      countries will not be allowed to send personal information to countries that
      do
      not maintain adequate standards of privacy. Compliance with these laws is both
      necessary and difficult. Failure to comply could subject us to lawsuits, fines,
      criminal penalties, statutory damages, adverse publicity, and other losses
      that
      could harm our business. Changes to existing laws or the passage of new laws
      intended to address these privacy and data protection and retention issues
      could
      directly affect the way we do business or could create uncertainty on the
      Internet. This could reduce demand for our services, increase the cost of doing
      business as a result of litigation costs or increased service or delivery costs,
      or otherwise harm our business.





Other
      laws that reference the Internet, such as the European Union's Directive on
      Distance Selling and Electronic Commerce has begun to be interpreted by the
      courts and implemented by the European Union member states, but their
      applicability and scope remain somewhat uncertain. Regulatory agencies or courts
      may claim or hold that we or our users are either subject to licensure or
      prohibited from conducting our business in their jurisdiction, either with
      respect to our services in general, or with respect to certain categories or
      items of our services. In addition, because our services are accessible
      worldwide, and we facilitate VoIP telephony services to users worldwide, foreign
      jurisdictions may claim that we are required to comply with their laws. For
      example, the Australian high court has ruled that a U.S. website in certain
      circumstances must comply with Australian laws regarding libel. As we expand
      our
      international activities, we become obligated to comply with the laws of the
      countries in which we operate. Laws regulating Internet companies outside of
      the
      U.S. may be less favorable than those in the U.S., giving greater rights to
      consumers, content owners, and users. Compliance may be more costly or may
      require us to change our business practices or restrict our service offerings
      relative to those in the U.S. Our failure to comply with foreign laws could
      subject us to penalties ranging from criminal prosecution to bans on our
      services.





39





**NEW
      LAWS AND REGULATIONS AFFECTING THE INTERNET GENERALLY MAY INCREASE OUR COSTS
      OF
      COMPLIANCE AND DOING BUSINESS, DECREASE THE GROWTH IN INTERNET USE, DECREASE
      THE
      DEMAND FOR OUR SERVICES OR OTHERWISE HAVE A MATERIAL ADVERSE EFFECT ON OUR
      BUSINESS** .





Today,
      there are still relatively few laws specifically directed towards online
      services. However, due to the increasing popularity and use of the Internet
      and
      online services, many laws and regulations relating to the Internet are being
      debated at all levels of governments around the world and it is possible that
      such laws and regulations will be adopted. It is not clear how existing laws
      governing issues such as property ownership, copyrights and other intellectual
      property issues, taxation, libel and defamation, obscenity, and personal privacy
      apply to online businesses. The vast majority of these laws were adopted prior
      to the advent of the Internet and related technologies and, as a result, do
      not
      contemplate or address the unique issues of the Internet and related
      technologies. In the United States, Congress has recently adopted legislation
      that regulates certain aspects of the Internet, including online content, user
      privacy and taxation. In addition, Congress and other federal entities are
      considering other legislative and regulatory proposals that would further
      regulate the Internet. Congress has, for example, considered legislation on
      a
      wide range of issues including Internet spamming, database privacy, gambling,
      pornography and child protection, Internet fraud, privacy and digital
      signatures. For example, Congress recently passed and the President signed
      into
      law several proposals that have been made at the U.S. state and local level
      that
      would impose additional taxes on the sale of goods and services through the
      Internet. These proposals, if adopted, could substantially impair the growth
      of
      e-commerce, and could diminish our opportunity to derive financial benefit
      from
      our activities. For example, in December 2004, the U.S. federal government
      enacted the Internet Tax Nondiscrimination Act (the "ITNA"). While the ITNA
      generally extends through November 2007 the moratorium on taxes on Internet
      access and multiple and discriminatory taxes on electronic commerce, it does
      not
      affect the imposition of tax on a charge for voice or similar service utilizing
      Internet Protocol or any successor protocol. In addition, the ITNA does not
      prohibit federal, state, or local authorities from collecting taxes on our
      income or from collecting taxes that are due under existing tax
      rules.




Various
      states have adopted and are considering Internet-related legislation. Increased
      U.S. regulation of the Internet, including Internet tracking technologies,
      may
      slow its growth, particularly if other governments follow suit, which may
      negatively impact the cost of doing business over the Internet and materially
      adversely affect our business, financial condition, results of operations and
      future prospects. Legislation has also been proposed that would clarify the
      regulatory status of VoIP service. The Company has no way of knowing whether
      legislation will pass or what form it might take. Domain names have been the
      subject of significant trademark litigation in the United States and
      internationally. The current system for registering, allocating and managing
      domain names has been the subject of litigation and may be altered in the
      future. The regulation of domain names in the United States and in foreign
      countries may change. Regulatory bodies are anticipated to establish additional
      top-level domains and may appoint additional domain name registrars or modify
      the requirements for holding domain names, any or all of which may dilute the
      strength of our names. We may not acquire or maintain our domain names in all
      of
      the countries in which our websites may be accessed, or for any or all of the
      top-level domain names that may be introduced.





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





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





During
      the past several years, a number of companies have introduced services that
      make
      Internet telephony or voice services over the Internet available to businesses
      and consumers. All major telecommunications companies, including entities like
      AT&T, Verizon and Sprint, either presently or potentially compete or can
      compete directly with us. Other Internet telephony service providers, such
      as
      Skype, Net2Phone, Vonage, Go2Call and deltathree, also focus on a retail
      customer base and compete with us. These companies may offer the kinds of voice
      services we currently offer or intend to offer in the future. In addition,
      companies currently in related markets have begun to provide voice over the
      Internet services or adapt their products to enable voice over the Internet
      services. These related companies may potentially migrate into the Internet
      telephony market as direct competitors. A number of cable operators have also
      begun to offer VoIP telephony services via cable modems which provide access
      to
      the Internet. These companies, which tend to be large entities with substantial
      resources, generally have large budgets available for research and development,
      and therefore may further enhance the quality and acceptance of the transmission
      of voice over the Internet. AOL, Google and Yahoo! also now offer new services
      that have features similar to some of our products and services. We also compete
      with cellular telephony providers.





40




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





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




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





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





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





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





**ONLINE
      CREDIT CARD FRAUD CAN HARM OUR BUSINESS.**





The
      sale
      of our products and services over the Internet exposes us to credit card fraud
      risks. Many of our products and services can be ordered or established (in
      the
      case of new accounts) over the Internet using a major credit card for payment.
      As is prevalent in retail telecommunications and Internet services industries,
      we are exposed to the risk that some of these credit card accounts are stolen
      or
      otherwise fraudulently obtained. In general, we are not able to recover
      fraudulent credit card charges from such accounts. In addition to the loss
      of
      revenue from such fraudulent credit card use, we also remain liable to third
      parties whose products or services are engaged by us (such as termination fees
      due telecommunications providers) in connection with the services which we
      provide. In addition, depending upon the level of credit card fraud we
      experience, we may become ineligible to accept the credit cards of certain
      issuers. We are currently authorized to accept Discover, together with Visa
      and
      MasterCard (which are both covered by a single merchant agreement with us).
      Visa/MasterCard constitutes the primary credit card used by our customers.
      The
      loss of eligibility for acceptance of Visa/MasterCard could significantly and
      adversely affect our business. During 2004, we updated our fraud controls and
      will attempt to manage fraud risks through our internal controls and our
      monitoring and blocking systems. If those efforts are not successful, fraud
      could cause our revenue to decline significantly and our business, financial
      condition and results of operations to be materially and adversely
      affected.




**RISKS
      RELATING TO OUR COMPUTER GAMES BUSINESS**





**WE
      HAVE HISTORICALLY RELIED SUBSTANTIALLY ON ADVERTISING REVENUES, WHICH COULD
      DECLINE IN THE FUTURE.**





We
      historically derived a substantial portion of our revenues from the sale of
      advertisements, primarily in our Computer Games Magazine. Our games business
      model and our ability to generate sufficient future levels of print and online
      advertising revenues are highly dependent on the print circulation of our
      magazines, as well as the amount of traffic on our websites and our ability
      to
      properly monetize website traffic. Print and online advertising market volumes
      have declined in the past and may decline in the future, which could have a
      material adverse effect on us. Many advertisers have been experiencing financial
      difficulties which could further negatively impact our revenues and our ability
      to collect our receivables. For these reasons, we cannot assure you that our
      current advertisers will continue to purchase advertisements from us or that
      we
      will be successful in selling advertising to new advertisers.




41




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





Our
      subsidiary, Chips & Bits, depends on major releases in the Personal Computer
      (“PC”) market for the majority of sales and profits. Advances in technology and
      the game industry’s increased focus on console and online game platforms, such
      as Xbox, PlayStation and GameCube, has dramatically reduced the number of major
      PC releases, which resulted in significant declines in revenues and gross
      margins for Chips & Bits. Because of the large installed base of personal
      computers, revenue and gross margin percentages may fluctuate with changes
      in
      the PC game market. However, we are unable to predict when, if ever, there
      will
      be a turnaround in the PC game market, or if we will be successful in adequately
      increasing our future sales of non-PC games.





**WE
      MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE ELECTRONIC COMMERCE
      MARKETPLACE.**





The
      games
      marketplace has become increasingly competitive due to acquisitions, strategic
      partnerships and the continued consolidation of a previously fragmented
      industry. In addition, an increasing number of major retailers have increased
      the selection of video games offered by both their traditional “bricks and
      mortar” locations and their online commerce sites, resulting in increased
      competition. Our Chips & Bits subsidiary may not be able to compete
      successfully in this highly competitive marketplace.





We
      also
      face many uncertainties, which may affect our ability to generate electronic
      commerce revenues and profits, including:





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





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





●
            the
                level of product returns;





●
            merchandise
                shipping costs and delivery times;





●
            our
                ability to manage inventory levels;




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





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





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





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





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





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





Consumers
      may sue us if any of the products that we sell are defective, fail to perform
      properly or injure the user. Consumers are also increasingly seeking to impose
      liability on game manufacturers and distributors based upon the content of
      the
      games and the alleged affect of such content on behavior. 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.





42





**RISKS
      RELATING TO OUR INTERNET SERVICES BUSINESS**





**OUR
      CONTRACT TO SERVE AS THE REGISTRY FOR THE “.TRAVEL” TOP-LEVEL DOMAIN MAY BE
      TERMINATED EARLY, WHICH WOULD LIKELY DO IRREPARABLE HARM TO OUR NEWLY DEVELOPING
      INTERNET SERVICES BUSINESS.**





Our
      contract with the Internet Corporation for Assigned Names and Numbers (“ICANN”)
      to serve as the registry for the “.travel” top-level Internet domain is for an
      initial term of ten years. Additionally, we have agreed to engage in good faith
      negotiations at regular intervals throughout the term of our contract (at least
      once every three years) regarding possible changes to the provisions of the
      contract, including changes in the fees and payments that we are required to
      make to ICANN. In the event that we materially and fundamentally breach the
      contract and fail to cure such breach within thirty days of notice, ICANN has
      the right to immediately terminate our contract.





Should
      our “.travel” registry contract be terminated early by ICANN, we would likely
      permanently shutdown our Internet services business. Further, we could be held
      liable to pay additional fees or financial damages to ICANN or certain of our
      related subcontractors and, in certain limited circumstances, to pay punitive,
      exemplary or other damages to ICANN. Any such developments could have a material
      adverse effect on our financial condition and results of
      operations.





**OUR
      BUSINESS COULD BE MATERIALLY HARMED IF IN THE FUTURE THE ADMINISTRATION AND
      OPERATION OF THE INTERNET NO LONGER RELIES UPON THE EXISTING DOMAIN NAME
      SYSTEM.**





The
      domain name registration industry continues to develop and adapt to changing
      technology. This development may include changes in the administration or
      operation of the Internet, including the creation and institution of alternate
      systems for directing Internet traffic without the use of the existing domain
      name system. The widespread acceptance of any alternative systems could
      eliminate the need to register a domain name to establish an online presence
      and
      could materially adversely affect our business, financial condition and results
      of operations.





**WE
      OUTSOURCE CERTAIN OPERATIONS WHICH EXPOSES US TO RISKS RELATED TO OUR THIRD
      PARTY VENDORS.**





We
      do not
      develop and maintain all of the products and services that we offer. We offer
      most of our services to our customers through various third party service
      providers engaged to perform these services on our behalf and also outsource
      most of our operations to third parties. Accordingly, we are dependent, in
      part,
      on the services of third party service providers, which may raise concerns
      by
      our customers regarding our ability to control the services we offer them if
      certain elements are managed by another company. In the event that these service
      providers fail to maintain adequate levels of support, do not provide high
      quality service, discontinue their lines of business, cease or reduce operations
      or terminate their contracts with us, our business, operations and customer
      relations may be impacted negatively and we may be required to pursue
      replacement third party relationships, which we may not be able to obtain on
      as
      favorable terms or at all. If a problem should arise with a provider,
      transitioning services and data from one provider to another can often be a
      complicated and time consuming process and we cannot assure that if we need
      to
      switch from a provider we would be able to do so without significant
      disruptions, or at all. If we were unable to complete a transition to a new
      provider on a timely basis, or at all, we could be forced to either temporarily
      or permanently discontinue certain services which may disrupt services to our
      customers. Any failure to provide services would have a negative impact on
      our
      revenue, profitability and financial condition and could materially harm our
      Internet services business.





**REGULATORY
      AND STATUTORY CHANGES COULD HARM OUR INTERNET SERVICES
      BUSINESS.**





We
      cannot
      predict with any certainty the effect that new governmental or regulatory
      policies, including changes in consumer privacy policies or industry reaction
      to
      those policies, will have on our domain name registry business. Additionally,
      ICANN’s limited resources may seriously affect its ability to carry out its
      mandate or could force ICANN to impose additional fees on registries. Changes
      in
      governmental or regulatory statutes or policies could cause decreases in future
      revenue and increases in future costs which could have a material adverse effect
      on the development of our domain name registry business.





**RISKS
      RELATING TO OUR COMMON STOCK**





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





As
      of
      November 6, 2006, we had issued and outstanding approximately 174.8 million
      shares, of which approximately 84.2 million shares were freely tradable over
      the
      public markets. There is limited trading volume in our shares and we are now
      traded only in the over-the-counter market. Most of our outstanding restricted
      shares of Common Stock were issued more than one year ago and are therefore
      eligible to be resold over the public markets pursuant to Rule 144 promulgated
      under the Securities Act of 1933, as amended.




43





Sales
      of
      significant amounts of Common Stock in the public market in the future, the
      perception that sales will occur or the registration of additional shares
      pursuant to existing contractual obligations could materially and adversely
      drive down the price of our stock. In addition, such factors could adversely
      affect the ability of the market price of the Common Stock to increase even
      if
      our business prospects were to improve. Substantially all of our stockholders
      holding restricted securities, including shares issuable upon the exercise
      of
      warrants or the conversion of convertible notes to acquire our Common Stock
      (which are convertible into 68 million shares), have registration rights under
      various conditions and are or will become available for resale in the
      future.





In
      addition, as of September 30, 2006, there were outstanding options to purchase
      approximately 20.0 million shares of our Common Stock, which become eligible
      for
      sale in the public market from time to time depending on vesting and the
      expiration of lock-up agreements. The shares issuable upon exercise of these
      options are registered under the Securities Act and consequently, subject to
      certain volume restrictions as to shares issuable to executive officers, will
      be
      freely tradable.





Also
      as
      of November 6, 2006, we had issued and outstanding warrants to acquire
      approximately 6.9 million shares of our Common Stock. Many of the outstanding
      instruments representing the warrants contain anti-dilution provisions pursuant
      to which the exercise prices and number of shares issuable upon exercise may
      be
      adjusted.





**OUR
      CHAIRMAN MAY CONTROL US.**





Michael
      S. Egan, our Chairman and Chief Executive Officer, beneficially owns or
      controls, directly or indirectly, approximately 140 million shares of our Common
      Stock as of November 6, 2006, which in the aggregate represents approximately
      56% of the outstanding shares of our Common Stock (treating as outstanding
      for
      this purpose the shares of Common Stock issuable upon exercise and/or conversion
      of the options, convertible promissory notes and warrants owned by Mr. Egan
      or
      his affiliates). Accordingly, Mr. Egan will be able to exercise significant
      influence over, if not control, any stockholder vote.





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





The
      shares of our Common Stock were delisted from the NASDAQ national market in
      April 2001 and are now traded in the over-the-counter market on what is commonly
      referred to as the electronic bulletin board or "OTCBB." As a result, an
      investor may find it more difficult to dispose of or obtain accurate quotations
      as to the market value of the securities. The delisting has made trading our
      shares more difficult for investors, potentially leading to further declines
      in
      share price and making it less likely our stock price will increase. It has
      also
      made it more difficult for us to raise additional capital. We may also incur
      additional costs under state blue-sky laws if we sell equity due to our
      delisting.





**OUR
      COMMON STOCK MAY BECOME SUBJECT TO CERTAIN "PENNY STOCK" RULES WHICH MAY MAKE
      IT
      A LESS ATTRACTIVE INVESTMENT.**





Since
      the
      trading price of our Common Stock is less than $5.00 per share, trading in
      our
      Common Stock would be subject to the requirements of Rule 15g-9 of the Exchange
      Act if our net tangible assets were to fall below $2.0 million. Under Rule
      15g-9, brokers who recommend penny stocks to persons who are not established
      customers and accredited investors, as defined in the Exchange Act, must satisfy
      special sales practice requirements, including requirements that they make
      an
      individualized written suitability determination for the purchaser; and receive
      the purchaser's written consent prior to the transaction. The Securities
      Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
      disclosures in connection with any trades involving a penny stock, including
      the
      delivery, prior to any penny stock transaction, of a disclosure schedule
      explaining the penny stock market and the risks associated with that market.
      Such requirements may severely limit the market liquidity of our Common Stock
      and the ability of purchasers of our equity securities to sell their securities
      in the secondary market. For all of these reasons, an investment in our equity
      securities may not be attractive to our potential investors.





**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:





●
            have
                the effect of delaying, deferring or preventing a change in control
                of our
                Company;





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





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





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




44




**OUR
      STOCK PRICE IS VOLATILE AND MAY DECLINE.**





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





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





●
            quarterly
                variations in our operating
                results;





●
            competitive
                announcements;





●
            sales
                of any of our businesses;





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





●
            news
                relating to trends in our markets;
                and





●
            disposition
                or entry into new lines of business and acquisitions of businesses,
                including our Tralliance
                acquisition.





The
      market price of our Common Stock could also decline as a result of unforeseen
      factors. The stock market has experienced significant price and volume
      fluctuations, and the market prices of technology companies, particularly
      Internet related companies, have been highly volatile. Our stock is also more
      volatile due to the limited trading volume and the high number of shares
      eligible for trading in the market.


45





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





(a)
      Unregistered Sales of Equity Securities.





None.





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





Not
      applicable.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None.





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





None.





**ITEM
      5. OTHER INFORMATION**





None.





**ITEM
      6. EXHIBITS**





31.1
            Certification
                of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
                15d-14(a).





31.2
            Certification
                of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
                15d-14(a).





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





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




46




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.


*theglobe.com,
                inc.**Dated*:*November
                10, 2006*
            By:
            /s/*Michael
                S. Egan**Michael
                S. Egan*
              *Chief
                Executive Officer*
              *(Principal
                Executive Officer)*


By:
            /s/*Edward
                A. Cespedes**Edward
                A. Cespedes*
              *President
                and Chief Financial Officer*
              *(Principal
                Financial Officer)*




47





**EXHIBIT
      INDEX**




31.1
            Certification
                of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
                15d-14(a).





31.2
            Certification
                of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
                15d-14(a).





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





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


48