<PAGE>

________________________________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  _____________

                                   FORM 10-K

               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                      THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2000         Commission File No.: 0-25053

                              theglobe.com, inc.
            (Exact name of registrant as specified in its charter)

                    Delaware                             14-1782422
         (State or other jurisdiction of              (I.R.S. Employer
          incorporation or organization)            Identification Number)
                    120 Broadway

                    New York, New York                       10271
        (Address of principal executive offices)           (Zip Code)


                                (212) 894-3600
             (Registrant's telephone number, including area code)

       Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share

                         Preferred Stock Purchase Rights

                                  ____________

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X].

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value (the "Common Stock") as of March 20, 2001 was 30,380,293.

Aggregate market value of the voting Common Stock held by non-affiliates of the
registrant as of the close of business on March 20, 2001: $6,232,404.*

                      Documents Incorporated by Reference
                      -----------------------------------

The information required by Part III of this report, to the extent not set forth
herein, is incorporated by reference from the registrant's definitive proxy
statement relating to the annual meeting of stockholders to be held in 2001
which definitive proxy statement shall be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this Report
relates.

         *Includes voting stock held by third parties which may be deemed to be
          beneficially owned by affiliates, but for which such affiliates have
          disclaimed beneficial ownership.

________________________________________________________________________________
<PAGE>

                               theglobe.com, inc.

                        2000 Annual Report on Form 10-K

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                       <C>
PART I

Item 1.    Business.......................................................................................    1
Item 2.    Properties.....................................................................................   15
Item 3.    Legal Proceedings..............................................................................   15
Item 4.    Submission of Matters to a Vote of Security Holders............................................   15


PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters..........................   16
Item 6.    Selected Consolidated Financial Data...........................................................   18
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..........   20
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.....................................   46
Item 8.    Consolidated Financial Statements and Supplementary Data.......................................   47
Item 9.    Changes in and Disagreements with Accountants and Accounting and Financial Disclosure..........   74


PART III

Item 10.   Directors and Executive Officers of the Registrant.............................................   75
Item 11.   Executive Compensation.........................................................................   75
Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................   75
Item 13.   Certain Relationships and Related Transactions.................................................   75


PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K................................   76

SIGNATURES................................................................................................   79
</TABLE>
<PAGE>

                                     PART I

Item 1.   Business

Overview

         theglobe.com ("theglobe" or "the Company") is a network of nine wholly-
owned properties (eight of which are online properties and one of which is an
offline property) focused on delivering community and/or games information to
registered members in the United States and abroad as of December 2000. Each of
these nine properties specializes in bringing people together around shared
topics of interest. We deliver community through: (1) our leading games
information network, games.theglobe.com, which consists of six online
properties: HappyPuppy.com, KidsDomain.com, Computer Games Online (cdmag.com),
Chips & Bits (chipsbits.com), GamesDomain.com, and ConsoleDomain.com, as well as
our offline property Computer Games Magazine; (2) our flagship website,
theglobe.com, which features our community tools globeclubs and uPublish!, both
of which enable users to personalize their online experience by interacting with
other users around similar interests; (3) distribution of our community tools
and services and/or our games information content to other Web properties; and
(4) providing web hosting services to the small business sector (businesses and
professional webmasters).

         Since our inception in May 1995, enhancements to our core
infrastructure capabilities, products and services, as well as strategic
partnerships and acquisitions have enabled us to experience growth in our user
base, reach and revenues.

Business Strategy

         Our goal is to be the Internet's leading games and community network.
Our business focuses on generating revenue by helping our partners target the
people they want to reach through adoption of our community solutions and games
content, through advertising and promotional sponsorships on our network of
online and offline properties, and through direct marketing efforts. We also
generate revenue via our online store and catalog for gamers (Chips & Bits), and
via subscriptions to our print gaming magazine (Computer Games).

         We seek to attain our goal through the following key strategies:

         Distribute/license our best-of-breed community solutions and games
information content. We create compelling services and games information content
by:

         . enabling members and partners to customize their online community
           experiences through the use of our community solutions;

         . developing cutting-edge editorial coverage of computer and video
           games;

         . improving customer support to better service our members and
           partners; and

         . continually monitoring our users' activity and eliciting their
           feedback to create future enhancements.

Distributing our online communities benefits our partners by enhancing the
experience of their users, thereby increasing user traffic and loyalty. In
addition, our advertising clients and e-commerce customers gain access to large
unduplicated, targeted audiences to whom they can sell their products and
services.

                                      -1-
<PAGE>

         Promote our state-of-the-art online advertising and sponsorship
opportunities to advertisers who can benefit from the breadth, power and
possibility of theglobe.com Network. We have taken steps, like those listed
below, in order to help increase advertising revenues:

         .    Restructuring our sales force to focus on both strategic
              nationwide targeting of key advertising constituencies and to
              place greater emphasis on client relationship building, which we
              believe is the key to attracting traditional advertisers; and

         .    Delivering highly targeted marketing options - including
              sponsorships, micro-sites, special event tie-ins, and email
              advertising messages -- that go far "beyond the banner" by
              offering powerful branding and direct marketing impact.

         Build related businesses that capitalize on theglobe.com's strength in
the online community and games markets, while at the same time, decreasing our
dependency on online advertising revenue. Initiatives in this area have
included:

         .    Integrating our online games store with related properties, such
              as the Happy Puppy and Kids Domain sites to take advantage of the
              growing importance of e-commerce;
         .    Cross-training the online advertising sales force on Computer
              Games magazine to increase the advertising opportunities available
              from our print property; and
         .    Promoting subscriptions of Computer Games magazine throughout our
              online network.

Products and Services

         theglobe.com is a network of nine wholly-owned properties (eight of
which are online properties and one of which is an offline property) focused on
delivering community and/or games information to its users. Each of these nine
properties specializes in bringing people together around shared topics of
interest.

     .   theglobe.com. theglobe.com (www.theglobe.com), which was founded in
                                     ----------------
         1995, is a "community" of people sharing similar interests, issues and
         passions through three core products designed to facilitate
         communication: email and Web-based clubs (globeclubs product),
         homepages (uPublish! product), and forums.

             .   globeclubs. As a free, premium email service, globeclubs offers
                 powerful messaging capabilities within a full-service worldwide
                 community, enabling users to send and post messages, store club
                 files, check member profiles, and meet new people worldwide
                 online.
             .   uPublish! uPublish! is a free full-service Web site builder
                 offering several tools, including a rich picture gallery,
                 guestbooks, email links, audio chat, banner exchanges, page
                 statistics, and audio messages.
             .   Forums. Forums provide users with a free unique place online to
                 publicly post ideas and points of view on a wide variety of
                 subjects by creating a new topic or adding to a topic already
                 in existence.

         This audience presents to advertisers and partners a vibrant
         environment in which to build brands and enhance communications.
         theglobe.com offers advertisers niche audiences within 14 channels of
         interest, including: arts and books; business and finance; careers;
         computers and Internet; entertainment and games; health and fitness;
         hobbies and pets; humanities and thought; news, government and
         education; people and lifestyles; science and technology; society and
         culture; sports and recreation; and, travel and regions.

                                      -2-
<PAGE>

     .   WebJump.com. WebJump.com (www.webjump.com), which we acquired in
                                   ---------------
         December 1999, provides free services, Internet resources and
         information to the small business owner online. It primarily focuses on
         the small business/small office-home office ("SOHO") market niche.

games.theglobe.com, theglobe.com's leading games information network, consists
of the following seven wholly-owned properties that together target every type
of gamer:

     .   Happy Puppy. Happy Puppy (www.happypuppy.com), which we acquired in
                                   ------------------
         April 1999, the first-ever commercial game site on the Web, delivers
         free, objective and edgy editorial content online, covering all games
         platforms. Since its 1995 launch, Happy Puppy has evolved into the
         brand name gamers trust due to its high-quality, honest and unbiased
         content written by game journalists committed to providing the very
         best coverage possible for all games, on all platforms.

               .  Happy Puppy is updated daily and offers its users free
                  downloads and information including: over 1,000 commercial
                  software reviews; over 2,500 downloadable programs; over 2,300
                  game cheats; more than 800 Web-based games; and, more than 500
                  feature articles.
               .  The Happy Puppy site is cross-linked, encouraging multiple
                  page views and return visits. It features: free browser-based
                  email; interviews with industry professionals; and, walk-
                  throughs for all platforms.
               .  Happy Puppy journalists foster an intimate communication with
                  their audience. Pages contain an email link to a Happy Puppy
                  staff person, encouraging greater user feedback.

     .   Kids Domain. Kids Domain (www.kidsdomain.com), which we acquired in
                                   ------------------
         April 1999, is a leading and critically acclaimed entertainment and
         education site trusted by children, parents and educators. Kids Domain
         is a free, family-oriented destination on the Internet that integrates
         educational, game and entertainment content.

               .  Kids Domain is a content rich Web site with online offerings
                  that include: more than 13,000 pages of games; crafts and
                  holiday activities; unbiased reviews of kids' commercial
                  software products; safe-surfing information; articles on
                  effective teaching; free downloads for PC and Mac users; free
                  graphics; and contests.
               .  The Kids Domain site is updated and expanded weekly with: over
                  1,000 commercial software reviews; over 2,500 downloadable
                  programs; and more than 1,000 online games.

     .   Computer Games Online. Computer Games Online (www.cdmag.com), which we
                                                       -------------
         acquired in February 2000, is a leading source of free games news and
         information for the sophisticated gamer, featuring news, reviews and
         previews, along with a powerful Web-wide search engine.

               .  Features of Computer Games Online include: a constant stream
                  of accurate game industry news; truthful, hard-hitting,
                  concise reviews; insightful hands-on previews; first looks,
                  tips and cheats; multiple content links; thousands of archived
                  files; discussion forums supporting all genres of PCs; and,
                  easy access to game buying.
               .  Computer Games Online also features Internet forums that bring
                  together a strong, vocal and growing community of gamers and
                  game developers.

     .   Chips & Bits. Chips & Bits (www.chipsbits.com), which we acquired in
                                     -----------------
         February 2000, is an online mail order retailer of computer software,
         hardware and games in the United States and also attracts purchasers
         worldwide. Chips & Bits covers all the major game platforms available,
         including

                                      -3-
<PAGE>

         Macintosh, Window-based PCs, Sony PlayStation, Sony PlayStation2,
         Nintendo 64, Game Boy, and Sega Dreamcast.

     .   Games Domain. Games Domain (www.gamesdomain.com), which we acquired in
                                     -------------------
         April 1999, is based in Birmingham, U.K., and was launched in 1994.
         Games Domain delivers over 50,000 pages of free content targeted toward
         hard-core gamers online.

              .   Games Domain's online offerings include: over 2,100 reviews of
                  PC titles written by gamers for gamers; insightful interviews;
                  features on the world of PC gaming; over 1,300 game demos;
                  exclusive multi-player Web games; and, over 9,000 walk-thrus
                  and cheats.
              .   Games Domain is the leading U.K.-based games site and is
                  supported by a free monthly print magazine with a 75,000
                  circulation.
              .   Games Domain has localized sites in the U.S., U.K., and Italy.

     .   Console Domain. In 1998, Games Domain spun off its burgeoning console
         games area to a sister Web site: Console Domain
         (www.consoledomain.com). Console Domain, which we acquired in April
          ---------------------
         1999, caters specifically to PlayStation, Play Station 2, Sega and
         Nintendo enthusiasts worldwide, Console Domain is committed to
         delivering free first-class coverage of current and upcoming console
         games and systems.

     .   Computer Games Magazine. Computer Games Magazine, which we acquired in
         February 2000, is one of the most widely respected consumer print
         magazines for gamers today and recently celebrated its 10-year
         anniversary with its November 2000 issue.

              .   As a leading consumer print publication for games, Computer
                  Games magazine boasts: an average paid circulation of
                  400,000+; a pass-along readership of 2.4 readers per copy; a
                  readership of close to one million active gamers per month; a
                  reputation for being the most reliable, trusted, and engaging
                  games magazine on the market today; more editorial, tips and
                  cheats than most other similar magazines; a highly-educated
                  editorial staff providing increased editorial integrity and
                  content; and, broad-based editorial coverage, appealing to the
                  widest, largest audience of gamers.
              .   One of the most popular features of Computer Games is a CD ROM
                  containing game demos, which comes bundled monthly with the
                  magazine in all newsstand editions and a portion of copies
                  mailed to subscribers.

Advertising Customers

         We have attracted mass-market consumer product companies as well as
technology-related businesses to advertise on our sites. We believe that our
core community and highly targeted and leading games network properties make us
well positioned to capture a portion of the growing number of consumer product
and service companies expected to advertise online.

         In 2000, no single advertiser accounted for more than 10% of total
revenues and approximately 54% of our advertisers were repeat customers. For the
twelve months ended December 31, 2000, approximately 417 clients advertised on
our sites running over 800 individual advertising campaigns. Some of our
advertising clients include:

<TABLE>
            <S>                  <C>                     <C>                      <C>
            Ameritrade           Fox                     Nickelodeon              Sega
            AOL                  Gateway                 Nike                     Showtime
            Bank of America      Hewlett Packard         Nintendo                 SONY
            BellSouth            Intel                   Office Depot             Sprint
            Disney               Kellogg's               Polaroid                 Sprite
            EA Sports            McDonald's              Reader's Digest          Verizon
            ESPN                 Microsoft               Rolling Stone            Xerox
</TABLE>

                                      -4-
<PAGE>

Advertising Sales and Design

         We distinguish ourselves from our competition by creating unique
advertising and sponsorship opportunities designed to build brand loyalty for
our corporate sponsors by seamlessly integrating their advertising messages into
our different sites' content, as well as delivering targeted messages to our
users' desktop. By aggregating users around common interests, we increase the
ability to target these groups of users through web based advertising
opportunities, through direct marketing initiatives that target the user off the
web using their e-mail client, and through our print magazine.

         We can deliver targeted advertising within different vertical areas of
our sites, allowing advertisers to single out and effectively deliver their
messages to their targeted audiences. We have the ability to target specific
demographic data, which include, but are not limited to, age, gender, product,
sub-vertical categorization and country. We believe that sophisticated targeting
is a critical element for capturing worldwide advertising budgets for the
Internet. Additionally, we have been expanding the amount and type of
demographic data we collect (all voluntarily provided by our users), which
allows us to offer more specific data to our advertising clients for promotion
of their products both online and offline.

         While our competition generally provides banner advertising as its
primary advertising option, we believe that our competitive advantage to
garnering significant advertising revenue lies in the flexibility of our
advertising options. In February 2001, we launched a re-design of our flagship
site, www.theglobe.com, which better leverages our audience base for advertisers
      ----------------
by offering several innovative new multi-media ad formats currently being
adopted by leading online publishers and advertisers due to their powerful
branding and direct marketing impact.

         As a result of this re-design, we now offer an assortment of
advertising units and advertising programs to satisfy our customers' needs. We
offer clients the following forms of advertising, which can be purchased
individually, in assorted combinations or in pre-defined packages:

<TABLE>
        <S>                                                        <C>
        .  Banner advertising (horizontal and vertical units)      .    Sweepstakes and contests

        .  Four sizes of button advertising                        .    Affinity packages for advertising partners

        .  Text links                                              .    Direct marketing and lead generation,  if users

        .  Pop-up advertisements                                        have opted in to these programs

        .  Full page advertisements                                .    List services for third party direct marketing

        .  Various sponsorship programs                            .    Market research for advertising campaigns

        .  Home page "Feature Box"                                 .    Unicast Superstitials

        .  Advertisements in globeClub emails                      .    Advertisements in email newsletters

                                                                   .    Advertisements in our print magazine
</TABLE>

         We have an internal advertising sales staff of approximately 24
professionals as of December 31, 2000. These professionals focus on developing
long-term strategic relationships with clients as they sell advertisements on
our websites and in our print magazine. A significant portion of our sales
personnel's compensation is commission based. We have sales offices in New York
City, Boston, Atlanta, Rochester, VT, Chicago, Minneapolis, Dallas, San
Francisco, Los Angeles, Denver, Seattle and London.

                                      -5-
<PAGE>

Marketing and Promotions

         In 2000, we committed approximately $7.9 million to offline and online
media advertising. Our marketing efforts were focused on:

        .  generating traffic to our sites, with an emphasis on attracting site
           registrations and globeclub sign-ups

        .  building and defining a desirable online destination in the minds of
           present and potential online consumers, and

        .  creating a strong and viable brand within the Internet and
           advertising industries.

In December 2000, we tested a series of direct marketing initiatives to generate
leads for our distribution efforts and advertising sales, and to drive targeted
traffic to one of our games properties. Based on the response rates in these
campaigns, we will continue these types of activities in 2001.

The overall dollars allocated to marketing and promotions in 2001, although
substantially reduced from 2000, will be focused on increasing awareness and
interest in the Internet and advertising industries in support of our
distribution/licensing and advertising sales efforts. We will also continue to
work to retain and attract highly targeted traffic to our individual websites.

Technology

         Our strategy is to operate our business through the application of
existing technologies. The various features of our online environment are
implemented using a combination of off-the-shelf and proprietary software
components. Whenever possible, we favor licensing and integrating
"best-of-breed" technology from industry leaders, including Oracle, Sun
Microsystems and Microsoft. We believe that this component approach is more
manageable, reliable and scalable than single-source solutions. In addition, our
emphasis on commercial components accelerates our development time. We believe
that this is an advantage in our rapidly evolving market.

         In addition to being scalable, our system has many redundancies, which
benefits us if our systems experience operating difficulties. Our servers are
connected to the Internet through redundant links provided through AT&T. We plan
to continue to upgrade our systems as necessary to conform to our business plan.
Our system allows us to roll out upgrades incrementally on an as-needed basis.

         To efficiently manage our systems, we have developed highly automated
methods of monitoring the performance of each system component. If any subsystem
fails, the failed subsystem is taken out of service and requests are distributed
among the remaining operational systems. We have also developed tools to perform
routine management tasks such as log processing and content updates in an
automated, remote-controlled fashion. We believe that our investment in
automation lessens the need for the additional personnel that would otherwise be
required to support the system as it grows.

         Our data processing systems and servers are hosted at the New York
Teleport in Staten Island, New York under a three-year lease with Telehouse
International Corporation. The New York Teleport facility provides security,
electricity and premises for our systems. The facility has four independent
diesel generators designed to provide power to these systems within seconds of a
power surge. If required, the diesel generators can supply the data center's
power for several days. Telehouse International Corporation does not guarantee
that our Internet access will be uninterrupted, error-free or secure.

                                      -6-
<PAGE>

Competition

         Competition among community-focused and games-focused sites is growing
rapidly, as new companies continue to enter the market and existing companies
continue to layer community and/or games applications onto their sites. We
expect that the market will continue to evolve rapidly, and the rate of product
innovations and new product introductions will remain high.

         Barriers to entry are relatively insubstantial and we face competitive
pressures from many companies, both in the United States and abroad. With the
abundance of companies operating in the games and community markets, consumers
and advertisers have a wide selection of services to choose from. In order to
remain competitive for consumers and the advertising and e-commerce revenue each
user represents, we must maintain a concerted effort to continually develop new
offerings, refine our core products and enter into successful distribution
agreements.

         We believe that in order to attract new users and retain existing ones,
we need to:

         .  Educate users and other Web properties on the benefits of community,
            specifically theglobe.com community;

         .  Maintain functional, intuitively-designed websites;

         .  Foster our brand image in the marketplace;

         .  Offer our users best-of-breed services both developed in-house and
            via third-party relationships;

         .  Maintain a broad demographic focus, with a wide content and service
            appeal to the largest possible audience; and

         .  Maintain a sizable, vibrant audience, enabling users to find other
            users with similar interests (thereby increasing each user's
            likelihood to participate in theglobe.com community).

         As an outsourced community solutions provider, we compete for business
relationships with software and service firms such as PeopleLink, Urbanite,
Homepage.com and TalkCity.

         As a leading community destination site, we compete for users and
advertisers with:

         .  Stand-alone online discussion services and web-based clubs such as
            Yahoo!, Ecircles, Deja.com and TalkCity;

         .  Stand-alone online publishing and homepage hosting sites such as
            Homestead, FortuneCity and NetTaxi; and

         .  Multi-focused media sites offering either one or both of the above
            services, such as Yahoo!, Lycos, NBCi, Microsoft's MSN, and America
            Online.

         As one of the largest games information properties on the Web, our
games network competes for users and advertisers with:

         .  Games information sites and communities such as Snowball's IGN,
            ZDnet's Gamespot, and CNET's GameCenter; and

         .  Online games centers, where users can play games such as Uproar,
            Pogo and Lycos' Gamesville.

         As a leading community for children, our KidsDomain site competes for
users and advertisers with children-focused communities and sites such as
Nick.com and Children's Television Workshop.

         As a small business web hosting service, our WebJump property competes
with:

         .  Other free business hosting services such as Go2Net's Hypermart and
            FreeYellow; and

                                      -7-
<PAGE>

         .  Fee-based business hosting services such as AT&T Small Business
            Hosting and Yahoo's SimpleNet.

         Many of our existing competitors, as well as a number of potential
competitors, may have the following advantages:

         . Longer operating histories in the Internet market;

         . Larger market presence;

         . Larger customer bases; and

         . Greater financial, technical, and marketing resources.

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

         We believe that the number of Internet businesses relying on
advertising revenue will continue to grow, as will the total amount of
advertising conducted on the Web. We believe that in order to garner the
greatest share of advertising expenditures, we must continue to:

         . Maintain brand visibility in the advertisement buying community;

         . Attract a high volume of traffic to our sites;

         . Cover a broad range of topics with our sites' information content;

         . Appeal to a wide-ranging demographic;

         . Offer advertisers the ability to precisely target our highly
           segmented audience;

         . Accurately determine the most profitable and competitive price points
           for our various advertising packages; and

         . Prove to advertisers the efficiency of advertising to our targeted
           audience.

         . Additionally, the industry must prove the viability of Internet
           advertising.

Intellectual Property and Proprietary Rights

         We regard substantial elements of our site and underlying technology as
proprietary. We attempt to protect them by relying on intellectual property
laws. We also generally enter into confidentiality agreements with our employees
and consultants and in connection with our license agreements with third
parties. We also seek to control access to and distribution of our technology,
documentation 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.

         We pursue the registration of our trademarks in the United States and
internationally. Our efforts include:

         . The registration of a United States trademark for THEGLOBE.COM and
           THEGLOBE (logo);

         . The filing of United States trademark applications for GLOBECLUBS,
           GLOBEDIRECT; and WEBJUMP;

         . The registration of THEGLOBE (logo) in the European Union, Israel,
           New Zealand and Norway; and

         . The filing of trademark applications for THEGLOBE (logo) in
           Australia, Brazil, Canada, China, Hong Kong, Japan, Russian
           Federation, Singapore, South Africa, Switzerland and Taiwan.

         Additionally, Attitude Network has filed applications to register HAPPY
PUPPY (logo) and KIDS DOMAIN (logo) in the United States, Canada, and the
European Union. Attitude Network has registered GD

                                      -8-
<PAGE>

GAMES DOMAIN (logo) in the United Kingdom and has applied to register GAMES
DOMAIN (logo) in Canada, China and the European Union.

         We have filed a number of patent applications with the United States
Patent & Trademark Office covering various aspects of the business and are
working with our patent counsel on additional patents for inclusion in our
patent portfolio. While our strategy is meant to create effective barriers to
entry for others into our markets, the scope of our patents will not be
determined until final action is taken by the United States Patent & Trademark
Office.

         Effective trademark, service mark, copyright, patent and trade secret
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. Existing or future trademarks or
service marks applied for or registered by other parties and which are similar
to ours may prevent us from expanding the use of our trademarks and service
marks into other areas. See "Risk Factors--We rely on intellectual property and
proprietary rights."

Government Regulation and Legal Uncertainties

         We are subject to laws and regulations that are applicable to various
Internet activities. There are many legislative and regulatory proposals under
consideration by federal, state, local and foreign governments and agencies,
including matters relating to:

     .   online content;

     .   Internet privacy;

     .   Internet taxation;

     .   access charges;

     .   liability for information retrieved from or transmitted over the
         Internet;

     .   unsolicited commercial email messages;

     .   domain names; and

     .   jurisdiction.

New laws and regulations 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.

         Online Content

         General Restrictions on Transmitting Indecent and Obscene Content.
Several federal and state statutes generally prohibit the transmission of
indecent or obscene information and content, including sexually explicit
information and content. The constitutionality of some of these statutes is
unclear at this time. For example, on the one hand in 1997 the Supreme Court of
the United States held that selected parts of the federal Communications Decency
Act of 1996 imposing criminal penalties for transmitting indecent and patently
offensive content were unconstitutional. On the other hand, many other
provisions of the Communications Decency Act, including those relating to
obscenity, remain in effect. For example, on April 19, 1999, the Supreme Court
summarily affirmed a lower court decision holding that selected parts of the
Communications Decency Act imposing criminal penalties for transmitting indecent
comments or images with an intent to annoy was constitutional, as long as those
comments or images were also obscene.

         Restrictions on Transmitting Indecent and Obscene Content to Minors.
Other federal and state statutes specifically prohibit transmission of certain
content to minors. The Child Online Protection Act, which became effective in
November, 1998, requires websites engaged in the business of the commercial
distribution of material that is deemed to be obscene or harmful to minors to
restrict minors' access to this material. However, the Child Online Protection
Act exempts from liability telecommunications carriers, Internet service
providers and companies involved in the transmission, storage, retrieval,
hosting, formatting or translation of third-party

                                      -9-
<PAGE>

communications where these companies do not select or alter the third-party
material. On February 1, 1999, a federal district court in Pennsylvania entered
a preliminary injunction preventing enforcement of the harmful-to-minors portion
of the act. The provisions of the act relating to obscenity, however, remain in
effect. On June 22, 2000, United States Court of Appeals for the Third Circuit
affirmed the lower court ruling. The Department of Justice has requested Supreme
Court review of the case. A similar state statute in New Mexico has been found
unconstitutional by the Tenth Circuit of Appeals.

         Consumer Fraud and Advertising. Some states have enacted laws or
adopted regulations that expressly or as a matter of judicial interpretation
apply various consumer fraud and false advertising requirements to parties who
conduct business over the Internet. The constitutionality and the enforceability
of some of these statutes is unclear at this time.

         Privacy

         Various laws and regulations have been enacted or adopted in regard to
the collection, use, and disclosure of personally identifiable information. Any
additional legislation or regulations relating to consumer privacy or the
application or interpretation of existing laws and regulations could affect the
way in which we are allowed to conduct our business, especially those aspects
that contemplate the collection or use of our members' personal information.

         Children's Online Privacy Protection Act. In October 1998, the
Children's Online Privacy Protection Act was signed into law. The law directs
the Federal Trade Commission to develop regulations governing the collection of
data from children by commercial website operators. The FTC's final regulations
became effective April 1, 2000. The regulations apply to commercial websites
directed to, or that knowingly collect information from, children under 13.

         Under the rule, these websites, with certain exceptions, have to obtain
parental consent before collecting, using, or disclosing personal information
from children. This consent, with certain exceptions, must be verifiable.
Verifiable consent means any reasonable effort, taking into consideration
available technology, to ensure that parents of children from whom information
is sought receive notice of the website operator's personal information
collection, use, and disclosure practices and that authorizes the collection,
use, and disclosure of the information. We require parental consent before
allowing people who identify themselves as being 12 or younger to become members
of theglobe.com website and to post any data in our chat rooms, forums, and
similar discussion groups.

         Federal Privacy Bills. Numerous federal bills relating to consumer
privacy have been introduced in the current Congress. We cannot predict the
exact form of any legislation that the Congress might enact. Accordingly, we
cannot assure you that our current practices will comply with any legislative
scheme that Congress ultimately adopts or that we will not have to make
significant changes to comply with such laws.

         FTC Enforcement Activity. The Federal Trade Commission Act prohibits
unfair and deceptive practices in and affecting commerce. The FTC Act authorizes
the FTC to seek injunctive and other relief for violations of the FTC Act, and
provides a basis for government enforcement of fair information practices. For
instance, failure to comply with a stated privacy policy may constitute a
deceptive practice in some circumstances and the FTC would have authority to
pursue the remedies available under the Act for any violations. Furthermore, in
some circumstances, the FTC may assert that information practices may be
inherently deceptive or unfair, regardless of whether the entity has publicly
adopted any privacy policies.

         The FTC has conducted investigations into the privacy practices of
companies that collect information on the Internet. In several instances, the
FTC has entered into consent orders with such companies in regard to their
collection and use of personally identifiable information. On February 16, 2000,
the FTC confirmed that it was investigating the advertising and data collection
practices of DoubleClick, Inc., a leading provider of Internet-based advertising
services from whom we license our advertising management system. DoubleClick
later advised the FTC that it would make a number of modifications intended to
enhance the effectiveness of its privacy policy. On January 22, 2001, the FTC
informed DoubleClick that it had closed the investigation. DoubleClick has also

                                      -10-
<PAGE>

disclosed that it is the subject of inquiries involving the attorneys general of
several states relating to its collection, maintenance and sharing of
information about Internet users and its disclosure about those practices to
users.

     We cannot assure you that the FTC's activities, or the activities of other
regulatory authorities, in this area will not adversely affect our ability to
collect demographic and personal information from members, which could have an
adverse effect on our ability to attract advertisers.  This could have a
material adverse effect on us.

     Voluntary Self-Regulation. Some industry groups and other organizations
have proposed, or are in the process of proposing, various voluntary standards
regarding the treatment of data collected over the Internet. Our website privacy
policy sets forth, among other things, what personal information is being
collected, how it will be used, with whom it may be shared, and how users can
view, delete or change certain information. We cannot assure you that the
adoption of voluntary standards will preclude any legislative or administrative
body from taking governmental action regarding Internet privacy.

     European Union Directive on Data Protection.  At the international level,
the European Union adopted a directive that requires EU member countries to
impose restrictions on the collection and use of personal data, effective
October 25, 1998.  Among other provisions, the directive generally requires
member countries to prevent the transfer of personally identifiable data to
countries that do not offer adequate privacy protections.  The Directive could,
among other things, affect United States companies that collect information over
the Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy standards in
the United States.  In response, the United States Department of Commerce, in
coordination with the European Commission, developed safe harbor principles that
address notice, choice, access, security, and compliance, among other matters.
Organizations that come within the safe harbor are presumed by the EU to
maintain an adequate level of privacy protection and may receive personal data
transfers from EU member countries.  A company that wishes to qualify under the
safe harbor must notify the Department of Commerce, which began maintaining a
list of companies that adhere to the safe harbor principles on November 1, 2000.
A decision by a company to take such action is voluntary.

     We continue to review our privacy policies and practices in light of the
directive and the safe harbor.  We cannot assure you that US and EU activities
in this area will not adversely affect our ability to collect demographic and
personal information from members, which could have an adverse effect on our
ability to attract advertisers.  This could have a material adverse effect on
us.

     Internet Taxation

     Governments at the federal, state and local level, and some foreign
governments, have made a number of proposals that would impose additional taxes
on the sale of goods and services and various other Internet activities. In
1998, the federal Internet Tax Freedom Act (ITFA) was signed into law, placing a
moratorium until October 2001, on state and local taxes on Internet access and
on multiple or discriminatory taxes on electronic commerce. However, this
moratorium exempts existing state or local laws.  The statute also created a
commission, known as the Advisory Commission on Electronic Commerce, to study
several Internet taxation issues.  The Advisory Commission submitted its report
to the Congress in April 2000.  The ITFA required a two-thirds majority before a
proposal could become a formal finding and recommendation of the Commission.
Although this consensus was not reached a simple majority agreed on the
following proposals, among others:  (1) make permanent the current moratorium on
any transaction taxes on the sale of Internet access; (2) extend for five years
the current moratorium barring multiple and discriminatory taxation of e-
commerce; and (3) prohibit, for a period of five years, taxation of sales of
digitized goods and products and their non-digitized counterparts.  In addition,
bills have been introduced in both Houses of Congress proposing that the
moratorium be either extended or made permanent.  We cannot assure you that
future laws imposing taxes or other impositions on Internet commerce would not
substantially impair the growth of Internet commerce and as a result materially
adversely affect our business.  In addition, we cannot assure you that foreign
countries will not seek to tax Internet transactions.

     Access Charges

                                      -11-
<PAGE>

     Several telecommunications carriers are supporting regulation of the
Internet by the FCC in the same manner that the FCC regulates other
telecommunications services.  These carriers have alleged that the growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, resulting in interruptions in phone service.  Incumbent local
exchange telephone carriers have in the past petitioned the FCC to regulate
Internet service providers in a manner similar to long-distance telephone
carriers and to impose interstate access charges on Internet service providers.
In May 1997, however, the FCC confirmed that Internet service providers will
continue to be exempt from interstate access charges.  In August 1998, the
United States Court of Appeals for the Eighth Circuit upheld the FCC's authority
to maintain the exemption and, after further court proceedings, it reaffirmed
that order in December 1999.

     In October 1999, the FCC adopted an order concerning payment by incumbent
local exchange carriers of reciprocal compensation for dial-up calls to Internet
service providers that obtain their local telephone service from competitive
local exchange carriers.  The FCC found that Internet traffic is largely
interstate, and therefore subject to the FCC's jurisdiction, because end user
calls to Internet service providers do not terminate at the Internet service
providers' servers, but continue to Internet locations that often are outside
the state or country in which the call originates.  Although the FCC stated that
the order does not require Internet service providers to pay access charges for
calls placed through their services, the order does provide further support for
a possible, ultimate finding that access charges must be paid for at least some
categories of Internet services, such as Internet-based voice telephony.

     If the FCC were to withdraw the exemption or take other action responding
to telecommunications carrier concerns, the costs of communicating through the
Internet could increase substantially, potentially slowing the growth in
Internet use.  This could decrease demand for our services or increase our cost
of doing business.

     Liability for Information Retrieved from or Transmitted over the Internet

     Liability issues relating to information retrieved or transmitted over the
Internet include claims for copyright or trademark infringement, defamation,
unsolicited electronic mail, negligence, or other claims based on the nature and
content of these materials.

     Copyright.  In October 1998, the Digital Millennium Copyright Act, whose
Title II contains the Internet Copyright Infringement Liability Clarification
Act, was signed into law.  This statute provides that, under some circumstances,
a service provider would not be liable for any monetary relief, and would be
subject to limited injunctive relief, for claims of infringement, based on
copyright materials transmitted by users over its digital communications network
or stored on its systems or under the control of or connected to its systems.
This statute also provides that, under some circumstances, a service provider
would not be liable for any claim if the service provider acted in good faith to
remove access to the infringing material.  With respect to infringement caused
by storing material on a system or network, in order to benefit from the
protections of the act, a service provider must appoint a designated agent to
receive notifications of claimed infringement and must provide information about
that agent to the U.S. Copyright Office and to the public in a publicly
accessible place on the service.  We have appointed a designated agent to
receive notifications of claimed infringement on theglobe.com website, have
provided that information to the Copyright Office, and made it available to the
public on the site.

     Defamation. The Communications Decency Act of 1996 provides that no
provider or user of an interactive computer service shall be treated as the
publisher or speaker of any information provided by another information content
provider.

     Revenue Sharing.  We sell products directly to consumers and we also enter
into agreements with commerce and service partners and sponsors under which we
are entitled to receive a share of the revenue from the purchase of goods and
services through direct links from our site.  These arrangements may expose us
to additional legal risks, including potential liabilities to consumers by
virtue of our involvement in providing access to these products or services,
even if we do not ourselves provide these products or services.  Some of our
agreements with these parties provide that these parties will indemnify us
against liabilities.  However, we cannot assure you that this indemnification
will be enforceable or adequate.  Although we carry general liability insurance,
our insurance

                                      -12-
<PAGE>

may not cover all potential claims or liabilities to which we are exposed. Any
imposition of liability that is not covered by insurance could have a material
adverse effect on our business.

     Third-party Content.  Materials may be downloaded and publicly distributed
over the Internet by the Internet services operated or facilitated by us.
Future legislation or regulations or court decisions may hold us liable for
listings and other content accessible through our website, for content and
materials posted by members on their respective personal web pages, for
hyperlinks from or to the personal web pages of members, for content and
materials transmitted by members in e-mail clubs, or through content and
materials posted in our chat rooms or bulletin boards.  Liability might arise
from claims alleging that, by directly or indirectly providing hyperlinks to
websites operated by third parties or by providing hosting services for members'
sites, we are liable for copyright or trademark infringement or other wrongful
actions by these third parties.  If any material on our website contains
informational errors, someone might sue us for losses incurred in reliance on
the erroneous information.  We attempt to reduce our exposure to potential
liability through, among other things, provisions in member agreements, user
policies, insurance and disclaimers.  However, the enforceability and
effectiveness of these measures are uncertain. Future legislation or regulation
in the area of liability for information received from or transmitted over the
Internet could decrease the growth of Internet use.  These factors could
decrease the demand for our services.  We may also incur significant costs in
investigating and defending against these claims.

     Unsolicited Commercial Electronic Mail

     Some states have adopted laws that restrict or prohibit unsolicited
commercial e-mail or "spamming." The federal government and other states are
considering, or have considered, similar legislation.

     A third party provides our e-mail service. Potential liability for
information disseminated through our systems could lead us to implement measures
to reduce our exposure to liability. This could require the expenditure of
substantial resources and limit the attractiveness of our services. We attempt
to reduce our exposure to potential liability through, among other things,
provisions in member agreements, user policies and disclaimers. However, the
enforceability and effectiveness of these measures are uncertain.

     Domain Names

     Domain names have been the subject of significant trademark litigation in
the United States.  The current system for registering, allocating and managing
domain names has been the subject of litigation and is currently subject to
regulatory reform.

     We have registered several domain names, including: "theglobe.com,"
"tglo.com," "happypuppy.com," "kidsdomain.com," "gamesdomain.com,"
"webjump.com," and "cdmag.com." We cannot assure you that third parties will not
bring claims for infringement against us for the use of these names. Moreover,
because domain names derive value from the individual's ability to remember the
names, we cannot assure you that our domain names will not lose their value if,
for example, users begin to rely on mechanisms other than domain names to access
online resources. We cannot assure you that our domain names will not lose their
value, or that we will not have to obtain entirely new domain names in addition
to or in place of our current domain names.

     Jurisdiction

     Due to the global reach of the Internet it is possible that the governments
of other states and foreign countries might attempt to regulate Internet
activity and our transmissions. Our facilities are located primarily in New York
and Vermont. Additionally, we own websites, which are based in the United
Kingdom and are subject to regulation under U.K. law. Consequently, foreign
countries may seek to take action against us for alleged violations of their
laws. We cannot assure you that violations of these laws will not be alleged or
charged by state or foreign governments and that these laws will not be
modified, or new laws enacted, in the future. Any actions of this type could
have a material adverse effect on our business.

                                      -13-
<PAGE>

Employees

     As of December 31, 2000, we had approximately 197 full-time employees. Our
 future success depends, in part, on our ability to continue to attract, retain
 and motivate highly qualified technical and management personnel. Competition
 for these persons is intense. From time to time, we also employ independent
 contractors to support our research and development, marketing, sales and
 support and administrative organizations. Our employees are not represented by
 any collective bargaining unit and we have never experienced a work stoppage.
 We believe that our relations with our employees are good.

                                      -14-
<PAGE>

Item 2.  Properties

      Our headquarters are located in an approximately 47,000 square foot
facility located in New York City, under a lease, which expires in January 2014.
We maintain a sales office in an approximately 4,000 square foot facility in San
Francisco, California, under a lease that expires in June 2004.  We also
maintain approximately 12,000 square feet of office space in three separate
locations in Vermont in connection with a portion of our Games Network.  Two of
these leases are month to month and one expires in September 2005  In connection
with our operation of a portion of our Games Network, we maintain 2,465 square
feet of office space in Birmingham, England, under a lease that expires in
October 2007.  Our principal web server equipment and operations are maintained
by our personnel at the New York Teleport facility in Staten Island, New York.
We rent approximately 2,800 square feet of space under a Data Center Space Lease
that expires in August 2001.

Item 3.  Legal Proceedings

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

     On February 14, 2001, the Mohammed Poonja, Chapter 11 Trustee for the
estate of Infonent.com, Inc., served an Amended Complaint on the Company and
Jump Acquisition, LLC ("Jump"). The Company had not, as of April 2, 2001,
responded to the Amended Complaint. The Amended Complaint asserts claims for
violation of the automatic stay provision, 11 U.S.C. Section 362, as a result of
the Company's exercise of its contractual right to terminate the registration
statement for Infonent.com, Inc.'s shares in the Company pursuant to a November
30, 1999 Registration Rights Agreement between the Company and Infonent.com,
Inc.; breach of contract for the Company's and Jump's alleged failure to make
certain earn-out payments to Infonent.com, Inc. in connection with a November
30, 1999 purchase agreement(the "Agreement"); breach of the implied covenant of
good faith and fair dealing in connection with the Agreement; fraud; negligence;
and breach of contract and breach of the implied covenant of good faith and fair
dealing for its alleged delay in registering newly-issued shares of the
Company's common stock in connection with the Registration Rights Agreement. The
Amended Complaint seeks $9,524,859 in damages plus interest, compensatory
damages on the automatic stay cause of action, costs and disbursements of the
action, and attorneys' fees. The Company is currently in the process of
reviewing the allegations of the Amended Complaint and plans on vigorously
defending this action. However, based on future developments and as additional
information becomes known, it is possible that the ultimate resolution of such
matters could have a material adverse effect on the Company.

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

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

      No matters were submitted to our stockholders' for a vote during the three
months ended December 31, 2000.

                                      -15-
<PAGE>

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

Our common stock is quoted on the NASDAQ National Market under the Symbol
"TGLO". The following table sets forth the range of high and low closing sales
prices of our common stock for the periods indicated as reported by the NASDAQ
stock market:

                                       2000                      2000
                                       ----                      ----
                                High          Low          High       Low
                                ----          ---          ----       ---
Fourth Quarter                  $0.84        $0.13         $16.38    $ 8.38
Third Quarter                   $2.19        $0.78         $19.31    $10.25
Second Quarter                  $5.94        $1.55         $39.47    $12.75
First Quarter                   $9.06        $6.00         $33.53    $15.75

     The market price of our Common Stock is highly volatile and fluctuates in
response to a wide variety of factors.  See "Risk Factors--Our stock price is
volatile."

     We have received a letter from NASDAQ stating that they have determined
that we have failed to meet NASDAQ's minimum listing requirements and as a
result our common stock could be delisted. We have appealed the NASDAQ
determination although there can be no assurance our appeal will be successful.

Holders of Common Stock

     We had approximately 354 holders of record of Common Stock as of March 20,
2001. This does not reflect persons or entities that hold Common Stock in
nominee or "street" name through various brokerage firms.

Dividends

     We have not paid any cash dividends on our Common Stock since our
inception. We expect to reinvest any future earnings in the Company to finance
growth, and therefore do not intend to pay dividends in the foreseeable future.
Our board of directors will determine if we pay any future dividends.

Use of Proceeds

     On November 13, 1998, we completed our initial public offering of
approximately 7.0 million shares of Common Stock at a price of $4.50 per share
(File No. 333-59751). We received net proceeds of $27.3 million, net of $2.0
million in underwriting discounts and $2.0 million in offering costs. On May 19,
1999, we completed our secondary public offering of 3.5 million shares of Common
Stock at a price of $20.00 per share (File No. 333-76153). We received net
proceeds of $65.0 million, net of $3.5 million in underwriting discounts and
$1.5 million in offering costs. The number of shares offered and the per share
offering price reflect a two-for-one stock dividend we effected on May 14, 1999.
None of the expenses incurred in our initial and secondary public offerings were
direct or indirect payments to our directors, officers, general partners or
their associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates. As of December 31, 2000, the net
proceeds received from our public offerings have been used for networking
infrastructure and the functionality of our websites and for general corporate
purposes, which include working capital, advertising costs, the leasing of new
office facilities, the expansion of our sales and marketing capabilities, our
advertising campaign and our brand name promotions. We have also used a portion
of such net proceeds for the acquisition of complementary businesses, assets,
services and technology. None of the general corporate expenses incurred were
direct or indirect

                                      -16-
<PAGE>

payments to our directors, officers, general partners or their associates, to
persons owning ten percent or more of any class of our equity securities or to
our affiliates.

Recent Sales of Unregistered Securities

     On February 24, 2000, we issued 1,903,977 shares of our common stock in
connection with the acquisition of Chips & Bits, Inc. and Strategy Plus, Inc.
Additional shares of our common stock may be issued upon the attainment of
certain performance goals. This transaction was a private placement exempt from
the registration requirements of the Securities Act of 1933, as amended,
pursuant to Rule 506 of Regulation D, promulgated thereunder.

     In February 2000, we issued 699,281 shares of our common stock in
connection with a strategic alliance with Sportline.com, Inc. In November 2000,
we bought back these shares which are included in treasury stock.

     On November 30, 1999, we issued 1,104,972 shares of our common stock in
connection with the acquisition of the web hosting assets of Webjump.com. This
transaction was a private placement exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D,
promulgated thereunder. See Item 3 - Legal Proceedings.

                                      -17-
<PAGE>

Item 6.  Selected Consolidated Financial Data

     The selected consolidated financial data with respect to our consolidated
balance sheets as of December 31, 2000 and 1999 and the related consolidated
statements of operations for the years ended December 31, 2000, 1999, and 1998
have been derived from our audited consolidated financial statements which are
included herein and have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered recurring losses from operations since
inception that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The selected financial data
with respect to our balance sheets as of December 31, 1998, 1997, and 1996 the
related statements of operations for the year ended December 31, 1997 and 1996
have been derived from our audited financial statements which are not included
herein. The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto and
the information contained in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                            ------------------------------------------------------
                                               2000        1999        1998        1997     1996
                                            ---------    --------    --------    -------  --------
                                                    (in thousands, except per share data)
<S>                                         <C>          <C>         <C>        <C>         <C>
Consolidated Statements of
  Operations Data:
Revenues..................................  $  29,862    $ 18,641    $  5,510    $   770    $  229
Cost of revenues..........................     19,080       8,548       2,136        257       116
                                            ---------    --------    --------    -------    ------
Gross profit..............................     10,782      10,093       3,374        513       113
Operating expenses (3):
   Sales and marketing....................     23,917      19,352       9,402      1,415       276
   Product development....................     10,242      10,488       2,633        154       120
   General and administrative.............     13,173      12,165       6,828      2,828       489
   Restructuring and impairment charges        41,348          --          --         --        --
   Non-recurring charges..................         --          --       1,370         --        --
   Amortization of goodwill and
      intangible assets...................     27,236      20,460          --         --        --
                                            ---------    --------    --------    -------    ------
Total operating expenses..................    115,916      62,465      20,233      4,397       885
                                            ---------    --------    --------    -------    ------
Loss from operations......................   (105,134)    (52,372)    (16,859)    (3,884)     (772)
Other income, net.........................      1,536       1,705         892        335        22
                                            ---------    --------    --------    -------    ------
Loss before provision for income taxes
   and extraordinary item.................   (103,598)    (50,667)    (15,967)    (3,549)     (750)
Provision for income taxes................        268         290          79         36        --
                                            ---------    --------    --------    -------    ------
Loss before extraordinary item............   (103,866)    (50,957)    (16,046)    (3,585)     (750)
Extraordinary item-gain on early
    retirement of debt....................         --       1,356          --         --        --
                                            ---------    --------    --------    -------    ------
Net loss..................................  $(103,866)   $(49,601)   $(16,046)   $(3,585)   $ (750)
                                            =========    ========    ========    =======    ======

Basic and diluted net loss per
  share (1) (2):
  Loss before extraordinary item..........  $   (3.43)   $  (2.06)   $  (3.37)   $ (1.56)   $(0.33)
  Extraordinary item-gain on early
    retirement of debt....................  $      --    $   0.06    $     --    $    --    $   --
                                            ---------    --------    --------    -------    ------
  Net loss................................  $   (3.43)   $  (2.00)   $  (3.37)   $ (1.56)   $(0.33)
                                            =========    ========    ========    =======    ======
Weighted average shares outstanding
 used in basic and diluted per share
 calculation (1) (2)......................     30,286      24,777       4,762      2,294     2,250
                                            =========    ========    ========    =======    ======
 </TABLE>

_______________________


(1)  Weighted average shares outstanding does not include any common stock
     equivalents because the inclusion of those common stock equivalents would
     have been anti-dilutive. See the consolidated financial statements and the
     related notes appearing elsewhere in this Form 10-K for the determination
     of shares used in computing basic and diluted net loss per share.
(2)  Weighted average shares outstanding and the basic and diluted net loss per
     common share reflect the two-for-one stock split effected by the Company on
     May 14, 1999. All prior periods have been adjusted to reflect the stock
     split.
(3)  Certain reclassifications have been made to prior year's selected
     consolidated financial data to conform to the current year's presentation.

                                      -18-
<PAGE>

<TABLE>
<CAPTION>
                                                                December 31,
                                             ----------------------------------------------
                                               2000       1999      1998      1997    1996
                                             --------   -------   -------   -------  ------
                                                              (in thousands)
<S>                                         <C>        <C>        <C>       <C>     <C>
Consolidated Balance Sheets Data:
Cash and cash equivalents and short-
   term investments.......................   $16,346   $ 55,875   $30,149   $18,874  $ 757
Working capital...........................    13,568     52,965    27,009    17,117    648
Total assets..............................    54,531    138,843    38,130    19,462    973
Capital lease obligations, excluding
   current installments...................       382      2,201     2,006        99     --
Total stockholders' equity................   $43,946   $126,909   $30,301   $17,352  $ 795
</TABLE>

                                      -19-
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

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

OVERVIEW

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

     Our revenues consist of the sale of advertisements on our online
properties, which includes the development and sale of sponsorship placements
within our web sites. We earn revenue on sponsorship contracts for fees relating
to the design, coordination, and integration of the customer's content and
links. Additionally, we derive advertising revenue through the sale of
advertisements in our games information magazine which we acquired in February
2000. In addition to advertising revenues, we derive other revenues through the
sale of video games and related products through our online store, the sale of
our games information magazine through newsstands and subscriptions and
electronic commerce revenue shares (resresenting our share of the proceeds from
our e-commerce partners' sales).

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

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

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

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

                                      -20-
<PAGE>

     In December 1999, we acquired the web hosting assets of Webjump.com, a web
hosting property that primarily focuses on small businesses. The total purchase
price for this transaction was $13.0 million and was primarily comprised of 1.1
million shares of newly issued Common Stock. An additional $12.5 million,
payable in newly issued shares of Common Stock, was contingent based upon the
attainment of certain performance targets measured as of November 30, 2000.
Management determined that such targets were not achieved as of the measurement
date, however, on February 14, 2001 the former shareholder group filed a law
suit against us claiming that they are entitled to $9.5 million related to the
above mentioned targets. See Part I - Item 5 - Legal and Note 13 (d) to our
consolidated financial statements for additional information.

     In February 2000, we acquired Chips & Bits, Inc. and Strategy Plus, Inc.,
providers of online and offline entertainment content focused towards game
enthusiasts.  The total purchase price for this transaction was approximately
$15.3 million and was comprised, in part, of 1.9 million newly issued shares of
Common Stock.  An additional $1.25 million, payable in newly issued shares of
Common Stock, is contingent on the attainment of certain performance targets by
Chips & Bits, Inc. and Strategy Plus, Inc. The contingent consideration, if any,
will be recorded by us when the contingency is resolved and the consideration is
or becomes issuable.  Any additional cost would be allocated to goodwill, and
amortized over the remaining life of the goodwill.

RESULTS OF OPERATIONS

Year ended December 31, 2000 compared to year ended December 31, 1999


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

  Revenues increased to $29.9 million for the year ended December 31, 2000 as
compared with $18.6 million for the year ended December 30, 1999. Advertising
revenues for the year ended December 31, 2000 were $19.5 million, which
represented 65% of total revenues. Advertising revenues for the year ended
December 31, 1999 were $16.4 million, which represented 88% of total revenues.
The growth in advertising revenues was attributable to the revenues from our
games magazine which was acquired in February 2000. Revenue from our games
magazine accounted for $4.5 million of the total advertising revenues for the
year ended December 31, 2000 and which is expected to continue into 2001. The
increase in advertising revenues attributable to our games magazine was
partially offset by a decline in online advertising revenues due to an industry-
wide decline in online advertising spending primarily in the second half of
2000. Sales of merchandise through our online store accounted for 24% of total
revenues for the year ended December 31, 2000, or $7.2 million as compared with
12% for the year ended December 31, 1999, or $2.2 million. The increase in
electronic commerce revenue of $5.0 million was attributable to increased online
sales from our acquisition of Chips & Bits, Inc. in February 1999. In order to
realign our e-commerce operations to focus on video games and related products,
the Company elected in April 2000 to shut down its electronic commerce
operations in Seattle, Washington which we acquired in February 2000 (see Notes
3 and 4 to the consolidated financial statements). Other revenues of $3.2
million were comprised of newsstand sales and subscriptions of our games
information magazine which we acquired in February 1999. Barter advertising
revenues represented 4% of total revenues for the year ended December 31, 2000
and 5% of total revenues for the year ended December 31, 1999.

                                      -21-
<PAGE>

  Cost of Revenues.  Cost of revenues consists primarily of Internet connection
charges, staff and related costs of operations personnel, depreciation and
maintenance costs of web site equipment, printing costs of our games magazine
and the costs of merchandise sold and shipping fees in connection with our
online store.  Gross margins were 36% and 54% for the years ended December 31,
2000 and 1999, respectively. The period-to-period decrease in the gross margins
was primarily attributable to a higher mix of electronic commerce sales and
print advertising sales in our games information magazine, both of which
traditionally result in lower gross margins than online advertising revenues.
The absolute dollar increase in cost of revenues was mainly due to printing
costs related to our games magazine, which was acquired in February 2000, and
additional costs of merchandise attributable to increased sales through our
online store. Additional absolute dollar increases were due to an increase in
Internet connection costs to support the increase in web site traffic, an
increase in depreciation expense related to increased equipment costs and
personnel costs required to support the expansion of our sites and services.

  Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related expenses of sales and marketing personnel, commissions,
advertising and marketing costs, public relations expenses, promotional
activities and barter advertising expense. Sales and marketing expense was $23.9
million for the year ended December 31, 2000 as compared with $19.4 million for
the year ended December 31, 1999. The period-to-period increase in sales and
marketing expense was mainly attributable to promotional expenses incurred in
order to promote our games magazine and support our online store.

  Product Development.  Product development expenses include salaries and
related personnel costs, expenses incurred in connection with the development
of, testing of and upgrades to our web sites and community management tools and
editorial and content costs. Product development expenses were $10.2 million for
the year ended December 31, 2000 as compared to $10.5 million for the year ended
December 31, 1999. Product development expenses have decreased slightly from
prior year mainly as a result of our effort to consolidate duties and reduce
headcount.

  General and Administrative Expenses.  General and administrative expenses
consist primarily of salaries and related personnel costs for general corporate
functions including finance, human resources, legal and facilities, outside
legal and professional fees, directors and officers insurance, bad debt expenses
and general corporate overhead costs. General and administrative expenses were
$13.2 million for the year ended December 31, 2000 as compared to $12.2 million
for the year ended December 31, 1999.  The period-to-period increase was
primarily attributable to increased costs associated with the operation of our
games magazine and our games online store, which we acquired in February 2000,
and higher than anticipated bad-debt expenses.

  Restructuring and Impairment Charges. For the year ended December 31, 2000, we
recorded restructuring and impairment charges of $41.2 million.

    In the second quarter of 2000, we recorded a $15.6 million restructuring
charge as a result of a strategic decision made by management to shut down our
electronic commerce operations in Seattle, Washington in order to realign our
electronic commerce operations to focus on the direct sale of video games and
related products as well as revenue share relationships with third parties who
are interested in reaching our targeted audiences. The $15.6 million charge
incurred primarily related to a $12.8 million write-off of the remaining
goodwill and intangibles associated with our 1999 acquisition of
Factorymall.com, costs associated with the closing of the Seattle operations of
$0.5 million, write-offs related to the disposal of inventory, equipment and
other assets of $1.7 million as well as $0.6 million of employee severance and
related benefits incurred primarily related to the termination of 30 employees.

    In the fourth quarter of 2000, we incurred an additional $25.7 million in
restructuring and impairment charges as follows:

 .  We recorded a restructuring charge of $1.8 million, including $398,000 of
   non-cash compensation, as a result of strategic decisions made by management
   to increase operational efficiencies, improve margins and further reduce
   expenses. The restructuring charge primarily related to a workplace
   reduction of 26 employees.

 .  In addition, we recorded an impairment charge of $4.3 million in connection
   with our termination of a distribution agreement with Sportsline in November
   2000.

 .  As discussed below, we also recorded impairment charges of $19.6 million as a
   result of management's ongoing business review and impairment analysis
   performed under its existing policy regarding impairment of long-lived
   assets.

    The Company's management performs on-going business reviews and, based on
quantitative and qualitative measures, assesses the need to record impairment
losses on long-lived assets used in operations when impairment indicators are
present. Where impairment indicators were identified, management determined the
amount of the impairment charge by comparing the carrying values of goodwill and
other long-lived assets to their fair values. These evaluations of impairment
are based on achievement of business plan objectives and milestones of each web
based property, the fair value of each ownership interest relative to its
carrying value, the financial condition and prospects of the web based property,
and other relevant factors. The business plan objectives and milestones that are
considered include, among others, those related to financial performance, such
as achievement of planned financial results and completion of capital raising
activities, if any, and those are not primarily financial in nature, such as the
launching or enchancements of a web site, the hiring of key employees, the
number of people who have registered to be part of the associated properties'
web community, and the number of visitors to the associated properties' web site
per month. Management determines fair value based on a market approach, which
includes analysis of market price multiples of companies engaged in lines of
business similar to the company. The market price multiples are selected and
applied to the company based on the relative performance, future prospects and
risk profile of the company in comparison to the guideline companies. As a
result, during management's quarterly review of the value and periods of
amortization of both goodwill and other long-lived assets, it was determined
that the carrying value of goodwill and certain other intangible assets were not
fully recoverable.

    In 1999, we completed acquisitions of Attitude Network, Ltd and the web
hosting assets of Webjump.com that were financed principally with shares of our
common stock, and were valued based on the price of our common stock at that
time. Our revaluation was triggered by the continued decline in Internet
advertising throughout 200, which significantly impacted current projected
advertising revenue generated from these web based properties. In addition, each
of these web based properties have experienced declines in operating and
financial metrics over the past several quarters, primarily due to the continued
weak overall demand of on-line advertising and marketing services, in comparison
to the metrics forecasted at the time of their respective acquisitions. The
impairment analysis considered that these web based properties were acquired
during 1999 and that the intangible assets recorded at the time of acquisition
was being amortized over useful lives of 2 - 3 years (3 years for goodwill). As
a result, it was determined that the fair value of Attitude's and Webjump's
goodwill and other intangible assets were less than the recorded
amount,therefore, an impairment charge of $13.6 million and $6.0
million,respectively,were recorded. The methodology used to test for and measure
the amount of the impairment charge was based on the same methodology we used
during our initial acquisition valuation of Attitude and Webjump in 1999. The
impairment factors evaluated by management may change in subsequent periods,
given that our business operates in a highly volatile business environment. This
could result in material impairment charge in the future.

  Amortization of Goodwill and Intangible Assets.  Amortization expense was
$27.2 million for the year ended December 31, 2000 as compared with $20.5
million for the year ended December 31, 1999.  The period-to-period

                                      -22-
<PAGE>

increase in amortization expense was primarily attributable to the acquisitions
of Chips & Bits, Inc. and Strategy Plus, Inc. in February 2000 and the purchase
of the web hosting assets of Webjump.com in December 1999. The Company recorded
goodwill and intangible assets of $28.7 million in connection with these
transactions. The total gross amount of goodwill and purchased intangibles,
after eliminating impairment charges discussed above, as of December 31, 2000
was $56.5 million and is being amortized over the expected periods of benefit
ranging from two to three years (three years for goodwill).

  Interest and other income, net.  Interest and other income, net primarily
includes interest income from our cash and cash equivalents and short-term
investments, interest expense related to our capital lease obligations and
realized gains and losses from the sale of short-term investments. The decrease
in interest and other income, net for the year ended December 31, 2000 compared
to December 31, 1999 was primarily attributable to a decrease in interest income
earned as a result of a lower cash and cash equivalent and short-term investment
balance.

  Income Taxes. Income taxes were approximately $268,000 for the year ended
December 31, 2000 as compared with $290,000 for the year ended December 31,
1999. Income taxes were based solely on state and local taxes on business and
investment capital. Our effective tax rate differs from the statutory federal
income tax rate, primarily as a result of the uncertainty regarding our ability
to utilize our net operating loss carryforwards. Due to the uncertainty
surrounding the timing or realization of the benefits of our net operating loss
carryforwards in future tax returns, we have placed a 100% valuation allowance
against our otherwise recognizable deferred tax assets. At December 31, 2000,
the Company had net operating loss carryforwards available for U.S. and foreign
tax purposes of $105.2 million and $2.8 million, respectively. These
carryforwards expire through 2020. The Tax Reform Act of 1986 imposes
substantial restrictions on the utilization of net operating losses and tax
credits in the event of an "ownership change" of a corporation. Due to the
change in our ownership interests in the third quarter of 1997 and May 1999, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), future
utilization of our net operating loss carryforwards prior to the change of
ownership will be subject to certain limitations or annual restrictions.

Year ended December 31, 1999 compared to year ended December 31, 1998


     Revenues. Advertising revenues constituted 88% and 100% of total revenues
for the years ended December 31, 1999 and 1998, respectively. Revenues increased
to $18.6 million for the year ended December 31, 1999 as compared with $5.5
million for the year ended December 31, 1998. Advertising revenues for the year
ended December 31, 1999 were $16.4 million, which represented 88% of total
revenues.  Advertising revenues for the year ended December 31, 1998 were $5.5
million, which represented 100% of total revenues.  The growth in advertising
revenues was primarily attributable to an increase in the number of advertisers
as well as the average commitment per advertiser and an increase in our traffic
on our websites. We anticipate that advertising revenues will continue to
account for a substantial share of our total revenues for the foreseeable
future. We experienced an increase in other revenue due primarily to increased
sales through our online store.  Other revenues were also derived from the
electronic commerce revenue shares and membership service fees.  Barter revenues
represented 5% of total revenues for the year ended December 31, 1999 and 2% of
total revenues for the year ended December 31, 1998.

     Cost of Revenues. Gross margins were 54% and 61% for the years ended
December 31, 1999 and 1998, respectively.  The decrease in the gross margins for
the year-to-year period was primarily attributable to a higher concentration of
electronic commerce sales which traditionally results in lower gross margins
than advertising revenues. The absolute dollar increase in cost of revenues was
due to an increase in Internet connection costs to support the increase in
website traffic, as well as an increase in depreciation expense related to
increased equipment costs, costs of merchandise and personnel costs required to
support the expansion of our sites and services.  We expect cost of revenues to
continue to increase in absolute dollars as additional connectivity and staffing
costs will be required to support our future growth and we continue to increase
sales through our online store.

                                      -23-
<PAGE>

     Sales and Marketing. Sales and marketing expense was $19.4 million for the
year ended December 31, 1999 as compared with $9.4 million for the year ended
December 31, 1998.  The period to period increase in sales and marketing expense
was attributable to increased salary and related personnel costs to support our
revenue growth, increased advertising costs, which included costs associated
with our television advertising campaign and promotional expenses required to
implement our branding and marketing strategy.  We expects sales and marketing
costs to increase in absolute dollars due to increased staffing costs necessary
to support our growth.

     Product Development. Product development expenses increased to $10.5
million for the year ended December 31, 1999 as compared to $2.6 million for the
year ended December 31, 1998.  The period to period increase was primarily
attributable to increased staffing levels required to support our websites and
to enhance their content and features. Additionally, we incurred development
expenses related to two new products, globeClubs and uPublish!, which were
launched in the fourth quarter of 1999.  Development costs related to these
products were not significant.  Product development expenses also increased as a
result of added features in connection with the launch of certain site re-
designs and upgrades that occurred at various intervals throughout 1999.

     General and Administrative Expenses. General and administrative expenses
were $12.2 million for the year ended December 31, 1999 as compared with $6.8
million for the year ended December 31, 1998.  The increase was primarily
attributed to increased salaries and personnel costs associated with building of
our basic infrastructure, increased legal and other professional fees and travel
expenses.  These increases were, in part, attributable to our acquisitions in
1999. The increased salaries also reflect the highly competitive nature of
hiring in the new media industry. General and administrative costs also
increased due to additional provisions for bad debts and sales tax expenses,
along with increased public company expenses such as directors' and officers'
liability insurance and investor relations programs.

     Non-recurring charges.  We recorded a non-recurring, non-cash charge of
approximately $1.4 million in the third quarter of 1998.  This charge was in
connection with the transfer of outstanding warrants to acquire 450,000 shares
of common stock by Dancing Bear Investments, which was our principal shareholder
at the time of the transfer, to some of our officers.  There was no similar
charge in 1999.

     Amortization of Goodwill and Intangible Assets.  Amortization expense was
$20.5 million for the year ended December 31, 1999 and related to the
acquisitions of shop.theglobe.com in February 1999, Attitude Network, Ltd. in
April 1999 and the web hosting assets of Webjump.com in December 1999. There was
no similar charge for the year ended December 31, 1998.

     Other income (expense).  Other income (expense) includes interest income
from our cash, cash equivalents and short-term investments, interest expenses
related to our capital lease obligations, amortization of debt discounts and
realized gains and losses from the sale of short-term investments. Interest
income was $2.5 million for the year ended December 31, 1999 as compared with
$1.1 million for the year ended December 31, 1998.  The period to period
increase in interest income was attributable to increased cash, cash equivalents
and short-term investments resulting from the net proceeds of our initial and
secondary public offerings of Common Stock.  Interest expense was $0.8 million
for the year ended December 31, 1999, as compared with $0.2 million for the year
ended December 31, 1998.  The increase was attributable to increased interest
expenses related to the assumption of additional capital lease obligations and
the amortization of the debt discount related to long-term debt assumed in
connection with the acquisition of Attitude Network, Ltd.  The long-term debt
was fully re-paid in October 1999.

     Income Taxes.  Income taxes were $0.3 million for the year ended December
31, 1999 as compared with $0.1 million for the year ended December 31, 1998.
Income taxes were based solely on state and local taxes on business and
investment capital.  The period to period increase is a result of our initial
and secondary public offerings which, in turn, increased our investment capital.

     Extraordinary Item-Gain on Early Retirement of Debt.  During 1999, we
recorded an extraordinary gain of $1.4 million as a result of the early
retirement of long-term debt.  In connection with the acquisition of Attitude

                                      -24-
<PAGE>

Network, Ltd., we assumed a non-interest bearing obligation ("happypuppy note")
to the former owner of the happypuppy.com website ("happypuppy").  In October
1999, in connection with the settlement of certain litigation between the former
owners of happypuppy and us, we made a lump sum payment of approximately $1.4
million to the former owners of happypuppy, which represented full payment of
the happypuppy note.  The net present value of the happypuppy note at the time
of payment was $2.8 million.  The extraordinary gain represented the difference
between the lump sum payment and the net present value of the happypuppy note at
the time the payment was tendered.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2000, we had approximately $13.3 million in cash and
cash equivalents and approximately $3.0 million in short-term investments.  Net
cash used in operating activities was approximately $34.7 million, $30.1 million
and $13.5 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increase in net operating cash used for the year ended
December 31, 2000 resulted primarily from an increase in operating losses for
the period, exclusive of non-cash expenses.  Additionally, the increase in net
operating cash was attributable to increases in prepaids and other current
assets and decreases in accounts payable and accrued expenses.  These items were
partially offset by a decrease in accounts receivable and an increase in
deferred revenue.  The increase in net operating cash used for the year ended
December 31, 1999 was primarily due to an increase in operating losses for the
period, exclusive of non-cash expenses.  Additionally, the increase in net
operating cash used was attributable to increases in accounts receivable and
prepaid and other current assets and decreases in accounts payable and deferred
revenues.  These items were partially offset by an increase in accrued
compensation and accrued expenses.

     Net cash provided by (used in) investing activities was approximately $13.3
million, ($25.4) million and $9.6 million for the years ended December 31, 2000,
1999 and 1998, respectively.  The increase in cash provided by investing
activities for the year ended December 31, 2000 was due to an increase in
proceeds from sale of short-term investments.  This increase was partially
offset by purchases of short-term securities and purchases of property and
equipment.  The decrease in cash provided by investing activities for the year
ended December 31, 1999 was due to an increase in purchases of securities and
purchases of property and equipment.

     Net cash (used in) provided by financing activities was approximately
($2.0) million, $62.8 million and $27.2 million for the years ended December 31,
2000, 1999 and 1998, respectively.  Net cash used in financing activities during
2000 was comprised of payments under capital lease obligations and payments
associated with the purchase of treasury stock, which was partially offset by
proceeds from exercise of common stock options.  The cash provided by financing
activities in 1999 was mainly attributable to net proceeds received from our
secondary public offering of Common Stock and proceeds received from the
exercise of stock options and warrants.  These items were partially offset by
payments of capital lease obligations and payments of long-term debt, which was
assumed in connection with our acquisition of Attitude Network, Ltd.

     As of December 31, 2000, we had obligations amounting to $2.3 million in
connection with equipment purchased under capital leases.  These obligations are
payable at various intervals between 2001 and 2003.  We expect to meet our
current capital lease obligations with our cash, cash equivalents, short-term
investments, and security deposits.

     As of December 31, 2000, the amount remaining in the Factorymall.com
restructuring accrual is $0.5 million, primarily related to severance and lease
obligations, which will be paid out periodically through August 2002 and the
amount remaining in the fourth quarter of 2000 restructuring accrual of $1.0
million for severace obligations.

  Our capital requirements depend on numerous factors, including market
acceptance of our services, the capital required to maintain our websites, the
resources we devote to marketing and selling our services and our brand
promotions and other factors.  We have experienced a substantial increase in our
capital expenditures and lease arrangements since our inception consistent with
the growth in our operations and staffing. We have received a report from our
independent accountants containing an explanatory paragraph stating that our
recurring losses from operations since inception raises substantial doubt about
our ability to continue as a going concern.  Moreover, management's plans to
continue as a

                                      -25-
<PAGE>

going concern rely heavily on raising additional financing, increasing
advertising revenues from our online and offline properties, as well as,
reducing our operating expenses. In addition, management is currently exploring
a number of strategic alternatives and is also continuing to identify and
implement internal actions to improve the Company's liquidity. These
alternatives may include selling assets or internet properties which could
result in significant changes in our business plan.

     As of December 31, 2000, our sole source of liquidity consisted of $16.3
million of cash and cash equivalents and short-term investments. We currently do
not have access to any other sources of funding, including debt and equity
financing facilities. As of December 31, 2000, our principal commitments
consisted of our operating obligations, amounts outstanding under operating and
capital leases as well as long-term debt. We believe that our current cash may
not be sufficient to meet our anticipated operating cash needs for the next 12
months commencing January 1, 2001. The Company has limited operating capital and
no current access to credit facilities. The Company's continued operations
therefore will depend on its ability to raise additional funds through bank
borrowings or equity or debt financing.

     The capital markets have been unpredictable in the past, especially for
early stage companies such as ours. In addition, it is difficult to raise
capital in the current market conditions. The amount of capital that a company
like ours is able to raise often depends on variables that are beyond our
control, such as share price of our stock and its trading volume. As a result,
there is no guarantee that our efforts to secure financing will be available on
terms attractive to us, when needed or at all. Due to our operating losses, it
will be difficult to obtain debt financing. If the Company is able to consummate
a financing arrangement, there is no guarantee that the amount raised will be
sufficient to meet our future needs. If adequate funds are not available or are
not available on acceptable terms, our business, results of operations,
financial condition and continued viability will materially adversely effected.
As a result, we may need to further reduce our staff and operations.

     If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced.
Stockholders may experience extreme dilution due to our current stock price and
the significant amount of financing we need to raise and these securities may
have rights senior to those of holders of our Common Stock. We do not have any
contractual restrictions on our ability to incur debt. Any indebtedness could
contain covenants, which restrict our operations. See "Risk Factors" - We may
need to raise additional funds, including the issuance of debt".


MARKET FOR COMPANY'S COMMON EQUITY

     The shares of our Common Stock are currently listed on the Nasdaq national
market.  Due to the decline in the share price of our Common Stock and our
continued operating losses, we received a letter from the Nasdaq stating that
they have determined that we have failed to meet Nasdaq's minimum listing
requirements and as a result, our Common Stock could be delisted.  We have
appealed the Nasdaq determination, although there can be no assurance that our
appeal will be successful.

   Our failure to meet NASDAQ's maintenance criteria may result in the
discontinuance of the inclusion of our securities in NASDAQ.  In such event,
trading, if any, in the securities may then continue to be conducted in the non-
NASDAQ over-the-counter market in what are commonly referred to as the
electronic bulletin board and the "pink sheets".  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.  In addition, we would be subject to a Rule
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such Rule, imposes various practice requirements on
broker-dealers who sell securities governed by the Rule to persons other than
established customers and accredited investors.  For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transactions prior to sale.  Consequently, the Rule may have a materially
adverse effect on the ability of broker-dealers to sell the securities, which
may materially affect the ability of shareholders to sell the securities in the
secondary market.

   Delisting could make trading our shares more difficult for investors,
potentially leading to further declines in share price.  It would also make it
more difficult for us to raise additional capital.  We would also incur
additional costs under state blue-sky laws to sell equity if we are delisted.

EFFECTS OF INFLATION

     Due to relatively low levels of inflation in 2000, 1999, 1998, 1997 and
1996 inflation has not had a significant effect on our results of operations
since inception.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued and, as amended by SFAS 137, will be adopted by us on January 1, 2001.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The adoption of this statement will not impact our
historical consolidated financial statements as we currently do not use
derivative instruments.

     FASB Interpretation No 44, Accounting for Certain Transactions Involving
Stock Compensation" ("FIN NO. 44") provides guidance for applying APB Opinion No
25.  "Accounting for Stock Issued to Employees.  With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000.  The Company applied FIN No. 44 to account for its
cancellation and reissuance of options and there has been no impact on its
results of operations for the year ended December 31, 2000.  The Company cannot
estimate the impact of FIN No. 44 on its future results of operations as the
charge is dependent on the future market price of the Company's common stock,
which cannot be predicted with any degree of certainty.  However, depending upon
movements in the market value, this accounting treatment may result in
significant non-cash compensation charges in the future.

                                      -26-
<PAGE>

     In March 2000, the EITF reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs," which provided guidance on when to capitalize
versus expense costs incurred to develop a web site.  The consensus is effective
for web site development costs in quarters beginning after June 30, 2000.  We
have applied the guidance as described by Issue 00-2 for the year ended December
31, 2000, and noted that there was no material impact on our results of
operations.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
'Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements.  The Company was be
required to adopt the accounting provisions of SAB No. 101, in the fourth
quarter of 2000.  Our revenue recognition policies are consistent with SAB 101;
accordingly, its implementation did not have a significant effect on our results
of operations.

                                      -27-
<PAGE>

                                 RISK FACTORS

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

  WE WILL NEED TO RAISE ADDITIONAL FUNDS IN ORDER TO CONTINUE OPERATIONS.

  Since our inception, we have incurred significant operating losses and we
believe we will continue to incur operating losses for the foreseeable future.
We also expect to incur negative cash flows for the foreseeable future as a
result of our operating losses and our need to fund future capital expenditures.
We have received a report from our independent accountants containing an
explanatory paragraph stating that we suffered recurring losses from operations
since inception that raises substantial doubt about our ability to continue as a
going concern. Moreover, management's plans to continue as a going concern rely
heavily on raising additional financing, increasing advertising revenues from
our online and offline properties, as well as, reducing our operating expenses.
In addition, management is currently exploring a number of strategic
alternatives and is also continuing to identify and implement internal actions
to improve the Company's liquidity. These alternatives may include selling
assets or internet properties which could result in significant changes in our
business plan.

  The capital markets have been unpredictable in the past, especially for early
stage companies such as ours.  In addition, it is difficult to raise capital in
the current market conditions.  The amount of capital that a company like ours
is able to raise often depends on variables that are beyond our control, such as
share price of our stock and its trading volume.  As a result, there is no
guarantee that our efforts to secure financing will be available on terms
attractive to us, or at all.  Due to our operating losses, it will be difficult
to obtain debt financing.  If the Company is able to consummate a financing
arrangement, there is no guarantee that the amount raised will be sufficient to
meet our future needs.  If adequate funds are not available or are not available
on acceptable terms, our business, results of operation, financial condition and
continued viability will be materially adversely effected.  As a result, we may
need to further reduce our staff and operations.  See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

  If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced.
Stockholders may experience extreme dilution due to our current stock price and
the significant amount of financing we need to raise and these securities may
have rights senior to those of holders of our Common Stock.  We do not have any
contractual restrictions on our ability to incur debt.  Any indebtedness could
contain covenants which restrict our operations.

  THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN THE DELISTING OF OUR COMMON
STOCK.

  The shares of our Common Stock are currently listed on the Nasdaq national
market.  Due to the recent decline in the share price of our Common Stock and
our continued operating losses, we received a letter from NASDAQ stating that
they have determined that we have failed to meet Nasdaq's minimum listing
requirements and as a result, our Common Stock could be delisted.  We have
appealed the NASDAQ determination although there can be no assurance that our
appeal will be successful.  Nasdaq listing requirements include a series of
financial tests relating to net tangible assets, public float, number of market
makers and shareholders, and maintaining a minimum bid price for the Company's
share price of $1.00.  Our share price has traded at levels below $1.00 for
significantly more than 30 days and there is no guarantee that it will return to
a minimum bid price of $1.00 or higher.

  Our failure to meet NASDAQ's maintenance criteria may result in the
discontinuance of the inclusion of our securities in NASDAQ.  In such event,
trading, if any, in the securities may then continue to be conducted in the non-
NASDAQ over-the-counter market in what are commonly referred to as the
electronic bulletin board and the "pink sheets".  As a result, an investor may
find it more difficult to dispose of or obtain accurate quotations as to

                                      -28-
<PAGE>

the market value of the securities. In addition, we would be subject to a Rule
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such Rule, imposes various practice requirements on
broker-dealers who sell securities governed by the Rule to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transactions
prior to sale. Consequently, the Rule may have a materially adverse effect on
the ability of broker-dealers to sell the securities, which may materially
affect the ability of shareholders to sell the securities in the secondary
market.

  Delisting could make trading our shares more difficult for investors,
potentially leading to further declines in share price.  It would also make it
more difficult for us to raise additional capital.  We would also incur
additional costs under state blue sky laws to sell equity if we are delisted.

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

  Although we achieved significant total revenue growth during 1999 and 2000,
our online advertising revenue decreased in 2000 due to the softness in the
advertising market which is expected to continue. Commencing in the third
quarter 2000, our online advertising revenues decresed by $2.5 million compared
to second quarter 2000, and decreased an additional $0.2 million in the fourth
quarter of 2000. Our limited operating history makes prediction of future
revenue growth difficult. Additionally, in April 2000, we elected to shut down
our e-commerce operations in Seattle, Washington in an effort to realign our
electronic commerce operations to focus on video games and related products.
This negatively impacted our projected revenue growth from e-commerce. Accurate
predictions of future revenue growth are also difficult because of the rapid
changes in our markets and the possible need by us to sell assets to fund
operations. Accordingly, investors should not rely on past revenue growth rates
as a prediction of future revenue growth.

  WE EXPECT TO CONTINUE TO INCUR LOSSES.

  We have incurred net losses in each quarter since our inception and we expect
that we will continue to incur net losses for the foreseeable future. We had net
losses of approximately $103.9 million, $49.6 million, $16.0 million, $3.6
million and $0.8 million for the years ended December 31, 2000, 1999, 1998, 1997
and 1996, respectively.  As of December 31, 2000, we had an accumulated deficit
of approximately $173.9 million. The principal causes of our losses are likely
to continue to be:

  .  costs resulting from development and enhancement of our services;

  .  amortization expense related to our acquisitions;

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

  .  growth of our sales force;

  .  expansion of our systems infrastructure;

  .  failure to generate sufficient revenue; and

  .  general and administrative expenses;

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

  OUR FINANCIAL PERFORMANCE AND SUBSEQUENT REDUCTION OF THE WORKFORCE MAY AFFECT
THE MORALE AND PERFORMANCE OF OUR PERSONNEL AND ABILITY TO ENTER INTO NEW
BUSINESS RELATIONSHIPS.

  We have incurred significant net losses since our inception.  In an effort to
reduce our cash expenses, we began to implement certain restructuring
initiatives and cost reductions.  In October 2000, we reduced our workforce by
26 employees.  We have also left positions unfilled when certain employees have
left the Company.  In addition, recent trading levels of our common stock have
decreased the value of the stock options granted to employees pursuant to our
stock option plan.  As a result of these factors, our remaining personnel may
seek

                                      -29-
<PAGE>

employment with larger, more stable companies or companies they perceive to have
better prospects. Our failure to retain qualified employees to fulfill our
current and future needs could halt our future growth and have a material
adverse affect on our business.

  In addition, the publicity we receive, in connection with our financial
performance and measures to remedy it, may negatively affect our reputation and
our business partners and other market participants perception of the Company.
If we are unable to maintain the existing and develop new business relationships
our revenues and collections could suffer materially.

  WE RELY SUBSTANTIALLY ON ONLINE ADVERTISING REVENUES.  THE ONLINE ADVERTISING
MARKET HAS SIGNIFICANTLY DECLINED OVER THE PAST SEVERAL QUARTERS.

  We derive a substantial portion of our revenues from the sale of
advertisements on our web sites. We expect to continue to do so for the
foreseeable future. Our business model and revenues are highly dependent on the
amount of traffic on our sites and our ability to properly monetize this
traffic. The level of traffic on our sites determines the amount of online
advertising inventory we can sell. Our ability to generate significant online
advertising revenues depends, in part, on our ability to create new advertising
programs without diluting the perceived value of our existing programs. Online
advertising has dramatically decreased since the middle of 2000 and has
continued to decline into the first quarter of 2001, which could have a material
effect on the Company. Many online advertisers have been experiencing financial
difficulties which could materially impact our revenues and our ability to
collect our receivables. Our ability to generate online advertising revenues
will also depend, in part, on the following:

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

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

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

  .  our level of traffic;

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

  .  price competition among web sites which has resulted in decreasing pricing.

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

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

                                      -30-
<PAGE>

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

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

  .    functionality of the web site;

  .    brand recognition;

  .    member affinity and loyalty;

  .    broad demographic focus;

  .    open access for visitors;

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

  .    attractiveness of content and services to users; and

  .    pricing and customer service for electronic commerce sales.

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

  .    other community web sites, such as GeoCities, which was acquired by
       Yahoo!, Tripod and AngelFire, subsidiaries of Lycos, Homestead.com and
       Homepag e.com;

  .    search engines and other Internet "portal" companies, such as
       Excite@Home, Lycos, and Yahoo!;

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

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

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

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

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

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

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

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

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

  .    longer operating histories in the Internet market,

  .    greater name recognition;

  .    larger customer bases; and

  .    significantly greater financial, technical and marketing resources.

                                      -31-
<PAGE>

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

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

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

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

  OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON.

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

                                      -32-
<PAGE>

  .  the level of traffic on our web sites;

  .  the overall demand for Internet advertising and electronic commerce;

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

  .  overall usage and acceptance of the Internet;

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

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

  .  the incurrence of costs relating to acquisitions;

  .  realignment of certain business operations;

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

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

  .  financial performance of other internet companies who advertise on our
     site;

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

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

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

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

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

  In light of the decline in our stock price at the time and in an effort to
retain our employee base, in May 2000, we repriced options held by all
employees, other than directors and executive officers.  Options to purchase a
total of approximately 1.1 million shares, representing approximately 20% of
outstanding options, were canceled and approximately 856,000 new options were
granted at an exercise price of $1.594, which was based on the closing price of
the Company's common stock on May 31, 2000.  The new options vest at the same
rate that they would have vested under previous option plans. In addition, as a
result of options which were granted within six months of the cancellations, an
additional 244,000 options also require variable accounting in accordance with
Fin No. 44.

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

                                      -33-
<PAGE>

the Company's common stock, this accounting treatment may result in significant
non cash compensation charges in future periods.

  WE DEPEND ON OUR MEMBERS FOR CONTENT AND PROMOTION.

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

  OUR BUSINESS MODEL IS RELATIVELY NEW AND UNPROVEN.

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

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

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

  OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.

  theglobe was founded in May 1995. Accordingly, we have a limited operating
history for you to use in evaluating our prospects and us. Our prospects should
be considered in light of the risks encountered by companies in the early stages
of development, particularly 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 and member traffic on our web sites;

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

  .  maintain or increase both CPM levels and sponsorship revenues;

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

  .  integrate or successfully develop recent acquisitions;

  .  develop or acquire content for our services;

  .  identify, attract, retain and motivate qualified personnel;

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

  .  raise sufficient capital to sustain future operations.

                                      -34-
<PAGE>

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

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

  .  large and immediate write-offs;

  .  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 amortization expenses
     related to goodwill and other intangible assets;

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

  .  the diversion of management's attention from other business  concerns;

  .  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

  .  risks associated with international expansion.

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

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

                                      -35-
<PAGE>

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

  The process of managing advertising within large, high-traffic web sites such
as ours is an increasingly important and complex task. We license our
advertising management system from DoubleClick, Inc. under an agreement expiring
in April 2002. DoubleClick may terminate the agreement upon 30 days' notice if
(1) we breach the agreement or (2) DoubleClick reasonably determines that we
have used their advertising management system in a manner that could damage
their technology or which reflects unfavorably on DoubleClick's reputation. No
assurance can be given that DoubleClick would not terminate the agreement. Any
termination and replacement of DoubleClick's service could disrupt our ability
to manage our advertising operations. Additionally, we have entered into a
contract with Engage Technologies, Inc. for the license of proprietary software
to manage the placement of advertisements on our web sites. This software has
been implemented and our relationship under the contract has not yet been
material. There can be no assurance that this software will effectively manage
and measure the placement of advertisements on our web sites and that errors
will not occur.  For example, Doubleclick informed us in June 1999 that its
report of the numbers of unique visitors to the theglobe web site was not
accurate.  We cannot assure you that there will be no miscalculations of such or
other measurements in the future.  Any miscalculations or other problems with
reporting these measurements could have a material adverse effect on our
business, financial condition or stock price.

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

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

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

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

  WE DEPEND SUBSTANTIALLY ON OUR KEY PERSONNEL.

  Our performance is substantially dependent on the continued service of our
senior management and key technical personnel. In particular, our success
depends on the continued efforts of our senior management team, especially our
Chief Executive Officer, our President and Chief Operating Officer, our Chief
Financial Officer and our Chief Technology Officer. We do not carry key person
life insurance on any of our personnel. The loss of the services of any of our
executive officers or other key employees without adequate replacement could
have a material adverse effect on our business.

  WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.

  Our future success also depends on our continuing ability to attract, retain
and motivate highly qualified technical and managerial personnel. Competition
for employees in our industry is intense. We may be unable to attract,
assimilate or retain highly qualified technical and managerial personnel in the
future. Wages for managerial and technical employees are increasing and are
expected to continue to increase in the future. We have from time to time in the
past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications.  Furthermore, there is no guarantee that our stock option plan
will be considered attractive by industry standards, particularly in light of
the recent trading levels of our Common Stock.  If we are unable to attract and
retain the technical and managerial personnel necessary to support the growth of
our business, our business would likely be materially and adversely affected.

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

                                      -36-
<PAGE>

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

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

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

  .  we will be able to retain key members of our management team;

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

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

  OUR CHAIRMAN HAS OTHER  INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF
INTEREST WITH  SOME OF OUR DIRECTORS; CERTAIN OF OUR DIRECTORS WILL NOT BE
STANDING FOR REELECTION.

  Because our Chairman, Mr. Michael Egan, is an officer of other companies, we
have to compete for his time. Mr. Egan serves as the Chairman of our board of
directors and as an executive officer of other entities with primary
responsibility for day-to-day strategic planning and financing arrangements. Mr.
Egan is also the controlling investor of Dancing Bear Investments, Inc., an
entity controlled by Mr. Egan, which is our largest stockholder. Mr. Egan has
not committed to devote any specific percentage of his business time with us.
Accordingly, we compete with Dancing Bear Investments, Inc. and Mr. Egan's other
related entities for his time. Mr. Egan is also Chairman of ANC Rental
Corporation, a spin-off of the car rental business of AutoNation, Inc.

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

  Due to cetain time constraints, some of our Board of Directors will not be
standing for reelection. The nominees for election of Directors will be included
in our Proxy Statement which will be filed within 120 Days of December 31, 2000.

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

  The markets in which we compete are characterized by:

  .  rapidly changing technology;

  .  evolving industry standards;

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

  .  continued emerging competition;

  .  changing consumer demands; and

  .  evolving regulatory oversight.

  We may not be able to keep up with these rapid changes. In addition, these
market characteristics are heightened by the emerging nature of the Internet and
the apparent need of companies from varying industries to offer Internet-based
products and services. As a result, our future success depends on our ability to
adapt to rapidly

                                      -37-
<PAGE>

changing technologies and standards. We will also need to continually improve
the performance, features and reliability of our services in response to
competitive services and product offerings and the evolving demands of the
marketplace. In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require us
to incur substantial expenditures to modify our services or infrastructure and
could fundamentally affect the nature of our business.

  WE HAVE CAPACITY CONSTRAINT AND SYSTEM DEVELOPMENT RISKS.

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

  Our principal servers are located at New York Teleport facility in Staten
Island, New York under a lease with Telehouse International Corporation of
America.  Our operations depend on the ability to protect our systems against
damage from unexpected events, including fire, power loss, water damage,
telecommunications failures and vandalism. Any disruption in our Internet access
could have a material adverse effect on us. In addition, computer viruses,
electronic break-ins or other similar disruptive problems could also materially
adversely affect our web sites. Our reputation, theglobe.com brand and the
brands of our subsidiaries could be materially and adversely affected by any
problems to our sites. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures or interruptions in our
systems. We do not presently have any secondary off-site systems or a formal
disaster recovery plan.

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

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

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

                                      -38-
<PAGE>

not be adequate to reimburse us for losses caused by security breaches. We also
face risks associated with security breaches affecting third parties with whom
we have relationships.

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

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

  .  inadequate network infrastructure;

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

  .  ease of access;

  .  inconsistent quality of service;

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

  .  bandwidth availability.

  If the Internet develops as a commercial medium more slowly than we expect, it
will materially adversely affect our business. Additionally, if web usage grows,
the Internet infrastructure may not be able to support the demands placed on it
by this growth or its performance and reliability may decline. Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, web usage, as well as usage of
our web sites, could grow more slowly or decline. Also, the Internet's
commercial viability may be significantly hampered due to:

  .  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; and

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

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

  In February 2000, we acquired Chips & Bits, Inc., a direct marketer of video
games and related products over the Internet. However, we have limited
experience in the sale of products online as compared to many of our competitors
and the development of relationships with manufacturers and suppliers of these
products. 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;

  .  the possibility that our vendors may sell their products through other
     sites; and
  .  intense competition for electronic commerce revenues, resulting in downward
     pressure on gross margins.

                                      -39-
<PAGE>

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

  Additionally, consumers may sue us if any of the products that we sell are
defective, fail to perform properly or injure the user. Some of our agreements
with manufacturers contain provisions intended to limit our exposure to
liability claims. However, these limitations may not prevent all potential
claims. Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any claims, whether or
not successful, could seriously damage our reputation and our business.

  INTERNET ADVERTISING MAY NOT PROVE AS EFFECTIVE AS TRADITIONAL MEDIA.

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

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

  The sale of Internet advertising is subject to intense competition that has
resulted in a wide variety of pricing models, rate quotes and advertising
services. For example, advertising rates may be based on the number of user
requests for additional information made by clicking on the advertisement, known
as "click throughs," on the number of times an advertisement is displayed to a
user, known as "impressions," or on the number of times a user completes an
action at an advertiser's web site after clicking through, known as "cost per
action." Our contracts with advertisers typically guarantee the advertiser a
minimum number of impressions. To the extent that minimum impression levels are
not achieved for any reason, including the failure to obtain the expected
traffic, our contracts with advertisers may require us to provide additional
impressions after the contract term, which may adversely affect the availability
of our advertising inventory. In addition, certain long-term contracts with
advertisers may be canceled if response rates or sales generated from our site
are less than advertisers' expectations. This could have a material adverse
effect on us.  Online advertisers are increasingly demanding "cost per action"
advertising campaigns, which require many more page views to achieve an equal
revenue, which significantly effects our revenues.  If online advertisers
continue to demand those "cost per action" deals, it could negatively impact our
business.

                                      -40-
<PAGE>

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

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

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

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

     WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

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

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

                                      -41-
<PAGE>

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

     .  be time-consuming;

     .  result in costly litigation;

     .  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.

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

     We have registered several Internet domain names including "theglobe.com",
"globeclubs.com", "tglo.com," "azazz.com," "happypuppy.com, " "kidsdomain.com,"
"gamesdomain.com," "webjump.com" and "cdmag.com." The regulation of domain names
in the United States and in foreign countries may change. Regulatory bodies
could establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names, any or all of
which may dilute the strength of our names. We may not acquire or maintain our
domain names in all of the countries in which our web sites may be accessed, or
for any or all of the top-level domain names that may be introduced. The
relationship between regulations governing domain names and laws protecting
proprietary rights is unclear. Therefore, we may not be able to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademarks and other proprietary rights.

     WE MAY FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES IN OUR
INDUSTRY.

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

                                      -42-
<PAGE>

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

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

     Users may access content on our web sites or the web sites of our
distribution partners or other third parties through web site links or other
means, and they may download content and subsequently transmit this content to
others over the Internet. This could result in claims against us based on a
variety of theories, including defamation, obscenity, negligence, copyright
infringement, trademark infringement or the wrongful actions of third parties.
Other theories may be brought based on the nature, publication and distribution
of our content or based on errors or false or misleading information provided on
our web sites. Claims have been brought against online services in the past and
we have received inquiries from third parties regarding these matters. The
claims could be material in the future. We could also be exposed to liability
for third party content posted by members on their personal web pages, their
email clubs or by users in our chat rooms or on our bulletin boards.

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

     WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY.

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

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

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

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

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

                                      -43-
<PAGE>

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

     .  unexpected changes in regulatory requirements;

     .  trade barriers;

     .  difficulties in staffing and managing foreign operations;

     .  fluctuations in currency exchange rates and the introduction of the
        Euro;

     .  longer payment cycles in general;

     .  problems in collecting accounts receivable;

     .  difficulty in enforcing contracts;

     .  political and economic instability;

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

     .  potentially adverse tax consequences.


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

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

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

     OUR STOCK PRICE IS VOLATILE.

     The trading price of our Common Stock has been volatile and may continue to
be volatile in response to various factors, including: . quarterly variations in
our operating results;

     .  Decreased trading volume;
     .  competitive announcements;
     .  changes in financial estimates by securities analysts;
     .  failure to meet analysts estimates;
     .  issuance of additional common stock;
     .  the operating and stock price performance of other companies that
        investors may deem comparable to us; and
     .  news relating to trends in our markets.

                                      -44-
<PAGE>

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

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

     Sales of significant amounts of Common Stock in the public market in the
future, the perception that sales will occur or the registration of such shares
could materially and adversely affect the market price of the Common Stock or
our future ability to raise capital through an offering of our equity
securities. We currently have approximately 22 million shares of Common Stock
that are freely tradable. Approximately 8,158,450 shares of Common Stock are
held by our "affiliates," within the meaning of the Securities Act of 1933, and
are currently eligible for sale in the public market subject to volume
limitation. On May 2, 2000, we filed a registration statement on Form S-3 to
register for sale the 1,104,972 shares of Common Stock held by Infonent.com,
Inc., issued in connection with our acquisition of the web hosting assets of
Webjump.com. In addition, any of the shares that were not sold pursuant to this
registration statement on or before August 18, 2000 are eligible for sale
subject to volume limitation. There is a total of 289,972 shares that have not
been sold pursuant to this registration statement. Further, since Infonent.com,
Inc. is currently in bankruptcy, it may be eligible to sell all or a portion of
the shares not sold in connection with this registration statement pursuant to
exemptions from the securities law afforded to it under bankruptcy laws.
Additionally, we may issue additional shares of our common stock, which could
adversely effect our stock price.

     There are outstanding options to purchase 5,114,803 shares of Common Stock
which become eligible for sale in the public market from time to time depending
on vesting and the expiration of lock-up agreements. The issuance of these
securities are registered under the Securities Act. In addition, there are
outstanding warrants to purchase up to 4,011,534 shares of our Common Stock upon
exercise. Substantially all of our stockholders holding restricted securities,
including shares issuable upon the exercise of warrants to purchase our Common
Stock, are entitled to registration rights under various conditions.

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

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

     .  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.

     We must follow Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of our company. One of these laws
prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless various conditions are met. In addition,
provisions of our charter and by-laws, and the significant amount of Common
Stock held by our executive officers, directors and affiliates, could together
have the effect of discouraging potential takeover attempts or making it more
difficult for stockholders to change management.

     WE DO NOT EXPECT TO PAY CASH DIVIDENDS.

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

                                      -45-
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

                                      -46-
<PAGE>

Item 8. Consolidated Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                            PAGE
     <S>                                                                              <C>
     Independent Auditors' Report...................................................   48

     Consolidated Balance Sheets as of December 31, 2000 and 1999...................   49

     Consolidated Statements of Operations for each of the years
       in the three year period ended December 31, 2000.............................   50

     Consolidated Statements of Stockholders' Equity and Comprehensive
      Loss for each of the years in the three year period ended December 31, 2000....  51

     Consolidated Statements of Cash Flows for each of the years
       in the three year period ended December 31, 2000.............................   53

     Notes to Consolidated Financial Statements.....................................   55
</TABLE>

    All schedules are omitted because they are not applicable or the required
    information is shown in the Consolidated Financial Statements or Notes
    thereto.

                                      -47-
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
theglobe.com, inc.:

We have audited the accompanying consolidated balance sheets of theglobe.com,
inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of theglobe.com, inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations since inception that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                                            /s/ KPMG LLP


New York, New York
February 26, 2001

                                      -48-
<PAGE>

                              theglobe.com, inc.

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                  -----------------------------
                                                                                                        2000           1999
<S>                                                                                               <C>              <C>
                                                        Assets
Current assets:
  Cash and cash equivalents.....................................................................  $  13,349,554    $ 36,585,998
  Short-term investments........................................................................      2,996,250      19,288,627
  Accounts receivable, less allowance for doubtful accounts of $2,260,324 and $1,408,092 in
   2000 and 1999, respectively..................................................................      4,316,973       4,219,716
  Prepaid and other current assets..............................................................      2,439,382       2,164,937
                                                                                                  -------------    ------------
     Total current assets.......................................................................     23,102,159      62,259,278
Property and equipment, net.....................................................................      7,975,967       9,464,291
Restricted investments..........................................................................      3,485,007       3,657,497
Goodwill and intangible assets, net.............................................................     19,967,910      63,462,251
                                                                                                  -------------    ------------
     Total assets...............................................................................  $  54,531,043    $138,843,317
                                                                                                  =============    ============

                                 Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable..............................................................................  $   2,677,679    $  2,722,017
  Accrued expense...............................................................................      2,540,289       2,439,369
  Accrued compensation..........................................................................      1,670,088       1,610,445
  Deferred revenue..............................................................................        729,027         565,919
  Current portion of long-term debt.............................................................         11,986              --
  Current installments of obligations under capital leases......................................      1,905,091       1,956,982
                                                                                                  -------------    ------------
     Total current liabilities..................................................................      9,534,160       9,294,732
Long-term debt..................................................................................        116,002              --
Obligations under capital leases, excluding current installments................................        382,335       2,200,895
Deferred rent...................................................................................        552,227         438,263

                                                                                                  -------------    ------------
     Total liabilities..........................................................................     10,584,724      11,933,890
                                                                                                  -------------    ------------

Stockholders' equity:
  Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued and
   outstanding at December 31, 2000 and 1999, respectively......................................             --              --
  Common stock, $0.001 par value; 100,000,000 shares authorized; 31,079,574 and 27,770,918
   shares issued at December 31, 2000 and 1999, respectively....................................         31,080          27,771
  Additional paid-in capital....................................................................    218,254,968     197,307,293
  Common stock, 699,281 common shares, held in treasury, at cost................................       (371,458)             --
  Deferred compensation.........................................................................             --        (269,307)
  Accumulated other comprehensive loss..........................................................        (55,682)       (109,462)
  Accumulated deficit...........................................................................   (173,912,589)    (70,046,868)
                                                                                                  -------------    ------------
     Total stockholders' equity.................................................................     43,946,319     126,909,427
Commitments and contingencies...................................................................  -------------    ------------
     Total liabilities and stockholders' equity.................................................  $  54,531,043    $138,843,317
                                                                                                  =============    ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      -49-
<PAGE>

                              theglobe.com, inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                             ---------------------------------------------
                                                                                  2000            1999            1998
                                                                             -------------    ------------    ------------
<S>                                                                         <C>              <C>             <C>
Revenues:
         Advertising......................................................   $  19,500,170    $ 16,398,914    $  5,509,818
         Electronic commerce and other....................................      10,361,799       2,242,046              --
                                                                             -------------    ------------    ------------
                   Total revenues.........................................      29,861,969      18,640,960       5,509,818

Cost of revenues..........................................................      19,079,693       8,547,514       2,136,151
                                                                             -------------    ------------    ------------
                   Gross profit...........................................      10,782,276      10,093,446       3,373,667
Operating expenses:
         Sales and marketing..............................................      23,917,228      19,352,022       9,401,403
         Product development..............................................      10,241,792      10,488,190       2,632,613
         General and administrative.......................................      13,173,344      12,164,650       6,828,134
         Restructuring and impairment charges.............................      41,347,738              --              --
         Non-recurring charges............................................              --              --       1,370,250
         Amortization of goodwill and intangible assets...................      27,236,506      20,459,526              --
                                                                             -------------    ------------    ------------
                   Total operating expenses...............................     115,916,608      62,464,388      20,232,400
                                                                             -------------    ------------    ------------
                   Loss from operations...................................    (105,134,332)    (52,370,942)    (16,858,733)
Other income (expense):
         Interest and dividend income.....................................       2,089,743       2,485,293       1,083,400
         Interest and other expense.......................................        (553,332)       (780,654)       (191,389)
                                                                             -------------    ------------    ------------
                   Total other income, net................................       1,536,411       1,704,639         892,011
                                                                             -------------    ------------    ------------
                   Loss before provision for income taxes
                      and extraordinary item..............................    (103,597,921)    (50,666,303)    (15,966,722)
Provision for income taxes................................................         267,800         290,337          78,918
                                                                             -------------    ------------    ------------
                   Loss before extraordinary item.........................    (103,865,721)    (50,956,640)    (16,045,640)
Extraordinary item-gain on early retirement of debt.......................              --       1,355,698              --
                                                                             -------------    ------------    ------------
                   Net loss...............................................   $(103,865,721)   $(49,600,942)   $(16,045,640)
                                                                             =============    ============    ============
Basic and diluted net loss per share:
  Loss before extraordinary item..........................................   $       (3.43)   $      (2.06)   $      (3.37)
  Extraordinary item-gain on early retirement of debt.....................   $          --    $        0.06   $         --
                                                                             -------------    ------------    ------------
  Net loss................................................................   $       (3.43)   $      (2.00)   $      (3.37)
                                                                             =============    ============    ============
Weighted average basic and diluted shares outstanding.....................      30,286,102      24,777,444       4,762,280
                                                                             =============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     -50-
<PAGE>
                              theglobe.com, inc.

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                                         Additional
                                    Convertible preferred                                 paid-in        Treasury
                                            Stock               Common stock              capital         Stock
                                   ----------------------     --------------------     -------------     ----------
                                   Shares          Amount       Shares       Amount
<S>                                <C>             <C>          <C>          <C>           <C>              <C>
Balance at December 31,
   1997..........................  2,899,991         2,900      2,308,542    2,309         21,864,360       --
Net loss.........................         --            --             --       --                 --       --

Net unrealized loss
   on securities.................         --            --             --       --                 --       --

   Comprehensive loss............

Deferred compensation............          --           --             --       --            118,125       --

Amortization of deferred
  compensation...................          --           --             --       --                 --       --

Issuance of common stock
   in connection with
   exercise of stock
   options.......................          --           --        398,166      398            254,619       --

Conversion of preferred
  stock in connection
  with the Company's
  IPO............................  (2,899,991)      (2,900)    10,947,470   10,947             (8,047)      --

Non-cash compensation............          --           --          7,000        7             31,493       --

Issuance of common stock
   in connection with
   the Initial
   Public Offering,
   net of offering
   costs.........................          --           --      6,963,334    6,964         27,273,381       --

Transfer of warrants from
   significant shareholder
   to officers...................          --           --             --       --          1,370,250       --
                                    ---------     --------     ----------   ------         ----------    -----
Balance at December 31,
   1998..........................          --           --     20,624,512   20,625         50,904,181       --

Net loss.........................          --           --             --       --                 --       --

Changes in net
unrealized  loss on
securities.......................          --           --             --       --                 --       --

Foreign currency
translation
  adjustment.....................          --           --             --       --                 --       --

Comprehensive loss...............

Deferred compensation............         --            --             --       --            251,622       --

Amortization of
 deferred
 compensation....................         --            --              --      --                 --       --

Issuance of common
   stock in
   connection with
   exercise of stock
   options.......................         --            --         175,480     175            417,286       --

Issuance of common
   stock in
   connection with
   Employee Stock
   Purchase Plan.................         --            --           7,200       7             75,042       --

Issuance of common
   stock in
   connection with
   exercise of
   warrants......................         --            --         100,000     100            145,286       --

Issuance of common
   stock and options
   in connection with
   acquisitions..................         --            --       3,363,726   3,364         80,472,172       --

Issuance of common
   stock in
   connection with
   Secondary Public
   Offering, net of
   offering costs................         --            --       3,500,000   3,500         65,009,935       --
<CAPTION>

                                                       Accumulated
                                                          Other                                 Total
                                      Deferred         comprehensive                         stockholders
                                     compensation          loss       Accumulated deficit       equity
                                     ------------        ---------    -------------------     -----------
<S>                                  <C>                 <C>          <C>                  <C>
Balance at December 31,
   1997..........................    (76,033)            (41,201)       (4,400,286)         17,352,049
Net loss.........................         --                  --       (16,045,640)        (16,045,640)

Net unrealized loss
   on securities.................        --               (8,805)               --              (8,805)
                                                                                          ------------
   Comprehensive loss............                                                          (16,054,445)
                                                                                         -------------
Deferred compensation............  (118,125)                  --                --                  --

Amortization of deferred
  compensation...................    65,907                   --                --              65,907

Issuance of common stock
   in connection with
   exercise of stock
   options.......................        --                   --                --             255,017

Conversion of preferred
  stock in connection
  with the Company's
  IPO............................        --                   --                --                  --

Non-cash compensation............        --                   --                --              31,500

Issuance of common stock
   in connection with
   the Initial
   Public Offering,
   net of offering
   costs.........................        --                   --                --          27,280,345

Transfer of warrants from
   significant shareholder
   to officers...................        --                   --               --            1,370,250
                                   --------              -------       ----------           ----------
Balance at December 31,
   1998..........................  (128,251)             (50,006)     (20,445,926)          30,300,623

Net loss.........................        --                           (49,600,942)         (49,600,942)

Changes in net
unrealized  loss on
securities.......................        --              (58,923)              --              (58,923)

Foreign currency
translation
  adjustment.....................        --                 (533)              --                 (533)
                                                                                          ------------
Comprehensive loss...............                                                          (49,660,398)
                                                                                          ------------
Deferred compensation............  (251,622)                  --               --                   --

Amortization of
 deferred
 compensation....................   110,566                   --               --              110,566

Issuance of common
   stock in
   connection with
   exercise of stock
   options.......................        --                   --               --              417,461

Issuance of common
   stock in
   connection with
   Employee Stock
   Purchase Plan.................        --                   --               --               75,049

Issuance of common
   stock in
   connection with
   exercise of
   warrants......................        --                   --               --              145,386

Issuance of common
   stock and options
   in connection with
   acquisitions..................        --                   --               --           80,475,536

Issuance of common
   stock in
   connection with
   Secondary Public
   Offering, net of
   offering costs................       --                    --               --           65,013,435
</TABLE>

                                      -51-
<PAGE>

<TABLE>
<S>                                            <C>        <C>       <C>            <C>          <C>            <C>
Non-cash compensation.................         --                           --           --            31,769          --
                                         --------      -----        ----------     --------     -------------  ----------

Balance at December 31,
1999..................................         --         --        27,770,918       27,771       197,307,293          --
Net loss..............................         --         --                --           --                --          --

Changes in net unrealized loss
on Securities.........................         --         --                --           --                --          --

Foreign currency
translation adjustment................         --         --                --           --                --          --

Comprehensive loss..............

Amortization of
deferred compensation.................         --         --                --           --                --          --

Issuance of common stock in
connection with exercise of
stock options.........................         --         --           663,799          664           365,556          --

Issuance of common stock in
connection with Employee Stock
Purchase Plan.........................         --         --            41,603           42            64,768          --

Issuance of common
stock and options in
connection with
acquisitions..........................         --         --         1,903,973        1,904        15,063,314          --

Common stock issued in
connection with Sportsline
distribution agreement................         --         --           699,281          699         4,999,301          --

Common stock repurchased for
treasury, 699,281
common shares.........................         --         --                --           --                --    (371,458)

Common stock options
issued in lieu of
services rendered.....................         --         --                --           --            57,024          --

Non-cash compensation.................         --         --                --           --           397,712          --
                                         --------      -----        ----------     --------     -------------  ----------
Balance at December 31,
2000..................................         --         --        31,079,574     $ 31,080     $ 218,254,968  $ (371,458)
                                         ========      =====        ==========     ========     =============  ==========

<CAPTION>
<S>                                             <C>                <C>           <C>                   <C>
Non-cash compensation........................             --              --                --               31,769
                                                ------------       ---------     -------------         ------------

Balance at December 31,
1999.........................................       (269,307)       (109,462)      (70,046,868)         126,909,427

Net loss.....................................             --              --      (103,865,721)        (103,865,721)
Changes in net unrealized loss on
securities...................................             --         108,929                --              108,929

Foreign currency translation
adjustment...................................             --         (55,149)               --              (55,149)
                                                                                                            --------
Comprehensive loss...........................                                                          (103,811,941)

Amortization of
deferred compensation........................       (269,307)             --                --             (269,307)

Issuance of common stock in
connection with exercise of stock
options......................................             --              --                --              366,220

Issuance of common stock in
connection with Employee Stock
Purchase Plan................................             --              --                --               64,810
Issuance of common stock and
options in connection with
acquisitions.................................             --              --                --           15,065,218

Common stock issued in connection
with Sportsline distribution
agreement....................................             --              --                --            5,000,000

Common stock repurchased for
treasury, 699,281 common shares..............             --              --                --             (371,458)

Common stock options issued in
lieu of services rendered....................             --              --                --               57,024

Acceleration of stock options
in connection with severance arrangements                 --              --                --              397,712
                                                ------------       ---------     -------------         ------------
Balance at December 31,
2000.........................................             --         (55,682)    $(173,912,589)        $ 43,946,319
                                                ============       =========     =============         ============

</TABLE>

         See accompanying notes to consolidated financial statements.

                                      -52-
<PAGE>

                              theglobe.com, inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                              ---------------------------------------------
                                                                                   2000            1999            1998
                                                                              -------------   ------------   --------------
<S>                                                                           <C>             <C>            <C>
Cash flows from operating activities:
 Net loss.................................................................   $(103,865,721)   $(49,600,942)   $(16,045,640)
  Adjustments to reconcile net loss to net cash used in operating
   activities:
   Depreciation and amortization..........................................      31,372,656      23,004,644         715,410
   Transfer of stock warrants from significant shareholder to officers....              --              --       1,370,250
   Non-cash restructuring and impairment charges..........................      36,914,147              --              --
   Non-cash marketing expenses............................................       2,313,276              --              --
   Non-cash compensation..................................................         454,736          31,769          31,500
   Amortization of deferred compensation..................................         269,307         110,566          65,907
   Loss on disposal of equipment..........................................              --          99,179              --
   Amortization of debt discount..........................................              --         147,012              --
   Loss on sale of short-term securities..................................         108,929              --              --
   Gain on early retirement of debt.......................................              --      (1,355,698)             --
   Deferred rent..........................................................         113,964         438,263              --
  Changes in operating assets and liabilities:
   Accounts receivable, net...............................................         915,062      (1,896,755)     (1,750,666)
   Prepaid and other current assets.......................................        (705,355)     (1,356,820)       (678,831)
   Other assets...........................................................              --              --           7,657
   Accounts payable.......................................................      (2,583,741)       (502,479)      2,218,065
   Accrued expenses.......................................................        (121,952)        525,654         492,009
   Accrued compensation...................................................          19,239         919,166        (457,720)
   Deferred revenue.......................................................         132,980        (654,472)        560,326
                                                                             -------------    ------------    ------------
  Net cash used in operating activities...................................     (34,662,473)    (30,090,913)    (13,471,733)
                                                                             -------------    ------------    ------------

Cash flows from investing activities:
 Purchase of securities...................................................     (35,076,829)    (30,135,867)             --
 Proceeds from sale of securities.........................................      51,369,206      11,686,864      12,095,822
 Purchases of property and equipment......................................      (2,871,235)     (5,556,647)       (730,359)
 Payment of security deposits, net of refunds.............................         172,490      (1,898,897)     (1,734,495)
 Cash acquired from acquisitions, net of cash paid........................        (274,973)        552,159              --
                                                                             -------------    ------------    ------------
  Net cash provided by (used in) investing activities.....................      13,318,659     (25,352,388)      9,630,968
                                                                             -------------    ------------    ------------

Cash flows from financing activities:
 Payments of long-term debt...............................................          (8,145)     (1,379,738)             --
 Payments under capital lease obligations.................................      (2,003,389)     (1,492,333)       (315,316)
 Proceeds from exercise of common stock options and warrants..............         366,220         562,847         255,017
 Net proceeds from issuance of common stock...............................          64,810      65,088,484      27,280,345
 Payments for treasury stock..............................................        (371,458)             --              --
                                                                             -------------    ------------    ------------
   Net cash (used in) provided by financing activities....................      (1,951,962)     62,779,260      27,220,046
                                                                             -------------    ------------    ------------
   Net change in cash and cash equivalents................................     (23,295,776)      7,335,958      23,379,281
   Effect of exchange rate changes on cash and cash equivalents...........          59,332            (533)             --
Cash and cash equivalents at beginning of period..........................      36,585,998      29,250,572       5,871,291
                                                                             -------------    ------------    ------------
Cash and cash equivalents at end of period................................   $  13,349,554    $ 36,585,998    $ 29,250,572
                                                                             =============    ============    ============

Supplemental disclosure of cash flow information:
 Cash paid during the period for:
  Interest................................................................   $     364,316    $    534,458    $    123,724
                                                                             =============    ============    ============
</TABLE>

                                     -53-
<PAGE>

<TABLE>
<S>                                                                          <C>              <C>             <C>
  Income taxes............................................................   $     156,313    $    209,723    $     69,890
                                                                             =============    ============    =============
Supplemental disclosure of non-cash transactions:
 Common stock and options issued in connection with business acquired        $  15,065,218    $ 80,475,536    $          -
                                                                             =============    ============    ============
 Equipment acquired under capital leases..................................   $     132,431    $  2,545,134    $  3,221,769
                                                                             =============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     -54-
<PAGE>

                              theglobe.com, inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          December 31, 1999 and 1998

(1)   Organization and Summary of Significant Accounting Policies

     (a)  Description of the Company

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

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

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has suffered
recurring losses from operations since inception that raises substantial doubt
about its ability to continue as a going concern. Management's plans to continue
as a going concern relies heavily on raising additional financing, increasing
advertising revenues from its online and offline properties, as well as,
reducing the Company's operating expenses. Management is currently exploring a
number of strategic alternatives and is also continuing to identify and
implement internal actions to improve the Company's liquidity. These
alternatives may include selling assets or internet properties which could
result in significant changes in the Company's business plan. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

     (b)  Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries from their respective dates of acquisition
(see Note 4).  All significant intercompany balances and transactions have been
eliminated in consolidation.

     (c)  Cash and Cash Equivalents

     The Company considers all highly liquid securities with maturities of three
months or less to be cash equivalents. Cash equivalents were $11.4 million and
$30.2 million at December 31, 2000 and 1999, respectively, and consisted of
government securities.

     (d)  Short-term Investments

     The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 establishes
the accounting and reporting requirements for all debt securities and for
investments

                                      -55-
<PAGE>

in equity securities that have a readily determinable fair market value. All
short-term marketable securities must be classified as one of the following:
held-to-maturity, available-for-sale or trading securities. The Company's short-
term investments consist of both held-to-maturity and available-for-sale
securities. The Company's held-to-maturity securities are carried at amortized
cost in the consolidated balance sheet. The amortization of the discount or
premium that arises at acquisition is included in other income. The Company's
available-for-sale securities are carried at fair value, with unrealized gains
and losses reported as a separate component of stockholders' equity. Unrealized
gains and losses are computed on the basis of the specific identification
method. Realized gains and losses and declines in value judged to be other-than-
temporary, are included in other income (expense). The cost of available-for-
sale securities sold are based on the specific-identification method and
interest earned is included in other income (expense).

     For the year ended, December 31, 2000, 1999 and 1998, realized gains or
losses upon the sale of securities were not material. At December 31, 2000 and
1999, the fair value of the Company's available-for-sale securities approximated
cost and unrealized gains and losses were not material. The Company's short-term
investments were comprised of the following at December 31, 2000 and 1999:

                                                              December 31,
                                                     ---------------------------
                                                        2000              1999
                                                     ----------         --------
                                                             (in thousands)
Available-for-sale securities.....................   $     --           $ 2,889
Held-to-maturity securities.......................      2,996            16,400
                                                       ------           -------
    Short-term investments........................   $  2,996           $19,289
                                                       ======           =======

     (e)  Property and Equipment

     Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Property and equipment is depreciated using the straight-line
method over the estimated useful lives of the related assets, generally three to
five years for equipment, three years for software and five to seven years for
furniture and fixtures. Leasehold improvements are amortized using the straight-
line method over the shorter of the lease term or the estimated useful life of
the asset. Equipment under capital leases is stated at the present value of
minimum lease payments and is amortized using the straight-line method over the
estimated useful lives of the assets.

     (f)  Restricted Investments and Letter of Credit

     At December 31, 2000 and 1999, restricted investments included security
deposits held in Certificates of Deposit and other interest bearing accounts as
collateral for certain capital lease equipment and office space leases. The
Company is contingently liable under a standby letter of credit of $1.4 million
at December 31, 2000. The letter of credit relates to the Company's office-space
lease which is fully secured by a restricted certificate of deposit held by the
Company. Management does not expect any material losses to result from these
off-balance-sheet instruments

     (g)  Goodwill and Intangible Assets

     Goodwill and intangible assets primarily relate to the Company's
acquisitions accounted for under the purchase method of accounting, or purchase
of intangible assets. Under the purchase method of accounting, the excess of the
purchase price over the identifiable net tangible assets of the acquired entity
is recorded as identified intangible assets and goodwill. Goodwill and
intangible assets are stated at cost, net of accumulated amortization, and are
being amortized using the straight-line method over the expected period of
benefit ranging from 2 to 3 years (3 years for goodwill). As of December 31,
2000 and 1999, accumulated amortization was $36.5 million and $20.5 million,
respectively.

     (h)  Impairment of Long-Lived Assets

     Long-lived assets, including fixed assets, goodwill and other intangible
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be

                                      -56-
<PAGE>

recoverable. If events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company estimates the
undiscounted future cash flows to result from the use of the asset and its
ultimate disposition. If the sum of the undiscounted cash flows is less than the
carrying value, the Company recognizes an impairment loss, measured as the
amount by which the carrying value exceeds the fair value of the asset. Fair
value would generally be determined by market value. Assets to be disposed of
are the lower of the carrying value or fair value less costs to sell. In 2000,
the Company wrote off $32.4 million in goodwill and intangible assets (see note
3).

     (i)  Fair Value of Financial Instruments

     The carrying amount of certain of the Company's financial instruments,
including cash, cash equivalents, short-term investments, accounts receivable,
accounts payable, accrued expenses and deferred revenue, approximate their fair
value at December 31, 2000 and 1999 because of their short maturities.  The
carrying amount of the Company's capital lease obligations approximate their
fair value based upon the implicit interest rate of the leases.

     (j)  Income Taxes

     The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated results of operations in the period that the tax change occurs.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.

     (k)  Revenue Recognition

     Advertising

     The Company's revenues are derived principally from the sale of online and
print advertisements under short-term contracts. To date, the duration of the
Company's advertising commitments has generally averaged from one to three
months. Online advertising revenues are recognized ratably in the period in
which the advertisement is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include the guarantee of a minimum number of
"impressions", defined as the number of times that an advertisement appears in
pages viewed by the users of the Company's online properties, for a fixed fee.
Payments received from advertisers prior to displaying their advertisements on
its sites are recorded as deferred revenues and are recognized as revenue
ratably when the advertisement is displayed. To the extent minimum guaranteed
impressions levels are not met, we defer recognition of the corresponding
revenues until guaranteed levels are achieved. The Company's online advertising
revenue includes the development and sales of sponsorship placements within its
web sites. Development fees related to the sale of sponsorship placements on the
Company's web sites are deferred and recognized ratably as revenue over the term
of the contract. The Company also derives revenue through the sale of
advertisements in its games information magazine, which was acquired in February
2000. Advertising revenues for the games information magazine are recognized at
the on-sale date. Advertising revenue accounted for 65%, 88% and 100% of total
revenues for the years ended December 31, 2000, 1999 and 1998, respectively.

     The Company trades advertisements on its web properties in exchange for
advertisements on the Internet sites of other companies. Barter advertising
revenues and expenses are recorded at the fair market value of services provided
or received, whichever is more readily determinable in the circumstances.
Revenue from barter transactions is recognized as income when advertisements are
delivered on the Company's web properties. Barter expense is recognized when the
Company's advertisements are run on other companies' web sites, which typically

                                      -57-
<PAGE>

occurs in the same period in which barter revenue is recognized. Barter revenues
and expenses represented 4%, 5% and 2% of total revenues for the years ended
December 31, 2000, 1999, and 1998, respectively.

     Electronic Commerce and Other

     The Company derives other revenues from the sale of video games and related
products through its online store, the sale of its games information magazine
through newsstands and subscriptions and electronic commerce revenue shares.
Sales from the online store are recognized as revenue when the product is
shipped to the customer. Freight out costs are included in net sales and have
not been significant to date. The Company provides an allowance for returns for
merchandise sold through its online store. The allowance provided to date has
not been significant. Newsstand sales of the games information magazine are
recognized at the on-sale date, net of provisions for estimated returns.
Subscriptions are recorded as deferred revenue when initially received and
recognized as income pro ratably over the subscription term. Revenues from the
Company's share of the proceeds from its e-commerce partners' sales are
recognized upon notification from its partners of sales attributable to the
Company's sites. Sales through the online store accounted for 24%, 12% and 0%
respectively, of total revenues for the years ended December 31, 2000, 1999 and
1998. Other revenues also included sales of the Company's games information
magazine through newsstands and subscriptions which accounted for 11% of total
revenues for the year ended December 31, 2000. The Company acquired its games
information magazine in February 2000. To date, revenues from the Company's
electronic commerce revenue share agreements have been immaterial.

     (l)  Advertising Costs

     Advertising costs are expensed as incurred and are included in sales and
marketing expense. Advertising costs were $7.9 million, $8.7 million and $7.3
million for the years ended December 31, 2000, 1999 and 1998, respectively.

     (m)  Product Development

     Product development expenses include professional fees, staff costs and
related expenses associated with the development, testing and upgrades to the
Company's website as well as expenses related to its editorial content and
community management and support. Product development costs and enhancements to
existing products are charged to operations as incurred. During 1998, the
Company adopted the American Institute of Certified Public Accountants'
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires all
costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
Its also provides guidance on the capitalization of costs incurred during the
application development stage for computer software developed or obtained for
internal use. As of December 31, 2000, the Company capitalized approximately
$1.3 million in connection with the Company's back office systems.

     (n)  Stock-Based Compensation

     The Company has adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which permits entities
to recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS 123 allows entities to
continue to apply the provisions of Accounting Principle Board Opinion No. 25
("APB 25") and provide pro forma net earnings disclosures for employee stock
option grants if the fair-value-based method defined in SFAS 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion 25 and provide the pro forma disclosure provisions of SFAS 123.

     (o)  Net Loss Per Common Share

     The Company adopted Statement of Financial Accounting Standard No. 128,
"Computation of Earnings Per Share," ("SFAS 128") during the year ended December
31, 1997. In accordance with SFAS 128 and the SEC Staff Accounting Bulletin No.
98, basic earnings per share is computed using the weighted average number of

                                      -58-
<PAGE>

common shares outstanding during the period. Common equivalent shares consist of
the incremental common shares issuable upon the conversion of the Convertible
Preferred Stock (using the if-converted method) and 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. Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an IPO, are required to be included in the
calculation of basic and diluted net loss per share, as if they were outstanding
for all periods presented. To date, the Company has not had any issuances or
grants for nominal consideration.

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

     Diluted net loss per common share for the years ended December 31, 2000,
1999 and 1998 does not include the effects of options to purchase 5,114,803,
4,301,887 and 2,830,242 shares of Common Stock, respectively; warrants to
purchase  4,011,534, 4,011,534 and 4,046,018 shares of Common Stock,
respectively.

     (p)  Comprehensive Income

     In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income generally represents all
changes in shareholders' equity during the period except those resulting from
investments by, or distributions to, shareholders.

     (q)  Use of Estimates

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

     (r)  Concentration of Credit Risk

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

     The Company's customers are primarily concentrated in the United States.
The Company performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of customers, historical trends and other
information. Concentration of credit risk is limited due to the Company's large
number of customers, however, the Company's online advertising client base has
been concentrated among dedicated internet companies and technology related
service

                                      -59-
<PAGE>

providers. For the year ended December 31, 2000, there were no customers that
accounted for over 10% of revenues generated by the Company, or of accounts
receivable at December 31, 2000.

     For the year ended December 31, 1999, there were no customers that
accounted for over 10% of revenues generated by the Company. The Company had one
customer that represented more than 10% of accounts receivable as of December
31, 1999.

     For the year ended December 31, 1998, there were no customers that
accounted for over 10% of revenues generated by the Company.

     (s)  Segment Reporting

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

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

     (t)  Recent Accounting Pronouncements

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

   FASB Interpretation No 44, Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44") provides guidance for applying APB Opinion No
25. "Accounting for Stock Issued to Employees. With certain exceptions, FIN No.
44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The Company applied FIN No. 44 to account for its
cancellation and reissuance of options and there has been no impact on its
results of operations for the year ended December 31, 2000. The Company cannot
estimate the impact of FIN No. 44 on its future results of operations as the
charge is dependent on the future market price of the Company's common stock,
which cannot be predicted with any degree of certainty. Depending upon movements
in the market value of the Company's common stock, this accounting treatment may
result in significant non-cash compensation charges in future periods.

     In March 2000, the EITF reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs," which provided guidance on when to capitalize
versus expense costs incurred to develop a web site. The consensus is effective
for web site development costs in quarters beginning after June 30, 2000. The
Company has applied the guidance as described by Issue 00-2 for the year ended
December 31, 2000, and noted that there was no material impact on its results of
operations.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
'Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company was be
required to adopt the

                                      -60-
<PAGE>

accounting provisions of SAB No. 101, in the fourth quarter of 2000. The
Company's revenue recognition policies are consistent with SAB 101; accordingly,
its implementation did not have a significant effect on its results of
operations.

     (u)  Reclassifications

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

(2)  Stock Option Repricing

   On May 31, 2000, the Company offered to substantially all of its employees,
excluding executive officers and the Board of Directors, the right to cancel
certain outstanding stock options and receive new options with an exercise price
equal to the then current fair market value of the stock. Options to purchase a
total of approximately 1.1 million shares, approximately 20% of outstanding
options, were canceled and approximately 856,000 new options were granted at an
exercise price of $1.594 per share, which was based on the closing price of the
Company's common stock on May 31, 2000. The new options vest at the same rate
that they would have vested under previous option plans. As described above in
note 1(n), the Company is accounting for these repriced stock options using
variable accounting in accordance with FIN No. 44. In addition, as a result of
options which were granted within six months of the cancellations, an additional
244,000 options also require variable accounting in accordance with FIN No. 44.
For the year ended December 31, 2000, there has been no compensation charge
relating to the repricing. Depending upon movements in the market value of the
Company's common stock, this accounting treatment may result in significant non
cash compensation charges in future periods.

(3) Restructuring and Impairment Charges

     For the year ended December 31, 2000, the Company recorded restructuring
and impairment charges of $41.3 million.

     In the second quarter of 2000, we recorded a $15.6 million restructuring
charge as a result of a strategic decision made by management to shut down our
electronic commerce operations in Seattle, Washington in order to realign our
electronic commerce operations to focus on the direct sale of video games and
related products as well as revenue share relationships with third parties who
are interested in reaching our targeted audiences. The $15.6 million charge was
primarily related to a $12.8 million write-off of the remaining goodwill and
intangibles associated with our 1999 acquisition of Factorymall.com, costs
associated with the closing of the operations Seattle of $0.5 million, write-
offs related to the disposal of inventory, equipment and other assets of $1.7
million as well as $0.6 million of employee severance and related benefits
incurred primarily related to the termination of 30 employees.

     In the fourth quarter of 2000, we incurred an additional $25.7 million in
restructuring and impairment charges as follows:

 .  The Company recorded a restructuring charge of $1.8 million, including
   $398,000 of non-cash compensation, as a result of strategic decisions made by
   management to increase operational effectiveness, improve margins and further
   reduce expenses. The restructuring charge primarily related to a workplace
   reduction of 26 employees.

 .  In addition, we recorded an impairment charge of $4.3 million in connection
   with the termination of a distribution agreement with Sportsline in November
   2000 (see Note 7).

 .  The Company also recorded impairment charges of $19.6 million as a result of
   management's ongoing business review and impairment analysis performed under
   its existing policy regarding impairment of long-lived assets.

     Where impairment indicators were identified, management determined the
amount of the impairment charge by comparing the carrying values of goodwill and
other long-lived assets to their fair values. These evaluations of impairment
are based on achievement of business plan objectives and milestones of each
web based property, the fair value of each ownership interest relative to its
carrying value, the financial condition and prospects of the web based property,
and other relevant factors.  The business plan objectives and milestones that
are considered include, among others, those related to financial performance,
such as achievement of planned financial results and completion of capital
raising activities, if any, and those that are not primarily financial in
nature, such as the launching or enhancements of a web site, the hiring of key
employees, the number of people who have registered to be part of the
associated properties' web community, and the number of visitors to the
associated properties' web site per month. Management determines fair value
based on a market approach, which includes analysis of market price multiples
of companies engaged in lines of business similar to the company. The market
price multiples are selected and applied to the company based on the relative
performance, future prospects and risk profile of the company in comparison to
the guideline companies. As a result, during management's quarterly review of
the value and periods of amortization of both goodwill and other long-lived
assets, it was determined that the carrying value of goodwill and certain other
intangible assets were not fully recoverable.

     In 1999, the Company completed acquisitions of Attitude Network, Ltd. And
the web hosting assets of Webjump.com that were financed principally with shares
of our common stock, and were valued based on the price of the Company's common
stock at that time (see Note 4). The revaluation was triggered by the continued
decline in Internet advertising throughout 2000, which significantly impacted
current projected advertising revenue generated from these web based properties.
In addition, each of these web based properties have experienced declines in
operating and financial metrics over the past several quarters, primarily due to
the continued weak overall demand of on-line advertising and marketing
services, in comparison to the metrics forecasted at the time of their
respective acquisitions. The impairment analysis considered that these web
based properties were acquired during 1999 and that the intangible assets
recorded at the time of acquisition was being amortized over useful lives of
2 - 3 years (3 years for goodwill). As a result, it was determined that the
fair value of Attitude's and Webjump's goodwill and other intangible assets
were less than the recorded amount, therefore, an impairment charge of $13.6
million and $6.0 million, respectively, were recorded. The methodology used to
test for and measure the amount of the impairment charge was based on the same
methodology the Company used during its initial acquisition valuation of
Attitude and Webjump in 1999. The impairment factors evaluated by management
may change in subsequent periods, given that the Company's business operates in
a highly volatile business environment. This could result in material
impairment charge in the future.

     After giving effect to the aforementioned impairment charges of $13.6
million and $6.0 million, the remaining amount of goodwill and other
intangibles, net, is $6.0 million and $2.3 million for Attitude Network and
Webjump, respectively, as of December 31, 2000.

     As of December 31, 2000, the amount remaining in the Factorymall.com
restructuring accrual is $0.5 million, primarily related to severance and lease
obligations, which will be paid out periodically through August 2002 and the
amount remaining in the fourth quarter of 2000 restructuring accrual of $1.0
million for severance obligations will be paid out by April 2001. The total
restructuring accrual of $1.5 million is included within accrued expenses.

(4)  Acquisitions

     a)   factorymall.com, inc.

     On February 1, 1999, theglobe formed Nirvana Acquisition Corp. ("Nirvana"),
a Washington corporation and a wholly-owned subsidiary of theglobe. Nirvana was
merged with and into factorymall.com, inc., a Washington corporation d/b/a Azazz
("factorymall"), with factorymall as the surviving corporation. The merger was
effected pursuant to the Agreement and Plan of Merger, dated February 1, 1999,
by and among theglobe, Nirvana, and factorymall and certain shareholders
thereof. As a result of the merger, factorymall became a wholly-owned subsidiary
of theglobe. factorymall operated Azazz, a leading interactive department store.
This transaction was accounted for under the purchase method of accounting.

     The consideration paid by theglobe in connection with the merger consisted
of approximately 614,104 newly issued shares of Common Stock, valued at $17.5
million. In addition, options to purchase shares of factorymall's common stock,
without par value, were exchanged for options to purchase approximately 82,034
shares of theglobe's Common Stock, valued at $1.7 million. Warrants to purchase
shares of factorymall common stock were exchanged for warrants to purchase
approximately 18,810 shares of theglobe's Common Stock, valued at $0.4 million.
theglobe also assumed certain bonus obligations of factorymall triggered in
connection with the merger that resulted in the issuance by theglobe of
approximately 73,728 shares of Common Stock, valued at $2.0 million, and payment
by theglobe of approximately $0.5 million in cash, which has been included as
part of the total purchase price consideration. The Company also incurred
expenses of approximately $0.7 million related to the merger.

     The total purchase price for this transaction was approximately $22.8
million. Of this amount, approximately $0.1 million of the purchase price was
allocated to net tangible assets. The historical carrying amounts of such net
tangible assets approximated their fair values. The purchase price in excess of
the fair value of the net tangible assets assumed, in the amount of $22.7
million was allocated to goodwill and certain identifiable intangible assets and
is being amortized using the straight-line method over its estimated useful life
of 2 to 3 years

                                      -61-
<PAGE>

(3 years for goodwill), the expected period of benefit. Factorymall's results of
operations are included in the consolidated statement of operations from
February 1, 1999. In April 2000, the Company decided to close Factorymall's
operations and recorded an impairment and restucturing charge (see note 3).

     b)   Attitude Network, Ltd.

     On April 5, 1999, theglobe formed Bucky Acquisition Corp. ("Bucky"), a
Delaware corporation and a wholly-owned subsidiary of theglobe. Bucky was merged
with and into Attitude Network, Ltd., a Delaware corporation ("Attitude"), with
Attitude as the surviving corporation. The merger was effective pursuant to the
Agreement and Plan of Merger, dated April 5, 1999, which closed on April 9,
1999, by and among theglobe, Bucky, Attitude and certain shareholders thereof.
As a result of the merger, Attitude became a wholly-owned subsidiary of
theglobe. Attitude's properties publish games information content and include
HappyPuppy, KidsDomain and GamesDomain. This transaction was accounted for under
the purchase method of accounting.

     The consideration paid by theglobe in connection with the merger consisted
of 1,570,922 newly issued shares of Common Stock, valued at $43.1 million. In
addition, options to purchase shares of Attitude's common stock were exchanged
for options to purchase approximately 84,760 shares of Common Stock, valued at
$1.9 million. Warrants to purchase shares of Attitude common stock were
exchanged for warrants to purchase approximately 46,706 shares of theglobe
Common Stock, valued at $1.0 million. The Company also incurred expenses of
approximately $0.8 million related to the merger.

     The total purchase price for this transaction was approximately $46.8
million. Of this amount, approximately $0.2 million of the purchase price was
allocated to net tangible liabilities.  The historical carrying amounts of such
net tangible liabilities approximated their fair values.  The purchase price in
excess of the fair value of the net tangible liabilities assumed in the amount
of $47.0 million was allocated to goodwill and certain identifiable intangible
assets and is being amortized using the straight-line method over a its
estimated useful life of 3 years, the expected period of benefit.  Attitude's
results of operations are included in the consolidated statement of operations
from April 9, 1999. See note 3 for additional information regarding impariement
charge.

     (c)  Chips & Bits and Strategy Plus

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

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

  This transaction was accounted for under the purchase method of accounting.
The aggregate purchase price of these transactions was $15.5 million. The
Company has allocated $1.1 million to the net tangible assets of Chips & Bits
and $1.6 million to the net tangible liabilities of Strategy Plus. The
historical carrying amounts of the net tangible assets acquired and liabilities
assumed by the Company approximated their fair market value on the date of
acquisition. The purchase price in excess of the fair market value of the net
tangible assets acquired and liabilities assumed by the Company amounted to
$16.0 million and has been preliminarily allocated to goodwill. The goodwill
amount is being amortized under the straight-line method over an estimated
useful life of 3 years, the expected period of benefit. Chips & Bits & Strategy
Plus's results of operations are included in the consolidated statement of
operations from February 24, 2000.

                                      -62-
<PAGE>

  The following unaudited pro forma consolidated financial information gives
effect to the above described acquisitions, as if they had occurred at the
beginning of the respective periods by consolidating the results of operations
of the Company, factorymall.com (which was subsequently closed in April 2000 -
see note 3), Attitude Network, Ltd., Chips & Bits and Strategy Plus for the
years ended December 31, 2000 and 1999.


<TABLE>
<CAPTION>
                                                                       December 31,      December 31,
                                                                          2000               1999
                                                                      -------------      -----------
                                                                           (in thousands, except
                                                                              per share data)
<S>                                                                   <C>                <C>
Revenues.........................................................     $  31,560            $ 31,376
Net loss.........................................................      (105,187)            (62,406)
Net loss per share-basic and diluted.............................     $   (3.44)           $  (2.30)
Weighted average basic and diluted shares outstanding(1).........        30,568              27,165
</TABLE>

(1) The weighted average common shares used to compute pro forma basic net loss
    per share includes the actual weighted average common shares outstanding for
    the historical years ended December 31, 2000 and 1999, plus the common
    shares issued in connection with each of the acquisitions as if each
    acquisition occurred on January 1, 1999.

      (d)  Web Hosting Assets of Webjump.com

     On November 30, 1999, Jump Acquisition LLC ("Jump LLC"), a Delaware limited
liability company and a wholly owned subsidiary of theglobe, acquired all of the
assets of Webjump.com ("Webjump"), a web hosting property. The purchase of
the Webjump assets was effected pursuant to an Agreement of Purchase and Sale,
dated November 30, 1999, by and among theglobe, Jump LLC, Infonent.com and
certain stockholders of Infonent.com. The assets acquired in connection with
this transaction consisted of data, intellectual property and other physical
property used in connection with the operation of Webjump's web hosting
property.

     The Company issued 1,104,972 shares of newly issued Common Stock, valued at
$12.9 million, in connection with this transaction. An additional $12.5
million, payable in newly issued shares of Common Stock, was contingent based
upon the attainment by the Webjump property of certain performance targets on or
prior to November 30, 2000. Management determined that such targets were not
achieved as of the measurement date, however, on February 14, 2001 the former
shareholder group filed a lawsuit against us claiming that they are entitled to
$9.5 million related to the above mentioned targets. See Note 13(d) for
additional information.

     In addition to the issuance of Common Stock, the Company incurred
acquisition costs of $0.1 million. The aggregate purchase price of $13.0 million
has been accounted for as purchased intangible assets and will be amortized
using the straight-line method over an estimated useful life of 3 years, the
expected period of benefit. See note 3 for additional information regarding
impairment charge.

(5)  Property and Equipment

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                     December 31,       December 31,
                                                                                        2000               1999
                                                                                     ------------       ------------
                                                                                             (in thousands)
<S>                                                                                  <C>                <C>
Computer equipment and software, including assets under capital leases of
 $5,666 and $5,830, respectively...........................................            $11,948            $ 9,613
Furniture and fixtures, including assets under capital leases of $42 and
 $42, respectively.........................................................              1,632              1,159
Leasehold improvements.....................................................              2,112              2,025
                                                                                       -------            -------
                                                                                        15,692             12,797
</TABLE>

                                      -63-
<PAGE>

<TABLE>
<S>                                                                                    <C>                <C>
Less accumulated depreciation and amortization, including amounts related
 to assets under capital leases of $3,672  and $1,828 respectively.........              7,716              3,333
                                                                                       -------            -------
  Total....................................................................            $ 7,976            $ 9,464
                                                                                       =======            =======
</TABLE>

(6)     Income Taxes

     Income taxes for the year ended December 31, 2000 and 1999 are based solely
on state and local taxes on business and investment capital.

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are presented below.

<TABLE>
<CAPTION>
                                                                                        2000                1999
                                                                                      --------            --------
                                                                                             (in thousands)
<S>                                                                                   <C>                 <C>
Deferred tax assets:
  Net operating loss carryforwards.........................................           $ 49,473            $ 32,344
  Allowance for doubtful accounts..........................................                728                 603
  Depreciation.............................................................               (447)                151
  Issuance of warrants.....................................................                630                 630
  Deferred compensation....................................................                580                 193
  Start-up costs...........................................................                105                 210
  Deferred revenue.........................................................                 19                  75
                                                                                      --------            --------
     Total gross deferred tax assets.......................................             51,088              34,206
Less valuation allowance...................................................            (50,632)            (31,893)
                                                                                      --------            --------
     Total net deferred tax assets.........................................               (456)              2,313
Deferred tax liabilities:
  Intangible assets other than goodwill....................................               (456)             (2,313)
                                                                                      --------            --------
     Total gross deferred tax liabilities..................................                 --              (2,313)
                                                                                      --------            --------
                                                                                      $     --            $     --
                                                                                      ========            ========
</TABLE>

     Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a 100% valuation allowance. The valuation allowance
for deferred tax assets was $50.6 million and $31.9 million as of December 31,
2000 and 1999, respectively. The net change in the total valuation allowance was
$18.7 million and $17.6 million for the years ended December 31, 2000 and 1999,
respectively.

     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Of the total valuation
allowance of $50.6 million, subsequently recognized tax benefits, if any, in the
amount of $5.8 million will be applied directly to contributed capital.

     At December 31, 2000, the Company had net operating loss carryforwards
available for US and foreign tax purposes of $105.2 million and $2.8 million
respectively. These carryforwards expire through 2020.

     Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Code. As a result of ownership
changes which occurred in August 1997 and May 1999, the Company's operating tax
loss carryforwards and tax credit carryforwards are subject to these
limitations.

                                      -64-
<PAGE>

(7)  Sportsline.com, Inc. Distribution Agreement

In February 2000, the Company entered into a strategic two-year partnership with
Sportsline.com, Inc. ("Sportsline"), whereby the Company became the exclusively
developer and operator of community solutions on the Sportsline web site
("Sportsline Agreement"). In accordance with the Sportsline Agreement,
Sportsline received $5.0 million, paid in the Company's Common Stock and the
Company received the exclusive right to sell advertising, sponsorships and non-
sports related e-commerce within the Sportsline community area. The total shares
of Common Stock issued in connection with the Sportsline Agreement were 699,281
valued at $7.15 per share. The Company recorded the initial $5.0 million payment
in connection with this firmly committed executory contract in Other Assets and
began amortizing the amount under the straight-line method over the two year
contractual term of the Sportsline Agreement which commenced upon Sportsline's
launch of the Company's community solutions on its web site in April 2000.

  In connection with the $5 million payment, the Company guaranteed that if
Sportsline elected to sell any of its 699,281 shares during defined selling
periods and Sportsline's net proceeds from the sale of these shares was less
than the original issue price of $7.15 per share, the Company would be required
to pay Sportsline the difference, however, the total guarantee was limited to
$2,450,000 payable in cash and/or the Company's Common Stock at the Company's
option. The Company was required to provide $1.5 million a security deposit for
its obligation to pay the guarantee.

As of June 30, 2000, the Company recorded an additional $2.45 million in
Other Assets and Additional Paid-in-Capital in connection with this guarantee
payment based upon the fair market value of the Company's Common Stock at
June  30, 2000. This amount was being amortized over the remaining
contractual terms of the agreement and was being adjusted accordingly at each
interim balance sheet date for fluctuations in the fair market value of the
Company's Common Stock.

On November 1, 2000, theglobe and Sportsline terminated this agreement, whereby
theglobe agreed to settle its guarantee payment by releasing the $1.5 million
security deposit held in escrow. As a result of the termination, the Company
recorded an impairment charge in the fourth quarter of 2000 of $4,311,724,
representing the write-off of the remaining unamortized initial and guarantee
payments of $5,261,724 in the aggregate, the relinquishment of the security
deposit of $1,500,000 offset by the $2,450,000 guarantee liability originally
recorded as Additional Paid-In Capital, as the Company originally intended to
satisfy any potential guarantee payments under this agreement through the
issuance of Common Stock (see note 3). The total amount of amortizatin costs
recorded during 2000 in connection with the Sportsline Agreement, excluding the
$4,311,724 impairment charge was $2,188,276. These costs are included within
sales and marketing. In addition, the Company also agreed to purchase the
699,281 shares of common stock held by Sportsline for $371,458 based upon the
closing trading price on that date, or $0.531 per share. This transaction was
accounted for as treasury stock within stockholders' equity.

(8)  Stockholders' Equity

     Authorized Shares

     In July 1998, the Company amended and restated its certificate of
incorporation. As a result, the total number of shares which the Company is
authorized to issue is 103,000,000 shares: 100,000,000 of these shares are
Common Stock, each having a par value of $0.001; and 3,000,000 shares are
Preferred Stock, each having a par value of $0.001.

     Common Stock

     On November 14, 1998, the Company completed its initial public offering and
concurrent offering (`the offerings") directly to certain investors in which it
sold 6,963,334 shares of Common Stock, including 763,334 shares in connection
with the exercise of the underwriters' over-allotment option, at $4.50 per
share. Upon the closing of the offerings, all of the Company's preferred stock,
par value $0.001 per share (the "Preferred Stock") automatically converted into
an aggregate of 10,947,470 shares of Common Stock. Net proceeds from the

                                      -65-
<PAGE>

offerings, after underwriting and placement agent fees of $2.0 million and
offering costs of $2.0 million, were $27.3 million.

     In May 1999, the Company completed a secondary public offering of 3,500,000
shares of its Common Stock at an offering price of $20.00 per share. Net
proceeds to the Company amounted to $65.0 million, after underwriting discounts
and offering costs of $3.5 million and $1.5 million, respectively.

     In 1999, the Company issued shares of Common Stock in connection with the
acquisitions of factorymall, Attitude and the web hosting assets of Webjump. The
shares issued in connection with these transactions amounted to 687,832,
1,570,922 and 1,104,972, respectively.

     In 2000, the Company issued 1,903,973 shares of Common Stock in connection
with the acquisitions of Chips & Bits and Strategy Plus.

     Certain holders of Common Stock are subject to substantial restrictions on
the transfer or sale of shares and also have certain `piggyback' and demand
registration rights which, with certain exceptions, require the Company to make
all reasonable efforts to include within any of the Company's registration
statements to sell such securities any shares that have been requested to be so
included.

     Stock Dividend

     On May 14, 1999, the Company effected a 2-for-1 stock dividend to all
shareholders of record as of May 3, 1999. All share and per share information in
the accompanying consolidated financial statements has been retroactively
restated to reflect the effect of the stock dividend.

     Convertible Preferred Stock

     In April 1997, the Company amended the Series C Preferred Stock agreement
in order to extend the private placement of Series C Preferred Stock to April
15, 1997. In connection with this private placement, the Company issued an
additional 140,000 shares of Series C Preferred Stock at $2.00 per share for an
aggregate price of $280,000 in 1997.

     In August 1997, the Company authorized and issued 51 shares of Series D
Preferred Stock for an aggregate cash amount of $20,000,000 in connection with
the investment by Dancing Bear Investments, Inc., an entity controlled by the
Chairman, which holds a majority interest in the Company. These shares
constituted 51% of the fully diluted capital stock of the Company at the time of
exercise, as defined. In addition to the Series D Preferred Stock, Dancing Bear
Investments, Inc. also received warrants which provided the right to purchase up
to 10 shares of Series E Preferred Stock ("Series E Warrants") representing 10%
of the fully diluted capital stock of the Company at the time of exercise for an
aggregate purchase price of $5,882,353, if exercised in total. In connection
with the Dancing Bear investment, two officers and shareholders of the Company
received $500,000 each as signing bonuses in connection with their employment
agreements. Such amounts were accrued for at that time and were subsequently
paid in the first quarter of 1998.

     The conversion rate of the Series A, B and C Preferred Stock, as defined in
the original private placement agreements was the quotient obtained by dividing
the applicable series' original issue price by the applicable series' conversion
price. The original issue price and conversion price was $0.10 per share for
Series A, $0.525 per share for Series B and $2.00 per share for Series C, as
determined by negotiations among the parties. Each share of Series D and E
Preferred Stock was convertible into an amount of common representing 1% of the
fully diluted capital stock, as defined in the original private placement
agreement. Such conversion features were determined by negotiations among the
parties.

     Upon consummation of the Company's initial public offering in November
1998, all of the Company's outstanding Preferred Stock was converted into
10,947,470 shares of Common Stock.

                                      -66-
<PAGE>

     The number of common shares that the outstanding Series E Warrants are
convertible into upon exercise became fixed as a result of the consummation of
the initial public offering at 4,046,018 shares. These warrants are immediately
exercisable at approximately $1.45 per share. In May 1999, 100,000 shares of the
Series E Warrants were exercised.

     Warrants

     In connection with the acquisitions of factorymall and Attitude, the
Company assumed warrants to purchase 18,810 and 46,706 shares of Common Stock,
respectively. These warrants are immediately exercisable at a weighted average
exercise price of $9.16.

(9)     Stock Option Plan

     During 1995, the Company established the 1995 Stock Option Plan, which was
amended (the "Amended Plan") by the Board of Directors in December 1996 and
August 1997. Under the Amended Plan, the Board of Directors may issue incentive
stock options or nonqualified stock options to purchase up to 1,582,000 common
shares, as amended. Incentive stock options must be granted at the fair market
value of the Company's Common Stock at the date the option is issued.

     In accordance with the provisions of the Company's stock option plans,
nonqualified stock options may be granted to officers, directors, other
employees, consultants and advisors of the Company. The option price for
nonqualified stock options shall be at least 85% of the fair market value of the
Company's Common Stock. In general, options granted under the Company's stock
option plans expire after a ten-year period and in certain circumstances
options, under the 1995 and 1998 plans, are subject to the acceleration of
vesting. 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. A committee selected by the Company's Board of Directors has the
authority to approve optionees and the terms of the stock options granted,
including the option price and the vesting terms.

     In July 1998, the Company's 1998 Stock Option Plan (the "1998 Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company. The 1998 Plan authorized the issuance of 2,400,000 shares of Common
Stock, subject to adjustment as provided in the 1998 Plan. In March 1999, the
Board of Directors authorized an increase in the number of shares reserved for
issuance under the 1998 Plan from 2,400,000 to 3,400,000. This increase was
subsequently approved by the Company's stockholders in June 1999. The 1998 Plan
provides for the grant of "incentive stock options" intended to qualify under
Section 422 of the Code and stock options which do not so qualify. The granting
of incentive stock options is subject to limitation as set forth in the 1998
Plan. Directors, officers, employees and consultants of the Company and its
subsidiaries are eligible to receive grants under the 1998 Plan.

     In January 2000, the Board adopted the 2000 Broad Based Employee Stock
Option Plan (the "Broad Based Plan"). Under the Broad Based Plan, 850,000 shares
of Common Stock were reserved for issuance. The intention of the Broad Based
Plan is that at least 50% of the options granted will be to individuals who are
not managers or officers of theglobe. In April 2000, the Company's 2000 Stock
Option Plan (the "2000 Plan") was adopted by the Board of Directors and approved
by the stockholders of the Company. The 2000 Plan authorized the issuance of
500,000 shares of Common Stock, subject to adjustment as provided in the 2000
Plan. The Broad Based Plan and the 2000 Plan provide for the grant of "incentive
stock options" intended to qualify under Section 422 of the Code and stock
options which do not so qualify. The granting of incentive stock options is
subject to limitation as set forth in the Broad Based Plan and the 2000 Plan.
Directors, officers, employees and consultants of the Company and its
subsidiaries are eligible to receive grants under the Broad Based Plan and the
2000 Plan. A committee selected by the Company's Board of Directors has the
authority to approve optionees and the terms of the stock options granted,
including the option price and the vesting terms. Options granted under the
Broad Based Plan and the 2000 Plan expire after a ten year period.

                                      -67-
<PAGE>

     In July 2000, the Company granted options to purchase 1,250,000 shares of
Common Stock to Charles Peck in connection with his becoming the Company's new
Chief Executive Officer. These options have an exercise price of $1.94 per
share and have various vesting terms ranging from immediate to ten years.
Certain options have acceleration provisions in which the options vest if the
Company's common stock reaches certain price thresholds. These options were
granted pursuant to individual nonqualified stock option agreements between Mr.
Peck and the Company and not pursuant to any of the plans described above.

     During 2000, the Company recorded approximately $398,000 of non-cash
compensation expense in connection with the acceleratin of vesting of options
to purchase 210,000 shares of common stock pursuant to a severance agreement
with a former executive officer of the Company. The charge represents the
difference between the original exercise price of the option grants and the fair
value of the Company's common stock on the date of termination. This non-cash
compensation charge was included as part of serverance costs in connection with
the fourth quarter of 2000 restructuring charges.

     The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, compensation cost of $62,570, $66,000 and $66,000 has
been recognized for stock options granted to employees below fair market value
in 2000, 1999 and 1998, respectively, in the accompanying consolidated financial
statements. Compensation cost recognized in connection with stock options
granted in lieu of services rendered to non-employees was $263,761 and $55,000
for the years ended December 31, 2000 and 1999, respectively. There were no
stock options granted to non-employees, other than directors, during 1998.

     The Company applies APB No. 25 in accounting for its stock options granted
to employees and accordingly, no compensation expense has been recognized in the
consolidated financial statements (except for those options issued with exercise
prices less than fair market value at date of grant). Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under SFAS No. 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                   2000          1999            1998
                                                                   ----          ----            ----
                                                                 (in thousands, except per share data)
<S>                                                              <C>            <C>             <C>
Net loss--as reported.....................................       $103,866       $49,601         $16,046
                                                                 ========       =======         =======
Net loss--pro forma.......................................       $107,876       $61,071         $21,290
                                                                 ========       =======         =======

Basic net loss per common share--as reported..............       $  (3.43)      $ (2.00)        $ (3.37)
                                                                 ========       =======         =======
Basic net loss per common share--pro forma................       $  (3.56)      $ (2.46)        $ (4.47)
                                                                 ========       =======         =======
</TABLE>

     The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $1.64, $13.85 and $4.02, respectively, on the date of
grant using the option-pricing method with the following weighted-average
assumptions: 2000--risk-free interest rate 6.22%, and an expected life of four
years, and a volatility of 130%; 1999--risk-free interest rate 5.14%, and an
expected life of four years, and a volatility of 111%; 1998--risk-free interest
rate 5.00%, and an expected life of four years, and a volatility of 150%.

                                      -68-
<PAGE>

     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                                      Options        Weighted Average
                                                                                      Granted         Exercise Price
                                                                                    ----------       ----------------
<S>                                                                                 <C>              <C>
Outstanding at December 31, 1997...........................................          1,443,958            $ 0.22
Granted....................................................................          1,835,100            $ 4.51
Exercised..................................................................           (405,166)           $ 0.63
Canceled...................................................................            (43,650)           $ 0.39
                                                                                    ----------
Outstanding at December 31, 1998...........................................          2,830,242            $ 2.93
Granted....................................................................          1,823,300            $16.32
Assumed in connection with acquisitions....................................            522,885            $24.80
Exercised..................................................................           (175,480)           $ 2.38
Canceled...................................................................           (699,060)           $22.83
                                                                                    ----------
Outstanding at December 31, 1999...........................................          4,301,887            $ 8.06
Granted....................................................................          4,143,182            $ 2.21
Exercised..................................................................           (663,799)           $ 0.53
Canceled...................................................................         (2,666,467)           $ 9.42
                                                                                    ----------            ------
Outstanding at December 31, 2000...........................................          5,114,803            $ 3.59
                                                                                    ==========            ======
Vested at December 31, 1999................................................          2,335,447
                                                                                    ==========
Vested at December 31, 2000................................................          2,352,574
                                                                                    ==========
Options available at December 31, 2000.....................................          1,341,658
                                                                                    ==========
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2000

<TABLE>
<CAPTION>
                                         Options Outstanding                                Options Exercisable
                      -------------------------------------------------------------   ----------------------------------------
                                          Weighted Average
                                        Remaining Contractual
    Range of              Number              Life                Weighted Average                           Weighted Average
 Exercise Price        Outstanding           (years)               Exercise Price      Number Outstanding     Exercise Price
----------------      -------------    -----------------------   ------------------   --------------------  ------------------
<S>                   <C>              <C>                       <C>                  <C>                   <C>
  $  .01 - $  .01          25,000              4.8                     $ 0.01                 25,000                 $ 0.01
  $  .05 - $  .05          39,520              5.0                     $ 0.05                 39,584                 $ 0.05
  $  .20 - $  .20          28,000              5.3                     $ 0.20                 28,000                 $ 0.20
  $  .35 - $  .47         241,452              2.3                     $ 0.36                227,952                 $ 0.36
  $  .53 - $  .78         908,500              9.9                     $ 0.54                      0                      0
  $  .81 - $ 1.13           6,500              9.7                     $ 1.01                      0                      0
  $ 1.25 - $ 1.67         609,050              7.8                     $ 1.59                244,394                 $ 1.59
  $ 1.94 - $ 2.50       1,294,000              9.5                     $ 1.95                 95,022                 $ 1.96
  $ 3.25 - $ 4.50       1,289,776              5.1                     $ 4.44              1,088,688                 $ 4.42
  $ 4.95 - $ 6.69         162,879              5.6                     $ 6.42                158,003                 $ 6.41
  $10.38 - $14.25         121,480              4.5                     $11.17                 85,730                 $10.98
  $15.75 - $17.63         388,130              4.7                     $15.77                360,005                 $15.76
  $25.38 - $31.90             516              8.2                     $26.84                    196                 $29.24
  ---------------       ---------              ---                     ------              ---------                 ------
  $  .01 - $34.26       5,114,803              7.3                     $ 3.59              2,352,574                 $ 5.58
  ===============       =========              ===                     ======              =========                 ======
</TABLE>

                                      -69-
<PAGE>


(10)  Employee Stock Purchase Plan

     The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the
Board of Directors in February 1999 and subsequently approved by the Company's
stockholders in June 1999. The ESPP provides eligible employees of the Company
the opportunity to apply a portion of their compensation to the purchase of
shares of the Company at a 15% discount. The Company has reserved 400,000
authorized shares of Common Stock for issuance under the ESPP. As of December
31, 2000, the Company had issued approximately 48,803 shares in connection with
the ESPP.


                                      -70-
<PAGE>


(11) Non Recurring Charges

     In 1998, the Company recorded a non-cash, non-recurring charge of $1.4
million to earnings in the third quarter of 1998 in connection with the transfer
of Series E Warrants to acquire 450,000 shares of Common Stock by Dancing Bear
Investments, Inc. (the Company's principal shareholder at the date of transfer)
to certain officers of the Company, at an exercise price of approximately $1.45
per share. The Company accounted for such transaction as if it were a
compensatory plan adopted by the Company. Accordingly, such amount was recorded
as a non-cash, non-recurring compensation expense in the Company's statement of
operations for services provided by such officers to the Company with an
offsetting increase to additional paid-in capital. The amount of the non-cash
charge was based on the difference between the fair market value at the time of
the transfer ($4.50 per share) and the exercise price per warrant of
approximately $1.45 per share.

(12) Extraordinary Item-Gain on Early Retirement of Debt

     In connection with the acquisition of Attitude, the Company assumed a non-
interest bearing obligation, payable over 17 years, ("happypuppy note") to the
former owner of the happypuppy.com website ("happypuppy"), an online property
acquired by Attitude prior to its acquisition by the Company. The net present
value of the happypuppy note as of the date of acquisition was approximately
$2.7 million. In October 1999, in connection with the settlement of certain
litigation between the Company and the former owner of happypuppy, the Company
made a lump sum payment of approximately $1.4 million to the former owner of
happypuppy. The $1.4 million represented full repayment of the happypuppy note.
At the time of repayment, the net present value of the happypuppy note was
approximately $2.8 million. Accordingly, the Company recognized an extraordinary
gain of $1.4 million on the early retirement of long-term debt.

(13) Commitments & Contingencies

     (a) Operating Leases

     The Company has several non-cancelable leases, primarily relating to the
rental of certain facilities and equipment. Future minimum lease payments, by
year and in the aggregate, under operating leases with initial or remaining
terms in excess of one year consisted of the following at December 31, 2000:

Year ended December 31,                                             Amount
-----------------------                                           -----------
2001...........................................................   $ 1,819,670
2002...........................................................     1,604,471
2003...........................................................     1,565,637
2004...........................................................     1,601,647
2005 and thereafter............................................    14,530,404
                                                                  -----------

     Total minimum lease payments..............................   $21,121,830
                                                                  ===========

     Rent expense under operating leases amounted to $2.2 million, $2.4 million
and $0.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively.

     (b)  Capital Leases

     The Company has non-cancelable capital leases relating to the lease of
certain property and equipment.  The Company's lease obligations are
collateralized by Certificates of Deposit and interest bearing accounts at

                                      -71-
<PAGE>

December 31, 2000.  Future minimum lease payments, by year and in the aggregate,
under capital leases with initial or remaining terms in excess of one year
consisted of the following at December 31, 2000:

<TABLE>
<CAPTION>
                                                                                          Capital Leases
Year ended December 31,                                                                   --------------
----------------------
<S>                                                                                       <C>
2001..................................................................................      $2,160,447
2002..................................................................................         454,608
2003..................................................................................          21,006
2004..................................................................................              --
2005 and thereafter...................................................................              --
                                                                                            ----------
     Total minimum lease payments.....................................................       2,636,061
Less amount representing interest (at rates ranging from 10.5% to 19.9%)..............         348,635
                                                                                            ----------
Present value of minimum capital lease payments.......................................       2,287,426
Less current installments of obligation under capital leases..........................       1,905,091
                                                                                            ----------
Obligations under capital leases, excluding current installments......................      $  382,335
                                                                                            ==========
</TABLE>

     (c)  Employment Agreements

     The Company maintains employment agreements, expiring at various intervals
from 2001 through 2005, with several executive officers of the Company.  The
employment agreements provide for minimum salary levels, incentive compensation
and severance benefits, among other items.

     (d)  Litigation

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

     On February 14, 2001, Mohammed Poonja, Chapter 11 Trustee for the estate of
Infonent.com, Inc., served an Amended Complaint on the Company and Jump
Acquistion, LLC ("Jump"). The Company has not, as of April 2, 2001, responded to
the Amended Complaint. The Amended Complaint asserts claims for violation of the
automatic stay provision, 11 U.S.C. (SS) 362, as a result of the Company's
exercise of its contractual rights to terminate the registration statement for
Infonenet.com, Inc.'s shares in the Company pursuant to a November 30, 1999
Registration Rights Agreement between the Company and Infonent.com, Inc.; breach
of contract for the Company's and Jump's alleged failure to make certain
earn-out payments to Infonent.com, Inc. in connection with a November 30,1999
purchase agreement (the "Agreement"); breach of implied covenant of good faith
of the implied covenant of good faith and fair dealing for its alleged delay in
registering newly-issued shares of the Company's common stock in connection with
the Registration Rights Agreement. The Amended Complaint seeks $9,524,859 in
damages, plus interest, compensatory damages on the automatic stay cause of
action, costs an disbursements of the action, and attorneys' fees. The Company
is currently in the process of reviewing the allegations of the Amended
Complaint and plans on vigorously defending this action. However, based on
future developments and as additional information becomes known, it is possible
that the ultimate resolution of such matters could have a material adverse
effect on the Company.

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

     (e)  Contingent Stock Issuances

     In connection with the acquisition of the web hosting assets of Webjump.com
in December 1999, an additional payment of $12.5 million, payable in newly
issued shares of common stock, was contingent based upon the attainment of
certain performance targets measured as of November 30, 2000. Management
determined that such targets were not achieved as of the measurement date,
however, on February 14, 2001 the former shareholder group filed a lawsuit
against us claiming that they are entitled to $9.5 million related to the above
mentioned targets. See Note 13(d) for additional information.

     In connection with the acquisition of Chips & Bits, Inc. and Strategy Plus,
Inc. in February 2000, an additional payment of $1.25 million, payable in newly
issued shares of Common Stock, is contingent on the attainment of certain
performance targets by Chips & Bits, Inc. and Strategy Plus, Inc.  The
contingent consideration, if any, will be recorded by us when the contingency is
resolved and the consideration is or becomes issuable.  Any additional cost
would be allocated to goodwill, and amortized over the remaining life of the
goodwill. In the event that we are required to issue these additional
securities, the percentage ownership of our then current-stockholders would be
reduced.

                                      -72-
<PAGE>

(14)     Related Party Transactions

     Certain officers and directors of the Company also serve as officers and
directors of Dancing Bear Investments, Inc.

     In 1998, the Company entered into an electronic commerce contract with
AutoNation, Inc. ("AutoNation"), (formerly doing business as Republic
Industries), an entity affiliated with a Director of the Company, pursuant to
which the Company granted a right of first negotiation with respect to the
exclusive right to engage in or conduct an automotive "clubsite" on theglobe
website through AutoNation.  Additionally, AutoNation agreed to purchase
advertising from the Company for a three-year period at a price which adjusted
to match any more favorable advertising price quoted to a third party by the
Company, excluding certain short-term advertising rates. For the years ended
December 31, 2000 and 1999, the Company recognized revenue of $0.3 million and
$0.3 million, respectively, in connection with the AutoNation agreement.

     Additionally in 1998, the Company entered into an electronic commerce
arrangement with InteleTravel, an entity controlled by the Chairman of the
Company, whereby the Company agreed to develop a web community for InteleTravel
in order for its travel agents to conduct business through theglobe in exchange
for access to InteleTravel customers for distribution of the Company's products
and services. For the year ended December 31, 1999, the Company recognized
revenue of $0.3 million in connection with the InteleTravel agreement.  There
was no revenue recognized for the year ended December 31, 2000 and 1998.

     In 1999, the Company entered into a community agreement with
ClikVacations.com Inc., an entity controlled by the Chairman of the Company,
whereby the Company agreed to co-brand certain products and services of theglobe
for use on the Clik.com website.  Additionally, the Company agreed to sell all
advertising inventory related to these co-branded products and services in
exchange for a portion of the net advertising sales.  The Company recognized
revenue of $0.1 million in connection with the ClikVacations.com agreement for
the year ended December 31, 1999.  There was no revenue recognized for the years
ended December 31, 2000 and 1998.

     The Company believes that the terms of the foregoing arrangements are on
comparable terms as if they were entered into with unaffiliated third parties.

     Stockholders' Agreement

     In 1997, the Chairman, the former Co-Chief Executive Officers, two
Directors of the Company and Dancing Bear Investments, Inc. (an entity
controlled by the Chairman) entered into a Stockholders' Agreement (the
"Stockholders' Agreement") pursuant to which the Chairman and Dancing Bear
Investments, Inc. or certain entities controlled by the Chairman and certain
permitted transferees (the "Chairman Group") will agree to vote for certain
nominees of the former Co-Chief Executive Officers or certain entities
controlled by the former Co-Chief Executive Officers and certain permitted
transferees (the "Former Co-Chief Executive Officer Groups") to the Board of
Directors and the Former Co-Chief Executive Officer Groups will agree to vote
for the Chairman Group's nominees to the Board, who will represent up to five
members of the Board.  Additionally, pursuant to the terms of the Stockholders'
Agreement, the former Co-Chief Executive Officer and the two Directors have
granted an irrevocable proxy to Dancing Bear Investments, Inc. with respect to
any shares that may be acquired by them pursuant to the exercise of outstanding
Warrants transferred to each of them by Dancing Bear Investments, Inc.  Such
shares will be voted by Dancing Bear Investments, Inc., which is controlled by
the Chairman, and will be subject to a right of first refusal in favor of
Dancing Bear Investments, Inc. upon certain private transfers.  The
Stockholders' Agreement also provides that if the Chairman Group sells shares of
Common Stock and Warrants representing 25% or more of the Company's outstanding
Common Stock (including the Warrants) in any private sale after the Offerings,
the Former Co-Chief Executive Officer Groups and the two Directors of the
Company will be required to sell up to the same percentage of their shares as
the Chairman Group sells.  If either the Chairman Group sells shares of Common
Stock or Warrants representing 25% or more of the Company's outstanding Common
Stock (including the Warrants) or the Former Co-Chief Executive Officer Groups
sell shares or Warrants

                                      -73-
<PAGE>

representing 7% or more of the shares and Warrants of the Company in any private
sale after the Offerings, each other party to the Stockholders' Agreement,
including entities controlled by them and their permitted transferees, may, at
their option, sell up to the same percentage of their shares.

(15) Valuation and Qualifying Accounts - Allowance for Doubtful Accounts

<TABLE>
<CAPTION>
                          BALANCE
                            AT              ADDITIONS        ADDITIONS                        BALANCE
                         BEGINNING           DUE TO         CHARGED TO                       AT END OF
YEAR ENDED,              OF PERIOD         ACQUISITONS        EXPENSE       DEDUCTIONS        PERIOD

--------------------------------------------------------------------------------------------------------
<S>                  <C>               <C>                 <C>             <C>                <C>
December 31, 1998      $    12,000        $   387,878      $   387,878     $    99,742     $   300,136
December 31, 1999      $   300,136        $ 1,881,473      $ 1,881,473     $   773,517     $ 1,408,092
December 31, 2000      $ 1,408,092        $   262,426      $ 3,005,746     $ 2,415,940     $ 2,260,324
</TABLE>

(16) Quarterly Financial Information - Unaudited

Condensed Quarterly Consolidated Statements of Operation (in thousands, except
per share date)

<TABLE>
<CAPTION>


                                                             2000                                          1999
                                                             ----                                          ----
                                        Fourth        Third       Second        First     Fourth      Third      Second     First
                                        Quarter      Quarter      Quarter      Quarter    Quarter    Quarter     Quarter   Quarter
                                        -------      -------      -------      -------    -------    -------     -------   ------
<S>                                     <C>          <C>          <C>          <C>        <C>         <C>        <C>       <C>

Revenue                                 $  7,756     $ 6,749      $ 8,377      $ 6,979    $ 6,421    $ 4,898     $ 4,130   $ 3,192
Cost of Revenues                           5,143       4,845        4,683        4,408      3,339      2,259       1,754     1,196
                                      ---------------------------------------------------------------------------------------------
Gross Profit                               2,613       1,904        3,694        2,571      3,082      2,639       2,376     1,996
Operating expenses                        40,883      18,800       36,833       19,400     21,184     17,176      15,689     8,416
                                      ---------------------------------------------------------------------------------------------
Loss from operations                     (38,270)    (16,896)     (33,139)     (16,829)   (18,102)   (14,537)    (13,313)   (6,420)
Other income, net                            299         361          456          420        559        636         314       196
                                      ---------------------------------------------------------------------------------------------
Loss before provision for income taxes
  and extraordinary item                 (37,971)    (16,535)     (32,683)     (16,409)   (17,543)   (13,901)    (12,999)   (6,224)
Provision for income taxes                    94          54           50           70         (7)       144         107        46
                                      ---------------------------------------------------------------------------------------------
Loss before extraordinary item           (38,065)    (16,589)     (32,733)     (16,479)   (17,536)   (14,045)    (13,106)   (6,270)
Extraordinary item-gain on early
  retirement of debt                         -           -            -            -        1,356        -           -         -
                                      ---------------------------------------------------------------------------------------------
Net loss                                 (38,065)    (16,589)     (32,733)     (16,479)   (16,180)   (14,045)    (13,106)   (6,270)
                                      =============================================================================================
Basic and diluted net loss per          $  (1.24)    $ (0.53)     $ (1.07)     $ (0.57)   $ (0.60)   $ (0.53)    $ (0.54)  $ (0.30)
  common share

</TABLE>

Due to changes in the number of shares outstanding, quarterly loss per share
amounts do not necessarily add to the totals for the years.

Item 9.  Changes in and Disagreements with Accountants and Financial Disclosure

         None.

                                      -74-
<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

     Information called for by Part III, Item 10, regarding the Registrant's
directors is included in the our Proxy Statement relating to our annual meeting
of stockholders to be held in June 2001, and is incorporated herein by
reference.  The information appears in the Proxy Statement under the caption
"Election of Directors."  The Proxy Statement will be filed within 120 days of
December 31, 2000, the Company's year-end.

Item 11.  Executive Compensation

     Information called for by Part III, Item 11, is included in the our Proxy
Statement relating to the our annual meeting of stockholders to be held in June
2001, and is incorporated herein by reference.  The information appears in the
Proxy Statement under the caption "Executive Compensation."  The Proxy Statement
will be filed within 120 days of December 31, 2000, the Company's year-end.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information called for by Part III, Item 12, is included in the our Proxy
Statement relating to the our annual meeting of stockholders to be held in June
2001, and is incorporated herein by reference.  The information appears in the
Proxy Statement under the caption "Beneficial Ownership of Shares."  The Proxy
Statement will be filed within 120 days of December 31, 2000, the Company's
year-end.

Item 13.  Certain Relationships and Related Transactions

     Information regarding our relationships and related transactions is
available under "Certain Transactions" in our Proxy Statement relating to our
annual meeting of stockholders to be held in June 2001, and is incorporated
herein by reference.  The Proxy Statement will be filed within 120 days of
December 31, 2000, the Company's year-end.

                                      -75-
<PAGE>

                                    PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K


(a)      The following documents are filed as part of this report:

         (1)      Financial Statements: See Index to Consolidated Financial
                  Statements at Item 8 on page 45 of this report.

         (2)      Financial Statement Schedule: See Notes to Consolidated
                  Financial Statements at Item 8 on page 45 of this report.


         (3)      Exhibits

         The following Exhibits are attached hereto and incorporated herein by
reference:

                   2.1     Agreement and Plan of Merger dated as of February 1,
                           1999 by and among theglobe.com, inc., Nirvana
                           Acquisition Corp., factorymall.com, inc. d/b/a Azazz,
                           and certain selling stockholders thereof**

                   2.2     Agreement and Plan or Merger dated as of April 5,
                           1999 by and among theglobe.com, inc., Bucky
                           Acquisition Corp., Attitude Network, Ltd. and certain
                           shareholders thereof***

                   2.3     Agreement of Purchase and Sale as dated November 30,
                           1999 by and among theglobe.com, inc., Jump
                           Acquisition LLC, Infonent.com, Inc. and certain
                           stockholders thereof****

                   2.4     Agreement and Plan of Merger dated as of January 13,
                           2000 by and among theglobe.com, inc., Chips & Bits,
                           Inc., Strategy Plus, Inc., CB Acquisition Corp., SP
                           Acquisition Corp., Yale Brozen and Tina Brozen*****

                   3.1     Form of Fourth Amended and Restated Certificate of
                           Incorporation of the Company*

                   3.2     Form of By-Laws of the Company*

                   4.1     Second Amended and Restated Investor Rights Agreement
                           among the Company and certain equity holders of the
                           Company, dated as of August 13, 1997*

                   4.2     Amendment No.1 to Second Amended and Restated
                           Investor Rights Agreement among the Company and
                           certain equity holders of the Company, dated as of
                           August 31, 1998********

                   4.3     Amendment No.2 to Second Amended and Restated
                           Investor Rights Agreement among the Company and
                           certain equity holders of the Company, dated April 9,
                           1999*******

                   4.4     Form of Amendment No.3 to the Second Amended and
                           Restated Investor Rights Agreement among the Company
                           and certain equity holders of the Company*******

                   4.5     Registration Rights Agreement, dated as of September
                           1, 1998********

                   4.6     Amendment No.1 to Registration Rights Agreement,
                           dated as of April 9, 1999*******

                   4.7     Specimen certificate representing shares of Common
                           Stock of the Company*

                                      -76-
<PAGE>

                   4.8     Amended and Restated Warrant to Acquire Shares of
                           Common Stock*

                   4.9     Form of Rights Agreement, by and between the Company
                           and American Stock Transfer & Trust Company as Rights
                           Agent*

                   4.10    Registration Rights Agreement among the Company and
                           certain equity holders of the Company, dated February
                           1, 1999, in connection with the acquisition of
                           factorymall.com********

                   4.11    Form of Amended and Restated Registration Rights
                           Agreement among the Company and certain equity
                           holders of the Company in connection with the
                           acquisition of factorymall.com*******

                   4.12    Registration Rights Agreement among the Company and
                           certain shareholders of the Company, dated April 9,
                           1999, in connection with the acquisition of Attitude
                           Network, Ltd*******

                   4.13    Registration Rights Agreement among the Company and
                           certain shareholders of the Company, dated November
                           30, 1999, in connection with the acquisition of
                           Webjump.com from Infonent.com, Inc.

                   4.14    Registration Rights Agreement among the Company and
                           certain shareholders of the Company, dated February
                           24, 1999, in connection with the acquisition of Chips
                           & Bits, Inc. and Strategy Plus, Inc.

                   9.1     Stockholders' Agreement by and among Dancing Bear
                           Investments, Inc., Michael Egan, Todd V. Krizelman,
                           Stephan J. Paternot, Edward A. Cespedes and Rosalie
                           V. Arthur, dated as of February 14, 1999***

                   10.1    Employment Agreement dated June 6, 2000, by and
                           between the Company and Todd V. Krizelman*

                   10.2    Employment Agreement dated June 6, 2000, by and
                           between the Company and Stephan J. Paternot*

                   10.3    Employment Agreement dated July 14, 2000, by and
                           between the Company and Charles Peck*

                   10.4    Form of Indemnification Agreement between the Company
                           and each of its Directors and Executive Officers*

                   10.5    Lease Agreement dated January 12, 1999 between the
                           Company and Broadpine Realty Holding Company,
                           Inc.********

                   10.6    2000 Broad Based Stock Option Plan (filed with 3/2000
                           form 10-K)

                   10.7    1998 Stock Option Plan, as amended*******

                   10.8    1995 Stock Option Plan*

                   10.9    factorymall.com, inc. 1998 Stock Option Plan******

                   10.10   Form of Nonqualified Stock Option Agreement with
                           James McGoodwin, Kevin McKeown and Mark Tucker******

                   10.11   Attitude Network, Ltd. Stock Option Plan*******

                   10.12   Employee Stock Purchase Plan********

                   10.13   License Agreement between the Company and Engage
                           Technologies, Inc. dated October 31, 1998.******** +

                   10.14   Employment Agreement dated August 31, 1998, by and
                           between the Company and Dean Daniels*

                                      -77-
<PAGE>

                   10.15   Data Center Space Lease between Telehouse
                           International Corporation of America and the Company,
                           dated August 24, 1998*

                   10.16   2000 Stock Option Plan (Filed with 2000 Proxy)

                    23.1   Consent of KPMG LLP


(b)         Reports on Form 8-K

         On February 23, 2000, we filed a Form 8-K under Items 5 and 7 regarding
our distribution agreements with Sportsline.com, Inc.

         On February 24, 2000, we filed a Form 8-K under Items 2 and 7 regarding
our acquisitions of Chips & Bits, Inc. and Strategy Plus, Inc.




---------------------------------------------------------
       * Incorporated by reference from our registration statement on Form S-1
         (Registration No. 333-59751).
      **       Incorporated by reference from our report on Form 8-K filed on
               February 16, 1999.
     ***       Incorporated by reference from our report on Form 8-K filed on
               April 9, 1999.
    ****       Incorporated by reference from our report on Form 8-K filed on
               November 30, 1999.
   *****       Incorporated by reference from our report on Form 8-K
               filed on February 24, 2000.
  ******       Incorporated by reference from our Registration of Form S-8
               (No.333-75503), filed on April 1, 1999
 *******       Incorporated by reference from our registration statement on Form
               S-1 (Registration No. 333-76153).
********       Incorporated by reference on our Report Form 10-K filed March
               1999.
       + Confidential treatment granted as to parts of this document.

                                      -78-
<PAGE>

                                  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.

Dated:  April 2, 2001                       theglobe.com, inc.

                                            By /s/ Charles M. Peck
                                               -------------------------------
                                                Charles M. Peck
                                                Chief Executive Officer

         Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated this 30th day of March, 2000.

          /s/  Michael S. Egan                      Chairman
          ------------------------------------
               Michael S. Egan

          /s/  Todd V. Krizelman                    Director
          ------------------------------------
               Todd V. Krizelman

          /s/  Stephan J. Paternot                  Director
          ------------------------------------
               Stephan J. Paternot

          /s/  Dean S. Daniels                      President and Chief
          ------------------------------------
               Dean S. Daniels                      Operating Officer

          /s/  Stephanie Hauge                      Vice President and Chief
          ------------------------------------
               Stephanie Hauge                      Financial Officer (Chief
                                                    Accounting Officer)

          /s/  Rosalie V. Arthur                    Director
          ------------------------------------
               Rosalie V. Arthur

          /s/  Edward A. Cespedes                   Director
          ------------------------------------
               Edward A. Cespedes

          /s/  Henry C. Duques                      Director
          ------------------------------------
               Henry C. Duques

          /s/  Robert M. Halperin                   Director
          ------------------------------------
               Robert M. Halperin

                                      -79-
<PAGE>

          /s/  H. Wayne Huizenga                    Director
          ------------------------------------
               H. Wayne Huizenga



          /s/  Richard Sarnoff                      Director
          ------------------------------------
               Richard Sarnoff



                                      -80-