**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **FORM** **10-K**
 (Mark
        One)
 x **Annual
        Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
        1934**
 **For
        the fiscal year ended December 31, 2005**
 or
  o **Transition
        Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
        1934**
 **For
        the transition period from** ___________________________ **to** __________________________
 
 COMMISSION
        FILE NO. 0-25053
 
 **THEGLOBE** **.COM,
        INC.**
 (EXACT
        NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 STATE
                  OF DELAWARE
              
              14-1782422(STATE
                  OR OTHER JURISDICTION OF
              
              (I.R.S.
                  EMPLOYERINCORPORATION
                  OR ORGANIZATION)
              
              IDENTIFICATION
                  NO.)
 
 110
        EAST
        BROWARD BOULEVARD, SUITE 1400, FORT LAUDERDALE, FL. 33301
 
 (ADDRESS
        OF PRINCIPAL EXECUTIVE OFFICES)
 
 Registrant’s
        telephone number, including area code (954) 769 - 5900
 
 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 if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. o Yes x
        No
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act. o Yes x
        No
  Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days: x Yes o
        No
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K (Sec.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
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
        accelerated filer o   Accelerated
        filer o   Non-accelerated
        filer x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Act).
 o
        Yes x No
 
 Aggregate
        market value of the voting Common Stock held by non-affiliates of the registrant
        as of the close of business on March 20, 2006: $35,581,462.*
 
 *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.
 
 The
        number of shares outstanding of the Registrant's Common Stock, $.001 par
        value
        (the "Common Stock") as of March 21, 2006 was 174,722,565.
  
  **theglobe.com,
        inc.**
 **FORM
        10-K**
 
 **TABLE
        OF CONTENTS**
  PART
                  I
              
              PageItem
                  1.
              Business
              2Item
                  1A.
              Risk
                  Factors
              15Item
                  1B.
              Unresolved
                  Staff Comments
              34Item
                  2.
              Properties
              35Item
                  3.
              Legal
                  Proceedings
              35Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              36PART
                  IIItem
                  5.
              Market
                  for Registrant’s Common Equity and Related Stockholder
                  Matters
              37Item
                  6.
              Selected
                  Financial Data
              40Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              41Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              59Item
                  8.
              Financial
                  Statements and Supplementary Data
              F-1Item
                  9.
              Changes
                  in and Disagreements With Accountants on Accounting and Financial
                  Disclosure
              60Item
                  9A.
              Controls
                  and Procedures
              60Item
                  9B.
              Other
                  Information
              60PART
                  IIIItem
                  10.
              Directors
                  and Executive Officers of the Registrant
              60Item
                  11.
              Executive
                  Compensation
              62Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              66Item
                  13.
              Certain
                  Relationships and Related Transactions
              67Item
                  14.
              Principal
                  Accountant Fees and Services
              68PART
                  IVItem
                  15.
              Exhibits
                  and Financial Statements Schedules
              69SIGNATURES
              
              73
 i
 
 **FORWARD
        LOOKING STATEMENTS**
 
 This
        Form
        10-K contains forward-looking statements within the meaning of the federal
        securities laws that relate to future events or our future financial
        performance. In some cases, you can identify forward-looking statements by
        terminology, such as "may," "will," "should," "could," "expect," "plan,"
        "anticipate," "believe," "estimate," "project," "predict," "intend," "potential"
        or "continue" or the negative of such terms or other comparable terminology,
        although not all forward-looking statements contain such terms. In addition,
        these forward-looking statements include, but are not limited to, statements
        regarding:
 
 ·
              implementing
                  our business plans;·
              marketing
                  and commercialization of our existing products and those products
                  under
                  development;·
              plans
                  for future products and services and for enhancements of existing
                  products
                  and services;·
              our
                  ability to implement cost-reduction programs;·
              potential
                  governmental regulation and taxation;·
              the
                  outcome of any pending litigation;·
              our
                  intellectual property;·
              our
                  estimates of future revenue and profitability;·
              our
                  estimates or expectations of continued losses;·
              our
                  expectations regarding future expenses, including cost of revenue,
                  product
                  development, sales and marketing, and general and administrative
                  expenses;·
              difficulty
                  or inability to raise additional financing, if needed, on terms
                  acceptable
                  to us;·
              our
                  estimates regarding our capital requirements and our needs for
                  additional
                  financing;·
              attracting
                  and retaining customers and employees;·
              rapid
                  technological changes in our industry and relevant markets;·
              sources
                  of revenue and anticipated revenue;·
              plans
                  for future acquisitions and entering new lines of business;·
              plans
                  for divestitures or spin-offs of certain businesses or assets;·
              competition
                  in our market; and·
              our
                  ability to continue to operate as a going concern.
 
 These
        statements are only predictions. Although we believe that the expectations
        reflected in these forward-looking statements are reasonable, we cannot
        guarantee future results, levels of activity, performance or achievements.
        We
        are not required to and do not intend to update any of the forward-looking
        statements after the date of this Form 10-K or to conform these statements
        to
        actual results. In light of these risks, uncertainties and assumptions, the
        forward-looking events discussed in this Form 10-K might not occur. Actual
        results, levels of activity, performance, achievements and events may vary
        significantly from those implied by the forward-looking statements. A
        description of risks that could cause our results to vary appears under "Risk
        Factors" and elsewhere in this Form 10-K.
 
 In
        this
        Form 10-K, we refer to information regarding our potential markets and other
        industry data. We believe that we have obtained this information from reliable
        sources that customarily are relied upon by companies in our industry, but
        we
        have not independently verified any of this information.
  1
 
 **PART
        I**
 
 **ITEM
        1. BUSINESS**
 
 **DESCRIPTION
        OF BUSINESS**
 
 During
        2005 theglobe.com, inc. (the "Company" or "theglobe") managed four primary
        lines
        of business. One line of business, Voice over Internet Protocol ("VoIP")
        telephony services, includes tglo.com, inc. (formerly known as voiceglo
        Holdings, Inc.), a wholly-owned subsidiary of theglobe that offers VoIP-based
        phone service. The term "VoIP" refers to a category of hardware and software
        that enables people to use the Internet to make phone calls. The second line
        of
        business consists of our network of computer games businesses, each of which
        specializes in the games business by delivering games information and selling
        games in the United States and abroad. These businesses are: our print
        publication business, which currently consists of Computer Games magazine;
        our
        online website business, which consists of our CGOnline website
        (www.cgonline.com) and our Game Swap Zone website (www.gameswapzone.com);
        and
        our Chips & Bits, Inc. ("Chips & Bits") games distribution company
        (www.chipsbits.com). Our Now Playing magazine publication and accompanying
        website were sold in January 2006. We entered into a third line of business,
        marketing services, on September 1, 2004, with our acquisition of SendTec,
        Inc.
        ("SendTec"), a direct response marketing services and technology company.
        As
        further described below, we sold the SendTec business in the fourth quarter
        of
        2005. On May 9, 2005, the Company entered into a fourth line of business
        when it
        exercised its option to acquire Tralliance Corporation ("Tralliance"), a
        company
        which had recently entered into an agreement to become the registry for the
        ".travel" top-level Internet domain.
 
 During
        the first quarter of 2005, management began actively re-evaluating the Company's
        primary business lines, particularly in view of the Company's then critical
        need
        for cash and the overall net losses of the Company. As a result, management
        began to explore a number of strategic alternatives for the Company and/or
        its
        component businesses, including continuing to operate the businesses, selling
        certain businesses or assets, or entering into new lines of
        businesses.
 
 As
        a
        result of the foregoing re-evaluation, on October 31, 2005, the Company
        completed the sale of all of the business and substantially all of the net
        assets of SendTec for approximately $39.9 million in cash. Results of operations
        for SendTec have been reported separately as “Discontinued Operations” in the
        accompanying consolidated statement of operations for all periods presented.
        The
        assets and liabilities of the SendTec marketing services business which was
        sold
        have been included in the captions, “Assets of Discontinued Operations” and
“Liabilities of Discontinued Operations” in the accompanying consolidated
        balance sheets.
 
 During
        2005, 2004 and 2003, the Company's computer games business segment provided
        approximately 81%, 89% and 90%, respectively, of our consolidated net revenue
        from continuing operations. Our VoIP products and services have yet to produce
        any significant revenue. Tralliance did not begin generating revenue until
        the
        fourth quarter of 2005. **** All
        revenue derived from the business segments which comprise our continuing
        operations is considered to be attributable to the United States because
        it is
        impracticable to determine the country of origin.
 
 **HISTORICAL
        OVERVIEW**
 
 theglobe
        was incorporated on May 1, 1995 (inception) and commenced operations on that
        date. Originally, theglobe.com was an online community with registered members
        and users in the United States and abroad. That product gave users the freedom
        to personalize their online experiences by publishing their own content and
        by
        interacting with others having similar interests. However, due to the
        deterioration of the online advertising market, the Company was forced to
        restructure and ceased the operations of its online community on August 15,
        2001. The Company then sold most of its remaining online and offline properties.
        The Company continues to operate its Computer Games print magazine and the
        associated CGOnline website (www.cgonline.com), as well as the games
        distribution business of Chips & Bits, Inc. (www.chipsbits.com). On June 1,
        2002, Chairman Michael S. Egan and Director Edward A. Cespedes became Chief
        Executive Officer and President of the Company, respectively.
 
 On
        November 14, 2002, the Company acquired certain Voice over Internet Protocol
        ("VoIP") assets and is now pursuing opportunities related to this acquisition.
        In exchange for the assets, the Company issued warrants to acquire 1,750,000
        shares of its Common Stock and an additional 425,000 warrants as part of
        an
        earn-out structure upon the attainment of certain performance targets. The
        earn-out performance targets were not achieved and the 425,000 earn-out warrants
        expired on December 31, 2003.
  2
 
 On
        February 25, 2003, theglobe entered into a Loan and Purchase Option Agreement,
        as amended, with Tralliance, an Internet related business venture, pursuant
        to
        which it agreed to fund, in the form of a loan, at the discretion of the
        Company, Tralliance's operating expenses and obtained the option to acquire
        all
        of the outstanding capital stock of Tralliance in exchange for, when and
        if
        exercised, $40,000 in cash and the issuance of an aggregate of 2,000,000
        unregistered restricted shares of theglobe’s Common Stock (the "Option"). On May
        5, 2005, Tralliance and the Internet Corporation for Assigned Names and Numbers
        ("ICANN") entered into an agreement designating Tralliance as the registry
        for
        the ".travel" top-level domain. On May 9, 2005, the Company exercised its
        option
        to acquire all of the outstanding capital stock of Tralliance. The purchase
        price consisted of the issuance of 2,000,000 shares of theglobe’s Common Stock,
        warrants to acquire 475,000 shares of theglobe’s Common Stock and $40,000 in
        cash. The warrants are exercisable for a period of five years at an exercise
        price of $0.11 per share. The Common Stock issued as a result of the acquisition
        of Tralliance is entitled to certain "piggy-back" registration rights.
 
 On
        May
        28, 2003, the Company acquired Direct Partner Telecom, Inc. ("DPT"), a company
        engaged in VoIP telephony services in exchange for 1,375,000 shares of the
        Company’s Common Stock and the issuance of warrants to acquire 500,000 shares of
        the Company’s Common Stock. DPT was a specialized international communications
        carrier providing VoIP communications services to emerging countries. The
        DPT
        network had provided "next generation" packet-based telephony and value added
        data services to carriers and businesses in the United States and
        internationally. The Company acquired all of the physical assets and
        intellectual property of DPT and originally planned to continue to operate
        the
        company as a subsidiary and engage in the provision of VoIP services to other
        telephony businesses on a wholesale transactional basis. In the first quarter
        of
        2004, the Company decided to suspend DPT’s wholesale business and dedicate the
        DPT physical and intellectual assets to its retail VoIP business. As a result,
        the Company wrote-off the goodwill associated with the purchase of DPT as
        of
        December 31, 2003, and has since employed DPT’s physical assets in the build out
        of the retail VoIP network.
 
 On
        September 1, 2004, the Company closed upon an Agreement and Plan of Merger
        dated
        August 31, 2004, pursuant to which the Company acquired all of the issued
        and
        outstanding shares of capital stock of SendTec, a direct response marketing
        services and technology company. Pursuant to the terms of the Merger, in
        consideration for the acquisition of SendTec, theglobe paid consideration
        consisting of: (i) $6,000,000 in cash, excluding transaction costs, (ii)
        the
        issuance of an aggregate of 17,500,024 shares of theglobe’s Common Stock, (iii)
        the issuance of an aggregate of 175,000 shares of Series H Automatically
        Converting Preferred Stock (which was converted into 17,500,500 shares of
        theglobe’s Common Stock on December 1, 2004, the effective date of the amendment
        to the Company's certificate of incorporation increasing its authorized shares
        of Common Stock from 200,000,000 shares to 500,000,000 shares), and (iv)
        the
        issuance of a subordinated promissory note in the amount of $1 million. The
        Company also issued an aggregate of 3,974,165 replacement options to acquire
        theglobe’s Common Stock for each of the issued and outstanding options to
        acquire SendTec shares held by the former employees of SendTec.
 
 On
        August
        10, 2005, the Company entered into an Asset Purchase Agreement with
        RelationServe Media, Inc. ("RelationServe") whereby the Company agreed to
        sell
        all of the business and substantially all of the net assets of its SendTec
        marketing services subsidiary to RelationServe for $37.5 million in cash,
        subject to certain net working capital adjustments. On August 23, 2005, the
        Company entered into Amendment No. 1 to the Asset Purchase Agreement with
        RelationServe (the “1 st Amendment” and together with the original Asset Purchase Agreement, the
“Purchase Agreement”). On October 31, 2005, the Company completed the asset
        sale. Including adjustments to the purchase price related to estimated excess
        working capital of SendTec as of the date of sale, the Company received an
        aggregate of approximately $39.9 million in cash pursuant to the Purchase
        Agreement. ****
 
 Additionally,
        as contemplated by the Purchase Agreement, immediately following the asset
        sale,
        we completed the redemption of approximately 28.9 million shares of our Common
        Stock owned by six members of management of SendTec for approximately $11.6
        million in cash pursuant to a Redemption Agreement dated August 23, 2005.
        Pursuant to a separate Termination Agreement, we also terminated and canceled
        approximately 1.3 million stock options and the contingent interest in
        approximately 2.1 million earn-out warrants held by the six members of
        management in exchange for approximately $0.4 million in cash. We also
        terminated stock options of certain other non-management employees of SendTec
        and entered into bonus arrangements with a number of other non-management
        SendTec employees for amounts totaling approximately $0.6
        million.
  3
 
 **OUR
        LINES OF BUSINESS**
 
 **CONTINUING
        OPERATIONS**
 
 **OUR
        VOIP TELEPHONY BUSINESS**
 
 The
        use
        of the Internet to provide voice communications services is becoming more
        prevalent as new providers enter the market and the technology becomes more
        accepted. According to Insight Research, worldwide VoIP-based services will
        grow
        from $13.0 billion in 2002 to nearly $197.0 billion in 2007. IDC, another
        research firm, predicts that there will be 27 million residential VoIP telephony
        subscribers in the U.S. by the end of 2009, up from 3 million in 2005. VoIP
        technology translates voice into data packets, transmits the packets over
        data
        networks and reconverts them into voice at their destination. Unlike traditional
        telephone networks, VoIP does not require dedicated circuits to complete
        telephone calls. Instead, VoIP networks can be shared by multiple users for
        voice, data and video simultaneously. These types of data networks are more
        efficient than dedicated circuit networks because they are not restricted
        by
        "one-call, one-line" limitations of traditional telephone networks. Accordingly,
        improved efficiency creates cost savings that can be passed on to the consumer
        in the form of lower rates.
 
 **Development
        of our VoIP Business.**
 
 On
        November 14, 2002, we entered the VoIP business by acquiring certain software
        assets from Brian Fowler. Today those assets serve as the foundation of the
        retail VoIP products and services that we provide to our customers.
 
 On
        May
        28, 2003, the Company acquired DPT, a company engaged in VoIP wholesale
        telephony services. At the time we acquired DPT, it was a specialized
        international communications carrier providing wholesale VoIP communications
        services to emerging countries. In the first quarter of 2004, we decided
        to
        suspend DPT's wholesale business and dedicate the DPT physical and intellectual
        assets to our retail VoIP business.
 
 During
        the third quarter of 2003, the Company launched its first suite of consumer
        and
        business level VoIP services. The Company launched its browser-based VoIP
        product during the first quarter of 2004. These services allow consumers
        and
        enterprises to communicate using VoIP technology for dramatically reduced
        pricing compared to traditional telephony networks. The services also offer
        traditional telephony features such as voicemail, caller ID, call forwarding,
        and call waiting for no additional cost to the consumer, as well as incremental
        services that are not currently supported by the public switched telephone
        network ("PSTN") like the ability to use numbers remotely and voicemail to
        email
        services. In the fourth quarter of 2004, the Company announced an "instant
        messenger" or "IM" related application which enables users to chat via voice
        or
        text across multiple platforms using their preferred instant messenger service.
        During the second quarter of 2005, the Company released a number of new VoIP
        products and features which allow users to communicate via mobile phones,
        traditional land line phones and/or computers. During the fourth quarter
        of
        2005, the Company launched its new tglo.com website ( www.tglo.com )
        along
        with a new linked online community website called tglo Friends ( www.tglofriends.com ).
 
 The
        Company’s retail VoIP service plans include both “peer-to-peer” plans, for which
        subscribers can make calls free of charge over the Internet to other
        subscribers, and “paid” plans which involve interconnection with the PSTN and
        for which subscribers are charged certain fixed and/or variable service
        charges.
 
 **Sales
        and Marketing.**
 
 During
        2003 through 2005, the Company attempted to market and distribute its VoIP
        retail products through various direct and indirect sales channels including
        Internet advertising, structured customer referral programs, network marketing,
        television infomercials and partnerships with third party national retailers.
        None of the marketing and sales programs implemented during these years were
        successful in generating a significant number of “paid” plan customers or
        revenue. The Company’s marketing efforts during this period of time achieved
        limited successes in developing a “peer-to-peer” subscriber base of free service
        plan users. We currently derive no revenue from our “peer-to-peer” customer
        base.
 
 At
        the
        present time, the Company intends to devote substantially all of its near-term
        marketing efforts in 2006 to continuing to expand its “peer-to-peer”, or free
        service plan, customer base and to develop ways to monetize such customer
        base
        once it reaches sufficient critical mass. To that end, the Company currently
        plans to add new “peer-to-peer” subscribers mainly through further developing
        and improving its own online community website ( www.tglofriends.com )
        and
        also by entering into marketing arrangements with other third party online
        community website enterprises. At this time, the Company does not presently
        intend to expend significant funds in 2006 to promote or market any existing
        or
        new “paid” VoIP service plans.
  4
 
 **Development
        of our Network and Carrier Relationships.**
 
 In
        order
        to offer our services we have invested substantial time, capital and other
        resources on the development of our VoIP network. Our VoIP network is comprised
        of switching hardware and software, servers, billing and inventory systems,
        and
        telecommunication carrier services. We currently own and operate VoIP equipment
        located in leased data center facilities in Miami, Florida and utilize a
        leased
        transport network provided through various carrier agreements with third
        party
        providers. Through these carrier relationships we are able to carry the traffic
        of our customers over the Internet and interact with the PSTN. The network
        also
        provides for both domestic and international call termination.
 
 We
        generally enter into agreements with these data centers and carriers for
        initial
        terms of one year, with the terms of several agreements extending beyond
        one
        year. Upon expiration, in cases where the Company elects to continue service,
        the Company normally chooses to continue such service on a month-to-month
        contractual basis, whenever possible. The capacity of our VoIP network presently
        greatly exceeds the current level of customer demand and usage. During the
        first
        quarter of 2006, the Company developed a plan to reconfigure, phase out and
        eliminate certain components of its existing VoIP network. The implementation
        of
        this plan, which involves the renegotiation of certain network agreements
        and is
        anticipated to be completed during the second quarter of 2006, is expected
        to
        significantly reduce the ongoing costs and expenses associated with the
        operation of our VoIP network. Because the implementation of our plan is
        dependent, in part, upon the successful renegotiation of certain network
        agreements, there can be no assurance that the full cost-reduction benefits
        anticipated by the Company will be achieved nor that other aspects of our
        plan
        will be successfully implemented.
 
 **Research
        and Development.**
 
 Internet
        telephony is a technical service offering. As a technology, basic VoIP service,
        although complex, is well-understood and has been adapted by many companies
        that
        are selling basic services to consumers and businesses worldwide. The Company,
        however, believes that in order to be competitive and differentiate itself
        among
        its peers, it must continuously upgrade its service offering. To that end,
        the
        Company is engaged in a program of continuous development of its products.
        Since
        the initial launch of its VoIP service, the Company has introduced a number
        of
        new features which have increased the functionality of its products and has
        plans to introduce additional new products and features in the future.
 
 **OUR
        COMPUTER GAMES BUSINESS**
 
 In
        February 2000, the Company entered the computer games business by acquiring
        Computer Games Magazine, its associated website, CGOnline, and Chips & Bits,
        a games distribution business.
 
 Computer
        Games Magazine
 
 Computer
        Games Magazine is a consumer print magazine for personal computer (“PC”) gamers.
        As a leading consumer print publication for PC games, Computer Games Magazine
        boasts: a reputation for being a reliable, trusted, and engaging games magazine;
        more editorial, tips and hints than most other similar magazines; a
        knowledgeable editorial staff providing increased editorial integrity and
        content; and broad-based editorial coverage.
 
 CGOnline
 
 CGOnline
        ( www.cgonline.com )
        is the
        online counterpart to Computer Games magazine. CGOnline is a source of free
        computer games news and information for the sophisticated gamer, featuring
        news,
        reviews and previews. Features of CGOnline include: game industry news;
        truthful, concise reviews; first looks, tips and hints; multiple content
        links;
        thousands of archived files; and easy access to game buying.
 
 Chips
        & Bits
 
 Chips
        & Bits ( www.chipsbits.com )
        is a
        games distribution business that attracts customers in the United States
        and
        abroad. Chips & Bits covers all the major game platforms available,
        including Macintosh, Window-based PCs, Sony PlayStation, Sony PlayStation2,
        Microsoft’s Xbox, Nintendo 64, Nintendo’s GameCube, Nintendo’s Game Boy, and
        Sega Dreamcast, among others.
  5
 
 Our
        games
        businesses derive substantially all of their revenue from sales of magazines
        via
        subscriptions and newsstands, sale of advertising, primarily in our magazines
        but to a lesser extent on our websites, and to the sales of video and computer
        games products. During each of the years ended December 31, 2005, 2004 and
        2003,
        no single customer accounted for more than 10% of the total net revenue of
        our
        computer games business segment.
 
 The
        Company’s game businesses are focused primarily on the PC games market niche,
        which has experienced declining sales during recent years. Additionally,
        the
        overall games distribution marketplace has become increasingly competitive
        during recent years due to the increased selection and number of video games
        offered by mass merchants, regional chains, video game and PC software specialty
        stores, toy retail chains, consumer electronic stores and online retailers.
        Due
        in large part to the above factors, the total net revenue derived from the
        Company’s computer games business has decreased significantly during the past
        several years (from $7.2 million in 2002 to $1.9 million in 2005).
 
 According
        to NPD Group, Inc., a market research firm, the electronic game retail industry
        was an approximately $11.5 billion market in the United States in 2005. Of
        this
        $11.5 billion market, approximately $10.5 billion was attributable to video
        game
        products, including console and handheld game platform products but excluding
        sales of used video game products, and approximately $1.0 billion was
        attributable to PC game software. Additionally, NPD Group, Inc. reported
        a 14%
        decline in annual U.S. retail sales of PC game software in 2005 compared
        to
        2004.
 
 During
        2004, the Company developed and began to implement plans to expand its business
        beyond games and into other areas of the entertainment industry. In Spring
        2004,
        a new magazine, Now Playing began to be delivered within Computer Games Magazine
        and in March 2005, Now Playing began to be distributed as a separate
        publication. Now Playing covered movies, DVD’s, television, music, games, comics
        and anime, and was designed to fulfill the wider pop culture interests of
        our
        current readers and to attract a more diverse group of advertisers: autos,
        television, telecommunications and film to name a few. During 2005, the Now
        Playing online website ( www.nowplaying.com ),
        the
        online counterpart for Now Playing magazine, was implemented and costs were
        also
        incurred to develop a new corporate website ( www.theglobe.com ),
        also
        targeted at the broader entertainment marketplace.
 
 In
        August
        2005, based upon a re-evaluation of the capital requirements and risks/rewards
        related to completing the transition to a broader-based entertainment business,
        the Company decided to abort its diversification efforts and refocus its
        strategy back to operating and improving its traditional games-based businesses.
        During the remainder of 2005, the Company implemented a number of revenue
        enhancement programs, including establishing a used game auction website
        ( www.gameswapzone.com ),
        introducing a digital version of its Computer Games Magazine, and entering
        into
        several marketing partnership affiliate programs. Additionally, during the
        latter part of 2005, the Company completed the implementation of a number
        of
        cost-reduction programs related to facility consolidations, headcount
        reductions, and decreases in magazine publishing and sales costs. In January
        2006, the Company completed the sale of all assets related to Now Playing
        Magazine, the Now Playing Online website and the technology underlying the
        aborted corporate website ( www.theglobe.com )
        for
        approximately $130,000.
 
 **OUR
        INTERNET SERVICES BUSINESS**
 
 Tralliance,
        headquartered in New York City, was incorporated in 2002 to develop products
        and
        services to enhance online commerce between consumers and the travel and
        tourism
        industries, including administration of the “.travel” top-level domain. In
        February 2003, theglobe entered into a Loan and Purchase Option Agreement,
        as
        amended, with Tralliance in which theglobe agreed to fund, in the form of
        a
        loan, at the discretion of theglobe, Tralliance’s operating expenses and
        obtained the option to acquire all of the outstanding capital stock of
        Tralliance. On May 5, 2005, the Internet Corporation for Assigned Names and
        Numbers (“ICANN”) and Tralliance entered into a contract whereby Tralliance was
        designated as the exclusive registry for the “.travel” top-level domain for an
        initial period of ten years. Renewal of the ICANN contract beyond the initial
        ten year term is conditioned upon the negotiation of renewal terms reasonably
        acceptable to ICANN. Additionally, we have agreed to engage in good faith
        negotiations at regular intervals throughout the term of our contract (at
        least
        once every three years) regarding possible changes to the provisions of the
        contract, including changes in the fees and payments that we are required
        to
        make to ICANN. In the event that we materially and fundamentally breach the
        contract and fail to cure such breach within thirty days of notice, ICANN
        has
        the right to immediately terminate our contract. Effective May 9, 2005, theglobe
        exercised its option to purchase Tralliance.
  6
 
 The
        establishment of the “.travel” top-level domain enables businesses,
        organizations, governmental agencies and other enterprises that operate within
        the travel and tourism industry to establish a unique Internet domain name
        from
        which to communicate and conduct commerce. An Internet domain name is made
        up of
        a top-level domain and a second-level domain. For example, in the domain
        name
“companyX.travel”, “companyX” is the second-level domain and “.travel” is the
        top-level domain. As the registry for the “.travel” top-level domain, Tralliance
        is responsible for maintaining the master database of all second-level “.travel”
domain names and their corresponding Internet Protocol (“IP”)
        addresses.
 
 To
        facilitate the “.travel” domain name registration process, Tralliance has
        entered into contracts with a number of registrars. These registrars act
        as
        intermediaries between Tralliance and customers (referred to as registrants)
        seeking to register “.travel” domain names. The registrars handle the billing
        and collection of registration fees, customer service and technical management
        of the registration database. Registrants can register “.travel” domain names
        for terms of one year (minimum) up to 10 years (maximum). The registrars
        retain
        a portion of the registration fee collected by them as their compensation
        and
        remit the remainder, presently $80 per domain name per year, of the registration
        fee to Tralliance.
 
 In
        order
        to register a “.travel” domain name, a registrant must first be verified as
        being eligible (“authenticated”) by virtue of being a valid participant in the
        travel industry. Additionally, eligibility data is required to be updated
        and
        reviewed annually, subsequent to initial registration. Once authenticated,
        a
        registrant is only permitted to register “.travel” domain names that are
        publicly used or associated with the registrant’s business or organization.
        Tralliance has entered into contracts with a number of travel associations
        or
        other independent organizations (“authentication providers”) whereby, in
        consideration for the payment of fixed and/or variable fees, all required
        authentication procedures are performed by such authentication providers.
        Tralliance has also outsourced various other registry operations, database
        maintenance and policy formulation functions to certain other independent
        businesses or organizations in consideration for the payment of certain fixed
        and/or variable fees.
 
 In
        launching the “.travel” top-level domain registry, Tralliance adopted a phased
        approach consisting of three distinct stages. During the third quarter of
        2005,
        Tralliance implemented phase one, which consisted of a pre-authentication
        of a
        limited group of potential registrants. During the fourth quarter of 2005,
        Tralliance implemented phase two, which involved the registration of the
        limited
        group of registrants who had been pre-authenticated. It was during this limited
        registration phase that Tralliance initially began collecting registration
        fees
        from its “.travel” registrars. Finally, in January 2006, Tralliance commenced
        the final phase of its launch, which culminated in live “.travel” registry
        operations.
 
 During
        the first quarter of 2006, Tralliance also began to offer consumers access
        to
        the “.travel” directory (the “Directory”). The Directory is a global online
        resource of travel data designed to precisely match the travel products and
        services of authenticated “.travel” registrants with consumers on a worldwide
        basis. Users can access the Directory via the Tralliance website, or by typing www.directory.travel into
        their web browser. All authenticated “.travel” registrants are offered the
        opportunity to include their specific travel profiles and products in the
        Directory, free of charge. It is anticipated that the Directory will become
        more
        useful to consumers over time, as additional travel businesses and organizations
        become “.travel” registrants and load their travel profiles into the Directory.
 
 **DISCONTINUED
        OPERATIONS**
 
 **OUR
        MARKETING SERVICES BUSINESS**
 
 As
        previously discussed, based upon the Company’s sale of substantially all of the
        net assets and the business of its SendTec subsidiary which was completed
        on
        October 31, 2005, the results of operations and assets and liabilities of
        SendTec have been reported separately as “Discontinued Operations” for all
        periods presented in this report.
 
 On
        September 1, 2004, the Company acquired SendTec, a direct response marketing
        services and technology company. SendTec provided clients a complete offering
        of
        direct marketing products and services to help their clients market their
        products both on the Internet (“online”) and through traditional media channels
        such as television, radio and print advertising (“offline”). SendTec was
        organized into two primary product line divisions: the DirectNet Advertising
        Division, which provided digital marketing services; and the Creative South
        Division, which provided creative production and media buying services.
        Additionally, its proprietary iFactz technology provided software tracking
        solutions that benefited both the DirectNet Advertising and Creative South
        businesses.
  7
 
 ·
              DirectNet
                  Advertising (“DNA”) - DNA delivered results based interactive marketing
                  programs for advertisers through a network of online distribution
                  partners
                  including websites, search engines and email publishers. SendTec’s
                  proprietary software technology was used to track, optimize and
                  report
                  results of marketing campaigns to advertising clients and distribution
                  partners. Pricing options for DNA’s services included cost-per-action
                  (“CPA”), cost-per-click (“CPC”) and cost-per-thousand impressions (“CPM”),
                  with most payments resulting from CPA agreements.·
              Creative
                  South - Creative South provided online and offline agency marketing
                  services including creative development, campaign management, creative
                  production, post production, media planning and media buying services.
                  Most services provided by Creative South were priced on a fee-per-project
                  basis, where the client paid an agreed upon fixed fee for a designated
                  scope of work. Creative South also received monthly retainer fees
                  from
                  clients for service to such clients as their Agency of Record.·
              iFactz
                  - iFactz was SendTec’s Application Service Provider (“ASP”) technology
                  that tracked and reported on a real time basis the online responses
                  generated from offline direct response advertising, such as television,
                  radio, print advertising and direct mail. iFactz’ Intelligent Sourcing
                  (TM) was a patent-pending media technology that informed the user
                  where
                  online customers come from, and what corresponding activity they
                  produced
                  on the user’s website. The iFactz patent application was filed in November
                  2001. iFactz was licensed to clients based on a monthly fixed license
                  fee,
                  with license terms ranging from three months to one year.
 
 **COMPETITION**
 
 **VoIP
        Telephony Business**
 
 The
        telecommunications industry has experienced a great deal of instability during
        the past several years. During the 1990s, forecasts of very high levels of
        future demand brought a significant number of new entrants and new capital
        investments into the industry. New global carriers were joined by many of
        the
        largest traditional carriers and built large global or regional networks
        to
        compete with the global wholesalers. However, in the last several years many
        of
        the new global carriers and many industry participants have either gone through
        bankruptcy or no longer exist. The networks were built primarily to meet
        the
        expected explosion in bandwidth demand from data, with specific emphasis
        upon
        Internet applications. Those forecasts have not materialized, telecommunications
        capacity now far exceeds actual demand, and the resulting marketplace is
        characterized by fierce price competition as traditional and next generation
        carriers compete to secure market share. Resulting lower prices have eroded
        margins and have kept many carriers from attaining positive cash flow from
        operations.
 
 During
        the past several years, a number of companies have introduced services that
        make
        Internet telephony or voice services over the Internet available to businesses
        and consumers. All major telecommunications companies, including entities
        like
        AT&T, Verizon and Sprint, as well as iBasis, Net2Phone and deltathree,
        compete or can compete directly with us. A number of cable operators have
        also
        begun to offer VoIP telephony services via cable modems which provide access
        to
        the Internet. AOL, Google and Yahoo! also now offer new services that have
        features similar to some of our products and services. We also compete with
        cellular telephony providers.
 
 Our
        competitors can be divided into domestic competitors and international
        competitors. The international market is highly localized. In markets where
        telecommunications have been fully deregulated, the competition continues
        to
        increase. In newly deregulated markets even new entrants to the VoIP space
        can
        rapidly capture significant market share. Competitors in these markets include
        both government-owned and incumbent phone companies, as well as emerging
        competitive carriers. The principle competitive factors in this marketplace
        include: price, quality of service, distribution, customer service, reliability,
        network capacity, and brand recognition. The long distance market in the
        United
        States is highly competitive. There are numerous competitors in the pure
        play
        VoIP space and we expect to face continuing competition from these existing,
        as
        well as new, competitors. The principal competitive factors in the marketplace
        include those identified above, as well as enhanced communications services.
        Our
        competitors include VoIP services companies such as Skype, Net2Phone, Vonage,
        Go2Call and deltathree.
 
 Many
        of
        our competitors have substantially greater financial, technical and marketing
        resources, larger customer bases, longer operating histories, greater brand
        recognition and more established relationships in the industry than we have.
        As
        a result, certain of these competitors may be able to adopt more aggressive
        pricing policies which may hinder our ability to market our voice services.
  8
 
 **Computer
        Games Business**
 
 Competition
        among games print magazines is high. We compete for advertising and circulation
        revenues principally with publishers of other technology and games magazines
        with similar editorial content as our magazines. The technology magazine
        industry has traditionally been dominated by a small number of large publishers.
        We believe that we compete with other technology and games publications based
        on
        the nature and quality of our magazines’ editorial content and the attractive
        demographics of our readers.
 
 The
        computer games marketplace has become increasingly competitive due to
        acquisitions, strategic partnerships and the continued consolidation of a
        previously fragmented industry. In addition, an increasing number of major
        retailers have increased the selection of video games offered by their
        traditional "bricks and mortar" locations and their online commerce sites,
        resulting in increased competition.
 
 **Internet
        Services Business**
 
 Since
        we
        have just recently entered the Internet-based services industry, we face
        competition from a number of businesses and organizations that have longer
        operating histories, greater name recognition and more advanced and complete
        technical systems. Additionally, many of our competitors are larger enterprises
        that have greater financial, technical and marketing resources than we
        have.
 
 While
        we
        do not face direct competition for the registry of “.travel” domain names
        because of the exclusive nature of our ICANN contract, we compete with other
        companies that maintain the registries for different domain names, including
        Verisign, Inc., which manages the “.com” and “.net” registries; Afilias Limited,
        which manages the “.org” and “.info” registries; and a number of
        country-specific domain name registries (such as “.uk” for domain names in the
        United Kingdom).
 
 In
        developing and distributing future products and services for the Internet-based
        services markets and in seeking the renewal of our existing contract or
        obtaining new ICANN contracts, we expect to face intense competition from
        multiple competitors.
 
 **INTELLECTUAL
        PROPERTY AND PROPRIETARY RIGHTS**
 
 We
        regard
        substantial elements of our websites and underlying technology as proprietary.
        In addition, we have developed in our VoIP business certain technologies
        which
        we believe are proprietary. Further, we are investigating other opportunities
        and are seeking to develop additional proprietary technology. We attempt
        to
        protect these assets 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.
        We
        have recently been awarded a patent for our VoIP technology related to the
        origination and termination of telephone calls between subscriber terminals
        connected to a public packet network and are continuing to pursue patent
        protection for our VoIP browser to telephone interface, as well as other
        technology.
 
 Effective
        trademark, service mark, copyright, patent and trade secret protection may
        not
        be available in every country in which our services are 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.
        Enforcing our patent rights could result in costly litigation. Our patent
        applications could be rejected or any patents granted could be invalidated
        in
        litigation. Should this happen, we may lose a significant competitive advantage.
        Additionally, our competitors or others could be awarded patents on technologies
        and business processes that could require us to significantly alter our
        technology, change our business processes or pay substantial license and
        royalty
        fees. In the fourth quarter of 2005, we were sued by Sprint Communications
        Company, L.P. (“Sprint”) for alleged unauthorized use of “inventions” described
        and claimed in seven patents held by Sprint. (See “Risk Factors-We Rely on
        Intellectual Property and Proprietary Rights.” and “Item 3. Legal Proceedings”)
  9
 
 **GOVERNMENT
        REGULATION AND LEGAL UNCERTAINTIES**
 
 **In
        General**
 
 We
        are
        subject to laws and regulations that are applicable to various Internet
        activities. There are an increasing number of federal, state, local and foreign
        laws and regulations pertaining to the Internet and telecommunications,
        including Voice over Internet Protocol ("VoIP"). In addition, a number of
        federal, state, local and foreign legislative and regulatory proposals are
        under
        consideration. Laws and regulations have been and will likely continue to
        be
        adopted with respect to the Internet relating to, among other things, fees
        and
        taxation of VoIP telephony services, liability for information retrieved
        from or
        transmitted over the Internet, online content regulation, user privacy, data
        protection, pricing, content, copyrights, distribution, electronic contracts
        and
        other communications, consumer protection, including public safety issues
        like
        enhanced 911 emergency service ("E911"), the Communications Assistance for
        Law
        Enforcement Act of 1994, the provision of online payment services, broadband
        residential Internet access, and the characteristics and quality of products
        and
        services.
 
 Changes
        in tax laws relating to electronic commerce could materially affect our
        business, prospects and financial condition. One or more states or foreign
        countries may seek to impose sales or other tax collection obligations on
        out-of-jurisdiction companies that engage in electronic commerce. A successful
        assertion by one or more states or foreign countries that we should collect
        sales or other taxes on services could result in substantial tax liabilities
        for
        past sales, decrease our ability to compete with traditional telephony, and
        otherwise harm our business.
 
 Currently,
        decisions of the U.S. Supreme Court restrict the imposition of obligations
        to
        collect state and local sales and use taxes with respect to electronic commerce.
        However, a number of states, as well as the U.S. Congress, have been considering
        various initiatives that could limit or supersede the Supreme Court's position
        regarding sales and use taxes on electronic commerce. If any of these
        initiatives addressed the Supreme Court's constitutional concerns and resulted
        in a reversal of its current position, we could be required to collect sales
        and
        use taxes. The imposition by state and local governments of various taxes
        upon
        electronic commerce could create administrative burdens for us and could
        adversely affect our VoIP business operations, and ultimately our financial
        condition, operating results and future prospects.
 
 Regardless
        of the type of state tax imposed, the threshold issue involving state taxation
        of any transaction is always whether sufficient nexus, or contact, exists
        between the taxing entity and the taxpayer or the transaction to which the
        tax
        is being applied. The concept of nexus is constantly changing and no bright
        line
        exists that would sufficiently alert a business as to whether it is subject
        to
        tax in a specific jurisdiction. All states which have attempted to tax Internet
        access or online services have done so by asserting that the sale of such
        telecommunications services, information services, data processing services
        or
        other type of transaction is subject to tax in that particular state.
 
 A
        handful
        of states impose taxes on computer services, data processing services,
        information services and other similar types of services. Some of these states
        have asserted that Internet access and/or online information services are
        subject to these taxes.
 
 Most
        states have telecommunications sales or gross receipts taxes imposed on
        interstate calls or transmissions of data. A sizable minority tax only
        intrastate calls. Although these taxes were enacted long before the birth
        of
        electronic commerce and VoIP, several states have asserted that Internet
        access
        and/or online information services are subject to these taxes.
 
 For
        example, in the 2005 Florida legislative session, Florida incorporated into
        the
        tax imposed by Chapter 202, Florida Statutes, (the Communications Services
        Tax)
        language which establishes tax nexus in Florida for VoIP. The Florida
        legislature inserted this language to protect the scope of the tax base for
        the
        Communications Services Tax. The language could have the effect of imposing
        the
        Communications Services Tax on VoIP services not based in the state of Florida.
 
 The
        Florida legislature borrowed the language that it used to amend the Florida
        Statute from the national Streamlined Sales Tax Project. This project is
        being
        touted by many states as a proposed tax simplification plan. If adopted by
        other
        states, the language included in the Florida law could have a far reaching
        effect in many states in the United States.
  10
 
 Moreover,
        the applicability to the Internet of existing laws governing issues such
        as
        intellectual property ownership and infringement, copyright, trademark, trade
        secret, obscenity, libel, employment and personal privacy is uncertain and
        developing. It is not clear how existing laws governing issues such as property
        ownership, sales and other taxes, libel, and personal privacy apply to the
        Internet and electronic commerce. Any new legislation or regulation, or the
        application or interpretation of existing laws or regulations, may decrease
        the
        growth in the use of the Internet or VoIP telephony services, may impose
        additional burdens on electronic commerce or may alter how we do business.
 
 **Federal
        and State Regulation of Internet Telephony and VoIP Providers and
        Services**
 
 The
        use
        of the Internet and private IP networks to provide voice services over the
        Internet is a relatively recent market development. In the United States,
        the
        Federal Communications Commission (the "FCC") has so far declined to make
        a
        general conclusion that all forms of VoIP services constitute telecommunications
        services (rather than information services). Because their services are not
        currently regulated to the same extent as telecommunications services, some
        VoIP
        providers, such as the Company, can currently avoid paying certain charges
        and
        incurring certain costs and expenses that traditional telephone companies
        must
        pay and incur. Many traditional telephone operators are lobbying the FCC
        and the
        states to regulate VoIP on the same or similar basis as traditional telephone
        services. The FCC and several states are examining this issue.
 
 On
        March
        10, 2004, the FCC released its IP-Enabled Services Notice of Proposed Rulemaking
        which included guidelines and questions upon which it is seeking public comment
        to determine what regulation, if any, will govern companies that provide
        VoIP
        services. Specifically, the FCC has expressed an intention to further examine
        the question of whether certain forms of phone-to-phone VoIP services are
        information services or telecommunications services. The two classifications
        are
        treated differently in several respects, with certain information services
        being
        regulated to a lesser degree than telecommunications services. The FCC has
        noted
        that certain forms of phone-to-phone VoIP services bear many of the same
        characteristics as more traditional voice telecommunications services and
        lack
        the characteristics that would render them information services.
 
 In
        addition to regulation by the FCC, we currently face potential regulation
        by
        state governments and their respective agencies. Although VoIP services are
        presently largely unregulated by the state governments, such state governments
        and their regulatory authorities may assert jurisdiction over the provision
        of
        intrastate IP communications services where they believe that their
        telecommunications regulations are broad enough to cover regulation of IP
        services. A number of state regulators have recently taken the position that
        VoIP providers are telecommunications providers and must register as such
        within
        their states. VoIP operators have resisted such registration on the position
        that VoIP is not, and should not be, subject to such regulations because
        VoIP is
        an information service, not a telecommunications service and because VoIP
        is
        interstate in nature, not intrastate. Various state regulatory authorities
        have
        initiated proceedings to examine the regulatory status of Internet telephony
        services and, in several cases, rulings have been obtained to the effect
        that
        the use of the Internet to provide certain interstate services does not exempt
        an entity from paying intrastate access charges in the jurisdictions in
        question. The FCC has stated in at least one case that multiple state regulatory
        regimes could violate the Commerce Clause because of the unavoidable effect
        that
        regulation on an intrastate component would have on interstate use of the
        service. However, we cannot predict the ultimate impact of this ruling or
        whether the facts of that case are so unique as to be inapplicable to our
        VoIP
        operations. As state governments, courts, and regulatory authorities continue
        to
        examine the regulatory status of Internet telephony services, they could
        render
        decisions or adopt regulations affecting providers of VoIP or requiring such
        providers to pay intrastate access charges or to make contributions to universal
        service funding. Should the FCC determine to regulate IP services, states
        may
        decide to follow the FCC's lead and impose additional obligations as
        well.
 
 If
        providers of VoIP services, such as the Company, become subject to additional
        regulation by the FCC or any state regulatory agencies, the cost of complying
        with such additional regulation would likely increase the costs of providing
        such services. In addition, the FCC or any such state agencies may impose
        new
        surcharges, taxes, fees and/or other charges upon providers or users of VoIP
        services. Such charges could include, among others, access charges payable
        to
        local exchange carriers to carry and terminate traffic, contributions to
        the
        Universal Service Fund or other charges. Such new charges would likely increase
        our cost of VoIP operations and, to the extent that any or all of them are
        passed along to our VoIP customers, they could adversely affect our revenues
        from our VoIP services. Accordingly, more aggressive state and/or federal
        regulation of Internet telephony providers and VoIP services will likely
        adversely affect our VoIP business operations, and ultimately our financial
        condition, operating results and future prospects.
  11
  **The
        E911 Order and CALEA**
 
 Our
        interconnected VoIP services are currently subject to certain FCC regulations.
        On June 3, 2005, for example, the FCC released the "IP-Enabled Services and
        E911
        Requirements for IP-Enabled Service Providers, First Report and Order and
        Notice
        of Proposed Rulemaking" (the "E911 Order"). The E911 Order requires, among
        other
        things, that providers of "Interconnected VoIP Service" ("Interconnected
        VoIP
        Providers") supply enhanced emergency 911 dialing capabilities ("E911") to
        their
        subscribers no later than 120 days from the effective date of the E911 Order.
        The effective date of the E911 Order is July 29, 2005. Additionally, the
        E911
        Order ** requires
        each Interconnected VoIP Provider to file with the FCC a compliance letter
        on or
        before November 28, 2005 detailing its compliance with the above E911
        requirements. For purposes of the E911 Order, "Interconnected VoIP Service"
        is
        defined as a VoIP service that: (1) enables real-time, two-way voice
        communications; (2) requires a broadband connection from the user’s location;
        (3) requires Internet protocol-compatible customer premises equipment; and
        (4)
        permits users generally to receive calls that originate on the public switched
        telephone network and to terminate calls to the public switched telephone
        network.
 
 As
        part
        of the E911 capabilities required to be provided pursuant to the E911 Order,
        Interconnected VoIP Providers are required to mimic the E911 emergency calling
        capabilities offered by traditional landline phone companies. Specifically,
        all
        Interconnected VoIP Providers must deliver 911 calls to the appropriate local
        public safety answering point ("PSAP"), along with call back number and location
        information with respect to the user making the 911 call. Such E911 capabilities
        must be included in the basic service offering of the Interconnected VoIP
        Providers; it cannot be an optional or extra feature. The PSAP delivery
        obligation, including call back number and location information, must be
        provided regardless of whether the service is "fixed," such as where the
        service
        is being provided to a fixed location via wireline technology, or "nomadic,"
        such as where the service is being provided to a mobile location via wireless
        technology. In some cases, the requirement to provide location information
        to
        the appropriate PSAP relies on the user to self-report his or her location.
        The
        E911 Order, however, provides that the FCC intends, through a future order,
        to
        adopt an advanced E911 solution for interconnected VoIP services that must
        include a method for determining a user’s location without assistance from the
        user as well as firm implementation deadlines for that solution.
 
 Additionally,
        the E911 Order required that, by July 29, 2005 (the effective date of the
        E911
        Order), each Interconnected VoIP Provider must have: (1) specifically advised
        every new and existing subscriber, prominently and in plain language, of
        the
        circumstances under which the E911 capabilities service may not be available
        through its VoIP services or may in some way be limited by comparison to
        traditional landline E911 services; (2) obtained and kept a record of
        affirmative acknowledgement from all subscribers, both new and existing,
        of
        having received and understood the advisory described in the preceding item
        (1);
        and (3) distributed to its existing subscribers warning stickers or other
        appropriate labels warning subscribers if E911 service may be limited or
        not
        available and instructing the subscriber to place them on or near the equipment
        used in conjunction with the provider's VoIP services. We complied with the
        requirements set forth in the preceding items (1) and (3). However, despite
        engaging in significant efforts, as of August 10, 2005, we had received the
        affirmative acknowledgements required by the preceding item (2) from less
        than
        15% of our Interconnected VoIP Service subscribers.
 
 On
        July
        26, 2005, noting the efforts made by Interconnected VoIP Providers to comply
        with the E911 Order's affirmative acknowledgement requirement, the Enforcement
        Bureau of the FCC (the "EB") released a Public Notice communicating that,
        until
        August 30, 2005, it would not initiate enforcement action against any
        Interconnected VoIP Provider with respect to such affirmative acknowledgement
        requirement on the condition that the provider file a detailed report with
        the
        FCC by August 10, 2005. The Public Notice provided that the report must set
        forth certain specific information relating to the provider's efforts to
        comply
        with the requirements of the E911 Order. Furthermore, the EB stated its
        expectation that that if an Interconnected VoIP Provider had not received
        such
        affirmative acknowledgements from 100% of its existing subscribers by August
        29,
        2005, then the Interconnected VoIP Provider would disconnect, no later than
        August 30, 2005, all subscribers from whom it has not received such
        acknowledgements.
 
 On
        August
        26, 2005, the EB released another Public Notice communicating that it would
        not,
        until September 28, 2005, initiate enforcement action regarding the affirmative
        acknowledgement requirement against any provider that: (1) previously filed
        the
        compliance report required by the July 26 Public Notice on or before August
        10,
        2005; and (2) filed two separate updated reports with the FCC by September
        1,
        2005 and September 22, 2005 containing certain additional required information
        relating to such provider's compliance efforts with respect to the E911 Order's
        requirements. The EB further stated in the second Public Notice its expectation
        that, during the additional period of time afforded by the extension, all
        Interconnected VoIP Providers that qualified for such extension would continue
        to use all means available to them to obtain affirmative acknowledgements
        from
        all of their subscribers.
  12
 
 On
        September 27, 2005, the EB released a third Public Notice communicating that
        it
        would not seek enforcement action regarding the affirmative acknowledgement
        requirement against any provider that had received acknowledgements from
        at
        least 90% of their applicable VoIP subscribers. Furthermore, the EB communicated
        in the third Public Notice that, with respect to any providers that had not
        received acknowledgements from at least 90% of their applicable VoIP
        subscribers, the EB would not initiate enforcement action regarding the
        affirmative acknowledgement requirement until October 31, 2005, provided
        that
        such providers filed a status report regarding their respective compliance
        efforts by October 25, 2005.
 
 Although
        we have engaged in efforts to comply with all of the requirements of the
        E911
        Order, as of November 28, 2005 and as of December 31, 2005, we were not able
        to
        provide the E911 capabilities required by the E911 Order to our Interconnected
        VoIP Service subscribers. Moreover, we did not file the compliance letter
        with
        respect to our compliance efforts on November 28, 2005 as required by the
        E911
        Order. The Company did comply with the reporting requirements of the EB's
        Public
        Notices issued on July 26, 2005, August 26, 2005 and September 27, 2005.
        Accordingly, the Company qualified for the September 28, 2005 and October
        31,
        2005 extensions with respect to the E911 Order's requirement to obtain the
        required acknowledgements from our Interconnected VoIP Service subscribers.
        However, the FCC issued no additional extensions to the October 31, 2005
        deadline for this requirement. As of October 31, 2005 and as of December
        31,
        2005, we had received the required affirmative acknowledgements from less
        than
        15% of our Interconnected VoIP Service subscribers.
 
 While
        we
        continue to be engaged in efforts to provide the E911 capabilities required
        by
        the E911 Order to as many of our Interconnected VoIP Service subscribers
        as
        possible and to obtain the required acknowledgements from those of our
        subscribers to whom we are not delivering such capabilities, we are currently
        not in compliance with the E911 Order. Moreover, we can provide no assurances
        as
        to whether the percentage of our Interconnected VoIP Service subscribers
        with
        respect to which we have complied with all of the E911 Order's requirements
        will
        increase significantly or at all. Accordingly, although the EB has not, as
        of
        March 28, 2006, initiated an enforcement action against the Company with
        respect
        to such non-compliance, the EB may decide to do so at any time.
 
 We
        are
        currently evaluating whether to suspend delivery of our Interconnected VoIP
        Service to those of our subscribers with respect to which we have not complied
        with the requirements of the E911 Order. If we decide to suspend delivery
        of our
        Interconnected VoIP Service to such subscribers for an extended period of
        time
        due to our non-compliance with the E911 Order, or if we are required to do
        so by
        the EB, our future revenues from our VoIP operations may be negatively impacted.
        For the twelve months ended December 31, 2005, our aggregate net revenues
        for
        VoIP services, including, without limitation, revenue for Interconnected
        VoIP
        Services, totaled approximately $249,000, or 10%, of the Company's aggregate
        net
        revenue from continuing operations. Even assuming our full compliance with
        the
        E911 Order, such compliance and our efforts to achieve such compliance, will
        increase our cost of doing business in the VoIP arena and may adversely affect
        our ability to deliver our Interconnected VoIP Service to new and existing
        customers in all geographic regions.
 
 In
        addition to the E911 Order, on September 23, 2005, the FCC released a First
        Report and Order and Notice of Proposed Rulemaking (the "CALEA Order") in
        which
        it concluded that providers of "Interconnected VoIP Service" constitute
        telecommunications carriers for purposes of the Communications Assistance
        for
        Law Enforcement Act of 1994 ("CALEA") even when those providers are not
        telecommunications carriers under the Communications Act of 1934. CALEA requires
        telecommunications carriers to assist law enforcement officials in executing
        electronic surveillance pursuant to court order or other lawful authorization
        and requires carriers to design or modify their systems to ensure that
        lawfully-authorized electronic surveillance can be performed. For purposes
        of
        the CALEA Order, the term "Interconnected VoIP Service" is defined in the
        same
        way as it is defined in the E911 Order. Accordingly, Interconnected VoIP
        Providers, such as the Company, are now required to comply with all of the
        requirements of CALEA no later than 18 months from the effective date of
        the
        CALEA Order. The FCC notes in the CALEA Order that it will release another
        order
        that will address separate questions regarding the assistance capabilities
        required of the Interconnected VoIP Providers. The CALEA Order provides that
        such subsequent order will address, among other matters, issues such as
        compliance extensions and exemptions, cost recovery, identification of future
        services and entities subject to CALEA, and enforcement. The Company is
        currently evaluating how and to what extent it will need to modify its
        technology infrastructure and systems in order to timely comply with the
        requirements of the CALEA Order. However, any such compliance efforts are
        likely
        to increase our costs of providing our Interconnected VoIP Services and
        adversely affect our results of operations from such services.
  13
 
 In
        light
        of the increasing regulatory burdens attendant to operating in the VoIP arena,
        we are currently evaluating the migration of most, if not all, of our
        Interconnected VoIP Service subscribers to our outbound only calling product.
        As
        this service allows outbound dialing only, it does not constitute an
        "Interconnected VoIP Service" as defined in the E911 Order or in the CALEA
        Order. Accordingly, it is not subject to either of such order's respective
        requirements. However, even assuming that we can timely and effectively realize
        this migration, we cannot predict whether in the future the FCC or any state
        or
        other regulatory agencies will expand their regulations, or implement new
        ones,
        so as to include VoIP services other than Interconnected VoIP Services within
        the scope of such regulations.
 
 **Certain
        Other Regulation Affecting the Internet Generally**
 
 New
        laws
        and regulations affecting the Internet generally may increase our costs of
        compliance and doing business, decrease the growth in Internet use, decrease
        the
        demand for our services or otherwise have a material adverse effect on our
        business.
 
 Today,
        there are still relatively few laws specifically directed towards online
        services. However, due to the increasing popularity and use of the Internet
        and
        online services, many laws and regulations relating to the Internet are being
        debated at all levels of governments around the world and it is possible
        that
        such laws and regulations will be adopted. It is not clear how existing laws
        governing issues such as property ownership, copyrights and other intellectual
        property issues, taxation, libel and defamation, obscenity, and personal
        privacy
        apply to online businesses. The vast majority of these laws were adopted
        prior
        to the advent of the Internet and related technologies and, as a result,
        do not
        contemplate or address the unique issues of the Internet and related
        technologies. In the United States, Congress has recently adopted legislation
        that regulates certain aspects of the Internet, including online content,
        user
        privacy and taxation. In addition, Congress and other federal entities are
        considering other legislative and regulatory proposals that would further
        regulate the Internet. Congress has, for example, considered legislation
        on a
        wide range of issues including Internet spamming, database privacy, gambling,
        pornography and child protection, Internet fraud, privacy and digital
        signatures. For example, Congress recently passed and the President signed
        into
        law several proposals that have been made at the U.S. state and local level
        that
        would impose additional taxes on the sale of goods and services through the
        Internet. These proposals, if adopted, could substantially impair the growth
        of
        e-commerce, and could diminish our opportunity to derive financial benefit
        from
        our activities. For example, in December 2004, the U.S. federal government
        enacted the Internet Tax Nondiscrimination Act (the "ITNA"). While the ITNA
        generally extends through November 2007 the moratorium on taxes on Internet
        access and multiple and discriminatory taxes on electronic commerce, it does
        not
        affect the imposition of tax on a charge for voice or similar service utilizing
        Internet Protocol or any successor protocol. In addition, the ITNA does not
        prohibit federal, state, or local authorities from collecting taxes on our
        income or from collecting taxes that are due under existing tax rules.
 
 Various
        states have adopted and are considering Internet-related legislation. Increased
        U.S. regulation of the Internet, including Internet tracking technologies,
        may
        slow its growth, particularly if other governments follow suit, which may
        negatively impact the cost of doing business over the Internet and materially
        adversely affect our business, financial condition, results of operations
        and
        future prospects. Legislation has also been proposed that would clarify the
        regulatory status of VoIP service. The Company has no way of knowing whether
        legislation will pass or what form it might take. Domain names have been
        the
        subject of significant trademark litigation in the United States and
        internationally. The current system for registering, allocating and managing
        domain names has been the subject of litigation and may be altered in the
        future. The regulation of domain names in the United States and in foreign
        countries may change. Regulatory bodies are anticipated to establish additional
        top-level domains and may appoint additional domain name registrars or modify
        the requirements for holding domain names, any or all of which may dilute
        the
        strength of our names. We may not acquire or maintain our domain names in
        all of
        the countries in which our websites may be accessed, or for any or all of
        the
        top-level domain names that may be introduced.
 
 **International
        Regulation**  **of
        Internet Telephony and VoIP Providers and Services**
 
 Although
        the use of private IP networks to provide voice services over the Internet
        is
        currently permitted by United States federal law and largely unregulated
        within
        the United States, several foreign governments have adopted laws and/or
        regulations that could restrict or prohibit the provision of voice
        communications services over the Internet or private IP networks. The regulatory
        treatment of IP communications outside the United States varies significantly
        from country to country. Some countries currently impose little or no regulation
        on Internet telephony services, as in the United States. Other countries,
        including those in which the governments prohibit or limit competition for
        traditional voice telephony services, generally do not permit Internet telephony
        services or strictly limit the terms under which those services may be provided.
        Still other countries regulate Internet telephony services like traditional
        voice telephony services, requiring Internet telephony companies to make
        various
        telecommunications service contributions and pay other taxes.
  14
 
 Internationally,
        the European Union has also enacted several directives relating to the Internet.
        The European Union has, for example, adopted a directive that imposes
        restrictions on the collection and use of personal data. Under the directive,
        citizens of the European Union are guaranteed rights to access their data,
        rights to know where the data originated, rights to have inaccurate data
        rectified, rights to recourse in the event of unlawful processing and rights
        to
        withhold permission to use their data for direct marketing. The directive
        could,
        among other things, affect U.S. companies that collect or transmit information
        over the Internet from individuals in European Union member states, and will
        impose restrictions that are more stringent than current Internet privacy
        standards in the U.S. In particular, companies with offices located in European
        Union countries will not be allowed to send personal information to countries
        that do not maintain adequate standards of privacy. Compliance with these
        laws
        is both necessary and difficult. Failure to comply could subject us to lawsuits,
        fines, criminal penalties, statutory damages, adverse publicity, and other
        losses that could harm our business. Changes to existing laws or the passage
        of
        new laws intended to address these privacy and data protection and retention
        issues could directly affect the way we do business or could create uncertainty
        on the Internet. This could reduce demand for our services, increase the
        cost of
        doing business as a result of litigation costs or increased service or delivery
        costs, or otherwise harm our business.
 
 Other
        laws that reference the Internet, such as the European Union's Directive
        on
        Distance Selling and Electronic Commerce has begun to be interpreted by the
        courts and implemented by the European Union member states, but their
        applicability and scope remain somewhat uncertain. Regulatory agencies or
        courts
        may claim or hold that we or our users are either subject to licensure or
        prohibited from conducting our business in their jurisdiction, either with
        respect to our services in general, or with respect to certain categories
        or
        items of our services. In addition, because our services are accessible
        worldwide, and we facilitate VoIP telephony services to users worldwide,
        foreign
        jurisdictions may claim that we are required to comply with their laws. For
        example, the Australian high court has ruled that a U.S. website in certain
        circumstances must comply with Australian laws regarding libel. As we expand
        our
        international activities, we become obligated to comply with the laws of
        the
        countries in which we operate. Laws regulating Internet companies outside
        of the
        U.S. may be less favorable than those in the U.S., giving greater rights
        to
        consumers, content owners, and users. Compliance may be more costly or may
        require us to change our business practices or restrict our service offerings
        relative to those in the U.S. Our failure to comply with foreign laws could
        subject us to penalties ranging from criminal prosecution to bans on our
        services.
 
 **EMPLOYEES**
 
 As
        of
        March 15, 2006, we had approximately 56 active 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 network operations, 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.
 
 **ITEM
        1A. RISK FACTORS**
 
 In
        addition to the other information in this report, the following factors should
        be carefully considered in evaluating our business and prospects.
 
 **RISKS
        RELATING TO OUR BUSINESS GENERALLY**
 
 **WE
        HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES.**
 
 Since
        our
        inception, we have incurred net losses each year and we expect that we will
        continue to incur net losses for the foreseeable future. We had losses from
        continuing operations, net of applicable income tax benefits, of approximately
        $13.3 million, $24.9 million and $11.0 million for the years ended December
        31,
        2005, 2004 and 2003, respectively. The principal causes of our losses are
        likely
        to continue to be:
 
 ·
              costs
                  resulting from the operation of our businesses;·
              costs
                  relating to entering new business lines;·
              failure
                  to generate sufficient revenue; and·
              selling,
                  general and administrative expenses.
  15
 
 Although
        we have restructured our businesses, including most recently as a result
        of the
        sale of our SendTec marketing services business, we still expect to continue
        to
        incur losses as we continue to develop our VoIP telephony services business
        and
        while we explore a number of strategic alternatives for our businesses,
        including continuing to operate the businesses, selling certain businesses
        or
        assets, or acquiring or developing additional businesses or complementary
        products.
 
 **WE
        MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN ON A LONG-TERM BASIS.**
 
 We
        received a report from our independent accountants, relating to our December
        31,
        2005 audited financial statements, containing a paragraph stating that our
        recurring losses from operations and our accumulated deficit subject the
        Company
        to certain liquidity and profitability considerations. Based upon the net
        proceeds received from the sale of our SendTec business on October 31, 2005,
        management believes that the Company has sufficient liquidity to operate
        as a
        going concern through at least the end of 2006. In order to assure its longer
        term financial viability, the Company must complete the development of and
        successfully implement its new strategic business plan. The Company’s new
        business plan may include making certain changes which transform its
        unprofitable businesses into profitable ones, selling or otherwise disposing
        of
        businesses or components, acquiring or internally developing new businesses,
        including Tralliance, and/or raising additional equity capital. There can
        be no
        assurance that the Company will be successful in taking any of the above
        actions
        which would enable it to continue as a going concern (see the “Liquidity and
        Capital Resources” section of Management’s Discussion and Analysis of Financial
        Condition and Results of Operations for further details).
 
 **OUR
        ENTRY INTO NEW LINES OF BUSINESS, AS WELL AS POTENTIAL FUTURE ACQUISITIONS,
        JOINT VENTURES OR STRATEGIC TRANSACTIONS ENTAILS NUMEROUS RISKS AND
        UNCERTAINTIES.**
 
 During
        our recent past, we have entered into a number of new business lines through
        acquisitions: computer games, VoIP telephony services, marketing services
        and
        Internet services. We may also enter into new or different lines of business,
        as
        determined by management and our Board of Directors. Our acquisitions, as
        well
        as any future acquisitions or joint ventures could result, and in some instances
        have resulted in numerous risks and uncertainties, including:
 
 ·
              potentially
                dilutive
                issuances of equity securities, which may be issued at the time of
                the
                transaction or in the future if certain performance or other criteria
                are
                met or not met, as the case may be. These securities may be freely
                tradable in the public market or subject to registration rights which
                could require us to publicly register a large amount of our Common
                Stock,
                which could have a material adverse effect on our stock price;·
              diversion
                  of management's attention and resources from our existing businesses;·
              significant
                  write-offs if we determine that the business acquisition does not
                  fit or
                  perform up to expectations;·
              the
                  incurrence of debt and contingent liabilities or impairment charges
                  related to goodwill and other long-lived assets;·
              difficulties
                  in the assimilation of operations, personnel, technologies, products
                  and
                  information systems of the acquired companies;·
              regulatory
                  and tax risks relating to the new or acquired business;·
              the
                  risks of entering geographic and business markets in which we have
                  no or
                  limited prior experience;·
              the
                  risk that the acquired business will not perform as expected; and·
              material
                  decreases in short-term or long-term liquidity.
  16
 
 **THE
        ANTICIPATED BENEFITS OF THE SALE OF OUR SENDTEC BUSINESS MAY NOT BE
        REALIZED.**
 
 The
        net
        cash proceeds received from the sale of our SendTec business are expected
        to
        provide sufficient liquidity to enable the Company to operate on a going
        concern
        basis through at least the end of 2006 and to complete the development of
        and
        begin the implementation of a new strategic business plan. SendTec represented
        the Company’s only profitable business, with our VoIP telephony services and
        computer games businesses continuing to incur operating losses at the present
        time. Our newly acquired Internet services business, Tralliance Corporation
        (“Tralliance”), is in the process of evolving from the start-up phase of its
        operations and began collecting fees for its services in October 2005. In
        order
        to capitalize on and realize the benefits of selling its SendTec business,
        the
        Company must either sell or otherwise dispose of unprofitable businesses,
        make
        changes which transform unprofitable businesses into profitable ones, and/or
        acquire or internally develop new profitable businesses, including Tralliance.
        There can be no assurance that the Company will be successful in taking any
        of
        the above actions which would enable it to achieve satisfactory investment
        returns in future periods and realize the benefits of selling its SendTec
        business.
 
 **OUR
        NET OPERATING LOSS CARRYFORWARDS MAY BE LIMITED.**
 
 As
        of
        December 31, 2005, we had net operating loss carryforwards potentially available
        for U.S. tax purposes of approximately $147.2 million. These carryforwards
        expire through 2025. The Tax Reform Act of 1986 imposes substantial restrictions
        on the utilization of net operating losses and tax credits in the event of
        an
        "ownership change" of a corporation. Due to various significant changes in
        our
        ownership interests, as defined in the Internal Revenue Code of 1986, as
        amended, commencing in August 1997 through our most recent issuance of
        convertible notes in July 2005, and assuming conversion of such notes, we
        may
        have substantially limited or eliminated the availability of our net operating
        loss carryforwards. Our 2005 total consolidated tax provision reflects the
        usage
        of all current year net operating losses and a portion of prior years net
        operating loss carryforwards to offset 2005 taxable income related to the
        gain
        on the sale of our SendTec business. There can be no assurance that we will
        be
        able to utilize any net operating loss carryforwards in the future beyond
        the
        net operating losses recognized in calculating our 2005 tax provision.
 
 **WE
        DEPEND ON THE CONTINUED GROWTH IN THE USE AND COMMERCIAL VIABILITY OF THE
        INTERNET.**
 
 Our
        VoIP
        telephony services business, Internet services business and computer games
        businesses are substantially dependent upon the continued growth in the general
        use of the Internet. Internet and electronic commerce growth may be inhibited
        for a number of reasons, including:
 
 ·
              inadequate
                  network infrastructure;·
              security
                  and authentication concerns;·
              inadequate
                  quality and availability of cost-effective, high-speed service;·
              general
                  economic and business downturns; and·
              catastrophic
                  events, including war and terrorism.
  As
        web
        usage grows, the Internet infrastructure may not be able to support the demands
        placed on it by this growth or its performance and reliability may decline.
        Websites have experienced interruptions in their service as a result of outages
        and other delays occurring throughout the Internet network infrastructure.
        If
        these outages or delays frequently occur in the future, web usage, as well
        as
        usage of our services, could grow more slowly or decline. Also, the Internet's
        commercial viability may be significantly hampered due to:
 
 ·
              delays
                  in the development or adoption of new operating and technical standards
                  and performance improvements required to handle increased levels
                  of
                  activity;·
              increased
                  government regulation;·
              potential
                  governmental taxation of such services; and·
              insufficient
                  availability of telecommunications services which could result
                  in slower
                  response times and adversely affect usage of the Internet.
  17
 
 **WE
        MAY FACE INCREASED GOVERNMENT REGULATION, TAXATION AND LEGAL UNCERTAINTIES
        IN
        OUR INDUSTRY, BOTH DOMESTICALLY AND INTERNATIONALLY, WHICH COULD NEGATIVELY
        IMPACT OUR FINANCIAL CONDITION AND/OR OUR RESULTS OF OPERATIONS.**
 
 There
        are
        an increasing number of federal, state, local and foreign laws and regulations
        pertaining to the Internet and telecommunications. In addition, a number
        of
        federal, state, local and foreign legislative and regulatory proposals are
        under
        consideration. Laws and regulations have been and will likely continue to
        be
        adopted with respect to the Internet relating to, among other things, fees
        and
        taxation of VoIP telephony services, liability for information retrieved
        from or
        transmitted over the Internet, online content regulation, user privacy, data
        protection, pricing, content, copyrights, distribution, electronic contracts
        and
        other communications, consumer protection, public safety issues like enhanced
        911 emergency service ("E911"), the Communications Assistance for Law
        Enforcement Act of 1994, the provision of online payment services, broadband
        residential Internet access, and the characteristics and quality of products
        and
        services.
 
 Changes
        in tax laws relating to electronic commerce could materially affect our
        business, prospects and financial condition. One or more states or foreign
        countries may seek to impose sales or other tax collection obligations on
        out-of-jurisdiction companies that engage in electronic commerce. A successful
        assertion by one or more states or foreign countries that we should collect
        sales or other taxes on services could result in substantial tax liabilities
        for
        past sales, decrease our ability to compete with traditional telephony, and
        otherwise harm our business.
 
 Currently,
        decisions of the U.S. Supreme Court restrict the imposition of obligations
        to
        collect state and local sales and use taxes with respect to electronic commerce.
        However, a number of states, as well as the U.S. Congress, have been considering
        various initiatives that could limit or supersede the Supreme Court's position
        regarding sales and use taxes on electronic commerce. If any of these
        initiatives addressed the Supreme Court's constitutional concerns and resulted
        in a reversal of its current position, we could be required to collect sales
        and
        use taxes. The imposition by state and local governments of various taxes
        upon
        electronic commerce could create administrative burdens for us and could
        adversely affect our VoIP business operations, and ultimately our financial
        condition, operating results and future prospects.
 
 Regardless
        of the type of state tax imposed, the threshold issue involving state taxation
        of any transaction is always whether sufficient nexus, or contact, exists
        between the taxing entity and the taxpayer or the transaction to which the
        tax
        is being applied. The concept of nexus is constantly changing and no bright
        line
        exists that would sufficiently alert a business as to whether it is subject
        to
        tax in a specific jurisdiction. All states which have attempted to tax Internet
        access or online services have done so by asserting that the sale of such
        telecommunications services, information services, data processing services
        or
        other type of transaction is subject to tax in that particular state.
 
 A
        handful
        of states impose taxes on computer services, data processing services,
        information services and other similar types of services. Some of these states
        have asserted that Internet access and/or online information services are
        subject to these taxes.
 
 Most
        states have telecommunications sales or gross receipts taxes imposed on
        interstate calls or transmissions of data. A sizable minority tax only
        intrastate calls. Although these taxes were enacted long before the birth
        of
        electronic commerce and VoIP, several states have asserted that Internet
        access
        and/or online information services are subject to these taxes.
 
 For
        example, in the 2005 Florida legislative session, Florida incorporated into
        the
        tax imposed by Chapter 202, Florida Statutes, (the Communications Services
        Tax)
        language which establishes tax nexus in Florida for VoIP. The Florida
        legislature inserted this language to protect the scope of the tax base for
        the
        Communications Services Tax. The language could have the effect of imposing
        the
        Communications Services Tax on VoIP services not based in the state of Florida.
 
 The
        Florida legislature borrowed the language that it used to amend the Florida
        Statute from the national Streamlined Sales Tax Project. This project is
        being
        touted by many states as a proposed tax simplification plan. If adopted by
        other
        states, the language included in the Florida law could have a far reaching
        effect in many states in the United States.
  18
 
 Moreover,
        the applicability to the Internet of existing laws governing issues such
        as
        intellectual property ownership and infringement, copyright, trademark, trade
        secret, obscenity, libel, employment and personal privacy is uncertain and
        developing. It is not clear how existing laws governing issues such as property
        ownership, sales and other taxes, libel, and personal privacy apply to the
        Internet and electronic commerce. Any new legislation or regulation, or the
        application or interpretation of existing laws or regulations, may decrease
        the
        growth in the use of the Internet or VoIP telephony services, may impose
        additional burdens on electronic commerce or may alter how we do business.
        This
        could decrease the demand for our existing or proposed services, increase
        our
        cost of doing business, increase the costs of products sold through the Internet
        or otherwise have a material adverse effect on our business, plans, prospects,
        results of operations and financial condition.
 
 **WE
        RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.**
 
 We
        regard
        substantial elements of our websites and underlying technology, as well as
        certain assets relating to our VoIP business and other opportunities we are
        investigating, as proprietary and attempt to protect them by relying on
        intellectual property laws and restrictions on disclosure. We also generally
        enter into confidentiality agreements with our employees and consultants.
        In
        connection with our license agreements with third parties, we generally seek
        to
        control access to and distribution of our technology and other proprietary
        information. Despite these precautions, it may be possible for a third party
        to
        copy or otherwise obtain and use our proprietary information without
        authorization or to develop similar technology independently. Thus, we cannot
        assure you that the steps taken by us will prevent misappropriation or
        infringement of our proprietary information, which could have an adverse
        effect
        on our business. In addition, our competitors may independently develop similar
        technology, duplicate our products, or design around our intellectual property
        rights.
 
 We
        pursue
        the registration of our trademarks in the United States and, in some cases,
        internationally. We have been awarded and are also seeking additional patent
        protection for certain VoIP assets which we acquired or which we have developed.
        However, effective intellectual property protection may not be available
        in
        every country in which our services are distributed or made available through
        the Internet. Policing unauthorized use of our proprietary information is
        difficult. Legal standards relating to the validity, enforceability and scope
        of
        protection of proprietary rights in Internet related businesses are also
        uncertain and still evolving. We cannot assure you about the future viability
        or
        value of any of our proprietary rights.
 
 Litigation
        may be necessary in the future to enforce our intellectual property rights
        or to
        determine the validity and scope of the proprietary rights of others. However,
        we may not have sufficient funds or personnel to adequately litigate or
        otherwise protect our rights. Furthermore, we cannot assure you that our
        business activities and product offerings will not infringe upon the proprietary
        rights of others, or that other parties will not assert infringement claims
        against us, including claims related to providing hyperlinks to websites
        operated by third parties or providing advertising on a keyword basis that
        links
        a specific search term entered by a user to the appearance of a particular
        advertisement. Moreover, from time to time, third parties have asserted and
        may
        in the future assert claims of alleged infringement by us of their intellectual
        property rights. Sprint recently filed one such lawsuit which remains pending
        against us and our tglo.com, inc. subsidiary (formerly known as voiceglo
        Holdings, Inc.) alleging infringement by us. Any litigation claims or
        counterclaims could impair our business because they could:
 
 ·
              be
                  time-consuming;·
              result
                  in significant costs;·
              subject
                  us to significant liability for damages;·
              result
                  in invalidation of our proprietary rights;·
              divert
                  management's attention;·
              cause
                  product release delays; or·
              require
                  us to redesign our products or require us to enter into royalty
                  or
                  licensing agreements that may not be available on terms acceptable
                  to us,
                  or at all.
  19
 
 We
        license from third parties various technologies incorporated into our products,
        networks and sites. We cannot assure you that these third-party technology
        licenses will continue to be available to us on commercially reasonable terms.
        Additionally, we cannot assure you that the third parties from which we license
        our technology will be able to defend our proprietary rights successfully
        against claims of infringement. As a result, our inability to obtain any
        of
        these technology licenses could result in delays or reductions in the
        introduction of new products and services or could adversely affect the
        performance of our existing products and services until equivalent technology
        can be identified, licensed and integrated.
 
 The
        regulation of domain names in the United States and in foreign countries
        may
        change. Regulatory bodies could establish and have established additional
        top-level domains, could appoint additional domain name registrars or could
        modify the requirements for holding domain names, any or all of which may
        dilute
        the strength of our names or our “.travel” domain registry business. We may not
        acquire or maintain our domain names in all of the countries in which our
        websites may be accessed, or for any or all of the top-level domain names
        that
        may be introduced. The relationship between regulations governing domain
        names
        and laws protecting proprietary rights is unclear. Therefore, we may not
        be able
        to prevent third parties from acquiring domain names that infringe or otherwise
        decrease the value of our trademarks and other proprietary rights.
 
 **WE
        MAY BE UNSUCCESSFUL IN ESTABLISHING AND MAINTAINING BRAND AWARENESS; BRAND
        IDENTITY IS CRITICAL TO OUR COMPANY.**
 
 Our
        success in the markets in which we operate will depend on our ability to
        create
        and maintain brand awareness for our product offerings. This has in some
        cases
        required, and may continue to require, a significant amount of capital to
        allow
        us to market our products and establish brand recognition and customer loyalty.
        Many of our competitors are larger than us and have substantially greater
        financial resources. Additionally, many of the companies offering VoIP services
        have already established their brand identity within the marketplace. We
        can
        offer no assurances that we will be successful in establishing awareness
        of our
        brand allowing us to compete in the VoIP market.
 
 If
        we
        fail to promote and maintain our various brands or our businesses' brand
        values
        are diluted, our businesses, operating results, financial condition, and
        our
        ability to attract buyers for any of our businesses could be materially
        adversely affected. The importance of brand recognition will continue to
        increase because low barriers of entry to the industries in which we operate
        may
        result in an increased number of direct competitors. To promote our brands,
        we
        may be required to continue to increase our financial commitment to creating
        and
        maintaining brand awareness. We may not generate a corresponding increase
        in
        revenue to justify these costs.
 
 **OUR
        QUARTERLY OPERATING RESULTS FLUCTUATE.**
 
 Due
        to
        our significant change in operations, including the entry into new lines
        of
        business and disposition of other lines of business, our historical quarterly
        operating results are not necessarily reflective of future results. The factors
        that will cause our quarterly operating results to fluctuate in the future
        include:
 
 ·
              acquisitions
                  of new businesses or sales of our businesses or assets;·
              changes
                  in the number of sales or technical employees;·
              the
                  level of traffic on our websites;·
              the
                  overall demand for Internet telephony services, print and Internet
                  advertising and electronic commerce;·
              the
                  addition or loss of VoIP customers, advertisers of our computer
                  games
                  businesses, subscribers to our magazine, and electronic commerce
                  partners
                  on our websites;·
              overall
                  usage and acceptance of the Internet;·
              seasonal
                  trends in advertising and electronic commerce sales and member
                  usage in
                  our businesses;·
              costs
                  relating to the implementation or cessation of marketing plans
                  for our
                  various lines of business;·
              other
                  costs relating to the maintenance of our operations;·
              the
                  restructuring of our business;·
              failure
                  to generate significant revenues and profit margins from new products
                  and
                  services; and·
              competition
                  from others providing services similar to ours.
  20
  **OUR
        LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT. OUR
        INEXPERIENCE IN THE VOIP TELEPHONY BUSINESS AND INTERNET SERVICES BUSINESS
        WILL
        MAKE FINANCIAL FORECASTING EVEN MORE DIFFICULT.**
 
 We
        have a
        limited operating history for you to use in evaluating our prospects and
        us,
        particularly as it pertains to our VoIP and domain name registry businesses.
        Our
        prospects should be considered in light of the risks encountered by companies
        operating in new and rapidly evolving markets like ours. We may not successfully
        address these risks. For example, we may not be able to:
 
 ·
              maintain
                  or increase levels of user traffic on our e-commerce websites;·
              attract
                  customers to our VoIP telephony service;·
              generate
                  and maintain adequate levels of “.travel” domain name registrations;·
              adequately
                  forecast anticipated customer purchase and usage of our retail
                  VoIP
                  products;·
              maintain
                  or increase advertising revenue for our magazine;·
              adapt
                  to meet changes in our markets and competitive developments; and·
              identify,
                  attract, retain and motivate qualified personnel.
 
 **OUR
        MANAGEMENT TEAM IS INEXPERIENCED IN THE MANAGEMENT OF A LARGE OPERATING COMPANY.**
 
 Only
        our
        Chairman has had experience managing a large operating company. Accordingly,
        we
        cannot assure you that:
 
 ·
              our
                  key employees will be able to work together effectively as a team;·
              we
                  will be able to retain the remaining members of our management
                  team;·
              we
                  will be able to hire, train and manage our employee base;·
              our
                  systems, procedures or controls will be adequate to support our
                  operations; and·
              our
                  management will be able to achieve the rapid execution necessary
                  to fully
                  exploit the market opportunity for our products and services.
 
 **WE
        DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.**
 
 Our
        future success also depends on our continuing ability to attract, retain
        and
        motivate highly qualified technical expertise and managerial personnel necessary
        to operate our businesses. We may need to give retention bonuses and stock
        incentives to certain employees to keep them, which can be costly to us.
        The
        loss of the services of members of our management team or other key personnel
        could harm our business. Our future success depends to a significant extent
        on
        the continued service of key management, client service, product development,
        sales and technical personnel. We do not maintain key person life insurance
        on
        any of our executive officers and do not intend to purchase any in the future.
        Although we generally enter into non-competition agreements with our key
        employees, our business could be harmed if one or more of our officers or
        key
        employees decided to join a competitor or otherwise compete with us.
 
 We
        may be
        unable to attract, assimilate or retain highly qualified technical and
        managerial personnel in the future. Wages for managerial and technical employees
        are increasing and are expected to continue to increase in the future. We
        have
        from time to time in the past experienced, and could continue to experience
        in
        the future if we need to hire any additional personnel, difficulty in hiring
        and
        retaining highly skilled employees with appropriate qualifications. If we
        were
        unable to attract and retain the technical and managerial personnel necessary
        to
        support and grow our businesses, our businesses would likely be materially
        and
        adversely affected.
  21
 
 **OUR
        OFFICERS, INCLUDING OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND PRESIDENT
        HAVE
        OTHER INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF INTEREST WITH
        SOME OF
        OUR DIRECTORS; ALL OF OUR DIRECTORS ARE EMPLOYEES OR STOCKHOLDERS OF THE
        COMPANY
        OR AFFILIATES OF OUR LARGEST STOCKHOLDER.**
 
 Because
        our Chairman and Chief Executive Officer, Mr. Michael Egan, is an officer
        or
        director of other companies, we have to compete for his time. Mr. Egan became
        our Chief Executive Officer effective June 1, 2002. Mr. Egan is also the
        controlling investor of Dancing Bear Investments, Inc., an entity controlled
        by
        Mr. Egan, which is our largest stockholder. Mr. Egan has not committed to
        devote
        any specific percentage of his business time with us. Accordingly, we compete
        with Dancing Bear Investments, Inc. and Mr. Egan's other related entities
        for
        his time.
 
 Our
        President, Treasurer and Chief Financial Officer and Director, Mr. Edward
        A.
        Cespedes, is also an officer or director of other companies. Accordingly,
        we
        must compete for his time. Mr. Cespedes is an officer or director of various
        privately held entities and is also affiliated with Dancing Bear Investments,
        Inc.
 
 Our
        Vice
        President of Finance and Director, Ms. Robin Lebowitz is also affiliated
        with
        Dancing Bear Investments, Inc. She is also an officer or director of other
        companies or entities controlled by Mr. Egan and Mr. Cespedes.
 
 Due
        to
        the relationships with his related entities, Mr. Egan will have an inherent
        conflict of interest in making any decision related to transactions between
        the
        related entities and us, including investment in our securities. Furthermore,
        the Company's Board of Directors presently is comprised entirely of individuals
        which are employees of theglobe, and therefore are not "independent." We
        intend
        to review related party transactions in the future on a case-by-case basis.
 
 **WE
        RELY ON THIRD PARTY OUTSOURCED HOSTING FACILITIES OVER WHICH WE HAVE LIMITED
        CONTROL.**
 
 Our
        principal servers are located in areas throughout the eastern region of the
        United States primarily at third party outsourced hosting facilities. Our
        operations depend on the ability to protect our systems against damage from
        unexpected events, including fire, power loss, water damage, telecommunications
        failures and vandalism. Any disruption in our Internet access could have
        a
        material adverse effect on us. In addition, computer viruses, electronic
        break-ins or other similar disruptive problems could also materially adversely
        affect our businesses. Our reputation, theglobe.com brand and the brands
        of our
        individual businesses could be materially and adversely affected by any problems
        experienced by our websites, databases or our supporting information technology
        networks. We may not have insurance to adequately compensate us for any losses
        that may occur due to any failures or interruptions in our systems. We do
        not
        presently have any secondary off-site systems or a formal disaster recovery
        plan.
 
 **HACKERS
        MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY BREACHES COULD
        HARM OUR BUSINESS.**
 
 Consumer
        and supplier confidence in our businesses depends on maintaining relevant
        security features. Substantial or ongoing security breaches on our systems
        or
        other Internet-based systems could significantly harm our business. We incur
        substantial expenses protecting against and remedying security breaches.
        Security breaches also could damage our reputation and expose us to a risk
        of
        loss or litigation. Experienced programmers or "hackers" have successfully
        penetrated our systems and we expect that these attempts will continue to
        occur
        from time to time. Because a hacker who is able to penetrate our network
        security could misappropriate proprietary or confidential information (including
        customer billing information) or cause interruptions in our products and
        services, we may have to expend significant capital and resources to protect
        against or to alleviate problems caused by these hackers. Additionally, we
        may
        not have a timely remedy against a hacker who is able to penetrate our network
        security. Such security breaches could materially adversely affect our company.
        In addition, the transmission of computer viruses resulting from hackers
        or
        otherwise could expose us to significant liability. Our insurance may not
        be
        adequate to reimburse us for losses caused by security breaches. We also
        face
        risks associated with security breaches affecting third parties with whom
        we
        have relationships.
 
 **WE
        MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED
        OVER
        THE INTERNET.**
 
 Users
        may
        access content on our websites or the websites of our distribution partners
        or
        other third parties through website links or other means, and they may download
        content and subsequently transmit this content to others over the Internet.
        This
        could result in claims against us based on a variety of theories, including
        defamation, obscenity, negligence, copyright infringement, trademark
        infringement or the wrongful actions of third parties. Other theories may
        be
        brought based on the nature, publication and distribution of our content
        or
        based on errors or false or misleading information provided on our websites.
        Claims have been brought against online services in the past and we have
        received inquiries from third parties regarding these matters. Such claims
        could
        be material in the future.
  22
 
 **WE
        MAY BE EXPOSED TO LIABILITY FOR PRODUCTS OR SERVICES SOLD OVER THE INTERNET,
        INCLUDING PRODUCTS AND SERVICES SOLD BY OTHERS.**
 
 We
        enter
        into agreements with commerce partners and sponsors under which, in some
        cases,
        we are entitled to receive a share of revenue from the purchase of goods
        and
        services through direct links from our sites. We sell products directly to
        consumers which may expose us to additional legal risks, regulations by local,
        state, federal and foreign authorities and potential liabilities to consumers
        of
        these products and services, even if we do not ourselves provide these products
        or services. We cannot assure you that any indemnification that may be provided
        to us in some of these agreements with these parties will be adequate. Even
        if
        these claims do not result in our liability, we could incur significant costs
        in
        investigating and defending against these claims. The imposition of potential
        liability for information carried on or disseminated through our systems
        could
        require us to implement measures to reduce our exposure to liability. Those
        measures may require the expenditure of substantial resources and limit the
        attractiveness of our services. Additionally, our insurance policies may
        not
        cover all potential liabilities to which we are exposed.
 
 **WE
        ARE A PARTY TO LITIGATION MATTERS THAT MAY SUBJECT US TO SIGNIFICANT LIABILITY
        AND BE TIME CONSUMING AND EXPENSIVE.**
 
 We
        are
        currently a party to litigation. At this time we cannot reasonably estimate
        the
        range of any loss or damages resulting from any of the pending lawsuits due
        to
        uncertainty regarding the ultimate outcome. The defense of any litigation
        may be
        expensive and divert management's attention from day-to-day operations. An
        adverse outcome in any litigation could materially and adversely affect our
        results of operations and financial position and may utilize a significant
        portion of our cash resources.
 
 **WE
        MAY NOT BE ABLE TO IMPLEMENT SECTION 404 OF THE SARBANES-OXLEY ACT ON A TIMELY
        BASIS.**
 
 The
        Securities and Exchange Commission (the “SEC”), as directed by Section 404 of
        The Sarbanes-Oxley Act, adopted rules generally requiring each public company
        to
        include a report of management on the company's internal controls over financial
        reporting in its annual report on Form 10-K that contains an assessment by
        management of the effectiveness of the company's internal controls over
        financial reporting. In addition, the company's independent registered public
        accounting firm must attest to and report on management's assessment of the
        effectiveness of the company's internal controls over financial reporting.
        This
        requirement will first apply to our annual report on Form 10-K for the fiscal
        year ending December 31, 2007.
 
 We
        are
        currently at the beginning stages of developing our Section 404 implementation
        plan. We have in the past discovered, and may in the future discover, areas
        of
        our internal controls that need improvement. How companies should be
        implementing these new requirements including internal control reforms to
        comply
        with Section 404's requirements, and how independent auditors will apply
        these
        requirements and test companies' internal controls, is still reasonably
        uncertain.
 
 We
        expect
        that we will need to hire and/or engage additional personnel and incur
        incremental costs in order to complete the work required by Section 404.
        There
        can be no assurance that we will be able to complete our Section 404 plan
        on a
        timely basis. The Company's liquidity position in 2006 and 2007 may also
        impact
        our ability to adequately fund our Section 404 efforts.
 
 Even
        if
        we timely complete our Section 404 plan, we may not be able to conclude that
        our
        internal controls over financial reporting are effective, or in the event
        that
        we conclude that our internal controls are effective, our independent
        accountants may disagree with our assessment and may issue a report that
        is
        qualified. This could subject the Company to regulatory scrutiny and a loss
        of
        public confidence in our internal controls. In addition, any failure to
        implement required new or improved controls, or difficulties encountered
        in
        their implementation, could harm the Company's operating results or cause
        the
        Company to fail to meet its reporting obligations.
  23
 
 **RISKS
        RELATING TO OUR VOIP TELEPHONY BUSINESS**
 
 **WE
        ARE UNABLE TO PREDICT THE VOLUME OF USAGE AND OUR CAPACITY NEEDS FOR OUR
        VOIP
        BUSINESS; DISADVANTAGEOUS CONTRACTS HAVE REDUCED OUR OPERATING MARGINS AND
        MAY
        ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL CONDITION.**
 
 We
        have
        entered into a number of agreements (generally for initial terms of one year,
        with the terms of several agreements extending beyond one year) for leased
        communications transmission capacity and data center facilities with various
        carriers and other third parties. The minimum amounts payable under these
        agreements and the underlying current capacity of our VoIP network greatly
        exceeds our current estimates of customer demand and usage for the foreseeable
        future. We are currently seeking to reduce the amounts payable under these
        network-related agreements. There can be no assurance that we will be able
        to
        adequately reduce our network-related contractual commitments and achieve
        the
        desired level of network-related cost savings. If we are not successful in
        significantly reducing such commitments, our liquidity and financial condition
        could be materially and adversely impacted.
 
 **THE
        VOIP MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO
        DEPEND
        ON NEW PRODUCT INTRODUCTIONS AND INNOVATIONS IN ORDER TO ESTABLISH, MAINTAIN
        AND
        GROW OUR BUSINESS.**
 
 VoIP
        is
        an emerging market that is characterized by rapid changes in customer
        requirements, frequent introductions of new and enhanced products, and
        continuing and rapid technological advances. To enter and compete successfully
        in this emerging market, we must continually design, develop and sell new
        and
        enhanced VoIP products and services that provide increasingly higher levels
        of
        performance and reliability at lower costs. These new and enhanced products
        must
        take advantage of technological advancements and changes, and respond to
        new
        customer requirements. Our success in designing, developing and selling such
        products and services will depend on a variety of factors, including:
 
 ·
              access
                  to sufficient capital to complete our development efforts;·
              the
                  identification of market demand for new products;·
              the
                  determination of appropriate product inventory levels;·
              product
                  and feature selection;·
              timely
                  implementation of product design and development;·
              product
                  performance;·
              cost-effectiveness
                  of products under development;·
              securing
                  effective sources of equipment supply; and·
              success
                  of promotional efforts and our efforts to create brand recognition.
 
 Additionally,
        we may also be required to collaborate with third parties to develop our
        products and may not be able to do so on a timely and cost-effective basis,
        if
        at all. If we are unable, due to resource constraints or technological or
        other
        reasons, to develop and introduce new or enhanced products in a timely manner
        or
        if such new or enhanced products do not achieve sufficient market acceptance,
        our operating results will suffer and our business will not grow.
 
 **OUR
        ABILITY AND PLANS TO PROVIDE TELECOMMUNICATIONS SERVICES AT ATTRACTIVE RATES
        ARISE IN LARGE PART FROM THE FACT THAT VOIP SERVICES ARE NOT CURRENTLY SUBJECT
        TO THE SAME REGULATION OR TAXATION AS TRADITIONAL TELEPHONY.**
 
 In
        the
        United States, the Federal Communications Commission (the "FCC") has so far
        declined to make a general conclusion that all forms of VoIP services constitute
        telecommunications services (rather than information services). Because their
        services are not currently regulated to the same extent as telecommunications
        services, some VoIP providers, such as the Company, can currently avoid paying
        certain charges and incurring certain costs and expenses that traditional
        telephone companies must pay and incur. Many traditional telephone operators
        are
        lobbying the FCC and the states to regulate VoIP on the same or similar basis
        as
        traditional telephone services. The FCC and several states are examining
        this
        issue.
  24
 
 On
        March
        10, 2004, the FCC released its IP-Enabled Services Notice of Proposed Rulemaking
        which included guidelines and questions upon which it is seeking public comment
        to determine what regulation, if any, will govern companies that provide
        VoIP
        services. Specifically, the FCC has expressed an intention to further examine
        the question of whether certain forms of phone-to-phone VoIP services are
        information services or telecommunications services. The two classifications
        are
        treated differently in several respects, with certain information services
        being
        regulated to a lesser degree than telecommunications services. The FCC has
        noted
        that certain forms of phone-to-phone VoIP services bear many of the same
        characteristics as more traditional voice telecommunications services and
        lack
        the characteristics that would render them information services.
 
 In
        addition to regulation by the FCC, we currently face potential regulation
        by
        state governments and their respective agencies. Although VoIP services are
        presently largely unregulated by the state governments, such state governments
        and their regulatory authorities may assert jurisdiction over the provision
        of
        intrastate IP communications services where they believe that their
        telecommunications regulations are broad enough to cover regulation of IP
        services. A number of state regulators have recently taken the position that
        VoIP providers are telecommunications providers and must register as such
        within
        their states. VoIP operators have resisted such registration on the position
        that VoIP is not, and should not be, subject to such regulations because
        VoIP is
        an information service, not a telecommunications service and because VoIP
        is
        interstate in nature, not intrastate. Various state regulatory authorities
        have
        initiated proceedings to examine the regulatory status of Internet telephony
        services and, in several cases, rulings have been obtained to the effect
        that
        the use of the Internet to provide certain interstate services does not exempt
        an entity from paying intrastate access charges in the jurisdictions in
        question. The FCC has stated in at least one case that multiple state regulatory
        regimes could violate the Commerce Clause because of the unavoidable effect
        that
        regulation on an intrastate component would have on interstate use of the
        service. However, we cannot predict the ultimate impact of this ruling or
        whether the facts of that case are so unique as to be inapplicable to our
        VoIP
        operations. As state governments, courts, and regulatory authorities continue
        to
        examine the regulatory status of Internet telephony services, they could
        render
        decisions or adopt regulations affecting providers of VoIP or requiring such
        providers to pay intrastate access charges or to make contributions to universal
        service funding. Should the FCC determine to regulate IP services, states
        may
        decide to follow the FCC's lead and impose additional obligations as
        well.
 
 If
        providers of VoIP services, such as the Company, become subject to additional
        regulation by the FCC or any state regulatory agencies, the cost of complying
        with such additional regulation would likely increase the costs of providing
        such services. In addition, the FCC or any such state agencies may impose
        new
        surcharges, taxes, fees and/or other charges upon providers or users of VoIP
        services. Such charges could include, among others, access charges payable
        to
        local exchange carriers to carry and terminate traffic, contributions to
        the
        Universal Service Fund or other charges. Such new charges would likely increase
        our cost of VoIP operations and, to the extent that any or all of them are
        passed along to our VoIP customers, they could adversely affect our revenues
        from our VoIP services. Accordingly, more aggressive state and/or federal
        regulation of Internet telephony providers and VoIP services may adversely
        affect our VoIP business operations, and ultimately our financial condition,
        operating results and future prospects.
 
 **RECENT
        REGULATORY ENACTMENTS BY THE FCC REQUIRE US TO PROVIDE ENHANCED EMERGENCY
        911
        DIALING CAPABILITIES TO OUR SUBSCRIBERS AS PART OF OUR INTERCONNECTED VOIP
        SERVICES AND TO COMPLY WITH THE REQUIREMENTS OF THE COMMUNICATIONS ASSISTANCE
        FOR LAW ENFORCEMENT ACT OF 1994. THESE REQUIREMENTS WILL RESULT IN INCREASED
        COSTS AND RISKS ASSOCIATED WITH OUR DELIVERY OF OUR INTERCONNECTED VOIP
        SERVICES, INCLUDING A POSSIBLE REQUIRED DISCONTINUATION OF SUCH SERVICES
        WITH
        RESPECT TO A POTENTIALLY MATERIAL PORTION OF OUR INTERCONNECTED VOIP
        SUBSCRIBERS.**
 
 On
        June
        3, 2005, the FCC released the "IP-Enabled Services and E911 Requirements
        for
        IP-Enabled Service Providers, First Report and Order and Notice of Proposed
        Rulemaking" (the "E911 Order"). The E911 Order requires, among other things,
        that providers of "Interconnected VoIP Service" ("Interconnected VoIP
        Providers") supply enhanced emergency 911 dialing capabilities ("E911") to
        their
        subscribers no later than 120 days from the effective date of the E911 Order.
        The effective date of the E911 Order is July 29, 2005. Additionally, the
        E911
        Order ** requires
        each Interconnected VoIP Provider to file with the FCC a compliance letter
        on or
        before November 28, 2005 detailing its compliance with the above E911
        requirements. For purposes of the E911 Order, "Interconnected VoIP Service"
        is
        defined as a VoIP service that: (1) enables real-time, two-way voice
        communications; (2) requires a broadband connection from the user’s location;
        (3) requires Internet protocol-compatible customer premises equipment; and
        (4)
        permits users generally to receive calls that originate on the public switched
        telephone network and to terminate calls to the public switched telephone
        network.
  25
 
 As
        part
        of the E911 capabilities required to be provided pursuant to the E911 Order,
        Interconnected VoIP Providers are required to mimic the E911 emergency calling
        capabilities offered by traditional landline phone companies. Specifically,
        all
        Interconnected VoIP Providers must deliver 911 calls to the appropriate local
        public safety answering point ("PSAP"), along with call back number and location
        information with respect to the user making the 911 call. Such E911 capabilities
        must be included in the basic service offering of the Interconnected VoIP
        Providers; it cannot be an optional or extra feature. The PSAP delivery
        obligation, including call back number and location information, must be
        provided regardless of whether the service is "fixed," such as where the
        service
        is being provided to a fixed location via wireline technology, or "nomadic,"
        such as where the service is being provided to a mobile location via wireless
        technology. In some cases, the requirement to provide location information
        to
        the appropriate PSAP relies on the user to self-report his or her location.
        The
        E911 Order, however, provides that the FCC intends, through a future order,
        to
        adopt an advanced E911 solution for interconnected VoIP services that must
        include a method for determining a user’s location without assistance from the
        user as well as firm implementation deadlines for that solution.
 
 Additionally,
        the E911 Order required that, by July 29, 2005 (the effective date of the
        E911
        Order), each Interconnected VoIP Provider must have: (1) specifically advised
        every new and existing subscriber, prominently and in plain language, of
        the
        circumstances under which the E911 capabilities service may not be available
        through its VoIP services or may in some way be limited by comparison to
        traditional landline E911 services; (2) obtained and kept a record of
        affirmative acknowledgement from all subscribers, both new and existing,
        of
        having received and understood the advisory described in the preceding item
        (1);
        and (3) distributed to its existing subscribers warning stickers or other
        appropriate labels warning subscribers if E911 service may be limited or
        not
        available and instructing the subscriber to place them on or near the equipment
        used in conjunction with the provider's VoIP services. We complied with the
        requirements set forth in the preceding items (1) and (3). However, despite
        engaging in significant efforts, as of August 10, 2005, we had received the
        affirmative acknowledgements required by the preceding item (2) from less
        than
        15% of our Interconnected VoIP Service subscribers.
 
 On
        July
        26, 2005, noting the efforts made by Interconnected VoIP Providers to comply
        with the E911 Order's affirmative acknowledgement requirement, the Enforcement
        Bureau of the FCC (the "EB") released a Public Notice communicating that,
        until
        August 30, 2005, it would not initiate enforcement action against any
        Interconnected VoIP Provider with respect to such affirmative acknowledgement
        requirement on the condition that the provider file a detailed report with
        the
        FCC by August 10, 2005. The Public Notice provided that the report must set
        forth certain specific information relating to the provider's efforts to
        comply
        with the requirements of the E911 Order. Furthermore, the EB stated its
        expectation that that if an Interconnected VoIP Provider had not received
        such
        affirmative acknowledgements from 100% of its existing subscribers by August
        29,
        2005, then the Interconnected VoIP Provider would disconnect, no later than
        August 30, 2005, all subscribers from whom it has not received such
        acknowledgements.
 
 On
        August
        26, 2005, the EB released another Public Notice communicating that it would
        not,
        until September 28, 2005, initiate enforcement action regarding the affirmative
        acknowledgement requirement against any provider that: (1) previously filed
        the
        compliance report required by the July 26 Public Notice on or before August
        10,
        2005; and (2) filed two separate updated reports with the FCC by September
        1,
        2005 and September 22, 2005 containing certain additional required information
        relating to such provider's compliance efforts with respect to the E911 Order's
        requirements. The EB further stated in the second Public Notice its expectation
        that, during the additional period of time afforded by the extension, all
        Interconnected VoIP Providers that qualified for such extension would continue
        to use all means available to them to obtain affirmative acknowledgements
        from
        all of their subscribers.
 
 On
        September 27, 2005, the EB released a third Public Notice communicating that
        it
        would not seek enforcement action regarding the affirmative acknowledgement
        requirement against any provider that had received acknowledgements from
        at
        least 90% of their applicable VoIP subscribers. Furthermore, the EB communicated
        in the third Public Notice that, with respect to any providers that had not
        received acknowledgements from at least 90% of their applicable VoIP
        subscribers, the EB would not initiate enforcement action regarding the
        affirmative acknowledgement requirement until October 31, 2005, provided
        that
        such providers filed a status report regarding their respective compliance
        efforts by October 25, 2005.
  26
 
 Although
        we have engaged in efforts to comply with all of the requirements of the
        E911
        Order, as of November 28, 2005 and as of December 31, 2005, we were not able
        to
        provide the E911 capabilities required by the E911 Order our Interconnected
        VoIP
        Service subscribers. Moreover, we did not file the compliance letter with
        respect to our compliance efforts on November 28, 2005 as required by the
        E911
        Order. The Company did comply with the reporting requirements of the EB's
        Public
        Notices issued on July 26, 2005, August 26, 2005 and September 27, 2005.
        Accordingly, the Company qualified for the September 28, 2005 and October
        31,
        2005 extensions with respect to the E911 Order's requirement to obtain the
        required acknowledgements from our Interconnected VoIP Service subscribers.
        However, the FCC issued no additional extensions to the October 31, 2005
        deadline for this requirement. As of October 31, 2005 and as of December
        31,
        2005, we had received the required affirmative acknowledgements from less
        than
        15% of our Interconnected VoIP Service subscribers.
 
 While
        we
        continue to be engaged in efforts to provide the E911 capabilities required
        by
        the E911 Order to as many of our Interconnected VoIP Service subscribers
        as
        possible and to obtain the required acknowledgements from those of our
        subscribers to whom we are not delivering such capabilities, we are currently
        not in compliance with the E911 Order. Moreover, we can provide no assurances
        as
        to whether the percentage of our Interconnected VoIP Service subscribers
        with
        respect to which we have complied with all of the E911 Order's requirements
        will
        increase significantly or at all. Accordingly, although the EB has not, as
        of
        March 28, 2006, initiated an enforcement action against the Company with
        respect
        to such non-compliance, the EB may decide to do so at any time.
 
 We
        are
        currently evaluating whether to suspend delivery of our Interconnected VoIP
        Service to those of our subscribers with respect to which we have not complied
        with the requirements of the E911 Order. If we decide to suspend delivery
        of our
        Interconnected VoIP Service to such subscribers for an extended period of
        time
        due to our non-compliance with the E911 Order, or if we are required to do
        so by
        the EB, our future revenues from our VoIP operations may be negatively impacted.
        For the twelve months ended December 31, 2005, our aggregate net revenues
        for
        VoIP services, including, without limitation, revenue for Interconnected
        VoIP
        Services, totaled approximately $249,000, or 10%, of the Company's aggregate
        net
        revenue from continuing operations. Even assuming our full compliance with
        the
        E911 Order, such compliance and our efforts to achieve such compliance, will
        increase our cost of doing business in the VoIP arena and may adversely affect
        our ability to deliver our Interconnected VoIP Service to new and existing
        customers in all geographic regions.
 
 In
        addition to the E911 Order, on September 23, 2005, the FCC released a First
        Report and Order and Notice of Proposed Rulemaking (the "CALEA Order") in
        which
        it concluded that providers of "Interconnected VoIP Service" constitute
        telecommunications carriers for purposes of the Communications Assistance
        for
        Law Enforcement Act of 1994 ("CALEA") even when those providers are not
        telecommunications carriers under the Communications Act of 1934. CALEA requires
        telecommunications carriers to assist law enforcement officials in executing
        electronic surveillance pursuant to court order or other lawful authorization
        and requires carriers to design or modify their systems to ensure that
        lawfully-authorized electronic surveillance can be performed. For purposes
        of
        the CALEA Order, the term "Interconnected VoIP Service" is defined in the
        same
        way as it is defined in the E911 Order. Accordingly, Interconnected VoIP
        Providers, such as the Company, are now required to comply with all of the
        requirements of CALEA no later than 18 months from the effective date of
        the
        CALEA Order. The FCC notes in the CALEA Order that it will release another
        order
        that will address separate questions regarding the assistance capabilities
        required of the Interconnected VoIP Providers. The CALEA Order provides that
        such subsequent order will address, among other matters, issues such as
        compliance extensions and exemptions, cost recovery, identification of future
        services and entities subject to CALEA, and enforcement. The Company is
        currently evaluating how and to what extent it will need to modify its
        technology infrastructure and systems in order to timely comply with the
        requirements of the CALEA Order. However, any such compliance efforts are
        likely
        to increase our costs of providing our Interconnected VoIP Services and
        adversely affect our results of operations from such services.
 
 In
        light
        of the increasing regulatory burdens attendant to operating in the VoIP arena,
        we are currently evaluating the migration of most, if not all, of our
        Interconnected VoIP Service subscribers to our outbound only calling product.
        As
        this service allows outbound dialing only, it does not constitute an
        "Interconnected VoIP Service" as defined in the E911 Order or in the CALEA
        Order. Accordingly, it is not subject to either of such order's respective
        requirements. However, even assuming that we can timely and effectively realize
        this migration, we cannot predict whether in the future the FCC or any state
        or
        other regulatory agencies will expand their regulations, or implement new
        ones,
        so as to include VoIP services other than Interconnected VoIP Services within
        the scope of such regulations.
  27
 
 **OUR
        ABILITY TO OFFER VOIP SERVICES OUTSIDE THE U.S. IS ALSO SUBJECT TO THE LOCAL
        REGULATORY ENVIRONMENT, WHICH MAY BE COMPLICATED AND OFTEN
        UNCERTAIN.**
 
 Although
        the use of private IP networks to provide voice services over the Internet
        is
        currently permitted by United States federal law and largely unregulated
        within
        the United States, several foreign governments have adopted laws and/or
        regulations that could restrict or prohibit the provision of voice
        communications services over the Internet or private IP networks. The regulatory
        treatment of IP communications outside the United States varies significantly
        from country to country. Some countries currently impose little or no regulation
        on Internet telephony services, as in the United States. Other countries,
        including those in which the governments prohibit or limit competition for
        traditional voice telephony services, generally do not permit Internet telephony
        services or strictly limit the terms under which those services may be provided.
        Still other countries regulate Internet telephony services like traditional
        voice telephony services, requiring Internet telephony companies to make
        various
        telecommunications service contributions and pay other taxes.
 
 Internationally,
        the European Union has also enacted several directives relating to the Internet.
        The European Union has, for example, adopted a directive that imposes
        restrictions on the collection and use of personal data. Under the directive,
        citizens of the European Union are guaranteed rights to access their data,
        rights to know where the data originated, rights to have inaccurate data
        rectified, rights to recourse in the event of unlawful processing and rights
        to
        withhold permission to use their data for direct marketing. The directive
        could,
        among other things, affect U.S. companies that collect or transmit information
        over the Internet from individuals in European Union member states, and will
        impose restrictions that are more stringent than current Internet privacy
        standards in the U.S. In particular, companies with offices located in European
        Union countries will not be allowed to send personal information to countries
        that do not maintain adequate standards of privacy. Compliance with these
        laws
        is both necessary and difficult. Failure to comply could subject us to lawsuits,
        fines, criminal penalties, statutory damages, adverse publicity, and other
        losses that could harm our business. Changes to existing laws or the passage
        of
        new laws intended to address these privacy and data protection and retention
        issues could directly affect the way we do business or could create uncertainty
        on the Internet. This could reduce demand for our services, increase the
        cost of
        doing business as a result of litigation costs or increased service or delivery
        costs, or otherwise harm our business.
 
 Other
        laws that reference the Internet, such as the European Union's Directive
        on
        Distance Selling and Electronic Commerce has begun to be interpreted by the
        courts and implemented by the European Union member states, but their
        applicability and scope remain somewhat uncertain. Regulatory agencies or
        courts
        may claim or hold that we or our users are either subject to licensure or
        prohibited from conducting our business in their jurisdiction, either with
        respect to our services in general, or with respect to certain categories
        or
        items of our services. In addition, because our services are accessible
        worldwide, and we facilitate VoIP telephony services to users worldwide,
        foreign
        jurisdictions may claim that we are required to comply with their laws. For
        example, the Australian high court has ruled that a U.S. website in certain
        circumstances must comply with Australian laws regarding libel. As we expand
        our
        international activities, we become obligated to comply with the laws of
        the
        countries in which we operate. Laws regulating Internet companies outside
        of the
        U.S. may be less favorable than those in the U.S., giving greater rights
        to
        consumers, content owners, and users. Compliance may be more costly or may
        require us to change our business practices or restrict our service offerings
        relative to those in the U.S. Our failure to comply with foreign laws could
        subject us to penalties ranging from criminal prosecution to bans on our
        services.
 
 **NEW
        LAWS AND REGULATIONS AFFECTING THE INTERNET GENERALLY MAY INCREASE OUR COSTS
        OF
        COMPLIANCE AND DOING BUSINESS, DECREASE THE GROWTH IN INTERNET USE, DECREASE
        THE
        DEMAND FOR OUR SERVICES OR OTHERWISE HAVE A MATERIAL ADVERSE EFFECT ON OUR
        BUSINESS.**
 
 Today,
        there are still relatively few laws specifically directed towards online
        services. However, due to the increasing popularity and use of the Internet
        and
        online services, many laws and regulations relating to the Internet are being
        debated at all levels of governments around the world and it is possible
        that
        such laws and regulations will be adopted. It is not clear how existing laws
        governing issues such as property ownership, copyrights and other intellectual
        property issues, taxation, libel and defamation, obscenity, and personal
        privacy
        apply to online businesses. The vast majority of these laws were adopted
        prior
        to the advent of the Internet and related technologies and, as a result,
        do not
        contemplate or address the unique issues of the Internet and related
        technologies. In the United States, Congress has recently adopted legislation
        that regulates certain aspects of the Internet, including online content,
        user
        privacy and taxation. In addition, Congress and other federal entities are
        considering other legislative and regulatory proposals that would further
        regulate the Internet. Congress has, for example, considered legislation
        on a
        wide range of issues including Internet spamming, database privacy, gambling,
        pornography and child protection, Internet fraud, privacy and digital
        signatures. For example, Congress recently passed and the President signed
        into
        law several proposals that have been made at the U.S. state and local level
        that
        would impose additional taxes on the sale of goods and services through the
        Internet. These proposals, if adopted, could substantially impair the growth
        of
        e-commerce, and could diminish our opportunity to derive financial benefit
        from
        our activities. For example, in December 2004, the U.S. federal government
        enacted the Internet Tax Nondiscrimination Act (the "ITNA"). While the ITNA
        generally extends through November 2007 the moratorium on taxes on Internet
        access and multiple and discriminatory taxes on electronic commerce, it does
        not
        affect the imposition of tax on a charge for voice or similar service utilizing
        Internet Protocol or any successor protocol. In addition, the ITNA does not
        prohibit federal, state, or local authorities from collecting taxes on our
        income or from collecting taxes that are due under existing tax rules.
  28
 
 Various
        states have adopted and are considering Internet-related legislation. Increased
        U.S. regulation of the Internet, including Internet tracking technologies,
        may
        slow its growth, particularly if other governments follow suit, which may
        negatively impact the cost of doing business over the Internet and materially
        adversely affect our business, financial condition, results of operations
        and
        future prospects. Legislation has also been proposed that would clarify the
        regulatory status of VoIP service. The Company has no way of knowing whether
        legislation will pass or what form it might take. Domain names have been
        the
        subject of significant trademark litigation in the United States and
        internationally. The current system for registering, allocating and managing
        domain names has been the subject of litigation and may be altered in the
        future. The regulation of domain names in the United States and in foreign
        countries may change. Regulatory bodies are anticipated to establish additional
        top-level domains and may appoint additional domain name registrars or modify
        the requirements for holding domain names, any or all of which may dilute
        the
        strength of our names. We may not acquire or maintain our domain names in
        all of
        the countries in which our websites may be accessed, or for any or all of
        the
        top-level domain names that may be introduced.
 
 **THE
        INTERNET TELEPHONY BUSINESS IS HIGHLY COMPETITIVE AND ALSO COMPETES WITH
        TRADITIONAL AND CELLULAR TELEPHONY PROVIDERS.**
 
 The
        long
        distance telephony market and the Internet telephony market are highly
        competitive. There are several large and numerous small competitors and we
        expect to face continuing competition based on price and service offerings
        from
        existing competitors and new market entrants in the future. The principal
        competitive factors in our market include price, quality of service, breadth
        of
        geographic presence, customer service, reliability, network size and capacity,
        and the availability of enhanced communications services. Our competitors
        include major and emerging telecommunications carriers in the U.S. and abroad.
        Financial difficulties in the past several years of many telecommunications
        providers are rapidly altering the number, identity and competitiveness of
        the
        marketplace. Many of the competitors for our current and planned VoIP service
        offerings have substantially greater financial, technical and marketing
        resources, larger customer bases, longer operating histories, greater name
        recognition and more established relationships in the industry than we have.
        As
        a result, certain of these competitors may be able to adopt more aggressive
        pricing policies which could hinder our ability to market our voice services.
 
 During
        the past several years, a number of companies have introduced services that
        make
        Internet telephony or voice services over the Internet available to businesses
        and consumers. All major telecommunications companies, including entities
        like
        AT&T, Verizon and Sprint, either presently or potentially compete or can
        compete directly with us. Other Internet telephony service providers, such
        as
        Skype, Net2Phone, Vonage, Go2Call and deltathree, also focus on a retail
        customer base and compete with us. These companies may offer the kinds of
        voice
        services we currently offer or intend to offer in the future. In addition,
        companies currently in related markets have begun to provide voice over the
        Internet services or adapt their products to enable voice over the Internet
        services. These related companies may potentially migrate into the Internet
        telephony market as direct competitors. A number of cable operators have
        also
        begun to offer VoIP telephony services via cable modems which provide access
        to
        the Internet. These companies, which tend to be large entities with substantial
        resources, generally have large budgets available for research and development,
        and therefore may further enhance the quality and acceptance of the transmission
        of voice over the Internet. AOL, Google and Yahoo! also now offer new services
        that have features similar to some of our products and services. We also
        compete
        with cellular telephony providers.
 
 **PRICING
        PRESSURES AND INCREASING USE OF VOIP TECHNOLOGY MAY LESSEN OUR COMPETITIVE
        PRICING ADVANTAGE.**
 
 One
        of
        the main competitive advantages of our current and planned VoIP service
        offerings is the ability to provide discounted local and long distance telephony
        services by taking advantage of cost savings achieved by carrying voice traffic
        employing VoIP technology, as compared to carrying calls over traditional
        networks. In recent years, the price of telephone service has fallen. The
        price
        of telephone service may continue to fall for various reasons, including
        the
        adoption of VoIP technology by other communications carriers. Many carriers
        have
        adopted pricing plans such that the rates that they charge are not always
        substantially higher than the rates that VoIP providers charge for similar
        service. In addition, other providers of long distance services are offering
        unlimited or nearly unlimited use of some of their services for increasingly
        lower monthly rates.
  29
 
 **IF
        WE DO NOT DEVELOP AND MAINTAIN SUCCESSFUL PARTNERSHIPS FOR VOIP PRODUCTS,
        WE MAY
        NOT BE ABLE TO SUCCESSFULLY MARKET ANY OF OUR VOIP PRODUCTS.**
 
 Our
        success in the VoIP market is partly dependent on our ability to forge
        marketing, engineering and carrier partnerships. VoIP communication systems
        are
        extremely complex and no single company possesses all the technology components
        needed to build a complete end-to-end solution. We will likely need to enter
        into partnerships to augment our development programs and to assist us in
        marketing complete solutions to our targeted customers. We may not be able
        to
        develop such partnerships in the course of our operations and product
        development. Even if we do establish the necessary partnerships, we may not
        be
        able to adequately capitalize on these partnerships to aid in the success
        of our
        business.
 
 **THE
        FAILURE OF VOIP NETWORKS TO MEET THE RELIABILITY AND QUALITY STANDARDS REQUIRED
        FOR VOICE COMMUNICATIONS COULD RENDER OUR PRODUCTS OBSOLETE.**
 
 Circuit-switched
        telephony networks feature very high reliability, with a guaranteed quality
        of
        service. In addition, such networks have imperceptible delay and consistently
        satisfactory audio quality. VoIP networks will not be a viable alternative
        to
        traditional circuit switched telephony unless they can provide reliability
        and
        quality consistent with these standards.
 
 **ONLINE
        CREDIT CARD FRAUD CAN HARM OUR BUSINESS.**
 
 The
        sale
        of our products and services over the Internet exposes us to credit card
        fraud
        risks. Many of our products and services, including our VoIP services, can
        be
        ordered or established (in the case of new accounts) over the Internet using
        a
        major credit card for payment. As is prevalent in retail telecommunications
        and
        Internet services industries, we are exposed to the risk that some of these
        credit card accounts are stolen or otherwise fraudulently obtained. In general,
        we are not able to recover fraudulent credit card charges from such accounts.
        In
        addition to the loss of revenue from such fraudulent credit card use, we
        also
        remain liable to third parties whose products or services are engaged by
        us
        (such as termination fees due telecommunications providers) in connection
        with
        the services which we provide. In addition, depending upon the level of credit
        card fraud we experience, we may become ineligible to accept the credit cards
        of
        certain issuers. We are currently authorized to accept Discover, together
        with
        Visa and MasterCard (which are both covered by a single merchant agreement
        with
        us). Visa/MasterCard constitutes the primary credit card used by our VoIP
        customers. The loss of eligibility for acceptance of Visa/MasterCard could
        significantly and adversely affect our business. During 2004, we updated
        our
        fraud controls and will attempt to manage fraud risks through our internal
        controls and our monitoring and blocking systems. If those efforts are not
        successful, fraud could cause our revenue to decline significantly and our
        business, financial condition and results of operations to be materially
        and
        adversely affected.
 
 **RISKS
        RELATING TO OUR COMPUTER GAMES BUSINESS**
 
 **THE
        MARKET SITUATION CONTINUES TO BE A CHALLENGE FOR CHIPS & BITS DUE TO
        ADVANCES IN CONSOLE AND ONLINE GAMES, WHICH HAVE LOWER MARGINS AND TRADITIONALLY
        LESS SALES LOYALTY TO CHIPS & BITS.**
 
 Our
        subsidiary, Chips & Bits depends on major releases in the Personal Computer
        (“PC”) market for the majority of sales and profits. Advances in technology and
        the game industry’s increased focus on console and online game platforms, such
        as Xbox, PlayStation and GameCube, has dramatically reduced the number of
        major
        PC releases, which resulted in significant declines in revenues and gross
        margins for Chips & Bits. Because of the large installed base of personal
        computers, revenue and gross margin percentages may fluctuate with changes
        in
        the PC game market. However, we are unable to predict when, if ever, there
        will
        be a turnaround in the PC game market, or if we will be successful in adequately
        increasing our future sales of non-PC games.
 
 **WE
        HAVE HISTORICALLY RELIED SUBSTANTIALLY ON ADVERTISING REVENUES, WHICH COULD
        DECLINE IN THE FUTURE.**
 
 We
        historically derived a substantial portion of our revenues from the sale
        of
        advertisements, primarily in our Computer Games Magazine. Our games business
        model and our ability to generate sufficient future levels of print and online
        advertising revenues are highly dependent on the print circulation of our
        magazine, as well as the amount of traffic on our websites and our ability
        to
        properly monetize website traffic. Print and online advertising market volumes
        have declined in the past and may decline in the future, which could have
        a
        material adverse effect on us. Many advertisers have been experiencing financial
        difficulties which could further negatively impact our revenues and our ability
        to collect our receivables. For these reasons, we cannot assure you that
        our
        current advertisers will continue to purchase advertisements from us or that
        we
        will be successful in selling advertising to new advertisers.
  30
 
 **WE
        MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE ELECTRONIC COMMERCE MARKETPLACE.**
 
 The
        games
        marketplace has become increasingly competitive due to acquisitions, strategic
        partnerships and the continued consolidation of a previously fragmented
        industry. In addition, an increasing number of major retailers have increased
        the selection of video games offered by both their traditional “bricks and
        mortar” locations and their online commerce sites, resulting in increased
        competition. Our Chips & Bits subsidiary may not be able to compete
        successfully in this highly competitive marketplace.
 
 We
        also
        face many uncertainties, which may affect our ability to generate electronic
        commerce revenues and profits, including:
 
 ·
              our
                  ability to obtain new customers at a reasonable cost, retain existing
                  customers and encourage repeat purchases;·
              the
                  likelihood that both online and retail purchasing trends may rapidly
                  change;·
              the
                  level of product returns;·
              merchandise
                  shipping costs and delivery times;·
              our
                  ability to manage inventory levels;·
              our
                  ability to secure and maintain relationships with vendors; and·
              the
                  possibility that our vendors may sell their products through other
                  sites.
 
 Additionally,
        if use of the Internet for electronic commerce does not continue to grow,
        our
        business and financial condition would be materially and adversely affected.
 
 **INTENSE
        COMPETITION FOR ELECTRONIC COMMERCE REVENUES HAS RESULTED IN DOWNWARD PRESSURE
        ON GROSS MARGINS.**
 
 Due
        to
        the ability of consumers to easily compare prices of similar products or
        services on competing websites and consumers’ potential preference for competing
        website’s user interface, gross margins for electronic commerce transactions,
        which are narrower than for advertising businesses, may further narrow in
        the
        future and, accordingly, our revenues and profits from electronic commerce
        arrangements may be materially and adversely affected.
 
 **OUR
        ELECTRONIC COMMERCE BUSINESS MAY RESULT IN SIGNIFICANT LIABILITY CLAIMS AGAINST
        US.**
 
 Consumers
        may sue us if any of the products that we sell are defective, fail to perform
        properly or injure the user. Consumers are also increasingly seeking to impose
        liability on game manufacturers and distributors based upon the content of
        the
        games and the alleged affect of such content on behavior. Liability claims
        could
        require us to spend significant time and money in litigation or to pay
        significant damages. As a result, any claims, whether or not successful,
        could
        seriously damage our reputation and our business.
 
 **RISKS
        RELATING TO OUR INTERNET SERVICES BUSINESS**
 
 **OUR
        CONTRACT TO SERVE AS THE REGISTRY FOR THE “.TRAVEL” TOP-LEVEL DOMAIN MAY BE
        TERMINATED EARLY, WHICH WOULD LIKELY DO IRREPARABLE HARM TO OUR NEWLY DEVELOPING
        INTERNET SERVICES BUSINESS.**
 
 Our
        contract with the Internet Corporation for Assigned Names and Numbers (“ICANN”)
        to serve as the registry for the “.travel” top-level Internet domain is for an
        initial term of ten years. Additionally, we have agreed to engage in good
        faith
        negotiations at regular intervals throughout the term of our contract (at
        least
        once every three years) regarding possible changes to the provisions of the
        contract, including changes in the fees and payments that we are required
        to
        make to ICANN. In the event that we materially and fundamentally breach the
        contract and fail to cure such breach within thirty days of notice, ICANN
        has
        the right to immediately terminate our contract.
  31
 
 Should
        our “.travel” registry contract be terminated early by ICANN, we would likely
        permanently shutdown our Internet services business. Further, we could be
        held
        liable to pay additional fees or financial damages to ICANN or certain of
        our
        related subcontractors and, in certain limited circumstances, to pay punitive,
        exemplary or other damages to ICANN. Any such developments could have a material
        adverse effect on our financial condition and results of operations.
 
 **OUR
        BUSINESS COULD BE MATERIALLY HARMED IF IN THE FUTURE THE ADMINISTRATION AND
        OPERATION OF THE INTERNET NO LONGER RELIES UPON THE EXISTING DOMAIN NAME
        SYSTEM.**
 
 The
        domain name registration industry continues to develop and adapt to changing
        technology. This development may include changes in the administration or
        operation of the Internet, including the creation and institution of alternate
        systems for directing Internet traffic without the use of the existing domain
        name system. The widespread acceptance of any alternative systems could
        eliminate the need to register a domain name to establish an online presence
        and
        could materially adversely affect our business, financial condition and results
        of operations.
 
 **WE
        OUTSOURCE CERTAIN OPERATIONS WHICH EXPOSES US TO RISKS RELATED TO OUR THIRD
        PARTY VENDORS.**
 
 We
        do not
        develop and maintain all of the products and services that we offer. We offer
        most of our services to our customers through various third party service
        providers engaged to perform these services on our behalf and also outsource
        most of our operations to third parties. Accordingly, we are dependent, in
        part,
        on the services of third party service providers, which may raise concerns
        by
        our customers regarding our ability to control the services we offer them
        if
        certain elements are managed by another company. In the event that these
        service
        providers fail to maintain adequate levels of support, do not provide high
        quality service, discontinue their lines of business, cease or reduce operations
        or terminate their contracts with us, our business, operations and customer
        relations may be impacted negatively and we may be required to pursue
        replacement third party relationships, which we may not be able to obtain
        on as
        favorable terms or at all. If a problem should arise with a provider,
        transitioning services and data from one provider to another can often be
        a
        complicated and time consuming process and we cannot assure that if we need
        to
        switch from a provider we would be able to do so without significant
        disruptions, or at all. If we were unable to complete a transition to a new
        provider on a timely basis, or at all, we could be forced to either temporarily
        or permanently discontinue certain services which may disrupt services to
        our
        customers. Any failure to provide services would have a negative impact on
        our
        revenue, profitability and financial condition and could materially harm
        our
        Internet services business.
 
 **REGULATORY
        AND STATUTORY CHANGES COULD HARM OUR INTERNET SERVICES BUSINESS.**
 
 We
        cannot
        predict with any certainty the effect that new governmental or regulatory
        policies, including changes in consumer privacy policies or industry reaction
        to
        those policies, will have on our domain name registry business. Additionally,
        ICANN’s limited resources may seriously affect its ability to carry out its
        mandate or could force ICANN to impose additional fees on registries. Changes
        in
        governmental or regulatory statutes or policies could cause decreases in
        future
        revenue and increases in future costs which could have a material adverse
        effect
        on the development of our domain name registry business.
 
 **RISKS
        RELATING TO OUR COMMON STOCK**
 
 **THE
        VOLUME OF SHARES AVAILABLE FOR FUTURE SALE IN THE OPEN MARKET COULD DRIVE
        DOWN
        THE PRICE OF OUR STOCK OR KEEP OUR STOCK PRICE FROM IMPROVING, EVEN IF OUR
        FINANCIAL PERFORMANCE IMPROVES.**
 
 As
        of
        March 21, 2006, we had issued and outstanding approximately 174.7 million
        shares, of which approximately 70.1 million shares were freely tradable over
        the
        public markets. There is limited trading volume in our shares and we are
        now
        traded only in the over-the-counter market. Most of our outstanding restricted
        shares of Common Stock were issued more than one year ago and are therefore
        eligible to be resold over the public markets pursuant to Rule 144 promulgated
        under the Securities Act of 1933, as amended.
  32
  Sales
        of
        significant amounts of Common Stock in the public market in the future, the
        perception that sales will occur or the registration of additional shares
        pursuant to existing contractual obligations could materially and adversely
        drive down the price of our stock. In addition, such factors could adversely
        affect the ability of the market price of the Common Stock to increase even
        if
        our business prospects were to improve. Substantially all of our stockholders
        holding restricted securities, including shares issuable upon the exercise
        of
        warrants or the conversion of the Convertible Notes to acquire our Common
        Stock
        (which are convertible into 68 million shares), have registration rights
        under
        various conditions and will become available for resale in the future.
 
 In
        addition, as of December 31, 2005, there were outstanding options to purchase
        approximately 15.4 million shares of our Common Stock, which become eligible
        for
        sale in the public market from time to time depending on vesting and the
        expiration of lock-up agreements. The shares issuable upon exercise of these
        options are registered under the Securities Act and consequently, subject
        to
        certain volume restrictions as to shares issuable to executive officers,
        will be
        freely tradable.
 
 Also
        as
        of March 21, 2006, we had issued and outstanding warrants to acquire
        approximately 7.3 million shares of our Common Stock. In addition, the Company
        holds in escrow warrants to acquire up to 1.5 shares of Common Stock, subject
        to
        release over approximately the next year (some of which may accelerate under
        certain events) upon the attainment of certain performance objectives. Many
        of
        the outstanding instruments representing the warrants contain anti-dilution
        provisions pursuant to which the exercise prices and number of shares issuable
        upon exercise may be adjusted.
 
 **OUR
        CHAIRMAN MAY CONTROL US.**
 
 Michael
        S. Egan, our Chairman and Chief Executive Officer, beneficially owns or
        controls, directly or indirectly, approximately 140.7 million shares of our
        Common Stock as of March 21, 2006, which in the aggregate represents
        approximately 57% of the outstanding shares of our Common Stock **** (treating
        as outstanding for this purpose the shares of Common Stock issuable upon
        exercise and/or conversion of the options, Convertible Notes and warrants
        owned
        by Mr. Egan or his affiliates). Accordingly, Mr. Egan will be able to exercise
        significant influence over, if not control, any stockholder vote.
 
 **DELISTING
        OF OUR COMMON STOCK MAKES IT MORE DIFFICULT FOR INVESTORS TO SELL SHARES.
        THIS
        MAY POTENTIALLY LEAD TO FUTURE MARKET DECLINES.**
 
 The
        shares of our Common Stock were delisted from the NASDAQ national market
        in
        April 2001 and are now traded in the over-the-counter market on what is commonly
        referred to as the electronic bulletin board or "OTCBB." As a result, an
        investor may find it more difficult to dispose of or obtain accurate quotations
        as to the market value of the securities. The delisting has made trading
        our
        shares more difficult for investors, potentially leading to further declines
        in
        share price and making it less likely our stock price will increase. It has
        also
        made it more difficult for us to raise additional capital. We may also incur
        additional costs under state blue-sky laws if we sell equity due to our
        delisting.
 
 **OUR
        COMMON STOCK MAY BECOME SUBJECT TO CERTAIN "PENNY STOCK" RULES WHICH MAY
        MAKE IT
        A LESS ATTRACTIVE INVESTMENT.**
 
 Since
        the
        trading price of our Common Stock is less than $5.00 per share, trading in
        our
        Common Stock would be subject to the requirements of Rule 15g-9 of the Exchange
        Act if our net tangible assets were to fall below $2.0 million. Under Rule
        15g-9, brokers who recommend penny stocks to persons who are not established
        customers and accredited investors, as defined in the Exchange Act, must
        satisfy
        special sales practice requirements, including requirements that they make
        an
        individualized written suitability determination for the purchaser; and receive
        the purchaser's written consent prior to the transaction. The Securities
        Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
        disclosures in connection with any trades involving a penny stock, including
        the
        delivery, prior to any penny stock transaction, of a disclosure schedule
        explaining the penny stock market and the risks associated with that market.
        Such requirements may severely limit the market liquidity of our Common Stock
        and the ability of purchasers of our equity securities to sell their securities
        in the secondary market. For all of these reasons, an investment in our equity
        securities may not be attractive to our potential investors.
  33
 
 **ANTI-TAKEOVER
        PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL.**
 
 Provisions
        of our charter, by-laws and stockholder rights plan and provisions of applicable
        Delaware law may:
 
 ·
              have
                  the effect of delaying, deferring or preventing a change in control
                  of our
                  Company;·
              discourage
                  bids of our Common Stock at a premium over the market price; or·
              adversely
                  affect the market price of, and the voting and other rights of
                  the holders
                  of, our Common Stock.
 
 Certain
        Delaware laws could have the effect of delaying, deterring or preventing
        a
        change in control of our Company. One of these laws prohibits us from engaging
        in a business combination with any interested stockholder for a period of
        three
        years from the date the person became an interested stockholder, unless various
        conditions are met. In addition, provisions of our charter and by-laws, and
        the
        significant amount of Common Stock held by our current executive officers,
        directors and affiliates, could together have the effect of discouraging
        potential takeover attempts or making it more difficult for stockholders
        to
        change management. In addition, the employment contracts of our Chairman
        and
        CEO, President and Vice President of Finance provide for substantial lump
        sum
        payments ranging from 2 (for the Vice President) to 10 times (for each of
        the
        Chairman and President) of their respective average combined salaries and
        bonuses (together with the continuation of various benefits for extended
        periods) in the event of their termination without cause or a termination
        by the
        executive for “good reason,” which is conclusively presumed in the event of a
“change-in-control” (as such terms are defined in such agreements).
 
 **OUR
        STOCK PRICE IS VOLATILE AND MAY DECLINE.**
 
 The
        trading price of our Common Stock has been volatile and may continue to be
        volatile in response to various factors, including:
 
 ·
              the
                  performance and public acceptance of our new product lines;·
              quarterly
                  variations in our operating results;·
              competitive
                  announcements;·
              sales
                  of any of our businesses, including the recent sale of our SendTec
                  business;·
              the
                  operating and stock price performance of other companies that investors
                  may deem comparable to us;·
              news
                  relating to trends in our markets; and·
              disposition
                  or entry into new lines of business and acquisitions of businesses,
                  including our Tralliance acquisition.
 
 The
        market price of our Common Stock could also decline as a result of unforeseen
        factors. The stock market has experienced significant price and volume
        fluctuations, and the market prices of technology companies, particularly
        Internet related companies, have been highly volatile. Our stock is also
        more
        volatile due to the limited trading volume and the high number of shares
        eligible for trading in the market.
 
 **ITEM
        1B. UNRESOLVED STAFF COMMENTS**
 
 None.
  34
 
 **ITEM
        2. PROPERTIES**
 
 Our
        corporate headquarters is located in Fort Lauderdale, Florida, where we lease
        approximately 26,000 square feet of office space. 15,000 square feet of this
        space is sublet from a company which is controlled by our Chairman and the
        remaining 11,000 square feet is sublet from an unaffiliated company **.** We
        lease
        approximately 5,000 square feet of office space in Vermont in connection
        with
        the operations of our computer games division and also lease approximately
        5,000
        square feet of warehouse space in Pompano Beach, Florida. Additionally, we
        currently utilize colocation space in secure telecommunications data centers
        located in several states which is used to house certain Internet routing
        and
        computer equipment. Our subsidiary, Tralliance Corporation, subleases
        approximately 1,100 square feet of office space in New York City on a
        month-to-month basis from an entity controlled by its President and Chief
        Executive Officer.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 On
        and
        after August 3, 2001 and as of the date of this filing, the Company is aware
        that six putative shareholder class action lawsuits were filed against the
        Company, certain of its current and former officers and directors (the
“Individual Defendants”), and several investment banks that were the
        underwriters of the Company's initial public offering. The lawsuits were
        filed
        in the United States District Court for the Southern District of New York.
 
 The
        lawsuits purport to be class actions filed on behalf of purchasers of the
        stock
        of the Company during the period from November 12, 1998 through December
        6,
        2000. Plaintiffs allege that the underwriter defendants agreed to allocate
        stock
        in the Company's initial public offering to certain investors in exchange
        for
        excessive and undisclosed commissions and agreements by those investors to
        make
        additional purchases of stock in the aftermarket at pre-determined prices.
        Plaintiffs allege that the Prospectus for the Company's initial public offering
        was false and misleading and in violation of the securities laws because
        it did
        not disclose these arrangements. On December 5, 2001, an amended complaint
        was
        filed in one of the actions, alleging the same conduct described above in
        connection with the Company's November 23, 1998 initial public offering and
        its
        May 19, 1999 secondary offering. A Consolidated Amended Complaint, which
        is now
        the operative complaint, was filed in the Southern District of New York on
        April
        19, 2002. The action seeks damages in an unspecified amount. On February
        19,
        2003, a motion to dismiss all claims against the Company was denied by the
        Court. On October 13, 2004, the Court certified a class in six of the
        approximately 300 other nearly identical actions and noted that the decision
        is
        intended to provide strong guidance to all parties regarding class certification
        in the remaining cases. Plaintiffs have not yet moved to certify a class
        in
        theglobe.com case.
 
 The
        Company has approved a settlement agreement and related agreements which
        set
        forth the terms of a settlement between the Company, the Individual Defendants,
        the plaintiff class and the vast majority of the other approximately 300
        issuer
        defendants. Among other provisions, the settlement provides for a release
        of the
        Company and the Individual Defendants for the conduct alleged in the action
        to
        be wrongful. The Company would agree to undertake certain responsibilities,
        including agreeing to assign away, not assert, or release certain potential
        claims the Company may have against its underwriters. The settlement agreement
        also provides a guaranteed recovery of $1 billion to plaintiffs for the cases
        relating to all of the approximately 300 issuers. To the extent that the
        underwriter defendants settle all of the cases for at least $1 billion, no
        payment will be required under the issuers’ settlement agreement. To the extent
        that the underwriter defendants settle for less than $1 billion, the issuers
        are
        required to make up the difference. It is anticipated that any potential
        financial obligation of the Company to plaintiffs pursuant to the terms of
        the
        settlement agreement and related agreements will be covered by existing
        insurance. The Company currently is not aware of any material limitations
        on the
        expected recovery of any potential financial obligation to plaintiffs from
        its
        insurance carriers. Its carriers are solvent, and the company is not aware
        of
        any uncertainties as to the legal sufficiency of an insurance claim with
        respect
        to any recovery by plaintiffs. Therefore, we do not expect that the settlement
        will involve any payment by the Company. If material limitations on the expected
        recovery of any potential financial obligation to the plaintiffs from the
        Company's insurance carriers should arise, the Company's maximum financial
        obligation to plaintiffs pursuant to the settlement agreement would be less
        than
        $3.4 million. On
        February 15, 2005, the Court granted preliminary approval of the settlement
        agreement, subject to certain modifications consistent with its opinion.
        Those
        modifications have been made. There is no assurance that the court will grant
        final approval to the settlement. If
        the
        settlement agreement is not approved and the Company is found liable, we
        are
        unable to estimate or predict the potential damages that might be awarded,
        whether such damages would be greater than the Company’s insurance coverage, and
        whether such damages would have a material impact on our results of operations
        or financial condition in any future period.
  35
 
 On
        December 16, 2004, the Company, together with its wholly-owned subsidiary,
        tglo.com, inc. (formerly known as voiceglo Holdings, Inc.), were named as
        defendants in NeoPets, Inc. v. voiceglo Holdings, Inc. and theglobe.com,
        inc., a
        lawsuit filed in Los Angeles Superior Court. The Company and its subsidiary
        were
        parties to an agreement dated May 6, 2004, with NeoPets, Inc. ("NeoPets"),
        whereby NeoPets agreed to host a voiceglo advertising feature on its website
        for
        the purpose of generating registered activations of the voiceglo product
        featured. Consideration to NeoPets was to include specified commissions,
        including cash payments based on registered activations, as defined, as well
        as
        the issuance of Common Stock of theglobe and additional cash payments, upon
        the
        attainment of certain performance criteria. NeoPets' complaint asserted claims
        for breach of contract and specific performance and sought payment of
        approximately $2.5 million in cash, plus interest, as well as the issuance
        of
        1,000,000 shares of theglobe’s Common Stock. On February 22, 2005, the Company
        and its subsidiary answered the complaint and asserted cross-claims against
        NeoPets for fraud and deceit, rescission, breach of contract, breach of the
        implied covenant of good faith and fair dealing and set-off. NeoPets answered
        the cross-claims on March 24, 2005.
 
 During
        2004, the Company recorded amounts due for commissions pursuant to the terms
        of
        the agreement totaling approximately $246,000. On August 5, 2005, the Company,
        together with its subsidiary, and NeoPets (collectively "the Parties") agreed
        to
        amicably resolve their dispute and entered into a settlement agreement (the
        "Settlement Agreement"). Under the terms of the Settlement Agreement, the
        Parties agreed to dismiss the lawsuit, release each other from all claims
        and to
        terminate their May 6, 2004 website advertising agreement in consideration
        for
        the Company’s subsidiary making cash payments totaling $200,000 to NeoPets
        within thirty days of the date of the Settlement Agreement.
 
 On
        October 4, 2005, Sprint Communications Company, L.P. (“Sprint”) filed a
        Complaint in the United States District Court for the District of Kansas
        against
        theglobe, theglobe’s subsidiary, tglo.com (formerly known as voiceglo Holdings,
        Inc. or “voiceglo”), and Vonage Holdings Corp. (“Vonage”). On October 12, 2005,
        Sprint filed a First Amended Complaint naming Vonage America, Inc. (“Vonage
        America”) as an additional defendant. Neither theglobe nor voiceglo has any
        affiliation with Vonage or Vonage America. Sprint alleges that theglobe and
        voiceglo have made unauthorized use of “inventions” described and claimed in
        seven patents held by Sprint. Sprint seeks monetary and injunctive relief
        for
        this alleged infringement. On November 21, 2005, theglobe and voiceglo filed
        an
        Answer to Sprint’s First Amended Complaint, denying infringement and interposing
        affirmative defenses, including that each of the asserted patents is invalid.
        voiceglo has counterclaimed against Sprint for a declaratory judgment of
        non-infringement and invalidity. On January 18, 2006, the court issued a
        Scheduling Order calling for, among other things, discovery to be completed
        by
        December 29, 2006, and for trial to commence August 7, 2007. **** It
        is not
        possible to predict the outcome of this litigation with any certainty or
        whether
        a decision adverse to theglobe or voiceglo would have a material adverse
        affect
        on our developing VoIP business and the financial condition, results of
        operations, and prospects of theglobe generally.
 
 The
        Company is currently a party to certain other legal proceedings, claims and
        disputes arising in the ordinary course of business, including those noted
        above. The Company currently believes that the ultimate outcome of these
        other
        matters, individually and in the aggregate, will not have a material adverse
        affect on the Company's financial position, results of operations or cash
        flows.
        However, because of the nature and inherent uncertainties of legal proceedings,
        should the outcome of these matters be unfavorable, the Company's business,
        financial condition, results of operations and cash flows could be materially
        and adversely affected.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 The
        Company held its 2005 Annual Meeting of Shareholders on December 28, 2005.
        At
        the Annual Meeting, Edward A. Cespedes, Michael S. Egan and Robin
        Segaul-Lebowitz were elected as Directors. All Directors serve for a term
        of one
        year or until their successors are duly elected and qualified.
 
 The
        tabulation of the vote for the election of directors is set forth
        below:
 
 For
              
              Withheld*1.
                  Edward A. Cespedes
              
              
              122,024,001
              
              
              1,429,8422.
                  Michael S. Egan
              
              
              122,012,626
              
              
              1,441,2173.
                  Robin Segaul-Lebowitz
              
              
              122,037,362
              
              
              1,416,481
 
 *
        Includes broker non-votes and abstentions
  36
 
 **PART
        II**
 
 **ITEM
        5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS**
 
 **MARKET
        INFORMATION**
 
 The
        shares of our Common Stock trade in the over-the-counter market on what is
        commonly referred to as the electronic bulletin board, under the symbol
        "TGLO.OB". The following table sets forth the range of high and low bid prices
        of our Common Stock for the periods indicated as reported by the
        over-the-counter market (the electronic bulletin board). The quotations below
        reflect inter-dealer prices, without retail mark-up, mark-down or commission
        and
        may not represent actual transactions:
 
 2005
              
              2004
              
              2003High
              
              Low
              
              High
              
              Low
              
              High
              
              LowFourth
                  Quarter
              
              $
              0.49
              
              $
              0.24
              
              $
              0.56
              
              $
              0.36
              
              $
              2.12
              
              $
              1.30Third
                  Quarter
              
              $
              0.45
              
              $
              0.10
              
              $
              0.65
              
              $
              0.24
              
              $
              1.97
              
              $
              1.12Second
                  Quarter
              
              $
              0.16
              
              $
              0.08
              
              $
              0.96
              
              $
              0.28
              
              $
              2.56
              
              $
              0.13First
                  Quarter
              
              $
              0.43
              
              $
              0.12
              
              $
              1.42
              
              $
              0.83
              
              $
              0.20
              
              $
              0.06
 
 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
        and
        May Decline.")
 
 **HOLDERS
        OF COMMON STOCK**
 
 We
        had
        approximately 706 holders of record of Common Stock as of March 20, 2006.
        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 and do
        not
        intend to pay dividends in the foreseeable future. Our board of directors
        will
        determine if we pay any future dividends.
  37
 
 **SECURITIES
        AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS AS OF DECEMBER 31,
        2005**
 
 Plan
                  Category
              
              Number
                        of securities to be issued upon exercise ofoutstanding options,warrants and rights
              
              Weighted-average
                        exercise price of
                        outstandingoptions, warrantsand rights
              
              Number
                        of securitiesremaining available forfuture
                    issuance under equity compensation plansEquity
                  Compensation plans approved by security holders
              
              
              9,403,745
              
              $
              0.68
              
              
              2,525,804Equity
                  Compensation plans not approved by security holders
              
              
              5,969,358
              
              $
              0.11
              
              
              5,469,928Total
              
              
              15,373,103
              
              $
              0.46
              
              
              7,995,732
 
 Equity
        compensation plans not approved by security holders consist of the following:
 
 ·
              200,000
                  shares of Common Stock of theglobe.com, inc., issued to Charles
                  Peck
                  pursuant to the Non-Qualified Stock Option Agreement dated June
                  1, 2002 at
                  an exercise price of $0.035 per share. These stock options vested
                  immediately and have a life of ten years from date of grant.·
              1,750,000
                  shares of Common Stock of theglobe.com, inc., issued to Edward
                  A. Cespedes
                  pursuant to the Non-Qualified Stock Option Agreement dated August
                  12, 2002
                  at an exercise price of $0.02 per share. These stock options vested
                  immediately and have a life of ten years from date of grant.·
              2,500,000
                  shares of Common Stock of theglobe.com, inc., issued to Michael
                  S. Egan
                  pursuant to the Non-Qualified Stock Option Agreement dated August
                  12, 2002
                  at an exercise price of $0.02 per share. These stock options vested
                  immediately and have a life of ten years from date of grant.·
              500,000
                  shares of Common Stock of theglobe.com, inc., issued to Robin S.
                  Lebowitz
                  pursuant to the Non-Qualified Stock Option Agreement dated August
                  12, 2002
                  at an exercise price of $0.02 per share. These stock options vested
                  immediately and have a life of ten years from date of grant.·
              The
                  Company's 2003 Amended and Restated Non-Qualified Stock Option
                  Plan (the
                  "2003 Plan"). The purpose of the 2003 Plan is to strengthen theglobe.com,
                  inc. by providing an incentive to certain employees and consultants
                  (or in
                  certain circumstances, individuals who are the principals of certain
                  consultants) of the Company or any subsidiary of the Company, with
                  a view
                  toward encouraging them to devote their abilities and industry
                  to the
                  success of the Company's business enterprise. The 2003 Plan is
                  administered by a Committee appointed by the Board to administer
                  the Plan,
                  which has the power to determine those eligible individuals to
                  whom
                  options shall be granted under the 2003 Plan and the number of
                  such
                  options to be granted and to prescribe the terms and conditions
                  (which
                  need not be identical) of each such option, including the exercise
                  price
                  per share subject to each option and vesting schedule of options
                  granted
                  thereunder, and make any amendment or modification to any agreement
                  consistent with the terms of the 2003 Plan. The maximum number
                  of shares
                  that may be made the subject of options granted under the 2003
                  Plan is
                  1,000,000 and no option may have a term in excess of ten years.
                  Options to
                  acquire an aggregate of 41,000 shares of Common Stock have been
                  issued to
                  various independent sales agents at a weighted average exercise
                  price of
                  $1.54. These stock options vested immediately and have a life of
                  ten years
                  from date of grant. Options to acquire an aggregate of 170,000
                  shares of
                  Common Stock have been issued to various employees and independent
                  contractors at a weighted average exercise price of $1.00. These
                  stock
                  options vested immediately and have a life of ten years from date
                  of
                  grant. Options to acquire an aggregate of 110,000 shares of Common
                  Stock
                  have been issued to two independent contractors at a weighted average
                  exercise price of $1.22. These stock options vested immediately
                  and have a
                  life of five years from date of grant.
  38
 
 ·
              The
                  Company's 2004 Stock Incentive Plan (the "2004 Plan"). The purpose
                  of the
                  2004 Plan is to enhance the profitability and value of the Company
                  for the
                  benefit of its stockholders by enabling the Company to offer eligible
                  employees, consultants and non-employee directors stock-based and
                  other
                  incentives, thereby creating a means to raise the level of equity
                  ownership by such individuals in order to attract, retain and reward
                  such
                  individuals and strengthen the mutuality of interests between such
                  individuals and the Company's stockholders. The 2004 Plan is administered
                  by a Committee appointed by the Board to administer the Plan, which
                  has
                  the power to determine those eligible individuals to whom stock
                  options,
                  stock appreciation rights, restricted stock awards, performance
                  awards, or
                  other stock-based awards shall be granted under the 2004 Plan and
                  the
                  number of such options, rights or awards to be granted and to prescribe
                  the terms and conditions (which need not be identical) of each
                  such
                  option, right or award, including the exercise price per share
                  subject to
                  each option and vesting schedule of options granted thereunder,
                  and make
                  any amendment or modification to any agreement consistent with
                  the terms
                  of the 2004 Plan. The maximum number of shares that may be made
                  the
                  subject of options, rights or awards granted under the 2004 Plan
                  is
                  7,500,000 and no option may have a term in excess of ten years.
                  Options to
                  acquire an aggregate of 64,500 shares of Common Stock were issued
                  to
                  several employees and consultants of SendTec, Inc. at an exercise
                  price of
                  $0.34 per share. Twenty-five percent of these options vested immediately
                  and the balance vests in three equal annual installments. These
                  options
                  have a life of five years from date of grant. As part of the merger
                  with
                  SendTec, Inc., replacement options of 3,974,165 were issued to
                  the former
                  SendTec employees. Of these replacement options, 303,035 remained
                  outstanding as of December 31, 2005 and were issued at an exercise
                  price
                  of $0.06 per share and 80,823 were issued at an exercise price
                  of $0.27
                  per share. The terms of these replacement options were as negotiated
                  between representatives of theglobe and the Stock Option Committee
                  for the
                  SendTec 2000 Amended and Restated Stock Option Plan. All of the
                  remaining
                  options granted to the employees and consultants of SendTec expired
                  on
                  January 29, 2006. In October of 2004, options to acquire 250,000
                  shares of
                  Common Stock were issued to an employee at an exercise price of
                  $0.52, of
                  which 62,500 of these stock options vested immediately and the
                  balance
                  vests ratably on a quarterly basis over three years. These options
                  have a
                  life of ten years from date of grant.
 
 **ISSUER
        PURCHASES OF EQUITY SECURITIES**
 
 Total
                  Number ofShares
                  (or Units)Total
                  Number of
              
              Average
                  Price
              
              Purchased
                  as PartShares
                  (or Units)
              
              Paid
                  per Share
              
              of
                  Publicly AnnouncedPeriod
              
              Purchased
              
              (or
                  Unit)
              
              Plans
                  or ProgramsOctober
                  31, 2005 (1)
              
              
              28,879,097
                  shares
              
              $
              0.40
              
              
              --
  (1)
        Repurchased pursuant to a Redemption Agreement effective as of August 23,
        2005
        by and among theglobe and certain former executives of SendTec, Inc., whereby
        concurrently with the closing of the sale of the SendTec business, theglobe
        agreed to purchase and redeem 28,879,097 shares of its Common Stock from
        such
        former executives for total consideration of $11,603,946.
  39
  **ITEM
        6. SELECTED FINANCIAL DATA**
 
 **SELECTED
        CONSOLIDATED FINANCIAL DATA OF THEGLOBE.COM, INC. (1)**
 
 The
        selected consolidated balance sheet data as of December 31, 2005 and 2004
        and
        the selected consolidated operating data for the years ended December 31,
        2005,
        2004 and 2003 have been derived from our audited consolidated financial
        statements included elsewhere herein. The selected consolidated balance sheet
        data as of December 31, 2003, 2002 and 2001 and the selected consolidated
        operating data for the years ended December 31, 2002 and 2001 have been derived
        from our audited consolidated financial statements not included herein. The
        nature of our business has changed significantly from 2001 to 2005. As a
        result,
        our historical results are not necessarily comparable. Additionally, our
        historical results are not necessarily indicative of results for any future
        period. You should read these selected consolidated financial data, together
        with the accompanying notes, in conjunction with the “Management’s Discussion
        and Analysis of Financial Condition and Results of Operations” section of this
        10-K and our consolidated financial statements and the related
        notes.
 
 
 Year
                  Ended December 31,2005(3)
              
              2004
              
              2003
              
              2002
              
              2001(2)Operating
                  Data:
              
              (In
                  thousands, except per share data)Continuing
                  Operations:Net
                  revenue
              
              $
              2,395
              
              $
              3,499
              
              $
              5,284
              
              $
              7,245
              
              $
              12,735Operating
                  expenses
              
              
              24,940
              
              
              27,921
              
              
              14,097
              
              
              10,186
              
              
              54,528Loss
                  from continuing operations
              
              
              (13,348
              )
              
              (24,876
              )
              
              (11,034
              )
              
              (2,615
              )
              
              (40,620
              )Discontinued
                  operations, net of tax
              
              
              1,838
              
              
              603
              
              
              --
              
              
              --
              
              
              --Net
                  loss
              
              
              (11,510
              )
              
              (24,273
              )
              
              (11,034
              )
              
              (2,615
              )
              
              (40,620
              )Net
                  loss applicable to commonstockholders
              
              
              (11,510
              )
              
              (24,273
              )
              
              (19,154
              )
              
              (2,615
              )
              
              (40,620
              )Basic
                  and diluted net loss percommon
                  share:Loss
                  from continuing operations
              
              $
              (0.07
              )
              $
              (0.19
              )
              $
              (0.49
              )
              $
              (0.09
              )
              $
              (1.34
              )Net
                  loss
              
              
              (0.06
              )
              
              (0.19
              )
              
              (0.49
              )
              
              (0.09
              )
              
              (1.34
              )Balance
                  Sheet Data (at end of period):Total
                  assets
              
              $
              21,411
              
              $
              34,017
              
              $
              7,172
              
              $
              3,047
              
              $
              5,973Long-term
                  debt (4)
              
              
              --
              
              
              27
              
              
              1,793
              
              
              88
              
              
              --
  (1)
        Certain prior year amounts have been reclassified to conform to the current
        year
        presentation. These reclassifications had no effect on the net losses as
        previously reported by the Company. Significant events affecting our historical
        performance in 2003 through 2005 are described in Management's Discussion
        and
        Analysis of Results of Operations and Financial Condition.
 
 (2)
        Net
        losses in 2001 related primarily to certain previously owned Internet-related
        businesses which were sold or closed and include significant restructuring
        and
        impairment charges related to those businesses.
 
 (3)
        2005
        consolidated financial data include transactions related to (i) the sale
        of the
        business and substantially all of the net assets of SendTec, Inc. to
        RelationServe Media, Inc. on October 31, 2005 (the “SendTec Asset Sale”) and the
        resultant gain on sale of approximately $1.7 million, and (ii) the repurchase
        of
        Common Stock and termination of stock options and warrants in accordance
        with
        certain SendTec Asset Sale ancillary agreements, including the Redemption
        Agreement and the Termination Agreement.
 
 (4)
        Represents long-term debt and capital lease obligations, less the current
        portion.
  40
 
 **ITEM
        7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
  **BASIS
        OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS**
 
 Our
        consolidated financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America
        on a
        going concern basis, which contemplates the realization of assets and the
        satisfaction of liabilities in the normal course of business. Accordingly,
        our
        consolidated financial statements do not include any adjustments relating
        to the
        recoverability of assets and classification of liabilities that might be
        necessary should we be unable to continue as a going concern. Based upon
        the net
        cash proceeds received from the completion of the sale of the SendTec business
        on October 31, 2005 (as further discussed below), management believes the
        Company has sufficient liquidity to operate as a going concern through at
        least
        the end of 2006.
 
 **OVERVIEW**
 
 During
        the year ended December 31, 2005, we managed four primary lines of business.
        One
        line of business, Voice over Internet Protocol (“VoIP”) telephony services,
        includes tglo.com, inc. (formerly known as voiceglo Holdings, Inc.), a
        wholly-owned subsidiary of theglobe that offers VoIP-based phone service.
        The
        term “VoIP” refers to a category of hardware and software that enables people to
        use the Internet to make phone calls. The second line of business consists
        of
        our network of computer games businesses, each of which specializes in the
        games
        business by delivering games information and selling games in the United
        States
        and abroad. These businesses are: our print publication business, which
        currently consists of Computer Games magazine; our online website business,
        which consists of our CGOnline website (www.cgonline.com) and our Game Swap
        Zone
        website (www.gameswapzone.com); and our Chips & Bits, Inc. (“Chips &
Bits”) games distribution company (www.chipsbits.com). Our Now Playing magazine
        publication and the accompanying website were sold in January 2006. We entered
        into a third line of business, marketing services, on September 1, 2004,
        with
        our acquisition of SendTec, Inc. (“SendTec”), a direct response marketing
        services and technology company. On May 9, 2005, the Company entered into
        a
        fourth line of business when it exercised its option to acquire Tralliance
        Corporation (“Tralliance”), a company which had recently entered into an
        agreement to become the registry for the “.travel” top-level Internet domain.
 
 During
        the first quarter of 2005, management began actively re-evaluating the Company's
        primary business lines, particularly in view of the Company's then critical
        need
        for cash and the overall net losses of the Company. As a result, management
        began to explore a number of strategic alternatives for the Company and/or
        its
        component businesses, including continuing to operate the businesses, selling
        certain businesses or assets, or entering into new lines of businesses. See
        the
        "Liquidity and Capital Resources" section of this Management's Discussion
        and
        Analysis of Financial Condition and Results of Operations for a more complete
        discussion.
 
 On
        October 31, 2005, we completed the sale of the SendTec business and
        substantially all of the net assets of SendTec for approximately $39.9 million
        in cash. Results of operations for SendTec have been reported separately
        as
“Discontinued Operations” in the accompanying consolidated statement of
        operations for all periods presented. The assets and liabilities of the SendTec
        marketing services business which was sold have been included in the captions,
        “Assets of Discontinued Operations” and “Liabilities of Discontinued Operations”
in the accompanying consolidated balance sheet as of December 31,
        2004.
 
 As
        of
        December 2005, sources of our revenue from continuing operations were derived
        principally from the operations of our computer games related businesses.
        Our
        VoIP products and services have yet to produce any significant revenue.
        Tralliance did not begin generating revenue until the fourth quarter of 2005
        and
        has also yet to produce any significant revenue.
 
 **RESULTS
        OF OPERATIONS**
 
 The
        nature of our business has significantly changed from 2003 to 2005. As a
        result
        of our decision to enter into the VoIP business, we have incurred substantial
        expenditures without corresponding revenue as we developed our VoIP product
        line
        and as we put into place the infrastructure for our VoIP products. In addition,
        we entered into two new business lines, marketing services and Internet
        services, as a result of our acquisitions of SendTec on September 1, 2004
        and
        Tralliance on May 9, 2005, respectively. In addition, we sold the business
        and
        substantially all of the net assets of SendTec effective October 31, 2005,
        and
        as a result have reported SendTec’s assets, liabilities and results of
        operations as “Discontinued Operations” for all periods presented. The results
        of operations of Tralliance are included in the Company's consolidated operating
        results only from its date of acquisition. Consequently, and primarily as
        a
        result of these factors, the results of operations for each of the years
        ended
        December 31, 2005, 2004 and 2003 are not necessarily comparable.
  41
 
 **YEAR
        ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31,
        2004**
 
 **CONTINUING
        OPERATIONS**
 
 NET
        REVENUE. Net revenue totaled $2.4 million for the year ended December 31,
        2005
        as compared to $3.5 million for the year ended December 31, 2004. The $1.1
        million decrease in consolidated net revenue was principally the result of
        the
        $1.2 million decline in the net revenue of our computer games business
        segment.
  **NET
        REVENUE BY BUSINESS SEGMENT:**
 
 Years
                  ended:
              
              2005
              
              2004Computer
                  games
              
              $
              1,948,716
              
              $
              3,107,637Internet
                  services
              
              
              197,873
              
              
              --VoIP
                  telephony services
              
              
              248,789
              
              
              391,154$
              2,395,378
              
              $
              3,498,791
 
 Decreases
        of $0.6 million in print advertisements in our magazine publications, $0.5
        million in sales of games products by Chips & Bits, Inc. and $0.1 million in
        sales of our magazines, accounted for the decline in net revenue experienced
        by
        our computer games segment as compared to 2004.
 
 Advertising
        revenue from the sale of print advertisements in our magazine publications
        totaled $1.4 million and $2.0 million for the years ended December 31, 2005
        and
        2004, respectively, or approximately 57% of each year’s consolidated net
        revenue. Our Computer Games magazine publication, which essentially accounted
        for all of the advertising revenue of the computer games division, is primarily
        focused on PC gaming. Over the last several years, the market for PC games
        has
        deteriorated, while the console games market has experienced growth. This
        shift
        in the gaming market has negatively impacted our print advertising sales
        and the
        circulation of our Computer Games magazine. Net revenue attributable to the
        sale
        of our magazine publications totaled $0.3 million in 2005 compared to $0.4
        million in 2004.
 
 Sales
        of
        products by our games distribution business totaled approximately $0.2 million,
        or 11% of consolidated net revenue, for the year ended December 31, 2005.
        This
        represented a decline from the $0.7 million, or 20% of consolidated net revenue,
        reported for the year ended December 31, 2004. Our games distribution business
        continues to operate in a highly competitive environment, experiencing
        competitive pressure from other Internet commerce websites such as Amazon.com.
        In addition, an increasing number of major retailers have increased the
        selection of video, console and PC games offered by both their traditional
        “bricks and mortar” locations and their online commerce sites resulting in
        increased competition.
 
 Our
        Internet services business, Tralliance, contributed $0.2 million in net revenue
        for the year ended December 31, 2005. Tralliance, which was acquired in May
        2005, began collecting fees for Internet domain name registrations in October
        2005. Net revenue attributable to such domain name registrations is recognized
        as revenue on a straight-line basis over the term of the registrations.
 
 Net
        revenue generated by our VoIP telephony services division totaled $0.2 million
        in 2005 as compared to $0.4 million in 2004. We continue to experience
        difficulties in creating customer awareness and gaining customer acceptance
        of
        our paid VoIP telephony products. As a result, we continue to revise our
        existing VoIP product offerings and to develop new products and features.
        In
        addition, as a result of the liquidity issues experienced by the Company
        during
        2005, VoIP marketing and advertising programs were curtailed.
  42
 
 **OPERATING
        EXPENSES BY BUSINESS SEGMENT:**
 
 2005
              
              Cost
                  of Revenue
              
              Sales
                  and Marketing
              
              Product
                  Development
              
              General
                  and Administrative
              
              Depreciation
                  and Amortization
              
              TotalComputer
                  games
              
              $
              2,049,896
              
              $
              537,005
              
              $
              697,803
              
              $
              780,258
              
              $
              30,845
              
              $
              4,095,807Internet
                  services
              
              
              86,486
              
              
              488,275
              
              
              --
              
              
              831,269
              
              
              87,112
              
              
              1,493,142VoIP
                  telephony services
              
              
              6,288,577
              
              
              1,692,420
              
              
              693,056
              
              
              3,611,686
              
              
              1,109,743
              
              
              13,395,482Corporate
                  expenses
              
              
              --
              
              
              --
              
              
              --
              
              
              5,918,956
              
              
              36,598
              
              
              5,955,554$
              8,424,959
              
              $
              2,717,700
              
              $
              1,390,859
              
              $
              11,142,169
              
              $
              1,264,298
              
              $
              24,939,985
  2004
              
              Cost
                  of Revenue
              
              Sales
                  and Marketing
              
              Product
                  Development
              
              General
                  and Administrative
              
              Depreciation
                  and Amortization
              
              TotalComputer
                  games
              
              $
              2,114,716
              
              $
              377,531
              
              $
              475,785
              
              $
              571,285
              
              $
              10,606
              
              $
              3,549,923VoIP
                  telephony services
              
              
              6,940,023
              
              
              6,720,531
              
              
              578,101
              
              
              3,266,366
              
              
              1,355,532
              
              
              18,860,553Corporate
                  expenses
              
              
              --
              
              
              --
              
              
              --
              
              
              3,409,123
              
              
              32,138
              
              
              3,441,261$
              9,054,739
              
              $
              7,098,062
              
              $
              1,053,886
              
              $
              7,246,774
              
              $
              1,398,276
              
              
              25,851,737VoIP
                  telephony servicesImpairment
                  charge
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,661,975Loss
                    on settlement ofcontractual
                    obligation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              406,750$
              27,920,462
 
 COST
        OF
        REVENUE. Cost of revenue totaled $8.4 million for the year ended December
        31,
        2005 as compared to $9.1 million for the year ended December 31, 2004. The
        $0.7
        million decrease in consolidated cost of revenue was principally attributable
        to
        the decline in cost of revenue of the VoIP telephony services
        segment.
 
 Cost
        of
        revenue of our computer games segment totaled $2.0 million for the year ended
        December 31, 2005, a decrease of $0.1 million from the prior year. A decline
        of
        $0.3 million in cost of revenue associated with our games distribution business
        resulting primarily from a lower volume of game sales as compared to 2004
        was
        partially offset by a $0.2 million increase in cost of revenue attributable
        to
        our magazine publishing business. We began distribution of a new publication,
        Now Playing magazine, in March 2005 which was the principal factor contributing
        to the increase in cost of revenue compared to the prior year. We sold Now
        Playing magazine and the accompanying website in January 2006 for approximately
        $0.1 million in cash.
 
 Cost
        of
        revenue of our VoIP telephony services business segment is principally comprised
        of carrier transport and circuit interconnection costs related to our retail
        products, as well as personnel and consulting costs incurred in support of
        our
        Internet telecommunications network. During the years ended December 31,
        2005
        and 2004, cost of revenue also included charges of approximately $0.1 million
        and $1.5 million, respectively, related to write-downs of telephony equipment
        inventory. Excluding the impact of such charges on both 2005 and 2004, cost
        of
        revenue of our VoIP telephony services division increased $0.8 million as
        compared to 2004. Throughout 2004, the Company increased its VoIP network
        capacity by entering into agreements with numerous carriers for leased equipment
        and services and with third parties for a number of leased data center
        facilities. The Company also expanded its internal network support function
        by
        hiring additional technical personnel. Due to the ramp-up of network costs
        during 2004, the Company incurred higher network operating and support costs
        during 2005 compared to 2004. In addition, the Company is no longer capitalizing
        software development costs in its VoIP telephony business and is charging
        such
        costs to expense as incurred as a result of the review of long-lived assets
        for
        impairment performed in connection with the preparation of its 2004 year-end
        consolidated financial statements. Cost of revenue for the year ended December
        31, 2005 included approximately $0.4 million in expenses related to such
        software costs.
  43
 
 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 and promotional activities. Sales
        and
        marketing expenses totaled $2.7 million for the year ended December 31, 2005,
        a
        decrease of $4.4 million from the $7.1 million reported for 2004. The VoIP
        telephony services business incurred significant costs during 2004 for Internet
        and television advertising campaigns, as well as commissions expenses related
        to
        its VoIP products. During the first quarter of 2005, the Company re-evaluated
        its existing VoIP telephony services business plan and began the process
        of
        terminating and/or modifying certain of its existing product offerings and
        marketing programs. The Company also began to develop and test certain new
        VoIP
        products and features. As a result, the VoIP telephony services business
        segment
        essentially curtailed its sales and marketing efforts in 2005, which resulted
        in
        a year over year decline of $5.0 million in this expense category as compared
        to
        2004. Partially offsetting this decline were the sales and marketing expenses
        incurred by Tralliance since date of acquisition of $0.5 million and an increase
        of $0.2 million in sales and marketing expenses of our computer games
        segment.
  PRODUCT
        DEVELOPMENT. Product development expenses include salaries and related personnel
        costs; expenses incurred in connection with website development, testing
        and
        upgrades; editorial and content costs; and costs incurred in the development
        of
        our VoIP telephony products. Product development expenses totaled $1.4 million
        for the year ended December 31, 2005 as compared to $1.1 million for the
        year
        ended December 31, 2004. The increase in product development expenses as
        compared to the prior year was primarily due to increases in website development
        costs incurred by our computer games businesses and personnel costs related
        to
        the continued development of our retail VoIP telephony products.
 
 GENERAL
        AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
        primarily of salaries and other personnel costs related to management, finance
        and accounting functions, facilities, outside legal and professional fees,
        information-technology consulting, directors and officers insurance, bad
        debt
        expenses and general corporate overhead costs. General and administrative
        expenses of $11.1 million for the year ended December 31, 2005 increased
        $3.9
        million from the $7.2 million reported for 2004. The primary factors
        contributing to the increase in consolidated general and administrative expenses
        as compared to the prior year were $3.0 million in higher bonuses awarded
        to
        executive officers and the inclusion of approximately $0.8 million in general
        and administrative expenses incurred by our Internet services business in
        2005.
        Tralliance, which comprises our Internet services segment, was acquired in
        May
        2005 and the results of its operations have been included in our results
        only
        since its date of acquisition.
 
 DEPRECIATION
        AND AMORTIZATION. Depreciation and amortization expense totaled $1.3 million
        for
        the year ended December 31, 2005 as compared to $1.4 million for the prior
        year.
        Depreciation and amortization expense incurred by our VoIP telephony services
        division declined approximately $0.2 million in comparison to 2004 primarily
        as
        a result of the write-off of certain long-lived assets as of December 31,
        2004.
 
 INTEREST
        EXPENSE, NET. Interest expense, net of interest income, totaled $4.1 million
        for
        the year ended December 31, 2005 as compared to $0.7 million in the prior
        year.
        A total of $4.0 million of non-cash interest expense was recorded during
        2005
        related to the beneficial conversion features of the $4,000,000 secured demand
        convertible promissory notes issued by the Company during 2005. During 2004,
        approximately $0.7 million of non-cash interest expense was recorded related
        to
        the beneficial conversion feature of the $2,000,000 demand convertible
        promissory note acquired by our Chairman and Chief Executive Officer and
        his
        spouse in February 2004.
 
 OTHER
        EXPENSE, NET. Other expense, net, includes reserves against the amounts loaned
        by the Company to Tralliance prior to its acquisition, totaling approximately
        $0.3 million and $0.5 million in 2005 and 2004, respectively. Partially
        offsetting the 2004 expense, was a favorable settlement of a previously disputed
        vendor claim by the computer games business segment of approximately $0.4
        million.
  INCOME
        TAXES. An income tax benefit of $13.6 million was recognized for continuing
        operations for the year ended December 31, 2005, as we were able to utilize
        our
        2005 losses incurred by continuing operations, as well as losses from prior
        years, to partially offset the 2005 income and gain on sale of our discontinued
        operations. During the year ended December 31, 2004, an income tax benefit
        of
        approximately $0.4 million was recognized for continuing operations which
        served
        to offset the income tax provision recorded for discontinued operations.
        As of
        December 31, 2005, the Company had net operating loss carryforwards available
        for U.S. tax purposes of approximately $147.2 million. These carryforwards
        expire through 2025. The Tax Reform Act of 1986 imposes substantial restrictions
        on the utilization of net operating losses and tax credits in the event of
        an
        "ownership change" of a corporation. Due to various significant changes in
        our
        ownership interests, as defined in the Internal Revenue Code of 1986, as
        amended, commencing in August 1997 through our most recent issuance of
        convertible notes in July 2005, and assuming conversion of such notes, we
        may
        have substantially limited or eliminated the availability of our net operating
        loss carryforwards. There can be no assurance that we will be able to utilize
        any net operating loss carryforwards in the future. ****
  44
 
 **DISCONTINUED
        OPERATIONS**
 
 As
        mentioned previously, the Company sold the business and substantially all
        of the
        net assets of SendTec, its marketing services business, effective October
        31,
        2005. SendTec was originally acquired by the Company on September 1, 2004.
        Accordingly, the results of SendTec have been reported as discontinued
        operations for all periods presented.
 
 Income
        from the activities of discontinued operations, net of income taxes, totaled
        approximately $0.1 million for the year ended December 31, 2005 compared
        to $0.6
        million for the year ended December 31, 2004. The gain on the sale of SendTec
        included in the Company’s results of operations for 2005, totaled approximately
        $1.7 million, net of an income tax provision of approximately $13.3 million.
        Reference should be made to Note 3, “Discontinued Operations - SendTec, Inc.”,
        of the Notes to Consolidated Financial Statements for details regarding the
        sale.
  **YEAR
        ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31,
        2003**
 
 **CONTINUING
        OPERATIONS**
 
 NET
        REVENUE. Net revenue totaled $3.5 million for the year ended December 31,
        2004
        as compared to $5.3 million for the year ended December 31, 2003. The $1.8
        million decrease in net revenue was principally the result of declines of
        $1.6
        million and $0.2 million in net revenue of our computer games and VoIP telephony
        services business segments, respectively.
 
 **NET
        REVENUE BY BUSINESS SEGMENT:**
  Years
                  ended:
              
              2004
              
              2003Computer
                  games
              
              $
              3,107,637
              
              $
              4,736,032VoIP
                  telephony services
              
              
              391,154
              
              
              548,081$
              3,498,791
              
              $
              5,284,113
 
 Decreases
        of $0.8 million in sales of games products by Chips & Bits, Inc., $0.5
        million in print advertisements in our games magazine and $0.3 million in
        sales
        of the games magazine, respectively, accounted for the decline in net revenue
        experienced by our computer games segment as compared to 2003.
 
 Sales
        of
        products by our games distribution business totaled $0.7 million, or 20%
        of
        consolidated net revenue for the year ended December 31, 2004 versus $1.5
        million, or 28% of consolidated net revenue for 2003. Advertising net revenue
        from the sale of print advertisements in our games magazine was $2.0 million,
        or
        57% of consolidated net revenue for the year ended December 31, 2004 versus
        approximately $2.5 million, or 48% of consolidated net revenue for 2003.
        Net
        revenue attributable to the sale of our games magazine totaled $0.4 million
        in
        2004 compared to $0.7 million in 2003. As discussed in the comparison of
        the
        year ended December 31, 2005 to the year ended December 31, 2004, the continued
        deterioration in the market for PC games, as well as increased competition
        in
        the games distribution marketplace, are factors that have contributed to
        the
        year over year decreases in net revenue experienced by our computer games
        businesses.
 
 Net
        revenue generated by our telephony services division totaled $0.4 million
        for
        the year ended 2004 as compared to $0.5 million in 2003. As part of the
        Company’s strategy to enter the VoIP business, the Company acquired Direct
        Partner Telecom, Inc. (“DPT”), an international licensed telecommunications
        carrier engaged in the purchase and resale of telecommunications services
        over
        the Internet, in May 2003. Telephony services net revenue generated by DPT
        during 2003 represented approximately 89% of total telephony services net
        revenue and was derived principally from the charges to customers for
        international call completion based on the volume of minutes utilized. During
        the first quarter of 2004, management decided to suspend the wholesale business
        of DPT and dedicate DPT’s physical and intellectual assets to the Company’s
        retail VoIP business. Telephony services net revenue for the year ended 2004
        consisted solely of revenue attributable to sale of our retail VoIP products.
  45
 
 **OPERATING
        EXPENSES BY BUSINESS SEGMENT:**
  Cost
                  of
              
              Sales
                  and
              
              Product
              
              General
                  and
              
              Depreciation
                  andYears
                  ended:
              
              Revenue
              
              Marketing
              
              Development
              
              Administrative
              
              Amortization
              
              Total2004Computer
                  games
              
              $
              2,114,716
              
              $
              377,531
              
              $
              475,785
              
              $
              571,285
              
              $
              10,606
              
              $
              3,549,923VoIP
                  telephony services
              
              
              6,940,023
              
              
              6,720,531
              
              
              578,101
              
              
              3,266,366
              
              
              1,355,532
              
              
              18,860,553Corporate
                  expenses
              
              
              --
              
              
              --
              
              
              --
              
              
              3,409,123
              
              
              32,138
              
              
              3,441,261$
              9,054,739
              
              $
              7,098,062
              
              $
              1,053,886
              
              $
              7,246,774
              
              $
              1,398,276
              
              
              25,851,737VoIP
                  telephony servicesImpairment
                  charge
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,661,975Loss
                    on settlement ofcontractual
                    obligation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              406,750$
              27,920,462
 
 2003
              
              Cost
                  of
                Revenue
              
              Sales
                  and
                Marketing
              
              Product
                Development
              
              General
                  and
                Administrative
              
              Depreciation
                  andAmortization
              
              TotalComputer
                  games
              
              $
              3,121,734
              
              $
              586,420
              
              $
              543,139
              
              $
              301,624
              
              $
              62,208
              
              $
              4,615,125VoIP
                  telephony services
              
              
              1,579,604
              
              
              1,400,606
              
              
              341,651
              
              
              1,175,939
              
              
              258,334
              
              
              4,756,134Corporate
                  expenses
              
              
              --
              
              
              --
              
              
              --
              
              
              3,808,349
              
              
              9,200
              
              
              3,817,549$
              4,701,338
              
              $
              1,987,026
              
              $
              884,790
              
              $
              5,285,912
              
              $
              329,742
              
              
              13,188,808VoIP
                  telephony servicesImpairment
                  charge
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              908,384$
              14,097,192
 
 COST
        OF
        REVENUE. Cost of revenue totaled $9.1 million for the year ended December
        31,
        2004, an increase of $4.4 million from the $4.7 million reported for the
        year
        ended December 31, 2003. An increase of $5.4 million in costs incurred by
        our
        VoIP telephony services business segment was partially offset by a decrease
        of
        $1.0 million in cost of revenue reported by our computer games segment as
        compared to 2003.
 
 Cost
        of
        revenue of our VoIP telephony services business segment for the year ended
        December 31, 2004 totaled $6.9 million and principally included carrier
        transport and circuit interconnection costs related to our retail products,
        as
        well as personnel and consulting costs incurred in support of our Internet
        telecommunications network. Throughout 2004, the Company increased its VoIP
        network capacity by entering into a number of new network carrier and data
        center facility agreements and hiring additional technical personnel to operate
        the expanded network. As a result, network operating and support costs were
        significantly increased. Additionally, during the year ended December 31,
        2004,
        cost of revenue included charges of $1.5 million related to write-downs of
        telephony equipment inventory (See Note 1 of the Consolidated Financial
        Statements). Cost of revenue of $1.6 million reported for the VoIP telephony
        services business during the year ended December 31, 2003, consisted principally
        of costs related to the wholesale telephony services business marketed by
        DPT,
        as well as start up costs of our retail VoIP operation.
  46
 
 Cost
        of
        revenue of our computer games segment totaled approximately $2.1 million
        in
        2004, a decrease of approximately $1.0 million from 2003, due primarily to
        the
        revenue decreases discussed above.
 
 SALES
        AND
        MARKETING. Sales and marketing expenses totaled $7.1 million in 2004 versus
        $2.0
        million in 2003. The rise in consolidated sales and marketing expenses was
        principally the result of a $5.3 million increase in sales and marketing
        expenses of the VoIP telephony services division as compared to 2003. During
        2004, the VoIP telephony services division increased Internet and television
        advertising and incurred increased commissions expenses related to "free"
        retail
        VoIP product sign-ups, as well as higher personnel costs.
  PRODUCT
        DEVELOPMENT. Product development expenses totaled $1.1 million for the year
        ended December 31, 2004 as compared to $0.9 million for the year ended December
        31, 2003. The year over year increase in product development expenses was
        principally attributable to increases in personnel and consulting costs related
        to the development of our retail VoIP telephony products and services.
 
 GENERAL
        AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $7.2
        million
        in 2004 increased approximately $1.9 million from the $5.3 million reported
        for
        2003. Increases in personnel costs and other general and administrative expenses
        directly attributable to our VoIP telephony services division were principally
        responsible for the increase in this expense category as compared to 2003.
        Other
        expense categories which increased as compared to 2003 largely as a result
        of
        the Company's entrance into the VoIP business included legal fees,
        information-technology consulting, other professional fees and facilities
        costs.
 
 DEPRECIATION
        AND AMORTIZATION. Depreciation and amortization expense totaled $1.4 million
        for
        the year ended December 31, 2004. The $1.1 million increase from the prior
        year
        resulted principally from investments related to the development of our VoIP
        network and to a lesser extent to costs incurred in the development of our
        VoIP
        telephony customer billing system. As discussed in “Impairment Charge” below,
        certain long-lived assets of the VoIP telephony services division were
        written-off effective December 31, 2004, as a result of the Company’s review of
        its long-lived assets for impairment. Approximately $0.5 million of depreciation
        and amortization expense related to the assets written-off was recorded during
        2004.
 
 IMPAIRMENT
        CHARGE. Due to the significant operating and cash flow losses incurred by
        the
        Company's VoIP telephony services division during 2004 and 2003, coupled
        with
        management’s projection of continued losses in the foreseeable future, the
        Company performed an evaluation of the recoverability of the division’s
        long-lived assets during the first quarter of 2005 in connection with the
        preparation of our 2004 annual financial statements. This evaluation indicated
        that the carrying value of certain of our VoIP division’s long-lived assets
        exceeded the fair value of such assets, as measured by quoted market prices
        or
        our estimate of fair value. As a result, we recorded an impairment charge
        of
        approximately $1.7 million in the accompanying consolidated statement of
        operations for the year ended December 31, 2004. The impairment loss included
        the write-off of the full value of amounts previously capitalized by the
        VoIP
        telephony services division as internal-use software, website development
        costs,
        acquired technology and patent costs, as well as certain other assets.
 
 LOSS
        ON
        SETTLEMENT OF CONTRACTUAL OBLIGATION. Subsequent to year-end 2004, the Company
        formally terminated its contract with a supplier of VoIP telephony handsets
        and
        agreed to settle the unconditional purchase obligation under such contract,
        which totaled approximately $3.0 million. The settlement provided for (i)
        a cash
        payment of $0.2 million, (ii) the return of 35,000 VoIP handset units from
        the
        Company’s inventory, and (iii) the issuance of 300,000 shares of theglobe.com
        Common Stock. The value attributed to the loss on the settlement of the
        contractual obligation, which approximated $0.4 million, was accrued at December
        31, 2004, and included as a component of operating expenses reported for
        2004.
 
 INTEREST
        EXPENSE, NET. On February 2, 2004, our Chairman and Chief Executive Officer
        and
        his spouse, entered into a Note Purchase Agreement with the Company pursuant
        to
        which they acquired a demand convertible promissory note (the "Bridge Note")
        in
        the aggregate principal amount of $2,000,000. Non-cash interest expense of
        $0.7
        million was recorded during 2004 related to the beneficial conversion feature
        of
        the Bridge Note as the Bridge Note was convertible into our Common Stock
        at a
        price below the fair market value (for accounting purposes) of our Common
        Stock,
        based on the closing price of our Common Stock as reflected on the OTCBB
        on the
        issuance date of the Note. Non-cash interest expense of approximately $1.6
        million was recorded during 2003 related to the beneficial conversion features
        of the $1,750,000 Secured Convertible Notes and warrant issued on May 22,
        2003.
  47
 
 OTHER
        EXPENSE, NET. Other expense, net, included reserves against the amounts loaned
        by the Company to Tralliance Corporation, totaling $0.5 million in each of
        the
        years ended December 31, 2004 and 2003 (See Note 4, “Acquisition of Tralliance
        Corporation,” of the Notes to Consolidated Financial Statements). Partially
        offsetting the 2004 expense, was a favorable settlement of a previously disputed
        vendor claim by the computer games business segment of approximately $0.4
        million.
 
 INCOME
        TAXES. For continuing operations, an income tax benefit of approximately
        $0.4
        million was recorded for the year ended December 31, 2004, which served to
        offset the income tax provision recorded for discontinued operations. No
        tax
        benefit was recorded for the year ended December 31, 2003. During both 2004
        and
        2003, we recorded a 100% valuation allowance against our otherwise recognizable
        deferred tax assets due to the uncertainty surrounding the timing or ultimate
        realization of the benefits of our net operating loss carryforwards in future
        periods. 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.
  **DISCONTINUED
        OPERATIONS**
 
 Income
        from the discontinued operations of SendTec totaled $0.6 million for the
        year
        ended December 31, 2004, which was net of an income tax provision of
        approximately $0.4 million. The Company originally acquired SendTec on September
        1, 2004 and the accompanying 2004 consolidated statement of operations includes
        the results of SendTec only since the date of acquisition.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 **CASH
        FLOW ITEMS**
 
 **YEAR
        ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31,
        2004**
 
 As
        of
        December 31, 2005, we had approximately $16.5 million in cash and cash
        equivalents as compared to $6.7 million as of December 31, 2004. These balances
        do not include cash held in escrow accounts totaling approximately $1.0 million
        and $0.1 million as of December 31, 2005 and 2004, respectively. Net cash
        and
        cash equivalents used in operating activities of continuing operations were
        $17.6 million and $19.6 million, for the years ended December 31, 2005 and
        2004,
        respectively **.** The
        period-to-period decrease in net cash and cash equivalents used in operating
        activities of continuing operations resulted primarily from decreased net
        losses
        attributable to continuing operations in combination with the impact of higher
        non-cash interest expense and favorable working capital changes in 2005 compared
        to 2004, partially offset by the $13.6 million deferred tax benefit recorded
        for
        continuing operations for 2005.
 
 Net
        cash
        and cash equivalents provided by operating activities of discontinued operations
        totaled approximately $3.0 million in 2005, an increase of $1.1 million from
        the
        $1.9 million reported for the prior year.
 
 Net
        cash
        and cash equivalents of $1.4 million were used in investing activities of
        continuing operations during the year ended December 31, 2005 as compared
        to
        $3.1 million in the prior year. Net funds placed in escrow accounts totaled
        $0.9
        million in 2005 and $0.1 million in 2004. As a result of the October 2005
        sale
        of the SendTec business, we were required to place $1.0 million of cash in
        an
        escrow account to secure our indemnification obligations. We incurred costs
        totaling $0.3 million and $2.6 million for capital expenditures during 2005
        and
        2004, respectively. Capital expenditures in 2004 related primarily to the
        development of our VoIP telephony network and VoIP customer billing system.
        We
        also loaned approximately $0.3 million and $0.5 million to Tralliance prior
        to
        its acquisition by the Company during the years ended December 31, 2005 and
        2004, respectively **.**
 
 Cash
        proceeds related to the October 31, 2005 sale of our SendTec marketing services
        business, net of related transaction costs and cash held by SendTec of
        approximately $2.4 million which was included in the sale, totaled approximately
        $34.8 million. Immediately following the sale of the SendTec business on
        October
        31, 2005, we completed the redemption of approximately 28.9 million shares
        of
        our Common Stock owned by six members of management of SendTec for approximately
        $11.6 million in cash pursuant to a Redemption Agreement dated August 23,
        2005.
        Approximately $7.6 million of the redemption payment was allocated to the
        SendTec sale transaction and recorded as a reduction of the gain on the sale,
        with the remaining $4.0 million of the redemption payment attributed to the
        “fair value” of the shares of theglobe’s Common Stock redeemed and recorded as
        treasury shares. The “fair value” of the shares for financial accounting
        purposes was calculated based on the closing price of the Company’s Common Stock
        as reflected on the OTCBB on August 10, 2005, the date the principal terms
        of
        the Redemption Agreement were announced publicly. The closing of the redemption
        occurred on October 31, 2005. SendTec was originally acquired on September
        1,
        2004, for a total purchase price consisting of the payment of $6.0 million
        in
        cash, excluding transaction costs, and the issuance of debt and equity
        securities then valued at a total of approximately $12.4 million. As of the
        date
        of acquisition, SendTec held approximately $3.6 million of cash. Thus, we
        used a
        net amount of approximately $2.4 million of cash to acquire SendTec in 2004.
  48
 
 We
        used
        $1.2 million of cash and cash equivalents in financing activities during
        2005.
        As discussed previously in the comparison of the results of operations for
        the
        year ended December 31, 2005 compared to the year ended December 31, 2004,
        we
        received proceeds of $4.0 million from the issuance of Convertible Notes
        during
        2005. We also paid $1.4 million of outstanding debt balances during 2005.
        As
        mentioned above, approximately $4.0 million of the total $11.6 million cash
        paid
        was attributed to the redemption of the 28.9 million shares of our Common
        Stock
        from the former management of SendTec for financial accounting purposes.
        During
        the prior year, $28.9 million of cash and cash equivalents were provided
        by
        financing activities. During March 2004, the Company completed a private
        offering of its Common Stock and warrants to acquire its Common Stock, for
        net
        proceeds totaling approximately $27.0 million. In addition, in February 2004,
        the Company issued a $2,000,000 Bridge Note which was subsequently converted
        into our Common Stock in connection with the March 2004 private offering.
 
 **YEAR
        ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31,
        2003**
 
 As
        of
        December 31, 2004, we had approximately $6.7 million in cash and cash
        equivalents as compared to $1.1 million as of December 31, 2003. Net cash
        used
        in operating activities of continuing operations was $19.6 million and $7.1
        million, for the years ended December 31, 2004 and 2003, respectively. The
        period-to-period increase in net cash and cash equivalents used in operating
        activities resulted primarily from the increase in our net operating losses,
        partially offset by the effect of non-cash charges.
 
 Net
        cash
        and cash equivalents of $1.9 million were provided by our discontinued SendTec
        operations during the year ended December 31, 2004. SendTec was acquired
        on
        September 1, 2004 and its results of operations were included in the Company’s
        consolidated results only since acquisition date.
 
 Net
        cash
        and cash equivalents of $3.1 million were used in investing activities of
        continuing operations during 2004 as compared to $3.2 million during 2003.
        The
        Company incurred costs totaling $2.6 million and $2.4 million for capital
        expenditures related primarily to the development of its VoIP telephony network
        and to a lesser extent to the development of its VoIP telephony customer
        billing
        system during the years ended December 31, 2004 and 2003, respectively. We
        also
        loaned approximately $0.5 million to Tralliance Corporation during each of
        the
        years of 2004 and 2003, respectively.
 
 Net
        cash
        and cash equivalents used in investing activities related to the Company’s
        discontinued operations totaled $2.4 million during the year ended December
        31,
        2004. As mentioned previously, in connection with its acquisition of SendTec
        on
        September 1, 2004, the Company paid cash consideration of approximately $6.0
        million, excluding transaction costs. As of the date of acquisition, SendTec
        held approximately $3.6 million of cash. Thus, the Company used a net amount
        of
        approximately $2.4 million of cash to acquire SendTec.
 
 Net
        cash
        and cash equivalents provided by financing activities were $28.9 million
        for
        2004. As discussed below and in the Notes to the Consolidated Financial
        Statements, the Company completed a private offering of its Common Stock
        and
        warrants to acquire its Common Stock in March 2004 for gross proceeds of
        approximately $28.4 million. Offering costs included $1.2 million in cash
        commissions paid to the placement agent and approximately $0.2 million in
        legal
        and accounting fees. In addition, on February 2, 2004, the Company issued
        a
        $2,000,000 Bridge Note which was subsequently converted into our Common Stock
        in
        connection with the March 2004 private offering. Cash provided by financing
        activities during the year ended December 31, 2003, included proceeds of
        $8.6
        million, net of offering costs, from the issuance of Series G Automatically
        Converting Preferred Stock and the associated warrants in July 2003, proceeds
        of
        $0.5 million from the issuance of Series F Convertible Preferred Stock and
        $1.75
        million in proceeds from Secured Convertible Notes issued during the first
        half
        of 2003.
 
 **CAPITAL
        TRANSACTIONS**
 
 On
        August
        10, 2005, we entered into an Asset Purchase Agreement with RelationServe
        Media,
        Inc. ("RelationServe") whereby we agreed to sell all of the business and
        substantially all of the net assets of our SendTec marketing services subsidiary
        to RelationServe for $37.5 million in cash, subject to certain net working
        capital adjustments. On August 23, 2005, we entered into Amendment No. 1
        to the
        Asset Purchase Agreement with RelationServe (the “1 st Amendment” and together with the original Asset Purchase Agreement, the
“Purchase Agreement”). On October 31, 2005, we completed the asset sale.
        Including adjustments to the purchase price related to excess working capital
        of
        SendTec as of the date of sale, we received an aggregate of approximately
        $39.9
        million in cash pursuant to the Purchase Agreement. In accordance with the
        terms
        of an escrow agreement established as a source to secure our indemnification
        obligations under the Purchase Agreement, $1.0 million of the purchase price
        and
        an aggregate of 2,272,727 shares of theglobe’s unregistered Common Stock (valued
        at $750,000 pursuant to the terms of the Purchase Agreement based upon the
        average closing price of the stock in the 10 day period preceding the closing
        of
        the sale) were placed into escrow. Any of the shares of Common Stock released
        from escrow to RelationServe will be entitled to customary “piggy-back”
registration rights.
  49
 
 Additionally,
        as contemplated by the Purchase Agreement, immediately following the asset
        sale,
        we completed the redemption of 28,879,097 shares of our Common Stock owned
        by
        six members of management of SendTec for approximately $11.6 million in cash
        pursuant to a Redemption Agreement dated August 23, 2005. The 28,879,097
        common
        shares redeemed were retired effective October 31, 2005. Pursuant to a separate
        Termination Agreement, we also terminated and canceled 1,275,783 stock options
        and the contingent interest in 2,062,785 earn-out warrants held by the six
        members of management in exchange for approximately $0.4 million in cash.
        We
        also terminated 829,678 stock options of certain other non-management employees
        of SendTec and entered into bonus arrangements with a number of other
        non-management SendTec employees for amounts totaling approximately $0.6
        million.
 
 On
        May 9,
        2005, we exercised our option to acquire all of the outstanding capital stock
        of
        Tralliance. The purchase price consisted of the issuance of 2,000,000 million
        shares of our Common Stock, warrants to acquire 475,000 shares of our Common
        Stock and $40,000 in cash. The warrants are exercisable for a period of five
        years at an exercise price of $0.11 per share. As part of the transaction,
        10,000 shares of our Common Stock were also issued to a third party in payment
        of a finder’s fee resulting from the acquisition. The Common Stock issued as a
        result of the acquisition of Tralliance is entitled to certain "piggy-back"
        registration rights.
 
 On
        April
        22, 2005, E&C Capital Partners, LLLP and E&C Capital Partners II, LLLP
        (the "Noteholders"), entities controlled by the Company's Chairman and Chief
        Executive Officer, entered into a Note Purchase Agreement (the "Agreement")
        with
        theglobe pursuant to which they acquired secured demand convertible promissory
        notes (the "Convertible Notes") in the aggregate principal amount of $1.5
        million. Under the terms of the Agreement, the Noteholders were also granted
        the
        optional right, for a period of 90 days from the date of the Agreement, to
        purchase additional Convertible Notes such that the aggregate principal amount
        of Convertible Notes issued under the Agreement could total $4.0 million
        (the
        "Option"). On June 1, 2005, the Noteholders exercised a portion of the Option
        and acquired an additional $1.5 million of Convertible Notes. On July 18,
        2005,
        the Noteholders exercised the remainder of the Option and acquired an additional
        $1.0 million of Convertible Notes.
 
 The
        Convertible Notes are convertible at the option of the Noteholders into shares
        of our Common Stock at an initial price of $0.05 per share. Through December
        31,
        2005, an aggregate of $0.6 million of Convertible Notes were converted by
        the
        Noteholders into an aggregate of 12,000,000 shares of our Common Stock. Assuming
        full conversion of all Convertible Notes which remain outstanding as of December
        31, 2005, an additional 68,000,000 shares of our Common Stock would be issued
        to
        the Noteholders. The Convertible Notes provide for interest at the rate of
        ten
        percent per annum and are secured by a pledge of substantially all of the
        assets
        of the Company. The Convertible Notes are due and payable five days after
        demand
        for payment by the Noteholders.
 
 On
        September 1, 2004, we closed upon an agreement and plan of merger dated August
        31, 2004, pursuant to which we acquired all of the issued and outstanding
        shares
        of capital stock of SendTec. Pursuant to the terms of the Merger, in
        consideration for the acquisition of SendTec, we paid consideration consisting
        of: (i) $6.0 million in cash, excluding transaction costs, (ii) the issuance
        of
        an aggregate of 17,500,024 shares of theglobe’s Common Stock, (iii) the issuance
        of an aggregate of 175,000 shares of Series H Automatically Converting Preferred
        Stock (which was converted into 17,500,500 shares of theglobe’s Common Stock on
        December 1, 2004, the effective date of the amendment to the Company’s
        certificate of incorporation increasing its authorized shares of Common Stock
        from 200,000,000 shares to 500,000,000 shares), and (iv) the issuance of
        a
        subordinated promissory note in the amount of $1.0 million. The subordinated
        promissory note provided for interest at the rate of four percent per annum
        and
        was due on September 1, 2005. We paid the principal and interest due under
        the
        terms of the subordinated promissory note on October 31, 2005, including
        default
        interest at a rate of 15% per annum for the period the debt was outstanding
        subsequent to the original due date.
 
 In
        addition, warrants to acquire shares of our Common Stock would be issued
        to the
        former shareholders of SendTec when and if SendTec exceeded forecasted operating
        income, as defined, of $10.125 million, for the year ended December 31, 2005.
        The number of earn-out warrants issuable ranged from an aggregate of
        approximately 250,000 to 2,500,000 (if actual operating income exceeded the
        forecast by at least 10%). Pursuant to the Termination Agreement described
        above
        (refer also to Note 3, “Discontinued Operations - SendTec, Inc.,” of the Notes
        to Consolidated Financial Statements for further information regarding the
        Termination Agreement), the contingent interest in approximately 2,063,000
        of
        the earn-out warrants was canceled effective October 31, 2005. The remainder
        of
        the earn-out warrants expired on December 31, 2005, as the operating income
        target was not achieved.
  50
 
 We
        also
        issued an aggregate of 3,974,165 replacement options to acquire shares of
        our
        Common Stock for each of the issued and outstanding options to acquire shares
        of
        SendTec held by the former employees of SendTec. Of these replacement options,
        approximately 3,273,668 had exercise prices of $0.06 per share and 700,497
        had
        exercise prices of $0.27 per share. The terms of these replacement options
        were
        as negotiated between representatives of theglobe and the Stock Option Committee
        for the SendTec 2000 Amended and Restated Stock Option Plan. We also agreed
        to
        grant an aggregate of 250,000 options to other employees and a consultant
        of
        SendTec at an exercise price of $0.34 per share. In addition, we also granted
        1,000,000 stock options at an exercise price of $0.27 per share in connection
        with the establishment of a bonus option pool pursuant to which various
        employees of SendTec could vest in such options on terms substantially similar
        to the circumstances in which the earn-out warrants would have been earned.
        Pursuant to the Termination Agreement mentioned above, we terminated and
        canceled an aggregate of 2,105,461 stock options held by employees of SendTec
        effective October 31, 2005. The remaining 477,000 outstanding stock options
        related to the bonus option pool which was established as of the acquisition
        were terminated as the forecasted operating income targets for the year ended
        December 31, 2005, had not been achieved.
 
 In
        March
        2004, we completed a private offering of 333,816 units (the "Units") for
        a
        purchase price of $85 per Unit (the "PIPE Offering"). Each Unit consisted
        of 100
        shares of our Common Stock, $0.001 par value (the "Common Stock"), and warrants
        to acquire 50 shares of our Common Stock (the "Warrants"). The Warrants are
        exercisable for a period of five years commencing 60 days after the initial
        closing at an initial exercise price of $0.001 per share. The aggregate number
        of shares of Common Stock issued in the PIPE Offering was 33,381,647 shares
        for
        an aggregate consideration of approximately $28.4 million, or approximately
        $0.57 per share assuming the exercise of the 16,690,824 Warrants. As of December
        31, 2005, approximately 510,000 of the Warrants remained outstanding.
 
 Halpern
        Capital, Inc., acted as placement agent for the PIPE Offering, and was paid
        a
        commission of $1.2 million and issued a warrant to acquire 1,000,000 shares
        of
        our Common Stock at $0.001 per share. As of December 31, 2005, all of the
        shares
        underlying the warrant had been issued.
 
 The
        purpose of the PIPE Offering was to raise funds for use primarily in our
        developing VoIP business, including the deployment of networks, website
        development, marketing and capital infrastructure expenditures and working
        capital. Other intended uses of proceeds included funding requirements in
        connection with our other existing or future business operations, including
        acquisitions.
 
 In
        connection with the PIPE Offering, Michael S. Egan, our Chairman, Chief
        Executive Officer and principal stockholder, together with certain of his
        affiliates, including E&C Capital Partners, LLLP converted a $2,000,000
        Convertible Bridge Note, $1,750,000 of Secured Convertible Notes and all
        of the
        outstanding shares of Series F Preferred Stock, and exercised (on a "cashless"
        basis) all of the warrants issued in connection with the foregoing $1,750,000
        Secured Convertible Notes and Series F Preferred Stock, together with certain
        warrants issued to Dancing Bear Investments, an affiliate of Mr. Egan. As
        a
        result of such conversions and exercises, we issued an aggregate of 48,775,909
        additional shares of our Common Stock.
 
 On
        February 2, 2004, Michael S. Egan and his wife, S. Jacqueline Egan, entered
        into
        a Note Purchase Agreement with the Company pursuant to which they acquired
        a
        convertible promissory note due on demand (the “Bridge Note”) in the aggregate
        principal amount of $2,000,000. The Bridge Note was convertible into shares
        of
        our Common Stock. The Bridge Note provided for interest at the rate of ten
        percent per annum and was secured by a pledge of substantially all of the
        assets
        of the Company. Such security interest was shared with the holders of our
        $1,750,000 Secured Convertible Notes issued on May 22, 2003 to E&C Capital
        Partners, LLLP and certain affiliates of Michael S. Egan. In addition, the
        Egans
        were issued a warrant to acquire 204,082 shares of our Common Stock at an
        exercise price of $1.22 per share. This warrant is exercisable at any time
        on or
        before February 2, 2009. The exercise price of the warrant, together with
        the
        number of shares for which such warrant is exercisable, is subject to adjustment
        upon the occurrence of certain events.
 
 On
        July
        2, 2003, we completed a private offering of Series G Automatically Converting
        Preferred Stock for an aggregate purchase price of approximately $8.7 million.
        In accordance with the terms of such Preferred stock, the Series G Preferred
        shares converted into Common Stock at $0.50 per share (or an aggregate of
        17,360,000 shares) upon the filing of an amendment to the Company's certificate
        of incorporation to increase its authorized shares of Common Stock from
        100,000,000 shares to 200,000,000 shares. Such an amendment was filed on
        July
        29, 2003. Investors also received warrants to acquire 3,472,000 shares of
        our
        Common Stock. The warrants are exercisable for a period of five years at
        an
        exercise price of $1.39 per common share. The exercise price of the warrants,
        together with the number of warrants issuable upon exercise, are subject
        to
        adjustment upon the occurrence of certain events. The purpose of the Series
        G
        Automatically Converting Preferred Stock offering was to raise funds for
        use
        primarily in our VoIP telephony services business, including the deployment
        of
        networks, website development, marketing, and limited capital infrastructure
        expenditures and working capital.
  51
 
 On
        May
        22, 2003, E&C Capital Partners, LLLP, together with certain affiliates of
        Michael S. Egan, entered into a Note Purchase Agreement with the Company
        pursuant to which they acquired $1,750,000 of Secured Convertible Notes.
        The
        Secured Convertible Notes were convertible into a maximum of approximately
        19,444,000 shares of our Common Stock at a blended rate of $0.09 per share.
        The
        Secured Convertible Notes provided for interest at the rate of ten percent
        per
        annum payable semi-annually, a one year maturity and were secured by a pledge
        of
        substantially all of the assets of the Company. In addition, E&C Capital
        Partners, LLLP was issued a Warrant to acquire 3,888,889 shares of our Common
        Stock at an exercise price of $0.15 per share. The Warrant was exercisable
        at
        any time on or before May 22, 2013.
 
 On
        March
        28, 2003, E&C Capital Partners, LLLP signed a Preferred Stock Purchase
        Agreement and other related documentation pertaining to a $500,000 investment
        via the purchase of shares of a new Series F Preferred Stock of theglobe.com
        and
        closed on the investment. Pursuant to the Preferred Stock Purchase Agreement,
        E&C Capital Partners, LLLP received 333,333 shares of Series F Preferred
        Stock convertible into shares of our Common Stock at a price of $0.03 per
        share.
        The Series F Preferred Stock had a liquidation preference of $1.50 per share,
        provided for payment of a dividend at the rate of 8% per annum and entitled
        the
        holder to vote on an “as-converted” basis with the holders of our Common Stock.
        In addition, as part of the $500,000 investment, E&C Capital Partners, LLLP
        received warrants to purchase 3,333,333 shares of our Common Stock at an
        exercise price of $0.125 per share. The warrants were exercisable at any
        time on
        or before March 28, 2013 and both the warrants’ exercise price and number were
        subject to adjustment.
 
 As
        a
        result of the preferential conversion features of the Series G Automatically
        Converting Preferred Stock and the Series F Preferred Stock, a total of
        approximately $8.1 million in non-cash dividends to preferred stockholders
        were
        recognized during the year ended December 31, 2003.
 
 **FUTURE
        CAPITAL NEEDS**
 
 As
        a
        result of the completion of the sale of our SendTec business on October 31,
        2005, the Company received net cash proceeds of approximately $23.0 million,
        net
        of SendTec cash of approximately $2.4 which was included in the sale and
        after
        giving effect to the repurchase of shares and cancellation of options and
        warrants from SendTec management and certain employees and payment of all
        other
        direct transaction costs. Shortly after completing the SendTec sale, the
        Company
        paid bonuses to certain officers, employees and consultants totaling
        approximately $4.0 million and also repaid the $1.0 million subordinated
        promissory note issued in connection with the SendTec acquisition. The Company
        anticipates using its prior and current year net operating losses to offset
        the
        recognized gain on the sale and has recorded liabilities totaling approximately
        $0.8 million for federal and state income taxes expected to be paid in
        connection with the gain on the sale. We believe that the net cash proceeds
        from
        the sale of the SendTec business provide sufficient liquidity to enable the
        Company to operate its remaining businesses on a going concern basis through
        at
        least the end of 2006. However, in order to ensure its longer term financial
        viability, the Company must complete the development of and successfully
        implement a new strategic business plan. Our new business plan may involve
        making certain changes to achieve profitability of existing businesses or
        may
        instead result in decisions to sell or dispose of certain businesses or
        components. Additionally, we may use a portion of the net cash proceeds from
        the
        sale of the SendTec business to enter into one or more new businesses, through
        either acquisitions or internal development.
 
 The
        Company continues to incur substantial consolidated net losses and management
        believes the Company will continue to be unprofitable and use cash in its
        operations for the foreseeable future. The Company's consolidated net losses
        and
        cash usage during its recent past and projected future periods relate primarily
        to the operation of its VoIP telephony services business and to a lesser
        extent
        to corporate overhead expenses and the operations of its computer games
        business.
  52
 
 In
        order
        to offer our VoIP services, we have invested substantial capital and made
        substantial commitments related to the development of the VoIP network. The
        VoIP
        network is comprised of switching hardware and software, servers, billing
        and
        inventory systems, and telecommunications carrier services. We own and operate
        VoIP equipment located in leased data center facilities in Miami, New York,
        Atlanta and Boston, and interconnect this equipment utilizing a leased transport
        network through various carrier agreements with third party providers. Through
        these carrier relationships we are able to carry the traffic of our customers
        over the Internet and interact with the public switched telephone network.
        Based
        upon our existing contractual commitments at December 31, 2005, minimum amounts
        payable for network data center and carrier circuit interconnection service
        expenses to be incurred during the next twelve months, exclusive of regulatory
        taxes, fees and charges, are approximately $1.1 million. The Company believes
        that the capacity of its VoIP network, including its lease obligations relating
        to such network, will continue to be greatly in excess of customer demand
        and
        usage levels for the foreseeable future. Therefore, the Company is currently
        attempting to reduce the costs of operating its VoIP network and its commitments
        for future network data center and carrier circuit interconnection services.
        Because our VoIP network cost reduction plan is dependent, in part, upon
        the
        successful renegotiation of certain network contractual agreements, there
        can be
        no assurance that the full cost-reduction benefits anticipated by the Company
        will be achieved.
 
 During
        the past several years, the Company has expended significant costs to implement
        a number of marketing programs geared toward increasing the number of its
        VoIP
        retail customers and telephony revenue. None of these programs have proven
        to be
        successful to any significant degree. Our inability to generate telephony
        revenue sufficient to cover the fixed costs of operating our VoIP network,
        including carrier, data center, personnel and administrative costs, as well
        as
        our marketing and other variable costs, has resulted in the Company incurring
        substantial net losses during 2003, 2004 and 2005.
 
 In
        order
        to reduce its net losses, the Company implemented a number of cost reduction
        actions at its VoIP telephony services business during 2005, including decreases
        in personnel, carrier/data center and marketing/advertising costs. Additionally,
        during the first quarter of 2006, the Company developed and began to implement
        additional VoIP business cost reduction plans, mainly related to decreasing
        network carrier and personnel costs. The Company continues to develop and
        test
        certain new VoIP products and features and to terminate and/or modify certain
        existing product offerings.
 
 Management
        believes that it will be difficult to develop, grow and transform its VoIP
        business into profitability without the investment of significant additional
        capital and/or the development of mutually beneficial third-party strategic
        relationships. Accordingly, we have engaged financial advisors to assist
        the
        Company and are presently seeking out prospective parties who would be
        interested in either acquiring all or part of our VoIP business or alternatively
        partnering with the Company by making strategic investments in our Common
        Stock.
        While the Company pursues a prospective purchaser for its VoIP business or
        a
        strategic investor and/or business partner, it plans to continue to improve
        the
        quality of the products, services and operations of its VoIP business, while
        at
        the same time seeking to limit the losses and cash usage attributable to
        its
        VoIP business operations. The Company does not presently intend to expend
        funds
        in excess of $200,000 in 2006 for VoIP capital expenditures or advertising
        programs.
 
 During
        2005, the Company’s computer games business recognized certain incremental
        losses in connection with attempts to broaden and expand its business beyond
        games and into other areas of the entertainment industry. In developing its
        2006
        business plan, the Company decided to abort its diversification efforts and
        to
        refocus its strategy back to operating and improving its traditional games-based
        businesses. In this regard, the computer games division has recently completed
        the implementation of a number of revenue enhancement and cost-reduction
        programs geared mainly toward achieving profitability and positioning its
        computer games businesses for future growth.
 
 Tralliance,
        the Company’s Internet services business, began collecting fees related to its
“.travel” registry business in October 2005. Having emerged from its development
        stage, Tralliance has recently completed a phased launch of its “.travel”
registry business, including implementation of initial advertising programs.
        Tralliance is also in the process of developing its marketing plan for fiscal
        2006, the implementation of which may require substantial cash
        expenditures.
  53
 
 As
        of
        March 15, 2006, the Company’s total cash and cash equivalents balance was
        approximately $13.7 million, inclusive of $1.0 million held in escrow to
        secure
        the Company’s indemnification obligations related to the sale of the SendTec
        business. Management believes that its current cash resources balance provides
        sufficient liquidity to enable the Company to operate as a going concern
        through
        at least the end of 2006. The Company currently has no access to credit
        facilities with traditional third party lenders and its longer term viability
        will be determined mainly by its ability to successfully execute its existing
        and future business plans. There can be no assurance that the Company will
        be
        successful in taking any of the actions described above and/or implementing
        its
        new strategic business plan in order to achieve profitability and continue
        to
        operate as a going concern in the future.
 
 The
        shares of our Common Stock were delisted from the NASDAQ national market
        in
        April 2001 and are now traded in the over-the-counter market on what is commonly
        referred to as the electronic bulletin board or OTCBB. Since the trading
        price
        of our Common Stock is less than $5.00 per share, trading in our Common Stock
        may also become subject to the requirements of Rule 15g-9 of the Exchange
        Act if
        our net tangible assets should fall below $2.0 million. Under Rule 15g-9,
        brokers who recommend penny stocks to persons who are not established customers
        and accredited investors, as defined in the Exchange Act, must satisfy special
        sales practice requirements, including requirements that they make an
        individualized written suitability determination for the purchaser; and receive
        the purchaser's written consent prior to the transaction. The Securities
        Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
        disclosures in connection with any trades involving a penny stock, including
        the
        delivery, prior to any penny stock transaction, of a disclosure schedule
        explaining the penny stock market and the risks associated with that market.
        Such requirements may severely limit the market liquidity of our Common Stock
        and the ability of purchasers of our equity securities to sell their securities
        in the secondary market. We may also incur additional costs under state blue
        sky
        laws if we sell equity due to our delisting.
  54
  **CONTRACTUAL
        OBLIGATIONS**
 
 The
        following table summarizes theglobe’s contractual obligations as of December 31,
        2005. These contractual obligations are more fully disclosed in Note 9, “Debt,”
and Note 13, “Commitments and Contingencies,” in the accompanying Notes to
        Consolidated Financial Statements.
 
 Payments
                  Due By PeriodLess
                    than
              
              
              
              
              
              AfterTotal
              
              1
                  year
              
              1-3
                  years
              
              4-5
                  years
              
              5
                  yearsDebt,
                  including current portion
              
              $
              3,428,000
              
              $
              3,428,000
              
              $
              --
              
              $
              --
              
              $
              --Network
                  commitments
              
              
              1,561,000
              
              
              1,062,000
              
              
              499,000
              
              
              --
              
              
              --Registry
                  commitments
              
              
              1,425,000
              
              
              250,000
              
              
              451,000
              
              
              220,000
              
              
              504,000Operating
                  leases
              
              
              763,000
              
              
              529,000
              
              
              230,000
              
              
              4,000
              
              
              --Total
                  contractual obligations
              
              $
              7,177,000
              
              $
              5,269,000
              
              $
              1,180,000
              
              $
              224,000
              
              $
              504,000
 
 **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 As
        of
        December 31, 2005, we did not have any material off-balance sheet arrangements
        that have or are reasonably likely to have a material effect on our current
        or
        future financial condition, revenues or expenses, results of operations,
        liquidity, or capital resources.
 
 **EFFECTS
        OF INFLATION**
 
 Due
        to
        relatively low levels of inflation in 2005, 2004 and 2003, inflation has
        not had
        a significant effect on our results of operations.
 
 **MANAGEMENT'S
        DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES**
 
 The
        preparation of our financial statements in conformity with accounting principles
        generally accepted in the United States of America requires us to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenue and expenses during the reporting
        period. Our estimates, judgments and assumptions are continually evaluated
        based
        on available information and experience. Because of the use of estimates
        inherent in the financial reporting process, actual results could differ
        from
        those estimates.
 
 Certain
        of our accounting policies require higher degrees of judgment than others
        in
        their application. These include revenue recognition, valuation of customer
        receivables, valuation of inventories, valuation of goodwill, intangible
        assets
        and other long-lived assets and capitalization of computer software costs.
        Our
        accounting policies and procedures related to these areas are summarized
        below.
 
 **REVENUE
        RECOGNITION**
 
 The
        Company's revenue from continuing operations was derived principally from
        the
        sale of print advertisements under short-term contracts in our magazine
        publications; through the sale of our magazine publications through newsstands
        and subscriptions; from the sale of video games and related products through
        our
        online store Chips & Bits; from the sale of Internet domain registrations
        and from the sale of VoIP telephony services. There is no certainty that
        events
        beyond anyone's control such as economic downturns or significant decreases
        in
        the demand for our services and products will not occur and accordingly,
        cause
        significant decreases in revenue.
 
 **COMPUTER
        GAMES BUSINESSES**
 
 Advertising
        revenues for the Company's magazine publications are recognized at the on-sale
        date of the magazine.
 
 Newsstand
        sales of the Company's magazine publications are recognized at the on-sale
        date
        of the magazine, net of provisions for estimated returns. Subscription revenue,
        which is net of agency fees, is deferred when initially received and recognized
        as income ratably over the subscription term.
  55
 
 Sales
        of
        video games and related products from the online store are recognized as
        revenue
        when the product is shipped to the customer. Amounts billed to customers
        for
        shipping and handling charges are included in net revenue. The Company provides
        an allowance for returns of merchandise sold through its online store. The
        allowance provided to date has not been significant.
 
 **INTERNET
        SERVICES**
 
 Internet
        services net revenue consists of registration fees for Internet domain
        registrations, which generally have terms of one year, but may be up to ten
        years. Such registration fees are reported net of transaction fees paid to
        an
        unrelated third party which serves as the registry operator for the Company.
        Net
        registration fee revenue is recognized on a straight line basis over the
        registrations term.
 
 **VOIP
        TELEPHONY SERVICES**
 
 VoIP
        telephony services revenue represents fees charged to customers for voice
        services and is recognized based on minutes of customer usage or as services
        are
        provided. The Company records payments received in advance for prepaid services
        as deferred revenue until the related services are provided. Sales of peripheral
        VoIP telephony equipment are recognized as revenue when the product is shipped
        to the customer. Amounts billed to customers for shipping and handling charges
        are included in net revenue.
 
 **DISCONTINUED
        OPERATIONS---MARKETING SERVICES**
 
 Revenue
        from the distribution of Internet advertising was recognized when Internet
        users
        visited and completed actions at an advertiser's website. Revenue consisted
        of
        the gross value of billings to clients, including the recovery of costs incurred
        to acquire online media required to execute client campaigns. Recorded revenue
        was based upon reports generated by the Company's tracking software.
 
 Revenue
        derived from the purchase and tracking of direct response media, such as
        television and radio commercials, was recognized on a net basis when the
        associated media was aired. In many cases, the amount the Company billed
        to
        clients significantly exceeded the amount of revenue that was earned due
        to the
        existence of various "pass-through" charges such as the cost of the television
        and radio media. Amounts received in advance of media airings were deferred.
 
 Revenue
        generated from the production of direct response advertising programs, such
        as
        infomercials, was recognized on the completed contract method when such programs
        were complete and available for airing. Production activities generally ranged
        from eight to twelve weeks and the Company usually collected amounts in advance
        and at various points throughout the production process. Amounts received
        from
        customers prior to completion of commercials were included in deferred revenue
        and direct costs associated with the production of commercials in process
        were
        deferred.
 
 **VALUATION
        OF CUSTOMER RECEIVABLES**
 
 Provisions
        for the allowance for doubtful accounts are made based on historical loss
        experience adjusted for specific credit risks. Measurement of such losses
        requires consideration of the Company's historical loss experience, judgments
        about customer credit risk, and the need to adjust for current economic
        conditions.
 
 **VALUATION
        OF INVENTORIES**
 
 Inventories
        are recorded on a first-in, first-out basis and valued at the lower of cost
        or
        market value. We generally manage our inventory levels based on internal
        forecasts of customer demand for our products, which is difficult to predict
        and
        can fluctuate substantially. Our inventories include high technology items
        that
        are specialized in nature or subject to rapid obsolescence. If our demand
        forecast is greater than the actual customer demand for our products, we
        may be
        required to record charges related to increases in our inventory valuation
        reserves. The value of our inventory is also dependent on our estimate of
        future
        average selling prices, and, if our projected average selling prices are
        over
        estimated, we may be required to adjust our inventory value to reflect the
        lower
        of cost or market.
  56
 
 **GOODWILL
        AND INTANGIBLE ASSETS**
 
 In
        June
        2001, the Financial Accounting Standards Board ("FASB") issued Statement
        of
        Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
        and
        SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
        that
        certain acquired intangible assets in a business combination be recognized
        as
        assets separate from goodwill. SFAS No. 142 requires that goodwill and other
        intangibles with indefinite lives should no longer be amortized, but rather
        tested for impairment annually or on an interim basis if events or circumstances
        indicate that the fair value of the asset has decreased below its carrying
        value.
 
 Our
        policy calls for the assessment of the potential impairment of goodwill and
        other identifiable intangibles with indefinite lives whenever events or changes
        in circumstances indicate that the carrying value may not be recoverable
        or at
        least on an annual basis. Some factors we consider important which could
        trigger
        an impairment review include the following:
 
 ·
              significant
                  under-performance relative to historical, expected or projected
                  future
                  operating results;·
              significant
                  changes in the manner of our use of the acquired assets or the
                  strategy
                  for our overall business; and·
              significant
                  negative industry or economic trends.
 
 When
        we
        determine that the carrying value of goodwill or other identified intangibles
        with indefinite lives may not be recoverable, we measure any impairment based
        on
        a projected discounted cash flow method.
 
 **LONG-LIVED
        ASSETS**
 
 Historically,
        the Company's long-lived assets, other than goodwill, have primarily consisted
        of property and equipment, capitalized costs of internal-use software, values
        attributable to covenants not to compete, acquired technology and patent
        costs.
 
 Long-lived
        assets held and used by the Company and intangible assets with determinable
        lives are reviewed for impairment whenever events or circumstances indicate
        that
        the carrying amount of assets may not be recoverable in accordance with SFAS
        No.
        144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We
        evaluate recoverability of assets to be held and used by comparing the carrying
        amount of the assets, or the appropriate grouping of assets, to an estimate
        of
        undiscounted future cash flows to be generated by the assets, or asset group.
        If
        such assets are considered to be impaired, the impairment to be recognized
        is
        measured as the amount by which the carrying amount of the assets exceeds
        the
        fair value of the assets. Fair values are based on quoted market values,
        if
        available. If quoted market prices are not available, the estimate of fair
        value
        may be based on the discounted value of the estimated future cash flows
        attributable to the assets, or other valuation techniques deemed reasonable
        in
        the circumstances.
 
 **CAPITALIZATION
        OF COMPUTER SOFTWARE COSTS**
 
 The
        Company capitalizes the cost of internal-use software which has a useful
        life in
        excess of one year in accordance with Statement of Position No. 98-1,
        "Accounting for the Costs of Computer Software Developed or Obtained for
        Internal Use." Subsequent additions, modifications, or upgrades to internal-use
        software are capitalized only to the extent that they allow the software
        to
        perform a task it previously did not perform. Software maintenance and training
        costs are expensed in the period in which they are incurred. Capitalized
        computer software costs are amortized using the straight-line method over
        the
        expected useful life, or three years.
 
 **IMPACT
        OF RECENTLY ISSUED ACCOUNTING STANDARDS**
 
 In
        November 2005, the FASB issued final FASB Staff Position (“FSP”) FAS No. 123R-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
        Payment Awards.” The FSP provides an alternative method of calculating excess
        tax benefits from the method defined in SFAS No. 123R for share-based payments.
        A one-time election to adopt the transition method in this FSP is available
        to
        those entities adopting SFAS No. 123R using either the modified retrospective
        or
        modified prospective method. Up to one year from the initial adoption of
        SFAS
        No. 123R or effective date of the FSP is provided to make this one-time
        election. However, until an entity makes its election, it must follow the
        guidance in SFAS No. 123R. The FSP is effective upon initial adoption of
        SFAS
        No. 123R and will become effective for the Company in the first quarter of
        2006.
        We are currently evaluating the allowable methods for calculating excess
        tax
        benefits and have not determined which method we will adopt, nor the expected
        impact on our financial position or results of operations.
  57
  
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting for Changes and Error
        Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3."
        SFAS
        No. 154 applies to all voluntary changes in accounting principles and requires
        retrospective application to prior periods' financial statements of changes
        in
        accounting principles. This statement also requires that a change in
        depreciation, amortization or depletion method for long-lived, non-financial
        assets be accounted for as a change in accounting estimate effected by a
        change
        in accounting principle. SFAS No. 154 carries forward without change the
        guidance contained in APB Opinion No. 20 for reporting the correction of
        an
        error in previously issued financial statements and a change in accounting
        estimate. This statement is effective for accounting changes and corrections
        of
        errors made in fiscal years beginning after December 15, 2005. The Company
        does
        not expect the adoption of this standard to have a material impact on its
        financial condition, results of operations or liquidity.
 
 In
        March
        2005, the FASB issued Interpretation ("FIN") No. 47, "Accounting for Conditional
        Asset Retirement Obligations," an interpretation of FASB Statement No. 143,
        "Accounting for Asset Retirement Obligations." The interpretation clarifies
        that
        the term conditional asset retirement obligation refers to a legal obligation
        to
        perform an asset retirement activity in which the timing and/or method of
        settlement are conditional on a future event that may or may not be within
        the
        control of the entity. An entity is required to recognize a liability for
        the
        fair value of a conditional asset retirement obligation if the fair value
        of the
        liability can be reasonably estimated. FIN 47 also clarifies when an entity
        would have sufficient information to reasonably estimate the fair value of
        an
        asset retirement obligation. The effective date of this interpretation is
        no
        later than the end of fiscal years ending after December 15, 2005. The Company
        believes that currently, it does not have any legal obligations to perform
        an
        asset retirement activity which would require the recognition of a liability.
 
 In
        December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets,
        an amendment of APB Opinion No. 29." SFAS No. 153 requires exchanges of
        productive assets to be accounted for at fair value, rather than at carryover
        basis, unless (1) neither the asset received nor the asset surrendered has
        a
        fair value that is determinable within reasonable limits or (2) the transactions
        lack commercial substance. This statement is effective for nonmonetary asset
        exchanges occurring in fiscal periods beginning after June 15, 2005. The
        Company
        does not expect the adoption of this standard to have a material impact on
        its
        financial condition, results of operations, or liquidity.
 
 In
        December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
        statement is a revision of SFAS No. 123, "Accounting for Stock-Based
        Compensation", supersedes Accounting Principles Board ("APB") Opinion No.
        25,
        "Accounting for Stock Issued to Employees" and amends SFAS No. 95, “Statement of
        Cash Flows.” The statement eliminates the alternative to use the intrinsic value
        method of accounting that was provided in SFAS No. 123, which generally resulted
        in no compensation expense recorded in the financial statements related to
        the
        issuance of equity awards to employees. The statement also requires that
        the
        cost resulting from all share-based payment transactions be recognized in
        the
        financial statements. It establishes fair value as the measurement objective
        in
        accounting for share-based payment arrangements and generally requires all
        companies to apply a fair-value-based measurement method in accounting for
        share-based payment transactions with employees. The Company has adopted
        SFAS
        No. 123R effective January 1, 2006, using a modified version of prospective
        application in accordance with the statement. This application requires the
        Company to record compensation expense for all awards granted after the adoption
        date and for the unvested portion of awards that are outstanding at the date
        of
        adoption. The Company expects that the adoption of SFAS No. 123R will result
        in
        charges to operating expense of continuing operations of approximately $194,000,
        $77,000 and $19,000, in the years ended December 31, 2006, 2007 and 2008,
        related to the unvested portion of outstanding employee stock options at
        December 31, 2005.
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
        of
        ARB No. 43, Chapter 4." SFAS No. 151 requires all companies to recognize
        a
        current-period charge for abnormal amounts of idle facility expense, freight,
        handling costs and wasted materials. This statement also requires that the
        allocation of fixed production overhead to the costs of conversion be based
        on
        the normal capacity of the production facilities. SFAS No. 151 will be effective
        for fiscal years beginning after June 15, 2005. The Company does not expect
        the
        adoption of this statement to have a material effect on its consolidated
        financial statements.
 
 In
        December 2003, the FASB issued FIN No. 46-R "Consolidation of Variable Interest
        Entities." FIN 46-R, which modifies certain provisions and effective dates
        of
        FIN 46, sets forth the criteria to be used in determining whether an investment
        in a variable interest entity should be consolidated. These provisions are
        based
        on the general premise that if a company controls another entity through
        interests other than voting interests, that company should consolidate the
        controlled entity. The Company believes that currently, it does not have
        any
        material arrangements that meet the definition of a variable interest entity
        which would require consolidation.
  58
 
 **ITEM
        7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 Interest
        Rate Risk. Interest rate risk refers to fluctuations in the value of a security
        resulting from changes in the general level of interest rates. Investments
        that
        we classify as cash and cash equivalents have original maturities of three
        months or less and therefore, are not affected in any material respect by
        changes in market interest rates. At December 31, 2005 **,** debt
        outstanding includes approximately $3.4 million of fixed rate instruments
        with
        an aggregate average interest rate of 10.0% and approximately $28,000 of
        variable rate instruments with an aggregate average interest rate of 7.48%.
        All
        debt outstanding as of December 31, 2005 is either due on demand or matures
        within the next twelve months.
 
 Foreign
        Currency Risk. We transact business in U.S. dollars. Our exposure to changes
        in
        foreign currency rates has been limited to a related party obligation payable
        in
        Canadian dollars, which totals approximately $28,000 (U.S.) at December 31,
        2005. Foreign currency exchange rate fluctuations do not have a material
        effect
        on our results of operations.
  59
 
 **ITEM
        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
 
 
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 
 **INDEX
        TO FINANCIAL STATEMENTS**
 
 PAGEREPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              F-2CONSOLIDATED
                  FINANCIAL STATEMENTSBALANCE
                  SHEETS
              F-3STATEMENTS
                  OF OPERATIONS
              F-4STATEMENTS
                  OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
              F-5STATEMENTS
                  OF CASH FLOWS
              F-6NOTES
                  TO FINANCIAL STATEMENTS
              F-8
  F-1
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
        of
        Directors and Stockholders
 theglobe.com,
        inc. and Subsidiaries
 
 We
        have
        audited the accompanying consolidated balance sheets of theglobe.com, inc.
        and
        Subsidiaries as of December 31, 2005 and 2004, and the related consolidated
        statements of operations, stockholders' equity and comprehensive income (loss),
        and cash flows for each of the years in the three-year period ended December
        31,
        2005. 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 the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audits included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, 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 consolidated financial position of theglobe.com,
        inc. and Subsidiaries as of December 31, 2005 and 2004, and the consolidated
        results of its operations and its cash flows for each of the years in the
        three-year period ended December 31, 2005, in conformity with accounting
        principles generally accepted in the United States.
 
 As
        discussed in Note 2 to the consolidated financial statements, the Company
        has
        incurred net losses for each of the three years in the period ended December
        31,
        2005 and has an accumulated deficit as of December 31, 2005. These factors,
        among others, subject the Company to certain liquidity and profitability
        considerations.
  **RACHLIN
        COHEN & HOLTZ LLP**
 
 Fort
        Lauderdale, Florida
 March
        10,
        2006
 
 F-2
  **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
  DECEMBER
                  31,
              
              DECEMBER
                  31,2005
              
              2004ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              16,480,660
              
              $
              6,734,793Restricted
                  cash
              
              
              1,031,764
              
              
              93,407Marketable
                  securities
              
              
              --
              
              
              42,736Accounts
                    receivable, less allowance for doubtful accounts
                    of approximately $128,000 and$274,000,
                    respectively
              
              
              452,398
              
              
              1,120,310Inventory,
                    less reserves of approximately$434,000
                    and $1,333,000, respectively
              
              
              66,271
              
              
              589,579Prepaid
                  expenses
              
              
              1,022,771
              
              
              941,316Assets
                  of discontinued operations
              
              
              --
              
              
              21,665,429Other
                  current assets
              
              
              146,889
              
              
              359,619Total
                  current assets
              
              
              19,200,753
              
              
              31,547,189Property
                  and equipment, net
              
              
              1,455,653
              
              
              2,442,613Intangible
                  assets
              
              
              715,035
              
              
              --Other
                  assets
              
              
              40,000
              
              
              27,363Total
                  assets
              
              $
              21,411,441
              
              $
              34,017,165LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  Liabilities:Accounts
                  payable
              
              $
              2,564,988
              
              $
              1,064,048Accrued
                  expenses and other current liabilities
              
              
              2,177,815
              
              
              1,720,001Income
                  taxes payable
              
              
              806,406
              
              
              --Deferred
                  revenue
              
              
              985,981
              
              
              163,715Notes
                  payable and current portion of long-term debt
              
              
              3,428,447
              
              
              1,277,405Liabilities
                  of discontinued operations
              
              
              --
              
              
              8,042,995Total
                  current liabilities
              
              
              9,963,637
              
              
              12,268,164Long-term
                  debt
              
              
              --
              
              
              26,997Other
                  long-term liabilities
              
              
              173,003
              
              
              204,616Total
                  liabilities
              
              
              10,136,640
              
              
              12,499,777Stockholders'
                  Equity:Common
                    stock, $0.001 par value; 500,000,000 sharesauthorized;
                    174,373,091 and 174,315,678shares
                  issued at December 31, 2005 and December 31, 2004,
                  respectively
              
              
              174,373
              
              
              174,316Additional
                  paid-in capital
              
              
              288,740,889
              
              
              282,289,404Escrow
                  shares
              
              
              (750,000
              )
              
              --Treasury
                    stock at cost, 699,281 common shares atDecember
                    31, 2004
              
              
              --
              
              
              (371,458
              )Accumulated
                  deficit
              
              
              (276,890,461
              )
              
              (260,574,874
              )Total
                  stockholders' equity
              
              
              11,274,801
              
              
              21,517,388Total
                  liabilities and stockholders' equity
              
              $
              21,411,441
              
              $
              34,017,165
 
 See
        notes
        to consolidated financial statements.
  F-3
  **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  Year
                  Ended December 31,2005
              
              2004
              
              2003Net
                  Revenue
              
              $
              2,395,378
              
              $
              3,498,791
              
              $
              5,284,113Operating
                  Expenses:Cost
                  of revenue
              
              
              8,424,959
              
              
              9,054,739
              
              
              4,701,338Sales
                  and marketing
              
              
              2,717,700
              
              
              7,098,062
              
              
              1,987,026Product
                  development
              
              
              1,390,859
              
              
              1,053,886
              
              
              884,790General
                  and administrative
              
              
              11,142,169
              
              
              7,246,774
              
              
              5,285,912Depreciation
              
              
              1,189,097
              
              
              1,295,442
              
              
              257,560Intangible
                  asset amortization
              
              
              75,201
              
              
              102,834
              
              
              72,182Impairment
                  charge
              
              
              --
              
              
              1,661,975
              
              
              908,384Loss
                    on settlement of contractualobligation
              
              
              --
              
              
              406,750
              
              
              --24,939,985
              
              
              27,920,462
              
              
              14,097,192Operating
                  Loss from ContinuingOperations
              
              
              (22,544,607
              )
              
              (24,421,671
              )
              
              (8,813,079
              )Other
                  Expense, net:Interest
                  expense, net
              
              
              (4,143,229
              )
              
              (666,348
              )
              
              (1,759,246
              )Other
                  expense, net
              
              
              (274,082
              )
              
              (158,550
              )
              
              (462,072
              )(4,417,311
              )
              
              (824,898
              )
              
              (2,221,318
              )Loss
                  from Continuing OperationsBefore
                  Income Tax
              
              
              (26,961,918
              )
              
              (25,246,569
              )
              
              (11,034,397
              )Income
                  Tax Benefit
              
              
              (13,613,538
              )
              
              (370,891
              )
              
              --Loss
                  from Continuing Operations
              
              
              (13,348,380
              )
              
              (24,875,678
              )
              
              (11,034,397
              )Discontinued
                  Operations, net of tax:Income
                  from operations
              
              
              68,801
              
              
              602,477
              
              
              --Gain
                  on sale of discontinued operations
              
              
              1,769,531
              
              
              --
              
              
              --Income
                  from Discontinued Operations
              
              
              1,838,332
              
              
              602,477
              
              
              --Net
                  Loss
              
              $
              (11,510,048
              )
              $
              (24,273,201
              )
              $
              (11,034,397
              )Earnings
                  (Loss) Per Share -Basic
                  and Diluted:Continuing
                  Operations
              
              $
              (0.07
              )
              $
              (0.19
              )
              $
              (0.49
              )Discontinued
                  Operations
              
              $
              0.01
              
              $
              --
              
              $
              --Net
                  Loss
              
              $
              (0.06
              )
              $
              (0.19
              )
              $
              (0.49
              )Weighted
                    Average Common SharesOutstanding
              
              
              182,539,000
              
              
              127,843,000
              
              
              38,711,000
  See
        notes
        to consolidated financial statements.
  F-4
  **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)**
 
 AdditionalPreferred
              
              Common
                  Stock
              
              Paid-in
              
              Escrow
              
              Treasury
              
              AccumulatedStock
              
              Shares
              
              Amount
              
              Capital
              
              Shares
              
              Stock
              
              Deficit
              
              TotalBalance,
                  December 31, 2002
              
              $
              -
              
              
              31,081,574
              
              $
              31,082
              
              $
              218,310,565
              
              $
              -
              
              $
              (371,458
              )
              $
              (217,147,276
              )
              $
              822,913Year
                  Ended December 31, 2003:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,034,397
              )
              
              (11,034,397
              )Net
                  unrealized gain on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,562
              
              
              1,562Comprehensive
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,032,835
              )Issuance
                  of preferred stock:Series
                  F Preferred Stock
              
              
              500,000
              
              
              -
              
              
              -
              
              
              500,000
              
              
              -
              
              
              -
              
              
              (500,000
              )
              
              500,000Series
                  G Automatically Converting Preferred Stock
              
              
              7,315,000
              
              
              -
              
              
              -
              
              
              8,945,690
              
              
              -
              
              
              -
              
              
              (7,620,000
              )
              
              8,640,690Issuance
                  of common stock:Conversion
                  of Series G AutomaticallyConverting
                  Preferred Stock
              
              
              (7,315,000
              )
              
              17,360,000
              
              
              17,360
              
              
              7,297,640
              
              
              -
              
              
              -
              
              
              -
              
              
              -Acquisition
                  of Direct Partner Telecom, Inc.
              
              
              -
              
              
              1,375,000
              
              
              1,375
              
              
              636,625
              
              
              -
              
              
              -
              
              
              -
              
              
              638,000Exercise
                  of stock options
              
              
              -
              
              
              429,000
              
              
              429
              
              
              118,166
              
              
              -
              
              
              -
              
              
              -
              
              
              118,595Beneficial
                  conversion feature ofConvertible
                  Notes
              
              
              -
              
              
              -
              
              
              -
              
              
              1,750,000
              
              
              -
              
              
              -
              
              
              -
              
              
              1,750,000Employee
                  stock-based compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              417,567
              
              
              -
              
              
              -
              
              
              -
              
              
              417,567Issuance
                  of stock options to non-employees
              
              
              -
              
              
              -
              
              
              -
              
              
              225,609
              
              
              -
              
              
              -
              
              
              -
              
              
              225,609Contributed
                  capital in lieu of salary by officer
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Balance,
                  December 31, 2003
              
              
              500,000
              
              
              50,245,574
              
              
              50,246
              
              
              238,301,862
              
              
              -
              
              
              (371,458
              )
              
              (236,300,111
              )
              
              2,180,539Year
                  Ended December 31, 2004:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (24,273,201
              )
              
              (24,273,201
              )Realized
                  gain on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,562
              )
              
              (1,562
              )Comprehensive
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (24,274,763
              )Issuance
                  of common stock:Private
                  offering, net of offering costs
              
              
              -
              
              
              33,381,647
              
              
              33,382
              
              
              26,939,363
              
              
              -
              
              
              -
              
              
              -
              
              
              26,972,745Conversion
                  of Series F Preferred Stockand
                  exercise of associated warrants
              
              
              (500,000
              )
              
              19,639,856
              
              
              19,640
              
              
              480,360
              
              
              -
              
              
              -
              
              
              -
              
              
              -Conversion
                  of $1,750,000 Convertible Notes
              
              
              -
              
              
              22,829,156
              
              
              22,829
              
              
              1,654,546
              
              
              -
              
              
              -
              
              
              -
              
              
              1,677,375Conversion
                  of $2,000,000 Bridge Note
              
              
              -
              
              
              3,527,337
              
              
              3,527
              
              
              1,996,473
              
              
              -
              
              
              -
              
              
              -
              
              
              2,000,000Acquisition
                  of SendTec
              
              
              17,500
              
              
              17,500,024
              
              
              17,500
              
              
              11,163,275
              
              
              -
              
              
              -
              
              
              -
              
              
              11,198,275Conversion
                  of Series H Preferred Stock
              
              
              (17,500
              )
              
              17,500,500
              
              
              17,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of warrants owned by DancingBear
                  Investments
              
              
              -
              
              
              2,779,560
              
              
              2,780
              
              
              (2,780
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of stock options
              
              
              -
              
              
              639,000
              
              
              639
              
              
              183,907
              
              
              -
              
              
              -
              
              
              -
              
              
              184,546Exercise
                  of warrants
              
              
              -
              
              
              6,273,024
              
              
              6,273
              
              
              5,151
              
              
              -
              
              
              -
              
              
              -
              
              
              11,424Beneficial
                  conversion feature of $2,000,000Bridge
                  Note and warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              687,000
              
              
              -
              
              
              -
              
              
              -
              
              
              687,000Employee
                  stock-based compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              416,472
              
              
              -
              
              
              -
              
              
              -
              
              
              416,472Issuance
                  of stock options to non-employees
              
              
              -
              
              
              -
              
              
              -
              
              
              463,775
              
              
              -
              
              
              -
              
              
              -
              
              
              463,775Balance,
                  December 31, 2004
              
              
              -
              
              
              174,315,678
              
              
              174,316
              
              
              282,289,404
              
              
              -
              
              
              (371,458
              )
              
              (260,574,874
              )
              
              21,517,388Year
                  Ended December 31, 2005:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,510,048
              )
              
              (11,510,048
              )Issuance
                  of common stock:Settlement
                  of contractual obligation
              
              
              -
              
              
              300,000
              
              
              300
              
              
              73,950
              
              
              -
              
              
              -
              
              
              -
              
              
              74,250Acquisition
                  of Tralliance
              
              
              -
              
              
              2,010,000
              
              
              2,010
              
              
              196,877
              
              
              -
              
              
              -
              
              
              -
              
              
              198,887Conversion
                  of Convertible Notes
              
              
              -
              
              
              12,000,000
              
              
              12,000
              
              
              588,000
              
              
              -
              
              
              -
              
              
              -
              
              
              600,000Exercise
                  of stock options
              
              
              -
              
              
              2,001,661
              
              
              2,001
              
              
              164,840
              
              
              -
              
              
              -
              
              
              -
              
              
              166,841Exercise
                  of warrants
              
              
              -
              
              
              11,051,403
              
              
              11,051
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              11,051Beneficial
                  conversion features of$4,000,000
                  Convertible Notes
              
              
              -
              
              
              -
              
              
              -
              
              
              4,000,000
              
              
              -
              
              
              -
              
              
              -
              
              
              4,000,000Employee
                  stock-based compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              48,987
              
              
              -
              
              
              -
              
              
              -
              
              
              48,987Issuance
                  of stock options to non-employees
              
              
              -
              
              
              -
              
              
              -
              
              
              176,050
              
              
              -
              
              
              -
              
              
              -
              
              
              176,050Stock-based
                  compensation related todiscontinued
                  operations
              
              
              -
              
              
              -
              
              
              -
              
              
              455,054
              
              
              -
              
              
              -
              
              
              -
              
              
              455,054Issuance
                  of escrow shares
              
              
              -
              
              
              2,272,727
              
              
              2,273
              
              
              747,727
              
              
              (750,000
              )
              
              
              
              
              
              
              
              -Redemption
                  of common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,043,074
              )
              
              -
              
              
              (4,043,074
              )Repurchase
                  of vested stock options
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (420,585
              )
              
              (420,585
              )Retirement
                  of treasury stock
              
              
              -
              
              
              (29,578,378
              )
              
              (29,578
              )
              
              -
              
              
              -
              
              
              4,414,532
              
              
              (4,384,954
              )
              
              -Balance,
                  December 31, 2005
              
              $
              -
              
              
              174,373,091
              
              $
              174,373
              
              $
              288,740,889
              
              $
              (750,000
              )
              $
              -
              
              $
              (276,890,461
              )
              $
              11,274,801
 
 See
        notes
        to consolidated financial statements.
  F-5
  **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
  Year
                  Ended December 31,2005
              
              2004
              
              2003Cash
                  Flows from Operating Activities:Net
                  loss
              
              $
              (11,510,048
              )
              $
              (24,273,201
              )
              $
              (11,034,397
              )(Income)
                  from discontinued operations
              
              
              (1,838,332
              )
              
              (602,477
              )
              
              --Net
                  loss from continuing operations
              
              
              (13,348,380
              )
              
              (24,875,678
              )
              
              (11,034,397
              )Adjustments
                    to reconcile net loss from continuingoperations
                    to net cash flows from operating activities:Depreciation
                  and amortization
              
              
              1,264,298
              
              
              1,398,276
              
              
              329,742Provision
                  for uncollectible accounts receivable
              
              
              125,000
              
              
              183,149
              
              
              114,888Provision
                  for excess and obsolete inventory
              
              
              191,261
              
              
              1,289,196
              
              
              110,126Non-cash
                  interest expense
              
              
              4,000,000
              
              
              735,416
              
              
              1,739,635Non-cash
                  impairment charge
              
              
              --
              
              
              1,661,975
              
              
              908,384Loss
                  on settlement of contractual obligation
              
              
              --
              
              
              406,750
              
              
              --Write-down
                  of inventory deposit
              
              
              77,250
              
              
              221,450
              
              
              --Reserve
                    against amounts loaned to Tralliance priortoacquisition
              
              
              280,000
              
              
              506,500
              
              
              495,000Employee
                  stock compensation
              
              
              48,987
              
              
              182,970
              
              
              417,567Compensation
                  related to non-employee stock options
              
              
              176,050
              
              
              463,046
              
              
              225,609Deferred
                  tax benefit
              
              
              (13,613,538
              )
              
              --
              
              
              --Non-cash
                  settlements of liabilities
              
              
              --
              
              
              (352,455
              )
              
              (64,207
              )Other,
                  net
              
              
              (136,284
              )
              
              212,821
              
              
              180,695Changes
                    in operating assets and liabilities,net
                    of acquisitions and dispositions:Accounts
                  receivable, net
              
              
              542,912
              
              
              (327,756
              )
              
              328,453Inventory,
                  net
              
              
              332,047
              
              
              (1,108,461
              )
              
              (516,458
              )Prepaid
                  and other current assets
              
              
              86,824
              
              
              28,681
              
              
              (1,058,806
              )Accounts
                  payable
              
              
              1,425,050
              
              
              (751,595
              )
              
              508,862Accrued
                  expenses and other current liabilities
              
              
              (90,057
              )
              
              548,169
              
              
              253,215Deferred
                  revenue
              
              
              995,269
              
              
              (12,876
              )
              
              7,072Net
                    cash flows from operating activities of continuingoperations
              
              
              (17,643,311
              )
              
              (19,590,422
              )
              
              (7,054,620
              )Net
                    cash flows from operating activities of discontinuedoperations
              
              
              2,990,299
              
              
              1,857,790
              
              
              --Net
                  cash flows from operating activities
              
              
              (14,653,012
              )
              
              (17,732,632
              )
              
              (7,054,620
              )Cash
                  Flows from Investing Activities:Purchases
                  of property and equipment
              
              
              (296,170
              )
              
              (2,643,018
              )
              
              (2,424,791
              )Net
                  cash placed in escrow
              
              
              (938,357
              )
              
              (93,407
              )
              
              --Amounts
                  loaned to Tralliance prior to acquisition
              
              
              (280,000
              )
              
              (466,500
              )
              
              (495,000
              )Other,
                  net
              
              
              119,814
              
              
              141,385
              
              
              (275,552
              )Net
                    cash flows from investing activities of continuingoperations
              
              
              (1,394,713
              )
              
              (3,061,540
              )
              
              (3,195,343
              )Sale
                  of discontinued operations, net of cash sold
              
              
              34,762,384
              
              
              --
              
              
              --Redemption
                  agreement payment allocation to sale
              
              
              (7,560,872
              )
              
              --
              
              
              --Acquisition
                  of discontinued operations, net of cash acquired
              
              
              --
              
              
              (2,389,520
              )
              
              --Purchases
                    of property and equipment by discontinuedoperations
              
              
              (184,115
              )
              
              (40,324
              )
              
              --Net
                  cash flows from investing activities
              
              
              25,622,684
              
              
              (5,491,384
              )
              
              (3,195,343
              )Cash
                  Flows from Financing Activities:Borrowings
                  on notes payable and long-term debt
              
              
              4,000,000
              
              
              2,000,000
              
              
              1,750,000Payments
                  on notes payable and long-term debt
              
              
              (1,358,623
              )
              
              (151,898
              )
              
              (545,529
              )Redemption
                  of common stock
              
              
              (4,043,074
              )
              
              --
              
              
              --Proceeds
                  from issuance of common stock, net
              
              
              --
              
              
              26,972,745
              
              
              --Proceeds
                  from issuance of preferred stock, net
              
              
              --
              
              
              --
              
              
              9,140,690Proceeds
                  from exercise of stock options and warrants
              
              
              177,892
              
              
              195,970
              
              
              118,595Payments
                  of other long-term liabilities, net
              
              
              --
              
              
              (119,710
              )
              
              122,487Net
                  cash flows from financing activities
              
              
              (1,223,805
              )
              
              28,897,107
              
              
              10,586,243Net
                  Increase in Cash and Cash Equivalents
              
              
              9,745,867
              
              
              5,673,091
              
              
              336,280Cash
                  and Cash Equivalents, at beginning of period
              
              
              6,734,793
              
              
              1,061,702
              
              
              725,422Cash
                  and Cash Equivalents, at end of period
              
              $
              16,480,660
              
              $
              6,734,793
              
              $
              1,061,702
  See
        notes
        to consolidated financial statements.
 
 F-6
 
 **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (Continued)
  Year
                  Ended December 31,2005
              
              2004
              
              2003Supplemental
                  Disclosure of Cash Flow Information:Cash
                  paid during the period for:Interest
              
              $
              87,140
              
              $
              184,093
              
              $
              39,819Income
                  taxes
              
              $
              --
              
              $
              --
              
              $
              --Supplemental
                  Disclosure of Non-Cash Transactions:Conversion
                    of debt and equity securities intocommon
                    stock
              
              $
              600,000
              
              $
              4,177,375
              
              $
              7,315,000Additional
                    paid-in capital attributable to thebeneficial
                    conversion features of debt and equity securities
              
              $
              4,000,000
              
              $
              687,000
              
              $
              2,250,000Common
                    stock and warrants issued in connectionwith
                    the acquisition of Tralliance Corporation
              
              $
              198,887
              
              $
              --
              
              $
              --Common
                    stock, preferred stock and stock optionsissued
                    in connection with the acquisition of  SendTec,
                    Inc.
              
              $
              --
              
              $
              11,198,275
              
              $
              --Note
                    payable issued in connection with theacquisition
                    of SendTec, Inc.
              
              $
              --
              
              $
              1,000,009
              
              $
              --Common
                    stock and warrants issued in connection withthe
                    acquisition of Direct Partner Telecom, Inc.
              
              $
              --
              
              $
              --
              
              $
              638,000Common
                    stock issued in connection with thesettlement
                    of a contractual obligation
              
              $
              74,250
              
              $
              --
              
              $
              --Preferred
                    dividends recorded as a result of thebeneficial
                    conversion features of preferred stock issued
              
              $
              --
              
              $
              --
              
              $
              8,120,000
  See
        notes
        to consolidated financial statements.
  F-7
 
 **THEGLOBE.COM,
        INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **(1)
        ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **DESCRIPTION
        OF THE COMPANY**
 
 theglobe.com,
        inc. (the "Company" or "theglobe") was incorporated on May 1, 1995 (inception)
        and commenced operations on that date. Originally, theglobe.com was an online
        community with registered members and users in the United States and abroad.
        That product gave users the freedom to personalize their online experience
        by
        publishing their own content and by interacting with others having similar
        interests. However, due to the deterioration of the online advertising market,
        the Company was forced to restructure and ceased the operations of its online
        community on August 15, 2001. The Company then sold most of its remaining
        online
        and offline properties. The Company continues to operate its Computer Games
        print magazine and the associated CGOnline website (www.cgonline.com), as
        well
        as the computer games distribution business of Chips & Bits, Inc.
        (www.chipsbits.com). On June 1, 2002, Chairman Michael S. Egan and Director
        Edward A. Cespedes became Chief Executive Officer and President of the Company,
        respectively.
 
 On
        November 14, 2002, the Company acquired certain Voice over Internet Protocol
        ("VoIP") assets and is now pursuing opportunities related to this acquisition.
        In exchange for the assets, the Company issued warrants to acquire 1,750,000
        shares of its Common Stock and an additional 425,000 warrants as part of
        an
        earn-out structure upon the attainment of certain performance targets. The
        earn-out performance targets were not achieved and the 425,000 earn-out warrants
        expired on December 31, 2003.
 
 On
        May
        28, 2003, the Company acquired Direct Partner Telecom, Inc. ("DPT"), a company
        engaged in VoIP telephony services in exchange for 1,375,000 shares of the
        Company's Common Stock and the issuance of warrants to acquire 500,000 shares
        of
        the Company's Common Stock. The Company acquired all of the physical assets
        and
        intellectual property of DPT and originally planned to continue to operate
        the
        company as a subsidiary and engage in the provision of VoIP services to other
        telephony businesses on a wholesale transactional basis. In the first quarter
        of
        2004, the Company decided to suspend DPT's wholesale business and dedicate
        the
        DPT physical and intellectual assets to its retail VoIP business. As a result,
        the Company wrote-off the goodwill associated with the purchase of DPT as
        of
        December 31, 2003, and has since employed DPT's physical assets in the build
        out
        of the retail VoIP network.
 
 On
        September 1, 2004, the Company acquired SendTec, Inc. ("SendTec"), a direct
        response marketing services and technology company for a total purchase price
        of
        approximately $18.4 million. As more fully discussed in Note 3, "Discontinued
        Operations - SendTec Inc.,” on October 31, 2005, the Company completed the sale
        of all of the business and substantially all of the net assets of SendTec
        for
        approximately $39.9 million in cash.
 
 As
        more
        fully discussed in Note 4, “Acquisition of Tralliance Corporation,” on May 9,
        2005, the Company exercised its option to acquire Tralliance Corporation
        (“Tralliance”), a company which had recently entered into an agreement to become
        the registry for the “.travel” top-level Internet domain. The Company issued
        2,000,000 shares of its Common Stock, warrants to acquire 475,000 shares
        of its
        Common Stock and paid $40,000 in cash to acquire Tralliance.
 
 As
        of
        December 31, 2005, sources of the Company's revenue from continuing operations
        were derived principally from the operations of its games related businesses.
        The Company’s retail VoIP products and services have yet to produce any
        significant revenue. Tralliance did not begin collecting fees from “.travel”
registrars for its services until October 2005.
 
 **PRINCIPLES
        OF CONSOLIDATION**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiaries from their respective dates of acquisition. All
        significant intercompany balances and transactions have been eliminated in
        consolidation.
  F-8
 
 **USE
        OF ESTIMATES**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        the disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenue and expenses during the reporting
        period. These estimates and assumptions relate to estimates of collectibility
        of
        accounts receivable, the valuation of inventory, accruals, the valuations
        of
        fair values of options and warrants, the impairment of long-lived assets
        and
        other factors. Actual results could differ from those estimates.
 
 **CASH
        AND CASH EQUIVALENTS**
 
 Cash
        equivalents consist of money market funds and highly liquid short-term
        investments with qualified financial institutions. The Company considers
        all
        highly liquid securities with original maturities of three months or less
        to be
        cash equivalents.
 
 **RESTRICTED
        CASH**
 
 Included
        in restricted cash in the accompanying consolidated balance sheet at December
        31, 2005, was approximately $1,000,000 of cash held in escrow in connection
        with
        the October 31, 2005 sale of all of the business and substantially all of
        the
        net assets of SendTec (see Note 3, “Discontinued Operations - SendTec, Inc.” for
        further discussion). In addition, at December 31, 2005 and December 31, 2004,
        restricted cash included $31,764 and $93,407, respectively, of cash held
        in
        escrow for purposes of sweepstakes promotions being conducted by the VoIP
        telephony division.
 
 **MARKETABLE
        SECURITIES**
 
 The
        Company accounts for its investment in debt and equity securities in accordance
        with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
        for Certain Investments in Debt and Equity Securities." All such investments
        were classified as held-to-maturity as of December 31, 2005 and were being
        accounted for at amortized cost. At December 31, 2004, investments were
        accounted for as available-for-sale and were stated at market value, which
        approximated fair value. The following is a summary of securities:
 
 December
                  31, 2005
              
              December
                    31, 2004AmortizedCost
              
              Cost
                  Basis
              
              Cost
              
              FairValueCommercial
                  Paper
              
              $
              4,981,666
              
              $
              4,992,666
              
              $
              --
              
              $
              --Municipal
                  Bond Funds
              
              
              1,000,000
              
              
              1,000,071U.S.
                  Treasury Bills
              
              
              --
              
              
              --
              
              
              42,736
              
              
              42,7365,981,666
              
              
              5,992,737
              
              
              42,736
              
              
              42,736Less:
                  Amount classified as cash equivalents
              
              
              5,981,666
              
              
              5,992,737
              
              
              --
              
              
              --Marketable
                  Securities
              
              $
              --
              
              $
              --
              
              $
              42,736
              
              $
              42,736
 
 During
        the years ended December 31, 2005, 2004 and 2003, the Company had no significant
        gross realized gains or losses on sales of securities.
 
 **FAIR
        VALUE OF FINANCIAL INSTRUMENTS**
 
 The
        carrying amount of certain of the Company's financial instruments, including
        cash, cash equivalents, restricted cash, marketable securities, accounts
        receivable, accounts payable, accrued expenses and short-term deferred revenue,
        approximate their fair value at December 31, 2005 and 2004 due to their short
        maturities.
 
 F-9
  **INVENTORY**
 
 Inventories
        are recorded on a first in, first out basis and valued at the lower of cost
        or
        market value. The Company's reserve for excess and obsolete inventory as
        of
        December 31, 2005 and 2004, was approximately $434,000 and $1,333,000,
        respectively.
 
 During
        the years ended December 31, 2005 and 2004, the Company's VoIP telephony
        services business recorded charges to cost of revenue totaling approximately
        $71,000 and $1,477,000, respectively, as a result of write-downs required
        to
        state its inventory on-hand and related deposits for inventory on order at
        the
        lower of cost or market value. As of December 31, 2004, such market values
        considered certain transactions, completed subsequent to 2004 year-end, as
        well
        as the Company's estimate of future unit sales and selling prices of its
        telephony equipment inventory in its retail VoIP business.
 
 Effective
        January 31, 2005, the Company formally terminated its contract with a supplier
        for VoIP telephony handsets and reached an agreement with the supplier to
        settle
        the unconditional purchase obligation under such contract (see Note 13,
“Commitments and Contingencies,” for further discussion). As a result, the
        Company recorded charges to cost of revenue which increased the inventory
        reserves related to its VoIP handset inventory by approximately $300,000
        as of
        December 31, 2004. During the third quarter of 2004, the Company had recorded
        a
        $600,000 charge to cost of revenue and a corresponding increase to its reserve
        for excess and obsolete inventory related to the VoIP handset inventory.
 
 In
        January 2005, the Company sold essentially all of its VoIP adapter inventory
        on-hand for $235,000 in cash. As a result, inventory reserves at December
        31,
        2004 included approximately $356,000 of additional provisions related to
        cost of
        revenue charges required to reflect the VoIP adapter inventory at net realizable
        value. During 2004, the Company also made advance payments of approximately
        $299,000 towards future purchases of adapter inventory. The Company recorded
        charges of approximately $77,250 and $221,000 during the years ended December
        31, 2005 and 2004, respectively, to write down the value of such deposits
        on
        inventory purchases.
 
 The
        Company manages its inventory levels based on internal forecasts of customer
        demand for its products, which is difficult to predict and can fluctuate
        substantially. In addition, the Company's inventories include high technology
        items that are specialized in nature or subject to rapid obsolescence. If
        the
        Company's demand forecast is greater than the actual customer demand for
        its
        products, the Company may be required to record additional charges related
        to
        increases in its inventory valuation reserves in future periods. The value
        of
        inventories is also dependent on the Company's estimate of future average
        selling prices, and, if projected average selling prices are over estimated,
        the
        Company may be required to further adjust its inventory value to reflect
        the
        lower of cost or market.
 
 **GOODWILL
        AND INTANGIBLE ASSETS**
 
 The
        Company accounts for goodwill and intangible assets in accordance with SFAS
        No.
        142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill
        and other intangibles with indefinite lives should no longer be amortized,
        but
        rather be tested for impairment annually or on an interim basis if events
        or
        circumstances indicate that the fair value of the asset has decreased below
        its
        carrying value.
 
 At
        December 31, 2005, the Company had no goodwill and had no other intangible
        assets with indefinite lives. Intangible assets subject to amortization and
        included in the accompanying consolidated balance sheet as of December 31,
        2005,
        which consist of the values assigned to certain non-compete agreements, are
        being amortized on a straight-line basis over an estimated useful life of
        five
        years. See Note 6, "Impairment Charges," for a discussion of the charges
        recorded by the Company as a result of the review of goodwill and intangible
        assets for impairment in connection with the preparation of the accompanying
        consolidated financial statements as of December 31, 2004.
  F-10
 
 **LONG-LIVED
        ASSETS**
 
 Long-lived
        assets, including property and equipment and intangible assets subject to
        amortization are reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying amount of an asset may not be
        recoverable, in accordance with SFAS No. 144, "Accounting for the Impairment
        or
        Disposal of Long-Lived Assets." If events or changes in circumstances indicate
        that the carrying amount of an asset, or an appropriate grouping of assets,
        may
        not be recoverable, the Company estimates the undiscounted future cash flows
        to
        result from the use of the
        asset, or asset group. 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 assets.
        Fair
        values are based on quoted market values, if available. If quoted market
        values
        are not available, the estimate of fair value may be based on the discounted
        value of the estimated future cash flows attributable to the assets, or other
        valuation techniques deemed reasonable in the circumstances.
 
 See
        Note
        6, "Impairment Charges," **** for
        discussion of impairment charges recorded by the Company as a result of the
        review of long-lived assets for impairment in connection with the preparation
        of
        the accompanying consolidated financial statements as of December 31, 2004
        and
        for the year then ended.
 
 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, as follows:
 
 VoIP
                  network equipment
                Computer
                  software
                Other
                  equipment
                Furniture
                  and fixtures
                Leasehold
                  improvements
              Estimated
                  Useful Lives
                
                3
                  years
                3
                  years
                3
                  years
                3-7
                  years
                3-4
                  years
 
 The
        Company capitalizes the cost of internal-use software which has a useful
        life in
        excess of one year in accordance with Statement of Position No. 98-1,
        "Accounting for the Costs of Computer Software Developed or Obtained for
        Internal Use." Subsequent additions, modifications, or upgrades to internal-use
        software are capitalized only to the extent that they allow the software
        to
        perform a task it previously did not perform. Software maintenance and training
        costs are expensed in the period in which they are incurred. Capitalized
        computer software costs are amortized using the straight-line method over
        three
        years.
 
 **CONCENTRATION
        OF CREDIT RISK**
 
 Financial
        instruments which subject the Company to concentrations of credit risk consist
        primarily of cash and cash equivalents, restricted cash, marketable securities
        and trade accounts receivable. The Company maintains its cash and cash
        equivalents with various financial institutions and invests its funds among
        a
        diverse group of issuers and instruments. The Company performs ongoing credit
        evaluations of its customers' financial condition and establishes an allowance
        for doubtful accounts based upon factors surrounding the credit risk of
        customers, historical trends and other information.
 
 Concentration
        of credit risk in the Company’s Internet services and VoIP telephony services
        divisions is generally limited due to the large number of customers of these
        businesses. Two customers of the computer games division represented an
        aggregate of approximately $231,000, or 51%, of net consolidated accounts
        receivable as of December 31, 2005.
 
 **REVENUE
        RECOGNITION**
 
 ***Continuing
        Operations***
 
 ***COMPUTER
        GAMES BUSINESSES***
 
 Advertising
        revenue from the sale of print advertisements under short-term contracts
        in the
        Company’s magazine publications are recognized at the on-sale date of the
        magazines.
  F-11
 
 The
        Company participates in barter transactions whereby the Company trades marketing
        data in exchange for advertisements in the publications of other companies.
        Barter revenue 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 or other products are delivered by the Company. Barter expense
        is
        recognized when the Company's advertisements are run in other companies'
        magazines, which typically occurs within one to six months from the period
        in
        which barter revenue is recognized. The Company had no barter revenue during
        the
        year ended December 31, 2005. Barter revenue represented approximately 2%
        of
        consolidated net revenue from continuing operations for each of the years
        ended
        December 31, 2004 and 2003.
 
 Newsstand
        sales of the Company’s magazine publications are recognized at the on-sale date
        of the magazines, net of provisions for estimated returns. Subscription revenue,
        which is net of agency fees, is deferred when initially received and recognized
        as income ratably over the subscription term.
 
 Sales
        of
        games and related products from the Company's online store are recognized
        as
        revenue when the product is shipped to the customer. Amounts billed to customers
        for shipping and handling charges are included in net revenue. The Company
        provides an allowance for returns of merchandise sold through its online
        store.
        The allowance for returns provided to date has not been significant.
 
 ***INTERNET
        SERVICES***
 
 Internet
        services revenue consists of registration fees for Internet domain
        registrations, which generally have terms of one year, but may be up to ten
        years. Such registration fees are reported net of transaction fees paid to
        an
        unrelated third party which serves as the registry operator for the Company.
        Payments of registration fees are deferred when initially received and
        recognized as revenue on a straight-line basis over the registration
        terms.
 
 ***VOIP
        TELEPHONY SERVICES***
 
 VoIP
        telephony services net revenue represents fees charged to customers for voice
        services and is recognized based on minutes of customer usage or as services
        are
        provided. The Company records payments received in advance for prepaid services
        as deferred revenue until the related services are provided. Sales of peripheral
        VoIP telephony equipment are recognized as revenue when the product is shipped
        to the customer. Amounts billed to customers for shipping and handling charges
        are included in net revenue.
 
 ***MARKETING
        SERVICES -Discontinued Operations***
 
 Revenue
        from the distribution of Internet advertising was recognized when Internet
        users
        visited and completed actions at an advertiser's website. Revenue consisted
        of
        the gross value of billings to clients, including the recovery of costs incurred
        to acquire online media required to execute client campaigns. Recorded revenue
        was based upon reports generated by the Company's tracking software.
 
 Revenue
        derived from the purchase and tracking of direct response media, such as
        television and radio commercials, was recognized on a net basis when the
        associated media was aired. In many cases, the amount the Company billed
        to
        clients significantly exceeded the amount of revenue that was earned due
        to the
        existence of various "pass-through" charges such as the cost of the television
        and radio media. Amounts received in advance of media airings were deferred.
 
 Revenue
        generated from the production of direct response advertising programs, such
        as
        infomercials, was recognized on the completed contract method when such programs
        were complete and available for airing. Production activities generally ranged
        from eight to twelve weeks and the Company usually collected amounts in advance
        and at various points throughout the production process. Amounts received
        from
        customers prior to completion of commercials were included in deferred revenue
        and direct costs associated with the production of commercials in process
        were
        deferred.
 
 **ADVERTISING
        COSTS**
 
 Advertising
        costs are expensed as incurred and are included in sales and marketing expense.
        Advertising costs were approximately $386,000, **** $2,294,000
        and $411,000 **** for
        the
        years ended December 31, 2005, 2004 and 2003, respectively. Barter advertising
        costs were approximately 4% and 2% of total net revenue from continuing
        operations for the years ended December 31, 2005 and 2003, respectively.
        The
        Company incurred no barter advertising costs for the year ended December
        31,
        2004.
 
 **PRODUCT
        DEVELOPMENT**
 
 Product
        development expenses include salaries and related personnel costs; expenses
        incurred in connection with website development, testing and upgrades of
        our
        computer games websites; editorial and content costs; and costs incurred
        in the
        development of our retail VoIP products. Product development costs and
        enhancements to existing products are charged to operations as incurred.
  F-12
  **STOCK-BASED
        COMPENSATION**
 
 The
        Company has historically followed SFAS No. 123, "Accounting for Stock-Based
        Compensation," which permitted 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 allowed entities to continue to apply the provisions
        of
        Accounting Principles Board Opinion No. 25 ("APB 25") and provide pro forma
        net
        earnings (loss) disclosures for employee stock option grants as if the
        fair-value-based method defined in SFAS 123 had been applied. Under this
        method,
        compensation expense is recorded on the date of grant only if the current
        market
        price of the underlying stock exceeded the exercise price.
 
 In
        December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
        Compensation -- Transition and Disclosure -- an amendment of SFAS No. 123,"
        which provides alternative methods of transition for a voluntary change to
        the
        fair value based method of accounting for stock-based compensation. SFAS
        No. 148
        also requires more prominent and more frequent disclosures in both interim
        and
        annual financial statements about the method of accounting for stock-based
        compensation and the effect of the method used on reported results. The Company
        adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002
        and
        has continued to apply the measurement provisions of APB No. 25.
 
 The
        Company has also historically followed FASB Interpretation (“FIN”) No. 44,
        "Accounting for Certain Transactions Involving Stock Compensation" which
        provides guidance for applying APB Opinion No 25. 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.
 
 In
        December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
        statement is a revision of SFAS No. 123, "Accounting for Stock-Based
        Compensation", supersedes Accounting Principles Board ("APB") Opinion No.
        25,
        "Accounting for Stock Issued to Employees" and amends SFAS No. 95, “Statement of
        Cash Flows.” The statement eliminates the alternative to use the intrinsic value
        method of accounting that was provided in SFAS No. 123, which generally resulted
        in no compensation expense recorded in the financial statements related to
        the
        issuance of equity awards to employees. The statement also requires that
        the
        cost resulting from all share-based payment transactions be recognized in
        the
        financial statements. It establishes fair value as the measurement objective
        in
        accounting for share-based payment arrangements and generally requires all
        companies to apply a fair-value-based measurement method in accounting for
        share-based payment transactions with employees. The Company has adopted
        SFAS
        No. 123R effective January 1, 2006, using a modified version of prospective
        application in accordance with the statement. This application will require
        the
        Company to record compensation expense for all awards granted after the adoption
        date and for the unvested portion of awards that are outstanding at the date
        of
        adoption. The Company expects that the adoption of SFAS No. 123R will result
        in
        charges to operating expense of continuing operations of approximately $194,000,
        $77,000 and $19,000, in the years ended December 31, 2006, 2007 and 2008,
        related to the unvested portion of outstanding employee stock options at
        December 31, 2005.
  F-13
  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
        historical net loss would have been adjusted to the pro forma amounts indicated
        below:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Net
                  loss - as reported
              
              $
              (11,510,048
              )
              $
              (24,273,201
              )
              $
              (11,034,397
              )Add:
                  Stock-based employee compensation expense included in net loss
                  as
                  reported
              
              
              502,217
              
              
              416,472
              
              
              417,567Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value method for all awards
              
              
              (1,242,169
              )
              
              (1,606,271
              )
              
              (1,821,170
              )Net
                  loss - pro forma
              
              $
              (12,250,000
              )
              $
              (25,463,000
              )
              $
              (12,438,000
              )Basic
                  net loss per share - as reported
              
              $
              (0.06
              )
              $
              (0.19
              )
              $
              (0.49
              )Basic
                  net loss per share - pro forma
              
              $
              (0.07
              )
              $
              (0.20
              )
              $
              (0.53
              )
 
 A
        total
        of 5,922,250 stock options were granted during the year ended December 31,
        2005
        with a per share weighted-average fair value of $0.10 and whose exercise
        price
        equaled the market price of the stock on the grant date. A total of 7,749,595
        stock options were granted during the year ended December 31, 2004, including
        1,490,430 stock options with a per share weighted-average fair value of $0.51
        and whose exercise price equaled the market price of the stock on the grant
        date. A total of 6,259,165 stock options were granted during the year ended
        December 31, 2004 with an exercise price below the market price of the stock
        on
        the grant date and a per share weighted-average fair value of $0.47. The
        per
        share weighted-average fair value of stock options granted during 2003 on
        a
        total of 3,907,450 options whose exercise price equaled the market price
        of the
        stock on the grant date was $0.82. In addition, 500,000 stock options were
        granted in 2003 with an exercise price below the market price of the stock
        on
        the grant date and a per share weighted-average fair value of $1.49.
 
 Fair
        values of stock options were calculated using the Black Scholes option-pricing
        method with the following weighted-average assumptions:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Risk-free
                  interest rate
              
              
              3.00
                  - 4.00
              %
              
              3.00
              %
              
              3.00
              %Expected
                  life
              
              
              3
                  - 5 years
              
              
              3
                  - 5 years
              
              
              5
                  yearsVolatility
              
              
              150
                  -160
              %
              
              160
              %
              
              160
              %Expected
                  dividend rate
              
              
              0
              
              
              0
              
              
              0
  **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.
  F-14
  **NET
        LOSS PER COMMON SHARE**
 
 The
        Company reports net loss per common share in accordance with SFAS No. 128,
        "Computation of Earnings Per Share." In accordance with SFAS 128 and the
        SEC
        Staff Accounting Bulletin No. 98, basic earnings per share is computed using
        the
        weighted average number of common shares outstanding during the period. Common
        equivalent shares consist of the incremental common shares issuable upon
        the
        conversion of convertible preferred stock and convertible notes (using the
        if-converted method), if any, and the shares issuable upon the exercise of
        stock
        options and warrants (using the treasury stock method). Common equivalent
        shares
        are excluded from the calculation if their effect is anti-dilutive or if
        a loss
        from continuing operations is reported.
 
 During
        the year ended December 31, 2003, the Company issued equity securities with
        common stock conversion features which were immediately convertible into
        Common
        Stock. As further discussed in Note 10, "Stockholders' Equity," the Company
        accounted for the issuance of these securities in accordance with EITF 98-5,
        "Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios," which resulted in the recognition
        of
        non-cash preferred dividends totaling $8,120,000 at the respective dates
        of the
        securities' issuance. Net loss applicable to common stockholders was calculated
        as follows:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Net
                  loss
              
              $
              (11,510,048
              )
              $
              (24,273,201
              )
              $
              (11,034,397
              )Beneficial
                  conversion featuresof
                  preferred stock and warrants
              
              
              --
              
              
              --
              
              
              (8,120,000
              )Net
                    loss applicable to commonstockholders
              
              $
              (11,510,048
              )
              $
              (24,273,201
              )
              $
              (19,154,397
              )
 
 Due
        to
        the Company's net losses from continuing operations, the effect of potentially
        dilutive securities or common stock equivalents that could be issued was
        excluded from the diluted net loss per common share calculation due to the
        anti-dilutive effect. Such potentially dilutive securities and common stock
        equivalents consisted of the following for the periods ended:
 
 December
                  31,2005
              
              2004
              
              2003Options
                  to purchase common stock
              
              
              15,373,000
              
              
              15,984,000
              
              
              9,943,000Common
                  shares issuable upon conversion of Series F Preferred
                  Stock
              
              
              --
              
              
              --
              
              
              16,667,000Common
                  shares issuable upon conversion of Convertible Notes
              
              
              68,000,000
              
              
              --
              
              
              19,444,000Common
                  shares issuable upon exercise of Warrants
              
              
              8,776,000
              
              
              20,375,000
              
              
              22,802,000Total
              
              
              92,149,000
              
              
              36,359,000
              
              
              68,856,000
 
 **COMPREHENSIVE
        INCOME (LOSS)**
 
 The
        Company reports comprehensive income (loss) in accordance with the SFAS No.
        130,
        "Reporting Comprehensive Income." Comprehensive income (loss) generally
        represents all changes in stockholders' equity during the year except those
        resulting from investments by, or distributions to, stockholders. The Company's
        comprehensive loss was approximately $11.5 million, $24.3 million and $11.0
        million for the years ended December 31, 2005, 2004 and 2003, respectively,
        which approximated the Company's reported net loss.
 
 F-15
 
 **RECENTLY
        ISSUED ACCOUNTING PRONOUNCEMENTS**
 
 In
        November 2005, the FASB issued final FASB Staff Position (“FSP”) FAS No. 123R-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
        Payment Awards.” The FSP provides an alternative method of calculating excess
        tax benefits from the method defined in SFAS No. 123R for share-based payments.
        A one-time election to adopt the transition method in this FSP is available
        to
        those entities adopting SFAS No. 123R using either the modified retrospective
        or
        modified prospective method. Up to one year from the initial adoption of
        SFAS
        No. 123R or effective date of the FSP is provided to make this one-time
        election. However, until an entity makes its election, it must follow the
        guidance in SFAS No. 123R. The FSP is effective upon initial adoption of
        SFAS
        No. 123R and will become effective for the Company in the first quarter of
        2006.
        We are currently evaluating the allowable methods for calculating excess
        tax
        benefits and have not determined which method we will adopt, nor the expected
        impact on our financial position or results of operations.
 
 In
        May
        2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error
        Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS
        No. 154 applies to all voluntary changes in accounting principles and requires
        retrospective application to prior periods’ financial statements of changes in
        accounting principles. This statement also requires that a change in
        depreciation, amortization or depletion method for long-lived, non-financial
        assets be accounted for as a change in accounting estimate effected by a
        change
        in accounting principle. SFAS No. 154 carries forward without change the
        guidance contained in APB Opinion No. 20 for reporting the correction of
        an
        error in previously issued financial statements and a change in accounting
        estimate. This statement is effective for accounting changes and corrections
        of
        errors made in fiscal years beginning after December 15, 2005. The Company
        does
        not expect the adoption of this standard to have a material impact on its
        financial condition, results of operations or liquidity.
 
 In
        March
        2005, the FASB issued Interpretation No. 47, "Accounting for Conditional
        Asset
        Retirement Obligations," an interpretation of FASB Statement No. 143,
        "Accounting for Asset Retirement Obligations." The interpretation clarifies
        that
        the term conditional asset retirement obligation refers to a legal obligation
        to
        perform an asset retirement activity in which the timing and/or method of
        settlement are conditional on a future event that may or may not be within
        the
        control of the entity. An entity is required to recognize a liability for
        the
        fair value of a conditional asset retirement obligation if the fair value
        of the
        liability can be reasonably estimated. FIN 47 also clarifies when an entity
        would have sufficient information to reasonably estimate the fair value of
        an
        asset retirement obligation. The effective date of this interpretation is
        no
        later than the end of fiscal years ending after December 15, 2005. The Company
        believes that currently, it does not have any legal obligations to perform
        an
        asset retirement activity which would require the recognition of a liability.
 
 In
        December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets,
        an amendment of APB Opinion No. 29." SFAS No. 153 requires exchanges of
        productive assets to be accounted for at fair value, rather than at carryover
        basis, unless (1) neither the asset received nor the asset surrendered has
        a
        fair value that is determinable within reasonable limits or (2) the transactions
        lack commercial substance. This statement is effective for nonmonetary asset
        exchanges occurring in fiscal periods beginning after June 15, 2005. The
        Company
        does not expect the adoption of this standard to have a material impact on
        its
        financial condition, results of operations, or liquidity.
  F-16
 
 In
        December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This
        statement is a revision of SFAS No. 123, "Accounting for Stock-Based
        Compensation", supersedes Accounting Principles Board ("APB") Opinion No.
        25,
        "Accounting for Stock Issued to Employees" and amends SFAS No. 95, “Statement of
        Cash Flows.” The statement eliminates the alternative to use the intrinsic value
        method of accounting that was provided in SFAS No. 123, which generally resulted
        in no compensation expense recorded in the financial statements related to
        the
        issuance of equity awards to employees. The statement also requires that
        the
        cost resulting from all share-based payment transactions be recognized in
        the
        financial statements. It establishes fair value as the measurement objective
        in
        accounting for share-based payment arrangements and generally requires all
        companies to apply a fair-value-based measurement method in accounting for
        share-based payment transactions with employees. The Company has adopted
        SFAS
        No. 123R effective January 1, 2006, using a modified version of prospective
        application in accordance with the statement. This application requires the
        Company to record compensation expense for all awards granted after the adoption
        date and for the unvested portion of awards that are outstanding at the date
        of
        adoption. The Company expects that the adoption of SFAS No. 123R will result
        in
        charges to operating expense of continuing operations of approximately $194,000,
        $77,000 and $19,000, in the years ended December 31, 2006, 2007 and 2008,
        related to the unvested portion of outstanding employee stock options at
        December 31, 2005.
 F-17
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
        of
        ARB No. 43, Chapter 4." SFAS No. 151 requires all companies to recognize
        a
        current-period charge for abnormal amounts of idle facility expense, freight,
        handling costs and wasted materials. This statement also requires that the
        allocation of fixed production overhead to the costs of conversion be based
        on
        the normal capacity of the production facilities. SFAS No. 151 will be effective
        for fiscal years beginning after June 15, 2005. The Company does not expect
        the
        adoption of this statement to have a material effect on its consolidated
        financial statements.
 
 In
        December 2003, the FASB issued FIN No. 46-R "Consolidation of Variable Interest
        Entities." FIN 46-R, which modifies certain provisions and effective dates
        of
        FIN 46, sets forth the criteria to be used in determining whether an investment
        in a variable interest entity should be consolidated. These provisions are
        based
        on the general premise that if a company controls another entity through
        interests other than voting interests, that company should consolidate the
        controlled entity. The Company believes that currently, it does not have
        any
        material arrangements that meet the definition of a variable interest entity
        which would require consolidation.
 
 In
        May
        2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
        Instruments with Characteristics of Both Liabilities and Equity." SFAS No.
        150
        affects the issuer's accounting for three types of freestanding financial
        instruments. One type is mandatorily redeemable shares, which the issuing
        company is obligated to buy back in exchange for cash or other assets. A
        second
        type, which includes put options and forward purchase contracts, involves
        instruments that do or may require the issuer to buy back some of its shares
        in
        exchange for cash or other assets. The third type of instrument consists
        of
        obligations that can be settled with shares, the monetary value of which
        is
        fixed, tied solely or predominantly to a variable such as a market index,
        or
        varies inversely with the value of the issuers' shares. SFAS No. 150 does
        not
        apply to features embedded in a financial instrument that is not a derivative
        in
        its entirety. SFAS No. 150 also requires disclosures about alternative ways
        of
        settling the instruments and the capital structure of entities, whose shares
        are
        mandatorily redeemable. Most of the guidance in SFAS No. 150 is effective
        for
        all financial instruments entered into or modified after May 31, 2003, and
        otherwise is effective from the start of the first interim period beginning
        after June 15, 2003. The adoption of this standard did not have a material
        impact on the Company's results of operations or financial
        position.
 
 **RECLASSIFICATIONS**
 
 Certain
        amounts in the prior year financial statements have been reclassified to
        conform
        to the current year presentation. In accordance with SFAS No. 144, “Accounting
        for the Impairment or Disposal of Long-Lived Assets”, the operations of SendTec
        have been accounted for in accordance with the provisions of SFAS No. 144
        and
        the results of SendTec’s operations have been included in income from
        discontinued operations. Prior periods have been reclassified for comparability,
        as required.
 
 **(2)
        BASIS OF PRESENTATION**
 
 The
        accompanying consolidated financial statements have been prepared in accordance
        with accounting principles generally accepted in the United States of America
        on
        a going concern basis, which contemplates the realization of assets and the
        satisfaction of liabilities in the normal course of business. Accordingly,
        the
        consolidated financial statements do not include any adjustments relating
        to the
        recoverability of assets and classification of liabilities that might be
        necessary should the Company be unable to continue as a going concern. However,
        the Company has incurred net losses in each of the three years in the period
        ended December 31, 2005 and has an accumulated deficit of $276,890,461 as
        of
        December 31, 2005. In order to assure its longer term financial viability,
        the
        Company must complete the development of and successfully implement its new
        strategic business plan. The Company’s new business plan may include making
        certain changes which transform its unprofitable businesses into profitable
        ones, selling or otherwise disposing of businesses or components, acquiring
        or
        internally developing new businesses, including Tralliance, and/or raising
        additional equity capital. Based upon the net cash proceeds received from
        the
        completion of the sale of the SendTec business on October 31, 2005, management
        believes the Company has sufficient liquidity to operate as a going concern
        through at least the end of 2006. There can be no assurance that the Company
        will be successful in achieving its goals or that such events will occur.
 
 F-18
  **(3)
        DISCONTINUED OPERATIONS - SENDTEC, INC.**
 
 On
        August
        10, 2005, the Company entered into an Asset Purchase Agreement with
        RelationServe Media, Inc. ("RelationServe") whereby the Company agreed to
        sell
        all of the business and substantially all of the net assets of its SendTec
        marketing services subsidiary to RelationServe for $37,500,000 in cash, subject
        to certain net working capital adjustments. On August 23, 2005, the Company
        entered into Amendment No. 1 to the Asset Purchase Agreement with RelationServe
        (the “1 st Amendment” and together with the original Asset Purchase Agreement, the
“Purchase Agreement”). On October 31, 2005, the Company completed the asset
        sale. Including adjustments to the purchase price related to estimated excess
        working capital of SendTec as of the date of sale, the Company received an
        aggregate of $39,850,000 in cash pursuant to the Purchase Agreement. **** In
        accordance with the terms of an escrow agreement established as a source
        to
        secure the Company’s indemnification obligations under the Purchase Agreement,
        $1,000,000 of the purchase price and an aggregate of 2,272,727 shares of
        theglobe’s unregistered Common Stock (valued at $750,000 pursuant to the terms
        of the Purchase Agreement based upon the average closing price of the stock
        in
        the 10 day period preceding the closing of the sale) were placed into escrow.
        Any of the shares of Common Stock released from escrow to RelationServe will
        be
        entitled to customary “piggy-back” registration rights.
 
 Additionally,
        as contemplated by the Purchase Agreement, immediately following the asset
        sale,
        the Company completed the redemption of 28,879,097 shares of its Common Stock
        owned by six members of management of SendTec for approximately $11,604,000
        in
        cash pursuant to a Redemption Agreement dated August 23, 2005, (the “Redemption
        Payment”). Pursuant to a separate Termination Agreement, the Company also
        terminated and canceled 1,275,783 stock options and the contingent interest
        in
        2,062,785 earn-out warrants held by the six members of management in exchange
        for approximately $400,000 in cash. The Company also terminated 829,678 stock
        options of certain other non-management employees of SendTec and entered
        into
        bonus arrangements with a number of other non-management SendTec employees
        for
        amounts totaling approximately $600,000.
 
 Approximately
        $4,043,000 of the Redemption Payment was attributed to the “fair value” of the
        shares of Common Stock redeemed and recorded as treasury shares. The “fair
        value” for financial accounting purposes was calculated based on the closing
        price of the Company’s Common Stock as reflected on the OTCBB on August 10,
        2005, the date the principal terms of the Redemption Agreement were announced
        publicly. The closing of the redemption occurred on October 31, 2005. The
        remaining portion of the Redemption Payment, or approximately $7,561,000,
        was
        recorded as a reduction to the gain on the sale of the SendTec business,
        as the
        excess of the price paid to redeem the shares over the “fair value” for
        financial accounting purposes was attributed to the sale in accordance with
        FASB
        Technical Bulletin 85-6.
 
 Results
        of operations for SendTec have been reported separately as “Discontinued
        Operations” in the accompanying consolidated statements of operations for all
        periods presented. The assets and liabilities of the SendTec marketing services
        business which was sold have been included in the captions, “Assets of
        Discontinued Operations” and “Liabilities of Discontinued Operations” in the
        accompanying consolidated balance sheet as of December 31, 2004.
 
 The
        following is a summary of the assets and liabilities of the discontinued
        operations of SendTec as included in the accompanying consolidated balance
        sheet
        as of December 31, 2004:
 
 Assets:Accounts
                  receivable
              
              $
              6,620,382Prepaid
                  and other current assets
              
              
              683,380Property
                  and equipment, net
              
              
              963,757Goodwill
              
              
              11,702,317Non-compete
                  intangible assets
              
              
              1,680,000Other
                  assets
              
              
              15,593Assets
                  of discontinued operations
              
              $
              21,665,429Liabilities:Accounts
                  payable
              
              $
              6,383,502Accrued
                  expenses
              
              
              1,083,543Deferred
                  revenue
              
              
              575,950Liabilities
                  of discontinued operations
              
              $
              8,042,995
  F-19
 
 Summarized
        financial information for the discontinued operations of SendTec was as
        follows:
  Year
                  Ended December 31,2005
              
              
              2004Net
                    revenue, net of intercompanyeliminations
              
              $
              31,872,229
              
              $
              12,542,241Income
                  from operations
              
              $
              1,014,430
              
              $
              973,368Provision
                  for income taxes
              
              
              (945,629
              )
              
              (370,891
              )Income
                  from operations, net of tax
              
              
              68,801
              
              
              602,477Gain
                  on sale of business
              
              
              15,017,621
              
              
              --Provision
                  for income taxes
              
              
              (13,248,090
              )
              
              --Gain
                  on sale, net of tax
              
              
              1,769,531
              
              
              --Net
                    income from discontinuedoperations,
                    net of taxes
              
              $
              1,838,332
              
              $
              602,477
  The
        Company originally acquired SendTec on September 1, 2004. In exchange for
        all of
        the issued and outstanding shares of capital stock of SendTec, the Company
        paid
        consideration consisting of: (i) $6,000,000 in cash, excluding transaction
        costs, (ii) the issuance of an aggregate of 17,500,024 shares of the Company's
        Common Stock, (iii) the issuance of an aggregate of 175,000 shares of Series
        H
        Automatically Converting Preferred Stock (which was converted into 17,500,500
        shares of the Company's Common Stock effective December 1, 2004), and (iv)
        the
        issuance of a subordinated promissory note in the amount of $1,000,009. The
        Company also issued an aggregate of 3,974,165 replacement options to acquire
        the
        Company's Common Stock for each of the issued and outstanding options to
        acquire
        SendTec shares held by the former employees of SendTec.
 
 The
        SendTec purchase price allocation was as follows:
 
 Cash
              
              $
              3,610,000Accounts
                  receivable
              
              
              5,534,000Other
                  current assets
              
              
              194,000Fixed
                  assets
              
              
              1,031,000Non-compete
                  agreements
              
              
              1,800,000Goodwill
              
              
              11,710,000Other
                  assets
              
              
              124,000Assumed
                  liabilities
              
              
              (5,605,000
              )$
              18,398,000
  F-20
  In
        addition, warrants to acquire shares of the Company’s Common Stock would be
        issued to the former shareholders of SendTec when and if SendTec exceeded
        forecasted operating income, as defined, of $10.125 million, for the year
        ended
        December 31, 2005. The number of earn-out warrants issuable ranged from an
        aggregate of approximately 250,000 to 2,500,000 (if actual operating income
        exceeded the forecast by at least 10%). Pursuant to the Termination Agreement
        mentioned above, the contingent interest in 2,062,785 of the earn-out warrants
        was canceled effective October 31, 2005. The remainder of the earn-out warrants
        expired on December 31, 2005, as the operating income target was not
        achieved.
  As
        part
        of the SendTec acquisition transaction, certain executives of SendTec entered
        into new employment agreements with SendTec. The employment agreements each
        had
        a term of five years and contained certain non-compete provisions for periods
        as
        specified by the agreements. The $1,800,000 value assigned to the non-compete
        agreements was being amortized on a straight-line basis over five years.
        Pursuant to the Termination Agreement mentioned above, the employment agreements
        were terminated effective October 31, 2005 and the unamortized balance of
        the
        non-compete intangible was charged to discontinued operations’ expense.
 
 F-21
 
 **(4)
        ACQUISITION OF TRALLIANCE CORPORATION**
 
 On
        February 25, 2003, the Company entered into a Loan and Purchase Option
        Agreement, as amended, with Tralliance, an Internet related business venture,
        pursuant to which it agreed to fund, in the form of a loan, at the discretion
        of
        the Company, Tralliance's operating expenses and obtained the option to acquire
        all of the outstanding capital stock of Tralliance in exchange for, when
        and if
        exercised, $40,000 in cash and the issuance of an aggregate of 2,000,000
        unregistered restricted shares of the Company's Common Stock (the "Option").
        The
        Loan was secured by a lien on the assets of the venture. On May 5, 2005,
        Tralliance and the Internet Corporation for Assigned Names and Numbers ("ICANN")
        entered into an agreement designating Tralliance as the registry for the
        ".travel" top-level domain. On May 9, 2005, the Company exercised its option
        to
        acquire all of the outstanding capital stock of Tralliance. The purchase
        price
        consisted of the issuance of 2,000,000 shares of the Company’s Common Stock,
        warrants to acquire 475,000 shares of the Company’s Common Stock and $40,000 in
        cash. The warrants are exercisable for a period of five years at an exercise
        price of $0.11 per share. As part of the transaction, 10,000 shares of the
        Company’s Common Stock were also issued to a third party in payment of a
        finder's fee resulting from the acquisition. The Common Stock issued as a
        result
        of the acquisition of Tralliance is entitled to certain "piggy-back"
        registration rights. In addition, as part of the transaction, the Company
        agreed
        to pay approximately $154,000 in outstanding liabilities of Tralliance
        immediately after the closing of the acquisition.
 
 The
        preliminary Tralliance purchase price allocation was as follows:
 
 Cash
              
              $
              54,000Other
                  current assets
              
              
              6,000Intangible
                  assets
              
              
              790,000Assumed
                  liabilities
              
              
              (370,000
              )Deferred
                  tax liability
              
              
              (226,000
              )$
              254,000
 
 Upon
        acquisition, the existing CEO and CFO of Tralliance entered into employment
        agreements, which include certain non-compete provisions, whereby each would
        agree to remain in the employ of Tralliance for a period of two years in
        exchange for annual base compensation totaling $200,000 to each officer,
        plus
        participation in a bonus pool based upon the pre-tax income of the venture.
 
 The
        value
        assigned to the intangible assets acquired is being amortized on a straight-line
        basis over a five year estimated useful life. Annual amortization expense
        of the
        intangible assets is estimated to be: $188,211 in 2006; $158,047 for each
        of
        2007 through 2009 and $52,683 in 2010. The related accumulated amortization
        as
        of December 31, 2005 was $75,201 which was equivalent to amortization expense
        for the year ended December 31, 2005.
 
 Advances
        to Tralliance totaled $1,281,500 prior to its acquisition by the Company.
        Due to
        the uncertainty of the ultimate collectibility of the Loan, the Company had
        historically provided a reserve equal to the full amount of the funds advanced
        to Tralliance. For the years ended December 31, 2005, 2004 and 2003, additions
        to the reserve of $280,000, $506,500 and $495,000, respectively, were included
        in other expense in the accompanying consolidated statements of operations.
 
 The
        following unaudited pro forma condensed consolidated results of operations
        for
        the years ended December 31, 2005 and 2004 assume the acquisition of Tralliance
        occurred as of January 1, 2004. The unaudited pro forma information is not
        necessarily indicative of what the actual results of operations of the combined
        company would have been had the acquisition occurred on January 1, 2004,
        nor is
        it necessarily indicative of future results.
 
 2005
              
              2004Year
                  ended December 31,Net
                  revenue from continuing operations
              
              $
              2,395,000
              
              $
              3,499,000Loss
                  from continuing operations
              
              
              (13,386,000
              )
              
              (25,115,000
              )Net
                  loss
              
              
              (11,548,000
              )
              
              (24,513,000
              )Basic
                  and diluted net loss per common share:Loss
                  from continuing operations
              
              $
              (0.07
              )
              $
              (0.19
              )Net
                  loss
              
              
              (0.06
              )
              
              (0.19
              )
 
 F-22
 
 **(5)
        ACQUISITION OF DIRECT PARTNER TELECOM, INC.**
 
 On
        May
        28, 2003, the Company completed the acquisition of Direct Partner Telecom,
        Inc.
        ("DPT"), a company engaged in VoIP telephony services, in exchange for 1,375,000
        shares of the Company's Common Stock and the issuance of warrants to acquire
        500,000 shares of the Company's Common Stock. The warrants are exercisable
        any
        time before May 23, 2013 at an exercise price of $0.72 per share. In addition,
        the former shareholders of DPT would earn additional warrants to acquire
        up to
        2,750,000 shares of the Company's Common Stock at an exercise price of $0.72
        per
        share if DPT achieved certain revenue and earnings targets over approximately
        the three years following the acquisition date. Effective March 31, 2005,
        an
        aggregate of 1,250,000 of the earn-out warrants were forfeited as performance
        targets had not been achieved for the first two fiscal year periods. The
        remaining 1,500,000 of the warrants will be forfeited effective March 31,
        2006,
        as performance targets for the final fiscal year period will not be achieved.
        In
        addition, as part of the transaction, the Company agreed to repay loans totaling
        $600,000 to certain of the former shareholders of DPT, including $500,000
        immediately after the closing of the acquisition. The Company issued promissory
        notes for $100,000, with a two-year maturity and interest at prime, for the
        balance. The $100,000 in promissory notes were repaid in June 2005.
 
 The
        total
        purchase price of DPT was allocated as follows:
 
 Cash
              
              $
              61,000Accounts
                  receivable
              
              
              155,000Fixed
                  assets
              
              
              196,000Non-compete
                  agreement
              
              
              375,000Goodwill
              
              
              577,000Assumed
                  debt to formerShareholders
              
              
              (600,000
              )Other
                  assumed liabilities
              
              
              (126,000
              )$
              638,000
 
 As
        part
        of the DPT acquisition transaction, the former Chief Executive Officer of
        DPT
        agreed to an employment agreement with a one-year term which automatically
        renewed for an additional year. The employment agreement also contained
        non-compete provisions during the term of the agreement and for a period
        of
        three years following termination of the agreement, as specified. The $375,000
        value assigned to the non-compete agreement was to be amortized on a
        straight-line basis over 5 years.
 
 As
        discussed in Note 1, as a result of decisions made during the first quarter
        of
        2004, the Company performed a review of its long-lived assets for impairment.
        As
        a result, effective December 31, 2003, the Company wrote-off the goodwill
        and
        the unamortized balance of the non-compete agreement arising from the
        acquisition of DPT which then totaled $908,384. Amortization expense of the
        non-compete agreement totaled $43,750 in 2003. The former Chief Executive
        Officer of DPT terminated his employment with the Company effective May 2004.
 
 The
        following unaudited pro forma condensed consolidated results of operations
        for
        the year ended December 31, 2003 assumes the acquisition of DPT occurred
        as of
        January 1, 2003. The unaudited pro forma information is not necessarily
        indicative of the results of operations of the combined company had these
        events
        occurred at the beginning of the period presented, nor is it necessarily
        indicative of future results.
 
 Year
                  ended December 31, 2003,Net
                  revenue from continuing operations
              
              $
              6,076,000Net
                  loss
              
              
              (11,116,000
              )Basic
                  and diluted net loss per common share
              
              $
              (0.50
              )
 
 F-23
 
 **(6)
        IMPAIRMENT CHARGES**
 
 As
        a
        result of the significant operating and cash flow losses incurred by the
        Company's VoIP telephony services division during 2004 and 2003, coupled
        with
        management's projection of continued losses in the foreseeable future, the
        Company performed an evaluation of the recoverability of the division's
        long-lived assets during the first quarter of
        2005
        in connection with the preparation of its 2004 consolidated financial
        statements. The evaluation indicated that the carrying value of certain of
        the
        division's long-lived assets exceeded the fair value of such assets, as measured
        by quoted market prices or other management estimates. As a result, the Company
        recorded an impairment charge of $1,661,975 in the accompanying statement
        of
        operations for the year ended December 31, 2004. The impairment charge included
        the write-off of the carrying value of amounts previously capitalized by
        the
        division as internal-use software, website development costs, acquired
        technology and patent costs, as well as certain other assets.
 
 During
        the first quarter of 2004, the Company's management decided to suspend DPT's
        wholesale business and to dedicate the DPT physical and intellectual assets
        to
        its retail VoIP business. As a result, the Company reviewed the long-lived
        assets associated with the wholesale VoIP business for impairment. Goodwill
        of
        $577,134 and the unamortized balance of the non-compete intangible asset
        of
        $331,250 recorded in connection with the May 2003 acquisition of DPT were
        written off and recorded as an impairment loss in the accompanying statement
        of
        operations for the year ended December 31, 2003. Refer to Note 5, "Acquisition
        of Direct Partner Telecom, Inc.," for a discussion of the purchase of DPT.
 
 **(7)
        INTANGIBLE ASSETS**
 
 As
        discussed in Note 4, “Acquisition of Tralliance Corporation,” upon the May 9,
        2005 acquisition of Tralliance, the existing CEO and CFO of Tralliance entered
        into employment agreements which include certain non-compete provisions as
        specified by the agreements. At December 31, 2005, intangible assets consist
        of
        the $790,236 value assigned to the non-compete agreements which is being
        amortized on a straight-line basis over five years. Accumulated amortization
        as
        of December 31, 2005 totaled $75,201.
 
 As
        discussed in Note 6, "Impairment Charges," the Company performed an evaluation
        of the recoverability of the long-lived assets of its VoIP telephony services
        division. As a result, effective December 31, 2004, the Company wrote-off
        the
        unamortized balance of its digital telephony intangible assets which totaled
        $192,106. Such assets consisted of certain VoIP assets which were recorded
        at
        the value assigned to the warrants to acquire 1,750,000 shares of the Company's
        Common Stock issued in connection with the acquisition of the assets on November
        14, 2002, as well as patent application costs.
 
 During
        the year ended December 31, 2005, intangible asset amortization totaled $75,201.
        During the year ended December 31, 2004, intangible asset amortization totaled
        $102,834 which represented amortization related to the VoIP intangible assets
        prior to their write-off as of December 31, 2004. Intangible asset amortization
        expense totaled $72,182 for the year ended December 31, 2003, including $43,750
        of amortization related to the non-compete agreement recorded in connection
        with
        the acquisition of DPT. As discussed in Note 6, “Impairment Charges,” the
        Company wrote-off the $331,250 unamortized balance of the non-compete agreement
        as of December 31, 2003.
 
 As
        of
        December 31, 2005, annual amortization expense of intangible assets is projected
        to be: $188,211 in 2006; $158,047 for each of 2007 through 2009 and $52,683
        in
        2010.
  F-24
 
 **(8)
        PROPERTY AND EQUIPMENT**
 
 Property
        and equipment consisted of the following:
 
 December
                  31,2005
              
              2004VoIP
                  network equipment and software
              
              $
              3,056,971
              
              $
              2,929,051Other
                  equipment
              
              
              870,706
              
              
              829,819Capitalized
                  software costs
              
              
              262,349
              
              
              134,986Land
                  and building
              
              
              --
              
              
              181,110Furniture
                  and fixtures
              
              
              202,813
              
              
              202,813Leasehold
                  improvements
              
              
              7,007
              
              
              7,0074,399,846
              
              
              4,284,786Less:
                    Accumulated depreciation andamortization
              
              
              2,944,193
              
              
              1,842,173$
              1,455,653
              
              $
              2,442,613
 
 See
        Note
        6, "Impairment Charges," for a discussion of write-offs recorded during 2004
        in
        connection with the Company's evaluation of the recoverability of the VoIP
        telephony services division's long-lived assets. The 2004 impairment charge
        included the write-off of the carrying value of amounts previously capitalized
        by the division as internal-use software and website development costs, as
        well
        as certain other property and equipment, which totaled $1,469,869.
 
 **(9)
        DEBT**
 
 Debt
        consisted of the following:
 
 December
                  31,2005
              
              200410%
                  Convertible Promissory Notes; due on demand
              
              $
              3,400,000
              
              $
              --4%
                    Subordinated promissory note; interest and principal dueSeptember
                    1, 2005; repaid October 2005
              
              
              --
              
              
              1,000,009Promissory
                    notes issued in connection with the acquisitionof
                    DPT; interest and principal dueMay
                  2005; interest at prime rate (5.25% at December 31, 2004); repaid
                  June
                  2005
              
              
              --
              
              
              100,000Mortgage
                    note payable; interest payable monthly at 9%; principal dueSeptember
                    2006; repaid December 2005
              
              
              --
              
              
              73,351Related
                    party obligations payable in Canadian dollars; due in monthlyinstallments
                    of principal and interest approximating $3,600 through September
                    2006;
                    interest at prime plus 2-3%
              
              
              28,447
              
              
              69,233Financing
                    of computer software and related maintenance costs; quarterlyinstallments
                    of principal and interest approximating $21,400 through September
                    2005;
                    repaid September 2005
              
              
              --
              
              
              61,8093,428,447
              
              
              1,304,402Less:
                  short-term portion
              
              
              3,428,447
              
              
              1,277,405Long-term
                  portion
              
              $
              --
              
              $
              26,997
 
 F-25
  On
        April
        22, 2005, E&C Capital Partners, LLLP and E&C Capital Partners II, LLLP
        (the "Noteholders"), entities controlled by the Company's Chairman and Chief
        Executive Officer, entered into a Note Purchase Agreement (the "Agreement")
        with
        theglobe pursuant to which they acquired secured demand convertible promissory
        notes (the "Convertible Notes") in the aggregate principal amount of $1,500,000.
        Under the terms of the Agreement, the Noteholders were also granted the optional
        right, for a period of 90 days from the date of the Agreement, to purchase
        additional Convertible Notes such that the aggregate principal amount of
        Convertible Notes issued under the Agreement could total $4,000,000 (the
        "Option"). On June 1, 2005, the Noteholders exercised a portion of the Option
        and acquired an additional $1,500,000 of Convertible Notes. On July 18, 2005,
        the Noteholders exercised the remainder of the Option and acquired an additional
        $1,000,000 of Convertible Notes.
 
 The
        Convertible Notes are convertible at the option of the Noteholders into shares
        of the Company's Common Stock at an initial price of $0.05 per share. Through
        December 31, 2005, an aggregate of $600,000 of Convertible Notes were converted
        by the Noteholders into an aggregate of 12,000,000 shares of the Company’s
        Common Stock. Assuming full conversion of all Convertible Notes which remain
        outstanding as of December 31, 2005, an additional 68,000,000 shares of the
        Company's Common Stock would be issued to the Noteholders. The Convertible
        Notes
        provide for interest at the rate of ten percent per annum and are secured
        by a
        pledge of substantially all of the assets of the Company. The Convertible
        Notes
        are due and payable five days after demand for payment by the Noteholders.
 
 As
        the
        Notes were immediately convertible into common shares of the Company at
        issuance, an aggregate of $4,000,000 of non-cash interest expense was recorded
        during the year ended December 31, 2005 as a result of the beneficial conversion
        features of the Convertible Notes. The value attributed to the beneficial
        conversion features was calculated by comparing the fair value of the underlying
        common shares of the Convertible Notes on the date of issuance based on the
        closing price of theglobe's Common Stock as reflected on the OTCBB to the
        conversion price and was limited to the aggregate proceeds received from
        the
        issuance of the Convertible Notes.
 
 Effective
        October 12, 2005, the maturity date of the Company’s mortgage payable was
        extended to September 30, 2006. The property securing the mortgage was sold
        on
        December 6, 2005 and the mortgage was paid in full.
 
 As
        discussed in Note 3, “Discontinued Operations - SendTec, Inc.,” **** on
        September 1, 2004 the Company issued a subordinated promissory note in the
        amount of $1,000,009 in connection with the acquisition of SendTec. The
        subordinated promissory note provided for interest at the rate of four percent
        per annum and was due on September 1, 2005. The Company paid the principal
        and
        interest due under the terms of the subordinated promissory note on October
        31,
        2005, including default interest at a rate of 15% per annum for the period
        the
        debt was outstanding subsequent to the original due date.
 
 On
        February 2, 2004, our Chairman and Chief Executive Officer and his spouse,
        entered into a Note Purchase Agreement with the Company pursuant to which
        they
        acquired a demand convertible promissory note (the "Bridge Note") in the
        aggregate principal amount of $2,000,000. The Bridge Note was convertible
        into
        shares of the Company's Common Stock. The Bridge Note provided for interest
        at
        the rate of ten percent per annum and was secured by a pledge of substantially
        all of the assets of the Company. Such security interest was shared with
        the
        holders of the Company's $1,750,000 Secured Convertible Notes issued to E&C
        Capital Partners, LLLP and certain affiliates of our Chairman and Chief
        Executive Officer. In addition, the Chairman and Chief Executive Officer
        and his
        spouse were issued a warrant to acquire 204,082 shares of the Company's Common
        Stock at an exercise price of $1.22 per share. The Warrant is exercisable
        at any
        time on or before February 2, 2009. The exercise price of the Warrant, together
        with the number of shares for which such Warrant is exercisable, is subject
        to
        adjustment upon the occurrence of certain events.
  F-26
  An
        allocation of the proceeds received from the issuance of the Bridge Note
        was
        made between the debt instrument and the Warrant by determining the pro rata
        share of the proceeds for each by comparing the fair value of each security
        issued to the total fair value. The fair value of the Warrant was determined
        using the Black Scholes model. The fair value of the Bridge Note was determined
        by measuring the fair value of the common shares on an "as-converted" basis.
        As
        a result, $170,000 was allocated to the Warrant and recorded as a discount
        on
        the debt issued and additional paid in capital. The value of the beneficial
        conversion feature of the Bridge Note was calculated by comparing the fair
        value
        of the underlying common shares of the Bridge Note on the date of issuance
        based
        on the closing price of our Common Stock as reflected on the OTCBB to the
        "effective" conversion price. This resulted in a beneficial conversion discount
        of $517,000, which was recorded as interest expense in the accompanying
        consolidated statement of operations for the year ended December 31, 2004
        as the
        Bridge Note was immediately convertible into common shares. In addition,
        the
        value allocated to the Warrant and characterized as discount on the Bridge
        Note
        was recognized as interest expense, as the Bridge Note was due on demand.
  In
        connection with the March 2004 private offering of the Company's Common Stock,
        the Chairman and his spouse converted the Bridge Note into 3,527,337 shares
        of
        theglobe.com Common Stock.
 
 On
        May
        22, 2003, E&C Capital Partners, LLLP, together with certain affiliates of
        Michael S. Egan, entered into a Note Purchase Agreement with the Company
        pursuant to which they acquired convertible promissory notes (the "Secured
        Convertible Notes") in the aggregate principal amount of $1,750,000. The
        Secured
        Convertible Notes were convertible at anytime into a maximum of approximately
        19,444,000 shares of the Company's Common Stock at a blended rate of $0.09
        per
        share. The Secured Convertible Notes had a one year maturity date and were
        secured by a pledge of substantially all of the assets of the Company. The
        Secured Convertible Notes provided for interest at the rate of ten percent
        per
        annum, payable semi-annually. Effective October 3, 2003, the holders of the
        Secured Convertible Notes waived the right to receive accrued interest payable
        in shares of the Company's Common Stock. Additionally, each of the holders
        of
        the Secured Convertible Notes agreed to defer receipt of interest until June
        1,
        2004. Additional interest at ten percent per annum accrued on any interest
        amounts deferred.
 
 In
        addition, E&C Capital Partners, LLLP was issued a warrant (the "Warrant") to
        acquire 3,888,889 shares of the Company's Common Stock at an exercise price
        of
        $0.15 per share. The Warrant was exercisable at any time on or before May
        22,
        2013. An allocation of the proceeds received from the issuance of the Secured
        Convertible Notes was made between the debt instruments and the Warrant by
        determining the pro-rata share of the proceeds for each by comparing the
        fair
        value of each security issued to the total fair value. The fair value of
        the
        Warrant was determined using the Black Scholes model. The fair value of the
        Secured Convertible Notes was determined by measuring the fair value of the
        common shares on an "as-converted" basis. As a result, $290,500 was allocated
        to
        the Warrant and recorded as a discount on the debt issued and additional
        paid in
        capital. The value of the beneficial conversion feature of the Secured
        Convertible Notes was calculated by comparing the fair value of the underlying
        common shares of the Secured Convertible Notes on the date of issuance based
        on
        the closing price of our Common Stock as reflected on the OTCBB to the
        "effective" conversion price. This resulted in a preferential conversion
        discount, limited to the previously discounted value of the Secured Convertible
        Notes, of $1,459,500, which was recorded as interest expense in the accompanying
        consolidated statement of operations for the year ended December 31, 2003,
        as
        the Secured Convertible Notes were immediately convertible into common shares.
 
 In
        connection with the March 2004 private offering of the Company’s Common Stock
        discussed in Note 10, “Stockholders’ Equity”, E&C Capital Partners, LLLP,
        converted the $1,750,000 of Secured Convertible Notes and exercised (on a
        “cashless” basis) the 3,888,889 Warrant issued in connection with the $1,750,000
        Secured Convertible Notes.
  **(10)
        STOCKHOLDERS' EQUITY**
 
 On
        December 31, 2005, the Company’s Board of Directors authorized the retirement of
        699,281 common shares held in treasury.
 
 As
        discussed in Note 3, "Discontinued Operations - SendTec, Inc.," the Company
        completed the sale of the business and substantially all of the net assets
        of
        its SendTec marketing services subsidiary on October 31, 2005. As contemplated
        by the Purchase Agreement, immediately following the asset sale, the Company
        completed the redemption of 28,879,097 shares of its Common Stock owned by
        six
        members of management of SendTec for approximately $11,604,000 in cash pursuant
        to a Redemption Agreement dated August 23, 2005 (the “Redemption Payment”).
        Approximately $4,043,000 of the Redemption Payment was attributed to the
“fair
        value” of the shares of Common Stock redeemed and recorded as treasury shares.
        The “fair value” for financial accounting purposes was calculated based on the
        closing price of the Company’s Common Stock as reflected on the OTCBB on August
        10, 2005, the date the principal terms of the Redemption Agreement were
        announced publicly. The closing of the redemption occurred on October 31,
        2005.
        The remaining portion of the Redemption Payment, or approximately $7,561,000,
        was recorded as a reduction to the gain on the sale of the SendTec business,
        as
        the excess of the price paid to redeem the shares over the “fair value” for
        financial accounting purposes was attributed to the sale in accordance with
        FASB
        Technical Bulletin 85-6. The 28,879,097 common shares redeemed were retired
        effective October 31, 2005. Pursuant to a separate Termination Agreement,
        the
        Company also terminated and canceled 1,275,783 stock options and the contingent
        interest in 2,062,785 earn-out warrants held by the six members of management
        in
        exchange for approximately $400,000 in cash.
 
 F-27
  In
        accordance with the terms of an escrow agreement established as a source to
        secure
        the Company’s indemnification obligations under the Purchase
        Agreement ,
        $1,000,000 of the purchase price and an aggregate of 2,272,727 shares of
        theglobe’s unregistered Common Stock (valued at $750,000 pursuant to the terms
        of the Purchase Agreement based upon the average closing price of the stock
        in
        the 10 day period preceding the closing of the sale) were placed into escrow.
        Any of the shares of Common Stock released from escrow to RelationServe will
        be
        entitled to customary “piggy-back” registration rights.
 
 The
        Company originally acquired SendTec on September 1, 2004. In exchange for
        all of
        the issued and outstanding shares of capital stock of SendTec the Company
        paid
        consideration consisting of: (i) $6,000,000 in cash, excluding transaction
        costs, (ii) the issuance of an aggregate of 17,500,024 shares of the Company's
        Common Stock, (iii) the issuance of an aggregate of 175,000 shares of Series
        H
        Automatically Converting Preferred Stock (which was converted into 17,500,500
        shares of the Company's Common Stock effective December 1, 2004, the effective
        date of the amendment to the Company’s certificate of incorporation increasing
        its authorized shares of Common Stock from 200,000,000 shares to 500,000,000
        shares), and (iv) the issuance of a subordinated promissory note in the amount
        of $1,000,009.
 
 As
        more
        fully described in Note 4, “Acquisition of Tralliance Corporation,” on May 9,
        2005, the Company exercised its option to acquire all of the outstanding
        capital
        stock of Tralliance. The purchase price consisted of the issuance of 2,000,000
        shares of the Company’s Common Stock and warrants to acquire 475,000 shares of
        the Company’s Common Stock, as well as the payment of $40,000 in cash. The
        warrants are exercisable for a period of five years at an exercise price
        of
        $0.11 per share. The Common Stock issued as a result of the acquisition of
        Tralliance is entitled to certain “piggy-back” registration rights.
 
 Reference
        should be made to Note 9, “Debt,” for the discussion of a Note Purchase
        Agreement entered into by certain related parties and theglobe on April 22,
        2005, providing for the issuance of an aggregate of $4,000,000 of Convertible
        Notes. The Convertible Notes are convertible at the option of the Noteholders
        into shares of the Company's Common Stock at an initial price of $0.05 per
        share. Through December 15, 2005, an aggregate of $600,000 of Convertible
        Notes
        had been converted by the Noteholders into an aggregate of 12,000,000 shares
        of
        the Company’s Common Stock. Assuming full conversion of all of the Convertible
        Notes which remain outstanding as of December 31, 2005, 68,000,000 shares
        of the
        Company’s Common Stock would be issued to the Noteholders.
 
 In
        March
        2004, theglobe completed a private offering of 333,816 units (the "Units")
        for a
        purchase price of $85 per Unit (the "Private Offering"). Each Unit consisted
        of
        100 shares of the Company's Common Stock, $0.001 par value, and warrants
        to
        acquire 50 shares of the Company's Common Stock (the "Warrants"). The Warrants
        are exercisable for a period of five years commencing 60 days after the initial
        closing at an initial exercise price of $0.001 per share. The aggregate number
        of shares of Common Stock issued in the Private Offering was 33,381,647 shares
        for an aggregate consideration of $28,374,400, or approximately $0.57 per
        share
        assuming the exercise of the 16,690,824 Warrants. As of December 31, 2005,
        approximately 510,000 of the Warrants remain outstanding.
 
 The
        Private Offering was directed solely to investors who are sophisticated and
        accredited within the meaning of applicable securities laws, most of whom
        were
        not affiliates of the Company. The purpose of the Private Offering was to
        raise
        funds for use primarily in the Company's developing VoIP business, including
        the
        deployment of networks, website development, marketing and capital
        infrastructure expenditures and working capital. Other intended uses of proceeds
        included funding requirements in connection with theglobe's other existing
        or
        future business operations, including acquisitions.
 
 Halpern
        Capital, Inc., acted as placement agent for the Private Offering, and was
        paid a
        commission of $1.2 million and issued a warrant to acquire 1,000,000 shares
        of
        Common Stock at $0.001 per share **.** As
        of
        December 31, 2005, all of the shares underlying the warrant had been issued.
 
 In
        connection with the Private Offering, Michael S. Egan, our Chairman, Chief
        Executive Officer and principal stockholder, together with certain of his
        affiliates, including E&C Capital Partners, LLLP, converted a $2,000,000
        Convertible Bridge Note, $1,750,000 of Secured Convertible Notes and all
        of the
        Company's outstanding shares of Series F Preferred Stock, and exercised (on
        a
        "cashless" basis) all of the warrants issued in connection with the foregoing
        $1,750,000 Secured Convertible Notes and Series F Preferred Stock, together
        with
        certain warrants issued to Dancing Bear Investments, Inc., an affiliate of
        Mr.
        Egan. As a result of such conversions and exercises, the Company issued an
        aggregate of 48,775,909 additional shares of Common Stock.
  F-28
 
 On
        July
        2, 2003, the Company completed a private offering of 17,360 shares of Series
        G
        Automatically Converting Preferred Stock ("Series G Preferred Stock") and
        warrants to acquire 3,472 shares of Series G Preferred Stock at a purchase
        price
        of $500 per share for a total of $8,680,000 in gross proceeds. Each share
        of
        Series G Preferred Stock was automatically converted into 1,000 shares of
        theglobe's Common Stock on July 29, 2003, the effective date of the amendment
        to
        the Company's certificate of incorporation increasing its authorized shares
        of
        Common Stock from 100,000,000 shares to 200,000,000 shares (the "Capital
        Amendment"). Similarly, upon the effective date of the Capital Amendment,
        each
        warrant to acquire a share of the Series G Preferred Stock was automatically
        converted into a warrant to acquire 1,000 shares of Common Stock. The warrants
        are exercisable for a period of five years at an initial exercise price of
        $1.39
        per share. A total of 17,360,000 shares of Common Stock were issued pursuant
        to
        the Series G Preferred Stock private offering, while, subject to certain
        adjustment mechanisms, a total of 3,472,000 shares of Common Stock will be
        issuable upon exercise of the associated warrants. ****
 
 At
        the
        time of the issuance of the Series G Preferred Stock, an allocation of proceeds
        received was made between the preferred shares and the associated warrants.
        The
        allocation was made by determining the pro-rata share of the proceeds for
        each
        by comparing the fair value of each security issued to the total fair value.
        The
        fair value of the warrants was determined using the Black Scholes model.
        The
        fair value of the Series G Preferred Stock was determined by measuring the
        fair
        value of the common shares on an "as-converted" basis. As a result, $1,365,000
        was allocated to the warrants sold. In addition, the value of the preferential
        conversion was calculated by comparing the fair value of the underlying common
        shares based on the closing price of the Company's Common Stock as reflected
        on
        the OTCBB on the date of issuance to the "effective" conversion price. This
        resulted in a preferential conversion discount related to the preferred shares
        and the associated warrants, limited to the proceeds from the sale, of
        $7,315,000 and $305,000, respectively, which were recorded as dividends to
        the
        preferred stockholders in July 2003, as the preferred shares and associated
        warrants were immediately convertible into common shares and warrants to
        acquire
        common shares.
 
 As
        more
        fully discussed in Note 9, "Debt," on May 22, 2003, Secured Convertible Notes
        totaling $1,750,000 were issued to E&C Capital Partners, LLLP together with
        certain affiliates of Michael S. Egan. The Secured Convertible Notes were
        convertible at anytime into a maximum of approximately 19,444,000 shares
        of the
        Company's Common Stock at a blended rate of $0.09 per share. In addition,
        E&C Capital Partners, LLLP was issued a warrant to acquire 3,888,889 shares
        of the Company's Common Stock at an exercise price of $0.15 per share. The
        warrant was exercisable at any time on or before May 22, 2013.
 
 On
        March
        28, 2003, E&C Capital Partners, LLLP entered into a Preferred Stock Purchase
        Agreement with the Company (the "Preferred Stock Investment"), whereby E&C
        Capital Partners, LLLP received 333,333 shares of Series F Preferred Stock
        convertible into shares of the Company's Common Stock at a price of $0.03
        per
        share. If fully converted, and without regard to the anti-dilutive adjustment
        mechanisms applicable to the Series F Preferred Stock, an aggregate of
        approximately 16,667,000 shares of Common Stock could be issued. The Series
        F
        Preferred Stock had a liquidation preference of $1.50 per share (and thereafter
        participates with the holders of Common Stock on an "as-converted" basis),
        included a dividend at the rate of 8% per annum and entitled the holder to
        vote
        on an "as-converted" basis with the holders of Common Stock. In addition,
        as
        part of the $500,000 investment, E&C Capital Partners, LLLP received
        warrants to purchase 3,333,333 shares of the Company's Common Stock at an
        exercise price of $0.125 per share. The warrants were exercisable at any
        time on
        or before March 28, 2013.
 
 The
        proceeds attributable to the issuance of the Series F Preferred Stock and
        the
        related warrants were allocated to each security in the same manner as described
        in the discussion of the Series G Preferred Stock. As a result, $83,000 was
        allocated to the warrants sold. In addition, the value of the preferential
        conversion was calculated by comparing the fair value of the underlying common
        shares on the date of issuance based on the closing price of the Company's
        Common Stock as reflected on the OTCBB to the "effective" conversion price.
        This
        resulted in a preferential conversion discount, limited to the proceeds from
        the
        sale, of $417,000. The sum of the two discounts, $500,000, was recorded as
        a
        dividend to the preferred stockholders in March 2003, as the preferred shares
        were immediately convertible into common shares.
 
 As
        a
        result of the issuance of the Series F Preferred Stock, the Series G
        Automatically Converting Preferred Stock, the $1,750,000 Secured Convertible
        Notes and the associated warrants at their respective conversion and exercise
        prices, certain anti-dilution provisions applicable to previously outstanding
        warrants to acquire approximately 4,103,000 shares of the Company's Common
        Stock
        were triggered. Like many types of warrants commonly issued, these outstanding
        warrants to acquire shares of the Company's Common Stock included weighted
        average anti-dilution provisions which result in a lowering of the exercise
        price, and an increase in the number of warrants to acquire shares of the
        Company's Common Stock any time shares of common stock are issued (or options
        or
        other securities exercisable or convertible into common stock) for a price
        per
        share less than the then exercise price of the warrants. As a result of the
        Preferred Stock Investment and the issuance of the Series G Preferred Stock
        and
        the Secured Convertible Notes, the exercise price was lowered from approximately
        $1.39 to $0.66 per share on these warrants and the number of shares issuable
        upon exercise was proportionally increased from approximately 4,103,000 shares
        to 6,836,000 shares. As stated previously, all of these warrants were exercised
        on a cashless basis in connection with the March 2004 Private Offering of
        the
        Company's Common Stock.
 
 F-29
  **(11)
        STOCK OPTION PLANS**
 
 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, a total of 1,582,000 common shares were reserved
        for
        issuance. Any incentive stock options granted under the Amended Plan were
        required to be granted at the fair market value of the Company's Common Stock
        at
        the date the option was issued.
 
 Under
        the
        Company's 1998 Stock Option Plan (the "1998 Plan") a total of 3,400,000 common
        shares were reserved for issuance and 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.
 
 In
        September 2003, the Board adopted the 2003 Sales Representative Stock Option
        Plan (the "2003 Plan") which authorized the issuance of up to 1,000,000
        non-qualified stock options to purchase the Company's Common Stock to sales
        representatives who are not employed by the Company or its subsidiaries.
        In
        January 2004, the Board amended the 2003 Plan to include certain employees
        and
        consultants of the Company.
 
 The
        Company's Board of Directors adopted a new benefit plan entitled the 2004
        Stock
        Incentive Plan (the "2004 Plan") on August 31, 2004. An aggregate of 7,500,000
        shares of the Company's Common Stock may be issued pursuant to the 2004 Plan.
        Employees, consultants, and prospective employees and consultants of theglobe
        and its affiliates and non-employee directors of theglobe are eligible for
        grants of non-qualified stock options, stock appreciation rights, restricted
        stock awards, performance awards and other stock-based awards under the 2004
        Plan.
 
 On
        December 1, 2004, based upon approval of the stockholders of the Company,
        the
        2000 Plan was amended and restated to (i) increase the number of shares reserved
        for issuance under the 2000 Plan by 7,500,000 shares to a total of 8,000,000
        shares and (ii) to remove a previous plan provision that limited the number
        of
        options that may be awarded to any one individual.
 
 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.
 F-30
  A
        total
        of 5,922,250 stock options were granted during the year ended December 31,
        2005,
        including grants of 775,000 stock options to non-employees. Options were
        granted
        during 2004 for a total of 7,749,595 shares of Common Stock, including grants
        of
        415,000 stock options to non-employees. During 2003, a total of 4,407,450
        stock
        options were granted, of which 500,000 options were granted pursuant to an
        individual nonqualified stock option
        agreement and not pursuant to any of the plans described above.
 
 As
        discussed in Note 3, "Discontinued Operations - SendTec, Inc.," pursuant
        to the
        agreement and plan of merger in connection with the acquisition of SendTec
        on
        September 1, 2004, the Company issued an aggregate of 3,974,165 replacement
        options to acquire shares of theglobe's Common Stock for each of the issued
        and
        outstanding options to acquire shares of SendTec common stock held by employees
        of SendTec. Of these replacement options, 3,273,668 had exercise prices of
        $0.06
        and 700,497 had exercise prices of $0.27 per share. The Company also granted
        an
        aggregate of 225,000 options to employees of SendTec and 25,000 options to
        a
        consultant of SendTec at an exercise price of $0.34 per share under similar
        terms as other stock option grants of theglobe. Additionally, the Company
        granted 1,000,000 stock options at an exercise price of $0.27 per share in
        connection with the establishment of a bonus option pool pursuant to which
        various employees of SendTec could vest in such options if SendTec exceeded
        certain forecasted operating income targets for the year ending December
        31,
        2005.
 
 As
        a
        result of the sale of the SendTec business on October 31, 2005, and pursuant
        to
        a Termination Agreement, the Company terminated and canceled 1,275,783 stock
        options and the contingent interest in 2,062,785 earn-out warrants held by
        the
        six members of management in exchange for approximately $400,000 in cash.
        The
        Company also terminated 829,678 stock options of certain other non-management
        employees of SendTec and entered into bonus arrangements with a number of
        other
        non-management SendTec employees for amounts totaling approximately $600,000.
        Remaining outstanding stock options related to the bonus option pool which
        was
        established as of the acquisition, totaling 477,000 options, were also
        terminated as the forecasted operating income targets for the year ended
        December 31, 2005 had not been achieved.
 
 The
        Company has historically applied APB Opinion No. 25 in accounting for grants
        to
        employees pursuant to stock option plans and, accordingly, compensation cost
        of
        $20,987 was recorded to operating expenses of continuing operations during
        the
        year ended December 31, 2005, primarily related to vesting of prior year
        employee option grants with below-market exercise prices. During the years
        ended
        December 31, 2004 and 2003, compensation cost of $188,450 and $233,750,
        respectively, was charged to operating expenses of continuing operations
        for
        stock options granted to employees at exercise prices below fair market value.
        In addition, $28,000, $17,188 and $152,884 of stock compensation expense
        was
        recorded during the years ended December 31, 2005, 2004 and 2003, respectively,
        as a result of the accelerated vesting of stock options issued to certain
        terminated employees. Compensation cost charged to operating expenses of
        continuing operations in connection with stock options granted in recognition
        of
        services rendered by non-employees was $176,050, $463,046 and $225,609, for
        the
        years ended December 31, 2005, 2004 and 2003, respectively.
 
 In
        2000,
        the Company repriced a group of stock options issued to its employees. The
        Company has accounted for these re-priced stock options using variable
        accounting in accordance with FIN No. 44. No compensation expense was recorded
        in connection with the re-priced stock options during the year ended December
        31, 2005. The stock based compensation recorded in connection with these
        re-priced stock options was a credit of $22,668 for the year ended December
        31,
        2004 and expense of $30,933 for the year ended December 31, 2003. At December
        31, 2005, a total of 29,060 options remained outstanding which were being
        accounted for in accordance with FIN No. 44.
  F-31
 
 Stock
        option activity during the periods indicated was as follows:
  WeightedOptions
              
              Total
              
              AverageVested
              
              Options
              
              Exercise
                  PriceOutstanding
                  at December 31, 2002
              
              
              
              
              
              5,971,440
              
              $
              0.63Granted
              
              
              
              
              
              4,407,450
              
              
              0.80Exercised
              
              
              
              
              
              (429,000
              )
              
              0.28Canceled
              
              
              
              
              
              (7,080
              )
              
              1.07Outstanding
                  at December 31, 2003
              
              
              8,475,232
              
              
              9,942,810
              
              
              0.72Granted
              
              
              
              
              
              7,749,595
              
              
              0.30Exercised
              
              
              
              
              
              (639,000
              )
              
              0.29Canceled
              
              
              
              
              
              (1,069,220
              )
              
              0.96Outstanding
                  at December 31, 2004
              
              
              11,784,625
              
              
              15,984,185
              
              
              0.51Granted
              
              
              
              
              
              5,922,250
              
              
              0.13Exercised
              
              
              
              
              
              (2,001,661
              )
              
              0.08Repurchased
              
              
              
              
              
              (2,105,461
              )
              
              0.15Canceled
              
              
              
              
              
              (2,426,210
              )
              
              0.60Outstanding
                  at December 31, 2005
              
              
              13,822,197
              
              
              15,373,103
              
              $
              0.46Options
                  available at December 31, 2003
              
              
              
              
              
              1,359,177Options
                  available at December 31, 2004
              
              
              
              
              
              10,203,732Options
                  available at December 31, 2005
              
              
              
              
              
              7,995,732
 
 F-32
  The
        weighted average exercise prices and remaining lives of outstanding stock
        options and weighted average exercise prices of vested stock options as of
        December 31, 2005 were as follows:
  Options
                  Outstanding
              
              Options
                    VestedWeighted
              
              Weighted
              
              
              
              WeightedNumber
              
              Average
              
              Average
              
              Number
              
              AverageRange
              
              Outstanding
              
              Life
              
              Price
              
              Vested
              
              Price$
                  .02 - $ .02
              
              
              4,875,000
              
              
              6.6
              
              $
              0.02
              
              
              4,875,000
              
              $
              0.02.035
                  - .035
              
              
              200,000
              
              
              6.4
              
              
              0.035
              
              
              200,000
              
              
              0.035.04
                  - .05
              
              
              47,500
              
              
              6.2
              
              
              0.05
              
              
              44,698
              
              
              0.05.06
                  - .06
              
              
              303,035
              
              
              7.6
              
              
              0.06
              
              
              198,890
              
              
              0.06.11
                  - .13
              
              
              5,539,625
              
              
              9.3
              
              
              0.12
              
              
              4,627,498
              
              
              0.12.14
                  - .18
              
              
              145,000
              
              
              7.8
              
              
              0.15
              
              
              120,000
              
              
              0.15.22
                  - .34
              
              
              289,323
              
              
              7.8
              
              
              0.30
              
              
              151,309
              
              
              0.29.38
                  - .49
              
              
              469,480
              
              
              8.7
              
              
              0.42
              
              
              440,112
              
              
              0.42.52
                  - .54
              
              
              318,000
              
              
              8.6
              
              
              0.52
              
              
              168,000
              
              
              0.52.56
                  - .56
              
              
              1,650,000
              
              
              7.4
              
              
              0.56
              
              
              1,650,000
              
              
              0.56.63
                  - .65
              
              
              85,000
              
              
              7.4
              
              
              0.63
              
              
              74,380
              
              
              0.63.90
                  - 1.00
              
              
              230,000
              
              
              8.1
              
              
              0.97
              
              
              210,631
              
              
              0.981.14
                  - 1.29
              
              
              186,000
              
              
              4.9
              
              
              1.21
              
              
              172,576
              
              
              1.221.33
                  - 1.47
              
              
              75,000
              
              
              7.6
              
              
              1.36
              
              
              67,500
              
              
              1.361.50
                  - 1.52
              
              
              456,500
              
              
              7.8
              
              
              1.50
              
              
              317,963
              
              
              1.501.59
                  - 1.59
              
              
              12,640
              
              
              4.2
              
              
              1.59
              
              
              12,640
              
              
              1.591.72
                  - 2.50
              
              
              38,500
              
              
              5.3
              
              
              2.25
              
              
              38,500
              
              
              2.254.50
                  - 6.69
              
              
              332,500
              
              
              2.7
              
              
              4.69
              
              
              332,500
              
              
              4.6915.75
                  - 15.75
              
              
              120,000
              
              
              3.0
              
              
              15.75
              
              
              120,000
              
              
              15.7515,373,103
              
              
              
              
              
              
              
              
              13,822,197
  **(12)
        INCOME TAXES**
 
 The
        total
        provision (benefit) for income taxes is summarized as follows:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Continuing
                  operations
              
              $
              (13,613,538
              )
              $
              (370,891
              )
              $
              --Discontinued
                  operations
              
              
              14,193,719
              
              
              370,891
              
              
              --$
              580,181
              
              $
              --
              
              $
              --
  F-33
  The
        benefit attributable to the loss from continuing operations before income
        taxes
        was as follows:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Current:Federal
              
              $
              --
              
              $
              --
              
              $
              --State
              
              
              --
              
              
              --
              
              
              ----
              
              
              --
              
              
              --Deferred:Federal
              
              
              (12,193,647
              )
              
              (332,207
              )
              
              --State
              
              
              (1,419,891
              )
              
              (38,684
              )
              
              --(13,613,538
              )
              
              (370,891
              )
              
              --(Benefit)
                  for income taxes
              
              $
              (13,613,538
              )
              $
              (370,891
              )
              $
              --
 
 The
        following is a reconciliation of the federal income tax benefit at the federal
        statutory rate to the Company’s tax benefit attributable to continuing
        operations:
 
 Year
                  Ended December 31,2005
              
              2004
              
              2003Statutory
                  federal income tax rate
              
              
              34.00
              %
              
              34.00
              %
              
              34.00
              %Beneficial
                  conversion interest
              
              
              (5.04
              )
              
              (0.29
              )
              
              --Nondeductible
                  items
              
              
              (2.19
              )
              
              (0.05
              )
              
              (0.19
              )State
                  income taxes, net of federal benefit
              
              
              3.96
              
              
              3.96
              
              
              6.00Change
                  in valuation allowance
              
              
              19.92
              
              
              (20.17
              )
              
              (36.08
              )Change
                  in effective tax rate
              
              
              --
              
              
              (11.52
              )
              
              --Other
              
              
              (0.15
              )
              
              (4.46
              )
              
              (3.73
              )Effective
                  tax rate
              
              
              50.50
              %
              
              1.47
              %
              
              --
              %
  The
        tax
        effects of temporary differences that give rise to significant portions of
        the
        deferred tax assets and deferred tax liabilities at December 31, 2005 and
        2004
        are presented below.
 
 December
                  31,
              
              December
                  31,2005
              
              2004Deferred
                  tax assets (liabilities):Net
                  operating loss carryforwards
              
              $
              55,862,000
              
              $
              61,300,000Issuance
                  of warrants
              
              
              922,000
              
              
              1,052,000Allowance
                  for doubtful accounts
              
              
              48,000
              
              
              483,000Inventory
                  reserve
              
              
              164,000
              
              
              661,000AMT
                  tax credit
              
              
              313,000
              
              
              --Depreciation
                  and amortization
              
              
              (104,000
              )
              
              46,000Other
              
              
              203,000
              
              
              258,000Total
                  gross deferred tax assets
              
              
              57,408,000
              
              
              63,800,000Less:
                  valuation allowance
              
              
              (57,408,000
              )
              
              (63,800,000
              )Total
                  net deferred tax assets
              
              $
              --
              
              $
              --
  F-34
  Because
        of the Company's lack of earnings history, the net deferred tax assets have
        been
        fully offset by a 100% valuation allowance. The valuation allowance for net
        deferred tax assets was $57.4 million and $63.8 million as of December 31,
        2005
        and 2004, respectively. The net change in the total valuation allowance was
        $6.4
        million and $5.0 million for the years ended December 31, 2005 and 2004,
        respectively. The Company had a tax benefit in 2005 of $13.6 million resulting
        from the effect of changes in the valuation assessment of current and prior
        year
        net operating losses, due to the sale of SendTec.
 
 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, which
        consist of tax benefits primarily from net operating loss carryforwards,
        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 $57.4 million as of December 31, 2005, subsequently recognized
        tax
        benefits, if any, in the amount of $6.4 million will be applied directly
        to
        contributed capital.
 
 At
        December 31, 2005, the Company had net operating loss carryforwards available
        for U.S. tax purposes of approximately $147.2 million. These carryforwards
        expire through 2025. 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. Due to various
        significant changes in our ownership interests, as defined in the Internal
        Revenue Code of 1986, as amended, commencing in August 1997 through our most
        recent issuance of convertible notes in July 2005, and assuming conversion
        of
        such notes, the Company may have substantially limited or eliminated the
        availability of its net operating loss carryforwards. There can be no assurance
        that the Company will be able to avail itself of any net operating loss
        carryforwards.
 
 **(13)
        COMMITMENTS AND CONTINGENCIES**
 
 
 **NETWORK
        COMMITMENTS**
 
 The
        Company and its subsidiaries are a party to various network service agreements
        which provide for specified services, including the use of secure data
        transmission facilities, capacity and other network carrier services. The
        term
        of the agreements are generally for one year, with the term of several
        agreements extending beyond one year. Certain of the agreements contain early
        cancellation penalties. Commitments under such network service agreements,
        exclusive of regulatory taxes, fees and charges, are as follows:
 
 Year
                  ending December 31:2006
              
              $
              1,062,0002007
              
              
              496,0002008
              
              
              3,000$
              1,561,000
 
 **REGISTRY
        COMMITMENTS**
 
 Tralliance
        has entered into various agreements with unrelated third parties for the
        outsourcing of certain registry functions. Fees for some of these services
        vary
        based on transaction levels, but the agreements generally provide for annual
        payments, and in the case of one agreement specifies minimum payments of
        $100,000 annually. The term of the agreement which specifies the minimum
        payment
        of $100,000 annually continues for as long as the agreement designating
        Tralliance as the sole registry for the “.travel” top-level domain by the
        Internet Corporation for Assigned Names and Numbers (“ICANN”) is in effect,
        including any renewal periods. The initial term of the agreement with ICANN
        is
        ten years. Commitments under such registry agreements are as
        follows:
 
 F-35
  Year
                  ending December 31:2006
              
              $
              250,0002007
              
              
              250,0002008
              
              
              201,0002009
              
              
              110,0002010
              
              
              110,000Thereafter
              
              
              504,000$
              1,425,000
  
 **PURCHASE
        OBLIGATIONS**
 
 Effective
        January 31, 2005, the Company formally terminated its contract with a supplier
        of VoIP telephony handsets and agreed to settle the unconditional purchase
        obligation under such contract, which totaled approximately $3,000,000. The
        settlement provided for (i) a cash payment of $200,000, (ii) the return of
        35,000 VoIP handset units from the Company's inventory, and (iii) the issuance
        of 300,000 shares of the Company’s Common Stock. The value attributed to the
        loss on the settlement of the contractual obligation of $406,750 has been
        included in the accompanying consolidated statement of operations for the
        year
        ended December 31, 2004.
 
 **EMPLOYMENT
        AGREEMENTS**
 
 On
        August
        1, 2003, the Company entered into employment agreements with its Chairman
        and
        Chief Executive Officer, President and Vice President of Finance (its former
        Chief Financial Officer). The three agreements, which are for a period of
        one
        year and automatically extend for one day each day until either party notifies
        the other not to further extend the employment period, provide for annual
        base
        salaries totaling $640,000 (as amended) and annual bonuses based on pre-tax
        operating income, as defined, for an annual minimum of $100,000 in total.
        The
        agreements also provide for severance benefits under certain circumstances,
        as
        defined, which in the case of the Chairman and Chief Executive Officer and
        the
        President, include lump-sum payments equal to ten times the sum of the
        executive's base salary and the highest annual bonus earned by the executive,
        and in the case of the Vice President of Finance, include lump-sum payments
        equal to two times the sum of the executive's base salary and the highest
        annual
        bonus earned by the executive. In addition, these severance benefits also
        require the Company to maintain insurance benefits for a period of up to
        ten
        years, in the case of the Chairman and Chief Executive Officer and the
        President, and up to two years, in the case of the Vice President of Finance,
        substantially equivalent to the insurance benefits existing upon termination.
 
 On
        October 4, 2004, the Company entered into a new employment agreement with
        its
        current Chief Technical Officer which provides for a base salary of $150,000
        per
        year. The agreement has a term of two years and automatically renews for
        an
        additional two years unless either party provides the requisite notice of
        non-renewal. The agreement also contains certain non-compete provisions and
        provides for specified severance payments.
 
 As
        discussed in Note 4, “Acquisition of Tralliance Corporation,” as part of the
        Tralliance acquisition on May 9, 2005, the existing CEO and CFO of Tralliance
        entered into employment agreements, which include certain non-compete
        provisions, whereby each would agree to remain in the employ of Tralliance
        for a
        period of two years in exchange for annual base compensation totaling $200,000
        to each officer, plus participation in a bonus pool based upon the pre-tax
        income of the venture. The agreements automatically extend for one year unless
        either party to the agreements notifies the other not to further extend the
        employment period.
 
 **OPERATING
        LEASES**
 
 The
        Company leases facilities under noncancelable operating leases. These leases
        generally contain renewal options and require the Company to pay certain
        executory costs such as maintenance and insurance. Rent expense charged to
        continuing operations for the years ended December 31, 2005, 2004 and 2003
        totaled approximately $761,000, $606,000 and $326,000, respectively.
 
 Effective
        September 1, 2003, the Company entered into a sublease agreement for office
        space with a company controlled by our Chairman. The lease term is for
        approximately four years with base rent of approximately $284,000 during
        the
        first year of the sublease. Per the agreement, base rent increases by
        approximately $23,000 per year thereafter. Rent expense for the years ended
        December 31, 2005 and 2004, as noted in the preceding paragraph included
        approximately $353,000 and $334,000 of expense related to this sublease.
 
 F-36
  Tralliance
        Corporation, which was acquired May 9, 2005, subleases office space in New
        York
        City on a month-to-month basis from an entity controlled by its President
        and
        Chief Executive Officer for approximately $3,400 per month.
 
 The
        approximate future minimum lease payments under noncancelable operating leases
        with initial or remaining terms of one year or more at December 31, 2005,
        were
        as follows:
  2006
              
              $
              529,0002007
              
              
              218,0002008
              
              
              12,0002009
              
              
              4,000$
              763,000
 **LITIGATION**
 
 On
        and
        after August 3, 2001 and as of the date of this filing, the Company is aware
        that six putative shareholder class action lawsuits were filed against the
        Company, certain of its current and former officers and directors (the
“Individual Defendants”), and several investment banks that were the
        underwriters of the Company's initial public offering. The lawsuits were
        filed
        in the United States District Court for the Southern District of New York.
 
 The
        lawsuits purport to be class actions filed on behalf of purchasers of the
        stock
        of the Company during the period from November 12, 1998 through December
        6,
        2000. Plaintiffs allege that the underwriter defendants agreed to allocate
        stock
        in the Company's initial public offering to certain investors in exchange
        for
        excessive and undisclosed commissions and agreements by those investors to
        make
        additional purchases of stock in the aftermarket at pre-determined prices.
        Plaintiffs allege that the Prospectus for the Company's initial public offering
        was false and misleading and in violation of the securities laws because
        it did
        not disclose these arrangements. On December 5, 2001, an amended complaint
        was
        filed in one of the actions, alleging the same conduct described above in
        connection with the Company's November 23, 1998 initial public offering and
        its
        May 19, 1999 secondary offering. A Consolidated Amended Complaint, which
        is now
        the operative complaint, was filed in the Southern District of New York on
        April
        19, 2002. The action seeks damages in an unspecified amount. On February
        19,
        2003, a motion to dismiss all claims against the Company was denied by the
        Court. On October 13, 2004, the Court certified a class in six of the
        approximately 300 other nearly identical actions and noted that the decision
        is
        intended to provide strong guidance to all parties regarding class certification
        in the remaining cases. Plaintiffs have not yet moved to certify a class
        in
        theglobe.com case.
 
 The
        Company has approved a settlement agreement and related agreements which
        set
        forth the terms of a settlement between the Company, the Individual Defendants,
        the plaintiff class and the vast majority of the other approximately 300
        issuer
        defendants. Among other provisions, the settlement provides for a release
        of the
        Company and the Individual Defendants for the conduct alleged in the action
        to
        be wrongful. The Company would agree to undertake certain responsibilities,
        including agreeing to assign away, not assert, or release certain potential
        claims the Company may have against its underwriters. The settlement agreement
        also provides a guaranteed recovery of $1 billion to plaintiffs for the cases
        relating to all of the approximately 300 issuers. To the extent that the
        underwriter defendants settle all of the cases for at least $1 billion, no
        payment will be required under the issuers’ settlement agreement. To the extent
        that the underwriter defendants settle for less than $1 billion, the issuers
        are
        required to make up the difference. It is anticipated that any potential
        financial obligation of the Company to plaintiffs pursuant to the terms of
        the
        settlement agreement and related agreements will be covered by existing
        insurance. The Company currently is not aware of any material limitations
        on the
        expected recovery of any potential financial obligation to plaintiffs from
        its
        insurance carriers. Its carriers are solvent, and the company is not aware
        of
        any uncertainties as to the legal sufficiency of an insurance claim with
        respect
        to any recovery by plaintiffs. Therefore, we do not expect that the settlement
        will involve any payment by the Company. If material limitations on the expected
        recovery of any potential financial obligation to the plaintiffs from the
        Company's insurance carriers should arise, the Company's maximum financial
        obligation to plaintiffs pursuant to the settlement agreement would be less
        than
        $3.4 million. On
        February 15, 2005, the Court granted preliminary approval of the settlement
        agreement, subject to certain modifications consistent with its opinion.
        Those
        modifications have been made. There is no assurance that the court will grant
        final approval to the settlement. If
        the
        settlement agreement is not approved and the Company is found liable, we
        are
        unable to estimate or predict the potential damages that might be awarded,
        whether such damages would be greater than the Company’s insurance coverage, and
        whether such damages would have a material impact on our results of operations
        or financial condition in any future period.
 
 F-37
 
 On
        December 16, 2004, the Company, together with its wholly-owned subsidiary,
        tglo.com, inc. (formerly known as voiceglo Holdings, Inc.), were named as
        defendants in NeoPets, Inc. v. voiceglo Holdings, Inc. and theglobe.com,
        inc., a
        lawsuit filed in Los Angeles Superior Court. The Company and its subsidiary
        were
        parties to an agreement dated May 6, 2004, with NeoPets, Inc. ("NeoPets"),
        whereby NeoPets agreed to host a voiceglo advertising feature on its website
        for
        the purpose of generating registered activations of the voiceglo product
        featured. Consideration to NeoPets was to include specified commissions,
        including cash payments based on registered activations, as defined, as well
        as
        the issuance of Common Stock of theglobe and additional cash payments, upon
        the
        attainment of certain performance criteria. NeoPets' complaint asserted claims
        for breach of contract and specific performance and sought payment of
        approximately $2.5 million in cash, plus interest, as well as the issuance
        of
        1,000,000 shares of theglobe’s Common Stock. On February 22, 2005, the Company
        and its subsidiary answered the complaint and asserted cross-claims against
        NeoPets for fraud and deceit, rescission, breach of contract, breach of the
        implied covenant of good faith and fair dealing and set-off. NeoPets answered
        the cross-claims on March 24, 2005.
 
 During
        2004, the Company recorded amounts due for commissions pursuant to the terms
        of
        the agreement totaling approximately $246,000. On August 5, 2005, the Company,
        together with its subsidiary, and NeoPets (collectively "the Parties") agreed
        to
        amicably resolve their dispute and entered into a settlement agreement (the
        "Settlement Agreement"). Under the terms of the Settlement Agreement, the
        Parties agreed to dismiss the lawsuit, release each other from all claims
        and to
        terminate their May 6, 2004 website advertising agreement in consideration
        for
        the Company’s subsidiary making cash payments totaling $200,000 to NeoPets
        within thirty days of the date of the Settlement Agreement.
 
 On
        October 4, 2005, Sprint Communications Company, L.P. (“Sprint”) filed a
        Complaint in the United States District Court for the District of Kansas
        against
        theglobe, theglobe’s subsidiary, tglo.com (formerly known as voiceglo Holdings,
        Inc. or “voiceglo”), and Vonage Holdings Corp. (“Vonage”). On October 12, 2005,
        Sprint filed a First Amended Complaint naming Vonage America, Inc. (“Vonage
        America”) as an additional defendant. Neither theglobe nor voiceglo has any
        affiliation with Vonage or Vonage America. Sprint alleges that theglobe and
        voiceglo have made unauthorized use of “inventions” described and claimed in
        seven patents held by Sprint. Sprint seeks monetary and injunctive relief
        for
        this alleged infringement. On November 21, 2005, theglobe and voiceglo filed
        an
        Answer to Sprint’s First Amended Complaint, denying infringement and interposing
        affirmative defenses, including that each of the asserted patents is invalid.
        voiceglo has counterclaimed against Sprint for a declaratory judgment of
        non-infringement and invalidity. On January 18, 2006, the court issued a
        Scheduling Order calling for, among other things, discovery to be completed
        by
        December 29, 2006, and for trial to commence August 7, 2007. It is not possible
        to predict the outcome of this litigation with any certainty or whether a
        decision adverse to theglobe or voiceglo would have a material adverse affect
        on
        our developing VoIP business and the financial condition, results of operations,
        and prospects of theglobe generally.
 
 The
        Company is currently a party to certain other legal proceedings, claims and
        disputes arising in the ordinary course of business, including those noted
        above. The Company currently believes that the ultimate outcome of these
        other
        matters, individually and in the aggregate, will not have a material adverse
        affect on the Company's financial position, results of operations or cash
        flows.
        However, because of the nature and inherent uncertainties of legal proceedings,
        should the outcome of these matters be unfavorable, the Company's business,
        financial condition, results of operations and cash flows could be materially
        and adversely affected.
 
 **(14)
        RELATED PARTY TRANSACTIONS**
 
 Certain
        directors of the Company also serve as officers and directors of Dancing
        Bear
        Investments, Inc. ("Dancing Bear"). Dancing Bear is a stockholder of the
        Company
        and an entity controlled by our Chairman.
 
 As
        discussed more fully in Note 9, “Debt,” on April 22, 2005, E&C Capital
        Partners, LLLP and E&C Capital Partners II, LLLP, entities controlled by the
        Company’s Chairman, entered into a Note Purchase Agreement with the Company
        pursuant to which the entities ultimately acquired secured demand convertible
        promissory notes totaling $4,000,000. Prior to December 31, 2005, an aggregate
        of $600,000 of the promissory notes were converted into the Company’s Common
        Stock. A total of approximately $216,200 in interest expense on the balance
        of
        the notes which were outstanding during 2005 was accrued and remained unpaid
        as
        of December 31, 2005.
 
 In
        connection with a demand convertible promissory note in the amount of $2,000,000
        due the Company's Chairman and his spouse, which was converted into the
        Company’s Common Stock during 2004, the Company paid interest totaling
        approximately $17,500 during the year ended December 31, 2004.
   F-38
 
 Interest
        expense on the $1,750,000 Convertible Notes due E&C Capital Partners, LLLP
        together with certain affiliates of our Chairman totaled approximately $32,000
        and $108,200, excluding the amortization of the discount on the Notes, during
        the years ended December 31, 2004 and 2003. As a result of the conversion
        of the
        $1,750,000 Convertible Notes into the Company's Common Stock in March 2004,
        all
        interest accrued on the $1,750,000 Convertible Notes since inception was
        paid by
        the Company during the year ended December 31, 2004.
 
 During
        the year ended December 31, 2004, the Company paid approximately $151,200
        to an
        entity controlled by the Chairman's son-in-law for the production of a
        commercial advertisement which was charged to sales and marketing expense.
 
 Several
        entities controlled by our Chairman have provided services to the Company
        and
        various of its subsidiaries, including: the lease of office and warehouse
        space;
        and the outsourcing of customer service and warehouse functions for the
        Company's VoIP operation. During the first quarter of 2005, an entity controlled
        by our Chairman also began performing human resource and payroll processing
        functions for the Company and several of its subsidiaries. During the years
        ended December 31, 2005, 2004 and 2003, a total of approximately $386,000,
        $566,000 and $383,000 of expense was recorded related to these services,
        respectively. Approximately $134,000 and $5,300 related to these services
        was
        included in accounts payable and accrued expenses at December 31, 2005 and
        2004,
        respectively.
 
 Additionally,
        included in other current assets in the accompanying consolidated balance
        sheet
        at December 31, 2004, was approximately $90,000 advanced to a newly formed
        entity in which E&C Capital Partners, LLLP has an ownership interest. At the
        time these funds were advanced, the entity was anticipated to enter into
        a joint
        venture to provide marketing services to the Company’s VoIP telephony services
        business and the Company was negotiating the terms of such joint venture.
        The
        Company and such new entity subsequently agreed to abandon the proposed joint
        venture and the entity ceased operations in January 2005. Additional advances
        of
        approximately $2,000 were made to the entity during January 2005. The total
        advance of $92,000, which was included in other current assets in the
        accompanying consolidated balance sheet at December 31, 2005, was repaid
        to the
        Company by E&C Capital Partners LLLP on January 31, 2006.
 
 Tralliance
        Corporation, which was acquired May 9, 2005, subleases office space in New
        York
        City on a month-to-month basis from an entity controlled by its President
        and
        Chief Executive Officer for approximately $3,400 per month. A total of
        approximately $23,000 in rent expense related to this month-to-month sublease
        was included in the accompanying statement of operations for the year ended
        December 31, 2005.
 
 **(15)
        SEGMENTS AND GEOGRAPHIC INFORMATION**
 
 The
        Company applies the provisions of SFAS No. 131, "Disclosures About Segments
        of
        an Enterprise and Related Information," which establishes annual and interim
        reporting standards for operating segments of a company. SFAS No. 131 requires
        disclosures of selected segment-related financial information about products,
        major customers and geographic areas. Effective with the May 9, 2005 acquisition
        of Tralliance, the Company was organized in four operating segments for purposes
        of making operating decisions and assessing performance: the computer games
        division, the Internet services division, the VoIP telephony services division
        and the marketing services division. The computer games division consists
        of the
        operations of the Company's magazine publications, the associated websites
        and
        the operations of Chips & Bits, Inc., its games distribution business. The
        Internet services division consists of the newly acquired operations of
        Tralliance. The VoIP telephony services division is principally involved
        in the
        sale of telecommunications services over the Internet to consumers. The
        marketing services division consisted of the Company's subsidiary, SendTec,
        the
        operations of which were sold effective October 31, 2005 and has been reflected
        as “discontinued operations” where applicable within the segment data presented
        below.
 
 The
        chief
        operating decision maker evaluates performance, makes operating decisions
        and
        allocates resources based on financial data of each segment. Where appropriate,
        the Company charges specific costs to each segment where they can be identified.
        Certain items are maintained at the Company's corporate headquarters
        ("Corporate") and are not presently allocated to the segments. Corporate
        expenses primarily include personnel costs related to executives and certain
        support staff and professional fees. Corporate assets principally consist
        of
        cash and cash equivalents. Subsequent to its acquisition on September 1,
        2004,
        SendTec provided various intersegment marketing services to the Company's
        VoIP
        telephony services division. Prior to the acquisition of SendTec, there were
        no
        intersegment transactions. The accounting policies of the segments are the
        same
        as those for the Company as a whole.
 
 F-39
  The
        following table presents financial information regarding the Company's different
        segments:
  Year
                  Ended December 31,2005
              
              2004
              
              2003NET
                  REVENUE FROM CONTINUINGOPERATIONS:Computer
                  games
              
              $
              1,948,716
              
              $
              3,107,637
              
              $
              4,736,032Internet
                  services
              
              
              197,873
              
              
              --
              
              
              --VoIP
                  telephony services
              
              
              248,789
              
              
              391,154
              
              
              548,081$
              2,395,378
              
              $
              3,498,791
              
              $
              5,284,113OPERATING
                  INCOME (LOSS) FROM CONTINUINGOPERATIONS:Computer
                  games
              
              $
              (2,147,091
              )
              $
              (442,286
              )
              $
              120,907Internet
                  services
              
              
              (1,295,269
              )
              
              --
              
              
              --VoIP
                  telephony services
              
              
              (13,146,693
              )
              
              (20,538,124
              )
              
              (5,116,437
              )Corporate
                  expenses
              
              
              (5,955,554
              )
              
              (3,441,261
              )
              
              (3,817,549
              )Operating
                  loss from continuing operations
              
              
              (22,544,607
              )
              
              (24,421,671
              )
              
              (8,813,079
              )Other
                  expense, net
              
              
              (4,417,311
              )
              
              (824,898
              )
              
              (2,221,318
              )Loss
                  from continuing operations before income tax
              
              $
              (26,961,918
              )
              $
              (25,246,569
              )
              $
              (11,034,397
              )DEPRECIATION
                  AND AMORTIZATION OFCONTINUING
                  OPERATIONS:Computer
                  games
              
              $
              30,845
              
              $
              10,606
              
              $
              62,208Internet
                  services
              
              
              87,112
              
              
              --
              
              
              --VoIP
                  telephony services
              
              
              1,109,743
              
              
              1,355,532
              
              
              258,334Corporate
                  expenses
              
              
              36,598
              
              
              32,138
              
              
              9,200$
              1,264,298
              
              $
              1,398,276
              
              $
              329,742CAPITAL
                  EXPENDITURES OF CONTINUINGOPERATIONS:Computer
                  games
              
              $
              28,001
              
              $
              55,845
              
              $
              --Internet
                  services
              
              
              119,862
              
              
              --
              
              
              --VoIP
                  telephony services
              
              
              148,307
              
              
              2,537,133
              
              
              2,366,047Corporate
              
              
              --
              
              
              50,040
              
              
              58,744$
              296,170
              
              $
              2,643,018
              
              $
              2,424,791December
                  31,2005
              
              
              2004
              
              
              2003IDENTIFIABLE
                  ASSETS:Computer
                  games
              
              $
              637,417
              
              $
              1,585,944
              
              $
              1,472,087Internet
                  services
              
              
              1,161,344
              
              
              --
              
              
              --VoIP
                  telephony services
              
              
              1,817,809
              
              
              3,562,384
              
              
              4,067,821Corporate
                  assets *
              
              
              17,794,871
              
              
              7,203,408
              
              
              1,632,170Continuing
                  operations
              
              
              21,411,441
              
              
              12,351,736
              
              
              7,172,078Discontinued
                  operations
              
              
              --
              
              
              21,665,429
              
              
              --$
              21,411,441
              
              $
              34,017,165
              
              $
              7,172,078
 
 F-40
 
 *
        Corporate assets include cash held at subsidiaries for purposes of the
        presentation above.
 
 The
        Company's historical net revenues have been earned primarily from customers
        in
        the United States. In 2003, VoIP telephony services net revenue was primarily
        attributable to the sale of telephony services outside of the United States.
        Telephony services revenue derived from Thailand represented approximately
        $458,000, or 9%, of consolidated net revenue from continuing operations for
        the
        year ended December 31, 2003. In addition, all significant operations and
        assets
        are based in the United States.
 
 **(16)
        SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**
 
 Quarter
                  EndedDecember
                  31,
              
              September
                  30,
              
              June
                  30,
              
              March
                  31,2005
              
              2005
              
              2005
              
              2005Continuing
                  Operations:Net
                  revenue
              
              $
              705,960
              
              $
              409,258
              
              $
              631,676
              
              $
              648,484Operating
                  expenses
              
              
              9,164,648
              
              
              5,700,276
              
              
              5,065,385
              
              
              5,009,676Operating
                  loss
              
              
              (8,458,688
              )
              
              (5,291,018
              )
              
              (4,433,709
              )
              
              (4,361,192
              )Income
                    (loss) from continuingoperations
              
              
              4,137,876
              
              
              (6,007,862
              )
              
              (7,123,521
              )
              
              (4,354,873
              )Discontinued
                  Operations, net of tax:Income
                  (loss) from operations
              
              
              (1,626,856
              )
              
              636,055
              
              
              670,302
              
              
              389,300Gain
                  on sale
              
              
              1,769,531
              
              
              --
              
              
              --
              
              
              --Net
                  income (loss)
              
              
              4,280,551
              
              
              (5,371,807
              )
              
              (6,453,219
              )
              
              (3,965,573
              )Net
                    income (loss) applicableto
                    common stockholders
              
              
              4,280,551
              
              
              (5,371,807
              )
              
              (6,453,219
              )
              
              (3,965,573
              )Basic
                    and diluted net income(loss)
                    per share:Continuing
                  operations
              
              $
              0.02
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              (0.02
              )Discontinued
                  operations
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              --Net
                  income (loss)
              
              $
              0.02
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              (0.02
              )Quarter
                  EndedDecember
                  31,
              
              
              September
                  30,
              
              
              June
                  30,
              
              
              March
                  31,2004
              
              
              2004
              
              
              2004
              
              
              2004Continuing
                  Operations:Net
                  revenue
              
              $
              938,837
              
              $
              877,727
              
              $
              826,230
              
              $
              855,997Operating
                  expenses
              
              
              9,996,418
              
              
              7,161,110
              
              
              6,128,867
              
              
              4,634,067Operating
                  loss
              
              
              (9,057,581
              )
              
              (6,283,383
              )
              
              (5,302,637
              )
              
              (3,778,070
              )Loss
                  from continuing operations
              
              
              (8,887,937
              )
              
              (5,970,082
              )
              
              (5,355,961
              )
              
              (4,661,698
              )Discontinued
                  Operations, net of tax:Income
                  from operations
              
              
              502,051
              
              
              100,426
              
              
              --
              
              
              --Net
                  loss
              
              
              (8,385,886
              )
              
              (5,869,656
              )
              
              (5,355,961
              )
              
              (4,661,698
              )Net
                    loss applicable to common stockholders
              
              
              (8,385,886
              )
              
              (5,869,656
              )
              
              (5,355,961
              )
              
              (4,661,698
              )Basic
                  and diluted net loss per share:Continuing
                  operations
              
              $
              (0.05
              )
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.07
              )Discontinued
                  operations
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              --Net
                  loss
              
              $
              (0.05
              )
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.07
              )
  F-41
  **ITEM
        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None.
 
 **ITEM
        9A. CONTROLS AND PROCEDURES**
 
 We
        maintain disclosure controls and procedures that are designed to ensure (1)
        that
        information required to be disclosed by us in the reports we file or submit
        under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
        is
        recorded, processed, summarized and reported within the time periods specified
        in the Securities and Exchange Commission's ("SEC") rules and forms, and
        (2)
        that this information is accumulated and communicated to management, including
        our Chief Executive Officer and Chief Financial Officer, as appropriate,
        to
        allow timely decisions regarding required disclosure. In designing and
        evaluating the disclosure controls and procedures, management recognizes
        that
        any controls and procedures, no matter how well designed and operated, can
        provide only reasonable assurance of achieving the desired control objectives,
        and management necessarily was required to apply its judgment in evaluating
        the
        cost benefit relationship of possible controls and procedures.
 
 Our
        Chief
        Executive Officer and Chief Financial Officer have evaluated the effectiveness
        of our disclosure controls and procedures as of December 31, 2005. Based
        on that
        evaluation, our Chief Executive Officer and our Chief Financial Officer have
        concluded that our disclosure controls and procedures are effective in alerting
        them in a timely manner to material information regarding us (including our
        consolidated subsidiaries) that is required to be included in our periodic
        reports to the SEC.
 
 Our
        management, with the participation of our Chief Executive Officer and our
        Chief
        Financial Officer, have evaluated any change in our internal control over
        financial reporting that occurred during the quarter ended December 31, 2005
        that has materially affected, or is reasonably likely to materially affect,
        our
        internal control over financial reporting, and have determined there to be
        no
        reportable changes.
 
 **ITEM
        9B. OTHER INFORMATION**
 
 None.
 
 **PART
        III**
 
 **ITEM
        10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**
 
 The
        following table sets forth the names, ages and current positions with the
        Company held by our Directors and Executive Officers. There is no immediate
        family relationship between or among any of the Directors or Executive Officers,
        and the Company is not aware of any arrangement or understanding between
        any
        Director or Executive Officer and any other person pursuant to which he was
        elected to his current position. Each of the following persons are Directors
        of
        the Company.
 
 NAME
              AGE
              POSITION
                    OR OFFICEWITH
                  THE
                    COMPANY
              DIRECTOR
                  SINCEMichael
                  S. Egan
              65
              Chairman
                  and Chief Executive Officer
              1997Edward
                  A. Cespedes
              40
              President,
                  Treasurer and Chief Financial
                  Officer and Director
              1997Robin
                  S. Lebowitz
              41
              Vice
                  President of Finance and Director
              2001
 
 Michael
        S. Egan. Michael Egan has served as theglobe’s Chairman since 1997 and as its
        Chief Executive Officer since June 1, 2002. Since 1996, Mr. Egan has been
        the
        controlling investor of Dancing Bear Investments, Inc., a privately held
        investment company. Since 2002, Mr. Egan has been the controlling investor
        of
        E&C Capital Partners LLLP, a privately held investment partnership. Mr. Egan
        is also Chairman of Certified Vacations, a privately held wholesale travel
        company which was founded in 1980. Certified Vacations specializes in designing,
        marketing and delivering vacation packages. Mr. Egan spent over 30 years
        in the
        rental car business. He began with Alamo Rent-A-Car in 1973, became an owner
        in
        1979, and became Chairman and majority owner from January 1986 until November
        1996 when he sold the company to AutoNation. In 2000, AutoNation spun off
        the
        rental division, ANC Rental Corporation (Other OTC: ANCXZ.PK), and Mr. Egan
        served as Chairman until October 2003. Prior to acquiring Alamo, he held
        various
        administration positions at Yale University and taught at the University
        of
        Massachusetts at Amherst. Mr. Egan is a graduate of Cornell University where
        he
        received his Bachelor’s degree in Hotel Administration.
 
 Edward
        A.
        Cespedes. Edward Cespedes has served as a director of theglobe since 1997,
        as
        President of theglobe since June 1, 2002 and as Treasurer and Chief Financial
        Officer of theglobe since February 1, 2005. Mr. Cespedes is also the President
        of E&C Capital Ventures, Inc., the general partner of E&C Capital
        Partners LLLP. Mr. Cespedes served as the Vice Chairman of Prime Ventures,
        LLC,
        from May 2000 to February 2002. From August 2000 to August 2001, Mr. Cespedes
        served as the President of the Dr. Koop Lifecare Corporation and was a member
        of
        the Company’s Board of Directors from January 2001 to December 2001. From 1996
        to 2000, Mr. Cespedes was a Managing Director of Dancing Bear Investments,
        Inc.
        Concurrent with his position at Dancing Bear Investments, Inc., from 1998
        to
        2000, Mr. Cespedes also served as Vice President for corporate development
        for
        theglobe where he had primary responsibility for all mergers, acquisitions,
        and
        capital markets activities. In 1996, prior to joining Dancing Bear Investments,
        Inc., Mr. Cespedes was the Director of Corporate Finance for Alamo Rent-A-Car.
        From 1988 to 1996, Mr. Cespedes worked in the Investment Banking Division
        of
        J.P. Morgan and Company, where he most recently focused on mergers and
        acquisitions. In his capacity as a venture capitalist, Mr. Cespedes has served
        as a member of the board of directors of various portfolio companies. Mr.
        Cespedes is the founder of the Columbia University Hamilton Associates, a
        foundation for university academic endowments. In 1988 Mr. Cespedes received
        a
        Bachelor’s degree in International Relations from Columbia University.
 
 Robin
        S.
        Lebowitz. Robin Lebowitz has served as a director of theglobe since December
        2001, as Secretary of theglobe since June 1, 2002, and as Vice President
        of
        Finance of theglobe since February 23, 2004. Ms. Lebowitz also served as
        Treasurer of theglobe from June 1, 2002 until February 23, 2004 and as Chief
        Financial Officer of theglobe from July 1, 2002 until February 23, 2004.
        Ms.
        Lebowitz has worked in various capacities for the Company’s Chairman, Michael
        Egan, for twelve years. She is the Controller/Managing Director of Dancing
        Bear
        Investments, Inc., Mr. Egan’s privately held investment management and holding
        company. Previously, Ms. Lebowitz served on the Board of Directors of theglobe
        from August 1997 to October 1998. At Alamo Rent-A-Car, she served as Financial
        Assistant to the Chairman (Mr. Egan). Prior to joining Alamo, Ms. Lebowitz
        was
        the Corporate Tax Manager at Blockbuster Entertainment Group where she worked
        from 1991 to 1994. From 1986 to 1989, Ms. Lebowitz worked in the audit and
        tax
        departments of Arthur Andersen & Co. Ms. Lebowitz received a Bachelor of
        Science in Economics from the Wharton School of the University of Pennsylvania;
        a Masters in Business Administration from the University of Miami and is
        a
        Certified Public Accountant.
 
 **INVOLVEMENT
        IN CERTAIN LEGAL PROCEEDINGS**
 
 Michael
        Egan, theglobe’s Chairman and CEO, was Chairman of ANC Rental Corporation from
        late 2000 until October 2003 and was Chief Executive Officer of ANC Rental
        Corporation from late 2000 until April 4, 2002. In November 2001, ANC Rental
        Corporation filed voluntary petitions for relief under Chapter 11 or Title
        11 of
        the United States Bankruptcy Code in the United States Bankruptcy Court for
        the
        District of Delaware (Case No. 01-11200).
 
 Edward
        Cespedes, a director and the President, Treasurer and Chief Financial Officer
        of
        theglobe, was also a director of Dr. Koop Lifecare Corporation from January
        2001
        to December 2001. In December 2001, Dr. Koop Lifecare Corporation filed
        petitions seeking relief under Chapter 7 of the United States Bankruptcy
        Code.
 
 **BOARD
        MEETINGS AND COMMITTEES OF THE BOARD**
 
 Including
        unanimous written actions of the Board, the Board of Directors met
        20  times
        in
        2005. No incumbent director who was on the Board for the entire year attended
        less than 75% of the total number of all meetings of the Board and any
        committees of the Board on which he or she served, if any, during
        2005. ****
 
 The
        Board
        of Directors has a standing Audit and Compensation Committee but no standing
        Nominating Committee.
 
 *Audit
        Committee.* The
        Audit Committee, which was formed in July 1998, reviews, acts on and reports
        to
        the Board of Directors with respect to various auditing and accounting matters,
        including the selection of our independent auditors, the scope of the annual
        audits, fees to be paid to the auditors, the performance of our auditors
        and our
        accounting practices and internal controls. The Audit Committee operates
        pursuant to a written charter, as amended, adopted by the Board of Directors
        on
        June 12, 2000. The current members of the Audit Committee are Messrs. Egan
        and
        Cespedes and Ms. Lebowitz, all of whom are employee directors. None of the
        current committee members are considered “independent” within the meaning of
        applicable NASD rules. Ms. Lebowitz serves as the “audit committee financial
        expert” as required by Section 407 of The Sarbanes-Oxley Act, but is not
        considered “independent” within the meaning of applicable NASD rules. Including
        unanimous written actions of the Committee, the Audit Committee held 5 meetings
        in 2005.
  60
 
 *Compensation
        Committee* .
        The
        Compensation Committee, which met 5 times in 2005 (including unanimous written
        actions of the Committee), establishes salaries, incentives and other forms
        of
        compensation for officers and other employees of theglobe. The Compensation
        Committee (as well as the entire Board of Directors) also approves option
        grants
        under all of our outstanding stock based incentive plans. The current members
        of
        the Compensation Committee are Messrs. Egan and Cespedes.
 
 *Nominating
        Committee* .
        The
        Board of Directors does not have a separate nominating committee. Rather,
        the
        entire Board of Directors acts as nominating committee. Based on the Company’s
        Board currently consisting only of employee directors, the Board of Directors
        does not believe the Company would derive any significant benefit from a
        separate nominating committee. Due primarily to their status as employees
        of the
        Company, none of the members of the Board are “independent” as defined in the
        NASD listing standards. The Company does not have a Nominating Committee
        charter.
 
 In
        recommending director candidates in the future (including director candidates
        recommended by stockholders), the Board intends to take into consideration
        such
        factors as it deems appropriate based on the Company’s current needs. These
        factors may include diversity, age, skills, decision-making ability,
        inter-personal skills, experience with businesses and other organizations
        of
        comparable size, community activities and relationships, and the
        interrelationship between the candidate’s experience and business background,
        and other Board members’ experience and business background, whether such
        candidate would be considered “independent”, as such term is defined in the NASD
        listing standards, as well as the candidate’s ability to devote the required
        time and effort to serve on the Board.
 
 The
        Board
        will consider for nomination by the Board director candidates recommended
        by
        stockholders if the stockholders comply with the following requirements.
        Under
        our By-Laws, if a stockholder wishes to nominate a director at the Annual
        Meeting, we must receive the stockholder’s written notice not less than 60 days
        nor more than 90 days prior to the date of the annual meeting, unless we
        give
        our stockholders less than 70 days’ notice of the date of our Annual Meeting. If
        we provide less than 70 days’ notice, then we must receive the stockholder’s
        written notice by the close of business on the 10th day after we provide
        notice
        of the date of the Annual Meeting. The notice must contain the specific
        information required in our By-Laws. A copy of our By-Laws may be obtained
        by
        writing to the Corporate Secretary. If we receive a stockholder’s proposal
        within the time periods required under our By-Laws, we may choose, but are
        not
        required, to include it in our proxy statement. If we do, we may tell the
        other
        stockholders what we think of the proposal, and how we intend to use our
        discretionary authority to vote on the proposal. All proposals should be
        made in
        writing and sent via registered, certified or express mail, to our executive
        offices, 110 East Broward Boulevard, Suite 1400, Fort Lauderdale, Florida
        33301,
        Attention: Robin S. Lebowitz, Corporate Secretary.
 
 *Shareholder
        Communications with the Board of Directors.* Any
        shareholder who wishes to send communications to the Board of Directors should
        mail them addressed to the intended recipient by name or position in care
        of:
        Corporate Secretary, theglobe.com, inc., 110 East Broward Boulevard, Suite
        1400,
        Fort Lauderdale, Florida, 33301. Upon receipt of any such communications,
        the
        Corporate Secretary will determine the identity of the intended recipient
        and
        whether the communication is an appropriate shareholder communication. The
        Corporate Secretary will send all appropriate shareholder communications
        to the
        intended recipient. An "appropriate shareholder communication" is a
        communication from a person claiming to be a shareholder in the communication,
        the subject of which relates solely to the sender’s interest as a shareholder
        and not to any other personal or business interest.
 
 In
        the
        case of communications addressed to the Board of Directors, the Corporate
        Secretary will send appropriate shareholder communications to the Chairman
        of
        the Board. In the case of communications addressed to any particular directors,
        the Corporate Secretary will send appropriate shareholder communications
        to such
        director. In the case of communications addressed to a committee of the Board,
        the Corporate Secretary will send appropriate shareholder communications
        to the
        Chairman of such committee.
  61
 
 **ATTENDANCE
        AT ANNUAL MEETINGS**
 
 The
        Board
        of Directors encourages, but does not require, its directors to attend the
        Company’s annual meeting of stockholders. Last year, all of the Company’s
        directors except for Michael Egan attended the annual meeting.
 
 **CODE
        OF ETHICS**
 
 The
        Company has adopted a Code of Ethics applicable to its officers, including
        its
        principal executive officer, principal financial officer, principal accounting
        officer or controller and any other persons performing similar functions.
        The
        Code of Ethics will be provided free of charge by the Company to interested
        parties upon request. Requests should be made in writing and directed to
        the
        Company at the following address: 110 East Broward Boulevard; Suite 1400;
        Fort
        Lauderdale, Florida 33301.
 
 **COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT**
 
 Section
        16(a) of the Securities and Exchange Act of 1934 requires our officers and
        directors, and persons who own more than ten percent (10%) of a registered
        class
        of our equity securities, to file certain reports regarding ownership of,
        and
        transactions in, our securities with the SEC and with The NASDAQ Stock Market,
        Inc. Such officers, directors, and 10% stockholders are also required to
        furnish
        theglobe with copies of all Section 16(a) forms that they file.
 
 Based
        solely on our review of copies of Forms 3 and 4 and any amendments furnished
        to
        us pursuant to Rule 16a-3(e) and Forms 5 and any amendments furnished to
        us with
        respect to the 2005 fiscal year, and any written representations referred
        to in
        Item 405(b)(2)(i) of Regulation S-K stating that no Forms 5 were required,
        we
        believe that, during the 2005 fiscal year, our officers and directors have
        complied with all Section 16(a) applicable filing requirements.
 
 **ITEM
        11. EXECUTIVE COMPENSATION**
 
 The
        following table sets forth information concerning compensation for services
        in
        all capacities awarded to, earned by or paid by us to those persons serving
        as
        the chief executive officer at any time during the last calendar year and
        our
        three other most highly compensated executive officers for the year ended
        December 31, 2005 (collectively, the "Named Executive Officers"):
  Long-TermAnnual
                  Compensation
              
              Compensation(1)Number
                  ofSecurities
              
              All
                  OtherName
                  and
              
              
              
              Salary
              
              Bonus
              
              Underlying
              
              CompensationPrincipal
                  Position
              
              Year
              
              ($)
              
              ($)
              
              Options
                  (#)
              
              ($)Michael
                  S. Egan,
              
              
              2005
              
              
              250,000
              
              
              1,500,000
              
              
              1,750,000
              
              
              --Chairman,
                  Chief Executive
              
              
              2004
              
              
              250,000
              
              
              77,500
              
              
              --
              
              
              --Officer
                  (2)
              
              
              2003
              
              
              125,000
              
              
              50,000
              
              
              1,000,000
              
              
              --Edward
                  A. Cespedes,
              
              
              2005
              
              
              250,000
              
              
              1,500,000
              
              
              1,750,000
              
              
              --President,
                  Treasurer and Chief
              
              
              2004
              
              
              250,000
              
              
              77,500
              
              
              --
              
              
              --Financial
                  Officer (3)
              
              
              2003
              
              
              225,000
              
              
              50,000
              
              
              550,000
              
              
              --Robin
                  S. Lebowitz,
              
              
              2005
              
              
              140,000
              
              
              125,000
              
              
              400,000
              
              
              --Former
                  Chief Financial Officer;
              
              
              2004
              
              
              144,167
              
              
              17,500
              
              
              --
              
              
              --Vice
                  President of Finance (4)
              
              
              2003
              
              
              137,500
              
              
              --
              
              
              100,000
              
              
              --Paul
                  Soltoff,
              
              
              2005
              
              
              250,000
              
              
              --
              
              
              --
              
              
              163,160Former
                  Chief Executive Officer,
              
              
              2004
              
              
              100,000
              
              
              17,000
              
              
              477,337
              
              
              --SendTec,
                  Inc. (5)
  62
 
 (1)
        Included in long-term compensation for 2005 are 3,900,000 options granted
        to the
        Named Executive Officers at an exercise price of $0.12 per share. Long-term
        compensation for 2004 includes replacement options to acquire 477,337 shares
        of
        theglobe’s Common Stock granted to Mr. Soltoff at an exercise price of $0.06 per
        share in exchange for options which Mr. Soltoff held prior to the acquisition
        of
        SendTec, Inc. by theglobe. Included in long-term compensation for 2003 are
        1,650,000 options granted during the year at $0.56 per share to the Named
        Executive Officers.
 
 (2)
        Mr.
        Egan became an executive officer in July 1998. We began paying Mr. Egan a
        base
        salary in July 2003. We did not pay Mr. Egan a base salary in 2002 or 2001.
 
 (3)
        Mr.
        Cespedes became President in June 2002 and Treasurer and Chief Financial
        Officer
        in February 2005.
 
 (4)
        Ms.
        Lebowitz became an officer of the Company in June 2002 and Chief Financial
        Officer in July 2002. In February 2004, Ms. Lebowitz resigned her position
        as
        Chief Financial Officer and became Vice President of Finance.
 
 (5)
        Mr.
        Soltoff became a Director of the Company and Chief Executive Officer of SendTec,
        Inc. in September 2004. On February 21, 2005, Mr. Soltoff resigned from the
        Company’s Board of Directors but continued to serve as CEO of SendTec, Inc.
        Effective October 31, 2005, Mr. Soltoff’s employment agreement was terminated as
        a result of the sale of the operations of SendTec, Inc. His base salary while
        employed as Chief Executive Officer of SendTec, Inc. was $300,000 per year.
        Salary for 2005 represents amounts earned through October 31, 2005. Salary
        for
        2004 represents amounts earned since September 1, 2004, the date SendTec
        was
        acquired by the Company. Other compensation for 2005 represents payments
        made to
        Mr. Soltoff pursuant to a Termination Agreement executed in connection with
        the
        sale of the SendTec business on October 31, 2005.
 
 **AGGREGATED
        OPTION EXERCISES IN THE LAST FISCAL YEAR AND 2005 YEAR-END OPTION VALUES**
 
 The
        following tables set forth for each of the Named Executive Officers (a) the
        number of options exercised during 2005, (b) the total number of unexercised
        options for common stock (exercisable and unexercisable) held at December
        31,
        2005, (c) the value of those options that were in-the-money on December 31,
        2005
        based on the difference between the closing price of our Common Stock on
        December 31, 2005 and the exercise price of the options on that date, and
        (d)
        the total number of options granted to such persons in 2005.
  Number
                  of Securities Underlying Unexercised
                  Stock Options at Fiscal Year-End (#)
              
              Value
                  of Unexercised In-the-Money Stock Options at Fiscal Year-End
                  (1)Name
              
              Shares
                  Acquired
                    on  Exercise #
              
              Value
                    Realized
              
              Exercisable
              
              Un-Exercisable
              
              Exercisable
              
              Un-ExercisableMichael
                  S. Egan
              
              
              --
              
              
              --
              
              
              5,594,066
              
              
              934
              
              $
              1,400,998
              
              $
              327Edward
                  A. Cespedes
              
              
              --
              
              
              --
              
              
              4,214,066
              
              
              934
              
              
              1,123,498
              
              
              327Robin
                  S. Lebowitz
              
              
              --
              
              
              --
              
              
              1,033,146
              
              
              934
              
              
              303,798
              
              
              327
 
 (1)
        Value
        represents closing price of our Common Stock on December 31, 2005 less the
        exercise price of the stock option, multiplied by the number of shares
        exercisable or unexercisable, as applicable.
 
 **OPTION
        GRANTS IN 2005**
 PercentNumber
                      of
                
                of
                    Total
                
                
                
                Market
                
                Potential
                    Realizable ValueSecurities
                
                Options
                
                Exercise
                
                Price
                
                at
                      Assumed Annual Rates of StockUnderlying
                
                Granted
                    to
                
                or
                    Base
                
                on
                    Date
                
                Price
                    Appreciation for Option Term (2)Options
                
                Employees
                
                Price
                
                of
                      Grant
                
                Expiration
                
                5%
                
                10%
                
                0%Name
                
                Granted
                
                in
                    2005
                
                ($/Share)
                
                ($/share)
                
                Date
                
                ($)
                
                ($)
                
                ($)Michael
                    S. Egan
                
                
                1,750,000
                    (1
                )
                
                34.0%
                
                $
                0.12
                
                $
                0.12
                
                
                4/07/2015
                
                $
                132,068
                
                $
                334,686
                
                
                --Edward
                    A. Cespedes
                
                
                1,750,000
                    (1
                )
                
                34.0%
                
                $
                0.12
                
                $
                0.12
                
                
                4/07/2015
                
                $
                132,068
                
                $
                334,686
                
                
                --Robin
                    S. Lebowitz
                
                
                400,000
                    (1
                )
                
                7.8%
                
                $
                0.12
                
                $
                0.12
                
                
                4/07/2015
                
                $
                30,187
                
                $
                76,500
                
                
                --
 
 63
 (1)
        All
        of these options were granted on April 6, 2005 and vested immediately.
 
 (2)
        These
        amounts represent assumed rates of appreciation in conformity with Securities
        and Exchange Commission disclosure requirements.Actual gains, if any, on
        stock
        option exercises are dependent on future performance of our Common
        Stock.
 
 **DIRECTOR
        COMPENSATION**
 
 Directors
        who are also our employees receive no compensation for serving on our Board
        or
        committees. We reimburse non-employee directors for all travel and other
        expenses incurred in connection with attending Board and committee meetings.
        Non-employee directors are also eligible to receive automatic stock option
        grants under our 1998 Stock Option Plan, as amended and restated.As of December
        31, 2005 there were no directors who met this definition.
 
 Each
        director who becomes an eligible non-employee director for the first time
        receives an initial grant of options to acquire 25,000 shares of our Common
        Stock. In addition, each eligible non-employee director will receive an annual
        grant of options to acquire 7,500 shares of our Common Stock on the first
        business day following each annual meeting of stockholders that occurs while
        the
        1998 Stock Option Plan or 2000 Stock Option Plan is in effect. These stock
        options will be granted with per share exercise prices equal to the fair
        market
        value of our common stock as of the date of grant.
 
 **EMPLOYMENT
        AGREEMENTS**
 
 CHIEF
        EXECUTIVE OFFICER EMPLOYMENT AGREEMENT AND PRESIDENT EMPLOYMENT AGREEMENT.
        On
        August 1, 2003, we entered into separate employment agreements with our Chief
        Executive Officer ("CEO"), Michael S. Egan, and our President, Edward A.
        Cespedes. The two employment agreements are substantially similar and each
        provides for the following:
 ·
                employment
                    as one of our executives;·
                an
                    annual base salary of $250,000 with eligibility to receive annual
                    increases as determined in the sole discretion of the Board of
                    Directors;·
                an
                    annual cash bonus, which will be awarded upon the achievement
                    of specified
                    pre-tax operating income (not to be less than $50,000 per year);·
                participation
                    in all welfare, benefit and incentive plans (including equity
                    based
                    compensation plans) offered to senior management;·
                a
                    term of employment which commenced on August 1, 2003 and continues
                    through
                    the first anniversary thereof. The term automatically extends
                    for one day
                    each day unless either the Company or executive provides written
                    notice to
                    the other not to further extend. The agreement provides that,
                    in the event
                    of termination by us without "cause" or by the executive for
                    "good reason"
                    (which includes a "Change of Control"), the executive will be
                    entitled to
                    receive from us:
 -
                  (A)
                  his
                      base salary through the date of termination and an amount equal
                      to the
                      product of (x) the higher of (i) the executive’s average annual incentive
                      paid or payable under the Company’s annual incentive plan for the last
                      three full fiscal years, including any portion which has been
                      earned but
                      deferred and (ii) the annual incentive paid or payable under
                      the Company’s
                      annual incentive plan for the most recently completed fiscal
                      year,
                      including any portion thereof which has been earned but deferred
                      (and
                      annualized if the fiscal year consists of less than twelve
                      full months or,
                      if during which, the executive was employed for less than twelve
                      full
                      months) and (y) a fraction, the numerator of which is the number
                      of days
                      in the current fiscal year through the date of termination,
                      and the
                      denominator of which is 365;-
                  (B)
                  any
                      accrued vacation pay; and-
                  (C)
                  a
                      lump-sum cash payment equal to ten (10) times the sum of executive’s base
                      salary and highest annual incentive;
  -
        for the
        continued benefit of executive, his spouse and his dependents for a period
        of
        ten (10) years following the date of termination, the medical, hospitalization,
        dental, and life insurance programs in which executive, his spouse and his
        dependents were participating immediately prior to the date of termination
        at
        the level in effect and upon substantially the same terms and conditions
        as
        existed immediately prior to the date of termination;
 
 -
        reimbursement for any reasonable and necessary monies advanced or expenses
        incurred in connection with the executive’s employment; and
 
 -
        executive will be vested, as of the date of termination, in all rights under
        any
        equity award agreements (e.g., stock options that would otherwise vest after
        the
        date of termination) and in the case of stock options, stock appreciation
        rights
        or similar awards, thereafter shall be permitted to exercise any and all
        such
        rights until the earlier of (i) the third anniversary of the date of termination
        and (ii) the end of the term of such awards (regardless of any termination
        of
        employment restrictions therein contained) and any restricted stock held
        by
        executive will become immediately vested as of the date of termination.
 
 EMPLOYMENT
        AGREEMENT WITH FORMER CHIEF FINANCIAL OFFICER. We also entered into an
        employment agreement with our then Chief Financial Officer ("CFO"), Robin
        Segaul
        Lebowitz, on August 1, 2003. Her employment agreement provides for the
        following:
 
 ·
              employment
                  as one of our executives;·
              an
                  annual base salary of $150,000 with eligibility to receive annual
                  increases as determined in the sole discretion of the Board of
                  Directors;·
              a
                  discretionary annual cash bonus, which will be awarded at our Board’s
                  discretion;·
              participation
                  in all welfare, benefit and incentive plans (including equity based
                  compensation plans) offered to senior management;·
              term
                  of employment which commenced on August 1, 2003 and continues through
                  the
                  first anniversary thereof. The term automatically extends for one
                  day each
                  day unless either the Company or executive provides written notice
                  to the
                  other not to further extend. The agreement provides that, in the
                  event of
                  termination by us without "cause" or by the executive for "good
                  reason"
                  (which includes a "Change of Control"), the executive will be entitled
                  to
                  receive from us:
  64
  -
              (A)
              her
                  base salary through the date of termination and an amount equal
                  to the
                  product of (x) the higher of (i) the executive’s average annual incentive
                  paid or payable under the Company’s annual incentive plan for the last
                  three full fiscal years, including any portion which has been earned
                  but
                  deferred and (ii) the annual incentive paid or payable under the
                  Company’s
                  annual incentive plan for the most recently completed fiscal year,
                  including any portion thereof which has been earned but deferred
                  (and
                  annualized if the fiscal year consists of less than twelve full
                  months or,
                  if during which, the executive was employed for less than twelve
                  full
                  months) and (y) a fraction, the numerator of which is the number
                  of days
                  in the current fiscal year through the date of termination, and
                  the
                  denominator of which is 365;-
              (B)
              any
                  accrued vacation pay; and-
              (C)
              a
                  lump-sum cash payment equal to two (2) times the sum of executive’s base
                  salary and highest annual incentive;




-
        for the
        continued benefit of executive, her spouse and her dependents for a period
        of
        two (2) years following the date of termination, the medical, hospitalization,
        dental, and life insurance programs in which executive, her spouse and her
        dependents were participating immediately prior to the date of termination
        at
        the level in effect and upon substantially the same terms and conditions
        as
        existed immediately prior to the date of termination;
 
 -
        reimbursement for any reasonable and necessary monies advanced or expenses
        incurred in connection with the executive’s employment; and
  -
        executive will be vested, as of the date of termination, in all rights under
        any
        equity award agreements (e.g., stock options that would otherwise vest after
        the
        date of termination) and in the case of stock options, stock appreciation
        rights
        or similar awards, thereafter shall be permitted to exercise any and all
        such
        rights until the earlier of (i) the third anniversary of the date of termination
        and (ii) the end of the term of such awards (regardless of any termination
        of
        employment restrictions therein contained) and any restricted stock held
        by
        executive will become immediately vested as of the date of termination.
 
 Effective
        February 23, 2004, Ms. Lebowitz’s employment agreement was amended. Ms.
        Lebowitz’s new title is Vice President, Finance and effective June 1, 2004 her
        annual base salary is $140,000.
 
 FORMER
        SENDTEC CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT. As part of the SendTec
        Acquisition, on September 1, 2004, we entered into an employment agreement
        with
        Paul Soltoff to continue as Chief Executive Officer ("CEO") of SendTec, Inc.
        His
        employment agreement provided for the following:
 ·
                an
                    annual base salary of $300,000 with eligibility to receive annual
                    increases as determined in the sole discretion of the Board of
                    Directors;·
                a
                    discretionary annual cash bonus, awarded at our Board's discretion;·
                participation
                    in all welfare, benefit and incentive plans offered to senior
                    management
                    of the Company;·
                a
                    5
                    year term of employment which commenced on September 1, 2004.
                    The
                    agreement provided that, in the event of termination by us without
                    "cause"
                    or by the executive for "good reason," the executive would be
                    entitled to
                    receive from us his base salary for a period of 2 years from
                    the date of
                    such termination, any accrued vacation pay and for the continued
                    benefit
                    of executive, his spouse and his dependents for a period of one
                    (1) year
                    following the date of termination, the medical, hospitalization,
                    dental,
                    and life insurance programs in which executive, his spouse and
                    his
                    dependents were participating immediately prior to the date of
                    termination
                    at the level in effect and upon substantially the same terms
                    and
                    conditions as existed immediately prior to the date of termination;
                    and·
                customary
                    provisions relating to confidentiality, work-product and covenants
                    not to
                    compete.
 
 Pursuant
        to a Termination Agreement dated October 11, 2005, Mr. Soltoff agreed to
        irrevocably terminate his employment agreement, as well as his employment
        with
        SendTec, effective upon the closing of the sale of the SendTec business and
        receipt of the termination price of $163,160 as specified by the Termination
        Agreement.
  **COMPENSATION
        COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**
 
 Michael
        S. Egan, theglobe’s Chairman and Chief Executive Officer and Edward A. Cespedes,
        theglobe’s President, Treasurer and Chief Financial Officer and Director served
        as members of the Compensation Committee of the Board of Directors during
        2005.
        Although certain relationships and related transactions between Messrs. Egan
        and
        Cespedes and theglobe are disclosed in the section of this Annual Report
        on Form
        10-K entitled “Certain Relationships and Related Transactions,” none of these
        relationships or transactions relate to interlocking directorships or
        compensation committees.
  65
  **ITEM
        12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
 
 The
        following table sets forth certain information regarding beneficial ownership
        of
        our Common Stock as of March 21, 2006 (except as otherwise indicated) by
        (i)
        each person who owns beneficially more than 5% of our Common Stock, (ii)
        each of
        our directors, (iii) each of our "Named Executive Officers" and (iv) all
        directors and executive officers as a group. A total of 174,722,565 shares
        of
        theglobe’s Common Stock were issued and outstanding on March 21, 2006.
 
 The
        amounts and percentage of common stock beneficially owned are reported on
        the
        basis of regulations of the Securities and Exchange Commission ("SEC") governing
        the determination of beneficial ownership of securities. Under the rules
        of the
        SEC, a person is deemed to be a "beneficial owner" of a security if that
        person
        has or shares "voting power," which includes the power to vote or to direct
        the
        voting of such security, or "investment power," which includes the power
        to
        dispose of or to direct the disposition of such security. A person is also
        deemed to be a beneficial owner of any securities of which that person has
        a
        right to acquire beneficial ownership within 60 days. Under these rules,
        more
        than one person may be deemed a beneficial owner of the same securities and
        a
        person may be deemed to be a beneficial owner of securities as to which such
        person has no economic interest. Unless otherwise indicated below, the address
        of each person named in the table below is in care of theglobe.com, inc.,
        P.O.
        Box 029006, Fort Lauderdale, Florida 33302.
  SHARES
                  BENEFICIALLY OWNEDDIRECTORS,
                NAMED
                EXECUTIVE OFFICERS
              
              
              
              
              
              
              
              
              TITLE
                  OFAND 5% STOCKHOLDERS
              
              
              NUMBER
              
              
              PERCENT
              
              
              CLASSDancing
                  Bear Investments, Inc. (1)
              
              
              8,303,148
              
              
              4.8
              %
              
              CommonMichael
                  S. Egan (2)
              
              
              140,698,569
              
              
              56.6
              %
              
              CommonEdward
                  A. Cespedes (3)
              
              
              4,214,535
              
              
              2.4
              %
              
              CommonRobin
                  S. Lebowitz (4)
              
              
              1,033,615
              
              
              *
              
              
              CommonPaul
                  Soltoff (5)
              
              
              14,100
              
              
              *
              
              
              CommonE&C
                  Capital Partners LLLP (6)
              
              
              72,469,012
              
              
              34.7
              %
              
              CommonWellington
                  Management Company, LLP (7)
              
              
              12,723,700
              
              
              7.3
              %
              
              CommonE&C
                  Capital Partners II, LLLP(8)
              
              
              40,000,000
              
              
              19.2
              %
              
              CommonAll
                  directors and executive officersas
                  a group (4 persons)
              
              
              145,960,819
              
              
              57.5
              %
              
              Common
  *
        less
        than 1%
 
 (1)
        Mr.
        Egan owns Dancing Bear Investments, Inc.
 
 (2)
        Includes the shares that Mr. Egan is deemed to beneficially own as the
        controlling investor of Dancing Bear Investments, Inc., E&C Capital
        Partners, LLLP, and E&C Capital Partners II, LLLP and as the Trustee of the
        Michael S. Egan Grantor Retained Annuity Trusts for the benefit of his children.
        Also includes (i) 5,594,066 shares of our Common Stock issuable upon exercise
        of
        options that are currently exercisable and 469 shares of our Common Stock
        issuable upon exercise of options that are exercisable within 60 days of
        March
        21, 2006; (ii) 3,541,337 shares of our Common Stock held by Mr. Egan's wife,
        as
        to which he disclaims beneficial ownership; and (iii) 204,082 shares of our
        Common Stock issuable upon exercise of warrants at $1.22 per share owned
        by Mr.
        Egan and his wife.
 
 (3)
        Includes 4,214,066 shares of our Common Stock issuable upon exercise of options
        that are currently exercisable and 469 shares of our Common Stock issuable
        upon
        exercise of options that are exercisable within 60 days of March 21, 2006.
 
 (4)
        Includes 1,033,146 shares of our Common Stock issuable upon exercise of options
        that are currently exercisable and 469 shares of our Common Stock issuable
        upon
        exercise of options that are exercisable within 60 days of March 21, 2006.
  66
  (5)
        In
        connection with the sale of its SendTec business to RelationServe Media,
        Inc. on
        October 31, 2005, Mr. Soltoff’s employment with SendTec was terminated and the
        Company redeemed 10,183,190 shares of its Common Stock from Mr. Soltoff and
        cancelled all of Mr. Soltoff’s outstanding stock options and
        warrants.
 
 (6)
        E&C Capital Partners, LLLP is a privately held investment vehicle controlled
        by our Chairman, Michael S. Egan. Our President, Edward A. Cespedes, has
        a
        minority, non-controlling interest in E&C Capital Partners, LLLP. Includes
        34,000,000 shares of our Common Stock issuable upon the conversion of the
        Convertible Notes.
 
 (7)
        The
        information about Wellington Management Company, LLP is as of December 31,
        2005
        and is derived from an SEC filing on Schedule 13G by Wellington Management.
        Wellington Management in its capacity as an investment adviser, may be deemed
        to
        have beneficial ownership of 12,723,700 shares of Common Stock that are owned
        by
        numerous investment advisory clients, none of which is known to have such
        interest with respect to more than five percent of the class of shares.
        Wellington Management has shared voting authority over 8,168,200 shares and
        shared dispositive power over 12,723,700 shares. Wellington Management is
        a
        registered investment advisor under the Investment Advisers Act of 1940,
        as
        amended. Wellington Management's mailing address is 75 State Street, Boston,
        MA
        02109.
 
 (8)
        E&C Capital Partners II, LLLP is a privately held investment vehicle
        controlled by our Chairman, Michael S. Egan. Includes 34,000,000 shares of
        our
        Common Stock issuable upon the conversion of the Convertible Notes.
 
 **ITEM
        13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 On
        April
        22, 2005, E&C Capital Partners, LLLP and E&C Capital Partners II, LLLP
        (the “Noteholders”), entities controlled by the Company's Chairman and Chief
        Executive Officer, entered into a Note Purchase Agreement (the "Agreement")
        with
        theglobe pursuant to which they acquired secured demand convertible promissory
        notes (the "Convertible Notes") in the aggregate principal amount of $1,500,000.
        Under the terms of the Agreement, the Noteholders were also granted the optional
        right, for a period of 90 days from the date of the Agreement, to purchase
        additional Convertible Notes such that the aggregate principal amount of
        Convertible Notes issued under the Agreement could total $4,000,000 (the
        “Option”). On June 1, 2005, the Noteholders exercised a portion of the Option
        and acquired an additional $1,500,000 of Convertible Notes. On July 18, 2005,
        the Noteholders exercised the remainder of the Option and acquired an additional
        $1,000,000 of Convertible Notes.
 
 The
        Convertible Notes are convertible at the option of the Noteholders into shares
        of the Company's Common Stock at an initial price of $0.05 per share. Through
        December 31, 2005 an aggregate of $600,000 of Convertible Notes were converted
        by the Noteholders into an aggregate of 12,000,000 shares of the Company’s
        Common Stock. Assuming full conversion of all Convertible Notes which remain
        outstanding as of December 31, 2005, an additional 68,000,000 shares of the
        Company’s Common Stock would be issued to the Noteholders. The Convertible Notes
        provide for interest at the rate of ten percent per annum and are secured
        by a
        pledge of substantially all of the assets of the Company. Approximately $216,200
        of interest expense was recorded during the year ended December 31, 2005
        related
        to the Convertible Notes. The Convertible Notes are due and payable five
        days
        after demand for payment by the Noteholders. The Noteholders are entitled
        to
        certain demand and “piggy-back” registration rights in connection with their
        investment. Assuming full conversion of all remaining outstanding Convertible
        Notes, 68,000,000 shares of the Company’s Common Stock would be issued to the
        Noteholders.
 
 Two
        of
        our directors, Mr. Egan and Ms. Lebowitz, also serve as officers and directors
        of Dancing Bear Investments, Inc. ("Dancing Bear"). Dancing Bear is a
        stockholder of the Company and an entity controlled by Mr. Egan, our Chairman.
 
 An
        entity
        controlled by our Chairman has provided services to the Company and various
        of
        its subsidiaries during the year ended December 31, 2005, including: the
        lease
        of office space and the outsourcing of human resources and payroll processing
        functions.
 
 We
        sublease approximately 15,000 square feet of office space for our executive
        offices from Certified Vacations, a company which is controlled by our Chairman
        and CEO Michael Egan. The sublease commenced on September 1, 2003 and expires
        on
        July 31, 2007. The initial base rent of $18.91 per square foot on an annual
        basis ($283,650 annually in the aggregate), increases on each anniversary
        of the
        sublease by $1.50 per square foot. During the year ended December 31, 2005
        approximately $353,000 of expense was recorded related to the lease of office
        space from Certified Vacations, including allocated building operating expenses
        and sales taxes.
 
 Beginning
        April 2005, we outsourced our human resources and payroll processing functions
        from Certified Vacations and approximately $33,000 of expense was recorded
        during the year ended December 31, 2005 related to these functions.
  67
  In
        addition, as of December 31, 2004, approximately $90,000 of advances made
        by the
        Company to a newly formed entity controlled by our Chairman, Global Voice
        Network LLC, remained unpaid. At the time these funds were advanced, the
        entity
        was anticipated to enter into a joint venture to provide services to the
        Company’s VoIP telephony services business and the Company was negotiating the
        terms of such joint venture. The Company and such new entity subsequently
        agreed
        to abandon the proposed joint venture and the entity ceased operations in
        January 2005. Additional advances of approximately $2,000 were made to the
        entity during January 2005. The $92,000 total advance was repaid to the Company
        by E&C Capital Partners LLLP on January 31, 2006.
 
 Our
        subsidiary, Tralliance Corporation, which was acquired on May 9, 2005, subleases
        office space in New York City on a month-to-month basis from an entity
        controlled by its President and Chief Executive Officer for approximately
        $3,400
        per month. A total of approximately $23,000 in rent expense related to this
        month-to-month sublease was recorded during the year ended December 31,
        2005.
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 Audit
        Fees. The aggregate fees billed by Rachlin Cohen & Holtz LLP (“Rachlin
        Cohen”), independent public accountants, for professional services rendered for
        the audit of our annual financial statements during 2005 and 2004 and the
        reviews of the financial statements included in our Forms 10-Q or 10-QSB
        and
        10-K or 10-KSB, as appropriate, were $110,645 and $104,739,
        respectively.
  Audit-Related
        Fees. During the last two fiscal years, Rachlin Cohen provided the Company
        with
        the following services that are reasonably related to the performance of
        the
        audit of our financial statements:
  Assurance
        and related services related to audits and review for various SEC filings
        (including S-8’s, proxy and private placements) $32,983 for 2005 and $29,784 for
        2004; and
 
 Other
        services relating to consultation and research of various accounting
        pronouncements and technical issues were $4,211 for 2005 and $3,574 for
        2004.
  Tax
        Fees.
        The aggregate fees billed for tax services provided by Rachlin Cohen in
        connection with tax compliance, tax consulting and tax planning services
        during
        2005 and 2004, were $103,021 and $81,963, respectively.
  All
        Other
        Fees. Except as described above, the Company had no other fees for services
        provided by Rachlin Cohen during 2005 and 2004.
  Pre-Approval
        of Services by the External Auditor. In April 2004, the Audit Committee adopted
        a policy for pre-approval of audit and permitted non-audit services by the
        Company’s external auditor. The Audit Committee will consider annually and, if
        appropriate, approve the provision of audit services by its external auditor
        and
        consider and, if appropriate, pre-approve the provision of certain defined
        audit
        and non-audit services. The Audit Committee will also consider on a case-by-case
        basis and, if appropriate, approve specific engagements that are not otherwise
        pre-approved. The Audit Committee pre-approved the audit related engagements
        and
        tax services billed by the amounts described above.
  68
  **PART
        IV**
   **ITEM
        15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
 (a)
                Financial
                    Statements and Financial Statement
                    Schedules.
  (1)
              Financial
                  statements are listed in the index to the consolidated financial
                  statements on page F-1 of this Report.(2)
              No
                  financial statement schedules are included because they are not
                  applicable
                  or are not required or the information required to be set forth
                  therein is
                  included in the consolidated financial statements or notes
                  thereto.(3)
              Exhibit
                  Index
 3.1
                Form
                    of Fourth Amended and Restated Certificate of Incorporation of
                    the Company
                    (3).3.2
                Certificate
                    of Amendment to Fourth Amended and Restated Certificate of Incorporation
                    (18).3.3
                Certificate
                    of Amendment to Fourth Amended and Restated Certificate of Incorporation
                    filed with the Secretary of State of Delaware on July 29, 2003
                    (18).3.4
                Certificate
                    relating to Previously Outstanding Series of Preferred Stock
                    and Relating
                    to the Designation, Preferences and Rights of the Series F Preferred
                    Stock
                    (13).3.5
                Certificate
                    of Amendment Relating to the Designation Preferences and Rights
                    of the
                    Junior Participating Preferred Stock (15).3.6
                Form
                    of By-Laws of the Company (18).3.7
                Certificate
                    of Amendment Relating to the Designation Preferences and Rights
                    of the
                    Series H Automatically Converting Preferred Stock (17).3.8
                Certificate
                    of Amendment to Fourth Amended and Restated Certificate of Incorporation
                    filed with the Secretary of State of Delaware on December 1,
                    2004
                    (21).4.1
                Registration
                    Rights Agreement, dated as of September 1, 1998 (5).4.2
                Amendment
                    No.1 to Registration Rights Agreement, dated as of April 9, 1999
                    (6).4.3
                Specimen
                    certificate representing shares of Common Stock of the Company
                    (4).4.4
                Amended
                    and Restated Warrant to Acquire Shares of Common Stock (2).4.5
                Form
                    of Rights Agreement, by and between the Company and American
                    Stock
                    Transfer & Trust Company as Rights Agent (3).4.6
                Form
                    of Warrant dated November 12, 2002 to acquire shares of Common
                    Stock (9).4.7
                Form
                    of Warrant dated March 28, 2003 to acquire shares of Common Stock
                    (13).4.8
                Form
                    of Warrant dated May 28, 2003 to acquire an aggregate of 500,000
                    shares of
                    theglobe.com Common Stock (10).4.9
                Form
                    of Warrant dated July 2, 2003 to acquire securities of theglobe.com,
                    inc.
                    (11).4.10
                Form
                    of Warrant dated March 5, 2004 to acquire securities of theglobe.com,
                    inc.
                    (16).4.11
                Form
                    of Warrant relating to potential issuance of Earn-out Consideration
                    (17).4.12
                Form
                    of Secured Demand Convertible Promissory Note
                    (23).
  69
 
 4.13
                Security
                    Agreement dated April 22, 2005 by and between theglobe.com, inc.
                    and
                    certain other parties named therein (23).4.14
                Unconditional
                    Guaranty Agreement dated April 22, 2005 (23).10.1
                Form
                    of Indemnification Agreement between the Company and each of
                    its Directors
                    and Executive Officers (1).10.2
                2000
                    Broad Based Stock Option Plan (7).**10.3
                1998
                    Stock Option Plan, as amended (6).**10.4
                1995
                    Stock Option Plan (1).**10.5
                Employee
                    Stock Purchase Plan (5).**10.6
                Technology
                    Purchase Agreement dated November 12, 2002, among theglobe.com,
                    inc. and
                    Brian Fowler (9).10.7
                Employment
                    Agreement dated November 12, 2002, among theglobe.com, inc. and
                    Brian
                    Fowler (9).**10.8
                Payment
                    Agreement dated November 12, 2002, among theglobe.com, inc.,
                    1002390
                    Ontario Inc., and Robert S. Giblett (9).10.9
                Release
                    Agreement dated November 12, 2002, among theglobe.com, inc. and
                    certain
                    other parties named therein (9).10.10
                Agreement
                    and Plan of Merger dated May 23, 2003 between theglobe.com, inc.,
                    DPT
                    Acquisition, Inc., Direct Partner Telecom, Inc., and the stockholders
                    thereof (10).10.11
                Form
                    of Subscription Agreement relating to the purchase of Units of
                    Series G
                    Preferred Stock and Warrants of theglobe.com, inc. (11).10.12
                Employment
                    Agreement dated August 1, 2003 between theglobe.com, inc. and
                    Michael S.
                    Egan (12).**10.13
                Employment
                    Agreement dated August 1, 2003 between theglobe.com, inc. and
                    Edward A.
                    Cespedes (12).**10.14
                Employment
                    Agreement dated August 1, 2003 between theglobe.com, inc. and
                    Robin Segaul
                    Lebowitz (12).**10.15
                Amended
                    & Restated Non-Qualified Stock Option Agreement effective as of
                    August
                    12, 2002 between theglobe.com, inc. and Michael S. Egan (12).**10.16
                Amended
                    & Restated Non-Qualified Stock Option Agreement effective as of
                    August
                    12, 2002 between theglobe.com, inc. and Edward A. Cespedes (12).**10.17
                Amended
                    & Restated Non-Qualified Stock Option Agreement effective as of
                    August
                    12, 2002 between theglobe.com, inc. and Robin Segaul Lebowitz
                    (12).**10.18
                2003
                    Amended and Restated Non-Qualified Stock Option Plan (28).**10.19
                Securities
                    Purchase and Registration Agreement dated March 2, 2004 relating
                    to the
                    purchase of Units of Common Stock and Warrants of theglobe.com,
                    inc. (14).10.20
                Amendment
                    to the Service Order Agreement Terms and Conditions dated July
                    30, 2003,
                    and October 24, 2003 between XO Communications, Inc. and Direct
                    Partner
                    Telecom, Inc., including XO Services Terms and Conditions (14).*10.21
                Broad
                    Capacity Services Agreement dated October 17, 2003 by and between
                    Direct
                    Partner Telecom, Inc. and Progress Telecom Corporation (14).*
  70
 
 10.22
                Agreement
                    and Plan of Merger dated August 31, 2004 by and between theglobe.com,
                    inc., SendTec Acquisition Corporation and SendTec, Inc., among
                    others
                    (16).10.23
                Employment
                    Agreement dated September 1, 2004 by and between SendTec, Inc.
                    and Paul
                    Soltoff (16).**10.24
                Stockholders’
                    Agreement dated September 1, 2004 by and between theglobe.com
                    and certain
                    named stockholders (17).10.25
                theglobe.com
                    2004 Amended and Restated Stock Option Plan (20).10.26
                Promissory
                    Note dated September 1, 2004 (17).10.27
                Form
                    of Potential Conversion Note relating to Series H Preferred Stock
                    (17).10.28
                Termination
                    of Agreement dated as of January 31, 2005 by and between theglobe.com,
                    inc. and Promotion and Display Technology Ltd. (22).10.29
                Consulting
                    Agreement effective as of February 2, 2005 (fully executed as
                    of March 28,
                    2005) between theglobe.com, inc. and Albert J. Detz
                    (22).**10.30
                Carrier
                    Services Agreement between XO Communications, Inc. and Direct
                    Partner
                    Telecom, Inc., as amended and made effective by the First Amendment
                    to the
                    Carrier Services Agreement dated March 25, 2005 (22).10.31
                First
                    Amendment to Carrier Services Agreement dated March 25, 2005
                    (22).10.32
                Note
                    Purchase Agreement dated April 22, 2005 by and between theglobe.com,
                    inc.
                    and certain named investors (23).10.33
                Asset
                    Purchase Agreement dated as of August 10, 2005 by and among theglobe.com,
                    inc., SendTec, Inc. and RelationServe Media, Inc. (24).10.34
                1stAmendment to the Asset Purchase Agreement dated as of August
                    23, 2005, by
                    and among theglobe.com, inc., SendTec, Inc. and RelationServe
                    Media, Inc.
                    (25).10.35
                Redemption
                    Agreement dated August 23, 2005 between theglobe.com, inc. and
                    certain
                    members of management of SendTec, Inc. (26).10.36
                Escrow
                    Agreement dated as of October 31, 2005, by and among theglobe.com,
                    inc.,
                    SendTec, Inc., RelationServe Media, Inc. and Olshan Grundman
                    Frome
                    Rosenzweig & Wolosky LLP (27).10.37
                Termination
                    Agreement dated as of October 31, 2005, by and among theglobe.com,
                    inc.,
                    SendTec, Inc., Paul Soltoff, Eric Obeck, Donald Gould, Harry
                    Greene,
                    Irvine and Nadine Brechner, as tenants by the entirety, Allen
                    Vance, G.
                    Thomas Alison and Steven Morvay (27).21.
                Subsidiaries31.1
                Certification
                    of the Chief Executive Officer pursuant to Rule 13a-14(a) and
                    Rule
                    15d-14(a).31.2
                Certification
                    of the Chief Financial Officer pursuant to Rule 13a-14(a) and
                    Rule
                    15d-14(a).32.1
                Certification
                    of the Chief Executive Officer pursuant to 18 U.S.C. Section
                    1350 as
                    adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
                    2002.32.2
                Certification
                    of the Chief Financial Officer pursuant to 18 U.S.C. Section
                    1350 as
                    adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
                    2002.
  _______________
 
 1.
        Incorporated by reference from our registration statement on Form S-1 filed
        July
        24, 1998 (Registration No. 333-59751).
 
 2.
        Incorporated by reference from our Form S-1/A filed August 20, 1998.
  71
  
 3.
        Incorporated by reference from our Form S-1/A filed September 15, 1998.
 
 4.
        Incorporated by reference from our Form S-1/A filed October 14, 1998.
 
 5.
        Incorporated by reference from our Form 10-K for the year ended December
        31,
        1998 filed March 30, 1999.
 
 6.
        Incorporated by reference from our Form S-1 filed April 13, 1999.
 
 7.
        Incorporated by reference from our Form 10-Q for the quarter ended March
        31,
        2000 dated May 15, 2000.
 
 8.
        Incorporated by reference from our Form 8-K filed August 13, 2002.
 
 9.
        Incorporated by reference from our Form 8-K filed on November 26, 2002.
 
 10.
        Incorporated by reference from our Form 8-K filed on June 6, 2003.
 
 11.
        Incorporated by reference from our Form 8-K filed on July 11, 2003.
 
 12.
        Incorporated by reference from our Form 10-QSB filed on November 14, 2003.
 
 13.
        Incorporated by reference from our Form 10-K filed on March 31, 2003.
 
 14.
        Incorporated by reference from our Form 10-KSB filed on March 30, 2004.
 
 15.
        Incorporated by reference from our Registration Statement on Form SB-2 filed
        on
        April 16, 2004 (Registration No. 333-114556).
 
 16.
        Incorporated by reference from our Form 8-K filed on March 17, 2004.
 
 17.
        Incorporated by reference from our Form 8-K filed September 7,
        2004.
 
 18.
        Incorporated by reference from our Form SB-2 filed April 16, 2004.
 
 19.
        Incorporated by reference from our Post Effective Amendment No. 1 to our
        Form
        SB-2 filed on May 7, 2004.
 
 20.
        Incorporated by reference from our S-8 filed October 13, 2004.
 
 21.
        Incorporated by reference from our Form 8-K filed on December 2,
        2004.
 
 22.
        Incorporated by reference from our 10-KSB filed on March 30, 2005.
 
 23.
        Incorporated by reference from our Form 8-K filed on April 26,
        2005.
 
 24.
        Incorporated by reference from our Form 8-K filed on August 16,
        2005.
 
 25.
        Incorporated by reference to Annex A of our Definitive Information Statement
        filed on September 15, 2005.
 
 26.
        Incorporated by reference to Annex B of our Definitive Information Statement
        filed on September 15, 2005.
 
 27.
        Incorporated by reference from our Form 8-K filed on November 4,
        2005.
 
 28.
        Incorporated by reference from our Form S-8 filed January 22, 2004.
 
 *
        Confidential portions of this exhibit have been omitted and filed separately
        with the Commission pursuant to a request for confidential treatment.
 
 **
        Management contract or compensatory plan or arrangement.
  72
  **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: March 31, 2006
                theglobe.com, inc.*By:*
                */s/
                  Michael
                  S.
                  Egan**Michael
                    S. Egan**Chief
                  Executive Officer*
                  *(Principal
                    Executive Officer)*
  *By:*
                */s/
                  Edward A.
                  Cespedes**Edward
                    A. Cespedes**President,
                      Chief Financial Officer*
                      *(Principal
                        Financial
                        Officer)*
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed by the following persons on behalf of the Registrant in the capacities
        and on the dates indicated.
 
 */s/ Michael S.
                Egan*
              *March 31, 2006**Michael S. Egan**Chairman, Director**/s/ Edward A.
                Cespedes*
              *March 31, 2006**Edward A. Cespedes**Director**/s/
                Robin Lebowitz*
              *March 31**,**2006**Robin
                Lebowitz**Director*
  73
  **EXHIBIT
        INDEX**
 
 **NO.
        ITEM**
 3.1
              Form
                  of Fourth Amended and Restated Certificate of Incorporation of
                  the Company
                  (3).3.2
              Certificate
                  of Amendment to Fourth Amended and Restated Certificate of Incorporation
                  (18).3.3
              Certificate
                  of Amendment to Fourth Amended and Restated Certificate of Incorporation
                  filed with the Secretary of State of Delaware on July 29, 2003
                  (18).3.4
              Certificate
                  relating to Previously Outstanding Series of Preferred Stock and
                  Relating
                  to the Designation, Preferences and Rights of the Series F Preferred
                  Stock
                  (13).3.5
              Certificate
                  of Amendment Relating to the Designation Preferences and Rights
                  of the
                  Junior Participating Preferred Stock (15).3.6
              Form
                  of By-Laws of the Company (18).3.7
              Certificate
                  of Amendment Relating to the Designation Preferences and Rights
                  of the
                  Series H Automatically Converting Preferred Stock (17).3.8
              Certificate
                  of Amendment to Fourth Amended and Restated Certificate of Incorporation
                  filed with the Secretary of State of Delaware on December 1, 2004
                  (21).4.1
              Registration
                  Rights Agreement, dated as of September 1, 1998 (5).4.2
              Amendment
                  No.1 to Registration Rights Agreement, dated as of April 9, 1999
                  (6).4.3
              Specimen
                  certificate representing shares of Common Stock of the Company
                  (4).4.4
              Amended
                  and Restated Warrant to Acquire Shares of Common Stock (2).4.5
              Form
                  of Rights Agreement, by and between the Company and American Stock
                  Transfer & Trust Company as Rights Agent (3).4.6
              Form
                  of Warrant dated November 12, 2002 to acquire shares of Common
                  Stock (9).4.7
              Form
                  of Warrant dated March 28, 2003 to acquire shares of Common Stock
                  (13).4.8
              Form
                  of Warrant dated May 28, 2003 to acquire an aggregate of 500,000
                  shares of
                  theglobe.com Common Stock (10).
  74
 
 4.9
              Form
                  of Warrant dated July 2, 2003 to acquire securities of theglobe.com,
                  inc.
                  (11).4.10
              Form
                  of Warrant dated March 5, 2004 to acquire securities of theglobe.com,
                  inc.
                  (16).4.11
              Form
                  of Warrant relating to potential issuance of Earn-out Consideration
                  (17).4.12
              Form
                  of Secured Demand Convertible Promissory Note (23).4.13
              Security
                  Agreement dated April 22, 2005 by and between theglobe.com, inc.
                  and
                  certain other parties named therein (23).4.14
              Unconditional
                  Guaranty Agreement dated April 22, 2005 (23).10.1
              Form
                  of Indemnification Agreement between the Company and each of its
                  Directors
                  and Executive Officers (1).10.2
              2000
                  Broad Based Stock Option Plan (7).**10.3
              1998
                  Stock Option Plan, as amended (6).**10.4
              1995
                  Stock Option Plan (1).**10.5
              Employee
                  Stock Purchase Plan (5).**10.6
              Technology
                  Purchase Agreement dated November 12, 2002, among theglobe.com,
                  inc. and
                  Brian Fowler (9).10.7
              Employment
                  Agreement dated November 12, 2002, among theglobe.com, inc. and
                  Brian
                  Fowler (9).**10.8
              Payment
                  Agreement dated November 12, 2002, among theglobe.com, inc., 1002390
                  Ontario Inc., and Robert S. Giblett (9).10.9
              Release
                  Agreement dated November 12, 2002, among theglobe.com, inc. and
                  certain
                  other parties named therein (9).10.10
              Agreement
                  and Plan of Merger dated May 23, 2003 between theglobe.com, inc.,
                  DPT
                  Acquisition, Inc., Direct Partner Telecom, Inc., and the stockholders
                  thereof (10).10.11
              Form
                  of Subscription Agreement relating to the purchase of Units of
                  Series G
                  Preferred Stock and Warrants of theglobe.com, inc. (11).10.12
              Employment
                  Agreement dated August 1, 2003 between theglobe.com, inc. and Michael
                  S.
                  Egan (12).**10.13
              Employment
                  Agreement dated August 1, 2003 between theglobe.com, inc. and Edward
                  A.
                  Cespedes (12).**10.14
              Employment
                  Agreement dated August 1, 2003 between theglobe.com, inc. and Robin
                  Segaul
                  Lebowitz (12).**10.15
              Amended
                  & Restated Non-Qualified Stock Option Agreement effective as of August
                  12, 2002 between theglobe.com, inc. and Michael S. Egan (12).**10.16
              Amended
                  & Restated Non-Qualified Stock Option Agreement effective as of August
                  12, 2002 between theglobe.com, inc. and Edward A. Cespedes (12).**10.17
              Amended
                  & Restated Non-Qualified Stock Option Agreement effective as of August
                  12, 2002 between theglobe.com, inc. and Robin Segaul Lebowitz (12).**10.18
              2003
                  Amended and Restated Non-Qualified Stock Option Plan (28).**
  75
 
 10.19
              Securities
                  Purchase and Registration Agreement dated March 2, 2004 relating
                  to the
                  purchase of Units of Common Stock and Warrants of theglobe.com,
                  inc. (14).10.20
              Amendment
                  to the Service Order Agreement Terms and Conditions dated July
                  30, 2003,
                  and October 24, 2003 between XO Communications, Inc. and Direct
                  Partner
                  Telecom, Inc., including XO Services Terms and Conditions (14).*10.21
              Broad
                  Capacity Services Agreement dated October 17, 2003 by and between
                  Direct
                  Partner Telecom, Inc. and Progress Telecom Corporation (14).*10.22
              Agreement
                  and Plan of Merger dated August 31, 2004 by and between theglobe.com,
                  inc., SendTec Acquisition Corporation and SendTec, Inc., among
                  others
                  (16).10.23
              Employment
                  Agreement dated September 1, 2004 by and between SendTec, Inc.
                  and Paul
                  Soltoff (16).**10.24
              Stockholders’
                  Agreement dated September 1, 2004 by and between theglobe.com and
                  certain
                  named stockholders (17).10.25
              theglobe.com
                  2004 Amended and Restated Stock Option Plan (20).10.26
              Promissory
                  Note dated September 1, 2004 (17).10.27
              Form
                  of Potential Conversion Note relating to Series H Preferred Stock
                  (17).10.28
              Termination
                  of Agreement dated as of January 31, 2005 by and between theglobe.com,
                  inc. and Promotion and Display Technology Ltd. (22).10.29
              Consulting
                  Agreement effective as of February 2, 2005 (fully executed as of
                  March 28,
                  2005) between theglobe.com, inc. and Albert J. Detz
                  (22).**10.30
              Carrier
                  Services Agreement between XO Communications, Inc. and Direct Partner
                  Telecom, Inc., as amended and made effective by the First Amendment
                  to the
                  Carrier Services Agreement dated March 25, 2005 (22).10.31
              First
                  Amendment to Carrier Services Agreement dated March 25, 2005 (22).10.32
              Note
                  Purchase Agreement dated April 22, 2005 by and between theglobe.com,
                  inc.
                  and certain named investors (23).10.33
              Asset
                  Purchase Agreement dated as of August 10, 2005 by and among theglobe.com,
                  inc., SendTec, Inc. and RelationServe Media, Inc. (24).10.34
              1stAmendment to the Asset Purchase Agreement dated as of August 23,
                  2005, by
                  and among theglobe.com, inc., SendTec, Inc. and RelationServe Media,
                  Inc.
                  (25).10.35
              Redemption
                  Agreement dated August 23, 2005 between theglobe.com, inc. and
                  certain
                  members of management of SendTec, Inc. (26).10.36
              Escrow
                  Agreement dated as of October 31, 2005, by and among theglobe.com,
                  inc.,
                  SendTec, Inc., RelationServe Media, Inc. and Olshan Grundman Frome
                  Rosenzweig & Wolosky LLP (27).10.37
              Termination
                  Agreement dated as of October 31, 2005, by and among theglobe.com,
                  inc.,
                  SendTec, Inc., Paul Soltoff, Eric Obeck, Donald Gould, Harry Greene,
                  Irvine and Nadine Brechner, as tenants by the entirety, Allen Vance,
                  G.
                  Thomas Alison and Steven Morvay (27).21.
              Subsidiaries31.1
              Certification
                  of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
                  15d-14(a).31.2
              Certification
                  of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
                  15d-14(a).
  76
 
 32.1
              Certification
                  of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
                  as
                  adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
                  2002.32.2
              Certification
                  of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
                  as
                  adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
                  2002.
 
 
 _______________
 
 1.
        Incorporated by reference from our registration statement on Form S-1 filed
        July
        24, 1998 (Registration No. 333-59751).
 
 2.
        Incorporated by reference from our Form S-1/A filed August 20, 1998.
 
 3.
        Incorporated by reference from our Form S-1/A filed September 15, 1998.
 
 4.
        Incorporated by reference from our Form S-1/A filed October 14, 1998.
 
 5.
        Incorporated by reference from our Form 10-K for the year ended December
        31,
        1998 filed March 30, 1999.
 
 6.
        Incorporated by reference from our Form S-1 filed April 13, 1999.
 
 7.
        Incorporated by reference from our Form 10-Q for the quarter ended March
        31,
        2000 dated May 15, 2000.
 
 8.
        Incorporated by reference from our Form 8-K filed August 13, 2002.
 
 9.
        Incorporated by reference from our Form 8-K filed on November 26, 2002.
 
 10.
        Incorporated by reference from our Form 8-K filed on June 6, 2003.
 
 11.
        Incorporated by reference from our Form 8-K filed on July 11, 2003.
 
 12.
        Incorporated by reference from our Form 10-QSB filed on November 14, 2003.
 
 13.
        Incorporated by reference from our Form 10-K filed on March 31, 2003.
 
 14.
        Incorporated by reference from our Form 10-KSB filed on March 30, 2004.
 
 15.
        Incorporated by reference from our Registration Statement on Form SB-2 filed
        on
        April 16, 2004 (Registration No. 333-114556).
 
 16.
        Incorporated by reference from our Form 8-K filed on March 17, 2004.
 
 17.
        Incorporated by reference from our Form 8-K filed September 7,
        2004.
 
 18.
        Incorporated by reference from our Form SB-2 filed April 16, 2004.
 
 19.
        Incorporated by reference from our Post Effective Amendment No. 1 to our
        Form
        SB-2 filed on May 7, 2004.
 
 20.
        Incorporated by reference from our S-8 filed October 13, 2004.
 
 21.
        Incorporated by reference from our Form 8-K filed on December 2,
        2004.
 
 22.
        Incorporated by reference from our 10-KSB filed on March 30, 2005.
 
 23.
        Incorporated by reference from our Form 8-K filed on April 26,
        2005.
 
 24.
        Incorporated by reference from our Form 8-K filed on August 16,
        2005.
 
 77
  25.
        Incorporated by reference to Annex A of our Definitive Information Statement
        filed on September 15, 2005.
 
 26.
        Incorporated by reference to Annex B of our Definitive Information Statement
        filed on September 15, 2005.
 
 27.
        Incorporated by reference from our Form 8-K filed on November 4,
        2005.
 
 28.
        Incorporated by reference from our Form S-8 filed January 22, 2004.
 
 *
        Confidential portions of this exhibit have been omitted and filed separately
        with the Commission pursuant to a request for confidential treatment.
 
 **
        Management contract or compensatory plan or arrangement.
  78