UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September
30, 2012
OR
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¨
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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)
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STATE OF DELAWARE
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14-1782422
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(STATE OR OTHER JURISDICTION OF
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(I.R.S. EMPLOYER
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INCORPORATION OR ORGANIZATION)
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IDENTIFICATION NO.)
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1500 CORDOVA ROAD, SUITE 302
FORT LAUDERDALE, FL. 33316
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(954) 769 - 5900
(Registrant's telephone number, including
area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
x
Yes
¨
No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2
of the Exchange Act. (check one)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
x
No
¨
The number of shares outstanding of the
Registrant's Common Stock, $.001 par value (the "Common Stock") as of October 31, 2012 was 441,484,838.
THEGLOBE.COM, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I:
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FINANCIAL INFORMATION
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1
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Item 1.
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Financial Statements
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1
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Condensed Consolidated Balance Sheets at September 30, 2012 (unaudited) and December 31, 2011
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1
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Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011
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2
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Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011
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3
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Notes to Unaudited Condensed Consolidated Financial Statements
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4
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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9
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Item 4.
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Controls and Procedures
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13
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PART II:
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OTHER INFORMATION
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13
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Item 1.
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Legal Proceedings
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13
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Item 1A.
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Risk Factors
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13
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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17
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Item 3.
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Defaults Upon Senior Securities
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17
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Item 4.
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Mine Safety Disclosures
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17
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Item 5.
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Other Information
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17
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Item 6.
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Exhibits
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17
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SIGNATURES
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18
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30,
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DECEMBER 31,
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2012
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2011
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(UNAUDITED)
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ASSETS
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Current Assets:
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Cash
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$
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452
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$
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1,354
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Prepaid expenses
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5,523
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4,972
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Total current assets
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$
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5,975
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$
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6,326
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current Liabilities:
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Accounts payable to related party
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$
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341,570
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$
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291,070
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Accounts payable
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178,084
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178,184
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Accrued expenses and other current liabilities
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442,632
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443,532
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Accrued interest due to related party
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210,767
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173,233
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Notes payable due to related party
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500,000
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500,000
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Net liabilities of discontinued operations
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1,564,556
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1,609,556
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Total current liabilities
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3,237,609
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3,195,575
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Stockholders' Deficit:
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Common stock, $0.001 par value; 500,000,000 shares authorized; 441,484,838 issued and outstanding at September 30, 2012 and December 31, 2011
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441,485
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441,485
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Additional paid-in capital
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294,301,845
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294,301,845
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Accumulated deficit
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(297,974,964
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)
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(297,932,579
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)
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Total stockholders' deficit
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(3,231,634
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)
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(3,189,249
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)
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Total liabilities and stockholders’ deficit
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$
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5,975
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$
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6,326
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See notes to unaudited condensed consolidated
financial statements.
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2012
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2011
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2012
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2011
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(UNAUDITED)
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(UNAUDITED)
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Net Revenue
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$
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—
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$
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—
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$
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—
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$
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—
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Operating Expenses:
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General and administrative
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27,022
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23,786
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105,826
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67,998
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Related party transactions
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60,000
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60,000
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180,000
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180,000
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87,022
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83,786
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285,826
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247,998
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Operating Loss from Continuing Operations
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(87,022
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)
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(83,786
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)
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(285,826
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)
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(247,998
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)
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Other Income (Expense), net:
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Related party interest expense
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(12,603
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)
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(12,603
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)
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(37,534
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)
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(37,397
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)
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Related party other income
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93,750
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87,500
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281,250
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262,500
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81,147
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74,897
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243,716
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225,103
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Loss from Continuing Operations Before Income Tax
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(5,875
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)
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(8,889
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)
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(42,110
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)
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(22,895
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)
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Income Tax Provision
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—
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—
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—
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—
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Loss from Continuing Operations
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|
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(5,875
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)
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(8,889
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)
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(42,110
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)
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(22,895
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)
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Discontinued Operations, net of tax:
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—
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—
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(275
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)
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(424
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)
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Net Loss
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$
|
(5,875
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)
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$
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(8,889
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)
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$
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(42,385
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)
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$
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(23,319
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)
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Loss Per Share:
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Basic and Diluted:
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|
|
|
|
|
|
|
|
|
|
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Continuing Operations
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$
|
—
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|
|
$
|
—
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|
|
$
|
—
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|
|
$
|
—
|
|
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Discontinued Operations
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|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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Weighted Average Common Shares Outstanding
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|
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441,484,838
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|
|
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441,484,838
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|
|
|
441,484,838
|
|
|
|
441,484,838
|
|
See notes to unaudited condensed consolidated
financial statements.
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
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Nine Months
Ended September 30,
|
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2012
|
|
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2011
|
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|
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(UNAUDITED)
|
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Cash Flows from Operating Activities:
|
|
|
|
|
|
|
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Net loss
|
|
$
|
(42,385
|
)
|
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$
|
(23,319
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)
|
|
Add back: loss from discontinued operations
|
|
|
275
|
|
|
|
424
|
|
|
Net loss from continuing operations
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|
|
(42,110
|
)
|
|
|
(22,895
|
)
|
|
|
|
|
|
|
|
|
|
|
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Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities
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|
|
|
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|
|
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|
|
|
|
|
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Changes in operating assets and liabilities
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|
|
|
|
|
|
|
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Prepaid and other current assets
|
|
|
(551
|
)
|
|
|
652
|
|
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Accounts payable to related party
|
|
|
50,500
|
|
|
|
35,500
|
|
|
Accounts payable
|
|
|
(100
|
)
|
|
|
—
|
|
|
Accrued expenses and other current liabilities
|
|
|
(900
|
)
|
|
|
(6,899
|
)
|
|
Accrued interest due to related party
|
|
|
37,534
|
|
|
|
37,397
|
|
|
|
|
|
|
|
|
|
|
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Net cash flows from operating activities of continuing operations
|
|
|
44,373
|
|
|
|
43,755
|
|
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Net cash flows from operating activities of discontinued operations
|
|
|
(45,275
|
)
|
|
|
(45,424
|
)
|
|
Net cash flows from operating activities
|
|
|
(902
|
)
|
|
|
(1,669
|
)
|
|
|
|
|
|
|
|
|
|
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|
Net Decrease in Cash and Cash Equivalents
|
|
|
(902
|
)
|
|
|
(1,669
|
)
|
|
Cash and Cash Equivalents, at beginning of period
|
|
|
1,354
|
|
|
|
2,689
|
|
|
Cash and Cash Equivalents, at end of period
|
|
$
|
452
|
|
|
$
|
1,020
|
|
See notes to unaudited condensed consolidated
financial statements.
THEGLOBE.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THEGLOBE.COM
theglobe.com, inc. (the “Company”
or “theglobe”) was incorporated on May 1, 1995 (inception) and commenced operations on that date. Originally,
theglobe.com was an online community with registered members and users in the United States and abroad. 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 continued
to operate its Computer Games print magazine and the associated CGOnline website, as well as the e-commerce games distribution
business of Chips & Bits. 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 entered into the Voice over Internet
Protocol (“VoIP”) business by acquiring certain VoIP assets.
On May 9, 2005, the Company exercised an
option to acquire all of the outstanding capital stock of Tralliance Corporation (“Tralliance”), an entity which had
been designated as the registry for the “.travel” top-level domain through an agreement with the Internet Corporation
for Assigned Names and Numbers (“ICANN”).
As more fully discussed in Note 3, “Discontinued
Operations,” in March 2007, management and the Board of Directors of the Company made the decision to (i) cease all activities
related to its computer games businesses, including discontinuing the operations of its magazine publications, games distribution
business and related websites; and (ii) discontinue the operating, research and development activities of its VoIP telephony services
business and terminate all of the remaining employees of that business.
On September 29, 2008, the Company sold
its Tralliance business and issued 229,000,000 shares of its Common Stock to a company controlled by Michael S. Egan, the Company’s
Chairman and Chief Executive Officer. As a result of the sale of its Tralliance business, the Company became a shell company
(as defined in Rule 12b-2 of the Securities and Exchange Act of 1934) with no material operations or assets. Certain matters,
as more fully discussed in Note 2, “Liquidity and Going Concern Considerations,” raise substantial doubt about the
Company’s ability to continue as a going concern.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries from their respective dates of acquisition. All significant
intercompany balances and transactions have been eliminated in consolidation.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited interim condensed consolidated
financial statements of the Company as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011
included herein have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934,
as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. Certain information and note disclosures
normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations relating to interim condensed consolidated financial statements.
In the opinion of management, the accompanying
unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at September 30, 2012 and the results of its operations for the
three and nine months ended September 30, 2012 and 2011. The results of operations for such periods are not necessarily indicative
of results expected for the full year or for any future period.
USE OF ESTIMATES
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions
relate primarily to valuations of accounts payable and accrued expenses. At September 30, 2012 and December 31, 2011, a significant
portion of our liabilities of discontinued operations relate to charges that have been disputed by the Company and for which estimates
have been required. Our estimates, judgments and assumptions are continually evaluated based upon available information and experience.
Because of estimates inherent in the financial reporting process, actual results could differ from those estimates.
NET INCOME PER SHARE
The Company reports basic and diluted net
income per common share in accordance with FASB ASC Topic 260, "Earnings Per Share." 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 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.
Due to the anti-dilutive effect of potentially
dilutive securities or common stock equivalents that could be issued, such securities were excluded from the diluted net loss per
common share calculation for all periods presented. Such potentially dilutive securities and common stock equivalents consisted
of the following for the periods ended September 30:
|
|
|
2012
|
|
|
2011
|
|
|
Options to purchase common stock
|
|
|
8,730,000
|
|
|
|
13,527,500
|
|
|
Common shares issuable upon exercise of warrants
|
|
|
2,250,000
|
|
|
|
2,250,000
|
|
|
Total
|
|
|
10,980,000
|
|
|
|
15,777,500
|
|
RECENT ACCOUNTING PRONOUNCEMENTS
Management has determined that all recently
issued accounting pronouncements will not have a material impact on the Company’s financial statements or do not apply to
the Company’s operations.
RECLASSIFICATIONS
Certain amounts in the prior year financial
statements have been reclassified to conform to the current year presentation.
(2) LIQUIDITY AND GOING CONCERN CONSIDERATIONS
The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, the condensed consolidated financial statements do not include any adjustments relating to the recoverability
of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
However, for the reasons described below, Company management does not believe that cash on hand and cash flow generated internally
by the Company will be adequate to fund its limited overhead and other cash requirements beyond a short period of time. These reasons
raise significant doubt about the Company’s ability to continue as a going concern.
Since 2008, the Company was able to continue
operating as a going concern due principally to funding of $500,000 received during 2008 under a Revolving Loan Agreement with
an entity controlled by Michael S. Egan, its Chairman and Chief Executive Officer and a total of approximately $1,350,000 received
during 2009 to 2012 under an Earn-out Agreement with an entity also controlled by Mr. Egan, as well as the forbearance of its creditors.
At September 30, 2012, the Company had
a net working capital deficit of approximately $3,232,000. Such working capital deficit included (i) a total of approximately
$711,000 in principal and accrued interest owed under the aforementioned Revolving Loan Agreement; (ii) a total of approximately
$342,000 in management service fees owed under a Master Services Agreement to an entity controlled by Mr. Egan; and (iii) an aggregate
of approximately $2,185,000 in unsecured accounts payable and accrued expenses owed to vendors and other non-related third parties
(of which approximately $1,565,000 relates to liabilities of our VoIP telephony service discontinued business). Approximately $1,200,000
of the aforementioned non-related party unsecured liabilities have been disputed by the Company. These disputed liabilities relate
primarily to telecommunications network service fees charged by several former vendors of the Company’s discontinued VoIP
telephony services business during the period from 2004 to 2007 (see Note 3, “Discontinued Operations”). These charges
have been disputed by the Company primarily due to such items as incorrect quantities, rates, service dates, regulatory fees/charges,
late fees and contract termination fees. theglobe believes that its ability to continue as a going concern for any significant
length of time in the future will be heavily dependent, among other things, on the continued forbearance of Mr. Egan and related
entities in making demand for payment for amounts outstanding under the Revolving Loan Agreement and the Master Services Agreement,
and its ability to prevail and avoid making any payments with respect to such disputed vendor charges and/or to negotiate favorable
settlements (including discounted payment and/or payment term concessions) with the aforementioned creditors.
As discussed previously, on September 29,
2008, the Company (i) sold the business and substantially all of the assets of its Tralliance Corporation subsidiary to Tralliance
Registry Management, and (ii) issued 229,000,000 shares of its Common Stock (the “Shares”) to Registry Management (the
“Purchase Transaction”). Tralliance Registry Management and Registry Management are entities controlled by Michael
S. Egan. The closing of the Purchase Transaction resulted in the cancellation of all of the Company’s remaining Convertible
Debt, related accrued interest and rent and accounts payable owed to entities controlled by Mr. Egan as of the date of closing
(totaling approximately $6,400,000). However, the Company continues to be obligated to repay its principal borrowings totaling
$500,000, plus accrued interest at the rate of 10% per annum (approximately $211,000 as of September 30, 2012), due to an entity
controlled by Mr. Egan under the aforementioned Revolving Loan Agreement. All unpaid borrowings under the Revolving Loan Agreement,
as amended on May 7, 2009, including accrued interest, are due and payable by the Company in one lump sum on the earlier of (i)
five business days following any demand for payment, which demand can be made at any time, or (ii) the occurrence of an event of
default as defined in the Revolving Loan Agreement. The Company currently has no ability to repay this loan should a demand for
payment be made by the noteholder. All borrowings under the Revolving Loan Agreement are secured by a pledge of all of the
assets of the Company and its subsidiaries. After giving effect to the closing of the Purchase Transaction and the issuance of
the Shares thereunder, Mr. Egan now beneficially owns approximately 76% of the Company’s issued and outstanding Common Stock
at September 30, 2012.
As additional consideration under the Purchase
Transaction, Tralliance Registry Management is obligated to pay an earn-out to theglobe equal to 10% (subject to certain minimums)
of Tralliance Registry Management’s net revenue (as defined) derived from “.travel” names registered by Tralliance
Registry Management from September 29, 2008 through May 5, 2015 (the “Earn-out”). The minimum Earn-out payable by Tralliance
Registry Management to theglobe was $300,000 in the first year, increasing by $25,000 in each subsequent year (pro-rated for the
final year of the Earn-out).
In connection with the closing of the Purchase
Transaction, the Company also entered into a Master Services Agreement with an entity controlled by Mr. Egan whereby for a fee
of $20,000 per month ($240,000 per annum) such entity will provide personnel and services to the Company so as to enable it to
continue its existence as a public company without the necessity of any full-time employees of its own. Additionally, commensurate
with the closing of the Purchase Transaction, Termination Agreements with each of its current executive officers, which terminated
their previous and then existing employment agreements, were executed. Notwithstanding the termination of these employment agreements,
each of our current executive officers and directors remain as executive officers and directors of the Company.
Immediately following the closing of the
Purchase Transaction, theglobe became a shell company with no material operations or assets, and no source of revenue other than
under the Earn-out. It is expected that theglobe’s future operating expenses as a public shell company will consist
primarily of expenses incurred under the aforementioned Master Services Agreement and other customary public company expenses,
including legal, audit and other miscellaneous public company costs.
MANAGEMENT’S PLANS
As a shell company, management believes
that theglobe will most likely continue to incur losses from continuing operations and cash flow deficiencies for the foreseeable
future. However, assuming that no significant unplanned costs are incurred, management believes that theglobe’s future losses
will be limited. Further, in the event that Registry Management is successful in substantially increasing net revenue derived from
“.travel” name registrations (and as the result maximizing theglobe’s Earn-out revenue) in the future, theglobe’s
prospects for achieving profitability will be enhanced. To date, the Company has received only the minimum payments pursuant
to the Earn-out. There can be no assurance that theglobe will be able to collect the minimum payments over the remaining life of
the Earn-out.
It is the Company’s preference to
avoid filing for protection under the U.S. Bankruptcy Code. However, based upon the Company’s current financial condition
as discussed above, management believes that additional debt or equity capital will need to be raised in order for theglobe to
continue to operate as a going concern on a long-term basis. Such capital will be needed both to (i) fund its expected future continuing
operation losses and (ii) repay the $711,000 of secured debt and related accrued interest due under the Revolving Loan Agreement
and the $342,000 of management service fees due under the Master Services Agreement, and a portion of the $2,185,000 unsecured
indebtedness (assuming theglobe is successful in favorably resolving and settling certain disputed and non-disputed vendor charges
related to such unsecured indebtedness). Any such capital would likely come from Mr. Egan, or affiliates of Mr. Egan, as
the Company currently has no access to credit facilities and had traditionally relied upon borrowings from related parties to meet
short-term liquidity needs. Any such capital raised would likely result in very substantial dilution in the number of outstanding
shares of the Company’s Common Stock.
On a short-term liquidity basis, the Company
must be successful in collecting the quarterly Earn-out payments contractually due from Tralliance Registry Management on a timely
basis, and must receive the continued indulgence of substantially all of its creditors, in order to continue to operate as a going
concern in the near term. Given theglobe’s current financial condition and the state of the current United States capital
markets and economy, it has no current intent to seek to acquire, or start, any other businesses.
(3) DISCONTINUED OPERATIONS
In March 2007, management and the Board
of Directors of the Company made the decision to cease all activities related to its Computer Games businesses, including discontinuing
the operations of its magazine publications, games distribution business and related websites. The Company’s decision to
shut down its computer games businesses was based primarily on the historical losses sustained by these businesses during the recent
past and management’s expectations of continued future losses. As of September 30, 2012, all significant elements of its
computer games business shutdown plan have been completed by the Company.
In addition, in March 2007, management
and the Board of Directors of the Company decided to discontinue the operating, research and development activities of its VoIP
telephony services business and terminate all of the remaining employees of the business.
The Company’s decision
to discontinue the operations of its VoIP telephony services business was based primarily on the historical losses sustained by
the business during the past several years, management’s expectations of continued losses for the foreseeable future and
estimates of the amount of capital required to attempt to successfully monetize its business. As of September 30, 2012, all significant
elements of its VoIP telephony services business shutdown plan have been completed by the Company, except for the resolution of
certain vendor disputes and the payment of remaining outstanding vendor payables.
Results of operations for the Computer
Games and VoIP telephony services businesses have been reported separately as “Discontinued Operations” in the accompanying
condensed consolidated statements of operations for all periods presented. There are no discontinued operations assets included
in the accompanying condensed consolidated balance sheets. The remaining liabilities of the VoIP telephony services business, totaling
approximately $1,565,000 and $1,610,000 at September 30, 2012 and December 31, 2011, respectively, have been included in the caption,
“Liabilities of Discontinued Operations” in the accompanying condensed consolidated balance sheets. Approximately $1,000,000
of such liabilities at September 30, 2012 and December 31, 2011 relate to charges that have been disputed by the Company and for
which estimates were required.
(4) STOCK OPTION PLANS
We have several stock option plans under
which nonqualified stock options may be granted to officers, directors, other employees, consultants and advisors of the Company.
In general, options granted under the Company’s stock option plans expire after a ten-year period and generally vest no later
than three years from the date of grant. Incentive options granted to stockholders who own greater than 10% of the total combined
voting power of all classes of stock of the Company must be issued at 110% of the fair market value of the stock on the date the
options are granted. As of September 30, 2012, there were approximately 14,254,000 shares available for grant under the Company’s
stock option plans.
There were no stock option grants or exercises
during each of the nine months ended September 30, 2012 and 2011.
Stock option activity during the nine months ended September
30, 2012 was as follows:
|
|
|
Total Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Outstanding at December 31, 2011
|
|
|
13,502,500
|
|
|
$
|
0.17
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
Expired
|
|
|
(4,772,500
|
)
|
|
|
0.02
|
|
|
Outstanding at September 30, 2012
|
|
|
8,730,000
|
|
|
$
|
0.25
|
|
|
Options exercisable at September 30, 2012
|
|
|
8,730,000
|
|
|
$
|
0.25
|
|
Each of the weighted-average remaining
contractual terms of stock options outstanding and stock options exercisable at September 30, 2012 were 2.2 years. The aggregate
intrinsic value of both options outstanding and stock options exercisable at September 30, 2012 was $0.
Stock compensation cost is recognized on
a straight-line basis over the vesting period. At September 30, 2012, there was no unrecognized compensation expense related to
unvested stock options.
The Company estimates the fair value of
each stock option at the grant date by using the Black Scholes option-pricing model using the following assumptions: no dividend
yield; a risk free interest rate based on the U.S. Treasury yield in effect at the time of grant; an expected option life based
on historical and expected exercise behavior; and expected volatility based on the historical volatility of the Company’s
stock price over a time period that is consistent with the expected life of the option.
(5) LITIGATION
On October 14, 2011, the Company was served
with a summons and complaint dated October 11, 2011 (the “Complaint”) filed in the United States Bankruptcy Court for
the Middle District of Florida (the “Court”). The deadline for the Company to respond to the Complaint was November
10, 2011. The Complaint was filed by Stanley A. Murphy, as the Distribution Trustee of the Distribution Trust Created under the
Confirmed Plan of Reorganization of SendTec, Inc. (formerly RelationServe Media, Inc.) (the “Distribution Trust”).
SendTec, Inc. (“SendTec”) was
a direct response marketing services and technology business that was originally purchased by the Company on September 1, 2004.
On October 31, 2005 all of the business and substantially all of the assets of SendTec (including the name “SendTec”)
were sold to a subsidiary of RelationServe Media, Inc. (together “RelationServe”) (the “Purchase Transaction”)
for a purchase price of approximately $39,900,000.
The Complaint alleges, among other things,
that SendTec or one of its affiliates was insolvent at the time of, or was rendered insolvent, as a result of, the Purchase Transaction.
The Complaint further alleges that the Purchase Transaction was made with the actual intent to hinder, delay or defraud creditors
of SendTec or its affiliates and that it received less than reasonably equivalent value for the purchase price paid to the Company
in connection therewith. The Complaint alleges that the Purchase Transaction was a fraudulent transfer under applicable Florida
Statutes and that it is avoidable under such Florida Statutes and applicable federal bankruptcy law. The Complaint seeks to recover
all monies received by the Company in connection with the Purchase Transaction for the benefit of the Distribution Trust.
The Company filed a motion to dismiss the lawsuit on several
grounds and in the alternative for a more definitive statement. The Court held a hearing on the Company’s motion to dismiss
on April 17, 2012. The Court granted the Company’s motion to dismiss, but allowed the Distribution Trust to amend the Complaint
to attempt to resolve the deficiencies therein.
On May 15, 2012, an amended Complaint was filed by the Distribution
Trust. Shortly thereafter, the Company filed another motion to dismiss the lawsuit. As of the date hereof, the Court has not issued
a ruling on the amended Complaint and the Company’s subsequent motion to dismiss the lawsuit.
The Company intends to vigorously defend itself against the
allegations made in the Complaint. However, we have very limited cash resources and the legal costs that may be incurred in the
defense and resolution of this matter alone could adversely affect our ability to continue as a going concern.
The Company is currently a party to certain
other claims and disputes arising in the ordinary course of business, including certain disputes related to vendor charges incurred
by its discontinued VoIP telephony services business. The Company believes that it has recorded adequate accruals on its balance
sheet to cover such disputed charges, totaling approximately $1,200,000, and is seeking to resolve and settle such disputed charges
for amount substantially less than recorded amounts. An adverse outcome in any of these matters, however, could materially and
adversely effect our financial position and prospects, utilizing all or a significant portion of our limited cash resources, and
adversely affect our ability to continue as a going concern (see Note 2, “Liquidity and Going Concern Considerations”).
(6)
RELATED PARTY TRANSACTIONS
On June 6, 2008, the Company entered into
a Revolving Loan Agreement with Dancing Bear Investments, Inc. (“Dancing Bear”), pursuant to which Dancing Bear may
loan up to $500,000 to the Company on a revolving basis (the “Credit Line”). Dancing Bear is an entity
controlled by Michael S. Egan, the Company’s Chairman and Chief Executive Officer. During 2008 the Company made borrowings
totaling the full amount of the $500,000 Credit Line. At September 30, 2012, outstanding principal and accrued interest under
the Credit Line totaled $500,000 and $210,767, respectively. During the nine months ended September 30, 2012 and 2011, interest
expense related to the Credit Line of $37,534 and $37,397, respectively, was recorded. All borrowings under the Credit Line,
including accrued interest on borrowed funds at the rate of 10% per annum, were initially due and payable in one lump sum on the
first anniversary of the Credit Line, or June 6, 2009, or sooner upon the occurrence of an event of default under the loan documentation.
On May 7, 2009, such repayment terms were amended so as to require the Company to repay any or all amounts due under the Credit
Line in one lump sum on the earlier of (i) five business days following any demand for payment that is made on or after June
6, 2009, or (ii) the occurrence of an event of default as defined in the Revolving Credit Agreement.
During the nine months ended September
30, 2012 and 2011, the Company received minimum Earn-out installment payments from Tralliance Registry Management Company LLC (“Tralliance
Registry Management”) totaling $281,250 and $262,500, respectively, under an Earn-out Agreement entered into on September
29, 2008 by and between Tralliance Registry Management and the Company. Such Earn-out payments have been recorded as related party
income in our condensed consolidated statements of operations. Tralliance Registry Management is an entity controlled by
Michael S. Egan, and each of our two remaining executive officers and Board members, Edward A. Cespedes, our President, and Robin
S. Lebowitz, our Vice President of Finance, who own a minority interest in The Registry Management Company, LLC, the parent company
of Tralliance Registry Management.
During the nine months ended September
30, 2012 and 2011, the Company paid management services fees to Dancing Bear totaling $129,500 and $144,500, respectively, and
recorded related party transactions expense of $180,000 and $180,000, respectively, in its condensed consolidated statement of
operations, under a Master Services Agreement entered into on September 29, 2008 by and between Dancing Bear and the Company.
At September 30, 2012, a total of $341,570 in management service fees remains unpaid and is accrued on the Company’s
condensed consolidated balance sheet.
(7)
SUBSEQUENT EVENTS
We have performed an evaluation of subsequent events that have
occurred after the balance sheet date, but before the financial statements were available to be issued, which the Company considers
to be the date the financial statements were issued. There were none.
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking
statements within the meaning of the federal securities laws that relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology, such as "may," "will," "should,"
"could," "expect," "plan," "anticipate," "believe," "estimate," "project,"
"predict," "intend," "potential" or "continue" or the negative of such terms or other comparable
terminology, although not all forward-looking statements contain such terms. In addition, these forward-looking statements include,
but are not limited to, statements regarding:
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·
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the outcome of pending litigation;
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·
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our ability to negotiate favorable settlements with unsecured creditors;
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·
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our ability to successfully resolve disputed liabilities;
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·
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our estimates or expectations of continued losses;
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·
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our expectations regarding future income (and in particular, income from an earn-out due from an affiliate) and expenses;
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·
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our ability to raise additional and sufficient capital;
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·
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our ability to continue to operate as a going concern; and
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·
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the continued forbearance of certain related parties from making demand for payment under certain contractual obligations of, and loans, to the Company.
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These statements are only predictions.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are not required to and do not intend to update any of the forward-looking
statements after the date of this Form 10-Q or to conform these statements to actual results. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. Actual results, levels of activity, performance,
achievements and events may vary significantly from those implied by the forward-looking statements. A description of risks that
could cause our results to vary appears under "Risk Factors" and elsewhere in this Form 10-Q. The following discussion
should be read together in conjunction with the accompanying unaudited condensed consolidated financial statements and related
notes thereto and the audited consolidated financial statements and notes to those statements contained in the Annual Report on
Form 10-K for the year ended December 31, 2011.
OVERVIEW
On September 29, 2008, theglobe.com, inc.
consummated the sale of the business and substantially all of the assets of its Tralliance Corporation subsidiary to Tralliance
Registry Management Company, LLC, an entity controlled by Michael S. Egan, the Company’s Chairman and Chief Executive Officer.
As a result of and on the effective date of the sale of its Tralliance business, which was theglobe’s remaining operating
business, theglobe became a “shell company,” as that term is defined in Rule 12b-2 of the Exchange Act, with no material
operations or assets.
As part of the consideration for the sale
of its Tralliance business, theglobe received earn-out rights from Tralliance Registry Management (“Earn-out”), which
constitutes the only source of revenue for theglobe as a shell company. theglobe’s operating expenses as a shell company
consist of customary public company expenses, including accounting, financial reporting, legal, audit and other related public
company costs.
In March 2007, management and the Board
of Directors of the Company made the decision to cease all activities related to its computer games and VoIP telephony services
businesses. Results of operations for the computer games and VoIP telephony services businesses have been reported separately as
“Discontinued Operations” in the accompanying condensed consolidated statements of operations for all periods presented.
There are no discontinued operations assets included in the accompanying condensed consolidated balance sheets. Remaining liabilities
of the VoIP telephony services business have been included in the caption, “Liabilities of Discontinued Operations”
in the accompanying condensed consolidated balance sheets.
BASIS OF PRESENTATION OF CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS; GOING CONCERN
We received a report from our independent
registered public accountants, relating to our December 31, 2011 audited financial statements, containing an explanatory paragraph
regarding our ability to continue as a going concern. As a shell company, management believes that theglobe will not be able to
generate operating cash flows sufficient to fund its operations and pay its existing current liabilities (including those liabilities
related to its discontinued operations) in the foreseeable future. Based upon our current cash resources and without the infusion
of additional capital and/or the continued indulgence of its creditors, management does not believe the Company can operate as
a going concern beyond a short period of time. See “Future and Critical Need for Capital” section of this Management’s
Discussion and Analysis of Financial Condition and Results of Operations for further details.
Our condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern
basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly,
our condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification
of liabilities that might be necessary should we be unable to continue as a going concern.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2012
COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30,
2011
CONTINUING OPERATIONS
NET REVENUE. Commensurate with the sale
of our Tralliance business on September 29, 2008, we became a shell company. As a result, net revenue for both the three months
ended September 30, 2012 and 2011 was $0.
GENERAL AND ADMINISTRATIVE. General and
administrative expenses include only customary public company expenses, including accounting, legal, audit, insurance and other
related public company costs. General and administrative expenses totaled approximately $27 thousand in the third quarter of 2012
as compared to approximately $24 thousand for the same quarter of the prior year.
RELATED PARTY TRANSACTIONS. Related
party transaction expense totaled $60 thousand for both the three months ended September 30, 2012 and 2011 and consisted of management
services fees payable to Dancing Bear for accounting, finance, administrative and managerial support.
RELATED PARTY INTEREST EXPENSE. Related
party interest expense for both the three months ended September 30, 2012 and 2011 was approximately $13 thousand and consisted
of interest due and payable to Dancing Bear under the Revolving Loan Agreement.
RELATED PARTY OTHER INCOME. Related
party other income consists of the minimum Earn-out payable quarterly by Tralliance Registry Management to the Company. Related
party other income for the three months ended September 30, 2012 was approximately $94 thousand compared to $88 thousand for the
three months ended September 30, 2011.
INCOME TAXES. No tax benefit was recorded
for the losses incurred during the third quarter of 2012 or the third quarter of 2011 as we recorded a 100% valuation allowance
against our otherwise recognizable deferred tax assets due to the uncertainty surrounding the timing or ultimate realization of
the benefits of our net operating loss carryforwards in future periods.
NINE MONTHS ENDED SEPTEMBER 30, 2012
COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2011
CONTINUING OPERATIONS
NET REVENUE. Net revenue totaled $0 for
both the nine months ended September 30, 2012 and 2011.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses include only customary public company expenses, including accounting, legal, audit, insurance
and other related public company costs. General and administrative expenses totaled approximately $106 thousand for
the first nine months of 2012 as compared to approximately $68 thousand for the same period of 2011. The increase in general and
administrative expenses during 2012 was due to legal costs incurred in connection with the SendTec Complaint during 2012 (see Note
5, “Litigation”).
RELATED PARTY TRANSACTIONS. Related party
transaction expense totaled $180 thousand for both the nine months ended September 30, 2012 and 2011 and consisted of management
services fees payable to Dancing Bear for accounting, finance, administrative and managerial support.
RELATED PARTY INTEREST EXPENSE. Related
party interest expense for both the nine months ended September 30, 2012 and 2011 was approximately $37 thousand and consisted
of interest due and payable to Dancing Bear under the Revolving Loan Agreement.
RELATED PARTY OTHER INCOME. Related
party other income consists of the minimum Earn-Out payable quarterly by Tralliance Registry Management to the Company. Related
party other income for the nine months ended September 30, 2012 was approximately $281 thousand compared to $263 thousand for the
nine months ended September 30, 2011.
INCOME TAXES. No tax benefit was recorded
for the losses incurred during the nine months ended September 30, 2012 and 2011 as we recorded a 100% valuation allowance against
our otherwise recognizable deferred tax assets due to the uncertainty surrounding the timing or ultimate realization of the benefits
of our net operating loss carryforwards in future periods.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ITEMS
As of September 30, 2012, we had $452 in
cash as compared to $1,354 as of December 31, 2011. Net cash flows provided from operating activities of continuing operations
totaled approximately $44 thousand for both the nine months ended September 30, 2012 and the nine months ended September 30, 2011.
A total of approximately $45 thousand in
net cash flows were used in the operating activities of discontinued operations during both the nine months ended September 30,
2012 and the nine months ended September 30, 2011.
FUTURE AND CRITICAL NEED FOR CAPITAL
The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, the condensed consolidated financial statements do not include any adjustments relating to the recoverability
of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
However, for the reasons described below, Company management does not believe that cash on hand and cash flow generated internally
by the Company will be adequate to fund its limited overhead and other cash requirements beyond a short period of time. These reasons
raise significant doubt about the Company’s ability to continue as a going concern.
Since 2008, the Company was able to continue
operating as a going concern due principally to funding of $500 thousand received during 2008 under a Revolving Loan Agreement
with an entity controlled by Michael S. Egan, its Chairman and Chief Executive Officer and a total of approximately $1.35 million
received during 2009 to 2012 under an Earn-out Agreement with an entity also controlled by Mr. Egan, as well as the forbearance
of its creditors.
At September 30, 2012, the Company had
a net working capital deficit of approximately $3.2 million. Such working capital deficit included (i) a total of approximately
$711 thousand in principal and accrued interest owed under the aforementioned Revolving Loan Agreement; (ii) a total of approximately
$342 thousand in management service fees owed under a Master Services Agreement to an entity controlled by Mr. Egan; and (iii)
an aggregate of approximately $2.185 million in unsecured accounts payable and accrued expenses owed to vendors and other non-related
third parties (of which approximately $1.565 million relates to liabilities of our VoIP telephony service discontinued business).
Approximately $1.2 million of the aforementioned non-related party unsecured liabilities have been disputed by the Company. These
disputed liabilities relate primarily to telecommunications network service fees charged by several former vendors of the Company’s
discontinued VoIP telephony services business during the period from 2004 to 2007 (see Note 3, “Discontinued Operations”).
These charges have been disputed by the Company primarily due to such items as incorrect quantities, rates, service dates, regulatory
fees/charges, late fees and contract termination fees. theglobe believes that its ability to continue as a going concern for any
significant length of time in the future will be heavily dependent, among other things, on the continued forbearance of Mr. Egan
and related entities in making demand for payment for amounts outstanding under the Revolving Loan Agreement and the Master Services
Agreement, and its ability to prevail and avoid making any payments with respect to such disputed vendor charges and/or to negotiate
favorable settlements (including discounted payment and/or payment term concessions) with the aforementioned creditors.
As discussed previously, on September 29,
2008, the Company (i) sold the business and substantially all of the assets of its Tralliance Corporation subsidiary to Tralliance
Registry Management, and (ii) issued 229 million shares of its Common Stock (the “Shares”) to Registry Management (the
“Purchase Transaction”). Tralliance Registry Management and Registry Management are entities controlled by Michael
S. Egan. The closing of the Purchase Transaction resulted in the cancellation of all of the Company’s remaining Convertible
Debt, related accrued interest and rent and accounts payable owed to entities controlled by Mr. Egan as of the date of closing
(totaling approximately $6.4 million). However, the Company continues to be obligated to repay its principal borrowings totaling
$500 thousand, plus accrued interest at the rate of 10% per annum (approximately $211 thousand as of September 30, 2012), due to
an entity controlled by Mr. Egan under the aforementioned Revolving Loan Agreement. All unpaid borrowings under the Revolving Loan
Agreement, as amended on May 7, 2009, including accrued interest, are due and payable by the Company in one lump sum on the earlier
of (i) five business days following any demand for payment, which demand can be made at any time, or (ii) the occurrence of an
event of default as defined in the Revolving Loan Agreement. The Company currently has no ability to repay this loan should a demand
for payment be made by the noteholder. All borrowings under the Revolving Loan Agreement are secured by a pledge of all of
the assets of the Company and its subsidiaries. After giving effect to the closing of the Purchase Transaction and the issuance
of the Shares thereunder, Mr. Egan now beneficially owns approximately 76% of the Company’s issued and outstanding Common
Stock at September 30, 2012.
As additional consideration under the Purchase
Transaction, Tralliance Registry Management is obligated to pay an earn-out to theglobe equal to 10% (subject to certain minimums)
of Tralliance Registry Management’s net revenue (as defined) derived from “.travel” names registered by Tralliance
Registry Management from September 29, 2008 through May 5, 2015 (the “Earn-out”). The minimum Earn-out payable by Tralliance
Registry Management to theglobe was $300 thousand in the first year, increasing by $25 thousand in each subsequent year (pro-rated
for the final year of the Earn-out).
In connection with the closing of the Purchase
Transaction, the Company also entered into a Master Services Agreement with an entity controlled by Mr. Egan whereby for a fee
of $20 thousand per month ($240 thousand per annum) such entity will provide personnel and services to the Company so as to enable
it to continue its existence as a public company without the necessity of any full-time employees of its own. Additionally, commensurate
with the closing of the Purchase Transaction, Termination Agreements with each of its current executive officers, which terminated
their previous and then existing employment agreements, were executed. Notwithstanding the termination of these employment agreements,
each of our current executive officers and directors remain as executive officers and directors of the Company.
Immediately following the closing of the
Purchase Transaction, theglobe became a shell company with no material operations or assets, and no source of revenue other than
under the Earn-out. It is expected that theglobe’s future operating expenses as a public shell company will consist
primarily of expenses incurred under the aforementioned Master Services Agreement and other customary public company expenses,
including legal, audit and other miscellaneous public company costs.
As a shell company, management believes
that theglobe will most likely continue to incur losses from continuing operations and cash flow deficiencies for the foreseeable
future. However, assuming that no significant unplanned costs are incurred, management believes that theglobe’s future losses
will be limited. Further, in the event that Registry Management is successful in substantially increasing net revenue derived from
“.travel” name registrations (and as the result maximizing theglobe’s Earn-out revenue) in the future, theglobe’s
prospects for achieving profitability will be enhanced. To date, the Company has received only the minimum payments pursuant
to the Earn-out. There can be no assurance that theglobe will be able to collect the minimum payments over the remaining life of
the Earn-out.
It is the Company’s preference to
avoid filing for protection under the U.S. Bankruptcy Code. However, based upon the Company’s current financial condition
as discussed above, management believes that additional debt or equity capital will need to be raised in order for theglobe to
continue to operate as a going concern on a long-term basis. Such capital will be needed both to (i) fund its expected future continuing
operation losses and (ii) repay the $711 thousand of secured debt and related accrued interest due under the Revolving Loan Agreement
and the $342 thousand of management service fees due under the Master Services Agreement, and a portion of the $2.185 million unsecured
indebtedness (assuming theglobe is successful in favorably resolving and settling certain disputed and non-disputed vendor charges
related to such unsecured indebtedness). Any such capital would likely come from Mr. Egan, or affiliates of Mr. Egan, as
the Company currently has no access to credit facilities and had traditionally relied upon borrowings from related parties to meet
short-term liquidity needs. Any such capital raised would likely result in very substantial dilution in the number of outstanding
shares of the Company’s Common Stock.
On a short-term liquidity basis, the Company
must be successful in collecting the quarterly Earn-out payments contractually due from Tralliance Registry Management on a timely
basis, and must receive the continued indulgence of substantially all of its creditors, in order to continue to operate as a going
concern in the near term. Given theglobe’s current financial condition and the state of the current United States capital
markets and economy, it has no current intent to seek to acquire, or start, any other businesses.
EFFECTS OF INFLATION
Management believes that inflation has
not had a significant effect on our results of operations during 2012 and 2011.
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. At September 30, 2012 and December
31, 2011, a significant portion of our net liabilities of discontinued operations relate to charges that have been disputed by
the Company and for which estimates have been required. 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. Primarily, these include valuations of accounts payable and accrued
expenses.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Management has determined that all recently
issued accounting pronouncements will not have a material impact on the Company’s financial statements or do not apply to
the Company’s operations.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures
that are designed to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and (2) that this information
is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost
benefit relationship of possible controls and procedures.
Our Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. Based on that evaluation,
our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective
in alerting them in a timely manner to material information regarding us (including our consolidated subsidiaries) that is required
to be included in our periodic reports to the SEC.
Our management, with the participation
of our Chief Executive Officer and our Chief Financial Officer, have evaluated any change in our internal control over financial
reporting that occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting, and have determined there to be no reportable changes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5, "Litigation," of
the Financial Statements included in this Report.
ITEM 1A. RISK FACTORS
In addition to the other information in
this report, the following factors should be carefully considered in evaluating our business and prospects.
RISKS RELATING TO OUR BUSINESS GENERALLY
WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.
The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, the condensed consolidated financial statements do not include any adjustments relating to the recoverability
of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
However, for the reasons described below, Company management does not believe that cash on hand and cash flow generated internally
by the Company will be adequate to fund its limited overhead and other cash requirements beyond a short period of time. These reasons
raise significant doubt about the Company’s ability to continue as a going concern.
Since 2008, the Company was able to continue
operating as a going concern due principally to funding of $500 thousand received during 2008 under a Revolving Loan Agreement
with an entity controlled by Michael S. Egan, its Chairman and Chief Executive Officer and a total of approximately $1.35 million
received during 2009 to 2012 under an Earn-out Agreement with an entity also controlled by Mr. Egan, as well as the forbearance
of its creditors.
At September 30, 2012, the Company had
a net working capital deficit of approximately $3.2 million. Such working capital deficit included (i) a total of approximately
$711 thousand in principal and accrued interest owed under the aforementioned Revolving Loan Agreement; (ii) a total of approximately
$342 thousand in management service fees owed under a Master Services Agreement to an entity controlled by Mr. Egan; and (iii)
an aggregate of approximately $2.185 million in unsecured accounts payable and accrued expenses owed to vendors and other non-related
third parties (of which approximately $1.565 million relates to liabilities of our VoIP telephony service discontinued business).
Approximately $1.2 million of the aforementioned non-related party unsecured liabilities have been disputed by the Company. These
disputed liabilities relate primarily to telecommunications network service fees charged by several former vendors of the Company’s
discontinued VoIP telephony services business during the period from 2004 to 2007 (see Note 3, “Discontinued Operations”).
These charges have been disputed by the Company primarily due to such items as incorrect quantities, rates, service dates, regulatory
fees/charges, late fees and contract termination fees. theglobe believes that its ability to continue as a going concern for any
significant length of time in the future will be heavily dependent, among other things, on the continued forbearance of Mr. Egan
and related entities in making demand for payment for amounts outstanding under the Revolving Loan Agreement and the Master Services
Agreement, and its ability to prevail and avoid making any payments with respect to such disputed vendor charges and/or to negotiate
favorable settlements (including discounted payment and/or payment term concessions) with the aforementioned creditors.
As discussed previously, on September 29,
2008, the Company (i) sold the business and substantially all of the assets of its Tralliance Corporation subsidiary to Tralliance
Registry Management, and (ii) issued 229 million shares of its Common Stock (the “Shares”) to Registry Management (the
“Purchase Transaction”). Tralliance Registry Management and Registry Management are entities controlled by Michael
S. Egan. The closing of the Purchase Transaction resulted in the cancellation of all of the Company’s remaining Convertible
Debt, related accrued interest and rent and accounts payable owed to entities controlled by Mr. Egan as of the date of closing
(totaling approximately $6.4 million). However, the Company continues to be obligated to repay its principal borrowings totaling
$500 thousand, plus accrued interest at the rate of 10% per annum (approximately $211 thousand as of September 30, 2012), due to
an entity controlled by Mr. Egan under the aforementioned Revolving Loan Agreement. All unpaid borrowings under the Revolving Loan
Agreement, as amended on May 7, 2009, including accrued interest, are due and payable by the Company in one lump sum on the earlier
of (i) five business days following any demand for payment, which demand can be made at any time, or (ii) the occurrence of an
event of default as defined in the Revolving Loan Agreement. The Company currently has no ability to repay this loan should a demand
for payment be made by the noteholder. All borrowings under the Revolving Loan Agreement are secured by a pledge of all of
the assets of the Company and its subsidiaries. After giving effect to the closing of the Purchase Transaction and the issuance
of the Shares thereunder, Mr. Egan now beneficially owns approximately 76% of the Company’s issued and outstanding Common
Stock at September 30, 2012.
As additional consideration under the Purchase
Transaction, Tralliance Registry Management is obligated to pay an earn-out to theglobe equal to 10% (subject to certain minimums)
of Tralliance Registry Management’s net revenue (as defined) derived from “.travel” names registered by Tralliance
Registry Management from September 29, 2008 through May 5, 2015 (the “Earn-out”). The minimum Earn-out payable by Tralliance
Registry Management to theglobe was $300 thousand in the first year, increasing by $25 thousand in each subsequent year (pro-rated
for the final year of the Earn-out).
In connection with the closing of the Purchase
Transaction, the Company also entered into a Master Services Agreement with an entity controlled by Mr. Egan whereby for a fee
of $20 thousand per month ($240 thousand per annum) such entity will provide personnel and services to the Company so as to enable
it to continue its existence as a public company without the necessity of any full-time employees of its own. Additionally, commensurate
with the closing of the Purchase Transaction, Termination Agreements with each of its current executive officers, which terminated
their previous and then existing employment agreements, were executed. Notwithstanding the termination of these employment agreements,
each of our current executive officers and directors remain as executive officers and directors of the Company.
Immediately following the closing of the
Purchase Transaction, theglobe became a shell company with no material operations or assets, and no source of revenue other than
under the Earn-out. It is expected that theglobe’s future operating expenses as a public shell company will consist
primarily of expenses incurred under the aforementioned Master Services Agreement and other customary public company expenses,
including legal, audit and other miscellaneous public company costs.
As a shell company, management believes
that theglobe will most likely continue to incur losses from continuing operations and cash flow deficiencies for the foreseeable
future. However, assuming that no significant unplanned costs are incurred, management believes that theglobe’s future losses
will be limited. Further, in the event that Registry Management is successful in substantially increasing net revenue derived from
“.travel” name registrations (and as the result maximizing theglobe’s Earn-out revenue) in the future, theglobe’s
prospects for achieving profitability will be enhanced. To date, the Company has received only the minimum payments pursuant
to the Earn-out. There can be no assurance that theglobe will be able to collect the minimum payments over the remaining life of
the Earn-out.
It is the Company’s preference to
avoid filing for protection under the U.S. Bankruptcy Code. However, based upon the Company’s current financial condition
as discussed above, management believes that additional debt or equity capital will need to be raised in order for theglobe to
continue to operate as a going concern on a long-term basis. Such capital will be needed both to (i) fund its expected future continuing
operation losses and (ii) repay the $711 thousand of secured debt and related accrued interest due under the Revolving Loan Agreement
and the $342 thousand of management service fees due under the Master Services Agreement, and a portion of the $2.185 million unsecured
indebtedness (assuming theglobe is successful in favorably resolving and settling certain disputed and non-disputed vendor charges
related to such unsecured indebtedness). Any such capital would likely come from Mr. Egan, or affiliates of Mr. Egan, as
the Company currently has no access to credit facilities and had traditionally relied upon borrowings from related parties to meet
short-term liquidity needs. Any such capital raised would likely result in very substantial dilution in the number of outstanding
shares of the Company’s Common Stock.
On a short-term liquidity basis, the Company
must be successful in collecting the quarterly Earn-out payments contractually due from Tralliance Registry Management on a timely
basis, and must receive the continued indulgence of substantially all of its creditors, in order to continue to operate as a going
concern in the near term. Given theglobe’s current financial condition and the state of the current United States capital
markets and economy, it has no current intent to seek to acquire, or start, any other businesses.
WE MAY NOT BE SUCCESSFUL IN SETTLING
DISPUTED VENDOR CHARGES.
Our balance sheet at September 30, 2012
includes certain material estimated liabilities related to disputed vendor charges incurred primarily as the result of the failure
and subsequent shutdown of our discontinued VoIP telephony services business. These disputed liabilities relate mainly to telecommunications
network service fees charged by several former vendors during the period from 2004 to 2007. These charges have been disputed by
the Company due to such items as incorrect quantities, rates, service dates, regulatory fees/charges, late fees and contract termination
charges. Although we are seeking to resolve and settle these disputed charges for amounts substantially less than recorded amounts,
there can be no assurances that we will be successful in this regard. Additionally, the legal and administrative costs of resolving
these disputed charges may be expensive. An adverse outcome in any of these matters could materially and adversely affect our financial
position, utilize a significant portion of our cash resources and/or require additional capital to be infused into the Company,
and adversely affect our ability to continue to operate as a going concern. See Note 3, “Discontinued Operations” in
the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
OUR NET OPERATING LOSS CARRYFORWARDS
MAY BE SUBSTANTIALLY LIMITED.
As of December 31, 2011, we had net operating
loss carryforwards which may be potentially available for U.S. tax purposes of approximately $166 million. These carryforwards
expire through 2030. 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, that occurred prior to December 31, 2008, we have substantially
limited the availability of our net operating loss carryforwards.
OUR OFFICERS, INCLUDING OUR CHAIRMAN
AND CHIEF EXECUTIVE OFFICER AND PRESIDENT HAVE OTHER INTERESTS; WE HAVE CONFLICTS OF INTEREST WITH OUR DIRECTORS; ALL OF OUR DIRECTORS
ARE EMPLOYEES OR STOCKHOLDERS OF THE COMPANY OR AFFILIATES OF OUR LARGEST STOCKHOLDER.
Our Chairman and Chief Executive Officer,
Mr. Michael Egan, is an officer or director of other companies. Mr. Egan became our Chief Executive Officer effective June 1, 2002.
Mr. Egan is also the controlling investor of The Registry Management Company, LLC, Dancing Bear Investments, Inc., E&C Capital
Partners LLLP, and E&C Capital Partners II, LLC, which are our largest stockholders. Mr. Egan is also the controlling investor
of Certified Vacations Group, Inc., License Holdings, LLC and Labigroup Holdings, LLC, entities which have had various ongoing
business relationships with the Company. Additionally, Mr. Egan is the controlling investor of Tralliance Registry Management Company,
LLC, an entity which acquired our Tralliance business.
Our President, Treasurer and Chief Financial
Officer and Director, Mr. Edward A. Cespedes, is also an officer, director, member or shareholder of other privately held companies,
including, but not limited to, E&C Capital Partners LLLP, E&C Capital Partners II, LLC, and The Registry Management Company,
LLC. Additionally, Mr. Cespedes currently serves as the President, Chief Executive Officer and sole director of MMAX Media, Inc.,
a publicly traded company dedicated to the monetization of social networks.
Our Vice President of Finance and Director,
Ms. Robin Lebowitz is also an officer of Dancing Bear Investments, Inc and director of Certified Vacations Group, Inc. She is also
an officer, director or shareholder of other companies or entities controlled by Mr. Egan and Mr. Cespedes, including The Registry
Management Company, LLC.
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. Furthermore, the Company's Board of Directors presently is comprised entirely of individuals who are executive
officers of theglobe, and therefore are not "independent." We intend to review related party transactions in the future
on a case-by-case basis.
WE CURRENTLY HAVE NO BUSINESS OPERATIONS
AND ARE A SHELL COMPANY.
Immediately following the closing of the
Purchase Transaction, theglobe became a shell company with no material operations or assets, and no source of revenue other than
under the “net revenue” earn-out arrangement with Tralliance Registry Management. It is expected that theglobe’s
future operating expenses as a public shell company will consist primarily of expenses incurred under the aforementioned Master
Services Agreement and other customary public company expenses, including legal, audit and other miscellaneous public company costs.
Given theglobe’s current financial condition and the state of the current United States capital markets and economy, the
Company has no current intent to seek to acquire, or start, any other business.
WE MAY SUFFER ADVERSE CONSEQUENCES IF
WE ARE DEEMED AN INVESTMENT COMPANY (DEFINED BELOW) AND WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS.
We believe that we are not an investment
company as defined by the Investment Company Act of 1940. If the Commission or a court were to disagree with us, we could
be required to register as an investment company. This would negatively affect our ability to consummate a potential acquisition
of an operating company, subjecting us to disclosure and accounting guidance geared toward investment, rather than operating companies;
limiting our liability to borrow money, issue options, issue multiple classes of stock and debt, and engage in transactions with
affiliates; and requiring us to undertake significant costs and expenses to meet disclosure and regulatory requirements to which
we would be subject as a registered investment company.
RISKS RELATING TO OUR COMMON STOCK
WE ARE CONTROLLED BY OUR CHAIRMAN.
On September 29, 2008, in connection with
the sale of Tralliance, the Company issued 229 million shares of its Common Stock to Registry Management, an entity controlled
by Michael S. Egan, its Chairman and Chief Executive Officer. Previously on June 10, 2008, Dancing Bear Investments, Inc., also
an entity controlled by Mr. Egan, converted an aggregate of $400 thousand of outstanding convertible secured promissory notes due
to them by the Company into 40 million shares of our Common Stock. As a result of the issuance of the 269 million shares under
the transactions described above, Mr. Egan’s beneficial ownership has been increased to approximately 76% of the Company’s
Common Stock. Accordingly, Mr. Egan is now in a position to control the vote on all corporate actions in the future.
DELISTING OF OUR COMMON STOCK MAKES IT MORE DIFFICULT
FOR INVESTORS TO SELL SHARES.
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.
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 IS 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 and our net tangible assets are less than $2.0 million, trading in our Common Stock is subject to
the requirements of Rule 15g-9 of the Exchange Act. 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.
AS A RESULT OF THE CLOSING OF THE PURCHASE
AGREEMENT, WE ARE A SHELL COMPANY AND ARE SUBJECT TO MORE STRINGENT REPORTING REQUIREMENTS AND RULE 144 IS NOT GENERALLY AVAILABLE
AS A BASIS OF RESALE.
As a result of the consummation of the
Purchase Transaction, we have no or nominal operations and assets, and pursuant to Rule 405 and Exchange Act Rule 12b-2, we are
a shell company. Applicable securities rules prohibit shell companies from using a Form S-8 to register securities pursuant to
employee compensation plans. However, the rules do not prevent us from registering securities pursuant to certain other registration
statements. Additionally, Form 8-K requires shell companies to provide more detailed disclosure upon completion of a transaction
that causes it to cease being a shell company. To the extent we acquire a business in the future, we must file a current report
on Form 8-K containing the information required in a registration statement on Form 10, within four business days following completion
of the transaction together with financial information of the private operating company. In order to assist the SEC in the identification
of shell companies, we are also required to check a box on Form 10-Q and Form 10-K indicating that we are a shell company. To the
extent that we are required to comply with additional disclosure because we are a shell company, we may be delayed in executing
any mergers or acquiring other assets that would cause us to cease being a shell company. In addition, the SEC adopted amendments
to Rule 144 effective February 15, 2008, which (with limited exceptions related to restrictive securities acquired before we became
a “shell company”) do not allow a holder of restricted securities of a “shell company” to resell their
securities pursuant to Rule 144. Preclusion from the use of the exemption from registration afforded by Rule 144 may make it more
difficult for us to sell equity securities in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a) Unregistered Sales of Equity Securities.
None.
(b) Use of Proceeds From Sales of Registered Securities.
Not applicable.
(c) Repurchases.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).
|
|
32.1
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
theglobe.com, inc.
|
|
|
|
|
|
Dated
:
November 9, 2012
|
By:
|
/s/
Michael S. Egan
|
|
|
|
Michael S. Egan
|
|
|
|
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
By:
|
/s/
Edward A. Cespedes
|
|
|
|
Edward A. Cespedes
|
|
|
|
President and Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
EXHIBIT INDEX
|
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).
|
|
32.1
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
Grafico Azioni TheGlobe com (PK) (USOTC:TGLO)
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