The Internet is a global communications medium, enabling millions of people to obtain and share information, interact with each other and conduct business electronically. Worldwide, the number of Internet users has grown from approximately 390 million in 2000 to more than 700 million in 2003 and is expected to reach over one billion by 2007, according to estimates from International Data Corporation, or IDC. IDC also estimates that worldwide e-commerce revenue grew from approximately $359 billion in 2000 to more than $1.6 trillion in 2003.

The Online Publishers Association estimates that revenue from online services exceeded $1.6 billion for the twelve month period ended December 31, 2003, and that the dating and personals category accounted for the largest share of this amount, with revenue of approximately $450 million, or 28% of the total. The Online Publishers Association also reports that the dating and personals category is one of the largest growth areas on the Internet with revenue from that category for the year ended December 31, 2003 increasing by approximately 48.8% over revenue for the same period ended December 31, 2002.

Across the entire U.S. online advertising market, IDC forecasts an increase in spending from $5.7 billion, or 2.4%, of the $237 billion spent in the United States in 2002 on all forms of advertising, to $12.8 billion projected to be spent in 2007.

According to a report prepared by Witeck-Combs Communications, Inc. and Harris Interactive, Inc., approximately 7%, or 15 million adults in the general U.S. population identify themselves as gay, lesbian, bisexual or transgendered. This report also estimates that gay and lesbian consumers in the United States have combined buying power of approximately $485 billion annually and per capita buying power higher than that of the African American, Asian American or Hispanic American communities. LGBT consumers are also loyal: the same report estimates that 72% of gay and lesbian consumers prefer brands that advertise uniquely to them and that 77% have reported to have switched to brands offered by companies with a positive stance towards gay and lesbian people.

The Company offers both Gay.com Premium Services and PersonalsPlus under tiered subscription plans. Subscriptions to PersonalsPlus, the more traditional search-and-reply personals service, begin at $4.95 for a seven-day trial, with $12.95 for a monthly subscription, $29.95 for a quarterly subscription and $69.95 for a yearly subscription. The Gay.com Premium Services package is more technologically sophisticated and is currently available in six languages, English, French, German, Italian, Portuguese and Spanish. Gay.com Premium Services subscribers are also able to use advanced real-time features such as an international chat service offering more than 1,500 chat rooms, including video chat. Subscriptions to Gay.com Premium Services begin at $9.95 for a seven-day trial, with $16.95 for a monthly subscription, $39.95 for a quarterly subscription and $79.95 for an annual subscription.

The Company markets its advertising services through its domestic and international sales force of approximately nine full and part-time employees. The Company has six full-time sales employees in the United States, two full-time sales employees in the United Kingdom and one full-time sales employee in Argentina. The Company’s sales representatives are focused on specific advertising categories, and sell across the Company’s networks in the United States, Europe and Latin America.

Subscription services revenue increased approximately 58%, from $8.0 million in 2002 to $12.7 million in 2003.

Advertising services revenue increased approximately 9%, from $4.2 million in 2002 to $4.6 million in 2003.

Transaction services revenue remained relatively flat at approximately $1.7 million.

Cost of revenue increased approximately 6%, from $6.3 million in 2002 to $6.7 million in 2003.

Sales and marketing expenses increased approximately 14%, from $5.7 million in 2002 to $6.6 million in 2003.

General and administrative expenses decreased by approximately 40%, from $7.1 million in 2002 to $4.2 million in 2003.