Selected Financial Data

   The following  table  sets  forth selected  financial  data  of the
   Company as of and for the five years ended September 30, 1998, 1997,
   1996, 1995 and 1994.  The selected  financial data has been derived
   from the Company's audited consolidated financial statements.  This
   financial data  should be  read in  conjunction  with "Management's
   Discussion and  Analysis  of  Financial  Condition  and Results  of
   Operations" and  the  Consolidated Financial  Statements  and Notes
   thereto appearing elsewhere in this document.

<TABLE>
<CAPTION>                               Fiscal Years Ended September 30,__
                                      1998     1997(3)1996(3)1995(3)(2)1994(3)(2)
   <S>                               <C>      <C>      <C>      <C>      <C>
   (In thousands, except per share amounts)
   Statement of Operations Data:
      Total net revenues             $20,494   $21,295 $22,307  $12,141  $4,667

      Gross profit                    15,274    18,267  20,277   10,380   3,580

      Income(loss) from              (9,238)  (11,357)   3,667    3,025     770
      operations

      Income (loss) before
      cumulative effect of           (8,016)   (9,735)   3,460    2,176     584
      change in accounting

      Net income (loss)              (8,016)   (9,735)   3,460    2,176   1,384

      Net income (loss) available
      to common stockholders        ($8,016)  ($9,735)  $3,460  $ 1,985  $1,127
</TABLE>

   Earnings (loss) per common share-basic (1):
<TABLE>
      <S>                            <C>      <C>      <C>     <C>      <C>
      Income (loss) before
      cumulative effect of change    ($0.60)  ($0.81)  $ 0.30  $ 0.27   $ 0.09
      in accounting

      Net income (loss)              ($0.60)  ($0.81)  $ 0.30  $ 0.27   $ 0.20

      Net income (loss) available
      to common stockholders         ($0.60)  ($0.81)  $ 0.30  $ 0.25   $ 0.17

      Weighted average number of
      common shares outstanding       13,395   12,090  11,620   8,111    6,766
</TABLE>
   Earnings (loss) per common share-diluted (1):
<TABLE>
      <S>                            <C>      <C>      <C>     <C>      <C>
      Income (loss) before
      cumulative effect of change    ($0.60)  ($0.81)  $ 0.27  $ 0.23   $ 0.08
      in accounting

      Net income (loss               ($0.60)  ($0.81)  $ 0.27  $ 0.23   $ 0.19

      Net income (loss) available
      to common stockholders         ($0.60)  ($0.81)  $ 0.27  $ 0.21   $ 0.16

      Weighted average number of
      common shares outstanding       13,395   12,090  12,875   9,383    7,172
</TABLE>
   Balance Sheet Data:
<TABLE>
      <S>                            <C>     <C>      <C>      <C>      <C>
      Cash and cash equivalents and
      short-term investments         $22,655 $27,770  $34,083  $34,872  $1,606

      Working capital                 26,273  28,844   39,117   35,550   2,174
      Total assets                    34,575  40,580   48,769   43,509   5,871

      Redeemable convertible
      preferred stock                      -       -        -        -   3,393

      Total stockholders' equity
      (deficit)                      $30,076 $35,567  $43,891  $37,614  $(756)
</TABLE>

   Dividend Policy   The Company has  never paid cash  dividends on  its
   capital stock.  The Company currently intends to retain earnings,  if
   any, to support its  growth strategy and  does not anticipate  paying
   cash dividends in the foreseeable future.

   (1) In  December 1997,  the Company  adopted Statement  of  Financial
   Accounting Standard No.  128, Earnings  per Share  ("SFAS No.  128").
   SFAS No.  128  replaced the  previously  reported primary  and  fully
   diluted earnings per share with basic and diluted earnings per share.
   In periods when the Company incurs a net loss. the basic and  diluted
   weighted average number of common shares outstanding will be equal.

   (2) On November 28, 1995, the Board of Directors declared a  two-for-
   one common  stock  split,  effected  in the  form  of  a  100%  stock
   dividend, paid December  20, 1995, to  stockholders of  record as  of
   December 6, 1995.  All share and per share data prior to December 20,
   1995 has been restated to reflect the two-for-one common stock  split
   for all periods presented.

   (3) Selected financial data for the  years ended September 30, 1997,
   1996, 1995 and 1994 does not include  the results of AllPen Software
   which was acquired in fiscal 1998 in  a transaction accounted for as
   a pooling of interests.  Because the  effect of this transaction was
   considered  immaterial,  Spyglass'  financial  statements  were  not
   restated; instead, the  Company's equity accounts  were adjusted for
   the effect of the pooling.
<PAGE>
   Selected Quarterly Data

        The following  table sets  forth certain  quarterly  financial
   information of the Company  for fiscal years 1998  and 1997.   This
   information  has  been  derived  from  the  consolidated  quarterly
   financial statements of the Company which are unaudited  but which,
   in the opinion of management, have been prepared on the  same basis
   as the audited  consolidated financial  statements included  herein
   and include all  adjustments (consisting only  of normal  recurring
   items) necessary for a fair  presentation of the financial  results
   for such periods.  This information should  be read in  conjunction
   with "Management's Discussion and  Analysis of Financial  Condition
   and  Results  of   Operations"  and   the  Consolidated   Financial
   Statements and Notes thereto appearing elsewhere in this document.

<TABLE>
                                           Three Months Ended (Unaudited)
                  Sept.   June    March     Dec.   Sept.   June     March     Dec.
                  30,      30,     31,       31,    30,     30,       31,      31,
                  1998     1998   1998      1997    1997    1997     1997     1996
   (In thousands, except per share amounts)         (3)    (3)       (1)(3)     (3)
   <S>           <C>     <C>      <C>     <C>     <C>      <C>      <C>       <C>

   Statement of Operations Data:

   Total net
   revenues     $5,858   $5,376   $5,006   $4,254  $3,179   $2,216  $12,015   $3,885

   Gross
   profit        4,060    3,941    3,895    3,378   2,494    1,539   10,808   3,426
   Income
   (loss) from
   operations    (888)  (1,534)  (2,826)  (3,990) (5,031)  (6,150)    2,755  (2,931)

   Net income
   (loss)        (589)  (1,250)  (2,529)  (3,648) (4,708)  (5,533)    2,051  (1,545)

   Per Share and Share Data:

   Net income
   (loss) per
   share-
    basic (2)   $(0.04)  $(0.09)  $(0.19) $(0.28)  $(0.38)  $(0.45)  $ 0.17  $(0.13)

   Weighted
   average
   number of
   Common
   shares
   outstanding
   - basic       13,730   13,602   13,124  13,018   12,325   12,187  11,999   11,852

   Net income
   (loss) per
   share-
   diluted (2)  $(0.04)  $(0.09)  $(0.19) $(0.28)  $(0.38)  $(0.45)  $ 0.16  $(0.13)
<PAGE>
   Weighted
   average
   number of
   Common
   shares
   outstanding
   - diluted     13,730   13,602   13,124  13,018   12,325   12,187  12,768   11,852
</TABLE>

   (1) Includes a  one-time licensing fee  of $8,000,000 from  Microsoft
   Corporation which decreased the net loss  by $7,000,000 or $0.58  per
   share.

    (2) In December  1997, the  Company adopted  Statement of  Financial
   Accounting Standard No.  128, Earnings  per Share  ("SFAS No.  128").
   SFAS No.  128  replaced the  previously  reported primary  and  fully
   diluted earnings per share with basic and diluted earnings per share.
   In periods when the Company incurs a net loss, the basic and  diluted
   weighted average number of common shares outstanding will be equal.

   (3) Selected quarterly  data for the  year ended September  30, 1997
   does not include the  results of AllPen Software  which was acquired
   in fiscal  1998  in a  transaction  accounted for  as  a  pooling of
   interests.  Because  the effect  of this transaction  was considered
   immaterial,  Spyglass'  financial  statements   were  not  restated;
   instead, the Company's equity accounts were  adjusted for the effect
   of the pooling.

   Market Price Per Share

   The following table sets forth, for  the periods indicated, the  high
   and low sales prices of the Common Stock of the Company on the Nasdaq
   National Market, as reported by Nasdaq.

<TABLE>
                                    Three Months Ended        
           Sept.     June     March    Dec.     Sept.   June   March    Dec.
            30,       30,      31,      31,      30,    30,     31,      31,
           1998      1998      1998    1997     1997    1997    1997    1996
   <S>   <C>       <C>       <C>      <C>     <C>      <C>    <C>      <C>
   High  $15 5/16  $15 3/8   $9 9/16  $12     $10 1/2  $11    $14 1/8  $19 1/2
   Low   $  9 5/8  $  8 1/4  $4 /     $4 1/16 $7 3/16  $  6   $  7     $10
</TABLE>
<PAGE>
   Management's Discussion  and  Analysis  of  Financial  Condition  and
   Results of Operations

   Overview

        Spyglass, Inc. ("Spyglass" or the "Company") was organized as an
   Illinois corporation in February 1990 and reincorporated in  Delaware
   in May 1995.  Spyglass entered the Internet market during fiscal 1994
   and, from fiscal  1994 through fiscal  1996, focused  its efforts  on
   developing, marketing  and distributing  Internet client  and  server
   technologies for  incorporation  into  a  variety  of  Internet-based
   software products and services.  Since  fiscal 1997, the Company  has
   been focusing on the development,  marketing and distribution of  its
   technologies and services to the non-PC Internet device  marketplace.
   In February 1998, Spyglass reorganized its business to integrate  its
   development, professional  services and  marketing resources.    This
   change has allowed Spyglass to target  its tailored solutions to  the
   needs of  the various  vertical sectors  within the  Internet  device
   market.

        Spyglass provides  its customers  with expertise,  software  and
   professional services  that  enable  them to  rapidly  develop  cost-
   effective Internet-enabled devices.   Spyglass professional  services
   include custom engineering  for defining,  developing and  delivering
   complete, end-to-end project solutions.  Spyglass solutions have been
   integrated into a variety of products,  including but not limited  to
   televisions, office equipment,  television set-top boxes,  industrial
   controls, network  computers  and screen  and  cellular phones.    In
   addition, several  major  corporations  have  deployed  SurfWatch,  a
   leading  content  filtering  software  designed  to  block   unwanted
   material from the Internet.

        Spyglass acquired Stonehand Inc. ("Stonehand"), OS  Technologies
   Corporation ("OS Tech") and  SurfWatch Software, Inc.  ("SurfWatch"),
   in  fiscal  1996  in  transactions  accounted  for  as  poolings   of
   interests.  All financial information presented includes the accounts
   and  results  of  operations  of  these  companies  for  all  periods
   presented.

        In November 1997, Spyglass acquired AllPen Software ("AllPen) in
   a transaction accounted for as a  pooling of interests.  Because  the
   effect of this  transaction on  prior year  financial statements  was
   considered immaterial, such financial  statements were not  restated;
   instead, the Company's equity accounts  were adjusted for the  effect
   of the pooling.

        In October 1998, General Instrument Corporation ("GI")  acquired
   700,000 shares of the Company's common stock for $7,392,000 and  also
   acquired warrants  to  purchase  an additional  700,000  shares.  The
   warrants have exercise prices ranging from $13.20 to $14.78 per share
   (subject  to  adjustment  in   certain  circumstances),  and   become
   exercisable on varying dates over a five-year period.  In  connection
   with this investment, the  Company and GI  entered into a  three-year
   agreement under  which the  Company will  develop and  integrate  new
   Internet cable services and technologies for  GI.  This work will  be
   performed through a newly-formed subsidiary of the Company, in  which
   GI will hold a 10% minority interest and which GI will have an option
   to purchase at fair market value under certain circumstances.
<PAGE>
        The Company  licenses technology  from a  number of  third-party
   vendors for incorporation into the Company's products.  As a  result,
   the Company pays royalties to the University of Illinois with respect
   to licenses of  Spyglass Device Mosaic,  to RSA  Data Security,  Inc.
   with respect  to licenses  of the  Company's technologies  containing
   certain RSA  code  and to  Sun  Microsystems, Inc.  with  respect  to
   licenses of the Company's technologies containing certain Java  code.
   These  and  other  royalties  are  reflected  in  cost  of   Internet
   technology revenues.

        On January 21, 1997, the Company amended its license arrangement
   with  Microsoft  Corporation  ("Microsoft")  to  convert  Microsoft's
   existing license for  the Spyglass Mosaic  browser technology into  a
   fully paid-up license  in consideration of  an additional  $8,000,000
   payment from Microsoft.   Spyglass recognized  the revenue from  this
   payment in the  quarter ended March  31, 1997.   Management  believes
   that its results  of operations, presented  without giving effect  to
   this one-time  event, provide  a more  accurate presentation  of  the
   Company's ongoing business.  Accordingly, the following analyses  for
   the fiscal  year  ended September  30,  1997, including  amounts  and
   percentages, exclude  the  $8,000,000  of  revenue  as  well  as  the
   associated $600,000 of cost  of sales and  $400,000 of sales  expense
   for the fiscal year ended September 30, 1997.  Approximately 39.5% of
   the  Company's  revenues  for   fiscal  1997  were  attributable   to
   Microsoft.

   Results of Operations

   The following table sets forth certain financial data as a percentage
   of total net revenues for the fiscal years ended September 30,  1998,
   1997 and 1996.
<Talbe>
[CAPTION]
                                          Percentage of Total Net Revenues
                                      for the Fiscal Years Ended September 30,
                                               1998      1997      1996
   [S]                                         [C]       [C]       [C]
   Net revenues:
      Internet technology                      56.9%     69.2%     87.3%
      Service                                  43.1      30.8      12.7
         Total net revenues                    100.0     100.0     100.0

   Cost of revenues:
      Internet technology                        9.0       7.0       8.6
      Service                                   16.5      11.2       0.5
         Total cost of revenues                 25.5      18.2       9.1

   Gross profit                                 74.5      81.8      90.9

   Operating expenses and other:
      Sales and marketing                       44.4      59.5      26.7
      Research and development                  44.8     102.6      30.6
      General and administrative                28.0      50.9      17.2
      Restructuring charge                         -       6.8         -
      One-time acquisition costs                 2.4         -         -
         Total operating expenses and other    119.6     219.8      74.5

   Income (loss) from operations               (45.1)   (138.0)     16.4
   Other income, net                             6.0      12.2       7.8
   Income (loss) before income taxes           (39.1)   (125.8)     24.2
   Provision for income taxes                      -         -       8.7

   Net income (loss)                           (39.1)%  (125.8)%    15.5%
<\Talbe>
<PAGE>
   Fiscal Year  Ended September  30,  1998 Compared  with  Fiscal Year
   Ended September 30, 1997

        Internet technology revenues  for the year  ended September  30,
   1998  increased  $2,467,000,  or  27%,  to  $11,661,000  compared  to
   $9,194,000 for the year  ended September 30, 1997.   This growth  was
   due primarily  to  an  increase in  licensing  revenues  from  device
   manufacturers.   One  customer  accounted  for  17%  of  fiscal  1998
   Internet technology  revenues.   Internet  technology  revenues  from
   vendors  of  desktop   software  applications,  excluding   SurfWatch
   revenues,   decreased   $3,986,000   while   revenues   from   device
   manufacturers increased $5,752,000.   During the  development of  the
   Internet device  market, initial  Internet technology  revenues on  a
   given contract will typically comprise  a smaller component of  total
   expected Internet technology revenues than was previously recorded in
   licensing the  desktop software  applications.   Internet  technology
   revenues derived from future royalties will be realized as  customers
   commercially deploy devices  utilizing the  Company's technology  and
   the royalty revenue stream commences.  The Company expects  continued
   growth in Internet technology revenues during fiscal 1999 due to  the
   anticipated increase  in  product development  activities  by  device
   manufacturers in multiple vertical markets.

             Service revenues, which include both professional  services
   revenues and  revenues from  customer support  agreements,  increased
   $4,732,000, or 115%, to $8,833,000 for  the year ended September  30,
   1998 compared to $4,101,000  for the year  ended September 30,  1997.
   Revenues   from   professional   services   increased   approximately
   $5,352,000 for the year ended September 30, 1998 compared to the year
   ended September  30, 1997.   This  increase was  due to  management's
   focus on building an integrated development and service  organization
   that provides  customized  solutions  to  its  customers  within  the
   vertical sectors of the Internet device  market which resulted in  an
   increase in  the number  and dollar  value of  professional  services
   agreements.   Revenues  from customer  support  agreements  decreased
   $620,000 during the same time period.   In October 1998, the  Company
   announced an  agreement  with  GI which  will  provide  approximately
   $20,000,000 in  professional services  revenue  over the  next  three
   years.   As  a  result, the  Company  expects  professional  services
   revenues during fiscal 1999 to increase both in absolute dollars  and
   as a percentage  of total  net revenues  over fiscal  1998.   Service
   revenues from customer support agreements,  as a percentage of  total
   net revenues, are expected to decline during the same period.

        Gross profit, as  a percentage of  revenues, was  74.5% for  the
   year ended September 30,  1998 compared to 81.8%  for the year  ended
   September 30,  1997.   This reduction  was partially  a result  of  a
   change in the revenue mix, as total net revenue consisted of a higher
   percentage of  lower margin  professional  services revenues,  and  a
   reduction in Internet technology margins related to increased product
   royalty costs.  The Company expects  gross profit as a percentage  of
   revenues to decline slightly  throughout fiscal 1999 as  professional
   services revenues continue to increase as  a percentage of total  net
   revenues.  That margin decline is expected to be partially offset  by
   improved gross margins from  Internet technology revenues as  royalty
   costs associated with third-party software are expected to decline.
<PAGE>
        Sales and marketing expenses for the  year ended September 30,
   1998 increased $1,190,000,  or 15%,  to $9,101,000  from $7,911,000
   for  the  year  ended  September  30,  1997,  but  decreased  as  a
   percentage of revenues to  44.4% from 59.5%.   Factors contributing
   to this  increase  were  $791,000  in  additional compensation  and
   personnel expenses incurred  as a result  of the addition  of sales
   and marketing staff,  primarily in international  locations as well
   as at the Company's  SurfWatch business unit,  and the compensation
   expense related  to  amortization  of  restricted  stock issued  to
   certain  officers  of  the  Company.    Additionally,  the  Company
   increased  its  fiscal  1998   marketing  program  expenditures  by
   $425,000 in its  efforts to promote  its solutions to  customers in
   the device market, primarily the television and set-top box market,
   and to increase  customer and  industry awareness of  its SurfWatch
   products.  These increases  were partially offset by  a decrease in
   travel  and  travel-related  expenses   of  approximately  $175,000
   primarily due to  decreases in  trade show expenses  resulting from
   the shift in focus  from the desktop market  to the Internet device
   market.   The  Company  expects sales  and  marketing  expenses for
   fiscal 1999 to  remain approximately  the same,  in dollars,  as in
   fiscal 1998.

        Research and development expenses for the year ended September
   30, 1998 decreased  $4,471,000, or  33%, to $9,173,000  compared to
   $13,644,000 for the year ended September 30, 1997, and decreased as
   a percentage of  revenues to  44.8% from 102.6%.   The  decrease in
   research and development costs  was due primarily to  a decrease in
   salary costs  and related  personnel  expenses of  $4,118,000  as a
   result of the increased  utilization of development  engineers in a
   professional services role, as reflected by the increase in cost of
   service revenues, as  well as  an overall reduction  in engineering
   staff.  The Company believes that its direct investment in research
   and development  is  sufficient  when  combined  with its  retained
   ownership in  the  engineering  developments  of  its  professional
   service engineers.   As a  result of the  changes noted  above, the
   Company expects  its research  and development  expenses  in fiscal
   1999 to decrease both in dollars and as a percentage of revenues.

        General and  administrative  expenses decreased  $1,027,000,  or
   15%, to  $5,742,000  for  the year  ended  September  30,  1998  from
   $6,769,000 for the year ended September  30, 1997 and decreased as  a
   percentage of  revenues to  28.0% from  50.9%.   The decrease  was  a
   result of  a  $720,000 reduction  in  bad debt  expense,  a  combined
   $464,000 reduction in conference, travel and meeting expenses, and  a
   $403,000 decrease in consulting expense.  This decrease was partially
   offset by an  increase in salary  and related  personnel expenses  of
   $614,000 due  primarily  to  the  issuance  of  restricted  stock  to
   officers  of  the   Company.    The   Company  expects  general   and
   administrative costs to increase in absolute dollars, but decline  as
   a percent of revenues, in fiscal 1999.
<PAGE>
        On March  10,  1997,  the Company  consolidated  its  Champaign,
   Illinois development  operations with  its Naperville,  Illinois  and
   Cambridge, Massachusetts  operations.   This consolidation  reflected
   the Company's evolution from its desktop focus to the Internet device
   market and the realignment of its product development activities with
   the needs of  this market.   As a result,  a restructuring charge  of
   $900,000  was  recorded  in  the  second  quarter  of  fiscal   1997,
   consisting primarily  of severance  and  related personnel  costs  of
   $730,000 and lease  cancellation and  other exit  costs of  $170,000.
   Included  in  the  charge  for   personnel  costs  was  $100,000   of
   compensation   expense   related   to   the   acceleration   of   the
   exercisability of certain  stock options.   The decrease in  facility
   costs related  to the  closing of  the  Champaign facility  has  been
   offset by expansion within existing  facilities as well as  expansion
   into new facilities.

        In  connection  with  the  acquisition  of  AllPen  Software  in
   November 1997, the Company recorded a charge to operating expenses of
   $496,000 or  $0.04 per  share for  direct acquisition  related  costs
   consisting primarily of professional fees.

        The Company recorded no income tax benefit for fiscal years 1998
   and 1997.  This reflects a  decision by the Company not to  recognize
   income tax benefits  associated with the  Company's operating  losses
   generated during  such  years.   The  Company  believes  that  it  is
   appropriate to defer recognition of potential tax benefits until such
   time as its return to profitability can provide assurances that these
   tax benefits will be realized.

   Fiscal Year  Ended September  30,  1997 Compared  with  Fiscal Year
   Ended September 30, 1996

     Internet  technology revenues  for the  year ended  September 30,
   1997 decreased  $10,272,000,  or  53%,  to  $9,194,000 compared  to
   $19,466,000 for the year  ended September 30, 1996.   This decrease
   in Internet technology revenues was due  primarily to a significant
   decline in revenues  from vendors of  desktop software applications
   combined with slower  than anticipated development  of the Internet
   device market as the Company redirected its strategic focus to this
   market during  fiscal  1997.    Specifically,  Internet  technology
   revenues from vendors of desktop software applications decreased to
   $6,353,000   from   $17,971,000   while    revenues   from   device
   manufacturers increased to $2,841,000 from $1,495,000.

     Service revenues increased $1,260,000,  or 44%, to $4,101,000 for
   the year ended  September 30, 1997  compared to $2,841,000  for the
   year ended September  30, 1996.   The increase in  service revenues
   was due primarily  to the  increase in  the number  of professional
   services agreements  entered  into by  the  Company.  Revenues from
   professional services were  $2,179,000 in  fiscal 1997  compared to
   $559,000 for fiscal 1996,
<PAGE>
        Gross profit as  a percentage  of revenues  was 81.8%  for the
   year ended September 30, 1997 compared to  90.9% for the year ended
   September 30,  1996.    This decrease  in  gross  profit percentage
   resulted  primarily  from  an  increase  in  professional  services
   revenues as a  percentage of  both total  net revenues  and service
   revenues, which have significantly higher costs  as a percentage of
   revenues than  technology  revenues.    Additionally,  the cost  of
   service revenues increased, as a percentage of service revenues, to
   36.4% for fiscal 1997 from 4.2% for fiscal 1996.

        Sales and marketing  expenses for the  year ended September  30,
   1997 increased $1,948,000, or 33%, to $7,911,000 from $5,963,000  for
   the year ended September 30, 1996,  and increased as a percentage  of
   revenues to 59.5% from 26.7%.  The increased expenses reflected staff
   additions in sales,  marketing and customer  services to support  the
   sale  and  marketing  of  Spyglass  technologies.    These  additions
   increased the  cost  of  salary and  related  personnel  expenses  by
   $1,309,000 and increased related  facility costs by $412,000  between
   fiscal 1997 and  fiscal 1996.   Advertising costs decreased  $336,000
   between  these  periods  due  to   the  cancellation  of  a   monthly
   advertising  service  associated  with  previous  marketing  programs
   targeting the desktop marketplace.

        Research and development expenses for the year ended September
   30, 1997 increased $6,843,000, or 101%,  to $13,644,000 compared to
   $6,801,000 for the year ended September  30, 1996, and increased as
   a percentage of  revenues to  102.6% from 30.6%.   The  increase in
   research and  development  costs  was  due  primarily to  costs  of
   additional personnel required  to provide enhancements  to existing
   technologies as well as  the relocation of  personnel to geographic
   areas in which higher salaries are required, all of which increased
   the costs of  salary and  related personnel expenses  by $4,642,000
   for fiscal  1997  when  compared  to  fiscal 1996.    Additionally,
   facility costs increased  $1,870,000 between  these periods  as the
   Company  consolidated   its   Champaign,   Illinois  research   and
   development operations into its Naperville, Illinois and Cambridge,
   Massachusetts operations, which had higher  facility costs than the
   Champaign facility.  The Company believes  that it was necessary to
   make  significant  investments  in  research  and  development  and
   acquisitions  of  new   technologies  to  remain   competitive  and
   establish a  leadership position  in the  emerging  Internet device
   market.

        General and administrative  expenses increased  $2,923,000, or
   76%, to  $6,769,000  for the  year  ended September  30,  1997 from
   $3,846,000 for the year ended September 30, 1996 and increased as a
   percentage of  revenues  to  50.9% from  17.2%.    The increase  in
   general and administrative expenses was  due primarily to increases
   in personnel at corporate headquarters,  which increased salary and
   related  personnel  expenses  by  $2,076,000.    Bad  debt  expense
   increased by  $728,000 as  the Company  wrote off  certain accounts
   receivable balances  related  to its  desktop  software application
   business as the Company transitioned to the Internet device market.
   Additionally, in order  to effectively  and rapidly  transition the
   focus of the Company from the desktop market to the Internet device
   market it  was necessary  to incur  significantly  more conference,
   travel  and   meeting   expenses,  which   increased   general  and
   administrative expenses  by $495,000  for fiscal  1997  compared to
   fiscal 1996.
<PAGE>
        The Company recorded no income tax benefit for the fiscal year
   ended September 30, 1997 as compared to a provision for income taxes
   of $1,951,000 for the fiscal year ended September 30, 1996.

   Liquidity and Capital Resources

        As of September 30, 1998, the Company had no debt and had cash
   and  cash  equivalents  of  $22,655,000   and  working  capital  of
   $26,273,000.   The  Company's  operating  activities  used cash  of
   $7,193,000, $4,114,000  and  $822,000 for  the  fiscal  years ended
   September 30, 1998, 1997 and 1996, respectively.  Additionally, the
   Company's operating cash flow  for fiscal 1997 was  impacted by the
   $7,500,000 in cash received from Microsoft during the quarter ended
   March 31, 1997  in connection with  the amendment to  the Company's
   license arrangement  with Microsoft  as discussed  in  the Overview
   section.

        Subsequent to  the end  of fiscal  1998, the  Company received
   $7,392,000 in cash from GI for the purchase by GI of 700,000 shares
   of the Company's common stock.

        The Company's  current net  accounts and  unbilled receivables
   increased to $5,606,000  at September  30, 1998 from  $3,792,000 at
   September 30, 1997.  This increase was primarily due to an increase
   in revenues for the fourth quarter of fiscal 1998.

        The   Company's   capital   expenditures   totaled   $443,000,
   $3,330,000 and $2,905,000 for the fiscal  years ended September 30,
   1998, 1997  and  1996,  respectively,  and  consisted primarily  of
   computer hardware  and  software.    The  Company had  no  material
   commitments for  capital expenditures  at September  30, 1998.   In
   October 1998, the Company entered into an agreement with GI to form
   a new digital cable software integration  center.  The formation of
   the integration  center  will  require  the  purchase  of  computer
   hardware and software and  office furniture.   While no commitments
   for such expenditures have been formally  entered into, the Company
   estimates that  such  expenditures  will  range  from  $250,000  to
   $425,000 during fiscal 1999.
        The  Company  believes   that  its   current  cash   and  cash
   equivalents,  as  well  as  cash  flow  from  operations,  will  be
   sufficient to finance the Company's  cash flow requirements through
   at least fiscal 1999.

   Future Operating Results

        This  Annual  Report  contains  a  number  of  forward-looking
   statements.   Any  statements contained  herein  (including without
   limitation statements  to  the  effect  that  the  Company  or  its
   management  "believes",   "expects",  "anticipates",   "plans"  and
   similar expressions)  that are  not statements  of  historical fact
   should be  considered  forward-looking  statements.    There are  a
   number of important factors  that could cause  the Company's actual
   results to differ materially from those  indicated by such forward-
   looking statements.    These factors  include,  without limitation,
   those set forth below.
<PAGE>
        During fiscal  1997,  the Company  announced  a  new strategic
   focus on the Internet device market.  The Company is now focused on
   the development, marketing and distribution of its technologies and
   services to the non-PC  Internet device marketplace.   Because this
   is a new and  undeveloped market, there  can be no  assurance as to
   the extent of the demand for the Company's products and services or
   the extent to which  the Company will be  successful in penetrating
   this market.

        The Company derived  approximately 15% of  its revenues for  the
   fiscal year ended  September 30, 1998  from Motorola Corporation  and
   39.5% of its revenues  for the fiscal year  ended September 30,  1997
   from Microsoft Corporation.  As the Internet device market  develops,
   the Company expects to  continue to derive  a significant portion  of
   its revenues from a relatively limited number of customers.  Although
   the Company expects that its reliance on any particular customer will
   decline as the Internet device market develops and its customer  base
   expands, the failure of the Company to enter into a sufficient number
   of licensing  agreements or  sustain  revenues from  major  customers
   during a particular period  could have a  material adverse effect  on
   the Company's future operating results.

        The Company's  future  results  of  operations  will  also  be
   largely dependent upon a number of  factors relating to the further
   development and acceptance of the Internet  as a commercial market.
   In particular,  commercial  use  of the  Internet  continues  to be
   constrained by  the need  for reliable  processes such  as security
   measures for electronic commerce as well  as the need for regularly
   available customer support.   In addition, the  market for Internet
   software products is characterized  by rapidly changing technology,
   evolving industry  standards  and  customer  demands, and  frequent
   product introductions and enhancements, which  make it difficult to
   predict whether the initial commercial  acceptance of the Company's
   solutions can be sustained over a period of time.

        The market for Internet technologies and services is extremely
   competitive, and competition is  likely to increase  in the future.
   The Company currently faces competition  from other Internet device
   technology vendors  and  service  providers  such  as  Oracle,  Sun
   Microsystems, Microsoft, on-line service companies, Internet access
   providers and  networking  software companies.    Additionally, the
   Company considers   a  significant  source of  competition  for its
   Internet technologies and professional services  to be the prospect
   company's internal resources.

        The Company provides its products and services to  manufacturers
   and service  providers within  the  cable and  satellite  television,
   wireless,  telecommunications,  office   equipment,  automotive   and
   industrial  control  markets  who  then  incorporate  the   Company's
   technology into  their products  and services.   The  success of  the
   Company is therefore dependent  in large part  on the performance  of
   its customers and the market  acceptance of its customers'  products,
   which is outside of the Company's control.
<PAGE>
        In October  1997, the  American  Institute of  Certified  Public
   Accountants ("AICPA") issued Statement of Position ("SOP") No.  97-2,
   Software Revenue Recognition, which superseded SOP No. 91-1.  SOP No.
   97-2 is effective for the Company's  1999 fiscal year which began  on
   October 1, 1998 and provides guidance on applying generally  accepted
   accounting   principles   for   recognizing   revenue   on   software
   transactions.    Based  on   the  Company's  interpretation  of   the
   requirements of SOP No.  97-2, application of  this statement is  not
   expected  to  have  a  material  impact  on  the  Company's  revenue.
   However, certain  provisions  of SOP  No.  97-2 are  currently  being
   reviewed by the accounting profession with the objective of providing
   additional guidance on implementation of the SOP.  Depending upon the
   outcome of this review and the issuance of implementation  guidelines
   and potential interpretations, the Company may be required to  modify
   its revenue  recognition policies  and business  practices, and  such
   change could have the effect of deferring the recognition of revenue.

        The Company from time  to time receives  notices alleging that
   its products infringe  third-party proprietary rights.   Patent and
   similar litigation  frequently  is complex  and  expensive  and its
   outcome  can  be  difficult  to  predict.    If,  as  a  result  of
   proprietary rights infringements by any  of the Company's products,
   the Company is required  to discontinue sales  of certain products,
   eliminate certain  features on  its products,  or pay  royalties to
   another party,  the  Company's future  operating  results  could be
   materially adversely affected.

        The Company's quarterly operating results have varied and they
   may continue to vary significantly depending on factors such as the
   timing of significant license  or service agreements,  the terms of
   the Company's licensing and service arrangements with its customers
   and the timing  of new  product introductions  and upgrades  by the
   Company and its competitors.  The  Company typically structures its
   license agreements  with  customers to  require  commitments  for a
   minimum number of licenses, and license  revenues are recognized as
   the committed licenses are  purchased.  Additional  revenues from a
   customer will not be earned unless  and until the initial committed
   levels are exceeded.   The Company's  revenues in any  quarter will
   depend in significant part  on its ability  to license technologies
   and provide  services  to new  customers  in that  quarter  and the
   timing of  product  deployment  by  its  customers.    The  Company
   typically structures  its  professional  services  agreements  with
   customers to  recognize  revenue on  the  percentage  of completion
   method of accounting.   The Company's  expense levels are  based in
   part on expectations of future revenue  levels and any shortfall in
   expected revenue  could therefore  have a  disproportionate adverse
   effect on the Company's operating results in any given period.

   Impact of Year 2000

   The "Year  2000" issue  refers to  the  problem of  certain  computer
   programs using  abbreviated  years with  two  digits and  thus  being
   unable to distinguish, for example, whether the year "00" means  1900
   or 2000  which  may lead  to  such  software failing  to  operate  or
   operating with erroneous results.
<PAGE>
   The Company has  assembled a cross-department  task force to  address
   the Year 2000 issue.  The task force is addressing Spyglass products,
   third-party software and  products used by  the Company and  software
   utilized by third parties that perform services for the Company.

   The task  force has  completed the  assessment phase  of its  overall
   plan.  The assessment  phase included a  review of Spyglass  products
   and, as  a  result of  these  initial assessments,  the  Company  has
   determined that all new Spyglass products and technologies  currently
   licensed are  Year 2000  compliant or  will be  so certified  as  new
   versions and  utilities  are released.    However, known  or  unknown
   errors or defects in Spyglass' products could result in delay or loss
   of revenue, diversion of development resources, increased service and
   warranty costs or damage to Spyglass' reputation, any of which  could
   materially  adversely  affect  Spyglass'  results  of  operations  or
   financial condition.  In addition, the task force investigated  other
   associated  Year  2000  issues  such  as  ensuring  that  third-party
   software used internally and other products and services supplied  to
   Spyglass are Year  2000 compliant.   This investigation included  but
   was not limited to review of vendor and related Web sites and  direct
   confirmation with  significant vendors.   The  majority of  Spyglass'
   computer programs have been purchased  and implemented over the  last
   three years.   As a  result, most of  these programs  were Year  2000
   compliant when purchased or have since  been upgraded with Year  2000
   compliant software upgrades.   In  the event  third party  internally
   used systems are not  Year 2000 compliant,  the Company's ability  to
   process vendor transactions and perform certain other functions could
   be impaired.    Additionally,  Spyglass  has  no  legacy  (mainframe)
   systems, which  are  the  source  of  much  of  the  current  concern
   regarding Year 2000  compliance.   During the  assessment phase,  the
   Company received direct  confirmation that  most material  internally
   used systems will operate in the year 2000.

   The second and current phase in the task force's efforts is to plan
   and conduct testing to confirm Year 2000 compliance on products and
   services in which Year  2000 compliance is in  question.  For those
   products and services  that fail  testing or  are assessed  as non-
   compliant,  Spyglass   will   implement   any   required   software
   modifications and/or replacements  of those  products so  that such
   products will function properly  with respect to dates  in the year
   2000.   The task force  has a May 1999 target  date to complete its
   testing efforts.   Upon completion of  its testing phase,  the task
   force will determine  a time period  during which to  implement any
   necessary changes.

   Spyglass does not currently have any information with regard to  Year
   2000 compliance of any  of its customers.   As is  the case with  all
   similarly situated companies, Spyglass'  results of operations  could
   be materially impacted  if its customers  encounter Year 2000  issues
   unrelated to Spyglass products and services.  In such a scenario,  it
   is reasonably  likely that  these customers  would channel  resources
   into products  and  activities  unrelated to  products  that  utilize
   Spyglass technologies and/or services, potentially limiting Spyglass'
   future revenues from these customers.

   The Company does not currently have a contingency plan in the event
   that Spyglass products  or third-party products  and services incur
   Year 2000 problems.  Such a plan will be devised if and when it has
   been determined that overall Year 2000 compliance is in question.
<PAGE>
   As of September  30, 1998, the  only Year 2000  cost incurred by  the
   Company has been  the value  of the  time, based  on standard  hourly
   rates for  employees, spent  by the  task force,  which  approximates
   $60,000.  The Company estimates it will incur approximately  $240,000
   in future  expenses to  ensure systems  will function  properly  with
   respect to dates in the year  2000.  These expenses are not  expected
   to have a  material impact on  the financial position,  cash flow  or
   operations of the Company.

   The costs and scope  of the Company's Year  2000 compliance efforts
   are based  on management's  best estimates  which  utilize numerous
   assumptions of future events.   However, there can  be no guarantee
   that  these   estimates   and   assumptions   will   be   realized.
   Furthermore, the  actual  impact  of  the  Year  2000  issue  could
   materially differ from that anticipated.
<PAGE>
<TABLE>
<CAPTION>
                               Consolidated Satements of Operations                          
                                   For the Fiscal Years Ended
                                          September 30,
   (In thousands, except per share   1998      1997     1996
   amounts)
    <S>                           <C>        <C>     <C>
    Net revenues:                 
     Internet technology          $11,661    $17,194  $19,466
     Service                        8,833      4,101    2,841
       Total net revenues          20,494     21,295   22,307

    Cost of revenues:
     Internet technology            1,843     1,535     1,912
     Service                        3,377     1,493       118
       Total cost of revenues       5,220     3,028     2,030

    Gross profit                   15,274    18,267    20,277

    Operating expenses and
    other:
     Sales and marketing            9,101     8,311     5,963
     Research and development       9,173    13,644     6,801
     General and administrative     5,742     6,769     3,846
     Restructuring charge               -       900         -
     One-time acquisition costs       496         -         -
       Total operating expenses
      and other                    24,512    29,624    16,610
                                        
    Income (loss) from operations  (9,238)  (11,357)    3,667
                                                      
    Other income, net               1,222     1,622     1,744

    Income (loss) before income    
      taxes                        (8,016)   (9,735)    5,411

    Provision for income taxes          -         -     1,951
    Net income (loss)             $(8,016)  $(9,735) $  3,460

    Net income (loss) per common
    share-basic                   $(0.60)   $(0.81)  $   0.30
                                        
    Net income (loss) per common
    share-diluted                 $(0.60)   $(0.81)  $   0.27
                                        
    Weighted average number of
    common shares outstanding
    -basic                        13,395     12,090    11,620

    Weighted average number of
    common shares outstanding
    -diluted                      13,395     12,090    12,875
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>                                     Consolidated Balance Sheets
                                                        September 30,
  (In thousands)                                    1998            1997
     <S>
       ASSETS                                     <C>             <C>
     Current assets:
     Cash and cash equivalents                    $ 22,655        $ 22,841
     Short-term investments                              -           4,929
     Accounts receivable, net of allowance for                
     doubtful accounts of $429 and $350,
     respectively                                    4,704           3,792
     Unbilled accounts receivable                      902               -
     Prepaid expenses and other current assets       2,461           2,195

       Total current assets                         30,722          33,757

   Properties and equipment, net                     3,585           5,037
   Other assets                                        268           1,786

      Total Assets                                $ 34,575          40,580

        LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
     Accounts payable                             $  1,493           1,817
     Royalties payable                                 541             345
     Deferred revenues                                 786           1,256
     Accrued compensation and related benefits       1,466           1,322
     Accrued expenses and other liabilities            163             173

      Total current liabilities                      4,449           4,913

   Long-term deferred revenues                          50             100

      Total liabilities                              4,499           5,013

   Stockholders' equity:
     Preferred stock, $.01 par value, 2,000,000
      shares authorized,  none issued
     Common stock, $.01 par value, 50,000,000
     shares authorized, 13,944,433 and 12,362,823
     shares  issued and 13,934,719and 12,362,823                    
     shares outstanding, respectively                  139             124
     Additional paid-in capital                     43,886          40,746
     Accumulated deficit                           (13,357)         (5,303)
     Treasury stock at cost, 9,714 shares in 1998     (55)               -
     Unamortized value of restricted stock issued    (537)               -

       Total stockholders' equity                   30,076          35,567

       Total Liabilities and Stockholders' Equity $ 34,575          40,580
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>

                                   SPYGLASS, INC.

             Consolidated Statements of Changes in Stockholders' Equity

                                                       Retained                      Unamortized
                                          Additional   Earnings/      Treasury       Value of
                             Common Stock  Paid-in   (Accumulated   Common Stock    Restricted
                          Shares   Amount  Capital      Deficit)    Share  Amount  Stock Issued
(In thousands, except
 share amounts)
   <S>                   <C>        <C>    <C>        <C>          <C>       <C>        <C>               
   Balance at September
   30, 1995              11,406,645 $  114 $ 36,528   $    972        -      $  -       $   -
   Exercise of stock                           
    options                 394,499      4      531
   Exercise of employee
    stock purchase plan
    stock options            18,401             266
   Issuance of incentive
    stock options                                80
   Tax benefit from exercise
    of stock options                          1,936
   Net income                                            3,460

   Balance at September     
   30, 1996               11,819,545   118   39,341      4,432         -        -          -
                                                         
   Exercise of stock        
    options                  497,882     5      731
   Exercise of employee
    stock purchase plan
    stock options             45,396     1      362
   Issuance of incentive
    stock options                                80
   Accelerated vesting of
    options                                     232
   Net loss                                             (9,735)

   Balance at September
   30, 1997               12,362,823   124   40,746     (5,303)        -        -          -

   Adjustment for
    acquisition accounted
    for as a pooling of
    interests                639,246     6      204        (38)
   Exercise of stock        
    options                  658,327     6    1,519
   Exercise of employee
    stock purchase plan
    stock options             74,323     1      391
   Issuance of                                     
    restricted stock         200,000     2    1,011                                   (1,011)
   Amortization of deferred
    compensation relating
    to issuance of
    restricted stock                                                                     474
   Purchase of treasury                                                  
    stock                                                          9,714     (55)
   Accelerated vesting of
    options                                      15
   Net loss                                             (8,016)

   Balance at September
    30, 1998               13,934,719 $139  $43,886   $(13,357)    9,714   $ (55)      $(537)
                                                        
See accompanying Notes to the Consolidated Financial Statements

<PAGE>

</TABLE>
<TABLE>
<CAPTION>
                                      Consolidated Statements of Cash Flows
                                             For the Fiscal Years Ended
                                                     September 30,
                                             1998     1997       1996
   <S>
   (In thousands)                         <C>       <C>         <C>
   Cash flows from operating
   activities:
   Net income (loss)                      $(8,016)  $(9,735)    $ 3,460
   Adjustments to reconcile net income
   (loss) to net cash used in operating
   activities:
     Depreciation                           1,993     1,742        694
     Amortization                           1,315       157        211
     Loss on disposal of fixed assets          15        99         21
     Amortization of deferred compensation
      related to issuance of restricted        
      stock                                   474         -         -
     Bad debt provision                       309     1,029        301
     Deferred income taxes                      -         -       (406)
     Incentive stock option compensation       15       312         80
     Other                                      -         -       (201)
   Changes in operating assets and
   liabilities:
     Accounts and long-term receivables     3,155    (3,066)      (783)
     Unbilled accounts receivable            (902)        -          -
     Prepaid expenses, other current assets
      and other assets                        (21)   (1,008)    (1,504)
     Accounts payable                        (327)      360        415
     Royalties payable                        196      (358)       279
     Deferred revenues                       (894)     (307)    (1,071)
     Accrued compensation and related                            
      benefits                               (541)      370        348
     Accrued expenses and other liabilities   (23)       70       (383)
     Net cash used in operating activities (7,190)   (4,114)      (822)

   Cash flows from investing
   activities:
     Cash acquired in business combination    574         -          -
     Short-term investments, net activity   4,929    12,664    (17,593)
     Proceeds from sale of fixed assets        82        32          -   
     Capital expenditures                   (443)    (3,330)    (2,905)
                                              
     Net cash provided by (used in)        
      investing activities                  5,142     9,366    (20,498)

   Cash flows from financing
   activities:
     Proceeds from exercise of stock options,
     including tax related benefits in 1996  1,917    1,099      2,938
     Purchase of treasury stock                (55)       -          -

     Net cash provided by financing         
     activities                             1,862     1,099      2,938

   Net increase (decrease) in cash and cash  
   equivalents                               (186)    6,351    (18,382)

   Cash and cash equivalents at beginning  
   of period                               22,841    16,490     34,872             

   Cash and cash equivalents at end of   
   period                                $ 22,655  $ 22,841   $ 16,490    

   Supplemental disclosure of cash flow
   information:
     Cash paid for income taxes           $     6   $    28   $    169
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
   Notes to the Consolidated Financial Statements

   Note 1.  Operations and Significant Accounting Policies

   Operations
   Spyglass, Inc. ("Spyglass"  or the "Company")  develops, markets  and
   distributes Internet  technologies  designed to  be  embedded  inside
   various end-user products, including but not limited to  televisions,
   office equipment,  television set-top  boxes, network  computers  and
   Internet access  services.   Spyglass  technology  offerings  include
   Spyglass Device Mosaic  (formerly Spyglass  Mosaic), Spyglass  Remote
   Mosaic, Spyglass Prism, Spyglass  MicroServer, Spyglass Device  Mail,
   and SurfWatch  client  and server  products.   Spyglass  also  offers
   Internet consulting  and  custom  engineering  services  through  its
   professional services organization.   These technologies are used  to
   bring Internet functionality to customers' products and services.

   On November 14, 1997, the Company acquired AllPen Software ("AllPen")
   in a  transaction accounted  for as  pooling of  interests.   AllPen,
   located in  Los Gatos,  California, develops  software solutions  and
   technologies and  provides  professional services  for  the  Internet
   device  marketplace.  This  transaction  was  effected  through   the
   exchange of 639,246 shares  of common stock of  Spyglass for all  the
   issued and outstanding shares of AllPen.  Because the effect of  this
   transaction was considered immaterial, Spyglass' financial statements
   were not  restated;  instead,  the  Company's  equity  accounts  were
   adjusted for  the effect  of the  pooling.   In connection  with  the
   acquisition of AllPen,  the Company  recorded a  charge to  operating
   expenses of  $496,000  or  $0.04 per  share  for  direct  acquisition
   related costs consisting primarily of professional fees.

   In May  1996,  the Company  formed  Spyglass International,  Inc.,  a
   wholly-owned subsidiary.   Spyglass  International,  Inc. is  a  U.S.
   subsidiary that has one branch office in Japan.  In January 1997, the
   Company formed  Spyglass Europe  Ltd., a  wholly-owned subsidiary  of
   Spyglass International, Inc. with an office in England.

   In April 1996, the Company acquired OS Technologies Corporation  ("OS
   Tech") and  SurfWatch Software,  Inc. ("SurfWatch")  in  transactions
   accounted for as poolings of interests.   As a result, all  financial
   information includes the  accounts and  results of  operations of  OS
   Tech and SurfWatch, respectively, for all periods presented.

   In February 1996, the Company acquired Stonehand Inc.  ("Stonehand"),
   in a transaction accounted for as pooling of interests.  As a result,
   all financial  information  includes  the  accounts  and  results  of
   operations of Stonehand for all periods presented.

   On November 28, 1995, the Board  of Directors declared a  two-for-one
   common stock split effected in the form of a 100% stock dividend paid
   on December 20,  1995 to  stockholders of  record as  of December  6,
   1995. All  share  and  per  share  information  in  the  accompanying
   consolidated financial statements and related notes thereto prior  to
   December 20, 1995 has been restated to reflect the two-for-one common
   stock split for all periods presented.

   Basis of Presentation
   The consolidated  financial statements  include the  accounts of  the
   Company  and  its  wholly-owned   subsidiaries.    All   intercompany
   transactions and balances between the companies have been eliminated.
<PAGE>
   University of Illinois Agreement
   The Spyglass Device Mosaic product is a commercial derivative version
   of NCSA Mosaic_.   NCSA Mosaic was developed  by the National  Center
   for Supercomputing  Applications at  the  University of  Illinois  at
   Urbana-Champaign.   In  May  1994, the  Company  and  the  University
   entered into  an  agreement  (as amended  to  date,  the  "University
   Agreement")  granting   the  Company   the  exclusive   (subject   to
   approximately 10  previously granted  licenses), worldwide  right  to
   develop, distribute and sublicense  commercial client browsers  based
   on NCSA  Mosaic.   The University  Agreement provides  for  royalties
   based on  Spyglass' net  revenues from  Device Mosaic,  and  includes
   cumulative minimum quarterly royalties.  The University Agreement has
   an initial term of five years, with automatic one-year renewals,  and
   is terminable in the event of a material breach by the Company of its
   obligations thereunder.  Under the University Agreement, the  Company
   was required to provide the University  with source code versions  of
   Spyglass Mosaic through Release  2.5.  The  University will have  the
   right (subject to certain restrictions) to incorporate these releases
   of Spyglass  Mosaic into  new releases  of  NCSA Mosaic,  which  will
   continue  to  be   available  on  a   free-with-copyright  basis   to
   organizations for  non-commercial  academic and  research  use  only.
   However,  the  University  is  not  permitted  to  make  NCSA  Mosaic
   available for distribution by resellers other than the Company.   The
   University Agreement  gives the  Company  the exclusive  right  (with
   certain  limited  exceptions)  to  use  the  University's  trademarks
   "Mosaic_"  and  "NCSA  Mosaic_"  and  its  spinning  globe  logo   in
   connection with Device Mosaic on  a royalty-free basis (with  certain
   limited exceptions).   In  addition, the  Company has  the  exclusive
   right (with  certain  limited  exceptions)  to  use  these  marks  in
   connection with  the sale  of other  products for  a royalty  payment
   based on net revenues derived from such products.

   Use of Estimates
   The preparation of financial statements in conformity with  generally
   accepted accounting principles requires management to make  estimates
   and assumptions that  affect the  amounts reported  in the  financial
   statements and accompanying notes.  Actual results could differ  from
   those estimates.

   Cash and Cash Equivalents
   For the purposes of  the balance sheet and  statement of cash  flows,
   all highly  liquid  investments  with original  maturities  of  three
   months or less are considered cash equivalents.

   Investments
   Investments with original maturities between three and twelve  months
   are  considered  short-term  investments.    Short-term   investments
   consist of debt securities such  as commercial paper, time  deposits,
   certificates of deposit, bankers' acceptances, and marketable  direct
   obligations of the United States Treasury.
<PAGE>
   Other Assets
   The Company  licenses  certain  technology  from  third  parties  and
   records prepaid royalty costs associated with these licenses.   These
   prepaid royalty costs are  amortized as a  percentage of revenues  or
   over the  expected period  of use.   It  is the  Company's policy  to
   periodically review and evaluate whether the benefits associated with
   these prepaid royalties are expected  to be realized and,  therefore,
   deferral and amortization  are appropriate.   Approximately  $857,000
   and $441,000  of  these prepaid  royalties  are included  in  prepaid
   expenses and  other current  assets  and approximately  $118,000  and
   $1,431,000 are included  in other assets  at September  30, 1998  and
   September 30, 1997, respectively.

   Properties and Equipment
   Properties  and  equipment  are  stated  at  cost  less   accumulated
   depreciation.   Depreciation is  determined for  financial  reporting
   purposes using  the straight-line  method over  the estimated  useful
   lives  of  the  assets,  which  range  from  three  to  seven  years.
   Depreciation for income  tax reporting purposes  is determined  using
   accelerated depreciation methods.

   Revenue Recognition
   The Company recognizes revenues from software licensing  arrangements
   in accordance with  the provisions of  Statement of Position  ("SOP")
   91-1, Software Revenue Recognition, issued by the American  Institute
   of Certified  Public  Accountants  ("AICPA").    Internet  technology
   revenues are generally  recognized as the  licenses are purchased  by
   customers, provided the license agreement does not allow for extended
   payment terms,  and there  are no  significant remaining  obligations
   under the contract.  Service revenues are comprised of revenues  from
   customer support and professional services agreements. Revenues  from
   the sale of support  agreements are recognized over  the term of  the
   agreement using  the  straight-line  method  and  related  costs  are
   included  in  operating  expenses  under  the  sales  and   marketing
   classification.  Revenues from  professional services agreements  are
   recognized on the percentage of completion method based on the  hours
   incurred relative to total estimated hours for fixed bid contracts or
   based on the hours  incurred multiplied by the  hourly rate for  time
   and material engagements.   Related costs are reported  as a cost  of
   service revenues.

   In October 1997, the AICPA issued SOP No. 97-2, Software Revenue
   Recognition, which  superseded  SOP  No.  91-1.    SOP  No.  97-2  is
   effective for the Company's fiscal year beginning October 1, 1998 and
   provides  guidance   on   applying  generally   accepted   accounting
   principles for software revenue  recognition transactions.  Based  on
   the Company's interpretation  of the  requirements of  SOP No.  97-2,
   application of  this statement  is not  expected to  have a  material
   impact on the Company's revenues.  However, certain provisions of SOP
   97-2 are currently being reviewed  by the accounting profession  with
   the objective of providing  additional guidance on implementation  of
   the SOP.  Depending upon the outcome of this review and the  issuance
   of  implementation  guidelines  and  potential  interpretations,  the
   Company may be  required to change  its revenue recognition  policies
   and business  practices, and  such change  could have  the effect  of
   deferring the recognition of revenue.
<PAGE>
   Accounting for Stock-Based Compensation
   The Company has elected to follow Accounting Principles Board Opinion
   No. 25,  Accounting for  Stock Issued  to  Employees ("APB  25")  and
   related interpretations in accounting for its employee stock options.
   Under APB  25, if  the Company's  stock option  plans are  considered
   fixed plans, no  compensation expense is  recognized if the  exercise
   price of the Company's employee stock options equals the market price
   of the underlying stock on the date  of grant.  If the option  grants
   are not fixed at an amount at  least equal to fair market value,  the
   Company recognizes compensation expense based on the intrinsic  value
   on the measurement  date.  The  Company has  included the  disclosure
   provision of Statement of Financial Accounting Standard ("SFAS")  No.
   123, Accounting  for Stock-Based  Compensation, which  requires  pro-
   forma  information  regarding  net  income  and  earnings  per  share
   determined as if  the Company had  accounted for  its employee  stock
   options under the fair value method of that Statement.

   Per Share Information
   In 1997, the Financial  Accounting Standards Board  issued SFAS No.
   128, Earnings  per  Share,  which was  adopted  by  the Company  in
   December 1997.    SFAS  No. 128  replaced  the  previously reported
   primary and fully diluted earnings per share with basic and diluted
   earnings per share.  Basic earnings per share excludes any dilutive
   effect of options,  warrants and  convertible securities.   Diluted
   earnings per share assumes  the conversion of  all securities which
   are exercisable or  convertible into  common stock and  which would
   either dilute or not affect basic earnings per share.  All earnings
   per share amounts  for all periods  have been presented  and, where
   necessary, restated to conform to SFAS No. 128 requirements.

   Earnings per share-basic was  calculated by dividing  net income by
   the weighted average number of common shares outstanding during the
   period. Earnings per  share-diluted was calculated  by dividing net
   income by the sum  of the weighted average  number of common shares
   outstanding plus all common shares that would have been outstanding
   if potentially  dilutive common  shares had  been issued.   Diluted
   weighted average  shares for  1996  excludes the  impact  of common
   stock options of 11,202 shares because the options' exercise prices
   were greater than the average market price of the common stock and,
   therefore, the effect would be anti-dilutive.

   The table below  reconciles the  number of  shares utilized  in the
   earnings  per  share  calculations  for  the  fiscal  years  ending
   September 30, 1998, 1997 and 1996, respectively.

<TABLE>
<CAPTION>                                   For the Fiscal Years Ended
                                                  September 30,
        (In thousands)                        1998     1997     1996
        <S>                                  <C>     <C>      <C>
        Weighted average number of
        common shares outstanding _
        basic                                 13,395  12,090   11,620
        Effect of dilutive securities,
        stock options                              -       -    1,255
        Weighted average number of
        common shares outstanding _
        diluted                               13,395  12,090   12,875
</TABLE>
<PAGE>
   Advertising Costs
   The Company expenses advertising costs as incurred.

   Segment Reporting
   In June 1997,  the Financial Accounting  Standards Board issued  SFAS
   No. 131,  Disclosures about  Segments of  an Enterprise  and  Related
   Information, which becomes  effective for the  Company's fiscal  year
   ending September 30, 1999.  SFAS  No. 131 broadens the definition  of
   operating segments  and requires  additional disclosures  about  such
   segments.  The Company anticipates that the adoption of this standard
   will result  in reporting  more than  one  segment and  is  currently
   evaluating its operating segments.

   Reclassification
   Certain prior year amounts have been reclassified to conform with the
   current year's presentation.

   Note 2.  Cash Equivalents and Short-term Investments

   The following  is  a  summary  of  cash  equivalents  and  short-term
   investments at amortized cost:
<TABLE>
<CAPTION>                             September 30,
   (In thousands)                    1998     1997
           <S>                     <C>      <C>
           Commercial paper        $16,680  $11,919
           U.S. treasury notes           -    1,000
           Money market              5,871    9,773
              Cash equivalents      22,551   22,692
           Cash                        104      149
           Total cash and cash
           equivalents             $22,655  $22,841

           Commercial paper        $     -  $ 1,925
           U.S. treasury notes           -    3,004
            Total short-term
           investments             $     -   $4,929
</TABLE>
   Since these securities  are short-term in  nature, changes in  market
   interest rates would not have a significant impact on the fair  value
   of these securities.  These securities are carried at amortized  cost
   which approximates fair value.   It is the  intent of the Company  to
   hold its investments until maturity.

   Note 3.  Properties and Equipment

   Properties and equipment and related accumulated depreciation were as
   follows:
<TABLE>
<CAPTION>
                                                  September  30,
   (In thousands)                                1998      1997
           <S>                                    <C>     <C>
           Computer equipment and software        $5,387  $5,198
           Furniture, fixtures and office
           equipment                               1,939   1,897
           Leasehold improvements and other          560     405
                                                   7,886   7,500
           Less: Accumulated depreciation        (4,301) (2,463)
           Properties and equipment, net          $3,585  $5,037
</TABLE>
<PAGE>
   Note 4.  Income Taxes

   The components of the provision for income taxes were as follows:

<TABLE>
                                For  the Years Ended  September 30,
   (In thousands)                        1998   1997     1996

           <S>
           Current:                      <C>   <C>     <C>
              Federal                     $  -  $    -  $     -
              Foreign                      121      94      152
              State                          -       -        -
                 Total current             121      94      152
                                                     
           Deferred:
              Federal                    (121)    (94)    1,444
              State                          -       -      355
                 Total deferred          (121)    (94)    1,799

           Provision for income taxes    $   -  $    -  $ 1,951
</TABLE>
   A reconciliation  of  income tax  expense  to the  statutory  federal
   income tax rate follows:
<TABLE>
                                   For the Years Ended September 30,
                                        1998      1997      1996
           <S>
           Federal income taxes at    <C>       <C>        <C>
              statutory rate           34.0 %    34.0 %     34.0%

           State income taxes, net
              of Federal income tax
              benefit                    4.8%      4.8%      4.3%
           Valuation allowance        (38.8%)   (38.8%)      -  %
           Other                          - %       - %    (2.2%)

           Effective tax rate              -%       - %     36.1%
</TABLE>
<PAGE>
   Significant components of the Company's net deferred tax assets were
   as follows:
<TABLE>
<CAPTION>
                                                    September 30,
   (In thousands)                                   1998     1997
             <S>                                <C>       <C>
             Deferred tax assets:
             Accounts receivable                $    189  $     151
             Accrued expenses and other
              liabilities                            177        223
             Net operating loss carryforwards      9,593      6,122
             Research and development tax
              credit carryforwards                 1,773      1,338
             Foreign tax credit carryforwards        366        246
             Amortization of deferred
              compensation relating to
              issuance of restricted stock           184          -
             Alternative minimum tax credit
              carryforwards                           10         10
                Deferred tax assets               12,292      8,090

             Deferred tax liabilities:
             Depreciation                           (14)       (56)
                Deferred tax liabilities            (14)       (56)

             Net deferred tax assets             $12,278  $   8,034
             Deferred tax asset valuation
              allowance                          (12,278)    (8,034)
             Net deferred tax assets            $      -  $       -
</TABLE> 
   The Company changed from the cash to accrual basis for tax  reporting
   purposes at the  time of filing  its 1997 tax  return; as such,  1997
   amounts included herein have been restated  from the cash to  accrual
   basis.

   As of  September  30,  1998,  the  Company  had  net  operating  loss
   carryforwards for income  tax purposes  of approximately  $24,754,000
   which expire in  the years 2006-2012.   Of  this amount,  $13,923,000
   relates to  tax  deductions  generated by  the  exercise  of  certain
   incentive stock  options  by employees  which  will be  available  to
   reduce future income tax  liabilities by a total  of $5,395,000.   Of
   this tax  benefit,  $2,669,000 was  credited  to paid-in  capital  to
   offset  deferred  tax  liabilities.    The  remaining  $2,726,000  is
   available to offset future  deferred tax liabilities  as a credit  to
   paid-in capital.  The Company recorded a credit to paid-in capital of
   $2,205,000 in fiscal 1996 as a result of such exercises of  incentive
   stock options by employees.  No such credits to paid-in capital  were
   recorded in fiscal 1997 or fiscal 1998.

   As of September 30,  1998, the Company  had research and  development
   credit carryforwards of approximately $1,773,000, which are available
   to offset future income tax liabilities and expire in the years 2006-
   2012.

   The valuation allowance  increased by $4,244,000  and $6,557,000  for
   the fiscal years ended September 30, 1998 and 1997, respectively, and
   relates primarily to increases  in net operating loss  carryforwards.
   The  Company  has  established  the  valuation  allowance  to   defer
   recognition of potential tax benefits until such time that  operating
   results can  provide  assurance  that  these  tax  benefits  will  be
   recognized.
<PAGE>
   Note 5.  Stock Incentive Plans

   The Company has a 1995 Stock  Incentive Plan ("1995 Incentive  Plan")
   which replaced the  Company's 1991  Stock Option  Plan ("1991  Option
   Plan"), a  1995 Director  Stock Option  Plan ("1995  Director  Option
   Plan") and  a 1991  Employee Stock  Bonus  Plan ("1991  Bonus  Plan")
   effective June  27,  1995, when  the  Company completed  its  initial
   public offering.  Accordingly, options under the 1991 Option Plan and
   the 1991 Bonus Plan  are not granted in  years after 1995 but  remain
   outstanding.

   The above  plans enable  the Company  to  grant options  to  purchase
   common stock, to make awards of restricted common stock and to  issue
   certain other equity-related securities of the Company to any full or
   part-time employees, officers, directors, consultants or  independent
   contractors of the Company.   Stock options  entitle the optionee  to
   purchase common stock from the Company for a specified exercise price
   during  a  period  specified  in  the  applicable  option  agreement.
   Restricted stock  awards entitle  the  recipient to  purchase  common
   stock from the Company under terms  which provide for vesting over  a
   period of time and a right of  repurchase in favor of the Company  of
   the unvested portion of  the common stock subject  to the award  upon
   the termination of the  recipient's employment or other  relationship
   with the Company.   The plans,  except for the  1995 Director  Option
   Plan, are administered by the Compensation Committee of the Board  of
   Directors, which  selects  the  persons to  whom  stock  options  and
   restricted stock  awards are  granted and  determines the  number  of
   shares of common stock covered by  the option or award, its  exercise
   price or purchase  price, its vesting  schedule and, in  the case  of
   stock options, its expiration date.

   Furthermore, the above plans stipulate that the exercise price of any
   incentive stock option shall not be less than 100% of the fair market
   value of the common stock at the date of the grant or less than  110%
   of the fair market value in  the case of optionees holding more  than
   10% of the total combined voting power of all classes of stock of the
   Company.   The exercise  periods of  incentive stock  options  cannot
   exceed 10 years from  the date of grant,  except for incentive  stock
   options granted  to optionees  holding more  than  10% of  the  total
   combined voting  power  of  all  classes  of  stock,  which  must  be
   exercised within five  years.  Non-qualified  stock options, if  any,
   must be exercised  within the  time period  set forth  in the  option
   agreement.  Any portion not exercised within the terms as  stipulated
   in the option agreement shall be forfeited.

   The Company records as  compensation expense the  excess, if any,  of
   the fair market value of the common stock at the date of option grant
   over  the  option  exercise   price.  Any  compensation  expense   is
   recognized ratably  over  the  vesting period  of  the  options.  The
   Company  recorded  compensation  expense  of  approximately  $15,000,
   $312,000 and $80,000 for the years ended September 30, 1998, 1997 and
   1996, respectively,  relating to  options  granted with  an  exercise
   price below the estimated fair market  value of the common stock  and
   the acceleration of the  vesting of stock  options.  Options  granted
   prior to October 1994 and subsequent to the Company's initial  public
   offering have an exercise price  approximating the fair market  value
   of the common stock as of their grant date.
<PAGE>
   1995 Stock Incentive Plan

   The maximum number  of shares  of common  stock which  may be  issued
   pursuant to the 1995 Incentive Plan  is 3,300,000 shares, subject  to
   certain  anti-dilution   adjustments.     Options  generally   become
   exercisable over four years,  commencing on the one-year  anniversary
   of the  date  of grant,  and  accumulate if  not  exercised.   As  of
   September 30, 1998, options to purchase approximately 449,000  shares
   are available for issue.

   The 1995 Incentive Plan  further provides for  the granting of  stock
   appreciation  rights  ("SARs")  subject  to  certain  conditions  and
   limitations to  holders of  options under  the 1995  Incentive  Plan.
   SARs permit  optionees to  surrender an  exercisable option  for  any
   amount equal to the  excess of the market  price of the common  stock
   over the option price when the  right is exercised.  There have  been
   no SARs issued under this plan.

   Furthermore, the 1995  Incentive Plan  provides for  the granting  of
   awards of restricted  stock entitling recipients  to purchase  common
   stock from the Company under terms  which provide for vesting over  a
   period of time, as determined by the Board of Directors, and a  right
   of repurchase in favor of the Company of the unvested portion of  the
   common stock  subject  to  the award  upon  the  termination  of  the
   recipient's  employment  or  other  relationship  with  the  Company.
   Awards of 200,000 shares of restricted stock, generally vesting  over
   four years in  equal annual installments  commencing on the  one-year
   anniversary of the date  of grant, had been  purchased for $0.01  per
   share (and had a  fair value of  $5.063 on the  date of issue)  under
   this plan as of September 30, 1998.  Upon issuance of stock under the
   plan, unearned compensation  equivalent to the  excess of the  market
   value at the date of grant over the purchase price is offset  against
   stockholders' equity  and  subsequently amortized  over  the  periods
   during which the restrictions lapse.

   1995 Director Stock Option Plan

   Under the  Company's 1995  Director Stock  Option Plan,  the  maximum
   number of  shares of  common stock  which may  be issued  is  200,000
   shares, subject to certain anti-dilution adjustments.  Each  director
   who is not otherwise  an employee initially elected  to the Board  of
   Directors is granted an option, on  the date of initial election,  to
   purchase 20,000 shares of common stock.   Each such director is  also
   granted, on  the date  of each  Annual  Meeting of  Stockholders,  an
   option to purchase  5,000 shares.   Options  become exercisable  over
   four years, commencing  on the one-year  anniversary of  the date  of
   grant, and accumulate if  not exercised.  As  of September 30,  1998,
   options for  77,900  share  were outstanding,  of  which  9,800  were
   exercisable.

   1995 Employee Stock Purchase Plan
<PAGE>
   Under  the  Company's  1995  Employee  Stock  Purchase  Plan  ("Stock
   Purchase Plan"), employees  are granted the  opportunity to  purchase
   the Company's  common  stock.   The  first offering  under  the  Plan
   commenced on  August  16,  1995  and  concluded  February  15,  1996.
   Subsequent offerings begin on February 16 and August 16 of each  year
   and conclude on August 15 and  February 15, respectively.  The  price
   at which the employees  may purchase the common  stock is 85% of  the
   closing price of the  Company's common stock  on the Nasdaq  National
   Market on  the  date the  offering  period commences  or  terminates,
   whichever is lower.  A total  of 600,000 shares of common stock  have
   been reserved under this plan. In fiscal 1998, 1997 and 1996, 74,323,
   45,396 and 18,401 shares were issued  under the Stock Purchase  Plan,
   respectively.

   1991 Stock Option Plan

   The 1991 Option Plan was terminated effective June 27, 1995, when the
   Company completed its  initial public offering,  and was replaced  by
   the 1995 Stock Incentive Plan.  Options granted under the 1991 Option
   Plan generally become exercisable in four equal annual  installments,
   commencing on  the date  of grant  and continuing  through the  third
   anniversary of the date  of grant, and  accumulate if not  exercised.
   Options to  purchase  1,520,132 shares  of  common stock,  at  prices
   ranging from $0.08 to $4.125 per share, have been granted.

   A summary  of the  1995 Stock  Incentive  Plan, 1995  Director  Stock
   Option Plan and the 1991 Stock Option Plan transactions follows:
<TABLE>
<CAPTION>
                                             September 30,
                                  1998               1997             1996

                                     Weighted          Weighted         Weighted
                                      Average          Average           Average
                                     Exercise         Exercise          Exercise
                            Shares    Price   Shares   Price    Shares   Price
   <S>                     <C>       <C>     <C>       <C>     <C>       <C>
   Outstanding, beginning
   of year                 1,970,239  $5.85  1,989,590  $8.98  1,493,004  $2.06

   Granted                 1,858,924   4.04  1,292,900   9.07    910,099  17.10

   Exercised               (858,327)   1.78  (497,882)   1.62  (394,499)   1.21

   Forfeited               (613,656)   6.97  (814,369)  12.56   (19,014)  10.85

   Outstanding, end of
   year                    2,357,180  $5.57  1,970,239  $5.85  1,989,590  $8.98

   Weighted average
   remaining contractual
   life                         8.60              8.79              8.43

   Options exercisable at
   year-end                  682,326           600,469           658,758

   Weighted average fair
   value of ptions
   granted during the
   year                        $4.94            $12.16             $5.39
</TABLE>
<PAGE>
   A summary of information on stock options outstanding as of September
   30, 1998 follows:
<TABLE>
<CAPTION>
                       Options Outstanding        Options Exercisable
                                 Weighted      Weighted              Weighted
   Range of                     Average        Average               Average
   Exercise       Number        Remaining      Exercise   Number     Exercise
   Prices       Outstanding  Contractual Life  Price    Exercisable   Price
  <C>            <C>             <C>            <C>      <C>         <C>
  $0.08             165,000        4.92          $0.08     165,000     $0.08
  $0.40-$0.58       154,290        7.53          $0.49     118,144     $0.46
  $4.13 -$5.53      919,815        9.26          $4.94      13,750     $4.13
  $6.88             532,665        8.52          $6.88     279,522     $6.88
  $7.00-$9.50       527,510        9.00          $7.82      87,030     $7.35
  $10.25-$11.25      55,000        8.74         $10.63      15,980    $10.27
  $42.50              2,900        7.32         $42.50       2,900    $42.50

  $0.08-$42.50    2,357,180        8.60          $5.57     682,326     $4.36
</TABLE>

   Stock-Based Compensation

   Pro-forma  information,  as  required  by  Statement  of  Financial
   Accounting Standards No. 123, is as follows:
<TABLE>
<CAPTION>
                                    For the Fiscal Years Ended September 30,
   (In thousands, except per share data)       1998      1997     1996
   <S>                                     <C>         <C>       <C>
   Net income (loss) as reported            ($ 8,016)  ($ 9,735)  $3,960
   Pro-forma net income (loss)              ($11,655)  ($14,308)  $1,306

   Net income (loss) per share as reported    ($0.60)    ($0.81)   $0.27
   Pro-forma net income (loss) per share      ($0.87)    ($1.18)   $0.10
</TABLE>

   In determining the fair  value of the options,  the Company used  the
   Black-Scholes model and assumed  a risk free  interest rate of  4.23%
   and 6.0%, and an expected stock  price volatility of 90.0% and  70.2%
   for 1998 and 1997, respectively.   The Company also assumed  expected
   lives of the options ranging from five to six years and no  dividends
   for all years. The Black-Scholes option valuation model was developed
   for use in estimating the fair  value of traded options that have  no
   vesting restrictions  and are  fully  transferable. In  addition,  it
   requires the input  of highly subjective  assumptions, including  the
   expected stock price volatility.  Because the Company's options  have
   characteristics significantly different from those of traded options,
   and  because  changes  in   the  subjective  input  assumptions   can
   materially affect the fair  value estimate, the estimated  valuations
   may not necessarily provide a reliable  measure of the fair value  of
   the Company's options.
<PAGE>
   Note 6.   Stock Option Exchange Program

   The Company  uses stock  options as  a  significant element  of the
   compensation of  employees,  in part  because  it  believes options
   provide an incentive  to employees  to maximize  shareholder value.
   Stock options  also  serve  as  a  means  of  retaining  employees.
   Because the market  value of  the Company's  common stock  in early
   1997 had  fallen significantly  below  the exercise  price  of most
   outstanding options, the value of such stock  options as a means of
   motivating  and   retaining   employees   had  been   significantly
   diminished.   The Board  of  Directors concluded  that  the Company
   needed to  restore the  value of  the existing  stock options  as a
   means of motivating and retaining employees in order to promote the
   successful implementation of the Company's growth strategies.

   As a result, on  April 8, 1997,  the Board of  Directors approved a
   stock option exchange program (the "Exchange Program"), pursuant to
   which full-time permanent employees holding stock options under the
   Company's 1995 Stock Incentive  Plan were given  the opportunity to
   exchange the  unexercised portion  of such  options  (the "Existing
   Options") for new  options (the "New  Options") on a  basis of four
   shares of  common  stock  for  every  five  shares covered  by  the
   Existing Option and  having an exercise  price of $6.875  per share
   (the fair market value of the Company's common stock on such date).
   The New Options expire 10 years from the date of grant and have the
   same vesting  schedule  and  other terms  as  the  Existing Options
   cancelled in exchange therefor.   Option holders who  own more than
   1% of  the Company's  outstanding common  stock and  Directors were
   excluded from the  Exchange Program.   Stock option  disclosures in
   Note 5  have been  adjusted  to reflect  options  for approximately
   235,000 shares which  were forfeited  as a  result of  the Exchange
   Program.

   Note 7.  401(k) Savings Plan

   The Company has  a salary  reduction 401(k)  retirement savings  plan
   (the "Plan") covering substantially  all of the Company's  employees.
   Participating employees may contribute an amount  up to 15% of  their
   eligible compensation, subject to an annual  limit.  The Company,  at
   the discretion of the Board of  Directors, may make contributions  to
   the Plan. The Company contributed $273,200, $269,000 and $118,300  to
   the Plan in fiscal 1998, 1997 and 1996, respectively.

   Note 8. Commitments and Contingencies

   The Company leases office  facilities under non-cancelable  operating
   lease agreements  and has  sublease  agreements expiring  at  various
   dates through fiscal 2002.  At September 30, 1998, approximate future
   minimum  lease  commitments  and  receipts  under  these  leases  and
   subleases were as follows:
<TABLE>
<CAPTION>
                                   Minimum   
                                    Lease     Sublease
                                Commitments   Receipts
                  (In thousands)
                       <C>       <C>         <C>
                       1999       $ 1,623     $  194
                       2000         1,265        194
                       2001           778        194
                       2002           282         97
</TABLE>
<PAGE>      
   Total  rent  expense  under   non-cancelable  operating  leases   was
   approximately $1,450,000,  $1,324,000,  and $689,000  for  the  years
   ended September  30,  1998,  1997  and  1996,  respectively,  net  of
   sublease amounts of $243,000, $31,000 and $0, respectively.

   Note 9. Significant Customers and Export Revenues

   In fiscal 1998, sales to a significant customer represented 15.0%  of
   total  net  revenues.     Sales  to   another  significant   customer
   represented 39.5% and 12.1% of total net revenues in fiscal 1997  and
   1996, respectively.

   The  Company   exports   products  to   diverse   geographic   areas.
   Substantially all  foreign sales;  however,  are transacted  in  U.S.
   dollars and therefore the Company is not exposed to foreign  currency
   market risk.  Net export revenues by geographic area were as follows:
<TABLE>
<CAPTION>
                    For the Fiscal Years Ended September 30,
   (In thousands)                    1998    1997      1996

                <S>                <C>      <C>     <C>
                Japan              $1,488   $   583 $ 2,094
                Other
                 international         899     1,113   1,594
                Total net export
                 revenues           $2,387   $ 1,696 $ 3,688

   Note 10.   Microsoft Amendment

   On January 21, 1997, the Company amended its license arrangement with
   Microsoft.  This amendment converted Microsoft's existing license for
   the Spyglass Mosaic browser technology  into a fully paid-up  license
   in consideration of an additional $8,000,000 payment from  Microsoft.
   This payment consisted of $7,500,000 in cash and $500,000 in software
   and product maintenance.

   Note 11.  Restructuring Charge
   On March 10, 1997, the  Company consolidated its Champaign,  Illinois
   development operations with its  Naperville, Illinois and  Cambridge,
   Massachusetts operations.  This consolidation reflected the Company's
   evolution from its desktop  focus to the  Internet device market  and
   the realignment of its product development activities with the  needs
   of this  market.   A pre-tax  restructuring  charge of  $900,000  was
   recorded in the second quarter of fiscal 1997 and consisted primarily
   of severance  and  related  personnel costs  of  $730,000  and  lease
   cancellation and  other exit  costs of  $170,000.   Included  in  the
   charge for  personnel  costs  was $100,000  of  compensation  expense
   related to the  acceleration of the  exercisability of certain  stock
   options.  The restructuring was completed as of September 30, 1997.

   Note 12.  Subsequent Event

   In October  1998,  General Instrument  Corporation  ("GI") acquired
   700,000 shares  of the  Company's common  stock for  $7,392,000 and
   also acquired warrants  to purchase  an additional  700,000 shares.
   The warrants have exercise prices ranging from $13.20 to $14.78 per
   share (subject to adjustment in  certain circumstances), and become
   exercisable on varying dates over a five-year period. In connection
   with this investment, the Company and  GI entered into a three-year
   agreement under which  the Company  will develop and  integrate new
   Internet cable services and technologies for GI.  This work will be
   performed through  a newly  formed  subsidiary of  the  Company, in
   which GI will hold a  10% minority interest and  which GI will have
   an  option  to  purchase   at  fair  market   value  under  certain
   circumstances.

<PAGE>
   REPORT OF INDEPENDENT AUDITORS

   To the Board of Directors and stockholders of Spyglass, Inc.

   We have audited the consolidated balance sheets of Spyglass Inc.  and
   subsidiaries as  of September  30, 1998  and  1997, and  the  related
   consolidated  statements  of  operations,  changes  in  shareholders'
   equity, and cash  flows for the  years then ended.   These  financial
   statements are the responsibility of  the company's management.   Our
   responsibility  is  to  express   and  opinion  on  these   financial
   statements based on our audit.  The consolidated financial statements
   of Spyglass,  Inc. and  subsidiaries as  of and  for the  year  ended
   September 30,1 996 were audited by other auditors whose report  dated
   October  25,  1996,  expressed   an  unqualified  opinion  on   those
   statements.

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

   In our opinion,  the financial statements  referred to above  present
   fairly, in all material respects, the consolidated financial position
   of Spyglass, Inc. and  subsidiaries at September  30, 1998 and  1997,
   and the consolidated results of their operations and their cash flows
   for the  two  years  in  the  period  ended  September  30,  1998  in
   conformity with generally accepted accounting principles.


   /s/ Ernst & Young LLP
   Chicago, Illinois
   October 19, 1998


</TABLE>