<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K/A
                                 AMENDMENT NO. 1

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998    COMMISSION FILE NUMBER 0-27890

                          MINDSPRING ENTERPRISES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                                    <C>
                           DELAWARE                                                 58-2113290
(State or other jurisdiction of incorporation or organization)         (I.R.S. Employer Identification No.)

                1430 WEST PEACHTREE, SUITE 400                                        30309
                       ATLANTA, GEORGIA                                             (Zip Code)
                (principal executive offices)
</TABLE>

                                 (404) 815-0770
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                (NOT APPLICABLE)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

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

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

Based upon the closing price of the registrant's common stock as of March 25,
1999 the aggregate market value of the common stock held by non-affiliates of
the registrant is $1,914,463,972.*

The number of shares of common stock outstanding as of March 25, 1999 was
28,914,414.

---------------
*    Solely for purposes of this calculation, all executive officers and
     directors of the registrant and all shareholders reporting beneficial
     ownership of more than 5% of the registrant's common stock are considered
     to be affiliates.



                                       1
<PAGE>   2
                               EXPLANATORY NOTE


          This Amendment No. 1 to Annual Report on Form 10-K/A is being filed
to revise the following items contained in this report:

          (1) Management's Discussion and Analysis of Financial Condition and
              Results of Operations,

          (2) Note 1 to the Financial Statements of MindSpring Enterprises,
               Inc., and

          (3) Schedule II - Valuation of Qualifying Accounts.

<PAGE>   3


                                     PART II

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

         All common stock numbers and per share amounts in this report give
effect to a 3-for-1 stock split effected by MindSpring in June 1998.

    OVERVIEW

         MindSpring is a leading national Internet service provider, or ISP. We
focus on serving individuals and small businesses. Our subscribers use their
MindSpring accounts to, among other things, communicate, retrieve information,
and publish information on the Internet. Our primary service offerings are
dial-up Internet access and business services, which we offer in various price
and usage plans designed to meet the needs of our subscribers. Our business
services include Web hosting, which entails maintaining a customer's Web site;
high-speed, dedicated Internet access; Web page design; domain name registration
and customer Web server co-location. Web hosting, our principal business
service, complements our Internet access business and is one of the fastest
growing segments of the Internet marketplace.

         We offer our subscribers:

         -    user-friendly and easy to install software, containing a complete
              set of the most popular Internet applications including electronic
              mail, World Wide Web access, Network News, File Transfer Protocol
              and Internet Relay Chat;

         -    highly responsive customer service, and technical support which is
              available 24 hours a day, seven days a week; and

         -    a reliable nationwide network that enables subscribers in the 48
              contiguous United States and the District of Columbia to access
              the Internet via a local telephone call.

         Our nationwide network consists of MindSpring-owned points of presence
"POPs" and POPs that are owned by other companies with which we have service
agreements. Through these service agreements, we have the flexibility to offer
Internet access in a particular market through a MindSpring-owned POP, a
third-party network provider's POP or a combination of the two. As part of our
efforts to control quality and cost, we typically seek to increase the number of
MindSpring-owned POPs in markets where we have higher numbers of subscribers.

         MindSpring has grown rapidly by:

         -    providing superior customer service and technical support;

         -    expanding marketing and distribution activities;

         -    making strategic acquisitions; and

         -    creating additional revenue streams by offering value-added
              services such as Web hosting that build on our basic operating
              capabilities and services.

         We have increased our subscriber base from approximately 12,000
subscribers at December 31, 1995 to approximately 693,000 subscribers at
December 31, 1998, including over 21,000 Web hosting customers. In February
1999, we completed the NETCOM acquisition, which increased our subscriber base
to approximately 1.1 million subscribers, including approximately 45,000 Web
hosting subscribers. This acquisition is described below. In addition, by
providing superior customer service and technical support, we have been
successful in limiting our average monthly subscriber cancellations, calculated
as the number of cancellations in a month divided by the beginning subscriber
base for that month, to 3.8% in 1996 and 1997 and 3.3% in 1998.



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<PAGE>   4


         We have also rapidly increased revenues and achieved profitability
ahead of other national ISPs. We believe that providing superior service and
support to our subscribers has contributed to our achieving significant market
penetration in a number of our target markets. We also believe that high
geographic concentrations of satisfied subscribers in a particular market
reduces the costs of adding new subscribers in that market relative to revenues.
This tends to result in higher margins and greater profitability in these
markets.

         From our inception in February 1994 through 1997, we experienced annual
net operating losses as a result of efforts to build our network infrastructure
and internal staffing, develop our systems, and expand into new markets. During
1997, we generated positive cash flows from operations, with EBITDA of
approximately $5 million. We had our first year of profitability in 1998. For
the year ended December 31, 1998, we had revenues of approximately $115 million,
EBITDA of approximately $23 million, net income of approximately $8.8 million
and earnings per share of $0.35, in each case excluding a one-time tax benefit
of approximately $1.7 million. Including the one-time tax benefit, our net
income for 1998 was approximately $10.5 million and our earnings per share were
$0.41.

         We expect to continue to focus on increasing our subscriber base.
Increases in our subscriber base will cause our revenues to increase, but will
also cause our costs of revenue, selling, general and administrative expenses,
capital expenditures, and depreciation and amortization to increase. Our
purchases of subscriber bases such as the Spry and NETCOM acquisitions cause an
immediate increase in our amortization expense. We generally amortize subscriber
acquisitions over a three-year period in approximately equal amounts each year.
As more fully described below, we anticipate that, while we will continue to
generate positive cash flows from operations and EBITDA during 1999 and 2000, we
expect to incur net losses into 2000, principally as a result of amortization
expenses related to the Spry and NETCOM acquisitions. If our assumptions are
incorrect, our business plans change and/or we undertake additional acquisitions
of subscriber bases in the near future, we could continue to incur net losses
for a longer period of time. We do not currently have any agreements to do
additional acquisitions. There can be no assurance that we will be able to
sustain growth in our subscriber base, revenues, cash flows or EBITDA. Also,
there can be no assurance that we will be able to achieve or sustain net income
in the future.

         Spry Acquisition. On September 10, 1998, we entered into an Asset
Purchase Agreement with AOL and Spry, a wholly owned subsidiary of AOL, to
purchase assets used in connection with the consumer dial-up Internet access
business operated by Spry. In that transaction, we acquired Spry's subscriber
base of approximately 130,000 individual Internet access customers in the United
States and Canada as well as various assets used in serving those customers.
These assets included a leased support facility and a leased network operations
facility in Seattle, Washington. MindSpring also acquired all rights held by
Spry to the "Sprynet" name. On October 15, 1998, we completed the Spry
acquisition and made an initial cash payment to AOL of $25 million. In March
1999, we made an additional and final payment to AOL of approximately $7
million. The total purchase price of approximately $32 million for the Spry
subscribers and assets was primarily a function of the number of acquired
subscribers who remained active with MindSpring as continuing users in good
standing after two billing cycles, measured as of December 31, 1998.

         NETCOM Acquisition. On January 5, 1999, we entered into an Asset
Purchase Agreement with NETCOM, which has changed its name to ICG PST, Inc., a
wholly owned subsidiary of ICG Communications, Inc., to purchase assets used in
connection with the United States Internet access and Web hosting business
operated by NETCOM. In that transaction, we acquired NETCOM's subscriber base of
approximately 371,000 individual Internet access accounts, 22,000 Web hosting
accounts, and 3,000 dedicated Internet access accounts in the United States. The
acquisition closed on February 17, 1999. We paid NETCOM approximately $245
million, consisting of $215 million in cash and $30 million in MindSpring common
stock (376,116 shares, at a price per share of $79.76). In addition to the
NETCOM subscriber base, MindSpring also acquired various assets used in serving
those subscribers, including leased operations facilities in San Jose,
California and Dallas, Texas and all of NETCOM's rights to the "NETCOM" name
(except in Canada, the United Kingdom and Brazil). ICG PST has retained the
network assets used to serve those subscribers. We purchase access to that
network under a network services agreement with ICG PST at rates that are
generally comparable to the costs of using MindSpring POPs. This network
agreement has a term of one year with an option for a second year on potentially
different terms to be agreed upon by the parties. During the first year under
this network agreement, we are obligated to pay at least $27 million for network
services, as long as the services provided meet specified performance levels.



                                       3
<PAGE>   5


         Credit Facility. On February 17, 1999, we entered into a credit
agreement with First Union National Bank and several other lenders. The credit
agreement provides for a $100 million revolving credit facility that may be
increased at our option to $200 million with the approval of First Union and the
other lenders under the credit agreement. The credit facility will mature on
February 17, 2002. The credit facility is to be used to fund working capital and
for general corporate purposes, including permitted acquisitions. On February
17, 1999, we borrowed approximately $80 million under the credit facility to
finance the NETCOM acquisition. Our obligations under the credit facility are
secured by substantially all of MindSpring's assets. We intend to repay all
amounts outstanding under the credit facility with a portion of the net proceeds
from our recently announced offering of 2,000,000 shares of common stock that we
have undertaken concurrently with an offering of $130,000,000 principal amount
of convertible subordinated notes. These offerings are described below. If we do
not complete this common stock offering, we intend to use a portion of the
proceeds from the notes offering to repay all amounts outstanding under the
credit facility. If we are unable to negotiate amendments to the credit
facility, the credit facility will effectively terminate when we complete the
notes offering. For a more detailed description of our secured credit facility,
see our Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 25, 1999.

         Anticipated Effects of the Spry and NETCOM Acquisitions. The Spry and
NETCOM acquisitions represent significant growth opportunities and challenges
for MindSpring. Both acquisitions were of large customer bases and related
assets which, as previously operated stand-alone entities, were historically
unprofitable. We expect to incur net losses into 2000, primarily as a result of
the amortization expense associated with the Spry and NETCOM acquisitions. We
expect that annual amortization expense attributable to these transactions will
be between approximately $85 million and $90 million per year for the next three
years. In addition, we face the significant challenge of integrating the
acquired customers and assets into MindSpring's operations. The integration
process is most time and resource intensive during the sixty- to ninety-day
period immediately after completion of an acquisition, and involves, among other
things:

         -    communication with and increased technical and customer support to
              acquired subscribers;

         -    network supervision, provisioning and maintenance, including of
              third-party networks;

         -    increased management time and resources related to hiring and
              integration of new employees to support acquired subscribers;

         -    integration of acquired subscribers into MindSpring's billing
              systems; and

         -    attempting to bring the cost structures associated with the
              acquired subscribers and assets into alignment with MindSpring's
              historical cost structure.

         The Spry subscribers and assets were substantially integrated into
MindSpring's operations as of December 31, 1998. Net income for the fourth
quarter of 1998 was $1.9 million, excluding a one-time tax benefit of $1.8
million, compared to approximately $4.0 million for the third quarter of 1998.
This decrease resulted primarily from $2.3 million in amortization costs during
the fourth quarter attributable to the Spry acquisition.

         The NETCOM acquisition has significantly increased MindSpring's
customer base from approximately 693,000 to approximately 1,100,000. Principally
as a result of the NETCOM acquisition, we expect that we will incur net losses
into 2000. Even though we expect to incur net losses, we expect to continue to
generate increased revenues and EBITDA as we continue to increase our subscriber
base. We believe that reducing the historical costs associated with the acquired
NETCOM subscribers to levels that approximate MindSpring's historical costs of
providing Internet access to its subscribers will contribute to our ability to
reduce net losses in the future. We expect that these cost reductions will be
achieved in part as a function of:

         -    the ICG PST network agreement, through which MindSpring expects
              initially to provide service to the majority of the acquired
              NETCOM subscribers and which MindSpring expects will be at a lower
              cost than that reported by NETCOM; and

         -    economies of scale in selling, general and administrative costs,
              particularly in the areas of numbers of employees and salaries,
              operating leases, and marketing expenses.



                                       4
<PAGE>   6


         By "economies of scale" we mean that, as the number of subscribers we
serve increases, the costs and expenses per subscriber decrease. There can be no
assurance that we will achieve these anticipated cost reductions in a timely
manner or at all. If the cost reductions are lower than anticipated, other costs
increase, and/or revenues decline, our EBITDA and net income would also decline,
which would have a material adverse effect on our business, results of
operations and financial condition, including our liquidity and capital
resources.

         Recently Announced Offerings. We recently filed a universal shelf
registration statement with the Securities and Exchange Commission for the
public offering from time to time of up to $800 million of debt and equity
securities. This registration statement has not yet been declared effective. We
have also filed prospectus supplements under the universal shelf registration
statement for offerings of up to 2,000,000 shares of common stock (plus an
additional 300,000 shares to cover over-allotments, if any) and up to
$130,000,000 aggregate principal amount of convertible subordinated notes (plus
an additional $19,500,000 aggregate principal amount to cover over-allotments,
if any), all of which will be issued by MindSpring. These offerings of common
stock and convertible subordinated notes are currently expected to be completed
in April 1999. There can be no assurance, however, that these offerings will be
completed at that time or at all. The specific terms of other securities that
may be issued under the universal shelf registration statement will be
determined at the time of each issuance.

         Revenues. MindSpring derives revenue primarily from monthly
subscriptions from individuals for dial-up access to the Internet. Monthly
subscription fees vary by billing plan. Under MindSpring's current pricing
plans, customers have a choice of two "flat rate" plans (The Works and Unlimited
Access) and two "usage-sensitive" plans (Standard and Light). MindSpring also
has a prepayment plan available to all dial-up subscribers which allows
subscribers to prepay their access fees for either one or two years at a
discounted rate. For the years ended December 31, 1998 and 1997, the average
monthly recurring revenue per dial-up subscriber was approximately $20. Average
monthly recurring revenue is calculated by dividing monthly recurring revenue
plus usage charges for non-"flat rate" subscribers by the total number of
subscribers. Start-up fees for new subscribers vary depending upon the
promotional method by which the subscriber is acquired, ranging from $0 up to a
maximum of $25. Aggregate subscriber start-up fees are sufficient to cover the
aggregate costs of direct materials, mailing expenses, and licensing fees
associated with new subscribers. A majority of MindSpring's individual
subscribers pay their MindSpring fees automatically by pre-authorized monthly
charges to the subscriber's credit card.

         In addition, MindSpring earns revenue by providing Web-hosting,
full-time dedicated access connections to the Internet, other value-added
services such as Web page design, domain name registration and Web-server
co-location. MindSpring's Web-hosting services allow a business or individual to
post information on the World Wide Web so that the information is available to
anyone who has access to the Internet. MindSpring currently offers three price
plans for Web hosting subscribers ranging from $19.95 to $99.95 per month.
MindSpring had approximately 21,000 Web-hosting subscribers as of December 31,
1998, not including approximately 22,000 Web-hosting subscribers acquired from
NETCOM. Through our domain registration services, MindSpring offers subscribers
the ability to personalize electronic mail addresses and URLs (Uniform Resource
Locators). The services described in this paragraph have been classified as
business services in MindSpring's statements of operations and in the "Results
of Operations" table shown below.

         Costs. MindSpring's costs include (1) costs of revenue that are
primarily related to the number of subscribers; (2) selling, general and
administrative expenses that are associated more generally with operations; and
(3) depreciation and amortization, which are related to the number of
MindSpring-owned POPs and servers, and the deferred costs associated with
acquired customer bases.

         Costs of revenue that are primarily related to the number of
subscribers include both recurring costs and subscriber start-up expenses.
Recurring costs of revenue consist primarily of the costs of telecommunications
facilities necessary to provide service to subscribers. Telecommunications
facilities costs include (1) the costs of providing local telephone lines into
each MindSpring-owned POP; (2) costs related to the use of third-party networks;
and (3) costs associated with leased lines connecting each MindSpring-owned POP
and third-party network to MindSpring's hub and connecting MindSpring's hub to
the Internet backbone. Start-up expenses for each subscriber include primarily
the cost of diskettes and other product media, manuals, and packaging and
delivery costs associated with the materials provided to new subscribers.
MindSpring does not defer any subscriber start-up expenses.



                                       5
<PAGE>   7


         Selling, general and administrative costs are incurred in the areas of
sales and marketing, customer service and support, network operations and
maintenance, engineering, accounting and administration. Selling, general and
administrative costs will increase over time as MindSpring's scope of operations
increases. We may determine to significantly increase the level of marketing
activity to increase the rate of subscription growth. A significant increase in
marketing activity would have a short-term negative impact on net income. We
believe that these increased costs would be more than offset by anticipated
increases in revenue attributable to overall subscriber growth. However, there
can be no assurance that we will be able build, increase or maintain our
subscriber base in a given market to the extent necessary to generate sufficient
revenues to offset these marketing expenses. MindSpring does not defer any sales
or marketing expenses.

         As MindSpring expands into new markets, both costs of revenue and
selling, general and administrative expenses will increase. To the extent
MindSpring opens MindSpring POPs in new markets, these costs and expenses may
also increase as a percentage of revenue in the short-term for the period
immediately after a new MindSpring POP is opened. Many of the fixed costs of
providing service in a new market through a new MindSpring POP are incurred
before significant revenue can be expected from that market. However, to the
extent that we expand into new markets by using third-party POPs instead of
opening our own POPs, MindSpring's incremental monthly recurring costs will
consist primarily of the fees to be paid to third parties under network services
agreements. In general, the margins on those subscribers will initially be
higher than if we had opened our own POP in new markets. When a market matures,
if the market is served through purchased, third-party network services rather
than MindSpring-owned POPs, costs of revenue as a percentage of revenue will
tend to be higher, and therefore, margins on subscribers will tend to be lower.
This is because the full costs of using third-party networks is included in
costs of revenue, as compared to the costs of using MindSpring-owned POPs, a
portion of which is included in depreciation and amortization. In addition, in
more mature markets, where we have greater concentrations of subscribers, we
generally can provide services at a lower cost per subscriber through
MindSpring-owned POPs after the initial period when related expenses are higher.
This depends in part on how much we must pay for local area telecommunications
charges.

         For the first year of the network services agreement with ICG PST, we
will pay for use of ICG PST's POPs at rates that are generally comparable to the
costs of using MindSpring POPs. We have an option for a second year under that
agreement, but on potentially different terms to be negotiated and agreed upon
by both parties. The ICG PST network services agreement should also contribute
to our ability to reduce future net losses. However, the cost advantages of
providing services to MindSpring subscribers through the ICG PST network
services agreement may be offset if there are operating inefficiencies, network
reliability issues or technical support difficulties due to the fact that ICG
PST is just beginning to offer network services as a third-party provider for
companies such as MindSpring.

         We have added, and may in the future continue to add, MindSpring
subscribers by purchasing customer bases from other ISPs. MindSpring amortizes
such purchased customer bases using the straight-line method over a period of
three years, commencing when the purchase is completed. This amortization has a
negative effect on net income. Therefore, to the extent we continue to expand
our subscriber base through acquisitions such as the Spry and NETCOM
acquisitions, we will continue to experience increased amortization expense.



                                       6
<PAGE>   8


RESULTS OF OPERATIONS

         The following table shows financial data for the years ended December
31, 1998, 1997, and 1996. Operating results shown for 1998 do not reflect the
NETCOM acquisition. Operating results for any period are not necessarily
indicative of results for any future period. Dollar amounts (except per share
data) are shown in thousands.


<TABLE>
<CAPTION>

                                                          YEAR ENDED              YEAR ENDED             YEAR ENDED
                                                      DECEMBER 31, 1998       DECEMBER 31, 1997       DECEMBER 31, 1996
                                                      -----------------       -----------------       -----------------
                                                                 % OF                    % OF                    % OF
                                                      (000'S)   REVENUE      (000'S)    REVENUE     (000'S)     REVENUE
                                                      -------   -------      -------    -------     -------     -------
<S>                                                <C>          <C>        <C>          <C>        <C>          <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
   Dial-up access to Internet....................  $    95,852       84    $    40,925       78    $    13,420       74
   Business services.............................       14,735       13          7,711       15          2,286       13
   Start-up fees.................................        4,086        3          3,920        7          2,426       13
                                                   -----------    -----    -----------    -----    -----------     ----
       Total revenue.............................  $   114,673      100    $    52,556      100    $    18,132      100

Cost and expenses:
   Cost of revenues-recurring....................  $    31,724       28    $    15,202       29    $     6,332       35
   Cost of revenues-start-up fees................        2,612        2          1,620        3          1,876       10
   Selling, general, and administrative..........       57,324       50         30,784       59         14,161       78
                                                   -----------    -----    -----------    -----    -----------     ----

   Customer base amortization....................  $     7,048        6    $     4,210        8    $     1,521        8
   Depreciation..................................        8,179        7          4,485        9          1,764       10
                                                   -----------    -----    -----------    -----    -----------     ----
Operating income (loss)..........................        7,786        7         (3,745)      (7)        (7,522)     (42)
   Interest  income (expense), net...............        1,214        1           (338)      (1)           (90)      (1)
                                                   -----------    -----    -----------    -----    -----------     ----
Pre tax income (loss)............................        9,000        8         (4,083)      (8)        (7,612)     (42)
   Provision for income taxes....................        1,544        1              -        -              -        -
                                                   -----------    -----    -----------    -----    -----------     ----
Net income (loss)................................  $    10,544        9    $    (4,083)      (8)   $    (7,612)     (42)
                                                   ===========    =====    ===========    =====    ===========     ====

PER SHARE DATA:
Diluted net income (loss) per share..............  $      0.41             $     (0.18)            $     (0.48)
Weighted average common shares
outstanding......................................       25,431                  22,542                  15,758

OPERATING DATA:
Approximate number of
   subscribers at end of year....................      693,000                 278,300                 121,794
Number of MindSpring
    employees at end of year.....................          977                     502                     321
EBITDA (1).......................................  $    23,013       20    $     4,950        9    $    (4,237)     (23)
                                                   -----------    -----    -----------    -----    -----------     ----

CASH FLOW DATA:
Cash Flow (used in) from operations..............  $    35,501             $    11,354             $    (2,005)
Cash flow (used in) from investing activities....  $   (47,647)            $    (9,002)            $   (21,336)
Cash flow (used in) from financing activities....  $   170,503             $    (2,619)            $    32,569
</TABLE>


(1)  EBITDA represents operating income (loss) plus depreciation and
     amortization. EBITDA is provided because it is a measure commonly used by
     investors to analyze and compare companies on the basis of operating
     performance. EBITDA is not a measurement of financial performance under
     generally accepted accounting principles and should not be construed as a
     substitute for operating income, net income or cash flows from operating
     activities for purposes of analyzing MindSpring's operating performance,
     financial position and cash flows. EBITDA is not necessarily comparable
     with similarly titled measures for other companies.



                                       7
<PAGE>   9


YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Revenues. Revenue for the year ended December 31, 1998 totaled
approximately $114.7 million, as compared to approximately $52.6 million for the
year ended December 31, 1997. This approximately 118% increase in period
revenues resulted primarily from an approximately 150% increase in subscribers.
The greater proportional increase in subscribers was principally due to the
acquisition of Spry subscribers from AOL during the fourth quarter of 1998.
Revenues from dial-up access to the Internet for the year ended December 31,
1998 represented approximately 84% of the revenue, compared to approximately 78%
for the year ended December 31, 1997. Business services revenue decreased as a
percentage of revenue to approximately 13% for the year ended December 31, 1998,
compared to approximately 15% for the year ended December 31, 1997. This
decrease is primarily attributable to the large amount of dial-up customers
added through acquisitions in 1998. Subscriber start-up fees accounted for 3% of
revenue for the year ended December 31, 1998, as compared to approximately 7%
for the year ended December 31, 1997. MindSpring anticipates that as its
customer base continues to expand, subscriber start-up fees will progressively
represent a smaller percentage of revenue.

         Cost of revenues-recurring. For the year ended December 31, 1998, cost
of revenues-recurring decreased to approximately 28% of total revenue, compared
to approximately 29% of total revenue for the year ended December 31, 1997. Cost
of revenues-recurring also decreased as a percentage of dial-up access revenue
to approximately 33% for the year ended December 31, 1998 from approximately 37%
for the year ended December 31, 1997. Not taking into account approximately $2
million in discounts we received in 1998 under our network services agreement
with PSINet, Inc., cost of revenues-recurring would have been approximately 35%
of total dial-up access revenue. Not taking into account approximately $2.1
million in discounts we received in 1997 under the network services agreement
with PSINet, Inc., cost of revenues-recurring would have been approximately 42%
of total dial-up access revenue. The discounts earned under the network services
agreement with PSINet ended in October 1998. This decrease of cost of
revenues-recurring as a percentage of total revenue and as a percentage of
dial-up access revenue resulted primarily from increased efficiency and reduced
network costs associated with MindSpring-owned POPs.

         Selling, general, and administrative expenses. Selling, general, and
administrative expenses were approximately 50% of revenue for the year ended
December 31, 1998, compared to approximately 59% of revenue for the year ended
December 31, 1997. The decrease in selling, general, and administrative expenses
as a percentage of revenue resulted from economies of scale with respect to
costs such as payroll that do not increase in direct proportion to increases in
revenue and from cost control efforts implemented by MindSpring's management.

         EBITDA margin. EBITDA margin refers to EBITDA as a percentage of
revenues. EBITDA margin increased to approximately 20% for the year ended
December 31, 1998, compared to 9% for the year ended December 31, 1997. The
increase is attributable to the significant revenue growth outpacing the related
cost increases principally as a result of economies of scale related to selling,
general, and administrative expenses as well as efficiencies and economies of
scale associated with MindSpring-owned POPs.

         Depreciation and amortization. Depreciation and amortization expenses
decreased to approximately 13% of revenues for the year ended December 31, 1998,
compared to approximately 17% of revenues for the year ended December 31, 1997.
Amortization expense declined slightly to 6% of total revenues for the year
ended December 31, 1998, compared to approximately 8% for the year ended
December 31, 1997. Amortization expense resulted solely from acquired subscriber
bases, which are being amortized over three years. Depreciation expense was
approximately 7% of total revenues for the year ended December 31, 1998,
compared to approximately 9% for the year ended December 31, 1997. The decrease
in depreciation expense as a percentage of total revenues resulted from adding
capacity through increased use of network services purchased from third-party
providers, as opposed to increasing capacity by building additional
MindSpring-owned POPs, and from reductions in the cost of new equipment and
improved operating efficiencies within MindSpring's network. MindSpring
anticipates amortization expense to increase as a percentage of revenues as a
result of the Spry and NETCOM acquisitions.



                                       8
<PAGE>   10


         Interest income (expense). The following table details the increase in
interest income in 1998 compared to 1997:

<TABLE>
<CAPTION>
                                                           1998                 1997

<S>                                                     <C>                  <C>
   Interest on capital leases....................       $    (754,000)       $    (473,000)
   Interest on PSINet notes......................            (136,000)            (276,000)
   Interest income - other.......................           2,104,000              411,000
                                                        -------------        -------------

   Interest income (expense) net.................       $   1,214,000        $    (338,000)
                                                        =============        =============
</TABLE>

         Interest on capital leases increased for the year ended December 31,
1998, compared to the year ended December 31, 1997, because MindSpring entered
into several new capital leases for equipment at the end of 1997. Interest
income increased in 1998 due to the increase in outstanding cash balances
available for investment as a result of positive operating cash flows and two
public equity offerings completed during the year. See "-- Liquidity and Capital
Resources".

         Income tax provision. For the year ended December 31, 1998 MindSpring
recorded a benefit for income taxes due to a one time benefit taken in the
fourth quarter of the year as a result of the removal of the valuation allowance
associated with MindSpring's deferred tax assets. MindSpring is continually
assessing its income tax situation and management believes that it is "more
likely than not" that the deferred tax assets will be realized in the future. In
the future, MindSpring expects to report taxable earnings, even though we expect
to be incurring net losses at the same time. This is principally due to the
requirement that, for tax purposes, subscriber acquisition costs must be
amortized over 15 years, compared to the three-year period applied for
accounting purposes. For the year ended December 31, 1997, no income tax benefit
was recognized as MindSpring had a net taxable loss for the year.

         Net income (loss) and income (loss) per share. As a result of the
factors discussed above, MindSpring's net income for the year ended December 31,
1998 was $10.5 million, or $0.41 income per diluted share, compared to a net
loss of $4.1 million, or $0.18 basic and diluted loss per share, for the year
ended December 31, 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Revenues. Revenues for the year ended December 31, 1997 totaled
approximately $52.6 million, as compared to approximately $18.1 million for the
year ended December 31, 1996. The approximately 190% increase in revenues
resulted primarily from an approximately 129% increase in subscribers. Revenues
increased in a greater proportion than subscribers due to the subscribers
acquired from PSINet Inc. during the fourth quarter of 1996. Revenues from
dial-up access to the Internet for the year ended December 31, 1997 represented
approximately 78% of the revenue, compared to approximately 74% for the year
ended December 31, 1996. Business services revenue increased slightly to
approximately 15% of revenues for the year ended December 31, 1997, compared to
approximately 13% for the year ended December 31, 1996. This increase is
primarily attributable to the increase in the number of MindSpring's Web hosting
customers. Subscriber start-up fees accounted for 7% of revenues for the year
ended December 31, 1997, as compared to approximately 13% for the year ended
December 31, 1996. MindSpring anticipates that as its customer base continues to
expand, subscriber start-up fees will progressively represent a smaller
percentage of revenues.

         Cost of revenues-recurring. For the year ended December 31, 1997, cost
of revenues-recurring decreased to approximately 29% of total revenues, compared
to approximately 35% of total revenues for the year ended December 31, 1996.
Cost of revenues-recurring also decreased as a percentage of dial-up access
revenue from approximately 47% for the year ended December 31, 1996 to
approximately 37% for the year ended December 31, 1997. Not taking into account
approximately $2.1 million in discounts we received in 1997 under the PSINet
Services Agreement, cost of revenues-recurring would have been approximately 42%
of total dial-up revenue for the year ended December 31, 1997, compared to
approximately 47% for the year ended December 31, 1996. This decrease in cost of
revenues-recurring as a percentage of total revenues and as a percentage of
dial-up access revenues resulted primarily from increased efficiency and reduced
network costs associated with MindSpring-owned POPs.



                                       9
<PAGE>   11


         Selling, general, and administrative expenses. Selling, general, and
administrative expenses were approximately 59% of revenues for the year ended
December 31, 1997, compared to approximately 78% of revenues for the year ended
December 31, 1996. The decrease in selling, general, and administrative expenses
as a percentage of revenues resulted from economies of scale with respect to
costs such as payroll that do not increase in direct proportion to increases in
revenue and to cost control efforts implemented by MindSpring's management.

         EBITDA margin. EBITDA margin increased to approximately 9% for the year
ended December 31, 1997, compared to (23)% for the year ended December 31, 1996.
The increase is attributable to the significant revenue growth outpacing the
related cost increases principally as a result of economies of scale related to
selling, general, and administrative expenses, as well as efficiencies and
economies of scale associated with MindSpring-owned POPs.

         Depreciation and amortization. Depreciation and amortization expenses
decreased to approximately 16% of revenues for the year ended December 31, 1997,
compared to approximately 18% of revenues for the year ended December 31, 1996.
Amortization expense remained steady at approximately 8% of revenue for both the
years ended December 31, 1997 and December 31, 1996. Amortization expense
resulted primarily from acquired customer bases which are being amortized over
three years. Depreciation expense was approximately 8% of total revenues for the
year ended December 31, 1997, compared to approximately 10% for the year ended
December 31, 1996. The decrease in depreciation expense as a percentage of total
revenues resulted from adding capacity through increased use of network services
purchased from third-party providers, as opposed to increasing capacity by
building additional MindSpring-owned POPs, and from reductions in cost of new
equipment and improved operating efficiencies within MindSpring's network.

         Interest income (expense). The following table details the increase in
interest expense in 1997 compared to 1996:

<TABLE>
<CAPTION>
                                                           1997                 1996

<S>                                                     <C>                  <C>
   Interest on capital leases....................       $    (473,000)       $     (91,000)
   Interest on PSINet notes......................            (276,000)            (324,000)
   Interest income - other.......................             411,000              325,000
                                                        -------------        -------------

   Interest expense, net.........................       $    (338,000)       $     (90,000)
                                                        =============        =============
</TABLE>

Interest on capital leases increased for the year ended December 31, 1997,
compared to the year ended December 31, 1996, because MindSpring entered into
several new capital leases for equipment. Interest income increased in 1997 due
to the increase in outstanding cash balances available for investment as a
result of positive operating cash flows.

         Income tax provision. For the years ended December 31, 1997 and 1996,
no income tax benefit was recognized because MindSpring had a net taxable loss
for the year.

         Net income (loss) and income (loss) per share. As a result of the
factors discussed above, MindSpring's net loss for the year ended December 31,
1997 was $4.1 million, or $(0.18) basic and diluted loss per share, compared to
a net loss of $7.6 million, or $(0.48) basic and diluted loss per share, for the
year ended December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

         For the year ended December 31, 1998, MindSpring generated net cash
from operations of approximately $35.5 million, compared to $11.4 million for
the year ended December 31, 1997, an increase of approximately 212.7%. During
1998, we used approximately $27.3 million from cash flows from operations to
fund purchases of subscriber bases. $25 million of this amount was paid to AOL
on October 15, 1998 in partial payment for the Spry acquisition with the balance
of $7 million paid in March 1999. During 1998, we spent a total of approximately
$20.2 million related to purchases of telecommunications equipment necessary for
the provision of service to



                                       10
<PAGE>   12

subscribers. We did not enter into any capital lease agreements in 1998,
compared to approximately $8.4 million incurred in 1997 under capital leases for
equipment acquisition. At December 31, 1998, MindSpring's capital lease
obligations and minimum rental commitments under non-cancelable operating leases
with initial or remaining terms of more than one year amounted to approximately
$5.7 million for capital leases, and approximately $10 million for
non-cancelable operating leases.

         During 1998, MindSpring generated approximately $170.5 million from
financing activities, consisting primarily of two public equity offerings. In
June 1998, MindSpring sold 3,000,000 shares of common stock at a public offering
price of $17.67 per share. Proceeds from the June offering, net of underwriting
discounts and offering expenses, were approximately $49.8 million. In December
1998, MindSpring sold 2,300,000 shares of common stock at a public offering
price of $57 per share. Proceeds from the December offering, net of underwriting
discounts and offering expenses, were approximately $124.8 million. Cash used
for financing activities consisted of approximately $4.6 million for capital
lease obligations and the final payment to PSINet Inc. due under a promissory
note issued in connection with MindSpring's 1996 purchase from PSINet of
subscribers and other assets and rights related to PSINet's U.S. consumer
dial-up Internet access business. The final payment to PSINet was made in
December 1998. During 1997, cash used for financing activities consisted
primarily of approximately $2.6 million in payments for capital lease
obligations and repayments of promissory notes to PSINet.

         As of December 31, 1998, MindSpring had cash on hand of approximately
$167.7 million. On February 17, 1999, we paid $215 million in cash in connection
with the closing of the NETCOM acquisition, approximately $80 million of which
we borrowed under our $100 million secured revolving credit facility. After
paying the amounts indicated for the NETCOM acquisition on February 17, 1999, we
had remaining cash on hand of approximately $35 million, of which we paid
approximately $7 million to AOL in March 1999 for the balance of the purchase
price for the Spry acquisition.

         MindSpring's future capital requirements depend on various factors
including, without limitation:

         -    our ability to integrate successfully the subscribers and assets
              acquired from Spry and NETCOM, which requires us to reduce the
              costs previously associated with those subscribers and assets to
              approximate MindSpring's historical cost structure;

         -    the rate of market acceptance of MindSpring's services;

         -    our ability to maintain and expand our subscriber base;

         -    the rate of expansion of MindSpring's network infrastructure;

         -    the resources required to expand our marketing and sales efforts,
              and

         -    the availability of hardware and software provided by third-party
              vendors.

         We currently estimate that our cash and financing needs for 1999,
assuming reasonable internal growth, can be met by cash on hand, amounts
available under the credit facility, additional capital financing arrangements,
and cash flow from operations. We expect to repay all amounts outstanding under
the credit facility with a portion of the net proceeds from our recently
announced offering of common stock or, if necessary, a portion of the proceeds
from our recently announced convertible subordinated notes offering. However,
whether or not we repay those amounts, if we are unable to negotiate amendments
to the credit facility that are acceptable to us, the credit facility will
effectively terminate when we complete the notes offering. We are in discussions
with First Union National Bank regarding amending the credit facility, but we
cannot assure you that we will be successful in negotiating acceptable
amendments on a timely basis or at all.

         If our credit facility is unavailable and if our expectations change
regarding our capital needs due to market conditions, strategic opportunities or
otherwise, then our capital requirements may vary materially from those
currently anticipated. Other than our recently announced offerings of common
stock and convertible subordinated notes, we do not currently have any plans or
commitments for any additional financing, and there can be no assurance that if
and when we need additional capital it will be available on terms that are
acceptable to us, if at all. If additional capital financing arrangements,
including public or private sales of debt or equity securities, or additional
borrowings from commercial banks are insufficient or unavailable, or if we
experience shortfalls in anticipated revenues or increases in anticipated
expenses, we will be required to modify our growth and operating



                                       11
<PAGE>   13

plans to match available funding. Any additional equity financing may be on
terms that are dilutive or potentially dilutive to MindSpring's stockholders.
Debt financing, if available, may involve restrictive covenants with respect to
dividends, raising future capital and other financial and operational matters
and incurring additional debt may further limit MindSpring's ability to raise
additional capital. In addition, our credit facility contains restrictions on
our ability to incur additional debt and to issue some types of convertible or
redeemable capital stock.

         MindSpring frequently engages in discussions involving potential
business acquisitions. Depending on the circumstances, MindSpring may not
disclose material acquisitions until completion of a definitive agreement.
MindSpring may determine to raise additional debt or equity capital to finance
potential acquisitions and/or to fund accelerated growth. Any significant
acquisitions or increases in MindSpring's growth rate could materially affect
MindSpring's operating and financial expectations and results, liquidity and
capital resources.

         Market Risks. We believe our exposure to market rate fluctuations on
our investments is nominal due to the short-term nature of those investments. We
have no material future earnings or cash flow exposures with respect to our
outstanding capital leases, which are all at fixed rates. To the extent
MindSpring has borrowings outstanding under the credit facility, we would have
market risk relating to those amounts because the interest rates under the
credit facility are variable. At present, we have no plans to enter into any
hedging arrangements with respect to those borrowings.

RECENT ACCOUNTING PRONOUNCEMENTS

         In 1998, the provisions of Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income" and Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" applied to MindSpring. Neither
statement had any impact on MindSpring's financial statements as MindSpring does
not have any "comprehensive income" type earnings (losses) and its financial
statements reflect how the "key operating decisions maker" views the business.
MindSpring will continue to review these statements over time, in particular,
SFAS 131, to determine if any additional disclosures are necessary based on
evolving circumstances.

YEAR 2000

         Introduction. The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000's" from dates in the
"1900's." These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field.

         State of Readiness. MindSpring has established a Year 2000 Program
Office to coordinate appropriate activity and report to the Board of Directors
on a continuing basis with regard to the Year 2000 issue. MindSpring's Year 2000
Program Office has developed and is currently implementing a comprehensive plan
(the "Year 2000 Program") for MindSpring to become Year 2000 ready. The Year
2000 Program consists of six phases: (1) project planning and inventory of all
of MindSpring's assets, (2) assessment, (3) renovation (whether by upgrade or
replacement), (4) testing and validation, (5) implementation and (6) creation of
contingency plans in the event of year 2000 failures.

         The Year 2000 Program covers: (1) software products which are supplied
by MindSpring to its customers, (2) MindSpring's information technology and
operating systems ("IT Systems"), and (3) MindSpring's non-information
technology systems, including embedded technology ("Non-IT Systems"). In
addition, the Program calls for MindSpring to identify and assess the systems
and services of MindSpring's major vendors, third party network service
providers and other material service providers ("Third Party Systems"), and take
appropriate remedial actions and develop contingency plans where appropriate in
connection with such Third Party Systems.

         MindSpring supplies its customers with a software package which, among
other things, allows its customers to access MindSpring's services. The software
package consists of internally developed software (e.g.,



                                       12
<PAGE>   14

the MindSpring Internet Desktop interface) which is bundled with third party
software (collectively, the "Access Product"). MindSpring believes that the
current shipping version of its software package (including the MindSpring
Internet Desktop) is Year 2000 ready.

         MindSpring has substantially completed the inventory phase of the Year
2000 Program for both its IT Systems and Non-IT Systems and has completed a
majority of the assessment phase of the Year 2000 Program for the IT Systems and
Non-IT Systems. MindSpring anticipates that it will complete the first two
phases for those systems during the second quarter of 1999. The Year 2000
Program calls for the completion of all six phases for both IT and Non-IT
Systems by the end of the second quarter of 1999.

         MindSpring has performed a technical review of many of the more
critical Third Party Systems and has surveyed the publicly available statements
issued by the vendors of those systems. Additionally, MindSpring has recently
sent inquiry letters to its significant providers of Third Party Systems
requesting information regarding their vulnerability to Year 2000 issues and
whether the products and services purchased from those entities are Year 2000
compliant. MindSpring intends to pursue appropriate responses to those inquiries
and will evaluate the responses it receives.

         MindSpring recently completed the Spry and NETCOM acquisitions.
MindSpring is developing appropriate plans to identify and address Year 2000
related concerns with Spry and NETCOM as part of the natural integration of the
Spry and NETCOM operations into MindSpring. Management believes that the Spry
and NETCOM operations will not present any significant Year 2000 issues to
MindSpring.

         MindSpring also recently acquired customers and assets of NETCOM, and
intends to develop plans to identify and address Year 2000 related concerns with
NETCOM as part of the natural integration of the NETCOM operation into
MindSpring.

         MindSpring has not deferred any specific IT project due to the Year
2000 Program. MindSpring has engaged a consulting firm to assist it in
completing the inventory and assessment phases of its Year 2000 Program, and to
assist it in its Year 2000 Program management.

         Costs. As of December 31, 1998, MindSpring has incurred expenses of
approximately $75,000 in connection with the implementation of the Year 2000
Program Office and Year 2000 Program. MindSpring estimates that an additional
$250,000 to $300,000 in expenses will be incurred by MindSpring through the
remainder of the Year 2000 Program. These costs will be expensed as incurred.
The costs and estimates provided include MindSpring's estimate of the cost of
internal resources directly attributable to MindSpring's Year 2000 Program, but
do not yet include additional costs which may be incurred in connection with
expanding the Year 2000 Program to include the systems and products acquired in
the Spry and NETCOM transactions. MindSpring has funded, and anticipates that it
will continue funding, the costs of the Year 2000 Program from cash flows. The
estimates for the costs of the Year 2000 Program are based upon management's
best estimates and may be updated or revised as additional information becomes
available. MindSpring currently believes these costs will not have a material
effect on MindSpring's financial condition, liquidity or results of operations.
MindSpring's estimates of Year 2000-related costs may change, however, depending
on MindSpring's Year 2000 evaluation of the assets acquired from NETCOM.

         Risks. The failure by MindSpring to correct a material Year 2000
problem could result in an interruption in, or a failure of, normal business
activities or operations. Presently, however, MindSpring perceives that its most
reasonably likely worst case scenario related to the Year 2000 is associated
with potential concerns with third party services or products.

         Specifically, MindSpring is heavily dependent on a significant number
of third party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of the network services or equipment
provided to MindSpring by third party vendors could cause customers to consider
seeking alternate providers or cause an unmanageable burden on customer service
and technical support, which in turn could materially and adversely affect
MindSpring's results of operations, liquidity and financial condition.
MindSpring is not presently aware of any vendor related Year 2000 issue that is
likely to result in this type of disruption.


                                       13
<PAGE>   15


         Furthermore, MindSpring's business depends on the continued operation
of, and widespread access to, the Internet. To the extent that the normal
operation of the Internet is disrupted by the Year 2000 issue, MindSpring's
results of operations, liquidity and financial condition could be materially and
adversely affected.

         Although there is inherent uncertainty in the Year 2000 issue,
MindSpring expects that as it progresses in its Year 2000 Program the level of
uncertainty about the impact of the Year 2000 issue on MindSpring will be
reduced significantly and MindSpring should be better positioned to identify the
nature and extent of material risk to MindSpring as a result of any Year 2000
disruptions.

         Contingency Plans. The Year 2000 Program calls for the development of
contingency plans for at-risk functions. MindSpring has established a
Contingency Plan Committee to monitor and address the development of contingency
plans. Due to the current phase in which MindSpring is in of its Year 2000
Program, MindSpring is currently unable at this time to fully assess its risks
and determine what contingency plans, if any, need to be implemented by
MindSpring. As MindSpring progresses in its Year 2000 Program and identifies
specific risk areas, MindSpring intends to timely implement appropriate remedial
actions and contingency plans.

         The estimates and conclusions included in this discussion contain
forward-looking statements and are based on management's best estimates of
future events. MindSpring's expectations about risks, future costs and the
timely completion of its Year 2000 modifications may turn out to be incorrect
and any variance from these expectations could cause actual results to differ
materially from what has been discussed above. Factors that could influence
risks, amount of future costs and the effective timing of remediation efforts
include MindSpring's success in identifying and correcting potential Year 2000
issues and the ability of third parties to appropriately address their Year 2000
issues. The foregoing Year 2000 discussion and the information contained herein
is provided as a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat.
2386) enacted on October 19, 1998.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Financial Statements of MindSpring, including MindSpring's Balance
Sheets as of December 31, 1998 and 1997, Statements of Operations for the years
ended December 31, 1998, 1997 and 1996, Statements of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996, Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996, and Notes to Financial
Statements, together with a report thereon of Arthur Andersen LLP, dated
February 17, 1999, are attached hereto as pages F-1 through F-17.



                                       14
<PAGE>   16
                                   PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


        (a)(3) The following exhibit is added to the exhibits previously filed
with the Company's Annual Report on Form 10-K dated March 26, 1999:


EXHIBIT                         EXHIBIT
NUMBER                          DESCRIPTION
---------               ---------------------------------

23.2            --      Consent of Arthur Andersen LLP



------------










                                     S-1
<PAGE>   17


                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 16th day of
December, 1999.

                           MINDSPRING ENTERPRISES, INC.

                           By:/s/ Juliet M. Reising
                              ---------------------------
                           Juliet M. Reising
                           Executive Vice President and Chief Financial Officer



                                       15
<PAGE>   18




                          INDEX TO FINANCIAL STATEMENTS

MINDSPRING ENTERPRISES, INC.

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----

<S>                                                                                                         <C>
Report of Independent Public Accountants ...............................................................     F-2

Balance Sheets as of December 31, 1998 and 1997.........................................................     F-3

Statement of Operations for the years ended December 31, 1998, 1997
         and 1996.......................................................................................     F-4

Statement of Stockholders' Equity for the years ended December 31,
         1998, 1997 and 1996............................................................................     F-5

Statements of Cash Flows for the years ended December 31,
         1998, 1997 and 1996............................................................................     F-6

Notes to Financial Statements...........................................................................     F-7
</TABLE>




                                       F-1



<PAGE>   19



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To MindSpring Enterprises, Inc.:


         We have audited the accompanying balance sheets of MINDSPRING
ENTERPRISES, INC. (a Delaware corporation) as of December 31, 1998 and 1997 and
the related statements of operations, stockholders' equity, and cash flows for
the three years ended December 31, 1998, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MindSpring
Enterprises, Inc. as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the three years ended December 31, 1998, 1997
and 1996 in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 17, 1999



                                       F-2

<PAGE>   20


                          MINDSPRING ENTERPRISES, INC.
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         1998                         1997
                                                                                  ------------------          ------------------

<S>                                                                               <C>                         <C>
                                                        ASSETS
CURRENT ASSETS:
     Cash and cash equivalents................................................    $       167,743             $       9,386
     Trade receivables, net of allowance for doubtful accounts of
       $1,224 and $751 at December 31, 1998 and 1997, respectively............              3,278                     2,002
     Deferred income taxes (Note 8)...........................................              3,421                         -
     Prepaids and other current assets........................................                758                     1,042
                                                                                  ---------------             -------------
         Total current assets.................................................            175,200                    12,430
                                                                                  ---------------             -------------

PROPERTY AND EQUIPMENT:
     Computer and telecommunications equipment................................             35,580                    18,050
     Assets under capital lease...............................................              9,546                     9,916
     Other....................................................................              4,821                     1,805
                                                                                  ---------------             -------------
                                                                                           49,947                    29,771
     Less:  accumulated depreciation..........................................            (14,106)                   (6,133)
                                                                                  ----------------            --------------
         Property and equipment, net..........................................             35,841                    23,638
                                                                                  ---------------             -------------

OTHER ASSETS:
     Acquired customer base, net (Notes 1 and 2)..............................             34,742                     7,478
     Deferred income taxes (Note 8)...........................................              1,123                         -
     Other....................................................................                693                       740
                                                                                  ---------------             -------------
         Total other assets...................................................             36,558                     8,218
                                                                                  ---------------             -------------
                                                                                  $       247,599             $      44,286
                                                                                  ===============             =============



                                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Trade accounts payable ..................................................    $         3,462             $       4,306
     Current portion of capital lease liability (Note 7) .....................              2,695                     2,607
     Telecommunications costs payable.........................................              2,831                     2,233
     Deferred revenue (Note 1)................................................              7,443                     2,198
     Current portion of notes payable (Note 6)................................                  -                     2,043
     Other accrued expenses...................................................              5,105                     1,776
     Due to America Online, Inc. (Note 2).....................................              7,000                         -
     Accrued compensation expense.............................................              2,550                     1,404
     Income tax payable.......................................................              2,566                         -
     Network services payable.................................................              4,442                     1,216
                                                                                  ---------------             -------------
         Total current liabilities............................................             38,094                    17,783
                                                                                  ---------------             -------------

LONG-TERM LIABILITIES:
         Capital lease liability (Note 7).....................................              2,424                     5,090
                                                                                  ---------------             -------------
         Total long-term liabilities..........................................              2,424                     5,090
                                                                                  ---------------             -------------

         Total liabilities....................................................             40,518                    22,873
                                                                                  ---------------             -------------

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY (Note 3):
     Common stock, $.01 par value; 60,000 and 45,000 shares authorized at
       December 31, 1998 and 1997 and 28,284 and 22,603 issued and outstanding
       at December 31, 1998 and  1997, respectively...........................                283                       226
     Additional paid-in capital...............................................            209,983                    34,916
     Accumulated deficit......................................................             (3,185)                  (13,729)
                                                                                  ----------------            --------------
         Total stockholders' equity...........................................            207,081                    21,413
                                                                                  ---------------             -------------
                                                                                  $       247,599             $      44,286
                                                                                  ===============             =============
</TABLE>

  The accompanying Notes to Financial Statements are an integral part of these
                                  statements.





                                      F-3

<PAGE>   21


                           MINDSPRING ENTERPRISES, INC.
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                        1998                  1997             1996
                                                                   -------------       ---------------    --------------

<S>                                                              <C>                   <C>                <C>
REVENUES:
     Access.................................................     $        95,852       $        40,925    $      13,420
     Business services......................................              14,735                 7,711            2,286
     Subscriber start-up fees...............................               4,086                 3,920            2,426
                                                                 ---------------       ---------------    -------------
       Total revenues.......................................             114,673                52,556           18,132
                                                                 ---------------       ---------------    -------------

COST AND EXPENSES:
     Cost of revenues -- recurring..........................              31,724                15,203            6,332
     Cost of subscriber start-up fees.......................               2,612                 1,619            1,876
     General and administrative.............................              38,443                22,265           10,072
     Selling................................................              18,881                 8,519            4,089
     Depreciation and amortization..........................              15,227                 8,695            3,285
                                                                 ---------------       ---------------    -------------
       Total operating expenses.............................             106,887                56,301           25,654
                                                                 ---------------       ---------------    -------------

OPERATING INCOME (LOSS).....................................               7,786                (3,745)          (7,522)
INTEREST INCOME (EXPENSE), NET..............................               1,214                  (338)             (90)
                                                                 ---------------       ---------------    -------------

INCOME (LOSS) BEFORE TAXES .................................     $         9,000       $        (4,083)   $      (7,612)
                                                                 ---------------       ---------------    -------------

    INCOME TAX BENEFIT .....................................               1,544                     -                -
                                                                 ---------------       ---------------    -------------

NET INCOME (LOSS)...........................................     $        10,544       $        (4,083)   $      (7,612)
                                                                 ===============       ===============    =============

NET INCOME (LOSS) PER SHARE:
     Basic..................................................     $          0.43       $         (0.18)   $       (0.48)
                                                                 ===============       ================   =============
     Diluted................................................     $          0.41       $        ( 0.18)   $      ( 0.48)
                                                                 ===============       ================   =============

SHARES USED FOR COMPUTING NET
     INCOME (LOSS) PER SHARE:
     Basic .................................................              24,611                22,542           15,758
                                                                 ===============       ===============    =============
     Diluted................................................              25,431                22,542           15,758
                                                                 ===============       ===============    =============
</TABLE>





                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.


                                       F-4


<PAGE>   22


                           MINDSPRING ENTERPRISES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                         Common Stock             Additional          Preferred Stock
                                 ------------------------------    Paid-in      -----------------------------
                                     Shares          Amount        Capital         Shares          Amount
                                   ----------      ----------    ------------    ----------      ----------
<S>                                  <C>           <C>            <C>            <C>            <C>
Balance, December 31, 1995                3,802    $        38    $        95         1,933     $     2,383
   Conversion of Class A
    preferred stock to common             3,563             36            709        (1,188)           (745)
   Conversion of Class B
     preferred stock to common            1,937             19            981          (645)         (1,000)
   Issuance of additional
     common stock, net of
     related offering expenses            6,075             60         14,089             -               -
   Conversion of Class C
     preferred stock to common              300              3            635          (100)           (638)
   Issuance of additional
     common stock, net of
     related offering expenses            6,750             68         18,319             -               -
   Issuance of common stock
     pursuant to exercise of
     options................                  4              -              1             -               -
     Net loss...............                  -              -              -             -               -
                                     ----------    -----------    -----------     -----------   -----------

Balance, December 31, 1996               22,431    $       224    $    34,829             -     $         -
   Issuance of common stock
     pursuant to exercise of
     options................                172              2             87             -               -
     Net loss...............                  -              -              -             -               -
                                     ----------    -----------    -----------     -----------   -----------

Balance, December 31, 1997               22,603    $       226    $    34,916             -     $         -
   Issuance of additional
     common stock, net of
     related offering expenses            3,000             30         49,726             -               -
   Issuance of additional
     common stock, net of
     related offering expenses            2,300             23        124,761             -               -
Issuance of common stock
     pursuant to exercise of
     options................                381              4            580             -               -
     Net income.............                  -              -              -             -               -
                                     ----------    -----------    -----------     -----------   -----------
Balance, December 31, 1998               28,284    $       283    $   209,983             -     $         -
                                     ==========    ===========    ===========     ===========   ===========



<CAPTION>
                                                    Total
                                  Accumulated    Stockholders'
                                    Deficit         Equity
                                  -----------    ------------
<S>                               <C>             <C>
Balance, December 31, 1995        $    (2,034)    $       482
   Conversion of Class A
    preferred stock to common               -               -
   Conversion of Class B
     preferred stock to common              -               -
   Issuance of additional
     common stock, net of
     related offering expenses              -          14,149
   Conversion of Class C
     preferred stock to common              -               -
   Issuance of additional
     common stock, net of
     related offering expenses              -          18,387
   Issuance of common stock
     pursuant to exercise of
     options      ..........                -               1
     Net loss...............           (7,612)         (7,612)
                                  -----------     -----------

Balance, December 31, 1996        $    (9,646)    $    25,407
   Issuance of common stock
     pursuant to exercise of
     options................                -              89
     Net loss...............           (4,083)         (4,083)
                                  -----------     -----------

Balance, December 31, 1997        $   (13,729)    $    21,413
   Issuance of additional
     common stock, net of
     related offering expenses              -          49,756
   Issuance of additional
     common stock, net of
     related offering expenses              -         124,784
Issuance of common stock
     pursuant to exercise of
     options................                -             584
     Net income.............           10,544          10,544
                                  -----------     -----------
Balance, December 31, 1998        $    (3,185)    $   207,081
                                  ===========     ===========
</TABLE>



                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.



                                      F-5

<PAGE>   23


                           MINDSPRING ENTERPRISES, INC.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             1998                  1997                  1996
                                                                         -------------      ------------------     ---------------
<S>                                                                      <C>                <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)...............................................    $      10,544      $         (4,083)      $      (7,612)
                                                                         -------------      ----------------       -------------
     Adjustments to reconcile net loss to net cash provided
       by (used in) operating activities:
     Depreciation and amortization...................................           15,227                 8,695               3,285
     Deferred income taxes...........................................           (4,544)                    -                   -
     Changes in operating assets and liabilities:
         Trade receivables...........................................           (1,276)                   (5)             (1,477)
         Other current assets........................................              284                  (565)               (158)
         Trade accounts payable......................................             (844)                2,352               1,106
         Telecommunications cost payable.............................              598                 1,332                 700
         Deferred revenue............................................            5,245                 1,782                  80
         Other accrued expenses......................................            3,329                 1,166                 246
         Accrued compensation expense................................            1,146                   769                 520
         Income taxes payable........................................            2,566                     -                   -
         Network services payable....................................            3,226                   (89)              1,305
                                                                         -------------      -----------------      -------------
           Total adjustments.........................................           24,957                15,437               5,607
                                                                         -------------      ----------------       -------------
           Net Cash Provided By (Used In) Operating Activities.......           35,501                11,354              (2,005)
                                                                         -------------      ----------------       -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment.............................          (20,176)               (8,042)             (8,298)
     Purchase of customer base.......................................          (27,312)                 (960)            (12,249)
     Other...........................................................             (159)                    -                (789)
                                                                         --------------     ----------------       --------------
         Net Cash Used In Investing Activities.......................          (47,647)               (9,002)            (21,336)
                                                                         -------------      ----------------       -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds of loan from preferred stockholder.....................                -                     -               1,000
     Payments of loan from preferred stockholder.....................                -                     -              (3,500)
     Proceeds from notes payable.....................................                -                     -              11,488
     Payments of notes payable.......................................           (2,043)                 (624)             (8,822)
     Payments of capital lease obligations...........................           (2,578)               (2,084)               (134)
     Issuance of common stock........................................          175,124                    89              32,537
                                                                         -------------      ----------------       -------------
         Net Cash Provided By (Used In)  Financing Activities........          170,503                (2,619)             32,569
                                                                         -------------      -----------------      -------------

NET INCREASE (DECREASE)  IN CASH AND CASH
     EQUIVALENTS.....................................................          158,357                  (267)              9,228
CASH AND CASH EQUIVALENTS, beginning of year.........................            9,386                 9,653                 425
                                                                         -------------      ----------------       -------------

CASH AND CASH EQUIVALENTS, end of year...............................    $     167,743      $          9,386       $       9,653
                                                                         =============      ================       =============

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW
INFORMATION:
     Interest paid...................................................    $         890      $            749       $         402
                                                                         =============      ================       =============
     Income taxes paid...............................................    $         434      $              -       $           -
                                                                         =============      ================       =============

SUPPLEMENTAL NONCASH DISCLOSURES:
     Assets acquired under capital lease.............................    $           -      $          8,443       $       1,473
                                                                         =============      ================       =============
     Noncash accrual for acquired subscriber base....................    $       7,000      $              -       $           -
                                                                         =============      ================       =============
</TABLE>




                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.


                                      F-6

<PAGE>   24



                          MINDSPRING ENTERPRISES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997, AND 1996

1.       ORGANIZATION AND NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES

         MindSpring Enterprises, Inc. ("MindSpring" or the "Company") is a
national provider of Internet access. The Company was incorporated in Georgia on
February 24, 1994 and began marketing its services in June 1994. The Company
reincorporated in Delaware and effected a recapitalization in December 1995.

         ESTIMATES AND ASSUMPTIONS

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.

         PRESENTATION

         Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

         SOURCES OF SUPPLIES

         The Company relies on third-party networks, local telephone companies,
and other companies to provide data communications capacity. Although management
feels alternative telecommunications facilities could be found in a timely
manner, any disruption of these services could have an adverse effect on
operating results.

         CASH AND CASH EQUIVALENTS

         The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.

         CREDIT RISK

         The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's risk of loss
is limited due to advance billings to customers for services, the use of
preapproved charges to customer credit cards, and the ability to terminate
access on delinquent accounts. In addition, the concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.

         PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the assets, commencing when assets are installed or placed in
service. The estimated useful life for all assets is five years or, for
leasehold improvements, the life of the lease, if shorter.

         EQUIPMENT UNDER CAPITAL LEASE

         The Company leases certain of its data communication and other
equipment under lease agreements accounted for as capital. The assets and
liabilities under capital leases are recorded at the lesser of the present value
of aggregate future minimum lease payments, including estimated bargain purchase
options, or the fair value of the



                                       F-7
<PAGE>   25


assets under lease. Assets under capital lease are depreciated over their
estimated useful lives of five years, which are longer than the terms of the
leases.

         ACQUIRED CUSTOMER BASE

         The Company capitalizes specific costs incurred for the purchase of
customer bases from other Internet Service Providers ("ISPs"). The customer
acquisition costs include the actual fee paid to the selling ISP, as well as
legal and other expenses specifically related to the transactions. Subscriber
acquisition costs capitalized at December 31, 1998 and 1997 were $47,521,000 and
$13,209,000, respectively. Amortization is provided using the straight-line
method over three years commencing when the customer base is received.
Amortization expense for the years ended December 31, 1998, 1997, and 1996 was
$7,048,000, $4,210,000, and $1,521,000, respectively. See Note 2 for further
discussion.

         LONG-LIVED ASSETS

         The Company periodically reviews the values assigned to long-lived
assets, such as property and equipment and acquired customer bases, to determine
whether any impairments are other than temporary. Management reviews the
undiscounted projected cash flows related to such assets and compares them to
the carrying values of the assets to determine if an impairment has occurred. If
an asset is deemed to be impaired, the Company records the difference between
the projected cash flows on a discounted basis or the fair market value
(whichever is more appropriate) and the carrying value as an asset impairment
charge in the period incurred. There were no such impairments in the periods
presented. Management believes that the long-lived assets in the accompanying
balance sheets are appropriately valued.

         INCOME TAXES

         Deferred income taxes are recorded using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income taxes are
provided for items when there is a temporary difference in recording such items
for financial reporting and income tax reporting.

         STOCK-BASED COMPENSATION PLANS

         The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." The disclosure option of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" requires
that companies which do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted.

         REVENUE RECOGNITION

         The Company recognizes revenue when services are provided. Services are
generally billed one month in advance. During 1998, the Company began offering
prepaid services. Advance billings including prepaid services and collections
relating to future access services are recorded as deferred revenue and
recognized as revenue when earned.

         BARTER TRANSACTIONS

         The Company engages in certain exchanges of services for advertising
and promotional services. The Company records these transactions at the market
value of the services provided. Such transactions are not material for the
periods presented.

         ADVERTISING COSTS

         The Company expenses all advertising costs as incurred.


                                       F-8

<PAGE>   26

         NET INCOME (LOSS) PER SHARE

         The Company calculates net income (loss) per share as required by SFAS
No. 128, "Earnings Per Share." Basic earnings (loss) per common share ("EPS")
was computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for the year ended. The effect of the
Company's stock options (using the treasury stock method) was included in the
computation of diluted EPS for the year ended December 31, 1998. For the years
ended December 31, 1997 and 1996, the effect of the options is excluded as their
effect is anti-dilutive. The following table summarizes the shares used in the
calculations:



<TABLE>
<CAPTION>
                                               TWELVE MONTHS ENDED


                                               1998             1997             1996
                                               ---------------  ---------------  ---------------
<S>                                            <C>              <C>              <C>
(In Thousands)
Weighted average shares
     Outstanding-basic                         24,611           22,542           15,758
Effect of dilutive stock options               820                       -                -
                                               ---------------  ---------------  ---------------
Shares used for diluted earnings per share     25,431           22,542           15,758
                                               ===============  ===============  ===============
</TABLE>



         RECENT ACCOUNTING PRONOUNCEMENTS

         In 1998, the Company was subject to the provisions of Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." Neither
statement had any impact on the Company's financial statements as the Company
does not have any "comprehensive income" type earnings (losses) and its
financial statements reflect how the "key operating decisions maker" views the
business. The Company will continue to review these statements over time, in
particular SFAS 131, to determine if any additional disclosures are necessary
based on evolving circumstances.

2.       CUSTOMER BASE ACQUISITIONS

         On June 28, 1996, the Company entered into a purchase agreement (as
amended on January 27, 1997, the "Purchase Agreement") with PSINet Inc.
("PSINet"), pursuant to which the Company agreed to acquire certain of the
tangible and intangible assets and rights related to the consumer dial-up
Internet access services provided by PSINet in the United States, including (i)
certain of PSINet's individual subscriber accounts and (ii) the lease for a
customer support call center near Harrisburg, Pennsylvania (the "Harrisburg
Facility"), and all related telephone switches and other equipment (the
"Assets") for $12,929,000 (excluding accrued interest and increases in principal
amount under the First and Second PSINet Notes previously paid by the Company)
(the "Purchase Price"). In connection with fixing the aggregate amount of the
Purchase Price, the Company and PSINet amended the Second PSINet Note to, among
other things, reduce the principal amount owed thereunder to $3,078,000, an
amount equal to the remaining balance of the Purchase Price as of January 24,
1997. As amended, the Second PSINet Note no longer accrued interest, was payable
over a two-year period, and was discounted for financial statement purposes
using the same rate of interest (Prime + 3%) as the prior PSINet Notes. The
Company accreted the difference between the principal and total payable amount
of $3,078,000 over the two years of the note.

         In connection with the PSINet transaction, the parties also entered
into a network services agreement (as amended, the "Services Agreement") which
enables MindSpring to offer nationwide Internet access through PSINet's network
of over 200 points of presence ("POPs"). The term of the Services Agreement is 5
years commencing on June 28, 1996 and is automatically renewable annually
thereafter unless either party notifies the other in writing not less than 12
months prior to the end of such 5-year period or any 12-month extension thereof.
Either party may terminate the Services Agreement at any time upon 60 days'
written notice without penalty. The


                                       F-9

<PAGE>   27

Company and PSINet amended the Services Agreement effective January 1, 1997 to
provide for certain discounts to the monthly service fees which otherwise would
have been payable by the Company to PSINet. The Company earned credits of
$2,000,000 and $2,050,000 during 1998 and 1997, respectively, and the discounts
are reflected as reductions of cost of revenue. This arrangement ended in
October 1998.

         On September 10, 1998, MindSpring entered into an Asset Purchase
Agreement with America Online, Inc. ("AOL") and Spry, Inc. ("Spry"), a wholly
owned subsidiary of AOL, to purchase certain assets used in connection with the
consumer dial-up Internet access business operated by Spry (the "Spry
Agreement"). Pursuant to the Spry Agreement, MindSpring acquired Spry's
subscriber base of individual Internet access customers in the United States and
Canada as well as various assets used in serving those customers, including a
customer support facility and a network operations facility in Seattle,
Washington. MindSpring also acquired all rights held by Spry to the "Spry" name.
The acquisition was closed on October 15, 1998 and in accordance with the
agreement MindSpring paid the initial payment of $25,000,000 in cash to AOL The
ultimate purchase price for these assets was based primarily upon the number of
acquired subscribers who remain active with MindSpring as continuing users in
good standing as of December 31, 1998. The Company has calculated the final
purchase price to be approximately $32,000,000 and has accordingly accrued an
additional $7,000,000 in the accompanying balance sheet. The transaction is
being accounted for as a purchase. See Note 10 for further discussion.

3.       STOCKHOLDERS' EQUITY

         At the annual meeting of stockholders in May 1998 the Company voted to
approve and adopt an amendment to Article 4 of the Company's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of $.01 par value common stock from 15,000,000 to 60,000,000 and to
eliminate the Company's Class C Preferred Stock.

         STOCK SPLIT

         On June 24, 1998 the Company effected a three-for-one stock split of
the outstanding shares of common stock in the form of a stock dividend.
Accordingly, all data shown in the accompanying financial statements and notes
has been retroactively adjusted to reflect the stock split.

         COMMON STOCK

         In June 1998, the Company issued 3,000,000 shares at a public offering
price of $17.67. The total proceeds of the offering, net of underwriting
discounts and offering expenses, were approximately $49,756,000.

         In December 1998, the Company issued 2,300,000 shares at a public
offering price of $57.00. The total proceeds of the offering, net of
underwriting discounts and offering expenses, were approximately $124,784,000.

4.       STOCK-BASED COMPENSATION PLANS

         EMPLOYEE STOCK OPTION PLAN

         Under the Company's 1995 Stock Option Plan, as amended (the "Stock
Option Plan"), 3,000,000 shares of common stock are reserved and authorized for
issuance upon the exercise of options. All employees of the Company are eligible
to receive options under the Stock Option Plan. The compensation committee of
the Board of Directors administers the Stock Option Plan. Options granted under
the Stock Option Plan are intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended. Options generally
become exercisable as follows: (i) 50% of the options become exercisable two
years after the date of grant or, in certain cases, the commencement date of the
holder's employment; (ii) an additional 25% of the options become exercisable
three years after the date of grant or, in certain cases, the commencement date
of the holder's employment; and (iii) the remaining 25% of the options become
exercisable four years after the date of grant or, in certain cases, the
commencement date of the holder's employment. Except as noted in the next
sentence, all options were granted at an exercise price equal to the estimated
fair value of the common stock on the dates of grant as determined by the Board
of Directors based on equity transactions and other analyses. Options granted to
holders of 10% or more of the outstanding common stock were granted at an
exercise price equal to 110% of the estimated fair



                                      F-10

<PAGE>   28

value of the common stock on the dates of grant as determined by the Board of
Directors based on equity transactions and other analyses. The options expire
ten years from the date of grant or, in certain circumstances, the commencement
date of the option holder's employment.

         DIRECTORS' STOCK OPTION PLAN

         Under the Company's Directors' Stock Option Plan (the "Directors'
Plan"), adopted in December 1995, 210,000 shares of common stock are authorized
for issuance to nonemployee directors (in the form of 30,000 options per
director) upon their initial election or appointment to the board or, in the
case of directors who joined the board prior to the creation of the Directors'
Plan, upon the adoption of the Directors' Plan by the Board of Directors. The
Directors' Plan, as amended by the Board of Directors on March 25, 1998 and
approved by the stockholders on May 20, 1998, provides for discretionary option
grants. Options become exercisable as follows: (i) 50% of the options become
exercisable two years after the date of grant, (ii) an additional 25% of the
options become exercisable three years after the date of grant, and (iii) the
remaining 25% of the options become exercisable four years after the date of
grant. All options were granted at an exercise price equal to the estimated fair
value of the common stock at the dates of grant as determined by the Board of
Directors based upon equity transactions and other analyses. The options expire
ten years from the date of grant.

         STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

         During 1995, the Financial Accounting Standards Board issued SFAS No.
123, which defines a fair value-based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock-based compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by APB No. 25. Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in this statement had been applied.

         The Company has elected to account for its stock-based compensation
plans under APB No. 25; however, the Company has computed for pro forma
disclosure purposes the value of all options granted during 1998, 1997, and 1996
using the Black-Scholes option-pricing model as prescribed by SFAS No. 123 using
the following weighted average assumptions used for grants in 1998, 1997, and
1996:



<TABLE>
<CAPTION>

                                        1998                  1997                  1996
                                   ----------------    -------------------    ------------------
<S>                                <C>                 <C>                    <C>
Risk-free interest rate                       5.3%                   6.4%                  6.4%
Expected dividend yield                         0%                     0%                    0%
Expected lives                           3.5 years              3.5 years             3.5 years
Expected volatility                          95.0%                  58.4%                 69.3%
</TABLE>



         The total value of options granted during 1998, 1997, and 1996 was
computed as approximately $38,679,000, $3,735,000 and $601,000, respectively,
which would be amortized on a pro forma basis over the four-year vesting period
of the options. If the Company had accounted for these plans in accordance with
SFAS No. 123, the Company's net income (loss) and pro forma net income (loss)
per share for the years ended December 31, 1998, 1997 and 1996 would have been
as follows:


                                      F-11

<PAGE>   29



<TABLE>
<CAPTION>
                                              As Reported          Pro Forma
(In Thousands Except Per Share Data)        -----------------    ---------------
<S>                                         <C>                  <C>
1996
Net loss                                    $     (7,612)        $     (7,836)
Net loss per share                          $      (0.48)        $      (0.50)

1997
Net loss                                    $     (4,083)        $     (5,402)
Net loss per share                          $      (0.18)        $      (0.24)

1998
Net income                                  $     10,544         $      2,291
Net  income per diluted share               $       0.41         $       0.09
</TABLE>



         A summary of the status of the Company's two stock options plans at
December 31, 1998, 1997 and 1996 and changes during the years then ended are
presented in the following table:



<TABLE>
<CAPTION>
                                                                        Weighted
                                                                         Average
                                                       Shares           Price Per
                                                         (In               Share
                                                      Thousands)
                                                   ---------------    --------------
<S>                                                <C>                <C>
December 31, 1995                                           1,071             $0.62
Grants                                                        756              2.87
Exercised                                                     (3)              0.21
Forfeitures                                                  (90)              2.01
                                                   ---------------
December 31, 1996                                           1,734              1.53
Grants                                                        453              4.21
Exercised                                                   (171)              0.29
Forfeitures                                                 (174)              3.12
                                                   ---------------
December 31, 1997                                           1,842              2.15
Grants                                                        861             37.53
Exercised                                                   (382)              1.53
Forfeitures                                                 (198)              7.96
                                                   ---------------
December 31, 1998                                           2,123             16.10
                                                   ===============
Weighted average fair value of options
    granted in 1998                                        $   45
                                                   ===============
</TABLE>



                                      F-12
<PAGE>   30



         The following table summarizes the number of options outstanding by
year of grant:



<TABLE>
<CAPTION>
                                                                                            Weighted
                         Number                                                              Average
     Year                  Of                   Exercise             Weighted               Remaining
      Of                 Shares                  Price                Average              Contractual
    Grant            (In Thousands)              Range                 Price                  Life
---------------     ------------------     -------------------     --------------        ----------------

<S>                 <C>                     <C>                    <C>                    <C>
     1998                  808                   $10.94-60.69             $38.59            9.6 years
     1997                  341                    2.33 - 9.71               4.40               8.4
     1996                  388                      2.13-4.13               2.79               7.6
     1995                  586                      0.21-2.13               0.67               6.5
</TABLE>



         The following table summarizes the options exercisable as of December
31, 1998, 1997 and 1996:



<TABLE>
<CAPTION>
                                                                     Weighted
                             Number                                   Average
                               of                Weighted            Remaining
                             Shares               Average           Contractual
      As of              (In Thousands)            Price               Life
------------------      -----------------       ------------       --------------

<S>                     <C>                      <C>               <C>
Dec. 31, 1998                 537                  $1.16             6.8 years
Dec. 31, 1997                 366                  $0.73                7.5
Dec. 31, 1996                 210                   0.21                8.1
</TABLE>



         EMPLOYEE BENEFIT PLAN

         The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Annually, the Company determines whether to make a discretionary matching
contribution equal to a percentage, determined by the Company, of the employee's
deferred compensation contribution. The Company has not made any matching
contributions to the Savings Plan.

5.       RELATED-PARTY TRANSACTIONS

         The Company has entered into certain business relationships with
several subsidiaries and affiliates of ITC Holding Company, Inc. ("ITC
Holding"). Except as noted below, none of these transactions were material for
the periods presented.

         The Company purchases long-distance telephone services and wide area
network transport service from ITC/\DeltaCom, Inc. ("ITC/\DeltaCom"), a related
party through relationships with ITC Holding. Long-distance charges from
ITC/\DeltaCom totaled approximately $3,672,000, $1,942,000 and $677,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.




                                      F-13
<PAGE>   31


6.       DEBT

         The Company's only debt obligation for the periods presented is a
promissory note issued in connection with the PSINet transaction. The final
payment on this note was made in December 1998.



<TABLE>
<CAPTION>

                                               1998                1997
                                          ----------------    ---------------
                                                   (In Thousands)
<S>                                       <C>                <C>
PSINet Note, due October, 1998            $         -                 $2,043
Less  current maturities                            -                 (2,043)
                                          ----------------    ---------------
Long-term obligations                     $        -              $       -
                                          ================    ===============
</TABLE>



         The carrying value of the PSINet Note approximated the market value as
of December 31, 1997.

7.       COMMITMENTS AND CONTINGENCIES

         LEASES

         The Company leases certain equipment under agreements, which are
classified as capital leases. These leases have original terms of three years or
less and contain bargain purchase options at the end of the original lease
terms. The Company also has operating leases, which relate to the lease of
office and equipment space. Rental expense attributable to these operating
leases was approximately $1,953,000, $1,420,000 and $519,000 for the year ended
December 31, 1998, 1997 and 1996, respectively.

         At December 31, 1998, the Company's capital lease obligations and
minimum rental commitments under non-cancelable operating leases with initial or
remaining terms of more than one year were as follows:



<TABLE>
<CAPTION>
                                            Capital               Operating
                                             Leases                Leases
                                         ---------------       ----------------
                                                   (In Thousands)
<S>                                      <C>                    <C>
1999                                             $3,103                 $3,385
2000                                              2,595                  3,392
2001                                                  -                  1,441
2002                                                  -                    829
2003 and thereafter                                   -                    963
                                         ---------------       ----------------
   Total minimum lease payments                   5,698                $10,010
                                                               ================
Amounts representing interest                     (579)
                                         ---------------
Present value of net minimum
   payments                                       5,119
Current portion                                 (2,695)
                                         ---------------
Long-term capitalized lease
   obligations                                   $2,424
                                         ===============
</TABLE>



         LEGAL PROCEEDINGS

         The Company is subject to legal proceedings and claims that arise in
the ordinary course of business. As of December 31, 1998, management is not
aware of any asserted or pending litigation or claims against the Company that
would have a material adverse effect on the Company's financial condition,
results of operations or liquidity.



                                      F-14
<PAGE>   32


8.       INCOME TAXES

         The provision for income taxes is attributable to:



<TABLE>
<CAPTION>

                                                         1998                1997                1996
                                                   -----------------    ----------------    ---------------
                                                                         (In Thousands)
<S>                                                <C>                  <C>                 <C>
Current                                            $          3,000     $             -     $            -
Deferred                                                        654             (1,574)            (2,915)
Increase in (reversal of) valuation allowance               (5,198)               1,574              2,915
                                                   -----------------    ----------------    ---------------
   Income tax provision (benefit)                  $        (1,544)     $             -     $            -
                                                   =================    ================    ===============
</TABLE>




         A reconciliation of the income tax provision (benefit) computed at
statutory tax rates to the income tax benefit for the year ended December 31,
1998, 1997 and 1996 is as follows:



<TABLE>
<CAPTION>

                                                      1998         1997         1996
                                                     --------     --------     --------
     <S>                                             <C>          <C>          <C>
     Income tax benefit at statutory rate                34%        (34)%        (34)%
     State income taxes, net of federal benefit            4          (4)          (4)
     Other                                                 2            0            0
     Valuation allowance                                (57)           38           38
                                                     --------     --------     --------
           Total income tax provision (benefit)        (17)%           0%           0%
                                                     ========     ========     ========
</TABLE>




         Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1998 and 1997 are as follows:



<TABLE>
<CAPTION>

                                                   1998              1997
                                                ------------   -----------------
                                                     (In Thousands)
<S>                                             <C>            <C>
Deferred tax assets:
  Net operating loss carryforwards              $         -    $        3,866
  Acquired customer base                              3,902             1,742
  Deferred revenue                                    2,221               835
  Allowance for doubtful accounts                       465               285
  Prepaid revenue                                       608                 -
  Accrued vacation                                      371                 -
  Other accrued liabilities                               -               126
                                                ------------   ---------------
     Total deferred tax assets                        7,567             6,854
                                                ------------   ---------------

Deferred tax liabilities:
  Depreciation                                      (2,779)           (1,608)
  Other                                               (244)              (48)
                                                ------------   ---------------
     Total deferred tax liabilities                 (3,023)           (1,656)
                                                ------------   ---------------

Net deferred tax asset                                4,544             5,198
Valuation allowance for deferred tax assets

                                                          -           (5,198)
                                                ------------   ---------------
Net deferred taxes                              $     4,544    $            -
                                                ============   ===============
</TABLE>



         The Company's net operating loss carryforwards will expire between 2009
and 2012 unless utilized. Due to the fact that prior to 1998 the Company
incurred losses since inception, the Company did not recognize the income tax
benefit of the net operating loss carryforwards. Management provided a 100%
valuation reserve against its net deferred tax asset, consisting primarily of
net operating loss carryforwards. Management reviewed this position based on the
net income generated in 1998 as well as the projections of future income and
determined that it was more likely than not that the deferred tax assets would
be realized. Accordingly, the Company reversed its



                                      F-15
<PAGE>   33

entire valuation allowance in 1998. In addition, the Company's ability to
recognize the benefit from the net operating loss carryforwards could be limited
under Section 382 of the Internal Revenue Code if ownership of the Company
changes by more than 50%, as defined.

9.       QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following is a summary of the unaudited quarterly results for 1998,
1997, and 1996:

                    (In Thousands Except Per Share Data)

<TABLE>
<CAPTION>
                                               Operating              Net              Net Income
  Quarter Ended              Revenue         Income (Loss)       Income (Loss)       (Loss) Per Share
----------------------    -------------     ----------------    ---------------- ---------------------
                                                                                   Basic     Diluted
<S>                       <C>               <C>                 <C>              <C>         <C>
December 31, 1998         $    39,534       $      1,299        $       3,679    $     .14   $   .13
September 30, 1998             28,695              3,440                3,985          .15       .15
June 30, 1998                  25,060              1,994                2,020          .09       .08
March 31, 1998                 21,384              1,053                  860          .04       .04

December 31, 1997         $    17,209       $        646        $         498    $     .02   $   .02
September 30, 1997             13,967              (465)                (626)        (.03)     (.03)
June 30, 1997                  11,600            (1,421)              (1,430)        (.06)     (.06)
March 31, 1997                  9,780            (2,505)              (2,525)        (.11)     (.11)

December 31, 1996         $     8,524       $    (2,378)        $     (2,411)    $   (.11)   $ (.11)
September 30, 1996              5,301            (2,601)              (2,702)        (.18)     (.18)
June 30, 1996                   2,495            (1,577)              (1,460)        (.10)     (.10)
March 31, 1996                  1,812              (966)              (1,039)        (.10)     (.10)
</TABLE>


               See Note 1 for a discussion of earnings per share.

10.      SUBSEQUENT EVENT

         ACQUISITION

         On February 17, 1999, MindSpring acquired certain tangible and
intangible assets and rights used in connection with the Internet services
business operated in the United States by NETCOM On-Line Communication Services,
Inc. ("NETCOM"), a Delaware corporation and an indirect wholly owned subsidiary
of ICG Communications, Inc., including (i) approximately 400,000 of NETCOM's
individual Internet access accounts; (ii) approximately 3,000 dedicated Internet
access accounts; (iii) approximately 18,000 Web hosting accounts; and (iv)
various assets used in serving those subscribers, including leased operations
facilities in San Jose, California and Dallas, Texas and all of NETCOM's rights
to the "NETCOM" name (except in Brazil, Canada and the United Kingdom). The
acquisition was effected pursuant to an Asset Purchase Agreement dated January
5, 1999 between MindSpring and NETCOM. MindSpring paid NETCOM approximately
$245,000,000, including $215,000,000 in cash and $30,000,000 in MindSpring
stock.

         The NETCOM operations outside the United States are not included in
this transaction. In addition, NETCOM (which will change its name in the near
future) will retain all of the assets used in connection with its network
operations. Under a separate network services agreement, NETCOM (operating under
a new corporate name) will sell MindSpring wholesale access to its network. The
agreement has an initial term of one year with an option for a second year on
potentially different terms


                                      F-16
<PAGE>   34


to be negotiated and accepted by both parties.

         The transaction will be accounted for as a purchase. The purchase price
will be allocated to the underlying assets purchased and liabilities assumed
based on their fair market values at the acquisition date.

         The following table summarizes the net assets purchased in connection
with the NETCOM and Spry acquisitions and the amount attributable to cost in
excess of net assets acquired in millions:



<TABLE>
<CAPTION>
                                          NETCOM              Spry
                                          ------              ----
<S>                                       <C>                 <C>
Working capital                           $(3.0)              $ -
Property and equipment                     17.2                 -
Other assets                                0.2                 -
Acquired customer base                    230.6               32.0
</TABLE>



         The preliminary estimate of net assets represents management's best
estimate based on currently available information; however, such estimate may be
revised up to one year from the acquisition date. Acquired subscriber bases are
amortized over 3 years.

         The following unaudited pro forma condensed statements of operations
(in millions) assumes the NETCOM and Spry acquisitions occurred on January 1,
1997. In the opinion of management, all adjustments necessary to present fairly
such unaudited pro forma condensed statements of operations have been made.



<TABLE>
<CAPTION>
                                               1998              1997
                                          ---------------     ---------------
<S>                                       <C>                 <C>
Revenue                                   $ 294.9             $250.3
Net Loss                                   (101.5)            (101.0)
Net Loss per share                          (3.57)             (3.58)
</TABLE>



         CREDIT FACILITY

         Subsequent to year end, the Company obtained a $100 million secured
revolving credit facility from First Union National Bank and certain other
lenders. The credit facility may be increased to $200 million with the approval
of 51% of the lenders. The credit facility has an interest rate of either the
bank rate plus 25 to 100 basis points (defined as the banks prime rate or the
overnight federal funds rate plus 50 basis points) or LIBOR plus 125-200 basis
points depending upon the ratio of total debt to EBITDA. The facility is
available for 36 months and contains certain restrictive covenants including
certain financial ratios. Additionally, borrowings are secured by all assets and
properties. To complete the NETCOM acquisition, the Company borrowed $80 million
under this facility. The proceeds from any future debt issuances and certain
sales of assets and insurance proceeds must be used to repay any outstanding
borrowings.



                                      F-17
<PAGE>   35



            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES

We have audited, in accordance with generally accepted auditing standards, the
financial statements of MINDSPRING ENTERPRISES, INC. included in this Form 10-K
and have issued our report thereon dated February 17, 1999. Our audits were made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                  ARTHUR ANDERSEN LLP


Atlanta, Georgia
February 17, 1999



                                       S-1
<PAGE>   36


                 SCHEDULE II - VALUATION OF QUALIFYING ACCOUNTS

                          MINDSPRING ENTERPRISES, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

              COLUMN A                     COLUMN B                   COLUMN C                    COLUMN D         COLUMN E
-------------------------------    ----------------------   -------------------------------   ---------------   ---------------
                                                                      ADDITIONS
                                                            -------------------------------
                                         BALANCE AT           CHARGED TO       CHARGED TO                         BALANCE AT
                                         BEGINNING             COSTS AND          OTHER          DEDUCTIONS           END
           DESCRIPTION                   OF PERIOD            EXPENSES          ACCOUNTS             (a)          OF PERIOD
           -----------             ----------------------   -------------      ------------   ---------------   ---------------

<S>                                      <C>                <C>                <C>             <C>              <C>
DEDUCTION IN THE BALANCE SHEET
  FROM THE ASSET TO WHICH IT
  APPLIES:
Allowance for uncollectible accounts
  Receivable..........................      $751              $3,123             $0               ($2,650)           $1,224
</TABLE>

(a) Represents specific accounts written-off considered to be uncollectible.


                          MINDSPRING ENTERPRISES, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

              COLUMN A                     COLUMN B                   COLUMN C                    COLUMN D         COLUMN E
-------------------------------    ----------------------   -------------------------------   ---------------   ---------------
                                                                      ADDITIONS
                                                            -------------------------------
                                         BALANCE AT           CHARGED TO       CHARGED TO                         BALANCE AT
                                         BEGINNING            COSTS AND          OTHER          DEDUCTIONS           END

            DESCRIPTION                  OF PERIOD            EXPENSES          ACCOUNTS            (a)           OF PERIOD
            -----------            ----------------------   -------------      ------------   ---------------   ---------------

<S>                                      <C>                <C>                <C>             <C>               <C>
DEDUCTION IN THE BALANCE SHEET
  FROM THE ASSET TO WHICH IT
  APPLIES:
Allowance for uncollectible accounts
  Receivable..........................      $386              $1,459             $0               ($1,094)                 $751
</TABLE>

(a) Represents specific accounts written-off considered to be uncollectible.


                          MINDSPRING ENTERPRISES, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

              COLUMN A                     COLUMN B                   COLUMN C                    COLUMN D         COLUMN E
-------------------------------    ----------------------   -------------------------------   ---------------   ---------------
                                                                      ADDITIONS
                                                            -------------------------------
                                         BALANCE AT           CHARGED TO       CHARGED TO                         BALANCE AT
                                         BEGINNING            COSTS AND          OTHER          DEDUCTIONS           END

           DESCRIPTION                   OF PERIOD            EXPENSES          ACCOUNTS            (a)            OF PERIOD
           -----------             ----------------------   -------------      ------------   ---------------   ---------------

<S>                                      <C>                <C>                <C>             <C>              <C>
DEDUCTION IN THE BALANCE SHEET
  FROM THE ASSET TO WHICH IT
  APPLIES:
Allowance for uncollectible accounts
  Receivable..........................      $46               $380               $0               ($40)              $386
</TABLE>


(a) Represents specific accounts written-off considered to be uncollectible.



                                       S-2
<PAGE>   37
EXHIBIT                         EXHIBIT
NUMBER                          DESCRIPTION
---------               ---------------------------------

23.2            --      Consent of Arthur Andersen LLP







                                     S-2