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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                  FORM 10-K/A
                            ------------------------
 
(MARK ONE)
 
     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
 
         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                        COMMISSION FILE NO.
                                     EXCITE,INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                 <C>
                     DELAWARE                                           77-0378215
            (STATE OR JURISDICTION OF                                 (IRS EMPLOYER
          INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)
</TABLE>
 
                  555 BROADWAY, REDWOOD CITY, CALIFORNIA 94063
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                           TELEPHONE: (650) 568-6000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, $0.001 PER SHARE PAR VALUE
                        PREFERRED STOCK PURCHASE RIGHTS
 
     Check whether the registrant: (1) 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A.  [ ]
 
     As of January 29, 1999, 53,829,408 shares of Common Stock, $0.001 per share
par value, of the registrant were outstanding. The aggregate market value of
voting stock held by non-affiliates of the registrant was approximately
$5,074,187,064 as of January 29, 1999, based on the closing sale price per share
of the registrant's Common Stock as reported on the Nasdaq Stock Market on such
date. Shares of Common Stock held by each executive officer and director and by
each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive for other purposes.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Excite, Inc. Proxy Statement for the 1998 Annual Meeting of
Stockholders to be held in June 1999 are incorporated by reference into Part III
of this Annual Report on Form 10-K/A where indicated.
 
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<PAGE>   2
 
Items 1, 6, 7, and 8 of the Company's Annual Report on Form 10K for the year
ended December 31, 1998 are amended to read as follows:
 
                                     PART I
 
ITEM 1. BUSINESS
 
     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements, which involve
risks and uncertainties. The Company's actual results may differ materially from
those anticipated in these forward-looking statements as a result of the Merger
with At Home, which is expected to close during the second quarter of 1999, and
certain other factors, including, without limitation, those risk factors set
forth under "Risk Factors that May Affect Future Results" included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Report.
 
SUMMARY
 
     Excite, Inc., or "Excite", is a global Internet media company offering
consumers and advertisers comprehensive Internet navigation services with
extensive personalization and targeting capabilities. The Excite Network,
consists of the Excite, WebCrawler and Classifieds2000 brands. Excite provides a
gateway to the World Wide Web, or the "Web", that organizes, aggregates and
delivers information to meet the needs of individual consumers. Designed to help
consumers navigate the Web, the Excite Network contains a suite of specialized
information services, organized under numerous topical channels that combine
proprietary search technology, editorial Web reviews, aggregated content from
third parties, bulletin boards, chat and other community features and
personalization capabilities. Through its MatchLogic subsidiary, Excite provides
innovative Internet ad campaign management tools and services in the form of
reporting, measurement and analytical techniques and sophisticated direct and
database marketing services. In addition, Excite believes there will be a
significant opportunity to derive revenues from online transactions and,
therefore, Excite has entered into, and is continuing to pursue, transaction-
based arrangements which are designed to allow Excite to benefit from online
purchases directed through advertisements on the Excite Network.
 
THE COMPANY
 
     Excite was formed in June 1994. Excite first launched its Excite search and
directory service in October 1995. In April 1997, Excite launched a
channels-based format to provide consumers with an interface that reflects the
way they navigate through other forms of media and enables advertisers to more
effectively reach target consumers. In April 1998, Excite launched, My Excite
Start Page that enables consumers to personalize their home page Web interface
and choose the information they want delivered to their personal page, thereby
delivering a personalized Web experience for each consumer each time they visit
Excite. In addition, Excite acquired Classifieds2000, Inc. in April 1998, which
provides consumers using Excite's Classifieds channel with access to a
nationwide database of online classified advertisements in a number of
categories. Localized versions of Excite are available in Australia, China,
France, Germany, Italy, Japan, Sweden, Netherlands and the United Kingdom.
 
     Over the past several years, Excite has grown by both developing new
services, and by acquiring a number of businesses, technologies, services and
content.
 
- In 1996, Excite acquired The McKinley Group Inc., or "McKinley", the creator
  of the Magellan Internet Guide.
 
- During 1997, Excite completed its acquisition of the WebCrawler search and
  directory technology, or the "WebCrawler Acquisition", from America Online,
  Inc., or "AOL", and acquired Netbot, Inc., or "Netbot", an Internet software
  developer of advanced search technology.
 
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<PAGE>   3
 
- In 1998, Excite acquired MatchLogic, Inc., or "MatchLogic", a provider of
  solutions for the management and optimization of Internet advertising
  campaigns, Classifieds2000, Inc., or "Classifieds2000", a provider of online
  classified ads, and Throw, Inc., or "Throw", a development stage company
  focused upon the creation of community products.
 
     All of the above acquisitions were accounted for as pooling of interests,
except for the acquisition of Throw and WebCrawler, which were accounted for as
purchases. See Note 2 of Notes to Consolidated Financial Statements.
 
     On January 19, 1999, Excite, At Home Corporation, or "At Home", an Internet
service provider aimed at broadband cable subscribers, and Countdown Acquisition
Corporation, entered into a definitive Agreement and Plan of Reorganization, or
the "Merger Agreement". Pursuant to the Merger Agreement, Excite will become a
wholly-owned subsidiary of At Home. At the effective time of the Merger, all
outstanding shares of Excite's Capital Stock will be exchanged for shares of At
Home's Series A Common Stock, and options and warrants to purchase Excite's
Capital Stock will be exchanged for options or warrants, as applicable, to
purchase shares of At Home's Series A Common Stock. At Home has announced that
it intends to effect a 2-for-1 stock split in the future. If this stock split
occurs before the merger closes, each Excite Stockholder will receive 2.083804
shares of At Home's Series A Common Stock for each share of Excite Common Stock.
Each share of Excite's Common Stock will be exchanged for 1.041902 shares of At
Home's Series A Common Stock. The exercise price and number of shares of
Excite's Capital Stock subject to Company options or warrants, will be
appropriately adjusted to reflect the exchange ratio. Any outstanding
convertible debt at the effective time of the Merger, will thereafter be
convertible into the number of shares of At Home's Series A Common Stock to
which a holder of Excite's Common Stock would have been entitled to receive if
the holder had converted the convertible debt into Excite's Common Stock prior
to the Merger. The transaction is intended to qualify as a tax-free
reorganization and will be accounted for as a purchase.
 
     In connection with the execution of the Merger Agreement, Excite and At
Home entered into a Stock Option Agreement, or the "Stock Option Agreement",
pursuant to which Excite granted to At Home an option to purchase up to 19.9% of
the outstanding shares of Excite's Common Stock, which is exercisable upon the
occurrence of certain events specified in the Stock Option Agreement.
 
     The Merger, which is expected to close in the second quarter of 1999, is
subject to various conditions, including clearance under the Hart-Scott-Rodino
Antitrust Improvements Act and approval of the Excite's and At Home's
stockholders.
 
     Excite may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. Excite has filed the
Merger Agreement with the Securities and Exchange Commission on January 20, 1999
under its Report on Form 8-K.
 
THE EXCITE NETWORK
 
     As the Web has evolved, Excite has grown from being a provider of a
single-function Web search utility to offering a branded Internet media network
consisting of Excite, WebCrawler and Classifieds2000 brands.
 
EXCITE SERVICES
 
     Excite's services consist of:
 
- personalization services, such as My Excite Start Page, a personalized home
  page which can be customized simply and easily by a consumer to satisfy his or
  her personal interests.
 
- navigation, such as Excite Search and Excite Channels, which help consumers
  more easily find relevant information;
 
- and community, such as chat, e-mail, bulletin board and instant messaging
  services, which help consumers connect and communicate.
                                        3
<PAGE>   4
 
     MY EXCITE START PAGE. Excite delivers a personalized Web experience for
each consumer by allowing them to personalize their home page Web interface and
choose the information they want delivered. After registering with Excite,
consumers create a personal profile which selects and automatically updates
information of interest such as personalized stock quotes, news stories, local
and national sports scores, horoscopes, local and national weather, television
listings and special reminders. As of December 31, 1998, Excite had
approximately 4.5 million registered users of My Excite Start Page.
 
     EXCITE SEARCH. Excite maintains an extensive index of Web documents which
is refreshed by its automatic spider technology on a regular basis. Excite's
search technology allows consumers to search the Web in multiple ways, including
by keyword, phrase, concept, Boolean logic or proper name. Excite's "More Like
This" feature, which utilizes query-by-example technology, allows users who find
a document of interest to find similar documents with the click of a button. In
addition, Excite's automatic abstract technology provides consumers with a brief
and accurate abstract of each document returned by a search. Excite Search also
permits users to search news articles, Usenet newsgroups, the Excite City.Net
travel index or Excite's Web Guide of approximately 100,000 Web sites.
 
     EXCITE CHANNELS. Excite's channels-based format for its services and
content provides consumers with a more intuitive interface that reflects the way
they navigate through other forms of media, such as television. This format also
enables advertisers and retailers to more effectively reach target consumers.
The entire suite of Excite services can be accessed from each channel. By
combining existing services with specialized information and services from
leading content providers, Excite provides channel-specific content including
topical news, links to related Web sites, products and services and directories.
Excite also has channel specific bulletin boards, communities, chat and search
capabilities.
 
     The Excite brand currently includes the following channels:
 
<TABLE>
<S>                                     <C>
Autos                                   Home & Real Estate
Careers                                 Lifestyle
Classifieds & Auctions                  Money & Investing
Computers & Internet                    News
Education                               People & Chat
Entertainment                           Shopping
Games                                   Sports
Health                                  Travel
</TABLE>
 
     EXCITE COMMUNITIES. Excite offers a number of services, which allow users
to connect and communicate with each other. Excite believes that users who
habitually check their e-mail on Excite's Mail or their instant messages on
Excite PAL are more likely to visit more frequently, spend more time on the
Excite Network and use other Excite services as well. Community-building
services, such as Excite Communities, Excite Boards and Excite Chat, allow users
to join communities of other users with similar interests or needs, thereby
enhancing the user experience within the Excite Network with the goal of
improving customer retention.
 
     EXCITE SHOPPING. The Excite Shopping Channel offers a safe and convenient
online shopping service for consumers. This channel is arranged around 20
departments, including: automobiles, books, clothes, computers and software,
flowers and gifts, music and movies and other items. The Shopping Channel
features links to a number of leading retailers' Web sites and also offers
Excite Product Finder powered by Jango. After the consumer enters a product
request, Excite Product Finder determines the best sources of information. The
service then assembles the relevant information and displays the final shopping
results in an easy-to-browse report that typically includes product reviews,
specifications, pricing, secure transaction information and other essential
shopping details. When a consumer is ready to buy, the purchase is completed on
the merchant's Web site. In addition, to simplifying shopping on the Web for
consumers, the Excite Shopping Channel also provides online retailers the
opportunity to market products to shoppers at the point of decision.
 
                                        4
<PAGE>   5
 
WEBCRAWLER SERVICES
 
     WebCrawler was created in early 1994 and was one of the first Internet
search engines. In November 1996, Excite acquired the WebCrawler search and
directory technology from AOL. In March 1998, Excite redesigned the WebCrawler
service to focus on speed, simplicity and practicality.
 
     Similar to the Excite brand, content on WebCrawler is organized within 21
channels such as Autos, Business & Investing, Entertainment, Home & Real Estate,
News, Travel and Relationships. WebCrawler offers all of the community features
offered throughout the Excite brand. WebCrawler users can also create a
personalized home page with the My Page feature, which, like the My Excite Start
Page feature, selects and delivers information of interest such as stock quotes
and news headlines.
 
CLASSIFIEDS SERVICES
 
     Excite's Classifieds service provides consumers with access to a nationwide
database of online classified advertisements in a number of categories. Users
can place their own advertisements directly and can search the aggregated
classifieds of Excite and its partners. Excite's Classifieds service is featured
as the provider of classified advertising, other than career-related
advertising, on Netscape's Netcenter.
 
     The Classifieds2000 brand currently includes the following channels:
 
<TABLE>
<S>                                     <C>
Collectibles                            Personals & Friends
Computers & Software                    Real Estate
Employment                              Rentals & Roommates
General Merchandise                     Travel
Opportunities & Services                Vehicles
</TABLE>
 
     Excite believes it will need to constantly update its service offerings in
order to attract and retain users. If any new service is not favorably received,
it may adversely affect Excite's reputation, brand and user traffic. Excite may
also experience difficulties or delays in developing new services. In addition
new services may contain undetected errors. Excite may need to significantly
redesign these services to correct any errors. Any difficulty or delays may
cause user dissatisfaction or result in lost or delayed advertising revenues.
Excite's business may be adversely affected if it does not successfully develop
new services that are well received.
 
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<PAGE>   6
 
     The following table indicates the average daily number of page views
derived each month during 1998, the number of registered users of the Excite
Network and the reach of the Excite Network (Excite.com and Webcrawler.com).
"Reach" is defined by Media Metrix as the percentage of Internet users who used
the Excite Network at least once during the month.
 
<TABLE>
<CAPTION>
                                                  AVG. DAILY    REGISTERED     EXCITE     WEBCRAWLER
                                                  PAGE VIEWS     USERS(1)     REACH(2)     REACH(2)
                                                  ----------    ----------    --------    ----------
                                                       (IN MILLIONS)                   (%)
<S>                                               <C>           <C>           <C>         <C>
FIRST QUARTER OF 1998
January                                              31.6           5.1         19.0         8.5
February                                             36.1           5.7         20.7         7.6
March                                                40.0           6.1         22.0         8.8
 
SECOND QUARTER OF 1998
April                                                40.9           7.2         23.8         8.7
May                                                  38.9           5.5         23.3         8.8
June                                                 43.6           8.9         22.9         7.3
 
THIRD QUARTER OF 1998
July                                                 45.3           9.0         23.2         6.1
August                                               45.5          11.8         21.2         5.1
September                                            50.0          12.8         20.7         5.1
 
FOURTH QUARTER OF 1998
October                                              52.7          14.4         19.8         4.9
November                                             54.6          15.9         20.8         5.7
December                                             57.7          20.0         21.3         4.8
</TABLE>
 
---------------
(1) The fourth quarter registered users include "opt-in" e-mail registrations.
    See "Matchlogic -- "Opt-in" Electronic-Mail Messaging."
 
(2) Data is obtained from Media Metrix World Wide Audience Ratings Report home
    sample.
 
ADVERTISING AND COMMERCE
 
     Excite currently derives substantially all of its revenues from the sale of
advertisements on the Excite Network through sponsorships, banner advertisements
and database and, through its MatchLogic subsidiary, direct marketing
arrangements. See MatchLogic below. In the future, Excite also intends to pursue
revenues from online transactions.
 
     SPONSORSHIP ADVERTISING. During the second quarter of 1997, Excite began
selling advertising placements and links outside of the space normally reserved
for banner advertisements. These arrangements are known as sponsorships because
they typically involve the placement of an advertisement or link in a topical
channel as though the advertiser was sponsoring the content on a specific page.
The ad or link is programmed to appear prominently in the same spot on the page
each time the user calls for that page of channel content. Some of these
sponsorships include relationships with Amazon.com, Inc., AT&T, Barnes & Noble,
Inc., Foot Locker, Office Depot and Preview Travel, Inc.
 
     Sponsorships have a longer duration than Excite's banner advertisement
agreements and typically have a two or three year term. In some instances,
Excite has entered into exclusive sponsorship arrangements for certain channels.
Some sponsorship arrangements provide that Excite will participate in the
revenue or profit margin from a purchase made by a consumer who responded to an
ad placed on the Excite Network. Excite has not received any online transaction
revenues to date from these sponsorship arrangements and does not anticipate
receiving any significant amount of online transaction revenues in 1999. Through
December 31, 1998, Excite had entered into approximately 74 sponsorship
arrangements, of which approximately 42 included some form of transaction
revenue or margin sharing arrangement.
 
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     Through Excite's various advertising programs, advertisers can combine
multiple advertising packages in order to develop an advertising plan that
reaches many audience types and that is designed to maximize reach, frequency of
exposure and consumer response. For example, an airline company might utilize a
general rotation advertisement as a base for mass exposure. The advertising
campaign could be enhanced by using a topical affinity consumer targeting
approach, by either sponsoring a section of the Travel Channel or purchasing
keywords such as "travel" or "airfare" on any of Excite's related services.
 
     BANNER ADVERTISEMENTS. Banner advertisements are prominently displayed
throughout the Excite Network and as the consumer interacts with the Excite
Network, new advertisements are displayed. Excite offers a variety of banner
advertising programs that enable advertisers to target their audiences at
various levels of market segmentation. Mass market placements deliver general
rotation banner advertisements throughout the Excite Network but do not have any
particular market segmentation. Targeted advertising is for an audience with a
specific content interest on one of Excite's services; these advertisers can
target general interest topics such as "sports" or can target advertisements to
more specific sub-categories such as "college basketball" or a particular team.
Excite charges higher per impression fees for advertising products based upon
the specificity of the target audience. Excite's standard rates for advertising
range from $24 per thousand impressions, or "CPMs", for general rotation across
undifferentiated users, to $170 per thousand impressions for targeted affinity
or keyword packages.
 
     Excite's banner advertising agreements generally are for a relatively short
term and provide for a minimum number of guaranteed impressions for a fixed fee.
Accordingly, actual CPM rates depend upon a variety of factors, including,
without limitation, the duration of the advertising contract and the number of
impressions purchased. These advertising purchases are also often negotiated on
a case-by-case basis. Because of these factors, actual CPM rates experienced by
Excite have been lower than its standard rates.
 
NETCENTER
 
     CO-BRANDED SERVICES. In April 1998, Excite and Netscape Communications
Corporation, or "Netscape", entered into a two-year agreement, or the "Netcenter
Agreement", with respect to Netscape's "Netcenter" online service. Under the
Netcenter Agreement, Excite provides programming and content for certain
channels on Netcenter which are co-branded and provides a Web search and
directory service for Netscape, collectively, the "co-branded services". In
addition, Excite's Classifieds service is featured as the provider of classified
advertising, excluding career and job posting classified ads, for the Netcenter
service. Excite is responsible for advertising sales for, and will pay to
Netscape a percentage of advertising revenues generated from, the co-branded
services and is also required to make payments based upon the amount of traffic
generated from the Net Search page and the Netcenter Widget Tool.
 
     DISTRIBUTION. Under the Netcenter Agreement, Excite is featured as a
"premier provider" on Netscape's Net Search page and will be similarly featured
on the Netcenter Widget Tool accessible from Netscape's Home Page. Excite's
services were allocated 25% of the random rotation of premier provider listings
from the Net Search page for the two-year term of the Netcenter Agreement, with
Excite receiving 25% and 50% of the rotation during the first and second years
of the term of the agreement, respectively. Netscape guaranteed that Excite will
receive a certain minimum number of impressions from the Net Search page and a
certain minimum number of click-throughs from the Netcenter Widget Tool over the
term of the Netcenter Agreement. Netscape also guaranteed that the co-branded
search service will receive a certain minimum number of impressions and
click-throughs, and that the co-branded channels will receive a certain minimum
number of initial page views over the term of the Netcenter Agreement. Excite
will be responsible for developing, programming and hosting the co-branded
services. Excite will also be responsible for selling advertising on the
co-branded services. Excite will bear all costs incurred by it in connection
with the Netcenter Agreement, without a right of reimbursement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Netscape and Sales and Marketing."
 
     TERMINATION. The Netcenter Agreement expires in June 2000 and may be
terminated sooner in the event of certain types of changes in control with
respect to Excite or Netscape. If the proposed acquisition
 
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<PAGE>   8
 
of Netscape by America Online is consummated, Excite would have the right to
terminate the Netcenter Agreement. Excite has not determined whether it will
exercise this termination right if that acquisition is consummated. The early
termination provisions will not be triggered as a result of the proposed
acquisition of Excite by At Home. Neither party is obligated to renew the
Netcenter Agreement at the end of its two-year term.
 
     Upon the termination of the Netcenter Agreement, other than a termination
in connection with certain acquisitions of or by Netscape, Excite will be
obligated to deliver to Netscape certain technology used in connection with the
operation, production, development, management and support of the co-branded
services for which Excite has granted Netscape a license, or the "Licensed
Technology". This license is a perpetual, royalty-free license, including the
right to sublicense the Licensed Technology. If Excite elects to terminate the
Netcenter Agreement as a result of the proposed acquisition by America Online,
Netscape would be required to repay Excite a certain portion of the $70.0
million cash prepayment Excite previously paid to Netscape, as well as reimburse
Excite for certain costs and expenses. Excite will be required to provide
Netscape certain limited engineering support with respect to the Licensed
Technology. In addition, if Netscape believes that Excite's own service, or the
content provided by Excite for the Netcenter service, contains material that
Netscape deems likely to cause it material harm, and if Excite does not revise
such objectionable content in a timely manner, Netscape may terminate the
Netcenter Agreement with no obligation to repay any portion of the $70.0 million
cash prepayment or to reimburse Excite for any costs or expenses.
 
DISTRIBUTION
 
     Excite believes that maintaining a presence on Web access points and other
high-traffic Web sites, known as gateways, is an important factor in obtaining
traffic and attracting advertisers. Excite seeks to obtain new consumers by
providing multiple gateways into the Excite Network, thereby increasing its
visibility on Web access points. Excite has established premier positions on the
Web through the Netcenter Agreement, a co-branding relationship with AOL, as
well as co-branding relationships with several major personal computer
manufacturers, or "OEMs", to make Excite the personal computer's default website
for their consumers. In addition, Excite has established a number of
distribution relationships under which the Excite brand is typically featured as
the default Web navigation network. These distribution relationships include
AT&T, Prodigy and PointCast.
 
     Excite also has a five-year distribution agreement with AOL which expires
in November 2001 under which a co-branded version of the Excite search and
directory service, AOL NetFind Powered by Excite, is designated as the exclusive
Web search and directory service for the AOL service.
 
MATCHLOGIC
 
     In February 1998, Excite acquired MatchLogic, a provider of Internet
advertising campaign management and database and direct marketing solutions.
Excite operates MatchLogic as an independent subsidiary, in order to assure Web
advertisers and agencies of the independence of MatchLogic campaign management
services, and of the confidentiality of consumer data collected from these
services.
 
     CAMPAIGN MANAGEMENT. Today, there are two methods of delivering advertising
messages on the Web, one is via the Web sites themselves, the other is via third
party ad servers such as MatchLogic. Prior to third-party ad serving, ads were
delivered exclusively by Web sites. For large advertisers planning to place
advertisements on multiple sites, this process was inefficient and ineffective,
because a single Web site only provides information about its own activity and
cannot provide consistent reporting of advertising results from multiple Web
sites. MatchLogic provides campaign management services directly to large
advertisers and agencies that are planning targeted ad campaigns across multiple
sites. Using MatchLogic's services, individual advertisers or advertising
agencies can deliver ads based on a user's particular demographic traits,
geographic location, connection capabilities and/or keyword and virtual keyword
data input. MatchLogic serves ad campaigns simultaneously to multiple Web sites
or e-mail messages to "opt-in" e-mail audiences. MatchLogic measures results
immediately, produces consolidated results reports on
 
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<PAGE>   9
 
the success of the entire campaign, and analyzes these results to enable
advertisers to quickly assess the effectiveness of the campaign. Changes to the
campaign are then made quickly and centrally by MatchLogic in order to maximize
the effectiveness of the advertiser's investment.
 
     DATABASE AND DIRECT MARKETING. The principal challenge for direct marketers
is to continually increase response rates. In order to accomplish this goal,
direct marketers need to have access to a robust, continually refreshed consumer
database, which provides them with current, relevant demographic information.
MatchLogic acquires, packages and distributes consumer data through digital and
land-based data channels. Land-based data channels, such as warranty cards, are
costly to create and may require longer periods of time to collect and assemble,
and may become obsolete in a short period of time. On the other hand, the
digital Web-based data channels are a new and emerging market from which current
demographic information and data on purchase intentions can be gathered and
analyzed online and in real time.
 
     MatchLogic operates as an independent subsidiary of Excite with its own
sales force, research and development and operations departments; however,
Excite intends to utilize the ad serving, "opt-in" e-mail direct marketing and
targeting technology of MatchLogic to improve results for advertisers on the
Excite Network.
 
     MatchLogic maintains four data centers in the U.S. which served an average
of approximately 39 million advertising impressions per day during the quarter
ended December 31, 1998 to over 1,200 Web sites for approximately 350
advertisers. MatchLogic's customers include large advertisers, such as General
Motors Corporation, Bank One, Schwab, Procter & Gamble, AT&T and leading
advertising agencies, such as, DDB Needham, Thunderhouse Online Marketing
Communications and Bronner SIG. MatchLogic is based in Westminster, Colorado,
and as of December 31, 1998 had 173 full-time employees.
 
TECHNOLOGY, RESEARCH AND DEVELOPMENT
 
     PERSONALIZATION. Excite has devoted significant resources in developing its
personalization technology, which provides users the ability to personalize
their Web experience. Excite uses a flexible architecture, which allows the
reuse of a user's personalized information throughout the Excite Network. With
Excite's dynamic page generation technology, customized and personalized pages
can be delivered to each Excite user, allowing for many different types of
frequently updated content, such as sports, stock quotes or news, to be
displayed each time a user returns to the Excite Network. Modular templates
allow Excite to quickly add new types of data to personal pages or produce
different appearances for use with different sponsorship arrangements.
 
     AD SERVING. Excite's ad serving technology delivers targeted advertising in
a fast, accurate and efficient manner. Scheduling algorithms ensure delivery of
ad impressions in the quantities required and support a pool of general rotation
ads. Excite's reporting infrastructure provides advertisers with daily online
reports of advertising performance.
 
     "OPT-IN" ELECTRONIC-MAIL MESSAGING. MatchLogic offers an e-mail push
program called DeliverE which is an "opt-in" e-mail service. DeliverE gives
advertisers the ability to distribute their selling offers and branding messages
to highly targeted audiences on the Web via e-mail.
 
     EXCITE'S SHOPPING SEARCH. Excite's Shopping Search, which built upon
Excite's proprietary programming language, called the Adapter Language, is used
to aggregate and homogenize data gathered from various Web sites in response to
user queries regarding a particular product.
 
     UNIVERSAL REGISTRATION. Excite has developed a user registration system
that allows users to register for the Excite Network and subsequently
authenticates them when they access specific services. Excite's universal
registration utilizes front-end caching which enables fast read access to user
data needed to support the Excite Network's user volume. Users can be
authenticated even if they have multiple user names and Excite also stores user
demographic information with its universal registration system.
 
                                        9
<PAGE>   10
 
     As of December 31, 1998, there were 228 employees on Excite's research and
development staff. Excluding charges for purchased in-process technology,
research and development costs were $29.6 million, $18.2 million and $8.3
million for the years ended December 31, 1998, 1997, and 1996, respectively.
Excite believes that developing new and enhanced services and technology is
necessary to remain competitive. Accordingly, Excite intends to continue to make
investments in research and development, including developing, licensing or
acquiring new technologies.
 
     The market in which Excite competes is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements, introductions and enhancements, and changing customer demands.
These market characteristics are exacerbated by the emerging nature of the Web
and the apparent need of companies from a multitude of industries to offer
Web-based products and services. Accordingly, Excite's future success will
depend on its ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the
performance, features and reliability of its network in response to competitive
service and product offerings, and evolving demands of the marketplace. The
failure of Excite to adapt to such changes and evolution would have a material
adverse affect on Excite's business. In addition, if new Internet, networking or
telecommunications technologies are adopted or if other technological changes
occur, Excite may incur substantial expenses to modify or adapt its services or
infrastructure.
 
SALES AND MARKETING
 
     As of December 31, 1998, Excite had a direct sales organization of 74
professionals located in Chicago, Dallas, Detroit, Los Angeles, New York and San
Francisco. This direct sales force sells to advertisers and advertising agencies
and is responsible for selling banner advertisements and sponsorships on the
Excite Network. Excite believes that an internal sales force dedicated to
selling advertising on the Excite Network provides a higher level of customer
service and satisfaction to advertisers during both the buying and reporting
process. In addition, Excite has a dedicated group of professionals focused on
advertising reporting and measurement. Because of the campaign management,
digital marketing and data asset management capabilities of MatchLogic,
advertisers on the Excite Network can receive one cohesive aggregated report on
the placement, analysis and effectiveness of their online advertisements. Excite
believes that in order to be a leader in Web advertising and provide the highest
level of service, it must continue to develop technologies for the precise and
timely placement, targeting and measurement of advertising. As part of the
Netcenter Agreement, Excite's sales organization is responsible for selling
advertising on the co-branded services and on most of the Netcenter classified
advertisement services. Therefore, Excite has significantly expanded its direct
sales force.
 
     Excite's marketing goal is to build the brands of the Excite Network and
its services into well recognized consumer brands. Excite utilizes a variety of
marketing programs, including traditional "off-Web" programs, such as joint
marketing programs with strategic partners and television, print, radio and
billboard promotions as well as online advertising. In December 1998, Excite
launched a national television advertising campaign, which it refers to as the
"You Can Too" campaign, designed to raise consumer brand and product benefit
awareness.
 
USER SUPPORT
 
     Excite offers user support via telephone and also offers a comprehensive
online help guide, which offers searching tips and provides a complete guide to
the Excite Network. As of December 31, 1998, Excite had 23 support personnel.
Excite also offers a "New to the Net" section of its help service for Web
novices. This service offers an overview of the Web and the Excite Network as
well as Excite Seeing Tours, which is a "how to" service designed to instruct a
consumer how to perform a particular task using information from the Web. In
addition, Excite offers Web and e-mail based support for it's My Excite Start
Page, Mail, Excite Chat, Excite PAL and Excite Communities services.
 
                                       10
<PAGE>   11
 
INTERNATIONAL
 
     Excite believes that there are significant opportunities to leverage the
Excite service internationally and offers localized versions of the Excite
service in Australia, China, France, Germany, Italy, Japan, Sweden, the
Netherlands and the United Kingdom. Excite seeks to enter relationships with
business partners who offer content, technology and distribution capabilities,
as well as marketing and cross-promotional opportunities internationally. Excite
has established the following international relationships.
 
     In October 1997, Excite and Itochu Corporation and certain affiliated
entities, or collectively "Itochu", entered into a joint venture agreement with
respect to Excite's wholly-owned subsidiary, Excite Japan, in order to provide
comprehensive localized Excite services in Japan. Advertising sales are made
through CTC Create Corporation, a wholly-owned subsidiary of Itochu. Excite
currently holds 50% of the outstanding capital stock of Excite Japan.
 
     In August 1998, Excite and Telecom Italia S.p.A. formed Excite Italia BV,
which is owned 50% by Excite and 50% by Telecom Italia. Excite Italia will
program certain portions of www.tin.lit, the Internet site of TIN, a division of
Telecom Italia and one of Italy's Internet access providers, as well as provide
an Italian language search directory service under the Excite brand. Telecom
Italia has committed to provide the initial start-up capital for the venture,
while Excite will provide the core technology, related services and brand name.
 
     In August 1998, Excite and LibertyOne Limited, a publicly listed Australian
corporation, formed Excite Asia Pacific Pty Ltd, which is owned 50% by Excite
and 50% by LibertyOne. Excite Asia Pacific will build an Excite branded,
advertising and commerce supported Web portal for the Australian and the
Asia-Pacific Internet markets. Liberty One will contribute cash as its
contribution to the venture, while Excite will provide the core technology,
related services and brand name.
 
     In January 1999, Excite and BT Holdings Ltd, or "BT", a subsidiary of
British Telecommunications, entered into a joint venture agreement whereby BT
purchased 50% of the shares of Excite UK Ltd, that had been a wholly-owned
subsidiary of Excite. The joint venture company, which will continue to be known
as Excite UK Ltd, will be owned 50% by Excite and 50% by BT, and will continue
to provide an Excite branded, advertising and commerce supported Web portal for
the United Kingdom market. BT will contribute cash as its contribution to the
venture and Excite will contribute the core technology, related services and
brand name.
 
     Excite has a multi-year agreement with Netscape under which it is producing
a local navigation service with topical channels and other features for
Netscape's International Netscape Guide for Australia, France, Germany, Japan
and the United Kingdom, and is also featured on Netscape's international search
page.
 
     During 1998, 1997 and 1996, less than 10% of Excite's user traffic and less
than 10% of Excite's total revenues were derived from international sources. See
Note 10 of Notes to Consolidated Financial Statements.
 
     Expansion into international markets has required and will continue to
require management attention and resources. Excite has limited experience in
localizing its services and many of Excite's competitors are also undertaking to
expand into foreign markets. Excite may not succeed in expanding into
international markets. In addition to the uncertainty regarding Excite's ability
to generate revenues from foreign operations and expands its international
presence, there are certain risks inherent in doing business on an international
basis. These include, among others:
 
- regulatory requirements, legal uncertainty regarding liability, tariffs and
  other trade barriers;
 
- difficulties in staffing and managing foreign operations;
 
- longer payment cycles, different accounting practices, problems in collecting
  accounts receivable;
 
- and political instability, seasonal reductions in business activity and
  potentially adverse tax consequences.
 
                                       11
<PAGE>   12
 
     To the extent Excite expands its international operations and has
additional portions of its international revenues denominated in foreign
currencies, Excite may become subject to increased risks relating to foreign
currency exchange rate fluctuations. Any one or more of the factors discussed
above may adversely affect Excite's future international operations and,
consequently, Excite's business.
 
COMPETITION
 
     The market for Web services and Web advertising is intensely competitive.
There are no substantial barriers to entry in these markets and Excite expects
competition to intensify. Excite believes that the number of companies relying
on fees from Web-based advertising has increased substantially during the past
year. Accordingly, Excite may face increased pricing pressure for the sale of
advertisements on its network, which may have a material adverse affect on
Excite's business. Excite believes the main competitive factors in this market
are brand recognition, user base, performance, ease of use, variety of
value-added services, features and quality of support.
 
     Excite competes with a number of companies both for users and advertisers.
Excite expects this competition will intensify, particularly because there are
few barriers to entry in Excite's market. Excite's competitors include:
 
- Web "portal" companies such as Infoseek's Go Network, Lycos, Netscape's
  Netcenter, Yahoo!, Alta Vista, and Snap;
 
- online service providers such as America Online, CompuServe, Microsoft's MSN
  and Prodigy services;
 
- Web content broadcasting services, such as PointCast;
 
- large media companies, such as CBS, NBC and Time-Warner, who have announced
  initiatives to develop Web services;
 
- and other smaller companies providing Web-based and advertising supported
  content.
 
     As Excite increases the content offerings and services on the Excite
Network, it will increasingly face competition from a large number of businesses
which offer Web services such as e-mail, stock quotes, news and chat features
and who publish information and content on the Web.
 
     Excite also expects to compete with Internet and online service providers,
Web site operators, providers of Web browser software, such as Netscape or
Microsoft, and other Internet services and products that incorporate search and
retrieval features into their offerings. Many of these potential competitors
have announced plans to offer competing Web services and may take actions that
make it more difficult for consumers to find and use the Excite Network. For
example, Netscape introduced Netcenter, which competes directly with the Excite
Network for traffic and advertisers. Microsoft recently licensed products and
services from Inktomi Corporation, a direct competitor of Excite, and has
announced that it will feature and promote Inktomi services in the Microsoft
Network and other Microsoft online properties. In addition, Microsoft has
announced that it will offer personalized Web services through Microsoft's Start
service. Such search services may be tightly integrated with Microsoft's
operating systems, Internet Explorer Web browser and other software
applications, and Microsoft may promote such services within MSN or through
other end-user services such as MSNBC or WebTV. As Microsoft's search services
may be more conveniently accessed, this may provide Microsoft with significant
competitive advantages that may have a material adverse affect on Excite's user
traffic.
 
     As the market continues to develop and competition intensifies, Excite's
competitors may merge or form strategic alliances that would increase their
ability to compete with Excite for traffic and advertisers. Such mergers may
also negatively impact Excite's ability to form or maintain strategic
relationships with those companies. For example, in November 1998, AOL announced
that it will acquire Netscape in a transaction that will extend AOL's services.
The merger may strengthen Netscape's Netcenter and AOL as competitors of Excite
for traffic and advertisers. In addition, this merger may also reduce the
probability of the renewal of any existing or new strategic relationships with
either company in the future.
 
                                       12
<PAGE>   13
 
     Many providers of Web services have been entering into distribution
arrangements, co-branding arrangements, content arrangements and other strategic
partnering arrangements with Internet and online service providers, providers of
Web browsers, operators of high traffic Web sites and other businesses in an
attempt to increase traffic and page views, and thereby making their Web sites
more attractive to Web advertisers while also making it more difficult for
consumers to utilize Excite's services. In addition, many large media companies
have either launched or have announced that they are contemplating developing
Internet navigation services and are attempting to become Web "gateway" sites
for Web users. For example, Infoseek Corporation and the Walt Disney Company
have partnered to launch Go Network, which features ABCNEWS.com for news,
ESPN.com for sports, Disney.com for kids and family, Infoseek for search, and
Disney and ABC for entertainment and will compete directly with the Excite
Network for traffic and advertisers. In addition, both Time-Warner and CBS have
announced initiatives to develop Web services in order to have their Web sites
become the starting point for users navigating the Web. In the event such
companies develop such "gateway" sites, Excite could lose a substantial portion
of its user traffic, which would have a material adverse affect on Excite's
advertising revenues and on its business.
 
     As a result of Excite's acquisition of MatchLogic in 1998, a portion of its
revenues were derived from providing advertisers and advertising agencies with
services designed to manage targeted Internet advertising campaigns. This market
is also a new and evolving market which is increasingly competitive and in which
there are no substantial barriers to entry. MatchLogic competes in this area
primarily with CMG Information Services, Inc., and competes indirectly in this
area with DoubleClick Inc., which offers Internet advertising solutions for
advertisers and Web sites, and NetGravity, Inc. and AdForce, Inc., which provide
advertising management software. MatchLogic expects to face competition in this
area from additional companies in the future.
 
     Many of Excite's existing competitors, as well as a number of potential new
competitors, have longer operating histories in the Web market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than Excite. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, distribution
partners, advertisers and content providers. Further, these competitors may
develop Web search and retrieval services or other online services that are
equal or superior to those of Excite or that achieve greater market acceptance
than Excite's offerings.
 
     Excite also competes with traditional advertising media, such as print,
radio and television, for a share of advertisers' total advertising budgets. If
advertisers do not perceive Internet advertising to be as effective as
traditional media, Excite's business may be adversely affected.
 
INTELLECTUAL PROPERTY
 
     Excite regards its technology as proprietary and attempts to protect it
with copyrights, trademarks, trade secret laws, restrictions on disclosure and
transferring title and other methods, and has been issued a patent with respect
to certain aspects of its searching and indexing technology. Excite has filed
three patent applications with respect to other aspects of its technology. These
applications may not result in a patent being issued. One of these applications
relates to additional features of Excite's search technology. Excite anticipates
that a patent will be issued from this application no sooner than the end for
the second quarter of 1999. Another application relates to Excite's shopping
search technology acquired in connection with the acquisition of Netbot. Excite
anticipates that a patent will be issued from this application no sooner than
the end of 1999. Excite also has a patent application on file with respect to
some of the community technology acquired in the Throw acquisition used in its
Excite Communities service. At this time, Excite does not know if a patent will
be issued with respect to this technology or if a patent is issued, when it may
be issued. Excite does not believe that any of its existing patents or the
technologies offered by these patent applications are critical to its current
business model.
 
     Furthermore, any patents that may be issued from these pending
applications, may not be sufficiently broad to protect Excite's technology. In
addition, despite having patents, it is possible that Excite's patents may be
challenged, invalidated or circumvented. The failure of any patents to protect
Excite's technology
 
                                       13
<PAGE>   14
 
may make it easier for Excite's competitors to offer technology equivalent or
superior to Excite's technology.
 
     Excite also generally enters into confidentiality or license agreements
with its employees and consultants, and generally controls access to and
distribution of its documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use Excite's services or technology without authorization, or to
develop similar technology independently. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries. Policing unauthorized use of Excite's technology is
difficult. The steps taken by Excite may not prevent misappropriation or
infringement of its technology. In addition, litigation may be necessary in the
future to enforce Excite's intellectual property rights, to protect Excite's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation may result in substantial costs and diversion of
resources and may have a material adverse affect on Excite's financial
condition.
 
     Many parties, including competitors of Excite, are actively developing
search, indexing and related Web technologies. Some of these parties have taken,
and Excite believes that others will take, steps to protect these technologies,
including seeking patent protection and enforcement of such patents through
licensing and litigation. As a result, Excite believes that disputes regarding
the use of such technologies are likely to arise in the future. Competitors or
others may initiate lawsuits against Excite asserting patent infringement.
Excite may not be able to defend successfully any such litigation either on the
grounds that patents are invalid or that Excite's search technology does not
infringe on patents of others. Even if Excite is successful, there can be no
assurance that the costs and resources required to defend any such litigation
will not have a material adverse affect on Excite's financial condition.
 
     In addition, from time to time, Excite has received, and may receive in the
future, notice of claims of infringement of other parties' proprietary rights,
including claims for infringement resulting from users downloading of materials
by the service operated by Excite. Although Excite investigates claims and
responds as it deems appropriate, there can be no assurance that infringement or
invalidity claims, or claims for indemnification resulting from infringement
claims, may not be asserted or prosecuted against Excite or that any assertions
or prosecutions will not materially and adversely affect Excite's financial
condition. Irrespective of the validity or the successful assertion of such
claims, Excite would incur significant costs and diversion of resources to
defend any such claims which may have a material adverse affect on Excite's
financial condition. If any claims or actions were asserted against Excite,
Excite might seek to obtain a license under a third party's intellectual
property rights. Such a license may not be available on commercially reasonable
terms, or at all.
 
     Excite also licenses from third parties certain of its technologies as well
as developing them internally. For example, Excite licenses commercially
available technology for many of its internal systems such as accounting and
human resources. Excite also licensed other technology for certain features
offered on the Excite Network. For example, Excite licensed Software.com's
InterMail electronic messaging product during 1998 as part of its electronic
mail service and licensed Total Entertainment Networks online game service
during 1998. Excite also licensed a variety of content for the Excite Network
during 1998. Excite does not believe that any one of these licenses is material
to its business as a whole. However, if a license were to terminate or if the
licensed software did not function properly, Excite may incur additional
expenses by having to obtain replacement licenses, having to integrate the new
technology in the Excite Network and causing a diversion of resources from other
projects. As it continues to introduce new services that incorporate new
technologies, it may be required to license additional technology from others.
These third-party technology licenses may not be available on commercially
reasonable terms, if at all. If Excite does not obtain any of these technology
licenses it may experience delays or reductions in the introduction of new
services or may materially and adversely affect the performance of its services
until equivalent technology could be identified, licensed and integrated. Any
such delays or reductions in the introduction of services or adverse impact on
service quality may materially and adversely affect Excite's business.
 
                                       14
<PAGE>   15
 
     During 1998, Excite also entered into the Netcenter Agreement with
Netscape, which provides for the license of Excite's search technology to
Netscape. See "-- Netcenter."
 
GOVERNMENT REGULATION
 
     There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet or other online services. However,
laws and regulations may be adopted in the future that address issues such as
user privacy, pricing and other aspects of the sale of products or services. Any
new laws or regulations may increase the costs of conducting business or
transmitting data over the Internet or online services or may otherwise affect
Excite's business.
 
EMPLOYEES
 
     As of December 31, 1998, Excite had 711 full-time employees, including 228
in research and development, 370 in sales and marketing, 74 in finance and
administration and 39 in operations and support. Excite's employees are not
represented by any collective bargaining unit, and Excite has never experienced
a work stoppage. Excite believes its relations with its employees are good.
 
     Excite depends on the performance and continued performance of its
executive officers and other key employees. Excite must also attract, train,
retain and motivate high quality personnel, especially its management and
engineering and development teams. Competition for such personnel is intense,
particularly in the San Francisco Bay Area. The loss of the services of any of
Excite's executive officers or other key employees or the failure of Excite to
attract, integrate, motivate and retain additional key employees may adversely
affect Excite's business. Excite does not have "key person" life insurance
policies on any of its employees.
 
                                       15
<PAGE>   16
 
                                    PART II
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report on Form 10-K/A.
 
FINANCIAL SUMMARY(1):
 
<TABLE>
<CAPTION>
                                               AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                         -----------------------------------------------------
                                           1998        1997        1996       1995       1994
 (IN THOUSANDS, EXCEPT PER SHARE DATA)   --------    --------    --------    -------    ------
<S>                                      <C>         <C>         <C>         <C>        <C>
Revenues                                 $155,360    $ 55,826    $ 14,823    $   953    $  293
Gross Profit                              125,874      34,225      10,654        725       205
Operating Expenses (2)                    160,062      80,429      55,888      7,115       851
Net loss                                  (37,559)    (46,814)    (44,179)    (6,435)     (650)
Net loss per share (3)                      (0.79)      (1.57)      (2.37)     (3.08)    (0.94)
Total assets                              220,673      79,156      48,810      3,801       157
Working capital (deficit)                  89,480      24,097       8,761       (878)     (442)
Long-term obligations                      18,236       9,689       4,073        995       100
Stockholders' equity (net capital
  deficiency)                             143,399      36,450      25,886     (4,034)     (542)
</TABLE>
 
---------------
(1) Reflects restatements for all pooling of interests. See Note 2 of Notes to
    Consolidated Financial Statements. Also reflects, the Company's July 1998
    two-for-one stock split. See Note 1 of Notes to Consolidated Financial
    Statements.
 
(2) Includes charges of $6.2 million, $2.3 million, $3.5 million and $331,000
    for the years ended December 31, 1998, 1997, 1996 and 1995, respectively,
    for in-process technology charges. For the years ended December 31, 1998,
    1997 and 1996, merger and acquisition related costs, including amortization
    of goodwill and other purchased intangibles of $4.9 million, $4.0 million
    and $3.1 million, respectively, were included. In addition, amortization of
    prepaid Netscape service of $17.7 million was included for the year ended
    December 31, 1998.
 
(3) The net loss per share amounts prior to 1997 have been restated as required
    to comply with Statement of Financial Standards No. 128, "Earnings Per
    Share" and Staff Accounting Bulletin No. 98. For further discussion of loss
    per share and the impact of Statement No. 128 and Staff Accounting Bulletin
    No. 98, see Note 1 of Notes to Consolidated Financial Statements.
 
                                       16
<PAGE>   17
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
FORWARD LOOKING STATEMENTS
 
     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements, which involve
risks and uncertainties. Excite's actual results may differ materially from
those anticipated in these forward-looking statements as a result of the Merger
with At Home, which is expected to close during the second quarter of 1999, and
certain other factors, including, without limitation, those risk factors set
forth under "Risk Factors that May Affect Future Results" included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Report.
 
OVERVIEW
 
     Excite, Inc., or "Excite", operates the Excite Network, which includes the
Excite and WebCrawler brands, and provides a gateway to the Web that organizes,
aggregates and delivers information to meet the needs of individual consumers.
Excite was formed in June 1994 and first launched its Excite search and
directory service in October 1995.
 
     Historically, Excite's advertising revenues have been derived principally
from short-term advertising contracts in which Excite guarantees a minimum
number of impressions, a view of an advertisement banner by a consumer, for a
fixed fee. Such banner advertising revenue is dependent upon both the number of
impressions and the rate per thousand impressions, or "CPMs", charged. Excite
generally charges higher rates for advertisements focused on targeted groups,
either by keyword associations or affiliations with specific content, than for
general rotation advertisements. During its limited operating history, Excite
has experienced seasonal fluctuations in the amount of banner advertisements
sold on its network, with advertisers historically purchasing fewer
advertisements in the first calendar quarter of each year. Because the market
for Web advertising is an emerging market, additional seasonal patterns in Web
advertising may develop in the future as the market matures.
 
     In 1997, Excite also began entering into longer-term advertising and
commerce sponsorship agreements. These agreements generally involve more
integration with the Excite Network and provide for more varied sources of
revenue to Excite over the term of the agreements, which average from two to
three years. Under these agreements, Excite earns fees for generating
impressions that in some instances are guaranteed. Sponsorship customers
accounted for approximately 25% and 24% of advertising revenues for 1998 and
1997, respectively. Revenues are generally recognized ratably over the term of
the agreement, provided that Excite does not have any significant remaining
obligations and collection of the resulting receivable is probable. To the
extent that impression deliveries are falling short of the guarantees, Excite
defers recognition of the corresponding revenues. A number of these agreements
also provide that revenues or gross margins from advertising and electronic
commerce transactions are to be shared between the advertiser and Excite as
realized. Revenues or margin sharing recognized from such electronic commerce
transactions were insignificant through 1998, and are expected to be
insignificant through 1999. See "Risk Factors that May Affect Future
Results -- Excite Depends on Sponsorship Agreements for Revenues" and "-- Risks
Associated with Banner Advertising."
 
                                       17
<PAGE>   18
 
     Over the past several years, Excite has grown by both developing new
products and services, and by acquiring a number of businesses, technologies,
services and content through mergers and acquisitions. During the three years
ended December 31, 1998, Excite completed the following acquisitions:
 
<TABLE>
<CAPTION>
                                                               SHARES OF EXCITE
                                                 SHARES OF         SERIES E        SHARES OF
                                                   EXCITE        CONVERTIBLE      OPTIONS AND
                                                   COMMON      PREFERRED STOCK     WARRANTS
COMPANY OR TECHNOLOGY ACQUIRED   DATE ACQUIRED  STOCK ISSUED        ISSUED          ASSUMED
------------------------------   -------------  ------------   ----------------   -----------
(IN THOUSANDS)
<S>                              <C>            <C>            <C>                <C>
McKinley                         August 1996       1,700               --               28
AOL's WebCrawler                 November 1996        --            1,950               --
Netbot                           November 1997     1,708               --              422
MatchLogic                       February 1998     6,122               --            1,049
Classifieds2000                  April 1998        1,730               --               50
Throw                            April 1998          330               --              318
</TABLE>
 
     All of the above acquisitions were accounted for as pooling of interests,
except for the acquisition of Throw and WebCrawler which were accounted for as
purchases. Excite's financial information has been restated to reflect all
pooling of interests. See "Risk Factors that May Affect Future
Results -- Acquisition Strategy; Integration of Past and Future Acquisitions"
and Note 2 of Notes to Consolidated Financial Statements.
 
     Excite has incurred significant operating losses since inception, and as of
December 31, 1998, Excite had an accumulated deficit of approximately $135.6
million. Although Excite experienced significant revenue growth during 1998 and
1997, Excite may not be able to sustain the growth of its revenues. Excite's
historical operating results may not be indicative of future operating results.
In addition, as Excite has grown, its operating expenses have increased, and
Excite expects that its operating expenses will continue to increase as a result
of its acquisitions, the performance of its obligations under the Netcenter
Agreement, its increased sales and marketing efforts, its increased funding for
development activities and the increased general and administrative staff needed
to support Excite's growth. To the extent that revenues do not grow at
anticipated rates or that increases in such operating expenses precede or are
not subsequently followed by commensurate increases in revenues, Excite's
financial condition will be materially and adversely affected. Excite may never
attain profitability on a quarterly or annual basis.
 
NETSCAPE AGREEMENT
 
     In April 1998, Excite and Netscape Communications Corporation, or
"Netscape", entered into a two-year agreement, or the "Netcenter Agreement",
under which Excite will, among other things, provide, host and sell advertising
for certain co-branded services for Netscape's Netcenter service. In connection
with the Netcenter Agreement, Excite has paid to Netscape a total of $70.0
million, or the "Cash Payment". Also in connection with the Netcenter Agreement,
Excite has issued to Netscape a warrant to purchase 846,158 shares of Excite's
Common Stock at an exercise price of approximately $29.55 per share, or the
"First Warrant", and a second warrant to purchase shares of Excite's Common
Stock at an aggregate exercise price of $10.0 million, or the "Second Warrant".
The First Warrant is exercisable for a two-year period commencing on April 30,
1998. The Second Warrant will be exercisable for a two-year period commencing
April 30, 1999. The exercise price per share of Common Stock covered by the
Second Warrant will be determined by dividing $10 million by the average closing
price of Excite's Common Stock for the 30 most recent trading days ending on the
third trading day preceding April 30, 1999. The fair value of the First Warrant
and the aggregate $10.0 million exercise price of the Second Warrant was valued
at $19.9 million. The Cash Payment and the value assigned to the warrants
totaling $89.9 million were capitalized as Prepaid Netscape Distribution Costs
and Trademarks during the second quarter of 1998 and are being amortized ratably
over the two-year term of the Netcenter Agreement. The unamortized amount to be
expensed under the Netcenter Agreement as of December 31, 1998, is separated
into two components as follows: the amount which represents the anticipated
future net revenues from the Netcenter Agreement, or $23.5 million, will be
charged to Distribution License Fees and Data
 
                                       18
<PAGE>   19
 
Acquisition Costs; and the remaining amount, or $42.9 million, representing the
combined value of marketing and distribution rights, trademarks and other
exclusive benefits derived from the agreement will be charged ratably over the
term of the agreement to Amortization of Prepaid Netscape Service.
 
     Under the Netcenter Agreement, Excite will only recognize revenues
generated from the co-branded services and not from any other part of Netcenter.
A portion of the revenues will be credited against Excite's revenue-sharing
obligation to Netscape until Excite recoups a specified amount of the Cash
Payment. Thereafter, Excite must pay Netscape a portion of additional revenues
generated from the co-branded services. Excite does not expect that the revenue
generated from the co-branded services will exceed 10% of Excite's total revenue
over the term of the Netcenter Agreement. Excite has incurred expenses for the
start-up and development of the services contemplated in the Netcenter
Agreement, including the costs of personnel, content creation, facilities and
depreciation of assets purchased for Netcenter. Unless Netscape generates
impressions significantly greater than the guaranteed amount as specified in the
agreement, the increased revenues to Excite resulting from the co-branded
services under the Netcenter Agreement will not be sufficient to recover the
combined costs of the prepayment, the warrant value and the incremental
operating costs that will be incurred by Excite as a result of the agreement. On
this basis, Excite anticipates that the Netcenter Agreement will serve to
generate losses for Excite during its term.
 
     Netscape has made guarantees for the number of times a link to Excite is
displayed on the NetSearch page. The actual delivery of impressions between the
launch of the Netcenter co-branded service in June 1998 to September 1998 were
significantly below expectations. However, during the fourth quarter of 1998,
the delivery of impressions improved from the previous quarter due to the
implementation of certain changes made by Netscape and Excite. Such improvements
include: Excite's search rotation increased on Netscape's home page search and
Netscape added another slot to its list of providers on the NetSearch page,
which is dedicated to Excite and has the same prominence as all the "premier
providers". There are no interim, month to month or quarterly performance
milestones to the agreement. If Netscape does not achieve its impression
guarantees within the two-year term of the agreement, then the term would be
extended until the guarantees are met. To the extent the impression flow from
Netscape falls short of the guaranteed level, Excite's ability to recover the
prepayment within the term of the agreement may be impaired. See "Risk Factors
that May Affect Future Results -- Significant Risks Associated with the
Netcenter Agreement" and see Note 13 of Notes to Consolidated Financial
Statements.
 
RESULTS OF OPERATIONS
 
REVENUES
 
     Revenues increased 178% to $155.4 million in 1998 as compared to $55.8
million in 1997 and $14.8 million in 1996. The increase in 1998 revenue compared
to 1997 and 1996 revenue resulted primarily from a $40.0 million increase in
advertising revenues, which was due to both an increase in the number of
advertisers purchasing advertising banners on Excite's Web sites, and to a
lesser extent, an increase in sales of targeted advertisements with higher
rates. Also contributing to the increase was a $24.0 million increase in
sponsorship advertising revenue and a $25.0 million increase in revenues
attributable to MatchLogic, which began operations in May 1997.
 
     No one customer accounted for more than 10% of revenues for 1998 and 1997.
One customer accounted for approximately 12% of revenues for 1996. Revenues
generated from international operations was approximately 3% and 2% of revenues
in 1998 and 1997, respectively. There were no revenues generated from
international operations in 1996. See Notes 1 and 11 of Notes to Consolidated
Financial Statements.
 
     Excite expects to continue to derive a substantial majority of its total
revenues from selling advertisements. Because the market for advertising on the
Web is intensely competitive, advertising rates may be subject to pricing
pressures in the future. If Excite is forced to reduce its advertising rates or
experiences lower CPMs as a result of such competition or otherwise, future
revenues may be adversely affected. Beginning in the second quarter of 1997,
Excite started to sell a combination of sponsorship and
                                       19
<PAGE>   20
 
banner advertising contracts in addition to the banner advertising contracts
historically sold by Excite. Excite does not expect revenue growth relating to
sponsorship advertising revenues to continue at the current rate in future
periods as availability of exclusive sponsorships may be limited.
 
COST OF REVENUES
 
     Cost of revenues consists primarily of hosting costs; royalties and other
cost of revenues; and amortization of purchased technology. Hosting costs relate
to the maintenance and technical support of the Excite Network, and are
comprised principally of personnel costs, telecommunications costs, equipment
depreciation and overhead allocations. Royalties and other cost of revenues
include expenses related to royalties, license agreements and revenue sharing
agreements for content and other services such as e-mail and chat room services.
In 1997 and 1996, Excite recognized, as a component of cost of revenues,
amortization of purchased developed technology of $8.2 million and $186,000,
respectively, related to the WebCrawler acquisition. There were no corresponding
costs for 1998 as the cost of this technology was fully amortized at December
31, 1997.
 
     Total cost of revenues increased in absolute dollars by $7.9 million to
$29.5 million, or 19% of revenues in 1998 from $21.6 million, or 39% of revenues
in 1997 and by $17.4 from $4.2 million, or 28% of revenues for 1996 as compared
with 1997. Hosting costs for 1998 increased in absolute dollars to $16.2
million, or 10% of revenues, from $8.6 million, or 15% of revenues for 1997 and
from $3.3 million, or 22% of revenues for 1996. The increase in hosting costs is
due primarily to an increase in personnel expenses and equipment costs relating
to maintenance and support of Excite's Web sites and services. Royalties and
other cost of revenues increased in absolute dollars to $13.3 million, or 9% of
revenues for 1998, from $4.7 million, or 8% of revenues for 1997, and from
$687,000, or 5% of revenues for 1996. The increase in royalties and other cost
of revenues was primarily due to increased royalties and margin sharing payments
from revenue sharing agreements.
 
     Cost of revenues in future periods is expected to increase in absolute
dollars and may increase as a percentage of revenues as Excite increases costs
to support expanded services and content.
 
GROSS PROFIT
 
     Gross profit was $125.9 million or 81% of revenues, $34.2 million or 61% of
revenues and $10.7 million or 72% of revenues for 1998, 1997 and 1996,
respectively. The increase in gross profit in absolute dollars and as a
percentage of revenues in 1998 compared to 1997 was primarily due to the fact
that revenues grew at a faster rate than hosting costs and royalties and other
cost of revenues, a favorable mix of advertising services, and the elimination
of amortization of purchased technology. The decline in gross profit as a
percentage of revenues from 1997 compared to 1996 was due primarily to the
amortization of purchased technology discussed above, as well as increased
hosting costs to support expanded Web site offerings and increased royalties and
margin sharing costs, offset in part by increased revenues. In the future, gross
profit may be affected by the types of advertisements sold and revenue sharing
provisions of distribution and content agreements.
 
     These items have negatively affected gross profit in the past and may
continue to negatively affect it in the future. Furthermore, pursuant to the
provisions of certain agreements with operators of Web access points and with
content providers, Excite shares advertising revenues based upon the number of
consumers directed to its network. A low level of targeted advertising as a
percentage of total advertising sold, a decrease in targeted or mass Web
advertising rates or an increase in Excite's advertising revenue sharing
obligations may adversely affect gross margins in the future.
 
OPERATING EXPENSES
 
     Excite's operating expenses have generally increased in absolute dollar
amounts since inception. This trend reflects Excite's rapid transition from the
product development stage to marketing and offering its services. Excite
believes that continued expansion of its operations is essential to achieving
and maintaining
 
                                       20
<PAGE>   21
 
market leadership. As a consequence, Excite intends to continue to increase
expenditures in all operating areas for the foreseeable future.
 
     RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of engineering and editorial personnel costs, equipment
depreciation, consulting fees, supplies and allocation of overhead. Research and
development expenses increased to $29.6 million or 19% of revenue in 1998, from
$18.2 million or 33% of revenues in 1997 and $8.3 million or 56% of revenues in
1996. The increase in absolute dollars in 1998 compared to 1997 and in 1997
compared to 1996 was due to an increase in engineering and editorial headcount
to support Excite's channels format and personalization capabilities for the
Excite Network. Research and development headcount increased to 227 employees in
1998 from 164 in 1997 and 83 in 1996. In addition, an increase in expenses in
1997 compared to 1996 was due to the commencement of operations of Matchlogic in
May 1997. Matchlogic's research and development expenses contributed $7.0
million to the increase from 1997 to 1998.
 
     Excite believes that a significant level of research and development
expense is required to remain competitive and, accordingly, Excite anticipates
that it will continue to devote substantial resources to research and
development and that these costs will increase in absolute dollars in future
periods. Excite also expects to continue to experience increased research and
development expenses in order to integrate any technologies acquired in the
future and provide programming and content for the co-branded services of
Netcenter.
 
     SALES AND MARKETING. Sales and marketing expenses consist principally of
sales and marketing personnel costs, agency and consulting fees, commissions,
promotional and advertising expenses and allocation of overhead. Sales and
marketing expenses were $63.1 million or 41% of revenue in 1998, compared to
$34.3 million or 61% of revenue in 1997 and $21.4 million or 144% of revenue in
1996. The increase in absolute dollars in 1998 compared to 1997 was primarily
due to the hiring of additional sales and marketing personnel, increased sales
and marketing expenses and to a lesser extent, a national television advertising
campaign that launched in December 1998. The increase in absolute dollars in
1997 from 1996 was primarily due to the continuation of a significant media
advertising campaign that launched in the fourth quarter of 1996 and continued
into the first quarter of 1997, and the hiring of additional sales and marketing
personnel and the launching of the redesigned WebCrawler brand. Sales and
marketing headcount increased by 183 employees to 376 in 1998 from 193 in 1997
and 81 in 1996. In addition, other sales and marketing expenses increased, such
as commissions, advertising expenses and Matchlogic sales and marketing expenses
in 1998 by $16.2 million and in 1997 by $2.2 million.
 
     Excite expects to continue to incur significant promotional and advertising
expenses and anticipates that these costs will increase in absolute dollars in
future periods as Excite promotes its brands and introduces new services in
order to create and maintain brand loyalty among consumers. Excite also expects
to continue to experience increased sales and marketing expenses as it is
responsible for all advertising sales on the co-branded services of Netcenter.
Excite may also seek to enter into additional third party relationships which it
believes will help promote its brand. As a result, Excite may need to divert
resources from other areas. These brand building efforts may not be successful,
which may adversely affect Excite's business.
 
     DISTRIBUTION LICENSE FEES AND DATA ACQUISITION COSTS. Distribution license
fees and data acquisition costs consist principally of fees paid to third-party
Internet companies such as Netscape to provide entry points to the Excite
Network and costs to update and maintain the ad targeting and tracking database
which is continually being updated by Excite's MatchLogic subsidiary.
Distribution license fees and data acquisition costs increased to $21.7 million
in 1998 from $9.4 million in 1997 and $11.9 million in 1996. The 1998 and 1997
costs included distribution license fees related to agreements previously
entered into with Netscape in March 1997, which have expired, as well as data
acquisition costs incurred by MatchLogic during 1998 of $6.8 million and $1.8
million in 1997. In addition, during 1998, a total of $5.8 million was amortized
to Distribution License Fees and Data Acquisition Costs relating to the April
1998 Netcenter Agreement. See "Risk Factors that May Affect Future
Results -- Significant Risks Associated with the Netcenter Agreement."
 
                                       21
<PAGE>   22
 
     In June 1997, Excite entered into a co-marketing services agreement and a
trademark license agreement with Netscape. Under these agreements, Excite is
responsible for the programming, production, operations and advertising sales of
"International Netscape Guide by Excite", a service being made available in
Australia, France, Germany, Japan and the United Kingdom. In connection with
these agreements, Excite made a payment of $4.0 million to Netscape in July
1997, which is being amortized over the terms of these agreements to
distribution license fees expense. In March 1997, Excite entered into an
agreement with Netscape to continue the premier provider arrangement for the
Excite brand, and entered into a marquee provider agreement for the WebCrawler
brand. Under the terms of these agreements, Excite made a payment of $8.3
million.
 
     In 1996, distribution license fees included a one-time, non-cash charge of
approximately $1.6 million related to the issuance of a warrant to AOL during
the first quarter of 1996, and a $10.0 million charge relating to Excite's
premier provider agreements with Netscape in the second quarter of 1996.
 
     In the future, high traffic Web sites, Internet service providers,
providers of Web browsers or other distribution channels may require cash
payments or other types of consideration as compensation for listing or
promoting the Excite Network, which may result in increased distribution license
fees.
 
     GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of administrative and executive personnel costs, provision for
doubtful accounts, fees for professional services and allocation of overhead.
General and administrative expenses increased in absolute dollars to $16.9
million or 11% of revenue in 1998, from $12.2 million or 22% of revenue in 1997
and $7.8 million or 52% of revenue in 1996. The increase in absolute dollars in
1998 compared to 1997 is primarily due to increased personnel costs to support
the expansion and infrastructure of Excite's operations and international
expansion efforts. In particular, the growth in Excite's finance and
administrative departments contributed to this increase. The increase in
absolute dollars in 1997 compared to 1996 was primarily due to increased
personnel, professional service fees and relocation to new facilities to support
Excite's growth. General and administrative headcount increased to 71 employees
in 1998 from 54 in 1997 and 16 in 1996. Professional service fees, provision for
doubtful accounts and facilities costs increased during 1998 by $2.9 million and
1997 by $0.7 million. General and administrative expenses attributable to
Matchlogic increased $0.8 million from 1997 to 1998.
 
     Excite anticipates that its general and administrative expenses may
continue to increase in absolute dollars as Excite expands its administrative
and executive staff, adds infrastructure and integrates acquired technologies
and businesses. In addition, Excite plans to continue to run MatchLogic as an
independent subsidiary with its own administrative function.
 
     IN-PROCESS TECHNOLOGY. During 1998, 1997 and 1996, Excite incurred charges
for in-process technology of $6.2 million, $2.3 million and $3.5 million
respectively.
 
     In April 1998, Excite acquired all of the assets of Throw, Inc., including
an Internet-based community technology that creates environments, centered
around common themes, where users can interact on both an asynchronous as well
as a synchronous basis. These communities are being developed to contain
numerous linked features that facilitate communication amongst multiple users,
including event calendars, photo albums, address books, chat rooms and threaded
discussions.
 
     The purchase price approximated $17.0 million, which consisted of $16.2
million of stock issued and $800,000 of direct acquisition costs. In connection
with the acquisition, Excite accounted for the transaction as a purchase and
allocated $6.2 million to in-process technology and $10.8 million to goodwill.
Purchased in-process technology represents the present value of the estimated
after-tax cash flows expected to be generated by the purchased technology,
which, at the acquisition date, had not yet reached technological feasibility
and does not have alternative future uses. The goodwill is being amortized on a
straight-line basis over three years.
 
     The technology projects in-process as of the acquisition date consisted of
the development of the system's Solaris 2.6 platform, the Oracle database, and
the objects, areas and applications that will comprise the templates and
supporting feature applets.
                                       22
<PAGE>   23
 
     These projects were grouped into three categories as of the acquisition
date:
 
<TABLE>
<CAPTION>
                          PROJECT                            PERCENT COMPLETE
                          -------                            ----------------
<S>                                                          <C>
Standard templates and features                                     35%
First generation templates and features                             65%
Second generation templates and features                            55%
</TABLE>
 
     The expected costs to complete these projects in aggregate as of the
acquisition date totaled approximately $1.5 million. The standard templates and
features were completed in the third quarter of 1998 and had reached
technological feasibility. The first and second generation templates and
features are projected by Excite's management to be completed by May 1999.
 
     The cash flow projections for revenues were based on the projected
incremental increase in revenue attributable to the in-process technology that
Excite will receive as a result of the acquisition. Revenues derived from the
in-process technology were expected to increase through 2000 and then decrease
in 2001. No revenue was assigned to in-process technology in 2002 or beyond
because 2001 is estimated to be the end of the in-process technology's economic
life. Estimated operating expenses and income taxes were deducted from estimated
revenue projections to arrive at estimated after-tax cash flows. Projected
operating expenses include:
 
- cost of revenues;
 
- general and administrative expenses;
 
- sales and marketing expenses;
 
- and research and development, including estimated costs to maintain the
  technology once it has achieved technological feasibility.
 
     Operating expenses were estimated as a percentage of revenue and were based
primarily on projections prepared Excite's management and industry averages.
 
     The discount rate used to discount the net cash flows back to their present
values is based on the weighted average cost of capital, or "WACC". A discount
rate of 35% was used for valuing the in-process technology. This discount rate
is higher than the implied WACC due to the inherent uncertainties surrounding
the successful development of the purchased in-process technology, the useful
life of such technology, the profitability levels of such technology, and the
uncertainty of technological advances that are unknown at this time. As is
standard in the appraisal of high growth markets, projected revenues, expenses
and discount rates reflect the probability of technical and marketing success.
 
     The 1997 charge of $2.3 million related to the value of acquired in-process
technology that had not reached technological feasibility at the time of
MatchLogic's formation in May 1997. The 1996 charge of $3.5 million for
purchased in-process technology related to the acquisition of the WebCrawler
search and directory technology. See Note 2 of Notes to Consolidated Financial
Statements.
 
     OTHER MERGER AND ACQUISITION RELATED COSTS, INCLUDING AMORTIZATION OF
GOODWILL AND OTHER INTANGIBLE ASSETS. During 1998, 1997 and 1996, Excite
incurred merger and acquisition related costs of $4.9 million, $4.0 million and
$3.1 million respectively. In 1998, Excite incurred charges of approximately
$700,000 and $743,000 for the acquisition of MatchLogic and Classifieds2000,
respectively, which primarily related to legal and other professional fees. In
addition, Excite incurred charges during 1998 of approximately $2.7 million
relating to the amortization of goodwill and other purchased intangibles
resulting from the acquisition of Throw and approximately $800,000 relating to
the amortization of goodwill and other purchased intangibles resulting from the
WebCrawler acquisition. In 1997, Excite incurred other merger and acquisition
costs of $1.8 million resulting from the amortization of other WebCrawler
intangible assets, $1.5 million from the Netbot merger and $700,000 from the
amortization of other acquired intangible assets. The 1996 charge included
approximately $2.2 million associated with the merger with McKinley, and
approximately $769,000 related to the amortization of goodwill and other
intangible assets resulting from the WebCrawler acquisition and the acquisition
of City.Net.
 
                                       23
<PAGE>   24
 
     AMORTIZATION OF PREPAID NETSCAPE SERVICE. During 1998, Excite incurred
costs of $17.7 million related to the amortization of the Prepaid Netscape
Service associated with the April 1998 Netcenter Agreement, which has an
original term of two-years. Excite anticipates incurring a total amortization
charge of approximately $7.6 million per quarter relating to the Netcenter
Agreement for the duration of the agreement, which is currently scheduled to
expire in June 2000.
 
     INTEREST INCOME (EXPENSE) AND OTHER. Interest income was $1.6 million, $1.3
million and $1.5 million for 1998, 1997 and 1996, respectively. The increase in
interest income for 1998 was primarily due to interest earned on cash received
in June 1998 from Excite's public offering, which was used to fund operations
and to satisfy Excite's obligations under the Netcenter Agreement. The decrease
in 1997 was primarily the result of the use of cash received from the 1996
initial public offering to fund operations, offset in part by interest earned on
the proceeds of approximately $38.4 million from the sale of Common Stock to
Intuit in the second quarter of 1997. The increase in 1996 reflected interest
earned on investments from cash received from Excite's Series D Preferred Stock
financing and its initial public offering. Interest expense and other increased
to $2.9 million for 1998, from $1.5 million for 1997 and $409,000 for 1996. The
increase in 1998 was due primarily to an increase in interest expense resulting
from the $50 million note payable due to Intuit, as well as additional capital
lease obligations, non-lease financing obligations and interest on the
convertible note issued to Itochu Corporation in October 1997. The increases in
1997 from 1996 were due primarily to increased expenses associated with an
increased amount of capital lease obligations and bank borrowings.
 
     INVESTMENT PORTFOLIO. Excite does not use derivative financial instruments
in its investment portfolio. Excite considers investments in highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents. Excite places its investments in instruments that meet high credit
quality standards, as specified in Excite's investment policy guidelines; the
policy also limits the amount of credit exposure to any one issue, issuer, and
type of instrument. All of Excite's cash equivalents and short-term investments,
consisting principally of commercial paper, equity securities and governmental
securities, are classified as available-for-sale as of December 31, 1998. Excite
does not expect any material loss with respect to its investment portfolio.
 
     The table below provides information about Excite's investment portfolio.
For investment securities, the table presents principal cash flows for 1999 and
the related average interest rates. Excite maintains its cash and cash
equivalents in short-term investment-grade interest-bearing securities until
required for other purposes. Excite's investment policy requires that all
investments mature in one year or less.
 
     Principal (Notional) Amounts by Expected Maturity in U.S. Dollars:
 
<TABLE>
<CAPTION>
                                                                           FAIR VALUE AT
                                                               1999      DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT INTEREST RATES)                         -------    -----------------
<S>                                                           <C>        <C>
Cash Equivalents                                              $11,382         $11,389
  Average Interest Rate                                          4.00%
Investments                                                   $11,265         $11,270
  Average Interest Rate                                          6.63%
Total Portfolio, excluding Equity Securities                  $22,647         $22,659
  Average Interest Rate                                          6.34%
Equity Securities                                                             $ 4,411
</TABLE>
 
     EQUITY SHARE OF LOSSES OF AFFILIATED COMPANY. In October 1997, Excite and
Itochu Corporation and certain affiliated entities, or collectively "Itochu",
entered into a joint venture agreement with respect to Excite's wholly-owned
subsidiary, Excite Japan, in order to provide Web-based information services to
the Japanese market. Excite currently holds, and intends to retain, a 50% equity
interest in Excite Japan. As of December 31, 1998, Excite held a 50% equity
interest in Excite Japan. Excite's share of the losses of Excite Japan for 1998
and 1997 was $2.1 million and $477,000, respectively. Excite expects that it
will record increased losses from Excite Japan during 1999. See Note 10 of Notes
to Consolidated Financial Statements.
 
                                       24
<PAGE>   25
 
     INCOME TAXES. At December 31, 1998, Excite had federal and state net
operating loss carryforwards of approximately $143.4 million and $71.0 million,
respectively. The federal net operating loss carryforwards will expire beginning
in 2009 through 2013, if not utilized. The state net operating loss
carryforwards will expire at various dates beginning in 1999 through 2003. An
ownership change, as defined in the Tax Reform Act of 1986, may restrict the
utilization of carryforwards. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset due to the lack of earnings history of Excite. See Note 9 of Notes
to Consolidated Financial Statements.
 
YEAR 2000 IMPLICATIONS
 
     Many currently installed computer systems, hardware and software products
are coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. Excite's
business is dependent on the operation of numerous systems that may potentially
be adversely impacted by Year 2000 related problems. Those systems include,
among others:
 
- hardware and software systems used by Excite to deliver services to its
  consumers, including Excite's proprietary software systems as well as hardware
  and software supplied by third parties;
 
- communications networks, such as the Internet, which Excite depends on to
  provide services;
 
- the internal systems of Excite's consumers, users and suppliers;
 
- the hardware and software systems used internally by Excite in the management
  of its business;
 
- and non-information technology systems and devices used by Excite in its
  business, such as telephone and building systems.
 
STATE OF READINESS
 
     Excite has implemented a six-phase plan to mitigate possible Year 2000
affects on Excite's business and systems. Excite has designated a Year 2000
project team to develop and implement that plan. This plan has executive
sponsorship and is regularly reviewed by senior management. This six-phase plan
includes the following:
 
- Phase one, awareness: involves increasing company awareness by educating and
  involving all appropriate levels of management regarding the need to address
  Year 2000 issues.
 
- Phase two, inventory: consists of identifying all of Excite's systems,
  technology, services and relationships that may be impacted by Year 2000.
 
- Phase three, assessment: involves determining Excite's current state of Year
  2000 readiness for those areas identified in the inventory phase and
  prioritizing areas that need to be addressed.
 
- Phase four, remediation: consists of developing a plan and repairing,
  replacing or retiring those systems identified as needing correction in the
  assessment phase.
 
- Phase five, validation: involves developing test plans, conducting tests and
  analyzing the results of these tests to assure all key systems are Year 2000
  compliant.
 
- Phase six, implementation and contingency planning: consists of moving
  compliant systems back into the production environment and to assure systems'
  Year 2000 status remains unaffected by subsequent changes. The contingency
  plan includes developing Excite's response to failure of mission critical
  systems, and other major risks related to Year 2000 compliance.
 
                                       25
<PAGE>   26
 
CONTINGENCY PLAN
 
     Excite's business planning for year 2000 is currently being implemented.
The plan includes the creation of contingency plans in the second half of 1999.
Excite currently has no contingency plans.
 
     Excite has completed phase one, awareness and currently is in phase two,
inventory, which is scheduled to be substantially complete by the end of the
first quarter of 1999. Phase three, assessment, and phase four, remediation, are
scheduled to be substantially complete by the end of the second quarter of 1999.
Phase five, validation, is scheduled to be substantially complete by the third
quarter of 1999 and phase six, implementation and contingency planning, is
scheduled to be substantially complete early in the fourth quarter of 1999.
 
     In addition to the systems used by Excite in its business, Excite utilizes
third-party equipment and software in the delivery of its services and in the
management of its business that may not be Year 2000 compliant. Excite has made
preliminary contacts with some of its key vendors, which have informally
indicated that their products are Year 2000 compliant. As part of phase two,
inventory, Excite will make formal inquiries of other equipment and software
vendors and take steps to monitor vendor compliance. Failure of such third-party
equipment or software, or of non-information technology systems and devices used
by Excite, to operate properly with regard to the Year 2000 and thereafter may
require Excite to incur unanticipated expenses to remedy problems, which may
have a material adverse affect on Excite's financial condition.
 
     Excite also relies, both domestically and internationally, upon various
vendors, governmental agencies, utility companies, telecommunication service
companies, including Internet service and online service providers, delivery
service companies and other service providers who are outside Excite's control.
Further, Excite has not fully determined the progress of its joint venture
partners and content partners in identifying and addressing systems that may
potentially be impacted by Year 2000 related problems. Failure of such parties
to operate properly with regards to the onset of Year 2000 and thereafter, may
have a material adverse affect on Excite's business.
 
RISKS RELATED TO YEAR 2000 ISSUES
 
     In the event any third parties cannot timely provide Excite with content,
products, services or systems that are Year 2000 ready or if there are
remediated problems with Excite's proprietary systems, the content on Excite's
services, access to Excite's services, the ability to offer page views,
products, services and the ability to recognize or process sales may be
materially adversely affected. Further, consumers may experience outages, delays
and other difficulties due to system failures unrelated to Excite's services or
systems which may have a material adverse affect on the satisfaction of Excite's
consumers and advertisers. In addition, any failure of the equipment or systems
utilized by consumers of Excite's services as a result of failure to be Year
2000 compliant may result in decreased utilization of Excite's services and
adversely affect Excite's advertising relationships.
 
     Any failure of Excite to address Year 2000 issues may have a material
adverse affect on Excite's business. These affects may include, but are not be
limited to:
 
- a reduction in Excite's ability to provide services for Excite's customers
  such as having specific content or services available;
 
- a reduction in Excite's ability to deliver, track and measure Internet
  advertisements;
 
- outservice could experience outages, delays and other difficulties due to
  system failures, which would make the Excite Network unavailable for
  consumers.
 
     Excite is also subject to external forces that generally affect similarly
situated business over which it has no control, such as possible interruptions
of utility or Internet-related data network services as a result of Year 2000
failures, any of which may have similar material affects.
 
                                       26
<PAGE>   27
 
     Furthermore, the purchasing patterns of advertisers may be affected by Year
2000 issues as companies expend significant resources to correct their current
systems for Year 2000 readiness. These expenditures may result in reduced funds
available for Internet advertising or sponsorship of Internet services, which
may have a material adverse affect on Excite's financial condition.
 
     The results of Excite's Year 2000 compliance plan's testing and
implementation phase activities and responses received from third-party vendors
and service providers will be taken into account in determining the nature and
extent of any contingency plans.
 
COSTS
 
     While Year 2000 costs incurred through 1998 by Excite have not been
material, Excite does expect to incur internal staff costs and expenditures to
remedy any Year 2000 related problems. Based on current and partial information
derived from pre-inventory/assessment activities, Excite estimates for 1999 it
will incur approximately $2.5 million in support of its Year 2000 compliance
initiative. Excite does not expect to incur additional material operational
costs such as diverted employee time. Such costs have been and will be funded
through current operations or available lines of credit and Excite has not
separately accounted for these costs. There is risk that additional costs could
be incurred, but based on management's current knowledge it is unable to fully
ascertain those costs. Excite believes that its further research through
inventory, assessment, remediation and testing activities will enable it to
determine the costs with greater certainty.
 
     The above discussion regarding costs, risks and estimated completion dates
for the Year 2000 is based on Excite's best estimates given information that is
currently available, and is subject to change.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1998 Excite had $61.0 million in unrestricted cash, cash
equivalents and short-term investments, an increase of $29.3 million from
December 31, 1997. Excite maintains its cash and cash equivalents in short-term
and medium-term investment-grade interest-bearing securities until required for
other purposes.
 
     Excite's operating activities used cash of $54.1 million, $44.3 million,
$27.0 million in 1998, 1997, and 1996, respectively. The increased use of cash
in 1998 was mainly attributable to the $70.0 million cash prepayment to Netscape
under the Netcenter Agreement, see Note 13 of Notes to Consolidated Financial
Statements. Excite borrowed $50.0 million from Intuit, which is a principal
stockholder of Excite, in April 1998 to fund a portion of this payment to
Netscape. In June 1998, Excite repaid the loan in full, plus interest of
approximately $410,000, with proceeds from Excite's public offering, which
closed in June 1998. Excite's cash flows from operating activities was positive
for the third and fourth quarters of 1998. The increased use of cash in 1997 was
primarily attributable to the payment of previously accrued expenses, including
but not limited to, payments to Netscape and to Excite's advertising agency for
an advertising campaign launched during the fourth quarter of 1996, a $4.0
million license fee payment to Netscape in July 1997, see Note 14 of Notes to
Consolidated Financial Statements, and an increase in accounts receivable
resulting from the sales of sponsorship advertising contracts, offset in part by
a decrease in net losses and an increase in accrued liabilities. The increased
use of cash in 1996 was primarily attributable to increased operating expenses
and increases in accounts receivable and prepaid expenses, reduced in part by
increases in accrued distribution license fees, accounts payable and other
accrued liabilities. Excite has in the past, and may in the future, acquire
businesses which result in significant increases in headcount and overhead, as
well as the assumption and payment of additional liabilities, resulting in an
increase in the use of cash to support operations.
 
     Investing activities used cash of $15.9 million, $6.3 million and $19.6
million in 1998, 1997 and 1996, respectively. In 1998 and 1997, cash was used
for purchases of short-term investments, property and equipment, and
contributions towards its investment in Excite Japan, offset by the sales of
short-term investments. The decrease in cash used in 1997 was primarily the
result of cash being invested in cash equivalents rather than short-term
investments and net sales of short-term investments, partially offset by
                                       27
<PAGE>   28
 
increased purchases of property and equipment. The 1996 increase was primarily
attributable to net purchases of short-term investments as well as property and
equipment from cash proceeds of Excite's initial public offering in April 1996.
Capital expenditures have been, and future expenditures are anticipated to be,
primarily for facilities and equipment to support expansion of Excite's
operations and management information systems. Excite expects that its capital
expenditures will increase as its employee base grows. As of December 31, 1998,
Excite did not have any material commitments for capital expenditures, although
Excite anticipates that its planned purchases of capital equipment and leasehold
improvements will require additional expenditures during 1999, a portion of
which may be financed through equipment leases and bank borrowings. At December
31, 1998 Excite had $5.5 million available on equipment lease lines, and Excite
believes that additional lease financing will be available to it if necessary.
 
     Financing activities generated cash of $99.3 million, $61.9 million and
$50.7 million in 1998, 1997 and 1996, respectively. Financing activities for
1998 primarily consisted of cash received in connection with the issuance of
stock through Excite's public offering which was completed in June 1998 for net
proceeds of $84.3 million and, to a lesser extent, option exercises under
Excite's equity incentive plan and warrants exercised by Netscape in July 1998.
Financing activities for 1997 primarily consisted of a bank line of credit
borrowing of $6.0 million, a convertible promissory note of $5.0 million, the
sale of convertible preferred stock by acquired companies for net proceeds of
$14.0 million, and the sale of Common Stock for net proceeds of $41.1 million,
of which $38.4 million represented net proceeds from the sale of Common Stock to
Intuit. Financing activities in 1996 primarily consisted of the sale of
Redeemable Convertible Preferred Stock and debt securities totaling $14.2
million and the sale of Excite's Common Stock for net proceeds of $37.2 million,
of which $35.4 million represented net proceeds from Excite's initial public
offering.
 
     In January and February 1999, Netscape exercised a portion of the warrant
issued under the Netcenter Agreement and paid approximately $19.1 million to
purchase 646,158 shares of Excite's Common Stock.
 
     Excite's commitments at December 31, 1998 consisted of obligations under
operating leases, capital leases and other non-lease financings of $45.0
million, $21.8 million and $3.4 million, respectively, as well as bank and other
borrowings. See Note 5 of Notes to Consolidated Financial Statements.
 
     In March 1997, Excite entered into and borrowed on a $6.0 million line of
credit. This line of credit bears interest at the bank's prime rate,
approximately 7.75% at December 31, 1998, and is secured by substantially all of
Excite's assets. This line of credit agreement also contains certain financial
covenants, including minimum requirements for tangible net worth, quick ratio
and accounts receivable balances, as well as prohibiting the declaration and
payment of cash dividends on capital stock. Excite was in compliance with these
covenants at December 31, 1998. This line of credit expired in 1998 and Excite
has subsequently received extensions through February 15, 1999, which is the
current maturity of the note. Excite is currently negotiating a new line of
credit. See Note 4 of Notes to Consolidated Financial Statements.
 
     The joint venture agreement with respect to Excite Japan obligates Excite
and Itochu to make capital contributions in the aggregate amount of $10.0
million by March 31, 1999. In 1997, Excite entered into a convertible promissory
note with Itochu for the principal amount of $5.0 million. The note bears
interest at the London Interbank Offered Rate plus 1%, approximately 6.1% at
December 31, 1998, is payable in United States dollars, and matures on October
17, 2002, although earlier payment is permitted. The entire unpaid principle
amount at the maturity date, or earlier in the event Excite elects to prepay the
note, is convertible, in whole but not in part, at the option of the holder,
into fully paid shares of Excite Common Stock at a conversion price equal to the
average closing price of the shares for the 30 trading day period ending on the
date of conversion. See Note 6 of Notes to Consolidated Financial Statements.
 
     To date, Excite has had limited international operations and its exposure
to foreign currency exchange rate fluctuations has been minimal. Excite
evaluates its foreign currency exchange rate exposure on an ongoing basis.
                                       28
<PAGE>   29
 
     Excite believes the existing working capital balance together with cash
flows generated from advertising revenues will be sufficient to meet its
anticipated cash needs for working capital, capital expenditures and business
expansion for at least the next twelve months. Excite may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new or
enhanced services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of the stockholders of Excite will be reduced, stockholders
may experience additional dilution and such securities may have rights,
preferences or privileges senior to those of the holders of Excite's Common
Stock.
 
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY. Excite generated
only limited revenues prior to 1996. Accordingly, Excite has a limited operating
history upon which to evaluate its current business. In addition, Excite's
business model is evolving and relies substantially upon the sale of advertising
on the Web, which is a developing industry. Excite's business must be considered
in light of the risks, expenses and problems frequently encountered by companies
in their early stages of development, particularly companies in new and rapidly
evolving markets such as Web advertising. Specifically, such risks include,
without limitation:
 
- the inability of Excite to maintain and increase levels of traffic on the
  Excite Network;
 
- the failure of the market to adopt the Web as an advertising and commercial
  medium;
 
- reductions in market prices for Web advertising as a result of competition or
  otherwise;
 
- the inability of Excite to achieve higher cost per thousand impression, or
  "CPM", rates for targeted advertising or to increase the percentage of its
  advertising inventory sold;
 
- the inability of Excite to derive sufficient revenues from the co-branded
  services of Netcenter and the additional costs Excite expects to incur in
  order to perform its obligations under the Netcenter Agreement;
 
- the inability of Excite to effectively integrate the technology and operations
  of acquired businesses or technologies with its operations, increased
  operating expenses as a result of Excite's recent acquisitions;
 
- the inability of Excite to expand its international operations, particularly
  in light of Excite's limited operating experience in the international market;
 
- the failure by Excite to continue to develop and extend the Excite Network
  brands;
 
- the inability of Excite to meet minimum guaranteed impressions under
  sponsorship agreements;
 
- the inability of Excite to develop or acquire content for its services;
 
- the inability of Excite to generate commerce-related revenues;
 
- the failure of Excite to anticipate and adapt to a developing market;
 
- the introduction and development of equal or superior services or products by
  competitors, particularly in light of the fact that Microsoft and Netscape,
  operators of two of the most heavily-trafficked Web sites, offer competitive
  services;
 
- government regulation;
 
- the inability of Excite to identify, attract, retain and motivate qualified
  personnel;
 
- and general economic conditions.
 
     Excite may not be able to succeed in addressing such risks.
 
                                       29
<PAGE>   30
 
     POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. Excite's operating results
have varied on a quarterly basis during its limited operating history and Excite
expects to experience significant fluctuations in future quarterly operating
results. Such fluctuations have been and may in the future be caused by numerous
factors, many of which are outside Excite's control, including but not limited
to:
 
- specific economic conditions relating to the Internet and the Web;
 
- usage of the Web and demand for Excite's services;
 
- demand for advertising on the Excite Network as well as demand for Web-based
  advertising in general;
 
- changes in advertising rates as a result of competition or otherwise, seasonal
  trends in advertising sales and the advertising budgeting cycles of
  advertisers;
 
- mix of types of advertisements sold, such as the amount of targeted
  advertising, which generally has higher CPM rates, sold as a percentage of
  total advertising sold;
 
- incurrence of charges in connection with the Netcenter Agreement;
 
- Excite's distribution relationships and acquisitions;
 
- incurrence of costs relating to acquisitions of businesses or technologies;
  introduction or enhancement of new or existing services by Excite and its
  competitors;
 
- market acceptance of new services;
 
- delays in the introduction of services or enhancements by Excite or its
  competitors;
 
- capacity constraints and dependencies on computer infrastructure;
 
- and general economic conditions.
 
     Due to all of the foregoing factors, Excite's quarterly revenues and
operating results are difficult to forecast. Excite believes that
period-to-period comparisons of its results of operations will not necessarily
be meaningful and should not be relied upon as an indication of future
performance. Also, it is likely that in some future quarter or quarters Excite's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of Excite's Common Stock would be materially
and adversely affected.
 
     SIGNIFICANT RISKS ASSOCIATED WITH THE NETCENTER AGREEMENT. Excite's
Netcenter services agreement with Netscape has many substantial risks and
uncertainties including:
 
     REVENUE RISKS
 
     Excite will only receive revenues from the portions of Netcenter that are
co-branded with Excite. Excite will not receive any revenues from other areas of
the Netcenter service. If Netscape-programmed channels, such as News, Sports and
Entertainment, are more popular than co-branded channels with users and
advertisers, Excite's revenues may be adversely affected.
 
     EXCITE MAY NOT RECOVER ITS INITIAL INVESTMENT
 
     Excite paid Netscape a cash payment of $70.0 million when it signed the
Netcenter Agreement. A substantial portion of this amount represented a
prepayment of Excite's royalty obligations under this agreement. If the
co-branded portions of the Netcenter service does not generate enough revenues
over the two-year term of the agreement, Excite would not be able to realize a
sufficient return on its investment. Netscape has not guaranteed any minimum
revenues to Excite. The ability of Netcenter to generate revenues involves a
number of risks, including:
 
- general risks relating to an advertising supported service discussed elsewhere
  in this section;
 
- pricing competition from Netscape;
 
                                       30
<PAGE>   31
 
- Netscape's ability to attract users to Netcenter, particularly in light of the
  fact that while Netscape's Web browser features Netcenter, Microsoft's Web
  browser does not;
 
- risks that Netscape-programmed channels will have more user traffic;
 
- risks that the "premier provider" placements of Excite will not generate
  sufficient traffic to Excite;
 
- and risks that Excite may not be able to sell a sufficient number of
  advertisements on the co-branded portions of Netcenter.
 
     NETSCAPE HAS A LICENSE TO USE EXCITE'S SEARCH TECHNOLOGY
 
     At the end of the term of the Netcenter Agreement, Netscape will retain a
license to use Excite's Internet search technology. Therefore, after the term of
the Netcenter Agreement, Netscape will be able to operate a competitive service
without paying Excite. Netscape may also sublicense this technology to a third
party. As a result, Excite may face increased competition.
 
     NON-RENEWAL AND TERMINATION RISKS
 
     Netscape has no obligation to renew the Netcenter Agreement. In addition,
if Netscape believes that Excite is delivering objectionable content on
Netcenter, it could elect to terminate the agreement if Excite does not remove
that content. If this occurred, Netscape would not be required to refund Excite
any amounts it prepaid or costs it incurred in performing under the Netcenter
Agreement.
 
     DISTRIBUTION RISKS
 
     As part of the Netcenter Agreement, Excite will also be featured on the Net
Search page as well as on the Netcenter Widget Tool. Netscape has guaranteed
Excite that it will deliver only a specified number of "impressions", rather
than users who "click-through" to Excite's services from the Net Search page.
Therefore, despite this featured position, Excite may not receive a substantial
amount of user traffic from the Net Search page. Although Netscape has
guaranteed the number of times users "click-through" from the Widget Tool,
Netscape is under no obligation to maintain this tool on Netcenter after
December 1998. Therefore, Excite may not receive substantial amounts of traffic
from this tool either.
 
     Excite had assumed that it would experience similar "click-through" rates
as it had under its previous agreements with Netscape. This rate is influenced
not only by the brand strength of the search service provider, but also by the
layout and programming of the Netcenter pages. Thus user traffic from these
sources will also depend on Netscape's ability to program the site and maintain
the historical "click-through" rates. Any failure of Netcenter to gain
acceptance may also adversely affect Excite's business, as there would be a
smaller pool of users who would be exposed to the Net Search page and the Widget
Tool.
 
     The distribution of traffic from Netcenter over the term of the agreement
also affects Excite's ability to recoup the amount it has paid under the
Netcenter Agreement. Netscape may not be able to meet the exposure guarantees
over the term of the agreement. In addition, there is no guarantee as to the
timing and delivery over the term of the agreement. If the fulfillment of these
guarantees is more heavily weighted towards the end of the contract term than
Excite had anticipated, its expectations as to the present value of the
agreement, as well as Excite's future operating results, would be negatively
impacted.
 
     NETCENTER COMPETES WITH EXCITE
 
     Most of the services offered on Netcenter compete directly with Excite's
services. Therefore, Excite faces additional competition for both users and
advertisers from Netcenter. If Excite devotes significant resources towards
programming or selling and marketing the co-branded portions of Netcenter, these
efforts may adversely affect Excite's ability to perform similar activities for
the Excite services.
 
                                       31
<PAGE>   32
 
     AMERICA ONLINE'S ACQUISITION OF NETSCAPE
 
     America Online is a competitor of Excite. In November, 1998, America Online
agreed to acquire Netscape. Excite does not know what effect this acquisition by
America Online will have on its current relationship with Netscape or on any
future potential relationship with Netscape.
 
     ACQUISITIONS MAY AFFECT EXCITE'S BUSINESS. Excite has in the past acquired,
and may in the future acquire, businesses, technologies, services, product
lines, content databases, or access to content databases. Acquisitions involve a
number of special risks, including, among other things:
 
- the difficulty of assimilating the technologies, operations and personnel of
  acquired companies with those of Excite;
 
- the potential disruption of Excite's business;
 
- the diversion of resources, the incurrence of acquisition-related expenses,
  the write-off or amortization of intangible assets, the assumption of unknown
  liabilities;
 
- and the inability to maintain uniform standards, controls, procedures and
  policies and the impairment of relationships with employees and strategic
  partners as a result of such acquisitions or the integration of new personnel.
 
     Any failure to successfully address these acquisition-related risks may
have a material adverse affect on Excite's business.
 
     EXCITE DEPENDS ON SPONSORSHIP AGREEMENTS FOR REVENUES. Excite derives a
substantial portion of its revenues from third parties to provide sponsored
services and placements on Excite's Web sites. These sponsorships typically last
for a longer period of time than traditional banner advertisement purchases. If
these sponsorship arrangements do not meet the advertisers' expectations as to
new customers or increased sales or brand awareness, the sponsors may not renew
their arrangements with Excite. If Excite does not renew its existing
sponsorships or obtain new sponsors, for any reason, its business would be
adversely affected.
 
     Excite also typically grants exclusivity provisions to certain of its
sponsors. These provisions may prevent Excite from accepting additional sponsors
or advertisers with respect to all or a portion of a channel or across the
entire Excite Network. Certain of these provisions could also conflict with
similar provisions in At Home's sponsorship agreements.
 
     RISKS ASSOCIATED WITH BANNER ADVERTISING. Excite derives a significant
portion of its revenues from the sale of banner advertisements on the Excite
Network. A majority of Excite's customers purchasing banner advertisements
purchase these advertisements on a short-term basis, and many of these customers
may terminate their advertising commitments at any time without penalty.
Consequently, there can be no assurance that these customers will continue or
increase their level of advertising on the Excite Network or that these
customers will not move their advertising to competing Web sites or to other
traditional media. Therefore, there can be no assurance that Excite will be
successful in maintaining or increasing the amount of banner advertising on the
Excite Network, and the failure to do so would have a material adverse affect on
Excite's business.
 
     EXCITE'S BUSINESS DEPENDS ON THE CONTINUED GROWTH IN INTERNET USE. Excite
operates in a new and rapidly evolving market. Excite's business may be
adversely affected if usage of the Internet or other online services does not
continue to grow. This growth could be hindered by a number of factors
including: the adequacy of the Internet's infrastructure to meet increased usage
demands; privacy and security concerns; and availability of cost-effective
service. Any of these issues could cause Internet's performance or level of
usage to decline.
 
     RISKS ASSOCIATED WITH DEVELOPING WEB ADVERTISING MARKETS. The Web as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media.
Therefore the Web is an unproven medium for advertising-supported services.
Accordingly, Excite's future operating results will depend substantially upon
the increased use of the Web
                                       32
<PAGE>   33
 
for information, publication, distribution and commerce and the emergence of the
Web as an effective advertising medium.
 
     Excite's ability to generate significant advertising revenues will also
depend on, among other things, the development of a large base of users of
Excite's services possessing demographic characteristics attractive to
advertisers, the ability of Excite to accurately measure its user base and the
ability of Excite to develop or acquire effective advertising delivery and
measurement systems. Many of Excite's advertisers have only limited experience
with the Web as an advertising medium, have not yet devoted a significant
portion of their advertising expenditures to Web-based advertising, and may not
find such advertising to be effective for promoting their products and services
relative to traditional print and broadcast media. The adoption of Web
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business and exchanging information. Entities that already have
invested substantial resources in other methods of conducting business may be
reluctant to adopt a new strategy that may limit or compete with their existing
efforts. The market for Web advertising may not continue to emerge or become
sustainable. If the market fails to develop or develops more slowly than
expected, Excite's business may be materially and adversely affected. No
standards have been widely accepted for the measurement of the effectiveness of
Web-based advertising, and there can be no assurance that such standards will
develop sufficiently to support the Web as an effective advertising medium.
Advertisers may not continue to accept Excite's or other third-party
measurements of impressions, and such measurements may contain errors. In such
event, Excite's advertising revenues may be materially adversely affected, which
may have a material adverse affect on Excite's business.
 
     In addition, there is intense competition in the sale of advertising on the
Web, resulting in a wide range of rates quoted and a variety of pricing models.
This makes it difficult to project future levels of advertising revenues and
rates. It is also difficult to predict which pricing models will be adopted by
the industry or advertisers. For example, advertising rates based on the number
of "click-throughs", or user requests for additional information made by
clicking on the advertisement from Excite's network to the advertiser's Web
pages, instead of rates based solely on the number of impressions displayed on
users' computer screens, would materially adversely affect Excite's revenues. As
a result of these risks, Excite may not succeed in generating significant future
advertising revenues from Web-based advertising. The failure to do so may have a
material adverse affect on Excite's business.
 
     Advertisers may also determine that banner advertising, is not an effective
or attractive advertising medium. Excite may not be able to effectively
transition to any other forms of Web advertising should they develop and achieve
market acceptance. Moreover, "filter" software programs that limit or prevent
advertising from being delivered to a Web user's computer are available.
Widespread adoption of such software by users may have a material adverse affect
upon the commercial viability of Web advertising.
 
     EXCITE WILL DEPEND ON A NUMBER OF THIRD PARTY RELATIONSHIPS. Excite will
depend on a number of third party relationships to provide users and content for
its services. Examples of some of these important relationships include:
 
- relationships with respect to the positioning of Excite's service on Web
  browsers or other high-traffic Web sites or;
 
- arrangements under which third parties provide content for Excite's services;
 
- arrangements under which third parties provide services such as games or
  e-mail;
 
- and relationships with Internet and online service providers and other third
  parties to provide communications infrastructure for Excite.
 
     If Excite cannot renew these relationships on favorable terms, or if these
relationships terminate, Excite would have to enter into new relationships.
Excite may not be able to replace any of its important third party relationships
on reasonable terms, if at all. If Excite cannot replace any important
relationship, it could lose users or advertisers, which may adversely affect
Excite's revenues. Even if Excite replaces any
 
                                       33
<PAGE>   34
 
relationships or enters into new relationships, Excite may incur increased costs
such as distribution license fees or selling and marketing expenses in order to
pay for these relationships.
 
     These third parties may not regard their relationship with Excite as
important to their business. Therefore, they could elect to reassess their
commitment to their relationship with Excite in the future or develop
competitive services. Furthermore, the services offered by third parties with
whom Excite has relationships may not be successful. Therefore, Excite's
existing or future relationships may not result in increased user traffic or
revenues.
 
     RISK OF CAPACITY CONSTRAINTS; SYSTEM FAILURES. Excite is dependent on its
ability to generate a high volume of traffic to the Excite Network. Accordingly,
the performance of the Excite Network is critical to Excite's reputation, its
ability to attract advertisers and to achieve market acceptance of the Excite
Network. Any system failure that causes interruptions in the availability of or
that increases response time of Excite's services could reduce user satisfaction
and traffic to the Excite Network and, if sustained or repeated, would reduce
the attractiveness of the Excite Network to advertisers and consumers. An
increase in the volume of searches conducted through the Excite Network could
strain the capacity of the software or hardware deployed by Excite, which could
lead to slower response time or system failures. In addition, as the amount of
Web pages and traffic on Excite's services increases, there can be no assurance
that the Excite Network will be able to scale proportionately. Excite is also
dependent upon timely feeds and downloads of information from content providers
and is dependent upon providers of Web browsers and on Internet and online
service providers and other Web site operators, which have experienced
significant outages in the past, for access to its network. In the past, Web
consumers have experienced outages, delays and other difficulties due to system
failures unrelated to Excite's systems and services. Additional difficulties may
also materially and adversely affect consumer and advertiser satisfaction. To
the extent that the capacity constraints described above are not effectively
addressed by Excite, such constraints may have a material adverse affect on
Excite's business.
 
     Substantially all of Excite's communications hardware and certain of its
computer hardware operations are located at leased facilities in Redwood City,
California, an area susceptible to earthquakes. Excite has experienced system
failures or outages from time to time in the past, which have disrupted the
operation of the Excite Network. A system failure at this location may adversely
affect the performance of the Excite Network. These systems are also vulnerable
to damage from fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events. In the event that Excite seeks to
replicate its systems at other locations, it would face a number of technical
challenges, particularly with respect to database replication and the need to
constantly update distributed databases, Excite may not be able to successfully
address these challenges. Although Excite carries property and business
interruption insurance, its low coverage limits likely will not be adequate to
compensate Excite for all losses that may occur. Excite's servers are also
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptive problems. Computer viruses, break-ins or other problems caused by
third parties could lead to interruptions, delays or cessations in service to
users of the Excite Network. The occurrence of any of these risks may have a
material adverse affect on Excite's business.
 
                                       34
<PAGE>   35
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Excite, Inc.
 
     We have audited the accompanying consolidated balance sheets of Excite,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Excite, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
 
     As discussed in Note 1, the consolidated financial statements of Excite,
Inc. have been restated.
 
                                          /s/ ERNST & YOUNG LLP
 
Palo Alto, California
January 19, 1999 (March 22, 1999 as to Note 1 -- Summary of Significant
Accounting Policies, paragraph 4 and Note 2 -- Business Combinations and
Purchased Product Rights, paragraph 3 and 6).
 
                                       35
<PAGE>   36
 
                                  EXCITE, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1998           1997
                                                              -----------    ----------
                                                                            (RESTATED -- 
                                                                             SEE NOTE 1)
<S>                                                           <C>            <C>
                                        ASSETS
Current assets:
  Cash and cash equivalents                                    $  45,366      $ 16,073
  Short-term investments                                          15,681        17,193
  Restricted investments                                             558           302
  Accounts receivable, net of allowance for doubtful
     accounts of $1,422 in 1998 and $1,120 in 1997                36,592        21,397
  Prepaid Netscape distribution costs and trademarks,
     current portion                                              45,473            --
  Other prepaid and current assets                                 4,848         2,149
                                                               ---------      --------
          Total current assets                                   148,518        57,114
Property and equipment, net                                       35,937        15,581
Investment in affiliated company                                   2,243            --
Prepaid Netscape distribution costs and trademarks                20,954            --
Intangible assets, net                                             8,792         1,771
Other assets                                                       4,229         4,690
                                                               ---------      --------
          Total assets                                         $ 220,673      $ 79,156
                                                               =========      ========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank line of credit and other notes payable                  $   6,100      $  6,589
  Accounts payable                                                13,079         5,838
  Accrued compensation                                             9,038         4,794
  Deferred revenue                                                 2,843         4,588
  Capital lease obligations, current portion                       7,133         3,178
  Non-lease financing, current portion                             1,531         1,176
  Other equipment financing                                        7,481            --
  Related party liabilities                                        5,092         1,575
  Other accrued liabilities                                        6,741         5,279
                                                               ---------      --------
          Total current liabilities                               59,038        33,017
Capital lease obligations                                         11,668         3,076
Non-lease financing                                                1,568         1,613
Convertible note                                                   5,000         5,000
Commitments and contingencies
Stockholders' equity:
  Convertible preferred stock, $0.001 par value
     Authorized -- 4,000 shares issuable in series
     Issuable and outstanding -- none and 2,702 shares at
     December 31, 1998 and 1997, respectively                        813        12,948
  Common stock, $0.001 par value
     Authorized -- 100,000 shares
     Issued and outstanding -- 52,660 and 39,800 shares at
     December 31, 1998 and 1997, respectively                         52            39
  Additional paid-in-capital ("APIC")                            277,759       122,966
  Deferred compensation                                             (907)       (1,440)
  Unrealized gain on available-for-sale securities                 1,319            15
  Accumulated deficit                                           (135,637)      (98,078)
                                                               ---------      --------
          Total stockholders' equity                             143,399        36,450
                                                               ---------      --------
Total liabilities and stockholders' equity                     $ 220,673      $ 79,156
                                                               =========      ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       36
<PAGE>   37
 
                                  EXCITE, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
                                                                 (RESTATED -- SEE NOTE 1)
<S>                                                          <C>         <C>         <C>
Revenues (1)                                                 $155,360    $ 55,826    $ 14,823
  Cost of revenues:
  Hosting costs                                                16,161       8,647       3,296
  Royalties and other cost of revenues                         13,325       4,740         687
  Amortization of purchased technology                             --       8,214         186
                                                             --------    --------    --------
          Total cost of revenues                               29,486      21,601       4,169
                                                             --------    --------    --------
Gross profit                                                  125,874      34,225      10,654
Operating expenses:
  Research and development                                     29,557      18,200       8,263
  Sales and marketing                                          63,074      34,311      21,358
  Distribution license fees and data acquisition costs         21,723       9,365      11,878
  General and administrative                                   16,932      12,218       7,755
  In-process technology                                         6,200       2,346       3,500
  Merger and acquisition related costs, including
     amortization of goodwill and other purchased
     intangibles                                                4,903       3,989       3,134
  Amortization of prepaid Netscape service                     17,673          --          --
                                                             --------    --------    --------
          Total operating expenses                            160,062      80,429      55,888
                                                             --------    --------    --------
Operating loss                                                (34,188)    (46,204)    (45,234)
Interest income                                                 1,625       1,317       1,464
Interest expense and other                                     (2,862)     (1,450)       (409)
Equity share of losses of affiliated company                   (2,134)       (477)         --
                                                             --------    --------    --------
Net loss                                                     $(37,559)   $(46,814)   $(44,179)
                                                             ========    ========    ========
Basic and diluted net loss per share                         $  (0.79)   $  (1.57)   $  (2.37)
                                                             ========    ========    ========
Shares used in computing net loss per share                    47,475      29,729      18,648
                                                             ========    ========    ========
</TABLE>
 
---------------
(1) Includes $4.8 million from America Online and $3.5 million from another
    related party for the year ended December 31, 1998. See Note 12.
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       37
<PAGE>   38
 
                                  EXCITE, INC.
 
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            COMMON STOCK
                                       PREFERRED STOCK        AND APIC                           OTHER
                                      -----------------   -----------------     DEFERRED     COMPREHENSIVE
                                      SHARES    AMOUNT    SHARES    AMOUNT    COMPENSATION   INCOME/(LOSS)    DEFICIT     TOTAL
                                      ------   --------   ------   --------   ------------   -------------   ---------   --------
<S>                                   <C>      <C>        <C>      <C>        <C>            <C>             <C>         <C>
BALANCE AT DECEMBER 31, 1995              --   $     --    4,896   $  3,530     $   (631)       $   152      $  (7,085)  $ (4,034)
                                                                                                                         ---------
  Net loss                                --         --       --         --           --             --        (44,179)   (44,179)
  Unrealized loss on
    available-for-sale investments        --         --       --         --           --           (326)            --       (326)
                                                                                                                         ---------
      Comprehensive loss                  --         --       --         --           --             --             --    (44,505)
                                                                                                                         ---------
  Issuance of common stock for cash       --         --      566      1,412           --             --             --      1,412
  Notes payable conversions               --         --      174        400           --             --             --        400
  Issuance of warrants in connection
    with distribution agreement           --         --       --      1,625           --             --             --      1,625
  Issuance of shares, note payable
    conversion and exercise of
    outstanding warrants in
    connection with the Company's
    IPO, net of issuance costs of
    $3,682                                --         --    7,302     36,418           --             --             --     36,418
  Conversion of redeemable preferred
    stock in connection with the
    Company's IPO                         --         --   10,648     16,129           --             --             --     16,129
  Issuance of common stock under
    employee plans                        --         --      600        375           --             --             --        375
  Amortization of deferred
    compensation, net of
    cancellations                         --         --       --          7          243             --             --        250
  Other equity transactions of
    acquired companies                   320      1,890      861          7           --             --             --      1,897
  Issuance of common and preferred
    stock in connection with asset
    purchase agreements                1,950     15,816       30        103           --             --             --     15,919
                                      ------   --------   ------   --------     --------        -------      ---------   --------
BALANCE AT DECEMBER 31, 1996 
    (RESTATED)                         2,270     17,706   25,077     60,006         (388)          (174)       (51,264)    25,886
                                                                                                                         --------  
  Net loss                                --         --       --         --           --             --        (46,814)   (46,814)
  Unrealized gain on
    available-for-sale investments        --         --       --         --           --            189             --        189
                                                                                                                         -------- 
    Comprehensive loss                    --         --       --         --           --             --             --    (46,625)
  Issuance of common stock for cash,
    net of issuance costs of $800         --         --    5,800     38,350           --             --             --     38,350
  Conversion of common stock warrant
    to preferred stock warrant            --      1,625       --     (1,625)          --             --             --         --
  Exercise of outstanding warrants       229         --       86         --           --             --             --         --
  Issuance of common stock under
    employee plans                        --         --    1,184      2,319           --             --             --      2,319
  Compensation expense from
    accelerated deferred
    compensation and stock option
    vesting                               --         --       --      1,658           --             --             --      1,658
  Deferred compensation related to
    stock options, net of
    amortization and cancellations        --         --       --      1,407       (1,052)            --             --        355
  Acquisition of Netbot, Inc.:
    Conversion of preferred stock to
      common stock                      (409)    (3,730)     820      3,730           --             --             --         --
  Issuance of preferred stock by
    acquired companies for cash, net
    of issuance costs of $115          1,772      6,385       --         --           --             --             --      6,385
  Other equity transactions of
    acquired company                   1,019      7,590    2,475        532           --             --             --      8,122
  Conversion of preferred stock to
    common stock                      (2,179)   (16,628)   4,358     16,628           --             --             --         --
                                      ------   --------   ------   --------     --------        -------      ---------   --------
BALANCE AT DECEMBER 31, 1997
    (RESTATED)                         2,702     12,948   39,800    123,005       (1,440)            15        (98,078)    36,450
                                                                                                                         --------
  Net loss                                --         --       --         --           --             --        (37,559)   (37,559)
  Unrealized gain on
    available-for-sale investments        --         --       --         --           --          1,304             --      1,304
                                                                                                                         -------- 
    Comprehensive loss                    --         --       --         --           --             --             --    (36,255)
  Acquisition of MatchLogic, Inc.:
    Conversion of preferred stock to
      common stock                    (2,291)    (8,705)   4,582      8,705           --             --             --         --
  Acquisition of Classifieds2000,
    Inc.:
    Conversion of preferred stock to
      common stock                      (411)    (3,430)     822      3,430           --             --             --         --
  Acquisition of Throw, Inc.:
    Issuance of common stock              --         --      330     16,242           --             --             --     16,242
  Issuance of common stock for cash,
    net of issuance costs of $650         --         --    2,870     84,331           --             --             --     84,331
  Issuance of warrants                    --         --       --     19,876           --             --             --     19,876
  Exercise of outstanding warrants        --         --      432      6,130           --             --             --      6,130
  Issuance of common stock under
    employee plans                        --         --    3,774     13,269           --             --             --     13,269
  Compensation expense from
    accelerated deferred
    compensation and stock option
    vesting                               --         --       --        298           --             --             --        298
  Amortization of deferred
    compensation, net of
    cancellations                         --         --       --         --          533             --             --        533
  Issuance of common stock for
    equity securities                     --         --       50      2,525           --             --             --      2,525
                                      ------   --------   ------   --------     --------        -------      ---------   --------
BALANCE AT DECEMBER 31, 1998              --   $    813   52,660   $277,811     $   (907)       $ 1,319      $(135,637)  $143,399
                                      ======   ========   ======   ========     ========        =======      =========   ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       38
<PAGE>   39
 
                                  EXCITE, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
        (INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1998        1997        1996
                                                              --------    --------    --------
                                                                  (RESTATED -- SEE NOTE 1)
<S>                                                           <C>         <C>         <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Net loss                                                      $(37,559)   $(46,814)   $(44,179)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Amortization of deferred compensation                          533         355         243
    Compensation expense from accelerated deferred
      compensation charges and stock option vesting                298       1,658          --
    Depreciation                                                12,911       6,438       2,189
    Issuance of warrants                                            --          55       1,625
    Amortization of intangibles                                  3,780      10,670         954
    In-process technology                                        6,200       2,346       3,500
    Amortization of Netscape service, distribution costs and
      trademarks                                                23,451          --          --
    Loss on disposal of property and equipment                      90          --          96
    Provision for loan impairment                                   --          --         629
    Equity share of losses in affiliated company                 2,134         477          --
  Changes in assets and liabilities:
      Accounts receivable                                      (15,195)    (18,044)     (2,970)
      Prepaid Netscape distribution costs and trademarks       (70,000)         --          --
      Prepaid expenses and other current assets                 (2,929)     (3,819)       (895)
      Other assets                                                 461      (4,221)       (896)
      Accounts payable                                           7,077      (1,067)      5,721
      Accrued compensation                                       3,869       3,904         454
      Related party liabilities                                  3,692       1,401          --
      Other accrued liabilities                                  7,101       2,336       6,512
                                                              --------    --------    --------
         Net cash used by operating activities                 (54,086)    (44,325)    (27,017)
                                                              --------    --------    --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchases of property and equipment                          (16,774)     (7,347)     (1,109)
  Proceeds from disposal of property and equipment                 186          --          --
  Purchases of investments                                     (26,266)    (48,182)    (49,811)
  Sales and maturities of investments                           31,353      49,235      31,936
  Investment in affiliated company                              (4,377)         --          --
  Notes and advances to Novo MediaGroup, Inc.                       --          --        (629)
                                                              --------    --------    --------
         Net cash used in investing activities                 (15,878)     (6,294)    (19,613)
                                                              --------    --------    --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Payments on capital lease and other financing obligations     (3,904)     (4,105)     (1,787)
  Net (payments) proceeds on bank line of credit and other
    notes payable                                                 (564)      5,878       1,064
  Proceeds from issuance of convertible note                        --       5,000          --
  Proceeds from sale of redeemable convertible preferred
    stock                                                           --      13,975      14,172
  Proceeds from issuance of common stock                       103,725      41,146      37,219
                                                              --------    --------    --------
         Net cash provided by financing activities              99,257      61,894      50,668
                                                              --------    --------    --------
Net increase in cash and cash equivalents                       29,293      11,275       4,038
Cash and cash equivalents at beginning of period                16,073       4,798         760
                                                              --------    --------    --------
Cash and cash equivalents at end of period                    $ 45,366    $ 16,073    $  4,798
                                                              ========    ========    ========
NON-CASH FINANCING ACTIVITIES:
  Conversion of convertible preferred stock to common stock   $ 12,135    $ 20,358    $ 16,129
  Property and equipment acquired under capital leases and
    other non-lease financing                                 $ 16,763    $  7,400    $  7,652
  Preferred stock issued by acquired company for ownership
    interest                                                  $     --    $  1,720    $     --
  Conversion of notes payable to common stock                 $     --    $     --    $  1,400
SUPPLEMENTAL CASH FLOW DISCLOSURE:
  Cash paid for interest                                      $  2,725    $  1,050    $    379
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       39
<PAGE>   40
 
                                  EXCITE, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Business
 
     Excite, Inc. ("Excite" or the "Company"), formerly Architext Software,
Inc., which was formed in June 1994, is a global Internet media company offering
consumers and advertisers comprehensive Internet navigation services with
extensive personalization capabilities. The Excite Network consists of the
Excite (www.excite.com), WebCrawler (www.webcrawler.com) and Classifieds2000
(www.classifieds2000.com) brands, which provide a gateway to the World Wide Web
(the "Web") that organizes, aggregates and delivers information to meet the
needs of individual consumers. Designed to help consumers navigate the Web, the
Excite Network contains a suite of specialized information services, organized
under numerous topical channels which combine proprietary search technology,
editorial Web reviews, aggregated content from third parties, bulletin boards,
chat and other community features and personalization capabilities. Localized
versions of Excite are available in Australia, China, France, Germany, Italy,
Japan, Sweden, the Netherlands and the United Kingdom. The Company conducts its
business within two industry segments, including the selling of banner and
sponsorship advertising on the Excite Network to customers in various
industries, and, through the merger with MatchLogic, Inc. ("MatchLogic"), ad
serving and targeting services. See Note 2 and "Risk Factors that May Affect
Future Results -- Acquisition Strategy; Integration of Past and Future
Acquisitions."
 
     The Company has incurred operating losses to date and incurred a net loss
of approximately $37.6 million for the year ended December 31, 1998. Management
believes that available resources will provide sufficient funding to enable the
Company to meet its obligations through at least December 31, 1999. If
anticipated operating results are not achieved, management has the intent and
believes it has the ability to delay or reduce expenditures so as not to require
additional financial resources if such resources were not available.
 
     Basis of Presentation
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. The consolidated financial statements have been restated
for all pooling of interests. See Note 2.
 
     Restatement of Financial Statements
 
     In April 1998 and November 1997, the Company acquired Classifieds2000 and
Netbot in a transaction accounted for as a pooling of interests (See Note 2).
The financial statements prior to the date of acquisition were not restated as
Excite had determined that the results of operations and financial position of
Netbot and Classifieds2000 were not material to the Company's consolidated
financial statements in any period. After discussions with the Staff of the
Securities and Exchange Commission, the Company revised the original accounting
for these transactions and restated its consolidated financial statements for
1998, 1997 and 1996 to reflect the combined results of operations and financial
position of the Company and both Netbot and Classifieds2000. These financial
statements reflect the impact of this restatement.
 
     Foreign Currency
 
     Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved are included
in other expense. Such gains and losses have been insignificant in all years to
date. To date the Company has entered into no foreign currency forward exchange
contracts or other such derivative instruments.
 
                                       40
<PAGE>   41
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ from those
estimates.
 
     Concentration of Credit Risk
 
     The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, does not require collateral on accounts receivable.
When required, the Company maintains allowances for credit losses and such
losses have been within management's expectations and have not been material in
any year. The Company's services are provided to customers in several
industries, primarily in North America.
 
     No customers accounted for 10% or more of total revenues for the year ended
December 31, 1998 and 1997. One customer accounted for approximately 12% of
total revenues for the year ended December 31, 1996.
 
     Property and Equipment
 
     Property and equipment are stated at cost, net of accumulated depreciation
and amortization, which includes the amortization of assets recorded under
capital leases. Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets (generally one to five years.)
Equipment purchased under capital leases is amortized on a straight-line basis
over the lesser of the estimated useful life of the asset or the lease term.
Property and equipment, at cost, consist of the following:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1997
(IN THOUSANDS)                                                --------    -------
<S>                                                           <C>         <C>
Computer equipment and internal use software                  $ 43,746    $18,639
Furniture and fixtures                                           6,581      3,006
Leasehold improvements                                           7,125      2,607
                                                              --------    -------
                                                                57,452     24,252
Less: accumulated depreciation and amortization                (21,515)    (8,671)
                                                              --------    -------
                                                              $ 35,937    $15,581
                                                              ========    =======
</TABLE>
 
     Intangible Assets
 
     Intangible assets consist primarily of goodwill, developed technology,
distribution rights, trademarks, bookmarks and trade names, and are being
amortized generally over periods ranging from four months to three years.
Goodwill represents the excess of the aggregate purchase price over the fair
value of the
 
                                       41
<PAGE>   42
     EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
tangible and intangible assets acquired in various acquisitions. These purchased
intangibles and goodwill relate to the acquisitions of certain assets from other
companies. See Note 2.
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                              LIFE IN    --------------------
                                                              MONTHS       1998        1997
(IN THOUSANDS)                                                -------    --------    --------
<S>                                                           <C>        <C>         <C>
Goodwill                                                        36       $ 11,163    $    362
Trademarks, trade names and other                             24 - 36       2,346       2,346
Developed technology                                            13          8,400       8,400
Operating agreement                                              4          1,200       1,200
Distribution agreement                                          24            500         500
                                                                         --------    --------
                                                                           23,609      12,808
Less: accumulated amortization                                            (14,817)    (11,037)
                                                                         --------    --------
                                                                         $  8,792    $  1,771
                                                                         ========    ========
</TABLE>
 
     Long-Lived Assets
 
     In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the carrying
value of intangible assets and other long-lived assets is reviewed on a regular
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. To date no such impairment has been
indicated. Should there be an impairment in the future, the Company will
recognize the amount of the impairment based on discounted expected future cash
flows from the impaired assets. The cash flow estimates that will be used will
contain management's best estimates, using appropriate and customary assumptions
and projections at the time.
 
     Fair Value of Financial Instruments
 
     The carrying amount of certain of the Company's financial instruments,
including accounts receivable and accrued liabilities, approximate fair value
because of their short maturities. Because the interest rates on the Company's
notes payable and convertible debt are adjusted periodically to reflect market
rates, the fair value of these instruments approximates their carrying amounts.
The carrying amount of the Company's capital lease and other equipment financing
obligations approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1998. See Note 3.
 
     Revenue Recognition
 
     Advertising revenues are derived principally from short-term advertising
contracts in which the Company guarantees a minimum number of impressions (a
view of an advertisement by a consumer) for a fixed fee. The Company has
recently entered into a number of longer-term advertising and commerce
sponsorship agreements. These agreements generally involve more integration with
Excite services and provide for more varied sources of revenue to Excite over
the term of the agreements, which average between 2 to 3 years. Under these
agreements, Excite earns fees for initial programming, initiation of service and
access to the Excite Network, and for generating impressions, which in some
instances are guaranteed. These revenues, as well as contract and other
revenues, are generally recognized ratably over the term of the agreements,
provided that the Company does not have any significant remaining obligations
and collection of the resulting receivable is probable. To the extent that
impression deliveries are falling short of the guarantees, the Company defers
recognition of the corresponding revenues. The terms of a number of these
agreements provide that revenues from advertising and electronic commerce
transactions are to be shared between the advertiser and Excite as realized.
 
                                       42
<PAGE>   43
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Advertising
 
     Costs related to advertising are expensed as incurred. Advertising expense
was approximately $13.9 million, $7.4 million and $10.4 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
 
     Per Share Data
 
     In 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effect of options, warrants,
convertible securities and unvested securities issued subject to repurchase.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been restated to conform to the SFAS No. 128 requirements. The Company has
excluded all convertible debt, convertible preferred stock, warrants and
employee stock options from the computation of basic and diluted earnings per
share because all such securities are anti-dilutive for all periods presented.
See Notes 7 and 8 for further information on these securities. The following
table sets forth the computation of basic and diluted earnings per share:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                               1998        1997        1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)                        --------    --------    --------
<S>                                                          <C>         <C>         <C>
Net loss                                                     $(37,559)   $(46,814)   $(44,179)
                                                             ========    ========    ========
  Weighted average shares outstanding                          48,180      30,862      19,868
  Weighted average common shares issued subject to
     repurchase agreements                                       (705)     (1,133)     (1,220)
                                                             --------    --------    --------
Shares used to compute basic and diluted net loss per share    47,475      29,729      18,648
                                                             ========    ========    ========
Basic and diluted net loss per share                         $  (0.79)   $  (1.57)   $  (2.37)
                                                             ========    ========    ========
</TABLE>
 
     Stock Split
 
     In June 1998, the Board of Directors of the Company declared a two-for-one
stock split which was in the form of a 100% stock dividend. The dividend was
paid on July 20, 1998 to stockholders of record on July 6, 1998. All of the
Common Stock share and per share data have been adjusted to reflect this stock
split.
 
     Reclassifications
 
     Certain previously reported amounts have been reclassified to conform to
the current presentation format.
 
     Recent Accounting Pronouncements
 
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS No. 130 as of
December 31, 1997 and has presented comprehensive income for all periods
presented in the Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency).
 
     In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which changes the way public companies
report information about operating segments.
 
                                       43
<PAGE>   44
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     SFAS No. 131, which is based on the management approach to segment
reporting, establishes requirements to report selected segment information
quarterly and to report entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds assets and
reports revenue. The Company adopted SFAS No. 131 as of December 31, 1997.
Previously reported information has been restated to reflect the addition of an
operating segment resulting from the merger with MatchLogic in 1998. See Note 2.
 
     In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. The Company adopted SOP 98-1 effective for the
year ended December 31, 1998. The adoption of SOP 98-1 is not expected to have a
material impact on the Company's consolidated financial statements.
 
     In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The statement is effective for fiscal years beginning
after December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. The Company is required to adopt
SOP 98-5 for the year ended December 31, 1999. The adoption of SOP 98-5 is not
expected to have a material impact on the Company's consolidated financial
statements.
 
     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type of
hedge transaction. The Company does not expect that the adoption of SFAS No. 133
will have a material impact on its consolidated financial statements because the
Company does not currently hold any derivative instruments.
 
2. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
 
     During the three years ended December 31, 1998, Excite completed the
following acquisitions:
 
<TABLE>
<CAPTION>
                                                                           SHARES OF EXCITE
                                                             SHARES OF         SERIES E        SHARES OF
                                                               EXCITE        CONVERTIBLE      OPTIONS AND
                                                               COMMON      PREFERRED STOCK     WARRANTS
      COMPANY OR TECHNOLOGY ACQUIRED        DATE ACQUIRED   STOCK ISSUED        ISSUED          ASSUMED
      ------------------------------        -------------   ------------   ----------------   -----------
(IN THOUSANDS)
<S>                                         <C>             <C>            <C>                <C>
McKinley                                    August 1996        1,700               --               28
AOL's WebCrawler                            November 1996         --            1,950               --
Netbot                                      November 1997      1,708               --              422
MatchLogic                                  February 1998      6,122               --            1,049
Classifieds2000                             April 1998         1,730               --               50
Throw                                       April 1998           330               --              318
</TABLE>
 
     In August 1996, the Company acquired McKinley, the creator of the Magellan
Internet Guide, in a transaction accounted for as a pooling of interests. The
Company incurred approximately $2.2 million in merger related expenses,
including $1.0 million for legal and other professional fees, $901,000 for
personnel severance and outplacement expenses and $345,000 for termination of
distribution contracts and discontinuation of duplicate operations and
facilities. All consolidated financial information for 1996 was restated to
reflect the combined operations of the Company and McKinley.
 
     In November 1996, the Company entered into a series of agreements with AOL,
a provider of Internet online services, whereby a co-branded version of Excite
became the exclusive Internet search and
 
                                       44
<PAGE>   45
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
directory service for AOL. Under these agreements, Excite acquired AOL's
WebCrawler search and directory technology assets. The series of agreements were
accounted for as the acquisition of rights to developed and in-process
technologies and distribution rights. The intangible assets were recorded based
on their appraised fair values as of December 1, 1996. Of the total purchase
price, $3.5 million was allocated to purchased in-process technology and the
remaining purchase price of approximately $12.6 million was capitalized as
trademarks, distribution rights, bookmarks, trade names, goodwill and other. The
amount of the purchase price allocated to purchased in-process technology was
charged to the Company's operations as of December 1, 1996.
 
     In November 1997, the Company acquired Netbot, a private company and
developer of advanced search technology utilized for electronic commerce, in a
transaction accounted for as a pooling of interests. The Company incurred
approximately $1.5 million in merger related expenses, including $1.3 million
for accelerated deferred compensation charges and $217,000 in professional fees
and other expenses. All consolidated financial information has been restated to
reflect the combined operations of the Company and Netbot.
 
     In February 1998, the Company acquired MatchLogic, a private company
providing advertisers and agencies with Internet advertising management services
that began operations in May 1997, in a transaction accounted for as a pooling
of interests. In connection with the acquisition of MatchLogic, the Company
incurred approximately $700,000 in merger related expenses primarily for legal
and other professional fees. All consolidated financial information has been
restated to reflect the combined operations of the Company and MatchLogic.
 
     Separate results of the combined entities through the periods preceding the
merger (February 2, 1998) are as follows:
 
<TABLE>
<CAPTION>
                                                           PERIOD ENDED    YEARS ENDED DECEMBER 31,
                                                           FEBRUARY 2,     ------------------------
                                                               1998           1997          1996
                                                           ------------    ----------    ----------
(IN THOUSANDS)                                             (UNAUDITED)
<S>                                                        <C>             <C>           <C>
Revenues:
  Excite                                                     $ 6,016        $ 51,863      $ 14,823
  MatchLogic                                                     376           3,963            --
                                                             -------        --------      --------
                                                             $ 6,392        $ 55,826      $ 14,823
                                                             =======        ========      ========
Net Loss:
  Excite                                                     $(1,851)       $(35,581)     $(44,179)
  MatchLogic                                                  (1,388)        (11,233)           --
                                                             -------        --------      --------
                                                             $(3,239)       $(46,814)     $(44,179)
                                                             =======        ========      ========
</TABLE>
 
     There were no significant inter-company transactions between the two
companies and no significant conforming accounting adjustments.
 
     In April 1998, the Company acquired Classifieds2000, a provider of
Web-based classified ads that began operations in July 1996, in a transaction
accounted for as a pooling of interests. In connection with the acquisition of
Classifieds2000, the Company incurred approximately $743,000 in merger-related
expenses primarily for legal and other professional fees. All consolidated
financial information has been restated to reflect the combined operations of
the Company and Classifieds2000.
 
                                       45
<PAGE>   46
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Separate results of the combined entities through the periods preceding the
merger (April 1, 1998) are as follows:
 
<TABLE>
<CAPTION>
                                                           PERIOD ENDED    YEARS ENDED DECEMBER 31,
                                                             APRIL 1,      ------------------------
                                                               1998           1997          1996
                                                           ------------    ----------    ----------
(IN THOUSANDS)                                             (UNAUDITED)
<S>                                                        <C>             <C>           <C>
Revenues:
  Excite                                                     $23,001        $ 54,280      $ 14,757
  Classifieds2000                                              1,255           1,546            66
                                                             -------        --------      --------
                                                             $24,256        $ 55,826      $ 14,823
                                                             =======        ========      ========
Net Loss:
  Excite                                                     $(6,959)       $(45,169)     $(43,900)
  Classifieds2000                                               (584)         (1,645)         (279)
                                                             -------        --------      --------
                                                             $(7,543)       $(46,814)     $(44,179)
                                                             =======        ========      ========
</TABLE>
 
     There were no significant inter-company transactions between the two
companies and no significant conforming accounting adjustments.
 
     In April 1998, the Company acquired Throw, a development stage company
focused on community products that began operations in April 1996, in a
transaction accounted for as a purchase. The total purchase price was allocated
to the acquired assets and liabilities based on their estimated fair values as
of the date of the acquisition. This included an original purchase price
allocation of approximately $800,000 to other intangibles assets, which were
being amortized on a straight-line basis through 1999 and approximately, $16.2
million was allocated to in-process technology and charged to operations at the
time of acquisition. Accordingly, the Company expensed this amount in its
originally reported June 30, 1998 operating results.
 
     In response to recent Securities and Exchange Commission ("SEC")
interpretative guidance surrounding acquisition-related in-process research and
development, the Company has revised the original accounting for the purchase
price allocation related to the 1998 acquisition of Throw and the related
amortization of intangibles. This adjustment decreased the amount previously
allocated to in-process technology by $10.0 million, which has been capitalized
as goodwill and will be amortized on a straight-line basis over three years. As
a result, in the second quarter of 1998, the Company allocated $6.2 million to
in-process technology, and during the year ended December 31, 1998, the Company
amortized a total of $2.7 million of goodwill to operations. Pro-forma results
of operations have not been presented because the effect of this acquisition was
not material to the Company's consolidated financial position, results of
operations, and cash flows.
 
     To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis results in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility and does not have
alternative future uses.
 
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
     The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents. All of the
Company's cash equivalents and short-term investments, consisting principally of
commercial paper, equity securities and government securities, are
 
                                       46
<PAGE>   47
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
classified as available-for-sale as of December 31, 1998. These securities are
recorded at fair market value. Unrealized gains and losses on these investments
are included in stockholders' equity. The cost of securities sold is based on
specific identification. There were no material gross realized gains or losses
from sales of securities in the periods presented. The fair value of investments
is based on quoted market prices at December 31, 1998 and 1997. The fair value
of investments presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. All available-for-
sale investments generally mature in one year or less.
 
     The estimated fair value of cash, cash equivalents and short-term
investments are as follows:
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                                1998           1997
(IN THOUSANDS)                                                ---------      ---------
<S>                                                           <C>            <C>
Cash and cash equivalents:
  Cash                                                         $33,977        $ 5,995
  Money market funds                                               126             62
  Commercial paper                                                  --          1,958
  U.S. Government securities                                    11,263          8,058
                                                               -------        -------
                                                               $45,366        $16,073
                                                               =======        =======
Short-term investments:
  Commercial paper                                             $ 3,104        $ 7,791
  Equity securities                                              4,411             --
  U.S. Government securities                                     8,166          9,402
                                                               -------        -------
                                                               $15,681        $17,193
                                                               =======        =======
Restricted investments:
  Cash                                                         $   223        $    --
  Certificates of deposit                                          335             --
  Equity securities                                                 --            302
                                                               -------        -------
                                                               $   558        $   302
                                                               =======        =======
</TABLE>
 
     The restricted cash at December 31, 1998 is being held for tenant
improvements at the Company's corporate facilities in Redwood City, California.
The restricted certificates of deposit at December 31, 1998 includes a $250,000
security deposit for one of the Company's facilities. The restricted investment
in common stock at December 31, 1997 was being held as collateral by a financial
institution against the Company's line of credit borrowings. See Note 4.
 
     The net unrealized gains for the year ended December 31, 1998 was $1.3
million, which was attributable to equity securities that the Company held
during 1998. The net unrealized gains for the year ended December 31, 1997, were
not material. At December 31, 1998, the fair values of cash and cash
equivalents, available-for-sale investments and restricted investments
approximated cost. The realized gains and losses on sales of each type of
security for the years ended December 31, 1998 and 1997, were not material. For
the purpose of determining gross realized gains and losses, the cost of the
securities sold is based upon specific identification.
 
                                       47
<PAGE>   48
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4. BORROWINGS UNDER BANK LINE OF CREDIT AND OTHER NOTES PAYABLE
 
     Borrowings under bank line of credit and other notes payable, all of which
are current liabilities, are as follows:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ----------------
                                                               1998      1997
(IN THOUSANDS)                                                ------    ------
<S>                                                           <C>       <C>
Borrowings under bank line of credit                          $6,000    $6,000
Borrowings under credit facility loan                             --       489
Other notes payable                                              100       100
                                                              ------    ------
                                                              $6,100    $6,589
                                                              ======    ======
</TABLE>
 
     In March 1997, the Company entered into and borrowed on a $6.0 million line
of credit. This line of credit bears interest at the bank's prime rate
(approximately 7.75% at December 31, 1998) and is secured by substantially all
of the Company's assets. This line of credit agreement also contains certain
financial covenants, including minimum requirements for tangible net worth,
quick ratio and accounts receivable balances, as well as prohibiting the
declaration and payment of cash dividends on capital stock. The Company was in
compliance with these covenants at December 31, 1998. This line of credit
expired in 1998 and the Company has subsequently received extensions through
February 15, 1999, which is the current maturity of the note. The Company is
currently negotiating a new line of credit.
 
     In connection with the Company's acquisition of Classifieds2000, the
Company assumed $489,000 outstanding on a $500,000 credit facility loan at an
interest rate of 9.5%. The outstanding balance under this credit facility loan
was paid in full and canceled in 1998.
 
5. COMMITMENTS
 
     Capital Leases
 
     The Company leases certain computer equipment and office furniture under
capital leases. The leases generally provide for the Company to pay taxes,
maintenance and insurance. Most of the leases contain purchase options as well
as renewal provisions at the end of the initial lease terms, which generally
range from 30 to 36 months. At December 31, 1998 the Company had an additional
$5.5 million available under a lease line of credit expiring on March 31, 1999.
 
     Equipment under capital leases consist of the following:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1998       1997
(IN THOUSANDS)                                                -------    ------
<S>                                                           <C>        <C>
Computer equipment and internal use software                  $25,855    $9,914
Furniture and fixtures                                          3,232       785
                                                              -------    ------
                                                               29,087    10,699
Less: accumulated depreciation and amortization               (13,929)   (5,490)
                                                              -------    ------
                                                              $15,158    $5,209
                                                              =======    ======
</TABLE>
 
     Non-lease Financing Arrangements
 
     During 1998 and 1997, the Company entered into several non-lease equipment
financing arrangements. These liabilities are secured by specified computer
equipment, internal use software and office furniture of the Company and are
payable over 36 months. At December 31, 1998, property and equipment under
non-lease financing arrangements totaled $2.7 million, net of $2.3 of
accumulated
 
                                       48
<PAGE>   49
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
depreciation. At December 31, 1997, property and equipment under non-lease
financing arrangements totaled $2.5 million, net of $401,000 of accumulated
depreciation.
 
     Building Leases
 
     During the three years ended December 31, 1998, the Company entered into
several leases relating to its corporate facilities located in Redwood City,
California. In 1998, the Company's subsidiary, MatchLogic, entered into a lease
for its new facility located in Westminster, Colorado. The Company leases these
facilities under non-cancelable operating leases that have terms of
approximately ten years. The Company leases additional space, primarily for
sales offices, in various states as well as in the United Kingdom. Rent expense
under operating leases was approximately $4.6 million, $2.7 million and $772,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The Company
has subleased a portion of its facilities to third parties under non-cancelable
sublease agreements, which expire in June 1999 and March 2003. Sublease rental
income was $852,000 for the year ended December 31, 1998. There was no sublease
rental income for the years ended December 31, 1997 and 1996.
 
     Annual minimum commitments under these leases and other financing
arrangements are as follows:
 
<TABLE>
<CAPTION>
                                                     CAPITAL      OTHER      OPERATING    SUBLEASE
                                                     LEASES     FINANCING     LEASES        RENT
(IN THOUSANDS)                                       -------    ---------    ---------    --------
<S>                                                  <C>        <C>          <C>          <C>
Years Ended December 31,
     1999                                            $ 8,873     $ 1,756      $ 5,434     $  (911)
     2000                                              7,857       1,176        4,970        (445)
     2001                                              4,981         495        5,065        (457)
     2002                                                113          --        4,858        (469)
     2003                                                 --          --        4,454        (120)
     Thereafter                                           --          --       20,264          --
                                                     -------     -------      -------     -------
Total minimum payments required                      $21,824     $ 3,427      $45,045     $(2,402)
                                                     =======     =======      =======     =======
Less amounts representing interest                    (3,023)       (328)
                                                     -------     -------
Present value of future lease payments                18,801       3,099
Less current portion                                  (7,133)     (1,531)
                                                     -------     -------
                                                     $11,668     $ 1,568
                                                     =======     =======
</TABLE>
 
     Other Equipment Financing
 
     Other equipment financing consists of the liability for computer equipment,
which the Company may enter into capital leases in 1999. Due to the timing of
these computer equipment purchases at the end of 1998, $7.5 million has been
recorded as other equipment financing at December 31, 1998. Equipment under
other equipment financing arrangements totaled $7.1 million, net of $400,000 of
accumulated depreciation at December 31, 1998.
 
6. CONVERTIBLE NOTE
 
     In 1997, the Company entered into a convertible promissory note with Itochu
Corporation and certain affiliated entities (collectively "Itochu") for the
principal amount of $5.0 million. See Note 12. The note bears interest at the
London Interbank Offered Rate plus 1% (approximately 6.1% at December 31, 1998),
is payable in United States dollars, and matures on October 17, 2002, although
earlier payment is permitted. The entire unpaid principle amount at the maturity
date (or earlier in the event the Company elects to prepay the note) is
convertible, in whole but not in part, at the option of the holder, into fully
 
                                       49
<PAGE>   50
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
paid shares of Excite Common Stock at a conversion price equal to the average
closing price of the shares for the 30 trading day period ending on the date of
conversion.
 
7. STOCKHOLDERS EQUITY
 
     The Company was incorporated on June 9, 1994 in California and
reincorporated in Delaware on August 27, 1998. The Company's Preferred Stock and
Common Stock have a par value of $0.001 per share. The classification of the
capital accounts reflects the effect of the reincorporation for all periods
presented.
 
     Convertible Preferred Stock
 
     Of the 4,000,000 authorized shares of Convertible Preferred Stock ($0.001
par value), 3,280,000 shares were designated as Series E. In November 1996, the
Company issued to AOL in connection with the acquisition of AOL's WebCrawler
Assets, 1,950,000 shares of Series E and a warrant to purchase 650,000 shares of
Series E (see Note 2). As a result of the Company's two-for-one stock split in
July 1998, which was in the form of a stock dividend, the Series E are
convertible into Common Stock at a ratio of two-for-one. In September 1997, AOL
exercised 325,000 of its 650,000 warrant to purchase shares of Series E, with
the holder electing to receive a lesser number of shares in exchange for a
reduction in the total exercise price, resulting in the issuance of 229,000
shares of Series E. The 2,179,000 outstanding shares of Series E were converted
into 4,358,000 shares of Common Stock in December 1997. The remaining shares of
Preferred Stock authorized and unissued at December 31, 1997 were retired in
August 1998.
 
     Excite assumed 409,000, 2,291,000 and 411,000 shares of Convertible
Preferred Stock related to equity transactions of Netbot, MatchLogic and
Classifieds2000, respectively, prior to mergers with Excite. These shares
converted into shares of Excite Common Stock upon the closing of the respective
mergers (see Note 2).
 
     In August 1998, the Company authorized 4,000,000 shares of Convertible
Preferred Stock ($0.001 par value) of which 350,000 shares are designated as
Series E for the unexercised portion of AOL's warrant to purchase Series E
shares and 230,000 shares are designated as Series F for the Stock Holders Right
Plan dated September 24, 1998. At December 31, 1998, the remaining 3,420,000
authorized shares of Convertible Preferred Stock are undesignated.
 
     Common Stock
 
     In April 1996, the Company completed its initial public offering and issued
4,600,000 shares of its Common Stock at a price of $8.50 per share. The Company
received approximately $35.4 million in cash, net of underwriting discounts,
commissions and other offering costs. Simultaneously with the closing of the
initial public offering, each outstanding share of Redeemable Convertible
Preferred Stock was automatically converted into two shares of Common Stock,
outstanding warrants were exercised (on a net exercise basis) at an exercise
price of $8.50 per share, resulting in the issuance of 2,382,000 shares of
Common Stock, and $1.0 million principal amount of notes payable was converted
into 320,000 shares of Common Stock.
 
     On March 3, 1997 the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission with respect to the sale of shares
of the Company's Common Stock. The Company sold all of the 5,800,000 shares of
the Company's Common Stock offered to Intuit Inc. ("Intuit") on June 26, 1997 at
a price of $6.75 per share (see Note 14). Proceeds to the Company from this
offering were approximately $38.4 million net of offering costs. Intuit was also
granted a right of first refusal to participate in certain future issuances of
the Company's securities in order to prevent dilution of Intuit's
 
                                       50
<PAGE>   51
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
percentage ownership, as well as registration rights with respect to the shares
originally purchased, and any shares that might be purchased pursuant to the
right of first refusal. The agreements also place certain conditions on Intuit's
ability to dispose of its shares of, or acquire additional shares of, the
Company's Common Stock.
 
     In May 1998, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission for the sale of shares of the Company's
Common Stock in a public offering. The Company sold 3,105,000 shares of Common
Stock in June 1998 at a price of $31.50 per share. Of the 3,105,000 shares sold,
2,870,000 shares (including 405,000 shares, which were purchased on the exercise
of the underwriters over-allotment option) were offered directly by the Company
and 235,000 shares were offered by selling stockholders. The Company did not
receive any proceeds from the sale of shares by selling stockholders. Proceeds
to the Company from this offering were approximately $84.3 million net of
offering costs.
 
     At December 31, 1998, 705,000 shares of Common Stock issued by the Company
were subject to stock repurchase agreements whereby the Company has the option
to repurchase the unvested shares upon termination of employment for any reason,
with or without cause, at the original price paid for the shares.
 
     In December 1998, the Company issued 50,000 shares of Common Stock to
LibertyOne Ltd. ("LibertyOne"), a partner in the Company's Australian joint
venture (see Note 10), in exchange for 1,000,000 shares of LibertyOne. These
equity securities were recorded at the fair market value of the Company's stock
at the date of the transaction. As a result, the fair market value of $2.5
million was recorded to short-term investments and the unrealized gain as of
December 31, 1998 of $1.4 million was included in stockholder's equity. The
Company has classified this equity security as an available-for-sale investment.
 
     Warrants
 
     During 1995, the Company issued warrants to purchase 30,000 shares of
Series A and 16,000 shares of Series B Redeemable Convertible Preferred Stock at
an exercise price of $0.67 and $1.25 per share, respectively, in connection with
an equipment lease agreement. These warrants converted into warrants to purchase
Common Stock upon the Company's initial public offering in April 1996. In
January 1997, the holder of these warrants elected to exercise the warrants and
receive a lesser number of shares in exchange for a reduction in the exercise
price resulting in the issuance of 87,000 shares of Common Stock.
 
     During 1995, the Company issued warrants to purchase 2,400,000 shares of
Common Stock at an exercise price of $0.0625 per share in connection with the
sale of Series B Redeemable Convertible Preferred Stock. These warrants were
exercised in April 1996 in connection with the Company's initial public
offering. Also during 1995, the Company issued warrants to purchase 72,000 and
57,000 shares of Common Stock at an exercise price of $0.34 and $0.63 per share,
respectively, in connection with an employment offer. These warrants were
exercised in 1996.
 
     In connection with the acquisition of McKinley, in August 1996, the Company
assumed warrants under which the holder can purchase 4,712 shares and 14,190
shares of Common Stock at an exercise price of $16.33 and $50.64 per share,
respectively. The warrant for 4,712 shares of Common Stock was exercised in
1998. At December 31, 1998, 14,190 warrants were outstanding at an exercise
price of $50.64 per share and expire on January 31, 1999.
 
     In March 1996, the Company entered into an agreement with AOL whereby, in
return for certain distribution rights, the Company issued a warrant to purchase
1,300,000 shares of Common Stock at an exercise price of $4.00 per share. The
warrant expires in March 2001. The value of the warrant was established through
appraisal. A charge to operations of $1.6 million for the fair value of the
warrant was recorded at the time of issuance. Upon the closing of the
acquisition of WebCrawler, this warrant to
 
                                       51
<PAGE>   52
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
purchase 1,300,000 shares of Common Stock was converted into a warrant to
purchase 650,000 shares of Series E ("Series E warrant") at the same exercise
price per share. The value attributed to the amendment of the warrant terms from
Common Stock warrant to the Series E warrant was minimal, as the expiration date
of the warrant was also amended such that 325,000 shares exercisable under this
warrant would expire, if unexercised, on September 30, 1997, instead of in March
2001. In September 1997, 325,000 shares were exercised under this Series E
warrant, with the holder electing to receive a lesser number of shares in
exchange for a reduction in the total exercise price, resulting in the issuance
of 229,000 shares of Series E, which were converted into 458,000 shares of
Common Stock in December 1997. The remaining Series E warrant for 325,000 shares
outstanding at December 31, 1998, if exercised, is convertible into 650,000
shares of Common Stock.
 
     In connection with the acquisition of Netbot, in November 1997, the Company
assumed warrants under which the holder can purchase 4,100 shares of the
Company's Common Stock at an exercise price of approximately $5.75 per share.
 
     In connection with the acquisition of MatchLogic, in February 1998, the
Company assumed warrants under which the holder can purchase 167,000 shares of
the Company's Common Stock at an exercise price of approximately $2.36 per
share. These warrants were exercised in 1998.
 
     In April 1998, the Company acquired Classifieds2000 and Throw. In
connection with these acquisitions, the Company assumed warrants under which the
holder can purchase 4,000 and 68,000 shares of the Company's Common Stock at an
exercise price of approximately $16.67 and $0.345 per share, respectively. These
warrants were exercised in 1998.
 
     In April 1998, the Company issued a warrant to Netscape Communication
Corporation ("Netscape") to purchase 846,158 shares of the Company's Common
Stock at an exercise price of approximately $29.55 per share, exercisable for a
two-year period commencing on April 30, 1998, and a second warrant to purchase
shares of the Company's Common Stock at an aggregate exercise price of $10.0
million, which is exercisable for a two-year period commencing April 30, 1999.
The exercise price per share of Common Stock covered by the second warrant will
be determined by dividing $10 million by the average closing price of the
Company's Common Stock for the 30 most recent trading days ending on the third
trading day preceding April 30, 1999.
 
8. EMPLOYEE BENEFIT PLANS
 
     Stock Option Plans
 
     During 1995, the Company adopted the 1995 Equity Incentive Plan (the "1995
Plan") which authorized for issuance under the 1995 Plan 3,300,000 shares of
Common Stock, under which incentive stock options and non-qualified stock
options to purchase Common Stock may be granted to eligible participants. Under
the 1995 Plan, options to purchase Common Stock may be granted at prices no less
than 85% of the fair market value on the date of grant (110% of fair value in
certain instances.) Options generally vest over a 48-month period. In March
1996, the Company increased the number of shares authorized under the 1995 Plan
from 3,300,000 to 4,400,000 shares. The 1995 Plan was terminated in April 1995.
Options granted under the 1995 Plan before its termination in April 1996 remain
outstanding in accordance with their terms, but no further options have been
granted under the 1995 Plan after the date of its termination.
 
     In March 1996, the Company adopted the 1996 Equity Incentive Plan ("1996
Plan") which authorized for issuance under the 1996 Plan 3,000,000 shares of
Common Stock for granting of either incentive or non-qualified stock options.
The Company increased the number of shares authorized under the 1996 Plan from
3,000,000 shares to 4,600,000 shares in November 1996 and from 4,600,000 shares
to
 
                                       52
<PAGE>   53
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9,928,000 in June 1997. Additionally, the company increased the number of shares
authorized under the 1996 Plan from 9,928,000 shares to 16,528,000 in June 1998.
 
     The 1996 Plan serves as the successor equity incentive program to the
Company's 1995 Plan. The 1996 Plan provides for the grant of either incentive
stock options (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended) or non-qualified stock options or the issuance of restricted stock,
at a price no less than 85% of the fair value on the date of grant as well as
stock bonuses by the Company to eligible participants. Options generally vest
over a 48 month period. No person is eligible to receive more than 500,000
shares in any calendar year pursuant to grants under the 1996 Plan, other than
new employees of the Company who will be eligible to receive up to a maximum of
800,000 shares in the calendar year in which they commence employment with the
Company. Shares that (i) are subject to issuance upon exercise of an option but
cease to be subject to such stock option for any reason other than exercise of
such stock option, (ii) are subject to an award granted under the 1996 Plan but
are forfeited or are repurchased by the Company at the original issue price or
(iii) are subject to an award that otherwise terminates without shares being
issued will again be available for grant and issuance in connection with future
awards under the 1996 Plan. The 1996 Plan will terminate in February 2006,
unless terminated earlier in accordance with the provisions of the 1996 Plan. As
of December 31, 1998, 4,676,000 shares of Common Stock were reserved for future
grants.
 
     Assumed Options
 
     In connection with the acquisition of McKinley in August 1996, the Company
assumed 9,000 outstanding options to purchase Common Stock originally issued
under McKinley's stock option plan. In 1997, the Company acquired Netbot, and in
connection with this acquisition, the Company assumed 418,000 outstanding
options to purchase Common Stock originally issued under Netbot's stock option
plan. In connection with the acquisitions of MatchLogic, Classifieds2000 and
Throw during 1998, the Company assumed options to purchase Common Stock under
these companies' stock option plans of 882,000, 46,000 and 250,000,
respectively. Additionally, the Company assumed 854,000 options authorized for
future grants under the MatchLogic stock option plan, which increased the total
number of shares authorized in 1997. See Note 2.
 
     Directors Plan
 
     In February 1996, the Company adopted the 1996 Directors Stock Option Plan
(the "Directors Plan") under which it authorized 300,000 shares of Common Stock
for granting of non-qualified stock options to directors of the Company who are
not employees of the Company ("Outside Directors") at exercise prices not less
than the fair market value on the date of grant. Upon initial election or
appointment, an Outside Director shall be automatically be granted an Option for
30,000 shares of Common Stock. An Outside Director is automatically granted an
additional 15,000 shares of Common Stock on each of the Outside Directors
anniversary dates. The options granted under the Directors Plan generally vest
at a rate of 2.08% each month and have a term of ten years. During 1998 the
Company granted 30,000 shares of Common Stock under the Directors Plan. As of
December 31, 1998, 265,000 shares of Common Stock were reserved for future
grants.
 
     Stockholders Rights Plan
 
     On September 24, 1998, the Board of Directors of the Company approved a
Stockholders Rights Plan, which declared a dividend of one Preferred Share
purchase right (a "Right") for each outstanding share of Common Stock, par value
$0.001 per share (the "Common Shares"), of the Company. The dividend is payable
to stockholders of record on October 30, 1998 (the "Record Date"). In addition,
one Right shall be issued with each Common Share that becomes outstanding (i)
between the Record Date
 
                                       53
<PAGE>   54
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
and the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are defined in the Rights Agreement) or (ii)
following the Distribution Date and prior to the Redemption Date or Final
Expiration Date, pursuant to the exercise of stock options or under any employee
plan or arrangement or upon the exercise, conversion or exchange of other
securities of the Company, which options or securities were outstanding prior to
the Distribution Date. Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series F Junior Participating
Preferred Stock, par value $0.001 per share (the "Preferred Shares"), of the
Company, at a price of $175.00, subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and BankBoston, as Rights Agent.
 
     A summary of activity under the Plans is as follows:
 
<TABLE>
<CAPTION>
                                              SHARES           OPTIONS OUTSTANDING         WEIGHTED
                                             AVAILABLE    -----------------------------    AVERAGE
                                                FOR       NUMBER OF                        EXERCISE
                                               GRANT       SHARES      PRICE PER SHARE      PRICE
(SHARES IN THOUSANDS)                        ---------    ---------    ----------------    --------
<S>                                          <C>          <C>          <C>                 <C>
Balance at December 31, 1995                     550        2,748      $0.018 - $17.306     $ 0.16
  Additional shares authorized                 6,418           --                    --         --
  Options granted and assumed                 (5,844)       5,844       0.260 -  33.879       3.13
  Options exercised                               --         (600)      0.018 -   2.875       0.17
  Options canceled                               526         (526)      0.018 -  33.879       5.25
  Options expired                             (1,056)          --                    --         --
                                              ------       ------      ----------------     ------
Balance at December 31, 1996                     594        7,466       0.018 -  33.879       2.33
  Additional shares authorized                 5,810           --                    --         --
  Options granted and assumed                 (4,647)       4,647       0.018 -  14.188       4.86
  Options exercised                               --       (1,128)      0.018 -   8.063       1.31
  Options canceled                             1,272       (1,272)      0.018 -  33.879       2.58
  Options expired                               (420)          --                    --         --
                                              ------       ------      ----------------     ------
Balance at December 31, 1997                   2,609        9,713       0.018 -  33.879       3.60
  Additional shares authorized                 6,850           --                    --         --
  Options granted and assumed                 (6,014)       6,014       0.315 -  52.375      28.64
  Options exercised                               --       (3,630)      0.018 -  44.313       3.34
  Options canceled                             1,741       (1,741)      0.063 -  35.875       6.24
  Options expired                               (245)          --                    --         --
                                              ------       ------      ----------------     ------
Balance at December 31, 1998                   4,941       10,356      $0.018 - $52.375     $17.19
                                              ======       ======      ================     ======
</TABLE>
 
     Employee Stock Purchase Plan
 
     In February 1996 the Company's Board of Directors adopted, and in March
1996 the Company's stockholders approved, the 1996 Employee Stock Purchase Plan
(the "ESPP") to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions. Under the ESPP, 900,000 shares of
Common Stock have been reserved for issuance, subject to anti-dilution
adjustments. The ESPP became effective in December 1996. The Board of Directors
has the authority to determine the duration of offering periods, up to a maximum
of 24 months. Eligible employees may participate in the ESPP by authorizing
payroll deductions of an amount determined by the Board of Directors. The amount
of authorized payroll deductions may not be less than 2% nor more than 10% of an
employee's compensation, not to exceed $21,250 per year. Amounts withheld are
applied at the end of every six-month accumulation period to purchase shares of
Common Stock, but not more than the number of shares as the Board of Directors
shall determine.
 
                                       54
<PAGE>   55
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Participants may withdraw their contributions at any time prior to fifteen
days before the stock is purchased, and such contributions will be returned to
the participants without interest. The purchase price is equal to 85% of the
lower of (i) the fair market price of the Company's Common Stock on the offering
date of the applicable period or (ii) the fair market price of the Company's
Common Stock on the purchase date. As of December 31, 1998 and 1997, 165,000 and
55,000 shares respectively, had been purchased under the ESPP. Included in the
accrued compensation at December 31, 1998 and 1997, the Company has accrued $1.2
million and $329,000, respectively for employee contributions under the ESPP. At
December 31, 1998, 680,000 shares of Common Stock were reserved for future
purchases under the ESPP.
 
     Accounting for Stock-Based Compensation
 
     The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock plans because, as discussed
below, the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, if the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation is
recognized.
 
     Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock plans granted subsequent
to December 31, 1994 under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model, assuming no expected dividends and the following
weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                              1998      1997      1996
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Average risk-free interest rate                                5.1%      6.1%      5.9%
Average expected life (in years)                               3.0       3.0       4.5
Volatility(1)                                                  106%       75%       75%
</TABLE>
 
---------------
(1) Options granted prior to the Company's initial public offering and by
    non-public companies prior to their merger with Excite were valued using the
    minimum value method.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
 
                                       55
<PAGE>   56
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period and the
six-month purchase period (for stock purchases under the ESPP). The Company's
pro forma information follows:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)                        --------    --------    --------
<S>                                                          <C>         <C>         <C>
Net loss:
  As reported                                                $(37,559)   $(46,814)   $(44,179)
  Pro forma                                                  $(80,302)   $(58,188)   $(45,890)
Basic and diluted net loss per share:
  As reported                                                $  (0.79)   $  (1.57)   $  (2.37)
  Pro forma                                                  $  (1.69)   $  (1.96)   $  (2.46)
</TABLE>
 
     The weighted average fair value of options granted during 1998, 1997 and
1996 was approximately $22.15, $3.45 and $1.77 per share, respectively, and was
approximately $7.42 and $3.87, respectively, for shares granted under the ESPP
in 1998 and 1997.
 
     The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                   --------------------------------------------------   -------------------------------
                                    WEIGHTED-AVERAGE
                       NUMBER          REMAINING         WEIGHTED-                         WEIGHTED-
    RANGE OF        OUTSTANDING     CONTRACTUAL LIFE      AVERAGE           NUMBER          AVERAGE
 EXERCISE PRICES   (IN THOUSANDS)      (IN YEARS)      EXERCISE PRICE    EXERCISABLE     EXERCISE PRICE
 ---------------   --------------   ----------------   --------------   --------------   --------------
<S>                <C>              <C>                <C>              <C>              <C>
$ 0.018 - $ 0.220       1,014             7.5              $ 0.16             362            $ 0.13
$ 0.290 - $ 2.875         500             7.8              $ 1.41             145            $ 1.44
$ 2.938 - $ 4.375       1,699             8.0              $ 3.39             329            $ 3.38
$ 4.500 - $10.063       1,427             8.4              $ 6.81             292            $ 6.24
$10.969 - $14.938         568             8.9              $12.70              88            $12.17
$15.969 - $28.250       2,620             9.3              $23.88             106            $23.79
$28.907 - $43.625       2,207             9.6              $34.52              89            $34.45
$44.313 - $52.375         321             9.8              $49.10               5            $45.36
                       ------             ---              ------           -----            ------
$ 0.018 - $52.375      10,356             8.8              $17.19           1,416            $ 7.11
                       ======             ===              ======           =====            ======
</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 percentage (not to
exceed 15% or $10,000 per year, whichever is less) of their pretax earnings up
to the Internal Revenue Service's annual contribution limit. All full time
employees on the United States payroll of the Company are eligible to
participate in the Plan. The Company is not required to contribute to the
Savings Plan and has made no contributions to the Savings Plan since its
inception.
 
9. INCOME TAXES
 
     Due to operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for income taxes for 1998, 1997 or
1996.
 
                                       56
<PAGE>   57
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1998       1997       1996
(IN THOUSANDS)                                                -------    -------    -------
<S>                                                           <C>        <C>        <C>
Net operating loss carryforwards                              $53,000    $29,160    $15,200
Research credits                                                1,900        910        400
Acquired intangible assets                                      5,700      5,670      1,865
Depreciation                                                    4,300      1,730        390
Capitalized research & development expenses                     1,100         --         --
Other                                                           2,300        710      1,345
                                                              -------    -------    -------
          Total deferred tax assets                           $68,300    $38,180    $19,200
Valuation allowance for deferred tax assets                   (68,300)   (38,180)   (19,200)
                                                              -------    -------    -------
          Net deferred tax assets                             $    --    $    --    $    --
                                                              =======    =======    =======
</TABLE>
 
     Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $30.1 million and $19.0 million during the years ended December 31,
1998 and 1997, respectively. Approximately $26.0 million of the valuation
allowance at December 31, 1998 is attributable to stock option deductions, the
benefit of which will be credited to paid in capital when realized.
 
     As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $143.4 million and $71.0 million,
respectively. The federal net operating loss carryforwards will expire at
various dates beginning in 2009 through 2013, and the state net operating loss
carryforwards will expire at various dates beginning in 1999 through 2003. As of
December 31, 1998 the Company also had federal and California research and
development credit carryforwards of approximately $1.0 and $1.4 million,
respectively. The federal credits will expire in 2009 through 2013 if not
utilized.
 
     Utilization of the net operating losses and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
provisions of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses and credits before full
utilization.
 
10. JOINT VENTURES
 
     Excite Japan
 
     In October 1997, the Company and Itochu Corporation and certain affiliated
entities (collectively "Itochu") entered into a joint venture agreement with
respect to the Company's wholly-owned subsidiary, Excite Japan, Co. Ltd.
("Excite Japan") in order to provide Web based information services to the
Japanese market. The Company intends to retain a 50% equity interest in Excite
Japan. Advertising sales responsibilities will be assumed by CTC Create
Corporation, a wholly-owned subsidiary of Itochu Corporation. The joint venture
agreement with respect to Excite Japan obligates Excite and Itochu to make
capital contributions in the aggregate amount of $10.0 million by March 31,
1999. Itochu loaned Excite $5.0 million (see Note 6) in 1997 in order to fund
Excite's capital contributions. As of December 31, 1998 and 1997 Excite had
invested $4.9 million and $168,000, respectively, in the joint venture, and had
recognized 50% of the losses through December 31, 1998 and 1997 totaling $2.1
million and $477,000. Condensed financial information of Excite Japan has not
been presented as its operating results and financial position are not material
to the consolidated financial statements of the Company.
 
                                       57
<PAGE>   58
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Excite Italia
 
     In August 1998, the Company and Telecom Italia S.p.A. ("Telecom Italia")
entered into a joint venture agreement to form Excite Italia BV ("Excite
Italia"). The new company, Excite Italia, which is owned 50% by Excite and 50%
by Telecom Italia, will program certain portions of www.tin.lit, the Internet
site of TIN, a division of Telecom Italia and one of Italy's Internet access
providers, as well as provide an Italian language search directory service under
the Excite brand. Telecom Italia has committed to provide the initial start-up
capital for the venture, while Excite will provide the core technology, related
services and brand name. The cash contributed by Telecom Italia to Excite Italia
is in the form of a loan and is capped at approximately 10.5 billion Lira.
Excite will account for its interest in the joint venture under the equity
method.
 
     Excite Asia Pacific
 
     In August 1998, the Company and LibertyOne Limited ("LibertyOne") entered
into a joint venture agreement to form Excite Asia Pacific Pty Ltd ("Excite Asia
Pacific"). The new company, Excite Asia Pacific, is owned 50% by Excite and 50%
by LibertyOne and will build an Excite branded, advertising and commerce
supported Web portal for the Australian and the Asia-Pacific Internet markets.
LibertyOne will contribute a total of 10.0 million Australian Dollars for a 50%
equity ownership in Excite Asia Pacific. Excite will provide the core
technology, related services and brand name for the remaining 50% equity
ownership in Excite Asia Pacific. Excite will account for its interest in the
joint venture under the equity method.
 
     Excite UK
 
     In January 1999, the Company and British Telecom Holdings Ltd ("BT")
entered into a joint venture agreement whereby BT purchased 50% of the shares of
Excite UK Ltd, that had been a wholly-owned subsidiary of the Company. The new
joint venture company, which will continue to be known as Excite UK Ltd., will
be owned 50% by the Company and 50% by BT, and will continue to provide an
Excite branded, advertising and commerce supported Web portal for the market in
the United Kingdom. BT will contribute a total of 6,250,000 Pounds Sterling.
Excite will contribute the core technology, related services and brand name.
Excite will account for its interest in the joint venture under the equity
method.
 
                                       58
<PAGE>   59
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. SEGMENT INFORMATION
 
     The Company operates in the Internet navigation industry and the Internet
ad serving and targeting business segments. Prior to the merger with MatchLogic,
which began operations in May 1997, the Company operated only in the Internet
navigation industry. The Company's management has determined the operating
segments based upon how the business is managed and operated. MatchLogic, which
provides Internet ad serving and targeting services, operates as an independent
subsidiary of the Company with its own sales force, research and development and
operations departments.
 
     Information by Operating Segment:
 
<TABLE>
<CAPTION>
                                                              INTERNET     AD SERVING
                                                             NAVIGATION    & TARGETING     TOTAL
(IN THOUSANDS)                                               ----------    -----------    --------
<S>                                                          <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 1998
Operating information:
  Revenues from external customers                            $126,370      $ 28,990      $155,360
  Gross profit                                                $100,308      $ 25,566      $125,874
  Distribution license fees and data acquisition costs        $ 14,899      $  6,824      $ 21,723
  Segment operating loss                                      $(29,269)     $ (4,919)     $(34,188)
Balance sheet information at December 31, 1998:
  Total assets                                                $205,662      $ 15,011      $220,673
 
YEAR ENDED DECEMBER 31, 1997
Operating information:
  Revenues from external customers                            $ 51,863      $  3,963      $ 55,826
  Gross profit                                                $ 30,688      $  3,537      $ 34,225
  Distribution license fees and data acquisition costs        $  7,615      $  1,750      $  9,365
  Segment operating loss                                      $(35,273)     $(10,931)     $(46,204)
Balance sheet information at December 31, 1997:
  Total assets                                                $ 75,893      $  3,263      $ 79,156
</TABLE>
 
     Information by Geographic Area:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
(IN THOUSANDS)                                               --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues:
  United States operations
     United States customers                                 $151,135    $ 53,798    $ 14,787
     International customers                                      211         831          36
                                                             --------    --------    --------
                                                              151,346      54,629      14,823
  International operations:
     International customers                                    4,014       1,197          --
                                                             --------    --------    --------
          Total revenues                                     $155,360    $ 55,826    $ 14,823
                                                             ========    ========    ========
Operating loss:
  United States operations                                   $(31,867)   $(42,808)   $(45,105)
  International operations                                     (2,321)     (3,396)       (129)
                                                             --------    --------    --------
          Total operating loss                               $(34,188)   $(46,204)   $(45,234)
                                                             ========    ========    ========
</TABLE>
 
                                       59
<PAGE>   60
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
(IN THOUSANDS)                                               --------    --------    --------
<S>                                                          <C>         <C>         <C>
Long-lived assets:
  United States operations                                   $ 72,074    $ 21,729    $ 21,198
  International operations                                         81         313          --
                                                             --------    --------    --------
                                                             $ 72,155    $ 22,042    $ 21,198
                                                             ========    ========    ========
Total assets:
  United States operations                                   $217,789    $ 78,051    $ 48,780
  International operations                                      2,884       1,105          30
                                                             --------    --------    --------
                                                             $220,673    $ 79,156    $ 48,810
                                                             ========    ========    ========
</TABLE>
 
12. RELATED PARTY TRANSACTIONS
 
     Intuit
 
     In June 1997, the Company sold 5,800,000 shares of the Company's Common
Stock to Intuit at a price of $6.75 per share. Proceeds from this offering were
approximately $38.4 million net of offering costs. Also in June 1997, the
Company entered into a Joint Activities Agreement with Intuit. Under this
agreement, Intuit became the exclusive provider and aggregator of financial
content on all of Excite's services, and Excite became the exclusive search and
navigation service featured in the U.S. versions of Intuit's Quicken, Quickbooks
and TurboTax products. Under this agreement, the two companies share certain
revenues and expenses at varying amounts throughout the seven year term of this
agreement. For the years ended December 31, 1998 and 1997 the Company recorded
approximately $8.3 million and $1.5 million due to Intuit under this agreement,
of which approximately $5.1 was unpaid as of December 31, 1998.
 
     The Company borrowed $50.0 million from Intuit, which is a principal
stockholder of the Company, in April 1998 to fund a portion of the Company's
cash payment obligation to Netscape under the Netcenter Agreement. The loan bore
interest at 5.9% per annum and was due no later than October 30, 1998. In June
1998, the Company repaid the loan in full, plus interest of approximately
$410,000, with proceeds from the Company's public offering, which closed in June
1998. See Note 7.
 
     America Online
 
     In November 1996, the Company entered into a five-year distribution
agreement with America Online ("AOL") which expires in November 2001 under which
a co-branded version of the Excite search and directory service, AOL NetFind
Powered by Excite, is designated as the exclusive Web search and directory
service for the AOL service for an initial two-year period ending in November
1998. In 1998, the exclusive period was extended by AOL beyond the initial
two-year term through December 31, 1999. If the exclusive period is not extended
by AOL beyond December 31, 1999, the co-branded service would become the
"default" search and directory service of AOL. Excite will also advertise AOL's
service on Excite and AOL will pay a commission to the Company for new AOL
subscribers referred from these advertisements. The Company is also required to
satisfy certain technical, product feature and editorial criteria. Revenues
associated with this agreement for the year ended December 31, 1998 was $4.8
million. Revenues and expenses associated with this agreement for the years
ended December 31, 1997 and 1996 were not material.
 
                                       60
<PAGE>   61
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Notes Receivable from an Officer
 
     In 1998, the Company provided an officer of the Company a loan option for
$750,000. In December 1998, the officer exercised this loan option and borrowed
$675,000 from the Company. This note receivable bears interest at 4.4%
compounded quarterly and is secured by the officer's stock options of the
Company. This note receivable is due upon the earlier of the following events:
at the end of the officer's third year of employment with the Company (August
2001); the fair value of the stock option falls below $750,000; or if employment
with the Company is terminated for any reason. At December 31, 1998, the
outstanding $675,000 note receivable is included in other current assets.
Accrued interest as of December 31, 1998 was not material.
 
     Other Related Party Transactions
 
     In December 1998, MatchLogic, a wholly-owned subsidiary of Excite, invested
in a small company that collects and provides user profiles. MatchLogic
contributed targeting technology in exchange for an ownership of 19% in the
company. Revenues associated with providing clickstream data and anonymous
profiles to the Company for the year ended December 31, 1998, was $3.5 million.
This amount was paid in full to the Company in December 1998.
 
13. NETSCAPE AGREEMENT
 
     In April 1998, the Company and Netscape entered into a two-year agreement
(the "Netcenter Agreement") with respect to Netscape's "Netcenter" online
service. Under the Netcenter Agreement, the Company will provide programming and
content for the Co-Branded channels to be offered on Netscape's Netcenter online
service and will develop a Web search and directory service for Netscape
(collectively, the "Co-Branded Services"). In addition, the Company's
Classifieds2000 service will be featured as the provider of classified
advertising (excluding career and job posting classified ads) for the Netcenter
service. The Company will also be featured as a "premier provider" on the "Net
Search" page of Netscape's Web site and will also be similarly featured on the
Netcenter Widget Tool. The Company will be responsible for advertising sales
for, and will pay to Netscape a percentage of advertising revenues generated
from, the Co-Branded Netcenter channels, the search service and the directory
service, and will also be required to make payments based upon the amount of
traffic generated from the Net Search page and the Netcenter Widget Tool. The
Company has paid a total of $70.0 million as a prepayment of its obligations
under the Netcenter Agreement. In addition, the Company has issued a warrant to
Netscape to purchase 846,158 shares of the Company's Common Stock at an exercise
price of approximately $29.55 per share and a second warrant to purchase shares
of the Company's Common Stock at an aggregate exercise price of $10.0 million.
The original fair value assigned to the warrants was $16.1 million.
 
     In the second quarter of 1998 the Company capitalized $29.3 million as
Prepaid Distribution Fees and charged $56.8 million to operations as a
non-recoverable portion of the prepayment to Netscape. The Company had
previously concluded that there was no reasonable basis to assume a probable
recovery of the value of the prepayment and warrants issued to Netscape.
Specifically, the Company had developed a valuation model to calculate the
anticipated incremental net revenues that would be earned from the Netcenter
Agreement over its term of two-years. This model determined that an amount of
$56.8 million was not expected to be recovered from anticipated future revenue
streams. Accordingly, the Company expensed this amount in its originally
reported June 30 1998 operating results.
 
     After discussions with the Staff of the Securities and Exchange Commission,
the Company revised the original accounting for this transaction and increased
the fair value of the warrants issued to Netscape by $3.8 million. The total
consideration of $89.9 million has been capitalized as Prepaid Netscape
Distribution Costs and Trademarks. The amount capitalized represents the amount
of the sum of the prepayments ($70.0 million) and the revised valuation of the
warrants issued ($19.9 million) from the
 
                                       61
<PAGE>   62
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
Netcenter Agreement. The $89.9 million, representing the combined value of
marketing and distribution rights, trademarks and other exclusive rights, which
extend over the term of the Netcenter Agreement, will be recognized ratably over
the term of the agreement as distribution services are received, commencing with
the launch of the service in June 1998. Prepaid Netscape Distribution Costs and
Trademarks consists of the following:
 
<TABLE>
<CAPTION>
                                                       CAPITALIZED      AMORTIZATION      BALANCE AS OF
                                                      AMOUNTS AS OF    JUNE 1, 1998 TO      DECEMBER
                                                        APRIL 30,       DECEMBER 31,           31,
                                                          1998              1998              1998
(IN THOUSANDS)                                        -------------    ---------------    -------------
<S>                                                   <C>              <C>                <C>
Prepaid distribution license fees and data
  acquisition costs                                      $29,285          $ (5,776)          $23,509
Prepaid Netscape service                                  50,591           (14,757)           35,834
Prepaid trademark license                                 10,000            (2,916)            7,084
                                                         -------          --------           -------
                                                         $89,876          $(23,449)          $66,427
                                                         =======          ========           =======
</TABLE>
 
     During the year ended December 31, 1998, the Company amortized $23.5
million to operations. The $23.5 million charge to operations is as follows:
$5.8 million is included in Distribution License Fees and Data Acquisition Costs
and $17.7 million is reported separately as Amortization of Prepaid Netscape
Service.
 
     In July 1998, Netscape exercised a portion of the warrant issued under the
Netcenter Agreement and paid approximately $5.9 million to purchase 200,000
shares of the Company's Common Stock.
 
14. OTHER SIGNIFICANT AGREEMENTS
 
     In April 1996, Excite and McKinley each entered into agreements with
Netscape under which they were each designated as one of five "premier
providers" of search and navigation services accessible from the "Net Search"
button on the Netscape home page. These agreements provided that the "premier
provider" status was established for one year from April 1, 1996, in exchange
for which the Company made payments in cash and delivery of advertising
impressions totaling $10.0 million over the course of the year. These contracts
were subsequently extended to April 30, 1997.
 
     In March 1997, the Company entered into an agreement to continue the
premier provider arrangement for the Excite brand, and a marquee provider
agreement for the WebCrawler brand covering the period from May 1, 1997 through
April 30, 1998. Under the terms of these agreements, the Company was committed
to make minimum payments of $8.25 million in exchange for a guaranteed number of
impressions. Of the $8.25 million minimum, a portion was being applied towards
advertising by Netscape on the Excite Network over the one year term of the
agreements based upon delivery of such advertisements, with the remainder being
paid in cash at intervals over the term of the agreements.
 
     In June 1997, the Company entered into a Co-Marketing Services Agreement
and a Trademark License Agreement with Netscape. Under these agreements, the
Company is responsible for the programming, production, operations and
advertising sales of "International Netscape Guide by Excite", a new service
being made available in Australia, France, Germany, Japan and the United
Kingdom. In connection with these agreements, the Company made a payment of $4.0
million to Netscape in July 1997, which is being amortized over the terms of
these agreements to distribution license fees expense. At December 31, 1998, the
unamortized portion of this payment of $2.5 million was included in other
assets.
 
15. LITIGATION
 
     On November 18, 1996, Kristine Paaso and Laura Lindsey filed a complaint in
the California Superior Court, Santa Clara County, against the Company and
certain of its founders alleging breach of
 
                                       62
<PAGE>   63
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
an alleged oral agreement, breach of fiduciary duty and fraud. The plaintiffs
allege that they participated in the creation of the Company's business plan and
were entitled to participate as officers and stockholders of the Company. The
complaint seeks an unspecified amount of damages, including punitive damages. In
February 1998, the Court granted the Company a motion for summary judgment to
this complaint and entered judgment in favor of the Company and the individual
defendants on all claims. The plaintiffs have subsequently filed a notice of
appeal from the judgment. The Company intends to continue to defend this action
vigorously. It may not be possible to ascertain the definitive outcome of this
litigation at this time, an unfavorable outcome may have an adverse effect on
the Company's business, results of operations and financial condition.
 
     The Company is also subject to other legal proceedings and claims that
arise in the ordinary course of business. Management currently believes that the
ultimate amount of liability, if any, with respect to any pending actions,
either individually or in the aggregate, will not materially affect the
financial position, results of operations or liquidity of the Company. However,
the ultimate outcome of any litigation is uncertain. If an unfavorable outcome
were to occur, the impact may be material. Furthermore, any litigation,
regardless of the outcome, may have an adverse impact on the Company's results
of operations as a result of defense costs, diversion of management resources,
and other factors.
 
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                               ---------------------------------------------------
                                               MARCH 31    JUNE 30     SEPTEMBER 30    DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)          --------    --------    ------------    -----------
<S>                                            <C>         <C>         <C>             <C>
1998:
Revenues                                       $24,256     $ 33,005      $44,004        $ 54,095
Cost of revenues:
  Hosting costs                                  2,788        3,667        4,447           5,259
  Royalties and other cost of revenues           3,219        2,792        3,277           4,037
                                               -------     --------      -------        --------
          Total cost of revenues                 6,007        6,459        7,724           9,296
Gross profit                                    18,249       26,546       36,280          44,799
Operating expenses:
  Research and development                       6,252        7,291        8,151           7,863
  Sales and marketing                           10,776       14,918       16,294          21,086
  Distribution license fees and data
     acquisition costs                           3,986        5,179        5,664           6,894
  General and administrative                     3,115        3,928        4,264           5,625
  In-process technology                             --        6,200           --              --
  Merger and acquisition related costs,
     including amortization of goodwill and
     other purchased intangibles                   977        1,920        1,177             829
  Amortization of prepaid Netscape service          --        2,525        7,574           7,574
                                               -------     --------      -------        --------
          Total operating expenses              25,106       41,961       43,124          49,871
Operating loss                                  (6,857)     (15,415)      (6,844)         (5,072)
Interest income                                    402          385          420             418
Interest expense and other                        (610)      (1,034)        (561)           (657)
Equity share of losses of affiliated company      (479)        (551)        (614)           (490)
                                               -------     --------      -------        --------
Net loss                                       $(7,544)    $(16,615)     $(7,599)       $ (5,801)
                                               =======     ========      =======        ========
Basic and diluted net loss per share           $ (0.18)    $  (0.36)     $ (0.15)       $  (0.11)
                                               =======     ========      =======        ========
Shares used in computing net loss per share     41,336       46,600       50,339          51,511
                                               =======     ========      =======        ========
</TABLE>
 
                                       63
<PAGE>   64
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED,
                                               ---------------------------------------------------
                                               MARCH 31    JUNE 30     SEPTEMBER 30    DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)          --------    --------    ------------    -----------
<S>                                            <C>         <C>         <C>             <C>
1997:
Revenues                                       $ 8,021     $ 10,476      $16,394        $ 20,935
Cost of revenues:
  Hosting costs                                  1,852        1,701        2,539           2,555
  Royalties and other cost of revenues             663          679        1,271           2,127
  Amortization of purchased technology           2,399        1,938        1,939           1,938
                                               -------     --------      -------        --------
          Total cost of revenues                 4,914        4,318        5,749           6,620
Gross profit                                     3,107        6,158       10,645          14,315
Operating expenses:
  Research and development                       3,373        4,064        4,767           5,996
  Sales and marketing                            6,745        7,903        8,607          11,056
  Distribution license fees and data
     acquisition costs                              30        1,707        3,216           4,412
  General and administrative                     2,087        2,412        3,365           4,354
  In-process technology                             --        2,346           --              --
  Merger and acquisition related costs,
     including amortization of goodwill and
     other purchased intangibles                   953          463          530           2,043
                                               -------     --------      -------        --------
          Total operating expenses              13,188       18,895       20,485          27,861
Operating loss                                 (10,081)     (12,737)      (9,840)        (13,546)
Interest income                                    251          277          409             380
Interest expense and other                        (123)        (248)        (348)           (731)
Equity share of losses of affiliated company        --           --           --            (477)
                                               -------     --------      -------        --------
Net loss                                       $(9,953)    $(12,708)     $(9,779)       $(14,374)
                                               =======     ========      =======        ========
Basic and diluted net loss per share           $ (0.39)    $  (0.48)     $ (0.30)       $  (0.42)
                                               =======     ========      =======        ========
Shares used in computing net loss per share     25,394       26,482       32,900          34,139
                                               =======     ========      =======        ========

1996:
Revenues                                       $ 1,374     $  2,816      $ 4,082        $  6,551
Cost of revenues:
  Hosting costs                                    246          413        1,015           1,622
  Royalties and other cost of revenues             143           14          160             370
  Amortization of purchased technology              --           --           --             186
                                               -------     --------      -------        --------
          Total cost of revenues                   389          427        1,175           2,178
Gross profit                                       985        2,389        2,907           4,373
Operating expenses:
  Research and development                       1,376        2,109        2,132           2,646
  Sales and marketing                            2,489        3,203        6,394           9,272
  Distribution license fees and data
     acquisition costs                           1,625       10,000          253              --
  General and administrative                     1,141        2,812        2,007           1,795
  In-process technology                             --           --           --           3,500
  Merger and acquisition related costs,
     including amortization of goodwill and
     other purchased intangibles                    --           73        2,292             769
                                               -------     --------      -------        --------
          Total operating expenses               6,631       18,197       13,078          17,982
Operating loss                                  (5,646)     (15,808)     (10,171)        (13,609)
Interest income                                     30          492          539             403
Interest expense and other                         (28)        (121)        (111)           (149)
                                               -------     --------      -------        --------
Net loss                                       $(5,644)    $(15,437)     $(9,743)       $(13,355)
                                               =======     ========      =======        ========
Basic and diluted net loss per share           $ (1.35)    $  (0.67)     $ (0.41)       $  (0.56)
                                               =======     ========      =======        ========
Shares used in computing net loss per share      4,170       22,903       23,647          23,872
                                               =======     ========      =======        ========
</TABLE> 
                                       64
<PAGE>   65
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
17. SUBSEQUENT EVENTS (UNAUDITED)
 
     At Home Merger
 
     On January 19, 1999, Excite, At Home Corporation ("At Home"), an Internet
service provider aimed at broadband cable subscribers, and Countdown Acquisition
Corporation, entered into a definitive Agreement and Plan of Reorganization,
(the "Merger Agreement").
 
     Pursuant to the Merger Agreement, Excite will become a wholly-owned
subsidiary of At Home. At the effective time of the Merger, all outstanding
shares of Excite's Capital Stock will be exchanged for shares of At Home's
Series A Common Stock, and options and warrants to purchase Excite's Capital
Stock will be exchanged for options or warrants, as applicable, to purchase
shares of At Home's Series A Common Stock. Each share of Excite's Common Stock
will be exchanged for 1.041902 shares of At Home's Series A Common Stock. The
exercise price and number of shares of Excite's Capital Stock subject to Company
options or warrants, will be appropriately adjusted to reflect the exchange
ratio. Any outstanding convertible debt at the effective time of the Merger,
will thereafter be convertible into the number of shares of At Home's Series A
Common Stock to which a holder of Excite's Common Stock would have been entitled
to receive if the holder had converted the convertible debt into Excite's Common
Stock prior to the Merger. The transaction is intended to qualify as a tax-free
reorganization and will be accounted for as a purchase.
 
                                       65
<PAGE>   66
                                  EXCITE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     In connection with the execution of the Merger Agreement, Excite and At
Home entered into a Stock Option Agreement (the "Stock Option Agreement")
pursuant to which Excite granted to At Home an option to purchase up to 19.9% of
the outstanding shares of Excite's Common Stock, which is exercisable upon the
occurrence of certain events specified in the Stock Option Agreement.
 
     The Merger, which is expected to close in the second quarter of 1999, is
subject to various conditions, including clearance under the Hart-Scott-Rodino
Antitrust Improvements Act and approval of the Excite's and At Home's
stockholders.
 
     Excite may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. Excite has filed the
Merger Agreement with the Securities and Exchange Commission on January 20, 1999
under its Report on Form 8-K.
 
     Netscape Warrant Exercise
 
     In January and February 1999, Netscape exercised a portion of the warrant
issued under the Netcenter Agreement and paid approximately $19.1 million to
purchase 646,158 shares of the Company's Common Stock.
 
     Related Party Transaction
 
     In January 1999, AOL sold approximately 4,900,000 shares of Excite Common
Stock. As a result, of this sale, AOL ceased to be the beneficial owner of more
than five percent of Excite's Common Stock on that date.
 
                                       66
<PAGE>   67
 
                                    PART IV
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
 
                                          EXCITE, INC.
 
Date: April 21, 1999                      By: /s/ ROBERT C. HOOD
                                            ------------------------------------
                                              ROBERT C. HOOD
                                              Executive Vice President, Chief
                                              Administrative Officer and Chief
                                              Financial Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                          NAME                                        TITLE                    DATE
                          ----                                        -----                    ----
<S>                                                       <C>                             <C>
PRINCIPAL EXECUTIVE OFFICERS:
 
/s/ GEORGE BELL                                            Chief Executive Officer and    April 21, 1999
--------------------------------------------------------   Director
George Bell
 
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
 
/s/ ROBERT C. HOOD                                         Executive Vice President,      April 21, 1999
--------------------------------------------------------   Chief Administrative Officer
Robert C. Hood                                             and Chief Financial Officer
 
ADDITIONAL DIRECTORS:
 
/s/ JOSEPH R. KRAUS                                        Senior Vice President          April 21, 1999
--------------------------------------------------------   and Director
Joseph R. Kraus
 
/s/ VINOD KHOSLA                                           Director                       April 21, 1999
--------------------------------------------------------
Vinod Khosla
 
/s/ JEFFREY BERG                                           Director                       April 21, 1999
--------------------------------------------------------
Jeffrey Berg
 
/s/ GEOFFREY Y. YANG                                       Director                       April 21, 1999
--------------------------------------------------------
Geoffrey Y. Yang
</TABLE>
 
                                       67
<PAGE>   68
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit           Description
-------           -----------
<S>               <C>
 23.1             Consent of Ernst & Young LLP

 27.1             Financial Data Schedule

</TABLE>