<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                     FORM 10-K

                 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

               [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM _______ TO _______

                          Commission file number 000-0799

                              EARTHLINK NETWORK, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

         DELAWARE                                       95-481766
(STATE OF INCORPORATION)                 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

                  3100 NEW YORK DRIVE, PASADENA, CALIFORNIA 91107
            (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                   (626) 296-2400
                   (REGISTRANT'S TELEPHONE, 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, $.01
                                     par value

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

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

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

The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 9, 1998 was $279,364,000.  There were
11,445,792 shares of Common Stock outstanding as of March 9, 1998.

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                              EARTHLINK NETWORK, INC.
                             ANNUAL REPORT ON FORM 10-K
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                 TABLE OF CONTENTS

                                       PART I

<TABLE>

<S>                                                                      <C>
Item 1.  Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 2.  Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Item 3.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .12

Item 4.  Submission of Matters to a vote of Security-Holders . . . . . . .12

                                      PART II

Item 5.  Market for Registrant's Common Equity and
         Related Stockholder Matters . . . . . . . . . . . . . . . . . . .13

Item 6.  Selected Financial Data . . . . . . . . . . . . . . . . . . . . .14

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations . . . . . . . . . . . . . . . . . . . .15

Item 8.  Financial Statements and Supplementary Data . . . . . . . . . . .22

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure. . . . . . . . . . . . . . . . . . . . .22

                                      PART III

Item 10.  Directors and Executive Officers of the Registrant . . . . . . .23

Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . . . .23

Item 12.  Security Ownership of Certain Beneficial
          Owners and Management. . . . . . . . . . . . . . . . . . . . . .23

Item 13.  Certain Relationships and Related Transactions . . . . . . . . .23

                                      PART IV

Item 14.  Exhibits, Financial Statements and Reports on Form 8-K . . . . .24

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

INDEX OF FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . F-1

EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>

<PAGE>

     THIS REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES.  ACTUAL EVENTS AND RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS.  SEE ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - SAFE HARBOR STATEMENT".

                                       PART I

ITEM 1.  BUSINESS.

OVERVIEW

   EarthLink Network, Inc. ("EarthLink" or the "Company"), the winner of PC
MAGAZINE'S 1997 Editor's Choice Award as best Internet and online service
provider, is an Internet service provider ("ISP"), that was founded to help its
members derive meaningful benefits from the extensive resources of the Internet.
The Company focuses on providing access, information, assistance and services to
its members to encourage their introduction to the Internet and to provide them
with a satisfying user experience.

   The Company provides its services through its EarthLink Network
TotalAccess-TM- software package, which is designed to simplify access to the
Internet through an online registration feature and a multimedia user interface.
This software permits members to browse the World Wide Web and the Internet
through the use of the latest Internet browsers from Netscape Communications
Corporation ("Netscape") and Microsoft Corporation ("Microsoft"), one or the
other of which is included in each copy of EarthLink Network TotalAccess, or
another third-party browser that a member may wish to use.  Members connect to
the Company's network via telephone modem at speeds up to 56Kbps, cable modems,
ISDN lines or frame relay connections.  The Company also provides useful
information and online resources to its members through its extensive World Wide
Web site.  On this site, members can find technical assistance information, an
online newsletter, links to numerous categories of popular information and
entertainment and many other items and services designed to enhance members'
satisfaction with their Internet experience. In addition, the Company provides
members with six megabytes of free Web space, a free Personal Start Page-TM-,
24-hour customer and technical support, a bi-monthly printed newsletter, and a
other educational materials.

   The Company currently markets its services through print and broadcast
advertisements, an affinity marketing program, a member referral program and
other marketing activities.  Its affinity marketing program includes
relationships with, among others, prominent retailers, print publications, and
software and hardware companies.  Member referrals have also been an important
source of new members, and the Company provides economic incentives (such as one
month's free access) to its members to encourage referrals.

   EarthLink also offers business services, including business Web site hosting,
high-speed ISDN communications capability and frame relay connectivity. In
addition, the Company offers promotional opportunities to members via
sponsorships through its Premier Partnership Program with advertising, marketing
and distribution partners.

   Incorporated in 1994 as a California corporation and reincorporated in 1996
as a Delaware corporation, EarthLink completed the initial public offering of
2,284,750 shares of its Common Stock in the first quarter of 1997.

STRATEGIC ALLIANCE WITH SPRINT

     On February 10, 1998, EarthLink, Sprint Corporation ("Sprint"), an
affiliate of Sprint, Sprint Communications Company L.P. ("Sprint L.P."), and an
entity created by the Company, Dolphin, Inc.  ("Newco"), entered into an
Investment Agreement (the "Investment Agreement").  The Investment Agreement
contemplates a strategic relationship in the area of Internet access and related
services, and addresses the terms and conditions of a proposed investment by
Sprint in the Company and related


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transactions (collectively, the "Sprint Transactions").  Pursuant to the
Investment Agreement, Sprint has commenced a tender offer to purchase 1,250,000
shares of Common Stock of the Company, $.01 par value ("Common Stock"), for an
aggregate cash consideration of $56,250,000, at a price per share of Common
Stock of $45 net in cash to each seller (the "Offer"), upon the terms and
subject to the conditions set forth in the Investment Agreement.  The Board of
Directors of the Company approved the Offer and the other Sprint Transactions
prior to the commencement of the Offer, and has recommended that the Company's
stockholders who wish to receive cash for their shares of Common Stock accept
the Offer.

     Immediately following the closing of the Offer, Sprint L.P. proposes to
purchase 4,102,941 shares of Series A Convertible Preferred Stock, par value
$.01 per share of Newco (the "Convertible Preferred Stock"), in exchange for (i)
aggregate cash consideration of $23,750,000, (ii) the assignment to Newco of
100% of Sprint L.P.'s "Sprint Internet Passport" subscribers which management
believes will be approximately 130,000 subscribers, and (iii) entering into a
Network Service Agreement whereby Newco and the Company will utilize Sprint's
dial-up access communications network under specified terms and conditions.  In
addition, Sprint will enter into a Marketing and Distribution Agreement whereby
Newco and the Company will utilize the Sprint brand under specified terms and
conditions and will, among other things, have the right to use Sprint
distribution channels under specified terms and conditions and agree to sell
certain Sprint products.  Sprint will also provide Newco and the Company, as
co-borrowers, with up to $25 million of convertible senior debt financing on or
after the closing of the transaction, with such amount to increase to up to $100
million over time, such indebtedness to be evidenced by one or more Convertible
Senior Promissory Notes (the "Convertible Notes").

     The closing of the acquisition of the Convertible Preferred Stock and the
other Sprint Transactions other than the Offer will take place concurrently with
a merger of a wholly-owned subsidiary of Newco into the Company (the "Merger"),
and the conversion of each share of Common Stock outstanding into one share of
common stock of Newco, par value $.01 per share ("Newco Common Stock") pursuant
to the Merger, in each case upon the terms and subject to the conditions set
forth in the Investment Agreement and the ancillary agreements.  Upon
consummation of the Merger, the Company, as the corporation surviving the
Merger, will be a wholly-owned subsidiary of Newco.  Newco will make application
to have the Newco Common Stock included in The  Nasdaq National Market.

     Consummation of the Offer and the other Sprint Transactions is subject to
certain conditions, including (i) expiration of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and (ii) the
approval by the Company's stockholders of the Merger, the issuance and sale of
the Convertible Preferred Stock, the Convertible Notes and the Newco Common
Stock issuable upon conversion of the Convertible Preferred Stock and the
Convertible Notes and any related matters that must be approved by the holders
of Common Stock or Newco Common Stock in order for the Sprint Transactions to be
consummated (collectively, the "Company Stockholder Vote Matters").  The Company
anticipates it will obtain the necessary approvals, meet the conditions of
closing and consummate the Sprint Transactions.  However, there can be no
assurance that the Sprint Transactions will be completed as planned.

     To induce Sprint and Sprint L.P. to enter into the Investment Agreement and
the ancillary agreements, and to consummate the Sprint Transactions, certain
stockholders of the Company executed and delivered to Sprint and Sprint L.P. an
Agreement to Vote Stock, which obligates the parties thereto to vote shares of
Common Stock held by them in favor of the Company Stockholder Vote Matters, and
certain other stockholders of the Company executed and delivered to Sprint and
Sprint L.P. an Agreement to Vote and Tender Stock, which obligates the parties
thereto to tender shares of Common Stock held by them to Sprint and to vote such
stock in favor of the Company Stockholder Vote Matters.

     In connection with the Investment Agreement, the Company, Newco, Sprint and
Sprint L.P. entered into a Governance Agreement, which will take effect upon the
closing of the Sprint Transactions.  The Governance Agreement establishes
certain terms and conditions concerning the corporate governance of Newco upon
consummation of the Sprint Transactions, the acquisition and disposition of
equity


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securities of Newco by Sprint, Sprint L.P. and any of their respective
affiliates (collectively, "Affiliated Equity Holders"), the rights of Sprint to
make offers to purchase all of the outstanding securities of Newco not owned by
Affiliated Equity Holders and the rights of the Board of Directors of Newco to
receive and entertain offers to effect "business combinations" (as defined in
the Governance Agreement).  The Company and certain of its stockholders have
entered into a Stockholders' Agreement with Sprint and Sprint L.P., which
obligates such stockholders, under certain terms and conditions described
therein, to take action in support of the Company's obligations to Sprint and
Sprint L.P. under the Governance Agreement.

     The Offer and the other Sprint Transactions are expected to be consummated
during the second quarter of 1998.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Safe Harbor Statement."


STRATEGY

     The principal components of EarthLink's growth strategy are as follows:

     RAPIDLY EXPAND ITS MEMBER BASE THROUGH AGGRESSIVE MARKETING.  EarthLink
believes that a key to success in the competitive ISP market is to rapidly
expand its member base to establish a significant revenue base and to take
advantage of economies of scale.  The Company acquires members primarily through
its affinity marketing programs, advertising and referrals from existing
members.

     RETAIN EXISTING MEMBERS.  The sales, marketing and other costs of acquiring
new members are substantial relative to the monthly fee collected from such
members.  Accordingly, the Company believes that a part of if its long-term
success largely depends on member retention. To that end, EarthLink will
continue to devote significant resources to expanding its 24-hour customer and
technical support, enhancing its network operations capability, and refining and
maintaining its World Wide Web site. In addition, the Company will continue to
minimize call times by implementing a new call center and providing the
training, hardware and software tools that can assist the staff in identifying
and solving member problems thereby increasing member satisfaction and
retention.

     CONCENTRATE ON CORE COMPETENCIES BY LEASING NETWORK SERVICES AND LICENSING
SOFTWARE FROM THIRD PARTIES.  In order to maintain its focus on member needs,
the Company leverages the infrastructure and software development efforts of
others by leasing its dial-up point of presence ("POP") capacity from UUNET
Technologies, Inc. ("UUNET") and PSINet Inc. ("PSINet"), and licensing software
from companies such as Netscape and Microsoft.  Upon closing of the Sprint
Transactions, the Company and its members will also have access to Sprint points
of presence and the related communications network.  See "Strategic Alliance
with Sprint". The Company believes that this approach gives it flexibility to
rapidly expand its service coverage without the need for substantial capital
expenditures. The Company will continue to pursue this strategy so that, in
addition to its sales and marketing efforts, it can devote its principal
resources to improving its members' experience with the Internet.


EARTHLINK'S SERVICES

     EarthLink provides a variety of competitively priced Internet services
to consumer and business members. The Company enables the majority of these
services through use of its EarthLink Network TotalAccess software package.
This software incorporates a telephone dialer and email functionality with
several leading third-party Internet access tools, including the latest
browsers from Netscape and Microsoft, thereby providing a functional,
easy-to-use Internet access solution for Windows 3.1, Windows 95 and
Macintosh platforms. EarthLink Network TotalAccess installation software
automatically installs these and other software applications on the member's
computer. The simple point-and-click functionality of EarthLink

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Network TotalAccess, combined with its easy-to-use multimedia registration
system, permits online credit card registration, allowing new EarthLink
members to quickly access the Internet.

     The prices quoted below are subject to change.

     STANDARD EARTHLINK NETWORK INTERNET SERVICES.  EarthLink provides its
members with a core set of features through its standard Internet service,
which allows unlimited access to the Internet, the World Wide Web as well as
other features and services, subject to EarthLink's acceptable use policy and
other member agreements and policies, for a flat monthly fee of $19.95 and a
one-time set up fee of $25. The following features are included in
EarthLink's standard internet service:

     EMAIL.  Each member is provided a mailbox, used to send and receive email.
Email allows members to exchange an unlimited number of multimedia text,
graphics, audio and video messages with other online and Internet users.

     WEB BROWSER.  EarthLink provides members a free Web browser.  Currently,
EarthLink offers its members Netscape Communicator 4.0 and Microsoft Internet
Explorer 4.0.  Members may also use any other browser of their choice.

     FREE 6MB WEB SPACE.  Each EarthLink member is provided six megabytes of
space on the Company's Web server to create the member's own Web home page, in
addition to tutorials and tools to help them develop their sites. This enables
each member to participate in the Internet community by personally adding
content to the World Wide Web.

     PERSONAL START PAGE.  The Company provides each member with a Personal
Start Page, an enhanced default home page for members.  Members can customize
their home page to include content from CNET's SNAP! Online service, and news
headlines from ClariNet. They also have the option to view stock quotes, sports
scores and weather reports and are provided a personal reminder system, as well
as a place to list their own personal Web links and links to EarthLink member
and technical support resources.

     RELIABLE NATIONWIDE POPS.  EarthLink members can access their accounts
nationwide from any of the Company's 1,115 POPs.  More than 400 of these allow
56Kbps access.  Upon closing of the Sprint Transaction, the Company's members
will also have acces to Sprint's system of POPs.  See "Strategic Alliance with
Sprint."

     PUBLICATIONS.  EarthLink mails its bi-monthly printed newsletter, BLINK, to
each of its members. BLINK provides members with useful information, such as
tips on how to search for certain categories of information on the Internet,
information regarding new EarthLink service offerings, new Internet sites and
other items of interest. This publication is also available on the EarthLink
home page. Additionally, the Company provides its new members with an
orientation booklet called "Getting the Most Out of EarthLink," written by the
Company's founder, Sky Dayton.

     MEMBER AND TECHNICAL SUPPORT.  The Company believes that reliable member
and technical support is critical to retaining existing and attracting new
members. The Company currently provides the following types of member and
technical support services: (i) toll-free, live telephone assistance
available seven days a week, 24 hours a day; (ii) email-based assistance
available seven days a week, 24 hours a day; (iii) help sites and Internet
guide files on the EarthLink Web site; (iv) automated "fax back" and "fax on
demand" assistance; and (v) printed reference material. Additionally, the
Company provides dedicated support for its business members.

     EARTHLINK WEB SITE.  EarthLink has developed and maintains a Web site at
www.earthlink.net containing content and links to third-party content and
services. EarthLink's in-house staff actively seeks out interesting content
from across the World Wide Web and organizes it into areas of interest on the
EarthLink Web site under topics such as "What's Hot," "Hollywood," "News,"
"Finance" and "Games." The Company's

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Web site provides a road map to the abundance of information and services
available on the Internet. A user can browse the site and click on topics of
interest in order to link to desired information.  The site also contains Web
pages dedicated to online member assistance including technical support,
account maintenance and service updates.

     NEWSGROUPS.  One of the most popular areas of the Internet is Usenet, a
collection of Internet discussion groups called "newsgroups".  Usenet is a
system that is specifically designed to create and facilitate ongoing online
discussions of specific areas of interest.  There are currently more than
25,000 of these newsgroups discussing different topics.

     PREMIUM EARTHLINK NETWORK SERVICES.  In addition to its standard service,
the Company offers a variety of premium services, including the following:

     TOTALACCESS GOLD.  EarthLink recently introduced an optional value-added
package, TotalAccess Gold.  It includes an additional email box, priority
technical support with a guaranteed 5-minute maximum wait time, and a
quarterly CD-ROM containing of software tools and plug-ins.  The package adds
$9.95 to the monthly price of a standard dialup or ISDN account.

     BUSINESS WEB SITES.  The Company provides a Web hosting service for 
business members.  Monthly fees for business Web sites range from $89 to 
$455, plus one-time set up fees of $179 to $479, depending on the size of the 
site and whether the site is a shared or unique address.  A wide variety of 
options is available for an extra fee.  Additional traffic may apply for 
excess site traffic.  The Company also offers an introductory service for 
small businesses, STARTERSITE, which is a ten megabyte, unique-domain Web 
site priced at $19.95 per month, plus a one-time set up fee of $25.

     NATIONAL ISDN CONNECTIONS.  EarthLink offers nationwide high-speed ISDN
connections. ISDN provides significantly higher speeds than conventional analog
modems (up to 128 Kbps versus up to the current analog maximum of 56 Kbps).  The
monthly charge for ISDN is $34.95 for the first 100 channel hours, plus a
one-time set up fee of $50, and additional channel hours are $.99 each.

     NATIONAL LAN ISDN SERVICE.  Small to medium sized businesses can now
connect their entire existing local area network ("LAN") to the Internet at ISDN
speed with LAN ISDN.  The nationwide service uses dynamic IP addresses and costs
$99.95 per month for 160 channel hours and four email boxes. The set up fee of
$149 is waived for current EarthLink members, and additional hours cost $.85
each.

     NATIONAL FRAME RELAY.  Frame relay enables companies to connect their LANs
to the Internet via a direct, continuous connection at speeds ranging from 56
Kbps to 1,536 Kbps.  Frame relay connections, available nationwide, range from
$335 to $2,350 per month depending on access speeds, data throughput and other
data transfer metrics. One-time set up fees range from $495 to $1,995.

     THE EARTHLINK ONLINE MALL.  EarthLink's online shopping mall, the 
Mall-TM-, provides users with a one-stop gateway to some of the top retailers 
on the Web, using the familiar mall map interface.  Retailers such as The 
Disney Store-TM-, BarnesandNoble.com-TM- and 1-800-FLOWERS-TM- "lease" space 
in the Mall.

     INTERNET ROOMS.  Building on the concept of a person's real-life room, the
Internet Room is an easy to use communications tool enabling members to use
email, online chat and other advanced tools for communication.  The Internet
Rooms provide members with a powerful and easy way to establish Web sites
without having to rely on complicated programming languages such as HTML or FTP.
There is an annual fee of $29.95 for each Internet Room.

     PREMIER PARTNERSHIP PROGRAM. As part of its strategy to generate additional
incremental revenue and leverage its current properties, the Company developed
the premium partnership program.  The




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program  consists of the following three options: the "Platinum Package", the
"Gold Package" and the "Silver Package".  Each package includes advertising in
three separate areas: the Personal Start Page, the Mall and the member
newsletter, "bLink".  The client is promised a certain number of impressions,
calculated by multiplying the reach times the frequency times the population.
This program allows the partner to reach the Internet user in three different
locations.  EarthLink does not offer this program to every company; rather, it
is focusing on market segments that should enhance the Internet experience of
its member base.


     SUPPLEMENTAL SERVICES.  To augment its standard and premium services, the
Company provides its members with the following supplemental service options:

     ADDITIONAL MAILBOXES.  The Company provides additional electronic mailboxes
for a per-mailbox fee of $4.95 per month and a $9.95 set up fee.  The service is
intended for those members who require more than one mailbox for colleagues,
employees or family members.

     DOMAIN NAME SERVICE.  EarthLink provides unique or vanity domain names for
those members who prefer an individualized address or plan to establish a
business Web site.  These vanity domain names allow consumers and businesses to
customize their email and Web site addresses.  EarthLink charges a one-time fee
of $75 to set up domain name service and assist members in establishing their
unique domain names.  Members then pay an annual renewal fee to an Internet
domain registration agency.

     STAR EMAIL ADDRESSING.  EarthLink members desiring an unlimited choice of
email addresses (like "sales@domain.com" or "webmaster@domain.com") can purchase
star addressing.  Within the star addressing scheme, all email goes into a
central mailbox, for easy processing to individual addresses at the same domain.
There is a one-time set up fee of $125, but no monthly fee for maintaining the
service.

     INTERNATIONAL ROAMING SERVICE  EarthLink offers international roaming
services so that members who travel abroad can access their EarthLink accounts,
and the Internet.  The fee for roaming is a flat rate of 15 cents per minute
plus applicable fees, if any, charged by local and long distance carriers.

     800 SERVICE.  EarthLink provides 800 number dial-up service for members who
do not have access to a local POP. EarthLink charges members $24.95 per month
for five hours of 800 number service plus a one-time set up fee of $25.00.
Additional hours are $4.95 per hour.


Technical Development and Service Enhancement

     EarthLink places significant emphasis on expanding and refining its
services to enhance its members' Internet experience. EarthLink's technical
staff is engaged in a variety of technical development and service enhancement
activities and continuously reviews new third-party software products and
technology for potential incorporation into EarthLink's system and services.  A
recent result of these efforts is a ground-up revision of EarthLink Network
TotalAccess, version 2.0, which was recently introduced.  The new version places
a premium on ease of use, and incorporates a variety of powerful features that
reduce the number and types of challenges faced by new members using the
Internet for the first time.  EarthLink also regularly updates and expands the
online services provided through the EarthLink Web site. These activities
include organizing Web content and the development of online guides, help
screens and other user services and resources.



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SALES AND MARKETING

     EarthLink's sales and marketing efforts consist of the following programs:

     ADVERTISING.  The Company advertises its services in print, electronic and
broadcast media. Included in most of these advertisements is a toll-free 800
number for contacting the Company's internal sales staff.  When potential
members call a sales representative using this number, they are assigned a user
name and password, and are sent a copy of EarthLink Network TotalAccess
software, which they use to access their account and the Internet.

     Another component of EarthLink's advertising strategy involves maintaining
a presence at national trade shows such as Internet World and MacWorld, as well
as numerous local and regional trade shows. Additionally, the Company markets
through computer, Internet and related publications, and bundles EarthLink
Network TotalAccess software with a few of these publications.

      AFFINITY MARKETING PROGRAM.  EarthLink's affinity marketing program
promotes the Company through the distribution of the EarthLink Network
TotalAccess software package by its affinity marketing partners. These partners
typically bundle EarthLink Network TotalAccess software with their own goods or
services to create a package that gives potential members an incentive to
establish an EarthLink account.  EarthLink's marketing partners include, among
numerous others, Best Buy Co., CNET, CompUSA, CyberMedia, Hard Rock Cafe
America, Iomega, MacMillan Publishing USA, SAM'S Club, Sony Entertainment,
United Airlines and Warner Bros.

     SPRINT ALLIANCE.  EarthLink's alliance with Sprint includes a marketing 
agreement and distribution arrangement, which upon close of the Sprint 
Transactions will provide EarthLink with access to Sprint's branded marketing 
and distribution channels in the continental United States and a five-year 
commitment from Sprint to deliver a minimum of 150,000 new members annually. 
See - "Strategic Alliance with Sprint" and "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Safe Harbor 
Statement."

     MEMBER REFERRAL PROGRAM.  The Company believes that one of its most
important marketing tools is its existing members. In order to encourage members
to refer other users, the Company currently waives one month of standard access
service fees per referred member.  Approximately 25 percent of the Company's new
membership has been generated by referrals.

OTHER PROGRAMS

  -  ELITE PROGRAM.  EarthLink recently launched the EarthLink Internet
     Technology for Education (ELITE) program, which is designed to provide a
     cost-effective, flexible Internet access solution for colleges and
     universities.  The Company has already won contracts with two colleges in
     Georgia and with the University of California, Los Angeles (UCLA).

  -  PARTNER PROGRAM.  This program enables vendors, such as value-added
     resellers, retailers and other companies that target vertical
     markets to resell EarthLink's dial-up Internet service, along with high-end
     business services, such as Web site hosting, ISDN, LAN ISDN and frame
     relay, to their customers. Through this partnership, these companies can
     deliver a complete Internet product and service offering to their customers
     by providing them with a full range of turn-key, Internet business
     solutions.


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MEMBERS, POPS AND NETWORK INFRASTRUCTURE

     As of December 31, 1997, the Company had approximately 420,000 members.
The Company presently provides its members with Internet access primarily
through UUNET's and PSINet's nationwide system of Points of Presence ("POPs").
Substantially all of the Company's members access the EarthLink Network and the
Internet by dialing into local POPs.  Of these, the Company currently owns 58
POP sites in California and currently offers additional access through 841 UUNET
POPs and 374 PSINet POPs, to which it has access on a non-exclusive basis.   The
alliance with Sprint includes a Network Service Agreement which upon close of
the Sprint Transactions, will provide EarthLink members access to POPs owned and
operated by Sprint.  See - "Strategic Alliance with Sprint", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Safe
Harbor Statement."  The inability or unwillingness of these third-party network
providers to provide POP access to EarthLink's members, or the Company's
inability to secure alternative POP arrangements, could have a material adverse
effect on the Company.

     For members located in a geographic area not presently serviced by a local
POP, the EarthLink Network can be accessed by a toll-free number for which the
Company bills members on an hourly usage basis. The Company's POP sites are
connected to the Internet primarily through its network hub in Pasadena.  The
Company's network hub is in turn connected directly to the Internet via
redundant high-speed fiber optic data lines obtained from various vendors.  The
Company, however, does not maintain fully redundant data center and network hub
facilities.  Any accident, incident or system failure that causes interruptions
in the Company's operations could have a material adverse effect on the
Company's ability to provide Internet services to its members, and, in turn, on
the Company.  However, the Company has invested in measures to minimize the
effects of communications line failures, loss of electrical service, fire,
earthquakes and other adverse occurrences.

MEMBER AND TECHNICAL SUPPORT

     The Company believes that reliable member and technical support is critical
to retaining existing and attracting new members. The Company currently provides
the following types of member and technical support: (i) toll-free, live
telephone assistance available seven days a week, 24 hours a day; (ii)
email-based assistance available seven days a week, 24 hours a day; (iii) help
sites and Internet guide files on the EarthLink Web site; (iv) automated "fax
back" and "fax on demand" assistance; and (v) printed reference material.
Additionally, the Company provides dedicated support for its business members.

     EarthLink's call center is served by a state-of-the-art Lucent Definity
telephone switch, which currently handles approximately 30,000 calls a day.  The
system is easily scaleable to accommodate call volume growth.   The Company
actively evaluates its call center facilities so as to deliver more effective
and efficient services to its members.

SUPPLIER RELATIONSHIPS

     The Company is dependent on third-party software and hardware vendors to
provide the Company with much of its Internet software and hardware, including
the latest World Wide Web browser software that the Company licenses from
Netscape and Microsoft.  Failure of the Company's suppliers to provide software
or hardware in the quantities, at the quality levels or at the times required by
the Company, or an inability by the Company to develop alternative sources of
supply if required, could have a material adverse effect on the Company.

COMPETITION

     The Internet services market in which the Company operates is extremely
competitive, and the Company expects competition in this market to intensify in
the future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
(or in the


                                          8
<PAGE>

future is expected to compete) directly or indirectly with the following
categories of companies: (i) national and regional ISPs, such as BBN,
MindSpring, PSINet and UUNET; (ii) established online services such as America
Online, Prodigy and the Microsoft Network; (iii) nonprofit or educational ISPs;
(iv) national telecommunications companies, such as AT&T and MCI; (v) Regional
Bell Operating companies (RBOC); and (vi) cable operators, such as Comcast, TCI
and Time Warner.

     The entry of new competitors would result in greater competition for the
Company. In addition, competitors in the telecommunications industry may be able
to provide members with reduced communications costs in connection with their
Internet access services, reducing the overall cost of Internet access and
significantly increasing pricing pressures on the Company.  There can be no
assurance that the Company will be able to offset the adverse effect on revenues
of any necessary price reductions resulting from competitive pricing pressures.

     The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including market
presence; the adequacy of the Company's customer and technical support services;
the capacity, reliability and security of its network infrastructure; the ease
of access to and navigation of the Internet provided by the Company's services;
the pricing policies of the Company, its competitors and its suppliers; the
timing of introductions of new services by the Company and its competitors; the
Company's ability to support existing and emerging industry standards; and
industry and general economic trends. There can be no assurance that the Company
can maintain or develop the financial resources, technical expertise or
marketing and support capabilities to compete successfully.

PROPRIETARY RIGHTS

GENERAL

     EarthLink relies on a combination of copyright, trademark, patent and trade
secret laws and contractual restrictions to establish and protect its
technology.  It is EarthLink's policy to require employees and consultants and,
when possible, suppliers and distributors, to execute confidentiality agreements
upon the commencement of their relationships with the Company. There can be no
assurance that the steps taken by the Company will be sufficient to prevent
misappropriation of its technology and other proprietary property or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.

     From time to time, the Company has received communications from third
parties alleging that certain of the names or trademarks for the Company's
services infringe the trademarks of such third parties. To date, no such claims
have had an adverse effect on the Company's ability to market and sell its
services. However, there can be no assurance that those claims will not have an
adverse effect in the future or that other parties will not assert infringement
claims against the Company in the future with respect to current or future
services.

LICENSES

     EarthLink has obtained authorization, typically in the form of a 
license, to distribute third-party software incorporated in EarthLink Network 
TotalAccess.  Applications licensed by the Company include Netscape 
Communicator (which automatically renews each December for additional 
one-year terms unless either party terminates the license on 120 days 
notice), Microsoft Internet Explorer (which automatically renews each 
December for additional one-year terms, although either party may terminate 
the license at any time on 30 days notice), and MacTCP software from Apple 
(which automatically renews each December for additional one-year terms 
unless either party terminates the license on twelve-month notice). The only 
software in the EarthLink Network TotalAccess package that is developed by 
the Company is the front-end and installation/registration program. The 
Company currently intends to maintain or negotiate renewals of existing 
software licenses and authorizations. The Company may want or need to license 
other applications in the future. The failure to renew existing software 
licenses or the Company's inability to license additional applications could 
have a material adverse effect on the Company.

                                          9
<PAGE>

TRADEMARKS

     "EarthLink Network-Registered Trademark-," "EarthLink Network
TotalAccess-TM-," "bLink-TM-," "The Arena-TM-," "All the Internet You Can
Eat-TM-," "It's Your Internet-TM-," "Personal Start Page-TM-",
"StarterSite-TM-", "the Mall-TM-", and the EarthLink logo are trademarks of the
Company.  This Report includes trademarks of companies other than the Company.

GOVERNMENT REGULATION

     The Company provides Internet services, in part, through data 
transmissions over public telephone lines.  These transmissions are governed 
by regulatory policies establishing charges and terms for wire line 
communications.  The Company currently is not subject to direct regulation by 
the Federal Communications Commission (the "FCC") or any other governmental 
agency, other than regulations applicable to businesses generally.  However, 
in the future the Company could become subject to regulation by the FCC or 
another regulatory agency as a provider of basic telecommunications services. 
 The FCC has considered the issue of whether Internet service providers 
("ISPs") should be subject to access charges and regulation, and has 
determined that it would not adopt such regulations.  There are no active 
proceedings considering these specific issues at this time.  The FCC has 
announced, however, that it will be issuing a Notice of Proposed Rule Making 
("NPRM") to explore proposals to create incentives for companies to make the 
most efficient use of the telephone network for Internet and other 
information services.  While the FCC has announced that it does not intend 
for this Notice of Proposed Rule Making to consider the imposition of access 
charges or regulations on ISPs, it could result in the creation of more 
competition for the Company.  In addition, the FCC could reopen and 
reconsider these issues at any time.

     The recently enacted Telecommunications Act of 1996 (the
"Telecommunications Act") contains certain provisions that lift, or establish
procedures for lifting, certain restrictions relating to the regional Bell
operating companies' ("RBOC") ability to engage directly in the Internet access
business.  The Telecommunications Act also makes it easier for national long
distance carriers, such as AT&T, to offer local telephone service.  In addition,
the Telecommunications Act allows the RBOCs to provide electronic publishing of
information and databases.  The same regulations that permit ISPs to operate
outside of the regulations applied to carriers also permits other providers of
Internet services, including voice and facsimile services, to operate more
easily.  These could provide additional sources of competition for the Company.
As the FCC auctions wireless spectrum and relaxes the restraints for the use of
spectrum, it will be easier for additional wireless competitors to enter into
the marketplace.  Competition from these companies could have an adverse effect
on the Company's business.

     The Telecommunications Act, through the portion commonly known as the "1996
Communications Decency Act," imposed fines for certain uses of the Internet, and
the provision of access to indecent and obscene services.  These provisions were
struck down as unconstitutional by the Supreme Court of the United States in
June of 1997.  On March 12, 1998, the Senate Commerce Committee approved two
bills that reconstruct the unconstitutional provisions of the 1996
Communications Decency Act.  While it is too early to determine the ultimate
course of these bills, and to evaluate the constitutionality of the proposals,
there is a possibility that these provisions, if enacted, could pose possible
liability on ISPs.

     Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet, covering
issues such as content, user privacy, pricing, libel, intellectual property
protection and infringement and technology export and other controls.
Legislation has been introduced to define and protect citizens from illegal
Internet gambling.  Other Internet-related legislation has been introduced which
may limit commerce and discourse on the Internet. The FCC currently is
considering 1) whether ISPs are information service providers or
telecommunications providers; 2) whether ISPs are legally required to contribute
to the Universal Service Fund; 3) how various companies in the
Internet/information/data/telephony service provider field should be classified;
and 4) whether ISPs should benefit from the Universal Service Fund.  Changes in
the regulatory environment relating to the


                                          10
<PAGE>

Internet access industry, including regulatory changes that directly or
indirectly affect telecommunications costs or increase the likelihood or scope
of competition from RBOCs or others, could have a material adverse effect on the
Company.

EMPLOYEES

     As of December 31, 1997, the Company employed 785 people on a full-time
basis, including 98 sales and marketing personnel, 579 operations and customer
and technical support representatives and 108 administrative personnel. As of
that date, the Company also employed 22 people on a part-time basis.  None of
the Company's employees are represented by a labor union, and the Company is not
a party to any collective bargaining agreement.


                                          11
<PAGE>

ITEM 2.   PROPERTIES.

     EarthLink's corporate headquarters are located in an 85,500 square-foot
facility in Pasadena, California. In June 1997, the Company amended the lease
for its corporate headquarters facility.  Under the amended lease, the lessor
will provide improvements costing up to $1.4 million and convert approximately
45,000 square feet of the existing facility to office space.  Base rent is
currently $73,000 per month.   Under the amended lease, the Company increased
the existing irrevocable letter of credit to the lessor from $200,000 to
$450,000.  The Company has an option to extend this lease for an additional five
years at the then prevailing market rate following its September 30, 2007
expiration. EarthLink's data center and its primary data hubs are housed in a
55,000 square foot facility adjacent to its headquarters.  EarthLink's lease for
this space has an initial ten-year term at $66,000 per month for the first 60
months and $77,000 per month for the remaining 60 months. The Company has an
option to extend this lease for an additional ten years at the then prevailing
market rate.  In addition to the Company's corporate headquarters and data
center, the Company also leases approximately 7,200 square feet of office space
in Los Angeles that presently houses a secondary portion of the Company's data
center operations and network hub; however, the Company anticipates that these
operations will be moved to its Pasadena data center in 1998.  The lease for
this space expires July 31, 1999 and currently provides for rental payments of
approximately $10,000 per month.

ITEM 3.   LEGAL PROCEEDINGS.

     The Company is not currently involved in any legal proceedings that it
believes could have, either individually or in the aggregate, a materiel adverse
effect on its business or financial condition.  There are proceedings pending
before the FCC that could affect the ISP industry and the means by which ISPs
such as the Company conduct their business.  See "Business - Government
Regulation."  The Company is not a party to these proceedings.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.


                                          12
<PAGE>

                                   PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's Common Stock trades under the symbol "ELNK" on the Nasdaq
National Market.  The Common Stock began trading on January 22, 1997, the date
of the Company's initial public offering.  The following table sets forth the
high and low sales price for the Common Stock on a per share basis for each
quarter during 1997.
<TABLE>
<CAPTION>
                                                              Sales Price
                                                          --------------------
                                                           High         Low
                                                          --------    --------
     <S>                                                  <C>         <C>
     First Quarter (from the date of the Company's
        initial public offering, January 22, 1997) . . .   $20.25      $10.125
     Second Quarter. . . . . . . . . . . . . . . . . . .    13.50         8.63
     Third Quarter . . . . . . . . . . . . . . . . . . .    19.50        10.25
     Fourth Quarter. . . . . . . . . . . . . . . . . . .    25.75        16.00
</TABLE>

On March 9, 1998, there were approximately 161 holders of record of the
Company's Common Stock.


                                          13
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

     The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Report.

<TABLE>
<CAPTION>




                                                    INCEPTION
                                                 (MAY 26, 1994)
                                                     THROUGH               YEAR ENDED DECEMBER 31,
                                                   DECEMBER 31,    --------------------------------------
                                                      1994           1995           1996           1997
                                                  ------------     --------       --------       --------
                                                         (In thousands, except per share amounts)
<S>                                                <C>            <C>            <C>            <C>
Revenues:
  Recurring revenues                               $      53      $   2,422      $  26,879      $  72,943
  Other revenues                                          58            606          5,624          6,231
                                                   ----------     ----------     ----------     ----------
       Total revenues                                    111          3,028         32,503         79,174
Operating costs and expenses:
  Cost of recurring revenues                               4          1,055         18,462         37,974
  Cost of other revenues                                  12            349          2,699          3,401
  Sales and marketing                                     37          3,711         15,258         21,020
  General and administrative                             168          2,062         10,534         14,333
  Operations and member support                           38          1,869         15,808         30,900
                                                   ----------     ----------     ----------     ----------
                                                         259          9,046         62,761        107,628
                                                   ----------     ----------     ----------     ----------
  Loss from operations                                  (148)        (6,018)       (30,258)       (28,454)
  Interest expense                                       -             (136)        (1,041)        (2,099)
  Interest income                                        -               34            150            637
                                                   ----------     ----------     ----------     ----------
       Net loss                                    $    (148)     $  (6,120)     $ (31,149)     $ (29,916)
                                                   ----------     ----------     ----------     ----------
                                                   ----------     ----------     ----------     ----------
  Basic and diluted net loss
    per share (1)                                  $   (0.10)     $   (1.59)     $   (5.13)     $   (2.99)
                                                   ----------     ----------     ----------     ----------
                                                   ----------     ----------     ----------     ----------

  Weighted average shares outstanding (1)              1,550          3,837          6,069        10,001

Other operating data:
  EBITDA (2)                                            (141)        (5,713)       (26,105)       (19,077)
  Member count                                         3,000         29,000        227,000        420,000
  Number of employees                                      9            175            593            785

<CAPTION>
                                                                           DECEMBER 31,
                                                     -----------------------------------------------------
                                                        1994           1995           1996           1997
                                                     ---------      ---------     ---------     ---------
Balance sheet data:
  Cash and cash equivalents                          $   -          $   290       $  3,993      $  16,450
  Total assets                                           186          4,874         27,119         46,887
  Long-term debt                                         -              355          6,088          8,218
  Total liabilities                                       89          4,584         34,367         40,812
  Accumulated (deficit)                                 (148)        (5,007)       (36,156        (66,072)
  Stockholders' equity (deficit)                          97            290        (21,261)         6,075
</TABLE>

--------------
(1)  SFAS No. 128. "Earnings per Share" and Staff Accounting Bulletin No. 98 
     require companies, such as EarthLink, that incorporated the SAB 83 concept
     of "cheap stock" in determining pre-IPO EPS data to restate EPS data to 
     conform to SFAS 128.  Basic EPS now represents the weighted average number
     of shares divided into net income during a given period.  Potential common
     stock items, options, warrants or convertible instruments are not included
     in the calculation of EPS due to their antidilutive effect.

(2)  Represents earnings (loss) before depreciation and amortization, interest
     income and expense and income tax expense.  EBITDA is not determined in
     accordance with generally accepted accounting principles, is not indicative
     of cash used by operating activities and should not be considered in
     isolation or as an alternative to, or more meaningful than measures of
     performance determined in accordance with generally accepted accounting
     principles.


                                          14
<PAGE>


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

     THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

OVERVIEW

     The Company has experienced net losses since it commenced operations.  Net
losses were approximately $6.3 million from inception through 1995, $31.1
million for 1996, and $29.9 million for the year ended December 31, 1997.  As of
December 31, 1997, the Company had an accumulated deficit of approximately
$66.1 million (exclusive of $1.3 million of losses incurred while the Company
was an S Corporation for tax purposes, which, upon the Company's conversion to
C Corporation status in June 1995, were charged to the Company's capital
accounts). The Company expects that it will continue to incur net losses as it
continues to expend substantial resources on sales and marketing as it attempts
to rapidly increase its market share.  There can be no assurance that the
Company will achieve or sustain profitability or positive cash flow from its
operations.

     The market for the Company's services is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced new
products and services for Internet. The Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the new and rapidly evolving market for Internet
services and products.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                              ------------------------------------------------------------------------------------
                                                              PERCENT                       PERCENT                       PERCENT
                                                              OF TOTAL                      OF TOTAL                      OF TOTAL
                                                 1995         REVENUES           1996       REVENUES           1997       REVENUES
                                                 ----         --------           ----       --------           ----       --------
                                                                    (in thousands, except percentages)
<S>                                           <C>             <C>           <C>             <C>           <C>             <C>
Revenues:                                                                      
 Recurring revenues                           $   2,422            80%      $  26,879            83%      $  72,943            92%
  Other revenues                                    606            20%          5,624            17%          6,231             8%
                                              ---------      ---------      ---------      ---------      ---------      ---------
       Total revenues                             3,028           100%         32,503           100%         79,174           100%

Operating costs and expenses:
  Cost of recurring revenues                      1,055            35%         18,462            57%         37,974            48%
  Cost of other revenues                            349            11%          2,699             8%          3,401             4%
                                              ---------      ---------      ---------      ---------      ---------      ---------
       Total cost of revenues                     1,404            46%         21,161            65%         41,375            52%

       Gross profit                               1,624            54%         11,342            35%         37,799            48%

  Sales and marketing                             3,711           123%         15,258            47%         21,020            27%
  General and administrative                      2,062            68%         10,534            32%         14,333            18%
  Operations and member support                   1,869            62%         15,808            49%         30,900            39%
                                              ---------      ---------      ---------      ---------      ---------      ---------
                                                  7,642           253%         41,600           128%         66,253            84%
                                              ---------      ---------      ---------      ---------      ---------      ---------

  Loss from operations                           (6,018)         (199%)       (30,258)          (93%)       (28,454)          (36%)
  Interest expense                                 (136)           (4%)        (1,041)           (3%)        (2,099)           (3%)
  Interest income                                    34             1%            150             0%            637             1%
                                              ---------      ---------      ---------      ---------      ---------      ---------
       Net loss                               $  (6,120)         (202%)    $  (31,149)          (96%)    $  (29,916)          (38%)
                                              ---------      ---------      ---------      ---------      ---------      ---------
                                              ---------      ---------      ---------      ---------      ---------      ---------
</TABLE>


                                                                     15
<PAGE>


1997 COMPARED TO 1996

     RECURRING REVENUES

     Recurring revenues consist of monthly fees charged to members for Internet
access and other monthly services.  Recurring revenues are recognized over the
period for which the services are provided.   Recurring revenues increased $46.1
million or 171% from 1996 to 1997 due to the increase in the Company's member
base from 227,000 to 420,000 during 1997.

     OTHER REVENUES

     Other revenues generally represent one-time non-refundable set up fees and
are recognized as earned.

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                                     ------------------------------------------
                                               PERCENT                PERCENT
                                                OF OTHER               OF OTHER
                                        1996    REVENUES       1997    REVENUES
                                        ----    --------       ----    --------
                                         (in thousands, except percentages)
<S>                                  <C>         <C>       <C>         <C>
     Dial-up set up fees              $  4,563      81%     $  3,478      56%
     Other set up fees and revenues      1,061      19%        2,753      44%
                                     ---------             ---------
     Total other revenues             $  5,624     100%     $  6,231     100%
                                     ---------             ---------
                                     ---------             ---------
</TABLE>

Other revenues increased $600,000 or 11% from 1996 to 1997.  Due to competitive
pricing and other pressures, the Company waives set up fees for dial-up members
acquired through certain affinity marketing partnerships.   This caused a
decrease in dial-up set up fees earned during 1997.  This trend is expected to
continue for dial-up set up fees.  During 1997, the Company began to
aggressively promote its Web hosting and high speed access services and in the
fourth quarter began to capitalize on incremental revenue activities.  The
decline in dial-up set up fees was offset by increases in the other set up fees
and revenues attributable to the Company's Web hosting, high speed access
services and related products.

     COST OF RECURRING REVENUES

     Cost of recurring revenues principally includes telecommunications costs
such as fees paid to UUNET and PSINet for local access to their nationwide
systems of POPs and depreciation expense on equipment used in network operations
for ongoing member services.

     Cost of recurring revenues increased $19.5 million due to the increase in
the Company's member base but decreased from 69% of recurring revenues in 1996
to 52% of recurring revenues in 1997.  The decrease from 1996 to 1997 was
primarily due to the Company's ability to effectively manage communications
costs and economies of scale to reduce per member costs as the total member base
expanded.  Until October 1996 the Company paid UUNET a fixed monthly fee per
member plus a variable amount based on member usage in excess of a threshold
number of hours per month. The Company's agreement with UUNET was amended as of
October 1996 to change the basis of per member costs to peak port hours.  In
June 1997, UUNET agreed to waive monthly revenue minimums, and excess hours
fees, and peak service user targets during the six months ended December 31,
1997.  In return, EarthLink agreed not to invoke its early termination right
until September 1998.  If usage becomes more concentrated during peak times, the
fees paid by the Company to UUNET will increase, thereby adversely affecting the
Company's operating margins.  Under the Company's agreement with PSINet, the
Company pays PSINet a fixed monthly fee for each customer accessing the
Company's services through a PSINet POP.  As the Company continues to expand,
the Company anticipates that it may build and use additional Company-owned POPs
in those geographical areas where there is a sufficient concentration of


                                          16
<PAGE>

members to support the cost of such investment.  Upon close of the Sprint 
Transactions, the Company's members will also have access to Sprint's network 
of POPs.  See "Business - Strategic Alliance with Sprint".

     COST OF OTHER REVENUES

     Cost of other revenues principally includes expenses related to the
registration of new members such as licensing fees for software, software
duplication costs commissions and bounties paid to third parties for referring
new members to the Company.
<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                    -------------------------------------------
                                                 PERCENT               PERCENT
                                                 OF OTHER             OF OTHER
                                      1996       REVENUES     1997    REVENUES
                                      -----      --------     ----    --------
                                         (in thousands, except percentages)
  <S>                               <C>           <C>        <C>      <C>
  Royalties                         $ 1,907         34%      $  930       15%
  Bounties                              465          8%       1,744       28%
  Other                                 327          6%         727       12%
                                    -------                  ------
  Total cost of other revenues      $ 2,699         48%      $3,401       55%
                                    -------                  ------
                                    -------                  ------
</TABLE>

     Cost of other revenues increased $700,000 or 26% during 1997.  The increase
was due to growth in affinity marketing partnerships and payment of the related
bounties.  The growth in bounties was partially offset by a decrease in royalty
expense due to the renewal of various contracts under more favorable terms.  The
increase in the total cost of other revenues as a percentage of other revenues
was attributable to the decrease in other revenues, specifically, dial-up set up
fees.

     SALES AND MARKETING

     Sales and marketing expenses consist primarily of sales commissions,
salaries, cost of promotional material, advertising, travel and third-party
sales commissions. Sales and marketing expenses increased $5.8 million or 38%
during 1997.  The increase was primarily due to the emphasis on marketing the
Company's services, expanding sales and marketing efforts nationwide, increased
sales commissions and increased marketing personnel headcount.  The Company does
not defer sales, marketing or other direct costs associated with the acquisition
of members.

     GENERAL AND ADMINISTRATIVE

     General and administrative expenses consist primarily of costs associated
with the accounting and human resources departments, professional expenses,
rent, bad debts and compensation related to certain executive officers.  General
and administrative expenses increased $3.8 million or 36% due to increases in
bad debt, payroll, rent, depreciation expenses and credit card fees.    Bad debt
expense was $2.5 million or 7.7% of total revenue in 1996 due to difficulties in
billing and in disconnecting late-paying members on a timely basis.  Bad debt
expense was $3.5 million or 4.4% of revenue in 1997.  The increase in bad debt
was due to management's review and elimination of accounts with questionable
payment history and the compression of the Company's collection cycle.  The rise
in payroll costs was primarily due to growth in headcount.  Personnel engaged in
general and administrative activities increased from 85 to 110 during 1997.  The
rise in depreciation expense is due to the acquisition of office equipment and
the build-out of leasehold improvements.  The increase in credit card processing
fees was primarily due to the increase in the Company's member base.

     OPERATIONS AND MEMBER SUPPORT

     Operations and member support expenses consist primarily of costs
associated with technical support and member service and costs to register and
maintain member accounts.  Employees engaged in operations and member support
activities increased from 401 to 565 during 1997.  The increase of $15.4 million
or 98%


                                          17
<PAGE>

reflects management's efforts to retain existing members by devoting significant
resources to expanding technical support and network operations capabilities.
During 1997 the Company created a new call center and invested in training
programs and hardware and software to solve member problems.  The Company
intends to continue to invest in this area.

1996 COMPARED TO 1995

     REVENUES

     Recurring revenues increased $24.5 million or more than 1,000% during 1996
as a result of an increase in the number of EarthLink members. The increase in
revenues was partially offset by credits given to members under the Company's
member referral program. Under this program, the Company waives one month of
standard service fees in consideration for each new member referred by an
existing member. This waived service fee results in a reduction of revenues.
The increase in other revenues during 1996 was primarily due to the increase in
the number of new members during that period and one-time set up fees collected
from those new members.  From time to time, the Company waives the one-time set
up fee it charges new members as a result of competitive pricing and other
pressures.

     COST OF REVENUES

     Cost of recurring revenues increased from 44% of recurring revenues in 1995
to 69% of recurring revenues in 1996 due the Company's expansion to nationwide
service through its relationship with UUNET.  The Company paid UUNET a fixed
monthly fee per member plus a variable amount based on customer usage in excess
of a threshold number of hours per month. The Company's agreement with UUNET was
amended as of October 1996 so that the key variable component is peak usage
rather than hourly usage.

     SALES AND MARKETING

     Sales and marketing expenses consisted primarily of sales commissions,
salaries, cost of promotional material, advertising, travel and third-party
sales commissions.  EarthLink's principal strategy has been to rapidly expand
its customer base and increase its market share of the under penetrated market
for Internet access services.  To realize this strategy, the Company has
aggressively invested in sales and marketing.  This strategy required
substantial initial cash outlays which outpaced the resultant growth in
revenues.  In the latter part of 1996 EarthLink's marketing efforts emphasized
the variety of services available to business members, including business Web
sites, high-speed ISDN communications capability, high-speed frame relay
connections and Internet access through corporate Intranets.

     GENERAL AND ADMINISTRATIVE

     Since inception, general and administrative expenses have increased as a
result of increased employee headcount, rent, depreciation and credit card fees.
During 1996, the Company hired a number of senior management personnel, moved
into a new headquarters building and engaged professional consultants to assist
in the development of an administrative infrastructure to accommodate
anticipated increases in the number of members and employees, which resulted in
a significant increase in general and administrative expenses as compared to
1995. General and administrative expenses for 1996 included bad debt expense of
$2.5 million which resulted from difficulties in billing and in disconnecting
late-paying members on a timely basis.  In addition, in September 1996, the
Company issued 37,500 shares of Common Stock as consideration for the
termination of a consulting agreement. The value of the stock, $413,000, was
included in general and administrative expenses for the year ended December 31,
1996.

     OPERATIONS AND MEMBER SUPPORT

     Operations and member support expenses consist primarily of expenses
associated with technical support and member services to register and maintain
member accounts.  These expenses have increased


                                          18
<PAGE>

significantly since the Company's inception. This trend reflects the costs
associated with building a member service organization to support the Company's
member base and anticipated member growth.   Employees engaged in operations and
member support activities increased from 118 to 401 during 1996.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has not generated net cash from operations since its inception.
The Company has funded its operations primarily through private and public sales
of equity securities, borrowings from third parties and lease financing. Cash
used in operating activities was approximately $3.6 million, $16.2 million and
$21.3 million during the three years ended December 31, 1997, respectively.

     Cash used in investing activities has consisted primarily of equipment
purchases for POP and network expansion. Capital expenditures amounted to
approximately $2.8 million, $18.8 million and $14.5 million, respectively, for
the three years ended December 31, 1997. During 1997 the Company purchased the
rights to subscribers and related assets of Internet in a Mall, a Tarzana,
California based Internet access provider at a cost of approximately $1.4
million.  The Company estimates that capital expenditures for 1998 will be
approximately $18.5 million including network enhancements, data center
expansion, and procurement of telecommunication and office equipment and
furniture and fixtures. Where feasible, the Company will seek to finance certain
of these expenditures through capital leases.

     Cash provided by financing activities provided the Company with
approximately $8.2 million, $38.3 million and $49.8 million during the three
years ended December 31, 1997, respectively. The Company's financing activities
have consisted of the private sale of debt, the public and private sale of
equity securities and capital lease transactions  primarily for equipment.  The
Company issued 367,155 shares of Common Stock at $0.82 per share, 827,085 shares
of Common Stock at $1.81 per share and 921,745 at $4.84 per share on March 10,
1995, June 19, 1995 and October 31, 1995, respectively.  As a result of these
placements, the Company raised, in the aggregate $6,258,000 during 1995.  The
Company issued 45,485 shares of Common Stock at $4.84 per share and 25,000
shares of Common Stock at $4.84 per share on January 18, 1996 and March 20,
1996, respectively. On May 6, 1996, the Company issued 852,460 shares of common
stock at $9.76 per share in a private placement.  On September 24, 1996, the
Company issued 2,727,273 shares of Series A Convertible Preferred Stock at $5.50
per share which was converted into 1,363,624 shares of Common Stock upon the
close of the Company's initial public offering in January 1997. As a result of
these placements, EarthLink raised, in the aggregate, net proceeds of $22.7
million during 1996. In January 1997, the Company sold 2,000,000 shares of
Common Stock in its initial public offering.  Net proceeds from the offering
were approximately $22.8 million.  In February 1997, the underwriter of the
public offering exercised its over allotment option and purchased and sold an
additional 284,750 shares of Common Stock.  Net proceeds to the Company were
approximately $3.4 million.  On September 19, 1997, the Company closed a private
placement of 1,459,759 shares of its unregistered restricted Common Stock.  Net
proceeds from the offering were approximately $15.4 million. Capital lease
obligations generally result from the sale and leaseback of equipment. During
the three years ended December 31, 1997, the Company financed the acquisition of
data processing and office equipment amounting to approximately $556,000, $11.3
million and $10.5 million, respectively, by entering into a number of agreements
for the sale and leaseback of equipment. The sale leaseback transactions are
recorded at cost, which approximates the fair market value of the property and,
therefore, no gains or losses have been recorded. The property remains on the
books and continues to be depreciated. A financing obligation representing the
proceeds is recorded and reduced based upon payments under the lease agreement.
During the second quarter of 1996, the Company received short-term debt
financing (issued in the form of 10% Promissory Notes that were to mature in
June 1997) of $2.95 million from a limited number of investors, including
certain directors and existing stockholders. The holders of $725,000 of such
notes converted the notes into 55,767 shares of Common Stock upon closing of the
Company's initial public offering. The remaining $2,225,000 of 10% promissory
notes were paid in full in January 1997.

     In connection with an amendment of its strategic network services
relationship with UUNET, in October 1996, the Company issued a $5.0 million,
one-year promissory note to UUNET. This note bears


                                          19
<PAGE>

interest at 10.25% and is convertible into up to approximately 391,515 shares of
Common Stock.  The note was amended in October 1997 to extend the due date for
an additional year.

     As of December 31, 1996 and December 31, 1997, the Company had cash and
cash equivalents of approximately $4.0 million and $16.5 million, respectively.
The Company believes that available cash will be sufficient to meet the
Company's operating expenses and capital requirements for at least the next 12
months. Under the terms of its announced alliance with Sprint Corporation and
assuming that the Sprint transactions close, EarthLink will obtain approximately
$24 million in cash and have available up to $100 million in convertible debt
financing over three years.  See "Business - Strategic Alliance with Sprint,"
and "-Safe Harbor Statement".  The Company's capital requirements depend on
numerous factors, including the rate of market acceptance of the Company's
services, the Company's ability to maintain and expand its member base, the rate
of expansion of the Company's network infrastructure, the level of resources
required to expand the Company's marketing and sales organization, information
systems and research and development activities, the availability of hardware
and software provided by third-party vendors and other factors. The timing and
amount of such capital requirements cannot accurately be predicted. If capital
requirements vary materially from those currently planned, the Company may
require additional financing sooner than anticipated. The Company has no
commitments for any additional financing, and there can be no assurance that any
such commitments can be obtained on favorable terms, if at all. Any additional
equity financing may be dilutive to the Company's stockholders, and debt
financing, if available, may involve restrictive covenants with respect to
dividends, raising future capital and other financial and operational matters.
If the Company is unable to obtain additional financing as needed, the Company
may be required to reduce the scope of its operations or its anticipated
expansion, which could have a material adverse effect on the Company.

YEAR 2000

     Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without considering the impact of the
upcoming change in the century.  If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000 (the "Year 2000 Phenomenon").  The Company utilizes software, computer
technology and other services provided by third-party vendors that may not be
Year 2000 Phenomenon ready.  Much of  the third-party software, computer
technology and services is not essential to the Company's operations.  However,
as discussed elsewhere in this Report, the Company is dependent on UUNET and
PSINet for network communications services and Microsoft and Netscape for Web
browser software.  The Company is also indirectly dependent on the institutions
involved in processing the Company's members' credit card payments for the
Company's services.  The failure of the software and computing systems of these
and other third-party vendors to be Year 2000 Phenomenon ready could have
material adverse effects on the Company.  The Company has assessed its
proprietary software and systems and has determined them to be Year 2000
Phenomenon ready.  However, the Company is currently assessing the Year 2000
Phenomenon readiness of its third-party supplied software, computer technology
and other services.  Based upon the results of this assessment, the Company will
develop and implement, if necessary, a remediation plan with respect to
third-party software, computer technology and services which may fail to be Year
2000 Phenomenon ready. Management anticipates that the Company's business,
including components thereof provided by third-party vendors, will be Year 2000
Phenomenon ready by 2000.  At this time, the expenses associated with this
assessment and potential remediation plan cannot presently be determined.


                                          20
<PAGE>

QUARTERLY RESULTS

     The following table sets forth certain unaudited quarterly financial data
for the eight quarters ended December 31, 1997.  In the opinion of the Company's
management, this unaudited information has been prepared on the same basis as
the audited financial statements contained herein and includes all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
information set forth therein when read in conjunction with the Financial
Statements and Notes thereto.  The operating results for any quarter are not
necessarily indicative of results for any future period.

<TABLE>
<CAPTION>


                                                  1996                                       1997
                                -----------------------------------------   -----------------------------------------
                                  First     Second      Third     Fourth      First     Second      Third     Fourth
                                 Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                --------   --------   --------   --------   --------   --------   --------   --------
                                                                   (In thousands)
<S>                             <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Recurring revenues              $  2,628   $  5,014   $  8,272   $ 10,965   $ 14,086   $ 17,479   $ 19,044   $ 22,334
Other revenues                       790      1,714      1,744      1,376      1,632      1,367      1,559      1,673
                                --------   --------   --------   --------   --------   --------   --------   --------
  Total revenues                   3,418      6,728     10,016     12,341     15,718     18,846     20,603     24,007

Cost of revenues                   1,698      3,865      6,173      6,726      7,955      9,187      9,543     11,289
Cost of other revenues               569        758        693        679        915        804        741        941
Sales and marketing                2,209      3,263      4,395      5,391      4,961      5,056      5,636      5,367
General and administrative         1,632      2,423      3,783      2,696      3,502      3,449      3,511      3,871
Operations and member support      2,098      3,094      4,749      5,867      6,422      7,791      7,970      8,717
                                --------   --------   --------   --------   --------   --------   --------   --------
                                   8,206     13,403     19,793     21,359     23,755     26,287     27,401     30,185

Loss from operations              (4,788)    (6,675)    (9,777)    (9,018)    (8,037)    (7,441)    (6,798)    (6,178)
Interest expense                    (100)      (161)      (422)      (358)      (507)      (444)      (516)      (632)
Interest income                       19          1         94         36        165        135        116        221
                                --------   --------   --------   --------   --------   --------   --------   --------
  Net loss                      $ (4,869)  $ (6,835)  $(10,105)  $ (9,340)  $ (8,379)  $ (7,750)  $ (7,198)  $ (6,589)
                                --------   --------   --------   --------   --------   --------   --------   --------
                                --------   --------   --------   --------   --------   --------   --------   --------
  Basic and diluted
    net loss per share (1)      $  (0.96)  $  (1.21)  $  (1.65)  $  (1.26)  $  (0.92)  $  (0.80)  $  (0.72)  $  (0.59)
Weighted average
  shares outstanding (1)           5,097      5,652      6,139      7,386      9,094      9,738      9,932     11,241
                                --------   --------   --------   --------   --------   --------   --------   --------
                                --------   --------   --------   --------   --------   --------   --------   --------

EBITDA (2)                        (4,338)    (5,916)    (8,213)    (7,638)    (6,157)    (5,263)    (4,285)    (3,372)

<CAPTION>

                                                            AS A PERCENTAGE OF TOTAL REVENUES
                                -------------------------------------------------------------------------------------
<S>                             <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Recurring revenues                   77%        75%        83%        89%        90%        93%        92%        93%
Other revenues                       23%        25%        17%        11%        10%         7%         8%         7%
                                --------   --------   --------   --------   --------   --------   --------   --------
  Total revenues                    100%       100%       100%       100%       100%       100%       100%       100%

Cost of revenues                     50%        57%        62%        55%        50%        49%        46%        48%
Cost of other revenues               17%        11%         7%         6%         6%         4%         4%         4%
Sales and marketing                  65%        48%        44%        44%        32%        27%        27%        22%
General and administrative           48%        36%        38%        22%        22%        18%        17%        16%
Operations and member support        61%        46%        47%        48%        41%        41%        39%        36%
                                --------   --------   --------   --------   --------   --------   --------   --------
                                    241%       198%       198%       175%       151%       139%       133%       126%

Loss from operations               (140%)      (99%)      (98%)      (73%)      (51%)      (39%)      (33%)      (26%)
Interest expense                     (3%)       (2%)       (4%)       (3%)       (3%)       (2%)       (3%)       (3%)
Interest income                       1%         0%         1%         0%        (1%)        1%        (1%)        1%
                                --------   --------   --------   --------   --------   --------   --------   --------
  Net loss                         (142%)     (101%)     (101%)      (76%)      (55%)      (40%)      (37%)      (28%)
                                --------   --------   --------   --------   --------   --------   --------   --------
                                --------   --------   --------   --------   --------   --------   --------   --------

EBITDA (2)                         (127%)      (88%)      (82%)      (62%)      (39%)      (28%)      (21%)      (14%)
</TABLE>



(1)  SFAS No. 128, "Earnings per Share" and Staff Accounting Bulletin No. 98
     require companies, such as EarthLink, that incorporated the SAB 83 concept
     of "cheap stock" in determining pre-IPO EPS data to restate EPS data to
     conform to SFAS 128. Basic EPS now represents the weighted average number
     of shares divided into net income during a given period.   Potential common
     stock items, options, warrants or convertible instruments are not included
     in the calculation of EPS due to their anti-dilutive effect.
(2)  Represents earnings (loss) before depreciation and amortization, interest
     income and expense and income tax expense.   EBITDA is not determined in
     accordance with generally accepted accounting principles, is not indicative
     of cash used by operating activities and should not be considered in
     isolation or as an alternative to, or more meaningful than measures of
     performance determined in accordance with generally accepted accounting
     principles.


                                          21
<PAGE>

SAFE HARBOR STATEMENT

     The  following  "Safe  Harbor  Statement"  is made  pursuant  to the
Private Securities Litigation Reform Act of 1995. Certain of the statements
contained in the body of this Report are  forward-looking  statements (rather
than historical facts)  that are  subject to risks and  uncertainties  that
could  cause  actual results  to  differ  materially  from  those  described  in
the  forward-looking statements.  With  respect to such forward-looking
statements, the Company seeks the  protections  afforded by the Private
Securities  Litigation  Reform Act of 1995.  These risks include, without
limitation, (1) that the Company will not retain or grow its member base, (2)
that the Company will fail to be competitive with existing and new competitors,
(3) that the Sprint Transactions will fail to close, (4) that if the Sprint
Transactions close, they will not be as beneficial to the Company as management
anticipates, (5) that the Company will not be able to sustain its current
growth, (6) that the Company will not adequately respond to technological
developments impacting the Internet, and (7) that needed financing will not be
available to the Company if and as needed.  This list is intended to identify
certain of the principal factors  that  could  cause  actual  results  to differ
materially  from  those described in the  forward-looking  statements  included
elsewhere herein.  These factors  are  not  intended  to  represent  a  complete
list of all  risks  and uncertainties  inherent  in the  Company's  business,
and  should  be  read  in conjunction  with the more detailed  cautionary
statements  included  elsewhere herein.


ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required by this item appears in a subsequent section of
this Report. (See Item 14(a)(1) and (2)).

ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.


                                          22
<PAGE>

                                      PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information relating to management's nominees for directors of the 
Company will be set forth under the captions "Proposal 1 - Election of 
Directors -Nominees" and "Proposal 1 - Election of Directors - Information 
Regarding Nominees for Director" in the Company's Proxy Statement for its 
1998 Annual Meeting of Shareholders or in a subsequent amendment to this 
Report.  Such information is incorporated herein by reference.  Information 
relating to the executive officers of the Company will be set forth under the 
caption "Executive Officers" in the above-referenced Proxy Statement or 
amendment.  Such information is incorporated herein by reference. Information 
regarding compliance by directors and executive officers of the Company and 
owners of more than ten percent of the Company's Common Stock with the 
reporting requirements of Section 16(a) of the Securities Exchange Act of 
1934, as amended, will be set forth under the caption "Compliance with 
Section 16(a) of the Securities Exchange Act of 1934" in the above-referenced 
Proxy Statement or amendment.  Such information is incorporated herein by 
reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information relating to management compensation will be set forth under the
captions "Proposal 1 - Election of Directors - Director Compensation" and
"Executive Compensation" in the Company's Proxy Statement referred to in Item 10
above or in a subsequent amendment to this Report.  Such information is
incorporated herein by reference, except for the information set forth under the
captions "Executive Compensation - Audit and Compensation Committee Report on
Executive Compensation" and "Stock Performance Graph," which specifically is not
so incorporated by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information regarding ownership of the Company's $0.01 par value Common
Stock by certain persons is set forth under the captions "Beneficial Ownership
of Common Stock" in the Company's Proxy statement referred to in Item 10 above
or in a subsequent amendment to this Report.  Such information is incorporated
herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information regarding certain relationships and transactions between the
Company and certain of its affiliates is set forth under the caption "Certain
Transactions" in the Company's Proxy Statement referred to in Item 10 above or
in a subsequent amendment to this Report.  Such information is incorporated
herein by reference.


                                          23
<PAGE>

                                       PART IV

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

(a)       DOCUMENTS FILED AS PART OF THIS REPORT.

     1.   FINANCIAL STATEMENTS

          Report of Independent Accountants

          Balance Sheet as of  December 31, 1996 and 1997

          Statement of Operations for the three years ended December 31, 1997

          Statement of Stockholders' Equity (Deficit) for the three years ended
          December 31, 1997

          Statement of Cash Flows for the three years ended December 31, 1997

          Notes to Financial Statements

     2.   FINANCIAL STATEMENT SCHEDULE

          The Financial Statement Schedule(s) described in Regulation S-X are
          omitted from this Report because they are either not required or are
          immaterial.

     3.   EXHIBITS

          EXHIBIT                       DESCRIPTION
          -------                       -----------
          2.1       Investment Agreement dated as of February 10, 1998, among
                    Sprint Corporation, a Kansas corporation, Sprint
                    Communications Company L.P., a Delaware limited partnership,
                    Dolphin, Inc., a Delaware corporation, Dolphin Sub, Inc., a
                    Delaware corporation, and EarthLink Network, Inc., a
                    Delaware corporation (incorporated by reference to Exhibit
                    2.1 to the Company's Form 8-K filed on February 10, 1998).

          3.1       Amended and Restated Certificate of Incorporation
                    (incorporated by reference to Exhibit 3.1 to the Company's 
                    Registration Statement on Form S-1 - File No. 333-5781).
                    
          3.2       Bylaws (incorporated by reference to Exhibit 3.2 to 
                    the Company's Registration Statement on Form S-1 - 
                    File No. 333-5781).

          4.1       See exhibits 3.1 and 3.2 for provisions of the Certificate
                    of Incorporation and Bylaws defining rights of holders of
                    Common Stock.

          4.2       Specimen Stock Certificate (incorporated by reference to
                    Exhibit 4.2 to the Company's Registration Statement on 
                    Form S-1 - File No. 333-5781).

          4.3       Form of Warrant Agreement (incorporated by reference to
                    Exhibit 4.3 to the Company's Registration Statement on Form
                    S-1 - File No. 333-5781).


                                          24
<PAGE>

          10.1      Governance Agreement, dated as of February 10, 1998, among
                    Sprint Corporation, a Kansas corporation, Sprint
                    Communications Company L.P., a Delaware limited partnership,
                    Dolphin, Inc., a Delaware corporation, and EarthLink
                    Network, Inc., a Delaware corporation (incorporated by
                    reference to Exhibit 10.1 to the Company's Form 8-K filed on
                    February 10, 1998).

          10.2      Proposed form of Certificate of Designation, Preferences and
                    Rights of Series A Convertible Preferred Stock of Dolphin,
                    Inc. (incorporated by reference to Exhibit 10.2 to the
                    Company's Form 8-K filed on February 10, 1998).

          10.3      Credit Agreement, dated as of February 10, 1998, between
                    Dolphin, Inc., a Delaware corporation, and EarthLink
                    Network, Inc., a Delaware corporation, as Borrowers, and
                    Sprint Corporation, a Kansas corporation, as Lender
                    (incorporated by reference to Exhibit 10.3 to the Company's
                    Form 8-K filed on February 10, 1998).

          10.4      Lease Line Agreement, dated January 30, 1996, between the
                    Company and Boston Financial & Equity Corporation
                    (incorporated by reference to Exhibit 10.4 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).

          10.5      Master Lease Agreement, dated September 1, 1995, between the
                    Company and LINC Capital Management (incorporated by
                    reference to Exhibit 10.5 to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).

          10.6      Netscape Communications Corporation Internet Service
                    Provider Navigator Distribution Agreement dated May 31,
                    1996, between the Company and Netscape Communications
                    Corporation (incorporated by reference to Exhibit 10.6 to
                    the Company's Registration Statement on Form S-1 - File No.
                    333-5781).
                    (a) Amendment No. 1 to Netscape Communications Corporation
                    Internet Service Provider Agreement (incorporated by
                    reference to Exhibit 10.6(a) to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).
                    (b) Amendment No. 2 to Netscape Communications Corporation
                    Internet Service Provider Agreement (incorporated by
                    reference to Exhibit 10.6(b) to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).

          10.7      Network Services Agreement dated May 31, 1996, between the
                    Company and UUNET Technologies, Inc. (incorporated by
                    reference to Exhibit 10.7 to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).
                    (a) Addendum No. 1 to Network Services Agreement
                    (incorporated by reference to Exhibit 10.7(a) to the
                    Company's Registration Statement on Form S-1 - File No. 
                    333-5781).

          10.8      Software Distribution Agreement (MacTCP), dated October 2,
                    1995, between the Company and Apple Computer, Inc.
                    (incorporated by reference to Exhibit 10.8 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).

          10.9      Employment Agreement, dated January 15, 1996, between the
                    Company and Charles G. Betty (incorporated by reference to
                    Exhibit 10.9 to the Company's Registration Statement on
                    Form S-1 - File No. 333-5781).

          10.12     Standard Industrial/Commercial Multi-Tenant Lease, dated
                    December 1, 1995, between the Company and Becton, Dickinson
                    (incorporated by reference to Exhibit 10.12 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).


                                          25
<PAGE>

          10.13     Business Loan Agreement, dated June 15, 1995, and Promissory
                    Note in the original principal amount of $250,000 between
                    the Company and California United Bank (incorporated by
                    reference to Exhibit 10.13 to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).

          10.16     Production and Distribution Agreement, dated May 6, 1996,
                    between the Company and National Media Corporation
                    (incorporated by reference to Exhibit 10.16 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).
                    (a) Amendment No. 1 to Production and Distribution Agreement
                    incorporated by reference to (Exhibit 10.16(a) to the
                    Company's Registration Statement on Form S-1 - File No. 
                    333-5781).

          10.19     Internet Wizard Sign-Up Agreement between the Company and
                    Microsoft Corporation, dated August 16, 1996 (incorporated 
                    by reference to Exhibit 10.19 to the Company's Registration
                    Statement on Form S-1 - File No. 333-5781).

          10.20     Network Access Agreement between the Company and PSINet,
                    Inc., dated July 22, 1996 and Amendment No. 1 to Network
                    Access Agreement (incorporated by reference to Exhibit 10.20
                    to the Company's Registration Statement on Form S-1 - File
                    No. 333-5781).

          10.21     Office Lease by and between The Mutual Life Insurance
                    Company of New York, as Landlord, and the Company, as
                    Tenant, dated September 20, 1996 (incorporated by reference
                    to Exhibit 10.21 to the Company's Registration Statement on
                    Form S-1 - File No. 333-5781).

          10.22     Standard Office Lease  by and between Glen Feliz Properties,
                    as Landlord, and the Company, as Tenant, dated July 2, 1996
                    (incorporated by reference to Exhibit 10.22 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).

          10.23     Amended and Restated Note Purchase Agreement between the
                    Company and UUNET Technologies, Inc., dated October 31, 1996
                    (incorporated by reference to Exhibit 10.23 to the Company's
                    Registration Statement on Form S-1 - File No. 333-5781).
                    (a) $5,000,000 Convertible Note (incorporated by reference 
                    to Exhibit 10.23(a) to the Company's Registration Statement 
                    on Form S-1 - File No. 333-5781).
                    (b) Addendum to Amended and Restated Registration Rights
                    Agreement (incorporated by reference to Exhibit 10.23(c) to
                    the Company's Registration Statement on Form S-1 - File No.
                    333-5781).

          23.1      Consent of Price Waterhouse LLP, independent accountants -
                    filed herewith.

          27.1      Financial Data Schedule - filed herewith.

          99.1      Registration Rights Agreement, dated as of February 10,
                    1998, among Dolphin, Inc., a Delaware corporation, Sprint
                    Corporation, a Kansas corporation, and Sprint Communications
                    Company L.P., a Delaware limited partnership (incorporated
                    by reference to Exhibit 99.1 to the Company's Form 8-K filed
                    on February 10, 1998).

          99.2      Stockholders' Agreement, dated as of February 10, 1998,
                    among EarthLink


                                          26
<PAGE>

                    Network, Inc., a Delaware corporation, Dolphin, Inc., a
                    Delaware corporation, Sprint Corporation, a Kansas
                    corporation, Sprint Communications Company L.P., a Delaware
                    limited partnership, and the persons identified on Schedule
                    I thereto (incorporated by reference to Exhibit 99.2 to the
                    Company's Form 8-K filed on February 10, 1998).

          99.3      Agreement to Vote Stock, dated as of February 10, 1998,
                    among the Granting Stockholders named on Schedule A thereto,
                    Sprint Corporation, a Kansas corporation and Sprint
                    Communications Company L.P., a Delaware limited partnership
                    (incorporated by reference to Exhibit 99.3 to the Company's
                    Form 8-K filed on February 10, 1998).

          99.4      Agreement to Vote and Tender Stock, dated as of February 10,
                    1998, among the Granting Stockholders named on Schedule A
                    thereto, Sprint Corporation, a Kansas corporation and Sprint
                    Communications Company, L.P., a Delaware limited partnership
                    (incorporated by reference to Exhibit 99.4 to the Company's
                    Form 8-K filed on February 10, 1998).


(b)  REPORTS ON FORM 8-K.

     On September 19, 1997, the Company filed a Current Report on Form 8-K (the
     "Form 8-K").  The Form 8-K reported that, on September 19, 1997 the Company
     closed a private placement of 1,459,759 shares of its unregistered
     restricted Common Stock for an aggregate purchase price of approximately
     $15.7 million.  The financing was offered and sold solely to accredited
     investors.  The Company intends to use the proceeds of the financing for
     general working capital purposes.

     On February 10, 1998, the Company filed a Current Report on Form 8-K (the
     "Form 8-K").  The Form 8-K reported that, on February 10, 1998 the Company
     announced a long-term strategic alliance with Sprint Corporation as more
     thoroughly described elsewhere in this report.  See "Business - Sprint
     Transaction".


                                          27
<PAGE>

                                     SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        EARTHLINK NETWORK, INC.



                                        /s/ Charles G. Betty
                                        ----------------------------------
                                        Charles G. Betty President, CEO

                                        Date: March 18, 1998

     Each person whose signature appears below hereby constitutes and appoints
Charles G. Betty and Grayson L. Hoberg the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments  to this Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Commission, and hereby grants to such attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.


Date:  March 18, 1998                   /s/ Charles G. Betty
     -----------------                  ---------------------------------------
                                        Charles G. Betty, President, Chief
                                        Executive Officer and Director


Date:  March 18, 1998                   /s/ Grayson L. Hoberg
     -----------------                  ---------------------------------------
                                        Grayson L. Hoberg, Vice President -
                                        Finance and Administration and Chief
                                        Financial Officer


Date:  March 18, 1998                   /s/ Richard A. Quiroga
     -----------------                  ---------------------------------------
                                        Richard A. Quiroga, Vice President -
                                        Corporate Controller


Date:  March 18, 1998                   /s/ Sky D. Dayton
     -----------------                  ---------------------------------------
                                        Sky D. Dayton, Chairman of the Board


Date:  March 18, 1998                   /s/ Sidney Azeez
     -----------------                  ---------------------------------------
                                        Sidney Azeez, Director


Date:  March 18, 1998                   /s/ Robert M. Kavner
     -----------------                  ---------------------------------------
                                        Robert M. Kavner, Director


                                          28
<PAGE>

Date:  March 18, 1998                   /s/ Paul McNulty.
     -----------------                  ---------------------------------------
                                        Paul McNulty, Director


Date:  March 18, 1998                   /s/ Kevin M. O'Donnell.
     -----------------                  ---------------------------------------
                                        Kevin M. O'Donnell, Director


Date:  March 18, 1998                   /s/ John W. Sidgmore
     -----------------                  ---------------------------------------
                                        John W. Sidgmore, Director


Date:  March 18, 1998                   /s/ Reed E. Slatkin
     -----------------                  ---------------------------------------
                                        Reed E. Slatkin, Director


Date:  March 18, 1998                   /s/ Linwood A. Lacy
     -----------------                  ---------------------------------------
                                        Linwood A. Lacy, Director


                                          29


<PAGE>


                              EARTHLINK NETWORK, INC.
                           INDEX TO FINANCIAL STATEMENTS

                                 DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
 <S>                                                                     <C>
 Report of Independent Accountants....................................    F-2

 Balance Sheet as of December 31, 1996 and 1997.......................    F-3

 Statement of Operations for the three years ended December 31, 1997..    F-4

 Statement of Stockholders' Equity (Deficit) for the three years        
 ended December 31, 1997..............................................    F-5

 Statement of Cash Flows for the three years ended December 31, 1997..    F-6

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




                                         F-1
<PAGE>

                          REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
of EarthLink Network, Inc.

     In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of EarthLink
Network, Inc. at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.  These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Costa Mesa, California
January 29, 1998


                                         F-2
<PAGE>

                               EARTHLINK NETWORK, INC.
                                    BALANCE SHEET
                                        ASSETS

 <TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                    ----------------------------
                                                                        1996           1997
                                                                    -------------  -------------
                                                                           (In thousands)
<S>                                                                 <C>            <C>
Current assets:
   Cash and cash equivalents                                         $     3,993    $    16,450
   Restricted short-term investment                                        1,087          1,250
   Accounts receivable, net of allowance of $781,000
     and $165,000 at December 31, 1996 and 1997, respectively              1,725          2,520
   Prepaid expenses                                                          885          1,109
   Other assets (Note 5)                                                   1,383            753
                                                                    -------------  -------------
       Total current assets                                                9,073         22,082
Other long-term assets (Note 5)                                              329            449
Property and equipment, net (Notes 1 and 4)                               17,401         23,398
Intangibles, net (Notes 3, 6 and 9)                                          316            958
                                                                    -------------  -------------
                                                                     $    27,119    $    46,887
                                                                    -------------  -------------
                                                                    -------------  -------------

         LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
                      AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Trade accounts payable                                            $    11,207    $     6,472
   Accrued payroll and related expenses                                    1,469          2,316
   Other accounts payable and accrued liabilities                          2,061          3,717
   Current portion of capital lease obligations (Note 11)                  3,582          7,112
   Notes payable (Note 7)                                                  7,950          9,387
   Deferred revenue                                                        2,010          3,590
                                                                    -------------  -------------
       Total current liabilities                                          28,279         32,594
Long-term debt (Note 11)                                                   6,088          8,218
                                                                    -------------  -------------
       Total liabilities                                                  34,367         40,812

Commitments and contingencies (Note 11)
Mandatorily redeemable convertible preferred stock (Note 8)               14,013            -

Stockholders' equity (deficit)
   Preferred stock, $0.01 par value, 10,000,000 shares
     authorized,  2,727,273 and nil shares outstanding
     as redeemable preferred stock (Note 8)                                  -              -
   Common stock, $0.01 par value, 50,000,000 shares
     authorized, 6,022,724 and 11,250,372 shares
     issued and outstanding (Note 8)                                          60            112
   Additional paid-in capital                                             14,236         70,942
   Warrants to purchase common stock (Note 9)                                599          1,093
   Accumulated deficit                                                   (36,156)       (66,072)
                                                                    -------------  -------------
       Total stockholders' equity (deficit)                              (21,261)         6,075
                                                                    -------------  -------------
                                                                     $    27,119    $    46,887
                                                                    -------------  -------------
                                                                    -------------  -------------
</TABLE>
 
      The accompanying notes are an integral part of these financial statements


                                         F-3
<PAGE>

                                EARTHLINK NETWORK, INC
                               STATEMENT OF OPERATIONS

 <TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------
                                                              1995           1996           1997
                                                          ------------- -------------- --------------
                                                            (In thousands, except per share amounts)
<S>                                                       <C>           <C>            <C>
Revenues:
   Recurring revenues                                      $     2,422   $     26,879   $     72,943
   Other revenues                                                  606          5,624          6,231
                                                          ------------- -------------- --------------
       Total revenues                                            3,028         32,503         79,174
Operating costs and expenses:
   Cost of recurring revenues                                    1,055         18,462         37,974
   Cost of other revenues                                          349          2,699          3,401
   Sales and marketing                                           3,711         15,258         21,020
   General and administrative                                    2,062         10,534         14,333
   Operations and member support                                 1,869         15,808         30,900
                                                          ------------- -------------- --------------
                                                                 9,046         62,761        107,628
                                                          ------------- -------------- --------------

   Loss from operations                                         (6,018)       (30,258)       (28,454)
   Interest expense                                               (136)        (1,041)        (2,099)
   Interest income                                                  34            150            637
                                                          ------------- -------------- --------------
       Net loss                                            $    (6,120)  $    (31,149)  $    (29,916)
                                                          ------------- -------------- --------------
                                                          ------------- -------------- --------------

   Basic and diluted net loss per share (Note 1)           $     (1.59)  $      (5.13)  $      (2.99)
                                                          ------------- -------------- --------------
                                                          ------------- -------------- --------------

   Weighted average shares outstanding (Note 1)                  3,837          6,069         10,001
                                                          ------------- -------------- --------------
                                                          ------------- -------------- --------------
</TABLE>
 





      The accompanying notes are an integral part of these financial statements


                                         F-4
<PAGE>

                                EARTHLINK NETWORK, INC
                     STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

 <TABLE>
<CAPTION>
                                                          COMMON STOCK        ADDITIONAL                                 TOTAL
                                                          ------------         PAID-IN      WARRANTS   ACCUMULATED    SHAREHOLDERS'
                                                       SHARES       AMOUNT     CAPITAL       ISSUED      DEFICIT    EQUITY (DEFICIT)
                                                     ----------   ----------  ----------   ----------  -----------  ----------------
                                                                                  (In thousands)
 <S>                                                 <C>          <C>         <C>          <C>         <C>          <C>
 Balance at December 31, 1994                            2,941     $     29    $    147     $     69    $   (148)      $     97
 Issuance of Common Stock                                2,116           22       6,236          -           -            6,258
 Reclassification of S Corporation accumulated
     deficit                                               -            -        (1,261)         -         1,261            -
 Warrants issued for lease guarantee (Note 9)              -            -           -             50         -               50
 Warrants issued for non-competition
    agreement (Note 9)                                     -            -           -              5         -                5
 Net loss                                                  -            -           -            -        (6,120)        (6,120)
                                                     ----------   ----------  ----------   ----------  ----------      ----------
 Balance at December 31, 1995                            5,057           51       5,122          124      (5,007)           290
 Issuance of Common Stock                                  923            9       8,651          -           -            8,660
 Issuance of Common  Stock for services                     43          -           463          -           -              463
 Warrants issued in connection with equipment
     leases and other financings (Note 9)                  -            -           -            475         -              475
 Net loss                                                  -            -           -            -       (31,149)       (31,149)
                                                     ----------   ----------  ----------   ----------  ----------      ----------
 Balance at December 31, 1996                            6,023           60      14,236          599     (36,156)       (21,261)
 Initial Public Offering, net of expenses                2,000           20      22,766                                  22,786
 Conversion of redeemable preferred stock
   into common stock                                     1,364           13      14,000          -           -           14,013
 Conversion of debt to common stock                         56          -           725          -           -              725
 Underwriters over-allotment                               285            3       3,437          -           -            3,440
 Issuance of common stock in connection with
   Private Placement                                     1,460           15      15,394          -           -           15,409
 Issuance of Common Stock pursuant to
   exercise of stock options                                62            1         384          -           -              385
 Warrants issued in exchange
   for services (Note 9)                                   -            -           -            494         -              494
 Net loss                                                  -            -           -            -       (29,916)       (29,916)
                                                     ----------   ----------  ----------   ----------  ----------      ----------
 Balance at December 31, 1997                           11,250     $    112    $ 70,942     $  1,093    $(66,072)      $  6,075
                                                     ----------   ----------  ----------   ----------  ----------      ----------
                                                     ----------   ----------  ----------   ----------  ----------      ----------
</TABLE>
 




      The accompanying notes are an integral part of these financial statements


                                         F-5
<PAGE>

                                EARTHLINK NETWORK, INC
                               STATEMENT OF CASH FLOWS

 <TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                      -----------------------------------------
                                                                         1995           1996           1997
                                                                      -----------   ------------   ------------
                                                                                   (In thousands)
<S>                                                                   <C>           <C>            <C>
Cash flows from operating activities:
   Net loss                                                            $  (6,120)    $  (31,149)    $  (29,916)
   Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                          305          4,153          9,377
      Provision for doubtful accounts receivable                             -              781           (615)
      Issuance of Common Stock in exchange for
        professional services                                                -               50            -
      Issuance of Common Stock in exchange for
        termination of consulting agreement                                  -              413            -
      Issuance of warrants in exchange for
        professional services                                                -              -              494
      Increase in accounts receivable                                       (191)        (2,288)          (180)
      (Increase) decrease in prepaid expenses and other assets              (141)        (2,353)           202
      Increase (decrease) in accounts payable and
        accrued liabilities                                                2,292         12,373         (2,232)
      Increase in deferred revenue                                           212          1,798          1,580
                                                                      -----------   ------------   ------------
          Net cash used in operating activities                           (3,643)       (16,222)       (21,290)
                                                                      -----------   ------------   ------------

Cash flows from investing activities:
   Purchases of property and equipment                                    (2,766)       (18,774)       (14,528)
   Purchase of restricited short-term investment                          (1,500)        (1,087)          (200)
   Liquidation of restricted short-term investment                           -            1,500             37
   Purchase of member base                                                   -              -           (1,404)
                                                                      -----------   ------------   ------------
          Net cash used in investing activities                           (4,266)       (18,361)       (16,095)
                                                                      -----------   ------------   ------------

Cash flows from financing activities:
   Proceeds from (payment of ) line of credit                              1,494         (1,494)         4,387
   (Payment of) proceeds from notes payable                                  (67)         7,950         (2,225)
   Proceeds from capital lease obligations                                   556         11,348         10,544
   Principal payments under capital lease obligations                        (42)        (2,191)        (4,884)
   Proceeds from issuance of mandatorily redeemable
     convertible preferred stock                                             -           14,013            -
   Proceeds from initial public offering                                     -              -           26,226
   Proceeds from stock options exercised                                     -              -              385
   Proceeds from private placements of Common Stock                        6,258          8,660         15,409
                                                                      -----------   ------------   ------------
          Net cash provided by financing activities                        8,199         38,286         49,842
                                                                      -----------   ------------   ------------
Net increase in cash and cash equivalents                                    290          3,703         12,457
Cash and cash equivalents, beginning of year                                 -              290          3,993
                                                                      -----------   ------------   ------------
Cash and cash equivalents, end of period                               $     290     $    3,993     $   16,450
                                                                      -----------   ------------   ------------
                                                                      -----------   ------------   ------------
</TABLE>
 



      The accompanying notes are an integral part of these financial statements


                                         F-6
<PAGE>

                               EARTHLINK NETWORK, INC.
                            NOTES TO FINANCIAL STATEMENTS



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 ORGANIZATION

     EarthLink Network, Inc. ("EarthLink" or the "Company") was organized on
May 26, 1994 as a California corporation and reincorporated in 1996 as a
Delaware corporation.  The Company is an Internet service provider that was
formed to help members derive meaningful benefits from the extensive resources
of the Internet.

     The Company has experienced operating losses since inception as a result of
efforts to build its network infrastructure and internal staffing, develop its
systems, and expand into new markets.  The Company expects that it will continue
to incur net losses as it continues to expend substantial resources on sales and
marketing as it attempts to rapidly increase its market share.  There can be no
assurance that the Company will achieve or sustain profitability or positive
cash flow from its operations.

 REVENUES

     Recurring revenues consists of monthly fees charged to members for Internet
access and other ongoing services from monthly Internet service and are
recognized over the period services are provided.  Other revenues generally
represent one-time non-refundable set up fees.  Such revenues are recorded as
earned.

 CASH AND CASH EQUIVALENTS

     All highly liquid investments with an original maturity of three months or
less at the date of acquisition are classified as cash equivalents.

 ACCOUNTS RECEIVABLE AND DEFERRED REVENUES

     Commencing in 1995, the Company began to bill for Internet service
generally one month in advance. Accordingly, these non-cancelable advanced
billings are included in both accounts receivable and deferred revenue.

 CONCENTRATIONS OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations or credit risk consist principally of cash investments and trade
receivables. The Company's cash investment policies limit investments to
short-term, investment grade instruments. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of members
comprising the Company's member base.

 PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the assets, which is
generally three years for computers and computer related equipment and five
years for other non-computer furniture and equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated
lives or the term of the lease, ranging from one to ten years.


                                         F-7
<PAGE>

 EQUIPMENT UNDER CAPITAL LEASE

     The Company leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital lease
are recorded at the lesser of the present value of aggregate future minimum
lease payments, including estimated bargain purchase options, or the fair value
of the assets under lease. Assets under capital lease are amortized over the
lesser of their estimated useful lives of three to five years or the term of the
lease.

INTANGIBLES

     Intangible assets consist primarily of deferred financing and professional
service costs, prepaid lease guarantee costs, goodwill, rights to client lists
and a covenant not to compete. The costs assigned to intangible assets are being
amortized on a straight-line basis over the estimated useful lives of the
assets, which range from one to three years. The Company regularly reviews the
recoverability of intangible assets based on estimated undiscounted future cash
flows from operating activities compared with the carrying values of the
intangibles.

 ADVERTISING AND CUSTOMER ACQUISITION COSTS

     Advertising and customer acquisition costs are included in sales and
marketing. Such costs are expensed as incurred.

 INCOME TAXES

     Income taxes are accounted for under the liability method.  Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting basis and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

NET LOSS PER SHARE

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share" (EPS) and Staff Accounting Bulletin (SAB) No. 98.  SAB
No. 98 states that companies, such as EarthLink, that completed an initial
public offering ("IPO") within the past 5 years and incorporated the SAB No. 83
concept of "cheap stock" in determining pre-IPO EPS data must restate all EPS
data to conform to SFAS No. 128.   Accordingly, all EPS data have been restated
to conform to SFAS No. 128.  SFAS No. 128 requires a dual presentation of basic
and diluted EPS.  Basic EPS represents the weighted average number of shares
divided into net income during a reported period.  Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.  However, the
Company has not included potential common stock in the calculation of EPS since
inception as such inclusion would have an anti-dilutive effect.

 USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

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

 COMMON STOCK BASED COMPENSATION

     The Company continues to account for its employee stock based compensation
in accordance with the provisions of APB 25 and provides pro forma disclosures
in the notes to the financial statements (see note 9), as if the measurement
provisions of SFAS No. 123 had been adopted.


                                         F-8
<PAGE>

 RECLASSIFICATION

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


2.  PURCHASE OF CERTAIN ASSETS FROM BECKEMEYER DEVELOPMENT TECHNOLOGIES

     In order to recruit the principal shareholder of Beckemeyer Development
Technologies ("BDT") to serve as the Company's Vice President of Engineering, on
November 7, 1995, the Company agreed to purchase all fixtures, equipment, and
the client list of BDT for cash of $64,000. In addition to the above, the
principal shareholder was issued warrants to purchase 10,330 shares of the
Company's Common Stock at $4.84 per share as consideration for an agreement not
to compete for a two-year period. The value assigned to the warrants was $5,000
based upon an appraisal obtained by the Company. The warrants expire October 10,
2005. This purchase price was allocated to the assets acquired with the
remainder reflected as an intangible asset. At the time of purchase, BDT was not
material to the results of operations, financial position or customer base of
EarthLink.


3.  PURCHASE OF CERTAIN ASSETS FROM INTERNET IN A MALL

     In April 1997, the Company purchased the subscribers and related assets,
including accounts receivable related to the consumer dial-up Internet access
service of Internet in a Mall, a Tarzana, California based Internet access
provider.  Under the terms of the agreement, as amended, the Company purchased
rights to approximately 28,000 subscriber accounts as of April 1997.


4.  PROPERTY AND EQUIPMENT

    Property and equipment consist of:

<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                           ------------
                                                        1996           1997
                                                        ----           ----
                                                          (In thousands)
    <S>                                              <C>            <C>
    Data communications equipment                    $  11,464      $  17,056
    Office and other equipment                           6,686         12,196
    Leasehold improvements                                 646          5,013
    Construction in progress                             2,841          1,901
                                                     ---------      ---------
                                                        21,637         36,166
    Less accumulated depreciation and amortization      (4,236)       (12,768)
                                                     ---------      ---------
                                                     $  17,401      $  23,398
                                                     ---------      ---------
                                                     ---------      ---------
</TABLE>

    Property under capital lease, primarily data communications equipment
included above, aggregated $11,904,000, and $22,448,000 at December 31, 1996 and
1997, respectively. Included in accumulated depreciation and amortization are
amounts related to property under capital lease of $2,896,000 and $8,528,000 at
December 31, 1996 and 1997, respectively.  Depreciation expense charged to
operations was $305,000, $3,924,000 and $8,531,000 in 1995, 1996, and 1997,
respectively, and included $56,000, $2,840,000 and $5,632,000, respectively,
pertaining to property under capital lease.


                                         F-9
<PAGE>

5.  OTHER ASSETS

Other assets consist of:

<TABLE>
<CAPTION>

                                                             DECEMBER 31,
                                                        ---------------------
                                                          1996           1997
                                                          ----           ----
                                                            (In thousands)
    <S>                                                 <C>            <C>
    Deposits                                            $  409         $  789
    Deferred offering costs                                804            -
    Inventory                                              499            413
                                                        ------         ------
                                                        $1,712         $1,202
                                                        ------         ------
                                                        ------         ------
</TABLE>

6.  INTANGIBLE ASSETS


    Intangible assets consist of:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                        ---------------------
                                                          1996           1997
                                                          ----           ----
                                                            (In thousands)
    <S>                                                 <C>            <C>
    Deferred financing costs                            $  347         $  430
    Rights to client lists                                  10          1,414
    Other                                                  188            188
                                                        ------         ------
                                                           545          2,032
    Less accumulated amortization                         (229)        (1,074)
                                                        ------         ------
                                                        $  316         $  958
                                                        ------         ------
                                                        ------         ------
</TABLE>

7.  NOTES PAYABLE

     In June 1996, the Company issued to 17 investors, 10% Promissory Notes
aggregating $2,950,000. Certain of the investors were directors and stockholders
of the Company.  As described in Note 9, the Company issued warrants valued at
$116,000 to the note holders. The fair value of the warrants was recorded as
deferred financing costs and amortized as interest expense over the life of the
notes.  Upon consummation of the Company's initial public offering on January
22, 1997, the holders of $725,000 of the 10% Promissory Notes converted their
indebtedness into 55,767 shares of Common Stock. In January 1997, the Company
repaid the $2,225,000 balance remaining on the 10% Promissory Notes.

     The Company has a convertible note payable to UUNET Technologies, Inc.
("UUNET").  The $5 million Convertible Note was extended one year, and as such
the entire amount is due October 31, 1998, if not converted.  The convertible
note will become due and payable immediately if the monthly amounts payable
under Company's Network Service Agreement with UUNET are less than $1.5 million
during any consecutive three months.  The convertible note bears interest at
10.25% and is convertible into a maximum of 391,515 shares of Common Stock at a
conversion price of $12.88 per share.


8.  CAPITAL STOCK AND MANDATORILY REDEEMABLE EQUITY SECURITIES

 COMMON STOCK

     The Company issued 367,155 shares of Common Stock at $0.82 per share,
827,085 shares of Common Stock at $1.81 per share and 921,745 at $4.84 per share
on March 10, 1995, June 19, 1995 and October 31, 1995, respectively.  As a
result of these placements, the Company raised, in the aggregate $6,258,000
during 1995.  The Company issued 45,485 shares of Common Stock at $4.84 per
share and 25,000 shares of Common Stock at $4.84 per share on January 18, 1996
and March 20, 1996, respectively. On May 6, 1996, the Company issued 852,460


                                         F-10
<PAGE>

shares of Common Stock at $9.76 per share in a private placement. As a result of
these placements, EarthLink raised, in the aggregate, $8,660,000 during 1996.
On September 19, 1997, the Company closed a private placement of 1,459,759
shares of its unregistered restricted Common Stock.  Net proceeds from the
offering were approximately $15.4 million.

 MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

     On September 10, 1996, the Company issued 2,727,273 shares of its Series 
A Redeemable Convertible Preferred Stock to investors including among others, 
certain directors, stockholders and the Underwriter associated with the 
Company's initial public offering and certain of its associates for 
$15,000,000. Stock issuance costs of $987,000 have been charged to redeemable 
convertible preferred stock. Each two shares of the Series A Convertible 
Preferred Stock was automatically converted into one share of Common Stock 
upon consummation of the initial public offering of the Company's common 
stock on January 22, 1997.

INITIAL PUBLIC OFFERING

     On January 22, 1997 the Company commenced its initial public offering.  The
offering consisted of 2,000,000 shares of common stock issued at $13 per share.
Net proceeds to the Company were approximately $22.8 million.  Upon consummation
of the offering 2,727,273 shares of the Company's Series A Convertible Preferred
Stock were converted to 1,363,624 shares of Common Stock.  In February 1997, the
Underwriter exercised its over-allotment option and purchased 284,750 shares at
the initial public offering price of $13.00.  Net proceeds to the Company were
approximately $3.4 million.

 COMMON STOCK ISSUANCES FOR OTHER THAN CASH

     In May 1996, the Company issued 5,122 shares of Common Stock at $9.76 per
share, to a sub-contractor in lieu of cash for services provided to the Company.
In September 1996, the Company issued 37,500 shares of Common Stock at $11.00
per share as consideration for the termination of a consulting agreement.


9.  STOCK OPTIONS AND WARRANTS

 STOCK OPTIONS

 1995 STOCK OPTION PLAN

     In September 1995, the Company established the EarthLink Network 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan provides for the grant of incentive
stock options to purchase up to 1,250,000 shares of common stock to employees of
the Company and non-qualified stock options to employees, officers, directors
and consultants of the Company. The 1995 Plan is administered by a committee
appointed by the Board which determines the terms of the options granted,
including the exercise price, the number of shares subject to option, and the
option vesting period. The exercise price of all options granted under the plan
must be at least 100% of the fair market value on the date of grant. Options
generally vest in equal quarterly increments over a five year period.  As of
December 31, 1997, 87,432 options remain available for issuance under the 1995
Incentive Stock Option Plan.

 DIRECTORS STOCK OPTION PLAN

     In September 1995, the Company established the EarthLink Directors Stock
Option Plan (the "Directors Plan"). The Directors Plan as amended and restated
in December 1996, provides for the grant of options to purchase 62,500 shares of
Common Stock to directors who do not also serve as employees of the Company and
do not beneficially own, nor are employees, directors or officers of any entity
which owns 5% or more of the outstanding shares of the Company's capital stock.
Under the Directors Plan, grants of options to purchase 10,000 and 2,500 shares
of Common Stock are automatically made to each non-management director at such
time as the


                                         F-11
<PAGE>

person first becomes a member of the Board of Directors and at the beginning of
each fiscal year, respectively. Options generally vest in equal quarterly
increments over a five year period. As of December 31, 1997, there were no
outstanding options to purchase shares of Common Stock outstanding under the
Directors Plan.

 NON-QUALIFIED OPTION GRANTS

     In addition to the options granted under the plans described above, the
Company granted non-qualified stock options to certain employees, officers and
directors. Non-qualified options generally have a maximum term of ten years and
generally vest in equal quarterly increments over a five-year period.

 VALUE OF OPTIONS GRANTED TO EMPLOYEES

     For disclosure purposes the fair value of all stock options granted is
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions used for stock options granted in 1997: no annual
dividends, expected volatility of 69%, risk-free interest rate of 6.49%, and
expected life of 6.6 years.    The weighted average fair value of the 395,625
stock options granted in 1997 was $9.95.  For 1995 and 1996, the fair value of
each option grant is estimated on the date of grant using the minimum value
method with the following assumptions used for grants during both periods:
dividend yield of 0.0%, risk free interest rate of 5.83% and expected option
term of 10 years.

     Had compensation cost been determined on the basis of fair value pursuant
to SFAS No. 123, net loss and net loss per share would have been increased as
follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                             -----------------------------------
                                                1995       1996         1997
                                             ---------- -----------  -----------
                                                      (In thousands)
<S>                                          <C>        <C>          <C>
Net loss

    As reported . . . . . . . . . . . . .    $  6,120    $  31,149   $  29,916
                                             ---------- -----------  -----------
                                             ---------- -----------  -----------

    Pro forma . . . . . . . . . . . . . .    $  6,145    $  31,477   $  30,737
                                             ---------- -----------  -----------
                                             ---------- -----------  -----------

Basic and diluted net loss per share

    As reported . . . . . . . . . . . . .    $   1.59    $    5.13   $    2.99
                                             ---------- -----------  -----------
                                             ---------- -----------  -----------

    Pro forma . . . . . . . . . . . . . .    $   1.60    $    5.19   $    3.07
                                             ---------- -----------  -----------
                                             ---------- -----------  -----------
</TABLE>

 WARRANTS

     The Company has issued to certain Board members, consultants, lessors,
creditors and others, warrants to purchase shares of the Company's Common Stock.

     In September 1995, certain stockholders guaranteed a $500,000 lease for
networking equipment. The Company issued warrants to purchase 50,000 shares of
Common Stock at $1.81 per share, valued at $25,000, based upon an appraisal
obtained by the Company, as consideration for this guarantee. These warrants
expire August 31, 2000.

     In December 1995, certain stockholders provided the Company with a $250,000
Irrevocable Standby Letter of Credit as a performance guarantee for a real
estate lease. In conjunction with this transaction the Company issued warrants
to purchase 50,000 shares at $4.84 per share, valued at $25,000, based upon an
appraisal obtained by the Company.  These warrants expire December 1, 2000.

                                         F-12
<PAGE>

     In January 1996, certain stockholders guaranteed a $1,500,000 lease for
networking equipment.  The Company issued warrants to purchase 100,000 shares of
Common Stock at $4.84 per share. The fair value of the warrants has been
reflected in intangible assets.  These warrants expire January 11, 2001.

     In January 1996 the Company issued warrants to purchase 100,000 shares of
Common Stock at $4.84 to Board members. The warrants vest quarterly over five
years.  As these warrants were issued for service on the Board of Directors they
are accounted for under APB 25 and as such are included in the summary of
non-qualified options and are not included in the summary of warrant grants.

     In January 1996, LINC Capital Partners, Inc. ("LINC") provided a $1,500,000
lease line for equipment. The Company issued warrants to LINC to purchase 50,000
shares of Common Stock at $4.84 per share. The fair value of the warrants has
been reflected as deferred financing costs. These warrants expire January 18,
2006.

     In February 1996, Boston Financial & Equity Corporation ("Boston
Financial") provided a $700,000 lease line for equipment. The Company issued
warrants to Boston Financial to purchase 5,000 shares of Common Stock at $9.76
per share. The fair value of the warrants has been reflected as deferred
financing costs. These warrants expire February 15, 2006.

     In May 1996, the Company issued warrants to purchase 45,477 shares of
Common Stock at $9.76 per share to various lessors in return for lease lines and
other services to the Company. The fair value of the warrants has been reflected
as deferred financing costs. The warrants expire on May 10, 2006.

     In May 1996, in connection with the amendment and restatement of the UUNET
Agreement, the Company agreed to issue warrants to purchase 10,000 shares of
Common Stock at an exercise price of $20.00 per share. The fair value of the
warrants has been reflected as deferred financing costs.

     In connection with the issuance of 10% Promissory Notes aggregating
$2,950,000, the Company issued to the lenders warrants to purchase an aggregate
of 98,340 shares of Common Stock at an exercise price of $11.00 per share, as
adjusted. The fair value of the warrants has been reflected as deferred
financing costs.

     In connection with the execution of the PSINet, Inc. ("PSINet") agreement
in July 1996, (Note 11) the Company issued warrants to purchase 100,000 shares
of Common Stock at an exercise price of $20.00 per share. The fair value of the
warrants has been reflected as deferred financing costs.


     In connection with the private placement of Series A Convertible Preferred
Stock, described above, the Company granted to certain purchasers of the
Series A Convertible Preferred Stock warrants to purchase 100,000 shares of
common stock at $11.00 per share.

WARRANTS ISSUED  FOR SERVICES

     In May 1996, the Company entered into an agreement with NMC, a producer of
infomercials and commercials, pursuant to which NMC agreed to produce and
broadcast commercials for EarthLink's services in exchange for Warrants.  Upon
completion of the infomercial in April 1997 the Company issued warrants to NMC
to purchase 50,000 shares of Common Stock, having an exercise price of $9.76 per
share.   In September 1997, the parties verbally agreed to rescind the
agreement.  The rescission agreement included the return of the 50,000 warrants
and the cancellation of any future obligations of either party.  However, the
rescission agreement was never executed and thus may be considered
non-operative.  The fair value of the warrants, $76,000, has been recorded as
prepaid advertising and will be expensed upon airing of the infomericals.

     In January 1997 and October 1997, the Company issued warrants to purchase
6,000 and 25,000 shares, respectively, of the Company's Common Stock to certain
consultants.  The respective exercise prices of the warrants were $13.00 and
$17.75.  The fair value of the warrants is reflected as prepaid consulting fees
and amortized ratably over the life of the consulting agreement.   Consulting
expense recorded with respect to warrants issued to consultants was $23,340
during 1997.


                                         F-13
<PAGE>

     In September  1996 the Company issued warrants to purchase 7,500 shares of
the Company's common stock at $11.00 per share to each of the three members of
the Company's Technology Advisory Council. The warrants vest quarterly over two
years. The fair value of the warrants is reflected as deferred professional
services expense and amortized ratably over the member's two year term of
service in the Technology Advisory Council.

     On March 1997 and October 1997, the Company issued warrants to purchase
7,500 shares of the Company's common stock to each of two new members of the
Company's Technology Advisory Council.  The warrants have an exercise price of
$10.50 per share and $17.75 per share, respectively, and vest quarterly over two
years. The fair value of the warrants is reflected as deferred professional
services expense and amortized ratably over the member's two year term of
service in the Technology Advisory Council.

Following is a summary of stock option and warrant activity during the three
years ended December 31, 1997:

 <TABLE>
<CAPTION>
                                                         NUMBER OF SHARES
                                                          OF COMMON STOCK
                                            ------------------------------------------                          WEIGHTED
                                             INCENTIVE     NON-QUALIFIED                                        AVERAGE
                                               STOCK           STOCK                            PRICE           EXERCISE
                                              OPTIONS         OPTIONS        WARRANTS         PER SHARE          PRICE
                                            ------------    -----------    -----------    -----------------    ----------
<S>                                         <C>            <C>             <C>            <C>                  <C>
Balance at December 31, 1994 . . . . . .            -              -          150,000      $         1.81       $   1.81
Granted. . . . . . . . . . . . . . . . .        232,500        425,000        110,330      $   0.60- 4.84       $   3.04
Forfeited. . . . . . . . . . . . . . . .            -          (60,209)           -        $         0.60       $   0.60
                                            ------------    -----------    -----------    -----------------    ----------
Balance at December 31, 1995 . . . . . .        232,500        364,791        260,330      $   1.81- 4.84       $   3.00
Granted. . . . . . . . . . . . . . . . .        806,250        175,000        531,317      $   1.81-20.00       $   9.14
Forfeited. . . . . . . . . . . . . . . .        (10,500)           -              -        $         9.76       $   9.76
                                            ------------    -----------    -----------    -----------------    ----------
Balance at December 31, 1996 . . . . . .      1,028,250        539,791        791,647      $   1.81-11.00       $   6.91
Granted. . . . . . . . . . . . . . . . .        345,625         50,000         96,000      $   1.81-20.00       $  13.42
Forfeited. . . . . . . . . . . . . . . .       (211,307)           -              -        $   4.84-13.00       $   9.02
Exercised. . . . . . . . . . . . . . . .        (48,957)       (14,791)           -        $   0.60-13.00       $   5.64
                                            ------------    -----------    -----------    -----------------    ----------
Balance at December 31, 1997 . . . . . .      1,113,611        575,000        887,647      $   1.81-20.00       $   8.01
                                            ------------    -----------    -----------    -----------------    ----------
                                            ------------    -----------    -----------    -----------------    ----------

Exercisable at December 31, 1997 . . . .        299,355        208,750        836,920      $   1.81-20.00       $   7.32
                                            ------------    -----------    -----------    -----------------    ----------
                                            ------------    -----------    -----------    -----------------    ----------
</TABLE>



Following is a summary of stock options and warrants outstanding as of
December 31, 1997:

<TABLE>
<CAPTION>
                                             WEIGHTED
                                              AVERAGE        WEIGHTED                       WEIGHTED
                                             REMAINING        AVERAGE                       AVERAGE
           RANGE OF             NUMBER      CONTRACTUAL       EXERCISE       NUMBER         EXERCISE
       EXERCISE PRICES        OUTSTANDING       LIFE           PRICE       EXERCISABLE       PRICE
    -----------------------   -----------  -------------    -----------  ---------------  ------------
    <S>                       <C>          <C>              <C>          <C>              <C>
     $  1.81  -  $   1.81        500,000           7.32       $   1.81        350,000       $   1.81
     $  4.84  -  $   4.84        787,630           7.98       $   4.84        409,380       $   4.84
     $  9.76  -  $  11.00        879,378           8.17       $  10.40        454,508       $  10.48
     $ 11.50  -  $  19.88        299,250           9.49       $  15.21         21,137       $  12.77
     $ 20.00  -  $  20.00        110,000           8.54       $  20.00        110,000       $  20.00
                               ---------                                    ---------
     $  1.81  -  $  20.00      2,576,258           8.12       $   8.00      1,345,025       $   7.32
                               ---------                                    ---------
                               ---------                                    ---------
</TABLE>
 

                                         F-14
<PAGE>

10.  INCOME TAXES

     The stockholders, upon incorporating the Company, elected to treat the
Company as an S Corporation under the Internal Revenue Code. On June 19, 1995,
this election was revoked as certain ineligible entities (i.e partnerships and
corporations) became stockholders. Losses of $1,261,000 incurred from inception
through June 19, 1995 have been reclassified from accumulated deficit to Common
Stock as a result of the change to C Corporation status. The Company is now
subject to income taxes on income earned after June 19, 1995. At December 31,
1996 and 1997, the Company had net operating loss carryforwards for federal
income tax purposes totaling approximately $33,751,000, and $61,004,000,
respectively, which begin to expire in 2011. The Internal Revenue Code of 1986,
as amended, includes provisions which may limit the net operating loss
carryforwards available for use in any given year if certain events occur,
including significant changes in ownership. Due to the Company's initial public
offering and other issuances of Common Stock and Common Stock equivalents,
utilization of the Company's net operating loss carryforwards to offset future
income may be limited.

Deferred tax assets include the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                       ------------------------
                                                          1996          1997
                                                       -----------  -----------
                                                            (In thousands)
     <S>                                               <C>          <C>
     Net operating loss carryforwards . . . . . . .     $  13,578   $  24,584
     Deferred financing costs . . . . . . . . . . .            88         118
     Depreciation . . . . . . . . . . . . . . . . .            50         323
     Accrued Liabilities. . . . . . . . . . . . . .           103         201
                                                       -----------  -----------
     Gross deferred tax assets. . . . . . . . . . .        13,819      25,226
     Deferred tax asset valuation allowance . . . .       (13,819)    (25,226)
                                                       -----------  -----------
                                                        $     -     $     -
                                                       -----------  -----------
                                                       -----------  -----------
</TABLE>


     The Company recorded a full valuation allowance for net deferred tax assets
due to the uncertainty of future taxable income.

PROFIT SHARING PLAN

     Effective January 1997, the Company implemented a profit sharing plan (the
Plan) pursuant to Section 401(k) of the Internal Revenue code, whereby
participants may contribute a percentage of compensation, but not in excess of
the maximum allowed under the Code.  The Company makes a discretionary matching
contribution of 25% up to a maximum of 6% of the participant's total eligible
compensation.  The Company's matching contributions vest over four years from
the participant's date of hire.  Total contributions for 1997 were $84,000.


11.  COMMITMENTS AND CONTINGENCIES

 LEASES

     The Company leases its facilities and certain equipment under
non-cancelable operating leases expiring in various years through 2008. Total
rent expense in 1995, 1996 and 1997, respectively, for all operating leases
amounted to $145,000, $914,000 and $1.9 million, respectively. The Company also
leases equipment, primarily data communications equipment, under non-cancelable
capital leases.  Most of the Company's capital leases include purchase options
at the end of the lease term.

     In February 1997, EarthLink commenced occupation of a 55,000 square feet in
a facility located adjacent to its corporate headquarters to house the Company's
data center.  In June 1997, the Company amended the lease for its corporate
headquarters facility.  Under the amended lease the Company will occupy an
additional 45,000


                                         F-15
<PAGE>

square feet of the existing facility and  deliver an irrevocable letter of
credit in the amount of $450,000 to the Lessor.

     During the three years ended December 31, 1997, the Company financed the
acquisition of data processing and office equipment amounting to approximately
$556,000, $11.3 million and $10.5 million, respectively, by entering into a
number of agreements for the sale and leaseback of equipment. The sale leaseback
transactions are recorded at cost, which approximates the fair market value of
the property and, therefore, no gains or losses have been recorded. The property
remains on the books and continues to be depreciated. A financing obligation
representing the proceeds is recorded and reduced based upon payments under the
lease agreement.

     Minimum lease commitments under non-cancelable leases at December 31, 1997
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING                                              CAPITAL     OPERATING
DECEMBER 31,                                              LEASES      LEASES
                                                        ----------  ----------
                                                            (IN THOUSANDS)
<S>                                                     <C>         <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . .     $  8,576    $  1,898
1999 . . . . . . . . . . . . . . . . . . . . . . . .        6,516       2,126
2000 . . . . . . . . . . . . . . . . . . . . . . . .        3,258       1,994
2001 . . . . . . . . . . . . . . . . . . . . . . . .          657       1,767
2002 . . . . . . . . . . . . . . . . . . . . . . . .           91       1,897
Thereafter . . . . . . . . . . . . . . . . . . . . .            8       8,807
                                                        ----------  ----------
Total minimum lease payments . . . . . . . . . . . .       19,106   $  18,489
                                                                    ----------
                                                                    ----------
Less amount representing interest. . . . . . . . . .       (3,776)
                                                        ----------
Present value of future lease payments . . . . . . .       15,330
Less current portion . . . . . . . . . . . . . . . .        7,112
                                                        ----------
                                                         $  8,218
                                                        ----------
                                                        ----------
</TABLE>

GUARANTEED USAGE LEVELS

     At December 31, 1997, the Company has committed to guaranteed usage levels
of data and voice communication with certain  telecommunication vendors in the
aggregate amount of $3 million in 1998.

 SIGNIFICANT AGREEMENTS

     Access to the Internet for members outside of the Company's California
regional base is provided through points of presence ("POP") capacity leased
from UUNET and PSINet. EarthLink is, in effect, buying this capacity in bulk at
a discount, and providing access to EarthLink's member base at EarthLink's
normal rates. Payment to UUNET and PSINet is generally concurrent with
EarthLink's receipt of funds from members.   At December 31, 1997, $2.0 million
and $2.1 million in amounts due to UUNET were recorded in accounts payable and
other accrued liabilities, respectively, and $540,000 and $4.4 million in
amounts due PSINet were recorded in other accrued liabilities and notes payable,
respectively.

     Effective June 30, 1997 the Company's agreement with UUNET was amended.
UUNET agreed to waive monthly revenue minimums, excess hours fees, and peak
service user targets during the six months ended December 31, 1997.  In return,
EarthLink agreed not to invoke its early termination right prior to September
1998.  If the number of hours used by EarthLink members accessing the Internet
through UUNET increases beyond the amount provided for in the agreement or the
usage becomes more concentrated during peak times, the fees paid by the Company
to UUNET would increase, which would adversely affect the Company's operating
margins.

     EarthLink has licensed Netscape Communicator software ("Netscape
Communicator") from Netscape Communications Corporation, and Microsoft Internet
Explorer software ("Internet Explorer") from Microsoft

                                         F-16
<PAGE>

Corporation. These licenses permit the Company to distribute Netscape 
Communicator and Internet Explorer in the EarthLink Network TotalAccess 
software package. Management believes that contract renewal for both of the 
browsers, under conditions acceptable to EarthLink, is probable.

Minimum commitments under non-cancelable network service agreements from UUNET
and PSINet are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,                                                      IN MILLIONS
                                                                  -----------
<S>                                                               <C>
  1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $  22.8
  1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        6.0
                                                                   ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $  28.8
                                                                   ---------
                                                                   ---------
</TABLE>

12.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                    ----------------------------------------
                                       1995           1996           1997
                                    ----------     ----------     ----------
                                                 (In thousands)
        <S>                         <C>            <C>            <C>
        Cash paid for: 

        Interest                     $     60       $  1,041       $  1,965
                                    ----------     ----------     ----------
                                    ----------     ----------     ----------

        Income Taxes                 $      1       $      1       $      1
                                    ----------     ----------     ----------
                                    ----------     ----------     ----------
</TABLE>

SUBSEQUENT EVENTS

 COMMON STOCK ISSUED IN EXCHANGE FOR SERVICES

     In January 1998, the Company issued 10,000 shares of its Common Stock to a
Consultant in lieu of cash for services pursuant to a consulting agreement.
Under this agreement the Company is committed to issue 10,000 additional shares
of its Common Stock on January 1, 1999.  The fair value of the shares will be
recorded as prepaid professional services and amortized ratably over the term of
the contract.

     In February 1998, the Company's 1995 Incentive Stock Option Plan was
amended to increase the number of options available for grant under the plan
from 1,250,000 to 1,850,000.

STRATEGIC ALLIANCE WITH SPRINT CORPORATION

     On February 11, 1998, the Company announced a long-term strategic alliance
with Sprint Corporation.  In connection with this alliance, Sprint has tendered
to purchase approximately 1.25 million shares of EarthLink's Common Stock at $45
per share.  Upon closing of this tender offer, Sprint will purchase
approximately, 4.1 million shares of convertible preferred stock from Dolphin,
Inc. ("Newco") a new corporation formed by EarthLink for the purpose of
consummating the Sprint transactions.  In exchange for the convertible preferred
stock Sprint will transfer its Sprint Internet Passport customer base of
approximately 130,000 members, pay approximately $24 million in cash, and
provide access to $100 million in convertible debt financing.  Sprint and
EarthLink will also enter into a marketing and distribution arrangement and
EarthLink will obtain access to Sprint's data network.  Concurrently with the
closing of these transactions, a wholly-owned subsidiary of Newco will merge
with and into EarthLink and each share of EarthLink Common Stock outstanding
will convert into one share of Newco common stock.  Sprint will also secure two
seats on Newco's board of directors.

                                         F-17
<PAGE>

                                   EXHIBIT INDEX


  EXHIBIT                               DESCRIPTION
  -------                               -----------
  2.1        Investment Agreement dated as of February 10, 1998, among Sprint
             Corporation, a Kansas corporation, Sprint Communications Company
             L.P., a Delaware limited partnership, Dolphin, Inc., a Delaware
             corporation, Dolphin Sub, Inc., a Delaware corporation, and
             EarthLink Network, Inc., a Delaware corporation (incorporated by
             reference to Exhibit 2.1 to the Company's Form 8-K filed on
             February 10, 1998).

  3.1        Amended and Restated Certificate of Incorporation (incorporated
             by reference to Exhibit 3.1 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).

  3.2        Bylaws (incorporated by reference to Exhibit 3.2 to the
             Company's Registration Statement on Form S-1 - File No. 333-5781).

  4.1        See exhibits 3.1 and 3.2 for provisions of the Certificate of
             Incorporation and Bylaws defining rights of holders of Common
             Stock.

  4.2        Specimen Stock Certificate (incorporated by reference to Exhibit
             4.2 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  4.3        Form of Warrant Agreement (incorporated by reference to Exhibit
             4.3 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  10.1       Governance  Agreement, dated as of February 10, 1998, among
             Sprint Corporation, a Kansas corporation, Sprint Communications
             Company L.P., a Delaware limited partnership, Dolphin, Inc., a
             Delaware corporation, and EarthLink Network, Inc., a Delaware
             corporation (incorporated by reference to Exhibit 10.1 to the
             Company's Form 8-K filed on February 10, 1998).

  10.2       Proposed form of Certificate of Designation, Preferences and
             Rights of Series A Convertible Preferred Stock of Dolphin, Inc.
             (incorporated by reference to Exhibit 10.2 to the Company's Form
             8-K filed on February 10, 1998).

  10.3       Credit Agreement, dated as of February 10, 1998, between
             Dolphin, Inc., a Delaware  corporation, and EarthLink Network,
             Inc., a Delaware  corporation, as Borrowers, and Sprint
             Corporation, a Kansas corporation, as Lender (incorporated by
             reference to Exhibit 10.3 to the Company's Form 8-K filed on
             February 10, 1998).

  10.4       Lease Line Agreement, dated January 30, 1996, between the
             Company and Boston Financial & Equity Corporation (incorporated 
             by reference to Exhibit 10.4 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).

  10.5       Master Lease Agreement, dated September 1, 1995, between the
             Company and LINC Capital Management (incorporated by reference to
             Exhibit 10.5 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  10.6       Netscape Communications Corporation Internet Service Provider
             Navigator Distribution Agreement dated May 31, 1996, between the
             Company and Netscape Communications Corporation (incorporated by
             reference to Exhibit 10.6 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).


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             (a) Amendment No. 1 to Netscape Communications Corporation
             Internet Service Provider Agreement (incorporated by reference to
             Exhibit 10.6(a) to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).
             (b) Amendment No. 2 to Netscape Communications Corporation
             Internet Service Provider Agreement (incorporated by reference to
             Exhibit 10.6(b) to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  10.7       Network Services Agreement dated May 31, 1996, between the
             Company and UUNET Technologies, Inc. (incorporated by reference to
             Exhibit 10.7 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).
             (a) Addendum No. 1 to Network Services Agreement (incorporated
             by reference to Exhibit 10.7(a) to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).

  10.8       Software Distribution Agreement (MacTCP), dated October 2, 1995,
             between the Company and Apple Computer, Inc. (incorporated by
             reference to Exhibit 10.8 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).

  10.9       Employment Agreement, dated January 15, 1996, between the
             Company and Charles G. Betty (incorporated by reference to
             Exhibit 10.9 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  10.12      Standard Industrial/Commercial Multi-Tenant Lease, dated
             December 1, 1995, between the Company and Becton, Dickinson
             (incorporated by reference to Exhibit 10.12 to the Company's
             Registration Statement on Form S-1 - File No. 333-5781).

  10.13      Business Loan Agreement, dated June 15, 1995, and Promissory
             Note in the original principal amount of $250,000 between the
             Company and California United Bank (incorporated by reference to
             Exhibit 10.13 to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).

  10.16      Production and Distribution Agreement, dated May 6, 1996,
             between the Company and National Media Corporation (incorporated
             by reference to Exhibit 10.16 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).
             (a) Amendment No. 1 to Production and Distribution Agreement
             (incorporated by reference to Exhibit 10.16(a) to the Company's
             Registration Statement on Form S-1 - File No. 333-5781).

  10.19      Internet Wizard Sign-Up Agreement between the Company and
             Microsoft Corporation, dated August 16, 1996 (incorporated by
             reference to Exhibit 10.19 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).

  10.20      Network Access Agreement between the Company and PSINet, Inc.,
             dated July 22, 1996 and Amendment No. 1 to Network Access
             Agreement (incorporated by reference to Exhibit 10.20 to the
             Company's Registration Statement on Form S-1 - File No. 333-5781).

  10.21      Office Lease by and between The Mutual Life Insurance Company of
             New York, as Landlord, and the Company, as Tenant, dated
             September 20, 1996 (incorporated by reference to Exhibit 10.21 to
             the Company's Registration Statement on Form S-1 - File 
             No. 333-5781).

  10.22      Standard Office Lease by and between Glen Feliz Properties, as
             Landlord, and the Company, as Tenant, dated July 2, 1996
             (incorporated by reference to Exhibit 10.22 to the Company's
             Registration Statement on Form S-1 - File No. 333-5781).

  10.23      Amended and Restated Note Purchase Agreement between the Company
             and UUNET Technologies, Inc., dated October 31, 1996 (incorporated
             by reference to Exhibit 10.23 to the Company's Registration
             Statement on Form S-1 - File No. 333-5781).


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             (a) $5,000,000 Convertible Note (incorporated by reference to
             Exhibit 10.23(a) to the Company's Registration Statement on
             Form S-1 - File No. 333-5781).
             (b) Addendum to Amended and Restated Registration Rights
             Agreement (incorporated by reference to Exhibit 10.23(c) to the
             Company's Registration Statement on Form S-1 - File No. 333-5781).

  23.1       Consent of Price Waterhouse LLP, independent accountants - filed
             herewith.

  27.1       Financial Data Schedule - filed herewith.

  99.1       Registration Rights Agreement, dated as of February 10, 1998,
             among Dolphin, Inc., a Delaware corporation, Sprint Corporation,
             a Kansas corporation, and Sprint Communications Company L.P., a
             Delaware limited partnership (incorporated by reference to
             Exhibit 99.1 to the Company's Form 8-K filed on
             February 10, 1998).

  99.2       Stockholders' Agreement, dated as of February 10, 1998, among
             EarthLink Network, Inc., a Delaware corporation, Dolphin, Inc., a
             Delaware corporation, Sprint Corporation, a Kansas corporation,
             Sprint Communications Company L.P., a Delaware limited
             partnership, and the persons identified on Schedule I thereto
             (incorporated by reference to Exhibit 99.2 to the Company's
             Form 8-K filed on February 10, 1998).

  99.3       Agreement to Vote Stock, dated as of February 10, 1998, among
             the Granting Stockholders named on Schedule A thereto, Sprint
             Corporation, a Kansas corporation and Sprint Communications
             Company L.P., a Delaware limited partnership (incorporated by
             reference to Exhibit 99.3 to the Company's Form 8-K filed on
             February 10, 1998).

  99.4       Agreement to Vote and Tender Stock, dated as of February 10,
             1998, among the Granting Stockholders named on Schedule A
             thereto, Sprint Corporation, a Kansas corporation and Sprint
             Communications Company, L.P., a Delaware limited partnership
             (incorporated by reference to Exhibit 99.4 to the Company's Form
             8-K filed on February 10, 1998).




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