<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                --------------
                                   FORM 10-K
                                --------------
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1999

                         Commission File No. 000-22697
                              AT HOME CORPORATION
           (Exact name of the Registrant as specified in its charter)


          Delaware                                     77-0408542
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)

          450 Broadway Street
       Redwood City, California                          94063
(Address of principal executive offices)               (Zip Code)

                                (650) 556-5000
           (The Registrant's telephone number, including area code)

          Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

          Securities Registered Pursuant to Section 12(g) of the Act:
                Series A Common Stock, $0.01 par value per share

     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]

<TABLE>
<CAPTION>
                                                                                         As of February 29, 2000
                                                                                         ------------------------
<S>                                                                                      <C>
Aggregate market value of the voting stock held by non-affiliates of the Registrant
 based on the closing price per share as reported on the Nasdaq Stock Market on
 such date(1):........................................................................       $ 9,870,661,228
Number of shares of Series A Common Stock outstanding:................................           351,954,355
Number of shares of Series B Common Stock outstanding:................................            30,800,000
Number of shares of Series K Common Stock outstanding:................................             2,000,000
</TABLE>

  (1)Shares of common stock held by each executive officer and director and by
each person or entity that owns 10% or more of the outstanding common stock have
been excluded in that such persons or entities may be deemed to be affiliates.
This determination of affiliate status is not necessarily conclusive for other
purposes.


                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's proxy statement for the 2000 annual meeting of
stockholders are incorporated by reference into Part III of this annual report
where indicated.

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                                       1
<PAGE>

                              AT HOME CORPORATION

                        1999 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS


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<CAPTION>
                                                                                                      Page
                                                                                                -----------------


                                    PART I

<S>                                                                                                           <C>
Item 1.   Business...........................................................................                   3
Item 2.   Properties.........................................................................                  32
Item 3.   Legal Proceedings..................................................................                  32
Item 4.   Submission of Matters to a Vote of Security Holders................................                  33


                                    PART II

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters..............                  33
Item 6.   Selected Financial Data............................................................                  35
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
           Operations........................................................................                  36

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.........................                  52
Item 8.   Financial Statements and Supplementary Data........................................                  54
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial
            Disclosure.......................................................................                  83

                                   PART III

Item 10.   Directors and Executive Officers of the Registrant................................                  83
Item 11.   Executive Compensation............................................................                  83
Item 12.   Security Ownership of Certain Beneficial Owners and Management....................                  83
Item 13.   Certain Relationships and Related Transactions....................................                  83

                                    PART IV

Item 14.   Exhibits, Financial Statements, Financial Statement Schedule and Reports on Form
             8-K.............................................................................                  83

Signatures...................................................................................                  90
</TABLE>

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                                     PART I

Item 1. Business

     We make many statements in this annual report, such as statements regarding
our plans, objectives, expectations and intentions, that are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We may identify these statements by the use of words
such as "believe", "expect", "anticipate", "intend", "plan" and similar
expressions. These forward-looking statements involve several risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those we discuss in "Risk Factors" and elsewhere in this annual report. These
forward-looking statements speak only as of the date of this annual report, and
we caution you not to rely on these statements without also considering the
risks and uncertainties associated with these statements and our business as
addressed in this annual report.

Overview

     At Home Corporation, or Excite@Home, is a global media company offering
broadband Internet connectivity, personalized, web-based content and targeted
advertising services. We are the leading provider of broadband Internet
services, with approximately 1.1 million subscribers to our @Home service and
over 5,100 @Work business access customers as of December 31, 1999. The Excite
Network, our primary content offering, has 51 million registered users and in
December 1999 had the fifth-widest reach among all Internet properties according
to Media Metrix.

     The @Home service is a broadband Internet service delivered to consumers
via the hybrid fiber-coaxial (HFC) cable infrastructure and accessed via cable
modems. Subscribers have access to Internet content and services, including our
proprietary multimedia programming, at speeds up to 50 times faster than typical
56 kilobits-per-second connections. The service is "always on," meaning that
users do not have to go through dial-up procedures and do not experience busy
signals. The foundation of the @Home service is our scalable, distributed,
intelligent private network, which avoids bottlenecks frequently encountered on
the public Internet. Elements of this network include a national, optical-fiber
Internet protocol backbone, regional data centers, local caching servers and a
national network operations center. Our network design facilitates end-to-end
network management, provides for a high level of security and stores data close
to the user in order to minimize the need to retrieve data from the public
Internet. Our network interconnects with the networks of our 22 cable partners,
through which we had access to approximately 72 million homes worldwide as of
December 31, 1999. Of these homes, approximately 24 million were served by
upgraded, two-way cable capable of carrying our broadband service. Our principal
cable partners include AT&T, Comcast, Cox, Cablevision, Rogers, Shaw and others.
Our @Work division further utilizes our network by providing a range of Internet
services for businesses, including high-speed connectivity, web hosting and
development and hosting of e-commerce solutions.

     Our primary content offering is the Excite Network, an Internet portal
providing users a broad array of information in categories such as news, finance
and entertainment, as well as services such as search, e-mail, chat, voice mail
and address books. In December 1999, the Excite Network reached 27.7 million
unique visitors according to Media Metrix. Excite customers can create a
personalized My Excite Start Page that allows them to specify the content and
the layout of the information that they see each time they visit Excite. We
provide our consumers with content from a variety of partners, which include
Intuit, Inc., Sportsline USA, Inc., Tickets.com, Inc. and WebMD, Inc. In March
2000, we launched @Home 2000, which extends the benefits of personalized Excite
content to our broadband customers, combining Excite information with the rich
multimedia content made possible by broadband connectivity.

     For advertisers, we offer a variety of broadband and narrowband advertising
packages, ad targeting, serving and reporting services, and assistance with
creative development and campaign management. In the fourth quarter of 1999 we
had over 1,900 advertisers on the Excite Network. Our MatchLogic subsidiary owns
a database of over 72 million unique anonymous user profiles and 9.5 million
profiles of people who have agreed to receive promotional messages via e-mail.
Using the targeting capabilities provided by these databases, MatchLogic served
over 15 billion Internet advertising impressions and delivered over 50 million
targeted e-mails during the fourth quarter of 1999.

                                       3
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Strategy

     Our objective is to be the world's leading provider of broadband services.
We believe that broadband connections will become the principal means of
Internet access, and we have invested in technology and formed strategic
relationships that we believe position us to be the leading global broadband
access provider. We also believe that content is a critical part of the online
experience; this was the primary reason for the merger with Excite. We are
applying our expertise in Internet content programming to deliver a compelling
online service for our broadband customers. We intend to monetize our broadband
traffic through subscription fees, advertising and e-commerce transactions. Our
experience in creating rich-media advertisements combined with our MatchLogic
targeting capability positions us to provide valuable services to our
advertising customers.

     We believe that narrowband Internet services will remain important for
years to come, and we intend to remain competitive as a portal service on the
web by continuing to develop the Excite Network with new content and
applications. This will include the addition of content elements targeted at
users of medium- and high-speed connections other than our own broadband
service.

     Our strategy includes the following key elements:

Increase Our Broadband Subscriber Base

     We plan to increase the number of subscribers to our @Home broadband
service as a way to generate both subscription and media revenue. We are working
with our cable partners, technology partners and distributors to make the @Home
broadband service available throughout our global footprint of 72 million homes,
and to make the service easy to buy and install so that it becomes a mass-
marketable product. As of December 31, 1999, approximately 24 million of our
homes were upgraded to two-way cable, giving us a large potential market. The
availability of the DOCSIS standard cable modems through retail channels allows
customers to buy and install our broadband services themselves, which we believe
will facilitate the more rapid deployment of cable modems in homes. To this end,
we have distribution agreements with several large retailers, including Circuit
City, Office Depot, CompUSA and The Good Guys!, as well as original equipment
manufacturers such as Compaq and Dell Computer. We use our databases of 51
million registered Excite customers and 9.5 million e-mail profiles to generate
inexpensive online marketing leads for the @Home service. We believe that this
generated a significant number of qualified marketing leads in 1999 and expect
that it will provide us with a low-cost means of acquiring customers in the
future.

Deliver Compelling Broadband Content and Services

     We believe that delivering compelling content and services in addition to
high-speed connections is critical to building relationships with our customers
and to deriving advertising revenues from our broadband traffic. The default
start page for our broadband customers will be our new @Home 2000 service, which
we launched in March 2000. Providing the foundation for this service are the
content and capabilities of the Excite Network. For example, the core philosophy
behind our content offerings is personalization, which we believe is critical to
building customer loyalty. We offer the My Excite Start Page, which allows users
to arrange information such as weather, stock portfolios and news in a modular
fashion so that they receive exactly the information they want in a familiar
format each time they visit the My Excite Start Page. Users of @Home 2000 will
enjoy these same personalization capabilities. In fact, Excite users who have
personalized their start pages will be able to view that same information in the
broadband environment. @Home 2000 also includes a custom browser designed for
broadband usage, which comes with the latest multimedia features and provides
easier and quicker access to personalized national and local content and
utilities such as search and e-mail. We continue to develop our Excite services
with a focus on broadband applications. For example, our acquisition of
Bluemountain.com adds online greeting cards to our portfolio of services. We
believe that online greetings will be enhanced by the inclusion of multimedia
elements such as audio and video, increasing their attractiveness as a broadband
application. Our acquisition of Webshots gives us a leading position in the
distribution of digital photos, another application that we believe will be
attractive to broadband users.

Leverage Our Network Investment to Offer Broadband on Platforms Other Than HFC
and To Serve Commercial Customers

     We designed and built the @Home network to provide broadband Internet
connectivity over the cable facilities of our cable partners. The network uses
our dedicated OC-48 Internet protocol backbone to achieve high data

                                       4
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transmission speeds. This backbone can be upgraded easily as new wave-division
multiplexing technology becomes available. We have private Internet access
arrangements with most major Internet backbone providers, ensuring both faster
and less expensive data transfers than possible through use of public access
points. We use leading caching technologies to store data close to our
customers, thereby reducing redundant data requests from the public Internet and
improving network efficiency. Local news feeds and customer e-mail accounts, as
well as other information, are stored in a distributed fashion in our 25
regional data centers around the world. We monitor the entire network from our
national network operations center in California.

     This network architecture includes thousands of servers deployed in
hundreds of cable head-ends, and is tied together by thousands of
telecommunications circuits. We believe that this infrastructure represents an
efficient means of providing broadband services over HFC networks and creates an
opportunity to extend beyond residential HFC to non-HFC broadband platforms such
as digital subscriber lines (DSL) and wireless. We are currently exploring ways
of delivering our broadband services to consumers using these technologies to
the degree permitted by our exclusive agreements with our cable partners.

     We also utilize our network investment to provide broadband services to
commercial customers. Our @Work division was serving about 5,100 business
customers with HFC, DSL and high-speed private lines as of December 31, 1999.
@Work also serves customers with private-label shared web-hosting and e-commerce
hosting services. As a result of our acquisition of iMALL in October 1999, we
offer merchants the ability to create online storefronts complete with credit
card payment processing. This capability enables us to expand the shopping
services available on the Excite Network.

Expand the Reach of Our Narrowband Service

     We intend to increase the number of unique users, or reach, of our
narrowband media properties in order to offer our advertisers a broader audience
and to increase our advertising and direct marketing-related revenue streams. In
addition, we believe increased reach builds a larger base of customers to which
we can market our broadband services. We will pursue additional reach through
increased marketing efforts and strategic relationships and with acquisitions of
Internet properties. Our acquisition of Bluemountain.com increased our reach by
over 50%, adding 9.6 million unduplicated users (based on Media Metrix reports
for December 1999) to our Excite Network customer base.

Continue Our International Expansion

     We are aggressively pursuing opportunities to capitalize on the growth of
broadband services and the Internet outside of North America. We believe that
expansion outside of North America will be the principal means of expanding our
footprint. We have joint ventures with cable partners in Australia, Japan and
the Netherlands and distribution agreements in Belgium and Germany. These
ventures encompass approximately 13.5 million homes, 11.5 million of which we
added in 1999. All of these joint ventures are exclusive, seven-year access
agreements. We launched broadband service in the Netherlands in mid-1999 and in
Australia in January 2000, with launches in Japan, Belgium and Germany planned
for 2000. In addition, we offer Excite-branded portal sites with locally sourced
content in Australia, Canada, France, Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom.

Build Upon Our Advantage in Monetizing Traffic

     We believe that our expertise in targeted Internet advertising provides us
with a significant competitive advantage. Our MatchLogic subsidiary utilizes its
databases of 72 million anonymous profiles and 9.5 million e-mail profiles as
well as its rich media capabilities to help advertisers maximize returns through
precision placement of interactive advertisements and through targeted e-mail
campaigns. MatchLogic served over 15 billion Internet advertising impressions
and delivered over 50 million targeted e-mails during the fourth quarter of
1999. As a result of these capabilities, we believe we are a leader in the
industry in revenue efficiency measures such as revenue per page view and
revenue per reach point. We intend to maintain our leadership position by
continuing to build our databases and by offering new tools that are designed to
address advertisers' desire for highly targeted marketing. Our base of 1.1
million broadband customers also enables us to offer advertisers access to a
unique audience capable of viewing eye-catching, highly interactive
advertisements.

                                       5
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Expand Our Services Into Other Devices

     We intend to provide our customers with access to our content and services
at any time and from any Internet-enabled device. We have invested substantial
resources in developing advanced television services including program guides,
e-mail, shopping and web access. We have announced advanced-television
technology relationships with Microsoft Corp. and Liberate Technologies, and
currently plan to distribute these services through two of our cable partners,
AT&T and Cox. In addition, we intend to offer personalized Excite content on a
variety of other devices, including wireless phones and personal information
devices. Excite content is currently available on the Palm VII wireless handheld
device, and we have announced an agreement to offer Excite content through
AT&T's PocketNet wireless data service.

Excite@Home Services

     Our service offerings fall into two primary categories: subscriber network
services and media and advertising services. Subscriber network services include
our @Home broadband Internet access service for consumers, as well as our @Work
services, which are end-to-end managed connectivity services for businesses.
Media and advertising services encompass content and interactive applications on
our broadband and narrowband Internet networks, as well as ad serving, targeted
marketing and e-commerce solutions across those and other third-party Internet
destinations. We operate extensive network and computing facilities that carry
and support our services, and maintain 24-hours a day, 7-days a week technical
support and customer care operations for our broadband services.

Subscriber Network Services

@Home Service

     We provide consumers with broadband Internet access through our cable
partners' infrastructure. We partner with local cable operators who upgrade
their networks to two-way HFC in order to deliver our services. By connecting
via a cable modem to the @Home broadband network through the local cable
infrastructure, subscribers to the @Home service can achieve peak data
transmission speeds of 2 to 5 megabits-per-second, which is over 50 times faster
than the peak data transmission speed of a 56 kilobits-per-second dial-up modem.
This higher transmission rate enables multimedia applications such as audio and
video, rich-media advertising and multi-player games. We intend to provide these
elements through the @Home 2000 service, which combines Excite-branded national
content programmed by us with content sourced locally by our cable partners. The
@Home service also provides easy access to the Internet and other online
services, as well as other standard Internet service provider (ISP)
functionality, including web page hosting for subscribers, multiple e-mail
accounts and remote access. We also offer the ability to share Internet access
across multiple PCs in the home for an additional monthly fee. A critical
differentiator of the @Home service is that it is "always on," providing
instantaneous access to the Internet and eliminating the need for a time-
consuming dial-up procedure using the telephone network utilized by traditional
ISPs.

     Our cable partners are the primary distributors of the @Home service. Our
cable partners install the service at prices generally ranging from $75 to $150,
though installation fees are frequently waived or discounted by the cable
partner as promotional incentives. Generally, our cable partners offer the
service at a flat monthly fee of approximately $40, which typically includes a
cable modem provided by the cable partner. We believe that this business model
will change as self-installable DOCSIS cable modems become more widely
available. Modems will be offered for sale by retailers or through original
equipment manufacturers, reducing the need for cable companies to provide them
and moving the point-of-sale for the @Home service to retail locations. Upon
installation, a new subscriber receives @Home client software, which provides
access to the @Home start page as well as other online services and Internet
content.

     We have contracts with 22 cable companies whose systems include
approximately 72 million homes worldwide as of December 31, 1999, including 58.7
million homes in North America in approximately 130 markets. As of December 31,
1999, we had approximately 1.1 million subscribers worldwide, including recently
acquired broadband Internet subscribers in the process of being converted to the
@Home service. These subscribers are being converted to the @Home service. In
the United States, subject to certain exceptions, our agreements with cable
partners, including AT&T, Comcast, Cox and Cablevision, provide that our
partners may only offer the @Home service, and not competing broadband
residential Internet services, over their cable systems through June 4, 2002.
The exclusivity of other cable partners in the United States expires on various
dates between 2002 and 2005. In Canada, our cable partners have agreed to market
and

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promote the @Home service on an exclusive basis into 2003. Please see "Risk
Factors--Our cable partners are not generally obligated to carry our broadband
services and the exclusivity obligations that prevent them from carrying
competing services may be terminated." Upon the expiration of these exclusivity
obligations, other companies may be allowed to offer Internet services on the
networks of our cable partners. However, we believe that the customer base,
network deployment and expertise gained during the period of exclusivity will
position us to compete effectively in this environment. The following table
lists our cable partners as of December 31, 1999:
<TABLE>
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                                Cable Partners
                                                       Outside
                  North America                        North America
     --------------------------------------------      ------------------
<S>                  <C>             <C>               <C>
     AT&T            Bresnan         Jones             Essent
     Comcast         Century         MidContinent      Jupiter
     Cox             Charter         Prime             Optus
     Cablevision     Cogeco          Videon            Sumitomo
     Rogers          Garden State                      Tele-Columbus
     Shaw            Insight                           Telenet
</TABLE>

     Under current arrangements with our U.S. cable partners, we receive 35% of
both the basic monthly fees and the fees for premium services, such as Internet
access across multiple personal computers in the home. Our partners retain the
remaining 65% as well as any fees charged for installation. In Canada, we
receive a smaller percentage of the monthly subscription fees billed by our
Canadian partners, who are responsible for various costs not borne by our cable
partners in the United States. These include the costs of providing additional
customer support, data transport within Canada, and national marketing and
content programming.

     Outside North America, we have exclusive agreements with six cable
operators whose systems serve approximately 13.5 million homes. Subscriber
pricing and revenue or royalty splits with cable system operators outside North
America vary across these markets based on differences in services and content
provided by the international cable system operators, data transport costs and
regulatory environments. To the extent that we offer terms of distribution and
other services to international cable system operators that are more favorable
than those offered to AT&T, Comcast, Cox and Cablevision, these principal U.S.
cable partners have the right to obtain those favorable terms.

     Of the approximately 72 million homes in our global footprint,
approximately 24 million were served by upgraded two-way HFC cable as of
December 31, 1999. Our cable partners are in the process of implementing major
infrastructure investments to continue deploying two-way HFC cable. However,
each cable partner's infrastructure investments could be subject to change,
delay or cancellation. Please see "Risk Factors--We depend on our cable partners
to upgrade to the two-way cable infrastructure necessary to support the @Home
service; the availability and timing of these upgrades are uncertain."

     In an effort to increase the deployment of the @Home service in North
American homes and businesses, we have established a joint venture with cable
operators, technology suppliers and systems integrators to encourage small and
medium-sized cable operators to offer the @Home service. Known as @Home
Solutions, the venture provides smaller operators a full range of services,
including financing of cable and network equipment, expanded customer service,
billing systems, service installation and marketing support. @Home Solutions has
secured the participation of six cable operators (not included in the cable
partners listed in the above table) whose systems pass over one million homes in
the United States. Other equity participants in @Home Solutions include Cisco
Systems, Inc., General Instrument Inc. and Motorola, Inc.

     In December 1999, we entered into strategic relationships with Cox,
Microsoft and Liberate Technologies for the development and advancement of
interactive television technologies and applications and advanced television
services. We intend to leverage our high-speed backbone and distributed
broadband platform to accelerate the design of advanced set-top box devices and
software optimized for delivery of interactive television services. We believe
that the interactive television experience provides opportunities for expanding
the reach of our broadband services, including personalized content, rich
multimedia and communications and information services.

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@Work Services

     @Work offers commercial customers high-speed managed connectivity, web
hosting, virtual private networking and telecommuting services. Using the same
national transport facilities and other infrastructure used to provide the @Home
service, @Work serves over 5,100 customers with high-speed access services over
digital telecommunications lines, HFC cable and digital subscriber lines.

     In October 1999, we completed our acquisition of iMALL, a provider of
e-commerce solutions to online merchants. In conjunction with this acquisition,
we entered into a 10-year agreement with First Data Merchant Services Corp., a
former shareholder and marketing partner of iMALL, under which First Data will
market and distribute our e-commerce services to its merchant base. Merchants
using these e-commerce services will be able to establish a storefront and
feature their products on the Excite Shopping Service, and we also intend to
offer these services to our current merchants. As a result of enabling small and
medium-sized businesses to conduct integrated online sales, we expect to
increase the number and variety of products offered through our shopping
services.

     In September 1999, we introduced Work.com, a portal service designed
specifically for the needs of business professionals and their companies.
Capitalizing on our experience in the portal business, this effort is the first
phase of an initiative to develop a comprehensive business portal featuring
vertical industry content, communities, business applications and services
customizable to business users' needs. In February 2000, we announced the next
phase of this effort, an agreement with Dow Jones & Co. to form a joint venture
for the further development of the Work.com portal. In addition to cash funding,
both Dow Jones and we will contribute operating assets, content, technology and
business-related Internet properties to the joint venture. The new company will
focus on creating a comprehensive Internet portal offering news, information and
business services to small and medium-sized businesses and professionals.

Media and Advertising Services

     Our media and advertising services extend across our narrowband and
broadband services and include two primary activities, the development and
aggregation of content and value-added services and the sale of advertising
within our online networks, as well as other advertising-related activities such
as ad serving, ad content creation and online campaign management. Advertising
sales are conducted by our own sales force, and our ad serving and other
advertising-related services are offered by our MatchLogic subsidiary.

Narrowband Content and Services

     Excite@Home offers content for both narrowband and broadband Internet
media. The Excite Network is a global Internet media network offering
comprehensive Internet navigation services with extensive personalization
capabilities. The primary site of the Excite Network is www.excite.com, the
narrowband portal site that consistently has been ranked as one of the top ten
destinations on the Internet. The Excite Network consists of a suite of
specialized information services, organized under easily accessible topical
channels that combine proprietary search technology, aggregated content from
third parties, bulletin boards, chat, editorial web reviews and other community
features. The Excite Network has recently introduced communications and
information management services such as online address books and calendars,
voice chat and voice mail. We offer portal web sites with locally sourced
content in Australia, Canada, France, Germany, Italy, Japan, the Netherlands,
Spain, Sweden and the United Kingdom.

     Key features of the Excite Network designed to increase user loyalty and
time spent on the network include:

     .    Personalization. The Excite Network delivers a personalized Internet
          experience for users by allowing them to personalize their home page
          Internet interface and choose the information they want delivered.
          Users can program their own My Excite Start Page, allowing consumers
          to create a personal profile which selects and automatically updates
          information of interest such as personalized stock quotes, news
          stories, sports scores, horoscopes, local and national weather,
          television listings and special reminders. We believe this engenders
          user loyalty, increases switching costs and provides data and an
          access channel for targeted advertising.

     .    Excite Search. We maintain an extensive index of Internet documents,
          which we refresh automatically on a regular basis. Our search
          technology allows consumers to search the Internet in multiple ways,
          including by keyword, phrase, concept, Boolean logic or proper name.
          The Excite "More Like This" feature, which utilizes

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          query-by-example technology, allows users who find a document of
          interest to find similar documents with the click of a button. In
          addition, our automatic abstract technology provides consumers with a
          brief and accurate abstract of each document returned by a search.
          Excite Search also permits users to search news articles, Usenet
          newsgroups and the Excite City.Net travel index.

      .   Excite Communications and Information Management Services. In order to
          increase the utility of the Excite portal to our customers, we have
          developed a set of services designed to help customers manage personal
          information and communicate with friends and family. Information
          management services include the Excite Planner, an online address
          book, calendar and task list, and Excite Assistant, a desktop window
          providing an Excite customer access to the most relevant information
          in his or her account without the need for a browser window.
          Communications services include Excite VoiceMail, the only web-based
          voicemail system offered by an Internet portal, and Excite VoiceChat.

     .    Excite Content and Communities. The channels-based format of the
          Excite Network provides consumers with an intuitive interface that
          reflects the way they navigate through other forms of media, such as
          television. By combining existing services with specialized
          information and services from leading content providers, the Excite
          Network provides channel-specific content including topical news,
          links to related web sites, products and services and directories. The
          Excite Shopping Channel offers a safe and convenient online shopping
          service for consumers. The Excite Auctions site is a part of the
          FairMarket Auction Network, a network of auction sites giving users
          access to products for sale across all member sites. This format
          enables advertisers and retailers to more effectively reach target
          consumers. Community-building services, such as Excite Communities,
          Excite Boards and Excite Chat, allow users to join communities of
          other users with similar interests or needs, thereby enhancing the
          user experience within the Excite Network with the goal of improving
          customer retention.

     As part of our strategy to offer enhanced content and services, develop
capabilities suited to broadband and expand our narrowband reach, we acquired
Bluemountain.com, a leading provider of online greeting card services, in
December 1999. This acquisition increased the reach of the Excite Network by
over 50% in December 1999. According to Media Metrix, Bluemountain.com had
approximately 18 million unique users in December 1999 and was the eighth-most
frequently visited web site during that time. Although December is historically
one of the busiest months for online greeting card services and therefore is not
indicative of traffic levels for other months, we expect Bluemountain.com to
contribute significantly to Internet traffic on the Excite Network throughout
the year. We intend to integrate our Excite communications services into the
Bluemountain.com service and offer Excite shopping services to Bluemountain.com
customers, each of whom is involved in a potential gift-giving transaction when
sending a greeting card. In conjunction with this announcement, we also
announced distribution agreements with three gift-related e-commerce companies
whose products will be promoted on Bluemountain.com.

Broadband Content and Services

     In March 2000, we launched @Home 2000, a broadband online service that
combines the high-speed access of our @Home service with a new Excite broadband
portal enhanced with rich media and personalized content aimed at helping our
subscribers manage their daily lives. The @Home 2000 broadband Internet service
offers an attractive combination of benefits to our subscribers, including
speed, "always-on" connectivity, personalization, utility and rich media. Speed
reduces the time it takes for web pages to load and gives customers access to an
enhanced content experience, including high quality audio and video. An always-
on connection means customers do not have to dial-up to connect to the service,
which turns the computer into a readily accessible information appliance.
Personalization allows customers to select specific content, including stock
quotes and news. @Home 2000's new integrated browser makes personalized and
local content and services such as e-mail more easily accessible. The
combination of speed and content offer customers easy access to rich media on
the Internet.

     The new custom browser available with @Home 2000 features an integrated
package customized for the broadband experience. The browser is based on
Internet Explorer 5.0 and includes the latest technology, providing integrated
access to customers' personalized national and local content and utilities such
as e-mail and search. The @Home service has also been enhanced with multiple e-
mail accounts, 70 megabytes of personal storage space, online help utilizing
video tutorials and support for personal home networks of up to five Web-enabled
computers or devices.

                                       9
<PAGE>

     The content and navigation of the Excite narrowband portal have been
enhanced to create a broadband Web portal that enables access to rich media and
personalization. Broadband customers will be able to enjoy the benefits of the
personalized Excite portal on a broadband platform. For example, customers can
view local weather from an animated Doppler radar. Additionally, the Excite
broadband portal enables Web sites to perform in a similar manner to user-
friendly software applications, such as allowing for home pages to be
personalized using "drag and drop". Also, roll-over menus provide visual aids to
help consumers learn more about a service without having to add more links.
Broadband content has been integrated on the new Excite portal and includes such
features as news clips, short animation films and links to broadband content on
the Web.

     We believe that the introduction of @Home 2000 and the Excite broadband
portal represents a significant achievement made possible by our merger with
Excite in May 1999. We intend to further leverage the personalization and
content of the Excite Network and the high-speed access of our @Home service by
continuing to enhance our broadband products and services over multiple
platform, including advanced set-top devices and mobile devices, and multiple
delivery channels, such as DSL and wireless.

Advertising Services

     Through our various advertising programs, advertisers can combine multiple
advertising packages tailored for their specific needs.

     .    Banner Advertisements. Banner advertisements are prominently displayed
          throughout the Excite Network. Excite offers a variety of banner-
          advertising programs that enable advertisers to target various market
          segments. Mass-market placements deliver general rotation banner
          advertisements throughout the Excite Network but do not have any
          particular market segmentation. Targeted advertising addresses an
          audience with a specific content interest on one of our services;
          these advertisers can target general interest topics such as "sports"
          or more specific sub-categories such as "college basketball" or a
          particular team. We charge higher per-impression fees for advertising
          products based upon the specificity of the target audience.

          On the @Home broadband service, we also sell advertising through
          several formats, including half-banners and the "B*box", a broadband
          audio/video advertising space. With the B*box, advertisers can broaden
          their creative presentation using video clips, audio and animation.
          Advertisers have the ability to enhance their message by using
          multimedia tools and technologies such as Enliven, Flash, Quicktime
          Video, Real Audio and Shockwave. Advertisers' ability to present more
          compelling messages to online users has resulted in advertising rates
          greater than those charged for banner advertising on the narrowband
          web sites.

          We also sell advertising placements and links outside of the space
          normally reserved for banner advertisements. These arrangements are
          known as sponsorships because they typically involve the placement of
          an advertisement or link in a topical channel as though the advertiser
          was sponsoring the content on a specific page. These arrangements have
          a longer term than traditional banner advertising agreements. The ad
          or link is programmed to appear prominently in the same spot on the
          page each time the user calls for that page of channel content. Some
          of our sponsors include Amazon.com, AT&T, autobytel.com, Barnes &
          Noble and Charles Schwab.

     .    Targeted Marketing Services. We also provide ad serving, targeted
          marketing, campaign management and other advertising-related services
          through the operations of our MatchLogic subsidiary. MatchLogic
          maintains a database of consumer demographic, purchasing and other
          data relevant to marketers, which as of December 31, 1999, consisted
          of approximately 72 million unique anonymous profiles and 9.5 million
          e-mail profiles. Using MatchLogic's targeting services, advertisers or
          advertising agencies can deliver ads based on a user's particular
          demographic traits, geographic location, connection capabilities
          and/or keyword and virtual keyword data input. MatchLogic serves ad
          campaigns simultaneously to multiple web sites in the form of banner
          advertisement and to e-mail audiences via targeted e-mail messages.
          MatchLogic measures results immediately, produces consolidated results
          reports on the success of the entire campaign, and analyzes these
          results to enable advertisers to quickly assess the effectiveness of
          the campaign. MatchLogic can dynamically adjust campaigns in order to
          maximize the effectiveness of the advertiser's investment.

     MatchLogic also provides assistance to advertisers in the use of rich media
advertising techniques such as animation and sound to improve the appeal and
interactive nature of their advertisements on narrowband and broadband web
sites.

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<PAGE>

Network and Computing Facilities

     Residential subscribers access our broadband services primarily through
high-speed cable modems, which attach to their personal computers via a standard
Ethernet connection, while businesses can also connect through
telecommunications networks. The four key principles of our network strategy are
end-to-end network management, "always-on" service, scalability and moving data
closer to the user:

     .    End-to-End Network Management. The @Home broadband network
          architecture allows us to monitor our network all the way to the
          subscriber's home. Because the @Home broadband network is centrally
          managed, we can dynamically identify and enhance network quality,
          service and performance, or address issues before they affect the user
          experience.

     .    "Always-on" Service. Unlike dial-up Internet access services, the
          @Home broadband network is "always on." The user has an uninterrupted
          connection to the Internet as long as his or her computer and cable
          modem are on. This eliminates the need for a time-consuming connection
          process, making our content and content on the Internet more readily
          available and convenient.

     .    Scalability. The @Home service is designed to be scalable to handle
          increasing numbers of subscribers without degradation. As subscriber
          penetration increases, the cable operator has multiple cost-effective
          alternatives to increase capacity. These include allocating additional
          6 MHz channels for the @Home service and reducing the number of
          subscribers sharing a given bandwidth by expanding nodes, thereby
          allocating more bandwidth to a given number of subscribers.

     .    Moving Data Closer to the User. The @Home broadband network utilizes
          caching and replication technologies to store information closer to
          users. These techniques recognize a fundamental weakness of the
          Internet, namely duplicative data transfers. By caching a given data
          file in a local server the first time it is requested by a user, we
          ensure that the same file can be delivered to the next user to request
          it without once again retrieving it from the public Internet. This
          reduces traffic on our backbone and speeds download time for
          subscribers.

     The primary components of the @Home broadband network are our high-speed
private national backbone, regional data centers, regional networks, headends
where caching servers are located, network connections, cable modems and our
Network Operations Center.

Private National Backbone

     We operate our own private national backbone, which consists of two
dedicated OC-48 private-line circuits under a 20-year agreement with AT&T. This
nationwide Internet protocol network enables us to support up to five million
broadband users initially, and can be upgraded to higher bandwidths as demand
requires. These circuits connect our regional data centers and regional networks
with content providers and the Internet. This backbone can be viewed as a high-
speed "parallel Internet" that connects via our routers to the Internet at
multiple network access points with "Tier-One" peering status, which permits us
to exchange Internet traffic with other nationwide ISPs.

Regional Data Centers

     The regional data centers act as service hubs for defined geographic areas,
such as major metropolitan areas. The regional data centers are used to provide
services such as e-mail, news groups and chat, monitor network performance,
replicate content and applications, and provide a cost-efficient infrastructure
to cache and multicast data throughout each region. Regional data centers also
house local content and subscribers' web pages. We currently have 25 regional
data centers in operation worldwide.

Regional Networks

     The regional networks consist of network routers and switches that
interconnect our regional data centers and national backbone to multiple cable
headend facilities. These networks generally take advantage of cable operators'
fiber optic infrastructures that are normally used to transport cable television
signals from master headend facilities

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<PAGE>

to other headends within a region. This approach often allows us to avoid the
high cost of leasing conventional high-speed communication services from local
telephone companies when deploying high-speed connectivity in a region.

Headends

     The cable system headends are connected to each regional data center
through the regional network. In order to move data as close to the subscriber
as possible and to avoid repetitive transmission of data, the headends employ
high-performance caching servers that store frequently accessed content locally,
thereby greatly reducing the amount of data transmission (and corresponding
transport costs) in higher layers of the network. In addition, local caching
servers can compile far more comprehensive usage data than is normally
attainable on the Internet, which can be used for network troubleshooting,
tuning performance and tailoring the @Home service.

Network Connections

     The last leg of the network connection is from the headend to the consumer
over a cable operator's cable system. Fiber optic lines carry the signal from
the headend out to cable nodes in each neighborhood, which in turn connect
through traditional coaxial cable to the home. These fiber optic nodes typically
service from 300 to 2,000 homes in a relatively modern cable system. In such a
system, each television channel requires 6 MHz of the 450-750 MHz of total
system capacity. Downstream transmission of the @Home service utilizes a similar
channel. Upstream transmission, however, utilizes a frequency range not used for
traditional broadcast by cable systems. This range is more prone to interference
than downstream channels, which effectively limits the peak upstream
transmission speed.

Cable Modems

     In the home, a cable modem connects to the cable television coaxial wiring
and attaches to the user's personal computer via standard Ethernet connections.
The data transmission speed of a cable modem depends on the specific model and
can range from 10 to 27 megabits-per-second downstream and 0.7 to 10 megabits-
per-second upstream. The actual performance that subscribers experience is often
constrained by the capacity of their personal computers, the capacity of the
server being accessed and the type of network architecture utilized. As a
result, downstream transmission speeds are generally limited to 2 to 5 megabits-
per-second. In addition, in some markets, we have limited users' upstream
bandwidth in order to prevent abuse of our systems by users, and we expect to
continue to limit upstream bandwidth in additional portions of our network. The
North American cable industry has adopted DOCSIS to support the delivery of data
services utilizing interoperable cable modems. We believe that this new standard
and the distribution of DOCSIS-compliant modems through retail stores will
facilitate the growth of the cable modem industry. Please see "Risk Factors--If
we cannot maintain the scalability and speed of our @Home broadband network,
customers will not accept our broadband services" and "If new DOCSIS-compliant
cable modems are not deployed timely and successfully, our subscriber growth
could be constrained."

Network Operations Center

     We provide end-to-end network management through our network operations
center. The network operations center uses advanced network management tools and
systems to monitor the network infrastructure on a 24-hours a day, 7-days a week
basis, enhancing our ability to address performance bottlenecks before they
affect the user experience. From the network operations center, we can manage
the @Home broadband network from end-to-end, including the backbone, regional
data centers, regional networks, headend facilities, servers and other
components of the network infrastructure to the user's home. Please see "Risk
Factors--Our dependence on our network to provide our broadband services exposes
us to a significant risk of system failure."

Customer Support

     Our customer care organization provides a variety of support functions for
our cable partners and their customers, @Home customers and Excite users. These
services generally are available 24-hours a day, 7-days a week. This
organization is also responsible for the Help and Member Services areas within
the @Home broadband services.

     There are two levels of support provided to our @Home broadband customers.
When customers need help with their @Home broadband service, they contact the
Tier 1 customer support organization, typically managed by the cable partner in
their area. Customers needing assistance beyond the capability of the cable
partner Tier 1

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<PAGE>

organization are transferred to the @Home Tier 2 customer support team. The Tier
2 team provides computer and network technical support to resolve customers'
problems. The Tier 2 team employs a variety of experts familiar with the @Home
Network, including technical support representatives, lead technicians and
product specialists to identify and solve the customer's problems. Each cable
partner's support team and our customer support work together to resolve any
customer issues.

     We also provide Tier 1 customer support services for some of the smaller
cable partners that do not have the scale to provide Tier 1 customer support.
Typically, our Tier 1 customer support representatives help customers with the
following: ordering the service, billing questions, password inquiries, simple
browser functionality and simple use of the Internet. Currently, we provide this
service to eight cable partners.

     Excite users interact with our Excite support team primarily through e-
mail. The team provides information and guidance to our Excite customers on the
many applications available on the Excite Network and also provides assistance
to third parties that seek to make their web sites available through the Excite
Network. We offer web and e-mail based support for our My Excite Start Page,
Excite Voice Mail, Excite Chat, Excite PAL and Excite Communities services.

Sales and Marketing

     We have a direct sales organization with professionals located in Chicago,
Dallas, Detroit, Los Angeles, New York, Boston, Denver, Philadelphia and San
Francisco. This direct sales force sells to advertisers and advertising agencies
and is responsible for selling banner advertisements and sponsorships on the
Excite Network and the @Home broadband service.

     For our subscriber network services, we currently rely primarily on our
cable partners to sell the @Home service. In addition, using MatchLogic, we are
marketing our broadband services to users of our Excite narrowband services. Our
cable partners conduct local and regional advertising and marketing campaigns
targeted to geographic areas in which the service is available. These activities
include bill inserts and local television advertising, among others. We have
engaged in nationwide marketing of the service through promotional activities
such as mall tours in which potential customers have the opportunity to "test
drive" the service at a display in a local shopping mall and to sign up for the
service on the spot. Our ability to market the service broadly has been limited
by the availability of the service; as our partners complete further upgrades to
their facilities and the @Home service becomes more widely available, our cable
partners will be able to market the service in a broader fashion.

     A key initiative for us and our cable partners is to make the @Home service
available through retail stores such as electronics and office supplies stores,
and through original equipment manufacturers such as computer manufacturers. To
date, we have reached agreements with electronics retailers including Circuit
City, CompUSA and The Good Guys! and with office products retailers including
Office Depot, Staples and OfficeMax, who will offer the @Home pre-installation
kit alongside a demonstration of the service. This allows potential customers to
try the service and contact their cable company to schedule an installation
appointment. Also, we have announced agreements with Dell and Compaq under which
these original equipment manufacturers will promote the @Home service and assist
their customers in scheduling installation appointments with their cable
companies. Dell and Compaq will also ship computers pre-configured for the @Home
service, including a pre-installed network interface card.

International Operations

     We have agreements with several cable operators outside of North America
who have agreed to distribute local versions of the @Home service over their
cable systems on an exclusive basis. As of December 31, 1999, we had launched
service in the Netherlands, Belgium and Australia, with launches scheduled in
Germany and Japan in 2000.

     We believe that international expansion will be the principal means of
expanding our global footprint. We have portals with locally sourced content in
Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain,
Sweden, and the United Kingdom.

Product Development, Technology and Engineering

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<PAGE>

     Our product development and engineering efforts focus on: (1) design and
development of new technologies and products to increase the speed and
efficiency of our broadband network architecture and to facilitate the
development and distribution of high bandwidth content and commercial value-
added applications; (2) adaptation of our network services for use over non-HFC
access technologies, such as DSL; (3) development of software tools and enabling
platforms for the creation and distribution of enhanced content optimized for
our broadband network; and (4) transferring the appropriate components of our
broadband network to TV-based Internet devices and developing software, e-mail
support and related services for these devices.

     Product development and engineering expenses for the years ended December
31, 1999, 1998 and 1997 were $54.8 million, $17.0 million and $12.0 million,
respectively. Research and development expenses related to Excite from the date
of its acquisition in May 1999 to December 31, 1999 were approximately $20.4
million. We believe that developing new and enhanced services and technology is
necessary to remain competitive. Accordingly, we intend to continue to make
investments in research and development, including developing, licensing or
acquiring new technologies.

     The markets in which we compete are characterized by rapidly changing
technologies, evolving industry standards, frequent new service and product
announcements, introductions and enhancements and changing customer demands.
These market characteristics are exacerbated by the emerging nature of the
Internet and the desire of companies from a multitude of industries to offer
Internet-based products and services. Accordingly, our future success will
depend on our ability to stay ahead of rapidly changing technologies and to
adapt our services to evolving industry standards. In addition, we will need to
regularly improve the performance, features and reliability of our network in
response to competitive service and product offerings and the evolving demands
of the marketplace. Our failure to adapt to such changes and evolution could
seriously harm our business. In addition, if new Internet, networking or
telecommunications technologies are adopted or if other technological changes
occur, we may incur substantial expenses to modify or adapt our services or
infrastructure.

Competition

Broadband

     The markets for consumer and business broadband services are extremely
competitive, and we expect that competition will intensify in the future. Our
most direct competitors for broadband services include the following:

     .    Providers of cable-based Internet services. Time Warner Inc. and Media
          One Group have deployed high-speed Internet access services over their
          local cable networks through their own cable-based Internet service,
          Road Runner. We currently compete with Road Runner to establish
          distribution arrangements with cable system operators and we may
          compete for subscribers in the future if and when our cable partners
          cease to be subject to their exclusivity obligations to us. However,
          we do not compete directly with Road Runner for broadband customers
          since the cable networks of our cable partners do not generally
          overlap with those of Time Warner and Media One. If the merger between
          Time Warner and America Online announced in January 2000 is completed,
          we expect the Road Runner service to be aggressively marketed to
          America Online customers in Time Warner's cable markets which could
          result in an acceleration of Road Runner's subscriber growth rates and
          increased competition in forming alliances with broadband content
          providers and advertisers. The proposed merger may also result in
          increased competition for broadband Internet access service
          subscribers after our exclusivity arrangements with our principal
          cable partners expire. We also compete with other providers of cable-
          based Internet services, such as ISP Channel, Inc. and High Speed
          Access Corporation;

     .    Telecommunications providers. We compete with national long-distance
          and local exchange carriers that offer high-speed, Internet access
          services such as DSL. Recently, these services have been offered in a
          number of areas and at lower prices than in the past. If the advanced
          services offered by these companies are deregulated, this would
          further enhance the ability of these companies to compete against our
          services; and

     .    Internet and online service providers. We compete with Internet
          service providers that provide basic Internet access services and with
          online service providers such as America Online and other Internet
          portals and online services that have announced broadband strategies,
          such as Yahoo!.

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<PAGE>

Narrowband

     The market for narrowband and broadband services and Internet advertising
is intensely competitive. There are no substantial barriers to entry in these
markets and we expect competition to intensify. We believe that the number of
companies relying on fees from web-based advertising has increased substantially
during the past year. Accordingly, we may face increased pricing pressure for
the sale of advertisements on our network, which may seriously harm our
business. We believe the main competitive factors in this market are brand
recognition, user base, performance, ease of use, variety of value-added
services, features and quality of support.

     We compete with a number of companies both for users and advertisers. We
expect this competition will intensify, particularly because there are few
barriers to entry in our market. Our competitors include:

     .  Internet "portals" such as Lycos, AOL.com, Yahoo!, Alta Vista and NBCi;

     .  online service providers such as America Online, CompuServe, Microsoft's
        MSN and Prodigy services;

     .  large media companies such as CBS, NBC and Time Warner, who have
        announced initiatives to develop web services; and

     .  other smaller companies providing Internet-based and advertising-
        supported content.

     In addition, we face increasing competition from a large number of
businesses which offer Internet services such as e-mail, stock quotes, news and
chat features and who publish information and content on the Internet.

     We also expect to compete with Internet and online service providers, web
site operators, providers of Internet browser software such as Netscape or
Microsoft, and other Internet services and products that incorporate search and
retrieval features into their offerings. Many of these potential competitors
have announced plans to offer competing Internet services and may take actions
that make it more difficult for consumers to find and use the Excite Network.

     We also compete with traditional advertising media such as print, radio and
television for a share of advertisers' total advertising budgets. If advertisers
do not perceive Internet advertising to be as effective as traditional media,
our business may be adversely affected.

     Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories in the online market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we have. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, distribution
partners, advertisers and content providers. These competitors may develop web
search and retrieval services or other online services that are equal or
superior to that of ours or that achieve greater market acceptance than our
offerings.

     As the market continues to develop and competition intensifies, our
competitors may merge or form strategic alliances that would increase their
ability to compete with us for traffic and advertisers. These relationships may
also negatively impact our ability to form or maintain strategic relationships
with those companies. Mergers between Internet and traditional media companies,
such as the proposed merger of America Online and Time Warner Inc., would create
large, diverse media conglomerates with significantly greater Internet service
delivery capabilities and access to content than we have. Please see "Risk
Factors--Increased competition for users of Internet services and content may
result in lower subscriber growth rates for our online and Internet services and
lower advertising rates and decreased demand for advertising space on our web
sites."

     Many providers of web services have been entering into distribution
arrangements, co-branding arrangements, content arrangements and other strategic
partnering arrangements with Internet and online service providers, providers of
web browsers, operators of high traffic web sites and other businesses in an
attempt to increase traffic and page views, and thereby making their web sites
more attractive to web advertisers while also making it more difficult for
consumers to access our services. In addition, many large media companies have
either launched or have announced that they are contemplating developing
Internet navigation services and are attempting to become web "gateway" sites
for web users. For example, Infoseek Corporation and the Walt Disney Company
have partnered to launch Go Network, which features ABCNEWS.com for news,
ESPN.com for sports, Disney.com for families and

                                       15
<PAGE>

kids, Infoseek for search, and Disney and ABC for entertainment, and which will
compete directly with the Excite Network for user traffic and advertisers. Also,
NBC has created NBCi, which operates the xoom.com gateway, and both Time-Warner
and CBS have announced initiatives to develop web services to have their web
sites become the starting point for users navigating the web. In the event these
companies develop such "gateway" sites, we could lose a substantial portion of
our user traffic, which would have a material adverse affect on our advertising
revenues and on our business.

Intellectual Property

     We regard our technology as proprietary and we attempt to protect it under
copyrights, trademarks, trade secret laws, restrictions on disclosure and
transferring title and other methods, and we have been issued patents with
respect to certain aspects of our searching and indexing technology. We
currently have several new patent applications pending. These applications may
not result in a patent being issued. Furthermore, any patents that may be issued
from these pending applications may not be sufficiently broad to protect our
technology. In addition, despite having patents, it is possible that our patents
may be challenged, invalidated or circumvented. The failure of any patents to
protect our technology may make it easier for our competitors to offer
technology equivalent or superior to our technology.

     We also generally enter into confidentiality or license agreements with our
employees and consultants, and generally control access to and distribution of
our documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use our
services or technology without authorization, or to develop similar technology
independently. In addition, effective copyright, trademark and trade secret
protection may be unavailable or limited in certain foreign countries. Policing
unauthorized use of our technology is difficult. The steps taken by us may not
prevent misappropriation or infringement of our technology. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation may result in substantial
costs and diversion of resources and may have a material adverse affect on our
financial condition.

     Many parties, including our competitors, are actively developing
personalization, search, indexing and related web technologies. Some of these
parties have taken, and we believe that others will take, steps to protect these
technologies, including seeking patent protection and enforcement of such
patents through licensing and litigation. As a result, we believe that disputes
regarding the use of such technologies are likely to arise in the future.
Competitors or others may initiate lawsuits against us asserting patent
infringement. We may not be able to defend successfully any such litigation
either on the grounds that patents are invalid or that our search technology
does not infringe on patents of others. Even if we are successful, there can be
no assurance that the costs and resources required to defend any such litigation
will not have a material adverse affect on our financial condition or results of
operations.

     In addition, from time to time, we have received, and may receive in the
future, notice of claims of infringement of other parties' proprietary rights,
including claims for infringement resulting from users downloading of materials
by the services operated by us. Although we investigate claims and respond as we
deem appropriate, there can be no assurance that infringement or invalidity
claims, or claims for indemnification resulting from infringement claims, may
not be asserted or prosecuted against us or that any assertions or prosecutions
will not materially and adversely affect our financial condition or results of
operations. Irrespective of the validity or the successful assertion of such
claims, we would incur significant costs and diversion of resources to defend
any such claims which may have a material adverse affect on our financial
condition and results of operations. If any claims or actions were asserted
against us, we might seek to obtain a license under a third party's intellectual
property rights. Such a license may not be available on commercially reasonable
terms, or at all.

     We also license certain of our technologies from third parties. As we
continue to introduce new services that incorporate new technologies, we may be
required to license additional technology from others. These third-party
technology licenses may not be available on commercially reasonable terms, if at
all. If we do not obtain any of these technology licenses, we may experience
delays or reductions in the introduction of new services or the performance of
our services may be materially and adversely affected until equivalent
technology could be identified, licensed and integrated. Any such delays or
reductions in the introduction of services or adverse impact on service quality
may materially and adversely affect our business.

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Employees

     As of December 31, 1999, Excite@Home had 2,319 employees, excluding
temporary personnel and consultants. Of the total, 793 were employed in
networking, engineering and operations; 339 were employed in customer care; 980
were employed in sales, marketing and related activities; 53 supported our
international operations; and 154 were employed in general and administrative
activities. Our acquisition of iMALL added approximately 170 employees,
primarily to networking, engineering and operations and Bluemountain.com added
approximately 90 employees, primarily to sales, marketing and related
activities. None of our employees are represented by a labor union, and we
consider our relations with our employees to be good. Our ability to achieve our
financial and operational objectives depends in large part upon the continued
service of our senior management and key technical personnel and our continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for such qualified personnel in our industry and
geographical location in the San Francisco Bay Area is intense, particularly in
software development, network engineering, cable engineering and product
management personnel. Please see "Risk Factors--Our future success depends on
our ability to attract, retain and motivate highly skilled employees."

Risk Factors

     The risks described below are not the only ones facing our company.
Additional risks not presently known to us, or that we currently deem
immaterial, may also impair our business operations. Our business, financial
condition or results of operations could be seriously harmed by any of these
risks. The trading price of our Series A common stock could decline due to any
of these risks.

Risks Related to Excite@Home's Business

We may fail to integrate our business and technologies with the business and
technologies of Excite, Bluemountain.com and the other companies we have
recently acquired or may acquire.

     We have completed several acquisitions recently, including our acquisitions
of Excite, Inc. in May 1999, iMALL, Inc. in October 1999 and Bluemountain.com in
December 1999. We intend to pursue additional acquisitions in the future. If we
fail to integrate these businesses, our quarterly and annual results may be
adversely affected. Integrating acquired organizations and products and services
could be expensive, time-consuming and a strain on our resources. Risks we could
face with respect to acquisitions include:

     .    the difficulty of integrating acquired technology or content and
          rights into our services;

     .    the difficulty of assimilating the personnel of the acquired
          companies;

     .    the difficulty of coordinating and integrating geographically-
          dispersed operations;

     .    our ability to retain customers of an acquired company;

     .    the potential disruption of our ongoing business and distraction of
          management;

     .    the maintenance of brand recognition of acquired businesses;

     .    the failure to successfully develop acquired in-process technology;

     .    unanticipated expenses related to technology integration;

     .    the maintenance of uniform standards, corporate cultures, controls,
          procedures and policies;

     .    the impairment of relationships with employees and customers as a
          result of the integration of new management personnel; and

     .    the potential unknown liabilities associated with acquired businesses.

     Our inability to address any of these risks successfully could harm our
business.

                                       17
<PAGE>

     Although we have launched @Home 2000, which integrates the technology
platform of the @Home network broadband services with Excite's Internet
services, we have not fully integrated such services including the advertising
services of Excite's subsidiary, MatchLogic. In addition, @Home 2000 has not
experienced significant traffic to date due to its recent release and we cannot
ensure that problems will not occur in widespread deployment. Further
integration of the Excite and MatchLogic services to the @Home network broadband
platform poses a number of technical challenges, including difficulties
associated with providing reliable updating and personalization of content over
@Home's broadband services and the difficulties associated with applying the
advertising services and targeting technologies of Excite's MatchLogic
subsidiary over the @Home broadband services. This is particularly challenging
because it is more difficult to provide regularly updated and personalized
information from distributed regional data centers, which we rely upon to
deliver our broadband services, than it is to deliver services from a central
data center, as Excite and MatchLogic currently do, in delivering their
narrowband services. We may not be able to achieve the same level of reliability
in providing updated and personalized Excite broadband content over the @Home
service as we have achieved with the Excite narrowband service.

     We may be unable to identify future acquisition targets and we may be
unable to complete future acquisitions on reasonable terms. Even if we complete
an acquisition, we may have difficulty in integrating it with our current
organization, technology and product and services offerings, and any acquired
features, functions, products or services may not achieve market acceptance.

Recently-acquired businesses may not be successful.

     We have recently acquired companies in an early stage of development and
with unproven business models.

     iMALL. Prior to August 1998, substantially all of iMALL's revenues were
attributable to its seminar business. This business was discontinued in August
1998. iMALL has yet to achieve significant revenue from its current business of
providing turnkey electronic commerce services to online merchants or its other
shopping-oriented web sites. A market for iMALL's services may not develop, and
iMALL's services may not become widely accepted.

     Bluemountain.com. The acquisition of Bluemountain.com also involves a
number of risks. For example, prior to the acquisition, the Bluemountain.com
electronic greeting card service only sold limited advertising on its web sites.
Bluemountain.com users may not accept a service that displays advertising.
Bluemountain.com users may not continue to use the Bluemountain.com service for
other reasons. For instance, competitive electronic greeting card sites have
increased in popularity. Also, the popularity of electronic greeting card
services could decline generally. Additionally, advertisers may not choose to
advertise on the Bluemountain.com service if users do not accept advertising or
purchase goods or services advertised on Bluemountain.com in sufficient
quantities.

     During the first quarter of 2000, we acquired Kendara, Inc. and Rucker
Design Group and we expect to acquire several other companies during 2000. These
companies have specific technology and other capabilities that we may not be
able to successfully integrate with our services or transition to our online
platforms. As a result, we may incur unexpected integration and product
development expenses that could harm our results of operations. We may also be
required to record charges to operations related to the impairment of acquired
technology or other intangible assets.

We have incurred and expect to continue to incur substantial losses.

     At Home Corporation was incorporated in March 1995, commenced operations in
August 1995, and has incurred net losses in each fiscal period since its
inception. As of December 31, 1999, we had an accumulated deficit of $1,685
million, which includes depreciation, cost and amortization of acquisition-
related intangibles and deferred compensation and cost and amortization of
distribution agreements of approximately $1,631 million since inception. Excite,
Inc., which we acquired in May 1999, has never been profitable. In addition, we
currently intend to increase capital expenditures and operating expenses in
order to expand our network and to market and provide our broadband services to
potential subscribers as well as to market our narrowband services. As a result
of the acquisitions of Excite, iMALL, Bluemountain.com and other companies, we
anticipate that we will incur substantial non-cash charges including those
relating to the amortization of goodwill and other intangible assets in future
periods. Therefore, we anticipate that we will incur significant net losses for
the foreseeable future.

                                       18
<PAGE>

Our quarterly operating results may fluctuate because of a number of factors.

     Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside of our control.
These factors include:

     .    the level of usage of the Internet in general and portal web sites in
          particular;

     .    subscriber growth rates and prices charged by our cable partners;

     .    demand for Internet advertising;

     .    the addition or loss of advertisers;

     .    the level of user traffic on our web sites used for our narrowband
          services;

     .    the mix of types of advertising we sell, such as the mix of targeted
          advertising as compared to general rotation advertising;

     .    the amount and timing of capital expenditures and other costs relating
          to the expansion of our operations;

     .    the introduction of new products or services by us or our competitors;

     .    pricing changes for Internet-based advertising;

     .    the timing of marketing expenditures to promote our brands;

     .    costs incurred with respect to acquisitions;

     .    seasonality during the first quarter of each year associated with the
          advertising business and Bluemountain.com; and

     .    general economic conditions.

     Our expense levels are based in part on expectations of future revenue and,
to a large extent, are fixed. We may be unable to adjust spending quickly enough
to compensate for any unexpected revenue shortfall.

     Our Internet advertising revenue is subject to seasonal fluctuations.
Historically, advertisers spend less in the first and third calendar quarters,
and user traffic for our narrowband services has historically been lower during
the summer and during year-end vacation and holiday periods.

     Due to all of the foregoing factors and the other risks described in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance, particularly in light of the
number of acquisitions we have completed. It is possible that in some future
periods our results of operations may be below the expectations of public market
analysts and investors. In this event, the price of our Series A common stock
may fall.

                                       19
<PAGE>

If we do not develop new and enhanced features, products and services for our
narrowband and broadband services, we may not be able to attract and retain a
sufficient number of users.

     Because of the competitiveness of our market, we believe it is important to
introduce additional or enhanced features, products and services in the future
in order to differentiate our services and retain our current users and attract
new users. If we introduce a feature, product or service that is not favorably
received by our current users, they may not continue using our services as
frequently and they may choose a competing service.

     We must also continually enhance our products and services to incorporate
rapidly changing Internet technologies. We could incur substantial development
costs if we need to modify our products, services or infrastructure to adapt to
changes in Internet technologies. Our business could be harmed if we incur
significant costs to adapt to these changes. If we cannot adapt to these
changes, users may discontinue using our services.

     We may also experience difficulties that could delay or prevent us from
introducing new features, products or services. Furthermore, these features,
products or services may contain errors that are discovered after the feature,
product or services are introduced. We may need to modify their design
significantly to correct these errors. In addition, we must consult with and
involve our principal cable partners in the development and design of new
features, products or services for our broadband services. Therefore, the
process of introducing new broadband features, products and services is time
consuming and if our principal cable partners object to a new feature, product
or service, we could be prohibited from offering it in particular areas. Our
business could be adversely affected if we experience difficulties in
introducing new products and services or if users do not accept these new
products or services.

We depend on the sale of advertisements on our services, and if online
advertising does not become accepted, or if users employ new technology to block
or filter online advertising, our business would be harmed.

     We expect to derive a substantial amount of our revenues from the sale of
advertising on our services for the foreseeable future. No standards have been
widely accepted to measure the effectiveness of online advertising. If standards
do not develop, existing advertisers may not continue their current levels of
online advertising. Furthermore, advertisers that have traditionally relied upon
other advertising media may be reluctant to advertise online. Advertisers that
already have invested substantial resources in other advertising methods may be
reluctant to adopt a new strategy. Our business would be harmed if the market
for online advertising fails to develop or develops more slowly than expected.

     Different pricing models are used to sell online advertising. It is
difficult to predict which, if any, will emerge as the industry standard. This
makes it difficult to project future advertising rates and revenues. For
example, advertising rates based on the number of "click throughs," or user
requests for additional information made by clicking on the advertisement,
instead of rates based solely on the number of impressions, or number of times
an advertisement is displayed, could adversely affect our revenues because
impression-based advertising comprises a substantial majority of our current
advertising revenues. Our advertising revenues could be harmed if we are unable
to adapt to new forms of online advertising.

     Moreover, "filter" software programs that limit or prevent advertising from
being delivered to a web user's computer are available. Other software programs
are able to hide a web user's identify and prevent "cookies" from being written
to, or read from, the user's hard drive. Such software prevents the proper
operation of our services, including personalization of the My Excite Start Page
and targeted banner advertising. Widespread adoption of such software products
could reduce the attractiveness of our personalization features and harm the
commercial viability of online advertising.

We must develop and maintain the awareness of our brands to attract consumers
and advertisers.

     Maintaining and strengthening our brands is critical to achieving
widespread acceptance of our services by consumers and advertisers, particularly
in light of the competitive nature of our markets. Promoting and positioning our
brands will depend largely on the success of our marketing efforts and our
ability to provide high quality services. In order to promote our brands, we
plan to increase our marketing expenses from prior periods. We may find it
necessary to increase our marketing budget or otherwise increase our financial
commitment to creating and

                                       20
<PAGE>

maintaining brand loyalty among users. If we fail to promote and maintain our
brands or incur excessive expenses in an attempt to promote and maintain our
brands, our business could be harmed.

Privacy concerns could lead to legislation or new technology that could make it
more difficult for us to deliver targeted advertising.

     Due to privacy concerns, some Internet commentators, consumer advocates and
governmental officials have suggested that the use of cookies be limited or
eliminated. In addition, certain currently available web browsers allow a user
to delete cookies or prevent cookies from being stored on the user's hard drive,
and technology that shields e-mail addresses, cookies and other electronic means
of identification could become commercially accepted. Any reduction or
limitation in the use of cookies through legislation, new technology or
otherwise, could limit the effectiveness of our ad targeting, which could harm
our business.

We could face liability related to the privacy of personal information about our
users.

     Our narrowband services use cookies to deliver targeted advertising, help
compile demographic information about users and limit the frequency with which
an advertisement is shown to the user. Cookies are bits of information keyed to
a specific memory location and passed to a web site server through the user's
browser software. Cookies are placed on the user's hard drive, often without the
user's knowledge or consent. We could face liability relating to the collection
and use of this information, as well as other misuses such as unauthorized
marketing. The Federal Trade Commission and some states have been investigating
Internet companies regarding their use of personal information, and some groups
have initiated legal action against Internet companies regarding their privacy
practices. In addition, the United States federal and various state governments
have proposed new laws restricting the collection and use of information
regarding Internet users. We could incur additional expenses if new regulations
regarding the use of personal information are introduced or if government
agencies choose to investigate our privacy practices.

The sponsorship advertising we sell subjects us to financial and other risks.

     We derive a substantial portion of our revenues from sponsorship
arrangements. These are advertising relationships under which third parties
receive sponsored services and placements on our services in addition to
traditional banner advertisements across our services. These arrangements expose
us to potential financial risks, including the risk that we fail to deliver
required minimum levels of user impressions, that third party sponsors do not
perform their obligations under these agreements, or that they do not renew the
agreements at the end of their term. These arrangements also require us to
integrate sponsors' content with our services, which can require the dedication
of resources and programming and design efforts to accomplish. We may not be
able to attract additional sponsors or renew existing sponsorship arrangements
when they expire.

     In addition, we have granted exclusivity provisions to some of our
sponsors, and may in the future grant additional exclusivity provisions. These
exclusivity provisions may have the effect of preventing us from accepting
advertising or sponsorship arrangements from certain advertisers during the term
of the agreements. Our inability to enter into further sponsorship or
advertising arrangements as a result of any exclusivity arrangements could harm
our business.

We may face potential liability from our electronic commerce-related advertising
arrangements.

     Some of our advertising relationships provide that we may receive payments
based on the amount of goods or services purchased by consumers clicking from
our services to a seller's web site. These arrangements may expose us to legal
risks and uncertainties, including potential liabilities to consumers of the
advertised products and services. Although we carry general liability insurance,
our insurance may not cover potential claims of this type or may not be adequate
to indemnify us for all liability that may be imposed.

     Some of the liabilities that may result from these arrangements include:

     .    potential liabilities for illegal activities that may be conducted by
          the sellers;

     .    product liability or other tort claims relating to goods or services
          sold through third-party e-commerce sites;

     .    claims for consumer fraud and false or deceptive advertising or sales
          practices;

                                       21
<PAGE>

     .    breach of contract claims relating to purchases; and

     .    claims that items sold through these sites infringe third-party
          intellectual property rights.

     Even to the extent that these claims do not result in material liability,
investigating and defending these claims could harm our business.

Our equity investments in other companies may not yield any returns.

     We have made equity investments in many Internet companies, including joint
ventures in other countries. In most instances, these investments are in the
form of illiquid securities of private companies. These companies typically are
in an early stage of development and may be expected to incur substantial
losses. Our investments in these companies may not yield any return.
Furthermore, if these companies are not successful, we could incur charges
related to write-downs or write-offs of assets. We also record and continue to
record a share of the net losses in some of these companies, up to our cost
basis, if they are our affiliates. Our strategic investors and we intend to
continue to invest in illiquid securities of private companies and in joint
ventures in the future. Losses or charges resulting from these investments could
harm our operating results.

We must maintain the security of our networks.

     We have in the past experienced security breaches in our networks. We have
taken steps to prevent these breaches, to prevent users from sharing files via
the @Home service and to protect against bulk unsolicited e-mail. However,
actual problems with, as well as public concerns about, the security, privacy
and reliability of our networks may inhibit the acceptance of our services.

     The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security could deter more people
from using the Internet or our services to conduct transactions that involve
transmitting confidential information, such as purchases of goods or services.
Because many of our advertisers seek to encourage people to use the Internet to
purchase goods or services, our business could be harmed if this were to occur.
We may also incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by these breaches.

Our limited experience with international operations may prevent us from growing
our business outside the United States.

     A key component of our strategy is to expand into international markets and
offer broadband and narrowband services in those markets. We have limited
experience in developing localized versions of our products and services and in
developing relationships with international cable system operators. We may not
be successful in expanding our product and service offerings into foreign
markets. Some of our investments in international joint ventures include an
option to purchase the interests of other joint venture stockholders which, if
not exercised by a specified date, gives the other joint venture stockholders
the right to purchase our interest in the joint venture for a nominal price. In
addition to the uncertainty regarding our ability to generate revenues from
foreign operations and expand our international presence, we face specific risks
related to providing broadband and narrowband services in foreign jurisdictions,
including:

     .    regulatory requirements, including the regulation of Internet access;

     .    legal uncertainty regarding liability for information retrieved and
          replicated in foreign jurisdictions;

     .    potential inability to use European customer information due to new
          European governmental regulations; and

     .    lack of a developed cable infrastructure in many international markets

We may be liable for our links to third-party web sites.

     We could be exposed to liability with respect to the third-party web sites
that may be accessible through our services. These claims may allege, among
other things, that by linking to web sites operated by third parties, we may

                                       22
<PAGE>

be liable for copyright or trademark infringement or other unauthorized actions
by third parties through these web sites. Other claims may be based on errors or
false or misleading information provided by our services. Our business could be
harmed due to the cost of investigating and defending these claims, even to the
extent these types of claims do not result in liability.

Protection of our intellectual property rights is costly and difficult.

     We regard our intellectual property, including our patents, copyrights,
trademarks, trade secrets, and similar intellectual property as critical to our
success. We rely upon patents, trademark and copyright law, trade secret
protection and confidentiality or license agreements to protect our proprietary
rights. Effective protection of intellectual property may not be available in
every country in which our products and services are available. We cannot
guarantee that the steps we have taken to protect our proprietary rights will be
adequate.

We may be subject to intellectual property infringement claims which are costly
to defend and could limit our ability to use certain technologies in the future.

     Many parties are actively developing Internet-related technologies. We
believe that these parties will continue to take steps to protect these
technologies, including seeking patent protection. As a result, we believe that
disputes regarding the ownership of these technologies are likely to arise in
the future. From time to time, parties assert patent infringement claims against
us in the form of letters, lawsuits and other forms of communications. In
addition to patent claims, third parties may assert claims against us alleging
infringement of copyrights, trademark rights, trade secret rights or other
proprietary rights or alleging unfair competition.

     We may incur substantial expenses in defending against third-party
infringement claims regardless of the merit of the claims. In the event that
there is a determination that we have infringed third-party proprietary rights,
we could incur substantial monetary liability and be prevented from using the
rights in the future.

Our business depends on the continued growth in Internet use.

     We operate in a new and rapidly evolving market. Our business may be
adversely affected if usage of the Internet or other online services does not
continue to grow. This growth could be hindered by a number of factors including
the adequacy of the Internet's infrastructure to meet increased usage demands,
privacy and security concerns and the availability of cost-effective services.
Any of these issues could cause the Internet's performance or level of usage to
decline.

Future acquisitions could result in dilutive issuances of stock and the need for
additional financing.

     We have typically paid for our acquisitions by issuing shares of our
capital stock. In the future, we may effect other large or small acquisitions by
using stock, and this will dilute our stockholders. We may also use cash to buy
companies or technologies in the future, as we did for a portion of the purchase
price for Bluemountain.com, and we may need to incur additional debt to pay for
these acquisitions. Acquisition financing may not be available on favorable
terms or at all. In addition, we will likely be required to amortize significant
amounts of goodwill and other intangible assets in connection with future
acquisitions, which will have a material effect on our results of operations.

We must manage our growth.

     Our growth and recent acquisitions have placed a significant strain on our
managerial, operational, and financial resources. For example, we have grown
from 570 employees at December 31, 1998 to more than 2,300 employees at December
31, 1999. In addition, we plan to continue to hire additional personnel. To
manage our growth, we must continue to implement and improve our operational and
financial systems and to expand, train and manage our employee base. Any failure
to manage growth effectively could harm our business.

Government regulation and legal uncertainties relating to the Internet could
hinder the popularity of the Internet.

     New Internet privacy and other laws. There are currently few laws or
regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing, content and the characteristics
and quality of products and services. For example:

                                       23
<PAGE>

     .    The United States federal government and various state governments
          have proposed limitations on the collection and use of information
          regarding Internet users. In October 1998, the European Union adopted
          a directive that may result in limitations on our ability to collect
          and use information regarding Internet users in Europe.

     .    Several telecommunications companies have petitioned the Federal
          Communications Commission to regulate Internet service providers and
          online service providers in a manner similar to long distance
          telephone carriers and to impose access fees on these companies. This
          could increase the cost of transmitting data over the Internet.

     .    A portion of the Telecommunications Act, which has since been ruled
          unconstitutional, sought to prohibit transmitting certain types of
          information and content over the Internet.

     Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Internet. Any new laws or regulations relating to the Internet
could harm our business.

     Tax laws. The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Our
business may be harmed by the passage of laws in the future imposing taxes or
other burdensome regulations on online commerce.

     Other jurisdictions. Because our service is available in multiple states
and foreign countries, these jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each of these states and
foreign countries. If we fail to qualify as a foreign corporation in a
jurisdiction where we are required to do so, we could be subject to taxes and
penalties.

We could face liability for defamatory or indecent content provided on our
services.

     Claims could be made against Internet and online service providers under
both United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of the
materials disseminated through their networks. Several private lawsuits seeking
to impose this liability are currently pending against Internet and online
services providers. Our insurance may not adequately protect us from these types
of claims.

     In addition, legislation has been proposed that prohibits, or imposes
liability for, transmission over the Internet of indecent content. The
imposition upon Internet and online service providers of potential liability for
information carried on or disseminated through their systems could require us to
implement measures to reduce our exposure to this liability. This may require
that we expend substantial resources or discontinue service or product
offerings. The increased focus on liability issues as a result of these lawsuits
and legislative proposals could impact the growth of Internet use. Furthermore,
governments of some foreign countries, such as Germany, have enacted laws and
regulations governing content distributed over the Internet that are more strict
than those currently in place in the United States. One or more of these factors
could significantly harm our business.

Year 2000 issues could affect the performance of our systems.

     While we have experienced no material year 2000 date-related or other
significant problems to date, not all year 2000 disruption scenarios have
passed. There is a possibility of disruptions in the future including errors
that could still arise in our internal and network information systems because
of their failure to correctly recognize and process date information after the
calendar change from 1999 to 2000. We also may yet experience supplier-related
year 2000 problems. If any of these year 2000 problems occur, our operations
could be significantly hampered. Based on currently available information,
management continues to believe that year 2000 related disruptions or other
problems, if any, will not have a significant adverse impact on our operating
results or financial condition. However, we cannot be certain that year 2000
issues will not have a material adverse impact on us since it is still early in
2000.

                                       24
<PAGE>

Our future success depends on our ability to attract, retain and motivate highly
skilled employees.

     Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in the Internet industry is
intense, particularly in the Silicon Valley where we are headquartered.
Additionally, it is often more difficult to attract employees once a company's
stock is publicly traded because the exercise price of equity awards such as
stock options are based on the public market, which is highly volatile. We may
be unable to attract, assimilate or retain other highly qualified employees in
the future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. This risk is compounded by
the fact that we are controlled by our principal cable partners, and therefore
we may not have the same flexibility as a typical Silicon Valley company to
pursue initiatives proposed by management. Moreover, hiring and retention is
made more difficult due to the uncertainty concerning the relationship we will
have with our principal cable partners following the expiration of their
exclusivity obligations in June 2002.

Risks Relating to Excite@Home's Broadband Services

Our broadband business is unproven, and it may not achieve profitability.

     The profit potential of our broadband business model is unproven and our
broadband services may not achieve widespread consumer or commercial acceptance.
We have had difficulty predicting whether the pricing models or revenue sharing
arrangements with our cable partners for our broadband services will prove to be
viable, whether demand for our broadband services will materialize at the prices
our cable partners charge for our broadband services, or whether current or
future pricing levels will be sustainable. If these pricing levels are not
achieved or sustained or if our broadband services do not achieve or sustain
broad market acceptance, our business will be significantly harmed.

Growth of our broadband service may be inhibited by factors beyond our control.

     Our ability to increase the number of subscribers to our broadband service
to achieve our business plans and generate future revenues will depend on many
factors which are beyond our control. For instance, some of our cable partners
have not achieved the subscriber levels that we had originally anticipated.
Other factors include:

     .    the rate at which our current and future cable partners upgrade their
          cable infrastructures for two-way data services;

     .    our ability and the ability of our cable partners to coordinate timely
          and effective marketing campaigns with the availability of cable
          infrastructure upgrades;

     .    the success of our cable partners in marketing and installing the
          @Home service in their local cable areas;

     .    the prices that our cable partners set for the @Home service and for
          its installation;

     .    the speed at which our cable partners can complete the installations
          required to initiate service for new subscribers;

     .    the commercial availability of self-installable, two-way modems that
          comply with the recently adopted interface standards known as DOCSIS,
          and the success of the roll-out of these products with the @Home
          service; and

     .    the quality of customer and technical support our cable partners
          provide.

We need to add subscribers at a rapid rate for our broadband business to
succeed, but we may not achieve our subscriber growth goals.

     Our actual revenues or the rate at which we add new subscribers may differ
from our forecasts. We may not be able to increase our subscriber base enough to
meet our internal forecasts or the forecasts of industry analysts or to a level
that meets the expectations of investors. The rate at which subscribers have
increased in the past does not necessarily indicate the rate at which
subscribers may be expected to grow in the future.

                                       25
<PAGE>

Our broadband subscriber growth is limited by installation and price
constraints.

     Installation of the @Home service requires a customer service
representative employed by a cable partner to install a cable modem at a
customer's location and therefore can be time consuming. If we are unable to
speed the installation of our service, our subscriber growth could be
constrained. Moreover, the @Home service is currently priced at a premium to
many other online services, and large numbers of subscribers may not be willing
to pay a premium for the service. Recently, companies have begun to offer free
Internet access with the purchase of personal computers and some Internet
service providers have reduced or eliminated Internet access charges in exchange
for placing advertisements on a customer's computer screen. If these promotions
become more widely used, or if Internet access fees decline, consumers may be
less willing to pay a premium for broadband services, or our broadband services
in particular.

If we cannot maintain the scalability and speed of our @Home broadband network,
customers will not accept our broadband services.

     Due to the limited deployment of our broadband services, the ability of our
broadband network to connect and manage a substantial number of subscribers at
high transmission speeds is unknown. Therefore, we face risks related to our
network's ability to be scaled up to accommodate increased subscriber levels
while maintaining performance. Our network may be unable to achieve or maintain
a high speed of data transmission, especially as the number of our subscribers
increases. Because of our reliance on regional data centers and the cable
infrastructure located in particular geographic areas to support our broadband
services, our and our cable partners' infrastructure must also be able to
accommodate increased subscribers in a particular area. If the existing
infrastructure for a geographic area does not accommodate additional
subscribers, network performance for an area could decline causing us to lose
subscribers in that area, especially if a cable partner was unwilling to upgrade
its infrastructure in that area.

     In recent periods, the performance of the @Home network has experienced
some deterioration in some markets partially as a result of subscriber abuse of
the @Home service. While we are seeking to eliminate this abuse by enforcing our
acceptable-use policy and by limiting users' upstream bandwidth, our failure to
do so may result in slower network performance and reduced customer demand for
our services.

If new "DOCSIS" compliant and self-installable cable modems are not deployed
timely and successfully, our subscriber growth could be constrained.

     Currently, each of our subscribers must typically obtain a cable modem from
a cable partner to access the @Home service. The North American cable industry
has recently adopted interface standards known as DOCSIS for hardware and
software to support the delivery of data services over the cable infrastructure
utilizing compatible cable modems. Some of our cable partners have chosen to
delay deployments of the @Home service until the commercial availability of
DOCSIS-compliant cable modems is widespread, among other reasons. Subscriber
growth could be constrained and our business could be significantly harmed if
our cable partners choose to slow the deployment of the @Home service because
they are not able to obtain a sufficient quantity of DOCSIS-compliant modems and
if such modems do not become widely available through other channels.

     We believe that our ability to meet our subscriber goals depends on the
degree to which two-way cable modems become widely available in channels such as
personal computer manufacturers and retail outlets. Currently, this widespread
availability has not yet occurred. Also, cable modem manufacturers have
experienced, and may continue to experience, production and delivery problems
with cable modem components that may restrict the number of modems available. In
addition, these modems must be easy for consumers to install themselves, rather
than requiring a customer service representative to perform the installation. If
two-way cable modems do not become quickly available in outlets other than
through cable television companies, or if they cannot be installed easily by
consumers, it would be difficult for us to attract large numbers of additional
subscribers and our business would be harmed.

Our broadband business may be impacted by cable unbundling proposals and other
government regulation.

     Currently, our broadband services are not directly subject to regulations
of the Federal Communication Commission or any other federal, state or local
communications regulatory agency. However, there may be changes in the
regulatory environment relating to the Internet, cable television or
telecommunications markets. These changes could require regulatory compliance by
us, impact our exclusivity arrangements or limit our ability to provide

                                       26
<PAGE>

broadband services to our subscribers, and therefore could adversely affect our
revenues and results of operations. Such possible government regulations include
the following:

     .    The FCC or local agencies could require our cable partners to grant
          competitors access to their cable systems. GTE, MindSpring
          Enterprises, Inc., Consumers Union and other parties have requested
          Congress, the Federal Communications Commission and state and local
          authorities to require cable operators to provide Internet and online
          service providers with unbundled access to their cable systems.
          Although America Online has ceased petitioning government agencies for
          unbundled access, other parties will likely continue to lobby heavily
          at all levels of government. Some parties have also attempted to
          petition for unbundled access under existing cable franchising rules,
          such as those for local programming access. If we or our cable
          partners are classified as common carriers, or if government
          authorities require third-party access to cable networks or
          unaffiliated Internet service providers, our competitors may be able
          to provide service over our cable partners' systems. The rates that
          our cable partners charge for this third-party access, or for the
          @Home services, could also be subject to rate regulation or tariffing
          requirements.

     .    Local governmental proceedings. Some local jurisdictions, including
          Portland and Multnomah County, Oregon and Broward County, Florida,
          have imposed third-party access requirements on AT&T and other cable
          companies operating in those communities. The imposition of these
          requirements has been challenged in Federal Courts. In June 1999, a
          U.S. District Court upheld the third-party access requirement imposed
          on AT&T by Portland and Multnomah County. This decision was appealed
          to the U.S. Court of Appeals for the Ninth Circuit and arguments were
          presented to the court in November 1999. Although appeals decisions
          have no time limit, most rulings occur within three to twelve months
          after the date arguments are presented. Numerous other local
          jurisdictions have considered or are considering imposing similar
          third-party access requirements and other municipalities may consider
          imposing similar requirements in the future.

     .    Other litigation. In October 1999, GTE filed a lawsuit in a U.S.
          District Court and in November 1999, a class action was filed, each
          alleging violations of the federal antitrust laws. Although it is too
          early to predict the outcome of this litigation, we could be forced to
          pay damages, allow other service providers to utilize our network,
          otherwise alter the way we do business or incur significant costs in
          defending these litigations. Any of these outcomes could harm our
          business. In addition, others could initiate litigation on similar
          legal theories in the future.

     .    Federal regulation. Regulatory changes that affect telecommunications
          costs, limit usage of subscriber-related information or increase
          competition from telecommunications companies could affect our pricing
          or ability to market our broadband services successfully. For example,
          changes in the regulation of cable television rates may affect the
          speed at which our cable partners upgrade their cable systems to carry
          our broadband services.

     .    Regulation by local franchise authorities. Many of our United States
          cable partners' local cable affiliates have elected to classify the
          provision of the @Home service as an additional cable service under
          their local franchise agreements, and to pay franchise fees under
          those agreements. Local franchise authorities may attempt to subject
          cable systems to higher or different franchise fees, taxes or
          requirements in connection with their distribution of the @Home
          service. There are thousands of franchise authorities, and thus it
          would be difficult or impossible for us or our cable partners to
          operate without a uniform set of franchise requirements.

We could lose subscribers, distribution relationships and revenues related to
broadband services to our competitors.

     The markets for consumer and business broadband services are extremely
competitive, and we expect that competition will intensify in the future. Our
most direct competitors for broadband services include the following:

     .    Providers of cable-based Internet services. Media One Group, which
          AT&T has agreed to acquire, and Time Warner Inc. have deployed high-
          speed Internet access services over their local cable networks through
          their own cable-based Internet service, Road Runner. We currently
          compete with Road Runner to establish distribution arrangements with
          cable system operators and we may compete for subscribers in the
          future if and when our cable partners cease to be subject to their
          exclusivity obligations. In addition, we compete with other providers
          of cable-based Internet services, such as ISP Channel, Inc. and High
          Speed Access Corporation.

                                       27
<PAGE>

     .    Telecommunications providers. We compete with national long-distance
          and local exchange carriers that offer high-speed, Internet access
          services such as asymmetric digital subscriber line, known as DSL.
          Recently, these services have been offered in a number of areas and at
          lower prices than in the past. If the advanced services offered by
          these companies are deregulated, this would further enhance the
          ability of these companies to compete against our services.

     .    Internet and online service providers. We compete with Internet
          service providers that provide basic Internet access services and with
          online service providers such as America Online and other Internet
          portals and online services that have announced broadband strategies,
          such as Yahoo!.

     Many of our competitors and potential competitors have substantially
greater financial, technical and marketing resources, larger subscriber bases,
longer operating histories, greater name recognition and more established
relationships with advertisers and content and application providers than we do.
These competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and devote more resources to developing
Internet services or online content than we can. We may not be able to compete
successfully against current or future competitors. Competitive pressures could
significantly impact the growth of our broadband subscriber base and our ability
to renew and enter into new distribution agreements and as a result may hurt our
revenues.

     The proposed merger between America Online and Time Warner Inc. creates
uncertainties about which cable markets will be served by Road Runner on an
exclusive or non-exclusive basis, and the merger may improve Road Runner's
ability to negotiate exclusive distribution agreements with cable system
operators. Additionally, our principal shareholder, AT&T, will have a
substantial ownership interest in Time Warner and Road Runner if its proposed
merger with MediaOne is completed. This relationship between America Online,
AT&T, Time Warner and Road Runner creates further uncertainties about which
cable markets we will be able to serve and under what terms. The proposed merger
would also give America Online, the dominant dial-up Internet service provider,
the ability to utilize Road Runner's technology as a basis for leveraging its
marketing prowess and extensive subscriber base to compete for customers in
cable markets once our exclusivity agreements have expired. As a result, we may
face intense long-term competition for customers in previously exclusive cable
markets.

Our dependence on our network to provide our broadband services exposes us to a
significant risk of system failure.

     Our broadband service operations are dependent upon our ability to support
our highly complex network infrastructure and avoid damage from fires,
earthquakes, floods, power losses, telecommunications failures and similar
events. The occurrence of a natural disaster or other unanticipated problem at
our network operations center or at a number of our regional data centers could
cause interruptions in our broadband services. Additionally, failure of our
cable partners or companies from which we obtain data transport services to
provide the data communications capacity that we require, for example as a
result of natural disaster or operational disruption, could cause interruptions
in our broadband services. Any damage or failure that causes interruptions in
our network operations could harm our business.

Risks Related to Our Relationships With Our Cable Partners

     The success of our business depends on our relationships with our cable
partners, most of which have agreed to provide our broadband services on an
exclusive basis. We have also agreed not to provide a variety of Internet
services in the areas covered by our cable partners. Our agreements with our
cable partners are complex. Some of the risks associated with these
relationships are set forth below. Please also refer to "Item 1. Business" for a
further description of our relationships with our cable partners.

We depend on our cable partners to upgrade to the two-way cable infrastructure
necessary to support the @Home service; the availability and timing of these
upgrades are uncertain.

     Transmission of our broadband services depends on the availability of high-
speed two-way hybrid fiber coaxial cable infrastructure. However, only a portion
of existing cable plant in the United States and in some international markets
has been upgraded to two-way hybrid fiber coaxial cable, and even less is
capable of high-speed two-way transmission. As of December 31, 1999,
approximately 40% of our North American cable partners' cable infrastructure was
capable of delivering the @Home service. Our cable partners have announced and
are implementing major infrastructure investments in order to deploy two-way
hybrid fiber coaxial cable. However,

                                       28
<PAGE>

these investments have placed a significant strain on the financial, managerial,
operating and other resources of our cable partners, most of which are already
highly leveraged. Therefore, these infrastructure investments have been, and we
expect will continue to be, subject to change, delay or cancellation.
Furthermore, because of consolidation in the cable television industry, as well
as the sale or transfer of cable assets among cable television operators, many
cable companies have delayed upgrading particular systems that they plan to sell
or transfer. If these upgrades are not completed in a timely manner, our
broadband services may not be available on a widespread basis and we may not be
able to increase our subscriber base at the rate we anticipate. Although our
commercial success depends on the successful and timely completion of these
infrastructure upgrades, most of our cable partners are under no obligation to
upgrade systems or to introduce, market or promote our broadband services. As
has happened in the past, even if a cable partner upgrades its cable
infrastructure, the upgraded infrastructure may not function properly, and
therefore may cause a delay in the availability of our broadband services for
particular areas. The failure of our cable partners to complete these upgrades
in a timely and satisfactory manner, or at all, would prevent us from delivering
broadband services and would significantly harm our business.

Our cable partners are not generally obligated to carry our broadband services,
and the exclusivity obligations that prevent them from carrying competing
services may be terminated.

     Most of our cable partners are subject to exclusivity obligations that
prohibit them from obtaining high-speed, greater than 128 kilobits per second,
residential consumer Internet services from any source other than us. However,
most of our cable partners are under no affirmative obligation to carry any of
our broadband services. Also, the exclusivity obligations of our principal cable
partners, AT&T, Comcast, Cox and Cablevision, expire on June 4, 2002, and may be
terminated sooner under some circumstances, as follows:

     .    principal cable partners may terminate all their exclusivity
          obligations upon a change in law that materially impairs some of their
          rights;

     .    Comcast or Cox may terminate all exclusivity obligations of our
          principal cable partners at any time if there is a change of control
          of TCI that results within 12 months in the incumbent TCI directors no
          longer constituting a majority of TCI's board. AT&T, TCI, Comcast and
          Cox have agreed, however, that AT&T's acquisition of TCI did not
          constitute a change of control under the terms of the original
          agreement;

     .    Comcast or Cox may terminate the exclusivity provisions of our
          principal cable partners if AT&T and its affiliates do not meet
          specified subscriber penetration levels for the @Home service. On June
          4, 1999, Cox had this right, but Cox agreed to waive it for 1999; and

     .    Comcast may terminate its own exclusivity obligations at any time if
          it allows us to repurchase a portion of Comcast's equity interest in
          our company. Comcast has informed us that it has entered into an
          agreement with Microsoft Corporation under which Microsoft can require
          Comcast to terminate its exclusivity obligations.

     In consideration for Cox's agreement to waive its right to terminate
exclusivity as of June 4, 1999, changes were made to the corporate governance
provisions of our certificate of incorporation and bylaws. These changes
generally require board action to be approved by a majority of our board,
including the board representatives of AT&T and either Cox or Comcast. In
addition, as further consideration for Cox's waiver, AT&T agreed to increase its
subscriber acquisition goals for the twelve months following June 4, 1999 above
its current goal for that period.

     In December 1999, AT&T announced that customers of its broadband cable
systems will be able to choose their Internet service provider for high-speed
Internet access upon expiration of our exclusivity agreement with AT&T.

     If the exclusivity obligations of our cable partners are terminated, our
business could be harmed significantly and our stock price would likely suffer
an immediate drop. Our cable partners and we are continuing to explore the
relationships we will have after our exclusivity obligations expire as well as
possible strategic alternatives to our current relationships.

Our cable partners may offer services that compete with the @Home service, but
we are prohibited from offering competing services.

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<PAGE>

     Many of our cable partners' exclusivity obligations are limited to high-
speed residential Internet services and do not extend to various services that
they may offer without us. These services include, but are not limited to,
telephony services, commercial and business services similar to our @Work
service, Internet services that do not use the cable television infrastructure
or do not require use of an Internet backbone and limited Internet services
including streaming video and other downstream-only services. By providing these
services, most cable partners can compete, directly or indirectly, with our
broadband delivery activities.

     Until the expiration of our cable partners' exclusivity obligations which
begins in June 2002, we may not offer the services described above using a cable
partner's cable plant, or to residences in the geographic areas served by its
cable systems, without its consent. These restrictions apply even if we have
integrated such a service with the @Home service in another geographic area. For
example, in order to provide streaming video longer than 10 minutes in duration,
we must seek a cable partner's consent or negotiate a separate agreement,
including a new revenue split, if applicable, prior to offering the service. We
must similarly obtain our cable partners' consent or execute a separate
agreement to provide broadband services over alternate platforms including fixed
wireless, cellular or DSL infrastructures to any residential customers in the
cable partners' geographic area. If our cable partners do not allow us to offer
broadband services over alternate platforms, our market for such services will
be severely limited and our business could be harmed.

We depend on our cable partners to promote our services and obtain new
subscribers.

     The rate at which we are able to obtain new subscribers depends not only on
the degree to which our cable partners upgrade their cable systems but also on
the level and effectiveness of the efforts of our cable partners to promote our
services. Our cable partners have achieved different levels of subscriber
penetration. In Canada, for example, where our cable partners have high levels
of upgraded cable systems and faced early competition from other providers of
high speed data services, we have relatively high levels of subscriber
penetration (exceeding those in the United States). Among our principal U.S.
cable partners, AT&T, Cox and Comcast are actively promoting our services and
are beginning to increase their penetration rates. Cablevision, however, has
deployed our service to only a small number of subscribers and continues to
offer its own online service called Optimum Online to the majority of
subscribers in cable systems deployed to date. We cannot predict the rate at
which our cable partners will add new subscribers to our services. If our cable
partners do not actively and effectively promote our services, we will not be
able to reach the level of subscribers necessary to achieve a profitable
business model.

We are controlled by AT&T, Cox and Comcast.

     AT&T, through its ownership of TCI, controls approximately 56% of our
voting power. Currently, four of our eleven directors are directors, officers or
employees of TCI, AT&T or their affiliates. AT&T currently owns all 30.8 million
outstanding shares of our Series B common stock, each of which carries ten votes
per share. This Series B common stock ownership gives AT&T the right to elect
five Series B directors, one of which is designated by Comcast and one of which
is designated by Cox. So long as AT&T owns at least 15.4 million shares of our
Series B common stock and holds a majority of our voting power, our board may
take action only if approved by the board and by at least 75%, or four of the
five, of our Series B directors. As a result, corporate actions generally
require the approval of AT&T's three Series B directors and one, or in some
cases both, of the directors designated by Comcast and Cox. Therefore, Comcast
and Cox, acting together, may veto any board action.

     We depend on a continuing cooperative relationship with AT&T, Cox, Comcast
and other large stockholders to take action that requires stockholder consent.
It is possible that the objectives of AT&T's stockholders will diverge from what
management considers to be our optimum strategy.

Warrants issued to our cable partners may result in additional dilution to our
stockholders.

                                       30
<PAGE>

     We have entered into agreements with Cablevision, Rogers, Shaw and other
cable partners under which we issued warrants to purchase shares of our Series A
common stock. Under these agreements, warrants to purchase approximately 28.5
million shares of our Series A common stock at an average price of $1.66 per
share were exercisable as of December 31, 1999. To the extent that Cablevision,
Rogers, Shaw or other cable partners become eligible to and exercise their
warrants, our stockholders would experience substantial dilution.

     We also may issue additional stock, or warrants to purchase stock, at
prices equal to or less than fair market value in connection with efforts to
expand distribution of the @Home service.

Risks Related to Our Narrowband Services

Our narrowband services could lose users, advertisers and revenues to
competitors.

     Our narrowband services compete with a number of companies both for users
and advertisers and, therefore, for revenues. We expect this competition will
intensify, particularly because there are few barriers to entry in this market.
These competitors include:

     .    Internet portal companies such as Disney's Go Network, Lycos,
          Netscape's Netcenter, NBCi and Yahoo!;

     .    online service providers such as America Online and Microsoft's MSN
          service;

     .    large media companies such as CBS, NBC, Time Warner and USA Networks,
          Inc., who have announced initiatives to develop web services or
          partner with web companies; and

     .    providers of a wide variety of online information, entertainment and
          community services such as services that are targeted to vertical
          markets or electronic commerce services.

     Many providers of Internet services have been entering into distribution
arrangements, co-branding arrangements, content arrangements and other strategic
partnering arrangements with ISPs, online service providers, providers of web
browsers, operators of high-traffic web sites and other businesses in an attempt
to increase traffic and page views, thereby making their web sites more
attractive to advertisers while also making it more difficult for consumers to
link to services. To the extent that our direct competitors or other web site
operators are able to enter into successful strategic relationships, these
competitors and web sites could experience increases in traffic and page views,
or the traffic and page views on our narrowband services could remain constant
or decline, either of which could harm our business by making these web sites
appear more attractive to advertisers.

     Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories in the Internet market, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we have. These competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, distribution
partners, advertisers and content providers. Further, it is possible that our
competitors could develop search and retrieval services or other online services
that are equal or superior to ours or that achieve greater market acceptance
than our offerings.

     The Internet in general, and our narrowband services specifically, also
must compete with traditional advertising media, such as print, radio and
television, for a share of advertisers' total advertising budgets. To the extent
that the Internet is not perceived as an effective advertising medium,
advertisers may be reluctant to devote a significant portion of their
advertising budgets to Internet advertising.

     The proposed merger between Time Warner Inc. and America Online announced
in January 2000 would create a very large, diverse media conglomerate. The
combined companies may be able to use their diverse media holdings and Internet
service delivery capabilities to develop or expand Internet services and content
that could attract a significant number of new users and increased traffic.
Additionally, America Online will likely use Time Warner's subscription-based
services as an advertising mechanism to attract users to the Internet access
services provided by America Online and Road Runner. Increased competition for
users of Internet services and content may result in lower subscriber growth
rates for our online and Internet services and lower advertising rates and
decreased demand for advertising space on our web sites.

                                       31
<PAGE>

If Internet users do not continue to use Internet portal sites, our business
could be harmed.

     The success of our Internet portal web sites is also dependent on Internet
users continuing to use "portal" web sites for their information needs. Internet
measurement services have reported that the number of unique users of Internet
portal sites has been decreasing in recent periods. If Internet users begin to
become less dependent on portal sites, and instead go directly to particular web
sites, our traffic levels could decrease as measured by unique users, reach and
pages views. As a result, the number of advertising impressions and the
attractiveness of our sites to advertisers could be impacted, which would harm
our media and advertising revenues.

Our systems may not be able to accommodate increases in the number of users of
our narrowband services.

     Our web sites for the Excite Network are currently hosted and operated on a
computer network infrastructure separate from our broadband services. The Excite
Network must accommodate a high volume of traffic and deliver frequently-updated
information. The web sites for the Excite Network have in the past, and may in
the future, experience slower response times or other problems for a variety of
reasons. We also depend on third party information providers to provide updated
information and content for these services on a timely basis. The Excite Network
could experience disruptions or interruption in service due to the failure or
delay in the transmission or receipt of this information. In addition, the users
of these Excite Network services depend on Internet service providers, online
service providers and other web site operators for access to the Excite Network.
Each of these parties has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. These types of occurrences could cause users to
perceive the Excite Network as not functioning properly and therefore cause them
to use other services.

We depend on several third-party relationships for users, advertisers and
revenues.

     We depend on a number of third party relationships to provide users and
content for the Excite Network, including agreements for links to narrowband
services to be placed on high-traffic web sites and agreements for third parties
to provide content, games and e-mail for narrowband web sites. We are not
guaranteed of recouping our investments in these agreements through additional
users or advertising revenues, and we may have to pay penalties for terminating
agreements early.  Some of these third parties could become our competitors, or
provide their services to our competitors, upon termination of such
relationships.  If these relationships are terminated and we are not able to
replace them, we could lose users or advertisers.

Item 2.   Properties

     We are headquartered in facilities consisting of approximately 670,000
square feet in Redwood City, California, which we occupy under 12 to 15 year
leases. Our headquarters facilities include buildings constructed during 1999
and new facilities that we occupied at the beginning of 2000 as a result of
build-to-suit options we exercised in September 1997 and March 1998. All
facilities constructed under our build-to-suit options are subject to leases of
up to 15 years in length, have base rents determined in relation to construction
costs and include tenant improvements paid for by us. The build-to-suit options
that have been exercised to date provide for monthly rental payments that begin
upon the phased completion of the buildings. In addition to our build-to-suit
options, in December 1998 we exercised our right to purchase one land parcel
from the landlord. The purchase price of the exercised option included a payment
of $5.2 million in 1999. We also lease space at smaller facilities in various
locations throughout the United States as well as in several international
locations. These facilities primarily house our regional support and sales
offices in locations such as New York, Chicago, Los Angeles, Philadelphia and
San Francisco, as well as the operations of businesses we have acquired,
including the offices of Excite's MatchLogic subsidiary in Westminster, Colorado
and in Waltham, Massachusetts, iMALL's offices in Provo, Utah and Santa Monica,
California, Bluemountain.com's offices in Boulder, Colorado, and other small
offices in various domestic and international locations. In January 2000, we
also entered into agreements for the construction of additional facilities near
our headquarters which are expected to be completed in late 2001. We believe
that our existing facilities and the facilities planned for construction will be
adequate to accommodate our growth for the foreseeable future.

Item 3.   Legal Proceedings

     Sheldon Pittleman and Ralph Zonies each filed derivative lawsuits on behalf
of Excite@Home against AT&T and Messrs. Armstrong, Petrillo, Roberts, Woodrow,
Doerr, Hearst, Bell, Malone, Shaw and Jermoluk, who are our directors, in the
Court of Chancery of the State of Delaware on October 15, 1999. We are named as
a nominal defendant in each complaint. Each complaint alleges breaches of
fiduciary duty to Excite@Home and its public stockholders. We have not yet filed
responsive pleadings in either matter. Each of Messrs. Pittleman and Zonies
seeks an injunction requiring us to alter our corporate governance, including
appointing new, unaffiliated directors,

                                       32
<PAGE>

as well as payment of monetary damages, costs and attorneys' fees. If we do not
prevail in this action, we may be required to alter our corporate governance and
pay substantial damages, which could seriously harm our business.

     GTE Internetworking Incorporated and GTE Intelligent Network Services
Incorporated filed a lawsuit against TCI (now a subsidiary of AT&T), Comcast
Corporation and us in the United States District Court for the Western District
of Pennsylvania on October 25, 1999. The complaint alleges violations of the
federal antitrust laws. GTE is seeking an injunction prohibiting continued
performance under our exclusive distribution and sales arrangements with our
cable partners, damages (including treble damages), costs and attorneys' fees.
We filed an answer to the complaint in this matter on December 15, 1999, which
was amended on December 21, 1999, denying the allegations of unlawful conduct in
the complaint. If we do not prevail in this action, our cable partners, when
providing high speed data transport to residential consumers, may be required to
offer the services of other Internet service providers in addition to the @Home
service. We may also be required to pay substantial damages. Either of these
results could seriously harm our business and could encourage others to initiate
litigation on similar legal theories in the future.

     Fred and Roberta Lipschutz, Arthur Simon and John Galley, III, as named
plaintiffs, filed a class action against us, AT&T, ServiceCo L.L.C. and entities
affiliated with eight other cable companies in the United States District Court
for the Central District of California on November 10, 1999. The complaint
alleges violations of the federal antitrust laws. The plaintiffs seek an
injunction prohibiting the alleged acts, damages (including treble damages),
costs and attorneys' fees. We filed an answer to the complaint in this matter on
January 21, 2000, denying the allegations of unlawful conduct in the complaint.
If we do not prevail in this action, we may be required to pay substantial
damages, or we may be forced to alter the way we do business. Either of these
results could seriously harm our business and could encourage others to initiate
litigation on similar legal theories in the future.

     We cannot assure you that we will prevail in any litigation. Regardless of
the outcome, any litigation may require us to incur significant litigation
expenses and may result in significant diversion of management.

Item 4.   Submission of Matters to a Vote of Security Holders

     There were no matters submitted to a vote of security holders in the fourth
quarter of 1999.


                                    PART II

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

Market for the Registrant's Common Equity

     Our Series A common stock trades on the Nasdaq National Market under the
symbol "ATHM." The following table sets forth, on a per share basis, the high
and low sales prices of the Series A common stock for the periods indicated, as
reported by the Nasdaq National Market. The prices in the table have been
adjusted to reflect our two-for-one stock split effective June 1999.

<TABLE>
<CAPTION>
                                                         High           Low
                                                      -----------   -----------
<S>                                                     <C>           <C>
     Fiscal Year Ended December 31, 1998:
       First Quarter................................    $19.06        $10.25
       Second Quarter...............................    $28.63        $14.88
       Third Quarter................................    $27.47        $11.75
       Fourth Quarter...............................    $42.38        $17.25
     Fiscal Year Ended December 31, 1999:
       First Quarter................................    $81.75        $37.25
       Second Quarter...............................    $99.00        $39.00
       Third Quarter................................    $59.63        $33.13
       Fourth Quarter...............................    $59.75        $36.69
</TABLE>

     As of December 31, 1999, the number of stockholders of record was
approximately 3,000. We have never declared or paid any cash dividends on our
Series A common stock. We presently intend to retain future earnings, if

                                       33
<PAGE>

any, for use in our business and, therefore, we do not anticipate paying any
cash dividends on our capital stock in the foreseeable future.

Recent Sales of Unregistered Securities

     On October 27, 1999, in consideration for amending an e-commerce services
agreement between iMall, which we acquired the same day, and First Data Merchant
Services, a subsidiary of First Data Corporation, we issued fully-vested
warrants to purchase 2,300,000 shares of our Series A common stock in a private
transaction that was exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act.

     On October 27, 1999, in connection with our acquisition of Webshots
Corporation, we issued 2,050,326 shares of our Series A common stock to the
shareholders of Webshots in a private transaction that was exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act.

     On December 13, 1999, in connection with our acquisition of
Bluemountain.com, we issued 10,674 shares of our Series A preferred stock to
the shareholders of Hartford House, Ltd., the operator of the Bluemountain.com
web site, in a private transaction that was exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act.

     On December 15, 1999, we issued $500 million principal amount of
Convertible Subordinated Notes due 2006 in a transaction that was exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act. Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Deutsche Bank
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht
& Quist LLC and BancBoston Robertson Stephens Inc. acted as initial purchasers
and offered the notes primarily to qualified institutional buyers in reliance on
Rule 144A under the Securities Act. Each note was issued in denominations of
$1,000 or multiples of $1,000 and is convertible at any time into Series A
common stock at a conversion price of $56.52 per share, subject to adjustment in
specified circumstances. We may redeem these notes on or after December 20, 2002
by giving note holders at least 30 days' notice. We received net proceeds of
$485.7 million from the offering.

Use of Proceeds from Sales of Registered Securities

     Not applicable.

                                       34
<PAGE>

Item 6.   Selected Financial Data

     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes appearing elsewhere in this annual report. The selected consolidated
balance sheet data as of December 31, 1999 and 1998 and the selected
consolidated statement of operations data for each of the three years in the
period ended December 31, 1999 are derived from our consolidated financial
statements appearing elsewhere in this annual report. Consolidated statement of
operations and balance sheet data as of and for the year ended December 31, 1999
includes the results of operations and financial condition of Excite, which we
acquired on May 28, 1999. Therefore, comparisons of our results of operations
and financial condition for periods prior to and subsequent to our acquisition
of Excite are not indicative of future results. In addition, historical results
are not necessarily indicative of future results. Selected financial data as of
and for the period from our inception on March 28, 1995 to December 31, 1995 are
not presented because our financial condition and results of operations as of
and for that period were insignificant. Share and per share data have been
adjusted to reflect our two-for-one stock split effective June 1999.

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                             -----------------------------------------------------
                                                                                 1999           1998          1997         1996
                                                                             -------------   -----------   ----------   ----------
<S>                                                                          <C>             <C>           <C>          <C>
                                                                                       (In Thousands, Except Per Share Data)
Consolidated Statement Of Operations Data:
Revenues(1)..............................................................    $   336,955     $  48,045     $  7,437     $    676
Costs and expenses(2):
 Operating costs.........................................................        143,056        46,965       22,459        6,969
 Product development and engineering.....................................         54,805        17,009       11,984        6,312
 Sales and marketing.....................................................        130,725        18,091       11,863        6,368
 General and administrative..............................................         30,276        12,429       10,635        6,054
 Cost and amortization of distribution agreements........................        291,967       101,385        9,246           --
 Amortization of goodwill, intangible assets and deferred
  compensation and other acquisition-related costs.......................      1,157,009         2,758          --           --
                                                                             -----------     ---------     --------     --------
Loss from operations.....................................................     (1,470,883)     (150,592)     (58,750)     (25,027)
Interest and other income, net...........................................         10,253         6,413        3,033          514
Realized gain on investment..............................................         12,566            --           --           --
Equity share of losses of affiliates.....................................         (9,574)           --           --           --
                                                                             -----------     ---------     --------     --------
Net loss.................................................................    $(1,457,638)    $(144,179)    $(55,717)    $(24,513)
                                                                             ===========     =========     ========     ========
Net loss per share - basic and diluted...................................         $(4.61)       $(0.63)      $(0.27)      $(0.13)
                                                                             ===========     =========     ========     ========
Shares used in per share calculation.....................................        316,441       228,479      207,086      192,240
                                                                             ===========     =========     ========     ========
_________________
Supplemental Consolidated Statement of Operations Data:
(1)  Revenues from related parties.......................................    $    28,821     $  10,458     $  2,948     $    634
                                                                             ===========     =========     ========     ========
(2)  Depreciation and amortization included in costs and expenses,
      excluding amortization of distribution agreements and
      acquisition-related amounts........................................    $    49,467     $  15,029     $  8,913     $  1,903
                                                                             ===========     =========     ========     ========
     Loss from operations before cost and amortization of distribution
      agreements and costs and amortization related to acquisitions......   $    (21,097)    $ (46,449)   $ (49,504)    $(25,027)
                                                                            ============     =========    ==========    ========

</TABLE>

<TABLE>
<CAPTION>
                                                                                               As of December 31,
                                                                                  ---------------------------------------------
                                                                                     1999        1998        1997        1996
                                                                                  ----------   ---------   ---------   --------
<S>                                                                               <C>          <C>         <C>         <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents and short-term investments...........................   $  525,223    $419,289    $120,379    $16,770
Working capital................................................................      389,023     390,324     101,390     10,573
Distribution agreements, net of accumulated amortization.......................      313,772     186,247     163,345         --
Total assets...................................................................    9,104,279     780,631     323,928     33,388
Convertible debentures.........................................................      736,294     229,344          --         --
Capital lease obligations, less current portion and other long-term liabilities       57,552      14,356      15,735      5,654
Stockholders' equity...........................................................    8,067,017     493,866     282,407     18,317
</TABLE>

                                       35
<PAGE>

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

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the financial
statements and related notes contained in Item 8 of this annual report. This
discussion contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. We may identify these
statements by the use of words such as "believe", "expect", "anticipate",
"intend", "plan" and similar expressions. These forward-looking statements
involve several risks and uncertainties. Our actual results could differ
materially from those set forth in these forward-looking statements as a result
of a number of factors, including those described under the caption "Risk
Factors" in "Item 1. Business" and elsewhere in this annual report. These
forward-looking statements speak only as of the date of this annual report, and
we caution you not to rely on these statements without also considering the
risks and uncertainties associated with these statements and our business as
addressed in this annual report.

Overview

     Excite@Home is a global media company offering broadband Internet
connectivity, personalized web-based content and targeted advertising services.
Our @Home service provides broadband Internet access from consumers' homes over
the cable television infrastructure and offers end-to-end managed connectivity
services for businesses over both cable and digital telecommunications lines.
Our @Work division further utilizes our network by providing a range of Internet
services for businesses, including high-speed connectivity, web hosting and
development and hosting of e-commerce solutions. Our media services include the
Excite Network, a leading consumer Internet portal, MatchLogic, our targeted
advertising service, Bluemountain.com, the most-used online greeting card
service according to Media Metrix, and other media properties that deliver
entertainment, shopping and information services to our users. The Excite
Network offers search, content, community, communications services and commerce
functionality to Internet users. Excite's media services focus on comprehensive
navigation, global reach and personalization technology to attract and retain
users and achieve market share. MatchLogic provides advertisers with targeted ad
campaign management and other advertising-related services designed to improve
the effectiveness of their advertising campaigns. Bluemountain.com enables
Internet users to select from a wide range of online greeting cards on its web
site, which can then be personalized and accessed by recipients through a link
in an electronic mail message.

Media and Advertising Services

     The Excite Network contains a wide variety of specialized narrowband and
broadband information services, organized under numerous topical channels that
combine proprietary search technology as well as content, community features and
information management services. For over two years, the Excite Network has been
ranked by Media Metrix as one of the top ten destinations on the Internet and
during December 1999 reached over 27.7 million unique users, as reported by
Media Metrix. We provide our consumers compelling content from our content
partners which include Intuit, Sportsline, Tickets.com and WebMD. For
advertisers, we offer a variety of broadband and narrowband advertising options
including banner advertising and sponsorships, allowing them to develop an
advertising plan designed to optimize their reach, frequency of exposure and
consumer response.

Subscriber Network Services

     We are the leading provider of broadband Internet services with
approximately 1.1 million subscribers to our @Home service and over 5,100 @Work
business access customers as of December 31, 1999. Subscribers have access to
Internet content and services, including our proprietary multimedia programming,
at speeds up to 50 times faster than typical 56 kilobits-per-second connections.
The service is "always on," meaning that users do not have to go through dial-up
procedures and do not experience busy signals. The foundation of the @Home
service is our scalable, distributed, intelligent private network, which is
designed to avoid bottlenecks frequently encountered on the public Internet.
Elements of this network include a national, optical fiber Internet protocol
backbone, regional data centers and local caching servers. Our network design
facilitates end-to-end network management, provides for a high level of security
and stores data close to the user in order to minimize the need to retrieve data
from the public Internet. Our network interconnects with the networks of our 22
cable partners, through which we had access to approximately 72 million homes
worldwide as of December 31, 1999. Of these homes, approximately 23.8 million
were served by upgraded two-way cable capable of carrying our broadband service.
Our principal cable partners include AT&T, Comcast, Cox, Cablevision, Rogers,
Shaw and others. Our @Work division further utilizes our

                                       36
<PAGE>

network by providing a range of Internet services for businesses, including
high-speed connectivity, web hosting and development and hosting of e-commerce
solutions.

     In March 2000, we introduced @Home 2000, a broadband portal which
incorporates the high-speed connection of our @Home service with the
personalized content of Excite to help our subscribers manage their daily lives
in an easily accessible and media rich environment. Utilizing enhanced features
and a custom browser, @Home 2000 offers a personalized broadband experience to
@Home subscribers.

Recent Events

The following developments, starting with the most recent, occurred during the
fourth quarter of 1999 and the first quarter of 2000.

Announcement of Work.com Joint Venture

     On February 22, 2000, we entered into a preliminary agreement with Dow
Jones & Co., Inc. to form a joint venture for the purpose of establishing and
operating an Internet site providing news, information and business services to
small and medium-sized businesses. Under the agreement, we will contribute to
the joint venture approximately $16 million in cash, our Work.com web site
including the related technology and certain of our business-related advertising
and content relationships, in exchange for a 50% equity interest. Under a
separate agreement, we will receive a percentage of the advertising revenues
generated by the joint venture over a three-year term up to a total of $31
million. The joint venture will be accounted for as an investment under the
equity method.

Acquisition of Kendara, Inc.

     On February 20, 2000, we completed our acquisition of Kendara, Inc., a
Delaware corporation, for approximately 1.5 million shares of our Series A
common stock, 202 shares of our Series B non-voting preferred stock and 1,279
shares of our Series C non-voting preferred stock. We also assumed Kendara's
outstanding stock options, which were converted into options to purchase
approximately 128,000 shares of our Series A common stock. The merger
consideration is approximately $120 million. Each share of Series B preferred
stock is being held in escrow for one year and will automatically convert into
1,000 shares of our Series A common stock upon the expiration of the escrow
period. Each share of Series C preferred stock is also convertible into 1,000
shares of our Series A common stock, subject to a vesting schedule and escrow.
Kendara provides browser-based marketing services. We accounted for this
acquisition as a purchase.

Issuance of Convertible Subordinated Notes

     On December 15, 1999, we issued $500 million principal amount of
Convertible Subordinated Notes in a private offering primarily to qualified
institutional buyers. The notes bear interest at an annual rate of 4.75%. Each
$1,000 note is convertible at any time into Series A common stock at a
conversion price of $56.52 per share. We may redeem these notes on or after
December 20, 2002 by giving note holders at least 30 days' notice. We received
net proceeds of $485.7 million from the offering, of which we used $350 million
to finance the cash component of our acquisition of Bluemountain.com. We intend
to use the remainder of the proceeds for working capital and general corporate
purposes.

Acquisition of Bluemountain.com

     On December 13, 1999, we completed our merger with Hartford House, Ltd., a
Delaware corporation, the operator of the Bluemountain.com web site.
Bluemountain.com is a leading provider of online greeting card services. In the
merger, we paid $350 million in cash and issued 10,674 shares of our non-voting
Series A preferred stock, which is convertible into approximately 10.7 million
shares of our Series A common stock as the restrictions on resale lapse. Of the
Series A convertible preferred stock issued in this transaction, approximately
50% may not be converted into our Series A common stock and resold until a
period of two years after the closing of the transaction. The remaining
initially issued shares may only be resold at a rate of 500,000 shares of Series
A common stock per month. We also assumed options to purchase shares of Hartford
House common stock, which were converted into options to purchase approximately
3 million shares of our Series A common stock. The preliminary purchase
consideration of $970 million included $150 million related to our Series A
common stock issuable
                                       37
<PAGE>

contingently upon the achievement of certain performance goals, which were
achieved by the Bluemountain.com web site during December 1999. We accounted for
this acquisition as a purchase.

     Based upon the achievement of these and a portion of additional performance
goals in December 1999, we issued in the first quarter of 2000 approximately 3.5
million additional shares of our Series A common stock to Hartford House
stockholders and also issued additional options and shares related to the
assumed stock option plan for an aggregate of 542,000 shares of Series A common.
The shares are freely tradable upon issuance. The fair value of this contingent
consideration did not differ significantly from the amount recorded as of
December 31, 1999.

     In addition, we also entered into distribution relationships with former
affiliates of Hartford House, including Proflowers.com, Inc., an online flower
company, Dan's Chocolates, an online gift company, and Lucidity, Inc., an online
electronic gift certificate company. These three agreements provide for us to
receive aggregate revenues of up to approximately $34 million over the three-
year terms of the agreements. Revenue recorded during the year ended December
31, 1999 related to these relationships was not significant.

Acquisition of iMALL, Inc.

     On October 27, 1999, we acquired iMALL, Inc., a Nevada corporation, for
approximately 9.3 million shares of our Series A common stock. We also assumed
iMALL's outstanding options and warrants, which were converted into options to
purchase approximately 1.5 million shares and 159,000 shares our Series A common
stock, respectively, and issued to First Data Corporation a warrant to purchase
2.3 million shares of our Series A common stock at an exercise price of $36.96
per share.  This warrant is immediately exercisable and will expire on October
30, 2003. The allocation of the total purchase consideration of approximately
$637 million included a charge related to acquired in-process research and
development of $1.9 million. iMALL provides electronic commerce services and
solutions to small and medium-sized businesses enabling them to sell their
products over the Internet. We accounted for this acquisition as a purchase.

Acquisition of Webshots Corporation

     On October 27, 1999, we acquired Webshots Corporation, a California
corporation, for approximately 2.1 million shares of our Series A common stock,
of which 30% is subject to a restriction on resale that will lapse ratably over
the 24 months following the completion of the acquisition. The allocation of the
total purchase consideration of approximately $83 million included a charge of
$425,000 related to acquired in-process research and development. Webshots
operates a website that offers free copyrighted digital photographs that are
viewable with Webshots' proprietary software. We accounted for this acquisition
as a purchase.

Acquisition of Assets of Perspecta, Inc.

     On October 25, 1999, we acquired certain assets and technology of
Perspecta, Inc., a California corporation, for approximately $8.7 million in
cash. Perspecta develops software for mapping large databases. We accounted for
this acquisition as a purchase.

Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Revenues

     We accounted for the Excite acquisition as a purchase and Excite's revenues
have been included in our results of operations commencing on May 28, 1999, the
date of the acquisition. Therefore, we believe that comparisons of our revenues
in 1999 to prior years are not relevant for purposes of indicating revenue
growth in 1999 and future years.

     Our revenues are derived from our two business segments, media and
advertising services and subscriber network and other services. Media and
advertising revenues are generated from advertising, sponsorship commerce
agreements and ad serving and targeting services on our narrowband portal
resulting primarily from our acquisition of Excite in May 1999, as well as our
acquisitions of other companies, and our advertising and related services on the
broadband portals accessible by subscribers of the @Home service. Subscriber
network and other revenues are

                                       38
<PAGE>

derived primarily from monthly customer subscription fees from the @Home and
@Work services and from support services provided to cable system operators,
such as customer support, network maintenance, local area content development,
development fees for set-top devices, and pre-commercial deployment consulting.
The following represents our revenues by business segment for the years
indicated (in thousands):

<TABLE>
<CAPTION>
                                                                        1999          Change         1998
                                                                     -----------   ------------   -----------
       Revenues:
<S>                                                                  <C>           <C>            <C>
     Media and advertising services...............................      $203,714         3,642%       $ 5,444
     Subscriber network and other services........................       133,241           213%        42,601
                                                                        --------         -----        -------
          Total revenues..........................................      $336,955           601%       $48,045
                                                                        ========         =====        =======
</TABLE>

     Media and advertising revenues

     Media and advertising revenues increased to $203.7 million, or 60% of total
revenues, for the year ended December 31, 1999 as compared to $5.4 million, or
11% of total revenues, for the year ended December 31, 1998. The increase in
media and advertising revenue in 1999 over 1998 was attributable primarily to
our acquisition of Excite. Under the purchase method of accounting, our results
of operations include the operations of Excite commencing on May 28, 1999, the
date of the acquisition. Given the above, comparisons of total media and
advertising revenue for periods prior to and subsequent to May 1999 are not
relevant for purposes of indicating the trend of our media and advertising
revenues in 1999 and future years.  Excluding the impact of Excite, the increase
in media and advertising revenues in 1999 over 1998 was generated by our @Home
service offering and our acquisitions other than Excite. Approximately two-
thirds of the increase, excluding the impact of Excite, in media and advertising
revenues in 1999 compared to 1998 resulted from growth in traffic and page views
related to our broadband portals accessible by subscribers of our @Home service;
this growth was generally commensurate with the growth in broadband Internet
subscribers. Several acquisitions, including Narrative in the fourth quarter of
1998 and Webshots, iMALL and Bluemountain.com in the fourth quarter of 1999,
generated the remaining one-third of the increase in 1999 media and advertising
revenues excluding Excite. These acquisitions were accounted for using the
purchase method of accounting, under which our results of operations include the
results of operations of each acquired entity commencing on the date of its
acquisition.

     As a result of our acquisition of Excite, traffic on our Internet sites
increased to approximately 125 million page views per day in December 1999, from
less than one million page views per day in December 1998. Our acquisition of
Bluemountain.com contributed significantly to the number of page views per day
in December 1999. Further, the reach of our Internet properties including
Bluemountain.com, as measured by Media Metrix, was approximately 27.7 million
unique visitors, or 42.5% of total domestic Internet users for the month of
December 1999. In addition, the number of advertisers on our Internet sites
increased to more than 1,900 as of the end of 1999 from approximately 50 as of
the end of 1998. Our ability to generate media and advertising revenues in the
future will depend partially on the traffic on our Internet sites as measured by
page views, and increasingly by average time spent per page, as well as the
number of unique visitors to our sites and the number of advertisers and ad
placements on our sites. Please see "Risk Factors" in "Item 1. Business" of this
annual report for further discussion of factors that may affect our ability to
generate media and advertising revenues in the future.

     Subscriber network and other revenues

     Subscriber network and other revenues increased to $133.2 million, or 40%
of total revenues, for the year ended December 31, 1999, from $42.6 million, or
89% of total revenues, for the year ended December 31, 1998. The increase in
1999 was primarily attributable to an increase in the number of subscribers to
the broadband Internet services of @Home and @Work.

     @Home service. The @Home service represented approximately 70% of
subscriber network and other revenues for the year ended December 31, 1999 as
compared to approximately 60% for the year ended December 31, 1998. Subscriber
network and other revenues generated by the @Home service during 1999 increased
by approximately 290% over the prior year due primarily to the number of @Home
subscribers, which increased by 247% to 1.1 million as of December 31, 1999 from
331,000 as of December 31, 1998. The @Home subscriber base was 50,000 at the end
of 1997. For the year ended December 31, 1999, the geographic source of @Home
subscriber network and other revenues was: 78% from cable partners and
subscribers in the United States; 16% from cable partners and subscribers in
Canada; and 6% from our international joint ventures. For the year ended
December 31, 1998, these


                                       39
<PAGE>

percentages were 78% for the United States and 22% for Canada. The number of
markets and households that our cable partners upgrade to receive our services
and the subscriber penetration rates in those markets will determine the source
of our subscriber network and other revenues in future years. As of December 31,
1999, the markets of our cable partners in North America included approximately
58.7 million households, of which approximately 40% were capable of receiving
our services. The markets of our international joint ventures included
approximately 13.5 million households, of which approximately 10% were upgraded
to receive our services. Please see "Risk Factors" in "Item 1. Business" of this
annual report for further discussion of factors that may affect our ability to
generate subscriber network and other revenues from our @Home service in the
future.

     @Work service. Subscriber network and other revenues from the @Work service
represented approximately 30% of total subscriber network and other revenues for
the year ended December 31, 1999 as compared to approximately 40% for the year
ended December 31, 1998. @Work subscriber network and other revenues increased
for the year ended December 31, 1999 by approximately 90% over the prior year as
a result of the growth in the number of @Work customers, which increased by 200%
to approximately 5,100 as of December 31, 1999 from approximately 1,700 as of
December 31, 1998. There were approximately 330 @Work customers at the end of
1997.

     Revenues from related parties

     Revenues from related parties were $28.8 million, or 9% of total revenues,
for the year ended December 31, 1999, as compared to $10.5 million, or 22% of
total revenues, for the year ended December 31, 1998. Revenues from related
parties included $18.3 million in 1999 and $10.5 million in 1998 generated from
support services such as customer support, local area content development,
development of set-top devices and pre-commercial deployment consulting provided
to our cable partners that are also our stockholders. The remaining $10.5
million of revenues from related parties in 1999 were earned primarily from
consulting and other services rendered to our international joint ventures
reimbursed on a cost-plus basis.

     Revenues related to our strategic investments

     We have made investments in certain companies for strategic purposes,
primarily in connection with expanding content and services available on our
narrowband and broadband portals and providing improved broadband services to
our @Work and @Home subscribers. Revenues from these strategic investments
generally consist of purchased sponsorship or advertising space and revenue
share arrangements on our narrowband or broadband portals, and we expect
revenues from some of our strategic investments to equal or exceed our cash
investment. Revenues related to our strategic investments were $26.1 million and
$780,000 for the years ended December 31, 1999 and 1998, respectively.

     Barter revenues

     Revenues from the exchange of media and advertising services related to our
Internet sites for advertising in other media were less than 10% of total
revenues for the year ended December 31, 1999; such revenues were insignificant
in 1998. Revenues from these exchanges are recorded at the lower of the fair
value of the services provided or the services received.

Total Costs and Expenses

     We accounted for the Excite acquisition as a purchase and Excite's costs
and expenses have been included in our results of operations commencing on May
28, 1999, the date of the acquisition. Therefore, we believe that comparisons of
our costs and expenses in 1999 to prior years are not relevant for purposes of
indicating the trend of our costs and expenses in 1999 and future years.

                                       40
<PAGE>

Our costs and expenses were as follows for the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                                            1999            Change          1998
                                                                       ---------------   ------------   ------------
Costs and expenses:
<S>                                                                    <C>               <C>            <C>
   Operating costs..................................................        $  143,056           205%       $ 46,965
   Product development and engineering..............................            54,805           222%         17,009
   Sales and marketing..............................................           130,725           623%         18,091
   General and administrative.......................................            30,276           144%         12,429
                                                                            ----------           ---        --------
Total costs and expenses excluding costs and amortization
 of acquisitions and distribution agreements........................           358,862           280%         94,494
   Costs and amortization of distribution agreements................           291,967           188%        101,385
   Amortization of goodwill, intangible assets and
     deferred compensation and other acquisition-related costs......         1,157,009           n/a           2,758
                                                                            ----------          ----        --------
Total costs and expenses............................................        $1,807,838           810%       $198,637
                                                                            ==========           ===        ========
</TABLE>

     Operating costs

     Operating costs are primarily related to providing services to customers,
maintaining the @Home broadband network, royalties, license agreements and
revenue sharing arrangements for content and other services. In addition,
operating costs include hosting costs related to the maintenance and technical
support of our Internet portals, including Excite, and are comprised principally
of personnel costs, telecommunications costs and equipment depreciation.
Operating costs in our media and advertising business are typically lower than
the operating costs related to the @Home broadband network. Operating costs
increased by 205% to $143.0 million, or 42% of total revenues, for the year
ended December 31, 1999, from $47.0 million, or 98% of total revenues, for the
year ended December 31, 1998. A significant portion of the increase in operating
costs in 1999 was related to our acquisition of Excite on May 28, 1999. The
increase in operating costs in 1999, including Excite, was primarily
attributable to the following factors in the proportions indicated:

     .    approximately 22% related to hosting costs for our Internet portals
          and ad serving and target marketing services which resulted
          predominantly from the acquisition of Excite on May 28, 1999;

     .    approximately 24% related to maintenance and depreciation of capital
          equipment and telecommunications costs required for the expansion of
          our broadband network;

     .    approximately 14% related to royalties, license agreements and revenue
          sharing arrangements for content and other services for content and
          other services for our Internet portals, which resulted predominantly
          from the acquisition of Excite on May 28, 1999;

     .    approximately 16% related to costs of customer service operations to
          support a larger @Home subscriber base;

     .    approximately 24% related to increases in operating costs of @Work and
          our international operations, as well as costs allocated for
          facilities and other miscellaneous costs, due to the expansion of our
          operations.

     We expect operating costs to increase on an absolute dollar basis in the
future as our subscriber base grows, as we continue to make investments in
network infrastructure and customer service operations, as a result of
consolidating results of operations of international joint ventures previously
accounted for under the equity method and as our results of operations will
reflect Excite for an entire year. Recent acquisitions, such as iMALL and
Bluemountain.com, as well as future acquisitions, expansion into international
markets and deployment of advanced technologies will result in further increases
in operating costs due to additional personnel, equipment depreciation,
royalties and revenue sharing arrangements.

     Operating costs as a percentage of total revenues. Total revenues net of
operating costs increased to $194.0 million, or 58% of total revenues, for the
year ended December 31, 1999, from $1.0 million, or 2% of total revenues, for
the year ended December 31, 1998. The increase in total revenues net of
operating costs and operating costs as a percentage of total revenues in 1999
was primarily due to an increase in media and advertising revenues related to
our acquisition of Excite in May 1999, and efficiencies derived from scaling the
deployment of the @Home service to approximately 1.1 million subscribers. Media
and advertising revenues historically have lower direct costs than subscriber
network services.

                                       41
<PAGE>

     In the future, the types of advertising revenues generated and the revenue
sharing provisions of distribution and content agreements may affect operating
costs as a percentage of total revenues. Additionally, the expansion of our
subscriber network services may require higher operating costs, or conversely,
may reduce incremental operating costs, and as a result affect gross margin. We
believe that the continued expansion of our operations is critical to the
achievement of our goals and we anticipate that operating costs will increase in
the future; specifically, we expect to significantly increase operating costs
to continue building out our infrastructure to improve our operational
readiness. Nonetheless, operating results may fluctuate significantly, and
revenues may grow at a slower rate than operating costs.

     Product development and engineering

     Product development and engineering expenses consist primarily of salaries
and related expenses for hardware and software engineering and development
personnel, consulting fees, equipment depreciation, supplies, the allocated cost
of facilities and related miscellaneous expenses. Product development and
engineering expenses increased by 222% to $54.8 million, or 16% of total
revenues, for the year ended December 31, 1999, from $17.0 million, or 35% of
total revenues, for the year ended December 31, 1999. A significant portion of
the increase in product development and engineering costs in 1999 was related to
our acquisition of Excite on May 28, 1999. The increase in product development
and engineering expenses in 1999, including Excite, was primarily attributable
to the following factors in the proportions indicated:

     .    approximately 33% related to the development and introduction of new
          services and functionality on our Internet portals, which resulted
          predominantly from the acquisition of Excite on May 28, 1999;

     .    approximately 27% related to the continued development of the @Home
          backbone to incorporate new telecommunications and server technologies
          and efforts to incorporate Internet technologies into advanced digital
          set-top boxes;

     .    approximately 17% related to the development of ad serving and
          targeted marketing technologies for advertisers on the Internet, which
          resulted predominantly from the acquisition of Excite on May 28, 1999;
          and

     .    approximately 23% related to development of technologies for our @Work
          offering and e-commerce initiatives, as well as costs allocated for
          facilities and other miscellaneous costs, due to the expansion of
          product development and engineering efforts.

     We anticipate that product development and engineering expenses will
continue to increase on an absolute dollar basis in the future due in part to:

     .    increased technology development efforts related to our broadband
          network, including continuing design and deployment costs and costs
          related to providing the Excite personalized service, the @Home
          broadband lateral service and the recently-announced @Home 2000
          service;

     .    development and introduction of new content and services on our
          Internet sites, in order to create and maintain brand loyalty among
          customers and users of our narrowband and broadband Internet services;

     .    additional technology development efforts and integration of acquired
          technologies from Excite, iMALL, Bluemountain.com and other companies
          acquired in the future; and

     .    our results of operations reflecting Excite for an entire year.

     Sales and marketing

     Sales and marketing expenses consist primarily of promotional and
advertising expenses, personnel costs, commissions and agency and consulting
fees. For our media and advertising services, we have a direct sales force that
sells banner advertisements and sponsorships on the Excite Network and the @Home
broadband Internet service to advertisers and advertising agencies. For our
subscriber network services, we currently rely on our cable partners to market
the @Home broadband Internet service. In addition, we have engaged in nationwide
marketing of the service through promotional activities and retail initiatives.
We also incur promotional and advertising expenses as we promote our brands and
introduce new services in order to create and maintain brand loyalty among
customers.

                                       42
<PAGE>

     Sales and marketing expenses increased by 623% to $130.8 million, or 39% of
total revenues, for the year ended December 31, 1999, from $18.0 million, or 38%
of total revenues, for the year ended December 31, 1998. A significant portion
of the increase in sales and marketing expenses in 1999 was related to our
acquisition of Excite on May 28, 1999. Excite maintains a direct sales force and
engages in marketing activities to promote its brands and customer loyalty. The
increase in sales and marketing expenses in 1999, including Excite, was
primarily attributable to the following factors in the proportions indicated:

     .    approximately 30% related to public relations and costs of promotions,
          marketing and advertising in various media, primarily resulting from
          our acquisition of Excite on May 28, 1999;

     .    approximately 21% related to costs of internal advertising sales
          activities directly undertaken for the generation of media and
          advertising revenues, primarily resulting from our acquisition of
          Excite on May 28, 1999;

     .    approximately 16% related to sponsorship and content arrangements for
          the continued expansion of our Internet portals' market reach and
          number of users, primarily resulting from our acquisition of Excite on
          May 28, 1999;

     .    approximately 5% related to @Home subscriber acquisitions; and

     .    approximately 28% related to marketing costs for @Work and our ad
          serving and targeting services, as well as costs allocated for
          facilities and other miscellaneous costs, due to the expansion of our
          services.

     We expect sales and marketing expenses will continue to increase on an
absolute dollar basis in the future primarily due to:

     .  an increase in our direct sales force, which sells banner advertisements
        and sponsorships on the Excite Network and on the @Home broadband
        service to advertisers and advertising agencies;

     .  expanded marketing campaigns and greater use of media advertising and
        promotions in an effort to create and maintain brand loyalty among
        customers and expand market reach;

     .  more sponsorship and content arrangements to enhance our narrowband and
        broadband Internet services;

     .  acceleration of marketing activities related to @Home and @Work
        subscriber acquisitions, including expanded retail and self-installation
        initiatives; and

     .  our results of operations reflecting Excite for an entire year.

     General and administrative

     General and administrative expenses consist primarily of administrative and
executive personnel costs, fees for professional services and the costs of
computer systems to support our operations. General and administrative expenses
increased by 144% to $30.3 million, or 9% of total revenues, for the year ended
December 31, 1999, from $12.4 million, or 26% of total revenues, for the year
ended December 31, 1998. A significant portion of the increase in general and
administrative expenses in 1999 was related to our acquisition of Excite on May
28, 1999. The decrease in general and administrative expense as a percentage of
revenue was primarily attributable to increased revenues from the Excite
acquisition. The increase in general and administrative expenses in 1999,
including Excite, was attributable to the addition of personnel from Excite and
other acquisitions and expenditures related to facilities and information
technology to support the expansion and infrastructure of our operations and
business strategy.

     We anticipate that general and administrative expenses will continue to
increase on an absolute dollar basis in the future as we expand our
administrative and executive staff, add infrastructure and assimilate acquired
technologies and businesses.

     Cost and amortization of distribution agreements

     Cost and amortization of distribution agreements were $292 million and
$101.4 million for the years ended December 31, 1999 and 1998, respectively, and
consisted primarily of charges and amortization related to warrants

                                       43
<PAGE>

to purchase our common stock issued to some of our cable partners in connection
with distribution agreements and performance incentives for distributing our
broadband Internet services. Warrants that vest based on future performance
under an exclusive distribution agreement are recorded as intangible assets at
fair value when the performance criteria are met, and the intangible assets are
amortized to expense over the remaining term of the distribution agreement,
representing approximately $77.4 million in 1999 and $51.6 million in 1998. The
increase in amortization of distribution agreements in 1999 compared to 1998 was
due to an increase in the number of warrants earned by cable partners that met
certain performance milestones. Warrants that vest based on performance
incentives that were not negotiated as part of an exclusive distribution
agreement are charged to operations as such warrants are earned, amounting to
$213.1 million in 1999 and $49.8 million in 1998. The increase in the cost of
these performance incentives in 1999 compared to 1998 was primarily attributable
to our cable partners achieving performance milestones which significantly
increased the number of warrants earned.

     We will incur a minimum of approximately $23.5 million per quarter for
amortization of our distribution agreements through the first half of 2002. This
amount may increase if AT&T transfers specific cable systems to Cablevision. In
addition, during any particular quarter or year, the cost of performance
incentives may fluctuate significantly in the future depending upon our cable
partners further achieving performance milestones.

     Amortization of goodwill, intangible assets and deferred compensation and
     other acquisition-related costs

     Amortization of goodwill and intangible assets. During the year ended
December 31, 1999, we incurred approximately $1,103.6 million of goodwill and
intangible asset amortization related to acquisitions accounted for as
purchases, including our acquisitions of Narrative in December 1998, Excite in
May 1999, iMALL and Webshots in October 1999 and Bluemountain.com in December
1999, as well as other less-significant acquisitions. There were no significant
goodwill and intangible amortization charges related to acquisitions in 1998. We
expect to incur goodwill and intangible asset amortization charges of over
$550.0 million per quarter until the goodwill and intangible asset balances from
each of our acquisitions become fully amortized starting in 2003. In addition,
we expect to incur additional goodwill and intangible asset amortization charges
related to future acquisitions, all of which will be accounted for as purchases.

     Purchased in-process research and development. The cost of purchased in-
process research and development for which technological feasibility has not
been achieved and which has no alternative future use is charged to operations
at the date of acquisition, and consisted of $36.7 million and $2.8 million for
the years ended December 31, 1999 and 1998, respectively. In connection with the
purchase of Excite, we charged $34.4 million to in-process research and
development during the second quarter of 1999 and we charged an additional $2.3
million to in-process research and development during the fourth quarter of 1999
related to our acquisitions of iMALL and Webshots. The charge in 1998 was
related primarily to our acquisition of Narrative.

     The cost of acquired in-process research and development is based on a fair
value allocation of the purchase price we paid to acquire a particular entity.
The fair value allocation to in-process research and development was determined
by identifying the research projects for which technological feasibility had not
been achieved and which had no alternative future use at the date of
acquisition, assessing the stage and expected date of completion of the research
and development effort at the acquisition date, and calculating the net present
value of cash flows expected to result from the successful deployment of the new
technology or product resulting from the in-process research and development
effort.

     The stages of completion were determined by estimating the costs and time
incurred to date relative to the costs and time to be incurred to develop the
in-process technology into a commercially viable technology or product. In
general, the percentage of completion of in-process technology acquired in 1999
was less than 50% at the date of acquisition and was substantially completed at
December 31, 1999. Costs incurred after the date of acquisition to develop
acquired in-process technology into viable products represented a significant
portion of the increase in 1999 compared to 1998 of product development and
engineering costs and expenses.

     The estimated net present value of cash flows was based on incremental
future cash flows from revenues expected to be generated by technology and
products in the process of research and development, taking into account the
characteristics and applications of the technology or product, the size and
growth rate of existing and future markets and an evaluation of past and
anticipated technology and product life cycles. Estimated net future cash flows
also included allocations of operating costs, sales and marketing, general and
administrative expenses, fixed charges, the portion of product development costs
related to maintenance and the net impact of income taxes. Estimated net

                                       44
<PAGE>

future cash flows were discounted to arrive at a net present value and were
allocated to in-process research and development based on the percentage of
completion at the date of acquisition. The discount rate included a factor that
took into account the uncertainty surrounding the successful development of in-
process technology projects.

     If we do not successfully deploy commercially-accepted technology or
products based on the acquired in-process research and development, our
operating results could be adversely affected in future periods.

     Amortization of deferred compensation.

     Amortization of deferred compensation related to acquisitions was $2.4
million for the year ended December 31, 1999 and none for the year ended
December 31, 1998. Acquisition-related deferred compensation resulted from our
assumption of stock-based awards issued to employees of Bluemountain.com and
Webshots immediately prior to the acquisition and represents the difference
between the exercise price of unvested awards and the fair market value of our
Series A common stock. Deferred compensation is amortized over the vesting term
of the award and is expected to be approximately $5.0 million per quarter until
the end of 2001 when the stock-based awards begin to fully vest. Amortization of
deferred compensation related to issuance of restricted stock in the ordinary
course of business to employees under stock purchase agreements was
approximately $1.0 million during both 1999 and 1998 and is included in the
category of costs and expenses in which the related employee salaries are
recorded.

     Other acquisition-related costs. Costs directly associated with our
acquisitions that were not capitalized as part of the purchase consideration,
primarily resulting from our acquisition of Excite, were $14.3 million for the
year ended December 31, 1999; there were no such costs in 1998. Such costs
included $8.1 million in employee severance and retention costs, $1.8 million of
systems integration costs, $1.4 million of professional fees and $3.0 million in
other related costs. We expect to continue to incur additional integration and
other costs in the future related to our acquisitions.

Equity Share of Losses of Affiliated Companies

     Our equity share of losses of affiliated companies, which include joint
ventures and investments in privately held companies accounted for under the
equity method, was $9.6 million and none for the years ended December 31, 1999
and 1998, respectively. These companies include Excite's international joint
ventures in which Excite has not made cash investments and that were recorded at
a fair value of $20.8 million as part of the allocation of the purchase
consideration for Excite. Our equity interest in these affiliated companies
range from 20% to 50% and we consider such affiliated companies to be related
parties. Our investments under the equity method were $19.0 million as of
December 31, 1999 and none as of December 31, 1998 and included international
joint ventures to provide Excite-branded Internet services as well as domestic
and international joint ventures related to the distribution and delivery of our
@Home service. We expect to record further losses related to our equity share in
these affiliated companies in the future.

Realized Gain on Investment

     We recognized a gain of $12.6 million in February 1999 as a result of an
investee, a privately held company that we had accounted for under the cost
method, being acquired in a common stock acquisition by a publicly traded
company.

Interest and Other Income, Net

     Our net interest and other income consisted of the following amounts for
the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                      -------------------------------------------
                                                                          1999           Change          1998
                                                                      -------------   ------------   ------------
<S>                                                                   <C>             <C>            <C>
Interest and other income, net:
  Interest and other income  ......................................       $ 26,021            209%       $ 8,410
  Interest and other expense  .....................................        (15,769)           690%        (1,997)
                                                                          --------            ---        -------
     Total interest and other income, net  ........................       $ 10,252             60%       $ 6,413
                                                                          ========            ===        =======
</TABLE>

     Interest and other income, net increased to $10.3 million for the year
ended December 31, 1999 compared to $6.4 million for the year ended December 31,
1998. The increase in 1999 was due primarily to an increase in interest income
earned on higher cash and investment balances as a result of the funds received
from our secondary public offering in August 1998 and private offering of
convertible subordinated debentures in December 1998, as well as

                                       45
<PAGE>

realized gains from our sale of equity securities in publicly held companies.
The increase in interest and other income in 1999 compared to 1998 was partially
offset by an increase in interest expense and other expenses, primarily due to
higher capital lease obligations in 1999 and the interest expense on the
convertible subordinated debentures issued in December 1998 which were
outstanding for the entire year in 1999. Interest expense will be higher
commencing in 2000 due to the issuance in December 1999 of $500 million in
convertible notes bearing interest at 4.75%.

Income Taxes

     Due to operating losses incurred since inception, we did not record a
provision for income taxes in 1999 or 1998. As of December 31, 1999 and 1998, we
had net deferred tax assets of $528.1 million and $92.5 million, respectively,
principally relating to net operating loss carryforwards and the temporary
difference relating to the cost and amortization of distribution agreements
recorded in 1999, 1998 and 1997. Realization of deferred tax assets is dependent
on future earnings, if any, the timing and amount of which are uncertain. A
valuation allowance has been recorded for the net deferred tax assets as of
December 31, 1999 and 1998, since we lack an earnings history. Accordingly, we
have not recorded any income tax benefit for net losses incurred for any period
from inception through December 31, 1999.

Net Loss

     Our net loss for the years ended December 31, 1999 and 1998 was $1,457.6
million and $144.2 million, respectively. The net loss in 1999 was due
predominantly to the cost and amortization of distribution agreements of $292
million and the amortization of goodwill, intangible assets and deferred
compensation and other acquisition-related costs of $1,157 million, the
substantial portion of which did not require cash outlay. Net loss before such
costs and expenses was $8.7 million in 1999 and $40.0 million in 1998. The
decrease in net loss before costs and amortization related to acquisitions and
distribution agreements was due to an increase in revenues in 1999 at a faster
rate than the increase in operating costs and expenses due to improved
operating results of Excite.

     We will continue to generate net losses in the foreseeable future due to
the significant non-cash charges associated with the costs and amortization
related to acquisitions and distribution agreements. The amount of future net
loss or income before such costs and amortization will depend on our future
revenues and the costs and expenses required to generate those revenues.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenues

     Our revenues during 1998 and 1997 consisted primarily of monthly
subscription fees for the @Home residential service and installation and monthly
access fees for @Work services, as well as fees for advertising, content
placement and content development related to our broadband portals. Our revenues
by business segment were as follows for the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                                         1998          Change           1997
                                                                      -----------   -------------   ------------
<S>                                                                   <C>           <C>             <C>
Revenues:
     Media and advertising services................................       $ 5,444            624%         $  752
     Subscriber network and other services.........................        42,601            473%          6,685
                                                                          -------            ---          ------
          Total revenues...........................................       $48,045            546%         $7,437
                                                                          =======            ===          ======
</TABLE>

     Media and advertising revenues

     Media and advertising revenues were $5.4 million, or 11% of total revenues,
for the year ended December 31, 1998 and $752,000, or 10% of total revenues, for
the year ended December 31, 1997. Media and advertising revenues increased in
1998 primarily as a result of the increase in consulting and development
agreements with our cable partners and from sales of advertisements on our
broadband portals to approximately 50 advertisers as of December 31, 1998 as
compared to approximately 30 advertisers as of December 31, 1997. Average daily
page views on our broadband portals increased from an insignificant amount as of
December 31, 1997 to almost 1 million as of December 31, 1998.

                                       46
<PAGE>

     Subscriber network and other revenues

     Subscriber network and other revenues increased to $42.6 million, or 89% of
total revenues, for the year ended December 31, 1998, from $6.7 million, or 90%
of total revenues, for the year ended December 31, 1997. The increase in 1998
was primarily attributable to an increase in the number of subscribers to the
broadband Internet services of @Home and @Work.

     @Home service. The @Home service represented approximately 60% of
subscriber network and other revenues for the year ended December 31, 1998 as
compared to approximately 70% for the year ended December 31, 1997. Subscriber
network and other revenues generated by the @Home service increased during 1998
primarily due to the number of @Home subscribers, which increased 562% to
approximately 331,000 at the end of 1998 from approximately 50,000 at the end of
1997. For the year ended December 31, 1998, the geographic source of @Home
subscriber network and other revenues was 78% from the United States and 22%
from Canada.

     @Work service. Subscriber network and other revenues from the @Work service
represented approximately 40% of total subscriber network and other revenues for
the year ended December 31, 1998 as compared to approximately 30% for the year
ended December 31, 1997. The increase in @Work subscriber network and other
revenues during 1998 resulted from the 415% increase in the number of @Work
customers to approximately 1,700 as of December 31, 1998 from approximately 330
as of December 31, 1997.

     Revenues from related parties

     Revenues from related parties were $10.5 million, or 22% of total revenues,
for the year ended December 31, 1998, as compared to $3.0 million, or 40% of
total revenues, for the year ended December 31, 1997. Revenues from related
parties in 1998 and 1997 were generated from support services such as customer
support, local area content development, development of set-top devices and pre-
commercial deployment consulting provided to our cable partners that are
Excite@Home stockholders.

     Revenues related to our strategic investments

     Our investments in 1998 included investments in certain companies for
strategic purposes, primarily in connection with expanding content and services
available on our broadband portals and providing improved broadband services to
our @Work and @Home subscribers. Revenues from these strategic investments
generally consisted of purchased sponsorship or advertising space and revenue
share arrangements on our broadband portals. Revenues related to our strategic
investments were $780,000 for the year ended December 31, 1998; such revenues
were insignificant for the year ended December 31, 1997.

Total Costs and Expenses

Our costs and expenses were as follows for the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                                           1998           Change           1997
                                                                       -------------   -------------   -------------
Costs and expenses:
<S>                                                                    <C>             <C>             <C>
 Operating costs....................................................        $ 46,965            109%         $22,459
 Product development and engineering................................          17,009             42%          11,984
 Sales and marketing................................................          18,091             52%          11,863
 General and administrative.........................................          12,429             17%          10,635
                                                                            --------            ---          -------
Total costs and expenses excluding costs and amortization
 of acquisitions and distribution agreements........................          94,494             66%          56,941
 Cost and amortization of distribution agreements...................         101,385            997%           9,246
 Amortization of goodwill, intangible assets and
  deferred compensation and other acquisition-related costs.........           2,758             n/a              --
                                                                            --------            ---          -------
Total costs and expenses............................................        $198,637            200%         $66,187
                                                                            ========            ===          =======
</TABLE>

                                       47
<PAGE>

     Operating costs

     Operating costs for years ended December 31, 1998 and 1997 were primarily
related to providing services to customers, maintaining the @Home broadband
network, generating content programming for the @Home portal and deploying the
@Home service in Europe. Operating costs increased to $47.0 million for 1998, or
98% of total revenues, from $22.5 million for 1997, or 302% of total revenues.
This increase of $24.5 million, or 109%, in operating costs was primarily
attributable to the following factors in the proportions indicated:

     .    approximately 25% related to costs of customer service operations to
          support a larger subscriber base;

     .    approximately 20% related to telecommunications costs required to
          connect the @Home broadband network to additional areas;

     .    approximately 15% related to telecommunications costs related to our
          @Work business;

     .    approximately 15% related to maintenance and depreciation of capital
          equipment required for our network; and

     .    approximately 25% related to increases in operating costs of our
          international operations, as well as costs allocated for facilities
          and other miscellaneous costs, due to the expansion of our operations.

     Operating costs as a percentage of total revenues. Total revenues net of
operating costs increased to $1.0 million, or 2% of total revenues, for the year
ended December 31, 1998, from $(15.0) million for the year ended December 31,
1997. The increase in total revenues net of operating costs in 1998 was
primarily due to the increase in revenues from subscriber growth and expansion
of advertising services on our broadband portals, which was achieved with a
proportionally lower rate of increase in operating costs.

     Product development and engineering

     Product development and engineering expenses for the years ended December
31, 1998 and 1997 consisted primarily of salaries and related expenses for
personnel, fees to outside contractors and consultants and the allocated cost of
facilities. Product development and engineering expenses increased to $17.0
million, or 35% of total revenues, for 1998, from $12.0 million, or 161% of
total revenues, for 1997. The increase of $5.0 million, or 42%, in product
development and engineering expenses was primarily attributable to the following
factors in the proportions indicated:

     .    approximately 45% related to expenditures focused on the continued
          development of the @Home backbone to incorporate new
          telecommunications and server technologies;

     .    approximately 45% related to efforts to incorporate Internet
          technologies into advanced digital set-top boxes; and

     .    approximately 10% related to development of technologies for our @Work
          offering, as well as costs allocated for facilities and other
          miscellaneous costs, due to the expansion of product development and
          engineering efforts.

     Sales and marketing

     Sales and marketing expenses for the years ended December 31, 1998 and 1997
consisted primarily of personnel costs, commissions and promotional and
advertising expenses. Sales and marketing expenses increased to $18.1 million,
or 38% of total revenues, for 1998, from $11.9 million, or 160% of total
revenues, for 1997. The increase of $6.2 million, or 52%, in sales and marketing
expenses in 1998 was primarily attributable to the following factors in the
proportions indicated:

     .    approximately 40% related to additional spending to support the
          expansion of @Work services;

     .    approximately 25% related to advertising and content partnering
          arrangements and regional deployments of the @Home service; and

                                       48
<PAGE>

     .    approximately 35% related to costs allocated for facilities and other
          miscellaneous costs, due to the expansion of our services.

     General and administrative

     General and administrative expenses during the years ended December 31,
1998 and 1997 consisted primarily of administrative and executive personnel
costs, fees for professional services and the costs of computer systems to
support our operations. General and administrative expenses increased by 17% to
$12.4 million, or 26% of total revenues, in 1998 from $10.6 million, or 143% of
total revenues, in 1998. The increase in general and administrative expenses in
1999 was attributable primarily to the hiring of additional finance, human
resources and facilities personnel.

     Cost and amortization of distribution agreements

     Cost and amortization of distribution agreements were $101.4 million and
$9.2 million for the years ended December 31, 1998 and 1997, respectively, and
consisted primarily of charges and amortization related to warrants to purchase
our common stock issued to some of our cable partners in connection with
distribution agreements and performance incentives for distributing our
broadband Internet services. Warrants that vest based on future performance
under an exclusive distribution agreement are recorded at fair value as
intangible assets and amortized over the remaining term of the distribution
agreement, representing approximately $51.6 million in 1998 and $9.2 million in
1997. The increase in amortization of distribution agreements in 1998 compared
to 1997 was due to an increase in the number of warrants earned by cable
partners that met certain performance milestones. Warrants that vest based on
performance incentives that are not part of an exclusive distribution agreement
are charged to operations as such warrants are earned, amounting to $49.8
million in 1998 and none in 1997. The increase in the cost of these performance
incentives in 1998 compared to 1997 was primarily attributable to our cable
partners achieving performance milestones which significantly increased the
number of warrants earned.

     Amortization of goodwill, intangible assets and deferred compensation and
     other acquisition-related costs

     Amortization of goodwill, intangible assets and deferred compensation and
other acquisition-related costs consisted of a charge of $2.8 million for the
year ended December 1998 related to purchased in-process research and
development; there were no charges in 1997. The cost of purchased in-process
research and development for which technological feasibility has not been
achieved and which has no alternative future use is charged to operations at the
date of acquisition, and consisted of $2.8 million related primarily to our
acquisition of Narrative in December 1998. In general, the percentage of
completion of in-process technology acquired in 1998 was approximately 15% at
the date of acquisition and the projects were substantially complete at June 30,
1999. Costs incurred after the date of our acquisition of Narrative to develop
acquired in-process technology into viable products represented a portion of the
product development and engineering costs and expenses recorded during the first
half of 1999.

     Please see discussion under Purchased in-process research and development
in the section entitled Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998 for further discussion about the methodologies we use to
determine purchased in-process research and development charges.

Interest and Other Income, Net

     Interest income, net during the years ended December 31, 1998 and 1997
represented interest and realized gains earned on our cash and cash equivalents
and short-term investments less interest expense on debt obligations, including
our convertible subordinated debentures. Interest income, net was $6.4 million
for 1998 and $3.0 million for 1997. Interest income for 1998 was $8.4 million
compared to $4.2 million for 1997. This increase was principally due to the
increased cash balances available for investment following our secondary public
offering in August 1998. Interest expense for 1998 was $2.0 million compared to
$1.2 million for 1997. This increase was due primarily to increases in capital
lease obligations associated with our leasing of capital equipment.

Income Taxes

     Due to operating losses incurred since inception, we did not record a
provision for income taxes in 1998 or 1997. As of December 31, 1998 and 1997, we
had net deferred tax assets of $92.5 million and $33.7 million, respectively,

                                       49
<PAGE>

relating principally to net operating loss carryforwards and the temporary
difference relating to the cost and amortization of distribution agreements
recorded in 1998 and 1997. Realization of deferred tax assets is dependent on
future earnings, if any, the timing and amount of which are uncertain. A
valuation allowance has been recorded for the net deferred tax assets reducing
such amounts to zero as of December 31, 1998 and 1997, since we lack an earnings
history. Accordingly, we did not record any income tax benefit for net losses
incurred for any period from inception through December 31, 1998.

Net Loss

     Our net loss for the years ended December 31, 1998 and 1997 was $144.2
million and $55.7 million, respectively. A significant portion of the net loss
in 1998 and 1997 was due to the cost and amortization of distribution agreements
which amounted to $101.4 million in 1998 and $9.2 million in 1998. Additionally,
net loss in 1998 included a charge of $2.8 million for in-process research and
development. Excluding these costs and charges, a substantial portion of which
did not require a cash outlay, net loss was $40.0 million in 1998 and $46.5
million in 1997. The decrease in net loss before costs and amortization related
to acquisitions and distribution agreements was due to an increase in revenues
in 1998 at a faster rate than the increase in operating costs and expenses.

Liquidity and Capital Resources

     Since inception, we have financed our operations primarily through a
combination of private and public sales of equity and convertible debt
securities and capital lease and other financing arrangements. At December 31,
1999, our principal source of liquidity was approximately $525.2 million of
cash, cash equivalents and short-term investments, compared with $419.3 million
at December 31, 1998. Our short-term investments consist predominantly of debt
instruments that mature in less than one year, are highly liquid and have a
high-quality investment rating. We intend to make our short-term investments
available, if and when needed, for operating purposes.

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                     -------------------------------------------
                                                                         1999           Change          1998
                                                                     -------------   ------------   ------------
<S>                                                                  <C>             <C>            <C>
                                                                               (dollars in thousands)
Cash and cash equivalents.........................................      $ 224,548           (25)%      $300,702
Net cash provided by (used in) operating activities...............        112,403            n/a        (30,212)
Net cash used in investing activities.............................       (708,201)         1,193%       (54,778)
Net cash provided by financing activities.........................        519,644             52%       341,479
</TABLE>

Operating Activities

     Net cash provided by operating activities during the year ended December
31, 1999 was $112.4 million compared to net cash used in operating activities of
$30.2 million for the year ended December 31, 1998. Net cash provided by
operating activities during 1999 reflects a net loss of $1,457.6 million
compared to $144.2 million during 1998. Charges to operations included in net
loss that do not require the use of cash amounted to $1,495.3 million during
1999 compared to $116.4 million during 1998. This increase in non-cash charges
during 1999 included: amortization of goodwill and other intangible assets of
$1,103 million related to the our acquisitions in 1999 and 1998; cost and
amortization of distribution agreements of $292 million; depreciation and other
amortization charges of $49.5 million; purchased in-process research and
development of $36.7 million related to our acquisitions; and various other
items netting to $14.1 million. Net cash provided by operating activities after
non-cash charges for the year ended December 31, 1999 compared to net cash used
in operating activities for the year ended December 31, 1998 also reflects the
impact of accounts receivable and other assets and accounts payable and other
liabilities, which decreased on a net basis by $74.8 million during 1999
compared to a net increase of $5.2 million during 1998.

Investing Activities

     Net cash used in investing activities for the year ended December 31, 1999
was $708.2 million compared to $54.8 million for the year ended December 31,
1998. The increase in net cash used in investing activities during 1999 as
compared to 1998 was partially attributable to purchases of short-term
investments net of sales and maturities of $161.7 million in 1999 as compared to
$42.4 million in 1998 and net purchases of other investments of $104.7 million
in 1999 compared to $4.3 million in 1998. The increase was also due to net cash
received in acquisitions of $(316.4) million in 1999 compared to $0.1 million in
1998, net purchases of property, equipment and

                                       50
<PAGE>

improvements of $60.8 million in 1999 as compared to $16.8 million in 1998,
payments under our backbone agreement of $57 million in 1999 and none in 1998
and investments in joint ventures of $7.6 million in 1999 and none in 1998. We
anticipate future capital expenditures to be primarily for facilities and
equipment to support expansion of our business and network operations and,
consequently, we expect that our capital expenditures will increase
significantly as our business and employee base grows.

Financing Activities

     Net cash from financing activities for the year ended December 31, 1999 was
$519.6 million compared to $341.5 million for the year ended December 31, 1998.
The increase in cash provided by financing activities during 1999 as compared to
1999 was attributable to: net proceeds from issuance of convertible debt in 1999
of $485.7 million as compared to $222.5 million in 1998; payments on capital
lease obligations of $34.5 million in 1999 as compared to $12.1 million in 1998;
and a decrease in proceeds from issuance of common stock and from stock option
exercises of $68.4 in 1999 compared to $130.8 million in 1998, primarily due to
proceeds of $125.7 million from our secondary public offering in August 1998.
The $350 million cash portion of the purchase price of Bluemountain.com was
financed from the net proceeds of the issuance of convertible debt in December
1999.

Commitments

     In December 1998, we entered into an agreement with AT&T to create a
nationwide network utilizing AT&T's 15,000-mile fiber optic data communications
line, or backbone. Under the terms of this agreement, we paid approximately $57
million in 1999 and we are required to make additional payments totaling $45
million in 2000. We expect to make additional disbursements of approximately $5
million per year during the 20-year term of this agreement for connection space,
equipment and support and maintenance fees.

     Our corporate headquarters, including recently constructed facilities,
consist of approximately 670,000 square feet in Redwood City, California, which
we occupy under 12 to 15 year leases. Rent under leases for recently constructed
headquarters facilities is based on construction costs, and we are responsible
for some tenant improvements. We occupied these new facilities early in 2000.
Rental payments for our headquarters facilities, including recently constructed
facilities, are approximately $1.1 million per month. Total rental payments on
facilities in other locations are approximately $0.4 million per month.

     In September 1997, we entered into a term loan agreement with Silicon
Valley Bank. The term loan, as amended in October 1998, allows us to borrow up
to $15 million to finance the acquisition of property, equipment and
improvements and to collateralize letters of credit. At our option, borrowings
under this term loan bear interest either at the Bank's prime rate or at LIBOR
plus 2.5%. As of December 31, 1999, there were no borrowings under this term
loan, although there were outstanding letters of credit in the amount of $2.4
million related to real property transactions. Under the term loan agreement, we
are required to meet financial covenants. At December 31, 1999, we were in
compliance with these covenants. The term loan expires on October 19, 2002.

     We believe that we have the financial resources needed to meet our
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we may need to seek alternative financing, such as selling
additional equity or debt securities or obtaining additional credit facilities.
However, depending on market conditions, we may consider alternative financing
even if our financial resources are adequate to meet presently anticipated
business requirements. The sale of additional equity or convertible debt
securities may result in additional dilution to our stockholders. Financing may
not be available on terms acceptable to us or at all.

Impact of Adoption of New Accounting Standards

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met in order to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. Although we have not fully assessed the impact
of adopting SAB 101 on our financial position and results of operations in 2000
and thereafter, we do not expect the effect, if any, to be material.

                                       51
<PAGE>

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires that entities
recognize all derivatives in the balance sheet at fair value and record gains
and losses resulting from changes in fair value according to the purpose of the
derivative and whether it qualifies as a hedge. The effective date of this
Statement was delayed by the issuance of SFAS No. 137 to fiscal years beginning
after June 15, 2000, with earlier application encouraged. We expect to adopt
this Statement effective January 1, 2001 and do not anticipate that its adoption
will have a significant effect on our financial position or results of
operations.

Year 2000 Implications

     As of December 31, 1999, we completed our plan to ready our computer
systems for possible year 2000 effects. Although we are not aware of the
occurrence of any significant year 2000 related problems being reported to date,
disruptions to our operations could still occur. Based on currently available
information, management continues to believe that year 2000-related disruptions
or other problems, if any, will not have a significant adverse impact on our
operational results or financial condition. The costs incurred through December
31, 1999 to support our year 2000 compliance initiative were approximately
$450,000. While there is risk that additional costs may be incurred beyond
December 31, 1999, we do not believe that these costs would be significant.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates.

Interest Rate Sensitivity

Short-Term Investments

     We had short-term investments of $300.7 million as of December 31, 1999.
These short-term investments consist predominantly of highly liquid debt
instruments that are of high-quality investment grade and mature in one year or
less. These investments are subject to interest rate risk in that their value
will fall if market interest rates increase. A hypothetical increase in market
interest rates by 10 percent from levels at December 31, 1999 would cause the
fair value of these short-term investments to decline by an immaterial amount.
Because we are not required to sell these investments before maturity, we have
the ability to avoid realizing losses on these investments due to a sudden
change in market interest rates. However, we could choose to sell these
investments before maturity at a loss. Declines in interest rates over time
will, however, reduce our interest income.

Outstanding Convertible Debt

     As of December 31, 1999, we had two issuances of long-term convertible debt
outstanding. The balance of our convertible debentures issued in December 1998,
net of unamortized original issue discount, was approximately $236.3 million as
of December 31, 1999 and bears an effective interest rate of approximately 4%.
Our convertible notes issued in December 1999 had an outstanding balance of $500
million on December 31, 1999 and bear a fixed rate of interest of 4.75%. In
certain circumstances, we may be required to redeem these debt instruments for
our Series A common stock or cash. Because the interest rates on these debt
instruments are fixed, a hypothetical 10 percent decrease in interest rates
would not have a material impact on us. Increases in market interest rates
could, however, increase the interest expense associated with future borrowings
by us, if any. We do not hedge against interest rate increases.

Equity Price Risk

     We own shares of certain public companies. We value these investments using
the closing fair market value stated in the Wall Street Journal for the last day
of each month. As a result, we reflect these investments in our consolidated
balance sheet at December 31, 1999 at their fair market value of $273 million,
with the unrealized gains and losses reported in stockholders' equity as
"Accumulated Other Comprehensive Income". We do not hedge against equity price
changes.

                                       52
<PAGE>

Foreign Currency Exchange Rate Risk

     Substantially all of our revenues are realized in U.S. dollars and most of
our revenues are from customers in the United States. Therefore, we do not
believe we face significant direct foreign currency exchange rate risk. We do
not hedge against foreign currency exchange rate changes.

                                       53
<PAGE>

Item 8.   Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                         -------
<S>                                                                                                      <C>
Report of Ernst & Young, LLP, Independent Auditors....................................................        55
Consolidated Financial Statements as of December 31, 1999 and 1998 and for the Three Years Ended
 December 31, 1999, 1998, and 1997:
     Consolidated Balances Sheets.....................................................................        56
     Consolidated Statements of Operations............................................................        57
     Consolidated Statements of Stockholders' Equity..................................................        58
     Consolidated Statements of Cash Flows............................................................        59
     Notes to Consolidated Financial Statements.......................................................        60
Quarterly Financial Information for the Two Years Ended December 31, 1999 (Unaudited).................        82
</TABLE>

                                       54
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
At Home Corporation

     We have audited the accompanying consolidated balance sheets of At Home
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the each of
the three years in the period ended December 31, 1999. Our audits also included
the financial statement schedules presented at Item 14(b). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
At Home Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

                                                           /s/ ERNST & YOUNG LLP

Walnut Creek, California
January 20, 2000

                                       55
<PAGE>

                              AT HOME CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                        -------------------------------
                                                                                             1999             1998
                                                                                        --------------   --------------
<S>                                                                                     <C>              <C>
Current assets:
  Cash and cash equivalents..........................................................     $   224,548        $ 300,702
  Short-term investments.............................................................         300,675          118,587
                                                                                          -----------        ---------
          Total cash, cash equivalents and short-term investments....................         525,223          419,289
  Accounts receivable, net of allowance of $3,454 in 1999 and $252 in 1998...........          52,253            6,358
  Accounts receivable -- related parties.............................................          18,279            4,300
  Other current assets...............................................................          35,151            3,381
                                                                                          -----------        ---------
          Total current assets.......................................................         630,906          433,328
Property, equipment and improvements, net............................................         176,077           49,240
Investments in affiliated companies..................................................          19,015               --
Other investments....................................................................         273,005            8,527
Distribution agreements, net.........................................................         313,772          186,247
Goodwill and other intangible assets, net............................................       7,614,847           93,989
Other assets.........................................................................          76,657            9,300
                                                                                          -----------        ---------
          Total assets...............................................................     $ 9,104,279        $ 780,631
                                                                                          ===========        =========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...................................................................     $    44,781        $   7,100
  Accounts payable -- related parties................................................          22,916            3,684
  Accrued compensation and related expenses..........................................          15,632            2,504
  Deferred revenue...................................................................          56,844            5,164
  Other accrued liabilities..........................................................          63,044           12,507
  Current portion of capital lease and other obligations.............................          38,666           12,045
                                                                                          -----------        ---------
          Total current liabilities..................................................         241,883           43,004
Convertible notes and debentures.....................................................         736,294          229,344
Capital lease and other obligations, less current portion............................          52,552           14,356
Other liabilities....................................................................           6,533               61
Commitments and contingencies (Note 8)
Stockholders' equity(1):
  Convertible preferred stock, no par value:
     Authorized shares -- 9,650,000
     Issued and outstanding shares -- 10,134 in 1999 and none in 1998................         397,019               --
  Common stock, $0.01 par value:
     Authorized shares -- 719,719,414
     Issued and outstanding shares -- 384,754,355 in 1999 and
        246,545,734 in 1998..........................................................       9,312,700          719,676
  Deferred compensation..............................................................         (50,493)          (2,880)
  Accumulated other comprehensive income.............................................          92,594            4,235
  Accumulated deficit................................................................      (1,684,803)        (227,165)
                                                                                          -----------        ---------
          Total stockholders' equity.................................................       8,067,017          493,866
                                                                                          -----------        ---------
          Total liabilities and stockholders' equity.................................     $ 9,104,279        $ 780,631
                                                                                          ===========        =========
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                       56
<PAGE>

                              AT HOME CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                      --------------------------------------------------
                                                                            1999              1998             1997
                                                                      ----------------   --------------   --------------
<S>                                                                   <C>                <C>              <C>
Revenues(1)........................................................       $   336,955        $  48,045         $  7,437
Costs and expenses(2):
  Operating costs..................................................           143,056           46,965           22,459
  Product development and engineering..............................            54,805           17,009           11,984
  Sales and marketing..............................................           130,725           18,091           11,863
  General and administrative.......................................            30,276           12,429           10,635
  Cost and amortization of distribution agreements.................           291,967          101,385            9,246
  Amortization of goodwill, intangible assets and deferred
    compensation and other acquisition-related costs...............         1,157,009            2,758               --
                                                                          -----------        ---------         --------
Total costs and expenses...........................................         1,807,838          198,637           66,187
                                                                          -----------        ---------         --------
Loss from operations...............................................        (1,470,883)        (150,592)         (58,750)
Interest and other income, net.....................................            10,253            6,413            3,033
Investment gain from business combination..........................            12,566               --               --
Equity share of losses of affiliated companies.....................            (9,574)              --               --
                                                                          -----------        ---------         --------
Net loss...........................................................       $(1,457,638)       $(144,179)        $(55,717)
                                                                          ===========        =========         ========
Net loss per share -- basic and diluted............................            $(4.61)          $(0.63)          $(0.27)
                                                                          ===========        =========         ========
Shares used in per share computation -- basic and diluted..........           316,441          228,479          207,086
                                                                          ===========        =========         ========
_______________________
(1)Revenues from related parties...................................       $    28,821        $  10,458         $  2,948
                                                                          ===========        =========         ========
(2)Depreciation and amortization included in costs and expenses,
    excluding amortization of distribution agreements and
    acquisition-related amounts....................................       $    49,467        $  15,029         $  8,913
                                                                          ===========        =========         ========

                      The accompanying notes are an integral part of these consolidated financial statements

</TABLE>

                                       57
<PAGE>

                              AT HOME CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                             Notes              Accum.
                                      Convertible                          Receivable            Other                     Total
                                    Preferred Stock       Common Stock       From     Deferred  Compre-                    Stock-
                                   -----------------   -----------------    Stock-    Compen-   hensive   Accumulated     holders'
                                   Shares    Amount    Shares     Amount    holders   sation    Income     Deficit         Equity
                                   -------- --------   -------   -------    -------   ------    ------     --------       --------
<S>                                <C>      <C>       <C>       <C>        <C>        <C>       <C>       <C>            <C>
Balances at
  December 31, 1996............      4,522   $44,993    23,710      $1,035   $(170)     $(272)  $    --     $(27,269)       $18,317
Net issuance of
  Series C preferred
  stock........................        240    46,339        --          --       --         --       --            --        46,339
Preferred stock
  converted to common
  stock........................     (4,762)  (91,332)  190,504      91,332       --         --       --            --            --
Net issuance of Series A
  common stock in initial
  public offering..............         --        --    20,700      99,768       --         --       --            --        99,768
Series A
  common stock issued under
  stock  option and
  restricted stock plans.......         --        --     4,382         527    (234)         --       --            --           293
Repurchases of Series A
  common stock.................         --        --    (2,090)        (91)     15          --       --            --           (76)
Repayment of notes
  receivable...................         --        --        --          --      70          --       --            --            70
Warrants to purchase
  Series A common
  stock under
  distribution agreements......         --        --        --     172,283      --          --       --            --       172,283
Deferred compensation
  related to grant of
  stock options................         --        --        --       5,257      --     (5,257)       --            --            --
Amortization of deferred
  compensation.................         --        --        --          --      --      1,130        --            --         1,130
Net loss.......................         --        --        --          --      --         --        --       (55,717)      (55,717)
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------     ----------
Comprehensive loss.............         --        --        --          --      --         --        --            --       (55,717)
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------     ----------
Balances at December 31, 1997..         --        --   237,206     370,111    (319)    (4,399)       --       (82,986)      282,407

Net issuance of Series A
  common stock in secondary
  offering.....................         --        --     5,750     125,725      --         --        --            --       125,725
Series A common stock
  issued and stock options
  assumed in acquisitions......         --        --     2,488      94,953      --         --        --            --        94,953
Series A common stock
  issued upon exercise of
  warrants.....................         --        --       192          --      --         --        --            --            --
Series A common stock
  issued under stock option
  and employee stock purchase
  plans........................         --        --     1,300       5,139      --         --        --           --          5,139
Repurchases of Series A
  common stock.................         --        --      (390)        (40)     16         --        --           --            (24)
Repayment of notes
  receivable...................         --        --        --          --     303         --        --           --            303
Warrants to purchase Series
  A common  stock under
  distribution
  agreements...................         --        --        --     124,287      --         --        --           --       124,287
Amortization of deferred
  compensation, net of
  cancelled stock options......         --        --        --        (499)     --      1,519        --           --         1,020
Net loss.......................         --        --        --          --      --         --        --     (144,179)     (144,179)
Net unrealized gain on
  available-for-sale
  investments..................         --        --        --          --      --         --     4,235           --         4,235
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------     ----------
Comprehensive loss.............         --        --        --          --      --         --        --           --      (139,944)
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------     ----------
Balances at
  December 31, 1998............         --        --   246,546     719,676      --     (2,880)    4,235     (227,165)      493,866
Series A common stock
  issued and stock
  options and warrants
  assumed in
  acquisitions.................         --        --   126,808   8,083,468      --         --        --           --     8,083,468
Series A preferred stock
  issued in acquisition........         11   418,175        --          --      --         --        --           --       418,175
Series A common stock
  issued upon exercise of
  warrants.....................         --        --     5,417      10,507      --         --        --           --        10,507
Series A common stock
  issued under stock option
  and employee stock purchase
  plans........................         --        --     5,767      58,024      --         --        --           --        58,024
Repurchases of Series A
  common stock.................         --        --      (324)        (90)     --         --        --           --          (90)
Warrants to purchase Series
  A common stock under
  distribution agreements......         --        --        --     417,847      --         --        --           --      417,847
Conversion of Series A
  preferred stock to
  Series A common stock........         (1)  (21,156)      540      21,156      --         --        --           --           --
Warrants to purchase
  Series A common stock
  contributed to
  joint venture................         --        --        --       2,112      --         --        --           --         2,112
Deferred compensation
  from stock options
  and restricted
  stock assumed
  in acquisitions..............         --        --        --          --      --    (51,061)       --           --       (51,061)
Amortization of deferred
  compensation.................         --        --        --          --      --      3,448        --           --         3,448
Net Loss.......................         --        --        --          --      --         --        --   (1,457,638)   (1,457,638)
Net unrealized gain on
  available-for-sale
  investments..................         --        --        --          --      --         --    88,456           --        88,456
Foreign currency
  translation
  adjustment...................         --        --        --          --      --         --       (97)          --           (97)
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------   ----------
Comprehensive loss.............         --        --        --          --      --         --        --           --    (1,369,279)
                                   -------- --------  --------   ---------  -------- ---------  --------   ----------   ----------
Balances at
  December 31, 1999............         10  $397,019   384,754  $9,312,700      --   $(50,493)  $92,594  $(1,684,803)   $8,067,017
                                   ======== ========  ========  ==========  ======== =========  ======== ============   ==========
</TABLE>

 The accompanying notes are an integral part of these consolidated financial
                                  statements


                                      58
<PAGE>

                              AT HOME CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                         ----------------------------------------
                                                                             1999           1998          1997
                                                                         -------------   -----------   ----------
<S>                                                                      <C>             <C>           <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss..............................................................    $(1,457,638)    $(144,179)   $ (55,717)
Adjustments to reconcile net loss to cash used in operating
 activities:
  Depreciation and amortization.......................................         49,467        14,009        7,783
  Amortization of distribution agreements.............................         78,843        51,591        9,246
  Cost of distribution agreements.....................................        213,124        49,794           --
  Amortization of deferred and other stock-based compensation.........         10,159         1,020        1,130
  Amortization of goodwill and other intangible assets................      1,103,005            --           --
  Accretion of discount on convertible debentures.....................          6,950            --           --
  Recognition of non-cash gain on investment..........................        (12,556)           --           --
  Charge for purchased in-process research and development............         36,715         2,758           --
  Equity share of losses of affiliated companies......................          9,574            --           --
  Changes in assets and liabilities:
    Accounts receivable...............................................         (8,972)       (8,099)      (1,338)
    Other assets......................................................         (6,691)       (9,143)      (2,251)
    Accounts payable..................................................         39,198         5,822        1,089
    Accrued compensation and related expenses.........................         (2,165)          322          550
    Deferred revenues.................................................         43,157         3,126        1,853
    Other accrued liabilities.........................................         10,148         4,503        6,026
    Other long-term liabilities.......................................             85        (1,736)          61
                                                                          -----------     ---------    ---------
Cash provided by (used in) operating activities.......................        112,403       (30,212)     (31,568)

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchases of short-term investments...................................       (340,050)     (135,342)    (103,030)
Sales and maturities of short-term investments........................        178,386        92,922       33,925
Net purchases of other investments....................................       (104,732)        4,291           --
Net purchases of property, equipment and improvements.................        (60,809)      (16,793)      (9,989)
Payments under backbone agreement.....................................        (57,052)           --           --
Investment in joint ventures..........................................         (7,561)           --           --
Business combinations, net of cash received...........................       (316,383)          144           --
                                                                          -----------     ---------    ---------
Cash used in investing activities.....................................       (708,201)      (54,778)     (79,094)

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures......................        485,750       222,466           --
Proceeds from issuance of convertible preferred stock.................             --            --       46,339
Proceeds from issuance of common stock, net of repurchases............         68,441       130,828       99,985
Proceeds from capital lease financing.................................             --            --        5,630
Payments on capital lease obligations.................................        (34,547)      (12,118)      (6,858)
Repayment of notes receivable from stockholders.......................             --           303           70
                                                                          -----------     ---------    ---------
Cash provided by financing activities.................................        519,644       341,479      145,166
                                                                          -----------     ---------    ---------
Net increase (decrease) in cash and cash equivalents..................        (76,154)      256,489       34,504
Cash and cash equivalents, beginning of period........................        300,702        44,213        9,709
                                                                          -----------     ---------    ---------
Cash and cash equivalents, end of period..............................    $   224,548     $ 300,702    $  44,213
                                                                          ===========     =========    =========
SUPPLEMENTAL DISCLOSURES

  Interest paid.......................................................    $     7,236     $   2,148    $   1,039
                                                                          ===========     =========    =========
  Acquisition of equipment under capital leases.......................    $    54,322     $  12,872    $  16,527
                                                                          ===========     =========    =========
  Warrants to purchase Series A common stock earned by cable partners
    under distribution agreements and capitalized as intangibles......    $   204,723     $  74,493    $ 172,283
                                                                          ===========     =========    =========
  Conversion of preferred stock to common stock.......................    $    21,156      $  --       $  91,332
                                                                          ===========    ==========    =========
  Mergers and acquisitions:
    Common stock issued and options and warrants exercisable for
      common stock assumed............................................    $ 8,083,468     $  94,953    $   --
                                                                          ===========     =========    =========
    Liabilities assumed...............................................    $   133,349     $   2,589    $    --
                                                                          ===========     =========    =========
</TABLE>

 The accompanying notes are an integral part of these consolidated financial
                                  statements


                                       59
<PAGE>

                              AT HOME CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Summary of Significant Accounting Policies

The Company

At Home Corporation, or Excite@Home, which was incorporated in the state of
Delaware on March 28, 1995, is a global media company that provides consumers
with high speed, high bandwidth Internet connectivity and content and
interactive services available on multiple bandwidth platforms. Our @Home
service provides broadband Internet access from consumers' homes over the cable
television infrastructure and offers end-to-end managed connectivity services
for businesses over both cable and digital telecommunications lines. Our @Work
division further utilizes our network by providing a range of Internet services
for businesses, including high-speed connectivity, web hosting and development
and hosting of e-commerce solutions. Our media and marketing services include
the Excite Network, MatchLogic and Bluemountain.com, as well as other media
properties that deliver entertainment, shopping and information services to our
customers. The Excite Network offers search, content, community, communications
services and commerce functionality to Internet users. Excite's media services
focus on comprehensive navigation, global reach and personalization technology
to attract and retain users and achieve market share. MatchLogic, a subsidiary
of Excite, is a proprietary advertising distribution platform that provides
advertisers with targeted ad campaign management designed to improve the
effectiveness of their advertising campaigns. Bluemountain.com provides online
greeting cards at no cost to visitors of its web site.

Dependence on Cable System Operators

  We have strategic partnerships with 22 cable system operators that provide,
through their cable systems, the principal distribution network for our services
to subscribers. Our cable partners have granted us the exclusive right to offer
high-speed residential consumer Internet services over their cable systems,
subject to certain exceptions. However, these cable partners are under no
obligation to carry our services. In addition, the cable partners' exclusivity
obligations in our favor begin expiring in June 2002, and may be terminated
prior to that date under certain circumstances.

  Transmission of data over cable is dependent on the availability of high-speed
two-way hybrid fiber coaxial cable infrastructure. Currently, significant
portions of the cable infrastructure in the United States have not been upgraded
from coaxial cable to hybrid fiber-coaxial cable and, in addition, are not
capable of two-way transmission. Cable system operators have announced and have
started to implement major infrastructure investments in order to deploy data-
over-cable services. However, there can be no assurance that such infrastructure
improvements will be completed.

  Certain parties, including other Internet service providers, have petitioned
federal, state and local authorities to require cable operators to provide
Internet and online service providers with unbundled access to their cable
systems. The rates that our cable partners charge for this third-party access,
or for the @Home services, could also be subject to rate regulation or tariffing
requirements. Our financial position and results of operations would likely be
materially affected if we or our cable partners are classified as common
carriers, or if government authorities require third-party access to cable
networks or unaffiliated Internet service providers. In addition, some local
jurisdictions, including Portland and Multnomah County, Oregon and Broward
County, Florida, have imposed third-party access requirements on AT&T and other
cable companies operating in those communities. The imposition of these
requirements has been challenged in Federal Courts. In June 1999, a U.S.
District Court upheld the third-party access requirement imposed on AT&T by
Portland and Multnomah County. This decision was appealed to the U.S. Court of
Appeals for the Ninth Circuit and arguments were presented to the court in
November 1999. Although appeals decisions have no time limit, most rulings occur
within three to twelve months after the date arguments are presented. Numerous
other local jurisdictions have considered or are considering imposing similar
third-party access requirements and other municipalities may consider imposing
similar requirements in the future.

  In December 1999, AT&T announced that customers of its broadband cable systems
will be able to choose their Internet service provider for high-speed Internet
access upon expiration of our exclusivity agreement with AT&T.
<PAGE>


Dependence on Key Technology Suppliers

  We currently depend on a limited number of suppliers for certain key
technologies, including cable modems, which are needed to build, manage and
operate our services. Although we believe that there are alternative suppliers
for each of these technologies, we have established favorable relationships with
each of our current suppliers, and it could take a significant period of time to
establish relationships with alternative suppliers and substitute their
technologies. The loss of any of our relationships with our current suppliers
could have a material adverse effect on our financial condition and results of
operations.

Significant Accounting Policies

Basis of Presentation

  The consolidated financial statements include the accounts of At Home
Corporation and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated in consolidation.
Investments in entities owned 20% or more but less than majority owned and not
otherwise controlled by us are accounted for under the equity method and
presented in the consolidated balance sheets as investments in affiliated
companies.

Reclassifications

  Certain reclassifications have been made to prior years' consolidated
financial statements to conform to current year's presentation.

Stock Split

  In May 1999, our stockholders approved a two-for-one split of our common
stock, which occurred on June 16, 1999 to stockholders of record on May 29,
1999. All of the common stock share and per share data appearing in the
consolidated financial statements have been adjusted to retroactively reflect
this stock split.

Use of Estimates

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 results of operations during the reporting period.
Actual results could differ from those estimates.

Revenue Recognition

  Monthly customer subscription revenue for the @Home and @Work services is
recognized in the period in which subscription services are provided. We also
earn revenue from cable system operators for providing certain support services,
such as customer support, local area content development and pre-commercial
deployment fees. Revenue from cable system operators is recognized as the
services are performed. We have also entered into agreements with U.S. cable
stockholders for the development, deployment and marketing of additional
services. Revenues for these development agreements are recognized on the
percentage of completion basis.

  Revenues also include on-line advertising revenues which are derived
principally from short-term advertising contracts in which we guarantee a
minimum number of impressions (a view of an advertisement by a consumer) for a
fixed fee. We also enter into a number of longer-term advertising and e-commerce
sponsorship agreements. Under these agreements, we earn fees for initial
programming, initiation of service and for generating impressions, which in some
instances are guaranteed. These revenues, as well as contract and other
revenues, which include ad serving and targeting revenues, are generally
recognized ratably over the term of the agreements, provided that we do not have
any significant remaining obligations and collection of the resulting receivable
is probable. To the extent that
<PAGE>

impression deliveries do not meet the guarantees, we defer recognition of the
corresponding revenues until impressions are delivered.

  Revenues from the exchange of media and advertising services related to our
Internet sites for advertising in other media were less than 10% of total
revenues for the year ended December 31, 1999; such revenues were insignificant
in 1998. Revenues from these exchanges are recorded at the lower of the fair
value of the services provided or the services received.

Cash and Cash Equivalents

  Cash equivalents are highly liquid investments with insignificant interest
rate risk and maturities of 90 days or less and are stated at amounts that
approximate fair value, based on quoted market prices. Cash equivalents consist
principally of investments in interest-bearing demand deposit accounts with
financial institutions and highly liquid debt securities of corporations and the
U.S. Government. We include in cash and cash equivalents all short-term, highly
liquid investments that mature within 90 days of their acquisition date.

Other Investments

  Other investments primarily consist of strategic investments of less than 20%
equity interest in certain companies. We do not have the ability to exercise
significant influence over any of these companies and therefore account for such
investments as available-for-sale securities under Statement of Financial
Accounting Standards (FAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Investments in publicly held companies are recorded at
fair value as measured by quoted market prices and investments in privately held
companies, which are recorded at cost, are accounted for under the cost method
of accounting. Changes in fair value are included in comprehensive loss and
unrealized gains and losses are included in accumulated other comprehensive
income or loss. Realized gains and losses are recorded in net interest and other
income when the related investments are sold. Our investments in privately held
companies are assessed for impairment periodically through review of operations
and indications of continued viability, such as subsequent rounds of financing.

Property, Equipment and Improvements

  Property, equipment and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the shorter of the
estimated useful life of the asset or the lease term.

Intangible Assets

  Intangible assets consist of purchased technology, acquired workforce,
acquired brand name and content, and goodwill related to the acquisitions of
Narrative Communications Corp., Full Force Systems, Inc., Excite, Inc., iMALL,
Inc., Hartford House, Ltd. and its wholly-owned subsidiary Bluemountain.com,
Webshots Corporation, certain assets of Perspecta, Inc. and Excite Espana. These
acquisitions were accounted for as purchases and are further described in Note
3. Amortization of goodwill and intangible assets is provided on the straight-
line basis over the estimated useful lives of the assets, which generally range
from two to four years. Acquired in-process research and development without
alternative future use is charged to operations at the date of acquisition.

  We record impairment losses on intangible assets when events and circumstances
indicate that such assets might be impaired and the estimated fair value of the
asset is less than its recorded amount. Conditions that would trigger an
impairment assessment include material adverse changes in operations or our
decision to abandon acquired products, services or technologies. Measurement of
fair value would be based on discounted cash flows at our incremental borrowing
rate and would include a factor for the probability that the impaired product,
service or technology would be successful. To date, no such impairment has
occurred.

Stock-Based Compensation

  We account for stock-based awards to employees in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and have adopted the disclosure-only alternative of Statement of
Financial Accounting Standards (FAS) No. 123, "Accounting for Stock-Based
Compensation".
<PAGE>

Advertising Costs

  All advertising costs are expensed as incurred. Advertising costs, which are
included in sales and marketing expenses, were $18.3 million, $1.8 million and
$0.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.

Software Development Costs

  Costs of software developed internally by us for use in our operations are
accounted for under the American Institute of Certified Public Accountants'
Statement of Position (SOP) 98-1, "Internal Use Software", which we adopted on
January 1, 1999. Under SOP 98-1, we expense costs of research, including pre-
development efforts prior to establishing technological feasibility, and costs
incurred for training and maintenance. Software development costs are
capitalized when technological feasibility has been established and it is
probable that the project will be completed and the software will be used as
intended. Costs incurred for upgrades and enhancements to our software are
capitalized when we believe such efforts result in additional functionality to
the software. Capitalized software costs are amortized to expense over the
estimated useful life of the software. Capitalized software costs for the year
ended December 31, 1999 were not significant. Prior to the adoption of SOP 98-1,
substantially all software development costs were recorded in a manner similar
to SOP 98-1.

Interest Expense

  Interest expense includes interest on convertible debt and capital lease and
other obligations of $15.8 million, $2 million and $.2 million for the years
ended December 31, 1999, 1998 and 1997, respectively.

Income Taxes

  Income taxes are computed using the asset and liability method, under which
deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.

Effect of New Accounting Standards

  In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met in order to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. Although we have not fully assessed the impact
of adopting SAB 101 on our financial position and results of operations in 2000
and thereafter, we do not expect the effect, if any, to be material.

  In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that entities recognize all derivatives in the balance sheet at fair
value and record gains and losses resulting from changes in fair value according
to the purpose of the derivative and whether it qualifies as a hedge. The
effective date of this Statement was delayed by the issuance of FAS 137 to
fiscal years beginning after June 15, 2000, with earlier application encouraged.
We expect to adopt this Statement effective January 1, 2001 and do not
anticipate that its adoption will have a significant effect on our financial
position or results of operations.

2. Calculation of Net Loss Per Share

  Net loss per share is computed using the weighted average number of common
shares outstanding. The computation for the period ended December 31, 1997 also
gives pro forma effect to the conversion, in connection with our initial public
offering in July 1997, of all outstanding shares of convertible preferred stock
into shares of common stock. Since we have a net loss for all periods presented,
net loss per share on a diluted basis is equivalent to basic net loss per share
because the effect of converting outstanding stock options, warrants, common
stock subject to repurchase, convertible debt, preferred stock and other common
stock equivalents would be anti-dilutive.
<PAGE>

  The computation of basic and diluted net loss per share is as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                      ---------------------------------------------------
                                                                           1999              1998              1997
                                                                      ---------------   ---------------   ---------------
<S>                                                                   <C>               <C>               <C>
Net loss...........................................................      $(1,457,638)        $(144,179)         $(55,717)
                                                                         ===========         =========          ========
Weighted average shares of common stock outstanding................          322,456           240,108            35,030
Less: weighted average shares of common stock subject
  to repurchase....................................................           (6,015)          (11,629)          (18,448)
Pro forma common equivalent shares from convertible
  preferred stock..................................................               --                --           190,504
                                                                         -----------         ---------          --------
Shares used in per share calculations..............................          316,441           228,479           207,086
                                                                         ===========         =========          ========
Net loss per share--basic and diluted..............................      $     (4.61)        $   (0.63)           $(0.27)
                                                                         ===========         =========          ========
</TABLE>

3. Business Combinations

  Our acquisitions include Full Force in November 1998; Narrative in December
1998; Excite in May 1999; iMALL, Webshots and Perspecta in October 1999; Excite
Spain in November 1999; and Bluemountain.com in December 1999. All of our
acquisitions were accounted for as purchases. Accordingly, the total purchase
consideration for each acquisition was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as of the date of the
acquisition. Goodwill represents the excess of purchase consideration over the
fair value of assets, including identifiable intangible assets, net of the fair
value of liabilities assumed. Our consolidated financial statements include the
results of operations of acquired companies commencing on the date of
acquisition.

  Narrative is a provider of advertising solutions for the Internet. The
purchase consideration was $93.8 million, comprised of the issuance of 2,410,666
shares of our Series A common stock with an aggregate fair value of $84.2
million, the assumption of stock options to purchase approximately 282,000
shares of our Series A common stock with an aggregate fair value of $9.2
million, and $0.4 million of acquisition costs. Goodwill and intangible assets
are being amortized on a straight-line basis over approximately three years.

  Full Force is a developer of set-top applications for interactive television.
The purchase consideration was approximately $1.7 million, comprised of the
issuance of 76,380 shares of our Series A common stock with an aggregate fair
value of approximately $1.6 million and $0.1 million of acquisition costs.
Goodwill and intangible assets are being amortized on a straight-line basis over
approximately three years.

  Excite offers consumers and advertisers comprehensive Internet navigation
services with personalization capabilities and specializes in the delivery of
targeted marketing solutions through its subsidiary, MatchLogic. The acquisition
was accomplished through a merger of Excite, previously a publicly held company,
with and into a wholly-owned subsidiary of our company. The total purchase
consideration of approximately $7,231 million was based on: the fair value of
our Series A common stock issued; stock option, stock purchase plan and warrant
obligations assumed; and merger-related costs. At the closing, we issued
115,438,508 million shares of our Series A common stock with a fair value of
approximately $6,051 million as of the announcement date, based on an exchange
ratio of 2.083804 shares of our Series A common stock for each outstanding share
of Excite common stock, adjusted to reflect the two-for-one split of our common
stock on June 16, 1999. We assumed outstanding options to purchase Excite common
stock, which were converted into options to acquire approximately 25,714,000
shares of our Series A common stock. The fair value of the assumed options was
approximately $1,105 million based on the merger exchange ratio. The converted
options are subject to the terms and conditions, including exercisability and
vesting schedules, of the original options. We also assumed outstanding warrants
and convertible debt instruments under which approximately 232,000 shares of our
Series A common stock is issuable, with a fair value of approximately $10
million. In addition, we incurred direct merger costs of approximately $65.4
million, which were included in the purchase consideration. These direct merger
costs primarily consisted of investment banking fees, severance and stock
compensation to certain employees and other professional fees. Goodwill and
intangible assets are being amortized on a straight-line basis over
approximately four years.

  iMALL provides integrated e-commerce solutions which allow businesses to
create fully commerce-enabled web sites or add transaction capabilities to their
existing ones. The purchase consideration of $637.1 million was based primarily
on the aggregate fair value of our Series A common stock issued in exchange for
shares of iMALL and the obligation to issue our Series A common stock under
assumed warrants and stock options: $481.2 million fair value
<PAGE>

related to 9,319,760 shares issued; $82.8 million fair value related to
2,300,000 warrants issued; $7.4 million fair value related to approximately
159,000 warrants assumed; and $61.5 million fair value related to approximately
1,497,000 stock options assumed. In addition, the purchase consideration
included $4.2 million of direct acquisition costs, consisting primarily of
investment banking fees. Goodwill and intangible assets are being amortized on a
straight-line basis over approximately three years.

  Webshots offers free copyrighted digital photographs over the Internet,
viewable with its proprietary software. The purchase price consideration of
$83.3 million was comprised of the issuance of 2,050,326 shares of our Series A
common stock with an aggregate fair value of $82.5 million and $0.8 million of
direct acquisition costs. The resale of 30% of the Series A common stock issued
in this acquisition is subject to vesting during the employment of their holders
over the 24 months following the acquisition. The $25.0 million aggregate fair
value of such restricted stock was allocated to deferred compensation in the
purchase price allocation. The deferred compensation is being amortized on a
straight-line basis over 24 months. Goodwill and intangible assets are being
amortized on a straight-line basis over approximately four years.

  Bluemountain.com provides free online greeting cards. The preliminary purchase
consideration of $970 million as of December 31, 1999 was based primarily on a
cash payment of $350 million, the issuance of 10,674 shares of our Series A
non-voting preferred stock, which may be converted to 10,673,549 shares of
Series A Common Stock, with an aggregate fair value of $418.2 million, the
assumption of stock options with fair value of $44.7 million under which
approximately 3,011,000 shares of our Series A common stock are issuable and
$150 million related to performance-based contingent purchase consideration
earned in December 1999. In addition, the purchase consideration included $7.2
million of direct acquisition costs, primarily investment banking and legal
fees. Each Series A preferred stock issued in the acquisition is convertible
into 1,000 shares of Series A common stock at a rate of 500,000 shares of common
stock per month during the twelve months following the acquisition, and the
remaining shares will become fully convertible after two years. Newly issued
unvested stock options assumed in the acquisition were recorded as deferred
compensation in the purchase price allocation based on their intrinsic value of
$26.1 million. Deferred compensation is amortized as the related stock options
vest and become exercisable. We recorded the remainder of stock options assumed
in the acquisition at fair value, representing fully vested options and options
held by third parties.. The performance-based contingent purchase consideration
consisted of up to $300 million in additional shares of Series A common stock
and stock options at fair value. The number of additional shares issuable was
based on the dollar amount associated with achievement of the performance goals
divided by the average price of our Series A common stock during the month of
December 1999, the period during which the performance was measured. Based on
information available as of December 31, 1999, $150 million of the performance-
based consideration was determinable and was recorded as common stock in the
consolidated balance sheet. In February 2000, we were able to determine the
final amount of performance-based purchase consideration. Based on the average
closing price of our Series A common stock during the month of December 1999, we
will issue approximately 3,485,000 shares of Series A common stock during the
first quarter of 2000 having an aggregate fair value of approximately $150
million. In addition, the purchase agreement requires that we increase the
number of shares issuable upon exercise of assumed stock options by
approximately 542,000 shares. Goodwill and intangible assets are being amortized
on a straight-line basis over approximately four years.

  During the year ended December 31, 1999, we also acquired Perspecta and Excite
Espana for a total purchase consideration of $11.1 million consisting of cash
payments of $10.8 million and approximately $0.3 million of acquisition costs.
Goodwill and intangible assets are being amortized on a straight-line basis over
approximately four years.

Allocation of Purchase Consideration

  The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):

<TABLE>
<CAPTION>
                                      Acquisitions in 1998                             Acquisitions in 1999
                                     ----------------------     ----------------------------------------------------------------
                                                                                                           Blue
                                     Narrative    Full Force       Excite        iMALL      Webshots     Mountain     Others (1)
                                    -----------   ----------    ------------   ----------   ---------    --------     ----------
<S>                                  <C>          <C>           <C>            <C>          <C>         <C>             <C>
Cash..............................     $    77            69     $   34,341     $  8,974     $    73     $    611        $   432
Accounts receivable and other                                       233,338                       --                         298
  assets..........................         584            60                         884                    1,204
Property and equipment............         520             5         48,376        3,368          68        3,577             78
Purchased technology..............      22,900           215         94,500       13,200       2,200          800             --
Other identified intangible assets       1,050           101        162,700       35,600      22,800       27,000             --
Goodwill..........................      68,404         1,318      6,729,164      576,500      33,110      912,730         13,560
</TABLE>
<PAGE>

<TABLE>
<S>                                    <C>          <C>           <C>            <C>          <C>         <C>          <C>
Purchased in-process research
  and development.................       2,700            58         34,400        1,890         425           --          --
Deferred compensation.............          --            --             --           --      25,000       26,087          --
Liabilities assumed...............      (2,435)         (154)      (105,743)      (3,282)       (378)      (1,986)     (3,308)
                                       -------        ------     ----------     --------     -------     --------     -------
     Total purchase consideration.     $93,800        $1,672     $7,231,076     $637,134     $83,298     $970,023     $11,060
                                       =======        ======     ==========     ========     =======     ========     =======
</TABLE>

   /(1)/Includes the acquisitions of Perspecta in October 1999 and Excite Espana
   in November 1999.

Acquisition-related Amortization

  As a result of our acquisitions during 1999 and 1998, we recorded $8,335
million of goodwill and $249.3 million of other acquisition-related intangible
assets. Amortization of goodwill and acquisition-related intangibles was $1,103
million for the year ended December 31, 1999 and insignificant for the year
ended December 31, 1998. Accumulated amortization of goodwill and acquisition-
related intangibles was $1,103 million as of December 31, 1999. In addition, we
recorded $51.1 million of stock-based deferred compensation related to our
acquisitions of Bluemountain.com and Webshots. We are amortizing deferred
compensation to expense over the vesting terms of the stock-based awards, which
range from two to four years. Accumulated amortization of acquisition-related
deferred compensation as of December 31, 1999 and the related amortization
expense for 1999 was $2.4 million.

Purchased In-Process Research and Development

  The fair value assigned to purchased in-process research and development in
the allocation of purchase consideration includes research and development
projects for which technological feasibility had not been achieved at the date
of acquisition and which had no alternative future use. This allocation of fair
value is charged to operations at the date of acquisition, and included $34.4
million for Excite, $1.9 million for iMALL, and $425,000 for Webshots during the
year ended December 31, 1999. The charge of $2.8 million in 1998 related
primarily to Narrative.

  In order to determine the fair value of purchased in-process research and
development, we estimated the date of completion of the research and development
effort, assessed the state of such effort at the acquisition date, and
calculated the estimated net present value of cash flows expected to result from
the successful deployment of the new technology or product resulting from the
in-process research and development effort. The state of completion was
determined by estimating the costs and time incurred to date relative to the
costs and time to be incurred to develop the in-process technology into a
commercially viable technology or product. The estimated net present value of
cash flows was based on incremental future cash flows from revenues expected to
be generated by the technology or products being developed, taking into account
the characteristics and applications of the technology or product, the size and
growth rate of existing and future markets and an evaluation of past and
anticipated technology and product life cycles. Estimated net future cash flows
also included allocations of operating costs, sales and marketing, general and
administrative expenses, fixed charges, the portion of product development costs
related to maintenance and the net impact of income taxes. Estimated net future
cash flows were discounted to arrive at a net present value and were allocated
to in-process research and development based on the percentage of completion at
the date of acquisition. The discount rate included a factor that took into
account the uncertainty surrounding the successful development of in-process
technology projects.

Other Acquisition-related Costs

  Costs directly associated with our acquisitions that were not capitalized as
part of the purchase consideration, primarily resulting from our acquisition of
Excite, were $14.3 million for the year ended December 31, 1999; there were no
such costs in 1998. Such costs included $8.1 million in employee severance and
retention costs, $1.8 million of systems integration costs, $1.4 million of
professional fees and $3.0 million in other related costs.

Pro Forma Results of Operations
<PAGE>

  The following unaudited pro forma summary represents the consolidated results
of operations as if our acquisitions had occurred at the beginning of each of
the years presented and includes the amortization of goodwill and other
intangible assets and a charge for in-process research and development. Our 1998
acquisitions are already fully reflected in our 1999 results of operations and
therefore no pro forma adjustments are made for these acquisitions in 1999. Pro
forma shares include a factor for the number of shares of Series A common stock
issued or issuable, excluding employee stock options, as if such shares were
converted and outstanding at the beginning of each of the years presented. The
pro forma summary excludes the results of operations of Perspecta and Excite
Espana because they are not material to the consolidated pro forma disclosures
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                --------------------------------------
                                                                       1999                1998
                                                                ------------------   -----------------
<S>                                                             <C>                  <C>
        Pro forma revenues.....................................       $   426,009         $   207,423
                                                                      ===========         ===========
        Pro forma net loss.....................................       $(2,694,301)        $(2,532,646)
                                                                      ===========         ===========
        Pro forma net loss per share - basic and diluted.......       $     (6.90)        $     (6.76)
                                                                      ===========         ===========
        Pro forma shares used in per share calculation - basic
          and diluted..........................................           390,383             374,624
                                                                      ===========         ===========
</TABLE>

  The pro forma results of operations are not necessarily indicative of the
results that would have occurred if our business combinations had occurred at
the beginning of each year presented and are not intended to be indicative of
future results of operations.

4. Cash and Cash Equivalents and Short-Term Investments

  Our short-term investments as of December 31, 1999 consist primarily of highly
liquid debt instruments with original maturities at the date of purchase of
between three and twelve months as well as other highly liquid investments which
generally mature in one year or less. Highly liquid short-term investments
maturing in 90 days or less at the date of purchase are included in cash and
cash equivalents. We have classified all short-term investments as available-
for-sale. Available-for-sale securities are carried at amounts that approximate
fair market value based on quoted market prices. Realized gains and losses and
declines in fair market value judged to be other-than-temporary are included in
interest income and were not material during the years ended December 31, 1999,
1998, and 1997. The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
is included in interest income.

  The following is a summary of available-for-sale securities (in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      -------------------------------
                                                                           1999             1998
                                                                      --------------   --------------
<S>                                                                   <C>              <C>
     Corporate bonds and notes.....................................         $330,759         $280,429
     Market auction preferred stock................................            1,000           98,609
     U.S. government obligations...................................           67,534            8,760
     Money market instruments......................................          100,142              620
     Certificates of deposit.......................................           19,626            9,388
                                                                            --------         --------
             Total available-for-sale securities...................          519,061          397,806
     Less amounts included in cash and cash equivalents............          218,386          279,219
                                                                            --------         --------
     Short-term investments........................................         $300,675         $118,587
                                                                            ========         ========
</TABLE>

  Unrealized gains and losses on available-for-sale securities at December 31,
1999 and 1998 were not material. Accordingly, we have not made a provision for
such amounts in our consolidated balance sheets.
<PAGE>

5. Investments in Affiliated Companies

   Our investments in affiliated companies represent investments of between 20%
and 50% in the equity of certain companies in which we do not have majority
voting control, including joint ventures formed with various entities for the
purpose of expanding the distribution of our @Home broadband and Excite content
services internationally. Investments in affiliated companies are accounted for
under the equity method. Our equity share of losses in affiliated companies was
$9.6 million for the year ended December 31, 1999; we had no equity investments
in operating companies in prior years. Condensed financial information of our
equity-method investments has not been presented as the financial condition and
results of operations of these companies are not material to our consolidated
financial statements.

   In general, we have service agreements with affiliated companies under which
we have agreed to provide certain consulting services on a cost-plus basis (see
Note 13).

At Home Solutions

   In May 1999, we entered into a joint venture agreement with Motorola, Inc. to
form At Home Network Solutions, Inc. ("Solutions"). In July 1999, Cisco Systems,
Inc. and General Instrument Corporation also invested in Solutions. As of
December 31, 1999, we owned approximately 46% of Solutions and each of Motorola,
Cisco and General Instrument owned approximately 18% of Solutions. Solutions
offers production, packaging, marketing, distribution and support of our
broadband Internet services for delivery by small and medium-sized cable
operations to residential, small office and home office customers in the United
States. We have an option for a three-year period commencing on April 1, 2002 to
purchase the interest owned by each of the other joint venture partners at fair
market value. If we do not exercise the purchase option, each joint venture
partner will have the right to sell its interest in Solutions to the other
partners, and the partners collectively will have the right to require Solutions
to register the sale of their interests to the public or collectively to
purchase our interest in Solutions for a nominal price.

At Home Australia

   In June 1999, we entered into a joint venture agreement with Optus Vision Pty
Ltd. to form At Home Network Australia Pty Ltd. At Home Australia is owned 50%
by us and 50% by Optus and will conduct a business consisting of the production,
packaging, marketing, distribution and support of our broadband Internet service
for delivery to residential, small office and home office customers in
Australia. Optus and we may each be required to contribute up to approximately
$20 million, or 32 million Australian Dollars, to the joint venture and we have
contributed approximately $3.4 million, or 4 million Australian Dollars, during
the year ended December 31, 1999. In March 2000, At Home Australia acquired
Excite Asia Pacific Pty Ltd and the combined entity was renamed Excite@Home
Australia Pty Limited. We have retained our 50% interest in the combined joint
venture and remain subject to the contribution requirements under the At Home
Australia joint venture agreement.

At Home Japan

   On August 26, 1999, we and Jupiter Telecommunications Co., Ltd. and Sumitomo
Corporation entered into a joint venture agreement to form At Home Japan
Limited. At Home Japan is indirectly owned 43% by us, 36% by Jupiter and 21% by
Sumitomo and will conduct operations in Japan in a similar manner as our joint
venture in Australia. The joint venture partners have agreed to contribute up to
approximately $74.9 million, or 7.8 billion Yen, based on amounts and timing
determined by At Home Japan's board of directors. Our share of this funding
obligation is $32.6 million, or 3.4 billion Yen. Under certain circumstances, we
may sell up to 50% of our interest in At Home Japan. We issued performance-based
warrants to our joint venture partners under which up to 900,000 shares of our
Series A common stock may be issuable (see Note 10).

Other Joint Ventures

   We have also formed a joint venture in the Netherlands with a local cable
operator and other investors to deliver broadband Internet services. We account
for this joint venture under the equity method but have not recorded our equity
share of losses in this investment because we have not made any cash
contributions and have no obligation to do so in the future.
<PAGE>

  In May 1999, in connection with the acquisition of Excite, approximately $21
million of the purchase price was allocated to Excite's affiliated companies
based on the fair value of these investments at the date of acquisition,
including Excite Japan, Excite Italia, Excite Asia Pacific Pty Ltd., Excite UK
Limited, Excite Espana and Excite Canada. We have a 50% interest in all of these
joint ventures as of December 31, 1999, except Excite Espana, which became a
wholly-owned subsidiary when we purchased our joint venture partner's 50%
interest for approximately $2 million in November 1999. Excite Japan is a joint
venture with Itochu Corporation and Dai Nippon Printing formed in October 1997
in which we have, as of December 31, 1999, a 50% interest and a related
promissory note payable to Itochu for $5 million (see Note 9), which was used to
fund a portion of Excite's required capital contribution. We have a 50% equity
interest in our remaining Excite joint ventures and have no related cash funding
requirements.

6. Other Investments

   As of December 31, 1999, our other investments totaled $273 million,
primarily consisting of equity instruments of publicly held companies. We
invested approximately $104.7 million during the year ended December 31, 1999 in
these equity instruments. In addition, we acquired approximately $60 million of
other investments at fair value in connection with the acquisition of Excite in
May 1999. During the year ended December 31, 1999, unrealized gains of $88.5
million on other investments in publicly held companies were included in
accumulated other comprehensive income.

   In February 1999, we recorded a $12.6 million realized gain on our investment
in a privately held company due to its acquisition in a common stock exchange
with a publicly traded company.

   We have made cash investments in several companies with which we also have
strategic relationships under which we have or expect to earn revenues. Revenues
from these companies were $26.1 million and $0.8 million for the years ended
December 31, 1999 and 1998, respectively. There were no such revenues in 1997.

7. Property, Equipment and Improvements

   The components of property, equipment and improvements are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                      December 31,                 Estimated
                                                             -------------------------------
                                                                  1999             1998          Useful Lives
                                                             --------------   --------------   -----------------
<S>                                                          <C>              <C>              <C>
     Computer equipment and software......................         $206,865          $56,004       3-4 years
     Furniture and fixtures...............................           27,086            7,271        5 years
     Leasehold improvements...............................           36,474            9,628      Lease term
     Land.................................................            5,239               --          n/a
                                                                   --------          -------
       Total property, equipment and improvements.........          275,664           72,903
     Less accumulated depreciation and amortization.......           99,587           23,663
                                                                   --------          -------
       Net property, equipment and improvements...........         $176,077          $49,240
                                                                   ========          =======
</TABLE>

   Equipment and improvements include amounts for assets acquired under capital
leases, principally computer equipment and software and furniture and fixtures,
of approximately $133.5 million and $40 million as of December 31, 1999 and
1998, respectively. Accumulated amortization of these assets was approximately
$64.4 million and $15.8 million as of December 31, 1999 and 1998, respectively.

8. Commitments and Contingencies

Facility and Equipment Leases

   We lease certain office facilities under non-cancelable operating leases that
expire at various dates through 2014, and which require us to pay operating
costs, including property taxes, insurance and maintenance. These facility
leases generally contain renewal options and provisions adjusting the lease
payments based upon changes in the consumer price index and increases in real
estate taxes and operating expenses or in fixed increments. Rent expense is
recorded on a straight-line basis over the terms of the leases. We also have
obligations under a number of capital equipment leases which generally have
terms of 36 months.

   Future minimum lease payments under non-cancelable operating and capital
leases having original terms in excess of one year are as follows as of December
31, 1999 (in thousands):
<PAGE>

<TABLE>
<CAPTION>
                                                             Operating       Capital
                                                               Leases        Leases
                                                            ------------   -----------
     <S>                                                    <C>            <C>
     Year ending December 31,
       2000...............................................      $ 18,026       $37,108
       2001...............................................        18,311        35,499
       2002...............................................        18,946        17,196
       2003...............................................        19,366            --
       2004...............................................        19,916            --
       Thereafter.........................................       144,264            --
                                                                --------       -------
               Total minimum lease payments...............      $238,829        89,803
                                                                ========
     Less amounts representing interest...................                       7,436
                                                                               -------
     Present value of minimum capital lease obligations...                      82,367
     Less current portion.................................                      34,015
                                                                               -------
     Noncurrent portion...................................                     $48,352
                                                                               =======
</TABLE>

  We paid expenditures for tenant improvements, primarily related to the
exercise of our build-to-suit options under our headquarters facility agreement,
of approximately $18.5 million in 1999; additional commitments during 2000 are
not significant.

  Facility rent expense amounted to approximately $10.2 million, $3.6 million,
and $1.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

Other Financing Obligations

  As a result of the Excite merger, we assumed obligations related to non-lease
equipment financing arrangements secured by specific computer equipment,
purchased software and office furniture. Amounts due under these obligations
total approximately $4.7 million during 2000 with the significant portion of the
remaining $4.2 million due in 2001.

Backbone Agreement

  We have a twenty-year agreement with a major telecommunications company to
develop and utilize a high capacity nationwide 15,000-mile fiber optic data
communications line, or backbone. In connection with this agreement, we made
disbursements of $57 million in 1999 to guarantee backbone capacity and purchase
related equipment and are required to make additional payments totaling $45
million in 2000, which will be capitalized as the payments are made. The
capitalized amount will be amortized by charges to operations over the term of
the agreement or the estimated useful life of the equipment purchased. In
addition, we will be required to make additional payments of approximately $5
million per year during the 20-year term of this agreement for connection space,
equipment and support and maintenance fees.

Litigation

  Sheldon Pittleman and Ralph Zonies each filed derivative lawsuits on behalf of
Excite@Home against AT&T and Messrs. Armstrong, Petrillo, Roberts, Woodrow,
Doerr, Hearst, Bell, Malone, Shaw and Jermoluk, who are our directors, in the
Court of Chancery of the State of Delaware on October 15, 1999. We are named as
a nominal defendant in each complaint. Each complaint alleges breaches of
fiduciary duty to Excite@Home and its public stockholders. We have not yet filed
responsive pleadings in either matter. Each of Messrs. Pittleman and Zonies
seeks an injunction requiring us to alter our corporate governance, including
appointing new, unaffiliated directors, as well as payment of monetary damages,
costs and attorneys' fees. If we do not prevail in this action, we may be
required to alter our corporate governance and pay substantial damages, which
could have a material effect on our financial position and results of
operations.

  GTE Internetworking Incorporated and GTE Intelligent Network Services
Incorporated filed a lawsuit against TCI (now a subsidiary of AT&T), Comcast
Corporation and us in the United States District Court for the Western District
of Pennsylvania on October 25, 1999. The complaint alleges violations of the
federal antitrust laws. GTE is seeking an injunction prohibiting continued
performance under our exclusive distribution and sales arrangements with our
cable partners, damages (including treble damages), costs and attorneys' fees.
We filed an answer to the complaint in this matter on December 15, 1999, which
was amended on December 21, 1999, denying the allegations
<PAGE>

of unlawful conduct in the complaint. If we do not prevail in this action, our
cable partners, when providing high speed data transport to residential
consumers, may be required to offer the services of other Internet service
providers in addition to the @Home service. We may also be required to pay
substantial damages. Either of these results could materially affect our
financial position and results of operations and could encourage others to
initiate litigation on similar legal theories in the future.

   Fred and Roberta Lipschutz, Arthur Simon and John Galley, III, as named
plaintiffs, filed a class action against us, AT&T, ServiceCo L.L.C. and entities
affiliated with eight other cable companies in the United States District Court
for the Central District of California on November 10, 1999. The complaint
alleges violations of the federal antitrust laws. The plaintiffs seek an
injunction prohibiting the alleged acts, damages (including treble damages),
costs and attorneys' fees. We filed an answer to the complaint in this matter on
January 21, 2000, denying the allegations of unlawful conduct in the complaint.
If we do not prevail in this action, we may be required to pay substantial
damages, or we may be forced to alter the way we do business. Either of these
results could materially affect our financial position and results of operations
and could encourage others to initiate litigation on similar legal theories in
the future.

   We cannot give assurance that we will prevail in any litigation. Regardless
of the outcome, any litigation may require that we incur significant litigation
expenses and may result in significant diversion of management. An unfavorable
outcome in any of these matters may have a material adverse effect on our
financial position or results of operations.

9. Convertible Debt and Other Liabilities

Convertible Debt

  On December 28, 1998, we issued $437 million of Convertible Subordinated
Debentures in a private offering within the United States to qualified
institutional investors. The issue price of each $1,000 debenture was $524.64
(52.464% of principal amount at maturity), or approximately $229.3 million.
Issuance costs were approximately $6.9 million, resulting in net proceeds to us
of approximately $222.4 million. The issuance costs were recorded as other
assets and are being amortized by charges to interest expense ratably over the
term of the debentures. Each debenture is convertible at the option of the
holder at any time prior to maturity, unless redeemed or otherwise purchased,
into 13.10 shares of our Series A common stock. The debentures mature on
December 28, 2018, and interest on the debentures at the rate of 0.5246% per
annum on the $437 million principal amount due at maturity is payable
semiannually commencing on June 28, 1999. At our option, we may redeem the
debentures beginning in December 2003 for cash equal to the issue price plus
accrued original issue discount and accrued interest. The effective annual
interest rate on the debentures, including accretion of original issuance
discount and amortization of the issuance costs, is approximately 4%. No
conversions of these debentures have occurred through December 31, 1999.

   On December 15, 1999, we issued $500 million principal amount of Convertible
Subordinated Notes due 2006 in a transaction that was exempt under Section 4(2)
of the Securities Act. The proceeds from this issuance were $485.7 million net
of issuance costs of $14.3 million. The issuance costs were recorded as other
assets and are being amortized by charges to interest expense ratably over the
term of the debentures. Each note was issued in denominations of $1,000 or
multiples of $1,000 and is convertible into Series A common stock at a
conversion price of $56.52 per share. We may redeem these notes on or after
December 20, 2002 by giving note holders at least 30 days' notice and paying
cash equal to a redemption price which decreases ratably from 102.7% of the
principal balance in December 2003 to 100% of the principal balance in December
2006, plus accrued interest. The notes bear interest at an annual rate of 4.75%
and mature on December 15, 2006. The net proceeds from the offering were used to
finance the $350 million cash component of the purchase price of
Bluemountain.com and the remainder is intended for working capital and general
corporate purposes. No conversions of these notes have occurred through December
31, 1999.

Promissory Note

   Through our acquisition of Excite, we assumed a convertible promissory note
issued by Excite to Itochu Corporation and certain affiliated entities for the
principal amount of $5 million, which is included in other liabilities in the
consolidated balance sheet as of December 31, 1999. The note matures on October
27, 2002 and bears interest at the London Interbank Offer Rate plus 1%,
resulting in an interest rate of approximately 7.14% as of December 31,
<PAGE>

1999. The unpaid principal amount at the date of maturity is convertible, at the
option of the note holder, into shares of Series A common stock at a conversion
price equal to the average closing price of the stock for the 30 day trading
period preceding the conversion. In addition, we may elect to prepay these notes
at any time by converting them to common stock using the same exchange ratio.

Term Loan Agreement

   We have available a $15 million term loan agreement with a bank to finance
the acquisition of property, equipment and improvements, and to collateralize
letters of credit. At our option, borrowings under this term loan bear interest
either at the Bank's prime rate or at LIBOR plus 2.5%. Under the terms of the
term loan, we are required to meet certain financial covenants. These covenants
were met as of December 31, 1999. The term loan expires in October 19, 2002.

   As of December 31, 1999, there were no borrowings under this term loan
although there were outstanding letters of credit in the amount of $2.4 million
issued as security deposits on real property leases.

10. Stockholders' Equity

   Unless otherwise indicated, all share and per share data have been adjusted
to reflect our two-for-one stock split effective June 1999.

Common Stock

   On July 11, 1997, we completed our initial public stock offering and issued
20,700,000 shares (including 2,700,000 shares issued in connection with the
exercise of the underwriters' over-allotment option) of our Series A common
stock to the public at a price of $5.25 per share. We received net proceeds of
approximately $99,800,000 in cash. Concurrent with the initial public offering,
each share of preferred stock converted to common stock on a 20-for-1 basis.
Shares of Series AT, AX, AM, and C preferred stock converted into 129,949,200
shares of Series A common stock. Shares of Series T preferred stock converted
into 30,800,000 shares of Series B common stock. Shares of Series K preferred
stock converted into 29,755,320 shares of Series K common stock.

   Common stock consisted of the following as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                     Shares Issued
                                               Shares Authorized                    and Outstanding
                                                At December 31,                     At December 31,
                                        --------------------------------   ---------------------------------
     Series                                  1999             1998              1999              1998
     ------                             --------------   ---------------   ---------------   ---------------
     <S>                                 <C>             <C>               <C>               <C>
     A...............................      683,700,000       400,000,000       351,954,355       210,526,320
     B...............................       30,800,000        30,800,000        30,800,000        30,800,000
     K...............................        5,219,414        29,755,320         2,000,000         5,219,414
                                           -----------       -----------       -----------       -----------
                                           719,719,414       460,555,320       384,754,355       246,545,734
                                           ===========       ===========       ===========       ===========
</TABLE>

   During the year ended December 31, 1999, our Board of Directors authorized
and our stockholders approved an increase in the authorized number of shares of
Series A common stock from 400,000,000 shares to 683,700,000 shares and a
decrease in the number of authorized shares of Series K common stock from
29,755,320 shares to 5,219,414 shares.

   The holders of Series A, B and K common stock have one, ten and one vote(s)
per share, respectively. Each share of Series B and K common stock is
convertible into one share of Series A common stock at the option of the
holders. During the years ended December 31, 1999 and 1998, 3,219,414 and
24,535,906 shares, respectively, were converted by holders of Series K common
stock to Series A common stock. There were no such conversions during the year
ended December 31, 1997.

   As of December 31, 1999, AT&T controlled approximately 56% of our voting
power as a result of its ownership in Series A and Series B common stock. The
Series B common stock ownership gives AT&T the right to elect five Series B
directors, one of which is designated by Comcast and one of which is designated
by Cox. So long as AT&T owns at least 15,400,000 shares of our Series B common
stock and holds a majority of our voting power, our board may take action only
if approved by the board and by at least 75%, or four of the five, of our Series
B directors. As a result, corporate actions generally require the approval of
AT&T's three Series B directors and one, or in some cases
<PAGE>

both, of the directors designated by Comcast and Cox. Therefore, Comcast and
Cox, acting together, may veto any board action.

Preferred Stock

  Our Board of Directors is authorized, subject to any limitation prescribed by
Delaware law, to issue, from time to time, in one or more series, up to
9,650,000 shares of preferred stock, with such designation, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in a Board
resolution or resolutions providing for the issue of such series without any
further vote or action by the stockholders. The Board may authorize the issuance
of such preferred stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of common stock. Thus,
the issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of our company.

  We issued 10,674 shares of Series A non-voting preferred stock, which may be
convertible into 10,673,549 shares of Series A common stock, in connection with
the acquisition and merger of Hartford House, Ltd. and Bluemountain.com. Each
share of Series A preferred stock is convertible into 1,000 shares of Series A
common stock at a rate of 500 shares of Series A preferred stock per month
during the first 12 months following the acquisition, with the remainder
convertible 24 months after such date. Preferred stock converted during the
first 12 months may be accelerated under certain circumstances, including the
charitable contribution of such shares. No shares of preferred stock were issued
or outstanding as of December 31, 1998.

Stock Purchase Agreements

  During 1996, we entered into stock purchase agreements with certain employees,
officers, directors and consultants under which we issued 15,054,000 shares of
Series A common stock at prices ranging from $0.01 to $0.05 per share, and
100,000 shares of Series K preferred stock at $5.00 per share. Proceeds from the
issuance of the restricted stock were received in the form of cash or five-year
secured promissory notes bearing interest at a rate of approximately 5.9% per
annum. Certain of the agreements provide that the unvested shares are subject to
repurchase by us upon termination of employment at the original price paid for
the shares. The shares generally vest at the rate of 25% after one year and
ratably on a monthly basis for three years thereafter. During the year ended
December 31, 1997, we repurchased 1,038,700 shares pursuant to such agreements;
there were no shares repurchased under these agreements during the years ended
December 31, 1999 and 1998. As of December 31, 1999, 1,250,806 shares were
subject to repurchase.

Warrants

Lessor Warrants

  In October 1996, we issued a warrant to our facilities lessor that gives the
lessor the right to purchase 400,000 shares of Series A common stock for $7.50
per share. The warrant is exercisable for a five-year period beginning in
October 1997. We deemed the warrant to have insignificant fair value at the time
of issuance. During the years ended December 31, 1999 and 1998, the lessor
acquired 29,328 and 191,812 shares, respectively, through net exercises under
the terms of the warrant. As of December 31, 1999, 48,712 shares remained
available for issuance under this warrant.

Series C Warrants

  In April 1997, we issued warrants to purchase 4,000,000 shares of Series C
preferred stock at a price of $5.00 per share to Rogers Cablesystems Limited and
Shaw Cablesystems Ltd., our primary cable partners in Canada that were Series C
preferred stock investors prior to our initial public offering. The warrants are
exercisable beginning June 2004, or earlier subject to certain performance
standards being met by the cable system operators as specified in the agreement.
We deemed the warrants to have insignificant fair value at the time of issuance.
During the year ended December 31, 1999, the holders of these warrants acquired
1,904,708 shares through net exercises under the terms of these warrants. As of
December 31, 1999, approximately 85,000 warrants were exercisable.

Intel Warrants
<PAGE>

   In July 1997, we issued a warrant to Intel Corporation in connection with a
development agreement that gives Intel Corporation the right to purchase 200,000
shares of Series A common stock for $5.00 per share. The shares exercisable
under this warrant vest 25% on the six-month anniversary of the agreement and
the remainder vests monthly for two years thereafter. The warrant is exercisable
through September 2002. In September 1997, we issued, in an amendment to the
development agreement, a second warrant that gives Intel Corporation the right
to purchase an additional 200,000 shares of Series A common stock for $10.50 per
share. The shares exercisable under this second warrant vest on an accelerated
basis from September 2004 or earlier, subject to certain performance standards
being met by Intel, as specified in the amended development agreement. In
September 2004, all unvested shares will automatically vest. We deemed the
warrants to have insignificant fair value at the time of issuance. No shares
have been issued under these warrants through December 31, 1999. As of December
31, 1999, 266,667 warrants were exercisable.

Warrants Subject to Distribution Agreements

  Cablevision

  In October 1997, we entered into a contract with Cablevision Systems
Corporation, and its parent, CSC Parent Corporation, Comcast Corporation, Cox
Enterprises, Inc., Kleiner, Perkins, Caufield & Byers and Tele-Communications,
Inc. This agreement provides that Cablevision will enter into a master
distribution agreement for the distribution of our @Home service on
substantially the same terms and conditions as TCI, Comcast and Cox. Although
Cablevision is subject to certain exclusivity obligations that prohibit it from
obtaining high-speed (greater than 128 kilobits per second) residential consumer
Internet services from any source other than us, Cablevision is under no
obligation to upgrade its cable systems to two-way cable infrastructure and is
under no affirmative obligation to roll out, market, promote or carry any of our
services. The exclusivity obligations in our favor expire in June 2002, and may
be terminated sooner under certain circumstances. These exclusivity obligations
also are subject to exceptions that would permit Cablevision to engage in
certain activities which could compete, directly or indirectly, with our
activities in certain markets.

  The Agreement provides for the issuance to Cablevision and CSC Parent of a
warrant to purchase 15,751,568 shares of our Series A Common Stock at an
exercise price of $0.25 per share. The warrant was immediately exercisable,
subject to the receipt of all necessary governmental consents or approvals.
During the year ended December 31, 1997, we recorded $172.6 million as
distribution agreements in the consolidated balance sheets representing the fair
value of the warrant, and we are amortizing the amount ratably over 56 months,
the remaining term of the exclusivity obligations at the time the warrant became
exercisable.

  The agreement with Cablevision provides for the issuance of an additional
warrant to Cablevision and CSC Parent to purchase up to 6,142,304 shares of our
Series A common stock at an exercise price of $0.25 per share under certain
conditions. This contingent warrant was not immediately exercisable and becomes
exercisable as and to the extent certain cable television systems are
transferred from TCI and its controlled affiliates to CSC, CSC Parent or their
controlled affiliates. During the year ended December 31, 1998, the contingent
warrant became exercisable for 4,711,028 shares of Series A common stock or
$74.5 million at fair value. No further shares became exercisable under the
contingent warrant during the year ended December 31, 1999. We capitalized the
fair value of the contingent warrant as distribution agreements in the
consolidated balance sheets and we are amortizing the amount ratably over 51
months, the remaining term of the exclusivity obligations at the time the
contingent warrant became exercisable.

  For the years ended December 31, 1999, 1998, and 1997, amortization of
intangible assets under the exclusive provisions of this distribution agreement
was $54.5 million, $51.6 million, and $9.2 million, respectively. As of December
31, 1999 and 1998, accumulated amortization of the cost of the distribution
agreement totaled $115.3 million and $60.8 million, respectively. No shares have
been issued under exercises of either the warrant or contingent warrant through
December 31, 1999.

  Other cable system operators

  At various dates during the years ended December 31, 1999 and 1998, we issued
performance-based warrants to certain other cable system operators as part of
the execution of exclusive distribution agreements over the cable systems of
these operators. Warrants to purchase up to 2,587,700 and 10,544,200 shares of
Series A common stock
<PAGE>

were issued during 1999 and 1998, respectively, at an exercise price of $5.25
per share. We also issued additional warrants to a cable operator in March 1999
to purchase up to 3,600,000 shares of Series A common stock at an exercise price
of $23.13 per share under a similar arrangement. As a result of changes in
ownership during 1999 of certain cable systems covered by warrants with a $5.25
exercise price, warrants to purchase 537,660 shares of Series A common stock
were canceled. During the year ended December 31, 1999, warrants to purchase
4,381,728 shares became exercisable as a result of the cable system operators
meeting certain system upgrade and subscriber performance milestones. As the
warrants became exercisable, we recorded $206 million as distribution agreements
in our consolidated balances sheets representing the fair value of exercisable
warrants, and we are amortizing the amount ratably over the remaining terms of
the exclusive distribution agreements, which expire at various times in 2004.
Amortization under these distribution agreements during the year ended December
31, 1999, and the related accumulated amortization as of December 31, 1999, was
$22.9 million. Exercises of warrants resulted in the net issuance of 441,080
shares during the year ended December 31, 1999; there were no issuances in prior
years.

Cable System Operator Performance Warrants

  In February 1998, we issued performance-based warrants to Rogers Cablesystems
Limited and Shaw Cablesystems Ltd. to purchase up to 10,000,000 shares of Series
A common stock, respectively, at an exercise price of $5.25 per share. Warrants
to purchase 5,471,879 and 1,839,536 shares of common stock became exercisable
when Rogers and Shaw met certain subscriber performance milestones during the
years ended December 31, 1999 and 1998, respectively. We recorded non-cash
charges to operations for the fair value of these warrants of $213.1 million and
$49.8 million during the years ended December 31, 1999 and 1998, respectively.
Exercises of warrants resulted in the net issuance of 3,044,534 shares during
the year ended December 31, 1999; there were no issuances in prior years.

Warrants Issued to Joint Venture Partners

  In April 1999, we issued performance-based warrants to partners in our At Home
Japan joint venture to purchase up to 900,000 shares of Series A common stock at
an exercise price of $32.50. These warrants become exercisable based on the
achievement of certain system upgrade, subscriber and other performance
milestones by the joint venture partners. Warrants to purchase 100,000 shares of
common stock became exercisable during the year ended December 31, 1999 when one
of the joint venture partners met certain of these performance milestones. We
recorded $2.1 million as an additional non-cash investment in the joint venture
based on the fair value of the exercisable warrants. None of these warrants have
been exercised as of December 31, 1999.

Excite Warrants

  As a result of our merger with Excite in May 1999, we assumed warrants that
Excite had issued to Netscape to purchase, on a converted basis, 150,886 shares
of Series A common stock at an exercise price of $66.28 per share. These
warrants are exercisable until April 30, 2001 and were fully vested at the date
of the acquisition of Excite. We also assumed other fully-vested warrants to
purchase 8,696 shares, on a converted basis, of Series A common stock at an
exercise price of $2.76. The purchase price allocation of Excite included an
allocation to the fair value of these warrants at the date of acquisition (see
Note 3). None of these warrants have been exercised as of December 31, 1999.

iMALL Warrants

  In our acquisition of iMALL in October 1999, we issued warrants to First Data
Corporation to purchase 2,300,000 shares of Series A common stock at an exercise
price of $36.96 per share, with a fair value of $82.8 million. In addition, we
also assumed warrants to purchase 158,728 shares, on a converted basis, of
Series A common stock at an exercise price of $6.96, with a fair value of $7.4
million. All warrants issued and assumed in the iMALL acquisition were
exercisable at the date of acquisition and their fair values were included in
the allocation of purchase price (see Note 3). None of these warrants have been
exercised as of December 31, 1999.

Stock Options

  Our stock option plans provide for incentive stock options, nonqualified stock
options and restricted stock awards and bonuses to our employees, directors and
consultants. We adopt stock option plans at the discretion of
<PAGE>

management and the Board of Directors and upon approval by stockholders, if
required. We have also assumed the stock option plans of several acquired
entities.

Stock Option Plans We Have Adopted

  In January 1996, we adopted the 1996 Incentive Stock Option Plan, and in July
1996, we adopted the 1996 Incentive Stock Option Plan No. 2. These plans adopted
in 1996 provide for incentive stock options, as defined by the Internal Revenue
Code, to be granted to employees, at an exercise price not less than 100% of the
fair value at the grant date as determined by the Board of Directors. The 1996
plans also provide for nonqualified stock options to be issued to nonemployee
officers, directors and consultants at an exercise price of not less than 85% of
the fair value at the grant date. The options granted under the 1996 plans were
exercisable immediately upon issuance and generally have a term of ten years.
Upon termination of employment, unvested shares may be repurchased by us at the
original purchase price. The repurchase right for vested shares expired upon the
completion of the Initial Public Offering. Stock options generally vest at the
rate of 25% after one year and ratably on a monthly basis for three years
thereafter and are exercisable at the earlier of 90 days after termination or 10
years from the date of grant.

  Our 1997 Equity Incentive Plan was adopted by the Board of Directors in May
1997 and approved by the stockholders in July 1997 as the successor to the 1996
plans. The 1997 plan provides for the grant of incentive stock options,
nonqualified stock options, restricted stock awards and stock bonuses to our
employees, directors and consultants. Options under the 1997 plan generally vest
at the rate of 25% after one year and ratably on a monthly basis for three years
thereafter and are exercisable at the earlier of 90 days after termination or 10
years from the date of grant.

  Our stockholders approved an increase in the total number of shares of Series
A common stock reserved for issuance under our equity incentive plans of
17,350,000 in May 1999. As of December 31, 1999, the total number of shares
reserved for issuance under the 1997 plan was 68,900,000 less the total number
of shares issued or issuable to employees, officers, directors and consultants
under restricted stock purchase agreements, the 1996 plans and the 1997 Employee
Stock Purchase Plan, discussed below.

Stock Option Plans Assumed Through Mergers and Acquisitions

  Shares issuable under stock option plans assumed in acquisitions are converted
to stock options to purchase shares of our Series A common stock based on the
respective share exchange ratio in the merger or acquisition. The following
summarizes stock options to purchase shares of Series A common stock which were
assumed in acquisitions (see Note 3):

<TABLE>
<CAPTION>
                                                               Options
                                                               Assumed
                                                           ---------------
     Assumed during the year ended December 31, 1998:
<S>                                                        <C>
       Narrative Plans /(1)/............................         1,177,070
     Assumed during the year ended December 31, 1999:
       Excite Plans.....................................        25,713,702
       iMALL Plans......................................         1,497,165
       Hartford House Ltd. Plan (Bluemountain.com)......         3,011,348
</TABLE>

   /(1)/ Includes options to purchase 894,600 shares issued to existing
   Narrative employees on December 30, 1998, the date of Narrative's
   acquisition.

  As a result of meeting certain performance criteria during the month of
December 1999, the number of shares issuable under stock options assumed in the
acquisition of Bluemountain.com were increased from 3,011,348 to 3,552,875
during the first quarter of 2000.

  Stock options available for grant under assumed stock option plans are
eliminated at the date of acquisition and outstanding options are subject to
existing vesting and exercise terms, which are generally similar to options
issued under the 1997 plan. However, the vesting schedules of stock options
under several of the assumed plans vary. The most significant variations include
iMALL stock options that vest at a rate of 33% per year and Hartford House stock
options that vest subject to a number of different schedules, the most common of
which is 12.5% vesting after six
<PAGE>

months with the remainder vesting ratably over 42 months. Outstanding stock
options under plans assumed in acquisitions are included as options granted in
the following table summarizing activity under our stock option plans.

Stock Option Plan Activity

 The following summarizes the activity related to our stock options for the
periods indicated:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                 ------------------------------------------------------------------------
                                                          1999                     1998                     1997
                                                 ----------------------   ----------------------   ----------------------
                                                               Weighted                 Weighted                 Weighted
                                                   Number      Average      Number      Average      Number      Average
                                                     Of        Exercise       Of        Exercise       Of        Exercise
                                                   Shares       Price       Shares       Price       Shares       Price
                                                 -----------   --------   -----------   --------   -----------   --------
<S>                                              <C>           <C>        <C>           <C>        <C>           <C>
Outstanding at beginning of year..............   20,026,590      $16.72    6,116,270      $ 5.13      446,000      $ 0.03
Options granted...............................   50,176,276      $29.24   15,295,304      $20.37   10,316,002      $ 3.15
Options exercised.............................   (5,045,756)     $10.44     (849,106)     $ 3.51   (4,341,172)     $ 0.13
Options cancelled.............................   (5,546,826)     $22.75     (535,878)     $ 9.42     (304,560)     $ 1.89
                                                 ----------               ----------               ----------
Outstanding at end of year....................   59,610,284      $27.23   20,026,590      $16.72    6,116,270      $ 5.13
                                                 ==========               ==========               ==========
Options exercisable at year-end...............   14,846,032      $16.50    3,232,786      $ 3.35    3,283,770      $ 1.27
                                                 ==========               ==========               ==========
</TABLE>

  As of December 31, 1999, there were 4,203,991 shares available for grant under
our stock option plans. The following table summarizes information about stock
options outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
                                   Options Outstanding                Options Exercisable
                        ------------------------------------------   ----------------------
                                           Weighted-
                                            Average       Weighted                 Weighted
       Range                               Remaining      Average                  Average
    Of Exercise           Number          Contractual     Exercise     Number      Exercise
       Prices           Outstanding       Life (Years)     Price     Exercisable    Price
---------------------   -----------       ------------    --------   -----------   --------
<S>                     <C>           <C>                 <C>        <C>           <C>
$   0.01 --  $   9.22    10,501,448           7.34         $ 3.26     5,762,445     $  2.54
$   9.31 --  $  16.97    10,081,635           8.34         $14.55     3,209,639     $ 14.66
$  17.06 --  $  20.13     5,611,598           9.08         $18.54     1,576,097     $ 18.53
$  20.18 --  $  32.39     9,502,646           9.19         $27.64     2,134,992     $ 26.58
$  32.61 --  $  32.61     9,529,989           9.44         $34.57     1,193,123     $ 34.41
$  36.66 --  $  57.78     8,335,073           9.56         $44.07       247,238     $ 50.36
$  59.47 --  $  76.50     6,047,895           9.30         $62.59       722,498     $ 60.63
                         ----------           ----         ------    ----------     -------
$  0.01  --  $  76.50    59,610,284           8.82         $27.23    14,846,032     $ 16.50
                         ==========                                  ==========
</TABLE>

  As of December 31, 1999, shares issued under stock option plans subject to
repurchase, based on the original exercise price, at our option in the event of
employee terminations consisted of 1,511,035 unvested shares issued pursuant to
exercises of stock options. In addition, shares assumed in the acquisition of
Excite that were subject to repurchase in the event of employee terminations
consisted of 51,205 unvested shares as of December 31, 1999.

  We recorded deferred compensation of $51.1 million during the year ended
December 31, 1999 for the deemed fair value of restricted stock issued and newly
issued options assumed in connection with acquisitions and we are amortizing
these amounts over the vesting terms of the awards, which range from two to four
years. The $5.3 million deferred compensation recorded prior to 1999 was related
to stock options granted and stock issued under stock purchase agreements prior
to our initial public offering in July 1997. These amounts are being amortized
on a straight-line basis by charges to operations over the vesting periods of
the individual stock options and stock purchase agreements, which are generally
four years.

Employee Stock Purchase Plan

  The 1997 Employee Stock Purchase Plan (ESPP) was established in July 1997 to
provide employees with an opportunity to purchase our common stock through
payroll deductions. We initially reserved 800,000 shares of common stock for
issuance to participants and an additional 1,200,000 shares were reserved during
the year ended December 31, 1998. Under the ESPP, our employees may purchase,
subject to certain restrictions, shares of common stock at the lesser of 85
percent of the fair value at either the beginning of each two-year offering
period or the end of each six-month purchase period within the two-year offering
period. During the years ended December 31, 1999 and 1998, employees purchased
721,014 and 463,890 shares, respectively. There were no purchases under this
plan during the year ended December 31, 1997. As a result of our merger with
Excite, we assumed an obligation to issue shares related to outstanding offering
periods under Excite's ESPP as of May 28, 1999. Shares purchased by Excite
employees under the remaining offering periods of Excite's ESPP are not deducted
from the reserve for issuance of shares under our ESPP.

Pro Forma Disclosures of the Effect of Stock-Based Compensation Plans
<PAGE>

  Pro forma information regarding results of operations and loss per share is
required by FAS No. 123, "Accounting for Stock-Based Compensation." Such pro
forma information summarizes our results of operations as if stock-based awards
to employees had been accounted for using a valuation method permitted under FAS
123.

  The fair value of our stock-based awards to employees prior to our initial
public offering in July 1997 was estimated using the minimum value method.
Options granted subsequent to the initial public offering have been valued using
the Black-Scholes option pricing model. Among other things, the Black-Scholes
model considers the expected volatility of our stock price, determined in
accordance with FAS 123, in arriving at an option valuation. The minimum value
method does not consider stock price volatility. Further, certain other
assumptions necessary to apply the Black-Scholes model may differ significantly
from assumptions used in calculating the value of options granted in 1996 and
1997, prior to the initial public offering, under the minimum value method.

  The fair value of our stock-based awards to employees was estimated assuming
no expected dividends and the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                       Options                                          ESPP
                                         ------------------------------------           -------------------------------------
                                                Year ended December 31,                         Year ended December 31,
                                         ------------------------------------           -------------------------------------
                                         1999            1998            1997            1999            1998            1997
                                         ----            ----            ----            ----            ----            ----
     <S>                                 <C>             <C>             <C>             <C>             <C>             <C>
     Expected life of options...     4 years         4 years         4 years         6 months        6 months        7 months
     Expected volatility........       0.82            1.00            0.71            0.80            1.00            0.72
     Risk free interest rate....       6.46%           4.69%           6.00%           6.01%           4.50%           5.09%
</TABLE>

  The following summarizes our hypothetical results of operations for the
periods indicated had we accounted for our stock-based awards in accordance with
FAS 123 (in thousands):

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                            --------------------------------------------------
                                                  1999              1998             1997
                                            ----------------   --------------   --------------
<S>                                         <C>                <C>              <C>
     Net loss as reported................   $   (1,457,638)    $   (144,179)    $     (55,717)
     Pro forma net loss..................   $   (1,583,777)    $   (166,401)    $     (56,746)
     Basic and diluted net loss per share   $        (4.61)    $      (0.63)    $       (0.27)
       as reported.......................
     Pro forma basic and diluted net per    $        (5.00)    $      (0.73)    $       (0.28)
       share -- as adjusted..............
</TABLE>

  The weighted-average fair value of options granted during the years ended
December 31, 1999, 1998 and 1997 was $28.70, $14.01 and $1.65, respectively. The
weighted-average fair value of ESPP rights granted during the years ended
December 31, 1999, 1998 and 1997 was $18.80, $2.67 and $1.99, respectively.

11. Retirement Plan

  We have a retirement plan under Section 401(k) of the Internal Revenue Code.
Under the retirement plan, participating employees may defer a portion of their
pretax earnings up to the Internal Revenue Service annual contribution limit. We
may make contributions to the plan at the discretion of the Board of Directors.
To date, no such contributions have been made by us.

12. Income Taxes

  Our income tax benefit differs from the income tax benefit determined by
applying the U.S. federal statutory rate to the net loss as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                    Year ended December 31, 1998
                                                           ----------------------------------------------
                                                                1999            1998            1997
                                                           --------------   -------------   -------------
<S>                                                        <C>              <C>             <C>
     Income tax benefit at U.S. statutory rate..........       $(510,173)       $(50,463)       $(19,501)
     Non-deductible amortization........................         388,144              --              --
     Acquisition-related costs..........................          18,305              --              --
     Valuation allowance for deferred tax assets........         103,724          50,463          19,501
                                                               ---------        --------        --------
     Income tax benefit.................................       $      --        $     --        $     --
                                                               =========        ========        ========
</TABLE>

  Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
our deferred tax assets and liabilities for federal and state income taxes as of
the dates indicated were (in thousands):
<PAGE>

<TABLE>
<CAPTION>
                                                                     As of December 31,
                                                               ------------------------------
                                                                    1999            1998
                                                               --------------   -------------
<S>                                                            <C>              <C>
     Deferred tax assets:
       Net operating loss carry forwards....................       $ 169,798        $ 38,394
       Stock options assumed in acquisitions................         269,248              --
       Cost and amortization of distribution agreements.....         168,877          45,078
       Accrued costs and expenses...........................          27,969           6,054
       Deferred revenue.....................................          19,058              --
       Depreciation and amortization........................          12,054           2,462
       Research and development credits.....................           2,248             480
       Capitalized research and development costs...........           4,922              --
     Other..................................................              88              --
                                                                   ---------        --------
     Total gross deferred tax assets........................         674,262          92,468
     Less valuation allowance...............................        (528,065)        (92,468)
                                                                   ---------        --------
          Deferred tax assets...............................         146,197              --
                                                                   ---------        --------
     Deferred tax liabilities:
       Acquisition-related intangibles......................         146,197              --
                                                                   ---------        --------
     Total gross deferred tax liabilities...................         146,197              --
                                                                   ---------        --------
               Net deferred tax assets......................       $      --        $     --
                                                                   =========        ========
</TABLE>

  Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets as of December 31,
1999 and 1998 has been established to reflect these uncertainties. The valuation
allowance increased by $435.6 million, $59.3 million and $22.3 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Approximately $135.4
million of the valuation allowance as of December 31, 1999 is attributable to
stock option deductions, the benefit of which will be credited to paid-in
capital when realized. Approximately $269.2 million of the valuation allowance
as of December 31, 1999 is attributable to deferred tax assets that when
realized, will first reduce unamortized goodwill, then other non-current
intangible assets of acquired subsidiaries, and then income tax expense.

  As of December 31, 1999, we had net operating loss carryforwards for federal
and state tax purposes of approximately $452.6 million and $197.9 million,
respectively. We also had research and development credit carryforwards for
federal and state tax purposes of approximately $1.1 million and $1.6 million,
respectively. These carryforwards will expire beginning in 2002, if not
utilized.

  Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operation loss and tax credit carryforwards before utilization.

13. Related Party and Other Significant Transactions

  We are involved in transactions with certain related parties in the ordinary
course of business. These related parties include stockholders and certain cable
partners with significant investments in our common stock, our joint venture
entities and its partners, and our executive officers and members of our Board
of Directors.

  Revenues from related parties were $28.8 million, $10.5 million, and $3
million for the years ended December 31, 1999, 1998 and 1997, respectively, and
were primarily related to support services such as customer support, local area
content development, development of set-top devices and pre-commercial
deployment consulting provided to our cable partners with significant
investments in our common stock. During 1999, revenues from related parties
included $10.5 million related predominantly to consulting and other services
rendered to our international joint ventures reimbursed on a cost-plus basis.

  Our agreements with cable partners and communications providers for license
and distribution of our services involve significant costs, including payments
under the backbone agreement described in Note 8.
<PAGE>

  We received financing from several cable partners and other strategic partners
prior to our initial public offering in July 1997. We have also issued warrants
to cable partners and others in connection with license and distribution
agreements as described in Note 10.

14. Segment Reporting

  Since our merger with Excite in May 1999, we operate in two significant
business segments, media and advertising services and subscriber network and
other services. Revenues for these two segments are reported separately for
internal purposes, but costs and expenses, loss from operations, net loss and
assets and liabilities are not reported separately for each segment because this
information is not produced internally. Our key operating segments are
aggregated into the reported business segments based upon how our management
organizes and manages our operations. Key operating segments within media and
advertising services include content development for our Excite narrowband
portal, targeted narrowband and electronic mail advertising services provided by
Matchlogic, media-rich advertising services provided by our Enliven service and
other advertising and media services provided over our narrowband and broadband
portals. Key operating segments within subscriber network and other services
include our @Home network engineering, maintenance and customer support
services, our @Work services and our set-top box and pre-deployment consulting
services. In addition, we have corporate marketing, general and administrative
and business development operations which generate no revenues.

  The following represents revenues for our reported business segments (in
thousands):

<TABLE>
<CAPTION>
                                                                            December 31,
                                                               --------------------------------------
                                                                  1999          1998          1997
                                                               -----------   -----------   ----------
<S>                                                            <C>           <C>           <C>
     Media and advertising services.........................      $203,714       $ 5,444       $  752
     Subscriber network and other services..................       133,241        42,601        6,685
                                                                  --------       -------       ------
          Total consolidated revenues.......................      $336,955       $48,045       $7,437
                                                                  ========       =======       ======
</TABLE>

  Revenues from media and advertising services are derived predominantly from
customers located within the United States. Revenues from customers located
outside the United States, derived primarily from our international joint
ventures, were approximately $2.6 million for the year ended December 31, 1999
and were insignificant for the years ended December 31, 1998 and 1997.

  Revenues from subscriber network and other services are derived from customers
located outside the United States included approximately $22.6 million, $5.2
million and $0.4 million for the years ended December 31, 1999, 1998 and 1997.
Our international customers include our cable partners and their cable customers
and joint venture partners located outside of the United States. Approximately
70% of these revenues from customers located outside the United States in each
of 1999, 1998 and 1997 consisted of cable subscription fees and other revenues
from Canadian customers and the remainder was comprised primarily of pre-
deployment consulting services to our joint ventures in Europe, Japan and
Australia.

  No individual customer accounted for more than 10% of total revenues during
the years ended December 31, 1999, 1998 and 1997.

15. Financial Instruments

  Financial instruments that subject us to concentrations of credit risk consist
primarily of cash, cash equivalents and short-term investments and trade
accounts receivable. We maintain cash, cash equivalents and short-term
investments with domestic financial institutions and broker-dealers with a high
credit standing. We perform periodic evaluations of the relative credit standing
of these institutions and, if warranted, adjust the investment portfolio
maintained with these institutions. Our business involves transactions that
arise in trade accounts receivable with companies in various industries
throughout the United States as well as international locations. Ongoing credit
evaluations of corporate customers and other counterparties are performed to
limit credit risk. While trade accounts receivable generally do not require
collateral, reserves are maintained for potential credit losses. Credit losses
to date have been within management's expectations.

  We use the following methods and assumptions in estimating the fair values of
our financial instruments:
<PAGE>

  Cash and cash equivalents: The carrying amount reported in the consolidated
balance sheets for cash and cash equivalents approximates its fair value as of
December 31, 1999 and 1998.

  Short-term investments: The fair values of short-term investments, all of
which have been classified as available-for-sale, are based on quoted market
prices as reported in the consolidated balance sheets. Thus, the carrying
amounts of short-term investments are equal to their fair values as of December
31, 1999 and 1998.

  Accounts receivable and accounts payable: The carrying amounts reported in the
consolidated balance sheets for accounts receivable and accounts payable, which
are presented net of reserves, approximate their fair value as of December 31,
1999 and 1998.

  Other investments: The fair values of our other investments, which are
accounted for as available-for-sale investments, are based on quoted market
prices for publicly held securities and the lower of cost or estimated fair
value for privately held securities as reported in the consolidated balance
sheets. Thus, the carrying amounts of other investments are equal to their fair
values as of December 31, 1999 and 1998.

  Capital lease and other obligations: We estimate the fair values of our
capital lease and other equipment financing obligations based on the implicit
interest rates for capital lease obligations we entered into recently compared
to the weighted average interest rates in our existing financings. Based on this
analysis, the carrying amounts of capital lease and other obligations
approximate their fair values as of December 31, 1999 and 1998.

  Convertible debt: The fair values of our convertible debentures and notes are
estimated using market rates for similar securities. The $485.7 million carrying
amount of convertible debt issued in December 1999 approximates its fair value
as of December 31, 1999. The fair value of convertible debt issued in December
1998 is approximately $274 million and the carrying amount is $236.3 as of
December 31, 1999; the carrying amount of this convertible debt
approximated its fair value as of December 31, 1998.

16. Subsequent Events (Unaudited)

Acquisition of Kendara, Inc.

  On February 20, 2000, we completed our acquisition of Kendara, Inc., a
Delaware corporation, for approximately 1.5 million shares of our Series A
common stock, 202 shares of our Series B non-voting preferred stock and 1,279
shares of our Series C non-voting preferred stock, which may be converted into
1,299,296 shares of Series A common stock. We also assumed Kendara's outstanding
options, which were converted into options to purchase shares of our Series A
common stock. The merger consideration is approximately $120 million. Each share
of Series B preferred stock is being held in escrow for one year and will
automatically convert into 1,000 shares of our Series A common stock upon the
expiration of the escrow period. Each share of Series C preferred stock is also
convertible into 1,000 shares of our Series A common stock, subject to a vesting
schedule and escrow. Kendara is a provider of browser-based marketing services.
We accounted for this acquisition as a purchase.

Announcement of Work.com Joint Venture

  On February 22, 2000, we entered into a preliminary agreement with Dow Jones &
Co., Inc. to form a joint venture for the purpose of establishing and operating
an Internet site providing news, information and business services to small and
medium-sized businesses. Under the agreement, we will contribute to the joint
venture approximately $16 million in cash, our Work.com web site including the
related technology and certain of our business-related advertising and content
relationships, in exchange for a 50% equity interest. Under a separate
agreement, we will receive a percentage of the advertising revenues generated by
the joint venture over a three-year term up to a total of $31 million. The joint
venture will be accounted for as an investment under the equity method.
<PAGE>

Quarterly financial information (unaudited)

<TABLE>
<CAPTION>
                                                                                Three months Ended
                                                           -------------------------------------------------------------
                                                             March 31,       June 30,      September 30,   December 31,
                                                               1999            1999            1999            1999
                                                           -------------   -------------   -------------   -------------
                                                              (In thousands, except per share and stock price data)
<S>                                                        <C>             <C>             <C>             <C>
Total revenue...........................................       $ 25,098       $  70,542       $ 112,562       $ 128,753
Costs and expenses:
  Operating costs.......................................         18,600          29,084          45,260          50,112
  Product development and engineering...................          6,467          11,281          16,834          20,223
  Sales and marketing...................................          7,676          25,274          48,179          49,596
  General and administrative............................          4,103           6,423           9,028          10,722
  Cost and amortization of distribution
    agreements..........................................         15,020          18,703          43,932         214,312
  Amortization of goodwill, intangible assets
    and deferred compensation and other
    acquisition-related costs...........................          6,733         199,451         447,569         503,256
                                                               --------       ---------       ---------       ---------
Total costs and expenses................................         58,599         290,216         610,802         848,221
                                                               --------       ---------       ---------       ---------
Loss from operations....................................        (33,501)       (219,674)       (498,240)       (719,468)
Interest and other income, net..........................          2,811           2,472           2,556           2,414
Investment gain from business combination...............         12,566              --              --              --
Equity share of losses of affiliates....................             --            (742)         (2,876)         (5,956)
                                                               --------       ---------       ---------       ---------
Net loss................................................       $(18,124)      $(217,944)      $(498,560)      $(723,010)
                                                               ========       =========       =========       =========
Basic and diluted net loss per share(1).................       $  (0.08)      $   (0.76)      $   (1.37)      $   (1.93)
                                                               ========       =========       =========       =========
Price range per share(1):
  Low...................................................       $  37.25       $   39.00       $   33.13       $   36.69
  High..................................................       $  81.75       $   99.00       $   59.63       $   59.75
</TABLE>

<TABLE>
<CAPTION>
                                                                                Three months Ended
                                                           -------------------------------------------------------------
                                                             March 31,       June 30,      September 30,   December 31,
                                                               1998            1998            1998            1998
                                                           -------------   -------------   -------------   -------------
                                                              (In thousands, except per share and stock price data)
                                                             <S>             <C>             <C>             <C>
Total revenue...........................................       $  5,773        $  9,220        $ 13,815        $ 19,237
Costs and expenses:
  Operating costs.......................................          8,615          10,098          12,256          15,996
  Product development and engineering...................          3,573           3,891           4,588           4,957
  Sales and marketing...................................          3,500           4,356           4,978           5,257
  General and administrative............................          2,874           2,925           3,112           3,518
  Cost and amortization of distribution
    agreements..........................................         19,534          13,628          13,628          54,595
  Amortization of goodwill, intangible assets
    and deferred compensation and other
    acquisition-related costs...........................             --              --              --           2,758
                                                               --------        --------        --------        --------
Total costs and expenses................................         38,096          34,898          38,562          87,081
                                                               --------        --------        --------        --------
Loss from operations....................................        (32,323)        (25,678)        (24,747)        (67,844)
Interest and other income, net..........................          1,107             906           1,460           2,940
                                                               --------        --------        --------        --------
Net loss................................................       $(31,216)       $(24,772)       $(23,287)       $(64,904)
                                                               ========        ========        ========        ========
Basic and diluted net loss per share/(1)/...............       $  (0.28)       $  (0.22)       $  (0.20)       $  (0.56)
                                                               ========        ========        ========        ========
Price range per share/(1)/:
  Low...................................................       $  10.25        $  14.88        $  11.75        $  17.25
  High..................................................       $  19.06        $  28.63        $  27.47        $  42.38
</TABLE>


/(1)/share and per share data have been adjusted to reflect our two-for-one
stock split effective June 1999.
<PAGE>

Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

  None.

                                   PART III

  With the exception of the information specifically stated as being
incorporated by reference from our definitive proxy statement for our 2000
annual stockholders' meeting in Part III of this annual report, our proxy
statement is not to be deemed as filed as part of this annual report. In the
event we do not file the definitive proxy statement for our 2000 annual
stockholders' meeting by April 29, 2000, we will amend this annual report to
include information for the following items.

Item 10. Directors and Executive Officers of Registrant

  Directors and Executive Officers.  The information concerning our directors
required by this item, which will be set forth in the section entitled "Proposal
No. 1 -- Election of Directors" of our definitive proxy statement for our 2000
annual stockholders' meeting, is incorporated into this annual report by
reference. The information concerning our executive officers required by this
item, which will be set forth in the section entitled "Executive Officers" of
our definitive proxy statement for our 2000 annual stockholders' meeting, is
incorporated into this annual report by reference.

  Compliance With Section 16(a) of the Exchange Act.  Section 16(a) of the
Exchange Act requires our directors and executive officers, and persons who
beneficially own more than 10% of our Series A common stock, to file initial
reports of beneficial ownership and reports of changes in beneficial ownership
with the Commission.  These persons are required by regulation to furnish us
with copies of all Section 16(a) forms they file.  Based solely on our review of
the copies of such forms furnished to us and written representations from these
persons, we believe that all Section 16(a) filing requirements were met during
1999.

Item 11. Executive Compensation

  The information required by this item, which will be set forth in the sections
entitled "Executive Compensation" and "Proposal No. 1 -- Election of Directors"
of our definitive proxy statement for our 2000 annual stockholders' meeting, is
incorporated into this annual report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

  The information required by this item, which will be set forth in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" of our
definitive proxy statement for our 2000 annual stockholders' meeting, is
incorporated into this annual report by reference.

Item 13. Certain Relationships and Related Transactions

  The information required by this item, which will be set forth in the section
entitled "Certain Transactions" of our definitive proxy statement for our 2000
annual stockholders' meeting, is incorporated into this annual report by
reference.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  (a) The following documents are filed as part of this annual report:

    1. Financial Statements. See Index to Financial Statements at Item 8 on page
       __ of this annual report.

    2. Financial Statement Schedules.
<PAGE>

      Schedule II--Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                            As of December 31,
                                                 ----------------------------------------
                                                     1999          1998          1997
                                                 ------------   -----------   -----------
<S>                                              <C>            <C>           <C>
     Allowance for doubtful accounts:
       Balance at beginning of period.........       $   252       $     --      $     --
         Acquired allowance...................         1,705             19            --
         Bad debt expense.....................         3,203            190            --
         Write-offs, net of recoveries........        (1,706)            43            --
                                                     -------          -----      --------
       Balance at end of period...............       $ 3,454          $ 252      $     --
                                                     =======          =====      ========
</TABLE>

      Omitted schedules are not applicable or the required information is shown
      in the consolidated financial statements and notes thereto.

    3. Exhibits. The following exhibits are filed as part of, or are
       incorporated by reference into, this annual report:

<TABLE>
<CAPTION>
                                                                                      Incorporated by Reference
Exhibit                                                                              ---------------------------             Filed
Number                                Exhibit Description                         Form     File No.  Exhibit  Filing Date   Herewith
-----                                 -------------------                         ----    ---------  -------  -----------   --------
<S>    <C>                                                                       <C>      <C>        <C>      <C>           <C>
2.01   Agreement and Plan of Merger, dated December 17, 1998, among the            8-K        --        2.1    01/14/99
       Registrant, Transitory Corporation and Narrative Communications Corp.

2.02   Agreement and Plan of Reorganization, dated January 19, 1999, among the     S-4     333-77151    2.01    04/27/99
       Registrant, Countdown Acquisition Corp. and Excite, Inc.

2.03   Agreement and Plan of Merger, dated as of July 12, 1999, among the          13D        --        99.A    08/02/99
       Registrant, Shop Nevada, Inc. and iMALL, Inc.

2.04   Agreement and Plan of Merger, dated October 27, 1999, between the                                                      X
       Registrant and Webshots Corporation.

2.05   Agreement and Plan of Merger, dated October 23, 1999, between the           10-Q       --        2.01    11/15/99
       Registrant and Hartford House, Ltd.

3.01   Fifth Amended and Restated Certificate of Incorporation of the              S-8     333-79883    4.01    06/03/99
       Registrant, filed with the Delaware Secretary of State on May 28, 1999.

3.02   Second Amended and Restated Bylaws of the Registrant, as adopted on         S-1     333-27323    3.05    06/20/97
       July 16, 1997.

3.03   Certificate of Designation of Series A non-voting convertible preferred                                                X
       stock of the Registrant, filed with the Delaware Secretary of State on
       December 13, 1999.

3.04   Certificate of Designation of Series B non-voting convertible preferred     S-3     333-31530    4.04    03/02/00
       stock of the Registrant, filed with the Delaware Secretary of State on
       February 9, 2000.

3.05   Certificate of Designation of Series C non-voting convertible preferred     S-3     333-31530    4.05    03/02/00
       stock of the Registrant, filed with the Delaware Secretary of State on
       February 9, 2000.

4.01   Form of certificate of the Registrant's Series A common stock.              S-1     333-27323    4.05    03/31/99
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                      Incorporated by Reference
Exhibit                                                                              ---------------------------             Filed
Number                                Exhibit Description                         Form     File No.  Exhibit  Filing Date   Herewith
-----                                 -------------------                         ----    ---------  -------  -----------   --------
<S>    <C>                                                                        <C>     <C>        <C>      <C>           <C>
  4.02       Indenture, dated December 28, 1998, between the Registrant and        10-K       --       10.38    03/31/99
             State Street Bank and Trust Company of California, N.A., as trustee
             (contains form of note).

  4.03       Registration Rights Agreement, dated December 28, 1998, between the   10-K       --       10.39    03/31/99
             Registrant and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
             Smith Incorporated, Morgan St Goldman and Sachs & Co.

  4.04       Indenture, dated as of December 1, 1999, by the Registrant to State   S-3    333-32228     4.03    03/10/00
             Street Bank and Trust Company of California, N.A., as trustee
             (contains form of note).

  4.05       Registration Rights Agreement, dated December 1, 1999, between the    S-3    333-32228     4.04    03/10/00
             Registrant and Morgan Stanley & Co. Incorporated, Goldman Sachs &
             Co., Deutsche Bank Securities Inc., Donaldson Lufkin & Jenrette
             Securities Corporation, Hambrecht & Quist LLC and BancBoston
             Robertson Stephens Inc.

  4.06       Third Amended and Restated Registration Rights Agreement, dated       S-1    333-27323     4.01    05/16/97
             April 11, 1997, among the Registrant and the parties indicated
             therein.

  4.07       Amended and Restated Stockholders' Agreement, dated August 1, 1996,   S-1    333-27323     4.04    06/20/97
             among the Registrant and the parties indicated therein, as amended
             on May 15, 1997.

  4.08       Letter Agreement and Term Sheet, dated as of October 2, 1997 and      8-K       --        10.01    10/22/97
             amended as of October 10, 1997, among the Registrant, Cablevision
             Systems Corporation, CSC Parent Corporation, Comcast Corporation,
             Cox Enterprises, Inc., Kleiner Perkins Caufield & Byers and Tele-
             Communications, Inc.

  4.09       Letter Agreement, dated April 7, 1999, among the Registrant,           AT&T      --         13     04/13/99
             AT&T Corp., Tele-Communications, Inc., Cox Communications,             13D
             Inc. and Cox@Home, Inc.

  9.01       Voting Agreement, dated April 11, 1997 among the Registrant,           S-1   333-27323     9.01    05/16/97
             TCI Internet Holdings, Inc., Comcast PC Investments, Inc.,
             Cox Teleport Providence, Inc., Rogers Cablesystems Limited
             and Shaw Cablesystems Ltd.

  10.01      Form of Indemnification Agreement between the Registrant and           S-1   333-27323    10.09    05/16/97
             each of its directors and executive officers.*

  10.02      Description of the Registrant's 1998 Executive Incentive Plan.*        10-K      --       10.13    02/19/99

  10.03      At Home Corporation 1996 Incentive Stock Option Plan.*                 S-1   333-27323    10.10    05/16/97

  10.04      At Home Corporation 1996 Incentive Stock Option Plan No. 2.*           S-1   333-27323    10.11    05/16/97

  10.05      At Home Corporation 1997 Equity Incentive Plan, amended as of          S-8   333-81477     4.05    06/24/99
             April 16, 1999.*

  10.06      At Home Corporation 1997 Employee Stock Purchase Plan, amended         S-8   333-60037     4.08    07/28/98
             as of May 13, 1998.*

  10.07      At Home Corporation 2000 Equity Incentive Plan and forms of            S-8   333-31532     4.06 -  03/02/00
             related agreements.*                                                                       4.09
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Incorporated by Reference
Exhibit                                                                              ---------------------------             Filed
Number                                Exhibit Description                         Form     File No.  Exhibit  Filing Date   Herewith
-----                                 -------------------                         ----    ---------  -------  -----------   --------
<S>    <C>                                                                        <C>     <C>        <C>      <C>           <C>
  10.08      Narrative Communications Corp. 1998 Equity Incentive Plan, assumed    S-8    333-81477     4.04    06/24/99
             by the Registrant as of December 30, 1998.*

  10.09      Narrative Communications Corp. 1995 Stock Option Plan, assumed by     10-K       --       10.12    02/19/99
             Registrant as of December 30, 1998.*

  10.10      Excite, Inc. 1995 Equity Incentive Plan.*                             Excite 333-2328-LA           03/11/96
                                                                                    SB-2

  10.11      Excite, Inc. 1996 Equity Incentive Plan.*                             Excite 333-59329     4.04    07/17/98
                                                                                    S-8
  10.12      Excite, Inc. 1996 Directors Stock Option Plan.*                       Excite 333-2328-LA           03/11/96
                                                                                    SB-2

  10.13      Excite, Inc. 1996 Employee Stock Purchase Plan.*                      Excite 333-59329     4.05    07/17/98
                                                                                   S-8

  10.14      Classifieds2000, Inc. 1996 Stock Option Plan.*                        Excite 333-52001     4.04    05/07/98
                                                                                   S-8

  10.15      MatchLogic, Inc. 1997 Equity Compensation Plan.*                      Excite 333-46591     4.03    02/19/98
                                                                                   S-8

  10.16      Netbot, Inc. 1996 Stock Option Plan.*                                 Excite 333-41523     4.04    12/05/97
                                                                                   S-8

  10.17      Throw, Inc. 1996 Stock Option Plan.*                                  Excite 333-52001     4.03    05/07/98
                                                                                   S-8

  10.18      iMALL, Inc. 1997 Stock Option Plan.*                                  iMALL  333-52905     4.1     05/15/98
                                                                                   S-8

  10.19      iMALL, Inc. 1999 Stock Option Plan.*                                  S-8    333-90327     4.04    11/04/99

  10.20      Hartford House, Ltd. Amended and Restated 1999 Stock Option/Stock     S-8    333-93339     4.03    12/22/99
             Issuance Plan.*

  10.21      Kendara, Inc. 1999 Stock Plan and forms of related agreements.*       S-8    333-31532     4.03-   03/02/00
                                                                                                        4.05

  10.22      Employment Letter Agreement, dated July 19, 1996, between the         S-1    333-27323    10.19    05/16/97
             Registrant and Thomas A. Jermoluk.*

  10.24      Restricted Stock Purchase Agreement, dated July 31, 1996, between     S-1    333-27323    10.14    05/16/97
             the Registrant and Thomas A. Jermoluk for the purchase of Series A
             common stock.*

  10.25      Restricted Stock Purchase Agreement, dated July 31, 1996, between     S-1    333-27323    10.15    05/16/97
             the Registrant and Thomas A. Jermoluk for the purchase of Series K
             preferred stock.*

  10.26      Amendment of Employment Agreement, dated November 23, 1999, between                                                X
             the Registrant and Thomas A. Jermoluk.*

  10.27      Employment Agreement, dated as of May 28, 1999, between the                                                        X
             Registrant and George Bell.*
</TABLE>
<PAGE>

<TABLE>
<CAPTION>                                                                      Incorporated by Reference
 Exhibit                                                                       -------------------------                  Filed
  Number                    Exhibit Description                           Form    File No.     Exhibit    Filing Date   Herewith
  -----                     -------------------                           -----   --------     -------    -----------   --------
<S>          <C>                                                          <C>     <C>          <C>        <C>           <C>
  10.28      Restricted Stock Purchase Agreement, dated July 29,          S-1     333-27323    10.17      05/16/97
             1996, between the Registrant and Ken Goldman for the
             purchase of Series A common stock.

  10.29      Settlement Agreement and General Release, dated June 15,                                                        X
             1999, between the Registrant and Robert Tomasi, Jr.*

  10.30      Option Continuation Agreement, dated June 15, 1999,                                                             X
             between the Registrant and Robert Tomasi, Jr.*

  10.31      Form of Restricted Stock Purchase Agreement and              S-1     333-27323    10.18      05/16/97
             Promissory Note between the Registrant and other
             officers for the purchase of Series A common stock.

  10.32      Term Sheet, dated June 4, 1996, among the Registrant,        S-1     333-27323     10.06     05/16/97
             TCI Internet Holdings, Inc., Kleiner Perkins Caufield &
             Byers VII, KPCB Information Sciences Zaibatsu Fund II,
             KPCB VII Founders Fund, Comcast PC  Investments,
             Inc., and Cox Teleport Providence, Inc.

  10.33      Letter of Agreement, dated May 15, 1997, among               S-1     333-27323     10.20    06/20/97
             Registrant and the parties indicated therein, including as
             exhibits the Master Distribution Agreement Term Sheet
             and the Term Sheet for Form of LCO Agreement.

  10.34      Term Sheet, dated March 18, 1997, between the                S-1     333-27323     10.06    05/16/97
             Registrant and Shaw Cablesystems Ltd. and Rogers
             Cablesystems Limited.


  10.35      Canadian Purchase Letter Agreement, dated April 11,          S-1     333-27323     4.03      05/16/97
             1997, among the Registrant, Rogers Cablesystems
             Limited and Shaw Cablesystems Ltd.

  10.36      Binding Warrant Term Sheet, dated February 24, 1998,        10-Q        --        10.24      05/15/98
             among the Registrant, Rogers Communications, Inc. and
             Shaw Communications, Inc.

  10.37      Warrant Purchase Agreement, dated October 10, 1997,          8-K        --        10.02      10/22/97
             between the Registrant and Cablevision Systems
             Corporation.

  10.38      Warrant to purchase shares of Series A common stock of       8-K        --        10.03      10/22/97
             Registrant issued to CSC Parent Corporation as of
             October 10, 1997.

  10.39      Contingent warrant to purchase shares of Series A            8-K        --        10.04      10/22/97
             common stock of the Registrant issued to CSC Parent
             Corporation as of October 10, 1997.



</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Incorporated by Reference
Exhibit                                                                                 -------------------------           Filed
Number                 Exhibit Description                                  Form       File No.    Exhibit   Filing Date   Herewith
------                 -------------------                                  ----       --------    -------   -----------   --------
<S>                    <C>                                                  <C>        <C>         <C>       <C>           <C>

10.40           Lease, dated October 17, 1996, between the Registrant       S-1        333-27323     10.08    05/16/97
                and Martin/Campus Associated, L.P.

10.41           Build To Suit Lease, dated September 29, 1997, between      10-K          --         10.35    02/19/99
                the Registrant and Martin/ Campus Associates, L.P.,
                (440 Broadway, Redwood City, California).

10.42           Build To Suit Lease, dated September 29, 1997, between      10-Q          --         10.21    05/15/98
                the Registrant and Martin/ Campus Associates, L.P. (425
                Broadway, Redwood City, California).

10.43           Build to Suit Option Agreement, dated October 25, 1996,     10-Q          --         10.22    05/15/98
                between Registrant and Martin/Campus Associates, L.P.,
                and First Amendment to Build to Suit Option Agreement

10.44           Build to Suit Lease, dated July 14, 1998, between           10-K          --         10.36    02/19/99
                Registrant and Martin/Campus Associates, L.P.
                (420 Broadway, Redwood City, California)

10.45           Build to Suit Lease between the                             10-K          --         10.37    02/19/99
                Registrant and Martin/Campus Associates, L.P. (430
                Broadway, Redwood City, California)

10.46           Loan and Security Agreement, dated September 30,            10-Q          --         10.23    11/14/97
                1997, between the Registrant and Silicon Valley Bank.

10.47           Loan Modification Agreement between the Registrant and      10-K          --         10.34    02/19/99
                Silicon Valley Bank

10.48           Master Communications Services Agreement, dated April       S-1        333-27323     10.07    05/16/97
                2, 1997, between the Registrant and Teleport
                Communications Group Inc.

10.49           IRU Capacity Agreement, dated December 19, 1998,            10-K          --         10.33    04/27/99
                between the Registrant and AT&T Corp.

10.50           Form of Amendment Number Two to IRU Capacity                10-Q          --        10.01     11/15/99
                Agreement, dated September 30, 1999, between the
                Registrant and AT&T Corp.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Incorporated by Reference
Exhibit                                                                                 -------------------------           Filed
Number                 Exhibit Description                                  Form       File No.    Exhibit   Filing Date   Herewith
------                 -------------------                                  ----       --------    -------   -----------   --------
<S>                    <C>                                                  <C>        <C>         <C>       <C>           <C>

  21.01  List of Subsidiaries of the Registrant.                                                                           X

  23.01  Consent of Ernst & Young LLP, Independent Auditors.                                                               X

  24.01  Power of Attorney executed by each officer and director
         (see pg. 90 of this report).                                                                                      X

  27.01  Financial data schedule for the year ended December 31,                                                           X
         1999.
</TABLE>
--------------

     *     Management contracts or compensatory plans required to be filed as
           an exhibit to this annual report.

     (b)   Reports on Form 8-K.

     On October 27, 1999, we filed a current report on Form 8-K announcing under
Item 5 that we had entered into an Agreement and Plan of Merger with Hartford
House, Ltd., the operator of the Bluemountain.com web site.

     On December 6, 1999, we filed a current report on Form 8-K announcing under
Item 5 that we had issued a press release dated December 3, 1999 with respect to
our intention to raise approximately $400 million through a private offering of
convertible subordinated notes within the United States to qualified
institutional buyers.

     On December 22, 1999, we filed a current report on Form 8-K announcing
under Item 2 that we had completed our merger with Hartford House, Ltd., the
operator of the Bluemountain.com web site, and announcing under Item 5 that (1)
on December 13, 1999 we had completed the private placement of $500 million of
4.75% Convertible Subordinated Notes Due 2006, (2) on December 14, 1999, we
issued a press release with respect to the completion of the private placement
of the convertible notes, (3) on December 6, 1999, AT&T announced that it would
not extend its exclusivity agreement with us, and (4) on November 22, 1999, we
announced that our Board of Directors had authorized us to investigate the
issuance of a "tracking stock" for our media business.
<PAGE>

                                  SIGNATURES

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

Date: March 30, 2000                  AT HOME CORPORATION


                                      By: /s/  Kenneth A. Goldman
                                         --------------------------
                                         Kenneth A. Goldman
                                         Senior Vice President and
                                         Chief Financial Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George Bell, Kenneth A. Goldman and David
G. Pine, jointly and severally, his attorney in fact, each with the full power
of substitution, for such person, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this annual report, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might do or could do in person hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute, may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                        Name                                            Title                            Date
                        ----                                            -----                            ----
<S>                                                    <C>                                       <C>
 Principal Executive Officer:

               /s/ George Bell                           President, Chief Executive Officer         March 30, 2000
----------------------------------------------------                and Director
               George Bell

 Principal Financial Officer:

               /s/ Kenneth A. Goldman                         Executive Vice President and          March 30, 2000
----------------------------------------------------           Chief Financial Officer
               Kenneth A. Goldman

Chief Accounting Officer:

               /s/ Robert A. Lerner                       Vice President, Chief Accounting          March 30, 2000
----------------------------------------------------      Officer and Corporate Controller
               Robert Lerner

Additional Directors:

               /s/ Thomas A. Jermoluk                                 Chairman                      March 30, 2000
----------------------------------------------------
               Thomas A. Jermoluk

               /s/ William R. Hearst III                              Director                      March 30, 2000
----------------------------------------------------
               William R. Hearst III

                                                                      Director
----------------------------------------------------
               C. Michael Armstrong

               /s/ L. John Doerr                                      Director                      March 30, 2000
----------------------------------------------------
               John L. Doerr

                                                                      Director
----------------------------------------------------
               Ray Liguori

               /s/ John C. Malone                                     Director                      March 30, 2000
----------------------------------------------------
               John C. Malone
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                        Name                                            Title                            Date
                        ----                                            -----                            ----
<S>                                                    <C>                                       <C>
                                                                      Director
----------------------------------------------------
               John C. Petrillo

               /s/ Brian L. Roberts                                   Director                      March 30, 2000
----------------------------------------------------
               Brian L. Roberts

               /s/ Ted Rogers                                         Director                      March 26, 2000
----------------------------------------------------
               Ted Rogers

               /s/ David M. Woodrow                                   Director                      March 30, 2000
----------------------------------------------------
               David M. Woodrow
</TABLE>