AT HOME CORP, 10-Q/A, 1999-02-08

AT HOME CORP
10-Q/A, 1999-02-08
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A

(MARK ONE)

[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1998.

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________.

Commission file number 000-22697

AT HOME CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 77-0408542
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification number)

425 Broadway Street
Redwood City, CA 94063
(Address of principal executive offices,
including zip code)

(650) 569-5000
(Registrant's telephone number, including area code)

Former name, former address, and former year, if changed since last report: Not
applicable

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

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
--- ---

The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of June 30, 1998: 95,059,514 Shares of Series A Common Stock,
15,400,000 Shares of Series B Common Stock, and 8,438,830 Shares of Series K
Common Stock.

On January 11, 1999, the Company announced that it would restate its financial
statements for the year ended December 31, 1997 and the quarters ended
December 31, 1997, and March 31, June 30 and September 30, 1998 to reflect a
change in accounting relating to a distribution agreement with Cablevision
Systems Corporation entered into in October 1997. This amended filing contains
restated financial information and related disclosures for the year ended
December 31, 1997 and for the six months ended June 30, 1998. (See Note 1 to
Condensed Consolidated Financial Statements.)

Unless otherwise stated, information in the originally filed Form 10-Q is
presented as of the original filing date, and has not been updated in this
amended filing.

Quarterly financial statement information and related disclosures included in
this amended filing reflect, where appropriate, change as a result of the
restatements.

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At Home Corporation

Table of Contents

Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements - (Unaudited and restated--see
Note 1)
Condensed Consolidated Balance Sheets June 30, 1998
and December 31, 1997................................................... 3
Condensed Consolidated Statements of Operations - Three and Six
Months Ended June 30, 1998 and 1997..................................... 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997............................................ 5
Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Restated).......................... 9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................. 31

PART II OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.................................. 32
ITEM 4. Submission of Matters to a Vote of Security Holders........................ 33
ITEM 5. Other Information.......................................................... 33
ITEM 6. Exhibits and Reports on Form 8-K........................................... 34
Signatures................................................................. 35
</TABLE>

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AT HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)
(Restated)

JUNE 30, DECEMBER 31,
1998 1997
----------- -------------
(UNAUDITED) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 13,745 $ 44,213
Short-term cash investments.................................... 77,446 76,166
--------- ---------
Total cash, cash equivalents and short-term cash investments... 91,191 120,379
Accounts receivable............................................ 2,692 1,470
Accounts receivable - related parties.......................... 2,896 672
Other current assets........................................... 3,726 2,919
--------- ---------
Total current assets............................................. 100,505 125,440
Property, equipment and improvements, net........................ 41,323 33,061
Distribution agreements, net..................................... 213,503 163,345
Other assets..................................................... 7,308 2,082
--------- ---------
Total assets..................................................... $ 362,639 $ 323,928
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 3,990 $ 2,409
Accounts payable - related parties............................. 2,419 2,108
Accrued compensation and related expenses...................... 793 798
Accrued transport costs........................................ 2,254 1,179
Deferred revenues.............................................. 4,180 1,941
Other accrued liabilities...................................... 7,589 5,644
Current portion of capital lease obligations................... 11,543 9,971
--------- ---------
Total current liabilities........................................ 32,768 24,050
Capital lease obligations, less current portion.................. 14,941 15,735
Other long-term liabilities...................................... -- 1,736
Commitments and contingencies
Stockholders' equity:
Preferred stock................................................ -- --
Common stock, $0.01 par value:
Authorized shares - 230,277,660
Issued and outstanding shares--
118,898,344 in 1998 and 118,603,220 in 1997............... 454,843 370,111
Notes receivable from stockholders............................. (25) (319)
Deferred compensation.......................................... (3,889) (4,399)
Accumulated deficit............................................ (135,999) (82,986)
--------- ---------
Total stockholders' equity....................................... 314,930 282,407
--------- ---------
Total liabilities and stockholders' equity....................... $ 362,639 $ 323,928
========= =========
</TABLE>
* Derived from audited financial statements

See accompanying notes.

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AT HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(UNAUDITED)

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenues /(1)/.............................. $ 9,220 $ 1,024 $ 14,993 $ 1,830
Costs and expenses /(2)/:
Operating costs............................ 10,098 4,840 18,713 9,165
Product development and engineering........ 3,891 2,944 7,464 5,274
Sales and marketing........................ 4,356 2,944 7,856 5,878
General and administrative................. 2,925 2,502 5,799 4,660
Cost and amortization of distribution
agreements............................... 13,628 -- 33,162 --
-------- -------- --------- -----------
Total costs and expenses......... 34,898 13,230 72,994 24,977
-------- -------- --------- -----------
Loss from operations........................ (25,678) (12,206) (58,001) (23,147)
Interest income, net........................ 906 303 2,013 343
-------- -------- --------- -----------
Net loss.................................... $(24,772) $(11,903) $ (55,988) $(22,804)
======== ======== ========= ===========
Basic and diluted net loss per share........ $ (0.22) $ (0.12) $ (0.50) $ (0.23)
======== ======== ========= ===========
Shares used in per share calculations....... 112,634 98,606 112,098 98,234
======== ======== ========= ===========
- ---------------
(1) Revenues from related parties......... $ 1,801 $ 658 $ 3,172 $ 1,348
======== ======== ========= ===========

(2) Depreciation and amortization
included in costs and expenses........ $ 17,121 $ 2,092 $ 30,673 $ 3,703
======== ======== ========= ===========
</TABLE>
See accompanying notes.

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AT HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

Six Months Ended June 30,
---------------------------
1998 1997
------------- -----------
Restated
<S> <C> <C>
CASH (USED IN) OPERATING ACTIVITIES
Net loss................................................ $(55,988) $(22,804)
Adjustments to reconcile net loss to cash used
in operating activities:
Amortization of deferred compensation................ 510 478
Depreciation and amortization........................ 5,828 3,225
Amortization of distribution agreements.............. 24,335 --
Cost of distribution agreements...................... 8,827 --
Changes in assets and liabilities:
Accounts receivable................................ (3,446) 359
Other assets....................................... (3,058) (2,379)
Accounts payable................................... 1,892 (1,134)
Accrued compensation and related expenses.......... (5) 274
Other accrued liabilities.......................... 3,020 3,797
Deferred revenues.................................. 2,239 105
Other long-term liabilities........................ (1,736) 124
--------- --------
Cash (used in) operating activities..................... (17,582) (17,955)

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of short-term cash investments................. (34,720) (1,005)
Sales and maturities of short-term cash investments..... 33,440 7,061
Purchase of property, equipment and improvements,
net of leases........................................... (7,672) (2,638)
--------- --------
Cash provided by (used in) investing activities......... (8,952) 3,418

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock... -- 46,602
Proceeds from issuance of common stock.................. 1,412 176
Payments on capital lease obligations................... (5,640) (2,193)
Repayment of notes receivable from stockholders......... 294 167
--------- --------
Cash provided by (used in) financing activities......... (3,934) 44,752
--------- --------
Net increase (decrease) in cash and cash equivalents.... (30,468) 30,215
Cash and cash equivalents, beginning of period.......... 44,213 9,709
--------- --------
Cash and cash equivalents, end of period................ $ 13,745 $ 39,924
========= ========
SUPPLEMENTAL DISCLOSURES
Interest paid........................................... $ 1,197 $ 243
========= ========
Acquisition of equipment under capital leases........... $ 6,418 $ 10,165
========= ========
Issuance of common stock warrants in connection with
the Cablevision agreement............................... $ 83,320 $ --
========= ========

See accompanying notes.
</TABLE>

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AT HOME CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and restated)

NOTE 1. RESTATEMENT AND BASIS OF PRESENTATION

The accompanying restated condensed consolidated balance sheets as of June 30,
1998 (unaudited) and December 31, 1997, the accompanying restated unaudited
condensed consolidated statements of operations for the three and six months
ended June 30, 1998 and the accompanying restated unaudited condensed
consolidated statements of cash flows for the six months ended June 30, 1998,
have been restated to record and amortize a long-term asset associated with the
distribution agreement with Cablevision Systems Corporation in October 1997
which amounts had been previously expensed. As a result of this restatement, the
condensed consolidated balance sheet as of June 30, 1998 and condensed
consolidated results of operations for the three and six months ended June 30,
1998 have been restated as follows:

Three months ended Six months ended
June 30, 1998 June 30, 1998
----------------------------- -----------------------------
(in thousands, except per share information)
As previously As previously
reported Restated reported Restated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost and amortization of
distribution agreements............ $ -- $13,628 $ 83,320 $ 33,162

Total costs and expenses............. 21,270 34,898 123,152 72,994

Loss from operations................. (12,050) (25,678) (108,159) (58,001)

Net loss............................. (11,144) (24,772) (106,146) (55,988)

Basic and diluted net loss per
share.............................. (0.10) (0.22) (0.95) (0.50)
</TABLE>

<TABLE>
<CAPTION>
June 30, 1998
As previously
reported Restated
------------- -------------
<S> <C> <C>
Distribution agreements, net......... $ -- $213,503

Total assets......................... 149,136 362,639

Accumulated deficit.................. (349,502) (135,999)

Total liabilities and stockholders'
equity............................. 149,136 362,639
</TABLE>

The accompanying unaudited condensed consolidated financial statements include
the accounts of At Home Corporation and its wholly owned subsidiary
(collectively, the "Company"). These condensed financial statements do not
include all of the information and accompanying notes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of financial position and results
of operations have been included in the condensed financial statements.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1998. The interim financial statements should be read in
connection with the consolidated financial statements included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.

Certain reclassifications have been made to the financial statements to conform
to current year's presentation.

NOTE 2. BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share are computed using the weighted average
number of common shares outstanding. The computation for the three and six
months ended June 30, 1997 also gives pro forma effect to the conversion, in
connection with the Company's initial public offering in July 1997, of all
outstanding shares of Convertible Preferred Stock into shares of Common Stock.
The effect of outstanding stock options, warrants, and Common Stock subject to
repurchase is excluded from the computation as their inclusion would be anti-
dilutive.

The computation of basic and diluted net loss per share is as follows:
<TABLE>
<CAPTION>

Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------- ------------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Net loss............................. $(24,772) $(11,903) $(55,988) $(22,804)
======== ======== ========= ========
Weighted average shares of common
stock outstanding.................... 112,634 3,354 112,098 2,982
Pro forma common equivalent shares
from convertible preferred stock..... -- 95,252 -- 95,252
-------- -------- --------- --------
Shares used in per
share calculations................... 112,634 98,606 112,098 98,234
======== ======== ========= ========
Basic and diluted net
loss per share....................... $ (0.22) $ (0.12) $ (0.50) $ (0.23)
======== ======== ========= ========
</TABLE>

NOTE 3. DEPRECIATION AND AMORTIZATION INCLUDED IN COSTS AND EXPENSES

The components of the Company's depreciation and amortization included in costs
and expenses are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Amortization of deferred compensation.. $ 255 $ 319 $ 510 $ 478

Depreciation and amortization.......... 3,238 1,773 5,828 3,225

Amortization of distribution
agreements............................ 13,628 -- 24,335 --
-------- -------- --------- --------

$ 17,121 $ 2,092 $ 30,673 $ 3,703
======== ======== ========= ========
</TABLE>

NOTE 4. COMPREHENSIVE INCOME (LOSS)

As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes new rules for the reporting and display of comprehensive income
(loss) and its components. The adoption of this Statement had no impact on the
Company's net loss or stockholders' equity. FAS 130 requires

6
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unrealized gains and losses on the Company's available-for-sale securities to be
included in other comprehensive loss.

The components of the Company's comprehensive loss are as follows:
<TABLE>
<CAPTION>

NOTE 4. STOCKHOLDERS' EQUITY

Common Stock Warrants Issued to Cable Partners in Connection With Distribution
Agreements

In October 1997, the Company entered into a contract with Cablevision Systems
Corporation ("Cablevision"), and its parent, CSC Parent Corporation ("CSC
Parent"), Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox"),
Kleiner Perkins Caufield & Byers ("KPCB") and Tele-Communications, Inc. ("TCI")
(the "Cablevision Agreement"). Pursuant to the Cablevision Agreement,
Cablevision entered into a Master Distribution Agreement for the distribution of
the Company's @Home service on substantially the same terms and conditions as
such service is distributed by 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 the Company, 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 the
Company's services. The exclusivity obligations in favor of the Company 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 the activities of the Company. In connection with the
Cablevision Agreement, Cablevision was granted warrants to purchase up to
10,946,936 shares of the Company's Series A Common Stock at an exercise price of
$0.50 per share under certain conditions. A portion of the warrants are not
exercisable unless certain cable systems are transferred by TCI to Cablevision.

As of June 30, 1998 warrants to purchase 10,231,298 shares of Series A Common
Stock at $0.50 per share were exercisable under this Agreement.

The fair value of the exercisable warrants, $247.1 million, has been recorded as
Distribution agreements, net in the accompanying balance sheet and is being
amortized over the remaining term of the exclusivity obligations of Cablevision
under the Agreement. The amount of accumulated amortization as of June 30, 1998
was $33.6 million.

The Company identifies and records impairment losses on intangible assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.

In addition, in March 1998, the Company issued performance-based warrants to
Rogers Cablesystems Limited ("Rogers") and Shaw Cablesystems Ltd. ("Shaw") to
purchase up to 5,000,000 shares of Series A Common Stock at an exercise price of
$10.50 per share. These warrants will become exercisable if and when Rogers or
Shaw, as the case may be, meet certain performance milestones for homes passed,
subscribers and revenue.

Warrants to purchase 350,000 shares of Series A Common Stock at $10.50 per
share were exercisable as of June 30, 1998. During the three months ended
March 31, 1998, the Company recorded a non-cash charge to operations of $8.8
million based on the fair value of warrants to purchase 350,000 shares of
Series A Common Stock which became exercisable during the period as a result
of the achievement of certain performance milestones. Such charges are
included in Cost and amortization of distribution agreements in the
accompanying condensed consolidated statements of operations. The remaining
warrants will become exercisable if and when certain performance milestones
are achieved by Rogers or Shaw.

7
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In May and June 1998, the Company issued performance based warrants to purchase
an aggregate of up to 5,272,100 shares of Series A Common Stock at an exercise
price of $10.50 per share to certain new Cable Partners in connection with
distribution agreements entered into in the second quarter of 1998. In addition,
if one of these Cable Partners enters into a binding agreement to acquire
additional homes in the Los Angeles area during 1998, the Company will issue
additional warrants to purchase Series A Common Stock at an exercise price of
$10.50 per share. Beginning in March 1999, these warrants will become
exercisable on an annual basis based on the number of homes that those Cable
Partners upgrade to two-way or one-way HFC (for one Cable Partner) and two-way
HFC cable (for the other Cable Partners) and that are capable of accessing the
@Home service. In the event and to the extent such performance milestones are
met, the Company will incur non-cash charges to operations in future periods
based on the difference between the then fair market value of the Company's
Series A Common Stock and the exercise price of $10.50 per share.

Employee Stock Option and Purchase Plans

On May 13, 1998, the stockholders' approved increases of 600,000 and 4,975,000
shares of Series A Common Stock reserved for issuance to participants in the
Employee Stock Purchase Plan and the 1997 Equity Incentive Plan, respectively.

NOTE 6. COMMITMENTS

In September 1997 and March 1998, the Company exercised its build-to-suit
options to require the landlord to build additional facilities on property
adjacent to the Company's headquarters. The build-to-suit options provide for
monthly rental payments, beginning upon the phased completion of the buildings.
Occupancy of the first phase is scheduled to occur during 1999, which will
result in rental payments of approximately $320,000 per month. Additional
buildings are scheduled to be occupied early in the year 2000 which will result
in additional rental payments of approximately $320,000 per month.

NOTE 7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131") which establishes reporting
standards regarding operating segments, products and services, geographic areas
and major customers. The disclosure required by FAS 131 will first be reflected
in the Company's consolidated financial statements for the year ending December
31, 1998.

8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (RESTATED)

This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this
Form 10-Q/A entitled "Factors That May Affect Future Operating Results", in
the Company's 1997 Annual Report on Form 10-K/A filed with the SEC on February
8, 1999 and in the Company's Final Prospectus for its initial public offering
("IPO") filed with the SEC on July 11, 1997, which may cause actual results to
differ materially from those discussed in such forward-looking statements. The
forward-looking statements within this Form 10-Q/A are identified by words
such as "believes", "anticipates", "expects", "intends", "may", "will" and
other similar expressions. However, these words are not the exclusive means of
identifying such statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. The Company undertakes no
obligation to release publicly the results of any revisions to these forward-
looking statements that may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q/A with the SEC. Readers
are urged to review and consider carefully the various disclosures made by the
Company in this report and in the Company's other reports filed with the SEC
that attempt to advise interested parties of the risks and factors that may
affect the Company's business.

GENERAL

The Company is the leading provider of broadband Internet services over the
cable television infrastructure to consumers. By virtue of its relationships
with 17 cable companies in North America and Europe, @Home has access to
approximately 58.5 million homes, which includes exclusive access to over 50% of
the households in the United States and Canada. @Home also provides broadband
Internet services to businesses over both the cable television infrastructure
and digital telecommunications lines.

The Company's primary offering, the @Home service, allows residential
subscribers to connect their personal computers via cable modems to a high-
speed Internet backbone network developed and managed by the Company. This
service enables subscribers to receive the "@Home Experience," which includes
Internet service over hybrid fiber-coaxial ("HFC") cable at peak transmission
speeds over 100 times faster than typical dial-up connections, "always on"
connection and rich multimedia programming through its broadband Internet
portal. The technology foundation of the @Home Experience is the Company's
scalable, distributed, intelligent network architecture (the "@Home Broadband
Network"), a "parallel Internet" that optimizes traffic routing, improves
security and consistency of service, and facilitates end-to-end network
management, enhancing the Company's ability to address performance bottlenecks
before they affect the user experience.

The Company's @Media group has established the @Home launch screen (the "@Home
Portal") as the leading broadband Internet portal, providing a gateway to
compelling multimedia and electronic commerce offerings on the Internet. To
date, the @Home Experience has generated greater page views per subscriber than
are reported by the leading narrowband Internet portal companies. The @Media
group works with content providers to facilitate the creation of rich multimedia
broadband content delivered through the @Home Portal and to facilitate online
transactions and services for @Home subscribers. Multimedia content offerings
include on-demand video clips from partners such as Bloomberg, CNN Interactive
and the National Basketball Association, on-demand music and CD previews
provided by the Company's Tune-In service and low-latency multiplayer gaming
from SegaSoft. Electronic commerce partners include Amazon.com, the leading
online bookseller, SoftwareNow.com, an online software distributor, and
Travelocity, a leading online travel site. The @Media group also sells
advertising on a cost per thousand impressions ("CPM") basis as well as on a
sponsorship basis. The Company had over 30 advertisers in the quarter ended June
30, 1998, including Clorox, Disney, General Motors, Home Box Office, Kraft, MGM,
Procter & Gamble, Standard & Poor's, Toyota and Unilever.

For businesses, the Company's @Work services provide a platform for Internet,
intranet and extranet connectivity solutions and networked business
applications over both cable infrastructure and digital telecommunications
lines. In order to accelerate deployment of the @Work connectivity and hosting
solutions into major U.S. metropolitan areas, the Company has established
strategic relationships with Teleport Communications Group, Inc. ("TCG"), the
country's largest competitive local exchange carrier ("CLEC"), Northpoint
Communications, Inc. ("Northpoint"), a provider of digital subscriber line
("DSL") services to businesses, and Exodus Communications, Inc. ("Exodus"), a
provider of Internet hosting and network management services. By combining the
Company's broadband distributed network architecture with cable, telephone and
technology relationships, the @Work services provide a compelling platform for
nationwide delivery of network-based business applications. The Company has
developed this platform at a low incremental cost by leveraging its existing
@Home Broadband Network investment. The Company currently provides @Work
services to more than 1,000 businesses.

9
<PAGE>

The Company has entered into distribution arrangements for the @Home service
with 15 cable companies in North America whose cable systems pass approximately
57.1 million homes, including TCI, Cablevision, Comcast, Cox (together with TCI,
Cablevision and Comcast, the "Principal U.S. Cable Partners"), Rogers, Shaw,
Bresnan Communications Company ("Bresnan"), Century Communications Corp.
("Century"), Cogeco Cable, Inc. ("Cogeco"), Garden State Cable ("Garden State"),
Insight Communications ("Insight"), Jones Intercable, Inc. ("Jones"), Lenfest
Communications Inc. ("Lenfest"), Marcus Cable Operating Company, L.P. ("Marcus")
and InterMedia Partners IV L.P. ("InterMedia") (collectively, the "Cable
Partners"). As of June 30, 1998, approximately 7.9 million of these homes were
passed by upgraded two-way HFC cable, and the Company believes that the Cable
Partners will complete the upgrade of systems passing a majority of their homes
within five years. In order to shorten time to market for cable operators, the
Company provides a turnkey solution, which includes not only a technology
platform and a national brand, but also ongoing marketing, customer service,
billing and product development support. The Company has launched the @Home
service through its Cable Partners in portions of 31 cities and communities in
the United States and Canada and has approximately 147,000 subscribers,
including recently acquired Internet subscribers served by Jones and Cogeco that
are being converted to the @Home service.

As part of its strategy to expand into international markets, the Company has
entered into agreements for the distribution of the @Home service by EDON
Beheer B.V. ("Edon") and Palet Kabelcom in the Netherlands and has entered into
an agreement in principle with ComTel Limited in the United Kingdom. The
Company has also initiated a distribution program with leading consumer
electronics retailers, including CompUSA and Computer City, to facilitate the
sale of the @Home service and cable modems compliant with Data Over Cable
Service Interface Specifications ("DOCSIS"). In addition, the Company is
working with Cable Television Laboratories, Inc. ("CableLabs") to develop
advanced digital set-top boxes to provide broadband Internet access via
television sets and to accelerate transformation of the Internet into a mass
medium. TCI has entered into a non-binding memorandum of understanding with
General Instrument Corporation ("General Instrument") for the purchase of up to
11 million advanced digital set-top boxes and has selected @Home to develop
software and provide integration services for this platform.

RECENT EVENTS

On June 24, 1998, TCI and AT&T Corp. ("AT&T") announced that they had signed a
definitive merger agreement pursuant to which AT&T will acquire TCI. AT&T has
announced that it currently intends to combine following the merger TCI's cable,
telecommunications and high-speed Internet businesses, including TCI's
controlling equity interest in the Company, with AT&T's consumer businesses to
form AT&T Consumer Services, which will provide a broad set of consumer
communications services, including local, long distance, wireless and
international communications, cable television and dial-up and high-speed
Internet access services under the AT&T brand name. In announcing the merger,
AT&T stated its intention to accelerate the upgrade of TCI's cable
infrastructure significantly, enabling AT&T to begin providing digital telephony
and data services to consumers by the end of 1999. AT&T and TCI anticipate that
the merger, which is subject to regulatory and stockholder approvals, will be
completed in the first half of 1999. In addition, in July 1998, AT&T acquired
TCG.

The Company believes that AT&T's acquisition of TCG and of TCI's cable,
telecommunications and high-speed Internet businesses may benefit the Company
by increasing the rate at which TCI's cable facilities will be upgraded to the
two-way HFC cable necessary to carry the Company's services, by allowing the
Company to utilize the strength of AT&T's brand in marketing the @Home service
to consumers and by increasing the potential for cooperation between the
Company and TCG. However, these benefits may not be realized. See "Factors That
May Affect Future Operating Results--AT&T Acquisition of TCI and TCG."

10
<PAGE>

Effective October 2, 1997, the Company entered into a Letter Agreement and Term
Sheet with Cablevision, Comcast, Cox, TCI and KPCB (the "Cablevision
Agreement"). Pursuant to the Cablevision Agreement, Cablevision entered into a
Master Distribution Agreement for the distribution of the Company's @Home
service on substantially the same terms and conditions as such service is
distributed by TCI, Comcast and Cox. In connection with the Cablevision
Agreement, Cablevision was granted warrants to purchase up to 10,946,936 shares
of the Company's Series A Common Stock at an exercise price of $0.50 per share
under certain conditions. A portion of the warrants are not exercisable unless
certain cable systems are transferred by TCI to Cablevision.

As of June 30, 1998 warrants to purchase 10,231,298 shares of Series A Common
Stock at $0.50 per share were exercisable under this Agreement.

The fair value of the exercisable warrants, $247.1 million, is included in
Distribution agreements, net in the accompanying balance sheet and is being
amortized over the remaining term of the exclusivity obligations of
Cablevision under the Agreement. The amount of accumulated amortization as of
June 30, 1998 was $33.6 million.

The Company identifies and records impairment losses on intangible assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.

In addition, in March 1998, the Company issued performance-based warrants to
Rogers and Shaw to purchase up to 5,000,000 shares of Series A Common Stock at
an exercise price of $10.50 per share. These warrants will become exercisable
if and when Rogers or Shaw, as the case may be, meet certain performance
milestones for homes passed, subscribers and revenue.

Warrants to purchase 350,000 shares of Series A Common Stock at $10.50 a share
were exercisable as of June 30, 1998. During the three months ended March 31,
1998, the Company recorded a non-cash charge to operations of $8.8 million
based on the fair value of warrants to purchase 350,000 shares of Series A
Common Stock which became exercisable during the period as a result of the
achievement of certain performance milestones. Such charges are included in
Cost and amortization of distribution agreements in the accompanying
condensed consolidated statements of operations. The remaining warrants will
become exercisable if and when certain performance milestones are achieved by
Rogers or Shaw.

In May and June 1998, the Company agreed to issue performance based warrants to
purchase an aggregate of up to 5,272,100 shares of Series A Common Stock at an
exercise price of $10.50 per share to certain new Cable Partners in connection
with distribution agreements entered into in the second quarter of 1998. In
addition, if one of these Cable Partners enters into a binding agreement to
acquire additional homes in the Los Angeles area during 1998, the Company will
issue additional warrants to purchase Series A Common Stock at an exercise price
of $10.50 per share. Beginning in March 1999, these warrants will become
exercisable on an annual basis based on the number of homes that those Cable
Partners upgrade to two-way or one-way HFC (for one Cable Partner) and two-way
HFC cable (for the other Cable Partners) and that are capable of accessing the
@Home service. In the event and to the extent such performance milestones are
met, the Company may incur significant non-cash charges to operations in future
periods based on the difference between the then fair market value of the
Company's Series A Common Stock and the exercise price of $10.50 per share.

11
<PAGE>

To the extent that any of the Cable Partners become eligible to exercise their
warrants, the Company's stockholders would experience additional dilution. The
Company also may issue additional stock, or warrants to purchase stock, at less
than fair market value in connection with its efforts to expand its distribution
of the @Home service to other cable operators.

As of June 30, 1998, the Company had expended approximately $164.1 million on
capital expenditures and operating costs and expenses to design, build and
maintain the @Home broadband network and the corporate infrastructure
necessary to support the roll-out and maintenance of the @Home and @Work
services. The Company currently intends to increase its capital expenditures
as well as its operating and sales and marketing expenditures in order to
expand its network to support additional expected subscribers in existing and
future markets and to provide the Company's services to a growing number of
potential subscribers. To the extent that cable modems are successfully
marketed in the future through retail and other mass-market channels,
additional expenditures customary in this channel could be incurred. As a
result, the Company expects to continue to incur additional substantial net
losses for the foreseeable future. The Company has incurred net losses from
operations in each fiscal period since its inception and, as of June 30, 1998,
had an accumulated deficit of $93.6 million (before the $42.4 million of
charges and amortization recorded in the first six months of 1998 and the
fourth quarter of 1997 in connection with the distribution agreements), and an
accumulated deficit of $136 million, including these charges.

12
<PAGE>

RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- -----------------------------
REVENUES 1998 CHANGE 1997 1998 CHANGE 1997
-------- ---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues........ $ 9,220 800% $ 1,024 $ 14,993 719% $ 1,830
======= ======= ======== ========
</TABLE>

REVENUES. The Company's revenues consist of monthly subscription fees for the
@Home residential service, installation and monthly access fees for @Work
services, product development revenues, fees for advertising and from @Media
content providers, and fees for customer support activities for cable system
operators, all of which are recognized during the period in which the services
are provided.

Total revenues for the three months ended June 30, 1998 totaled $9.2 million, an
increase of $8.2 million over revenues of $1.0 million for the three months
ended June 30, 1997. These additional revenues were derived from substantial
period over period growth in all three of the Company's business units. For the
@Home residential service, subscribers increased to approximately 147,000 at
June 30, 1998 as compared to 12,000 at June 30, 1997. The @Work Internet
service had over 1,000 installed accounts at June 30, 1998 as compared to 27 at
June 30, 1997. In addition, the @Media group had 40 advertisers at June 30,
1998, double the number as of December 31, 1997. The @Home residential and
@Work commercial businesses contributed approximately equally to total revenues,
while @Media represented a much smaller percentage. Certain revenues of the
Company are derived from other business services provided to certain Cable
Partners that have an equity investment in the Company. These related party
revenues, which include product development services and fees for customer
support activities were approximately 20% and 64% of total revenues for the
three months ended June 30, 1998 and 1997, respectively. Related party revenues
as a percentage of total revenues are anticipated to continue to decline as a
percentage of total revenues in subsequent quarters.

Total revenues for the six months ended June 30, 1998 totaled $15.0 million, an
increase of $13.2 million over revenues of $1.8 million for the six months ended
June 30, 1997. For the 1998 period, revenues from @Work services and from the
@Home service in Canada contributed significantly to the Company's total
revenues. Related party revenues as a percentage of total revenues were
approximately 21% and 74% for the six months ended June 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
COSTS AND EXPENSES 1998 CHANGE 1997 1998 CHANGE 1997
- ------------------ -------- ------- -------- -------- ------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Operating Costs....................... $10,098 109% $ 4,840 $ 18,713 104% $ 9,165
Product Development
and Engineering.................... 3,891 32% 2,944 7,464 42% 5,274
Sales and Marketing................... 4,356 48% 2,944 7,856 34% 5,878
General and Administrative............ 2,925 17% 2,502 5,799 24% 4,660
------- ------- -------- -------
Total Costs and Expenses Before
Costs and Amortization of
Distribution Agreements............ 21,270 61% 13,230 39,832 59% 24,977

Costs and Amortization of
Distribution Agreements............ 13,628 N/A -- 33,162 N/A --
------- ------- -------- -------
Total Costs and Expenses.............. $34,898 164.1% $13,230 $72,994 192.2% $24,977
======= ======= ======== =======
</TABLE>

TOTAL COSTS AND EXPENSES. Total costs and expenses before the non-cash charge
of $13.6 million related to the amortization of the distribution agreement for
the three months ended June 30, 1998 were $21.3 million compared to $13.2
million for the corresponding period of 1997. This period over period increase
of $8.1 million was primarily a result of operating costs associated with the
expansion and deployment of the @Home broadband network to support the @Home
service subscriber growth and increased usage in high penetration areas,
additional infrastructure investments to support corporate revenue growth, and
costs associated with the expansion of

13
<PAGE>

@Work services. Total costs and expenses before the non-cash charge for the
quarter rose 61% period over period compared to revenue growth of 800%. The
Company believes continued expansion of operations as well as its network
infrastructure is critical to the achievement of its goals and anticipates
that costs and expenses will continue to increase significantly in each
quarter for the foreseeable future.

For the six months ended June 30, 1998, total costs and expenses, before the
non-cash charge and amortization of $33.2 million related to the distribution
agreements, were $39.8 million compared to $25.0 million for the six months
ended June 30, 1997.

OPERATING COSTS. Operating costs are primarily related to providing services to
customers and maintaining the @Home broadband network, which includes the
functional areas of customer and technical support, regional data centers
("RDCs"), content programming, and @Home and @Work telecommunications costs.
Included in operating costs are salaries and related expenses for personnel,
telecommunication (transport) costs, and the depreciation, amortization and
maintenance of capital equipment.

For the three months ended June 30, 1998, operating costs grew 109% to $10.1
million from $4.8 million in the corresponding period of 1997. This increase
was primarily a result of: (i) additional costs to support the expansion and
additional deployments of the @Home broadband network to support the increases
in the @Home subscriber base, (ii) maintenance and depreciation of capital
equipment in support of the RDCs and head-end architecture; (iii) back office
computer and customer service operations, especially the expansion of technical
support and the investment in operations; (iv) development of additional content
programming resources; and (v) direct costs including local transport, backbone
costs and customer premise equipment in support of the substantial growth of
@Work services revenues.

For the six months ended June 30, 1998, operating costs were $18.7 million, a
104% increase over operating expenses of $9.2 million for the corresponding
period of 1997. These increases were principally attributable to activities
associated with network and backbone costs to support new @Home deployments,
direct costs in support of the growing number of @Work customers and additional
costs for customer service expansion and investments in operations.

During the remainder of 1998, operating costs are expected to increase
substantially in absolute dollars as the Company continues to expand operations
with existing Cable Partners and begins to integrate with newly announced Cable
Partners. The Company expects to offer its services in approximately 20
additional markets in the second half of 1998, and will continue to make
investments in network backbone and infrastructure, computer systems to support
the growth in the Company's operations, and increased personnel and transport
costs.

PRODUCT DEVELOPMENT AND ENGINEERING. Product development and engineering
expenses consist primarily of salaries and related expenses for personnel, fees
to outside contractors and consultants, the allocated cost of facilities, and
the depreciation and amortization of capital equipment.

Product development and engineering expenses for the three months ended June 30,
1998 and 1997 were $3.9 million and $2.9 million, respectively. For the six
months ended June 30, 1998 and 1997, product development and engineering
expenses were $7.5 million and $5.3 million, respectively. For both the three
and six months ended June 30, 1998, these higher levels of expenses were
attributable principally to increases in personnel and related expenses incurred
primarily in five areas: (i) the design, testing and deployment of the @Home
broadband network; (ii) the development of software tools and enabling platforms
for the creation and distribution of enhanced content; (iii) the development of
technologies to support advanced digital set-top box applications; (iv)
applications development specifically designed to take advantage of the @Home
broadband network; and (v) the development of @Work services. Product
development and engineering costs have been expensed as incurred.

14
<PAGE>

During the second half of 1998, costs in this area are expected to increase
substantially due in part to the Company's embarking on the development of
technologies related to advanced digital set-top box applications and to the
scaling of the Company's network backbone.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and promotional expenses. All three of the business units
of the Company, @Home, @Work and @Media, have sales organizations in place that
are partially compensated on a commission basis.

Sales and marketing expenses for the three months ended June 30, 1998 and 1997
were $4.4 million and $2.9 million, respectively. For the six months ended June
30, 1998 and 1997, sales and marketing expenses were $7.9 million and $5.9
million, respectively. The increased period over period expenses were incurred
primarily in five areas: (i) recurring and non-recurring customer acquisition
expenses related to local and regional sales and marketing activities to attract
new subscribers, corporate accounts and cable partners; (ii) participation in
industry trade shows; (iii) expansion of the @Work sales force and related
travel expenses; (iv) the initiation of channel/retail sales programs; and, (v)
the completion of the first @Home infomercial. However, the period over period
expense growth was significantly less than revenue growth, as the Company begins
to benefit from economies of scale and the leverage of affiliating with its
Cable Partners.

Costs in this area are expected to increase significantly throughout the
remainder of 1998 primarily due to continued investments in the @Work sales
organization as well as anticipated personnel and other costs required to
increase the Company's focus on national branding, national promotions and the
initiation of its retail sales efforts.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of administrative and executive personnel costs, fees for professional
services and the costs of in-house systems and infrastructure to support the
operations of the Company.

General and administrative expenses for the three months ended June 30, 1998 and
1997 were $2.9 million and $2.5 million, respectively. For the six months ended
June 30, 1998 and 1997, these expenses were $5.8 million and $4.7 million,
respectively. The increases in both the three and six-month periods were the
result of: increased expenses associated with the Company's international
efforts; additions of personnel to support the operations of the Company and
their related costs; and additional expenses related to activities and
requirements of becoming a public company. During the second half of 1998, the
Company anticipates that costs in this area will continue to grow significantly.

INTEREST INCOME, NET. Interest income, net, represents interest earned by the
Company on its cash and short-term cash investments, less interest expense on
capital lease obligations. Interest income was $1.4 million and $581,000 for
the three months ended June 30, 1998 and 1997, respectively. This increase was
principally due to the increased cash balances available to invest resulting
from the Company's Series C Preferred Stock financing in April 1997 and the
Company's initial public offering in July 1997. Interest expense for the three
months ended June 30, 1998 was $482,000 as compared to $278,000 for the
corresponding period of 1997. This increase was due primarily to significant
increases in capital lease obligations associated with the Company's leasing of
capital equipment.

For the six months ended June 30, 1998 and 1997, interest income was $3.0
million and $737,000, respectively. This increase was principally due to the
increased cash balances available to invest resulting from the Company's Series
C Preferred Stock financing in April 1997 and the Company's initial public
offering in July 1997. Interest expense for the six months ended June 30, 1998
was $956,000 as compared to $394,000 for the corresponding period of 1997. This
increase was due primarily to significant increases in capital lease obligations
associated with the Company's leasing of capital equipment.

15
<PAGE>

NET LOSS. The net loss, before the non-cash charges and amortization related
to the distribution agreements, for the three months ended June 30, 1998 was
$11.1 million, as compared to $11.9 million for the corresponding period of
1997. The decrease in net loss before the non-cash charges and amortization
related to the distribution agreements for the quarter of $759,000 was
primarily attributable to revenues increasing eight-fold, partially offset by
increases in expenses to reflect the expansion of operations and the
initiation of new businesses, such as @Work. The Company anticipates that the
quarterly net loss, excluding potential charges relating to distribution
agreements and other potential performance-based warrant charges, will begin
to decline during the second half of 1998 as sequential revenues grow at a
faster rate than sequential expenses.

For the six months ended June 30, 1998, the net loss, before the charge and
amortization for the fair value of common stock warrants issued to cable
system operators in connection with distribution agreements, was $22.8
million, approximately the same as the corresponding period of 1997. Including
the non-cash charge of $33.2 million, the net loss for the six months ended
June 30, 1998 was $56.0 million. This compares to a net loss of $22.8 million
for the corresponding period of 1997.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through a
combination of private and public sales of equity securities and capital
equipment leases. At June 30, 1998, the principal source of liquidity for the
Company was $91.2 million of cash, cash equivalents and short-term cash
investments, as compared to $120.4 million at December 31, 1997. The Company
finances, and expects to continue financing, a substantial amount of its capital
equipment expenditures from a variety of sources, including direct vendor
leasing programs, third party commercial leasing arrangements and bank
financing.

In September 1997, the Company entered into a Term Loan Agreement (the "Term
Loan") with Silicon Valley Bank (the "Bank"). The Term Loan provides for
borrowings of up to $8.0 million to finance the acquisition of property,
equipment and improvements, and to collateralize letters of credit. Any
borrowings under this Term Loan would bear interest at the Bank's prime rate.
As of June 30, 1998, there were no borrowings under this Term Loan although
there were outstanding letters of credit in the amount of $2.8 million related
to real propery leases. Under the Term Loan, the Company is required to meet
certain financial covenants. As of June 30, 1998, the Company was in compliance
with all such covenants. The Term Loan expires in September 2001.

Net cash used in operating activities for the six months ended June 30, 1998
was $17.6 million, primarily as a result of the net loss of $22.8 million
before being partially offset by non-cash charges and amortization related to
distribution agreements of $33.2 million and depreciation and amortization of
$6.3 million. Net cash used in operating activities for the six months ended
June 30, 1997 was $18.0 million, primarily as a result of the net loss of
$22.8 million, partially offset by depreciation and amortization of $3.7
million.

Net cash used in investing activities for the six months ended June 30, 1998 was
$9.0 million, primarily from cash purchases of property, equipment, and
improvements of $7.7 million. Net cash provided by investing activities for the
six months ended June 30, 1997 of $3.4 million was primarily the result of sales
and maturities of short-term cash investments of $7.1 million, partially offset
by cash purchases of property, equipment and improvements of $2.6 million.
Gross capital expenditures for equipment, software, furniture, leasehold
improvements and fixtures for the six-month periods ended June 30, 1998 and 1997
were $14.1 million and $12.8 million, respectively, of which $6.4 million and
$10.2 million, respectively, were financed through capital leases.

Net cash used in financing activities for the six months ended June 30, 1998 was
$3.9 million, resulting primarily from payments on capital lease obligations of
$5.6 million, partially offset by proceeds from the issuance of Common Stock
under employee stock options and stock purchase

16
<PAGE>

plans of $1.4 million. For the six months ended June 30, 1997, cash provided by
financing activities was $44.8 million, resulting primarily from the proceeds
from the issuance of convertible Preferred Stock of $46.6 million, partially
offset by payments on capital lease obligations of $2.2 million.

The Company believes that it has the financial resources needed to meet its
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Nonetheless,
depending on market conditions, the Company may elect to sell additional equity
or debt securities or obtain additional credit facilities. Thereafter, if cash
generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may need or elect, depending on market conditions, to
sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity or convertible debt securities may
result in additional dilution to the Company's stockholders. There can be no
assurance that the Company will be able to raise any such capital on terms
acceptable to the Company or at all.

The Company is headquartered in facilities consisting of approximately 135,000
square feet in Redwood City, California, which the Company occupies under a 12-
year lease. Under this lease, the Company is obligated to pay for all tenant
improvements, substantially all of which had been completed as of December 31,
1997. In September 1997 and March 1998, the Company exercised its build-to-suit
options to require the landlord to build additional facilities of approximately
360,000 square feet on adjacent property. The Company also has another build-
to-suit option to require the landlord to build an additional facility of
approximately 70,000 square feet on the adjacent property, subject to certain
conditions. All facilities constructed under the Company's build-to-suit
options will be subject to leases of up to 15 years in length, have base rent
determined in relation to construction costs and will include tenant
improvements paid for by the Company. The build-to-suit options which have been
exercised provide for monthly rental payments, beginning upon the phased
completion of the buildings. Occupancy of the first phase is scheduled to occur
during 1999, which will result in rental payments of approximately $320,000 per
month. Additional buildings are scheduled to be occupied early in the year 2000
which will result in additional rental payments of approximately $320,000 per
month. In addition to its build-to-suit options, the Company has the right to
purchase two of the buildings leased from the landlord consisting of
approximately 205,000 total square feet. The Company anticipates that its
existing facilities, together with the facilities the Company has the right to
have built, will be adequate to accommodate its future growth for the
foreseeable future.

IMPACT OF ADOPTION OF NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes reporting standards
regarding operating segments, products and services, geographic areas and major
customers. The disclosure required by FAS 131 will first be reflected in the
consolidated financial statements for the year ending December 31, 1998.

IMPACT OF THE YEAR 2000 ISSUE

The Company continues to review its internal management information systems as
well as third parties' systems in order to assess the possible impact of year
2000 issues on its business. The Company expects the result of this review and
assessment will enable it to develop plans for any necessary changes, including
the testing and implementation of these changes, and to make estimates of the
likely time and costs of any required changes. To the extent that such
modifications need to be made, the Company will endeavor to make them on a
timely basis and does not believe that the cost of such modifications will have
a material effect on the Company's

17
<PAGE>

operating results, due to its relatively short operating history and small
number of installed computer systems.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

UNPROVEN BUSINESS; NO ASSURANCE OF PROFITABILITY

The Company was incorporated in March 1995, commenced operations in August
1995, and has incurred net losses from operations in each fiscal period since
its inception. As of June 30, 1998, the Company had an accumulated deficit of
$93.6 million (before the $9.2 million and $33.2 million charges and
amortization recorded in the fourth quarter of 1997 and the six-months ended
June 30, 1998, respectively, in connection with certain warrants granted to
Cablevision and Shaw in connection with their distribution agreements), and an
accumulated deficit of $136.0 million, including the charges and amortization
relating to these agreements. In addition, the Company currently intends to
increase its capital expenditures and operating expenses in order to expand
its network to support additional expected subscribers in existing and future
markets, to support the continued roll-out of its @Work services and to market
and provide the Company's services to a growing number of potential
subscribers. As a result, the Company expects to incur additional substantial
operating and net losses for the foreseeable future. The profit potential of
the Company's business model is unproven. The @Home service was only available
in portions of 31 geographic markets as of June 30, 1998 and may not achieve
broad consumer or commercial acceptance, and the Company's @Work services have
only recently been launched. Although approximately 1,200 organizations have
agreed to utilize @Work services as of June 30, 1998, @Work services may not
achieve broad commercial acceptance and the current rate of deployment for
@Work services may not be sustained. The Company has difficulty predicting
whether the pricing models for its Internet services will prove to be viable,
whether demand for its Internet services will materialize at the prices it
expects its Cable Partners to charge (for the @Home service) or the prices it
or the Cable Partners charge (for @Work services), or whether current or
future pricing levels will be sustainable. If such pricing levels are not
achieved or sustained or if the Company's services do not achieve or sustain
broad market acceptance, the Company's business, operating results and
financial condition will be materially adversely affected. There can be no
assurance that the Company will ever achieve favorable operating results or
profitability.

SUBSCRIBER GROWTH RISKS FOR THE @HOME SERVICE

As of June 30, 1998, the Company had approximately 147,000 subscribers to its
@Home service, including recently acquired Internet subscribers served by Jones
and Cogeco that are being converted to the @Home service. The Company's ability
to increase the number of subscribers to the @Home service to achieve its
business plans and generate future revenues will be dependent on a number of
factors, many of which are beyond the Company's control. These factors include,
among others: (i) the rate at which the Company's current and future Cable
Partners upgrade their cable infrastructures; (ii) the ability of the Company
and its Cable Partners to coordinate timely and effective marketing campaigns
with the availability of such upgrades; (iii) the success of the Cable Partners
in marketing the @Home service to subscribers in their local cable areas; (iv)
the prices that the Cable Partners set for the @Home service and its
installation; (v) the speed at which the Cable Partners can complete the
installations required to initiate service for new subscribers; (vi) the quality
of customer and technical support provided by the Company and its Cable
Partners; and (vii) the quality of content on the @Home service. The Company
believes subscriber growth has been constrained, and will continue to be
constrained, by the cost and the amount of time required to install the @Home
service for each residential consumer. In addition, most of the Company's Cable
Partners are not obligated to upgrade their cable infrastructures or market the
@Home service. 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 @Home service. Because of the foregoing factors, among
others, the Company's actual revenues or the rate at which it will add new
subscribers may differ from its forecasts. The Company may not be able to
increase its subscriber base in accordance with its 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 during the first two
quarters of 1998 should not be taken as indicative of the rate at which
subscribers may be expected to increase in the future. In particular, while the
Company has recently forecast that its number of subscribers could grow to over
300,000 by the end of 1998 from approximately 147,000 subscribers at June 30,
1998, the Company may not achieve this level of subscriber growth, particularly
given the risks set forth herein.

18
<PAGE>

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results attributable to its @Home service include: (i) the timing of the
Company's Cable Partners' upgrades of their cable infrastructures and roll-
outs of the @Home service; (ii) the rate at which customers subscribe to the
Company's Internet services and the prices subscribers pay for such services;
(iii) subscriber churn rates; (iv) changes in the revenue splits between the
Company and its Cable Partners; (v) the demand for Internet advertising and
electronic commerce; (vi) the effectiveness of the Cable Partners' marketing
and other operations; and (vii) potential competition with Cable Partners for
advertising revenue. Quarterly operating results attributable to the Company's
@Work services are dependent on: (i) the demand for, and level of acceptance
of, the Company's corporate Internet, intranet and extranet connectivity and
telecommuting solutions; (ii) the introduction of, demand for, and level of
acceptance of, the Company's value-added business applications; (iii) in part,
the timing of the Cable Partners' upgrades of their cable infrastructures;
(iv) the effectiveness of the Cable Partners' marketing and other operations;
(v) competitive pressures, including pricing pressure and the availability of
competing technologies, in the market for business Internet services; and (vi)
the creditworthiness of the Company's @Work customers. In addition, the
Company's quarterly operating results have been and will continue to be
adversely affected by significant charges and amortization associated with
warrants issued to current and potential Cable Partners in connection with
distribution agreements. The Company's quarterly sales and operating results
are difficult to forecast even in the short term. A significant portion of the
Company's expenses are fixed in advance based in large part on future revenue
forecasts. If revenue is below expectations in any given quarter, the adverse
impact of the shortfall on the Company's operating results may be magnified by
the Company's inability to adjust spending to compensate for the shortfall.
Moreover, the Company's Cable Partners have complete discretion regarding the
pricing of the @Home service in their territories, which could further impact
the Company's ability to generate sufficient revenue. A shortfall in actual as
compared to estimated revenue could have a material adverse effect on the
Company's business, operating results and financial condition.

DEPENDENCE ON CABLE PARTNERS TO UPGRADE TO TWO-WAY CABLE INFRASTRUCTURE
NECESSARY TO SUPPORT THE @HOME SERVICE; UNCERTAIN AVAILABILITY AND TIMING OF
UPGRADES

Transmission of the @Home service and certain @Work services over cable is
dependent on the availability of high-speed two-way HFC cable infrastructure.
However, only a small portion of existing cable plant in the United States and
in certain international markets has been upgraded to HFC cable, and even less
is capable of high-speed two-way transmission. The Company's Cable Partners
have announced and begun to implement major infrastructure investments in
order to deploy two-way HFC cable. However, cable system operators have
limited experience with these upgrades, and these investments have placed a
significant strain on the financial, managerial, operating and other resources
of the Cable Partners, most of which are already highly leveraged. Therefore,
these infrastructure investments have been, and the Company expects will
continue to be, subject to change, delay or cancellation. Although the
Company's commercial success depends on the successful and timely completion
of these infrastructure upgrades, most of the Cable Partners are under no
obligation to the Company to upgrade systems or to roll out, market or promote
the Company's services. In addition, most of the Cable Partners are not
contractually required to achieve any specific roll-out schedule. The failure
of the Cable Partners to complete these upgrades in a timely and satisfactory
manner, or at all, would prevent the Company from delivering high-performance
Internet services and would have a material adverse effect on the Company's
business, operating results and financial condition.

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NO OBLIGATION OF PRINCIPAL U.S. CABLE PARTNERS TO CARRY THE COMPANY'S
SERVICES; LIMITATIONS ON THEIR EXCLUSIVITY

Although the Company's Principal U.S. Cable Partners are subject to certain
exclusivity obligations that prohibit them from obtaining high-speed (greater
than 128 Kbps) residential consumer Internet services from any source other
than the Company (the "Exclusivity Obligations"), such Principal U.S. Cable
Partners are under no affirmative obligation to carry any of the Company's
services. Such Exclusivity Obligations of the Principal U.S. Cable Partners
expire on June 4, 2002, and may be terminated sooner under certain
circumstances. The Principal U.S. Cable Partners' Exclusivity Obligations are
limited to high-speed residential Internet services and do not extend to various
"Excluded Services" which the Company's Principal U.S. Cable Partners may offer
without the Company and which the Company may not offer over a Principal U.S.
Cable Partner's cable plant (even if part of a service is integrated within the
@Home service) without the consent of such Cable Partner. "Excluded Services"
include: (i) the provision of telephony services; (ii) the provision of services
that are primarily work-related (such as @Work services); (iii) the provision of
Internet services that do not use the Principal U.S. Cable Partners' cable
television infrastructures; (iv) the provision of any local Internet service
that does not require use of an Internet backbone outside a single metropolitan
area; (v) the provision of services that are utilized primarily to connect
students to schools, colleges or universities; (vi) the provision of Internet
telephony, Internet video telephony or Internet video conferencing; (vii) the
provision of certain limited Internet services primarily intended for display on
a television such as some types of Internet-based digital set-top services;
(viii) the provision of certain Internet services that are primarily downstream
services where the user cannot send upstream commands in real-time; (ix) the
provision of streaming video services that include video segments longer than
ten minutes in duration; and (x) limited testing, trials and similar
activities with respect to businesses subject to the Exclusivity Obligations of
less than six months. By engaging in the Excluded Services, the Principal U.S.
Cable Partners can compete, directly or indirectly, with the activities of the
Company, including the Company's @Work services.

CONTROL BY TCI; VETO POWER OF OTHER PRINCIPAL STOCKHOLDERS.

TCI controls approximately 72% of the voting power of the Company and has the
power to elect a majority of the members of the Board and the power to control
all matters requiring the approval of the holders of the Company's Common Stock
voting together as a single class. TCI owns all of the Series B Common Stock,
which carries ten votes per share and has the right under the Company's
Certificate of Incorporation (the "Certificate") to elect five directors (the
"Series B Common Stock Directors"), of which, pursuant to a Stockholders'
Agreement, three are to be designated by TCI, one is to be designated by Comcast
and one is to be designated by Cox. Currently, four of the Company's 12
directors are directors, officers or employees of TCI or its affiliates. The
Company's Certificate provides that so long as TCI owns at least 7,700,000
shares of Series B Common Stock and securities representing a majority of the
outstanding voting power of the Company, (i) any action by the Company's Board
must be approved by both a majority of directors present at a meeting at which a
quorum is present and by a majority of the Series B Common Stock Directors (of
which TCI is currently entitled to elect three out of five) and (ii) a committee
composed of those Series B Common Stock Directors who are officers, directors or
employees of TCI will have the sole power (acting as a committee of the Board
and without the necessity of stockholder approval) to increase the size of the
Board (up to a maximum of 17 members) and to fill the vacancies created by any
such increase. The effect of these provisions is to enable TCI to block actions
of the Board, even through the TCI directors may not then constitute a majority
of the Board, and to expand the Board at any time and fill the vacancies with
TCI designees such that the TCI designees would constitute a majority of the
Board. As a result, TCI, acting both through its designees on the Board and
through its ownership of voting securities, will have the power to control the
Company, subject, however, to any fiduciary duties that TCI, as the controlling
stockholder, may owe to the other stockholders of the Company under Delaware
law, the fiduciary duties that all directors of the Company, including those
directors who are officers or directors of TCI, owe to stockholders of the
Company to act in the best interests of the stockholders and the supermajority
and unanimous approval provisions set forth in the Certificate which provide
that the Company may not take certain corporate actions without the approval of
TCI's Series B Common Stock Directors as well as two out of three, or in
certain cases all three, of the directors designated by Comcast, Cox and
KPCB, which effectively gives Cox, Comcast and KPCB veto powers over certain
corporate actions.

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AT&T ACQUISITION OF TCI AND TCG

On June 24, 1998, TCI and AT&T announced that they had signed a definitive
merger agreement pursuant to which AT&T will acquire TCI. Following the
acquisition of TCI by AT&T and therefore of TCI's equity interest in the
Company, AT&T will have the power to exercise control over the Company as
described above. AT&T and TCI anticipate that the merger, which is subject to
regulatory and stockholder approvals, will be completed in the first half of
1999. In addition, in July 1998, AT&T acquired TCG. While the Company believes
that AT&T's acquisition of TCI and TCG may benefit the Company by increasing
the rate at which TCI's cable facilities will be upgraded to the two-way HFC
cable necessary to carry the Company's services, by allowing the Company to
utilize AT&T's brand in marketing the @Home service to consumers and by
increasing the potential for cooperation between the Company and TCG, these
benefits may not be realized and the TCI acquisition may not be completed.
Moreover, the Master Distribution Agreement Term Sheet under which the
Company's Principal U.S. Cable Partners have agreed to the Exclusivity
Obligations provides that upon a change of control of TCI, either Cox or
Comcast may terminate the Exclusivity Obligations as to all Principal U.S.
Cable Partners. For this purpose, a "change of control" of TCI is defined to
occur at such time as (i) any person (or group of persons acting in concert),
other than Bob Magness or John Malone or their descendants or any stockholder
that was a member of the controlling group of stockholders of TCI as of June
4, 1996, owns stock representing more than 50% of the voting power of TCI and
(ii) as a result of acquiring such ownership, at any time prior to the first
anniversary of acquiring such ownership (the "Acquisition Date"), the
directors who were members of the Board of Directors of TCI as of the
Acquisition Date, plus any additional directors not designated by the
acquiring person who are approved by a majority of the directors who were
directors on the Acquisition Date, no longer constitute a majority of the
entire board of directors of TCI. If AT&T completes its proposed acquisition, it
will acquire a majority of the voting power of TCI and will therefore have the
power to preserve the Exclusivity Obligations. However, if AT&T chooses not
to retain a sufficient number of the directors of TCI who were in office prior
to the completion of the merger for at least one year after the Acquisition
Date, either Cox or Comcast would have the right to terminate the exclusivity
provisions applicable to the Principal U.S. Cable Partners, which could have a
material adverse effect on the Company's business, operating results and
financial condition.

DEPENDENCE ON CABLE PARTNERS FOR DISTRIBUTION; POTENTIAL CONFLICTS OF
INTEREST WITH PRINCIPAL U.S. CABLE PARTNERS

The Cable Partners are expected to provide through certain of their cable
systems the principal distribution network for the Company's services to
residential subscribers to the @Home service (the majority of whom are expected
to be subscribers to such Cable Partners' cable television services) and will
share the revenue from the @Home services that are derived from such
subscribers. Given the contractual and business relationships between the Cable
Partners and the Company, the interests of the Cable Partners may not always
coincide with the interests of the Company, and conflicts of interest concerning
the split of revenues and other matters exist between the Company and the
Principal U.S. Cable Partners who control the Company. Because TCI, Cablevision,
Comcast and Cox all operate cable systems that will be the primary distributors
of the @Home service, situations may arise where the interests of the Principal
U.S. Cable Partners may diverge or appear to diverge from the interests of the
other stockholders of the Company. TCI and the other Principal U.S. Cable
Partners, acting through their designees on the Board, will have the ability to
cause the Company to take certain actions or prohibit it from taking certain
actions, which may be favored by the other stockholders of the Company or by the
other directors of the Company who are not affiliated with the Principal U.S.
Cable Partners. The Board, which is controlled by TCI, has the power, subject to
directors' fiduciary duties, to approve transactions in which the Principal U.S.
Cable Partners have an interest, including a change in revenue splits in favor
of the Principal U.S. Cable Partners. Under the current master distribution
agreement pursuant to which the Principal U.S. Cable Partners distribute the
Company's services (the "Master Distribution Agreement"), the Company receives
35% of monthly fees and fees for premium services. As a result of certain
contractual "most favored nation" provisions (the "MFN"), which provide that the
cable affiliates of the Principal U.S. Cable Partners are entitled to
distribution arrangements and related services on terms at least as favorable as
those obtained by any other cable system operator, the Principal U.S. Cable
Partners could determine to cause the Company to approve more favorable
distribution arrangements, including more favorable revenue splits, for one or
more unaffiliated cable operators in order to receive more favorable
distribution arrangements for their respective cable affiliates through the
operation of the MFN.

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CONTROL BY PRINCIPAL U.S. CABLE PARTNERS OF TERMS OF DISTRIBUTION

The Company and the Principal U.S. Cable Partners have entered into the Master
Distribution Agreement providing for the distribution of the @Home service by
the Principal U.S. Cable Partners and their affiliates. The economic and other
terms of the Master Distribution Agreement may be less favorable to the Company
than those that could have been negotiated had the Company been independent of
the Principal U.S. Cable Partners. Because of their control of the Company, the
Principal U.S. Cable Partners will have the power, subject to their fiduciary
duties, to change any of the terms of distribution, including the revenue splits
with the Company. In addition, the Master Distribution Agreement and the other
agreements between the Company and the Principal U.S. Cable Partners contain
provisions that permit a Principal U.S. Cable Partner to change certain aspects
of the distribution of the @Home service without the approval of the Company.
For example, a Principal U.S. Cable Partner has the option to provide certain
customer service functions which are currently provided by the Company and upon
which the Company's 35% revenue split was based. If such Principal U.S. Cable
Partner elects to provide such services, it is also entitled to an adjustment in
the revenue split with the Company. Similarly, the Principal U.S. Cable Partners
have certain rights pursuant to the Master Distribution Agreement to remove
cable systems from the approved rollout schedule or substitute cable systems in
place of removed systems. These rights are contractual in nature and may be
exercised by the Principal U.S. Cable Partners in their sole discretion. The
exercise by the Principal U.S. Cable Partners of these contractual rights may
have an adverse effect upon the Company's business, operating results and
financial condition. Moreover, because of their control of the Board, the
Principal U.S. Cable Partners will have the ability to amend, modify or
terminate the Master Distribution Agreement, agreements between local cable
operators affiliated with the Principal U.S. Cable Partners ("Affiliated LCOs")
and the Company ("LCO Agreements"), a stockholders' agreement to which the
Company and the Principal Cable Stockholders, among others, are parties (the
"Stockholders' Agreement") and the other agreements to which the Company is a
party, or to cause the Company to grant waivers of certain provisions thereof.
In considering any such amendments, modifications or waivers, the members of the
Board, including those members who are designees of the Principal U.S. Cable
Partners, will be subject to the fiduciary duties owed to the stockholders of
the Company under Delaware law. There can be no assurance that following the
consummation of this offering the Principal U.S. Cable Partners will not cause
the terms of the Master Distribution Agreement to be amended, modified or
terminated or cause the Company to waive any provision of the Master
Distribution Agreement. The Principal U.S. Cable Partners control the Company
and effectively determine the rollout schedule of the @Home service. Moreover,
the Master Distribution Agreement and certain other agreements provide the
Principal U.S. Cable Partners and Rogers and Shaw with certain priority rights
with respect to the rollout schedule of the @Home service. This priority could
adversely affect the Company because the Company may be required to roll out its
services to the Principal U.S. Cable Partners and Rogers and Shaw, and their
respective LCOs, before rolling out the services to other cable system
operators, even though such other cable system operators may be ready to roll
out the @Home service sooner or on terms more favorable for the Company than the
terms of distribution for the Principal U.S. Cable Partners and Rogers and Shaw,
and their respective LCOs.

RIGHT OF PRINCIPAL U.S. CABLE PARTNERS TO BLOCK ACCESS TO CERTAIN CONTENT AND
SERVICES

The Master Distribution Agreement provides each Principal U.S. Cable Partner
with the right to exclude the promotion of specified national content providers
from the @Home service offered through such Principal U.S. Cable Partner's cable
systems, subject to an adjustment in the split of premium service revenues
between the Principal U.S. Cable Partner and the Company to the extent the
number of such exclusions exceeds a specified number. In addition, a Principal
U.S. Cable Partner has the right to block access to certain content, including
streaming video segments of more than ten minutes in duration, and the Company
is obligated to use its reasonable best efforts to block such access. The
Company is obligated to use its reasonable best efforts to consult with and
involve each of the Principal U.S. Cable Partners in the development of
requirements for and design of enhancements, new features and new applications
of the @Home service and coordinate with respect to the introduction of such
enhancements, features and applications that could have a significant effect on
the operations of a Principal U.S. Cable Partner. If Principal U.S. Cable
Partners representing a majority of the residential subscribers who subscribe to
the @Home service via Affiliated LCOs of the Principal U.S. Cable Partners
object to such enhancement, feature or application, the Company has agreed not
to implement such enhancement, feature or application in the territories of
objecting Principal U.S. Cable Partners. If any of the Principal U.S. Cable
Partners exercise these rights to block access to certain content or services in
certain territories, the Company may be required to devote substantial expenses
and resources to provide different content and services in different territories
and to assist the Principal U.S. Cable Partners in blocking such access, which
could have a material adverse effect on the Company's business, operating
results and financial condition.

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<PAGE>

DEPENDENCE ON CABLE PARTNERS TO ROLL OUT, MARKET, INSTALL, MAINTAIN
INFRASTRUCTURE FOR, PROVIDE CUSTOMER SERVICE FOR AND BILL FOR THE @HOME
SERVICE

In order to roll out the @Home service in a geographic area, the Cable Partners
must have completed the two-way HFC cable infrastructure upgrade in that area.
Following the rollout of the @Home service in a service area, the Company's
business will be highly dependent on the LCO to maintain its cable
infrastructure in such a manner as to permit the reliable transmission of the
@Home service. Because subscribers to the @Home service will subscribe through
an LCO, the LCO (and not the Company) will substantially control the customer
relationship with the subscriber. Each LCO has complete discretion regarding the
pricing of @Home service to subscribers in its territory (except for certain
premium services for which the Company contracts directly with the subscriber),
and an LCO could use the @Home service as a loss leader in order to increase
demand for other LCO products or services with more attractive terms for the
LCO. Neither the Cable Partners nor their LCOs have any affirmative obligations
(other than the payment of revenue splits to the Company) with respect to
marketing, installing and maintaining infrastructure for, providing customer
service for and billing for the @Home service, and the Company has no remedies
against the Cable Partners or their LCOs, other than in limited circumstances
such as an LCO's failure to upgrade its cable system or roll out the @Home
service after it has committed to do so, in which event the Company may be
entitled to certain cost reimbursements and to be released from its exclusivity
obligations to such LCO, neither of which may be an effective remedy for the
Company. Moreover, the Master Distribution Agreement does not create affirmative
obligations on the part of any Principal U.S. Cable Partners to cause its
Affiliated LCOs to perform any of the foregoing activities or to upgrade any of
their cable systems. The Company's business requires that a material number of
LCOs of all its Cable Partners roll out the @Home service, and if a sufficient
number of LCOs does not roll out the @Home service, the Company's business will
not be viable. Moreover, the LCOs of its Cable Partners have in the past
experienced, and may in the future experience, delays in installing the @Home
service in the areas in which it has been rolled out, which could also
materially adversely affect the Company's business, operating results and
financial condition. Each of the Principal U.S. Cable Partners and its
Affiliated LCOs is entitled to MFN terms with respect to the distribution of the
@Home service, subject to certain exceptions. These terms could limit the
Company's ability to negotiate agreements with other cable system operators and
otherwise could limit the Company's potential to generate revenue. The
Affiliated LCOs are expected to provide general customer service to the
Company's subscribers and, pursuant to the distribution agreements with the
Company, have the option to provide technical support, rather than utilizing the
Company's service and support capabilities. If an Affiliated LCO elects to
provide technical support, the LCO Agreement provides for an adjustment in the
revenue split between the Company and the Affiliated LCO, and the Company would
have little or no control over the quality of customer service actually provided
to subscribers of the @Home service. If the customer service and support
provided by Affiliated LCOs are unsatisfactory to subscribers, consumer demand
for the Company's @Home service will likely be materially adversely affected.

POTENTIAL COMPETITION WITH CABLE PARTNERS FOR ADVERTISING REVENUE

While the Company retains 100% of all United States national advertising revenue
delivered on the @Home service through the Company's U.S. Cable Partners, LCOs
of the U.S. Cable Partners retain 100% of revenue generated from local service
offerings that do not require access to an Internet backbone or that relate to
programming within the designated local areas of the home page for the @Home
service, such as revenues from advertising. In Canada, the Company will share
national advertising revenue with its Canadian Cable Partners. Moreover, given
the national coverage of the combined operations of the Principal U.S. Cable
Partners and their Affiliated LCOs, the Principal U.S. Cable Partners and their
Affiliated LCOs could strike agreements with advertisers that would effectively
result in broad-based advertising campaigns throughout most of the United States
in competition with the Company's national advertising campaigns, generating
revenue only for Affiliated LCOs and not for the Company. Accordingly, the @Home
service may contain a significant amount of advertising that is national in
scope and focus for which it receives no share of the revenues.

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DEPENDENCE ON TCG FOR LOCAL TELECOMMUNICATIONS SERVICES FOR THE @WORK
SERVICES

The Company depends on TCG, which is owned by AT&T, to provide local
telecommunications services and co-location within TCG's facilities on favorable
economic terms that enable the Company to provide @Work services to an entire
metropolitan area in which TCG has facilities. If the Company were required to
obtain comparable telecommunications services from local exchange carriers, it
would effectively be limited to providing @Work services to commercial customers
within a ten-mile radius of one of the Company's points of presence. As a
result, the Company would be required to build multiple points of presence to
service an entire metropolitan area, which would substantially increase the
Company's capital costs to enter new markets and which could make such market
entry uneconomical for the Company. If the Company were required to pay standard
local exchange carrier rates, the Company's ongoing operating costs for its
@Work services would be substantially higher. The loss of the Company's
strategic relationship with TCG would have a material adverse effect on the
Company's ability to deploy its @Work services and on its business, operating
results and financial condition. In addition, TCG has acquired a provider of
Internet-related services to businesses and corporate customers and will compete
directly with the @Work Internet service, and to the extent TCG acquires or
enters into strategic relationships with other Internet service providers, TCG
may reduce its support of the @Work services. Although there are alternative
suppliers for TCG's services, it could take a significant period of time to
establish similar relationships and equivalent terms might not be available.

LIMITATIONS ON THE COMPANY'S ABILITY TO PROVIDE CERTAIN EXCLUDED SERVICES

The Company has agreed with its Principal U.S. Cable Partners (i) not to
directly or indirectly offer, provide, distribute, advertise, promote or market
(or carry or otherwise distribute advertising or promotions with respect to) any
streaming video transmissions that include video segments longer than ten
minutes in duration or any other Excluded Service to residences in the Exclusive
Territory (as defined below) of a Principal U.S. Cable Partner without its prior
written consent even if such Excluded Service has been integrated with the @Home
service in other areas and (ii) not to offer or provide Internet services other
than through the Cable infrastructure at data transmission speeds greater than
128 Kbps to residences in any geographic area served by the cable systems of
those Principal U.S. Cable Partners that remain in compliance with their
exclusivity provisions (the "Exclusive Territory") until the later of June 4,
2002 and such time as the Principal U.S. Cable Partner is no longer in
compliance with the Exclusivity Obligations. No assurance can be given that the
Company will have access to the cable infrastructures of its Principal U.S.
Cable Partners for Excluded Services, and the Company must negotiate a separate
agreement with each of the Principal U.S. Cable Partners for each portion of
such services that the Company seeks to provide over their cable
infrastructures. Any such failure to obtain access, or competition from the
Company's Principal U.S. Cable Partners in providing Excluded Services, could
have a material adverse effect on the Company's business, operating results and
financial condition.

POTENTIAL DISPOSITION OF CABLE SYSTEMS BY PRINCIPAL U.S. CABLE PARTNERS

The Company's agreements with its Principal U.S. Cable Partners do not require
that they maintain a specified number of cable systems, subscribers or homes
passed in order to maintain their control over and equity ownership of the
Company. Therefore, these Principal U.S. Cable Partners may dispose of a
significant amount of their cable systems without requiring that such cable
systems remain subject to any exclusivity provisions. However, to the extent
that any Principal U.S. Cable Partner disposes of more than 20% of the number of
homes passed in its service areas as of June 4, 1996 (subject to certain
exceptions) without causing such transferred homes to remain exclusive to @Home,
then such Principal U.S. Cable Partner may be required to sell a proportionate
amount of its equity interest in the Company to the other Principal U.S. Cable
Partners at the fair market value thereof. TCI has completed the transfer or
sale of certain cable systems and has announced the proposed sale or transfer of
additional cable systems and is considering various plans and proposals that may
result in the disposition of other of its cable systems. Although TCI has
informed the Company that it is attempting to cause certain of such transferred
systems to remain subject to the Exclusivity Obligations, there can be no
assurance that these efforts will be successful. Such dispositions may have an
adverse effect upon the business, operating results and financial condition of
the Company if the transferred homes do not remain exclusive to the Company.

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UNPROVEN NETWORK SCALABILITY, SPEED AND SECURITY

Due to the limited deployment of the Company's services, the ability of the
@Home Broadband Network to connect and manage a substantial number of online
subscribers at high transmission speeds is as yet unknown, and the Company faces
risks related to the @Home Broadband Network's ability to be scaled up to its
expected subscriber levels while maintaining superior performance. The @Home
Broadband Network may be unable to achieve or maintain a high speed of data
transmission, especially as the number of the Company's subscribers grows. The
Company's failure to achieve or maintain high-speed data transmission would
significantly reduce consumer demand for its services and have a material
adverse effect on its business, operating results and financial condition. In
addition, while the Company has taken steps to prevent users from sharing files
via the @Home service and to protect against "email spamming," public concerns
about security, privacy and reliability of the cable network, or actual problems
with the security, privacy or reliability of the Company's network, may inhibit
the acceptance of the Company's Internet services.

MANAGEMENT OF EXPANDED OPERATIONS; DEPENDENCE ON KEY PERSONNEL

The Company may not be able to successfully manage any future periods of rapid
growth or expansion, which could be expected to place a significant strain on
the Company's managerial, operating, financial and other resources. From time to
time, the Company and its Cable Partners have had difficulty managing network
operations and expansion of backbone capacity and providing adequate customer
service or efficient provisioning of new subscribers. A prolonged failure to
perform these functions successfully would have a material adverse effect on
subscriber growth and retention and would materially adversely affect the
Company's business, operating results and financial condition. The Company is
highly dependent upon the efforts of its senior management team, and the
Company's future performance will depend, in part, upon the ability of senior
management to manage growth effectively, which will require the Company: (i) to
implement additional management information systems capabilities; (ii) to
develop further its operating, administrative, financial and accounting systems
and controls; (iii) to maintain close coordination among engineering,
accounting, finance, marketing, sales and operations; and (iv) to hire and train
additional technical and marketing personnel. There is intense competition for
senior management, technical and marketing personnel in the areas of the
Company's activities. The loss of the services of any of the Company's senior
management team or the failure to attract and retain additional key employees
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company maintains no key-person life
insurance.

DEPENDENCE ON TWO-WAY CABLE MODEMS; NEW INDUSTRY STANDARD

Each of the Company's subscribers currently must obtain a cable modem from a
Cable Partner to access the @Home service. The North American cable industry has
recently adopted a set of interface specifications known as DOCSIS for hardware
and software to support the delivery of data services over the cable
infrastructure utilizing interoperable cable modems. The Company believes that
these specifications, together with its development agreement with Intel
Corporation ("Intel") relating to "plug and play" DOCSIS modems, will facilitate
the growth of the cable modem industry and the availability of lower cost,
interoperable cable modems through retail channels. However, certain of the
Company's Cable Partners have chosen to slow the deployment of the @Home service
until the commercial availability of DOCSIS-compliant cable modems. The
Company's subscriber growth could be constrained and the Company's business,
operating results and financial condition could be materially adversely affected
to the extent the Cable Partners choose to slow the deployment of the @Home
service further, as a result of the timing of commercial availability of DOCSIS-
compliant cable modems or otherwise. Cable modems that are DOCSIS-compliant are
not currently expected to be generally commercially available before the fourth
quarter of 1998 or to be available in significant quantities until 1999.
Although multiple vendors are expected to supply DOCSIS-compliant cable modems
and their constituent components, any Cable Partner's reliance on a single
provider of such modems or components could cause that Cable Partner to be
unable to generate expected subscriber growth for the @Home service in the event
such supplier does not provide the Cable Partner with a sufficient quantity of
DOCSIS-complaint modems to meet the Cable Partner's requirements.

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COMPETITION

The markets for consumer and business Internet services and online content are
extremely competitive, and the Company expects that competition will intensify
in the future. The Company's most direct competitors in these markets are
unaffiliated cable companies, national long-distance carriers, local exchange
carriers, Internet service providers ("ISPs"), online service providers ("OSPs")
and Internet content aggregators.

The Company's competitors in the cable-based services market are those
companies that have developed their own cable-based services and market those
services to unaffiliated cable system operators that are planning to deploy data
services. In particular, Time Warner Inc. ("Time Warner") and MediaOne Group
("MediaOne") have deployed high-speed Internet access services over their
existing local HFC cable networks through their cable-based Internet service,
Road Runner, which features a variety of proprietary content from Time Warner
Publications. Time Warner's substantial libraries of multimedia content could
provide Road Runner with a significant competitive advantage. In June 1998,
Microsoft Corporation ("Microsoft") and Compaq Computer Corporation ("Compaq")
each invested $212.5 million in Road Runner and announced that Microsoft will
provide software for the Road Runner service and that Compaq will produce cable-
ready personal computers to be used with the service. Time Warner and MediaOne
plan to market the Road Runner service through their own cable systems as well
as to other cable system operators nationwide. Although the Company does not
presently compete with the Road Runner services for subscribers because their
services are offered over different cable systems than those that carry the
@Home service, the Company does compete with the Road Runner service in seeking
to establish distribution arrangements with cable system operators. Furthermore,
at such time as the Company's existing Cable Partners cease to be subject to the
Exclusivity Obligations, the Company may compete with Road Runner and
potentially other Internet service providers for distribution over the cable
systems of the Company's Cable Partners. In addition, other cable system
operators, including Adelphia Communications Corporation and Bell South
Corporation, have launched their own cable-based Internet services that could
compete with the Company's services.

Long distance inter-exchange carriers, such as AT&T, MCI Communications
Corporation ("MCI"), Sprint Corporation ("Sprint") and WorldCom, Inc.
("WorldCom"), have deployed large-scale Internet access networks and sell
connectivity to business and residential customers. The regional Bell operating
companies ("RBOCs") and other local exchange carriers have also entered this
field and are providing price competitive services. Many such carriers are
offering diversified packages of telecommunications services, including Internet
access, to residential customers and could bundle such services together, which
could put the Company at a competitive disadvantage. Many of these competitors
are offering (or may soon offer) technologies that will compete with some or all
of the Company's high-speed data service offerings. Such technologies include
Integrated Services Digital Network ("ISDN") and Asymmetric Digital Subscriber
Line ("ADSL"). In Janaury 1998, Compaq, Intel and Microsoft, other technology
companies and numerous telecommunications providers announced an initiative to
develop a simplified version of ADSL, referred to as "ADSL Lite," which reduces
the complexity and expense of installing Internet services based on ADSL. While
commercial tests of this simplified version of ADSL are not expected until the
end of 1998, this initiative may accelerate the deployment of ADSL services.
Widespread commercial acceptance of ADSL technologies could significantly reduce
the potential subscriber base for the Company's Internet services, which could
have a material adverse effect on the Company's business, operating results and
financial condition.

26
<PAGE>

The Company could also face substantial competition from its strategic partners.
In February 1997, TCG acquired CERFnet Services, Inc. ("CERFnet"), an Internet
service provider for business customers that competes with the Company's @Work
service. The Company's @Work business depends to a significant extent on its
agreement with TCG for local access telecommunications services. If TCG ceases
to cooperate with the Company, there could be an adverse effect on the Company's
@Work business. In July 1998, AT&T acquired TCG and in June 1998, AT&T announced
an agreement to acquire TCI, including TCI's controlling interest in the
Company. AT&T also operates a consumer Internet service known as AT&T WorldNet.
Now that it owns TCG, and if it completes its acquisition of TCI, AT&T could
take actions that benefit CERFnet, WorldNet or other services of AT&T to the
detriment of the Company. Moreover, as discussed above, AT&T's acquisition of
TCI could result in termination of the Exclusivity Obligations of the Company's
Principal U.S. Cable Partners. Any of these actions could have a material
adverse effect on the Company's business, operating results and financial
condition.

The Company also competes to some extent with Internet service providers which
provide basic Internet access to residential consumers and businesses, generally
using existing telephone network infrastructures. While not offering the
advantages of broadband access, these services are widely available and
inexpensive. Barriers to entry are low, resulting in a highly competitive and
fragmented market. In addition, the Company competes with online service
providers such as America Online, Inc. ("America Online") that provide, over the
Internet and on proprietary online services, content and applications ranging
from news and sports to consumer videoconferencing. These services are designed
for broad consumer access over telecommunications-based transmission media,
which enables the provision of data services to the large group of consumers who
have personal computers with modems. In addition, OSPs provide basic Internet
connectivity, ease of use and consistency of environment. In addition to
developing their own content or supporting proprietary third-party content
developers, online services often establish relationships with traditional
broadcast and print media outlets to bundle their content into the service.
Finally, the Company competes with content aggregators and Internet portals that
seek to capture audience flow by providing ease-of-use and offering content that
appeals to a broad audience. Leading companies in this area include America
Online, Yahoo! Inc. and Excite, Inc. In this market, competition occurs in
acquiring both content providers and subscribers. The principal bases of
competition in attracting content providers include quality of demographics,
audience size, cost-effectiveness of the medium and ability to create
differentiated experiences using aggregator tools. The principal bases of
competition in attracting subscribers include richness and variety of content
and ease of access to the desired content. Many OSPs, such as America Online,
have the advantage of large customer bases, industry experience, many content
partnerships and significant resources.

Many of the Company's 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 the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or online content than the Company.
The Company may not be able to compete successfully against current or future
competitors, and competitive pressures faced by the Company could materially
adversely affect the Company's business, operating results or financial
condition. Further, as a strategic response to changes in the competitive
environment, the Company and its Cable Partners may make certain pricing,
service or marketing decisions or enter into acquisitions or new ventures that
could have a material adverse effect on the Company's business, operating
results or financial condition.

27
<PAGE>

RISKS ASSOCIATED WITH JOINT DEVELOPMENT EFFORT

The Company was recently selected by TCI to develop software and provide
integration services for TCI's next generation advanced digital set-top
devices, pursuant to a Memorandum of Understanding between the Company and
TCI's National Digital Television Center ("NDTC"). Completion of the
transactions contemplated by the Memorandum of Understanding is subject to
negotiation of a definitive agreement and other conditions, and there can be
no assurance that such transactions will be consummated. Although the Company
believes this relationship could enable the Company to expand its product line
and market the @Home service to a broader audience of consumers who do not
regularly use a personal computer, the Memorandum of Understanding does not
require that TCI deploy the @Home service on such set-top devices, and the
Company cannot predict when such set-top devices will become commercially
available. In addition to the technological, financial and infrastructure
challenges TCI faces in deploying the new set-top devices, the success of this
development effort is subject to: (i) the technological and operational
challenges of providing and supporting email and other Internet services to
set-top device users; (ii) competition from alternative Internet service
providers and deployment technologies; and (iii) the degree to which consumers
desire Internet services, including email, on their televisions.

RISK OF SYSTEM FAILURE

The Company's operations are dependent upon its ability to support its 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 the Company's Network
Operations Center ("NOC") or at a number of the Company's regional data centers
("RDCs") could cause interruptions in the services provided by the Company.
Additionally, failure of the Company's Cable Partners or companies from which
the Company obtains data transport services to provide the data communications
capacity required by the Company, as a result of natural disaster, operational
disruption or any other reason, could cause interruptions in the services
provided by the Company. Any damage or failure that causes interruptions in the
Company's operations could have a material adverse effect on the Company's
business, operating results and financial condition.

RISKS OF TECHNOLOGICAL CHANGE

The markets for consumer and business Internet access services and online
content are characterized by rapid technological developments, frequent new
product introductions and evolving industry standards. The emerging nature of
these products and services and their rapid evolution will require that the
Company continually improve the performance, features and reliability of its
network, Internet content and consumer and business services, particularly in
response to competitive offerings. The Company may not be successful in
responding quickly, cost effectively and sufficiently to these developments.
There may be a time-limited market opportunity for the Company's cable-based
consumer and business Internet services, and the Company may not be successful
in achieving widespread acceptance of its services before competitors offer
products and services with speed and performance similar to the Company's
current offerings. In addition, the widespread adoption of new Internet or
telecommuting technologies or standards, cable-based or otherwise, could require
substantial expenditures by the Company to modify or adapt its network, products
and services and could fundamentally affect the character, viability and
frequency of Internet-based advertising, either of which could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, new Internet or telecommuting services or enhancements
offered by the Company may contain design flaws or other defects that could have
a material adverse effect on the Company's business, operating results and
financial condition.

28
<PAGE>

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

A key component of the Company's strategy is expansion into international
markets. To date, the Company has developed relationships only with United
States, Canadian and Dutch cable system operators and has only recently entered
into agreements in principle with a cable system operator in the United Kingdom.
The Company has extremely limited experience in developing localized versions of
its products and services and in developing relationships with international
cable system operators. The Company may not be successful in expanding its
product and service offerings into foreign markets. In addition to the
uncertainty regarding the Company's ability to generate revenues from foreign
operations and expand its international presence, there are certain risks
inherent in doing business on an international level, such as: (i) regulatory
requirements (including the regulation of Internet access); (ii) legal
uncertainty regarding liability for information retrieved and replicated in
foreign jurisdictions; (iii) export and import restrictions; (iv) tariffs and
other trade barriers; (v) difficulties in staffing and managing foreign
operations; (vi) longer payment cycles; (vii) problems in collecting accounts
receivable; (viii) political instability; (ix) fluctuations in currency exchange
rates; (x) seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and (xi) potentially adverse tax
consequences, which could adversely affect the success of the Company's future
international operations. One or more of such factors could have a material
adverse effect on the Company's future international operations and,
consequently, on the Company's business, operating results and financial
condition.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

Although the Company's services are not directly subject to current regulations
of the Federal Communication Commission (the "FCC") or any other federal or
state communications regulatory agency, changes in the regulatory environment
relating to the Internet connectivity market, including regulatory changes that,
directly or indirectly, affect telecommunications costs, limit usage of
subscriber-related information or increase the likelihood or scope of
competition from the regional Bell operating companies ("RBOCs") or other
telecommunications companies, could affect the Company's pricing and/or ability
to market its services successfully. For example, regulation of cable television
rates may affect the speed at which cable operators that have agreed or will
agree in the future to provide the @Home service will be able to upgrade their
cable systems as necessary to carry the Company's services. Similarly, enactment
of proposed privacy legislation currently pending in Congress, which would
restrict the use of subscriber information by interactive computer services for
marketing and other purposes, could adversely affect the marketing of the
Company's services as well as its revenue from advertising.

The Cable Partners in the United States have advised the Company that their
local cable operators typically have elected to classify the provision of all or
some of the @Home services as "additional cable services" under their respective
local franchise agreements, and to pay franchise fees in accordance therewith.
Local franchise authorities may attempt to subject cable systems to higher or
other franchise fees or taxes or otherwise seek to require cable operators to
obtain additional franchises, in connection with their distribution of the @Home
service. There are thousands of franchise authorities, and thus it will be
difficult or impossible for the Company or such cable operators to operate under
a unified set of franchise requirements. Legislation has been introduced in
Congress that if enacted would impose a moratorium limiting the ability of state
and local governments to impose taxes on Internet services pending the
formulation and submission to Congress by the President of recommendations
concerning appropriate parameters for state and local taxation of such services.
However, state and local authorities have expressed strong opposition to such
legislation, and there remains the possibility that the @Home services may be
subject to potentially burdensome taxes or other assessments in a multitude of
state and local jurisdictions.

29
<PAGE>

It is also possible that governmental authorities may attempt to classify the
Company in some other manner (e.g., as a common carrier-type service or
information service) and impose additional potentially burdensome regulatory
requirements on the Company, the Cable Partners or other cable operators
carrying the Company's services. In the event that the FCC or another
governmental agency were to classify the cable system operators as "common
carriers" of Internet services, or cable system operators were to seek such
classification as a means of protecting themselves against liabilities, the
Company's rights as the exclusive residential high-speed ISP over the systems of
certain of its Cable Partners could be lost. In addition, if the Company or its
Cable Partners in the United States were classified as common carriers, they
could be subject to government-regulated tariff schedules for the amounts they
could charge for their services. Rogers and Shaw have informed the Company that,
due to certain Canadian regulations, they are required to provide access to
their respective networks to third-party ISPs. Although no third party currently
uses Rogers' or Shaw's networks for purposes of offering Internet services,
these Canadian regulations preclude the Company from having an exclusive
contractual right to access to these networks.

In addition, the FCC is currently considering requests by Bell Atlantic
Corporation, Ameritech Corporation, U S WEST and Pacific Bell for relief
pursuant to section 706 of the 1996 Telecommunications Act ("1996 Act") from
various restrictions and regulatory requirements that, according to these
companies, inhibit their provision of Internet services. These petitions seek
authority to provide high-speed, packet-switched data services, including
Internet access and related services, without regard to Local Access and
Transport Area ("LATA") boundaries and free from otherwise applicable access,
unbundling and resale obligations and certain other regulatory requirements. The
FCC also is considering a separate request to provide all incumbent local
exchange carriers ("ILECs") with significant relief from existing access,
unbundling, pricing, and cost recovery rules and policies, in order to encourage
the deployment and operations by the ILECs of high-capacity, packet-switched
networks and other advanced telecommunications facilities and related services,
including Internet access services. Section 706 of the 1996 Act also directs the
FCC to initiate, no later than August 8, 1998, an inquiry into the deployment of
advanced telecommunications capability and to take immediate action to
accelerate such deployment if necessary. The FCC may use the occasion of this
inquiry to examine the feasibility and lawfulness of common carrier regulation
for cable systems, to provide some measure of the regulatory relief for high
speed data services requested by the RBOCs and ILECs, or both.

POTENTIAL LIABILITY FOR DEFAMATORY OR INDECENT CONTENT

The law relating to the liability of ISPs and OSPs for information carried on or
disseminated through their networks is currently unsettled. It is possible that
claims could be made against ISPs and OSPs 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 such liability upon
ISPs and OSPs are currently pending. In addition, legislation has been proposed
that imposes liability for or prohibits the transmission over the Internet of
certain types of information. The imposition upon ISPs or OSPs of potential
liability for information carried on or disseminated through their systems could
require the Company to implement measures to reduce its exposure to such
liability, which may require the expenditure of substantial resources, or to
discontinue certain service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the growth of Internet use. Furthermore, certain foreign
governments, such as Germany, have enforced laws and regulations related to
content distributed over the Internet that are more strict than those currently
in place in the United States. There can be no assurance that one or more of
these factors will not have a material adverse effect on the Company's business,
operating results and financial condition.

30
<PAGE>

DILUTION FROM CERTAIN TRANSACTIONS

As a result of a transaction effective October 2, 1997, whereby Cablevision
became a party to the agreement between the Company and TCI, Comcast and Cox
to distribute the @Home service on substantially the same terms and conditions
as TCI, Comcast and Cox, Cablevision was granted warrants to purchase up to
10,946,936 shares of the Company's Series A Common Stock at an exercise price
of $0.50 per share under certain conditions (the "Cablevision Agreement"). A
portion of the warrants issued to Cablevision (the "Contingent Warrants") do
not become exercisable unless certain cable systems are transferred by TCI to
Cablevision. To the extent that Cablevision exercises its warrants, the
Company's stockholders will experience substantial dilution. During the fourth
quarter of 1997, the Company recorded a long-term asset of $172.6 million
which represents the cost of the Cablevision Agreement, based on the fair
value of the warrants that were not Contingent Warrants. This long-term asset
will be amortized as a non-cash charge of approximately $13.6 million per
quarter to operations over the term of the exclusivity obligations of
Cablevision under the Agreement which expires in June 2002. The Company
recorded an additional asset of $74.5 million in the first quarter of 1998 in
connection with a portion of the Contingent Warrant which became exercisable
as a result of the transfer of certain cable systems owned by TCI to
Cablevision on March 4, 1998. This asset will also be amortized over the
remaining term of the exclusivity obligations. Additional assets may be
recorded in connection with the remaining Contingent Warrant to purchase
715,638 shares of Series A Common Stock becoming exercisable if and when
certain other cable systems owned by TCI are transferred to Cablevision. In
addition, in March 1998, the Company issued performance-based warrants to
Rogers and Shaw to purchase up to 5,000,000 shares of Series A Common Stock at
an exercise price of $10.50 per share. These warrants will become exercisable
when, as and if Rogers and Shaw meet certain performance milestones for homes
passed, subscribers and revenue. In the first quarter of 1998, the Company
recorded a non-cash charge of $8.8 million based on the fair value of warrants
which became exercisable due to certain performance milestones being met. The
Company has also issued warrants to purchase an aggregate of 5,272,100 shares
of Series A Common Stock at an exercise price of $10.50 per share to certain
new Cable Partners in connection with distribution agreements entered into in
the second quarter of 1998. These warrants will become exercisable based on
the number of homes that those Cable Partners upgrade to two-way or one-way
HFC cable (for one Cable Partner) and two-way HFC cable (for the other Cable
Partners) and that are capable of accessing the @Home service. To the extent
that such Cable Partners exercise their warrants, the Company's stockholders
would experience additional dilution. The Company also may issue additional
stock, or warrants to purchase the same, at less than fair market value in
connection with its efforts to expand its distribution of the @Home service to
other cable operators.

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and volume
fluctuations. In addition, the market price of the shares of the Company's
Series A Common Stock, similar to the market prices of other Internet companies,
has been and is likely to be highly volatile. Factors such as fluctuations in
the Company's operating results, announcements of technological innovations or
new products by the Company or its competitors, regulatory actions, market
rumors, acquisitions in the telecommunications or cable industries and general
market conditions may have a significant effect on the market price of the
Company's Series A Common Stock.

YEAR 2000 RISKS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

31
<PAGE>

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities. In May and June 1998, the Company issued
performance based warrants to purchase an aggregate of up to 5,272,100 shares
of Series A Common Stock at an exercise price of $10.50 per share to certain
new Cable Partners in connection with distribution agreements entered into in
the second quarter of 1998. In addition, if one of these Cable Partners enters
into a binding agreement to acquire additional homes in the Los Angeles area
during 1998, the Company will issue additional warrants to purchase Series A
Common Stock for such homes at an exercise price of $10.50 per share.
Beginning in March 1999, these warrants will become exercisable on an annual
basis based on the number of homes that those Cable Partners upgrade to two-
way or one-way HFC (for one Cable Partner) and two-way HFC cable (for the
other Cable Partners) and that are capable of accessing the @Home service. The
warrants were issued in a transaction exempt from regulation under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

Use of Proceeds from Sales of Registered Securities. The Company commenced its
Initial Public Offering ("IPO") on July 11, 1997 pursuant to a Registration
Statement on Form S-1 (File No. 333-27323). In the IPO the Company sold an
aggregate of 10,350,000 shares of its Series A Common Stock (including
1,350,000 shares sold pursuant to the exercise of the Underwriters' over-
allotment option) at an initial price of $10.50 per share. The IPO was closed
on July 16, 1997.

Aggregate proceeds from the IPO were $108,675,000, which included $14,175,000 in
aggregate proceeds due to the exercise of the underwriters' option to purchase
shares to cover over-allotments. The Company paid underwriters' discounts and
commissions of $7,607,250 and other expenses of approximately $1,300,000 in
connection with the IPO. The total expenses paid by the Company in the IPO were
$8,907,250, and the net proceeds to the Company in the IPO were $99,767,750. Of
the net proceeds, $3,224,000 has been used for purchases of property, equipment
and improvements, $2,815,000 for payments on capital lease obligations and the
remainder for working capital requirements of the Company, including $7,311,000
used to fund operating losses. None of the net proceeds of the Offering were
paid directly or indirectly to any director, officer, general partner of the
Company or their associates, persons owning 10 percent or more of any class of
equity securities of the Company, or an affiliate of the Company.

32
<PAGE>

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

The Company held its Annual Meeting of Shareholders on May 13, 1998. The
following is a brief description of each matter voted upon at the meeting and a
summary of the votes cast for or against and any abstentions. There were no
votes withheld and no broken non-votes:

1. Directors: For Against Abstain
--- ------- -------
<S> <C> <C> <C>
James L. Barksdale.......... 232,443,543 38,670 -
L. John Doerr............... 232,442,365 39,848 -
William R. Hearst III....... 232,441,580 40,633 -
Leo J. Hindery, Jr.......... 232,441,080 41,133 -
Thomas A. Jermoluk.......... 232,444,265 37,948 -
John C. Malone.............. 232,443,158 39,055 -
Bruce W. Ravenel............ 232,441,118 41,095 -
Brian L. Roberts............ 232,442,165 40,048 -
Edward S. Rogers............ 232,442,565 39,648 -
Larry E. Romrell............ 232,441,980 40,233 -
David M. Woodrow............ 232,442,365 39,848 -

2. Increase shares
reserved for issuance
under 1997 Equity
Incentive Plan by
4,975,000 shares............ 231,894,164 554,298 33,751

3. Increase shares
reserved for issuance
under 1997 Employee
Stock Purchase Plan
by 600,000 shares........... 232,332,477 118,559 31,177

4. Amend the Company's
Certificate of
Incorporation to
change certain
supermajority
requirements................ 232,269,077 179,943 33,193

5. Ratify appointment
of Ernst & Young, LLP
as independent
auditors for 1998........... 232,441,656 15,258 25,299
</TABLE>

ITEM 5. OTHER INFORMATION

On May 5, 1998, the Board of Directors of the Company increased the number of
directors from 11 to 12 and elected Joseph W. Cece, Senior Vice President,
Strategic Planning of Cablevision, to fill the newly created vacancy.

On July 8, 1998 the Board of Directors elected J.R. Shaw, President and Chief
Operating Officer of Shaw, to the Board of Directors to fill a vacancy created
by the annual rotation of the Board seat held by Rogers and Shaw, filled by Ted
Rogers for the last year.

33
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
--------
See attached exhibit index.

(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 1998.

34
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

AT HOME CORPORATION
(Registrant)

/s/ Kenneth A. Goldman

___________________________
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Officer)

/s/ Robert A. Lerner

___________________________
Corporate Controller
and Treasurer
(Principal Accounting Officer)

February 8, 1999

35
<PAGE>

EXHIBIT INDEX

Exhibit Number Exhibit Title
- -------------- -------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,745
<SECURITIES> 77,446
<RECEIVABLES> 5,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,505
<PP&E> 56,804
<DEPRECIATION> 15,481
<TOTAL-ASSETS> 362,639
<CURRENT-LIABILITIES> 32,768
<BONDS> 14,941
0
0
<COMMON> 454,843
<OTHER-SE> (139,913)
<TOTAL-LIABILITY-AND-EQUITY> 362,639
<SALES> 0
<TOTAL-REVENUES> 14,993
<CGS> 0
<TOTAL-COSTS> 18,713
<OTHER-EXPENSES> 54,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 956
<INCOME-PRETAX> (55,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (55,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,988)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)

</TABLE>