NETWORK SOLUTIONS INC /DE/, 424B1, 1999-02-09

NETWORK SOLUTIONS INC /DE/
424B1, 1999-02-09
PREPACKAGED SOFTWARE

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<PAGE> 1

PROSPECTUS

4,580,000 Shares

[NETWORK SOLUTIONS LOGO]
Class A Common Stock

Selling stockholders identified in this prospectus are offering all of these
shares and will receive all of the proceeds of this offering.

We currently have two classes of common stock outstanding, Class A common stock
and Class B common stock. Our Class A common stock is traded on the Nasdaq
National Market under the symbol "NSOL." On February 8, 1999, the reported last
sale price of our Class A common stock was $174.125 per share.

INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING THE SELLING
PUBLIC DISCOUNT STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $170.00 $8.00 $162.00
- ------------------------------------------------------------------------------------------------------------
Total $778,600,000 $36,640,000 $741,960,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>

We have granted the underwriters the right to purchase up to an additional
687,000 shares of Class A common stock to cover over-allotments. If the
over-allotment option is exercised in full, we will receive proceeds of
$111,294,000.

It is expected that delivery of the shares will be made to investors on or about
February 12, 1999.

J.P. MORGAN & CO. HAMBRECHT & QUIST

PAINEWEBBER INCORPORATED BANCBOSTON ROBERTSON STEPHENS

February 8, 1999
<PAGE> 2

[INSIDE FRONT COVER]

.com Drives Net Registration Growth

[Bar graph depicting number of .com, .net, .org and .edu net registrations on a
quarterly basis from December 1995 through September 1998]
<PAGE> 3

You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
prospectus. This prospectus is an offer to sell, or a solicitation of offers to
buy, shares of Class A common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our Class A common stock.

TABLE OF CONTENTS

<TABLE>
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Page
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 5
Price Range of Common Stock and
Dividend Policy................... 13
Use of Proceeds........................ 13
Selected Financial Information......... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................ 16
</TABLE>

<TABLE>
<CAPTION>
Page
<S> <C>
Business............................... 29
Management............................. 44
Selling Stockholders................... 47
Description of Capital Stock........... 48
Underwriting........................... 52
Legal Matters.......................... 53
Experts................................ 54
Where You Can Find More Information.... 54
Index to Financial Statements.......... F-1
</TABLE>

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

We own or have rights to various copyrights, trademarks and trade names used in
our business. These include Network Solutions, Inc.(R), WorldNIC(TM),
RegistrationPlus(TM), dot com mail(TM), dot com toolkit(TM), dot com
promotions(TM), dot com people(TM) and dot com family(TM). This prospectus also
includes trademarks, service marks and trade names of other companies.

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

ON DECEMBER 31, 1998, OUR BOARD OF DIRECTORS APPROVED A 2-FOR-1 STOCK SPLIT OF
THE SHARES OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK, TO BE EFFECTED IN
THE FORM OF A STOCK DIVIDEND ON SHARES OF CLASS A COMMON STOCK AND CLASS B
COMMON STOCK OUTSTANDING ON FEBRUARY 26, 1999. THE STOCK DIVIDEND WILL BE
DISTRIBUTED ON MARCH 23, 1999. EXCEPT AS OTHERWISE NOTED, NO SHARE OR PER SHARE
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT THE 2-FOR-1 STOCK
SPLIT. ALSO, EXCEPT AS OTHERWISE NOTED, INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.

-i-
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights certain of the information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors, the financial statements and
the information incorporated by reference in this prospectus.

NETWORK SOLUTIONS, INC.

We are the leading Internet domain name registration services provider
worldwide. We currently act as the exclusive registry and registrar for second
level domain names within the .com, .org, .net and .edu top level domains
pursuant to a cooperative agreement with the Department of Commerce.

Internet domain names are unique identities which enable businesses, other
organizations and individuals to communicate and conduct commerce on the
Internet. An Internet domain name is made up of a top level domain and a second
level domain. For example, in the domain name "companyX.com," "companyX" is the
second level domain and ".com" is the top level domain. As a registry, we
maintain the master directory of second level domain names for our top level
domains. As a registrar, we enter new second level domain names into the master
directory maintained by us, as registry, and process modifications, transfers,
re-registrations and deletions for existing second level domain names.

Net registrations within the top level domains for which we act as the registry
and registrar increased by 114% from 1,296,000 second level domain names
registered at September 30, 1997 to 2,777,000 second level domain names
registered at September 30, 1998. We believe that commercial enterprises and
individual Internet users worldwide are increasingly recognizing .com as a
desirable identity for conducting business on the Internet. Net registrations in
.com represented 84% of our total net registrations at September 30, 1998.

We have agreed with the Department of Commerce to transition to a shared, or
competitive, registration system in which multiple registrars may register
second level domain names with us, as registry, in the .com, .net and .org top
level domains. This transition will occur in a phased approach with limited
competition scheduled to begin by March 31, 1999.

As we transition to a shared registration system, we believe that we have
several competitive advantages over competing registrars, including:

- a large customer base with over 3,000,000 net second level domain name
registrations,

- strong brand recognition as the dot com people,

- strategic agreements with over 140 companies around the world that
provide access to the Internet,

- skilled technical personnel who are experienced in the domain name
registration business, and

- custom-developed software and proprietary systems that perform automated
registrations.

We are working to expand our domain name registration business by:

- promoting the use of .com worldwide,

- expanding our relationships with Internet access providers,

- establishing and expanding marketing and other strategic relationships
worldwide,

- stimulating demand for domain name registrations by targeting specific
customer markets, and

- establishing international alliances.

In 1998, we introduced a portfolio of Internet-based products and services which
builds upon our position as the leading registrar. We intend to continue to
develop Internet-based products and services which may include directory and
other Internet identity services. We also provide consulting services that focus
on network engineering, network and systems security and network management.

1
<PAGE> 5

THE OFFERING

The following information is based on 16,484,835 shares of common stock
outstanding on December 28, 1998. This number excludes 1,570,423 shares of Class
A common stock issuable upon the exercise of stock options outstanding on
December 28, 1998 at a weighted average exercise price of $23.08 per share. It
also excludes an additional 810,392 shares of Class A common stock reserved for
future issuance under our employee benefit plans.

CLASS A COMMON STOCK OFFERED
BY SELLING STOCKHOLDERS:
Science Applications
International
Corporation............... 4,500,000 shares of Class A common stock
Certain members of our
management................ 80,000 shares of Class A common stock
Total offering............ 4,580,000 shares of Class A common stock

COMMON STOCK OUTSTANDING AFTER
THE OFFERING.................. 16,564,835 shares of Class A common stock and
Class B common stock; 17,251,835 shares if the
entire over-allotment option is exercised

OVER-ALLOTMENT OPTION......... 687,000 shares of Class A common stock from
Network Solutions

USE OF PROCEEDS............... We will not receive any proceeds from the sale
of shares of Class A common stock in this
offering by the selling stockholders. Any
proceeds that we receive from the sale of
shares of Class A common stock upon exercise of
the underwriters' over-allotment option and
proceeds that we will receive upon the exercise
of options by the members of our management who
are selling stockholders will be used for
general corporate purposes and possibly for
acquisitions and investments.

DIVIDEND POLICY............... We do not intend to pay cash dividends on our
common stock. We plan to retain any earnings
for use in the operation of our business.

NASDAQ NATIONAL MARKET
SYMBOL........................ "NSOL"

2
<PAGE> 6

SUMMARY FINANCIAL DATA

The summary financial data for the year ended December 31, 1995 was derived by
combining our results of operations for the period January 1, 1995 through March
10, 1995 and the period March 11, 1995 through December 31, 1995 which,
respectively, are periods before and after the date we were acquired by Science
Applications International Corporation. The data for those two periods were
prepared on differing bases of accounting and, accordingly, the comparability of
such data with other periods is limited, primarily as a result of goodwill
amortization, new corporate services agreements and the repayment of outstanding
debt balances. See Note 1 of Notes to Financial Statements for a discussion of
the presentation for each of these periods.

<TABLE>
<CAPTION>
-----------------------------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENT OF OPERATIONS DATA:
Net revenue.............................. $ 6,486 $18,862 $45,326 $30,896 $62,395
Income (loss) from continuing
operations............................ (1,434) (1,625) 4,231 2,488 7,517
Net income (loss)........................ (2,837) (1,625) 4,231 2,488 7,517
Basic net income (loss) per share........ (0.27) (0.13) 0.32 0.20 0.47
Diluted net income (loss) per share...... (0.27) (0.13) 0.31 0.20 0.45
OTHER OPERATING DATA: (1)
Net new registrations.................... 141 489 960 698 1,290
Registrations not renewed................ 1 39 46 29 54
Net registrations at period end.......... 177 627 1,541 1,296 2,777
</TABLE>

<TABLE>
<CAPTION>
------------------
In thousands SEPTEMBER 30, 1998
BALANCE SHEET DATA: ------------------
<S> <C>
Cash and cash equivalents................................. $ 9,124
Total marketable securities............................... 114,148
Working capital, including $77,766 of current deferred
revenue................................................ 63,506
Total assets.............................................. 191,915
Deferred revenue, net..................................... 106,730
Capital lease obligations................................. 1,297
Total stockholders' equity................................ 62,019
</TABLE>

- ---------------
(1) Net new registrations for each period include gross new registrations less
an estimate of registrations that are uncollectible. Net registrations include
net new registrations less management's estimate of registrations not renewed.
Prior to September 14, 1995, net registrations equaled gross registrations
because we were reimbursed by the National Science Foundation for all
registrations under a cost reimbursement plus fixed-fee contract.

SUMMARY QUARTERLY FINANCIAL DATA

3
<PAGE> 7

RELATIONSHIP WITH SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Prior to our initial public offering of Class A common stock in October 1997, we
were a wholly-owned subsidiary of Science Applications International
Corporation, commonly known as SAIC. SAIC provides diversified professional and
technical services and designs, develops and manufactures high-technology
products.

SAIC holds in the aggregate 11,925,000 shares of our Class B common stock. This
represents 100% of our Class B common stock and approximately 96.3% of the
voting power and approximately 72.3% of the economic interest of our outstanding
common stock. Immediately prior to this offering, SAIC will convert 4,500,000
shares of Class B common stock into Class A common stock. Those shares will be
sold in the offering. Accordingly, after this offering, SAIC will own 7,425,000
shares of our Class B common stock. This will represent 100% of our Class B
common stock and approximately 89.0% of the voting power and approximately 44.8%
of the economic interest of our outstanding common stock. By May 31, 1999,
assuming completion of this offering, SAIC intends to convert all of the
remaining Class B common stock into an identical number of shares of Class A
common stock. After that conversion, Class A common stock will be the only class
of common stock outstanding. At such time SAIC will own approximately 44.8% of
the voting power and economic interest of our outstanding common stock. We do
not intend to issue any Class B common stock in the future.

Several officers and employees of SAIC currently serve as directors of Network
Solutions. It is anticipated that the composition of our board of directors will
change in connection with the decrease in SAIC's percentage ownership and voting
control. SAIC will, however, continue to be our largest stockholder and may be
able to exercise significant influence over us.

SAIC is not under any obligation to retain its remaining interest, except that
SAIC has agreed not to sell or otherwise dispose of any shares of common stock
for 180 days after the date of this prospectus without the prior written consent
of J.P. Morgan Securities Inc.

SAIC continues to provide us certain services, and we and SAIC have entered into
agreements, and may enter into additional agreements in the future, relating to
these services and other matters. Our certificate of incorporation includes
provisions relating to competition by SAIC with us, allocations of corporate
opportunities, transactions with interested parties and intercompany agreements
and provisions limiting the liability of certain people. These provisions will
remain in effect after this offering. See "Description of Capital Stock."

4
<PAGE> 8

RISK FACTORS

You should carefully consider the risks and uncertainties described below and
the other information in this prospectus or incorporated by reference before
deciding to invest in shares of our Class A common stock. These are not the only
risks and uncertainties that we face. If any of these risks or uncertainties
actually occur, our business, financial condition or operating results could be
materially harmed. In that case, the trading price of our Class A common stock
could decline and you could lose all or part of your investment.

INDUSTRY RISKS

ONGOING PRIVATIZATION OF INTERNET ADMINISTRATION COULD HARM OUR REGISTRATION
BUSINESS

The Department of Commerce has adopted a plan, referred to as the Statement of
Policy or "White Paper," calling for a phased transition of the Department's
responsibilities for the domain name system to a not-for-profit corporation by
September 30, 2000. The domain name system is the system by which Internet names
and addresses are registered, allocated and used. We face risks from this
transition, including:

- failure to achieve consensus on the many issues relating to the
functioning and governance of the not-for-profit corporation could result
in instability in domain name system administration,

- the not-for-profit corporation could fail to gain legitimacy resulting in
instability in domain name system administration,

- the U.S. Government could refuse to transfer certain responsibilities for
domain name system administration to the not-for-profit corporation due
to security, stability or other reasons resulting in fragmentation or
other instability in domain name system administration, and

- the not-for-profit corporation could adopt or promote policies,
procedures or programs that are unfavorable to our role in the
registration of domain names or that are not consistent with our current
or future plans.

As the U.S. Government transitions certain responsibilities for domain name
system administration to the not-for-profit corporation, corresponding
obligations under our Cooperative Agreement with the Department of Commerce may
be terminated and, as appropriate, covered in a contract between the
not-for-profit corporation and us. We might not reach an acceptable contractual
agreement with the not-for-profit corporation for our continuing role in the
registration of domain names.

Despite the significant efforts undertaken to date, it is impossible to predict
at this time whether or when the process initiated by the Statement of Policy
will result in the transition to the not-for-profit corporation of specific
domain name system responsibilities and, if it does, the effect on us of such
transition. See "Business -- Ongoing Privatization of Internet Administration."

CHANGES TO THE COOPERATIVE AGREEMENT COULD HARM OUR BUSINESS

Termination, or a change in the terms, of the Cooperative Agreement could harm
our business. While the Cooperative Agreement by its terms expires in September
2000, it may be terminated earlier. The Department of Commerce's interpretation
of certain provisions of the Cooperative Agreement could differ from ours. This
could lead to disputes between us and the Department of Commerce or the
not-for-profit corporation, which may or may not be resolved in our favor.
Certain aspects of implementation of the Cooperative Agreement also remain to be
negotiated, including the maximum price we will charge for registry services in
the top level domains for which we now act as registry. If we are unsuccessful
in negotiating acceptable terms of implementation, the costs of implementation
of the Cooperative Agreement, our relationship with the not-for-profit
corporation and other matters affecting our position in a more competitive
domain name system environment could be harmed. See "Business -- Status of
Cooperative Agreement."

5
<PAGE> 9

CHALLENGES TO AUTHORITY OVER DOMAIN NAME ADMINISTRATION COULD HARM OUR BUSINESS

Withdrawal of or challenges to the U.S. Government's sponsorship or
authorization of certain functions that we perform could create a public
perception or result in a legal finding that we lack authority to continue in
our current role as registry or registrar within the .com, .org, .net and .edu
top level domains. The legal authority underlying the roles of the Department of
Commerce and the not-for-profit corporation with regard to the domain name
system also could be challenged. The impact, if any, of any such public
perception or finding is unknown, but it could be harmful to our business.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY DUE TO INCREASED COMPETITION IN THE
DOMAIN
NAME REGISTRATION BUSINESS

The introduction of additional competition into the domain name registration
business could be harmful to our business. This includes, in particular,
competition among registrars within a single top level domain, like .com, and
competition among registrars and registries of existing and potential new top
level domains. In addition, we currently face competition in the domain name
registration business from registries for country code top level domains, third
level domain name providers such as Internet access providers and registrars and
registries of top level domains other than those top level domains which we
currently register. A number of entities have already begun to offer competing
registration services using other top level domains and when the shared
registration system takes effect we will no longer be the exclusive registrar in
the .com, .org and .net top level domains.

Future competition in the domain name registration business as a registry or
registrar could come from many different companies, including:

- domain name registration resellers,

- country code registries,

- Internet access providers, and

- major telecommunications firms.

Many of these entities have core capabilities to deliver registry and/or
registrar services, such as help desks, billing services and network management,
along with strong name recognition and Internet industry experience. Our revenue
could be reduced due to increased competition, pricing pressures or a
modification of billing practices. For example, other entities may bundle domain
name registrations with other products or services. See "Business -- Competition
in the Registration Business."

WE DEPEND ON FUTURE GROWTH OF THE INTERNET AND INTERNET INFRASTRUCTURE

Our future success substantially depends on the continued growth in the use of
the Internet. If the use of and interest in the Internet does not continue to
grow, our business would be harmed. Continued growth of the Internet could be
slowed by:

- inadequate infrastructure,

- lack of availability of cost-effective, high speed systems and service,

- delays in developing or adopting new standards and protocols to handle
increased levels of Internet activity, or

- government regulation.

WE RELY ON THIRD PARTIES WHO MAINTAIN AND CONTROL ROOT ZONE AND TOP LEVEL DOMAIN
ZONE SERVERS

The functioning of the domain name system depends on a hierarchy of specialized
software programs resident in network computers called domain name servers. The
top level of this hierarchy consists of root zone servers which contain the
master directory of all top level domains in the Internet. Below the root zone
servers are top level domain zone servers which contain the directory of active
second level domain names and corresponding

6
<PAGE> 10

Internet protocol numbers. We currently administer and operate only two of the
13 root zone servers and four top level domain zone servers. The others are
administered and operated by independent operators on a volunteer basis. Because
of the importance to the functioning of the Internet of these root zone servers
and top level domain zone servers, our registration business could be harmed if
these volunteer operators fail to properly maintain such servers or abandon such
servers.

Further, our registration business could be harmed if any of these volunteer
operators fail to include or provide accessibility to the data that we maintain
in the root zone servers and the top level domain zone servers that we control.
See "Business -- Operations."

WE RELY ON INTERNET SERVICE PROVIDERS

Our registration business could be harmed if enough Internet service providers
decided not to route Internet communications to or from domain names registered
by us or if enough Internet service providers decided to provide routing to a
set of domain name servers which did not point to our top level domain zone
servers.

SYSTEM FAILURE OR INTERRUPTION, SECURITY BREACHES OR OUR FAILURE TO MEET
INCREASING DEMANDS ON OUR SYSTEMS COULD HARM OUR BUSINESS

Any significant problem with our systems or operations could result in lost
revenue, customer dissatisfaction or lawsuits against us. A failure in the
operation of our registration system could result in deletion of one or more
domain names from the Internet for a period of time. A failure in the operation
or update of the master directory that we maintain could result in deletion of
one or more top level domains from the Internet and the discontinuation of
second level domain names in those top level domains for a period of time. The
inability of our registration system and telecommunications systems to meet the
demands of the increasing number of domain name registration requests and
corresponding customer e-mails and telephone calls could result in substantial
degradation in our customer support service and our ability to process
registration requests in a timely manner.

Our operations depend on our ability to maintain our computer and
telecommunications equipment in effective working order and to reasonably
protect our systems against interruption. The root zone servers and top level
domain zone servers that we operate are critical hardware to our operations.
Interruptions could result from:

- fire, natural disaster, sabotage, power loss, telecommunication failure,
human error or similar events,

- computer viruses, hackers or similar disruptive problems caused by
employees, customers or other Internet users, and

- systems strain caused by the growth of our customer base and our
inability to sufficiently maintain or upgrade our systems.

See "Business -- Operations."

WE MAY LOSE REVENUE OR INCUR SIGNIFICANT COSTS IF YEAR 2000 COMPLIANCE ISSUES
ARE NOT PROPERLY ADDRESSED

Our failure, or the failure of third parties on which we rely, to adequately
address Year 2000 compliance issues may cause us to lose revenue or to incur
significant costs. The primary risks that we face with regard to Year 2000
failures are those which impact our domain name registration business. These
risks include:

- significant and protracted interruption of electrical power to data and
call-center operations in our engineering facility,

- significant and protracted interruption of telecommunications and data
network services in either of our headquarters or engineering facilities,

- the failure of components of our current back office and domain name
registration related systems, and

- the occurrence of a Year 2000 problem with respect to third-party
suppliers', vendors' and outsourcing service providers' products and
services.

7
<PAGE> 11

If we fail to solve a Year 2000 compliance problem with our mission critical
business systems and processes, including the domain name servers under our
control, telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by our
employees, the result could be a failure of or interruption to normal business
operations. Furthermore, our business depends on the continued operation of, and
widespread access to, the Internet. This, in turn, depends to a large extent on
the software and systems of third parties on which our systems rely or to which
they are connected. These third parties include, among others, Internet-related
companies, including Internet web hosting companies, Internet access providers
and Internet domain name server operators.

We have no responsibility for, nor control over, other Internet domain name
server operators that are critical to the efficient operation of the Internet.
We do not know whether such domain name server operators have hardware, software
or firmware that is Year 2000 compliant.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."

COMPANY RISKS

OUR SEARCH FOR A NEW CHIEF EXECUTIVE OFFICER PRESENTS RISKS AND UNCERTAINTIES

On November 16, 1998, we announced the resignation of Gabriel A. Battista from
his positions as Chief Executive Officer and director. We cannot reasonably
estimate at this time the potential impact on us of Mr. Battista's departure or
of the hiring of a new Chief Executive Officer. While we conduct a search for a
new Chief Executive Officer, Michael A. Daniels, our Chairman of the Board, is
acting as the Chief Executive Officer and assuming the executive
responsibilities previously performed by Mr. Battista. In addition, Robert J.
Korzeniewski, our Chief Financial Officer, is also acting as our Chief Operating
Officer, assuming responsibility for day-to-day operations. We cannot be certain
of the timing of our hiring of a new Chief Executive Officer or the effect of
any delays in our hiring of a new Chief Executive Officer on the development or
implementation of our strategic plan.

WE MUST ATTRACT, INTEGRATE, TRAIN AND RETAIN KEY PERSONNEL KNOWLEDGEABLE ABOUT
OUR BUSINESS

Given the relative "newness" and rapid growth of the Internet, there is intense
competition for the limited supply of people qualified to work for us. Our
future success depends on the continued service of key engineering, sales,
marketing, executive and administrative personnel, and our ability to attract,
hire, integrate, train and retain such personnel. Competition for engineering,
sales, marketing and executive personnel is intense, particularly in the
technology and Internet sectors and in the regions where our facilities are
located. We cannot be certain that we will be able to retain existing personnel
or attract, hire or retain additional qualified personnel. The loss of the
services of any of our senior management team or other key employees or our
failure to attract, integrate, train and retain additional key employees could
harm our business.

OUR NEAR TERM SUCCESS DEPENDS ON THE GROWTH OF OUR DOMAIN NAME REGISTRATION
BUSINESS

We may not be able to sustain the revenue growth we have experienced in recent
periods. In addition, past revenue growth may not be indicative of future
operating results. If we do not successfully maintain our current position as a
leading provider of domain name registration services or develop or market
additional services, our business could be harmed.

Our domain name registration services business generates over 90% of our revenue
and is expected to continue to account for a very significant portion of our
revenue in at least the near term. Our future success will depend largely on:

- the continued increase in domain name registrations,

- re-registration rates of our customers,

8
<PAGE> 12

- our ability to maintain our current position as a leading registrar of
domain names, and

- the successful development, introduction and market acceptance of new
services that address the demands of Internet users.

WE MUST EFFECTIVELY MANAGE OUR MARKETING ORGANIZATION AND ESTABLISH AND MAINTAIN
DISTRIBUTION CHANNELS

We will need to effectively manage our growing sales and marketing organization
if we want to achieve future revenue growth. We do not know if we will be able
to identify, attract and retain experienced sales and marketing personnel with
relevant experience. Further, our sales and marketing organization may not be
able to successfully compete against the significantly more extensive and
well-funded sales and marketing operations of our current or potential
competitors for registration or consulting services.

Our ability to achieve future revenue growth will also depend on our ability to
continue to establish direct sales channels and to develop multiple distribution
channels. To do this we must maintain relationships with Internet access
providers and other third parties.

WE HAVE A HIGH LEVEL OF UNCOLLECTIBLE RECEIVABLES

Because of our high level of uncollectible receivables, we continually review
our billing practices. Any modifications that we implement as a result of these
reviews could have unanticipated harmful consequences to our business. We
believe we have experienced a high level of uncollectible receivables due to,
among other factors, the large number of individuals and corporations that have
registered multiple domain names with the apparent intention of reselling such
names at a profit. Our experience has been that such resellers have a greater
tendency than other customers to default on their services fees. We have
established a provision for uncollectible accounts which we believe to be
adequate to cover anticipated uncollectible receivables; however, actual results
could differ from our estimates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to Financial
Statements.

WE ARE PARTY TO SEVERAL LEGAL PROCEEDINGS WHICH COULD HAVE A NEGATIVE FINANCIAL
IMPACT ON US

We are involved in several legal proceedings. We cannot reasonably estimate the
potential impact of any of these proceedings. An adverse determination in any of
these proceedings, however, could harm our business. Legal proceedings in which
we are involved are expensive and divert our personnel. See "Business -- Legal
Proceedings."

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY
INFORMATION

We rely on a combination of nondisclosure and other contractual arrangements
with the U.S. Government, our employees and third parties, and privacy and trade
secret laws to protect and limit the distribution of our proprietary customer
data, software, documentation and processes we have developed in connection with
our domain name registration business. If we fail to adequately protect our
intellectual property rights and proprietary information or if we become
involved in litigation relating to our intellectual property rights, proprietary
information or access to our customer data, our business could be harmed. Any
actions we take may not be adequate to protect our proprietary rights and other
companies may develop technologies that are similar or superior to our
proprietary technology. Although we believe that our services do not infringe on
the intellectual property rights of others and that we have all rights needed to
use the intellectual property employed in our business, it is possible that we
could become subject to claims alleging infringement of third party intellectual
property rights. Any claims could subject us to costly litigation, and may
require us to pay damages and develop non-infringing intellectual property or
acquire licenses to the intellectual property that is the subject of the alleged
infringement.

9
<PAGE> 13

UNSUCCESSFUL FUTURE ACQUISITIONS AND INVESTMENTS COULD DECREASE OPERATING
INCOME, CAUSE OPERATIONAL PROBLEMS OR OTHERWISE DISRUPT OUR BUSINESS

We evaluate potential acquisitions and investments on an ongoing basis for
various reasons including, among others, diversification of our domain name
registration and consulting businesses. Our acquisition and investment strategy
poses many risks, including:

- we may not be able to compete successfully for available acquisition
candidates, complete future acquisitions and investments or accurately
estimate the financial effect on our company of any businesses we acquire
or investments we make,

- future acquisitions and investments may require us to spend significant
cash amounts or may decrease our operating income,

- we may have trouble integrating the acquired business and retaining
personnel,

- acquisitions or investments may disrupt our business and distract our
management from other responsibilities, and

- to the extent that any of the companies which we acquire or in which we
invest fail, our business could be harmed.

If pooling of interests accounting becomes available to us in the future, we
believe it could provide us greater flexibility in our acquisition strategy.
Whether or when pooling of interests accounting becomes available to us,
however, depends on many factors beyond our control.

WE FACE INCREASING RISKS ASSOCIATED WITH OUR INTERNATIONAL BUSINESS

While substantially all of our operations, facilities, and personnel are located
within the United States, our revenues from sources outside the U.S. have
increased significantly and may continue to increase in the future. As a result,
we are subject to the risks of conducting business internationally, including
unexpected changes in regulatory requirements, fluctuations in the U.S. dollar,
tariffs and other barriers and restrictions and the burdens of complying with a
variety of foreign laws. We do not know what the impact of such regulatory,
geopolitical and other factors will be on our business in the future or if we
will have to modify our business practice. In addition, the laws of certain
foreign countries may not protect our proprietary rights to the same extent as
do the laws of the United States.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE; OUR FUTURE REVENUE AND
PROFITABILITY ARE UNCERTAIN

Our quarterly operating results may fluctuate significantly in the future due to
a variety of factors, some of which are beyond our control. Factors that may
affect our revenue include:

- variations in the number of requests for domain name registrations or
demand for our services,

- termination or completion of contracts in our enterprise network
consulting services business or failure to obtain additional contracts in
that business, and

- market acceptance of new service offerings.

In addition, we expect a significant increase in our operating expenses as we:

- increase our sales and marketing operations and activities, and

- continue to update our systems and infrastructure.

If the increase in our expenses is not followed by an increase in our revenue,
our operating results will be harmed. The fact that in the past our revenues
have increased and we have been profitable on a quarterly and annual basis is
not indicative of whether our revenues will increase or whether we will be
profitable on a quarterly or annual basis in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
10
<PAGE> 14

OFFERING RISKS

OUR STOCK PRICE, LIKE THAT OF MANY INTERNET COMPANIES, IS HIGHLY VOLATILE

The market price of our Class A common stock has been and is likely to continue
to be highly volatile and significantly affected by factors such as:

- general market conditions and market conditions affecting technology and
Internet stocks generally,

- actual or anticipated fluctuations in our quarterly or annual
registrations or operating results,

- announcements of technological innovations, acquisitions or investments,
developments in Internet governance or corporate actions such as stock
splits, and

- industry conditions and trends.

The stock market has experienced significant price and volume fluctuations that
have particularly affected the market prices of the stocks of technology
companies, especially Internet-related companies. These broad market or
technology or Internet sector fluctuations may adversely affect the market price
of our Class A common stock. Recently, the market price of our Class A common
stock, like that of many Internet-related companies, has experienced significant
fluctuations. For instance, from January 1, 1999 through February 8, 1999, the
reported sales price for our Class A common stock ranged from $128.0625 per
share to $260.375 per share. On February 8, 1999, the reported last sale price
of our Class A common stock was $174.125 per share. Investors may not be able to
resell their shares of our Class A common stock at or above the offering price.

The market price of our Class A common stock also has been and is likely to
continue to be significantly affected by expectations of analysts and investors.
Reports and statements of analysts do not necessarily reflect our views. The
fact that we have in the past met or exceeded analyst or investor expectations
does not necessarily mean that we will do so in the future.

In the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought.
Such litigation could result in substantial costs and a diversion of our
management's attention and resources.

See "Price Range of Common Stock and Dividend Policy."

FUTURE SALES OF CLASS A COMMON STOCK COULD AFFECT OUR STOCK PRICE

After this offering, SAIC will own 7,425,000 of the outstanding shares of common
stock. A decision by SAIC to sell such stock could depress the market price of
the Class A common stock.

WE CANNOT PREDICT WHETHER INVESTORS WILL INVEST IN SHARES OF CLASS A COMMON
STOCK

This offering, together with the 2-for-1 stock split approved by our board of
directors on December 31, 1998, will have the effect of increasing substantially
the number of outstanding shares of Class A common stock available for purchase
and sale in the public market. The increased number of outstanding shares of
Class A common stock available in the public market may not attract investors,
including institutional investors, to invest in shares of Class A common stock.
If investors are not attracted to invest in Class A common stock, there could be
an adverse effect on the price of the shares of our Class A common stock.

BECAUSE USE OF PROCEEDS IS UNSPECIFIED, IF PROCEEDS ARE NOT INVESTED TO YIELD A
FAVORABLE RETURN, THERE COULD BE AN ADVERSE EFFECT ON THE PRICE OF OUR CLASS A
COMMON STOCK

We will receive proceeds from this offering only if the underwriters exercise
their over-allotment option. We plan to use any such proceeds from this offering
for general corporate purposes and possibly for acquisitions and investments.
Therefore, we will have discretion as to how we will spend the proceeds, which
could be in ways with which the stockholders may not agree. We cannot predict
that the proceeds will be invested to yield a favorable return. If the proceeds
are not invested to yield a favorable return, there could be an adverse effect
on the price of the shares of our Class A common stock.
11
<PAGE> 15

SAIC MAY MAINTAIN SIGNIFICANT INFLUENCE OVER US

Because it holds a significant number of shares of Class B common stock, which
have ten votes per share, SAIC effectively controls all matters requiring
approval by our stockholders including the election of members of our board of
directors, changes in the size and composition of the board of directors and a
change in control. We do not have an agreement with SAIC which restricts its
rights to convert, distribute or sell its shares of our common stock.

SAIC currently intends to convert all of its remaining shares of Class B common
stock into an identical number of shares of Class A common stock by May 31,
1999, assuming completion of this offering. Although SAIC's economic interest
and voting power will be below 50% of the total economic interest and voting
power of our common stock after such conversion, SAIC will remain our largest
stockholder and may be able to exercise significant influence over us. See
"Selling Stockholders" and "Description of Capital Stock."

CERTAIN DIRECTORS MAY HAVE CONFLICTS OF INTEREST

Certain of our directors currently serve as directors, officers and employees of
SAIC. Therefore, there may be various conflicts of interest or conflicting
duties for these individuals. Since our directors and officers may also own
stock of SAIC, there may be conflicts of interest when directors and officers
are faced with decisions that could have different implications for us and SAIC.

WE RELY ON SAIC FOR CERTAIN CORPORATE SERVICES AND EMPLOYEE BENEFITS

We currently receive corporate services under an agreement with SAIC. Were SAIC
to terminate these services, we may not be able to secure alternative sources
for such services or such services may only be available to us at prices higher
than those charged by SAIC.

Our employees are currently eligible to participate in certain SAIC employee
benefit plans. After this offering and after SAIC converts its remaining shares
of Class B common stock to Class A common stock, we will have to establish
certain employee benefit plans of our own which could result in incremental
costs to us.

OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS RELATING TO SAIC THAT MAY
ADVERSELY AFFECT US OR OUR STOCKHOLDERS

Our certificate of incorporation includes provisions relating to competition by
SAIC with us, allocations of corporate opportunities, transactions with
interested parties and intercompany agreements and provisions limiting the
liability of certain people. Such provisions will continue to remain in effect
after this offering. It is unclear whether such provisions are enforceable under
Delaware corporate law. Our certificate of incorporation provides that any
person purchasing or acquiring an interest in shares of our capital stock shall
be deemed to have consented to the provisions in the certificate of
incorporation relating to competition with SAIC, conflicts of interest,
corporate opportunities and intercompany agreements, and such consent may
restrict such person's ability to challenge transactions carried out in
compliance with such provisions. The corporate charter of SAIC does not include
similar provisions. Therefore, persons who are directors and/or officers of ours
and who are also directors and/or officers of SAIC may choose to take action in
reliance on such provisions rather than act in a manner that might be favorable
to us but adverse to SAIC.

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

This prospectus contains certain forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "intends" and "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include, but
are not limited to, those discussed above and elsewhere in this prospectus.

12
<PAGE> 16

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The following table sets forth the high and low last reported last sales prices
for the Class A common stock on the Nasdaq National Market for the periods
indicated.

<TABLE>
<CAPTION>
-----------------------------
HIGH LOW
------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Fourth Quarter from September 26, 1997.................... $ 26 3/4 $ 11 3/4
Year Ended December 31, 1998:
First Quarter............................................. 37 1/8 12 15/16
Second Quarter............................................ 55 32 1/2
Third Quarter............................................. 46 5/16 25 3/4
Fourth Quarter............................................ 164 23/32 28 3/8
Year Ending December 31, 1999:
First Quarter through February 8, 1999.................... 241 155
</TABLE>

We do not intend to pay cash dividends on our common stock. We plan to retain
any earnings for use in the operation of our business.

USE OF PROCEEDS

All of the proceeds from the sale of the shares of Class A common stock in this
offering by the selling stockholders will be received by the selling
stockholders. We will receive proceeds from the sale of shares of Class A common
stock in this offering only if, and to the extent that, the underwriters
exercise their over-allotment option. If the underwriters' over-allotment option
is exercised in full, we estimate that our proceeds from this offering will be
approximately $110.5 million after deducting underwriting discounts and other
expenses of this offering. We will receive proceeds of approximately $1.1
million upon the exercise of options by certain of the members of our management
who are selling stockholders.

We intend to use any proceeds received by us from this offering primarily for
working capital and other general corporate purposes. We may also use a portion
of the proceeds to acquire or invest in businesses, technologies, product lines
or service offerings that are complementary to our business. We have no present
plans or commitments and are not currently engaged in any negotiations with
respect to such transactions. As a result, we will have significant discretion
as to the use of the proceeds. Pending such uses, we intend to invest the
proceeds in interest-bearing, investment-grade securities. See "Risk
Factors -- Unsuccessful Future Acquisitions and Investments Could Decrease
Operating Income, Cause Operational Problems or Otherwise Disrupt Our Business"
and "-- Because Use of Proceeds Is Unspecified, if Proceeds Are Not Invested to
Yield a Favorable Return, There Could Be an Adverse Effect on the Price of Our
Class A Common Stock."

13
<PAGE> 17

SELECTED FINANCIAL INFORMATION

The following table sets forth selected financial and operating data of Network
Solutions for the periods indicated and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and the Notes related thereto included
elsewhere and incorporated by reference in this prospectus. The selected
financial data for the years ended December 31, 1996 and 1997 and for the
periods January 1, 1995 to March 10, 1995 and March 11, 1995 to December 31,
1995, were derived from Network Solutions' audited financial statements included
elsewhere and incorporated by reference in this prospectus. The information for
the years ended December 31, 1993 and 1994 and for the nine months ended
September 30, 1997 and 1998 is derived from Network Solutions' unaudited
financial statements which, in the opinion of management, reflect all
adjustments (consisting only of normal recurring items) necessary to present
fairly the financial position and results of operations for the periods then
ended. The selected financial data for the year ended December 31, 1995 were
derived by combining Network Solutions' Results of Operations for the period
January 1, 1995 through March 10, 1995 and the period March 11, 1995 through
December 31, 1995, both as derived from Network Solutions' audited financial
statements included elsewhere and incorporated by reference in this prospectus.
Comparability of pre-acquisition periods to post-acquisition periods is limited
because the financial statements have been prepared on differing bases of
accounting as a result of the acquisition by SAIC. The accompanying financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for all periods presented for continuing operations
reflect the results of operations of the commercial business of Network
Solutions, which includes registration services and enterprise network
consulting services. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview -- The SAIC Acquisition" and
"-- Registration Services." See Notes 1, 9 and 15 of Notes to Financial
Statements.

<TABLE>
<CAPTION>
---------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ 4,369 $ 5,029 $ 6,486 $18,862 $ 45,326 $30,896 $ 62,935
Cost of revenue........................................... 2,924 3,073 5,704 14,666 25,798 18,468 26,451
------- ------- ------- ------- -------- ------- --------
Gross profit.............................................. 1,445 1,956 782 4,196 19,528 12,428 35,944
Research and development expenses......................... -- -- -- 680 1,653 1,095 2,893
Selling, general and administrative expenses.............. 1,401 1,544 2,394 6,280 12,268 7,893 24,438
Interest income........................................... -- -- -- 496 2,211 1,054 4,423
Other expenses............................................ 120 109 61 -- 116 -- 93
------- ------- ------- ------- -------- ------- --------
Income (loss) from continuing operations before income
taxes and cumulative effect of a change in accounting
principle............................................... (76) 303 (1,673) (2,268) 7,702 4,494 12,943
Provision (benefit) for income taxes...................... 34 114 (239) (643) 3,471 2,006 5,426
------- ------- ------- ------- -------- ------- --------
Income (loss) from continuing operations.................. (110) 189 (1,434) (1,625) 4,231 2,488 7,517
Loss from discontinued operations, net of income taxes.... (936) (1,169) (1,403) -- -- -- --
Cumulative effect of change in accounting for income
taxes................................................... 660 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss)......................................... $ (386) $ (980) $(2,837) $(1,625) $ 4,231 $ 2,488 $ 7,517
======= ======= ======= ======= ======== ======= ========
Basic earnings per share:
Income (loss) from continuing operations.............. $ (0.10) $ 0.18 $ (0.14) $ (0.13) $ 0.32 $ 0.20 $ 0.47
Loss from discontinued operations..................... (0.90) (1.12) (0.13) -- -- -- --
Cumulative effect of accounting change................ 0.63 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss)..................................... $ (0.37) $ (0.94) $ (0.27) $ (0.13) $ 0.32 $ 0.20 $ 0.47
======= ======= ======= ======= ======== ======= ========
Weighted average shares................................... 1,048 1,042 10,335 12,500 13,305 12,501 15,888
Diluted earnings per share:
Income (loss) from continuing operations.............. $ (0.10) $ 0.18 $ (0.14) $ (0.13) $ 0.31 $ 0.20 $ 0.45
Loss from discontinued operations..................... (0.90) (1.12) (0.13) -- -- -- --
Cumulative effect of accounting change................ 0.63 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss)..................................... $ (0.37) $ (0.94) $ (0.27) $ (0.13) $ 0.31 $ 0.20 $ 0.45
======= ======= ======= ======= ======== ======= ========
Weighted average shares................................... 1,048 1,047 10,335 12,500 13,483 12,600 16,544
</TABLE>

14
<PAGE> 18

<TABLE>
<CAPTION>
---------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ -- $ 136 $ 5 $15,540 $ 41,146 $ 19,062 $ 9,124
Total marketable securities........................... -- -- -- -- 40,200 28,321 114,148
Working capital....................................... (179) (1,340) (559) 1,362 50,947 (2,652) 63,506
Total assets.......................................... 3,124 2,448 11,748 66,118 149,620 127,268 191,915
Restricted assets included in total assets............ -- -- 1,408 17,453 25,873 40,135 627
Deferred revenue, net................................. 73 137 3,346 29,352 61,451 54,508 106,730
Long-term obligations, excluding current
portion............................................. 344 81 1,353 9,440 18,743 17,329 29,400
Total stockholders' equity............................ 1,221 252 3,062 1,437 47,655 (6,075) 62,019
</TABLE>

- ---------------
(1) Net new registrations for each period include gross new registrations less
an estimate of registrations that are uncollectible. Net registrations include
net new registrations less an estimate of registrations not renewed. Prior to
September 14, 1995, net registrations equaled gross registrations because
Network Solutions was reimbursed by the National Science Foundation for all
registrations under a cost plus fixed-fee contract.

15
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and Network Solutions' Financial Statements and Notes
thereto included elsewhere and incorporated by reference in this prospectus.
Except for the historical information contained herein and incorporated herein
by reference, the discussion in this prospectus contains certain forward-looking
statements that involve risks and uncertainties, such as statements of Network
Solutions' plans, objectives, expectations and intentions. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus.
Network Solutions' actual results may differ materially from the results
discussed in the forward-looking statements as a result of certain factors,
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in this prospectus and from time to time in Network Solutions' periodic reports.
Unless otherwise indicated, the accompanying financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for all periods presented for continuing operations reflect the
financial position and results of operations of Network Solutions' commercial
business, which includes registration services and consulting services.

OVERVIEW

Network Solutions, Inc.

Network Solutions currently acts as the exclusive registry and registrar of
Internet domain names within the .com, .org, .net and .edu top level domains
pursuant to the Cooperative Agreement with the Department of Commerce. Domain
names are used to identify a unique site or presence on the Internet. As
registry and registrar for these top level domains, Network Solutions registers
new domain names and is responsible for the maintenance of the master file of
domain names through daily updates to the Internet. Network Solutions also
provides enterprise network consulting services, focusing on network
engineering, network and systems security and network management solutions.

Cumulative net registrations (gross registrations less management's estimate of
uncollectible registrations and of non-re-registrations) within the top level
domains administered by Network Solutions increased by 114%, from 1,296,000
domain names registered at September 30, 1997 to 2,777,000 domain names
registered at September 30, 1998. Net registrations in the .com top level domain
represent 84% of Network Solutions' total net registrations at September 30,
1998. Of the 2,777,000 cumulative net registrations at September 30, 1998,
1,238,000 registrations will be up for annual re-registration during the next
twelve months based upon their respective anniversaries of initial registration.
International registrations accounted for 28% of net new registrations during
the first nine months of both 1998 and 1997. Net revenue from registration
services accounted for 92.5% of Network Solutions' net revenue for the nine
months ended September 30, 1998.

Network Solutions delivers enterprise network consulting services to large
companies that desire to establish or enhance their Internet presence or
re-engineer legacy network infrastructures to accommodate the integration of
both Internet connectivity and internal enterprise network, or intranet,
technology into their information technology base. Our enterprise network
consulting services include network engineering, network and systems security
and network management. During the nine months ended September 30, 1998, Network
Solutions provided enterprise network consulting services to more than 20
companies. Net revenue from enterprise network consulting services accounted for
7.5% of Network Solutions' net revenue for the nine months ended September 30,
1998.

Registration Services

In December 1992, Network Solutions entered into the Cooperative Agreement with
the National Science Foundation under which Network Solutions was to provide
Internet domain name registration services for five top level domains: .com,
.org, .net, .edu and .gov. These registration services include the initial two
year domain name registration and annual re-registration, and throughout the
registration term, maintenance of and unlimited modifications to individual
domain name records and updates to the master file of domain names. The

16
<PAGE> 20

Cooperative Agreement became effective January 1, 1993. It included a
three-month phase-in period, a five-year operational period, commencing April 1,
1993 and ending March 31, 1998, and a six-month flexibility period through
September 30, 1998. Effective September 9, 1998, the Department of Commerce took
over the administration of the Cooperative Agreement from the National Science
Foundation. In October 1998, the Cooperative Agreement was amended to extend the
flexibility period until September 30, 2000.

The original terms of the Cooperative Agreement provided for a cost
reimbursement plus fixed-fee contract (with an initial fee of 8%). Effective
September 14, 1995, the National Science Foundation and Network Solutions
amended the Cooperative Agreement to require Network Solutions to begin charging
end users a services fee of $50 per year for each domain name in the .com, .org
and .net top level domains. Prior to April 1, 1998, registrants paid a services
fee of $100 for two years of domain name services upon each initial registration
and an annual re-registration fee of $50 per year thereafter. The National
Science Foundation paid the registration fees for domain names within the .edu
and .gov top level domains through March 31, 1997. Commencing April 1, 1997,
Network Solutions agreed with the National Science Foundation to provide domain
name services within the .edu and .gov top level domains free of charge. As of
October 1, 1997, Network Solutions no longer registers or administers domain
names in the .gov top level domain.

Under the terms of the September 14, 1995 amendment to the Cooperative
Agreement, 30% of the registration fees collected by Network Solutions was
required to be set aside for the enhancement of the intellectual infrastructure
of the Internet and, as such, was not recognized as revenue by Network
Solutions. Network Solutions has reflected these funds, along with the
appropriate percentage of net accounts receivable, as restricted assets and has
recorded an equivalent, related current liability. Network Solutions maintains
the cash received relating to the set aside funds in a separate interest bearing
account. The set aside funds, plus any interest earned, are disbursed at the
direction of the National Science Foundation. As of September 30, 1998, Network
Solutions had disbursed $62.2 million to the National Science Foundation at
their direction, and had a remaining restricted cash balance of approximately
$627,000.

On March 12, 1998, the National Science Foundation and Network Solutions amended
the Cooperative Agreement to eliminate the 30% set aside requirement effective
April 1, 1998 and to reduce the registration fees by a corresponding amount.
Initial registrations on and after April 1, 1998 are charged $70 for two years
of registration services and an annual re-registration fee of $35 per year
thereafter. This amendment has no effect on the revenue currently recognized on
each registration, $70 for initial registrations and $35 for re-registrations,
since Network Solutions previously did not recognize revenue on the 30% set
aside funds. Accordingly, while the revenue to Network Solutions on a per
registration basis does not change, the amount charged to customers declined.

In order to provide prompt access to new domain names on the Internet, Network
Solutions generally invoices customers and permits them to pay their
registration fees after their domain names are registered. Network Solutions'
experience has been that, for the period from September 1995 through September
1998, approximately 30% of new registrations have ultimately been deactivated
for non-payment. Network Solutions believes that this level of uncollectible
receivables is due to, among other factors, the large number of individuals and
corporations that have registered multiple domain names with the apparent
intention of transferring registration for such names at a profit. Such
resellers have a greater tendency than other customers to default on their
registration fees. As a consequence, Network Solutions has recorded a comparable
provision for uncollectible accounts in determining net registration revenue.
This 30% provision has been consistently applied for the period from September
1995 through September 1998 and is considered adequate by Network Solutions.

Registration fees charged to customers for registration services are recognized
as revenue evenly over the registration term. For example, Network Solutions
recognizes $70 on a straight-line basis over the two-year service period for
each $70 initial domain name registration, equivalent to $35 per year. Annual
re-registrations of domain names are recorded as revenue based upon $35
recognized on a straight-line basis over the one-year service period. This
subscription-based model defers revenue recognition until Network Solutions
provides the registration services, including maintenance of and unlimited
modifications to individual domain name records,

17
<PAGE> 21

over the respective registration terms. At September 30, 1998, Network Solutions
had net deferred revenue of $106.7 million.

Expenses for Network Solutions increased each quarter during 1995, 1996, 1997
and the first nine months of 1998 as a result of increased business activities,
primarily attributable to subscriber growth for Network Solutions' registration
services business. Network Solutions believes continued investments in its back
office infrastructure as well as significant expansion of its sales and
marketing and product development activities are critical to the achievement of
its goals and anticipates that costs and expenses will continue to increase in
each quarter for the foreseeable future.

Enterprise Network Consulting Services

Substantially all of Network Solutions' enterprise network consulting services
revenue is derived from professional services which are generally provided to
clients on a time and expense basis and is recognized as services are performed.

The majority of Network Solutions' enterprise network consulting services are
provided to customers in the financial services industry. Bank America, formerly
NationsBanc, is currently Network Solutions' largest enterprise network
consulting services client, accounting for 49% of Network Solutions' enterprise
network consulting services business net revenue and 3.7% of Network Solutions'
total net revenue in the nine months ended September 30, 1998. NationsBanc
originally contracted with Network Solutions in 1993 and Network Solutions
currently provides network design and engineering services as well as a variety
of project specific services under the contract.

The SAIC Acquisition

Network Solutions was incorporated in the District of Columbia in 1979 and was
reincorporated in Delaware in 1996. Network Solutions was acquired by SAIC on
March 10, 1995 in a stock-for-stock transaction accounted for as a purchase and
is currently a majority-owned subsidiary of SAIC. Prior to the acquisition of
Network Solutions by SAIC, Network Solutions' principal lines of business
consisted of providing integration and engineering services for computer and
telecommunications networks for government and commercial customers and domain
name registration services. Network Solutions' business included commercial and
government contracts awarded to Network Solutions on a competitive basis,
including government contracts that were awarded to Network Solutions based
partially upon Network Solutions' then minority-owned status. The contracts
which had been awarded to Network Solutions based in part on Network Solutions'
then minority-owned status were transferred into a separately-owned entity prior
to the acquisition of Network Solutions by SAIC. In November 1995, SAIC adopted
a plan to transfer Network Solutions' remaining government-based business to
SAIC in order to enable Network Solutions to focus on the growth of its
commercial business, which includes registration services and enterprise network
consulting services. This transfer was effective as of February 1996. The
operating results of both the minority-based government contracts business and
the remaining government-based business are reflected as discontinued operations
in Network Solutions' Financial Statements and the Notes thereto included
elsewhere and incorporated by reference in this prospectus for all periods
presented.

Financial Presentation

Network Solutions' Financial Statements and the Notes thereto included elsewhere
and incorporated by reference in this prospectus for all periods presented
reflect the results of continuing operations related to the commercial
activities of Network Solutions only. The operating results of both the
minority-based government contracts business, which was transferred into a
separate entity prior to the acquisition of Network Solutions by SAIC, and the
remaining government-based business, which was transferred to SAIC effective
February 1996, are reflected as discontinued operations in Network Solutions'
financial statements. See Notes 1 and 9 of Notes to Financial Statements for a
discussion of transactions with SAIC.

18
<PAGE> 22

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship to net revenue of certain items in Network Solutions' Statements of
Operations. The percentage relationships for the year ended December 31, 1995
were derived by combining Network Solutions' results of operations for the
period January 1, 1995 through March 10, 1995 and the period March 11, 1995
through December 31, 1995 which, respectively, are periods before and after the
date of the SAIC acquisition. Accordingly, the data for these two periods and
the periods preceding and following the acquisition were prepared on differing
bases of accounting and, as a result, the comparability of such percentage
relationships with other periods is limited, primarily as a result of the
goodwill amortization, new corporate services agreements and interest expense
related to outstanding debt balances.

<TABLE>
<CAPTION>
-----------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Percentage of net revenue
Net revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................... 87.9 77.8 56.9 59.8 42.4
----- ----- ----- ----- -----
Gross profit....................................... 12.1 22.2 43.1 40.2 57.6
Research and development expenses.................. -- 3.6 3.6 3.5 4.6
Selling, general and administrative expenses....... 36.9 33.3 27.1 25.5 39.2
Interest and other expense (income)................ 0.9 (2.7) (4.6) (3.4) (6.9)
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes..................................... (25.7) (12.0) 17.0 14.6 20.7
Provision (benefit) for income taxes............... (3.6) (3.4) 7.7 6.5 8.7
----- ----- ----- ----- -----
Income (loss) from continuing operations, net of
income taxes..................................... (22.1)% (8.6)% 9.3% 8.1% 12.0%
===== ===== ===== ===== =====
</TABLE>

In September 1995, the Cooperative Agreement between Network Solutions and the
National Science Foundation was amended from a cost reimbursement plus fixed-fee
contract to a fee-based registration contract. Network Solutions believes that
the change to a subscription-based pricing model, combined with Network
Solutions' recent growth, make period to period comparisons of its operating
results less meaningful and that the results for any period should not be relied
upon as an indication of future performance. The recent revenue growth
experienced by Network Solutions should not be taken as being indicative of the
rate of revenue growth, if any, that can be expected in the future.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998

Net Revenue

Net revenue increased 102% from $30.9 million for the nine months ended
September 30, 1997 to $62.4 million for the nine months ended September 30,
1998. This increase in net revenue was primarily attributable to the increase in
the number of domain name registrations, principally in the .com top level
domain. Net revenue from registration services increased 123% from $25.9 million
for the nine months ended September 30, 1997 to $57.7 million for the nine
months ended September 30, 1998. Net new registrations increased 85% from
698,000 for the nine months ended September 30, 1997 to 1,290,000 for the nine
months ended September 30, 1998. Growth in net registrations continues to be
driven by the widespread use and adoption by businesses of the Internet and
intranets on a global basis. Cumulative net registrations as of September 30,
1997 were 1,296,000 as compared to 2,777,000 as of September 30, 1998, for a
114% increase.

Additionally, net new registrations increased 89% from 269,000 for the three
months ended September 30, 1997 to 507,000 for the three months ended September
30, 1998. This also represents a 14% increase over the

19
<PAGE> 23

443,000 net new registrations for the three months ended June 30, 1998. In
addition, this growth in cumulative net registrations is a 21% increase in
Network Solutions' entire customer base since June 30, 1998.

While net revenue from enterprise network consulting services decreased 6% from
$5.0 million for the nine months ended September 30, 1997 to $4.7 million for
the nine months ended September 30, 1998, the most recent quarter reflected an
increase of 53% over both the same quarter last year and the second quarter of
1998. NationsBanc accounted for $1.7 million or 5.5% of Network Solutions' total
net revenue for the nine months ended September 30, 1997 and $2.3 million or
3.7% for the nine months ended September 30, 1998.

During the nine months ended September 30, 1998, the consulting services
division continued to add new leadership in sales and operations and hired
additional technical consultants. In addition, the division continued to
emphasize its efforts targeted at lead generation and regional sales and
marketing programs by opening offices in New York City and Atlanta, Georgia.

Cost of Revenue

Cost of revenue consists primarily of salaries and employee benefits, fees paid
to subcontractors for work performed in connection with revenue producing
projects, depreciation and equipment costs, lease costs of the operations
infrastructure and the associated operating overhead. Cost of revenue increased
from $18.5 million for the nine months ended September 30, 1997 to $26.5 million
for the nine months ended September 30, 1998. This 43% increase was driven by a
$1.8 million increase in labor, a $3.7 million increase in outsourcing costs and
$2.6 million in additional depreciation charges and equipment expenditures
primarily associated with supporting the growth of Network Solutions'
registration services business. In the near term, the continued investment in
the back office infrastructure and provision of customer service is expected to
partially offset future margin improvements arising from economies of scale.

As a percentage of net revenue, cost of revenue decreased from 59.8% for the
nine months ended September 30, 1997 to 42.4% for the nine months ended
September 30, 1998 principally reflecting economies of scale and other
operational efficiencies achieved in Network Solutions' registration business.

Research and Development Expenses

Research and development expenses consist primarily of compensation and
consultant expenses to support the creation, development and enhancement of
Network Solutions' products, services and technologies. Research and development
expenses increased 164% from $1.1 million for the nine months ended September
30, 1997 to $2.9 million for the nine months ended September 30, 1998. As a
percentage of net revenue, research and development expenses increased from 3.5%
for the nine months ended September 30, 1997 to 4.6% for the nine months ended
September 30, 1998. To date, all research and development costs have been
expensed as incurred. Network Solutions expects that the level of research and
development expenses will continue to increase in the near future in terms of
absolute dollars as Network Solutions invests in developing new product and
service offerings.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries of
business development, general management, administrative and financial
personnel, marketing expenses, corporate services from SAIC, legal and other
professional costs and amortization of goodwill associated with Network
Solutions' 1995 acquisition by SAIC. Selling, general and administrative
expenses increased 210% from $7.9 million for the nine months ended September
30, 1997 to $24.4 million for the nine months ended September 30, 1998. The
increase was attributable to a $10.2 million increase in marketing and business
development expenses including television, Internet banner advertising and
targeted direct mail campaigns, increased staffing expenses of $1.5 million and
an increase in legal and other professional costs of $2.7 million. As a
percentage of net revenue, selling, general and administrative expenses
increased from 25.5% for the nine months ended September 30, 1997 to 39.2% for
the nine months ended September 30, 1998. Network Solutions expects that the
level of selling, general and administrative expenses will increase
significantly in the near future in terms of absolute dollars as operations
continue to expand. In particular, sales, marketing and business development
expenses will increase
20
<PAGE> 24

as Network Solutions continues to promote the value of a .com web address and
other new Internet-based value-added services. Network Solutions also plans to
continue to develop its distribution channels, both domestically and
internationally.

Interest Income

Network Solutions had net interest income of $1.1 million for the nine months
ended September 30, 1997 as compared to $4.4 million for the nine months ended
September 30, 1998. The increase is attributable to the investment of the
positive cash flow resulting primarily from increasing domain name registrations
and the net proceeds of Network Solutions' initial public offering.

Income Taxes

The provision for income taxes was 45% of pretax earnings, or $2.0 million for
the nine months ended September 30, 1997, and 42%, or $5.4 million for the nine
months ended September 30, 1998. The difference between the effective rates for
both periods presented is principally attributable to the relative impact that
non-deductible goodwill had on pretax operating income. Goodwill is being
amortized by Network Solutions over five years and is associated with the
acquisition of Network Solutions by SAIC in 1995.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1997

Net Revenue

Net revenue increased 140% from $18.9 million in 1996 to $45.3 million in 1997.
This increase in net revenue was primarily attributable to the increase in the
number of domain name registrations, principally in the .com top level domain.
Net revenue from registration services increased 246% from $11.2 million in 1996
to $38.8 million in 1997. Net new registrations increased 96% from 489,000
during 1996 to 960,000 during 1997. Growth in registrations was driven by the
widespread use and adoption by businesses of the Internet and intranets on a
global basis. Cumulative net registrations as of December 31, 1996 were 627,000
as compared to 1,541,000 as of December 31, 1997, for a 146% increase.

Net revenue from enterprise network consulting services decreased 16% from $7.7
million in 1996 to $6.5 million in 1997. This decrease was primarily
attributable to a decrease in business from NationsBanc. NationsBanc, Network
Solutions' largest enterprise network consulting services client, accounted for
$3.7 million or 20% of Network Solutions' total net revenue in 1996 and $1.9
million or 4% of Network Solutions' total net revenue in 1997.

Cost of Revenue

Cost of revenue increased 76% from $14.7 million in 1996 to $25.8 million in
1997. The increase was primarily driven by the growth of Network Solutions'
registration business which experienced additional labor costs of $4.2 million
and additional outsourcing costs of $1.6 million in support of Network
Solutions' invoicing, collection and processing activities. In June 1997,
Network Solutions opened a 31,200 square foot facility to support its Internet
business operations and in January 1998, Network Solutions signed an agreement
to lease an additional 9,100 square feet at the same location. This leased
facility is designed to meet current registration services customer support
needs as well as to provide expansion capability for future business.

As a percentage of net revenue, cost of revenue decreased from 77.8% in 1996 to
56.9% in 1997. This decrease primarily reflects economies of scale that Network
Solutions achieved due to the growth of its subscription-based domain name
registration business.

Research and Development Expenses

Research and development expenses increased 150% from $680,000 in 1996 to $1.7
million in 1997. All of Network Solutions' research and development costs have
been expensed as incurred. As a percentage of net revenue, research and
development expenses were 3.6% for both 1996 and 1997.

21
<PAGE> 25

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 95% from $6.3 million in
1996 to $12.3 million in 1997. The increase is primarily attributable to
increased management and administrative labor expenses of $1.8 million, business
development expenses of $1.3 million and an increase in legal costs of $1.0
million.

As a percentage of net revenue, selling, general and administrative expenses
decreased from 33.3% in 1996 to 27.1 % in 1997. The decrease in percentage of
net revenue reflects economies of scale Network Solutions achieved due primarily
to the growth of its domain name registration business.

Interest Income

Network Solutions had net interest income of $496,000 in 1996 as compared to
$2.1 million in 1997. The increase is attributable to the investment of the net
proceeds of Network Solutions' stock offering as well as improved cash flow
resulting from the increase in domain name registrations.

Income Taxes (Benefit)

The income tax benefit was $643,000 in 1996 as compared to an income tax expense
of $3.5 million in 1997. The effective tax rate changed from 28% in 1996 to 45%
in 1997. The difference between the effective rates is principally attributable
to the relative impact that non-deductible goodwill had on pretax operating
income or loss for the year. Goodwill is being amortized by Network Solutions
over five years and is associated with the acquisition of Network Solutions by
SAIC in 1995.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996

Net Revenue

Net revenue increased 191% from $6.5 million in 1995 to $18.9 million in 1996.
This increase in net revenue was primarily attributable to the increase in the
number of domain name registrations, principally in the .com top level domain,
as well as Network Solutions' shift to a subscription-based pricing model. Net
revenue from registration services increased 600% from $1.6 million in 1995 to
$11.2 million in 1996. Net revenue in 1995 primarily reflects the cost
reimbursement plus fixed-fee contract with the NSF whereas net revenue for 1996
reflects Network Solutions' subscription-based pricing model. Net new
registrations increased 247% from 141,000 during the year ended December 31,
1995 to 489,000 during the year ended December 31, 1996. Cumulative net
registrations increased 254% from 177,000 at December 31, 1995 to 627,000 at
December 31, 1996.

Net revenue from enterprise network consulting services increased 57% from $4.9
million in 1995 to $7.7 million in 1996, including an increase in net revenue
from NationsBanc, Network Solutions' largest consulting services customer, which
increased 42% from $2.6 million in 1995 to $3.7 million in 1996. This growth was
primarily attributable to increased funding within NationsBanc to support
internal network integration and expansion. Network Solutions also experienced
growth from a number of new consulting services customers, many of which were
obtained through subcontracting with and utilizing leads from SAIC.

NationsBanc accounted for 19.6% of total net revenue in 1996. NationsBanc
accounted for 40.0% of total net revenue and the National Science Foundation,
under the cost reimbursement plus fixed-fee contract, accounted for 20.8% of
total net revenue in 1995. No other source of revenue accounted for more than
7.1% of total net revenue in either year.

Cost of Revenue

Cost of revenue increased 157% from $5.7 million in 1995 to $14.7 million in
1996. The increase in cost was related primarily to an increase in the cost of
labor of $3.7 million as a result of Network Solutions' rapid growth. Effective
with the September 14, 1995 amendment to the Cooperative Agreement which
implemented the subscription-based pricing model, Network Solutions established
and continued to develop its back office capability. This required Network
Solutions to make significant investments in hardware and software as well as to
utilize a number of third-party vendors in support of back office requirements.
In particular, Network Solutions began to outsource portions of its back office
operations during the fourth quarter of 1996. A principal

22
<PAGE> 26

benefit of outsourcing was to increase the capacity and efficiency of its back
office operations; however, such action alone did not significantly impact
operating margins.

As a percentage of net revenue, cost of revenue decreased from 87.9% in 1995 to
77.8% in 1996. This decrease reflects economies of scale that Network Solutions
achieved due to the growth of its domain name registration business.

Research and Development Expenses

There were no research and development expenses in 1995, in large part because
registration system enhancements were reimbursable under the Cooperative
Agreement. In 1996, research and development expenses were $680,000 or 3.6% of
net revenue. All of Network Solutions' research and development costs have been
expensed as incurred.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 162% from $2.4 million in
1995 to $6.3 million in 1996. This increase was primarily attributable to
increases in management, administrative and business development staff, as well
as increased legal costs associated with the administration of Network
Solutions' domain name dispute policy. Selling, general and administrative
expenses include $237,000 in 1995 and $822,000 in 1996 of expenses allocated
from SAIC in accordance with the then current intercompany agreement. If the
expenses were based on the fee of 2.5% of net revenue under the intercompany
agreement in effect during 1997, such expenses would have been $133,000 and
$472,000, respectively.

As a percentage of net revenue, selling, general and administrative expenses
decreased from 36.9% in 1995 to 33.3% in 1996, reflecting the generally fixed
nature of certain general and administrative expenses as well as management's
control of such costs.

Interest Expense (Income)

Network Solutions had net interest expense of $61,000 in 1995 as compared to
interest income of $496,000 in 1996. The change is primarily attributable to
positive cash flow in 1996 associated with Network Solutions' domain name
registration business.

Income Taxes (Benefit)

The income tax benefit was $239,000 in 1995 as compared to $643,000 in 1996. The
effective tax rate increased from 14.3% in 1995 to 28.4% in 1996. The difference
between the effective tax rates was primarily attributable to non-deductible
goodwill comprising a higher percentage of Network Solutions' net loss in 1995.

Discontinued Operations

Immediately prior to the acquisition of Network Solutions by SAIC, the portion
of Network Solutions' business relating to the minority-based government
business had been transferred into a separately-owned entity. In November 1995,
SAIC adopted a plan to transfer Network Solutions' remaining government-based
business to SAIC in order to enable Network Solutions to focus on the growth of
its commercial business, which includes registration and consulting services.
This transfer was effective as of February 1996. November 1995 was the
measurement date for discontinued operations for accounting purposes. The
activities of both the minority-based government business and the remaining
government-based business are reflected as discontinued operations. Net income
(loss) from discontinued operations excludes general corporate overhead of
Network Solutions. No gain or loss was incurred as a consequence of the transfer
of these businesses.

In 1995, discontinued operations incurred a net loss of $1.4 million. The loss
was primarily attributable to Network Solutions' remaining government business,
which increased Network Solutions' provision for uncollectible accounts
associated with the bankruptcy of a prime contractor, high interest costs
associated with payment issues from other prime contractors and over-runs of
fixed-price and fixed-rate contracts. As mentioned above, this business was
transferred to SAIC effective as of February 1996.

23
<PAGE> 27

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly financial information
for each of the eight quarters in the period ended September 30, 1998. In the
opinion of management, this information has been presented on the same basis as
the audited financial statements appearing elsewhere and incorporated by
reference in this prospectus, and all necessary adjustments (consisting only of
normal recurring adjustments) have been included in the amounts stated below to
present fairly the unaudited quarterly results when read in conjunction with the
audited financial statements of Network Solutions and notes thereto. The
operating results for any quarter are not necessarily indicative of results for
any future period.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
QUARTER ENDED
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997 1997 1998 1998 1998
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands
Net revenue............... $6,853 $8,655 $10,069 $12,172 $14,430 $16,492 $20,476 $25,427
Cost of revenue........... 4,426 5,294 6,141 7,033 7,330 7,348 8,791 10,312
------ ------ ------- ------- ------- ------- ------- -------
Gross profit.............. 2,427 3,361 3,928 5,139 7,100 9,144 11,685 15,115
Research and development
expenses................ 396 311 407 377 558 725 815 1,353
Selling, general and
administrative
expenses................ 1,978 2,301 2,487 3,105 4,375 6,182 8,008 10,248
Interest income........... (122) (149) (335) (570) (1,041) (1,292) (1,384) (1,654)
------ ------ ------- ------- ------- ------- ------- -------
Income before income
taxes................... 175 898 1,369 2,227 3,208 3,529 4,246 5,168
Provision for income
taxes................... 49 382 629 995 1,465 1,480 1,783 2,163
------ ------ ------- ------- ------- ------- ------- -------
Net income................ $ 126 $ 516 $ 740 $ 1,232 $ 1,743 $ 2,049 $ 2,463 $ 3,005
====== ====== ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
QUARTER ENDED
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997 1997 1998 1998 1998
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of net revenue
Net revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........... 64.6 61.2 61.0 57.8 50.8 44.6 42.9 40.6
------ ------ ------- ------- ------- ------- ------- -------
Gross profit.............. 35.4 38.8 39.0 42.2 49.2 55.4 57.1 59.4
Research and development
expenses................ 5.8 3.5 4.0 3.1 3.9 4.4 4.0 5.3
Selling, general and
administrative
expenses................ 28.9 26.6 24.7 25.5 30.3 37.4 39.1 40.3
Interest income........... (1.8) (1.7) (3.2) (4.7) (7.2) (7.8) (6.7) (6.5)
------ ------ ------- ------- ------- ------- ------- -------
Income before income
taxes................... 2.5 10.4 13.5 18.3 22.2 21.4 20.7 20.3
Provision for income
taxes................... 0.7 4.4 6.2 8.2 10.1 9.0 8.7 8.5
------ ------ ------- ------- ------- ------- ------- -------
Net income................ 1.8% 6.0% 7.3% 10.1% 12.1% 12.4% 12.0% 11.8%
====== ====== ======= ======= ======= ======= ======= =======
</TABLE>

24
<PAGE> 28

LIQUIDITY AND CAPITAL RESOURCES

From the time of its acquisition by SAIC in March 1995 until December 1996,
Network Solutions participated in SAIC's centralized cash management system
whereby cash received from operations was transferred to SAIC's centralized cash
accounts and cash disbursements were funded from such centralized cash accounts.
Accordingly, cash requirements for operating purposes and for capital
expenditures were met from this source. Beginning in 1997, Network Solutions
implemented its own cash management system.

At September 30, 1998, Network Solutions' principal source of liquidity was its
cash and cash equivalents of $9.1 million and its short-term investments of
$107.9 million, which when combined represent an increase of $35.7 million from
the December 31, 1997 balance in those accounts. Network Solutions also has $6.3
million of marketable securities held as long term investments as of September
30, 1998.

At September 30, 1998, Network Solutions' cumulative net obligation to SAIC for
intercompany activity was $2.6 million, a net increase of $1.3 million from
December 31, 1997. Intercompany activity is primarily comprised of salaries and
benefits paid by SAIC on behalf of Network Solutions. Network Solutions
currently reimburses SAIC for intercompany activity on a monthly basis. Pursuant
to a tax sharing agreement with SAIC dated September 26, 1997, Network Solutions
now generally remits income tax payments directly to tax authorities as it no
longer is part of SAIC's consolidated group for federal income tax purposes.

Cash provided by operations was $42.1 million for the nine months ended
September 30, 1998. This amount is principally attributed to net income plus the
increase in deferred revenue reflecting cash collected in advance of
registration services revenue recognition ratably over the two- and one-year
registration terms. Partially offsetting this amount is an increase in deferred
tax assets resulting from accelerated revenue recognition for tax purposes and
the subsequent tax liabilities.

Investing activities totaled $79.3 million for the nine months ended September
30, 1998, of which $67.7 million was net purchases of short-term investments and
$6.0 million of long-term investments. These investments are primarily comprised
of commercial investment grade securities.

Capital expenditures for continuing operations were $3.2 million and $6.1
million for the year ended December 31, 1997 and the nine months ended September
30, 1998, respectively. These expenditures were primarily for computer
equipment. Network Solutions had additional expenditures of approximately $10.0
million to $12.0 million for the balance of 1998 as it continued to invest in
the back office infrastructure in advance of continued growth in domain name
registrations and as Network Solutions designs and builds the shared
registration system in accordance with the Cooperative Agreement.

Network Solutions believes that its existing cash balance, investments and cash
flows expected from future operations will be sufficient to meet Network
Solutions' capital requirements for at least the next 12 months.

YEAR 2000 COMPLIANCE

Network Solutions is in the process of assessing the potential effects of the
"Year 2000" millennium change on Network Solutions' business systems and
processes, including the Internet domain name servers under Network Solutions'
control, telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its employees
and its outsourcing vendors. Network Solutions' Year 2000 project is proceeding
on schedule. The project goal is to ensure that Network Solutions' business is
not impacted by the date transitions associated with the Year 2000.

Network Solutions' Year 2000 project plan is coordinated by a team that reports
directly to senior management. The project team is evaluating the Year 2000
compliance of Network Solutions' business systems and processes, including the
Internet domain name servers under Network Solutions' control,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its employees
and its outsourcing vendors whom provide services relating to Network Solutions'
domain name registration business. Network Solutions' Year 2000 project is
comprised of the following parallel phases:

- Phase 1 -- Inventory all of Network Solutions' business systems and
processes, including the Internet domain name servers under Network
Solutions' control, telecommunications systems, facilities, data-
25
<PAGE> 29

networking infrastructure, commercial-off-the-shelf hardware, software
and components used by its employees in order to assign priorities to
potentially impacted systems and services. This phase has been completed;

- Phase 2 -- Assess the Year 2000 compliance of all inventoried business
systems and processes, including the Internet domain name servers under
Network Solutions' control, telecommunications systems, facilities,
data-networking infrastructure, commercial-off-the-shelf hardware,
software and components used by its employees and determine whether to
renovate or replace any non-Year 2000 compliant systems and services. The
initial assessment of mission critical systems has been completed;

- Phase 3 -- Complete remediation, if any is required, of any non-Year 2000
compliant business systems and processes, including the Internet domain
name servers under Network Solutions' control, telecommunications
systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its
employees. Conduct procurements to replace any other non-Year 2000
compliant business systems and processes, telecommunications systems,
facilities, data-networking infrastructure, commercial-off-the-shelf
hardware, software and components used by its employees that won't be
remediated. All remediation efforts, if any are required, are expected to
be completed by April 30, 1999;

- Phase 4 -- Test and validate remediated and replacement systems, if any
such remediation or replacement is required, to ensure inter-system
compliance and mission critical system functionality. The testing and
validation efforts, if any are required, are expected to be completed by
May 31, 1999;

- Phase 5 -- Deploy and implement remediated and replacement systems, if
any deployment or implementation is required, after the completion of
successful testing and validation. The deployment and implementation of
the remediated or replacement systems, if any is required, are expected
to be completed by October 30, 1999; and

- Phase 6 -- Design contingency and business continuation plans in the
event of the failure of business systems and processes,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by
Network Solutions' employees due to the Year 2000 millennium change. The
initial contingency and business continuation plan is expected to be in
place by February 28, 1999.

Based on its inventory and assessment to date, Network Solutions has found no
material Year 2000 problems with its internal mission critical systems. However,
Network Solutions, in its normal course of business, anticipates replacing or
upgrading, prior to the millennium change, portions of these systems with new
systems which will also be Year 2000 compliant. Currently, Network Solutions is
enhancing its "back-office" and registration-related systems and the software
relating to its core domain name registration services business. When complete
in 1999, this enhancement effort will result in replacing portions of the
existing registration-related systems which will be procured from vendors as
Year 2000 compliant and will be subjected to both component and end-to-end
testing and validation to determine the Year 2000 compliance of such systems
prior to acceptance and deployment in Network Solutions' business. This
enhancement effort is a function of Network Solutions' business growth and not a
Year 2000 remediation effort.

Based on its inventory and assessment to date, Network Solutions has found no
material Year 2000 problems with its facilities and telecommunications systems.
Network Solutions has conducted detailed assessments of the components of its
telecommunications infrastructure and is working to identify appropriate system
testing guidelines. In addition, Network Solutions is seeking assurances from
its facilities' landlords and telecommunications equipment vendors and data
circuit providers regarding the Year 2000 compliance of their facilities and
equipment. In the event of electrical power interruption outside of Network
Solutions' control, Network Solutions has deployed back-up power systems capable
of operating its core business indefinitely.

Network Solutions is now in the remediation and testing phases of its project
cycle. At this time, Network Solutions believes that its incremental remediation
costs, if any, needed to make its current business systems and processes,
including the Internet domain name servers under Network Solutions' control,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and
26
<PAGE> 30

components used by its employees Year 2000 compliant are not material. While
Network Solutions is incurring some incremental costs directly relating to staff
augmentation for the Year 2000 program management and technical assessment, the
costs expended by Network Solutions through December 31, 1998 are less than
$250,000. Network Solutions' expected total costs, including remediation and
replacement costs, if any, are estimated to be between $750,000 and $1,325,000
over the life of the Year 2000 project. Since portions of the mission critical
"back office" and domain name registration-related systems will generally be
replaced as a function of business growth, the labor and capital costs
associated with such replacement systems are not directly attributed to
achieving Year 2000 compliance.

Network Solutions is contacting its other hardware and software vendors, other
significant suppliers, outsourcing service providers and other contracting
parties to determine the extent to which Network Solutions is vulnerable to any
such third party's failure to achieve Year 2000 compliance for their own
systems. At the present time, Network Solutions does not expect Year 2000 issues
of any such third parties to materially affect Network Solutions' business.
Furthermore, Network Solutions' business depends on the continued operation of,
and widespread access to, the Internet. This, in turn, depends to a large extent
on the software and systems of third parties on which Network Solutions' systems
rely or to which they are connected. These third parties include, among others,
Internet-related companies, including Internet web hosting companies, Internet
access providers and Internet domain name server operators. Network Solutions
can give no assurances that the software or systems of such third parties will
be Year 2000 compliant or that the failure of such third parties to achieve Year
2000 compliance will not have a material adverse effect on Network Solutions. To
the extent that the normal operation of the Internet is disrupted by the Year
2000 millennium change, Network Solutions' business, financial condition or
results of operations could be materially and adversely affected.

Should Network Solutions fail to solve a Year 2000 compliance problem to its
mission critical business systems and processes, including the Internet domain
name servers under Network Solutions' control, telecommunications systems,
facilities, data-networking infrastructure, commercial-off-the-shelf hardware,
software and components used by its employees the result could be a failure or
interruption to normal business operations. Network Solutions believes that,
with the deployment of the new "back office" and domain name registration
related systems in 1999, the potential for significant interruptions to normal
operations should be minimized. Network Solutions' primary risks with regard to
Year 2000 failures are those which impact its domain name registration business.
The reasonably likely worst case risks inherent in Network Solutions' business
are as follows:

- Significant and protracted interruption of electrical power to data and
call-center operations in Network Solutions' engineering facility could
materially and negatively impact Network Solutions' ability to provide
data and call-center operations. To mitigate this risk, Network Solutions
has deployed back-up power systems capable of operating indefinitely.
However, electrical power interruptions that impact Internet connectivity
providers could adversely impact Network Solutions because of Network
Solutions' reliance upon Internet-based operations for its day to day
business.

- Significant and protracted interruption of telecommunications and data
network services in either of Network Solutions' headquarters or
engineering facilities could materially and negatively impact Network
Solutions' ability to provide data and call-center operations. Network
Solutions has conducted detailed assessments of the components of its
telecommunications infrastructure and is working to identify appropriate
system testing guidelines. As part of its technical assessment, Network
Solutions identified the compliance status of its data networking
infrastructure and developed plans for remediation. Finally, Network
Solutions has plans to seek additional assurances and a better
understanding of the compliance programs of its telecommunications and
data circuit providers.

- The failure of components of Network Solutions' current "back office" and
domain name registration related systems could materially and negatively
impact Network Solutions' business. However, as a function of business
growth, these systems are planned to be retired before the end of 1999.
As a contingency planning measure, Network Solutions is conducting a
technical assessment of the current systems and their software
applications in the event that the deployment of the new systems is
delayed beyond December 1999.

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- Despite the assurances of Network Solutions' third-party suppliers,
hardware and software vendors, and outsourcing service providers
regarding the Year 2000 compliance of their products and services, the
potential exists that a Year 2000 problem relating to such third-party
suppliers, vendors and outsourcing service providers products and
services could have a material impact on Network Solutions' business.
Network Solutions is conducting monthly discussions with its mission
critical outsourcing service providers to determine the progress of their
Year 2000 compliance programs.

Although Network Solutions has found no material Year 2000 problems with its
internal mission critical systems and despite Network Solutions' expectation
that its enhancement effort will result in Year 2000 compliant "back-office" and
registration-related systems and software relating to its core domain name
registration services business, Network Solutions is currently developing a
business continuation contingency plan and is performing a test on the existing
core registration-related systems that are being replaced. Network Solutions
expects to finalize its initial contingency plan and to complete the testing of
all existing systems by February 28, 1999.

Although Network Solutions is taking appropriate steps so that Network
Solutions' business is not impacted by the date transitions associated with the
Year 2000, Network Solutions has no responsibility for, nor control over other
Internet domain name server operators or tens of thousands of lower level domain
name system server operators that are critical to the efficient operation of the
Internet. Network Solutions has not determined whether such domain name server
operators or other server operators have hardware, software or firmware that is
Year 2000 compliant. Network Solutions has notified the Department of Commerce
of this issue.

Forward-Looking Statements

The foregoing Year 2000 discussion and the information contained herein is
provided as a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat.
2386) enacted on October 19, 1998 and contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which Network Solutions expects to complete certain actions, are based on
management's best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued availability of certain
resources, representations received from third parties and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
ability to identify and remediate all relevant systems, results of Year 2000
testing, adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are outsourcing service providers,
suppliers, and vendors of Network Solutions, unanticipated system costs, the
adequacy of and ability to implement contingency plans and similar
uncertainties. The "forward-looking statements" made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and
Network Solutions undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.

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BUSINESS

The following discussion contains forward-looking statements which involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements as a result of certain factors
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in the prospectus.

We are the leading Internet domain name registration service provider worldwide.
We currently act as the exclusive registry and registrar for second level domain
names within the .com, .org, .net and .edu top level domains. We also facilitate
global registration of domain names in other existing top level domains
including country code top level domains. By registering Internet domain names,
we enable businesses, other organizations and individuals to establish a unique
Internet presence from which to communicate and conduct commerce. Net
registrations within the top level domains that we maintain increased by 114%
from 1,296,000 domain names registered at September 30, 1997 to 2,777,000 domain
names registered at September 30, 1998. We believe that commercial enterprises
and individual Internet users worldwide are increasingly recognizing the .com
top level domain as a desirable address for commercial presence on the Internet.
Net registrations in the .com top level domain represent 84% of our total net
registrations at September 30, 1998. Net revenue from Internet domain name
registration subscriptions accounted for 92.5% of our net revenue for the nine
months ended September 30, 1998. We believe that the potential for continued
growth of domain name registrations by commercial entities and services related
to those registrations is substantial.

INDUSTRY BACKGROUND

The Internet is a global network of millions of interconnected computers and
computer networks that allow businesses, other organizations and individuals to
communicate. Historically, the Internet had been used by a limited number of
academic institutions, defense contractors and government agencies to facilitate
remote access to host computers and transmit electronic mail. Recently, however,
a broad range of commercial organizations and individuals are using the Internet
to communicate electronically, to distribute and retrieve information and to
conduct commerce. Advances in technology, low-cost Internet access and an
increasing corporate reliance on distributed information environments have
fueled the rapid growth of the Internet.

The Internet has been and continues to be loosely administered by a number of
government agencies that were involved in the creation of its
infrastructure -- initially, the Advanced Research Projects Agency and, more
recently, the National Science Foundation and the Department of Commerce -- and
a number of nonprofit groups formed to address specific Internet governance
issues. As no single organization has formal authority over all aspects of the
Internet, it continues to operate under a system of mutual collaboration and
cooperation. With the commercialization of the Internet, the role of many of
these entities in future Internet administration has become less clear and
private parties have begun to assume a larger role in the enhancement and
maintenance of the Internet's infrastructure. The National Science Foundation,
for example, has completed a two-year phased withdrawal of its funding for the
Internet backbone and has transferred this responsibility to a group of private
telecommunications carriers that are commercially funded and has transferred its
responsibilities under the Cooperative Agreement to the Department of Commerce.

We believe that in order to support the demands placed on this evolving and
rapidly growing medium of commerce and information exchange, a wide range of
products and services will need to be developed and enhanced, including:

- domain name registration services,

- Internet-based products and services, and

- enterprise network consulting services.

Domain Name Registration Services

With the increased commercialization of the Internet, large corporations and
other users, including small businesses, organizations and individuals, are
increasingly using domain names, particularly within the .com top level domain.
Users are also registering domain names to establish Internet identities for
other purposes such as

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trademarks, brands, products and events. The most common top level domains
include .com, .org and .net as well as country code top level domains
represented by "." followed by two letter country codes, for example, .us for
the United States, .uk for the United Kingdom and .de for Germany.

Because the Internet is not bound by geography or lines of business,
coordination and administration services are required for the registration,
allocation and use of top level domains and for the effective operation of the
Internet.

We have been performing these services since 1993 under the Cooperative
Agreement.

Internet-Based Products and Services

The increase in the number of Internet users provides businesses, other
organizations and individuals with new ways to conduct business. To facilitate
commercial transactions, Internet users are seeking important Internet-based
products and services, such as directory, communications, data and research and
identity promotion services. We believe there will be opportunities for entities
which can facilitate, develop and distribute such products and services and make
them more accessible and easy to use.

Enterprise Network Consulting Services

As more businesses, organizations and individuals establish an Internet presence
and begin to deploy intranets, we believe there will be an increasing demand for
enterprise network consulting services. In addition, we believe that intranets
are becoming increasingly sophisticated and are allowing users increased
capabilities and improved access to information. As a result, businesses are
increasingly seeking experienced network consulting firms to provide all of
these services.

OUR SOLUTION

We are the leading Internet domain name registration services provider
worldwide. We currently act as the exclusive registry and registrar of second
level domain names within the .com, .org, .net and .edu top level domains. We
believe that we have been at the forefront of the development, administration
and coordination of standards, policies and functions needed to facilitate the
registration process.

We are expanding our domain name registration business and improving the
registration process by:

- promoting the use of .com worldwide,

- expanding our relationships with Internet access providers,

- establishing and expanding marketing and other strategic relationships
worldwide,

- stimulating demand for domain name registrations in targeted customer
markets, and

- establishing international alliances.

We introduced a portfolio of Internet-based products and services during 1998
and intend to develop additional Internet-based products and services, which may
include directory and other Internet identity services, that allow us to build
upon our position in the registration process and make use of our customer data.

We also provide enterprise network consulting services to large companies that
desire to establish or enhance their Internet presence or intranet
infrastructure. Our enterprise network consulting services have evolved from our
Internet pioneering efforts that date back to 1979 and presently include network
engineering, network and systems security and network management.

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OUR STRATEGY

Our goal is to maintain our position as the leader in Internet domain name
registration services and to build on this position to be a leading provider of
enterprise network consulting services and Internet-based products and services.
Our strategy includes the following key elements:

Maintain Position as the Leading Provider of Registration Services
Worldwide. We intend to promote .com as the accepted and preferred Internet
address for commercial presence on the Internet worldwide. We intend to continue
to develop and implement standards, policies and functions designed to enhance
the ease, speed and security of the registration process. We intend to
accomplish this by adding new capabilities to facilitate the registration
process and providing quality customer service and support.

Establish and Expand Marketing and Other Strategic Relationships. We intend to
continue to expand relationships with companies worldwide to promote our
services, penetrate new customer bases and integrate third party products and
services. In December 1998, we entered into two separate global marketing
agreements with Yahoo! Inc. and Netscape Communications Corporation under which
we purchased advertising to broadly promote our domain name registration
services and other services on certain Yahoo! and Netscape web sites during
1999. Under these agreements we will expand our promotions for domain name
registration services in the .com, .org and .net top level domains globally and
expect to extend the reach of the Network Solutions brand to the global Internet
community.

Maintain Active Role in Establishment of Future Internet Standards and
Policies. We intend to continue to cooperate with organizations that affect
Internet standards and policies, including the not-for-profit corporation
provided for in the Statement of Policy. We intend to maintain an active role in
the global Internet community to ensure that the Internet continues to flourish
and that we remain at the forefront of continuing change in the Internet. We
believe that our Internet expertise and our participation in the Internet
community should enable us to facilitate the proliferation of Internet usage
worldwide and provide us with a competitive advantage in the development of our
service offerings.

Provide Complementary Internet-Based Products and Services. In 1998, we
introduced a portfolio of Internet-based products and services which builds upon
our position in the registration process. Those products and services include:

- RegistrationPlus, a web-based domain name registration process that
allows customers to register or reserve a domain name on-line in real
time;

- dot com mail, a portable, personalized e-mail service to help small
businesses maximize their brand names on the Internet;

- dot com toolkit, a small business resource center that provides access to
tools and services for building an Internet storefront and conducting
business on the Internet; and

- dot com promotions, a service that provides customers with a broad range
of services that enable web site owners to get listed on Internet search
engines and to promote their web sites.

We intend to continue to develop additional Internet-based products and services
which could include directory and other Internet identity services and to
distribute third party product and service offerings through on-line enrollment
for such products and services embedded within our domain name registration web
site.

Build on Technology Leadership. We have assembled management and engineering
teams with extensive experience in the information technology industry and
specifically the Internet. We intend to build on this experience to develop
enabling technologies which support the continued enhancement of infrastructure
flexibility and scalability and customer ease of use.

Build and Strengthen Enterprise Network Consulting Services Business. We intend
to further develop our existing in-depth knowledge of and experience in Internet
technologies to develop a leading enterprise network consulting services
business. We believe that delivering dependable, high-quality enterprise network
solutions is critical to strengthening our relationships with existing clients,
gaining repeat business and generating new

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business from referrals. Further, we intend to capitalize on our expanded
regional presence, relationships with key product and services vendors and
relationship with SAIC as additional sources of new business.

Pursue Strategic Acquisitions and Investments. We intend to continue to
identify and, where appropriate, pursue additional strategic acquisition and
investment opportunities which would provide our customers with complementary
products, services and technologies including, among others, those which enhance
Internet identity and communications and e-commerce. For example, during 1998,
we acquired Internet Domain Names, Inc., referred to as "idNames," to expand our
registration services to the country code top level domains and recently
invested in Centraal Corporation which offers a service to drive traffic and to
navigate to specific web site pages.

OUR SERVICES

Registration Services

Registration services are our core business. We register second level domain
names in the .com, .org, .net and .edu top level domains, enabling registrants
to establish a unique identity on the Internet. Our customers apply to register
second level domain names either directly through our web sites and e-mail-based
registration templates or indirectly through Internet access providers and
others. Currently, we charge a two-year services fee of $70 for initial
registrations and $35 per year for re-registrations for our basic registration
service.

Our InterNIC registration service is an e-mail based registration template
application process for the registration of second level domain names. Our
customers submit registration applications via e-mail through the Internet. We
process the application and either register the requested domain name in the
requested top level domain or reject the application. Upon registration or
rejection, we notify the customer via e-mail. For domain names which are
registered, we invoice the customers and permit them to pay the registration
services fee after the domain name is registered. We perform internally our core
proprietary automated registration process and associated security functions.

On December 1, 1997, we began to offer a suite of enhanced domain name
registration services geared toward small businesses building their online
identities. On January 14, 1998, we introduced RegistrationPlus, the first
service offering under the WorldNIC Services brand. The RegistrationPlus service
offering is a web-based transaction process that is intended to simplify the
registration process. The RegistrationPlus five step registration process allows
users to register or reserve a second level domain name either through our web
site or by calling a toll-free number. As part of RegistrationPlus, we offer the
option of reserving a name and activating it later by providing domain name
record hosting. RegistrationPlus customers currently pay a two-year service fee
of $80 for our enhanced registration services or a two-year service fee of $119
for reservation of a domain name. We believe that ease of use is becoming more
important to the increasing number of less technically sophisticated Internet
users. The RegistrationPlus service also simplifies the user payment process by
validating and accepting credit card payments, providing a customer confirmation
number, via our secure web-based online payment system.

Through our acquisition of idNames, we have expanded our registration services
to the country code top level domains. We now offer search and registration
services for domain names in country code top level domains around the world.
With the idNames services, we make it easier for companies around the world to
build their brands both globally and in local markets.

We have made significant investments in our registration services business. We
believe that we currently have the following competitive advantages in the
domain name registration business:

- Large, Established Customer Base. We maintain more than 3,000,000
individual contracts with customers for unique second level domain name
net registrations. As a result, we believe we have the infrastructure
needed to achieve significant scale efficiencies in the registration
process. As customers invest in their web sites for advertising, branding
and other business-critical activities, we believe that they will be
inclined to re-register their domain names with us.

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- Global Recognition of Network Solutions as the dot com people. We
believe that the .com top level domain, for which we are currently the
exclusive registry and registrar, has perceived value on a global basis
to commercial and other users on the Internet. We are building strong
brand recognition as the dot com people. We believe that this will be a
key factor in maintaining and broadening our customer base.

- Strategic Agreements with Internet Access Providers. To strengthen our
distribution channels, we have entered into strategic agreements to
provide enhanced services with over 140 Internet access providers who
register a significant number of second-level domain names with us on
behalf of our customers.

- Customer Support Services. We believe that high quality customer support
is vital to client satisfaction. We have improved customer service and
account handling and expanded our capacity to service larger volumes of
registrants. Customer access to our customer support services includes a
24 hour 7 day a week telephone help desk, an e-mail processing facility
for account information updates and other services.

- Technical Infrastructure Support. We are investing significant technical
and financial resources to improve and expand our domain name
registration business. A substantial portion of our software is
custom-developed and proprietary. Our internally developed and
proprietary software includes an automated registration capability that
currently processes in excess of 90% of all new registration requests
without human intervention. We believe that significant engineering
talent is required to create a registration services capability and that
knowledge of domain name system structures, Internet security, data
routing and routing protocols is critical to creating and enhancing
registration service capabilities. We believe that engineers skilled in
protocol development are difficult to identify, hire and retain and thus
our staff of engineers represents a valuable resource.

We believe that these competitive advantages are significant and that existing
and additional competing registries and registrars will need similar
capabilities.

In addition, we are continuing to expand our domain name registration business
and to continue to improve the registration process by:

- Promoting the Use of .com Worldwide. We believe that we can continue to
grow our Internet registration business by promoting global recognition
of the .com top level domain. We are promoting the use of the .com top
level domain to establish .com as the most recognized domain for
individuals and organizations conducting business on the Internet.

- Expanding Relationships with Internet Access Providers. Through our
Alliance Program and other programs, we are expanding our relationships
with certain Internet access providers who participate in our Premier
Program. Through our recently launched Affiliate Program, we are
developing and expanding our relationships with some of the smaller
Internet access providers by providing such companies additional revenues
through the payment of referral fees for domain name registrations that
we receive through the program. Through these relationships, we believe
we will be able to deliver enhanced registration services and identify
additional opportunities to expand our registration services business.

- Establishing and Expanding Marketing and Other Strategic Relationships
Worldwide. We are establishing and expanding relationships with
companies worldwide to promote our services, penetrate new customer bases
and integrate third party products and services.

- Stimulating Demand for Domain Name Registrations By Targeting Specific
Customer Markets. We are expanding the number of registrations in
targeted customer markets both domestically and internationally. We
believe that customer markets such as small business users, individuals,
holders of trademarks, service marks and product marks and event sponsors
will continue to offer significant potential for growth if we continue to
actively market our portfolio of registration services to these markets.

- Establishing International Alliances. We launched an international
version of our Premier Program to build a foundation for our
international operations. Through these relationships, we are offering
"ease of use" solutions for entities worldwide for registration in the
.com, .org and .net top level domains. We

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established a multilingual call center capability to further assist with
international registrations through our internal call center as well as
through our outsourced call center.

Internet-Based Products and Services

We have introduced a portfolio of Internet-based products and services and
intend to develop additional Internet-based products and services, which may
include directory and other Internet identity services, that allows us to build
upon our position as the leading registrar and make use of our customer data. In
1998, we introduced the following Internet-based products and services:

- dot com mail. In August 1998, we launched dot com mail, a portable,
personalized e-mail service, to help small businesses maximize their
brand names on the Internet. The dot com mail service is hosted by our
outsourcing vendor, Critical Path, Inc., and enables a business to use
its unique domain name for its e-mail address instead of the domain name
of its Internet access provider. Currently, the dot com mail service is
available only to customers who reserve a domain name which we host.

- dot com toolkit. In September 1998, we launched the dot com toolkit, a
small business resource center that provides access to tools and services
for setting up a web site and conducting business on the Internet. The
dot com toolkit resource center is available on our web site and offers
tools and services categorized into four areas:

- starting a business on-line,

- setting up an Internet presence,

- managing a business online, and

- promoting a business online.

Within each category, the resource center visitor has the ability to
purchase services from a select group of companies that have contracted
with us to be included in the resource center, such as MindSpring
Enterprises, Inc., EarthLink Network, Inc., Sage Networks Inc. and
ValueWeb, members of our Alliance Program, and others, such as Business
Filings, Inc., infoUSA, Inc., LinkExchange, Inc., Thomson & Thomson,
Inc., VeriSign, Inc. and AtWeb, Inc. We receive referral fees from
certain purchases made by our customers from links in the dot com toolkit
resource center.

- dot com promotions. In August 1998, we launched our dot com promotions
service through a joint marketing agreement with LinkExchange, Inc., a
provider of tools and services for web site owners. Through dot com
promotions, a domain name registrant can link to and subscribe to various
LinkExchange services which include:

- registering a web site with over 400 Internet search engines by
subscribing to the Submit It! Service,

- monitoring its rank in the search engines through the PositionAgent
service,

- participating in a competitive advertising network that allows users
to promote their web sites and track success through the Banner
Network service, and

- buying targeted advertising space on affordable web sites through the
LinkExchange Express service.

We receive referral fees from certain purchases made by our customers
from links from the dot com promotions service.

Enterprise Network Consulting Services

We deliver enterprise network consulting services to some of the world's leading
businesses that are utilizing Internet technologies for their internal
enterprise networks, or intranets. Our engineers have extensive knowledge and
experience in network engineering, network security and network management. By
leveraging this knowledge and experience, we are able to provide solutions to
clients' complex network needs.
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- Network Engineering. We offer a line of services to help develop and
integrate enterprise network solutions in a manner tailored to individual
clients' needs. All of these services are focused on building a strong
network foundation for the enterprise.

- Network and System Security. We provide a range of security consulting
services to allow clients to protect their data and systems. We develop
access and protection controls that permit internal and remote users to
access computer systems, databases and applications on the network, while
protecting against unauthorized access to information or misuse of
systems.

- Network Management. We provide a range of services that allow clients to
monitor, control and improve their network performance. We also provide
planning and analysis to implement disaster recovery and contingencies
for network system failures.

During 1998, we provided enterprise network consulting services to more than 20
large companies. Our enterprise network consulting services are generally
provided to clients on a time and expense basis. We also perform a limited
number of engagements on a fixed-price basis. We are expanding our sales and
marketing team to drive new business development.

Most of our enterprise network consulting services customers are in the
financial services industry. Bank America, formerly NationsBanc, is currently
our largest consulting services client, accounting for 49% of our enterprise
network consulting services business net revenue and 3.7% of our total net
revenue in the nine months ended September 30, 1998. NationsBanc originally
contracted with us in 1993 and we currently provide network design and
engineering services as well as a variety of project specific services under the
contract.

MARKETING AND DISTRIBUTION RELATIONSHIPS

We are establishing and expanding relationships with many companies worldwide to
promote our services, penetrate new customer bases and integrate third party
products and services.

Strategic Programs with Internet Access Providers and Others

We have entered into agreements to provide enhanced services to certain Internet
access providers, including Internet service providers, or "ISPs," both in the
United States and in other countries, who register a significant number of
second-level domain names with us on behalf of their customers.

- Premier Program. Our Premier Domain Registration Service Program
provides participating Internet access providers with personalized
account management, customized billing and financial reports, private
e-mail boxes and other customized features. As of December 28, 1998, we
had entered into agreements with 140 companies under the Premier Program
which include agreements with 65 companies located in the United States
and 75 companies located in Canada, Australia, New Zealand and the
European, South American and Asia-Pacific regions. These companies
include: America Online, Incorporated (PrimeHost Division), Demon
Internet Ltd., EarthLink Network, Inc., Hong Kong Telecom, MCI, Inc.,
MindSpring Enterprises, Inc., Singapore Telecommunications, Ltd. and
Verio Inc.

- Alliance Program. The Alliance Program is available to members of the
Premier Program who have participated in the program for a minimum of one
year and who have registered a significant number of second-level domain
names with us. The Alliance Program is designed to enable us and our
participating companies to provide reciprocal links and referrals to the
other party's distribution channels for each other's complementary
services. Through these relationships with EarthLink, MindSpring, Sage
Networks and Valueweb, we seek to deliver our enhanced registration
services and identify additional opportunities to expand our registration
services business.

- Affiliate Program. In September 1998, we launched our Affiliate Program.
This program provides an easy way for small Internet access providers and
other companies and individuals to establish a link to our
RegistrationPlus domain name registration process, enabling them to earn
additional revenue and add value for their web site visitors. The
Affiliate Program is designed for participation by the thousands of
Internet access providers, web hosting companies, and web site design
companies that currently

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register their customers' domain names through us, as well as other
companies and individuals who could benefit from providing this service
to their customers. As of December 28, 1998, approximately 1,900
Affiliates were part of the program.

Distribution Channel Marketing Agreements

We are developing co-marketing programs with channel partners designed to take
advantage of their complementary marketing capabilities.

Domestic Agreements. In 1998, we entered into strategic agreements with Dun &
Bradstreet Corporation, Inc. Online, infoUSA and Centraal for the marketing and
development of products and services to meet the future needs of the business
marketplace.

- Our agreement with D&B makes it possible for businesses to register an
Internet domain name and apply for a D&B D-U-N-S Number from either the
D&B web site or our web site. As part of the agreement, we and D&B placed
a hyperlink on each other's web site that will allow businesses and
individuals registering for a domain name to complete that task and then
apply for their D&B D-U-N-S Number or vice versa.

- Our agreement with Inc. is intended to help small businesses establish a
unique identity and grow a brand on the Internet. We are sponsoring
Inc.'s "Guide to the Internet" web site. In the "Guide to the Internet,"
Inc. helps small-to-midsize companies navigate through the information
and decisions needed to choose systems, tie them together, get employees
to embrace them and apply them to strategic goals. From Inc.'s web site,
small businesses and individuals can hyperlink to our web site where they
can register or reserve a domain name within minutes using our
RegistrationPlus services.

- Under our agreement with infoUSA, we and infoUSA are providing reciprocal
links and referrals to each other's products and services so that our
customers can purchase infoUSA's sales leads and mailing lists services
and receive instant information on any business for marketing or credit
purposes. InfoUSA's customers will be able to register a domain name
through our RegistrationPlus service from the infoUSA home page or
purchase any other service offered through our web site.

- Under our agreement with Centraal, we will market, sell and service
Centraal's "RealName" subscription orders to domain name holders,
directly and through our channels worldwide. The RealName service is a
web navigation service that offers companies, brand managers and
trademark owners a way to enhance their identities on the Internet and is
complementary to our domain name registration services. As part of the
agreement, Centraal will place a hyperlink on its web site that will
allow Centraal customers to register a domain name with us.

International Agreements. We have also established additional distribution
channels in Beijing, China through the Computer Network Information Center, or
"CNIC," in Japan through ASCII and in Hong Kong through China Internet
Corporation, or "CIC."

- Under the CNIC agreement, CNIC is promoting in China the benefit of
registering domain names in our .com, .org and .net top level domains
through a joint marketing campaign with us in Chinese publications, web
sites and other media, and by providing seminars in China on registering
domain names with us. Under the agreement, we are promoting domain name
registration in .cn, the China country code top-level domain, under which
CNIC is the registry.

- In October 1998, we launched a Japanese language version of our
RegistrationPlus service, through a strategic agreement with ASCII.
Through this relationship, we will make our RegistrationPlus service
available to Japanese Internet users in the Japanese language, with a
Japanese call center customer support help desk and through an
advertising and marketing campaign in Japanese publications, Japanese web
sites and through other media.

- Under the agreement with CIC, CIC is providing a link to our
RegistrationPlus domain name registration process as well as actively
promoting domain name registrations in the .com, .org and .net top level

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domains through educational seminars, listings in Internet directories,
and print and media campaigns in Hong Kong, Taiwan and China.

We intend to continue to establish additional distribution alliances for our
domain name registration services in other countries.

Advertising

In December 1997, we launched our first significant marketing campaign, a
targeted print and on-line advertising campaign for our registration services.
This campaign was focused on small businesses and their need to establish their
own unique identity and to grow a brand on the Internet. We are currently
developing additional campaigns in this and other market segments. We also
launched several major multi-piece direct mail, print and web site banner
advertising campaigns announcing our new products and services, such as
RegistrationPlus and dot com mail. In addition, we have run two national cable
television ad campaigns for corporate branding to reinforce our image as a
trusted and reliable source of web-based products and services.

In December 1998, we entered into two separate global marketing agreements with
Yahoo! and Netscape under which we purchased advertising to broadly promote our
domain name registration services and other services on certain Yahoo! and
Netscape web sites during 1999. Under these agreements we will expand our
promotions for domain name registration services in the .com, .org and .net top
level domains globally and expect to extend the reach of the Network Solutions
brand to the global Internet community.

Direct Sales

Our services are marketed and distributed directly through our Internet home
pages. In addition, we are continuing to develop our product management,
marketing and sales force to target channel and distribution partners to offer
our registration services electronically through existing web sites and through
other direct channels, such as direct mail and telemarketing. We are seeking to
expand the number of registrations in targeted customer segments both
domestically and internationally. We are targeting customer segments such as
small business users, individuals, holders of trademarks, service marks and
product marks and event sponsors.

OPERATIONS

The functioning of the domain name system depends on a hierarchy of specialized
software programs resident in network computers called domain name servers. The
top level of this hierarchy consists of 13 globally distributed domain name
servers, called root zone servers. The root zone servers contain the master
directory of all top level domains in the Internet. Below the root zone servers
in the hierarchy are the top level domain zone servers. The top level domain
zone servers contain the directory of active second-level domain names and
corresponding Internet protocol numbers registered in each top level domain.

The location and control of the root zone and top level domain zone servers
historically has been determined by consensus of various members of the Internet
community. We currently administer and operate two of the 13 root zone servers,
specifically root zone servers A and J and four top level domain zone servers.
The other root zone and top level domain zone servers that we do not administer
and operate are administered and operated by independent operators on a
volunteer basis. Every night we update root zone server A with a file that
contains the current list of top level domains and the internet protocol numbers
of the top level domain zone servers. The other top level domain zone servers
then copy that file.

To register a domain name within the .com, .org, .net and .edu top level
domains, our customer or the customer's Internet access provider on behalf of
the customer completes a registration application which is submitted to us via
e-mail or submits a web-based registration application through our web site.
Once the customer is registered, the domain name is included in the top level
domain master directory that is updated nightly.

In September 1998, we launched a new top level domain name server in London to
enhance the availability of .com, .org and .net domain name lookups. The
addition of this server in London will aid European customers by shortening the
electronic distance between them and their final Internet destination. The
addition of the new name server in London is a technical and operational
recognition of the growth of .com, .org and .net usage in
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Europe and should benefit all Internet users who access .com, .org and .net
domain names. We intend to add additional top level domain zone servers in
strategic locations throughout the world to enhance the availability of .com,
.org and .net lookups and to better service our customers.

Eleven high-speed data communications line links connected to eight Internet
service providers support our registration services. By connecting to eight
different Internet service providers, we seek redundancy to maintain constant
access to the Internet should any given Internet service provider or link
develop complications. We believe our current network is adequate and that any
additional capacity will be available in the future as needed.

Substantial portions of our internally developed registration software have been
custom-developed and are proprietary. Our internally developed registration
software includes an automated registration capability that currently processes
in excess of 90% of all new registration requests without human intervention.

We have an operating facility to support our current registration operations and
customer support needs as well as to provide expansion capability for future
business. The facility includes a call center, a training center equipped for
both computer and telephone training and a new computer room with expanded
systems and telecommunications services. We contract for a back-up facility to a
third party's secure facility in California to provide redundancy and enhanced
reliability for our Internet root zone administration.

Recently, our systems have been subject to unusually large numbers of
speculative and repetitive e-mail domain name registration and modification
requests from domain name speculators and other abusers. Such abuses of our
systems have resulted in processing delays. We have taken, and are continuing to
take, actions to combat these delays and abusive e-mails by accelerating the
implementation of planned hardware upgrades to our systems and by taking other
actions, including imposing certain restrictions on access to our customer
database, to minimize the impact of such system abuses.

ONGOING PRIVATIZATION OF INTERNET ADMINISTRATION

The Internet is not bound by geography and neither the U.S. Government nor any
organization or entity currently has formal authority over all aspects of the
Internet. There is, however, a requirement for central policy decisions
surrounding the coordination of the administrative services required for the
registration, allocation and use of top level domains and IP numbers, and for
the effective global operation of the Internet. This role has been generally
filled through mutual cooperation and interrelated informal agreements,
historical leadership from an unincorporated entity called the Internet Assigned
Numbers Authority and involvement from the U.S. Government. With the onset of
increased commercial growth of the Internet, the U.S. Government initiated an
activity directed at increased privatization of the policy making and central
administration of the Internet. Without authoritative policy making it has
become more difficult to achieve consensus in the historical manner. Failure to
achieve consensus among the various groups who now informally administer the
Internet could disrupt Internet operations or delay infrastructure improvements
or changes in operations needed to maintain and expand the Internet.

Within the U.S. Government, leadership for the continued privatization of
Internet administration is currently provided by the Department of Commerce.
After a series of draft proposals and public comment periods, on June 10, 1998,
the Department of Commerce published in the Federal Register a plan referred to
as the Statement of Policy or "White Paper," calling for the formation of a
not-for-profit corporation to assume responsibilities relating to the domain
name system, but not to perform actual registration of domain names either as a
registrar or registry. The Statement of Policy invites private sector Internet
stakeholders to work together to form a new private, not-for-profit corporation
to oversee policy for the Internet name and address system and provides that:

- the not-for-profit corporation should be headquartered and incorporated
in the United States and have a board of directors from around the world;

- in making a decision to devolve U.S. government oversight of the domain
name system to the not-for-profit corporation, the U.S. government will
be guided by, and consider the entity's commitment to, the principles of
stability, competition, private bottom-up coordination and
representation;
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- to the extent that the not-for-profit corporation is established and
operationally stable, transition to the private sector of domain name
system administration will be phased in by September 30, 2000; and

- the not-for-profit corporation ultimately should have the authority to:

-- set policy for and direct allocation of Internet protocol number
blocks to regional Internet number registries;

-- oversee operation of the authoritative Internet root server system;

-- oversee policy for determining the circumstances under which any new
top level domains are added to the domain name system; and

-- coordinate the assignment of other Internet technical parameters as
needed to maintain universal connectivity on the Internet.

The Statement of Policy distinguishes between the registry and registrar
functions of the domain name system, both of which functions are currently
performed exclusively by us in the .com, .org, .net and .edu top level domains,
and calls for increased competition. The current technical structure of the
Internet will permit only one registry for each top level domain. A registrar
acts as the interface between the registry and the end-user domain name holders.
Registrars submit to the registry information and other data for each of their
customers that has a second level domain name in that top level domain. A
registrar can provide value-added products and services in addition to its basic
registration service. Numerous registrars will be able to operate within each
top level domain.

As part of the process initiated by the Statement of Policy, several proposals
were put forward to the Department of Commerce on the establishment and
governance of the not-for-profit corporation. The proposals differed in several
respects including, among others, their approaches to the following issues:
place and form of incorporation; method for selection of the interim and
permanent board of directors; who should be eligible to become a member and on
what questions should the members vote; what authority should be granted to the
board of directors and what authority should be reserved to the members, if any;
and whether there should be separate supporting organizations and, if so, what
authority these organizations should have. A newly-formed U.S. based private
not-for-profit corporation with an international board of directors, denoted the
Internet Corporation for Assigned Names and Numbers, or "ICANN," submitted
various proposals which formed the basis of discussion at a number of public and
private meetings. As a result of these and other meetings and private
negotiations, the process initiated by the Statement of Policy has resulted in
the entry by the U.S. Government into a Memorandum of Understanding, or "MOU,"
with ICANN. Under the MOU, the parties will jointly design, develop and test the
mechanisms, methods and procedures that should be in place and the steps
necessary to transition management responsibility for certain domain name system
functions to a private-sector not-for-profit entity. The MOU provides that once
testing is successfully completed, it is contemplated that management of certain
domain name system functions will be transitioned to the mechanisms, methods and
procedures designed and developed in this joint project.

ICANN's bylaws call for the creation of supporting organizations that will
select some ICANN board members and provide policy recommendations in particular
areas. ICANN has called for submission by February 5, 1999 of applications from
groups urging "recognition" of a domain name supporting organization that would
be charged with developing recommendations for policies ICANN might apply when,
and if, it begins exercising responsibility over certain domain name system
matters including entering into contracts with registries for all top level
domains and eventually adding new top level domains. We have submitted comments
regarding the structure and function of such a domain name supporting
organization. We cannot be sure that our comments will be accepted by those
submitting applications or that ICANN will take positions favorable to us in the
context of policy development or contract formation.

We have held a meeting with a focused technical advisory group to comment on and
participate in testing of our shared registration system. This group consisted
of members suggested by ICANN to the Department of Commerce. On February 8,
1999, ICANN released in preliminary form and for public comment its guidelines

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for accreditation of competing registrars and methods for selection of the
initial five registrars to participate in the test bed under the shared
registration system described below under "-- Status of Cooperative Agreement."

STATUS OF COOPERATIVE AGREEMENT

On January 1, 1993, we initiated phase-in of a Cooperative Agreement with the
National Science Foundation. The three-month phase-in was followed by a
five-year operations period, commencing April 1, 1993 and ending March 31, 1998,
and a six-month flexibility period through September 1998. Effective in
September 1998, the responsibility for the Cooperative Agreement was transferred
to the Department of Commerce. In October 1998, the Cooperative Agreement was
amended to extend the flexibility period through September 30, 2000 and to
transition to a shared registration system.

In this transition, we will operationally separate our registry business from
our registrar business. Additional, competing registrars will be able to market
registrations in the .com, .net and .org top level domains through the registry
that we maintain for each of those top level domains. Accordingly, persons
registering second level domain names will be able to choose among a number of
different registrars. As the registry, we will have contracts with these
competing registrars allowing them to register names in our registry database.
Our registry services will be subject to a price cap, to be negotiated with the
Department of Commerce. Registrar services, once competitive, may be priced in
different ways by us and competing registrars.

The following summarizes certain terms of the October 1998 amendment to the
Cooperative Agreement:

- We will develop a protocol and associated software to support a shared
registration system which will permit multiple registrars to provide
registration services within the top level domains for which we now act
as exclusive registry and registrar. Implementation of the shared
registration system will reflect an agreed-upon time line, which assumes
that the U.S. Government does not request changes in the specifications,
including the following dates:

-- By March 31, 1999, we will initially deploy the shared registration
system by establishing a test bed supporting actual registrations in
.com, .org and .net by five registrars accredited by the not-
for-profit corporation;

-- By June 1, 1999, we will deploy the shared registration system and
make it available to support multiple licensed and accredited
registrars within the top level domains for which we act as registry;

-- By October 1, 1999, we will complete reengineering of our
registry/registrar interface and back end systems so as to assure
that we, acting as registry, will give all licensed and accredited
registrars equivalent access to registry services through the shared
registration system;

- We and other accredited entities will function as domain name registrars
through the shared registration system. The shared registration system
will, among other things, permit second level domain name holders to
change registrars within the same registry without changing domain names;

- We will also continue in our role as the registry of .com, .org and .net
top level domains. Commencing upon the initial deployment of the shared
registration system, our price for registry services in the top level
domains for which we now act as registry will be no more than a dollar
amount per registration, per year, agreed upon with the U.S. Government
and reflecting our costs and a reasonable return on our investment;

- Commencing upon the initial deployment of the shared registration system,
for a period of 18 months, we will permit any customer with whom we have
an exclusive contract as registrar to obtain registration services from
other registrars;

- From the date of the October 1998 amendment and for a period of 18 months
after initial deployment of the shared registration system, we may not
enter into any agreement that limits a party's ability to serve as a
registrar or operate a registry;

- We agreed to submit to the U.S. Government an electronic copy of all
software and data, and a copy of documentation therefor, generated under
the Cooperative Agreement through September 30, 1998. The

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U.S. Government agreed to take appropriate measures to protect the
security and confidentiality of such data, software and documentation;
and

- We have agreed to continue to function as the administrator for Root
Server A and as a root zone administrator for Root Server J until such
time as the U.S. Government instructs us to transfer either or both of
those functions to the not-for-profit corporation or a specific alternate
entity.

As the U.S. Government transitions certain responsibilities for the domain name
system to the not-for-profit corporation, corresponding obligations under the
Cooperative Agreement may be terminated and, as appropriate, covered in a
contract between the not-for-profit corporation and us.

COMPETITION IN THE REGISTRATION BUSINESS

A principal objective expressed in the Statement of Policy is the introduction
of competition and global participation in the management of Internet names and
addresses including, among other things, competition among registrars within a
single top level domain and competition among existing and new top level
domains. This objective is embodied, in part, in the October 1998 amendment to
the Cooperative Agreement. Many aspects of how competition will work in the
domain name system, however, remain unsettled and could be impacted by, among
other things, actions of the not-for-profit corporation. We currently face
competition in the domain name registration business from registries for country
code top level domains, third level domain name providers such as Internet
access providers and registrars and registries of top level domains other than
those top level domains that we currently administer. A number of entities have
already begun to offer competing registration services using other top level
domains.

In developing and distributing future products and services for the
Internet-based services markets, we face intense competition and expect to have
multiple competitors for each of the products or services, if any, which we
develop or sell. Furthermore, the industry in which we intend to compete is
characterized by rapid changes and frequent product and service introductions.
If a competitor were to successfully introduce certain products or services
before us, it could cause our business to suffer.

COMPETITION IN THE ENTERPRISE NETWORK CONSULTING BUSINESS

Companies with Internet expertise are current or potential competitors to our
enterprise network consulting services. These companies include systems
integrators and consulting firms, such as Andersen Consulting, IBM Global
Services and International Network Services. We also compete with certain
companies that have developed products that automate the management of IP
addresses and name maps throughout enterprise-wide intranets, and with companies
with internally-developed systems integration efforts. A number of these
competitors and potential competitors have longer operating histories and
greater name recognition and significantly greater financial, technical,
marketing, distribution and other resources than we do. We may not be able to
successfully compete in the enterprise network consulting services area.

EMPLOYEES

As of December 31, 1998, we had approximately 385 full-time employees. None of
our employees are covered by collective bargaining agreements. We believe that
our relations with our employees are good.

LEGAL PROCEEDINGS

As of December 1, 1998, we were a defendant in two active lawsuits involving
domain name disputes between trademark owners and domain name holders. We are
drawn into such disputes, in part, as a result of claims by trademark owners
that we are legally required, upon request by a trademark owner, to terminate
the right we granted to a domain name holder to register a domain name which is
alleged to be similar to the trademark in question. The holders of the domain
name registrations in dispute have, in turn, questioned our right, absent a
court order, to take any action which suspends their use of the domain names in
question. Although 46 out of approximately 4,500 of these situations have
resulted in suits actually naming us as a defendant, as of

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December 1, 1998, no adverse judgment has been rendered and no award of damages
has ever been made against us. We believe that we have meritorious defenses and
vigorously defend ourselves against these claims.

On March 20, 1997, PG Media, Inc., a New York-based corporation filed a lawsuit
against us in the United States District Court, Southern District of New York
alleging that we had restricted access to the Internet by not adding PG Media's
requested top level domains to the Internet root zone system in violation of the
Sherman Act. In its complaint, PG Media, in addition to requesting damages,
asked that we be ordered to include reference to PG Media's top level domains
and name servers in the root zone file administered by us under the Cooperative
Agreement. In June 1997, we received written direction from the National Science
Foundation not to take any action which would create additional top level
domains or to add any new top level domains to the Internet root zone until the
National Science Foundation provides further guidance. On September 17, 1997, PG
Media filed a Second Amended Complaint adding the National Science Foundation as
a defendant. On May 14, 1998, PG Media served us with a motion for a preliminary
injunction against both defendants to compel both defendants to add PG Media's
top level domains to the Internet root zone within 30 days. In response, both
defendants filed cross-motions for summary judgment against PG Media. On July
20, 1998, a hearing on all parties' motions occurred. The basic issue before the
court is the National Science Foundation's authority to control the Internet's
root zone system. The court has taken the issue under advisement and no date has
been indicated for the issuance of a decision. With the transition of the
Cooperative Agreement from the National Science Foundation to the Department of
Commerce, we are still required to request written direction from the U.S.
Government before making or rejecting any modifications, additions or deletions
to the root zone file, in accordance with the October 1998 amendment to the
Cooperative Agreement.

On October 17, 1997, a group of six plaintiffs filed the Thomas suit against us
and the National Science Foundation in the United States District Court,
District of Columbia, challenging the legality of fees defendants charge for the
registration of domain names on the Internet and seeking restitution of fees
collected from domain name registrants in an amount in excess of $100 million,
damages, and injunctive and other relief. Plaintiffs alleged violations of the
Sherman Act, the U.S. Constitution, the Administrative Procedures Act and the
Independent Offices Appropriations Act. On February 10, 1998, the plaintiffs
filed a motion for preliminary injunction against us seeking several items of
relief. On April 6, 1998, the Court issued its opinion granting summary judgment
in favor of the plaintiffs on the Intellectual Infrastructure Fund, ruling it an
"unlawful tax." The court also granted our motion to dismiss all other counts
(II through X) and simultaneously denied the plaintiffs' preliminary injunction
motion against us. On April 30, 1998, Congress passed H.R. 3579 which was signed
into law by the President on May 1, 1998. Section 8003 of H.R. 3579 legalized,
ratified and confirmed the entire Intellectual Infrastructure Fund and
authorized and directed the National Science Foundation to deposit the entire
fund into the U.S. Treasury. On August 28, 1998, the District Court dismissed
the entire case, issuing a final judgment in the matter. In October 1998, the
plaintiffs appealed the court's dismissal of their claims, with oral argument
scheduled for February 25, 1999.

On October 20, 1998, we were included as a defendant in a suit brought by the
Pennsylvania Attorney General's office against a domain name holder who was
alleged to have used his domain name in connection with a web site promoting
white supremacy and threatening certain state employees. The Pennsylvania
Attorney General named all of the communications companies in any way connected
with the domain name or web site. The Pennsylvania Attorney General seeks to
permanently enjoin these entities, including us, from providing services to this
domain name holder in the event that the domain name holder fails to comply with
the order of the court. We have answered the complaint denying any knowledge or
participation in the actions of the primary defendant. No motions are pending
and we expect to be dismissed from the matter.

While we cannot reasonably estimate the potential impact of the claims advanced
in the PG Media, Thomas or Pennsylvania Attorney General suits, a successful
claim against us in any of these proceedings could harm our business.

On June 27, 1997, SAIC received a Civil Investigative Demand, or "CID," from the
U.S. Department of Justice issued in connection with an investigation to
determine whether there is, has been, or may be any antitrust violation under
the Sherman Act relating to Internet registration products and services. The CID
seeks documents and information from SAIC and us relating to our Internet
registration business. We cannot

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reasonably estimate the potential impact of the investigation nor can we predict
whether a civil action may ultimately be filed by the Department of Justice or
the form of relief that might be sought. Any such relief from such a suit could
have a harmful effect on our business.

On August 17, 1998, we received notice from the Commission of the European
Communities, or "EC," of an investigation concerning the Company's Premier
Program agreements in Europe. The EC requested production of these agreements
and related materials for review. We cannot reasonably estimate the potential
impact of the investigation nor can we predict whether an action will ultimately
be brought by the EC or the form of relief that might be sought. Any such relief
could harm our business.

We are involved in various other investigations, claims and lawsuits arising in
the normal conduct of our business, none of which, in our opinion will harm our
business.

Legal proceedings in which we are involved have resulted and likely will result
in, and any future legal proceedings can be expected to result in, substantial
legal and other expenses and a diversion of the efforts of our personnel.

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MANAGEMENT

The name, age and position held with Network Solutions by each of the executive
officers and directors of Network Solutions as of December 31, 1998 are set
forth below:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael A. Daniels (1).......... 52 Chairman of the Board and Acting Chief Executive Officer
Robert J. Korzeniewski.......... 41 Chief Financial Officer and Acting Chief Operating Officer
Bruce L. Chovnick............... 38 Senior Vice President and General Manager, Consulting Services
Jonathan W. Emery............... 46 Senior Vice President, General Counsel and Secretary
David H. Holtzman............... 42 Senior Vice President, Engineering
Donald N. Telage................ 53 Senior Vice President, Internet Relations and Special Programs
and Director
Douglas L. Wolford.............. 37 Senior Vice President, Marketing and Sales
Charles A. Gomes................ 52 Vice President, Customer Programs
Michael G. Voslow............... 39 Vice President, Finance and Treasurer
J. Robert Beyster (1)........... 73 Director
Craig I. Fields (2)............. 52 Director
John E. Glancy (2).............. 52 Director
J. Dennis Heipt (1)............. 56 Director
William A. Roper, Jr. (2)....... 52 Director
Stratton D. Sclavos (1)......... 37 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.

MICHAEL A. DANIELS has served as Chairman of the Board of Network Solutions
since 1995 and as Acting Chief Executive Officer of Network Solutions since
November 1998. Since 1986, Mr. Daniels has served in various positions with SAIC
and has served as a Sector Vice President and Sector Manager for the Technology
Applications Sector of SAIC since 1993. Prior thereto, Mr. Daniels served as a
Group Senior Vice President of SAIC from 1991 to 1993. Mr. Daniels received a
B.S. and an M.A. from Northwestern University and received a J.D. from the
University of Missouri School of Law.

ROBERT J. KORZENIEWSKI has served as Chief Financial Officer of Network
Solutions since March 1996 and as Acting Chief Operating Officer of Network
Solutions since November 1998. From 1987 until October 1997, Mr. Korzeniewski
held a variety of senior financial positions with SAIC and served as a Corporate
Vice President for Administration of SAIC from 1989 until 1997. Mr. Korzeniewski
is a Certified Public Accountant and received a B.S. in Business Administration
from Salem State College.

BRUCE L. CHOVNICK has served as Senior Vice President and General Manager,
Consulting Services of Network Solutions since September 1997. From October 1993
until September 1997, Mr. Chovnick served in various executive leadership roles
with General Electric Information Services, Inc., an electronic commerce
company, and, most recently, he served as Vice President of its Global Internet
Solutions business. Prior to that he was a Senior Manager of IBM Corporation, a
computer systems, software, networking systems and storage devices manufacturer,
from January 1984 to September 1993. Mr. Chovnick received a B.S. in Computer
Science from the University of Florida.

JONATHAN W. EMERY has served as Senior Vice President, General Counsel and
Secretary of Network Solutions since December 1997. From 1986 until 1997, Mr.
Emery held a variety of positions with Tambrands Inc., a consumer products
company, most recently as Vice President, Senior Counsel and Assistant
Secretary. Prior thereto, from 1977 until 1986, Mr. Emery was an Associate with
the law firm of Brown & Wood. Mr. Emery received a B.A. from Trinity College,
Hartford, Connecticut, and a J.D. from Boston University School of Law.

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DAVID H. HOLTZMAN has served as Senior Vice President, Engineering of Network
Solutions since February 1997. From September 1995 until January 1997, he served
as Business Development Manager, Development Manager and Chief Scientist,
Internet Information Technology (InfoMarket) group of IBM Corporation, a
computer systems, software, networking systems and storage devices manufacturer.
Prior thereto, from May 1992 to 1994, he served as a Senior Associate at
Booz-Allen & Hamilton, a management consulting firm. Mr. Holtzman received a
B.A. in Philosophy from the University of Pittsburgh and a B.S. in Computer
Science from the University of Maryland.

DONALD N. TELAGE has served as a director of Network Solutions since May 1995
and as Senior Vice President, Internet Relations and Special Programs of Network
Solutions since February 1997. Dr. Telage also served as President and Chief
Operating Officer of Network Solutions from May 1995 to February 1997. Since
1986, Dr. Telage has served in various positions with SAIC and has served as a
Group Senior Vice President of SAIC since 1993. Prior thereto, Dr. Telage served
as a Corporate Vice President of SAIC from 1992 to 1993. Dr. Telage received his
B.A. in Psychology from the University of Connecticut and received an M.A. and a
Ph.D. in Mathematics from Clark University.

DOUGLAS L. WOLFORD has served as Senior Vice President, Marketing and Sales of
Network Solutions since December 1997. From December 1994 to November 1997, Mr.
Wolford was employed by General Electric Information Services, Inc., an
electronic commerce company, during which tenure he progressed to the position
of General Manager -- Marketing (Americas). Prior thereto, he was employed from
March 1989 to December 1994 by the National Academy of Engineering, most
recently as Director, Development and Public Affairs. Mr. Wolford received a
B.S. in Mechanical Engineering from North Carolina State University, a
Certificat de Langue Francaise from Sorbonne University and an M.B.A. in
Marketing from the University of Maryland.

CHARLES A. GOMES has served as Vice President, Customer Programs of Network
Solutions since March 1998. Mr. Gomes has been part of Network Solutions'
management team since 1984. From October 1995 to March 1998, Mr. Gomes served as
Director of Customer Programs. Prior to assuming his current responsibilities,
Mr. Gomes managed various programs and projects at Network Solutions involving
delivery of technical services to various federal and state government agencies.
Mr. Gomes received a B.A. in Mathematics from the University of California,
Davis, and a Master's of Education from Boston University.

MICHAEL G. VOSLOW has served as Vice President, Finance and Treasurer since
March 1998 and as Treasurer of Network Solutions since January 1997. From
January 1995 to January 1997, Mr. Voslow was Vice President and Corporate
Controller for MAXM Systems Corporation, a worldwide provider of computer
software and professional services. Prior to joining MAXM, Mr. Voslow was a
Senior Manager at Price Waterhouse where he served from August 1983 to January
1995. Mr. Voslow is a Certified Public Accountant and received a B.S. in
Business Administration from Miami University (Ohio) and an M.B.A. in Finance
from Duke University.

J. ROBERT BEYSTER has served as a director of Network Solutions since 1996. Dr.
Beyster is the Chief Executive Officer and Chairman of the Board of SAIC, a
company he founded in 1969. Dr. Beyster is a Fellow of the American Nuclear
Society and a Fellow of the American Physical Society. Dr. Beyster is also the
founder, President and a member of the Board of Trustees of the Foundation for
Enterprise Development, a nonprofit organization that promotes employee
ownership.

CRAIG I. FIELDS has served as a director of Network Solutions since 1997. Dr.
Fields has served as Chairman of the Defense Science Board since 1994. Dr.
Fields has served as a consultant to several companies, including as a
consultant to SAIC since 1994. Prior thereto, Dr. Fields served as Vice Chairman
of Alliance Gaming Corporation, a diversified entertainment company, from 1994
to 1997. From 1990 until 1994, Dr. Fields served as Chairman and Chief Executive
Officer of the Microelectronics and Computer-Technology Corporation, a privately
held research and development consortium. Dr. Fields serves as a director of
ENSCO International Incorporated, Projectavision, Inc., Muzak Incorporated,
InterTech Group, Inc. and Firearms Training Systems, Inc.

45
<PAGE> 49

JOHN E. GLANCY has served as a director of Network Solutions since 1996. Dr.
Glancy has held a number of senior positions with SAIC since 1980. Dr. Glancy
has served as a Corporate Executive Vice President of SAIC since 1994 and as a
director of SAIC since 1994. From 1991 until 1994, Dr. Glancy served as a Sector
Vice President of SAIC.

J. DENNIS HEIPT has served as a director of Network Solutions since February
1998. Since 1984, Mr. Heipt has served as Senior Vice President for
Administration and Secretary of SAIC. Mr. Heipt has held various positions with
SAIC since 1979.

WILLIAM A. ROPER, JR. has served as a director of Network Solutions since 1996.
Since 1990, Mr. Roper has served as Senior Vice President and Chief Financial
Officer of SAIC. Mr. Roper also serves as a director of ODS Networks, Inc.

STRATTON D. SCLAVOS has served as a director of Network Solutions since 1997.
Mr. Sclavos has served as President, Chief Executive Officer and director of
VeriSign, Inc., a provider of digital certificate services, since 1995. From
1993 until 1995, Mr. Sclavos served as Vice President of Worldwide Marketing and
Sales for Taligent, Inc., a joint venture of Apple Computer, Inc., IBM
Corporation and The Hewlett-Packard Company, Inc. From 1992 until 1993, Mr.
Sclavos served as Vice President of Worldwide Sales and Business Development for
GO Corporation, a mobile computing company. From 1988 until 1993, Mr. Sclavos
served in various executive positions with MIPS Computers Systems.

Several officers and employees of SAIC currently serve as directors of Network
Solutions. It is anticipated that the board of directors of Network Solutions
will change in connection with the decrease in SAIC's percentage ownership and
voting control of Network Solutions.

46
<PAGE> 50

SELLING STOCKHOLDERS

The following tables set forth certain information as of December 28, 1998
regarding the beneficial ownership of common stock by each of the selling
stockholders and the shares of Class A common stock offered hereby by such
selling stockholders. Concurrent with this offering, SAIC will convert 4,500,000
shares of Class B common stock into 4,500,000 shares of Class A common stock to
be sold in this offering. Prior to this offering, SAIC held approximately 96.3%
of the combined voting power and 72.3% of the economic interest of the
outstanding common stock. After this offering, SAIC will have approximately
89.0% of the combined voting power and approximately 44.8% of the economic
interest of the outstanding common stock. Upon conversion of its remaining
shares of Class B common stock into Class A common stock, which is expected to
occur by May 31, 1999, assuming completion of this offering, SAIC will have
approximately 44.8% of the combined voting power and economic interest of the
outstanding common stock.

The following tables are based on information supplied by the selling
stockholders. Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with respect to
securities. Except as indicated by footnotes and subject to community property
laws, where applicable, the persons named below have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. Shares of Class A common stock that are issuable upon exercise of options
that are exercisable within 60 days of December 28, 1998, and shares of Class A
common stock that are issuable upon conversion of Class B common stock, are
deemed to be beneficially owned by the person holding such options or such
shares of Class B common stock, as the case may be, for the purpose of computing
the percentage ownership of such person, but are not treated as outstanding for
purposes of computing the percentage ownership of any other person.

In the second table, applicable percentages of shares beneficially owned prior
to and after this offering and the number of shares being offered are based on
4,559,835 shares of Class A common stock outstanding as of December 28, 1998.
The applicable percentages of shares of Class A common stock beneficially owned
after this offering gives effect to the 4,500,000 shares of Class A common stock
to be issued to and sold by SAIC upon conversion of 4,500,000 shares of Class B
common stock and 80,000 shares of Class A common stock to be issued to and sold
by the other selling stockholders after they exercise their stock options
simultaneously with the closing of this offering.

<TABLE>
<CAPTION>
----------------------------------------------------------------
CLASS B COMMON STOCK
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER
OFFERING BEING OFFERED OFFERING
-------------------- ------------------- -------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
---------------- ---------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Science Applications International
Corporation...................... 11,925,000 100% 4,500,000 37.7% 7,425,000 100%
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CLASS A COMMON STOCK
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES SUBJECT
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER TO UNVESTED
OFFERING BEING OFFERED OFFERING OPTIONS
-------------------- ------------------- ------------------- --------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER
---------------- ---------- ------- --------- ------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Science Applications
International Corporation...... 11,925,000 72.3% 4,500,000 27.3% 7,425,000 44.8% --
Donald N. Telage (1)............. 49,721 1.1 30,236 * 19,485 * 73,500
Robert J. Korzeniewski (2)....... 37,671 * 24,978 * 12,693 * 64,120
David H. Holtzman (3)............ 23,050 * 16,413 * 6,637 * 42,600
Jonathan W. Emery (4)............ 9,490 * 8,373 * 1,117 * 24,000
</TABLE>

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

* Less than 1%.
(1) Includes 34,435 shares of Class A common stock issuable pursuant to options
exercisable within 60 days of December 28, 1998.
(2) Includes 26,730 shares of Class A common stock issuable pursuant to options
exercisable within 60 days of December 28, 1998.
(3) Includes 22,950 shares of Class A common stock issuable pursuant to options
exercisable within 60 days of December 28, 1998.
(4) Includes 9,000 shares of Class A common stock issuable pursuant to options
exercisable within 60 days of December 28, 1998.

47
<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of Class A common
stock, 29,425,000 shares of Class B common stock, and 10,000,000 shares of
preferred stock. No shares of preferred stock are outstanding as of the date
hereof. Of the 100,000,000 shares of Class A common stock authorized, as of
December 28, 1998, 4,559,835 shares were outstanding, 1,570,423 shares were
issuable upon exercise of outstanding stock options (of which options to
purchase 129,983 shares were currently exercisable), 11,925,000 shares were
reserved for issuance upon conversion of Class B common stock into Class A
common stock and 810,392 shares were reserved for issuance pursuant to certain
employee benefits plans (exclusive of the 1,570,423 shares reserved for issuance
upon exercise of outstanding stock options). Of the 29,425,000 shares of Class B
common stock authorized, 11,925,000 shares, or 100% of the outstanding shares of
Class B common stock, are held by SAIC.

On December 31, 1998, our board of directors approved a 2-for-1 stock split of
the shares of Class A common stock and Class B common stock, to be effected in
the form of a stock dividend on shares of Class A common stock and Class B
common stock outstanding on February 26, 1999. The stock dividend will be
distributed on March 23, 1999. SAIC intends to convert its remaining shares of
Class B common stock to Class A common stock by May 31, 1999, assuming the
completion of this offering.

COMMON STOCK

Voting Rights

The holders of Class A common stock and Class B common stock generally have the
same rights except that holders of Class A common stock have one vote per share
while holders of Class B common stock have ten votes per share. The holders of
common stock are not entitled to cumulative voting rights. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A common stock and Class B common stock, voting as a
single class, subject to any voting rights granted to holders of any preferred
stock. In the event we voluntarily or involuntarily liquidate, dissolve or wind
up, the holders of shares of common stock would share ratably in all assets
remaining after payment of liabilities subject to prior distribution rights and
payment of any distributions owing to holders of shares of preferred stock then
outstanding, if any. Holders of the shares of common stock have no preemptive
rights, and the shares of common stock are not subject to further calls or
assessment. There are no redemption or sinking fund provisions applicable to the
shares of common stock.

Holders of Class A common stock and Class B common stock will share in an equal
amount per share in any dividend declared by our board of directors, subject to
any preferential rights of any outstanding preferred stock. Dividends consisting
of shares of Class A common stock and Class B common stock may be paid only as
follows: (i) shares of Class A common stock may be paid only to holders of Class
A common stock and shares of Class B common stock may be paid only to holders of
Class B common stock and (ii) shares shall be paid proportionally with respect
to each outstanding share of Class A common stock and Class B common stock.

Conversion Rights

Each outstanding share of Class B common stock is convertible at the holder's
option into one share of Class A common stock at any time prior to a tax-free
spin-off. Additionally, each share of Class B common stock will automatically
convert into one share of Class A common stock if at any time prior to a
tax-free spin-off SAIC owns less than 30% of the aggregate number of shares of
common stock then outstanding. If a tax-free spin-off occurs, shares of Class B
common stock will not be convertible into shares of Class A common stock at the
option of the holder thereof.

Except as provided below, any shares of Class B common stock transferred to a
person other than SAIC or any of its subsidiaries will automatically convert to
shares of Class A common stock upon such disposition.

48
<PAGE> 52

PREFERRED STOCK

There are currently no shares of preferred stock outstanding. Under our
certificate of incorporation, our board of directors has the authority, without
further action by the stockholders, to issue from time to time up to 10,000,000
shares of the preferred stock in one or more series and to fix the number of
shares, designations, preferences, powers, and relative, participating, optional
or other special rights and the qualifications or restrictions of the preferred
stock. The preferences, powers, rights, qualifications and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could decrease the
amount of earnings and assets available for distribution to holders of common
stock or affect adversely the rights and powers, including voting rights, of the
holders of common stock, and may have the effect of delaying, deferring or
preventing a change in control. We have no present plan to issue any shares of
preferred stock.

REGISTRATION RIGHTS

Pursuant to the registration rights agreement between us and SAIC, if we propose
to register any of our securities either for our own account or for the account
of our other security holders, SAIC is entitled to notice of the registration
and is entitled to include, at our expense, their shares in the registration,
subject to cutback by the underwriters. In addition, SAIC may require us on not
more than two occasions, to register its shares. The first such registration,
which is the registration being effected with this offering, will be at our
expense and the second such registration will be at SAIC's expense. We have
agreed to indemnify SAIC in connection with any such registration.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Certificate of Incorporation

Our certificate of incorporation provides that our bylaws may be repealed or
amended only by a two-thirds vote of our board of directors or a two-thirds vote
of our stockholders. In addition, those provisions of our certificate of
incorporation may only be amended or repealed by the holders of at least
two-thirds of the voting power of all the then-outstanding shares of stock
entitled to vote generally for the election of directors voting together as a
single class. The provisions described above, together with the ability of our
board of directors to issue preferred stock as described under "-- Preferred
Stock," may have the effect of deterring a hostile takeover or delaying a change
in control or change in management.

Delaware Takeover Statute

We have elected not to be governed by Section 203 of the Delaware General
Corporation Law. This section requires the vote of at least 66 2/3% of the
outstanding voting stock of a company not owned by an interested stockholder to
approve certain business combinations. Section 203 defines interested
stockholder as any entity or person owning 15% or more of the outstanding voting
stock of the company and any entity or person affiliated with, controlling or
controlled by such entity or person. As a result, if we decide to enter into any
such proposed business combination, we will only need the approval of a majority
of our outstanding voting stock.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

Our certificate of incorporation provides that any person purchasing or
acquiring an interest in shares of our capital stock is deemed to have consented
to the following provisions relating to intercompany agreements and to
transactions with interested parties and corporate opportunities. The corporate
charter of SAIC does not include comparable provisions relating to intercompany
agreements, transactions with interested parties or corporate opportunities.

49
<PAGE> 53

Transactions with Interested Parties

Our certificate of incorporation provides that no contract, agreement,
arrangement or transaction between us and SAIC or any related entity will be
void or voidable solely because SAIC, a related entity or any officers or
directors of SAIC, a related entity or Network Solutions are parties thereto or
because such directors or officers are present at or vote with respect to the
authorization of the contract, agreement, arrangement or transaction. Our
certificate of incorporation also provides that SAIC, a related entity and the
officers or directors of SAIC and the related entity will not be presumed liable
to us or our stockholders for:

- breach of any fiduciary duty or duty of loyalty,

- failure to act in the best interests of Network Solutions, or

- receipt of any improper personal benefit,

simply because SAIC or any director or officer of SAIC or a related entity, in
good faith, takes any action or gives or withholds any consent with respect to
any agreement or contract between SAIC or a related entity and Network
Solutions.

For purposes of the foregoing, "Network Solutions" and "SAIC" include all
corporations and other entities in which Network Solutions or SAIC, as the case
may be, owns fifty percent or more of the outstanding voting stock, and "Related
Entity" means one or more corporations or other entities in which one or more of
the directors of Network Solutions have a direct or indirect financial interest.

Competition by SAIC with Us; Corporate Opportunities

Our certificate of incorporation provides that SAIC has no duty to refrain from
engaging in the same or similar activities or lines of business as Network
Solutions and that neither SAIC nor any of its directors, officers or employees
will be liable to us or our stockholders for breach of any fiduciary duty due to
any of these activities. If SAIC learns of a potential matter which may be a
corporate opportunity for both SAIC and Network Solutions, SAIC has no duty to
communicate or offer this opportunity to us. In addition, SAIC will not be
liable to us or our stockholders for breach of any fiduciary duty if SAIC
pursues or acquires the corporate opportunity or does not communicate it to us.

If a director, officer or employee of Network Solutions who is also a director,
officer or employee of SAIC knows of a potential transaction or matter that may
be a corporate opportunity both for Network Solutions and SAIC, the director,
officer or employee is entitled to offer the corporate opportunity to us or SAIC
as the director, officer or employee deems appropriate under the circumstances
in his or her sole discretion, and no such director, officer or employee will be
presumed liable to us or our stockholders for breach of any fiduciary duty or
duty of loyalty or failure to act in our best interests or the derivation of any
improper personal benefit by reason of the fact that

- such director, officer or employee offered such corporate opportunity to
SAIC (rather than to us) or did not communicate information regarding
such corporate opportunity to us, or

- SAIC pursues or acquires such corporate opportunity for itself or directs
such corporate opportunity to another person or does not communicate the
corporate opportunity to us.

The enforceability of the provisions discussed above under Delaware corporate
law has not been established and, due to the absence of relevant judicial
authority, our counsel is not able to deliver an opinion as to the
enforceability of such provisions. These provisions of our certificate of
incorporation eliminate certain rights that might have been available to
stockholders under Delaware law, although the enforceability of such provisions
has not been established.

The foregoing provisions of our certificate of incorporation expire on the date
that SAIC ceases to own at least 20% of our outstanding shares of common stock
and no person who is a director or officer of Network Solutions is also a
director or officer of SAIC or its subsidiaries.

50
<PAGE> 54

Actions Under Intercompany Agreements

Our certificate of incorporation limits the liability of SAIC and its
subsidiaries for certain breaches of their fiduciary duties in connection with
action that may be taken or not taken in good faith under the intercompany
agreements.

Advance Notice Provision

Our bylaws provide for an advance notice procedure for the nomination, other
than by or at the direction of our board of directors, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at such meetings will have to be received
by us not less than 120 days prior to any meeting of the stockholders called for
the election of directors, and must contain certain information concerning the
person to be nominated or the matters to be brought before the meeting and
concerning the stockholder submitting the proposal.

51
<PAGE> 55

UNDERWRITING

J.P. Morgan Securities Inc. is acting as book running lead manager for this
offering. J.P. Morgan Securities Inc. and Hambrecht & Quist LLC are acting as
joint lead managers.

The underwriters named below, for whom J.P. Morgan Securities Inc., Hambrecht &
Quist LLC, PaineWebber Incorporated and BancBoston Robertson Stephens Inc. are
acting as representatives, have severally agreed, subject to the terms and
conditions set forth in the underwriting agreement among us, the selling
stockholders and the underwriters, to purchase from the selling stockholders,
and the selling stockholders have agreed to sell to the underwriters, the
respective number of shares of Class A common stock set forth opposite their
names below:

<TABLE>
<CAPTION>
---------
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
J.P. Morgan Securities Inc. ................................ 1,462,750
Hambrecht & Quist LLC....................................... 1,462,750
PaineWebber Incorporated.................................... 940,300
BancBoston Robertson Stephens Inc. ......................... 313,450
Dain Rauscher Wessels....................................... 57,250
Legg Mason Wood Walker, Incorporated........................ 57,250
Lehman Brothers Inc. ....................................... 57,250
Morgan Stanley & Co. Incorporated........................... 57,250
Prudential Securities Incorporated.......................... 57,250
Charles Schwab & Co., Inc. ................................. 57,250
Chatsworth Securities, LLC.................................. 57,250
---------
Total............................................. 4,580,000
=========
</TABLE>

The nature of the underwriters' obligations under the underwriting agreement is
such that all of the Class A common stock being offered, excluding shares
covered by the over-allotment option granted to the underwriters, must be
purchased if any are purchased.

The representatives of the underwriters have advised us and the selling
stockholders that the several underwriters propose to offer the Class A common
stock to the public initially at the public offering price set forth on the
cover page of this prospectus and may offer the Class A common stock to selected
dealers at such price less a concession not to exceed $4.80 per share. The
underwriters may allow, and such dealers may reallow, a concession to other
dealers not to exceed $0.10 per share. After the initial public offering of the
Class A common stock, the public offering price and other selling terms may be
changed by the representatives.

We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to 687,000 additional shares of Class A
common stock at the same price per share to be paid by the underwriters for the
other shares offered hereby. If the underwriters purchase any such additional
shares pursuant to the option, each of the underwriters will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The underwriters may exercise the option only to cover
over-allotments, if any, made in connection with the distribution of the Class A
common stock offered hereby.

The following table shows the per share and total underwriting discounts to be
paid to the underwriters by the selling stockholders and, if the underwriters'
over-allotment option to purchase up to an additional 687,000

52
<PAGE> 56

shares is fully exercised, by us. Such amounts are shown assuming both no
exercise and full exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
By the Selling Stockholders
Per share................................................ $ 8.00 $ 8.00
Total.................................................... $36,640,000 $36,640,000
By Network Solutions
Per share................................................ $ 8.00
Total.................................................... $ 5,496,000
</TABLE>

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect
thereof.

We estimate that the total expenses of this offering, excluding underwriting
discounts, will be $825,000. The selling stockholders will not be responsible
for any such expenses.

In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A common
stock. Specifically, the underwriters may overallot this offering, creating a
syndicate short position. In addition, the underwriters may bid for, and
purchase, shares of Class A common stock in the open market to cover syndicate
shorts or to stabilize the price of the Class A common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
shares of Class A common stock in this offering, if the syndicate repurchases
previously distributed Class A common stock in syndicate covering transactions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the shares of Class A common stock
above independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.

Network Solutions, the selling stockholders and certain of our officers and
directors have agreed, with limited exceptions, that, during the period
beginning from the date of this prospectus and continuing and including the date
180 days after the date of this prospectus, they will not, directly or
indirectly offer, sell, offer to sell, contract to sell or otherwise dispose of
any shares of common stock or any of our securities which are substantially
similar to the common stock, including but not limited to any securities that
are convertible into or exchangeable for, or that represent the right to
receive, common stock or any such substantially similar securities or enter into
any swap, option, future, forward or other agreement that transfers, in whole or
in part, the economic consequence of ownership of common stock or any securities
substantially similar to the common stock, other than pursuant to employee stock
option and restricted stock plans existing on the date of this prospectus,
without the prior written consent of J.P. Morgan Securities Inc.

The Class A common stock is traded on the Nasdaq National Market under the
symbol "NSOL."

From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial and/or investment banking transactions with SAIC, Network
Solutions and their affiliates. Hambrecht & Quist LLC, J.P. Morgan Securities
Inc. and PaineWebber Incorporated acted as representatives in connection with
our initial public offering which was consummated in October 1997.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Class A common stock
offered hereby are being passed upon for Network Solutions and the selling
stockholders by Pillsbury Madison & Sutro LLP, Palo Alto, California and
Washington, D.C. Cahill Gordon & Reindel, a partnership including a professional
corporation,

53
<PAGE> 57

New York, New York, is acting as counsel to the underwriters in connection with
certain legal matters relating to the shares of Class A common stock offered
hereby.

EXPERTS

The financial statements as of December 31, 1996 and 1997, and for the periods
from January 1, 1995 to March 10, 1995 and March 11, 1995 to December 31, 1995
and for the years ended December 31, 1996 and 1997, included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-3 to register the shares of Class A common stock being
offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information included in the
registration statement. For further information about us and the shares of Class
A common stock offered in this prospectus, you should refer to the registration
statement and its exhibits and our other SEC filings.

You may read and copy any document we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. We file our SEC materials electronically with the SEC, so you
can also review our filings by accessing the web site maintained by the SEC at
http://www.sec.gov. This web site contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.

The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus. The
most recent information that we file with the SEC automatically updates and
supersedes more dated information. We have previously filed the following
documents with the SEC and incorporate them by reference into this prospectus:

1. Our annual report on Form 10-K for the year ended December 31, 1997;

2. Our quarterly reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;

3. Our current reports on Form 8-K filed on October 9, 1998, November 16,
1998 and January 15, 1999; and

4. The description of the common stock contained in registration statement
on Form 8-A, filed by us with the SEC on August 8, 1997.

We also incorporate by reference all documents subsequently filed by us pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering.

We will provide without charge to each person to whom a prospectus is delivered,
including any beneficial owner, a copy of any or all of the information that has
been incorporated by reference in this prospectus. If you would like to obtain
this information from us, please direct your request, either in writing or by
telephone, to Jonathan W. Emery, Esq., Network Solutions, Inc. 505 Huntmar Park
Drive, Herndon, Virginia 20170, telephone (703) 742-0400.

54
<PAGE> 58

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
REFERENCE
<S> <C>
Report of Independent Accountants........................... F-2, F-3
Statements of Financial Position as of December 31, 1996 and
1997 and September 30, 1998 (Unaudited)................... F-4
Statements of Operations for the Periods from January 1,
1995 to March 10, 1995 and March 11, 1995 to December 31,
1995, and for the Years Ended December 31, 1996 and 1997
and for the Nine Months Ended September 30, 1997 and 1998
(Unaudited)............................................... F-5
Statements of Changes in Stockholders' Equity for the
Periods from January 1, 1995 to March 10, 1995 and March
11, 1995 to December 31, 1995, and for the Years Ended
December 31, 1996 and 1997 and for the Nine Months Ended
September 30, 1998 (Unaudited)............................ F-6
Statements of Cash Flows for the Periods from January 1,
1995 to March 10, 1995 and March 11, 1995 to December 31,
1995, and for the Years Ended December 31, 1996 and 1997
and for the Nine Months Ended September 30, 1997 and 1998
(Unaudited)............................................... F-8
Notes to Financial Statements............................... F-9
</TABLE>

F-1
<PAGE> 59

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows for Network Solutions, Inc.
("Predecessor") for the period from January 1, 1995 to March 10, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

As discussed in Note 1 to the financial statements, on March 10, 1995 Science
Applications International Corporation acquired the outstanding stock of the
Company. The financial statements for the periods subsequent to March 10, 1995
have been prepared on the basis of accounting arising from this acquisition. The
financial statements for the period from January 1, 1995 to March 10, 1995 are
presented on the Company's previous basis of accounting.

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP

Falls Church, VA
March 17, 1997

F-2
<PAGE> 60

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying statements of financial position and the
related statements of operations, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of
Network Solutions, Inc. (a majority-owned subsidiary of Science Applications
International Corporation) at December 31, 1997 and 1996, and the results of its
operations and cash flows for the year ended December 31, 1997 and 1996 and for
the period from March 11, 1995 to December 31, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP

Falls Church, VA
February 6, 1998

F-3
<PAGE> 61

NETWORK SOLUTIONS, INC.

STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
--------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1996 1997 1998
----------- ------------ -------------
(UNAUDITED)

<CAPTION>
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $15,540,000 $ 41,146,000 $ 9,124,000
Short-term investments, marketable securities... -- 40,200,000 107,876,000
Accounts receivable, net........................ 12,587,000 5,792,000 13,922,000
Prepaids and other assets....................... 936,000 1,005,000 1,512,000
Deferred tax asset.............................. 10,087,000 20,153,000 30,941,000
Restricted assets............................... 17,453,000 25,873,000 627,000
----------- ------------ ------------
Total current assets.................. 56,603,000 134,169,000 164,002,000
Furniture and equipment, net.................... 2,266,000 6,146,000 9,579,000
Long-term investments, marketable securities.... -- -- 6,272,000
Deferred tax asset.............................. 4,968,000 8,128,000 11,292,000
Goodwill, net................................... 2,281,000 1,177,000 770,000
----------- ------------ ------------
Total assets.......................... $66,118,000 $149,620,000 $191,915,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........ $ 2,581,000 $ 6,426,000 $ 15,565,000
Due to parent................................... 15,295,000 1,250,000 2,587,000
Income taxes payable............................ -- 5,042,000 3,090,000
Current portion of capital lease obligations.... -- 842,000 861,000
Deferred revenue, net........................... 19,912,000 43,789,000 77,766,000
Internet fund liability......................... 17,453,000 25,873,000 627,000
----------- ------------ ------------
Total current liabilities............. 55,241,000 83,222,000 100,496,000
Capital lease obligations....................... -- 1,081,000 436,000
Long-term deferred revenue, net................. 9,440,000 17,662,000 28,964,000
----------- ------------ ------------
Total liabilities..................... 64,681,000 101,965,000 129,896,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, authorized
10,000,000 shares; none issued and outstanding
in 1996, 1997 and 1998........................ -- -- --
Class A common stock, $.001 par value;
authorized 100,000,000 shares; none issued in
1996, 3,795,000 issued and outstanding in
1997.......................................... -- 4,000 4,000
Class B common stock, $.001 par value;
authorized 30,000,000 shares; 12,500,000 and
11,925,000 issued and outstanding in 1996 and
1997.......................................... 12,000 12,000 12,000
Additional paid-in capital...................... 4,468,000 56,451,000 63,147,000
Accumulated deficit............................. (3,043,000) (8,812,000) (1,295,000)
Accumulated other comprehensive income.......... -- -- 151,000
----------- ------------ ------------
Total stockholders' equity............ 1,437,000 47,655,000 62,019,000
----------- ------------ ------------
Total liabilities and stockholders'
equity.............................. $66,118,000 $149,620,000 $191,915,000
=========== ============ ============
</TABLE>

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

F-4
<PAGE> 62

NETWORK SOLUTIONS, INC.

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
COMPANY
-------------------------
PREDECESSOR COMPANY
--------------- --------------------------------------------- NINE MONTHS ENDED
JANUARY 1, 1995 MARCH 11, 1995 YEAR ENDED YEAR ENDED SEPTEMBER 30,
TO MARCH 10, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1995 1996 1997 1997 1998
--------------- --------------- ------------ ------------ ----------- -----------
(UNAUDITED)

<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net revenue.............. $ 1,177,000 $ 5,309,000 $18,862,000 $45,326,000 $30,896,000 $62,395,000
Cost of revenue.......... 884,000 4,820,000 14,666,000 25,798,000 18,468,000 26,451,000
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............. 293,000 489,000 4,196,000 19,528,000 12,428,000 35,944,000
Research and development
expenses............... -- -- 680,000 1,653,000 1,095,000 2,893,000
Selling, general and
administrative
expenses............... 280,000 2,114,000 6,280,000 12,268,000 7,893,000 24,438,000
Interest income.......... -- -- (496,000) (2,211,000) (1,054,000) (4,423,000)
Other expenses........... 9,000 52,000 -- 116,000 -- 93,000
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 4,000 (1,677,000) (2,268,000) 7,702,000 4,494,000 12,943,000
Provision (benefit) for
income taxes........... 48,000 (287,000) (643,000) 3,471,000 2,006,000 5,426,000
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing
operations............. (44,000) (1,390,000) (1,625,000) 4,231,000 2,488,000 7,517,000
Loss from discontinued
operations, net of
income taxes........... (1,375,000) (28,000) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........ $(1,419,000) $(1,418,000) $(1,625,000) $ 4,231,000 $ 2,488,000 $ 7,517,000
=========== =========== =========== =========== =========== ===========
BASIC EARNINGS PER SHARE:
Income (loss) from
continuing
operations............. $ (0.04) $ (0.11) $ (0.13) $ 0.32 $ 0.20 $ 0.47
Loss from discontinued
operations............. (1.32) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ (1.36) $ (0.11) $ (0.13) $ 0.32 $ 0.20 $ 0.47
=========== =========== =========== =========== =========== ===========
DILUTED EARNINGS PER
SHARE:
Income (loss) from
continuing
operations............. $ (0.04) $ (0.11) $ (0.13) $ 0.31 $ 0.20 $ 0.45
Loss from discontinued
operations............. (1.32) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ (1.36) $ (0.11) $ (0.13) $ 0.31 $ 0.20 $ 0.45
=========== =========== =========== =========== =========== ===========
</TABLE>

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

F-5
<PAGE> 63

NETWORK SOLUTIONS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
CLASS A COMMON STOCK CLASS B COMMON STOCK TREASURY STOCK
----------------------- ------------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1994............. 1,159,000 $ 12,000 110,000 $(628,000)
Purchase of treasury stock............. -- -- 7,000 (30,000)
Net loss for the period from January 1
to March 10, 1995.................... -- -- -- --
--------- ---------- ------- ---------
Balance, March 10, 1995................ 1,159,000 $ 12,000 117,000 $(658,000)
========= ========== ======= =========
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
COMPANY
Purchase of outstanding common stock by
SAIC on March 10, 1995............... -- -- 12,500,000 $ 12,000
Net loss for the period from March 11
to December 31, 1995................. -- -- -- --
--------- ---------- ---------- ----------
Balance, December 31, 1995............. -- -- 12,500,000 12,000
Net loss for the year ended December
31, 1996............................. -- -- -- --
--------- ---------- ---------- ----------
Balance, December 31, 1996............. -- -- 12,500,000 12,000
Declaration of Class B dividend........ -- -- -- --
Conversion of Class B common stock..... 575,000 -- (575,000) --
Issuance of Class A common stock....... 3,220,000 $ 4,000 -- --
Net income for the year ended
December 31, 1997.................... -- -- -- --
--------- ---------- ---------- ----------
Balance, December 31, 1997............. 3,795,000 4,000 11,925,000 12,000
Issuance of common stock pursuant to
stock plans.......................... 344,838 -- --
Tax benefit associated with stock
plans................................ -- -- -- --
Unrealized gain on securities.......... -- -- -- --
Net income for the nine months ended
September 30, 1998................... -- -- -- --
--------- ---------- ---------- ----------

Balance, September 30, 1998
(unaudited).......................... 4,139,838 $ 4,000 11,925,000 $ 12,000
========= ========== ========== ==========
</TABLE>

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

F-6
<PAGE> 64

NETWORK SOLUTIONS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)

<TABLE>
<CAPTION>
-----------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER RETAINED TOTAL
PAID-IN COMPREHENSIVE EARNINGS STOCKHOLDERS'
CAPITAL INCOME (DEFICIT) EQUITY
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1994........................... $ 1,241,000 $ (373,000) $ 252,000
Purchase of treasury stock........................... -- -- (30,000)
Net loss for the period from January 1 to
March 10, 1995..................................... -- (1,419,000) (1,419,000)
----------- ------------ ------------
Balance, March 10, 1995.............................. $ 1,241,000 $ (1,792,000) $ (1,197,000)
=========== ============ ============
- ------------------------------------------------------------------------------------------------------------------
COMPANY
Purchase of outstanding common stock by
SAIC on March 10, 1995............................. $ 4,468,000 -- $ 4,480,000
Net loss for the period from March 11 to
December 31, 1995.................................. $ (1,418,000) (1,418,000)
----------- ------------ ------------
Balance, December 31, 1995........................... 4,468,000 (1,418,000) 3,062,000
Net loss for the year ended December 31,
1996............................................... -- (1,625,000) (1,625,000)
----------- ------------ ------------
Balance, December 31, 1996........................... 4,468,000 (3,043,000) 1,437,000
Declaration of Class B dividend...................... -- (10,000,000) (10,000,000)
Conversion of Class B common stock................... -- -- --
Issuance of Class A common stock..................... 51,983,000 -- 51,987,000
Net income for the year ended
December 31, 1997.................................. -- 4,231,000 4,231,000
----------- ------------ ------------
Balance, December 31, 1997........................... 56,451,000 (8,812,000) 47,655,000
Issuance of common stock pursuant to stock
plans.............................................. 4,456,000 -- 4,456,000
Tax benefit associated with stock plans.............. 2,240,000 -- 2,240,000
Unrealized gain on securities........................ -- $ 151,000 -- 151,000
Net income for the nine months ended
September 30, 1998................................. -- -- 7,517,00 7,517,000
----------- ---------- ------------ ------------

Balance, September 30, 1998 (Unaudited).............. $63,147,000 $ 151,000 $ (1,295,000) $ 62,019,000
=========== ========== ============ ============
</TABLE>

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

F-7
<PAGE> 65

NETWORK SOLUTIONS, INC.

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
----------------- ------------------------------------------------------------
JANUARY 1, 1995 MARCH 11, 1995 YEAR ENDED YEAR ENDED
TO MARCH 10, 1995 TO DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -------------------- ----------------- -----------------

<CAPTION>
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ (1,419,000) $ (1,418,000) $ (1,625,000) $ 4,231,000
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Net loss from discontinued
operations...................... 1,376,000 28,000 -- --
Depreciation and amortization..... 68,000 765,000 1,417,000 2,432,000
Provision for uncollectible
accounts receivable............. -- 124,000 3,597,000 8,082,000
Deferred income taxes............. -- (2,221,000) (12,834,000) (13,226,000)
Tax benefit associated with stock
plans........................... -- -- -- --
Change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable...................... (161,000) (3,385,000) (12,144,000) (1,287,000)
(Increase) decrease in prepaids
and other assets................ (36,000) 45,000 (925,000) (69,000)
(Increase) decrease in deposits... (49,000) 1,053,000 -- --
Increase in accounts payable and
accrued liabilities............. 233,000 282,000 1,226,000 3,845,000
Increase (decrease) in other
liabilities..................... 8,000 (89,000) -- --
Increase in income taxes
payable......................... -- -- -- 5,042,000
Increase (decrease) in deferred
revenue......................... (30,000) 3,239,000 26,006,000 32,099,000
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... (10,000) (1,577,000) 4,718,000 41,149,000
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment... (134,000) (518,000) (1,901,000) (3,240,000)
Purchase of short-term investments,
net................................. -- -- -- (40,200,000)
Purchase of long-term investments..... -- -- -- --
Net investment in net assets of
discontinued
operations.......................... 331,000 563,000 (208,000) --
------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities.......... 197,000 45,000 (2,109,000) (43,440,000)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank borrowings.......... (293,000) (834,000) -- --
Dividend paid......................... -- -- -- (10,000,000)
Capital lease obligations............. -- -- -- (463,000)
Proceeds from issuance of common
stock............................... -- -- -- 52,405,000
Purchase of treasury stock............ (30,000) -- -- --
Net transactions with SAIC............ -- 2,371,000 12,926,000 (14,045,000)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... (323,000) 1,537,000 12,926,000 27,897,000
------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (136,000) 5,000 15,535,000 25,606,000
Cash and cash equivalents, beginning
of period........................... 136,000 -- 5,000 15,540,000
------------ ------------ ------------ ------------
Cash and cash equivalents, end of
period.............................. $ -- $ 5,000 $ 15,540,000 $ 41,146,000
============ ============ ============ ============

<CAPTION>
COMPANY
---------------------------
NINE MONTHS ENDED SEPTEMBER
30,
---------------------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 2,488,000 $ 7,517,000
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Net loss from discontinued
operations...................... -- --
Depreciation and amortization..... 1,635,000 2,613,000
Provision for uncollectible
accounts receivable............. 5,577,000 2,168,000
Deferred income taxes............. (9,649,000) (14,061,000)
Tax benefit associated with stock
plans........................... -- 2,240,000
Change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable...................... 348,000 (10,298,000)
(Increase) decrease in prepaids
and other assets................ (896,000) (507,000)
(Increase) decrease in deposits... -- --
Increase in accounts payable and
accrued liabilities............. 1,811,000 9,139,000
Increase (decrease) in other
liabilities..................... -- --
Increase in income taxes
payable......................... -- (1,952,000)
Increase (decrease) in deferred
revenue......................... 25,156,000 45,279,000
------------ ------------
Net cash provided by (used in)
operating activities.......... 26,470,000 42,138,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment... (1,254,000) (5,639,000)
Purchase of short-term investments,
net................................. (28,321,000) (67,676,000)
Purchase of long-term investments..... -- (6,012,000)
Net investment in net assets of
discontinued
operations.......................... -- --
------------ ------------
Net cash provided by (used in)
investing activities.......... (29,575,000) (79,327,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank borrowings.......... -- --
Dividend paid......................... -- --
Capital lease obligations............. -- (626,000)
Proceeds from issuance of common
stock............................... -- 4,456,000
Purchase of treasury stock............ -- --
Net transactions with SAIC............ 6,627,000 1,337,000
------------ ------------
Net cash provided by (used in)
financing activities.......... 6,627,000 5,167,000
------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 3,522,000 (32,022,000)
Cash and cash equivalents, beginning
of period........................... 15,540,000 41,146,000
------------ ------------
Cash and cash equivalents, end of
period.............................. $ 19,062,000 $ 9,124,000
============ ============
</TABLE>

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

F-8
<PAGE> 66

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Network Solutions, Inc. (the "Company") currently acts as the exclusive
registrar of Internet domain names within the .com, .org, .net, and .edu top
level domains ("TLDs") pursuant to a Cooperative Agreement with the National
Science Foundation ("NSF") (Note 3). Domain names are used to identify a unique
site or presence on the Internet. As registry and registrar to these top level
domains, the Company registers new domain names and is responsible for the
maintenance and dissemination of the master file of domain names through daily
updates to the Internet. The Company also provides enterprise network consulting
services, focusing on network engineering, network and systems security and
network management solutions for commercial customers.

The Company was acquired by Science Applications International Corporation
("SAIC") on March 10, 1995 (the "acquisition"). Prior to the acquisition of the
Company by SAIC, the Company's business included commercial and government
contracts awarded to the Company on a competitive basis, including government
contracts that were awarded to the Company partially upon the Company's then
minority-owned status. The contracts which had been awarded to the Company based
partially on the Company's then minority-owned status were transferred into a
separately-owned entity prior to the acquisition of the Company by SAIC.

In November 1995, SAIC adopted a plan to transfer the Company's remaining
government-based business to SAIC in order to enable the Company to focus on the
growth of its commercial business, which includes registration and consulting
services. This transfer was effective as of February 1996. The operating results
of both the minority-based government contract business and the remaining
government-based business, are reflected as discontinued operations in the
financial statements of the Company for all periods presented (Note 13). The
commercial operations, as defined, are reflected as continuing operations in the
financial statements of the Company for all periods presented.

The financial statements for periods subsequent to March 10, 1995 are presented
on the new basis of accounting arising from the acquisition (Note 9). The
financial statements for the period from January 1, 1995 to March 10, 1995 are
presented on the Company's previous basis of accounting. Subsequent to the
acquisition, the results of continuing and discontinued operations include
allocations by SAIC of: (i) costs for administrative functions and services
performed on behalf of the continuing and discontinued operations of the Company
by centralized staff groups within SAIC, (ii) SAIC's general corporate expenses,
(iii) pension and other retirement benefit costs, and (iv) cost of capital
(Notes 8, 9 and 12). Only costs directly attributable to the Company's
government-based business that were not incurred by the Company subsequent to
the transfer of this business to SAIC have been included in discontinued
operations.

NOTE 2 -- RECAPITALIZATION AND INITIAL PUBLIC OFFERING

On June 26, 1997, the board of directors amended the certificate of
incorporation to provide for two classes of common stock, designated as Class A
and Class B. The holders of Class A and Class B common stock generally have
identical rights except that holders of Class A common stock are entitled to one
vote per share while holders of Class B common stock are entitled to ten votes
per share. Each share of Class B common stock is convertible at the holder's
option into one share of Class A common stock.

On October 1, 1997, the Company completed an initial public offering (the "IPO")
of 3,795,000 shares of its $.001 par value Class A common stock, including
495,000 shares resulting from the exercise of certain overallotment provisions.
The Company's net proceeds from the IPO, including overallotment, were $52.4
million based on the Company's direct sale of 3,220,000 shares of Class A common
stock.

Prior to the offering, the Company was a wholly-owned subsidiary of SAIC. In
conjunction with the IPO, SAIC converted 575,000 shares (including 75,000
overallotment shares) of Class B common stock into 575,000 shares of Class A
common stock and directly sold the shares as a selling stockholder. Upon
completion of the offering,

F-9
<PAGE> 67
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SAIC owned 100% of the outstanding Class B common stock representing 75.9% of
the Company's equity and 96.9% of the combined voting power of the Company's
outstanding Class B and Class A common stock.

On August 21, 1997, the Company's board of directors declared a $10,000,000
dividend to be paid to SAIC upon consummation of the IPO. This dividend was paid
to SAIC on October 1, 1997.

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NSF Cooperative Agreement
In December 1992, the Company entered into the Cooperative Agreement with the
NSF under which the Company was to provide Internet domain name registration
services for five top level domains: .com, .org, .net, .edu and .gov. These
"registration services" include domain name registration and renewal, and
throughout the registration term, maintenance of and unlimited modifications to
individual domain name records and dissemination of records through updates to
the Internet. The Cooperative Agreement became effective January 1, 1993. It
includes a three-month phase-in period, a five-year operational period
(commencing April 1, 1993 and ending March 31, 1998), and a six-month
"flexibility period" through September 30, 1998. The Cooperative Agreement is
subject to review by the NSF and may be terminated by the NSF at any time at its
discretion or by mutual agreement. The NSF has stated that it will not be
re-awarding a cooperative agreement at the end of the flexibility period.

The original terms of the Cooperative Agreement provided for a cost
reimbursement plus fixed-fee contract (with a fee of 8%). Effective September
14, 1995, the NSF and the Company amended the Cooperative Agreement to require
the Company to begin charging end users a services fee of $50 per year for each
domain name in the .com, .org and .net top level domains. Registrants pay a
services fee of $100 for two years of domain name services upon each initial
registration and an annual renewal fee of $50 per year thereafter (collectively
"registration fees"). The NSF paid the registration fees to the Company for
domain names within the .edu and .gov top level domains through March 31, 1997.
Commencing April 1, 1997, the Company agreed with the NSF to provide domain name
services within the .edu and .gov top level domains free of charge. As of
October 1, 1997, the Company no longer registers or administers domain names in
the .gov top level domain.

Under the terms of the September 14, 1995 amendment to the Cooperative
Agreement, 30% of the registration fees collected by the Company is required to
be set aside for the enhancement of the intellectual infrastructure of the
Internet ("set aside funds") and, as such, is not recognized as revenue by the
Company. The Company has reflected these set aside funds, along with the
appropriate percentage of net accounts receivable (Note 4), as restricted assets
and has recorded an equivalent, related current liability. The Company maintains
the cash received relating to the set aside funds in a separate interest bearing
account. This restricted cash at December 31, 1996 and 1997 was approximately
$13,049,000 and $23,512,000, respectively. The set aside funds, plus any
interest earned, are intended to be disbursed at the direction of the NSF. In
November 1997, the Company disbursed $23 million out of this fund to the NSF at
its direction.

Future collection or disbursement of these set aside funds will have no
significant effect on the Company's business, net financial position, or results
of operations (Note 15). For purposes of the Company's statements of cash flows,
amounts relating to these restricted assets and the Internet fund liability have
been excluded in their entirety.

Revenue Recognition
Prior to September 14, 1995, net revenue was recognized under the Cooperative
Agreement on the basis of direct cost plus allowable indirect costs and the
earned portion of the fee. Since September 14, 1995, registration fees charged
to end users for registration services provided by the Company have been
recognized on a straight-line basis over the life of the registration term, two
years for initial registrations and one year for

F-10
<PAGE> 68
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

renewals. The Company records revenue net of an estimated provision for
uncollectible accounts receivable (Note 4).

Substantially all of the Company's enterprise network consulting services
revenue is derived from professional services which are generally provided to
clients on a "time and expense" basis and is recognized as services are
performed.

Net revenue from two customers approximated 45% and 21% for the period from
January 1, 1995 to March 10, 1995; 40% and 21% for the period from March 11,
1995 to December 31, 1995, and 20% and 0% for the year ended December 31, 1996.
One of these customers was the NSF, whose impact on the above percentages of
revenue was reflective of activity prior to the September 14, 1995 amendment of
the Cooperative Agreement. During the year ended December 31, 1997, there were
no customers which individually represented more than 5% of net revenues.

Deferred Revenue
Deferred revenue primarily represents the unearned portion of revenue related to
the unexpired term of registration fees, net of an estimate for uncollectible
accounts receivable (Note 4).

Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
ninety days or less to be cash equivalents.

Financial Instruments
The recorded value of the Company's financial instruments, which include
short-term investments, accounts receivable and accounts payable, approximates
market value. Concentration of credit risks with respect to registration
receivables is limited due to the wide variety and number of customers, as well
as their dispersion across geographic areas. The Company has no derivative
financial instruments.

Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation on furniture, office
and computer equipment is calculated principally using a declining-balance
method over the useful lives of three to seven years. Equipment under capital
leases is amortized using a declining-balance method over the shorter of the
assets' useful lives or lease term, ranging from two to three years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful lives of the assets, generally six years.

Goodwill
Goodwill represents the excess of the purchase cost over the fair value of net
assets acquired in the acquisition and is amortized over five years using the
straight-line method. Amortization expense of $580,000, $715,000 and $686,000
for the period from March 11, 1995 to December 31, 1995, and the years ended
December 31, 1996 and 1997, respectively, was included in selling, general and
administrative expenses.

Software Development Costs
Effective January 1, 1996, research and development costs are expensed as
incurred. Research and development costs incurred for all periods presented
prior to January 1, 1996 were reimbursed to the Company by direct charges to
contracts and are included in cost of revenue for those periods.

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed", the Company has not capitalized any significant software development
costs as of December 31, 1997.

F-11
<PAGE> 69
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes
Deferred taxes are accounted for under SFAS No. 109 "Accounting for Income
Taxes," whereby deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between financial
statement reporting and income tax purposes. A valuation allowance is recorded
if it is "more likely than not" that some portion of or all of a deferred tax
asset will not be realized.

For the period from the acquisition until the IPO, the Company filed tax returns
as part of SAIC's consolidated tax group. Tax expense during this period has
been determined as if the Company was a separate taxpayer and was charged to the
Company by SAIC. Effective October 1, 1997, the Company is no longer part of
SAIC's consolidated tax group for federal income tax purposes and will prepare
its income tax returns as a separate entity.

Stock Based Compensation
The Company accounts for its stock option and employee stock purchase plans in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees". No compensation cost has
been recognized by the Company for its employee stock plans. SFAS No. 123,
"Accounting for Stock-Based Compensation", provides an alternative accounting
method to APB No. 25 and requires additional pro forma disclosures (Note 12).
The Company expects to continue to account for its employee stock plans in
accordance with the provisions of APB No. 25.

Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make reasonable estimates and
assumptions, based upon all known facts and circumstances that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from those estimates.

Newly Issued Accounting Standards
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share", which replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS and necessitates the dual presentation of basic
and diluted EPS on the face of the statement of operations. In addition, during
February 1998, the Company adopted Securities and Exchange Staff Accounting
Bulletin ("SAB") No. 98, which, among other things, rescinded SAB No. 83 and
thus eliminates the impact of common share equivalents granted by the Company at
prices below the IPO offering price during the twelve months preceding the
initial IPO filing and through the filing's effective date. All prior period EPS
data have been restated as required by SFAS No. 128 and SAB No. 98. See Note 11
for the reconciliation of the numerator and denominator used in the basic and
diluted EPS computations.

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued. SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and
will have no impact on the Company's results of operations, financial position
or cash flows.

INTERIM FINANCIAL STATEMENTS

The interim financial statements for the nine months ended September 30, 1997
and 1998 have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, these interim financial statements included in this report reflect
all normal recurring adjustments which the Company considers necessary for fair
presentation of the results of

F-12
<PAGE> 70
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

operations for the interim periods covered and of the financial position of the
Company at the date of the interim balance sheet. Certain information and
footnote disclosures for the interim periods normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate for
understanding the information presented. The operating results for interim
periods are not necessarily indicative of the operating results for the entire
year. Prior periods have been restated for comparative purposes.

NOTE 4 -- ACCOUNTS RECEIVABLE

Accounts receivable consist of the following amounts as of December 31:

<TABLE>
<CAPTION>
-------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Billed...................................................... $ 27,430,000 $ 24,483,000
Unbilled.................................................... 5,000,000 1,526,000
------------ ------------
Total accounts receivable before allowances............ 32,430,000 26,009,000
Less -- Allowance for doubtful accounts..................... (15,439,000) (17,856,000)
-- Accounts receivable allocable to 30% NSF set aside
(Note 3)............................................... (4,404,000) (2,361,000)
------------ ------------
Accounts receivable, net.................................... $ 12,587,000 $ 5,792,000
============ ============
</TABLE>

Unbilled receivables consist of registration fees and time and material contract
costs which have been incurred but which have not yet been billed. Under the
Cooperative Agreement, 30% of collected registration fees will be set aside for
disbursement at the direction of the NSF.

In accounting for registration fees, the Company initially records the gross
amount of the registration fee to accounts receivable and deferred revenue. The
allowance for estimated uncollectible accounts is recorded against both accounts
receivable and deferred revenue balances (see Note 3 for treatment of the 30%
NSF set aside). From the net deferred revenue balance, the Company records
revenue on a straight-line basis over the registration term.

The provision for uncollectible accounts receivable, which is recorded on a
straight-line basis over the registration term and deducted from gross
registration fees in determining net registration revenue, was $124,000 for the
period from March 11, 1995 to December 31, 1995 and $3,597,000 and $7,782,000,
respectively, for the years ended December 31, 1996 and 1997. An additional
$300,000 of bad debt expense was recorded in 1997 for the write-off of
consulting services receivables. The Company's allowance for uncollectible
accounts receivable is associated solely with its registration services
business. The Company believes it has been necessary to establish its provision
for uncollectible accounts receivable due to the large number of individuals and
corporations that have registered multiple domain names with the intention of
reselling such names at a profit. The Company's experience has been that, in
contrast to other registrants, such resellers have a higher tendency of default
on their registration fees.

F-13
<PAGE> 71
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following amounts as of December 31:

<TABLE>
<CAPTION>
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Furniture and office equipment.............................. $ 879,000 $ 476,000
Computer equipment.......................................... 4,033,000 8,619,000
Leasehold improvements...................................... 234,000 288,000
----------- -----------
Furniture and equipment, at cost....................... 5,146,000 9,383,000
Less: Accumulated depreciation and amortization............. (2,880,000) (3,237,000)
----------- -----------
Furniture and equipment, net................................ $ 2,266,000 $ 6,146,000
=========== ===========
</TABLE>

The above table includes $2,386,000 of computer equipment acquired during 1997
under capital lease agreements. Amortization expense related to capital leases
totaled $915,000 in 1997. Total depreciation and amortization expense for the
periods from January 1, 1995 to March 10, 1995 and March 11, 1995 to December
31, 1995 and the years ended December 31, 1996 and 1997 was $68,000, $185,000,
$702,000 and $1,746,000, respectively.

NOTE 6 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following amounts as of
December 31:

<TABLE>
<CAPTION>
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Accounts payable............................................ $ 1,054,000 $ 1,896,000
Accrued expenses............................................ 1,412,000 2,384,000
Accrued payroll............................................. 115,000 2,146,000
----------- -----------
Total accounts payable and accrued expenses................. $ 2,581,000 $ 6,426,000
=========== ===========
</TABLE>

NOTE 7 -- LEASES

Future minimum lease payments, including fixed escalation increases, for office
space and equipment under capital and operating leases with initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1997 are:

<TABLE>
<CAPTION>
-----------------------------
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
------------------------ ----------- -----------
<S> <C> <C>
1998........................................................ $ 957,000 $ 3,437,000
1999........................................................ 885,000 3,438,000
2000........................................................ 252,000 2,806,000
2001........................................................ -- 1,818,000
2002........................................................ -- 1,427,000
----------- -----------
Total minimum lease payments................................ 2,094,000 $12,926,000
===========
Less: Amounts representing interest......................... (171,000)
-----------
Present value of minimum lease payments..................... 1,923,000
Less: Current portion....................................... (842,000)
-----------
Long-term portion of capital lease obligations.............. $ 1,081,000
===========
</TABLE>

F-14
<PAGE> 72
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In December 1992, the Company entered into a lease agreement for the Company's
headquarters in Herndon, Virginia. Subsequent to the acquisition, SAIC
re-negotiated the lease with the landlord whereby SAIC posted a $1,000,000
letter of credit and then subleased the facilities to the Company under a lease
expiring November 2002. During 1997, the Company leased a second facility in
Herndon whose lease term expires in July 2002.

Lease expense related to the continuing operations for the periods from January
1, 1995 to March 10, 1995 and March 11, 1995 to December 31, 1995, and for the
years ended December 31, 1996 and 1997 was $36,000, $342,000, $924,000 and
$2,188,000, respectively. Lease expense incurred by the discontinued operations
for the periods from January 1, 1995 to March 10, 1995 and March 11, 1995 to
December 31, 1995 was $208,000 and $328,000, respectively. Subsequent to March
10, 1995, the Company generated rental income from subleases in 1995 of
$135,000, and $187,000 and $291,000 for the years ended December 31, 1996 and
1997, respectively.

NOTE 8 -- INTEREST EXPENSE AND INCOME

Interest expense reflected in continuing operations and discontinued operations
for the period January 1, 1995 to March 10, 1995 was $9,000 and $51,000,
respectively. Interest charges prior to the acquisition have been reflected in
continuing and discontinued operations based on the debt balances associated
with each of the continuing and discontinued operations. In addition, interest
expense of $52,000 and $164,000 for the period from March 11, 1995 to December
31, 1995 was allocated by SAIC to the Company's continuing operations and
discontinued operations, respectively, based upon SAIC's cost of capital
calculation. For the year ended December 31, 1996, interest income of $496,000
was allocated by SAIC based upon the cost of capital calculation. From its
acquisition by SAIC in March 1995 until December 1996, the Company participated
in SAIC's centralized cash management system whereby cash received from
operations was transferred to SAIC's centralized cash accounts and cash
disbursements were funded from such centralized cash accounts. Accordingly, the
SAIC cost of capital formula provided for charges and credits to the Company
based upon management of certain assets, including accounts receivable and fixed
assets. Such amounts are not necessarily indicative of the cost that would have
been incurred if the Company had been operated as a separate entity.

Effective January 1, 1997, the Company was no longer subject to SAIC's cost of
capital calculation in connection with the Company fulfilling its own treasury
function. Interest paid for the periods from January 1, 1995 to March 10, 1995
and March 11, 1995 to December 31, 1995 and for the years ended December 31,
1996 and 1997 was $0, $103,000, $0 and $116,000, respectively.

NOTE 9 -- TRANSACTIONS WITH SAIC

Under the terms of the acquisition agreement, the Company was acquired by SAIC
on March 10, 1995 in a stock-for-stock transaction accounted for as a purchase.
The fair market value of the SAIC stock exchanged for the outstanding stock of
the Company was approximately $3.9 million. The acquisition agreement provided
for certain purchase adjustments and related additional stock issuance payments
of approximately $600,000. After

F-15
<PAGE> 73
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

reflecting certain purchase accounting adjustments, the net assets included on
the opening balance sheet were as follows:

<TABLE>

----------
<S> <C>
Current assets.............................................. $ 929,000
Furniture and equipment..................................... 734,000
Goodwill.................................................... 3,576,000
Other non-current assets.................................... 1,047,000
----------
6,286,000
Current liabilities......................................... 1,625,000
Net liabilities of discontinued operations.................. 181,000
----------
Net assets acquired at March 11, 1995....................... $4,480,000
==========
</TABLE>

The financial statements as of and for the period from March 11, 1995 to
December 31, 1995 and for the years ended December 31, 1996 and 1997 include
significant transactions with other SAIC business units involving functions and
services (such as cash management, tax administration, accounting, legal, data
processing and employee benefit plans) that were provided to the Company by
centralized SAIC organizations. The costs of these functions and services have
been directly charged and/or allocated to the Company using methods that SAIC
management believes are reasonable; primarily a percentage of budgeted
administrative and overhead costs. Such charges and allocations are not
necessarily indicative of the costs that would have been incurred if the Company
had been a separate entity. Through August 9, 1996, the amounts allocated by
SAIC to the Company included both administrative and overhead costs which are
included in selling, general and administrative expenses and cost of revenue,
respectively. Effective August 10, 1996, SAIC stopped allocating costs based
generally upon pro rata labor and began assessing the Company for corporate
services provided by SAIC at a fee equal to 2.5% of annual net revenue. The
agreement may be terminated by either party upon 180 days prior written notice.

Amounts charged and allocated to the Company for these functions and services
for the period from March 11, 1995 to December 31, 1995 and the years ended
December 31, 1996 and 1997 were $516,000, $1,196,000 and $1,126,000,
respectively, and are principally included in selling, general and
administrative expenses. Additionally, certain interest charges/credits were
allocated by SAIC to the Company (Note 8).

Sales as a subcontractor to SAIC for the period from March 11, 1995 to December
31, 1995 and the years ended December 31, 1996 and 1997 were $509,000,
$1,505,000 and $2,445,000, respectively. In addition, because the Company was
included in SAIC's consolidated tax returns for periods from acquisition until
the IPO, the Company was obligated to make payment for its tax liability to SAIC
in accordance with the tax sharing arrangement (Note 10). The due to parent
balance represents the cumulative net activity of all transactions between the
Company and SAIC. The Company reflects this activity in the statement of cash
flows on a net basis because of the quick turnover, the large amounts and the
short maturities of these related party cash transactions.

NOTE 10 -- PROVISION FOR INCOME TAXES

The results of the Company since its acquisition by SAIC until its IPO are to be
included in SAIC's consolidated tax returns. The tax expense allocation is set
forth in Note 3. Subsequent to the IPO, the Company is no longer part of SAIC's
consolidated tax group for federal income tax purposes and will prepare its
income tax returns as a separate entity.

F-16
<PAGE> 74
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The provision for (benefit) from income taxes charged to continuing operations
consists of the following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------
FOR THE PERIOD 1995
------------------------------ YEAR ENDED YEAR ENDED
JANUARY 1 TO MARCH 11 TO DECEMBER 31, DECEMBER 31,
MARCH 10 DECEMBER 31 1996 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal.......................... $40,000 $1,521,000 $ 10,171,000 $ 13,931,000
State............................ 8,000 311,000 2,020,000 2,766,000
------- ----------- ------------ ------------
Total current
provision.............. 48,000 1,832,000 12,191,000 16,697,000
------- ----------- ------------ ------------
Deferred:
Federal.......................... -- (1,759,000) (10,716,000) (11,035,000)
State............................ -- (360,000) (2,118,000) (2,191,000)
------- ----------- ------------ ------------
Total deferred
(benefit).............. -- (2,119,000) (12,834,000) (13,226,000)
------- ----------- ------------ ------------
Provision for (benefit) from income
taxes............................ $48,000 $ (287,000) $ (643,000) $ 3,471,000
======= =========== ============ ============
</TABLE>

Deferred tax assets are comprised of the following temporary differences as of
December 31:

<TABLE>
<CAPTION>
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred Revenue....................................... $13,846,000 $26,295,000
Provision for uncollectible accounts receivable........ 1,091,000 1,841,000
Other.................................................. 118,000 145,000
----------- -----------
Total deferred tax asset............................... $15,055,000 $28,281,000
=========== ===========
</TABLE>

Tax valuation allowances were provided through March 10, 1995 against the net
deferred tax assets of both continuing operations and discontinued operations.
In connection with the acquisition purchase accounting, a determination was made
that tax valuation allowances were no longer required.

Although the Company had a past history of net losses, it has not established a
current valuation allowance for its deferred tax assets since, in the opinion of
management, it is more likely than not that all of the deferred tax assets will
be realized. The deferred tax assets relate primarily to registration fees which
are taxable upon initial registration but are recognized in the financial
statements over the next 12 to 24 months, the registration term.

A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes is
provided below. The statutory federal income tax rate used was 34% for the
periods during 1995 and 35% for the years ended December 31, 1996 and 1997.

<TABLE>
<CAPTION>
-----------------------------------------------------------------
FOR THE PERIOD 1995
----------------------------- YEAR ENDED YEAR ENDED
JANUARY 1 TO MARCH 11 TO DECEMBER 31, DECEMBER 31,
MARCH 10 DECEMBER 31 1996 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate............ $ 1,000 $(570,000) $(794,000) $2,696,000
State income taxes, net of Federal tax
benefit................................ -- (68,000) (96,000) 374,000
Nondeductible goodwill amortization...... -- 348,000 281,000 240,000
Other.................................... 1,000 3,000 (34,000) 161,000
Valuation allowance...................... 46,000 -- -- --
------- --------- --------- ----------
Provision for (benefit) from income
taxes.................................. $48,000 $(287,000) $(643,000) $3,471,000
======= ========= ========= ==========
</TABLE>

The Company paid income taxes of $119,000 for the period from January 1, to
March 10, 1995.

F-17
<PAGE> 75
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- COMPUTATION OF EARNINGS (LOSS) PER SHARE

The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS computations for continuing operations:

<TABLE>
<CAPTION>
-----------------------------------------------
INCOME PER
(LOSS) SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
January 1, 1995 to March 10, 1995 Loss Per Share:
Basic............................................... $ (44,000) 1,046,000 $(0.04)
======
Dilutive securities:
Outstanding options............................... -- --
----------- ----------
Diluted............................................. $ (44,000) 1,046,000 $(0.04)
=========== ========== ======

March 11, 1995 to December 31, 1995 Loss Per Share:
Basic............................................... $(1,390,000) 12,500,000 $(0.11)
======
Dilutive securities:
Outstanding options............................... -- --
----------- ----------
Diluted............................................. $(1,390,000) 12,500,000 $(0.11)
=========== ========== ======

1996 Loss Per Share:
Basic............................................... $(1,625,000) 12,500,000 $(0.13)
======
Dilutive securities:
Outstanding options............................... -- --
----------- ----------
Diluted............................................. $(1,625,000) 12,500,000 $(0.13)
=========== ========== ======

1997 Earnings Per Share:
Basic............................................... $ 4,231,000 13,305,000 $ 0.32
======
Dilutive securities:
Outstanding options............................... -- 178,000
----------- ----------
Diluted............................................. $ 4,231,000 13,483,000 $ .031
=========== ========== ======

Nine Months Ended September 30, 1998 (Unaudited):
Basic............................................... $ 7,517,000 15,888,000 $ 0.47
======
Dilutive securities:
Outstanding options............................... -- 656,000
----------- ----------
Diluted............................................. $ 7,517,000 16,544,000 $ 0.45
=========== ========== ======

Nine Months Ended September 30, 1997 (Unaudited):
Basic............................................... $ 2,488,000 12,501,000 $ 0.20
======
Dilutive securities:
Outstanding options............................... -- 99,000
----------- ----------
Diluted............................................. $ 2,488,000 12,600,000 $ 0.20
=========== ========== ======
</TABLE>

F-18
<PAGE> 76
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Common shares issued are weighted for the period the shares were outstanding and
incremental shares assumed issued under the treasury stock method for dilutive
EPS are weighted for the period the underlying options were outstanding. Options
outstanding in 1995 and 1996 are not reflected in the computation of diluted EPS
because the effects are antidilutive and would increase diluted EPS.

NOTE 12 -- EMPLOYEE BENEFIT PLANS

1996 Stock Incentive Plan
The 1996 Stock Incentive Plan (the "Incentive Plan") of the Company was adopted
by the board of directors on September 18, 1996. The Incentive Plan provides for
awards in the form of restricted shares, stock units, stock appreciation rights,
and stock options (including incentive stock options ("ISOs") and nonstatutory
stock options ("NSOs")). A total of 2,306,250 shares of Class A common stock
have been initially reserved for issuance under the Incentive Plan. The number
of shares are increased by 2% of the total number of common shares of the
Company outstanding at the end of the most recent calendar year, subject to a
cumulative limit of 1,000,000 shares. Through December 31, 1997, an additional
564,400 shares were eligible for issuance and have subsequently been reserved
for a combined total of 2,870,650 eligible shares under the Incentive Plan.

Following is a summary of activity pursuant to the Company's Incentive Plan:

<TABLE>
<CAPTION>
--------------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1995................................ -- --
Granted..................................................... 1,225,725 $12.97
Exercised................................................... -- --
Cancelled................................................... -- --
---------
Balance at December 31, 1996................................ 1,225,725 $12.97
Granted..................................................... 600,500 $14.21
Exercised................................................... -- --
Cancelled................................................... (36,500) $14.00
---------
Balance at December 31, 1997................................ 1,789,725 $13.36
=========
</TABLE>

Granted stock options generally become exercisable one year after the date of
the grant, vest 30%, 30%, 20% and 20% on each anniversary date of the grant and
have a term of five years. The number of options exercisable at December 31,
1997 are 360,821 with an exercise price range of $11.25 to $14.00 and a weighted
average exercise price of $12.95. The weighted average contractual life of all
options outstanding at December 31, 1997 is 4.10 years. All options granted to
date have been NSOs except for 100,900 ISOs granted in 1996. No restricted
shares, stock units or SARs have been granted to date.

Employee Stock Purchase Plan
Effective January 7, 1998, the Company adopted an Employee Stock Purchase Plan
to provide substantially all full time employees an opportunity to purchase
shares of its Class A common stock through payroll deductions of up to 10% of
eligible compensation. Semiannually, on June 30 and December 31, participant
account balances are used to purchase stock at the lesser of 85 percent of the
fair market value on the trading day before the participation period starts or
the trading day preceding the day on which the participation period ends. A
total of 250,000 shares are available for purchase under the plan.

SAIC Benefit Plans
Employees of the Company participate in various SAIC benefit plans, including
stock, bonus and retirement plans, subject to the applicable eligibility
requirements. SAIC charges the Company directly for the costs of

F-19
<PAGE> 77
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

such employee benefit plans. Charges related to the administration of the SAIC
benefit plans in which employees of the Company participate are included within
SAIC general corporate allocations (Notes 1 and 9).

SAIC has one principal Cash or Deferred Arrangement ("CODA") which allows
eligible participants to defer a portion of their income through payroll
contributions. Such deferrals are fully vested, are not taxable to the
participant until distributed from the CODA upon termination, retirement,
permanent disability or death and may be matched by SAIC. SAIC also has an SAIC
Employee Stock Purchase Plan which allows eligible employees to purchase shares
of SAIC's Class A common stock, with SAIC currently contributing 10% of the
existing fair market value.

SAIC has a Bonus Compensation Plan which provides for bonuses to reward
outstanding performance. Bonuses are paid in the form of cash, fully vested
shares of SAIC Class A common stock or vesting shares of SAIC Class A common
stock. The Company participated in this plan during the period from acquisition
until December 31, 1996.

During the period from March 11, 1995 to December 31, 1995 and during the years
ended December 31, 1996 and 1997, a total of 24,450, 53,040 and 11,450 SAIC
options were granted to the Company's employees, respectively, with exercise
prices ranging from $15.72 to $17.79, $19.33 to $22.83 and $25.96 to $34.78 per
share, respectively, with a weighted average price of $16.17, $20.51 and $28.13,
respectively. These options were granted under the SAIC 1995 Stock Option Plan
to purchase SAIC Class A common stock and vest 20%, 20%, 20% and 40% on each
anniversary date of grant and have a term of five years.

Pro Forma Disclosures
The weighted average fair value of the options granted during the period from
March 11, 1995 to December 31, 1995 and during the years ended December 31, 1996
and 1997 under the SAIC Bonus Compensation Plan were estimated at $3.66, $4.30
and $7.56, respectively, and $2.76 and $4.68, respectively, for the options
granted during the years ended December 31, 1996 and 1997 under the Company's
Incentive Plan using the Black-Scholes model. The following weighted average
assumptions were used in calculating the option fair values:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
SAIC STOCK OPTIONS COMPANY STOCK OPTIONS
------------------------------------------ ---------------------------
MARCH 11,
1995 TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------

<CAPTION>
<S> <C> <C> <C> <C> <C>
Expected life (years)....... 4.0 4.0 5.0 4.0 4.0
Risk-free interest rate..... 6.45% 5.91% 6.30% 5.98% 6.25%
Volatility.................. 0.00% 0.00% 0.00% 0.00% 20.79%
Dividend yield.............. 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>

Under the above models, the total value of SAIC stock options granted during
1995, 1996 and 1997 was approximately $89,000, $228,000 and $87,000,
respectively, and $3,379,000 and $2,809,000, respectively, for the Company's
stock options granted in 1996 and 1997, all of which would be amortized ratably
on a pro forma basis over their respective option terms. Had the Company
recorded compensation costs for these plans in accordance with SFAS No. 123, the
Company's pro forma income (loss) would have been ($1,430,000) for the period
March 11, 1995 to December 31, 1995 and ($1,763,000) and $3,510,000,
respectively for the years ended December 31, 1996 and 1997. Pro forma basic
earnings (loss) per share would have been ($0.14) and $0.26, respectively, for
the years ended December 31, 1996 and 1997.

F-20
<PAGE> 78
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- DISCONTINUED OPERATIONS

As discussed in Note 1, in November 1995 SAIC adopted a plan to transfer the
Company's government-based business to SAIC in order for the Company to focus on
the growth of the commercial business. Such transfer was substantially completed
as of February 1996. Prior to SAIC's acquisition of the Company, the portion of
the Company's business relating to the minority-based government business had
been transferred into a separately-owned entity. The activities of both the
minority-based government business and the government-based business are
reflected as discontinued operations in the financial statements of the Company
for all periods presented. Net income (loss) from discontinued operations
exclude general corporate overhead of the Company. No gain or loss was incurred
as a consequence of the transfer of these businesses.

Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
-----------------------------
<S> <C> <C>
FOR THE PERIOD 1995
-----------------------------
JANUARY 1 MARCH 11 TO
TO MARCH 10 DECEMBER 31
----------- -----------

<CAPTION>
<S> <C> <C>
Revenues................................................. $ 4,270,000 $ 7,882,000
Costs and expenses....................................... (5,478,000) (7,773,000)
----------- -----------
(Loss) income from discontinued operations before income
taxes.................................................. (1,208,000) 109,000
Provision for income taxes............................... 167,000 137,000
----------- -----------
Loss from discontinued operations, net of income taxes... $(1,375,000) $ (28,000)
=========== ===========
</TABLE>

NOTE 14 -- COMMITMENTS AND CONTINGENCIES

As of December 31, 1997, the Company was a defendant in 5 lawsuits involving
domain name disputes between trademark owners and domain name holders. The
Company is drawn into such disputes, in part, as a result of claims by trademark
owners that the Company is legally required, upon request by a trademark owner,
to terminate the right the Company granted to an alleged trademark infringer to
register the domain name in question. Further, trademark owners have also
alleged that the Company should be required to monitor future domain name
registrations and reject registrations of domain names which are identical or
similar to their federally registered trademark. The holders of the domain name
registrations in dispute have, in turn, questioned the Company's right, absent a
court order, to take any action which suspends their registration or use of the
domain names in question. Although 41 of these objections have resulted in
litigation involving the Company, as of December 31, 1997, no damages have been
awarded against the Company to any plaintiff in the 36 cases that have been
resolved. The Company believes that it has meritorious defenses and intends to
vigorously defend itself against these claims.

On October 17, 1997, a group of six plaintiffs filed a lawsuit (the "Thomas
suit") against the Company and the NSF in the United States District Court,
District of Columbia, challenging the legality of fees defendants charge for the
registration and renewal of domain names on the Internet and seeking restitution
of fees collected from domain name registrants in an amount in excess of $100
million, damages, and injunctive and other relief. Plaintiffs originally alleged
violations of the Competition in Contracting Act ("CICA"), the Sherman Act and
the U.S. Constitution. Following the filing of motions to dismiss by the
defendants, the plaintiffs filed an amended complaint on January 30, 1998,
dropping the cause of action based upon CICA, but adding alleged violations of
the Administrative Procedures Act and the Independent Offices Appropriations
Act. The plaintiffs also filed a motion for preliminary injunctive relief
against the NSF concerning the "Intellectual Infrastructure Fund." On February
2, 1998, the United States District Court, District of Columbia, issued an order
granting the plaintiffs' motion for a preliminary injunction, enjoining the NSF
from spending any of the money collected by the Company for the Intellectual
Infrastructure Fund. The Company believes that it has meritorious defenses and

F-21
<PAGE> 79
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

intends to vigorously defend itself against the claims in the Thomas suit. While
the Company cannot reasonably estimate the potential impact of such claims, a
successful claim under the plaintiffs' theories could have a material adverse
effect on the Company's business, financial condition and results of operations.
See Note 15.

On June 27, 1997, SAIC received a Civil Investigative Demand ("CID") from the
U.S. Department of Justice ("DOJ") issued in connection with an investigation to
determine whether there is, has been, or may be an antitrust violation under the
Sherman Act relating to Internet registration products and services. The CID
seeks documents and information from SAIC and the Company relating to their
Internet registration business. The Company cannot reasonably estimate the
potential impact of the investigation nor can it predict whether a civil action
will ultimately be filed by the DOJ. The Company is unable to predict the form
of relief that might be sought in such an action or that might be awarded by a
court or imposed as a result of any settlement. Any such relief could have a
material adverse effect on the Company's business, financial condition and
results of operations.

On March 20, 1997, PG Media, Inc., a New York-based corporation ("PG Media"),
filed a lawsuit against the Company in the United States District Court,
Southern District of New York alleging that the Company had restricted access to
the Internet by not adding PG Media's requested top level domains in violation
of the Sherman Act. In its complaint, PG Media has, in addition to requesting
damages, asked that the Company be ordered to include reference to PG Media's
top level domains and name servers in the root zone file administered by the
Company under the Cooperative Agreement. The Company has answered the complaint.
In addition, in June 1997, the Company received written direction from the NSF
not to take any action to create additional top level domains or to add any new
top level domains to the Internet root zone until the NSF provides further
guidance. On September 17, 1997, PG Media filed a Second Amended Complaint
adding the NSF as a defendant. No motions are pending as of December 31, 1997.
The Company believes that it has meritorious defenses and intends to vigorously
defend itself against the claims of PG Media. Although the Company cannot
reasonably estimate the potential impact of such claims, a successful claim
under the plaintiff's theory could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company is involved in various other investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, in the opinion of
the Company's management, will have a material adverse effect on its financial
position, results of operations, cash flows or its ability to conduct business.

NOTE 15 -- SUBSEQUENT EVENTS (UNAUDITED)

NSF Cooperative Agreement
Pursuant to an amendment to the Cooperative Agreement, on March 12, 1998, the
NSF directed the Company to begin charging end users $70 upon each initial
registration for domain names registered April 1, 1998 or later and $35 for each
renewal with an anniversary date of April 1, 1998 or later. In conjunction with
this amendment to the Cooperative Agreement, the Company will no longer set
aside 30% of the collected registration fees for the enhancement of the
intellectual infrastructure of the Internet. This amendment does not alter the
Company's existing revenue per net registration since the 30% set aside funds
were previously not recognized as revenue. The set aside funds plus any interest
earned, are intended to be disbursed at the direction of the NSF. In September
1998, the Company disbursed $39.2 million of this fund to the NSF at its
direction. In December 1998, the Company disbursed the remaining monies due to
the NSF of approximately $138,000, bringing the cumulative disbursements since
September 14, 1995 to approximately $62.3 million.

Effective in September 1998, the responsibility for the Cooperative Agreement
was transferred to the NTIA. In October 1998, the Cooperative Agreement was
amended (the "October 1998 Amendment") to extend the flexibility period through
September 30, 2000. As the U.S. Government transitions certain responsibilities
for the DNS to the not-for-profit corporation, corresponding obligations under
the Cooperative Agreement may be

F-22
<PAGE> 80
NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

terminated and, as appropriate, covered in a contract between the not-for-profit
corporation and the Company. In the October 1998 Amendment, the Company agreed
with the NTIA to plan for the transition to a shared registration system, in
which multiple registrars may register domain names with the single registry for
each top level domain administered by the Company, in a phased approach, the
first phase of which is scheduled to be completed by March 31, 1999. The
Cooperative Agreement by its terms expires in September 2000, although it may be
terminated earlier.

Litigation
In August 1998, the court dismissed all of the plaintiffs' claims against the
Company in the Thomas suit. In October 1998, the plaintiffs appealed the court's
dismissal of their claims, with the oral argument scheduled for February 25,
1999.

Stock Split
On December 31, 1998, the board of directors of the Company approved a 2-for-1
stock split of the shares of Class A common stock and Class B common stock, to
be effected in the form of a stock dividend on shares of Class A common stock
and Class B common stock outstanding on February 26, 1999. The stock dividend
will be distributed on March 23, 1999. After giving effect to this stock split,
pro forma earnings (loss) per share for all periods presented would be as
follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY
----------------- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
JANUARY 1, 1995 MARCH 11, 1995 YEAR ENDED YEAR ENDED -----------------
TO MARCH 10, 1995 TO DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
----------------- -------------------- ----------------- ----------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Basic................ $(0.68) $(0.06) $(0.07) $0.16 $0.10 $0.24
Diluted.............. $(0.68) $(0.06) $(0.07) $0.16 $0.10 $0.23
</TABLE>

F-23
<PAGE> 81

[INSIDE BACK COVER]

ENTERPRISE NETWORK
CONSULTING SERVICES

<TABLE>
<CAPTION>
NETWORK ENGINEERING NETWORK SYSTEM SECURITY
<S> <C>
- - Network Architecture Design - Expertise in Security Strategy Development
Review and Assessment - Backbone, LAN/WAN Remote Access and Facilities
- - DNS and Dynamic Host Configuration Protocol Security
Engineering - Virtual Private Network Design and Implementation
- - intranet and Extranet Infrastructure Engineering
- - Routing and Switching Architecture Implementation
</TABLE>

[NETWORK SOLUTIONS LOGO]

NETWORK MANAGEMENT

- MISSION CRITICAL PERFORMANCE AND REMOTE MONITORING
- NETWORK CAPACITY AND PERFORMANCE MANAGEMENT SERVICES
- NEW TECHNOLOGY INTEGRATION AND MANAGEMENT
- DISASTER RECOVERY AND NETWORK SYSTEM FAILURE CONTINGENCY
PLANNING
<PAGE> 82

[OUTSIDE BACK COVER]

[NETWORK SOLUTIONS LOGO]