FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[X]   Quarterly Report under Section 13 or 15(d) of the Securities  Exchange Act
      of 1934

               For the quarterly period ended: September 30, 2000

                                       OR

[  ]  Transition  report  pursuant  to section 13 or 15(d) of the  Securities
      Exchange Act of 1934

                For the transition period from          to

                             Commission File Number:
                                    001-12143

                              America Online, Inc.
             (Exact name of registrant as specified in its charter)

            Delaware                                       54-1322110
  --------------------------------           -----------------------------------
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)

                   22000 AOL Way, Dulles, Virginia 20166-9323
              (Address of principal executive offices and zip code)

Registrant's telephone number, including area code:    (703) 265-1000

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

               Yes           X               No

Indicate the number of shares  outstanding  of each of the  Issuer's  classes of
Common Stock, as of the latest practicable date.

Title of each class
Common stock $.01 par value
Shares outstanding on October 31, 2000.............................2,333,596,294



<PAGE>


                              AMERICA ONLINE, INC.

                                      INDEX

                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets - September 30, 2000
         and June 30, 2000                                                     3

         Condensed Consolidated Statements of Operations - Three

         months ended September 30, 2000 and 1999                              4

         Condensed Consolidated Statements of Cash Flows - Three

         months ended September 30, 2000 and 1999                              5

         Condensed Consolidated Statement of Changes in
         Stockholders' Equity - Three months ended

         September 30, 2000                                                    6

         Notes to Condensed Consolidated Financial Statements                  7

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk           16

PART II. OTHER INFORMATION                                                    18

Item 2.  Changes in Securities and Use of Proceeds                            18

Item 6.  Exhibits and Reports on Form 8-K                                     18


Signatures                                                                    19


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (Amounts in millions, except share data)

                                                                                      September 30, June 30,
                                                                                          2000        2000
                                                                                      -------------  -------
                                                                                       (Unaudited)
                                     ASSETS

Current assets:
<S>                                                                                       <C>         <C>
Cash and cash equivalents...........................................................      $ 2,039     $2,490
Short-term investments..............................................................        1,192        925
Trade accounts receivable, less allowances of $91 and $83, respectively.............          451        422
Other receivables, net..............................................................          137        110
Prepaid expenses and other current assets...........................................          527        481
                                                                                      ------------  --------
Total current assets................................................................        4,346      4,428

Property and equipment at cost, net.................................................        1,026        991

Other assets:
Investments including available-for-sale securities.................................        4,627      4,358
Product development costs, net......................................................          202        159
Goodwill and other intangible assets, net...........................................          513        501
Other assets........................................................................          239        236
                                                                                      ------------  --------
                                                                                          $10,953    $10,673
                                                                                      ============ =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable..............................................................       $  256     $  153
Other accrued expenses and liabilities..............................................          773        919
Deferred revenue....................................................................        1,083      1,109
Accrued personnel costs.............................................................          119        138
Deferred network services credit....................................................           76         76
                                                                                      ------------  --------
Total current liabilities...........................................................        2,307      2,395

Long-term liabilities:
Notes payable.......................................................................        1,646      1,630
Deferred revenue....................................................................          326        358
Other liabilities...................................................................            7          8
Deferred network services credit....................................................          102        121
                                                                                      ------------  --------
Total liabilities...................................................................        4,388      4,512

Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued
  or outstanding at September 30 and June 30, 2000..................................            -          -
Common stock, $.01 par value; 6,000,000,000 shares authorized,
  2,332,608,519 and 2,316,494,480 shares issued and outstanding at
  September 30 and June 30, 2000, respectively.....................................            23         23
Additional paid-in capital..........................................................        4,538      4,314
Accumulated other comprehensive income - unrealized gain on
  available-for-sale securities, net................................................          325        478
Retained earnings...................................................................        1,679      1,346
                                                                                      ------------  --------
Total stockholders' equity..........................................................        6,565      6,161
                                                                                      ------------  --------
                                                                                          $10,953    $10,673
                                                                                      ============ =========


                             See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in millions, except per share data)
                                   (Unaudited)

                                                                             Three months ended
                                                                                 September 30,
                                                                               2000      1999
                                                                             --------  --------
Revenues:
<S>                                                                           <C>       <C>
Subscription services.....................................................    $1,206    $  995
Advertising, commerce and other...........................................       649       360
Enterprise solutions......................................................       120       122
                                                                             --------  --------
Total revenues............................................................     1,975     1,477

Costs and expenses:
Cost of revenues..........................................................       928       792
Sales and marketing.......................................................       298       213
Product development.......................................................        60        71
General and administrative................................................       183       123
Amortization of goodwill and other intangible assets......................        22        18
Merger charges............................................................         6         -
                                                                             --------  --------
Total costs and expenses..................................................     1,497     1,217

Income from operations... ................................................       478       260
Other income, net.........................................................        89        39
                                                                             --------  --------
Income before provision for income taxes..................................       567       299
Provision for income taxes................................................      (222)     (118)
                                                                             --------  --------
Net income................................................................    $  345     $ 181
                                                                             ========  ========

Earnings per share:
Earnings per share-diluted................................................    $ 0.13    $ 0.07
Earnings per share-basic..................................................    $ 0.15    $ 0.08
Weighted average shares outstanding-diluted...............................     2,603     2,587
Weighted average shares outstanding-basic.................................     2,328     2,231



                             See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Amounts in millions)
                                   (Unaudited)

                                                                                       Three months ended
                                                                                          September 30,
                                                                                         2000     1999
                                                                                        -------  -------
Cash flows from operating activities:

<S>                                                                                     <C>      <C>
Net income ............................................................................ $  345   $  181
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash restructuring charges.........................................................      -        2
Amortization of deferred network services credit.......................................    (19)     (19)
Depreciation and amortization..........................................................    106       79
Compensatory stock options.............................................................      3        3
Gain on available-for-sale securities..................................................    (35)       -
Equity in loss of investees............................................................     27        -
Deferred income taxes..................................................................    222      117
Changes in assets and liabilities, net of the effects of acquisitions and dispositions:
  Trade accounts receivable............................................................    (28)     (28)
  Other receivables....................................................................    (27)     (43)
  Prepaid expenses and other current assets............................................    (47)     (28)
  Other assets.........................................................................     (3)     (52)
  Investments including available-for-sale securities..................................    (36)     (99)
  Accrued expenses and other current liabilities.......................................    (56)     206
  Deferred revenue and other liabilities...............................................    (57)     147
                                                                                        -------  -------
Total adjustments......................................................................     50      285
                                                                                        -------  -------
Net cash provided by operating activities..............................................    395      466

Cash flows from investing activities:

Purchase of property and equipment.....................................................    (95)    (136)
Product development costs..............................................................    (52)     (18)
Proceeds from sale of investments, including available-for-sale securities.............    230        -
Purchase of investments, including available-for-sale securities.......................   (697)     (94)
(Purchase)/Proceeds of short-term investments, net.....................................   (267)      97
Other investing activities.............................................................    (46)      14
                                                                                        -------  -------
Net cash used in investing activities..................................................   (927)    (137)

Cash flows from financing activities:

Proceeds from issuance of common stock, net............................................     83       97
Principal and accrued interest payments on debt........................................     (2)      (3)
                                                                                        -------  -------
Net cash provided by financing activities..............................................     81       94
                                                                                        -------  -------
Net (decrease) increase in cash and cash equivalents...................................   (451)     423
Cash and cash equivalents at beginning of period.......................................  2,490      936
                                                                                        -------  -------
Cash and cash equivalents at end of period............................................. $2,039   $1,359
                                                                                        =======  =======
Supplemental cash flow information:
Cash paid during the period for: Interest (net of amount capitalized).................. $    2   $    4
                                                                                        =======   ======


                             See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.
       CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                    (Amounts in millions, except share data)
                                   (Unaudited)

                                                                                Accumulated
                                                  Common Stock     Additional     Other
                                           -----------------------  Paid-In    Comprehensive     Retained
                                              Shares        Amount  Capital     Income, Net      Earnings
                                           --------------  ------- ---------  ---------------  ------------

<S>                                         <C>              <C>     <C>          <C>            <C>
Balances at June 30, 2000.................  2,316,494,480    $ 23    $ 4,314      $  478         $1,346
Common stock issued:
Exercise of options....................        11,543,499       -         83           -             -
Amortization of compensatory
   stock options..........................              -       -          3           -             -
Unrealized loss on

   available-for-sale securities, net.....              -       -        (90)       (153)            -
Tax benefit related to stock options......              -       -        213           -             -
Effect of immaterial poolings............       4,570,540       -         15           -            (12)
Net income................................              -       -          -           -            345
                                           --------------  ------- ---------  ---------------  ------------
Balances at September 30, 2000............  2,332,608,519    $ 23    $ 4,538      $  325         $1,679
                                           ==============  ======= =========  ===============  ============



                                                         Comprehensive
                                                         Income For The
                                                       Three Months Ended
                                             Total     September 30, 2000
                                            --------- ---------------------

<S>                                          <C>              <C>
Balances at June 30, 2000.................   $6,161
Common stock issued:
Exercise of options....................          83
Amortization of compensatory
   stock options..........................        3
Unrealized loss on

   available-for-sale securities, net.....     (243)          (153)
Tax benefit related to stock options......      213
Effect of immaterial poolings............         3
Net income................................      345            345
                                            --------- -----------------
Balances at September 30, 2000............   $6,565           $192
                                            ========  =================



                             See accompanying notes.
</TABLE>


<PAGE>


                              AMERICA ONLINE, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements,
which  include the accounts of America  Online,  Inc.  (the  "Company")  and its
wholly owned  subsidiaries,  have been  prepared in  accordance  with  generally
accepted  accounting  principles for interim financial  information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all  adjustments,  consisting  only of  normal  recurring  accruals
considered  necessary  for a  fair  presentation,  have  been  included  in  the
accompanying  unaudited  condensed   consolidated   financial  statements.   All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation.  Operating  results for the three months ended September 30, 2000
are not necessarily  indicative of the results that may be expected for the full
year ending June 30, 2001. For further  information,  refer to the  consolidated
financial statements and notes thereto,  included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2000.

Note 2.  Recent Pronouncements

         In March 2000, the FASB issued FASB  Interpretation No. 44, "Accounting
for  Certain  Transactions  involving  Stock  Compensation"  ("FIN  44"),  which
contains  rules  designed  to clarify the  application  of APB 25. As of July 1,
2000,  the Company has  adopted FIN 44 with no material  effect on earnings  and
financial position.

         The FASB recently issued Statement No. 137,  "Accounting for Derivative
Instruments and Hedging  Activities-Deferral of Effective Date of FASB Statement
No.  133".  The  Statement  deferred  for one  year the  effective  date of FASB
Statement  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities".  The rule now applies to all fiscal  quarters  of all fiscal  years
beginning  after June 15, 2000.  The Company  adopted the standard as of July 1,
2000.  The Statement  requires the Company to recognize all  derivatives  on the
balance sheet at fair value.  Derivatives that are not designated as hedges must
be adjusted to fair value through  income.  If the derivative is designated as a
hedge,  depending  on the nature of the hedge,  changes in the fair value of the
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive  income  until the hedged  item is  recognized  in  earnings.  The
ineffective  portion  of the  change  in  fair  value  of a  derivative  that is
designated as a hedge will be immediately recognized in earnings. Certain of the
Company's holdings of equity  instruments have been deemed derivatives  pursuant
to the criteria  established in SFAS 133. The Company has designated  certain of
those derivatives as hedges.  The adoption of SFAS 133 by the Company as of July
1, 2000 had no material effect on earnings and financial position.

         In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"),  which clarifies  certain  existing  accounting  principles for the
timing  of  revenue   recognition  and  its   classification  in  the  financial
statements.  The SEC  delayed  the  required  implementation  date of SAB 101 by
issuing Staff Accounting Bulletins No. 101A, "Amendment:  Revenue Recognition in
Financial  Statements"  and 101B,  "Second  Amendment:  Revenue  Recognition  in
Financial Statements" in March and June 2000,  respectively.  In anticipation of
the merger  between the Company and Time Warner Inc.  being  completed  prior to
December 31, 2000, the Company will adopt SAB 101 in the quarter ending December
31, 2000.  The Company  believes the adoption of SAB 101 will not be material to
the earnings  and  financial  position of the Company and it will mainly  impact
Enterprise revenues and cost of revenues.

Note 3.  Earnings Per Share

         The  following  table sets forth the  computation  of basic and diluted
earnings per share for the three months ended September 30, 2000 and 1999:

<TABLE>

                                                                                    Three months ended
                                                                                       September 30,
     (in millions, except per share data)                                               2000     1999
                                                                                     -------- --------
     Basic earnings per share:
     <S>                                                                             <C>      <C>
     Net income available to common shareholders...................................  $   345  $   181
                                                                                     -------- --------
     Weighted average shares outstanding...........................................    2,328    2,231
     Basic earnings per share......................................................  $  0.15  $  0.08
                                                                                     ======== ========

     Diluted earnings per share:

     Net income available to common shareholders...................................  $   345  $   181
     Interest on convertible debt, net of tax......................................        2        2
                                                                                     -------- --------
     Adjusted net income available to common shareholders
        assuming conversion........................................................  $   347  $   183
                                                                                     -------- --------
     Weighted average shares outstanding...........................................    2,328    2,231
     Effect of dilutive securities:
        Employee stock options.....................................................      237      316
        Convertible debt...........................................................       38       40
                                                                                     -------- --------
     Adjusted weighted average shares and assumed conversions......................    2,603    2,587
                                                                                     ======== ========
     Diluted earnings per share....................................................  $  0.13  $  0.07
                                                                                     ======== ========
</TABLE>

         Excluded  from the diluted share base  calculation  above for the three
months ended September 30, 2000 are incremental weighted shares of approximately
13.6 million and  approximately  35 million related to convertible  subordinated
notes and stock  options,  respectively.  Excluded  from the diluted  share base
calculation  above for the three months ended September 30, 1999 are incremental
weighted  shares of  approximately  23.1 million  related to stock options.  The
shares related to the convertible  subordinated  notes are excluded due to their
antidilutive  effect as a result of  adjusting  net  income  by $6  million  for
interest  expense  (net of tax)  that  would  be  forfeited  if the  notes  were
converted to equity. The shares related to the stock options are excluded due to
their  antidilutive  effect as a result of the  option's  exercise  prices being
greater  than the average  market  price of the common  shares  during the three
months ended September 30, 2000 and September 30, 1999.

Note 4.    Comprehensive Income

         For the three months ended  September 30, 2000 and 1999,  comprehensive
income was $192 million and $437 million,  respectively.  The difference between
net income and  comprehensive  income for each  period  presented  is due to net
unrealized gains or losses on available-for-sale securities.

Note 5.  Business Developments

         During the quarter ended September 30, 2000, the Company  completed its
mergers with Quack.com,  Inc., iAmaze, Inc., LocalEyes  Corporation and Prophead
Development,  Inc. (the "Merged Companies") in separate transactions.  In total,
the Company  exchanged  approximately 4.6 million shares of common stock for all
the  outstanding  common  and/or  preferred  shares of the merged  companies  in
transactions  that were  accounted for as  poolings-of-interests.  As the Merged
Companies  historical  results of  operations  were not  material in relation to
those of the Company, the financial  information prior to the quarter ended June
30, 2000 has not been restated to reflect these mergers.

         The  Company  recognized  charges of $6  million  related to the Merged
Companies,  consisting  mainly of investment  banking and legal services.  As of
September  30, 2000,  approximately  $5 million of the merger  related costs had
been paid. The Company expects the remaining  costs  associated with the mergers
to be paid by December 31, 2000.

Note 6.  Segment Information

         America Online has four major lines of businesses:
         o the Interactive Services Group,
         o the Interactive Properties Group,
         o the AOL International Group, and
         o the Netscape Enterprise Group.

         The Interactive  Services Group and the Netscape  Enterprise  Group are
the only two  reportable  segments.  The results of the  Interactive  Properties
Group and the AOL International Group have been combined in the "Other Segments"
line shown below.  Prior period  information has been restated to conform to the
current  presentation.  There  are no  intersegment  revenues  between  the four
operating  segments.  Shared support service  functions such as human resources,
facilities  management  and other  infrastructure  support  groups are allocated
based on usage or headcount,  where practical,  to the four operating  segments.
Charges  that cannot be  allocated  are  reported as general and  administrative
costs and are not allocated to the segments.  Special  charges  determined to be
significant are reported separately in the Condensed Consolidated  Statements of
Operations  and are  not  assigned  or  allocated  to the  segments.  All  other
accounting policies are applied consistently to the segments, where applicable.

     A summary of the segment financial information is as follows:

<TABLE>

                                                        Three months ended
                                                          September 30,
                                                        2000         1999
                                                   ------------  -----------
                                                      (Amounts in millions)

     Revenues:
     <S>                                                <C>         <C>
     Interactive Services Group (1)..............       $1,726      $1,290
     Netscape Enterprise Group (2)...............          120         122
     Other Segments (3)..........................          129          65
                                                   ------------  -----------
         Total revenues..........................       $1,975      $1,477

     Income (loss) from operations:

     Interactive Services Group (1)..............       $  494       $  325
     Netscape Enterprise Group(2)................           50           18
     Other Segments (3)..........................           57           15
     General and Administrative (4)..............         (117)         (98)
     Other charges...............................           (6)           -
                                                   ------------  -----------
         Total income from operations............       $  478       $  260
</TABLE>

(1)  For the three months ended  September  30, 2000 and 1999,  the  Interactive
     Services Group includes online service  revenues of $1,206 million and $995
     million,  respectively;  advertising,  commerce and other  revenues of $520
     million and $295 million,  respectively;  and goodwill and other intangible
     assets amortization of $12 million and $11 million, respectively.

(2)  For the three  months  ended  September  30,  2000 and 1999,  the  Netscape
     Enterprise Group is comprised solely of enterprise revenues.

(3)  For the three months ended September 30, 2000 and 1999,  Other Segments are
     comprised  solely of  advertising,  commerce and other revenues and include
     goodwill and other  intangible  assets  amortization  of $10 million and $7
     million, respectively.

(4)  Bad debt has been allocated to the applicable segment.

     The Company does not have any material  revenues  and/or assets outside the
United  States  and no  single  customer  accounts  for  more  than 10% of total
revenues.

Note 7.  Subsequent Events

         Time Warner Merger

         On January 10, 2000,  the Company and Time Warner Inc.  announced  that
they had entered into an Agreement  and Plan of Merger,  dated as of January 10,
2000 (the "Merger Agreement"),  which sets forth the terms and conditions of the
proposed  merger of equals of America  Online and Time  Warner.  Pursuant to the
Merger Agreement, America Online and Time Warner have formed AOL Time Warner and
each holds one share of AOL Time Warner. AOL Acquisition Sub, a newly formed and
wholly owned subsidiary of AOL Time Warner, will be merged with and into America
Online,  with  stockholders  of America  Online  receiving one share of AOL Time
Warner  common  stock for each  share of America  Online  Common  Stock,  and TW
Acquisition  Sub, a newly formed and wholly owned subsidiary of AOL Time Warner,
will be merged  with and into Time  Warner,  with  common  stockholders  of Time
Warner  receiving  1.5 shares of AOL Time Warner  common stock for each share of
Time Warner  common  stock.  As a result of the merger,  the separate  corporate
existence of each of AOL  Acquisition  Sub and TW Acquisition Sub will cease and
each of America Online and Time Warner will survive the merger as a wholly owned
subsidiary of AOL Time Warner.  The merger was approved by the  stockholders  of
each of America  Online  and Time  Warner on June 23,  2000.  In  addition,  the
European Union Commission approved the merger on October 11, 2000. The merger is
expected  to  close  in the fall of 2000 and is  subject  to  customary  closing
conditions,  including required U.S. government regulatory approvals,  which the
companies  are in the process of seeking.  There can be no  assurance  that such
approvals can be obtained.

         Redemption of Notes

         The Company has issued a notice of its  election to exercise its option
to redeem in whole, the 4% Convertible  Subordinated Notes due November 15, 2002
(the "Notes") on November 15, 2000. Under the redemption prices set forth in the
Notes, the Company will be obligated to redeem the outstanding  Notes at a price
of 101.6%  (expressed as a percentage of principal amount) together with accrued
interest  at the date of  redemption.  Noteholders  may  convert  their Notes to
shares of the Company's  common stock on or prior to the  redemption  date.  The
principal amount, net of unamortized discount,  was $244 million as of September
30, 2000.

Note 8. Legal Proceedings

         The Company is a party to various  litigation  matters,  investigations
and proceedings,  including  several  complaints that have been filed and remain
pending in the Delaware  Court of Chancery  naming as defendants  one or more of
America  Online,  the  directors  of America  Online,  Time Warner Inc.  and the
directors  of Time  Warner.  The  complaints  purport  to be filed on  behalf of
holders  of America  Online or Time  Warner  stock,  as  applicable,  and allege
breaches of fiduciary duty by the applicable company and its directors or aiding
and abetting  breaches of fiduciary  duty by the other company and its directors
in connection  with the proposed  merger of America Online and Time Warner.  The
plaintiffs in each case seek to enjoin  completion of the merger and/or damages.
These cases are at a preliminary  stage,  but the Company does not believe these
lawsuits  have any merit and  intends to defend  against  them  vigorously.  The
Company is unable, however, to predict the outcome of these cases, or reasonably
estimate a range of possible loss given the current status of the litigation.

         Since  March  2000,  America  Online has been named as a  defendant  in
several class action  lawsuits that have been filed in state and federal courts.
The complaints in these lawsuits  contend that consumers and competing  Internet
service providers have been injured because of the default selection features in
AOL  5.0.   Plaintiffs  are  seeking  damages,   an  injunction   enjoining  the
distribution  of AOL Version 5.0 software,  and  disgorgement of all monies that
the Company has earned  through the  distribution  of its Version 5.0  software.
These cases are at a preliminary stage, but America Online does not believe they
have merit and  intends  to  contest  them  vigorously.  The  Company is unable,
however,  to predict the outcome of these cases, or reasonably  estimate a range
of possible loss given the current status of the litigation.

         In the  spring  of  1999,  the  Department  of Labor  ("DOL")  began an
investigation  of the  applicability of the Fair Labor Standards Act ("FLSA") to
the  Company's  Community  Leader  program.  The Company  believes the Community
Leaders  are  volunteers,  not  employees,  that the  Community  Leader  program
reflects  industry  practices,  and that its actions  comply  with the law.  The
Company is  cooperating  with the DOL's  inquiry,  but is unable to predict  the
outcome of the DOL's  investigation  and cannot  reasonably  estimate a range of
possible  loss  given the  current  status of the  DOL's  investigation.  Former
volunteers  have sued the Company on behalf of an alleged  class  consisting  of
current and former  volunteers,  alleging  violations of the FLSA and comparable
state  statutes.  The Company  believes  the claims have no merit and intends to
defend them vigorously.  The Company cannot predict the outcome of the claims or
whether other former or current volunteers will file additional actions, nor can
the  Company  reasonably  estimate a range of  possible  loss given the  current
status of the litigation.

         The  costs  and  other   effects  of  pending  or  future   litigation,
governmental  investigations,  legal and  administrative  cases and  proceedings
(whether civil or criminal), settlements,  judgments and investigations,  claims
and changes in those matters  (including  those matters  described  above),  and
developments  or assertions by or against the Company  relating to  intellectual
property  rights  and  intellectual  property  licenses,  could  have a material
adverse  effect on the  Company's  business,  financial  condition and operating
results.

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

Overview

      Founded in 1985, America Online, Inc., based in Dulles,  Virginia,  is the
world's leader in interactive services, Web brands,  Internet technologies,  and
electronic  commerce  services.  The Company  operates  two  worldwide  Internet
services, the AOL service, with more than 25 million members, and the CompuServe
service,  with  more  than 2.8  million  members;  several  leading  Web  brands
including  ICQ,  AOL Instant  Messenger  and Digital  City,  Inc.;  the Netscape
Netcenter  and  AOL.COM  Internet  portals;  the  Netscape  Communicator  client
software,  including the Netscape Navigator browser; AOL Moviefone, the nation's
number one movie listing guide and ticketing service;  MapQuest.com, a leader in
destination  information  solutions;   and  Spinner  Networks  Incorporated  and
Nullsoft,  Inc., leaders in Internet music.  Through its strategic alliance with
Sun  Microsystems,  Inc.,  the Company also develops and offers  easy-to-deploy,
end-to-end  electronic commerce and enterprise solutions under the iPlanet brand
for companies operating in and doing business on the Internet.

Consolidated Results of Operations

         Revenues

         The  following  table and  discussion  highlights  the  revenues of the
Company for the three months ended September 30, 2000 and 1999:

<TABLE>

                                                              Three Months Ended
                                                                 September 30,
                                                               2000            1999
                                                         --------------- ---------------
                                                               (Dollars in millions)
Revenues:
<S>                                                      <C>      <C>    <C>      <C>
Subscription services................................... $1,206   61.1%  $  995   67.4%
Advertising, commerce and other.........................    649   32.9      360   24.4
Enterprise solutions....................................    120    6.0      122    8.2
                                                         ------- ------- ------- -------
Total revenues.......................................... $1,975  100.0%  $1,477  100.0%
</TABLE>

         The  Company  generates  three  main  types of  revenues:  subscription
services;   advertising,   commerce  and  other;   and   enterprise   solutions.
Subscription  services revenues are generated from customers  subscribing to the
Company's AOL and CompuServe services. Advertising,  commerce and other revenues
are non-subscription based and are generated mainly from businesses marketing to
the  Company's  base of  subscribers  and  users  across  its  multiple  brands.
Advertising,  commerce and other revenues principally consist of advertising and
related  revenues,  fees  associated  with  electronic  commerce and the sale of
merchandise.  Enterprise  solutions  revenues  consist  principally  of  product
licensing fees and fees from technical support, consulting and training services
offered through the Company's  strategic  alliance with Sun Microsystems,  Inc.,
("Sun Microsystems").

                  Subscription Services Revenues

          For the three months ended September 30, 2000,  subscription  services
revenues  increased from $995 million to $1,206 million,  or 21%, over the three
months ended September 30, 1999.  This increase was primarily  attributable to a
32%  increase in the average  number of U.S.  subscribers  for the three  months
ended September 30, 2000, compared to the three months ended September 30, 1999,
offset in part by an 8.4% decrease in the average monthly subscription  services
revenue per U.S.  subscriber.  The decrease in the average monthly  subscription
services revenue per U.S.  subscriber is due to the mix of multiple price points
offered  by the  Company's  various  brands  and  services,  as well as  certain
promotional bundling programs.  Under these bundling programs,  customers of the
Company's  commerce  partners  typically receive a subscription to the Company's
online  services as a result of purchasing a product from the commerce  partner.
The Company records  subscription  revenues under these bundling  programs based
upon the net amount received from the commerce partner.

         At September 30, 2000, the Company had  approximately  24.6 million AOL
service  subscribers,  including 20.3 million in the United States. Also at that
date, the Company had approximately 2.8 million CompuServe service  subscribers,
with 2.0  million in the  United  States.  The  Company  also has  approximately
883,000 worldwide custom solution subscribers on alternate branded services that
are provided in conjunction with the Company's partners.

                  Advertising, Commerce and Other Revenues

         The following table summarizes the material  components of advertising,
commerce and other  revenues for the three months ended  September  30, 2000 and
1999:

<TABLE>

                                                                Three Months Ended
                                                                   September 30,
                                                               2000            1999
                                                         --------------- ---------------
                                                               (Dollars in millions)

<S>                                                      <C>      <C>     <C>     <C>
Advertising and electronic commerce fees................ $  534   82.3%   $ 274   76.1%
Merchandise.............................................     61    9.4       47   13.1
Other...................................................     54    8.3       39   10.8
                                                         ------- ------- ------- -------
Total advertising, commerce and other revenues.......... $  649  100.0%   $ 360  100.0%
</TABLE>

         Advertising,  commerce and other revenues, which consist principally of
advertising and related revenues,  fees associated with electronic  commerce and
the sale of merchandise across the Company's multiple brands,  increased by 80%,
from $360 million in the three months ended  September  30, 1999 to $649 million
in the three months ended September 30, 2000.

         Advertising  and  electronic  commerce fees increased by 95%, from $274
million in the three  months  ended  September  30, 1999 to $534  million in the
three months ended September 30, 2000. The increase is primarily attributable to
additional  advertising  and  electronic  commerce  fees  on the  Company's  AOL
service,  as well as the  Company's  other  branded  services  and  portals.  At
September 30, 2000, the Company's advertising and commerce backlog, representing
the contract value of advertising and commerce  agreements signed, less revenues
already  recognized from these  agreements,  was  approximately  $3 billion,  up
approximately $1 billion from September 30, 1999. Merchandise sales increased by
30%,  from $47  million in the three  months  ended  September  30,  1999 to $61
million in the three months ended  September  30, 2000.  The increase was mainly
attributable to improved response rates to advertising, as well as a larger base
of subscribers.

                  Enterprise Solutions Revenues

          Enterprise  solutions  revenues,  which consist principally of product
licensing fees and fees from technical support, consulting and training services
decreased by 2%, from $122 million in the three months ended  September 30, 1999
to $120 million in the three months ended  September 30, 2000.  The decrease was
primarily due to a decrease in contractual  obligations  from Sun  Microsystems,
offset in part by an increase in license and service revenues  generated through
the  alliance  with Sun  Microsystems.  In addition,  as a result of  additional
products being considered  collaborative  (jointly developed by Netscape and Sun
Microsystems),  when these  collaborative  products are sold by Sun Microsystems
personnel,  the Company  records as revenue the net payments  received  from Sun
Microsystems.  While this results in a slower growth of reported  revenues,  the
gross margin and income from  operations has continued to grow.  Refer to Note 6
of the Notes to the Condensed Consolidated Financial Statements,  as well as the
segment results of operations discussion later in this section.

         Costs and Expenses

         The following table and discussion highlights the costs and expenses of
the Company for the three months ended September 30, 2000 and 1999:

<TABLE>

                                                                 Three Months Ended
                                                                   September 30,
                                                               2000            1999
                                                         --------------- ---------------
                                                               (Dollars in millions)

<S>                                                      <C>     <C>     <C>     <C>
Total revenues.......................................... $1,975  100.0%  $1,477  100.0%

Costs and expenses:
Cost of revenues........................................ $  928   47.0%  $  792   53.6%
Sales and marketing.....................................    298   15.1      213   14.4
Product development.....................................     60    3.0       71    4.8
General and administrative..............................    183    9.3      123    8.4
Amortization of goodwill and other intangible assets....     22    1.1       18    1.2
Merger charges..........................................      6    0.3        -      -
                                                         ------- ------- ------- -------
Total costs and expenses................................ $1,497   75.8%  $1,217   82.4%
</TABLE>

                  Cost of Revenues

         Cost of revenues includes  network-related costs,  consisting primarily
of data network costs; personnel and related costs associated with operating the
data centers, data network and providing customer support;  billing,  consulting
and technical  support/training;  host computer and network equipment costs; and
the costs of merchandise sold.

         Cost of  revenues  increased  by 17%,  from $792  million  in the three
months  ended  September  30,  1999 to $928  million in the three  months  ended
September 30, 2000,  and decreased as a percentage of total  revenues from 53.6%
to 47.0%.  The increase in cost of revenues in the three months ended  September
30, 2000  compared to the same period a year ago was primarily  attributable  to
increases in data network  costs;  personnel and related costs  associated  with
operating the data centers,  data network and providing customer support;  costs
related  to the  Company's  new  custom  services  and costs  related to the AOL
premium  services  introduced  recently  under the AOL Anywhere  strategy.  Data
network  costs  increased  primarily  as a result of the larger  member base and
increased usage per customer. Costs related to the Company's new custom services
are a result of the Company's  agreement with Gateway,  Inc.,  which was entered
into in October, 1999. Personnel and related costs associated with operating the
data centers, data network and providing customer support increased primarily as
a result of the  requirements  of  supporting a larger data network and a larger
customer  base.  The  decrease  in cost of  revenues  as a  percentage  of total
revenues was primarily  attributable to growth of the higher margin advertising,
commerce and other revenues, as well as a decrease in network-related costs as a
percentage of subscription  services  revenue.  The decrease in  network-related
costs as a percentage of subscription  services  revenue was primarily driven by
an 18% decrease in the hourly network cost for the three months ended  September
30, 2000 compared to the three months ended  September 30, 1999. The decrease in
the hourly network costs is mainly due to efficiencies the Company  continues to
realize as a result of its size and  scale,  as well as lower  negotiated  rates
with its network providers. This decrease was partially offset by an increase in
daily  member  usage,  from an average of nearly 55 minutes per day in the three
months ended  September 30, 1999 to an average of  approximately  58 minutes per
day in the three months ended September 30, 2000.

                  Sales and Marketing

         Sales and  marketing  expenses  include the costs to acquire and retain
subscribers,  the  operating  expenses  associated  with the sales and marketing
organizations  and  other  general  marketing  costs to  support  the  Company's
multiple brands.

         For the three months ended  September  30,  2000,  sales and  marketing
expenses  increased  from $213 million to $298  million,  or 40%, over the three
months  ended  September  30,  1999,  and  remained  relatively  unchanged  as a
percentage of total revenues.  The increase in sales and marketing  expenses for
the three months  ended  September  30, 2000 was  primarily  attributable  to an
increase in brand advertising costs related to the AOL service, partially offset
by a decrease in sales and sales support functions in the enterprise group.

                  Product Development

         Product development costs include research and development expenses and
other  product  development  costs  including  support  and  maintenance  of the
Company's multiple  interactive  products.  For the three months ended September
30, 2000,  product  development costs decreased from $71 million to $60 million,
or 15%,  over the three months ended  September  30,  1999,  and  decreased as a
percentage  of total  revenues  from  4.8 % to 3.0%.  The  decrease  in  product
development  costs was  primarily  due to the timing of  projects  eligible  for
capitalization,  including  the  AOL  6.0  development  and an  increase  in AOL
Anywhere initiatives.  The decrease in product development costs as a percentage
of total  revenues  was  primarily a result of the  substantial  growth in total
revenues, as well as the increase in capitalized projects.

                  General and Administrative

          For  the  three  months  ended   September   30,  2000,   general  and
administrative  expenses  increased  from $123 million to $183 million,  or 49%,
over the three months ended September 30, 1999, and increased as a percentage of
total  revenues  from 8.4% to 9.3%.  The increase in general and  administrative
costs for the three months ended September 30, 2000, was primarily  attributable
to an increase in bad debt expense,  increased  personnel  costs,  and increased
other professional  services and fees, primarily legal fees. The increase in bad
debt  expense  was due to the  growth  of the  CompuServe  rebate  program,  the
extension  of the  collection  period for  subscription  fees on the AOL service
instituted  during the last fiscal year, and the overall growth of  subscription
services and advertising, commerce and other revenues.

                  Amortization of Goodwill and Other Intangible Assets

          Amortization of goodwill and other intangible  assets increased to $22
million in the three  months  ended  September  30, 2000 from $18 million in the
three months ended  September  30, 1999.  The increase in  amortization  expense
during the three months ended  September  30, 2000 compared to the same period a
year ago is primarily  attributable to an intangible  asset  associated with the
acquisition  cost of  Gateway.net  subscribers  in  December  1999 and  goodwill
associated  with the  remaining  20% interest of Digital City  acquired from The
Tribune Company in May 2000.

                  Merger Charges

          During  the  three  months  ended  September  30,  2000,  the  Company
recognized  charges of $6 million primarily related to the mergers of Quack.com,
Inc.,  iAmaze,  Inc.,  LocalEyes  Corporation  and  Prophead  Development,  Inc.
consisting mainly of investment banking and legal services.  As of September 30,
2000,  approximately  $5 million of the merger  related costs had been paid. The
Company  expects the remaining  costs  associated  with the merger to be paid by
December  2000.  Refer  to Note 5 of the  Notes  to the  Condensed  Consolidated
Financial Statements for further information related to the merger costs.

         Other Income, net

         Other  income,   net  consists   primarily  of  investment  income  and
non-operating  gains net of interest  expense  and  non-operating  charges.  The
Company had other  income of $89  million  and $39 million for the three  months
ended  September 30, 2000 and 1999,  respectively.  The increase in other income
for the three months ended  September 30, 2000 was primarily  attributable to an
increase in interest  income and net realized  gains on  investments,  partially
offset by losses from equity investees and an increase in interest expense.

          The Company's investment portfolio of available-for-sale securities is
primarily    invested   in   Internet   and    technology    companies.    These
available-for-sale equity investments are subject to significant fluctuations in
fair market value due to the  volatility of the stock market and the  industries
the Company is invested in. The Company has realized  gains and losses from both
the sale of  investments,  as well as mergers and  acquisitions of companies the
Company is invested  in. The  Company's  objective  with its  investments  is to
minimize the impact of stock market declines to the Company's  earnings and cash
flows. Beyond the control of the Company, however,  continued market volatility,
as well as  mergers  and  acquisitions,  have the  potential  to have a material
non-cash impact on the operating results of the Company in future periods.

         Provision for Income Taxes

         The provision for income taxes was $222 million and $118 million during
the three months ended September 30, 2000 and 1999,  respectively.  The increase
in the  provision  for income taxes during the three months ended  September 30,
2000  compared to the same period last year is a direct  result of the Company's
increase  in pre-tax  income.  Income tax  expense  for the three  months  ended
September 30, 2000 includes $220 million for U.S. federal and state income taxes
and $2 million for foreign taxes.  As of September 30, 2000, the Company had net
operating loss carryforwards of approximately $10.4 billion, primarily resulting
from stock option  exercises,  available to offset future U.S.  federal  taxable
income.

Segment Results of Operations

         The Company  currently has four  operating  segments,  of which two are
reportable segments, that share the same infrastructure. For further information
regarding segments,  refer to Note 6 of the Notes to the Condensed  Consolidated
Financial Statements.

         A summary of the segment financial information is as follows:

                                                       Three months ended
                                                          September 30,
                                                        2000         1999
                                                   ------------  -----------
                                                      (Amounts in millions)

     Revenues:
     Interactive Services Group (1)..............       $1,726       $1,290
     Netscape Enterprise Group (2)...............          120          122
     Other Segments (3)..........................          129           65
                                                   ------------  -----------
         Total revenues..........................       $1,975       $1,477

     Income (loss) from operations:

     Interactive Services Group (1)..............       $  494       $  325
     Netscape Enterprise Group(2)................           50           18
     Other Segments (3)..........................           57           15
     General and Administrative (4)..............         (117)         (98)
     Other charges...............................           (6)           -
                                                   ------------  -----------
         Total income from operations............       $  478       $  260


(1)  For the three months ended  September  30, 2000 and 1999,  the  Interactive
     Services Group includes online service  revenues of $1,206 million and $995
     million,  respectively;  advertising,  commerce and other  revenues of $520
     million and $295 million,  respectively;  and goodwill and other intangible
     assets amortization of $12 million and $11 million, respectively.

(2)  For the three  months  ended  September  30,  2000 and 1999,  the  Netscape
     Enterprise Group is comprised solely of enterprise revenues.

(3)  For the three months ended September 30, 2000 and 1999,  Other Segments are
     comprised  solely of  advertising,  commerce and other revenues and include
     goodwill and other  intangible  assets  amortization  of $10 million and $7
     million, respectively.

(4)  Bad debt has been allocated to the applicable segment.

         For an  overview  of the segment  revenues,  refer to the  consolidated
results of operations discussion earlier in this section.

         Interactive  Services Group income from operations  increased from $325
million during the three months ended  September 30, 1999 to $494 million during
the three months ended September 30, 2000. This increase is mainly the result of
increases in subscription services and advertising,  commerce and other revenues
coupled with increased network efficiencies.

         Netscape  Enterprise  Group income from  operations  increased from $18
million  during the three months ended  September 30, 1999 to $50 million during
the three months ended September 30, 2000. This increase is mainly  attributable
to a decline in operating  expenses,  as the Netscape  Enterprise Group began to
realize efficiencies from using the Company's infrastructure.

         Other Segments income from operations increased from $15 million during
the three months ended September 30, 1999 to $57 million during the three months
ended September 30, 2000. This increase is mainly attributable to an increase in
Interactive  Properties  advertising revenues partially offset by an increase in
general and administrative costs and marketing costs.

Liquidity and Capital Resources

         The Company is currently  financing its  operations  primarily  through
cash generated from operations. In addition, the Company has generated cash from
the sale of its  convertible  notes,  the sale of its  investments in marketable
securities  and  the  sale of its  capital  stock.  In  addition  to  purchasing
telecommunications  equipment, the Company also enters into operating leases for
the use of this  equipment.  Net cash provided by operating  activities was $395
million and $466 million for the three months ended September 30, 2000 and 1999,
respectively, and decreased primarily due to the timing of cash receipts related
to advertising deals that closed during the quarter ended September 30, 1999, as
well as the timing of payments related to operating expenses, offset slightly by
the Company's increase in net income. Net cash used in investing  activities was
$927 million and $137 million  during the three months ended  September 30, 2000
and 1999, respectively.  Cash used in investing activities included the purchase
of $697 million and $94 million of investments  classified as available-for-sale
securities   during  the  three  months  ended  September  30,  2000  and  1999,
respectively.  Net cash provided by financing activities was $81 million and $94
million for the three months ended September 30, 2000 and 1999, respectively.

         The Company uses its working capital to finance ongoing  operations and
to fund marketing and the development of its products and services.  The Company
plans to continue to invest in network, computing and support infrastructure, as
well as  subscriber  acquisition,  retention  and brand  marketing to expand its
subscriber base. Additionally,  the Company expects to use a portion of its cash
for the acquisition and subsequent funding of technologies, content, products or
businesses   complementary  to  the  Company's  current  business.  The  Company
anticipates that cash on hand and cash provided by operating  activities will be
sufficient to fund the operations of the Company's current business for the next
twelve months.  The Company currently has  approximately  $3.7 billion available
for issuance under a shelf registration filed in May 1999.

         The Company has issued a notice of its  election to exercise its option
to redeem in whole, the 4% Convertible  Subordinated Notes due November 15, 2002
(the  "Notes") on November  15, 2000.  As a result of this  notice,  the Company
expects  the  majority  of the  Noteholders  to  convert  their  Notes  into the
Company's common stock on or before the date of redemption.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

         The  following  table and  discussion  summarizes  EBITDA for the three
months ended September 30, 2000 and 1999:

                                                  Three Months Ended
                                                    September 30,
                                                  2000         1999
                                              ------------  ------------
                                                (Amounts in millions)

EBITDA(as adjusted).........................      $599         $337


         The Company  defines  EBITDA as net income  adjusted  to  exclude:  (1)
provision/(benefit)  for income  taxes,  (2) interest  income and  expense,  (3)
depreciation  and amortization and (4) special charges and gains on investments.
EBITDA is  presented  and  discussed  because  the Company  considers  EBITDA an
important indicator of the operational  strength and performance of its business
including  the ability to provide  cash flows to service  debt and fund  capital
expenditures.  EBITDA,  however,  should not be  considered  an  alternative  to
operating or net income as an indicator of the performance of the Company, or as
an  alternative  to  cash  flows  from  operating  activities  as a  measure  of
liquidity,  in each  case  determined  in  accordance  with  generally  accepted
accounting principles ("GAAP").

         For the three months ended  September 30, 2000,  EBITDA  increased from
$337  million  to $599  million  or 78% over the same  period a year  ago.  This
increase  is mainly  due to the  significant  increase  in income  before  taxes
(excluding  special  charges)  from $299  million  during the three months ended
September 30, 1999 to $573 million  during the three months ended  September 30,
2000.

Seasonality

         The growth in subscriber acquisitions and usage in the Company's online
services  appears to be highest in the second and third  fiscal  quarters,  when
sales of new  computers  and  computer  software  are highest due to the holiday
season and following the holiday  season,  when new computer and software owners
are discovering Internet online services while spending more time indoors due to
winter weather.

         Since  making  advertising  revenue a key  component  of the  Company's
strategy, the Company has experienced  difficulty in distinguishing  seasonality
in advertising sales from the overall market growth. Seasonal factors seem to be
mitigated by advertisers' growing interest in the overall online medium, as well
as gaining access to the Company's large and growing subscriber/user base across
multiple branded distribution channels.

Inflation

         The Company  believes that  inflation has not had, and will not have in
the near future, a material effect on its results of operations.

Forward-Looking Statements

         This report and other oral and written  statements  made by the Company
to the public contain and  incorporate by reference  forward-looking  statements
within the meaning of the "safe  harbor"  provisions  of the Private  Securities
Litigation Reform Act of 1995. In particular, statements regarding the following
subjects  are  forward-looking:  the proposed  AOL/Time  Warner  merger;  future
financial and operating results; anticipated subscriber,  usage, advertising and
commerce growth; new and developing markets,  products,  services,  features and
content; anticipated timing and benefits of acquisitions and other alliances and
relationships;  new  platforms  and access and  distribution  technologies;  and
regulatory developments,  including the Company's ability to shape public policy
in, for example, telecommunications, privacy and tax areas.

         The  forward-looking  statements  are  based  on  management's  current
expectations or beliefs and are subject to a number of factors and uncertainties
that could cause actual results to differ materially from those described in the
forward-looking  statements.  Some of these factors and  uncertainties  include:
inability to obtain, or meet conditions imposed for, governmental  approvals for
the AOL/Time  Warner  merger;  costs related to the merger;  fluctuating  market
prices  that  could  cause  AOL Time  Warner's  stock  value to be less than the
current AOL or Time Warner stock value;  the  difficulty  the market may have in
valuing the AOL Time Warner business  model;  the risk that the Company and Time
Warner businesses will not be integrated  successfully;  the failure of AOL Time
Warner to realize anticipated  benefits of the AOL/Time Warner merger; and other
economic,   business,   competitive  and/or  regulatory  factors  affecting  the
Company's business generally. For a discussion of other factors that could cause
actual results to differ materially from those described in the  forward-looking
statements, please refer to the section entitled "Forward-Looking Statements" in
the Company's Annual Report on Form 10-K for the year ended June 30, 2000.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

         Market risk is the  potential  loss  arising  from  adverse  changes in
market rates and prices, such as foreign currency exchange, interest rates and a
decline  in the stock  market.  The  Company,  generally,  does not  enter  into
derivatives or other financial  instruments for trading or speculative purposes.
The Company is exposed to immaterial levels of market risk related to changes in
foreign currency exchange rates and interest rates.

         The  Company is exposed to market  risk as it relates to changes in the
market value of its  investments.  The Company invests in equity  instruments of
public companies for business and strategic purposes, most of which are Internet
and  technology   companies.   These   securities  are  subject  to  significant
fluctuations  in fair market value due to the volatility of the stock market and
the industries in which the Company has invested.  These  securities,  which are
classified in "Investments  including  available-for-sale  securities,"  include
available-for-sale securities,  restricted securities and derivatives and hedged
securities.  The  Company  has  realized  gains and losses from both the sale of
investments,  as well as mergers  and  acquisitions  of  companies  in which the
Company is  invested.  As of  September  30,  2000,  the Company had  securities
classified as available-for-sale  investments with a fair market value of $1,902
million  and a cost  basis of $1,405  million.  Also  included  in  "Investments
including available-for-sale  securities" are certain restricted securities with
a  cost  basis  of  $1,770  million.  In  addition,  pursuant  to  the  criteria
established  in SFAS  133,  which  the  Company  adopted  as of  July  1,  2000,
"Investments including available-for-sale securities" include equity instruments
that are classified as derivatives  and equity  securities  with  associated put
options, which are classified as hedges. At September 30, 2000, these securities
had a fair value of $384 million.  Changes in the value of these  securities are
recorded  in other  income,  or for  certain of the  derivatives  classified  as
hedges, in other  comprehensive  income.  Gross unrealized gains of $770 million
and gross  unrealized  losses of $237 million have been recorded net of deferred
taxes of $208  million as a separate  component  of  stockholders'  equity.  The
adoption of SFAS 133 by the Company has had no material  effect on the Company's
earnings and financial  position for the period ending  September 30, 2000.  The
Company's  objective  with its  investments  is to minimize  the impact of stock
market  declines on the  Company's  earnings  and cash flows.  Continued  market
volatility,  as well as mergers and acquisitions,  have the potential to cause a
material  non-cash  impact on the  operating  results  of the  Company in future
periods.


<PAGE>


PART II.  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

On July 6, 2000, the Company acquired Prophead Development, Inc. in exchange for
the issuance of 291,667 shares of Company Common Stock. The private placement is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.

On August 30, 2000, the Company acquired  LocalEyes  Corporation in exchange for
the issuance of 249,591 shares of Company Common Stock. The private placement is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.

On August 31, 2000,  the Company  acquired  Quack.com,  Inc. in exchange for the
issuance of 3,207,443 shares of Company Common Stock.  The private  placement is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.

On August 31,  2000,  the Company  acquired  iAmaze,  Inc.  in exchange  for the
issuance of 821,839  shares of Company  Common Stock.  The private  placement is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

Form      Item #    Description                                    Filing Date
----      ------    -----------                                    -----------
Form 8-K  5, 7      Announced the consummation of the              July 17, 2000
                    acquisition of MapQuest.com, Inc.



<PAGE>


AMERICA ONLINE, INC.

                                   SIGNATURES

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

                                            AMERICA ONLINE, INC.


DATE: November 9, 2000           SIGNATURE: /s/Stephen M. Case
                                            ------------------------------
                                            Stephen M. Case
                                            Chairman of the Board and
                                            Chief Executive Officer


DATE: November 9, 2000           SIGNATURE: /s/J. Michael Kelly
                                            ------------------------------
                                            J. Michael Kelly
                                            Senior Vice President and
                                            Chief Financial Officer