FORM 10-QA
                                        
                       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:    December 31, 1996

                                       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:
                                     0-19836
                                        
                              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) 448-8700

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 January 31, 1997........................95,858,039



                              AMERICA ONLINE, INC.
                                        
                                      INDEX
                                                       Page
                                        
PART I.   FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets-December 31, 1996
           and June 30, 1996                                3

          Consolidated Statements of Operations-Three
          months ended December 31, 1996 and 1995           4

          Consolidated Statements of Operations-Six
          months ended December 31, 1996 and 1995           5

          Consolidated Statements of Cash Flows-Six
          months ended December 31, 1996 and 1995           6

          Notes to Consolidated Financial Statements        7

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


PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K                 22

Signatures                                                 23



<TABLE>
AMERICA ONLINE, INC. AND SUBSIDIARIES                     
CONSOLIDATED BALANCE SHEETS
RESTATED (See Note 2)                               
(Amounts in thousands, except share data)                 
                                                          
                                            December 31,   June 30,
                                               1996         1996
ASSETS                                      (Unaudited)
                                                          
<S>                                          <C>         <C>
Current assets:                                                 
  Cash and cash equivalents                   $130,189     $118,421
  Short-term investments                             -       10,712
  Trade accounts receivable                     52,147       49,342
  Other receivables                             23,740       23,271
  Prepaid expenses and other current assets     84,300       65,290
     Total current assets                      290,376      267,036
                                                                
Property and equipment at cost, net            129,587      111,090
                                                                
Other assets:                                                   
  Product development costs, net                61,761       44,330
  Deferred subscriber acquisition costs, net         -      314,181
  License rights, net                            6,237        4,947
  Other assets                                  34,768       29,607
  Deferred income taxes                         20,702      135,872
  Goodwill, net                                 42,309       51,691
                                              $585,740     $958,754
                                                                
                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                            
                                                                
Current liabilities:                                            
  Trade accounts payable                      $133,860     $105,904
  Accrued personnel costs                       10,788       15,719
  Other accrued expenses and liabilities       228,049      127,898
  Deferred revenue                              89,606       37,950
  Current portion of long-term debt and                         
    capital lease obligations                    2,249        2,435
       Total current liabilities               464,552      289,906
                                                                
Long-term liabilities:                                          
  Notes payable                                 18,794       19,306
  Deferred income taxes                         20,702      135,872
  Deferred revenue                               5,816            -
  Minority Interests                            10,108            -
  Other liabilities                              1,274        1,168
       Total liabilities                       521,246      446,252
                                                                
Stockholders' equity:                                           
  Preferred stock, $.01 par value; 5,000,000
   shares authorized, 1,000 shares issues
   and outstanding at December 31, 1996                          
   and June 30, 1996                                 1            1
  Common stock, $.01 par value, 300,000,000
   shares authorized, 95,042,766 and                           
   92,626,000 shares issued and outstanding
   at December 31,1996 and June 30, 1996,
   respectively                                    950          926
  Additional paid-in capital                   554,104      519,342
  Accumulated deficit                         (490,561)      (7,767)
        Total stockholders' equity              64,494      512,502
                                              $585,740     $958,754
                                                                
See accompanying notes.                                   
</TABLE>


<TABLE>
AMERICA ONLINE, INC. AND SUBSIDIARIES                       
CONSOLIDATED STATEMENTS OF OPERATIONS
RESTATED (See Note 2)                       
(Amounts in thousands, except per share data)
                                                                 
                                               Three months
                                                  ended
                                                December 31,
                                             1996         1995
                                                (Unaudited)       
<S>                                       <C>            <C>
Revenues:                                                        
                                                                 
   Online service revenues                 $351,220       $224,525
                                                                 
   Other revenues                            58,192         24,620
                                                                 
      Total revenues                        409,412        249,145
                                                                 
Costs and expenses:                                              
                                                                 
   Cost of revenues                         253,294        147,369
                                                                 
   Marketing                                146,777         52,158
                                                                 
   Product development                       13,753          8,889
                                                                 
   General and administrative                48,810         23,986
                                                                 
   Amortization of goodwill                   1,589          1,749
                                                                 
   Restructuring charge                      48,627              -
   
   Settlement charge                         24,300              -
                                                              
      Total costs and expenses              537,150        234,151
                                                                 
Income (loss) from operations              (127,738)        14,994
                                                                 
Other income (expense)                       (1,367)         1,460
                                                                 
                                                                 
Income (loss) before provision for                               
      income taxes                         (129,105)        16,454
                                                                 
Provision for income taxes                        -         (6,924)
                                                                 
Net income (loss)                        $ (129,105)        $9,530
                                                                 
                                                                 
Earnings (loss) per share:                  $ (1.37)         $0.09
                                                                 
Weighted average shares outstanding          94,284        107,177
                                                                 
See accompanying notes.                                
</TABLE>

<TABLE>
AMERICA ONLINE, INC. AND SUBSIDIARIES                       
CONSOLIDATED STATEMENTS OF OPERATIONS
RESTATED (See Note 2)                       
(Amounts in thousands, except per share data)
                                                                  
                                                Six months
                                                  ended
                                               December 31,
                                           1996            1995
                                               (Unaudited)       
<S>                                      <C>           <C>
Revenues:                                                         
                                                                  
   Online service revenues                $662,352      $403,004
                                                                  
   Other revenues                           97,042        44,043
                                                                  
      Total revenues                       759,394       447,047
                                                                  
Costs and expenses:                                               
                                                                  
   Cost of revenues                        447,594       268,781
                                                                  
   Marketing:

      Marketing                            222,649        89,082

      Write-off of deferred subscriber                               
          acquisition costs                385,221             -
                                                                  
   Product development                      27,002        16,134
                                                                  
   General and administrative               84,374        44,466
                                                                  
   Acquired research and development             -        16,981
                                                                  
   Amortization of goodwill                  3,509         3,412
                                                                  
   Restructuring charge                     48,627             -

   Settlement charge                        24,300             -

      Total costs and expenses           1,243,276       438,856
                                                                  
Income (loss) from operations             (483,882)        8,191
                                                                  
Other income                                 1,088         2,292
                                                                   
Income (loss) before provision for                                
      income taxes                        (482,794)       10,483
                                                                  
Provision for income taxes                       -       (11,860)
                                                                  
Net loss                                $ (482,794)     $ (1,377)
                                                                  
                                                                  
Loss per share:                            $ (5.15)      $ (0.02)
                                                                  
Weighted average shares outstanding         93,727        81,048
                                                                  
                                                                  
See accompanying notes.                                     
</TABLE>

<TABLE>
AMERICA ONLINE, INC. AND SUBSIDIARIES                        
CONSOLIDATED STATEMENTS OF CASH FLOWS
RESTATED (See Note 2)                        
(Amounts in thousands)                                       
                                                             
                                                      Six months
                                                        ended
                                                      December 31,
                                                  1996          1995
                                                     (Unaudited)
                                                             
<S>                                               <C>           <C>
Cash flows from operating activities:                        
 Net loss                                          $(482,794)   $(1,377)
 Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities:
   Write-off of deferred subscriber                  
     acquisition costs                               385,221          - 
   Non-cash restructuring charges                     19,937          -
   Depreciation and amortization                      28,363     13,611
   Amortization of subscriber acquisition costs       59,189     41,144
   Loss on sale of property and equipment                  -         44
   Charge for acquired research and development            -     16,981
   Changes in assets and liabilities:                        
         Trade accounts receivable                    (3,258)    (5,208)
         Other receivables                             4,435    (14,316)
         Prepaid expenses and other current assets   (18,690)    (4,882)
         Deferred subscriber acquisition costs      (130,229)  (153,317)
         Other assets                                 (5,976)    (8,865)
         Trade accounts payable                       27,211     28,194
         Accrued personnel costs                      (6,241)     3,297
         Other accrued expenses and liabilities       93,017     14,284
         Deferred revenue                             57,472      6,749
         Deferred income taxes                             -     11,860
         Other liabilities                              (255)       169
                                                             
         Total adjustments                           510,196    (50,255)
                                                             
Net cash provided by (used in) operating activities   27,402    (51,632)
                                                             
Cash flows from investing activities:                        
   Short-term investments                             10,712      9,497
   Purchase of property and equipment                (29,779)   (23,104)
   Product development costs                         (31,976)   (14,291)
   Purchase costs of acquired businesses                (475)    (4,159)
                                                             
Net cash used in investing activities                (51,518)   (32,057)
                                                             
Cash flows from financing activities:                        
   Proceeds from issuance of preferred             
     stock in subsidiary                              15,000          -
   Proceeds from issuance of common stock, net        21,337    162,708
   Principle and accrued interest payments on
     revolving line of credit and long-term debt        (540)       339
   Proceeds (payments) under capital lease obligations    87       (650)
                                                             
Net cash provided by financing activities             35,884    162,397
                                                             
Net increase in cash and cash equivalents             11,768     78,708
Cash and cash equivalents at beginning of period     118,421     45,877
                                                             
Cash and cash equivalents at end of period          $130,189   $124,585
                                                             
Supplemental cash flow information                           
    Cash paid during the period for:                         
        Interest                                        $861       $835
        Income taxes                                       -          -
                                                             
See accompanying notes.                                      
</TABLE>


                      AMERICA ONLINE, INC. AND SUBSIDIARIES
                                        
                   NOTES TO 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 and majority 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 (with the exception of those adjustments discussed in Notes
4, 7 and 8 of the Notes to Consolidated Financial Statements), considered
necessary for a fair presentation, have been included in the accompanying
unaudited financial statements. All significant intercompany transactions and
balances have been eliminated in consolidation.  Prior period financial
statements are restated for business combinations accounted for under the
pooling of interests method of accounting unless the effect of the business
combination is not material to the consolidated financial statements of the
Company.  Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year presentation.  Operating
results for the three and six months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the full year ending June 30,
1997. 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, 1996.

Note 2. Restatement

After discussions with the Staff of the Securities and Exchange Commission, the
accompanying consolidated financial statements for the three and six month
periods ended December 31, 1996, have been restated to remove $25.7 million of
contract termination costs from the Company's December 1996 restructuring charge
and to reflect the actual contract termination charge of approximately $24.5
million in the Company's fourth quarter ended June 30, 1997. The $25.7 million
in contract termination costs, originally recorded in the Company's second
quarter, were based on estimates derived from negotiations conducted by the
Company with certain information providers to terminate then-existing
information provider contracts.  In addition, as a result of the Company's
change from metered pricing to flat-rate pricing, the Company negotiated new
information provider contracts with substantially all of these same information
providers. The aforementioned negotiations took place primarily in the Company's
second and third quarters and were consummated during the Company's fourth
quarter.  The effects of the contract termination agreements and the new
information provider contracts are not reflected until the Company's fiscal 1997
fourth quarter.  Additionally, the aforementioned financial statements have been
restated to (1) reclassify product development amortization expense out of
product development expense to cost of revenues, where it will be reported in
future periods; (2) reclassify capitalized network costs to leasehold
improvements and (3) reclassify the settlement charge to operations. On a
restated basis, the Company's December 31, 1996 quarterly results will improve
by $25.7 million; however, because the contract termination charge will be
recorded by the Company in its fourth quarter ended June 30, 1997, the
restatement will not have a material impact on the Company's fiscal 1997 annual
results.  The effect of these adjustments on the accompanying consolidated
financial statements as of and for the three and six month periods ended
December 31, 1996  is summarized below:

<TABLE>
                             Three months ended       Six months ended
                             December 31, 1996        December 31, 1996
                               As                      As           
                           Originally      As      Originally      As
                            Reported    Restated    Reported    Restated
                                                               
<S>                        <C>         <C>         <C>         <C>
Total stockholders' equity $  38,794   $  64,494   $  38,794   $  64,494
                                                               
Cost of revenues           $ 245,374   $ 253,294   $ 433,597   $ 447,594
                                                               
Product development           21,673   $  13,753   $  40,999   $  27,002
                                                               
Restructuring charge       $  74,327   $  48,627   $  74,327   $  48,627
                                                               
Net loss                   $(154,805)  $(129,105)  $(508,494)  $(482,794)
                                                               
Net loss per share         $   (1.64)  $   (1.37)  $   (5.43)  $   (5.15)
</TABLE>

The reclassifications noted in items (1), (2) and (3) above are included in the
accompanying financial statements for all periods presented.

Note 3. Stockholders' Equity

     In October 1995, the Company completed a public stock offering of 4,963,266
shares of common stock (adjusted for a stock split) which generated net cash
proceeds of approximately $139,500,000.

     During May 1996, the Company sold 1,000 shares of Series B convertible
preferred stock ("the Preferred Stock") for approximately $28,000,000.  The
Preferred Stock has an aggregate liquidation preference of approximately
$28,000,000 and accrues dividends at a rate of 4% per annum.  Accrued dividends
can be paid in the form of additional shares of Preferred Stock.  During May
1998, the Preferred Stock, plus accrued but unpaid dividends, automatically
converts into shares of common stock based on the fair market value of common
stock at the time of conversion.

     In November 1995, the Company effected a two-for-one split of the
outstanding shares of common stock.  Accordingly, all data shown in the
accompanying consolidated financial statements and notes has been retroactively
adjusted to reflect the stock split.

Note 4. Change in Accounting Estimate

     As a result of a change in accounting estimate, the Company recorded a
charge of $385,221,000, as of September 30, 1996, representing the balance of
deferred subscriber acquisition costs as of that date.  The Company had
previously deferred the cost of certain marketing activities, to comply with the
criteria of Statement of Position 93-7 "Reporting on Advertising Costs", and
then amortized those costs over a period determined by calculating the ratio of
current revenues related to direct response advertising versus the total
expected revenues related to this advertising, or twenty-four months, whichever
was shorter. The Company's changing business model is expected to increasingly
reduce its reliance on online service subscriber revenues for the generation of
revenues and profits, by growing high-margin other revenue streams.  These
changing market dynamics, coupled with a lack of historical experience with 
flat-rate pricing, create uncertainties regarding the level of expected future
economic benefits from online service subscriber revenues  (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations").  As
a result, the Company believes it no longer has an adequate accounting basis to
support recognizing deferred subscriber acquisition costs as an asset.

Note 5. Income Taxes

     The effective income tax rate varied from the federal statutory tax rate as
follows:
<TABLE>

                                         Quarter        Six Months
                                          Ended           Ended
                                        12/31/96        12/31/96
                                             
<S>                                     <C>             <C>
Statutory rate                          (34.0%)         (34.0%)
  State income taxes - net of federal
         income tax benefit              (4.0)           (4.0)
  Valuation allowance on net deferred
         tax benefit                     38.0            38.0
Tax Rate                                    -%              -%
</TABLE>


     Deferred income taxes arise because of differences in the treatment of
income and expense items for financial reporting and income tax purposes,
primarily relating to product development costs.

     As of December 31, 1996, the Company had available net operating loss
carryforwards of approximately $584,000,000 for tax purposes, which will be
available, subject to certain annual limitations, to offset future taxable
income.  If not used, these loss carryforwards will expire between 2001 and
2012.  To the extent that net operating loss carryforwards, when realized,
relate to stock option deductions, the resulting benefits will be credited to
stockholders' equity.

     Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 are as follows:

<TABLE>
<S>                                      <C>
Deferred tax liabilities:        
      Capitalized software costs         $ 20,702,000
          Net deferred tax liabilities   $ 20,702,000
                                 
Deferred tax assets:             
      Net operating loss carryforward    $221,996,000
      Other                                14,107,000
          Total deferred tax assets       236,103,000
      Valuation allowance for deferred    
          assets                         (215,401,000)
          Net deferred tax assets       $  20,702,000
</TABLE>


Note 6.  Business Combinations

     On August 5, 1996, the Company purchased 100% of the outstanding common
stock of the ImagiNation Network, Inc. ("INN"), by issuing 362,500 shares of its
common stock for a total purchase price of approximately $14.5 million. The
acquisition was accounted for under the purchase method and accordingly, the
assets and liabilities were recorded based upon their fair values at the date of
acquisition. The results of operations for the three and six months ended
December 31, 1996, include INN's operations from the date of acquisition.

     The following pro forma information is not necessarily indicative of the
combined results that would have occurred had the acquisition taken place at the
beginning of the period, nor is it necessarily indicative of results that may
occur in the future.

<TABLE>
(in thousands, except per share data)

                                         Pro Forma
                                Six months       Six months
                                   ended            ended
                                 12/31/96         12/31/95
                                        (unaudited)
                                           
<S>                            <C>              <C>
Revenues                       $    759,394     $   447,047
Income (loss) from operations      (485,445)          1,916
Net loss                           (484,356)         (7,621)
Loss per share                 $      (5.17)    $     (0.09)
</TABLE>


Note 7.  Legal Proceedings

     The following disclosure is provided as of the quarter ended December 31, 
1996.  For a discussion of recent developments, refer to Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent 
Developments.

     The Company is involved in various legal proceedings, including pending
litigation.  Currently, the Company is a party to numerous class action
lawsuits filed on behalf of subscribers who are seeking damages in connection
with difficulties in accessing the AOL service after the introduction of the
Flat-Rate Plan.  

     The Company believes that it has valid defenses to all litigation pending 
against it and all cases against the Company are, and will continue to be, 
vigorously defended.  Management is unable to make a meaningful estimate of the 
amount or range of loss that could result from an unfavorable outcome of all 
pending litigation.  It is possible that the Company's results of operations or 
cash flows in a particular quarter or annual period or its financial position 
could be materially affected by an ultimate unfavorable outcome of certain 
pending litigation.   Management believes, however, that the ultimate outcome of
all pending litigation should not have a material adverse effect on the 
Company's financial position.

     In the quarter ended December 31, 1996, the Company recorded a charge 
of $24,300,000 related to a legal settlement reached with various State 
Attorneys General to resolve potential claims arising out of the Company's 
introduction of flat-rate pricing and its representation that it would 
provide unlimited access to subscribers.  Pursuant to this legal settlement, 
the Company agreed to make payments to subscribers, according to their 
usage of the AOL service, who may have been injured by their reliance on 
the Company's claim of unlimited access.  These payments do not represent 
refunds of online service revenues, but are rather the compromise and 
settlement of allegations that the Company's advertising of unlimited access 
under its flat-rate pricing plan violated consumer protection laws. 

     In December 1996, the Company agreed with regulators to make additional
efforts to communicate to its subscribers information regarding the Company's
plan to change its pricing.  This agreement resolved the concerns of the 
regulators as reported in the Company's Form 10-Q for the quarter ended 
September 30, 1996.

    Note 8.  Restructuring Charge

     In connection with a restructuring plan adopted in the second quarter of
fiscal 1997, the Company recorded a $48,627,000 restructuring charge associated
with the Company's change in business model, the reorganization of the Company
into three operating units, the termination of approximately 300 employees, and
the shutdown of certain operating divisions and subsidiaries.

The components of the provision are as follows:

<TABLE>
<S>                                 <C>
Write-off of impaired assets and    
   discontinued businesses              $31,215,000
Severance and personnel related           8,734,000 
Other expenses                            8,678,000                     
                                    
Total restructuring charge              $48,627,000
</TABLE>

     Included in the category of write-off of impaired assets and discontinued
businesses are the costs associated with the termination of the GNN service and
the write-off of the related goodwill.  Additionally, the write-off of impaired
assets and discontinued businesses category includes charges associated with
unrealizable software development costs and certain prepaid marketing materials
which are no longer usable under the Company's new business model which includes
the flat-rate pricing structure.  The severance and personnel related category 
includes the costs associated with terminating approximately 300 employees.  
The other expenses category consists primarily of costs incurred as a result 
of the requirements made by various regulatory bodies in connection with the 
Company's termination of its former pricing program.

     The following table summarizes the activity in the restructuring accrual
during the quarter ended December 31, 1996.  The balance of the restructuring
accrual at December 31, 1996 is included in other accrued expenses and
liabilities on the balance sheet.

<TABLE>
<S>                                          <C>
Restructuring charge                         $48,627,000
Payments                                     (15,867,000)
Non-cash adjustments                         (19,937,000)
                                    
Restructuring accrual at December 31, 1996   $12,823,000
</TABLE>


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

Overview

     The following information should be read in conjunction with the
consolidated financial statements and the notes thereto included in Item 1 of
this Quarterly Report, and the consolidated financial statements and the notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's Annual Report on Form 10-K for
the year ended June 30, 1996.

     The Company generates two types of revenues, online service revenues and
other revenues.  Online service revenues are generated by customers subscribing
to the Company's online services.  Other revenues are non-subscription based and
are generated from the Company's base of subscribers as well as businesses.
Other revenues include revenues from sources such as the sale of merchandise,
advertising, the provision of data network services and transaction fees.

     The Company's online service revenues are generated primarily from
subscribers paying a monthly membership fee and, previous to December 1996,
hourly charges based on usage in excess of the number of hours of usage provided
as part of the monthly fee.  Effective December 1, 1996, the Company began
offering several pricing alternatives aimed at providing price points for a wide
range of consumers.  These pricing alternatives are as follows:

*    A standard monthly membership fee providing complete access to AOL,
  including the Internet, for a flat monthly fee of $19.95, with no additional
  hourly charges (the "Flat-Rate Plan").  Subscribers can also choose to prepay
  for two years in advance at the monthly rate of $14.95 or one year in advance
  at the monthly rate of $17.95.

*    An alternative offering three hours of AOL for $4.95 per month, with
  additional time priced at $2.50 per hour.

*    An alternative offering a rate of $9.95 per month for unlimited use of AOL
  - for those subscribers who already have an Internet connection and use this
  connection to access AOL.

     Prior to December 1, 1996, the Company's standard monthly membership fee
for its AOL service, which included five hours of service, was $9.95 per month,
with a $2.95 hourly fee for usage in excess of five hours per month.  Existing
members at December 1, 1996, could retain the $9.95 / five hour pricing upon
request.  For the period July 1, 1996, through November 30, 1996, the Company
also offered a pricing plan which included 20 hours of service for $19.95 per
month, with a $2.95 hourly fee for usage in excess of 20 hours per month (the
"Value Plan").  The Value Plan was discontinued upon the the availability of the
Flat-Rate Plan on December 1, 1996.

     With the introduction of the Flat-Rate Plan, the Company expects a
significant increase in the average usage hours per member per month, and an
attendant decrease in the average revenue per member-hour.  The Company also 
expects that it will experience higher cost of revenues relative to total 
revenues.  The Company plans to minimize the impact of the aforementioned 
expected changes by growing other revenues as well as decreasing costs, on a 
relative basis (either on a per hour basis or as a percentage of total 
revenues), principally through operating cost efficiencies and contract 
renegotiations.  The relative cost decreases are expected to include such costs 
as the per hour costs of the Company's data network, marketing costs and other 
costs.

     As a result of the introduction of the Flat-Rate Plan for AOL and the
Internet, as detailed above, the Company's Internet service, Global Network
Navigator ("GNN"), will be discontinued prior to the end of fiscal 1997.  The
Company had launched GNN in October 1995.

     The growth of the Company's online service revenues is expected to be
driven in the near-term primarily by growth in its subscriber base.  The growth
of the subscriber base is dependent upon the Company's ability to acquire and
retain subscribers.  The Company acquires new subscribers to its services
through an introductory trial offer.  The Company's ability to continue to
acquire new subscribers is dependent upon people continuing to register for its
introductory trial offer.

      The Company experienced generally lower overall retention rates for
the AOL service during fiscal 1996 compared to fiscal 1995.  Retention rates for
AOL subscribers who were early in their membership terms decreased more than the
overall retention rate, with the largest quarterly percentage decrease occurring
in the fourth quarter of fiscal 1996.  The Company believes that factors
contributing to these decreases include: (1) the lack of a flat-rate pricing
plan for the AOL service and (2) an increase in less-qualified new subscribers
as a result of increased direct marketing to the mass consumer audience.  The 
Company believes that the introduction in July 1996 of the Value Plan, the new 
version of AOL introduced in late fiscal 1996, and the introduction of the 
Flat-Rate Plan on December 1, 1996, address many of the factors which most 
directly affect retention.  In addition, the Company plans to increase spending
on programs designed to improve trial conversion and retention rates. The 
Company experienced sequentially higher retention rates in the first and second
quarters of fiscal 1997 compared to the fourth quarter of fiscal 1996.  
Retention rates decreased in January 1997 relative to the average retention rate
for the second quarter of fiscal 1997.  The Company believes that this decrease
is primarily a result of cancellations associated with the high number of
registrations that occurred in December 1996, cancellations associated with
network access problems experienced by certain subscribers, and cancellations
associated with the transition of subscribers to a higher standard monthly fee.

     The average total usage hours per member per month, for AOL
subscribers, has increased in fiscal 1997 over fiscal 1996.  The Company
believes that the principal factor contributing to this increase has been the
availability of the Value Plan through November 1996 and the Flat-Rate Plan
available thereafter, which have allowed members to spend more time online at
less cost. As a result, the Company has experienced an increase in the number of
hours of usage relative to online service revenues, and because the Company does
not have any historical operating experience with flat-rate pricing, there are
uncertainties regarding the level of future economic benefits from online
service subscriber revenues.   Overall average monthly online service revenue
per AOL subscriber in fiscal 1997 is expected to be lower than in fiscal 1996.

     Other revenues are generated primarily from the sale of merchandise,
advertising, data network services, and transaction fees. The growth of other
revenues is important to the Company's business objectives.  In the second
quarter of fiscal 1997, other revenues represented approximately 14% of total
revenues.  Among the Company's business objectives are increasing the 
subscriber base and continuing to accelerate the change in its business model 
into one in which increasingly more revenues and profits are generated from 
sources other than online service subscription revenues, such as merchandise 
sales, advertising, the provision of data network services, and transaction 
fees.  The Company expects that the growth in other revenues, assuming such 
growth continues, will be the primary source of future profit growth, and will 
provide the Company with the opportunity and flexibility to fund programs 
designed to grow the subscriber base and meet other business objectives.

     The online services and Internet markets are highly competitive.  The
Company believes that existing competitors, which include, among others,
commercial Internet-based online services such as CompuServe, and Internet
service providers, such as Prodigy and the Microsoft Network, and including
various national and local independent Internet service providers as well as
long distance and regional telephone companies, including, among others, AT&T
Corporation, MCI Communications Corporation and various regional Bell operating
companies, are likely to enhance and more aggressively market their service
offerings. In addition, new competitors, including Internet directory services
and various media and telecommunications companies,  have entered or announced
plans to enter the online services and Internet markets, resulting in greater
competition for the Company.  Some of the direct competitors and possible future
competitors referred to above may have greater financial, technical, marketing
or personnel resources than the Company.  The competitive environment
could have the following effects: require additional pricing programs and
increased spending on marketing, network capacity, content procurement and
product development; limit the Company's opportunities to enter into and/or
renew agreements with content providers and distribution partners; limit its
ability to develop new products and services; limit the Company's ability to
grow its subscriber base; and result in increased attrition in the Company's
subscriber base.  Any of the foregoing events could have an impact on revenues
and result in an increase in costs as a percentage of revenues.  These factors
may have a material adverse effect on the Company's financial condition and
operating results.


Results of Operations

Online Service Revenues

     For the three months ended December 31, 1996, online service revenues
increased from $224,525,000 to $351,220,000, or 56%, over the three months ended
December 31, 1995. This increase was primarily attributable to a 60% increase in
the number of AOL North American subscribers. The average monthly online service
revenue per AOL North American subscriber decreased from $17.99 in the three
months ended December 31, 1995 to $16.95 in the three months ended December 31,
1996.  This decrease was principally attributable to the availability of the
Value Plan in October and November 1996, and the Flat-Rate Plan in December
1996.

     For the six months ended December 31, 1996, online service revenues
increased from $403,004,000 to $662,352,000, or 64%, over the six months ended
December 31, 1995. This increase was primarily attributable to a 60% increase in
the number of AOL North American subscribers. The average monthly online service
revenue per AOL North American subscriber decreased from $17.85 in the six
months ended December 31, 1995 to $16.90 in the six months ended December 31,
1996.  This decrease was principally attributable to the availability of the
Value Plan from July 1996 through November 1996, and the Flat-Rate Plan in
December 1996.


Other Revenues

     For the three months ended December 31, 1996, other revenues, consisting
principally of the sale of merchandise, advertising, data network services and
transaction fees increased from $24,620,000 to $58,192,000, or 136%, over the
three months ended December 31, 1995.

     For the six months ended December 31, 1996, other revenues increased from
$44,043,000 to $97,042,000, or 120%, over the six months ended December 31,
1995. The increase in both periods was primarily attributable to an increase in
the sale of merchandise and advertising revenues.

Cost of Revenues

     Cost of revenues includes network-related costs, consisting primarily of
data and voice communication costs, costs associated with operating the data
centers and providing customer support, royalties paid to information and
service providers, and the costs of merchandise sold.  For the three months
ended December 31, 1996, cost of revenues increased from $147,369,000 to
$253,294,000, or 72%, over the three months ended December 31, 1995, and
increased as a percentage of total revenues from 59.1% to 61.9%.  For the six
months ended December 31, 1996, cost of revenues increased from $268,781,000 to
$447,594,000, or 67%, over the six months ended December 31, 1995, and decreased
as a percentage of total revenues from 60.1% to 58.9%.

     The increase in cost of revenues for the three and six month periods ended
December 31, 1996 was primarily attributable to an increase in data
communication costs, leased equipment costs, customer support costs, royalties
paid to information and service providers and the costs of merchandise sold.
Data communication costs increased primarily as a result of the larger customer
base and more usage by customers.  Leased equipment costs increased primarily as
a result of additional host computer and network equipment.  Customer support
costs, which include personnel and telephone costs associated with providing
customer support, were higher primarily as a result of the larger customer base.
Royalties paid to information and service providers increased as a result of a
larger customer base and more usage and the Company's addition of more service
content to broaden the appeal of the AOL service.  The costs of merchandise sold
increased as a result of an increase in merchandise revenues.

     The increase in cost of revenues as a percentage of total revenues for the
three months ended December 31, 1996 is primarily attributable to increases in
leased equipment costs, the costs of merchandise sold and royalties paid to
information and service providers.  This increase was partially offset by a
decrease in data communication costs resulting from a lower cost per hour, due
to a higher percentage of traffic generated on the Company's lower cost network,
AOLnet.

     The decrease in cost of revenues as a percentage of total revenues for the
six months ended December 31, 1996 is primarily attributable to a decrease in
data communication costs resulting from a lower cost per hour, due to a higher
percentage of traffic generated on AOLnet.  This decrease was partially offset
by increases in leased equipment costs, the costs of merchandise sold and
royalties paid to information and service providers.

     The Company is building AOLnet, a TCP/IP data network, in order to increase
its network capacity, provide its members with higher speed access, and reduce
the costs of data communication.  As the Company rapidly builds AOLnet, it plans
to continue to manage an increasingly higher percentage of its total traffic to
this network, which would lead to greater network utilization and a lower
overall AOLnet per hour cost.

     The Company expects that gross margins in the near future will be lower 
than those achieved in recent periods.  While the Company expects other 
revenues will increase, and expects that the growth and management of AOLnet 
will provide lower per hour data communication costs, it is anticipated that 
these factors will be more than offset by an increase in the total usage hours,
primarily as a result of the introduction of the Flat-Rate Plan in December 
1996.  Additionally, costs associated with the temporary renting of up to 50,000
additional modems from outside suppliers, which will assist the Company in 
meeting the demand for its online service, are expected to negatively impact 
gross margins.

     As a result of the introduction of the Flat-Rate Plan and the expected
significant increase in total usage hours, and an attendant decrease in average
revenue per member-hour, certain significant information provider contracts 
have become uneconomic.  The Company began negotiations with these information 
providers in the December 31, 1996 quarter to terminate these contracts and 
enter into new information provider contracts, effective January 1, 1997, which
will be structured as either flat-fee contracts or usage-based contracts under 
which royalty payments to those information providers will be calculated using 
an average revenue per member-hour rather than a fixed hourly revenue rate, and
thus will be economic to the Company as royalties under those contracts will
not be significantly impacted by increases in usage, assuming that present and
expected usage patterns continue.  As a result of these new information 
provider contracts, royalties paid to information providers are not expected to 
materially impact cost of revenues in the future.  Substantially all of the new 
information provider contracts were consummated in the quarter ended June 30, 
1997, and the effects of those contracts, including the retroactive provisions, 
will be recorded in that period.

Marketing and Write-off of Deferred Subscriber Acquisition Costs

     Marketing expenses include the costs to acquire and retain subscribers and
other general marketing costs.  For the three months ended December 31, 1996,
marketing expenses increased from $52,158,000 to $146,777,000, or 181%, over the
three months ended December 31, 1995, and increased as a percentage of total
revenues from 20.9% to 35.9%.  For the six months ended December 31, 1996,
marketing expenses increased from $89,082,000 to $222,649,000, or 150%, and
increased as a percentage of total revenues from 19.9% to 29.3%.
     
     The increase in marketing expenses, and as a percentage of total revenues,
for the three and six month periods ended December 31, 1996, was primarily
attributable to a change in accounting estimate at September 30, 1996, which
resulted in subscriber acquisition costs being currently expensed for periods
subsequent to the first quarter of fiscal 1997, versus being capitalized and
amortized over twenty-four months in fiscal 1996 and in the first quarter of
fiscal 1997.  In addition, the balance of deferred subscriber acquisition costs
as of September 30, 1996, totaling $385,221,000, was written off as a result of
this change in accounting estimate. For additional information regarding this
change, refer to Note 4 of the Notes to Consolidated Financial Statements.

     For the three months ended December 31, 1996, marketing expenses, before
capitalization and amortization, increased from $108,805,000 to $146,777,000, or
35%, over the three months ended December 31, 1995, and decreased as a
percentage of total revenues from 43.7% to 35.9%.  For the six months ended
December 31, 1996, marketing expenses, before capitalization and amortization,
increased from $201,255,000 to $293,689,000, or 46%, and decreased as a
percentage of total revenues from 45.0% to 38.7%.
     
     The increase in marketing expenses for the three and six month periods
ended December 31, 1996, before capitalization and amortization, was primarily
attributable to an increase in the size and number of marketing programs
designed to expand the Company's subscriber base as well as an increase in
general marketing expenses.  The decrease in marketing expenses as a percentage
of total revenues for the three and six month periods ended December 31, 1996,
before capitalization and amortization, was primarily the result of the
substantial growth in revenues, which more than offset the additional marketing
expenses.
     
     Marketing expenses, and as a percentage of total revenues, are anticipated
to increase in fiscal 1997 over fiscal 1996.  These anticipated increases are
primarily attributable to the change in accounting estimate, which will result
in a substantial portion of subscriber acquisition costs being currently
expensed in fiscal 1997, versus being capitalized and amortized over 24 months
in fiscal 1996.
     
     Marketing expenses, before capitalization and amortization, are expected to
increase in fiscal 1997 over fiscal 1996.  This anticipated increase is
primarily attributable to increased spending required to maintain and grow a
larger subscriber base.  Marketing expenses as a percentage of total revenues,
before capitalization and amortization, are anticipated to decrease in fiscal
1997 over fiscal 1996.  This anticipated decrease is primarily attributable to
the Company having a more competitively priced product offering.

Product Development

     Product development costs include research and development expenses and 
other product development costs. For the three months ended December 31, 1996, 
product development costs increased from $8,889,000 to $13,753,000, or 55%, 
over the three months ended December 31,1995, and decreased as a percentage of 
total revenues from 3.6% to 3.4%. For the six months ended December 31, 1996, 
product development costs increased from $16,134,000 to $27,002,000, or 67%, 
over the six months ended December 31, 1995, and remained flat as a percentage 
of total revenues at 3.6%. The increases in product development costs were 
primarily attributable to increases in personnel costs related to an increase 
in the number of technical employees.  The decrease in product development costs
as a percentage of total revenues for the three months ended December 31, 1996, 
were primarily attributable to the substantial increase in revenues, which more
than offset the additional product development costs.

General and Administrative

     For the three months ended December 31, 1996, general and administrative
expenses increased from $23,986,000 to $48,810,000, or 103%, over the three
months ended December 31, 1995, and increased as a percentage of total revenues
from 9.6% to 11.9%. For the six months ended December 31, 1996, general and
administrative expenses increased from $44,466,000 to $84,374,000, or 90%, over
the six months ended December 31, 1995, and increased as a percentage of total
revenues from 9.9% to 11.1%.  The increases in general and administrative costs,
and such costs as a percentage of total revenues, were principally attributable
to higher office-related expenses, related to an increase in the number of
employees as well as an increase in office space.  This increase in office-
related expenses included costs associated with certain subsidiaries which were
present in the fiscal 1997 periods only, including Digital City, Inc. and INN.
Additionally, there were increases in professional services, personnel and
travel costs.

Acquired Research and Development

     Acquired research and development costs, totaling $16,981,000 for the six
months ended December 31, 1995, relate to in-process research and development
purchased pursuant to the Company's acquisition of Ubique, Ltd. in September
1995.

Amortization of Goodwill

     Goodwill is being amortized on a straight-line basis over periods ranging
from five to ten years.  Amortization of goodwill decreased to $1,589,000 in the
three months ended December  31, 1996, from $1,749,000 in the three months ended
December 31, 1995.  The decrease in amortization of goodwill is primarily
attributable to a write-off of the goodwill associated with GNN, partially
offset by goodwill associated with various purchases made by the Company,
including INN, all of which occurred subsequent to the second quarter of fiscal
1996.  In connection with the fiscal 1997 second quarter restructuring charge
(see Note 8 of the Notes to Consolidated Financial Statements), the Company
wrote-off approximately $8.2 million of capitalized goodwill associated with
GNN.
     
     Amortization of goodwill increased to $3,509,000 in the six months ended
December 31, 1996, from $3,412,000 in the three months ended December 31, 1995.
The increase in amortization of goodwill is primarily attributable to goodwill
associated with various purchases made by the Company, including INN, most of
which occurred subsequent to the second quarter of fiscal 1996, partially offset
by a reduction in goodwill associated with GNN.


Restructuring Charge

     In connection with a restructuring plan adopted in the second quarter of
fiscal 1997, the Company recorded a $48,627,000 restructuring charge associated
with the Company's change in business model, the reorganization of the Company
into three operating units, the termination of approximately 300 employees, and
the shutdown of certain operating divisions and subsidiaries.  For additional
information regarding this charge, refer to Note 8 of the Notes to Consolidated
Financial Statements.

Settlement Charge

     In the quarter ended December 31, 1996, the Company recorded a charge of 
$24,300,000 related to a legal settlement reached with various State Attorneys 
General to resolve potential claims arising out of the Company's introduction of
flat-rate pricing and its representation that it would provide unlimited access
to subscribers.  Pursuant to this legal settlement, the Company agreed to make
payments to subscribers, according to their usage of the AOL service, who may 
have been injured by their reliance on the Company's claim of unlimited access.
These payments do not represent refunds of online service revenues, but are 
rather the compromise and settlement of allegations that the Company's 
advertising of unlimited access under its flat-rate pricing plan violated 
consumer protection laws.

Other Income (Expense)

     Other income consists primarily of investment income and non-operating
gains net of interest expense and non-operating charges.  The Company had other
expense of $1,367,000 and other income of $1,460,000 in the three months ended
December 31, 1996 and 1995, respectively.  The Company had other income of
$1,088,000 and $2,292,000 in the six months ended December 31, 1996 and 1995,
respectively.  The change in other income (expense) for the three months ended
December 31, 1996, was primarily attributable to non-operating losses related to
various investments and a decrease in investment income partially offset by the
allocation of minority interest losses.  The decrease in other income for the
six months ended December 31, 1996 was primarily attributable to non-operating
losses related to various investments partially offset by the allocation of
minority interest losses.

Provision for Income Taxes

     The provision for income taxes was $0 and $6,924,000 in the three months
ended December 31, 1996 and 1995, respectively and $0 and $11,860,000 in the six
months ended December 31, 1996 and 1995, respectively.  For additional
information regarding income taxes, refer to Note 5 of the Notes to Consolidated
Financial Statements.

Net Income (Loss)

     The net loss was $129,105,000 in the three months ended December 31, 1996,
compared to net income of $9,530,000 in the three months ended December 31,
1995.  The net loss was $482,794,000 and $1,377,000 in the six months ended
December 31, 1996 and 1995, respectively.   The net loss in the three months
ended December 31, 1996 included a restructuring charge of $48,627,000 and a
settlement charge of $24,300,000.  The net loss in the six months ended December
31, 1996 included a charge of $385,221,000 for the write-off of deferred
subscriber acquisition costs.  The net loss in the six months ended December 31,
1995 included a charge of $16,981,000 for acquired research and development.

Liquidity and Capital Resources

     The Company has financed its operations through cash generated from
operations and the sale of its capital stock.  The Company has financed its
investments in facilities and telecommunications equipment principally through
leasing.  Net cash provided by (used in) operating activities was $27,402,000
and $(51,632,000) in the six months ended December 31, 1996 and 1995,
respectively.  Included in operating activities were expenditures for deferred
subscriber acquisition costs of $130,229,000 and $153,317,000 in the six months
ended December 31, 1996 and 1995, respectively, as well as an increase in other
accrued expenses and liabilities of $93,017,000 in the six months ended
December 31, 1996, principally related to an increase in telecommunications 
accruals, the accrual of the settlement charge (refer to Note 7 of the Notes
to Consolidated Financial Statements), and accruals associated with the
restructuring charge (refer to Note 8 of the Notes to Consolidated Financial
Statements). Net cash used in investing activities was $51,518,000 and
$32,057,000 in the six months ended December 31, 1996 and 1995, respectively.
Net cash provided by financing activities was $35,884,000 and $162,397,000 in
the six months ended December 31, 1996 and 1995, respectively.  Included in
financing activities was $15,000,000 in the six months ended December 31, 1996
representing proceeds from the sale of preferred stock in a subsidiary
corporation, and approximately $139,500,000 in the six months ended December 31,
1995 representing proceeds from a public stock offering of common stock.

     In May 1996, the Company entered into a joint venture with Mitsui & Co.,
Ltd. (Mitsui) and Nihon Keizai Shimbun, Inc. (Nikkei) to offer interactive
online services in Japan.  In connection with the agreement, the Company
received approximately $28,000,000 through the sale of convertible preferred
stock to Mitsui.  The preferred stock has an aggregate liquidation preference of
approximately $28,000,000 and accrues dividends at a rate of 4% per annum.
Accrued dividends can be paid in the form of additional shares of preferred
stock.  During May 1998, the preferred stock, together with accrued but unpaid
dividends, automatically converts into shares of common stock based on the fair
market value of common stock at the time of conversion.

     The Company leases the majority of its facilities and equipment under non-
cancelable operating leases, and is building AOLnet, its data communications
network, as well as expanding its host server and data center capacity.  The
buildout of AOLnet and the expansion of host server and data center capacity
requires a substantial investment in telecommunications and server equipment, as
well as facilities, which the Company plans to finance principally through
leasing and asset-backed debt financing.  The Company plans to make investment
commitments of up to $350,000,000 in the second half of fiscal 1997 in order to
increase its network, host server and data center capacity.

     The Company uses its working capital to finance ongoing operations and to
fund marketing and content programs and the development of its products and
services.  The Company plans, after a short-term slowdown in marketing while the
Company increases its network capacity, to continue to invest aggressively in
subscriber acquisition marketing and content programs to expand its subscriber
base, as well as in network, computing and support infrastructure.
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 available cash and cash provided by operating activities will
be sufficient to fund its operations for the next twelve months, including
certain costs associated with the fiscal 1997 second quarter restructuring and
settlement charges.

Seasonality

     In April 1996, the Company began to see the effects of seasonality in both
member acquisitions and in the amount of time spent by customers using its
services.  The Company may have experienced the effects of seasonality in
previous periods, but the effects, if any, were not discernible due to the
masking effect resulting from the Company's substantial growth rates in those
periods.  The Company expects that seasonality will have an effect in the
future.  The growth in the subscriber base is expected 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.  Customer usage is expected to
be lower in the summer months due largely to extended daylight hours and
competing outdoor leisure activities.

Inflation

     The Company believes that inflation has not had a material effect on its
results of operations.

Recent Developments

     In February 1997, a class action lawsuit (Orman v. America Online, Inc., 
et al.) was filed against the Company, its officers and directors and its 
outside auditors alleging violations of the federal securities laws between 
August 10, 1995 and October 29, 1996.  In July 1997, the original complaint 
was dismissed against all defendants.  On August 11, 1997, an amended class 
action complaint was filed against the Company, its Chief Executive Officer and 
its Chief Financial Officer.  A shareholder derivative suit related to the 
Orman lawsuit has also been filed against the Company's directors in Delaware 
chancery court.  

     The Company believes that it has valid defenses to all litigation pending 
against it and all cases against the Company are, and will continue to be, 
vigorously defended.  Management is unable to make a meaningful estimate of the 
amount or range of loss that could result from an unfavorable outcome of all 
pending litigation.  It is possible that the Company's results of operations or 
cash flows in a particular quarter or annual period or its financial position 
could be materially affected by an ultimate unfavorable outcome of certain 
pending litigation.   Management believes, however, that the ultimate outcome of
all pending litigation should not have a material adverse effect on the 
Company's financial position.

Forward-Looking Statements

     In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors could cause the Company's actual results to differ
materially from those projected in forward-looking statements made by, or on
behalf of, the Company:

     Factors related to increased competition from existing and new competitors,
including price reductions and increased spending on marketing, network
capacity, content procurement and product development; limitations on the
Company's opportunities to enter into and/or renew agreements with content
providers and distribution partners; limitations on its ability to develop new
products and services; limitations on its ability to continue to grow its
subscriber base; increased membership acquisition costs; lower average monthly
revenue per subscriber and increased attrition in the Company's subscriber base.

     Factors related to the new standard monthly membership fee (the Flat-Rate
Plan), and other new pricing alternatives, which became available December 1,
1996, including uncertainty of: the effect on average cost per subscriber
acquisition and retention rates;  the amount of time spent by members using the
AOL service under each pricing alternative; and the percentage of members who
sign up under each pricing alternative relative to their usage patterns.

     Risks related to the buildout of AOLnet and the expansion of host server
and data center capacity, including the inability to expand network, host server
and data center capacity at a rate to sufficiently satisfy subscriber demands,
which accelerated substantially as a result of the introduction of flat-rate
pricing; the failure of any of the Company's network providers; the failure to
procure certain component parts required to expand AOLnet capacity, and for
which supply shortages currently exist, including modems, circuits, routers, and
local exchange carrier lines from local telephone companies; the failure to
obtain the necessary financing for the buildout of AOLnet and the expansion of
host server and data center capacity; and the risk that demand will not develop
for the capacity AOLnet will provide.

     Any damage or failure to the Company's computer equipment and the
information stored in its data centers, such as damage by fire, power loss,
telecommunications failures, unauthorized intrusions and other events, that
causes interruptions in the Company's operations, or any interruptions or
service outages caused by software defects or server and network expansion.

     The Company's inability to manage its growth and to adapt its
administrative, operational, customer support and financial control systems to
the needs of the expanded entity and subscriber base; and the failure of
management to anticipate, respond to and manage changing business conditions.

     The failure of the Company or its partners to successfully market, sell and
deliver its services in international markets; and risks inherent in doing
business on an international level, such as laws governing content that differ
greatly from those in the U.S., unexpected changes in regulatory requirements,
political risks, export restrictions, export controls relating to encryption
technology, tariffs and other trade barriers, fluctuations in currency exchange
rates, issues regarding intellectual property and potentially adverse tax
consequences.

     The possibility of a moderating growth rate in the sale of new computers in
the U.S. and, to some extent, internationally; general or specific economic
conditions; the ability and willingness of purchasers to substitute other
services for AOL; the perceived absolute or relative overall value of these
services by the purchasers, including the features, quality and pricing compared
to other competitive services; smaller market or slowing of market growth for
such services.

     The amount and rate of growth in the Company's marketing and general and
administrative expenses; the implementation of new marketing programs and
promotional offers; the implementation of additional pricing programs; and the
impact of unusual items resulting from the Company's ongoing evaluation of its
business strategies, asset valuations and organizational structures.

     Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship new
products and technologies when anticipated, including, but not limited to, new
client software and new features and functionality, and the failure to develop
new technology or modify existing technology to incorporate new standards and
protocols.

     The acquisition of businesses, fixed assets and other assets and
acquisition related risks, including successful integration and management of
acquired technology, operations and personnel, the loss of key employees of the
acquired companies, and diversion of management attention from other ongoing
business concerns; the making or incurring of any expenditures and expenses,
including, but not limited to, depreciation and significant charges for in-
process research and development or other matters; and any revaluation of assets
or related expenses.

     The ability of the Company to diversify its sources of revenue through the
introduction of new products and services and through the development of new
revenue sources, such as merchandise sales, advertising, the provision of data
network services and transactions.

     The effects of, and changes in, trade, monetary and fiscal policies, laws
and regulations, other activities of governments, agencies and similar
organizations, and social and economic conditions, such as trade restrictions or
prohibitions, inflation and monetary fluctuations, import and other charges, or
federal, state, local and other taxes.

     The loss of the services of executive officers and other key employees; and
the Company's continued ability to attract and retain highly skilled and
qualified personnel.

     The costs and other effects of litigation, governmental investigations,
legal and administrative cases and proceedings (whether civil, such as
environmental and product-related, or criminal), settlements, judgments and
investigations, claims, and changes in those items, and developments or
assertions by or against the Company relating to intellectual property rights
and intellectual property licenses.

     Adoptions of new, or changes in, accounting policies, practices and
estimates and the application of such policies, practices and estimates.

     The effects of any activities of parties with which the Company has an
agreement or understanding, including any issues affecting any investment or 
joint venture in which the Company has an investment; the amount, type and cost
of the financing which the Company has, and any changes to that financing.


PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings

     For a discussion of legal proceedings, refer to Note 7 of Notes to
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments.

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

      On October 31, 1996 the Company submitted various matters to a vote of
      its shareholders at its Annual Meeting of Shareholders.  A brief
      description of matters voted upon at the Meeting and the results of the
      voting follows:

      (1)  To elect three members to the Board of Directors to serve for a term
           ending in 1999 and until their successors are duly elected and 
           qualified.
      
           Stephen M. Case, William N. Melton and Thomas Middelhoff were elected
           to the Board of Directors to serve for a three year period ending in
           1999.

      
      (2)  To consider and act upon a proposal to ratify the appointment of 
           Ernst & Young LLP as the Company's independent public accountants for
           the fiscal year ending June 30, 1997.
      
           For         79,150,888
           Against        312,079
           Abstain         70,414

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/A   7      Amendment of a Current Report   October 21, 1996
                              on Form 8-K filed on August 20,
                              1996 to add financial statements
                              and exhibits

          Form 8-K    5, 7    Press Release regarding the     November 6, 1996
                              Registrant's decision to expense
                              all of its marketing costs as 
                              they are incurred rather than
                              amortizing certain marketing
                              expenses


                              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: September 12, 1997     SIGNATURE: /s/Stephen M. Case
                                        Stephen M. Case
                                        Chief Executive Officer




DATE: September 12, 1997     SIGNATURE: /s/Lennert J. Leader
                                        Lennert J. Leader
                                        Chief Financial Officer
                                        (Principal Financial and Accounting
                                         Officer)