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: December 31, 1999

                                       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 January 31, 2000.............................2,281,767,899



<PAGE>


                              AMERICA ONLINE, INC.

                                      INDEX

                                                                            Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

        Condensed Consolidated Balance Sheets - December 31, 1999
        and June 30, 1999                                                      3

        Condensed Consolidated Statements of Operations - Three and six
        months ended December 31, 1999 and 1998                                4

        Condensed Consolidated Statements of Cash Flows - Six

        months ended December 31, 1999 and 1998                                5

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

        December 31, 1999                                                      6

        Notes to Condensed Consolidated Financial Statements                   7

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

        and Results of Operations                                             11

Item 3. Quantitative and Qualitative Disclosures About Market Risk            17

PART II. OTHER INFORMATION                                                    19

Item 1.           Legal Proceedings                                           19

Item 2.           Changes in Securities and Use of Proceeds                   19

Item 4.           Submission of Matters to a Vote of Security Holders         19

Item 6.           Exhibits and Reports on Form 8-K                            20

Signatures                                                                    21


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                    (Amounts in millions, except share data)

                                                                                      December 31,  June 30,
                                                                                          1999         1999
                                                                                      -------------  --------
                                                                                       (Unaudited)
                                     ASSETS

Current assets:
<S>                                                                                       <C>         <C>
Cash and cash equivalents...........................................................      $ 2,535     $  887
Short-term investments..............................................................          518        537
Trade accounts receivable, less allowances of $57 and $54, respectively.............          372        323
Other receivables...................................................................          111         79
Prepaid expenses and other current assets...........................................          280        153
                                                                                      ------------  ---------
Total current assets................................................................        3,816      1,979

Property and equipment at cost, net.................................................          890        657

Other assets:
Investments including available-for-sale securities.................................        4,902      2,151
Product development costs, net......................................................          122        100
Goodwill and other intangible assets, net...........................................          409        454
Other....................................................................... .......          162          7
                                                                                      ------------  --------
                                                                                          $10,301     $5,348
                                                                                      ============ =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable..............................................................      $    65     $   74
Other accrued expenses and liabilities..............................................        1,048        795
Deferred revenue....................................................................          787        646
Accrued personnel costs.............................................................          186        134
Deferred network services credit....................................................           76         76
                                                                                      ------------  ---------
Total current liabilities...........................................................        2,162      1,725

Long-term liabilities:
Notes payable.......................................................................        1,581        348
Deferred revenue....................................................................          131         30
Other liabilities...................................................................           17         15
Deferred network services credit....................................................          159        197
                                                                                      ------------  ---------
Total liabilities...................................................................        4,050      2,315

Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued
  or outstanding at December 31 and June 30, 1999...................................            -          -
Common stock, $.01 par value; 6,000,000,000 shares authorized,
  2,279,263,258 and 2,201,787,866 shares issued and outstanding at
  December 31 and June 30, 1999, respectively.......................................           23         22
Additional paid-in capital..........................................................        4,165      2,692
Accumulated other comprehensive income - unrealized gain on
  available-for-sale securities, net................................................        1,467        168
Retained earnings...................................................................          596        151
                                                                                      ------------  ---------
Total stockholders' equity..........................................................        6,251      3,033
                                                                                      ------------  --------
                                                                                          $10,301     $5,348
                                                                                      ============ =========


                             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    Six months ended
                                                         December 31,         December 31,
                                                       1999      1998       1999       1998
                                                      -------  --------    -------  --------
Revenues:
<S>                                                   <C>       <C>        <C>       <C>
Subscription services.................................$1,067    $  786     $2,062    $1,509
Advertising, commerce and other.......................   437       244        787       419
Enterprise solutions..................................   117       118        239       219
                                                      -------  --------    -------  --------
Total revenues........................................ 1,621     1,148      3,088     2,147

Costs and expenses:
Cost of revenues......................................   830       640      1,621     1,223
Sales and marketing...................................   261       202        470       376
Product development...................................    74        70        141       137
General and administrative............................   150        95        267       177
Amortization of goodwill and other intangible assets..    17        16         35        32
Merger charges........................................     5         2          5         2
                                                      -------  --------    -------  --------
Total costs and expenses.............................. 1,337     1,025      2,539     1,947

Income from operations... ............................   284       123        549       200
Other income, net.....................................   160        16        197        21
                                                      -------  --------    -------  --------
Income before provision for income taxes..............   444       139        746       221
Provision for income taxes............................  (173)      (24)      (291)      (30)
                                                      -------  --------    -------  --------
Net income............................................$  271    $  115     $  455    $  191
                                                      =======  ========    =======  ========

Earnings per share:
Earnings per share-basic..............................$ 0.12    $ 0.06     $ 0.20    $ 0.10
Earnings per share-diluted............................$ 0.10    $ 0.05     $ 0.18    $ 0.08
Weighted average shares outstanding-basic............. 2,259     2,025      2,240     2,007
Weighted average shares outstanding-diluted........... 2,610     2,444      2,592     2,419



                             See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                              AMERICA ONLINE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                              (Amounts in millions)

                                   (Unaudited)

                                                                                        Six months ended
                                                                                           December 31,
                                                                                         1999      1998
                                                                                        -------   -------
Cash flows from operating activities:

<S>                                                                                     <C>      <C>
Net income ............................................................................ $  455   $  191
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash restructuring charges.........................................................      2        -
Amortization of deferred network services credit.......................................    (38)     (38)
Depreciation and amortization..........................................................    157      139
Compensatory stock options.............................................................      6        8
Deferred income taxes..................................................................    289       27
Gain on available-for-sale securities..................................................   (124)      (2)
Changes in assets and liabilities, net of the effects of acquisitions and dispositions:
  Trade accounts receivable............................................................    (49)     (45)
  Other receivables....................................................................    (32)     (19)
  Prepaid expenses and other current assets............................................   (117)     (42)
  Other assets.........................................................................   (125)       1
  Investments including available-for-sale securities..................................   (149)     (19)
  Accrued expenses and other current liabilities.......................................    282       40
  Deferred revenue and other liabilities...............................................    239       57
                                                                                        -------  -------
Total adjustments......................................................................    341      107
                                                                                        -------  -------
Net cash provided by operating activities..............................................    796      298

Cash flows from investing activities:

Purchase of property and equipment.....................................................   (329)    (141)
Product development costs..............................................................    (38)     (21)
Proceeds from sale of investments including available-for-sale securities..............     20       26
Purchase of investments including available-for-sale securities.......................    (302)    (121)
Proceeds of short-term investments, net................................................     18      115
Proceeds from acquisition/disposition of subsidiaries..................................     10       25
Other investing activities.............................................................      4      (16)
                                                                                        -------  -------
Net cash used in investing activities..................................................   (617)    (133)

Cash flows from financing activities:

Proceeds from issuance of common stock, net...........................................     259      663
Principal and accrued interest payments on debt.......................................     (11)     (11)
Payment of deferred finance costs and other financing activities, net.................     (29)       8
Proceeds from issuance of debt........................................................   1,250       29
                                                                                         ------  -------
Net cash provided by financing activities..............................................  1,469      689
                                                                                         ------  -------
Net increase in cash and cash equivalents..............................................  1,648      854
Cash and cash equivalents at beginning of period.......................................    887      677
                                                                                        -------  -------
Cash and cash equivalents at end of period............................................. $2,535   $1,531
                                                                                        =======  =======
Supplemental cash flow information
Cash paid during the period for:

Interest............................................................................... $    9   $    9
                                                                                        =======  =======


                             See accompanying notes.
</TABLE>


<PAGE>
<TABLE>


                              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     Total
                                           --------------  ------- ---------  ---------------  ------------ ---------

<S>                                         <C>              <C>     <C>         <C>              <C>         <C>
Balances at June 30, 1999.................  2,201,787,866    $ 22    $ 2,692     $   168          $ 151       $3,033
Effect of immaterial pooling...........         4,794,580       -         16           -            (10)           6
Common stock issued:
  Exercise of options, ESPP and other..        70,551,676       1        360           -              -          361
  Amortization of compensatory
     stock options........................              -       -          6           -              -            6
Unrealized gain on
   available-for-sale securities, net.....              -       -        796       1,299              -        2,095
Conversion of debt........................      2,129,136       -         13           -              -           13
Tax benefit related to stock options......              -       -        282           -              -          282
Net income................................              -       -          -           -            455          455
                                           --------------  ------- ---------  ---------------  ------------ ---------
Balances at December 31, 1999............  2,279,263,258     $ 23    $ 4,165     $ 1,467          $ 596       $6,251
                                           ==============  ======= =========  ===============  ============ ===========



                             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 and majority owned  subsidiaries,  have been prepared in accordance  with
accounting  principles  generally  accepted  in the United  States  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  financial  statements.  All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation. Operating results for the three and six months ended December 31,
1999 are not necessarily  indicative of the results that may be expected for the
full  year  ending  June  30,  2000.  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, 1999.

Note 2.  Earnings Per Share

         The  following  table sets forth the  computation  of basic and diluted
earnings  per share for the three and six months  ended  December  31,  1999 and
1998:

<TABLE>

                                                                Three months ended   Six months ended
                                                                    December 31,       December 31,
     (in millions except for per share data)                       1999     1998      1999     1998
                                                                 -------- --------   -------- --------
     Basic earnings per share:

     <S>                                                         <C>      <C>        <C>      <C>
     Net income available to common shareholders................ $   271  $   115    $   455  $   191
                                                                 -------- --------   -------- --------
     Weighted average shares outstanding........................   2,259    2,025      2,240    2,007

     Basic earnings per share................................... $  0.12  $  0.06    $  0.20  $  0.10
                                                                 ======== ========   ======== ========


     Diluted earnings per share:

     Net income available to common shareholders................ $   271  $   115    $   455  $   191
     Interest on convertible debt, net of tax...................       2        -          3        -
                                                                 -------- --------   -------- --------
     Adjusted net income available to common shareholders
        assuming conversion..................................... $   273  $   115    $   458  $   191
                                                                 -------- --------   -------- --------
     Weighted average shares outstanding........................   2,259    2,025      2,240    2,007
     Effect of dilutive securities:
        Employee stock options..................................     312      362        313      355
        Warrants................................................       -       57          -       57
        Convertible debt........................................      39        -         39        -
                                                                 -------- --------   -------- --------
     Adjusted weighted average shares and assumed conversions...   2,610    2,444      2,592    2,419
                                                                 ======== ========   ======== ========
     Diluted earnings per share................................. $  0.10  $  0.05    $  0.18  $  0.08
                                                                 ======== ========   ======== ========
</TABLE>

Note 3.  Comprehensive Income

         For the three  months ended  December 31, 1999 and 1998,  comprehensive
income was $1.3 billion and $142 million, respectively. For the six months ended
December  31,  1999 and 1998,  comprehensive  income was $1.8  billion  and $173
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 4.  Merger and Restructuring Charges

         During the quarter  ended  December 31, 1999,  the Company  recorded $5
million of direct  costs  related to the  merger of Tegic  Communications,  Inc.
("Tegic"). These charges primarily consisted of investment banker fees, fees for
legal  and  accounting  services  and other  expenses  directly  related  to the
transaction. All these costs have been paid as of December 31, 1999.

<PAGE>

         During fiscal 1999, the Company recorded the following  charges related
to mergers and restructurings:

o             Approximately $15 million of direct costs primarily related to the
              mergers  of  MovieFone,   Inc.  ("MovieFone"),   Spinner  Networks
              Incorporated  ("Spinner") and Nullsoft,  Inc. ("Nullsoft").  These
              charges primarily  consisted of investment banker fees,  severance
              and other personnel costs, fees for legal and accounting  services
              and other expenses directly related to the transaction.

o             Approximately $78 million of direct costs primarily related to the
              mergers of Netscape  Communications  Corporation  ("Netscape") and
              When,  Inc. and the  Company's  reorganization  plans to integrate
              Netscape's  operations  and build on the strengths of the Netscape
              brand  and  capabilities.   This  charge  primarily   consists  of
              investment  banker  fees,  severance  and  other  personnel  costs
              (related to the elimination of approximately 850 positions),  fees
              for legal and  accounting  services  and other  expenses  directly
              related to the transaction.

o             Approximately  $2 million in merger  related  costs in  connection
              with the  merger of AtWeb,  Inc.  These  expenses  were  primarily
              associated with fees for investment banking,  legal and accounting
              services,  severance costs and other related charges in connection
              with the transaction.

         The following table summarizes the activity during the six months ended
December 31, 1999 for the charges  recorded  during fiscal 1999.  The balance of
the restructuring  accrual is included in other accrued expenses and liabilities
on the consolidated  balance sheet and is expected to be  substantially  paid by
the end of this fiscal year.

<TABLE>

                                             Balance                              Balance
                                             June 30,     Non Cash              December 31,
                                               1999         Items     Payments      1999
                                           -------------   --------   --------    --------
                                                      (Amounts in millions)
         Banking, legal, regulatory
         <S>                                    <C>            <C>       <C>        <C>
           and accounting fees...........       $ 4            $ -       $ (4)      $ -
         Severance and related costs.....        11             (2)        (4)        5
         Facilities shutdown costs.......         8              -         (1)        7
         Miscellaneous expenses..........        (3)             -          -        (3)
                                           -------------   --------   --------    --------
         Total...........................       $20           $ (2)      $ (9)      $ 9
                                           =============   ========   ========    ========
</TABLE>

Note 5.  Segment Information

         There are no intersegment revenues between the two reportable 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 two operating segments.  Charges that cannot
be  allocated  are  reported  as  general  &  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           Six months ended
                                                  December 31,                December 31,
                                                1999         1998           1999         1998
                                           ------------   -----------   ------------  -----------
                                                           (Amounts in millions)

     Revenues:
     <S>                                        <C>          <C>            <C>          <C>
     Interactive Online Services...........     $1,504       $1,030         $2,849       $1,928
     Enterprise Solutions..................        117          118            239          219
                                           ------------   -----------   ------------  -----------
         Total revenues....................     $1,621       $1,148         $3,088       $2,147

     Income (loss) from operations:

     Interactive Online Services (1).......     $  381       $  206         $  713       $  358
     Enterprise Solutions  (2).............         22           (4)            48          (11)
     General & Administrative..............       (114)         (77)          (207)        (145)
     Other (3) ............................         (5)          (2)            (5)          (2)
                                           ------------   -----------   ------------  -----------
         Total income from operations......     $  284       $  123         $  549       $  200
</TABLE>

<PAGE>

1.   For the three months ended December 31, 1999 and 1998,  Interactive  Online
     Services include goodwill and other intangible  assets  amortization of $17
     million and $16 million,  respectively.  For the six months ended  December
     31, 1999 and 1998,  Interactive  Online Services include goodwill and other
     intangible   assets   amortization   of  $35  million   and  $32   million,
     respectively.

2.   Enterprise  Solutions  amortization of goodwill and other intangible assets
     is immaterial for all periods presented.

3.   Other consists of merger related costs.

Note 6.  Notes Payable

         During  December  1999,  the Company  sold $2.3  billion  principal  of
zero-coupon  Convertible  Subordinated  Notes due December 6, 2019 (the "Notes")
and received net proceeds of  approximately  $1.2  billion.  The Notes have a 3%
yield to maturity  and are  convertible  into the  Company's  common  stock at a
conversion  rate of  5.8338  shares of common  stock for each  $1,000  principal
amount of the Notes  (equivalent  to a  conversion  price of $94.4938  per share
based on the initial offering price of the Notes).  The Notes may be redeemed at
the option of the Company on or after December 6, 2002 at the redemption  prices
set forth in the Notes.  The holders can require the Company to  repurchase  the
Notes on December 6, 2004 at the redemption prices set forth in the Notes.

Note 7.  Subsequent Events

         On January 10, 2000, the Company and Time Warner Inc.  ("Time  Warner")
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 (the "Merger") 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
transactions contemplated by the Merger Agreement are subject to the approval of
the  stockholders  of each of America Online and Time Warner and other customary
closing conditions, such as regulatory approvals.

         On December 31, 1999,  the  underwriters  exercised  the  overallotment
option on the  Notes.  As a  result,  on  January  5,  2000,  the  Company  sold
additional  Notes with aggregate  principal at maturity of  approximately  $55.6
million for net proceeds of approximately $30 million.

         On January  25, 2000,  the Company  announced  that its Vice  Chairman,
Kenneth J. Novack,  was elected to the Company's Board of Directors.  Mr. Novack
will fill the seat vacated by Dr. Thomas  Middelhoff,  Bertelsmann AG's Chairman
and CEO, who resigned his Board position on the same date.

Note 8.  Legal Proceedings

         Several complaints have been filed in the Delaware Court of Chancery or
Supreme  Court  of New York  naming  America  Online  and one or more of (a) the
directors of America Online,  (b) Time Warner Inc. and (c) the directors of Time
Warner Inc.,  as  defendants.  The  complaints  purport to be filed on behalf of
holders of America Online stock 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.
The Company intends to vigorously defend against these lawsuits.

         The Department of Labor ("DOL") is investigating  the  applicability of
the Fair Labor Standards Act ("FLSA") to the Company's Community Leader program.
The Company believes the Community Leader program reflects  industry  practices,
that the Community Leaders are volunteers, not employees, and that the Company's
actions  comply with the law.  The Company is  cooperating  with the DOL, but is
unable to predict the outcome 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.

         The  Company  has been named as a  defendant  in several  class  action
lawsuits.  These lawsuits contend that consumers and competing  Internet service
providers  have been injured  because of the default  selection  features in AOL
5.0.  These cases are at a preliminary  stage,  but the Company does not believe
they have merit and intends to contest them vigorously.

<PAGE>

Note 9. Business Developments

         On December  22,  1999,  the  Company  announced  that it will  acquire
MapQuest.com,  Inc. in an all-stock  transaction.  The Company  expects to issue
approximately  13 million shares of common stock.  Shareholders  of MapQuest.com
will  receive  0.31558  shares of AOL common  stock for each  share of  MapQuest
stock.  The  transaction is expected to close in the spring of 2000,  subject to
various conditions  including customary regulatory approvals and the approval of
MapQuest.com   shareholders.   The  transaction  will  be  accounted  for  as  a
pooling-of-interests.

         On October 28, 1999,  the Board of Directors of the Company  declared a
two-for-one  common stock split, to be effected in the form of a stock dividend.
On the payment date of November 22, 1999,  stockholders  received one additional
share for each share owned on the record date of November 8, 1999. The impact of
this stock split is reflected in the accompanying financial statements.

         On November 30, 1999, the Company  completed its merger with Tegic. The
Company  exchanged  approximately 4.8 million shares of common stock for all the
outstanding  common  and  preferred  shares of Tegic in a  transaction  that was
accounted  for as a  pooling-of-interests.  As  Tegic's  historical  results  of
operations were not material in relation to those of the Company,  the financial
information  prior to the quarter ended  December 31, 1999 has not been restated
to reflect the merger.


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

         Founded in 1985, America Online, Inc., (the "Company") 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  subscription  based Internet online services,  the AOL service,  with
more than 21 million  members,  and the CompuServe  service,  with more than 2.5
million  members;  several leading  Internet  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;  and Spinner and Nullsoft,  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  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 and six months ended December 31, 1999 and 1998:

<TABLE>

                                      Three Months Ended                 Six Months Ended
                                         December 31,                       December 31,
                                      1999            1998              1999            1998
                                --------------- ---------------    --------------- ---------------
                                                      (Dollars in millions)
Revenues:
<S>                             <C>      <C>    <C>      <C>        <C>      <C>    <C>      <C>
Subscription services...........$1,067   65.8%  $  786   68.5%      $2,062   66.8%  $1,509   70.3%
Advertising, commerce and other..  437   27.0      244   21.2          787   25.5      419   19.5
Enterprise solutions.............  117    7.2      118   10.3          239    7.7      219   10.2
                                ------- ------- ------- -------    ------- ------- ------- -------
Total revenues..................$1,621  100.0%  $1,148  100.0%      $3,088  100.0%  $2,147  100.0%

</TABLE>

              Subscription Services Revenues

         For the three months  ended  December  31, 1999, subscription  services
revenues,   which  are  generated  mainly  from  subscribers  paying  a  monthly
membership fee, increased from $786 million to $1,067 million,  or 36%, over the
three months ended December 31, 1998.  This increase was primarily  attributable
to a 33% increase in the average number of revenue  generating  subscribers  for
the three  months ended  December  31, 1999,  compared to the three months ended
December 31, 1998, as well as a 2% increase in the average monthly  subscription
services revenue per revenue generating subscriber.

         For the six  months  ended  December  31,  1999, subscription  services
revenues  increased from $1,509 million to $2,062 million,  or 37%, over the six
months ended December 31, 1998.  This increase was primarily  attributable  to a
34% increase in the average number of revenue generating subscribers for the six
months ended  December 31, 1999,  compared to the six months ended  December 31,
1998,  as well as a 2%  increase in the average  monthly  subscription  services
revenue per revenue generating subscriber.

         At December 31, 1999,  the Company had  approximately  20.5 million AOL
service subscribers, including 17.4 million in the United States and 3.1 million
in the rest of the world.  Also at that date, the Company had  approximately 2.5
million  CompuServe service  subscribers,  with 1.6 million in the United States
and 900,000 in the rest of the world. The Company also has approximately 740,000
worldwide  custom solution  subscribers on alternate  branded  services that are
provided in conjunction with the Company's partners.


<PAGE>


              Advertising, Commerce and Other Revenues

         The following table summarizes the material  components of advertising,
commerce and other revenues for the three and six months ended December 31, 1999
and 1998:

<TABLE>

                                       Three Months Ended                  Six Months Ended
                                          December 31,                       December 31,
                                      1999            1998              1999            1998
                                --------------- ---------------    --------------- ---------------
                                                      (Dollars in millions)

Advertising and electronic
<S>                             <C>      <C>     <C>     <C>         <C>      <C>     <C>     <C>
   commerce fees................$  352   80.5%   $ 188   77.1%       $  624   79.3%   $ 321   76.6%
Merchandise.....................    47   10.8       33   13.5            93   11.8       53   12.7
Other...........................    38    8.7       23    9.4            70    8.9       45   10.7
                                ------- ------- ------- -------     ------- ------- ------- -------
Total advertising, commerce

   and other revenues...........$  437  100.0%   $ 244  100.0%       $  787  100.0%   $ 419  100.0%

</TABLE>

         Advertising,  commerce and other revenues, which consist principally of
advertising and related revenues,  fees associated with commerce and the sale of
merchandise  across the Company's  multiple brands,  increased by 79%, from $244
million in the quarter  ended  December  31, 1998 to $437 million in the quarter
ended   December  31,  1999.  For  the  six  months  ended  December  31,  1999,
advertising,  commerce and other revenues increased 88% from $419 million in the
six months  ended  December  31,  1998 to $787  million in the six months  ended
December 31, 1999.

         Advertising  and commerce  fees  increased by 87%, from $188 million in
the three  months  ended  December  31, 1998 to $352 million in the three months
ended  December 31, 1999.  Advertising  and commerce fees increased by 94%, from
$321  million in the six months  ended  December 31, 1998 to $624 million in the
six months ended December 31, 1999.  These increases are primarily  attributable
to additional  advertising on the Company's AOL service,  Netcenter portal,  and
from the  Company's  other brands,  as well as an increase in commerce  fees. At
December 31, 1999, 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  $2.4 billion,  up
approximately  $1.7 billion from December 31, 1998.  Merchandise sales increased
by 42%,  from $33 million in the three  months  ended  December  31, 1998 to $47
million in the three months ended December 31, 1999. Merchandise sales increased
by 75%,  from $53  million  in the six months  ended  December  31,  1998 to $93
million in the six months ended  December 31, 1999.  These  increases are 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 1%, from $118  million in three  months ended  December 31, 1998 to
$117  million in the three months  ended  December 31, 1999.  For the six months
ended December 31, 1999,  Enterprise  solutions  revenues  increased by 9%, from
$219  million in six months  ended  December 31, 1998 to $239 million in the six
months ended  December 31, 1999.  The increase was primarily  driven by revenues
generated  from the alliance with Sun  Microsystems,  Inc.,  which did not exist
during the three and six months ended December 31, 1998.

<PAGE>

         Costs and Expenses

         The following table and discussion highlights the costs and expenses of
the Company for the three and six months ended December 31, 1999 and 1998:

<TABLE>

                                         Three Months Ended                   Six Months Ended
                                              December 31,                       December 31
                                         1999            1998               1999            1998
                                   --------------- ---------------     --------------- ---------------
                                                           (Dollars in millions)

<S>                                <C>     <C>     <C>     <C>          <C>     <C>     <C>     <C>
Total revenues.................... $1,621  100.0%  $1,148  100.0%       $3,088  100.0%  $2,147  100.0%

Costs and expenses:
Cost of revenues.................. $  830   51.2%  $  640   55.7%       $1,621   52.5%  $1,223   57.0%
Sales and marketing...............    261   16.1      202   17.6           470   15.2      376   17.5
Product development...............     74    4.6       70    6.1           141    4.6      137    6.4
General and administrative........    150    9.3       95    8.3           267    8.6      177    8.2
Amortization of goodwill and
   other intangible assets........     17    1.0       16    1.4            35    1.1       32    1.5
Merger charges....................      5    0.3        2    0.2             5    0.2        2    0.1
                                   ------- ------- ------- -------     ------- ------- ------- -------
Total costs and expenses.......... $1,337   82.5%  $1,025   89.3%       $2,539   82.2%  $1,947   90.7%

</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.  For the three months ended  December 31, 1999,
cost of revenues  increased from $640 million to $830 million,  or 30%, over the
three months ended  December 31, 1998,  and  decreased as a percentage  of total
revenues from 55.7% to 51.2%.  For the six months ended December 31, 1999,  cost
of revenues  increased from $1,223 million to $1,621 million or 33% over the six
months ended  December 31, 1998, and decreased as a percentage of total revenues
from 57% to 52.5%.

         The  increase  in cost of  revenues  in the three and six months  ended
December 31, 1999  compared to the same periods  ending  December 31, 1998,  was
primarily  attributable to increases in data network costs, as well as personnel
and related costs  associated with operating the data centers,  data network and
providing customer support; billing,  consulting and technical support/training.
Data network costs  increased  primarily as a result of the larger customer base
and increased  usage per customer.  Personnel and related costs  associated with
operating the data  centers,  data network and  providing  customer  support and
billing  increased  primarily as a result of the  requirements  of  supporting a
larger data network,  larger customer base and increased  subscription  services
revenues.

         The decrease in cost of revenues as a percentage  of total  revenues in
the three and six months ended  December  31, 1999  compared to the same periods
ending  December 31, 1998,  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 a 21% decrease in the hourly  network cost for
the three months ended  December  31, 1999.  The decrease in the hourly  network
costs is mainly due to efficiencies the Company continues to gain as a result of
its size and scale as well as lower negotiated rates with its network providers.
This decrease was mostly  offset by an increase in daily member  usage,  from an
average of nearly 48 minutes per day in the three months ended December 31, 1998
to an average of 57 minutes per day in the three months ended December 31, 1999.

              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  December  31,  1999,  sales and
marketing expenses increased from $202 million to $261 million, or 29%, over the
three months ended  December 31, 1998,  and  decreased as a percentage  of total
revenues from 17.6% to 16.1%.  For the six months ended December 31, 1999, sales
and marketing expenses increased from $376 million to $470 million,  or 25% over
the six months ended  December 31, 1998,  and decreased as a percentage of total
revenues from 17.5% to 15.2%.  The increase in sales and marketing  expenses for
the three and six months ended December 31, 1999 was primarily  attributable  to
an  increase  in direct  subscriber  acquisition  costs  related  to the AOL and
CompuServe  services and brand advertising  across multiple brands,  including a
one-time charge of $30 million for the  acquisition of Gateway.net  subscribers.
The decrease in marketing  expenses as a  percentage  of total  revenues for the
three and six months  ended  December  31,  1999 was  primarily  a result of the
substantial  growth in total  revenues.  Excluding  the  one-time  charge of $30
million,  sales and  marketing  was 14.3% and 14.2 % of total  revenues  for the
three and six months ended December 31, 1999, respectively.

<PAGE>
              Product Development

         Product development costs include research and development expenses and
other product  development  costs. For the three months ended December 31, 1999,
product  development costs increased from $70 million to $74 million, or 6% over
the three months ended December 31, 1998, and decreased as a percentage of total
revenues from 6.1% to 4.6%. For the six months ended December 31, 1999,  product
development  costs  increased from $137 million to $141 million,  or 3% over the
six months  ended  December  31, 1998,  and  decreased as a percentage  of total
revenues from 6.4% to 4.6%.  The increase in product  development  costs for the
three and six months ended  December 31, 1999 was primarily  attributable  to an
increase  in  personnel  costs as a  result  of an  increase  in the  number  of
technical  employees to support additional  products across multiple brands. The
decrease in product  development costs as a percentage of total revenues for the
three and six months  ended  December  31,  1999 was  primarily  a result of the
substantial growth in total revenues.

          General and Administrative

     For the three months ended  December 31, 1999,  general and  administrative
expenses  increased  from $95 million to $150  million,  or 58%,  over the three
months ended  December 31, 1998, and increased as a percentage of total revenues
from 8.3% to 9.3%.  For the six months  ended  December  31,  1999,  general and
administrative expenses increased from $177 million to $267 million, or 51% over
the six months ended  December 31, 1998 and  increased as a percentage  of total
revenues from 8.2% to 8.6%. The increase in general and administrative costs and
the  increase  in general  and  administrative  costs as a  percentage  of total
revenue,  for the three and six months  ended  December  31, 1999 was  primarily
attributable to higher personnel costs,  including payroll taxes associated with
employee  stock  option  exercises,  as well as an increase in bad debt  expense
related to the growth in membership  coupled with the Company  testing  extended
and alternative collection processes.

              Amortization of Goodwill and Other Intangible Assets

         Amortization of goodwill and other  intangible  assets increased to $17
million in the three  months  ended  December  31,  1999 from $16 million in the
three  months  ended  December  31,  1998.  Amortization  of goodwill  and other
intangible  assets increased to $35 million in the six months ended December 31,
1999 from $32 million in the six months ended December 31, 1998. The increase in
amortization  expense in the three and six months  ended  December  31,  1999 is
primarily  attributable  to  goodwill  associated  with the  acquisition  of the
CompuServe online service in January 1998, with minor subsequent adjustments.

              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  recorded  other  income of $160  million  and $16  million in the three
months ended  December  31, 1999 and 1998,  respectively.  The Company  recorded
other income of $197  million and $21 million in the six months  ended  December
31, 1999 and 1998,  respectively.  The increase in other income in the three and
six months ended December 31, 1999 was primarily attributable to a one-time gain
of $111 million from the Company's  investment in Sandpiper,  which was acquired
by Digital Island in December  1999, as well as an increase in interest  income.
The  increase in interest  income is due to a higher cash  balance and  interest
earned on investments.

              Provision for Income Taxes

         The  provision for income taxes was $173 million and $24 million in the
three months ended December 31, 1999 and 1998,  respectively.  The provision for
income taxes was $291  million and $30 million in the six months ended  December
31, 1999 and 1998  respectively.  Income tax expense for the three  months ended
December 31, 1999 includes $172 million for U.S.  federal and state income taxes
and $1 million for foreign  taxes.  Income tax expense for the six months  ended
December 31, 1999 includes $289 million for U.S.  federal and state income taxes
and $2 million for foreign  taxes.  As of December 31,1999,  the Company had net
operating loss carryforwards of approximately $10.2 billion, primarily resulting
from stock option  exercises,  available to offset future U.S.  federal  taxable
income.

Segment Results of Operations

         The Company  operates two major lines of business:  Interactive  Online
Services and Enterprise  Solutions.  For further information regarding segments,
refer to Note 5 of the Notes to Consolidated Financial Statements.
<PAGE>

         A summary of the segment financial information is as follows:

<TABLE>

                                               Three months ended           Six months ended
                                                  December 31,               December 31,
                                                1999         1998         1999         1998
                                           ------------  -----------   ------------  -----------
                                                            (Amounts in millions)

     Revenues:
<S>                                             <C>          <C>            <C>          <C>
     Interactive Online Services...........     $1,504       $1,030         $2,849       $1,928
     Enterprise Solutions..................        117          118            239          219
                                           ------------  -----------   ------------  -----------
         Total revenues....................     $1,621       $1,148         $3,088       $2,147

     Income (loss) from operations:

     Interactive Online Services (1).......     $  381       $  206         $  713       $  358
     Enterprise Solutions  (2).............         22           (4)            48          (11)
     General & Administrative..............       (114)         (77)          (207)        (145)
     Other  (3)............................         (5)          (2)            (5)          (2)
                                           ------------  -----------   ------------  -----------
         Total income from operations......     $  284       $  123         $  549      $   200

</TABLE>

1.   For the three months ended December 31, 1999 and 1998,  Interactive  Online
     Services include goodwill and other intangible  assets  amortization of $17
     million and $16 million,  respectively.  For the six months ended  December
     31, 1999 and 1998,  Interactive  Online Services include goodwill and other
     intangible   assets   amortization   of  $35  million   and  $32   million,
     respectively.

2.   Enterprise  Solutions  amortization of goodwill and other intangible assets
     is immaterial for all periods presented.

3.   Other represents merger related costs.

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

         Interactive Online Services income from operations  increased from $206
million in the three months ended December 31, 1998 to $381 million in the three
months ended December 31, 1999 and increased from $358 million in the six months
ended  December 31, 1998 to $713  million in the six months  ended  December 31,
1999.  These  increases are  primarily  the result of increases in  subscription
services  revenues and  advertising,  commerce and other revenues,  coupled with
improved  margins and a decrease in marketing  expenses as a percentage of total
revenues.

         Enterprise Solutions income (loss) from operations improved from a loss
of $(4)  million in the three  months  ended  December 31, 1998 to income of $22
million in the three months ended  December 31, 1999 and a loss of $(11) million
in the six months  ended  December  31, 1998 to income of $48 million in the six
months ended December 31, 1999. These  improvements were mainly  attributable to
the increase in revenues,  as well as a decline in  operating  expenses,  as the
Company began to realize efficiencies from using the Company's infrastructure to
support  the  Enterprise  Solutions  segment,  as well  as the  other  lines  of
businesses. In addition,  Enterprise Solutions is experiencing benefits from the
Sun Alliance, which was not in place a year ago.

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 capital stock, the sale of its convertible notes and the sale of
marketable  securities  it held.  The Company has  financed its  investments  in
telecommunications  equipment  principally through leasing. Net cash provided by
operating  activities  was $796 million and $298 million in the six months ended
December 31, 1999 and 1998,  respectively,  and  increased  primarily due to the
Company's  increase  in net  income  before  taxes.  Net cash used in  investing
activities  was $617 million and $133  million in the six months ended  December
31,  1999 and 1998,  respectively,  and  increased  mainly due to the  Company's
purchases  of  property  and   equipment  as  well  as   investments   including
available-for-sale  securities.  Net cash provided by financing  activities  was
$1,469  million and $689 million in the six months  ended  December 31, 1999 and
1998,  respectively.  Included in financing  activities for the six months ended
December  31,  1999  was  $1,250  million  in  proceeds  from  the  issuance  of
convertible  debt.  Included in  financing  activities  for the six months ended
December 31, 1998,  was $550  million in  aggregate  net proceeds  from a public
offering of its common  stock.  The Company  currently  has  approximately  $3.8
billion available under a shelf registration filed in May 1999.
<PAGE>

         The Company  expects to continue  using its working  capital to finance
ongoing  operations  and to fund marketing  programs and the  development of its
products and  services.  The Company  plans to continue to invest in  subscriber
acquisition,  retention and brand  marketing 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,   investments  or  businesses
complementary to the Company's  current business.  The Company  anticipates that
cash on hand, cash provided by operating  activities and cash available from the
capital markets and  traditional  lending markets will be sufficient to fund its
operations for the next twelve months.

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

         The following table and discussion  summarizes EBITDA for the three and
six months ended December 31, 1999 and 1998:

                            Three Months Ended              Six Months Ended
                              December 31,                    December 31,
                            1999         1998              1999         1998
                        ------------  ------------     ------------  -----------
                                         (Amounts in millions)

EBITDA..................    $400           $201            $742           $335

         The  Company  has  modified  its  calculation  of EBITDA to now exclude
interest income as well as interest  expense.  The Company defines EBITDA as net
income  plus:  (1)  provision/(benefit)  for income  taxes,  (2)  interest,  (3)
depreciation and amortization and (4) special one-time  charges/(gains).  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 accounting  principles  generally  accepted in the
United  States.  In addition,  EBITDA as defined herein may not be comparable to
similarly titled measures reported by other companies.

         For the three months ended  December 31, 1999,  EBITDA  increased  from
$201 million to $400  million or 99% over the three  months  ended  December 31,
1998. The EBITDA margin (EBITDA divided by total revenues)  increased from 12.4%
for the three months ended December 31, 1998 to 24.7% for the three months ended
December 31, 1999. For the six months ended December 31, 1999,  EBITDA increased
from $335 million to $742 million or 123% over the six months ended December 31,
1998.  The EBITDA margin  increased from 15.6% for the six months ended December
31, 1998 to 24.0% for the six months ended  December 31, 1999. In addition,  the
incremental  EBITDA  margin  (the  current  quarter  increase  over the year ago
quarter in EBITDA of $199  million  divided by the  increase in revenues of $473
million for the same  periods)  increased  to nearly 42%.  This  increase in the
incremental  EBITDA  margin  is mainly  due to the  shared  infrastructure  that
supports  the  Company's  multiple  brands;  as these  brands  begin to generate
additional  revenues,  a larger  percentage of each incremental  dollar flows to
EBITDA.


<PAGE>

Year 2000 Compliance

         The Company utilizes a significant number of computer software programs
and operating  systems across its entire  organization,  including  applications
used in operating its online services and Web sites, the proprietary software of
the AOL and CompuServe services, Netscape software products, member and customer
services,   network  access,  content  providers,  joint  ventures  and  various
administrative and billing functions.

         In 1997,  the  Company  appointed  a Year 2000 Task Force to perform an
audit to assess the scope of the Company's risks and bring its applications into
compliance.  This  Task  Force  has  overseen  testing  and  is  continuing  its
assessment  of  the  compliance  company-wide.  The  Company's  system  hardware
components,  client and host  software,  current  versions of Netscape  software
products and  corporate  business and  information  systems have been tested and
continue to be  reviewed.  To date,  the Company has  experienced  few  problems
related to Year 2000  compliance,  and the  problems  that have been  identified
either have been addressed or are in the process of being addressed. The Company
is not aware of any remaining  significant  problems related to Year 2000 issues
but is continuing  to monitor the status of suppliers and vendors.  There can be
no assurance  that the Company or one of the entities it does business with will
not experience a Year 2000 problem that could have an effect on America Online.

         The costs  incurred  through  January  25,  2000 to  address  Year 2000
compliance were  approximately $20 million.  The Company currently  estimates it
will  incur a total  of  approximately  $21  million  in costs  to  support  its
compliance initiatives.

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 and commerce
growth; new and developing markets,  products,  services,  features and content;
anticipated  timing  and  benefits  of  acquisitions  and  other  alliances  and
relationships;  the  availability,  benefits,  and timing of  deployment  of new
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; failure of the Company's or Time Warner stockholders
to approve the merger;  costs  related to the merger;  the risk that the Company
and Time  Warner  businesses  will not be  integrated  successfully;  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, 1999.

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 and interest rates.
The Company is exposed to  immaterial  levels of market risks,  including  these
types of risks.  The Company does not enter into  derivatives or other financial
instruments for trading or speculative purposes.  From time to time, the Company
has  entered  into  financial  instruments  to manage  and  reduce the impact of
changes in foreign currency  exchange rates. In June 1998, the Company initiated
hedging activities to mitigate the impact on intercompany balances of changes in
foreign  exchange  rates.  The Company uses foreign  currency  forward  exchange
contracts  as a vehicle  for  hedging  these  intercompany  balances.  A foreign
currency   forward   exchange   contract   obligates  the  Company  to  exchange
predetermined  amounts of specified  foreign  currencies  at specified  exchange
rates on  specified  dates and to make or  receive  an  equivalent  U.S.  dollar
payment  equal to the  value of such  exchange.  For  these  contracts  that are
designated  and effective as hedges,  realized and  unrealized  gains and losses
resulting  from changes in the spot  exchange rate  (including  those from open,
matured and terminated contracts) are included in other income and net discounts
or  premiums  (the  difference  between the spot  exchange  rate and the forward
exchange  rate at inception of the  contract)  are also accreted or amortized to
other income,  over the life of each contract,  using the straight-line  method.
These gains and losses offset gains and losses on intercompany  balances,  which
are  also  included  in  other  income.  The  related  amounts  due  to or  from
counterparties  are included in other assets or other  liabilities.  In general,
these foreign  currency  forward  exchange  contracts  mature in three months or
less.  The estimated  fair value of the contracts  are  immaterial  due to their
short-term nature.


<PAGE>


PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings

         Please  see Note 8 to the Notes to  Consolidated  Financial  Statements
included herewith.

Item 2.    Changes in Securities and Use of Proceeds

         On November 30, 1999, the Company acquired Tegic  Communications,  Inc.
in exchange for the issuance of 4,614,300  shares of Company  Common Stock.  The
Company  also  reserved  180,280  shares of Company  Common  Stock for  issuance
pursuant to warrant agreements and non-plan stock options. The private placement
is exempt from  registration  pursuant to Section 4(2) of the  Securities Act of
1933, as amended.

         On December  22, 1999,  the Company  acquired  $200 million  (2,725,026
shares) of Gateway  common  stock in exchange  for $100 million in cash and $100
million  (1,212,396 shares) of the Company's common stock in connection with the
strategic relationship with Gateway, Inc.

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

         The  Company  held its Annual  Meeting of  Stockholders  on October 28,
1999. Following are descriptions of the matters voted on and the results of such
meeting:

<TABLE>

                                                                          Number of Shares

                    Matter Voted On                              For             Against         Abstain

1.    Election of Directors:
       <S>                                                   <C>                <C>                <C>
         Stephen M. Case                                       960,909,057        3,623,411          N/A
         Thomas Middelhoff                                     960,970,099        3,562,369          N/A
         Marjorie Scardino                                     960,958,094        3,574,374          N/A

2.   Amendment of Restated Certificate of                      832,975,502      128,466,122          3,090,844
     Incorporation to increase the number of authorized
     shares

3.    Approval of the Company's 1999 Stock Plan                710,505,063      246,826,087          7,201,318

4.    Approval of the Company's Executive Incentive            935,454,630       21,217,993          7,859,845
      Plan

5.    Proposal to ratify the appointment of Ernst &            960,609,314        1,070,478          2,852,676
      Young, LLP as the Company's independent public
      accountants for the fiscal year ended June 30, 2000
</TABLE>



<PAGE>


Item 6.    Exhibits and Reports on Form 8-K

(a)      Exhibits

         None

(b)      Reports on Form 8-K

<TABLE>

Form               Item #     Description                                          Filing Date
----               ------     -----------                                          -----------
<S>                <C>        <C>                                                  <C>
Form 8-K           5, 7       Filed to incorporate by reference the Underwriting   December 2, 1999
                              Agreement, Form of Indenture, Form of Supplemental
                              Indenture and Form T-1

Form 8-K           5, 7       Announcement of entering into an Agreement and       December 29, 1999
                              Plan of Merger, dated as of December 21, 1999 with
                              MapQuest.com, Inc.

                              Announcement   of  strategic   relationship   with
                              Gateway, Inc.
</TABLE>


<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: February 14, 2000                SIGNATURE:  /s/Stephen M. Case
                                                   Stephen M. Case
                                                   Chairman of the Board and
                                                   Chief Executive Officer

DATE: February 14, 2000                SIGNATURE:  /s/J. Michael Kelly
                                                   J. Michael Kelly
                                                   Senior Vice President and
                                                   Chief Financial Officer