FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   (Mark One)

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

               For the quarterly period ended: September 30, 1998

                                       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 October  30, 1998............................  229,072,670



<PAGE>


                              AMERICA ONLINE, INC.

                                      INDEX
                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets - September 30, 1998
         and June 30, 1998                                                     3

         Condensed Consolidated Statements of Operations - Three
         months ended September 30, 1998 and 1997                              4

         Condensed Consolidated Statements of Cash Flows - Three
         months ended September 30, 1998 and 1997                              5

         Condensed Consolidated Statement of Changes in
         Stockholders' Equity - Three months ended
         September 30, 1998                                                    6

         Notes to Condensed Consolidated Financial Statements                  7

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                             0


PART II. OTHER INFORMATION                                                    18

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

Signatures                                                                    19


<PAGE>
<TABLE>
<CAPTION>


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

                                                                          September 30,               June 30,
                                                                              1998                      1998
                                                                      ---------------------      -------------------
ASSETS                                                                     (unaudited)

Current assets:
<S>                                                                                <C>                       <C>   
    Cash and cash equivalents                                                      $ 1,253                   $  631
    Trade accounts receivable, less allowances of $24 million and
         $19 million, respectively                                                     110                      104
    Other receivables                                                                  136                       92
    Prepaid expenses and other current assets                                          101                      103
                                                                      ---------------------      -------------------
          Total current assets                                                       1,600                      930

Property and equipment at cost, net                                                    386                      363

Other assets:
    Investments including available-for-sale securities                                392                      449
    Product development costs, net                                                      89                       88
    Goodwill and other intangible assets, net                                          375                      381
    Other assets                                                                         3                        3
                                                                      =====================      ===================
          Total assets                                                             $ 2,845                  $ 2,214
                                                                      =====================      ===================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Trade accounts payable                                                           $  50                    $  87
    Other accrued expenses and liabilities                                             481                      433
    Deferred revenue                                                                   252                      242
    Accrued personnel costs                                                             70                       56
    Deferred network services credit                                                    76                       76
                                                                      ---------------------      -------------------
          Total current liabilities                                                    929                      894

Long-term liabilities:
    Notes payable                                                                      375                      372
    Deferred revenue                                                                    67                       71
    Other liabilities                                                                    5                        6
    Deferred network services credit                                                   254                      273
                                                                      ---------------------      -------------------
          Total liabilities                                                          1,630                    1,616

Stockholders' equity:
  Common stock, $.01 par value,  600,000,000 shares authorized,  227,603,548 and
    219,641,140 shares issued and outstanding at
    September 30, 1998 and June 30, 1998, respectively                                   2                        2
  Additional paid-in capital                                                         1,420                      866
  Unrealized gain on available-for-sale securities                                     100                      145
  Accumulated deficit                                                                (307)                    (415)
                                                                      ---------------------      -------------------
          Total stockholders' equity                                                 1,215                      598
                                                                      =====================      ===================
          Total liabilities and stockholders' equity                               $ 2,845                  $ 2,214
                                                                      =====================      ===================

                             See accompanying notes.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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

                                                                               Three months ended
                                                                                  September 30,
                                                                --------------------------------------------------

                                                                --------------------------------------------------
                                                                        1998                        1997
                                                                ---------------------       ---------------------

Revenues:

<S>                                                                            <C>                         <C>  
   Online service revenues                                                     $ 715                       $ 434

   Advertising, commerce and other revenues                                      143                          88
                                                                ---------------------       ---------------------

            Total revenues                                                       858                         522

Costs and expenses:

   Cost of revenues                                                              546                         327

   Marketing                                                                     105                          98

   Product development                                                            27                          16

   General and administrative                                                     55                          54

   Amortization of goodwill and other intangible assets                           13                           2

   Restructuring charge                                                            -                         (2)

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

          Total costs and expenses                                               746                         495

Income from operations                                                           112                          27

Other income, net                                                                  2                           5
                                                                ---------------------       ---------------------

Income before provision for income taxes                                         114                          32

Provision for income taxes                                                       (6)                           -

                                                                =====================       =====================
Net income                                                                     $ 108                        $ 32
                                                                =====================       =====================


Earnings per share-diluted                                                    $ 0.39                      $ 0.13

Earnings per share-basic                                                      $ 0.48                      $ 0.16

Weighted average shares outstanding-diluted                                      275                         252

Weighted average shares outstanding-basic                                        226                         202

                             See accompanying notes.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                              AMERICA ONLINE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (amounts in millions)
                                   (unaudited)

                                                                              Three months ended September 30,
                                                                          ------------------------------------------
                                                                                 1998                   1997
                                                                          --------------------    ------------------

Cash flows from operating activities:
<S>                                                                                     <C>                   <C>  
   Net income                                                                           $ 108                 $  32
   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
       activities:
   Non-cash restructuring charges                                                           -                   (2)
   Depreciation and amortization                                                           49                    26
   Amortization of deferred network services credit                                      (19)                     -
   Compensatory stock options                                                               3                    20
   Deferred income taxes                                                                    6                     -
   Gain on sale of investments                                                              -                   (4)
   Changes in assets and liabilities:
      Trade accounts receivable                                                           (5)                   (3)
      Other receivables                                                                  (44)                     6
      Prepaid expenses and other current assets                                             -                     9
      Other assets                                                                          -                   (2)
      Investments including available-for-sale securities                                   4                  (18)
      Accrued expenses and other current liabilities                                       27                    24
      Deferred revenue and other liabilities                                                5                   (6)
                                                                          --------------------    ------------------
      Total adjustments                                                                    26                    50
                                                                          --------------------    ------------------
Net cash provided by operating activities                                                 134                    82

Cash flows from investing activities:
   Purchase of property and equipment                                                    (45)                  (62)
   Product development costs                                                             (10)                  (13)
   Purchase of available-for-sale securities                                             (19)                   (3)
   Other investing activities                                                            (13)                   (4)
                                                                          --------------------    ------------------
Net cash used in investing activities                                                    (87)                  (82)
                                                                          --------------------    ------------------

Cash flows from financing activities:
   Proceeds from issuance of common stock, net                                            575                    25
   Proceeds from issuance of debt                                                           -                    29
                                                                          --------------------    ------------------
Net cash provided by financing activities                                                 575                    54
                                                                          --------------------    ------------------

Net increase in cash and cash equivalents                                                 622                    54
Cash and cash equivalents at beginning of period                                          631                   124
                                                                          --------------------    ------------------
Cash and cash equivalents at end of period                                            $ 1,253                 $ 178
                                                                          ====================    ==================

Supplemental cash flow information Cash paid during the period for:
     Interest                                                                           $   5                 $   1

                             See accompanying notes.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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



                                                                                             Unrealized Gain
                                                                                                 (Loss)
                                                         Common Stock          Additional    on Available-
                                                   -------------------------    Paid-In         for-Sale       Accumulated
                                                      Shares      Amount         Capital       Securities        Deficit       Total
                                                   ---------------------------------------------------------------------------------


<S>                                                 <C>                 <C>        <C>            <C>           <C>            <C>  
Balances at June 30, 1998                           219,641,140         $ 2        $  866         $ 145         $ (415)        $ 598


Common stock issued:
    Exercise of options                               2,572,408           -            25             -               -           25
    Sale of stock, net                                5,390,000           -           550             -               -          550
Amortization of compensatory stock options                    -           -             3             -               -            3
Unrealized loss on available-for-sale 
    securities, including tax effect                          -           -          (28)          (45)               -         (73)
Tax benefit related to stock options                          -           -             4             -               -            4
Net income                                                    -           -             -             -             108          108
                                                   ================================================================================
Balances at September 30, 1998                      227,603,548        $  2       $ 1,420         $ 100         $ (307)      $ 1,215
                                                   ================================================================================


                             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
generally accepted accounting  principles for interim financial  information and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the  opinion  of  management,  all  adjustments,  consisting  only of  normal
recurring  accruals  considered  necessary  for a fair  presentation,  have been
included in the accompanying  unaudited  financial  statements.  All significant
intercompany  transactions  and balances have been eliminated in  consolidation.
Certain  amounts in prior years'  consolidated  financial  statements  have been
reclassified to conform to the current year presentation.  Operating results for
the three months ended September 30, 1998 are not necessarily  indicative of the
results that may be expected for the full year ending June 30, 1999. 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, 1998.


Note 2.  Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share for the three months ended September 30, 1998 and 1997:

<TABLE>

(in millions except for per share data)                Three months ended September 30,
                                                            1998             1997
Numerator for basic and diluted earnings per share -
<S>                                                            <C>                <C>
  Income available to common stockholders                      $108               $32
                                                       ==============================

Denominator
Denominator for basic earnings per share -
  Weighted average shares                                      226               202

Effect of dilutive securities:
  Employee stock options                                        42                42
  Warrants                                                       7                 7
  Convertible preferred stock                                    -                 1
                                                       ------------------------------
                                                       ------------------------------
Dilutive potential common shares                                49                50
                                                       ------------------------------
                                                       ------------------------------

Denominator for diluted earnings per share -
  Adjusted weighted average shares
  and assumed conversions                                     275               252
                                                      ==============================
Basic earnings per share                                 $   0.48          $   0.16
                                                      ==============================
Diluted earnings per share                               $   0.39          $   0.13
                                                      ==============================
</TABLE>

<PAGE>
Note 3.  Comprehensive Income

         As of  July  1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting  Standards ("SFAS") No. 130, "Reporting  Comprehensive  Income." SFAS
No. 130  establishes  new rules for the reporting  and display of  comprehensive
income and its components in the financial statements.  The adoption of SFAS No.
130 had no impact on the Company's net income or stockholders'  equity.  For the
three months ended  September  30, 1998 and 1997,  comprehensive  income was $63
million and $45 million,  respectively.  The  difference  between net income and
comprehensive  income for each period  presented is due to  unrealized  gains or
losses on available-for-sale securities.


Note 4. Business Combinations

         During  the  fiscal  year ended June 30,  1998,  the  Company  made two
significant acquisitions, the online services business of CompuServe Corporation
("CompuServe") and the assets of Mirabilis, Ltd., ("Mirabilis"). In exchange for
the online services business of CompuServe and $147 million in cash, the Company
transferred to WorldCom,  Inc. all of the issued and  outstanding  shares of ANS
Communications,  Inc., a then wholly-owned  subsidiary of the Company.  For $287
million in cash (and  potential  contingent  payments  of up to $120  million in
future years), the Company purchased all the outstanding  assets,  including the
developmental  ICQ  instant  communications  and chat  technology,  and  assumed
certain liabilities of Mirabilis.  The following unaudited pro forma information
has been prepared assuming that the acquisitions of CompuServe and Mirabilis had
taken place at the beginning of the three-month period ended September 30, 1997.
The amount of the aggregate purchase price allocated to in-process  research and
development  for the Mirabilis  acquisition has been excluded from the pro forma
information,  as it is a non-recurring  item. The pro forma effect for the three
months  ended  September  30,  1997,  would have  resulted  in  revenues of $583
million,  income from operations of $59 million,  net income of $62 million, and
diluted and basic earnings per share of $0.25 and $0.31,  respectively.  The pro
forma  financial  information  is not  necessarily  indicative  of the  combined
results  that  would  have  occurred  had the  acquisitions  taken  place at the
beginning of the period,  nor is it  necessarily  indicative of results that may
occur in the future.


Note 5.  Sale of Spry, Inc.

         On  September  10,  1998,  the  Company   announced  the  sale  of  its
subsidiary,  Spry,  Inc.  For  financial  reporting  purposes,  the  assets  and
liabilities  of Spry,  Inc. have been  classified in the condensed  consolidated
balance  sheet as a net asset  held for sale,  which is a  component  of prepaid
expenses and other current assets.  The sale of Spry, Inc. closed on October 15,
1998.


Note 6.  Common Stock Offering

         During  July 1998,  the Company  completed a public  offering of common
stock.  The Company sold 5,390,000  shares of common stock and raised  aggregate
proceeds of $550 million in new equity.

<PAGE>
Note 7.  Recent Pronouncements

         In June 1998, the FASB issued SFAS No. 133,  "Accounting for Derivative
Instruments  and Hedging  Activities,"  which is required to be adopted in years
beginning  after June 15, 1999.  The Statement  permits early adoption as of the
beginning of any fiscal  quarter after its issuance.  The Statement will require
the Company to recognize  all  derivatives  on the balance  sheet at fair value.
Derivatives  that are not hedges must be adjusted to fair value through  income.
If the derivative is a hedge,  depending on the nature of the hedge,  changes in
the fair value of  derivatives  will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive  income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately  recognized  in earnings.  The Company has not yet  determined if it
will early adopt and what the effect of SFAS No. 133 will be on the earnings and
financial position of the Company.


Note 8.  Subsequent Events

         On October 21, 1998, the Company's  stockholders  approved an amendment
to  the  Company's  Restated   Certificate  of  Incorporation  to  increase  the
authorized number of shares of common stock from 600,000,000 to 1,800,000,000.

         On October 27, 1998, the Company  announced that its Board of Directors
approved a two-for-one  common stock split.  On the payment date of November 17,
1998, stockholders will receive one additional share for each share owned on the
record date of November 3, 1998. The impact of this stock split is not reflected
in the accompanying financial statements.



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

Overview

         The Company  generates two types of revenues:  online service  revenues
and  advertising,  commerce  and other  revenues.  Online  service  revenues are
generated from customers subscribing to the Company's AOL service and, effective
February  1, 1998,  the  CompuServe  service.  Advertising,  commerce  and other
revenues are non-subscription based and are generated from the Company's base of
subscribers,  as well as  businesses.  Advertising,  commerce and other revenues
consist  of  advertising  and  related  revenues,  the sale of  merchandise  and
transaction fees associated with electronic commerce, as well as other revenues,
which  consist  primarily  of data  network  service  revenues  generated by ANS
Communications,  Inc. (through its sale in January 1998) as well as royalty fees
and development revenues.

         Currently,   the  Company's   online  service  revenues  are  generated
primarily from subscribers  paying a monthly  membership fee. The Company offers
several pricing  alternatives to the AOL service in the U.S.  designed to appeal
to a wide range of consumers.  Most customers subscribing to the AOL service pay
a standard monthly  membership fee of $21.95,  with no additional hourly charges
(the  "Flat-Rate  Plan").  Subscribers can also choose to prepay for one year in
advance at the monthly rate of $19.95.  The Company  increased  the price of its
Flat-Rate  Plan from  $19.95 per month to $21.95 per  month,  and the  effective
monthly  rate of the  annual  plan from  $17.95  per month to $19.95  per month,
effective at the start of each  member's  monthly  billing  cycle in April 1998.
Those  subscribers  who were currently on the annual plan were not subject to an
increase until their renewal date.  These increases were implemented in order to
fund the continued  improvement of members'  online  experience and to keep pace
with the cost to the Company of members'  increased usage. Other pricing options
available  include  an  offering  of three  hours  for  $4.95  per  month,  with
additional time priced at $2.50 per hour, and an offering of $9.95 per month for
unlimited use--for those subscribers who have an Internet  connection other than
through AOL and use this  connection to access AOL services.  In order to ensure
the  competitiveness  of its offerings,  the Company has historically  conducted
tests of  alternative  pricing  plans,  and  will  continue  to do so in  future
periods.

<PAGE>
         Effective February 1, 1998, the Company offered two price plans for the
CompuServe  service:  a standard monthly  membership  offering of five hours for
$9.95  per  month,  with  additional  time  priced  at  $2.95  per  hour  and an
alternative offering of $24.95 per month with no additional hourly charge.

         In   addition  to  the   revenues   generated   from   online   service
subscriptions,  advertising,  commerce  and  other  revenues  are  an  important
component  of  the  Company's  business  objectives  and  provide  an  important
contribution to the Company's  operating  results.  The Company has continued to
see a general  trend of increased  average  monthly  subscriber  usage since the
introduction  of flat-rate  pricing in December  1996.  In the first  quarter of
fiscal 1999, average daily subscriber usage rose to nearly 47 minutes,  compared
to  approximately  40 minutes in the first  quarter of fiscal  1998.  If current
usage levels increase,  further pressures on operating  margins may result.  The
Company  expects that the growth in  advertising,  commerce and other  revenues,
assuming  such  growth  continues,  will  provide  it with the  opportunity  and
flexibility to fund the costs associated with the increased usage resulting from
flat-rate  pricing,  and will help fund programs designed to grow the subscriber
base within its various brands and meet other business objectives.

         The Company has continued to experience improved subscriber acquisition
and  retention  rates,  which it  believes  is  related  to the  improved  value
proposition  offered by  flat-rate  pricing  and other  benefits.  Although  the
Company's marketing expense has declined, as a percentage of revenues,  from the
first quarter of fiscal 1998  compared to the first quarter of fiscal 1999,  the
Company  intends to increase its marketing  expenditures  in the next quarter in
conjunction  with the  introduction  of  version  4.0 of the AOL  software.  The
Company  may also need to  increase  its  expenditures  on  marketing  in future
periods  in order to  acquire  and retain  customers  and to  address  potential
competitive pressures.

         The Company  competes  in a  rapidly-changing  marketplace  with a wide
range of other companies in the communications,  advertising,  entertainment and
information,  media,  software,  technology,  direct mail and  commerce  fields.
Current  competitors  of the Company  for usage,  subscribers,  advertising  and
commerce  include  online  services (for example,  the Microsoft  Network,  AT&T
WorldNet and Prodigy  Services  Company),  various  national and local  Internet
service  providers using  industry-standard  browser and navigational  software,
long distance and regional telephone  companies who may offer competing services
directly to their  customers as part of their  telephone  service (among others,
AT&T Corp., MCI WorldCom,  Inc. and various regional Bell operating  companies),
cable  companies,  and suppliers of operating  systems or browsers,  or personal
computer or other OEMs (such as personal digital  assistants and enhanced mobile
phones) who may incorporate  functional equivalents to the Company's services in
their products. The Company also competes for usage and advertising and commerce
revenues  with  companies  providing  Web  navigation  and search  services  and
content,  such as Yahoo! Inc.,  Netscape  Communications  Corporation,  Infoseek
Corporation,  CNET, Inc., Lycos, Inc. and Excite, Inc. Additionally, the Company
competes  for  viewership  and  revenues  with global  media  companies  such as
newspapers,  radio and television  stations and content  providers,  such as CBS
Corporation,  The Walt Disney  Company and Time  Warner,  Inc.,  and with direct
marketing and  telemarketing  companies.  Certain of such media  companies  have
formed  alliances and made  investments in services  competing with the Company,
such as CNET's and NBC's joint ownership of the SNAP!  Internet  service and The
Walt Disney Company's purchase of a stake in Infoseek.

<PAGE>
         The development of broadband distribution technologies, including cable
Internet  access  services  offered by @Home Network (whose  investors  include:
Cablevision   Systems   Corporation    ("Cablevision"),    Comcast   Corporation
("Comcast"),  Cox  Communications,  Inc. ("Cox") and  Tele-Communications,  Inc.
("TCI")),  Road Runner Group (owned by Time Warner,  Inc. and MediaOne,  Inc. (a
subsidiary of US WEST Media Group)),  advanced  telephone-based  access services
offered through digital  subscriber  line (xDSL)  technologies  offered by local
telecommunications  companies and other  advanced  digital  services  offered by
broadcast,  satellite and wireless  companies,  is adding to the  competition to
which  the  Company  is  subject.   Emerging  convergent  technologies  offering
combinations  of television and  interactive  computer  services,  such as those
offered by WebTV, offer another competitive  alternative to the offerings of the
Company. The Company has acquired  NetChannel,  Inc. (now known as AOLTV, Inc.),
in  order  to  pursue  a   competitive   offering   within  these   distribution
technologies,  but  there  can be no  assurance  that  its  technology  will  be
commercially successful.

Results of Operations

Online Service Revenues

         For the three months ended September 30, 1998,  online service revenues
increased from $434 million to $715 million, or 65%, over the three months ended
September 30, 1997.  This increase  comprises an increase in AOL online  service
revenues of $233 million,  as well as CompuServe  online service revenues of $48
million,  which  began in February  1998.  The  increase  in AOL online  service
revenues was primarily  attributable  to a 40% increase in the average number of
AOL North American  subscribers  for the three months ended  September 30, 1998,
compared to the three months ended September 30, 1997, as well as a 10% increase
in the average monthly online service revenue per AOL North American subscriber.
The average  monthly  online service  revenue per AOL North American  subscriber
increased from $17.36 in the three months ended  September 30, 1997 to $19.11 in
the three  months  ended  September  30, 1998.  This  increase  was  principally
attributable to the increase in the Flat-Rate Plan membership fee from $19.95 to
$21.95, which became effective in April 1998.

         At September 30, 1998,  the Company had  approximately  13,486,000  AOL
service subscribers,  including 12,041,000 in North America and 1,445,000 in the
rest of the world.  Also at that date, the Company had  approximately  2,007,000
CompuServe brand  subscribers,  including 973,000 in North America and 1,034,000
in the rest of the world.

Advertising, Commerce and Other Revenues

         Advertising,  commerce and other revenues, which consist principally of
advertising and related revenues,  fees associated with commerce and the sale of
merchandise,  increased by 63%, from $88 million in the quarter ended  September
30, 1997 to $143 million in the quarter ended  September 30, 1998.  The increase
was driven primarily by more advertising on the Company's AOL service as well as
an increase in commerce fees.  Advertising  and commerce fees increased by 140%,
from $43 million in the three months ended September 30, 1997 to $103 million in
the three months ended September 30, 1998. Merchandise sales decreased,  in line
with management expectations, by 24%, from $25 million in the three months ended
September 30, 1997 to $19 million in the three months ended  September 30, 1998.
At  September  30,  1998,  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 $598
million, up from approximately $224 million at September 30, 1997.

<PAGE>
Cost of Revenues

         Cost of revenues includes  network-related costs,  consisting primarily
of data network costs and costs associated with network equipment, personnel and
related costs  associated  with  operating  the data  centers,  data network and
providing  customer  support and  billing,  royalties  paid to  information  and
service  providers,  the  costs  of  merchandise  sold and  product  development
amortization  expense.  For the three months ended  September 30, 1998,  cost of
revenues  increased  from $327 million to $546  million,  or 67%, over the three
months ended September 30, 1997, and increased as a percentage of total revenues
from 62.6% to 63.6%.

         The increase in cost of revenues in the three  months  ended  September
30, 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 and billing. Data network costs increased
primarily as a result of the larger  customer  base and an  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, a
larger customer base and increased online service revenues.

         The increase in cost of revenues as a percentage  of total  revenues in
the three months  ended  September  30, 1998 was  primarily  attributable  to an
increase, as a percentage of total revenues, in network-related costs, partially
offset by decreases, as a percentage of total revenues, in personnel and related
costs  associated  with  operating the data centers,  data network and providing
customer support and billing,  product development  amortization expense and the
costs of merchandise sold. The increase in network-related costs as a percentage
of revenues was primarily  driven by an increase in daily member usage,  from an
average of 40 minutes per day in the three months ended September 30, 1997 to an
average of 47 minutes per day in the three months ended September 30, 1998.

Marketing

         Marketing  expenses include the costs to acquire and retain subscribers
and other  general  marketing  costs.  For the three months ended  September 30,
1998, marketing expenses increased from $98 million to $105 million, or 7%, over
the three months ended  September  30, 1997,  and  decreased as a percentage  of
total revenues from 18.8% to 12.2%.  The increase in marketing  expenses for the
three months ended September 30, 1998 was primarily  attributable to an increase
in  subscriber  acquisition  costs.  The  decrease  in  marketing  expenses as a
percentage of total  revenues for the three months ended  September 30, 1998 was
primarily a result of the substantial growth in revenues.

Product Development

         Product development costs include research and development expenses and
other product  development costs. For the three months ended September 30, 1998,
product  development  costs  increased from $16 million to $27 million,  or 69%,
over  the  three  months  ended  September  30,  1997,  and  remained  flat as a
percentage of total revenues at 3.1%. The increase in product  development costs
was primarily  attributable  to an increase in personnel costs as a result of an
increase in the number of technical employees.

General and Administrative

         For  the  three  months   ended   September   30,  1998,   general  and
administrative  expenses increased from $54 million to $55 million,  or 2%, over
the three months ended  September  30, 1997,  and  decreased as a percentage  of
total  revenues from 10.3% to 6.4%.  The increase in general and  administrative
costs for the three months ended  September 30, 1998 was primarily  attributable
to higher  personnel  costs and  professional  fees,  partially  offset by costs
incurred  by the  Company  in the three  months  ended  September  30,  1997 for
compensatory  stock  options  and  other  charges  related  to the  sale  of ANS
Communications, Inc.

<PAGE>
Amortization of Goodwill and Other Intangible Assets

         Amortization of goodwill and other  intangible  assets increased to $13
million in the three  months  ended  September  30,  1998 from $2 million in the
three months ended September 30, 1997. The increase in  amortization  expense in
the three months ended September 30, 1998 is primarily  attributable to goodwill
associated with the  acquisitions of the CompuServe  service in January 1998 and
Mirabilis,  Ltd. and NetChannel,  Inc. in June 1998 partially offset by the sale
of ANS in January 1998.

Restructuring Charge

         In connection with a  restructuring  plan adopted in the second quarter
of  fiscal  1997,  the  Company  recorded  a $49  million  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.  As
of September 30, 1997,  substantially  all of the  restructuring  activities had
been completed and the Company reversed $2 million of the original restructuring
accrual in the first quarter of fiscal 1998.

Other Income, Net

         Other  income,   net  consists   primarily  of  investment  income  and
non-operating  gains net of interest  expense  and  non-operating  charges.  The
Company had other  income of $2 million and $5 million in the three months ended
September 30, 1998 and 1997,  respectively.  The decrease in other income in the
three months ended September 30, 1998 was primarily  attributable to an increase
in non-operating losses related to various  investments,  a reduction to zero in
gains on the sale of certain available-for-sale securities and a decrease in the
allocation of losses to minority  shareholders,  partially offset by an increase
in net interest income.

Provision for Income Taxes

         The  provision  for income  taxes was $6 million  and zero in the three
months ended September 30, 1998 and 1997,  respectively.  Income tax expense for
the three months ended  September 30, 1998 includes $5 million for U.S.  federal
and  state  income  taxes and $1  million  for  foreign  taxes.  Utilization  of
operations-related  deferred tax benefits reduced the Company's U.S. federal and
state  income tax expense by $40  million  and $13  million in the three  months
ended  September 30, 1998 and 1997,  respectively.  As of September 30, 1998 the
Company had net operating loss carryforwards available to offset future U.S.
federal taxable income of approximately $1.1 billion.

Liquidity and Capital Resources

     The Company  has  financed  its  operations  through  cash  generated  from
operations, the sale of its capital stock and the sale of convertible notes. The
Company has  financed  its  investments  in  facilities  and  telecommunications
equipment principally through leasing. Net cash provided by operating activities
was $134 million and $82 million in the three months  ended  September  30, 1998
and 1997,  respectively.  Net cash used in investing  activities was $87 million
and $82  million  in the  three  months  ended  September  30,  1998  and  1997,
respectively. Net cash provided by financing activities was $575 million and $54
million in the three months  ended  September  30, 1998 and 1997,  respectively.
Included in financing  activities for the three months ended  September 30, 1998
were $550 million in  aggregate  proceeds  from a public  stock  offering of its
common stock. The Company also has available, to meet its working capital needs,
a $200 million secured revolving credit facility with no amounts  outstanding as
of September 30, 1998.

         The Company uses its working capital to finance ongoing  operations and
to fund marketing and the development of its products and services.  The Company
plans to  continue  to invest in  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 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.

<PAGE>
Seasonality

         The  number  of  subscriber  acquisitions  and the  amount of usage per
subscriber  appear to be highest in the second and third fiscal  quarters,  when
sales of new  computers  and  computer  software  are highest due to the holiday
season and following the holiday  season,  when new computer and software owners
are discovering Internet services while spending more time indoors due to winter
weather. However, the Company does not know whether such increases in subscriber
acquisitions  and usage are  primarily  attributable  to seasonal  factors or to
increased demand for Internet  services as a result of the growing market demand
and utility for such services.

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 the AOL service,  the CompuServe  service,  their  proprietary
software, member services, network access, content providers, joint ventures and
various  administrative  and  billing  functions.  To the extent  the  Company's
software  applications  contain  source  codes that are unable to  appropriately
interpret the upcoming  calendar year 2000, some level of modification,  or even
possibly  replacement  of such  applications  may be necessary.  The Company has
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 is
undertaking its assessment of the Company's compliance and has begun testing the
AOL  corporate  business  and  information  systems.  To date,  the  Company has
experienced very few problems  related to Year 2000 testing,  and those problems
that have been identified are in the process of being fixed. The AOL Host system
will begin testing in early November  1998,  and the AOL Operations  group is on
schedule to begin testing in January 1999. The international  portion of the AOL
service  and the  CompuServe  service  continues  to move  forward  with  system
inventory gathering as well as an analysis of common systems.  The international
services  utilize  the  same  AOL  infrastructure,  so  it is  anticipated  that
additional costs of compliance for the international portion will be minimal.

         In addition, the Company is in the process of asking its vendors, joint
venture  partners and content  partners about their progress in identifying  and
addressing problems that their computer systems may face in correctly processing
date  information  related to the Year 2000,  but has received very few complete
responses.  The  Company  intends to continue  its efforts to seek  reassurances
regarding  the Year 2000  compliance  of vendors,  joint  venture  partners  and
content  partners.  In the event any third  parties  cannot  timely  provide the
Company  with  content,  products,  services or systems  that meet the Year 2000
requirements,  the content on the  Company's  services,  access to the Company's
services,  the ability to offer products and services and the ability to process
sales could be materially adversely affected.

         The costs  incurred by the Company  during  fiscal 1998 to address Year
2000 compliance were approximately $500,000. The Company estimates it will incur
up to approximately $5 million in direct costs during fiscal 1999 to support its
compliance initiatives. Although the Company expects its proprietary software to
be Year 2000  compliant on or before  December 31, 1999,  it cannot  predict the
outcome or the success of its Year 2000 program, or that third party systems are
or will be Year 2000  compliant,  or the costs required to address the Year 2000
issue,  or whether a failure to achieve  substantial  Year 2000  compliance will
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company is in the process of developing a contingency
plan to address possible risks to its systems.  It is the Company's intention to
implement its contingency plan no later than July 1999.

Inflation

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

<PAGE>
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.  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. Such statements address
subjects  including the  following:  future  financial  and  operating  results;
subscriber growth and retention;  advertising and electronic  commerce revenues;
earnings growth and  expectations;  development and success of multiple  brands;
new products,  services,  features and content (such as AOL 4.0,  CompuServe 4.0
and 5.0,  Digital  City 2.0 and the "You've Got  Pictures"  service);  corporate
spending;   network   capacity;   new  platforms  and  access  and  distribution
technologies;  and the Company's ability to shape public policy in, for example,
telecommunications, privacy and tax areas.

         The  following  factors,  among others,  could cause actual  results to
differ materially from that described in the forward-looking statements:

          Factors related to increased competition,  including: price reductions
     and increased spending; limitations on the Company's opportunities to enter
     into and/or  renew  agreements  with  content and  distribution  providers;
     limitations on its ability to grow its subscriber base; increased attrition
     in the Company's  subscriber  base; and a negative  impact on the Company's
     ability  to meet its  business  objective  of  increasing  advertising  and
     electronic commerce revenues.

          The risk that the Company and its data communications access providers
     will be unable to provide  adequate  server  and  network  capacity.  Risks
     associated  with  the  fixed  costs  and  minimum  commitment  nature  of a
     substantial  majority  of  the  Company's  network  services,  such  that a
     significant  decrease in demand for online  services  would not result in a
     corresponding  decrease in network costs.  Risks related to the buildout of
     AOLnet and the  expansion  of server and  network  capacity:  the risk that
     demand  will not  develop for the  capacity  created;  the risk that supply
     shortages for local exchange  carrier lines from local telephone  companies
     could impede the provision of adequate  network  capacity;  and the risk of
     the  failure  to  obtain  the   necessary   financing.   Risks  related  to
     CompuServe's reliance on network services which are provided under a single
     agreement.

          Any damage or  failure to the  Company's  computer  equipment  and the
information stored in its data centers.

          The inability to increase  revenues at a rate sufficient to offset the
     increase in data  communications  costs  resulting from  increasing  usage.
     Risks and  uncertainties  associated  with current or future price changes,
     including:  the risk that  competitive  offerings  to the AOL  service  may
     become more  attractive  to AOL  members;  the risk of slowing or reversing
     subscriber growth or reducing subscriber  retention rates and the resulting
     impact on the Company's ability to generate advertising  revenues;  and the
     risk that the Company may be required to increase marketing  expenses.  The
     resulting risk that gross and operating margins will decrease.

          The risk that  because of seasonal and other  factors,  the Company is
     unable to predict growth in usage,  subscriber acquisitions and advertising
     commitments.

          The  failure  of the  Company  to  establish  new  relationships  with
     electronic  commerce,   advertising,   marketing,  technology  and  content
     providers or the loss of a number of  relationships  with such providers or
     the risk of significantly  increased costs or decreased revenues needed, to
     maintain, or resulting from the failure to maintain, such relationships, as
     the case may be.

          The risk associated with accepting warrants in lieu of cash in certain
     electronic commerce agreements,  as the value of such warrants is dependent
     upon the common stock price of the warrant  issuer at the time the warrants
     are earned.

<PAGE>
          The risks  related to the  acquisition  of  businesses,  including the
     failure  to  successfully   integrate  and  manage   acquired   technology,
     operations  and  personnel,  the  loss  of key  employees  of the  acquired
     companies and the risk of significant  charges for in-process  research and
     development  or other  matters.  The risk of loss of services of  executive
     officers and other key employees.

          The  inability of the Company to introduce  new products and services;
     and its inability to develop,  or achieve commercial  acceptance for, these
     new  products  and  services.  The  failure  to resolve  issues  concerning
     commercial  activities via the Internet,  including security,  reliability,
     cost,  ease of use and  access.  The risk of  adverse  changes  in the U.S.
     regulatory environment surrounding interactive services.

          The  Company's  inability  to  offer  its  services  through  advanced
     distribution technologies such as cable, satellite,  broadcast and enhanced
     telephone distribution and the inability to offer advanced services such as
     voice and full  motion  video.  The  Company's  inability  to  develop  new
     technology   or  modify  its   existing   technology   to  keep  pace  with
     technological  advances  and the  pursuit of these  technological  advances
     requiring substantial expenditures.

          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 that  differ
     greatly from those in the United States,  unexpected  changes in regulatory
     requirements,  political risks, export  restrictions and controls,  tariffs
     and other trade barriers and fluctuations in currency exchange rates.


Part II.          OTHER INFORMATION
Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits
Exhibit  3.1   Certificate   of  Amendment  of  Restated   Certificate   of
Incorporation of America Online, Inc.

(b)      Reports on Form 8-K
The following  reports on form 8-K were filed during the quarter ended September
30, 1998:

<PAGE>
<TABLE>

------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Financial                                 Date of
Form          Item    Description                     Statements Filed                          Reports
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
<S>           <C>                                     <C>                                       <C> 
8-K           5,7     Reporting a statement made by   Not applicable                            September 28, 1998
                      the Company in a telephone
                      conference with analysts and
                      others
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
8-K           5,7     Reporting a statement made by   Not applicable                            August 4, 1998
                      the Company in a telephone
                      conference with analysts and
                      others
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
8-K/A         7       Amends form 8-K dated June 5,   Financial Statements of June 5, 1998      August 21, 1998
                      1998 reporting a material       Businesses Acquired:
                      acquisition of assets
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Mirabilis Ltd. (an Israeli Development
                                                      Development Stage Corporation) as of 
                                                      March 31, 1998 and the three months ended 
                                                      March 31, 1998 and 1997 (unaudited)
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Mirabilis Ltd. (an Israeli
                                                      Development          Stage
                                                      Corporation)  for the year
                                                      ended  December  31, 1997,
                                                      for the  period  from July
                                                      29,    1996    (date    of
                                                      incorporation) to December
                                                      31,1996 and for the period
                                                      from  July  29,   1996  to
                                                      December 31, 1997
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Pro Forma Financial Information:
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Pro Forma Combined Condensed Balance
                                                      Sheet as of March 31, 1998 (unaudited)
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Pro     Forma     Combined
                                                      Statement  of   Operations
                            for the nine month period
                              ended March 31, 1998
                                                      (unaudited)
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Pro     Forma     Combined
                                                      Statement  of   Operations
                            for the nine month period
                              ended March 31, 1997
                                                      (unaudited)
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Pro Forma Combined Statement of
                                                      Operations for the year ended June 30,
                                                      1997 (unaudited)
------------- ------- ------------------------------- ----------------------------------------- ----------------------
------------- ------- ------------------------------- ----------------------------------------- ----------------------
                                                      Notes to Unaudited Consolidated
                              Financial Statements
------------- ------- ------------------------------- ----------------------------------------- ----------------------
</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: November 5, 1998        SIGNATURE: /s/Stephen M. Case            
                                         ------------------------------
                                         Stephen M. Case
                                         Chairman of the Board and Chief 
                                         Executive Officer



DATE: November 5, 1998        SIGNATURE: /s/J. Micheal Kelly           
                                         ------------------------------
                                         J. Michael Kelly
                                         Senior Vice President and Chief 
                                         Financial Officer



<PAGE>


Exhibit Index

Exhibit 3.1                   Certificate of Amendment of Restated Certificate 
                              of Incorporation of America Online, Inc.



<PAGE>


 Exhibit 3.1

CERTIFICATE  OF AMENDMENT OF RESTATED  CERTIFICATE OF  INCORPORATION  OF AMERICA
ONLINE, INC.

         America  Online,  Inc.,  a  Delaware  corporation  duly  organized  and
existing  under  the  General  Corporation  Law of the  State of  Delaware  (the
"Corporation"), does hereby certify:

     FIRST:  That  Section A of Article  FOURTH of the Restated  Certificate  of
Incorporation is hereby amended to read in its entirety as follows:

     FOURTH:  A. The total  number of shares of all  classes of stock  which the
Corporation shall have authority to issue is 1,805,000,000 shares,  divided into
two classes, consisting of:

1,800,000,000  shares of Common Stock, par value one cent ($0.01) per share (the
"Common Stock"); and

5,000,000  shares of Preferred  Stock, par value one cent ($0.01) per share (the
"Undesignated Preferred Stock").

     SECOND:  That  said  amendment  was duly  adopted  in  accordance  with the
provisions  of  Section  242 of the  General  Corporation  Law of the  State  of
Delaware.

         IN WITNESS WHEREOF, America Online, Inc. has caused this Certificate of
Amendment to be signed by its duly authorized  officer this 21st day of October,
1998.


                               /s/Sheila A. Clark
                               Sheila A. Clark
                               Assistant Secretary