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: March 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 April 30, 1999...............................1,082,357,151


<PAGE>

                              AMERICA ONLINE, INC.

                                     INDEX
                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets - March 31, 1999
         and June 30, 1998                                                     3

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

         Condensed Consolidated Statements of Operations - Nine
         months ended March 31, 1999 and 1998                                  5

         Condensed Consolidated Statements of Cash Flows - Nine
         months ended March 31, 1999 and 1998                                  6

         Condensed Consolidated Statement of Changes in
         Stockholders' Equity - Nine months ended
         March 31, 1999                                                        7

         Notes to Condensed Consolidated Financial Statements                  8

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            13


PART II. OTHER INFORMATION                                                    23

Item 2.  Changes in Securities and Use of Proceeds                            23

Item 6.  Exhibits and Reports on Form 8-K                                     23

Signatures                                                                    24


<PAGE>

<TABLE>
<CAPTION>

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

                                                                           March 31,                  June 30,
                                                                              1999                      1998
                                                                      ---------------------      -------------------
ASSETS                                                                     (unaudited)

Current assets:
<S>                                                                                <C>                       <C>   
    Cash and cash equivalents                                                      $ 2,672                   $  672
    Short-term investments                                                             102                      146
    Trade accounts receivable, less allowances of $46 and $34,
          respectively                                                                 284                      192
    Other receivables                                                                  173                       92
    Prepaid expenses and other current assets                                          137                      156
                                                                      ---------------------      -------------------
          Total current assets                                                       3,368                    1,258

Property and equipment at cost, net                                                    584                      502

Other assets:
    Investments including available-for-sale securities                                749                      531
    Product development costs, net                                                      93                       88
    Goodwill and other intangible assets, net                                          444                      471
    Deferred income taxes and other assets                                              49                       17
                                                                      =====================      ===================
          Total assets                                                             $ 5,287                  $ 2,867
                                                                      =====================      ===================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Trade accounts payable                                                           $  91                   $  119
    Other accrued expenses and liabilities                                             730                      461
    Deferred revenue                                                                   650                      419
    Accrued personnel costs                                                            296                       79
    Deferred network services credit                                                    76                       76
                                                                      ---------------------      -------------------
          Total current liabilities                                                  1,843                    1,154

Long-term liabilities:
    Notes payable                                                                      369                      372
    Deferred revenue                                                                    50                       71
    Other liabilities                                                                   12                        6
    Deferred network services credit                                                   216                      273
                                                                      ---------------------      -------------------
          Total liabilities                                                          2,490                    1,876

Stockholders' equity:
  Common stock, $.01 par value, 1,800,000,000 shares
     authorized, 1,077,388,144 and 969,340,398 shares
     issued and outstanding at March 31, 1999
     and June 30, 1998, respectively                                                    11                       10
  Additional paid-in capital                                                         2,528                    1,424
  Unrealized gain on available-for-sale securities                                     232                      144
  Retained earnings (accumulated deficit)                                               26                     (587)
                                                                      ---------------------      -------------------
          Total stockholders' equity                                                 2,797                      991
                                                                      =====================      ===================
          Total liabilities and stockholders' equity                               $ 5,287                  $ 2,867
                                                                      =====================      ===================

                                                        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
                                                                                    March 31,
                                                                --------------------------------------------------

                                                                --------------------------------------------------
                                                                        1999                        1998
                                                                ---------------------       ---------------------

Revenues:
<S>                                                                            <C>                         <C>  
   Subscription services                                                       $ 869                       $ 580
   Advertising, commerce and other                                               275                         142
   Enterprise solutions                                                          109                          35
                                                                ---------------------       ---------------------

            Total revenues                                                     1,253                         757

Costs and expenses:
   Cost of revenues                                                              691                         488
   Sales and marketing                                                           218                         138
   Product development                                                            80                          65
   General and administrative                                                    113                          83
   Amortization of goodwill and other intangible assets                           17                           7
   Acquired in-process research and development                                    -                          10
   Merger and restructuring charges                                               78                          48
                                                                ---------------------       ---------------------

          Total costs and expenses                                             1,197                         839

Income (loss) from operations                                                     56                        (82)

Other income, net                                                                586                           4
                                                                ---------------------       ---------------------

Income (loss) before (provision) for income taxes                                642                        (78)

(Provision) for income taxes                                                   (222)                           -

                                                                =====================       =====================
Net income (loss)                                                              $ 420                      $ (78)
                                                                =====================       =====================


Earnings (loss) per share-diluted                                             $ 0.33                     $(0.08)

Earnings (loss) per share-basic                                               $ 0.41                     $(0.08)

Weighted average shares outstanding-diluted                                    1,283                         932

Weighted average shares outstanding-basic                                      1,042                         932


                                                        See accompanying notes.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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

                                                                                Nine months ended
                                                                                    March 31,
                                                                --------------------------------------------------

                                                                --------------------------------------------------
                                                                        1999                        1998
                                                                ---------------------       ---------------------

Revenues:
<S>                                                                          <C>                          <C>   
   Subscription services                                                     $ 2,378                      $1,507
   Advertising, commerce and other                                               693                         379
   Enterprise solutions                                                          328                         262
                                                                ---------------------       ---------------------

            Total revenues                                                     3,399                       2,148

Costs and expenses:
   Cost of revenues                                                            1,913                       1,268
   Sales and marketing                                                           593                         467
   Product development                                                           216                         175
   General and administrative                                                    285                         234
   Amortization of goodwill and other intangible assets                           49                          15
   Acquired in-process research and development                                    -                          24
   Merger and restructuring charges                                               80                          75
   Settlement charge                                                               -                         (1)
                                                                ---------------------       ---------------------

          Total costs and expenses                                             3,136                       2,257

Income (loss) from operations                                                    263                       (109)

Other income, net                                                                607                          13
                                                                ---------------------       ---------------------

Income (loss) before (provision) benefit for income taxes                        870                        (96)

(Provision) benefit for income taxes                                           (252)                          16

                                                                =====================       =====================
Net income (loss)                                                              $ 618                      $ (80)
                                                                =====================       =====================


Earnings (loss) per share-diluted                                             $ 0.50                     $(0.09)

Earnings (loss) per share-basic                                               $ 0.62                     $(0.09)

Weighted average shares outstanding-diluted                                    1,255                         918

Weighted average shares outstanding-basic                                      1,020                         918

                                                        See accompanying notes.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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

                                                                                 Nine months ended March 31,
                                                                          ------------------------------------------
                                                                                 1999                   1998
                                                                          --------------------    ------------------

Cash flows from operating activities:
<S>                                                                                     <C>                  <C>   
   Net income (loss)                                                                    $  618               $  (80)
   Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
   Non-cash restructuring charges                                                            7                   32
   Depreciation and amortization                                                           217                  136
   Amortization of deferred network services credit                                        (57)                 (13)
   Charge for acquired in-process research and development                                   -                   24
   Compensatory stock options                                                               20                   28
   Deferred income taxes                                                                   253                  (18)
   Gain on sale of investments                                                            (569)                 (15)
   Changes in assets and liabilities, net of effects of acquisitions
   and dispositions:
      Trade accounts receivable                                                            (92)                  59
      Other receivables                                                                    (79)                 (28)
      Prepaid expenses and other current assets                                            (45)                  33
      Other assets                                                                          (2)                  (3)
      Investments including available-for-sale securities                                  (16)                 (29)
      Accrued expenses and other current liabilities                                       452                  136
      Deferred revenue and other liabilities                                               209                   50
                                                                          --------------------    ------------------
      Total adjustments                                                                    298                  392
                                                                          --------------------    ------------------
Net cash provided by operating activities                                                  916                  312

Cash flows from investing activities:
   Purchase of property and equipment                                                     (199)                (322)
   Product development costs                                                               (32)                 (36)
   Proceeds from sale of investments                                                       627                   61
   Purchase of investments including available-for-sale securities                        (210)                 (75)
   Maturity of investments                                                                 132                   79
   Net proceeds for acquisitions/dispositions of subsidiaries                               31                  207
   Other investing activities                                                              (45)                 (11)
                                                                          --------------------    ------------------
Net cash (used in) provided by investing activities                                        304                  (97)
                                                                          --------------------    ------------------

Cash flows from financing activities:
   Proceeds from issuance of common stock, net                                             757                   97
   Proceeds from sale and leaseback of property and equipment                                8                   63
   Principal and accrued interest payments on line of credit and debt                      (13)                 (10)
   Proceeds from line of credit and issuance of debt                                        28                  379
                                                                          --------------------    ------------------
Net cash provided by financing activities                                                  780                  529
                                                                          --------------------    ------------------

Net increase in cash and cash equivalents                                                2,000                  744
Cash and cash equivalents at beginning of period                                           672                  191
                                                                          --------------------    ------------------
Cash and cash equivalents at end of period                                            $  2,672                $ 935
                                                                          ====================    ==================

Supplemental cash flow information
Cash paid during the period for:
     Interest                                                                          $    10                $   9

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


<S>                                                    <C>              <C>     <C>            <C>             <C>            <C>  
Balances at June 30, 1998                              969,340,398      $ 10    $ 1,424        $ 144           $ (587)        $ 991

Effect of immaterial pooling - When Inc.                 1,347,538         -          7            -               (3)            4
Effect of immaterial pooling - AtWeb, Inc.               2,417,373         -          4            -               (2)            2
Common stock issued:
    Exercise of options, ESPP and warrant               79,961,539         1        196            -                 -          197
    Sale of stock, net                                  21,983,850         -        556            -                 -          556
Amortization of compensatory stock options                       -         -         15            -                 -           15
Unrealized gain on available-for-sale securities,
   including tax effect                                          -         -         52           88                 -          140
Conversion of convertible debt                           2,337,446         -         30            -                 -           30
Tax benefit related to stock options                             -         -        244            -                 -          244
Net income                                                       -         -          -            -               618          618
                                                    ================================================================================
Balances at March 31, 1999                           1,077,388,144      $ 11    $ 2,528        $ 232             $  26      $ 2,797
                                                    ================================================================================


                                                        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 and nine months ended March 31, 1999 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  Current Report on Form 8-K/A filed on April
21,  1999 and the 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 and nine months ended March 31, 1999 and 1998:

<TABLE>

(in millions except for per share data)                       Three months ended                Nine months ended
                                                                   March 31,                        March 31,
                                                              1999            1998            1999             1998
                                                              ----            ----            ----             ----
Basic earnings per share:
<S>                                                            <C>            <C>              <C>               <C>  
  Net income (loss) available to common shareholders           $420           $(78)            $618              $(80)
                                                       ---------------------------------------------------------------

  Weighted average shares outstanding                         1,042            932            1,020               918

  Basic earnings (loss) per share                             $0.41        $(0.08)            $0.62            $(0.09)
                                                       ===============================================================

Diluted earnings per share:
  Net income (loss) available to common shareholders           $420          $(78)             $618              $(80)
  Interest on convertible debt                                    4              -               12                -
                                                       ---------------------------------------------------------------
  Net income available to common shareholders
  assuming conversion                                          $424          $(78)             $630              $(80)
                                                       ---------------------------------------------------------------

  Weighted average shares outstanding                         1,042            932            1,020               918
  Effect of dilutive securities:
    Employee stock options                                      192              -              182                 -
    Warrants                                                     22              -               26                 -
    Convertible debt and preferred shares                        27              -               27                 -
                                                       ---------------------------------------------------------------
  Adjusted weighted shares and assumed conversions            1,283            932            1,255               918
                                                       ===============================================================
Diluted earnings (loss) per share                          $   0.33      $  (0.08)         $   0.50         $   (0.09)
                                                       ===============================================================
</TABLE>
<PAGE>

Note 3.  Comprehensive Income

         For the  three  months  ended  March 31,  1999 and 1998,  comprehensive
income  (loss) was $524 million and $(31)  million,  respectively.  For the nine
months  ended  March 31,  1999 and 1998,  comprehensive  income  (loss) was $706
million and $(17) 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. Business Developments

     On February 1, 1999, the Company announced that it would acquire MovieFone,
Inc.,  ("MovieFone") in an all-stock  transaction  valued at approximately  $388
million.   The   acquisition   is   expected   to   be   accounted   for   as  a
pooling-of-interests  and is expected to close in fourth quarter of fiscal 1999,
subject to various conditions including approval by MovieFone's shareholders.

         From  January  1999  through  March 1999,  the Company sold most of its
investment in Excite,  Inc. for a net gain of  approximately  $567 million.  The
Company  reported  this amount as a gain during the quarter  ended March 1999 in
other income, net.

         On January 27, 1999, the Company  announced that its Board of Directors
approved a two-for-one  common stock split.  On the payment date of February 22,
1999,  stockholders  received one  additional  share for each share owned on the
record date of February 8, 1999.  The impact of this stock split is reflected in
the accompanying financial statements.

Note 5. Business Combinations

         During March 1999, the Company completed its business  combination with
When Inc.  ("When.com"),  a company that provides a personalized event directory
and calendar services.  The Company exchanged shares of its common stock for all
of the  outstanding  capital stock of When.com,  a privately  held company.  The
business  combination  was  treated  as a  pooling-of-interests  for  accounting
purposes.  As When.com's  historical  results of operations were not material in
relation to those of AOL, the financial  information  prior to the quarter ended
March 31, 1999 has not been restated to reflect the business combination.

         On March 17,  1999,  the Company  completed  its merger  with  Netscape
Communications Corporation ("Netscape"), in which Netscape became a wholly owned
subsidiary of the Company. The Company exchanged approximately 95 million shares
of common stock for all the  outstanding  common shares of Netscape.  The merger
was  accounted  for under the  pooling-of-interests  method of  accounting  and,
accordingly,  the  accompanying  financial  statements  and footnotes  have been
restated to include the operations of Netscape for all periods presented. During
the quarter ended March 1999, the Company recorded a charge of approximately $78
million of incurred direct costs primarily related to the merger of Netscape and
the Company's  reorganization plans to integrate Netscape's operations and build
on the  strengths  of the  Netscape  brand and  capabilities  (see Note 6).  The
Company also  incurred  approximately  $25 million in  transition  and retention
costs,  which were  charged to  operations.  For the three and nine months ended
March 31, 1999 and 1998,  Netscape's  revenues were  approximately $165 million,
$461 million, $53 million and $314 million, respectively. For the three and nine
months ended March 31, 1999 and 1998,  Netscape's net loss was approximately $48
million, $77 million, $96 million and $162 million, respectively.
<PAGE>

         In December  1998,  the Company  completed its merger with AtWeb,  Inc.
("AtWeb"),  in which AtWeb became a wholly owned subsidiary of the Company.  The
Company  exchanged  approximately 2.4 million shares of common stock for all the
outstanding  capital  stock of AtWeb.  The  merger was  accounted  for under the
pooling-of-interests  method of  accounting.  As AtWeb's  historical  results of
operations were not material in relation to those of the Company, the historical
financial  information,  prior to  November  1, 1998,  has not been  restated to
reflect the  business  combination.  In the quarter  ended  December  1998,  the
Company recognized approximately $2 million in costs related to this merger.

         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,  valued at $280 million,  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 respective periods.  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 nine  months  ended  March 31,  1998,  would have
resulted in revenues of $2,283 million, loss from operations of $54 million, net
loss of $31  million,  and  diluted  and basic loss per share of $0.03.  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.

         During   November   1998,   the  Company   completed  its  merger  with
PersonaLogic, Inc. ("PersonaLogic"), in which PersonaLogic became a wholly-owned
subsidiary  of the  Company.  The Company  exchanged  approximately  1.4 million
shares of common stock for all the  outstanding  common and preferred  shares of
PersonaLogic. The merger was accounted for under the pooling-of-interests method
of accounting and, accordingly,  the accompanying financial statements have been
restated to include the  operations of  PersonaLogic  for all periods  presented
prior to the merger.  The Company expensed an immaterial  amount of merger costs
during the December 1998 quarter. PersonaLogic's revenues for the three and nine
months  ended  March 31,  1999 and 1998 were not  significant.  During the three
months  ended March 31, 1998 and the nine months  ended March 31, 1999 and 1998,
PersonaLogic's net loss was $1 million, $2 million and $3 million, respectively.

Note 6.  Merger and Restructuring Charges

         During the quarter ended March 1999,  the Company  recorded a charge of
approximately  $78 million of incurred  direct  costs  primarily  related to the
merger  of  Netscape  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 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.

         The following table  summarizes the activity in the accruals during the
period ended March 31, 1999. The balance of the  restructuring  accrual at March
31,  1999  is  included  in  other  accrued  expenses  and  liabilities  on  the
supplemental  consolidated balance sheet and is anticipated to be paid within 12
months.
<PAGE>

(in millions)
                                  Restructuring/                       Balance
                                     Merger       Non Cash             March 31,
                                    Charges        Items     Payments    1999
                                  -------------   --------   --------   --------
Banking, legal, regulatory
  and accounting fees...........       $36           $  -       $ (5)     $31
Severance and related costs.....        24              -          -       24
Facilities shutdown costs.......         8              -          -        8
Miscellaneous expenses..........        10             (7)        (1)       2
                                  -------------   --------   --------   --------
Total...........................       $78           $ (7)      $ (6)     $65
                                  =============   ========   ========   ========


Note 7.  Legal Proceedings

         The Department of Labor ("DOL") is investigating  the  applicability of
the Fair Labor  Standards Act 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.

Note 8.  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.

         SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect  to Certain  Transactions"  was issued in  December  1998 and  addresses
software  revenue   recognition  as  it  applies  to  certain   multiple-element
arrangements.  SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a  Provision  of SOP 97-2",  to extend the  deferral of  application  of certain
passages of SOP 97-2 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions  entered into in
fiscal years  beginning  after March 15, 1999.  The Company will comply with the
requirements  of this SOP as they become  effective  and this is not expected to
have a material effect on the Company's revenues and earnings.
<PAGE>

Note 9.  Segment Information

         The FASB has issued SFAS No.  131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information,"  which  establishes  annual and  interim
reporting  standards for a company's  operating segments and related disclosures
about  its  products,  services,  geographic  areas and  major  customers.  This
Statement is not effective until fiscal years beginning after December 15, 1997.
Adoption of this standard will not impact the Company's  consolidated  financial
position,  results of  operations or cash flows,  and any effect,  while not yet
determined  by  the  Company,  will  be  limited  to  the  presentation  of  its
disclosures.  The prevailing  Statement is SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise" which requires that financial statements of a
business  enterprise  include  specified  information  relating  to a  reporting
entity's  operation in different  industries,  its foreign operations and export
sales,  and its major  customers.  SFAS No. 14 describes the  information  to be
presented and the formats for presenting such information. It also describes the
materiality  thresholds  for  determining  the  requirement  to  delineate  this
information.  After evaluating these criteria, the Company determined that there
is not a SFAS  No.  14  requirement  to  report  segments.  However,  management
believes that the disclosure of certain  operating  results may be beneficial to
the reader.  For purposes of this note the Company describes its two major lines
of Internet businesses as Interactive Online Services and Enterprise  Solutions.
The  Interactive  Online  Services  business  mainly  includes the two worldwide
Internet  services,   America  Online  and  CompuServe.  It  also  includes  the
Interactive  Properties  Group,  a leading  builder of  Internet  brands  across
multiple  services and platforms  including  Digital City,  Inc., which offers a
network of local content and community  guides,  and ICQ, which provides instant
communications and chat technology.  Other branded Internet services included in
this group are:  AOL.COM,  the world's  most  accessed  Web site from home;  AOL
NetFind, a comprehensive  guide to the Internet;  and AOL Instant Messenger,  an
instant  messaging tool  available on both AOL and the Internet.  As a result of
the merger with Netscape,  Netcenter was added to this group. Netcenter includes
Netscape's  Internet portal and client business that helps companies build, buy,
or outsource Internet applications. The Enterprise Solutions business provides a
wide range of software  products,  technical  support,  consulting  and training
services.  These  solutions have  historically  enabled  businesses and users to
share information, manage networks, and facilitate electronic commerce.

         A summary of the segment financial information is as follows:
<TABLE>

(amounts in millions)
                                            Three months ended     Nine months ended
                                                March 31,               March 31,
                                            1999        1998        1999        1998
                                         ----------  ----------  ----------  ----------
Revenues:
<S>                                        <C>         <C>         <C>          <C>   
Interactive Online Services.........       $1,144      $  722      $3,071       $1,886
Enterprise Solutions................          109          35         328          262
                                         ----------  ----------  ----------  ----------
Total revenues......................        1,253         757       3,399        2,148

Income (loss) from operations:
Interactive Online Services.........       $  266      $  115      $  648       $  244
Enterprise Solutions................          (19)        (56)        (20)         (21)
General & Administrative............         (113)        (83)       (285)        (234)
Other (1)...........................          (78)        (58)        (80)         (98)
                                         ----------  ----------  ----------  ----------
Total income (loss) from operations.       $   56      $  (82)     $  263       $ (109)
</TABLE>


(1)  Other  consists  of all  special  items;  merger,  restructuring,  contract
     termination,  acquired  in-process  research and development and settlement
     charges.

<PAGE>


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

Overview

         Founded in 1985, America Online,  Inc., based in Dulles,  Virginia,  is
the world's leader in interactive services,  Web brands,  Internet technologies,
and e-commerce  services.  The Company operates two worldwide Internet services,
America  Online,  with  more  than 17  million  members,  and  CompuServe,  with
approximately 2 million  members;  several leading Internet brands including ICQ
and Digital City,  Inc.;  the Netscape  Netcenter and AOL.COM  portals;  and the
Netscape  Navigator  and  Communicator  browsers.  The Company also develops and
offers  easy-to-deploy,  end-to-end  e-commerce  and  enterprise  solutions  for
companies operating in and doing business on the Internet.

         The Company reports three main types of revenues; subscription services
revenues,  advertising,  commerce and other  revenues;  and enterprise  solution
revenues.   Subscription   services   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
and users  across  its  multiple  brands,  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.  Enterprise solutions revenues consist
principally  of  product  licensing  fees  and  fees  from  technical   support,
consulting, and training services.

     Currently,  the  Company's  subscription  services  revenues are  generated
primarily from subscribers  paying a monthly  membership fee. The Company offers
several pricing  alternatives for 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  increased  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.  The  Company  continues  to  experience  improved
subscriber  acquisition and retention rates over fiscal 1998,  which it believes
is  related  to the  improved  value  offered  by  flat-rate  pricing  and other
benefits.

         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.
<PAGE>

         In addition to the revenues generated from subscription  services,  the
advertising,  commerce  and other  revenues  are an  important  component of the
Company's  business  objectives  and provide a significant  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 third  quarter of fiscal 1999,  average daily
subscriber usage on the AOL service was  approximately  55 minutes,  compared to
approximately  46 minutes in the third  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  enterprise  solution  revenues  are  comprised  of a wide range of
software  products,   technical  support,   consulting  and  training  services,
predominately  for  business  customers.  These  products  and  services  enable
businesses  and  their  customers  to share  information,  manage  networks  and
facilitate electronic commerce on the Internet.

         The Company faces  competition  from a wide range of other companies in
the communications,  advertising,  entertainment,  information, media, Web-based
services, software,  technology,  direct mail and electronic commerce fields for
subscription, advertising, and commerce revenue, for the development and sale of
electronic  commerce  infrastructure  and applications and in the development of
distribution technologies and equipment.

     -- Competitors for subscription revenues include:
        --  online  services  such as the Microsoft  Network,  AT&T Worldnet and
            Prodigy  Classic
        --  national and local Internet  service  providers,  such as MindSpring
            and EarthLink
        --  long distance and regional  telephone  companies  offering access as
            part of their telephone  service,  such as AT&T Corp., MCI WorldCom,
            Inc., Sprint Corporation and regional Bell operating companies
        --  cable television companies
        --  cable Internet access  services  offered by companies such as AtHome
            Corporation and Road Runner Group
     --  Competitors for advertising and commerce revenues include:
        --  online  services  such as the Microsoft  Network,  AT&T Worldnet and
            Prodigy Classic
        --  Web-based  navigation  and search  service  companies such as Yahoo!
            Inc., Infoseek Corporation, Lycos, Inc. and Excite, Inc.
        --  global media companies  including  newspapers,  radio and television
            stations and content  providers,  such as the National  Broadcasting
            Corporation,  CBS Corporation,  The Walt Disney Company, Time Warner
            Inc., The Washington Post Company and Conde Nast Publications, Inc.
        --  cable Internet access  services  offered by companies such as AtHome
            Corporation and Road Runner Group
     --  Competitors  in  the  development  and  sale  of  electronic   commerce
         infrastructure and applications include:
        --  providers  of  electronic  commerce  infrastructure  such as  server
            software,  including  International  Business Machines  Corporation,
            Microsoft   Corporation,    Oracle   Corporation,    Novell,   Inc.,
            Software.com, Inc., BEA Systems, Inc. and the provider of the Apache
            Web Server
        --  providers   of   electronic    commerce    applications    including
            International  Business Machines  Corporation,  Oracle  Corporation,
            General  Electric   Information  Systems,   Microsoft   Corporation,
            PeopleSoft,  Inc., SAP A.G., Open Market,  Inc., Ariba Technologies,
            CommerceOne, Sterling Commerce, Inc. and BroadVision, Inc.
     --  Competition  in  the  development  of  distribution   technologies  and
         equipment includes:
        --  broadband  distribution  technologies  used in cable Internet access
            services  offered by companies such as AtHome  Corporation  and Road
            Runner Group
        --  advanced  telephone-based  access  services  offered through digital
            subscriber  line  technologies  offered by local  telecommunications
            companies
        --  other advanced digital services offered by broadcast,  satellite and
            wireless companies
        --  television-based   interactive  computer  services,  such  as  those
            offered  by  Microsoft's  WebTV
        --  personal  digital  assistants,  enhanced  mobile  phones  and  other
            equipment offering functional equivalents to our features
<PAGE>

         Some  of  the  Company's  present   competitors  and  potential  future
competitors  may have  greater  financial,  technical,  marketing  or  personnel
resources.  The competitive  environment could have a variety of adverse effects
on the Company. For example, it could:

     -- require price  reductions in the  subscription  fees for online services
        and require increased spending on marketing,  network capacity,  content
        procurement and product development
     -- negatively impact the Company's ability to generate greater revenues and
        profits from sources other than online  service  subscription  revenues,
        such as advertising and electronic commerce
     -- limit the Company's opportunities to enter into or renew agreements with
        content providers and distribution  partners
     -- limit the Company's ability to develop new  products  and  services 
     -- limit  the  Company's  ability  to  continue  to  grow or  sustain  our
        subscriber base
     -- require price reductions for the Company's enterprise software products
     -- result  in a loss  of the  Company's  market  share  in the  enterprise
        software industry
     -- require an increase in the Company's  sales and marketing  expenditures,
        and a reduction in the Company's advertising  revenues,  relating to the
        Company's Netcenter Internet portal

         Any of the foregoing events could have an adverse impact on revenues or
result in an  increase in costs as a  percentage  of  revenues,  either of which
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and operating results.

Results of Operations

Subscription Services Revenues

         For the three  months  ended  March  31,  1999,  subscription  services
revenues  increased  from $580 million to $869  million,  or 50%, over the three
months  ended March 31, 1998.  This  increase is comprised of an increase in AOL
subscription   services   revenues  of  $272  million  as  well  as   CompuServe
subscription services revenues of $17 million, which began in February 1998. The
increase in AOL subscription  services revenues was primarily  attributable to a
37% increase in the average  number of AOL North  American  subscribers  for the
three months ended March 31, 1999,  compared to the three months ended March 31,
1998,  as well as a 10% increase in the average  monthly  subscription  services
revenue per AOL North  American  subscriber.  The average  monthly  subscription
services revenue per AOL North American subscriber  increased from $17.74 in the
three  months ended March 31, 1998 to $19.44 in the three months ended March 31,
1999.  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.

         For the  nine  months  ended  March  31,  1999,  subscription  services
revenues increased from $1,507 million to $2,378 million,  or 58%, over the nine
months  ended March 31, 1998.  This  increase is comprised of an increase in AOL
subscription   services   revenues  of  $750  million  as  well  as   CompuServe
subscription  services  revenues of $121 million,  which began in February 1998.
The increase in AOL subscription services revenues was primarily attributable to
a 38% increase in the average number of AOL North American  subscribers  for the
nine months  ended March 31,  1999,  compared to the nine months ended March 31,
1998,  as well as a 10% increase in the average  monthly  subscription  services
revenue per AOL North  American  subscriber.  The average  monthly  subscription
services revenue per AOL North American subscriber  increased from $17.64 in the
nine months  ended  March 31, 1998 to $19.33 in the nine months  ended March 31,
1999.  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 March 31,  1999,  the Company  had  approximately  16.9  million AOL
service subscribers,  including 14.8 million in North America and 2.1 million in
the rest of the world.  Also at that date,  the  Company had  approximately  2.0
million  CompuServe  brand  subscribers,  with 1 million in North  America and 1
million in the rest of the world.
<PAGE>

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  across the Company's  multiple brands,  increased by 94%, from $142
million in the quarter ended March 31, 1998 to $275 million in the quarter ended
March 31, 1999.  The increase was primarily  driven by more  advertising  on the
Company's  AOL service and  Netcenter  portal as well as an increase in commerce
fees.  Advertising  and commerce fees increased by 119%, from $96 million in the
three  months  ended March 31, 1998 to $210  million in the three  months  ended
March 31, 1999.  Merchandise  sales  increased  by 46%,  from $26 million in the
three months ended March 31, 1998 to $38 million in the three months ended March
31, 1999.  This increase is mainly  attributable  to improved  response rates to
advertising  as well as a larger base of  subscribers.  At March 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  $1.3 billion,  up from  approximately
$450 million at March 31, 1998.

         For the nine months  ended March 31,  1999,  advertising,  commerce and
other  revenues  increased  from $379 million to $693 million,  or 83%, over the
nine months ended March 31, 1998.  The  increase  was  primarily  driven by more
advertising  on the  Company's  AOL service and  Netcenter  portal as well as an
increase in commerce fees. Advertising and commerce fees increased by 127%, from
$233 million in the nine months ended March 31, 1998 to $530 million in the nine
months ended March 31, 1999.  Merchandise sales increased slightly, in line with
management  plans,  by 8%, from $84  million in the nine months  ended March 31,
1998 to $91 million in the nine months ended March 31, 1999.

Enterprise Solutions Revenues

     Enterprise  solutions  revenues,   which  consist  principally  of  product
licensing  fees  and fees  from  technical  support,  consulting,  and  training
services  increased  by 211%,  from $35 million in three  months ended March 31,
1998 to $109 million in the three months ended March 31, 1999.  The increase was
primarily  driven by an increase in product  revenues  related to e-commerce and
server applications.  Partially offsetting the increase is the revenue impact to
the Company as a result of  offering  the  stand-alone  Netscape  Navigator  and
Communicator browsers for free beginning in January 1998.

         For the nine months ended March 31, 1999, enterprise solutions revenues
increased from $262 million to $328 million,  or 25%, over the nine months ended
March 31, 1998.  The increase is mainly  driven by an increase in product  sales
related to e-commerce and server applications and consulting services.

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, consulting, technical
support/training  and billing,  host computer and network  equipment  costs, the
costs of merchandise  sold,  royalties paid to information and service providers
and royalties paid for licensed  technologies.  For the three months ended March
31, 1999, cost of revenues increased from $488 million to $691 million,  or 42%,
over the three  months ended March 31, 1998,  and  decreased as a percentage  of
total  revenues  from 64.5% to 55.1%.  For the nine months ended March 31, 1999,
cost of revenues  increased from $1,268 million to $1,913 million,  or 51%, over
the nine months ended March 31,  1998,  and  decreased as a percentage  of total
revenues from 59.0% to 56.3%.

         The  increase in cost of  revenues  in the three and nine months  ended
March 31, 1999 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,  consulting,    technical
support/training 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,  larger  customer  base and
increased subscription services revenues.

         The decrease in cost of revenues as a percentage  of total  revenues in
the three and nine months  ended March 31, 1999 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 12% and 6% decrease in our hourly
network cost for the three and nine months  ended March 31, 1999,  respectively.
This decrease was partially offset by an increase in daily member usage, from an
average of 46 minutes  per day in the three  months  ended  March 31, 1998 to an
average of 55 minutes per day in the three months ended March 31, 1999.
<PAGE>

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.  For the three months ended
March 31, 1999, sales and marketing expenses increased from $138 million to $218
million,  or 58%, over the three months ended March 31, 1998, and decreased as a
percentage  of total  revenues  from 18.2% to 17.4%.  For the nine months  ended
March 31, 1999, sales and marketing expenses increased from $467 million to $593
million,  or 27%, over the nine months ended March 31, 1998,  and decreased as a
percentage  of total  revenues  from 21.7% to 17.4%.  The  increase in sales and
marketing  expenses  for the  three and nine  months  ended  March 31,  1999 was
primarily  attributable to an increase in direct subscriber  acquisition  costs,
brand advertising across multiple brands and personnel costs associated with the
expanded Enterprise business. The decrease in marketing expenses as a percentage
of total  revenues  for the  three and nine  months  ended  March  31,  1999 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 March 31, 1999,
product  development  costs  increased from $65 million to $80 million,  or 23%,
over the three  months ended March 31, 1998,  and  decreased as a percentage  of
total  revenues  from 8.6% to 6.4%.  For the nine months  ended March 31,  1999,
product  development costs increased from $175 million to $216 million,  or 23%,
over the nine months ended March 31,  1998,  and  decreased  as a percentage  of
total revenues from 8.1% to 6.4%. The increase in product  development costs for
the three and nine months ended March 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 of product  development  costs as a percent of total  revenues  for the
three  and  nine  months  ended  March  31,  1999 was  mainly  a  result  of the
substantial growth in revenues.

General and Administrative

         For the three months ended March 31, 1999,  general and  administrative
expenses  increased  from $83 million to $113  million,  or 36%,  over the three
months ended March 31, 1998,  and  decreased as a percentage  of total  revenues
from 11.0% to 9.0%.  For the nine  months  ended  March 31,  1999,  general  and
administrative  expenses  increased  from $234 million to $285 million,  or 22%,
over the nine months ended March 31,  1998,  and  decreased  as a percentage  of
total  revenues from 10.9% to 8.4%.  The increase in general and  administrative
costs  for the  three  and nine  months  ended  March  31,  1999  was  primarily
attributable to higher personnel costs,  including payroll taxes associated with
employee  stock option  exercises.  The  decrease of general and  administrative
costs as a percent of total  revenues  for the three and nine months ended March
31, 1999 was mainly a result of the substantial growth in revenues.

Amortization of Goodwill and Other Intangible Assets

         Amortization of goodwill and other  intangible  assets increased to $17
million in the three  months  ended  March 31, 1999 from $7 million in the three
months  ended March 31,  1998.  Amortization  of goodwill  and other  intangible
assets increased to $49 million in the nine months ended March 31, 1999 from $15
million in the nine months  ended March 31, 1998.  The increase in  amortization
expense  in the  three  and  nine  months  ended  March  31,  1999 is  primarily
attributable  to goodwill  associated  with the  acquisitions  of Actra Business
Systems,  LLC  ("Actra") in December  1997,  the  CompuServe  online  service in
January 1998 and  Mirabilis,  Ltd. and  NetChannel,  Inc. in June 1998 partially
offset by the sale of ANS in January 1998.

Acquired In-Process Research and Development

         Acquired  in-process research and development charges for the three and
nine months ended March 31, 1998 include $10 million  related to the acquisition
of Personal  Library  Software,  Inc. in January 1998 and $14 million related to
the acquisition of Actra in December 1997.

Merger and Restructuring Charges

     In connection  with plans  announced in March 1999, the Company  recorded a
charge of $78 million in the three  months ended March 31, 1999 for direct costs
related to the merger with  Netscape and the Company's  reorganization  plans to
integrate Netscape's operations and build on the strengths of the Netscape brand
and  capabilities  (see Note 6). In the nine  months  ended  March 31,  1999 the
Company also  recognized  approximately  $2 million in merger  related  costs in
connection with the acquisition of AtWeb, Inc.
<PAGE>

         In the three months  ended March 31, 1998 the Company  recorded a total
of $48 million in  restructuring  charges.  This includes $36 million related to
the  restructuring  of the Studios Brand group and $12 million mainly related to
the restructuring of the Enterprise organization. In the nine months ended March
31, 1998 the Company also  recognized an additional  $23 million  related to the
restructuring  of the  Enterprise  organization  as well as $6 million in merger
costs related to the acquisitions of Kiva Software  Corporation and Actra. These
charges were offset by a reversal of $2 million related to a 1997  restructuring
charge.

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 $586 million and $4 million in the three months
ended March 31, 1999 and 1998,  respectively.  The Company recorded other income
of $607  million  and $13  million in the nine  months  ended March 31, 1999 and
1998,  respectively.  The  increase in other income in the three and nine months
ended March 31, 1999 was primarily  attributable to a net gain of  approximately
$567  million  on the  sale of its  Excite,  Inc.  investments.  The  additional
increase is mainly due to an increase in net interest  income and a reduction of
non-operating losses related to various investments.

Provision (Benefit) for Income Taxes

         The  provision  for income taxes was $222 million and zero in the three
months ended March 31, 1999 and 1998, respectively.  The provision (benefit) for
income taxes was $252  million and $(16)  million in the nine months ended March
31, 1999 and 1998,  respectively.  Income tax expense for the three months ended
March 31, 1999 includes $218 million for U.S. federal and state income taxes and
$4 million for foreign  taxes.  Utilization of  operations-related  deferred tax
benefits reduced the Company's U.S. federal and state income tax expense by $127
million  and $38  million  in the nine  months  ended  March 31,  1999 and 1998,
respectively.  As of  March  31,  1999,  the  Company  had  net  operating  loss
carryforwards  available  to  offset  future  U.S.  federal  taxable  income  of
approximately $3.5 billion.

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 as well as the sale
of marketable  securities it held.  The Company has financed its  investments in
facilities and  telecommunications  equipment  principally through leasing.  Net
cash provided by operating  activities  was $916 million and $312 million in the
nine months ended March 31, 1999 and 1998, respectively, and increased primarily
due to the  Company's  increase  in net income.  Net cash  provided by (used in)
investing activities was $304 million and $(97) million in the nine months ended
March 31, 1999 and 1998,  respectively,  mainly due to the Company's sale of its
Excite,  Inc.  investment  as well  as the  timing  of  purchased  property  and
equipment.  Net cash provided by financing  activities was $780 million and $529
million in the nine months ended March 31, 1999 and 1998, respectively. Included
in financing  activities  for the nine months  ended March 31,  1999,  were $550
million in  aggregate  net 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
March 31, 1999.

     The Company uses its working capital to finance on going  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

         America  Online  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.  To the extent that
these  applications  contain  source  codes  that are  unable  to  appropriately
interpret the upcoming  calendar year 2000, some level of modification,  or even
possibly replacement may be necessary.

         In 1997,  America Online appointed a Year 2000 Task Force to perform an
audit to assess the scope of America  Online's risks and bring its  applications
into  compliance.  This Task  Force is  undertaking  its  assessment  of America
Online's  company-wide  compliance and is overseeing  testing.  America Online's
system  hardware  components,  client and host  software,  current  versions  of
Netscape  software products and corporate  business and information  systems are
currently undergoing review and testing. To date, America Online has experienced
very few problems related to Year 2000 testing,  and the problems that have been
identified are in the process of being fixed.

         The Company intends to make Year 2000 compliant certain versions of the
client  software  for the  AOL  service  and the  CompuServe  service  that  are
available on the Windows and Macintosh operating systems, as well as versions of
Netscape  software  products that are currently  shipped.  These versions of the
software  incorporate  proprietary  software and third-party  component software
that may not be Year 2000 compliant,  and testing continues.  A patch or upgrade
may be required for members or customers using some of these versions to achieve
Year 2000  compliance.  Over the coming  months,  the Company will be working to
obtain and make available any required patches or upgrades at no cost to members
of the online services and to communicate their  availability.  The company also
will make available, at no additional cost to customers, any required patches to
the versions of Netscape software products  currently being shipped to customers
and communicate their availability. In addition, the Company will be encouraging
members and  customers to upgrade to versions of the software  that are expected
to be Year 2000 compliant, if they have not already done so.

         In addition,  America Online is continuing to gather  information  from
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. America Online
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  America Online with content,  products,
services or systems that meet the Year 2000 requirements, the content on America
Online's  services,  access to America Online's  services,  the ability to offer
products  and  services  and the ability to process  sales  could be  materially
adversely affected.
<PAGE>

         The costs incurred  through March 1999 to address Year 2000  compliance
were approximately $7 million.  America Online currently estimates it will incur
a total  of  approximately  $20  million  in  costs to  support  its  compliance
initiatives. America Online cannot predict the outcome of its Year 2000 program,
whether  third  party  systems  are or will be Year  2000  compliant,  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 America
Online's  business,  financial  condition or results of  operations.  Failure to
achieve Year 2000 compliance  could result in  interruptions  in the work of its
employees, the inability of members and customers to access the Company's online
services and Web sites or errors and defects in the Netscape products.  This, in
turn, may result in the loss of subscription  services revenue,  advertising and
commerce  revenue or  enterprise  solution  revenue,  the  inability  to deliver
minimum  guaranteed levels of traffic,  diversion of development  resources,  or
increased service and warranty costs. Occurrence of any of these may also result
in additional remedial costs and damage to reputation.

         America  Online is in the process of developing a  contingency  plan to
address  possible  risks to its  systems.  It is America  Online'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.

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;   usage  growth;   timing  and  benefits  of
acquisitions  and other  alliances;  development and success of multiple brands;
new markets, products,  services,  features and content (such as 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;  negative  impact  on the  Company's  ability  to
     generate  greater revenues and profits from sources such as advertising and
     electronic  commerce;  limitations on the Company's  opportunities to enter
     into  or  renew  agreements  with  content  and   distribution   providers;
     limitations on the Company's  ability to develop new products and services;
     limitations  on its  ability to grow its  subscriber  base;  loss of market
     share; and increased attrition in the Company's subscriber base.
<PAGE>

          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
     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.

          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,  wireless,  television,
     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.

<PAGE>


PART II.  OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds

On March 12,  1999,  Sprint  Communications  Corp.  notified  the Company of its
exercise of warrants  convertible  into Company  common stock.  The Company then
issued  28,800,000 shares of common stock for the exercise price of $14,175,000.
The transaction was a private placement and exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended.

On March 31,  1999,  America  Online  acquired  When Inc.  in  exchange  for the
issuance of  approximately  1.3  million  shares of Company  common stock.  The
transaction  was a private  placement and exempt from  registration  pursuant to
Section 4(2) of the Securities Act of 1933, as amended.

Item 6.  Exhibits and Reports on Form 8-K

B.  Reports on Form 8-K

Form      Item#  Description                                         Filing Date
Form 8-K  5, 7   Announcement of the intended acquisition      February 11, 1999
                 of MovieFone, Inc.

Form 8-K  5, 7   Completion of acquisition of                  February 17, 1999
                 PersonaLogic, Inc. and financial information

Form 8-K  2, 7   Completion of the acquisition of Netscape        March 26, 1999
                 Communications Corporation


<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: May 7, 1999            SIGNATURE:/s/Stephen M. Case                       
                                       Stephen M. Case
                                       Chairman of the Board and Chief Executive
                                       Officer



DATE: May 7, 1999            SIGNATURE:/s/J. Michael Kelly                      
                                       J. Michael Kelly
                                       Senior Vice President and Chief Financial
                                       Officer